Events — 07 Jun 2022
Strategic Alliance Partnership
The ecommerce sector continues to grow steadily into a vibrant and competitive sector. With an estimated growth rate in the US of 16.1% in 2022, sales should reach over $1 trillion.
More and more businesses, from organizations with existing physical stores to new startups or solo entrepreneurs, see ecommerce for the bankable market it is.
As with any type of business, you want to outperform your closest competitors and gain any advantage you can that will boost your most important metrics. Advantages may be gained by:
Another increasingly adopted tactic is strategic alliances. The idea of organizations working together in business relationships is nothing new, especially when working together towards common goals. But what do strategic alliances mean for businesses operating online? How do they work, and what problems do they have to overcome?
When you think about it, you’re already surrounded by different types of strategic alliances. The U.S.-Mexico-Canada Agreement (USMCA) is a perfect example of countries working together for the common good. Such agreements identify how countries co-work and have favorable conditions on how goods move between them.
The principle is the same within ecommerce. Two or more businesses identify ways they can work together as alliance partners, share resources, where applicable, and improve what they offer to the customers by allying with each other.
The businesses are rarely direct competitors. But they may share a common customer base, as they may offer products and/or services that complement each other. Working together may give them a competitive advantage or open a new market to one or both companies.
As with referral marketing, there are benefits to be gained from such partnerships. It’s also the case that they share not only those benefits but also any risks that exist.
Your identified partner may possess core competencies, resources, or attributes you do not and vice-versa. Sharing those things can enhance what you offer and how you perform, leading to a better provision of service to separate and shared customer bases.
The first thing to note is that the size of your business entity is immaterial. A strategic alliance can bring business development benefits to all sizes of businesses. A startup may partner with another small business or even a large organization. The starting point is identifying mutual benefits that come with such an alliance.
The most obvious reason many companies partner is that it can expand your reach and expose your products or services to a wider audience through new initiatives. That can include different geographic areas or offering products that complement what your partner offers. While seeking to expand your customer base often comes with increased risk and costs, a strategic alliance substantially reduces both factors.
From customers’ perspectives, a strategic alliance can be beneficial as it can give them access to new products or product lines they may not have seen previously. It also brings them together in one place. For example, Company A may have zero social media exposure but partnering with Company B, which has an extensive social media presence and a branded blog, brings their products onto those platforms.
You’ll find many good examples of successful strategic alliances in the world around you, some of which may surprise you or you may already be using.
The above image is a good example of David making friends with Goliath rather than fighting him. Valpak sends out coupons by email, something many will banish straight to their spam or junk folders. By teaming up with global giant Samsung, they developed an app that lets users of the Galaxy range manage all their coupon features directly from their mobile device. This includes GPS alerts if they’re close to somewhere with special deals or sales.
Disney and Chevrolet have partnered to provide a unique experience in Test Track. This is an immersive ride experience based on a car “designed” by customers. You can watch videos about the design process before designing the car you’ll ride in. Customers will also see the latest – and future – Chevrolet releases.
A great example of using your partner’s expertise, Apple partnered with MasterCard when launching their Apple Pay system. This partnership allowed MasterCard customers to have access to a global contactless paying solution and let Apple develop their contactless system utilizing the experience and expertise of an existing global credit card.
Just as countries seek different sorts of alliances for reasons that benefit a country itself (economic, military, to name but two), companies seek strategic alliances for the reasons that will be most beneficial for both partners. There are five main types of alliances. Let’s take a look.
A marketing alliance makes good sense when one company has gaps in its marketing strategy that the other can fill or when marketing both companies’ products together in a complementary way makes good sense. For example, a good marketing alliance would be a relationship between a real estate company and a moving service. Each complements the other, and a partnership can extend their reaches.
It may also be the case that one company has skills and resources the other lacks when it comes to marketing its products and services. Company A may have a videographer who produces fantastic marketing videos, which is something Company B does not have. But Company B may have a stronger social media presence. By working together, they can share those skills and presence, leading to increased exposure and performance.
It doesn’t matter what type of business you run. You’ll always rely on some form of supply chain. These can often be complex and/or costly, so this is a common area where you’ll find alliances between organizations. An alliance can help in different areas of supply chains:
Companies often partner together in the tech field, ensuring components needed for one product are produced to the standards expected or to create new technology. A great example of this is TSMC partnering with Sony on a new $7 billion factory, producing chips in order to meet gaps in the supply chain.
This is an area where you often find strategic alliances. A company based in the US that specializes in air cargo may look for local partners in destination countries who focus on road freight so that there’s an unbroken link from dispatch to the arrival of any cargo.
Many manufacturing businesses may not make all parts of the finished product on-site and will instead seek long-term strategic alliances where a third party makes those parts on their behalf. This is especially common in the automotive industry, where carmakers can have an assembly plant but depend on their partners to make different parts of the car.
You see more and more of this type of alliance as we move forward in the digital era. Integrations can be an essential feature of many modern tech products, so it makes good sense (as the developer of an app) if you design it to easily integrate with existing business and/or communications systems.
For example, you’ve designed an app that makes it easier to show presentations or other info when on a video conference call. Seeking an integration alliance with a leading provider of conference room solutions makes great sense for both companies, as it makes the solution more attractive to customers, leading to increased sales for both parties.
You most often find this type of alliance when a business outsources its financial work to a third party. For example, rather than having a large – and costly – accounting department, a small or medium-sized business will partner with a specialist accounting firm.
A specialist firm will have the experience and skills that can take time to accumulate. If you’re still a growing business, this can be an area that comes with high costs, something you may want to avoid when you’re focusing on your core business. As well as having access to more skilled accountants, it also means that they can offer better cash flow management as well as take care of peripheral financial factors, such as stock programs or pension plans.
As with finances, IT and tech may be an area where you’re cautious about reallocating a major portion of your budget. Yet equally, your business may rely heavily on certain tech or a certain degree of IT provision. After all, nearly every modern business has some reliance on tech, from something as simple as your sales staff being able to make a call from browser to having your email marketing fully automated.
There are companies out there who can cover every aspect of your tech needs, from entire cloud-based communication systems, such as SaaS, to basic maintenance needs for your office computers. As with accounting services, it makes perfect sense to partner with someone who has the necessary skills and can meet your needs without having a negative impact on your budget.
Many entrepreneurs want to focus money and other resources on the core aspects of their business. This can leave a massive hole in their technical ability and provision, something that could have a negative effect on the overall business. As with financial strategic partnerships, you’re partnering with experts in the area you need. It’s a relationship that offers mutual benefits to you both.
There’s a common benefit from all these types of strategic alliances: cost-effectiveness. Even the largest corporation wants to identify areas where they can save money, while for smaller businesses, seeking cost-effective solutions can mean the difference between basic survival and company growth.
However, a prospective partner must be sure that quality is maintained even as they save money. There’s little point in cutting costs if your brand reputation is damaged as a result of partnering with an organization that provides sub-par services or that manufactures low-quality components. You also need to have close discussions on any conflicts that may arise within the partnership, such as the two organizations having different policies and procedures.
While the strategic alliances we’ve just discussed are ones founded on purely practical reasons, there are also several legal partnerships that can be described as strategic partnerships. While the other types may be formed (in some cases) with informal agreements, legal alliances will have a legally binding agreement that sets out the conditions of such an alliance. The main types of legal alliances you will find include:
A joint venture happens when two (or more) organizations share a common goal or idea that’s best achieved by joining forces. They usually take the form of putting together a separate entity where ownership is shared under an agreed split. A good example of a joint venture is the one undertaken by Uber and Volvo to build a self-driving car that would meet the needs of Uber combined with the safety and reputation of Volvo cars.
This is a very common partnership where a larger organization obtains a certain amount of equity in another business. Much like mergers, this not only provides what may be a crucial amount of capital injection to the second company but also gives the business acquiring the equity a certain amount of say in how that company operates.
You’ll often see this sort of alliance happening when the acquirer sees certain benefits in owning a portion of the company they buy equity in.
You could describe some of the previous list as being non-equity alliances. While there’s no exchange of actual equity, the alliance will set out certain conditions as to what each party is bringing to the table. For example, Company A may bring extensive marketing skills and staff, while Company B may have better production line facilities, some of which they will assign to helping their new partner.
While this piece focuses on the many benefits that come from a strategic alliance, it’s important to note that this may not be for you, or at least not at the present time. The first thing to do is to carry out an intensive self-audit of every aspect of your current business models and operations, from marketing to logistics to finances.
If you do identify areas of your organization where you fall short on your own and others’ expectations and where there would be a definite “could do better” on any report card, then it’s worth looking at whether strategic partners could fill those gaps. Your gaps may exist because of budget restraints or lack of experience/skill sets, but you could fill them with the help of others.
If you identify gaps, then the next stage is to identify good potential partners and carry out due diligence on them. In some cases, such as accounting, this may be an easy process as you will generally want such partners to be fairly local. In other cases, such as the manufacturing of transistor chips, you may have to search globally to find the ideal fit that meets both budget and quality needs.
Another factor you may consider is risk mitigation. If you attempted to fill any gaps in-house, then the increased costs would also increase the risk of your business encountering issues in things such as cash flow as you have spread yourself too thin. It’s also worth emphasizing that you can have more than one partnership; a startup may partner with an accounting firm and a marketing agent.
Let’s assume you’ve identified a potential strategic partner. What are your next steps? The first step is to approach them and explain why you think a strategic alliance makes good sense for both of you. Focus on the mutual benefits you’ve identified, as these are the very reasons for your two organizations to work together.
There will then follow the usual discussions and negotiations so that you reach an agreement on what form the alliance will take. Some alliances may be fairly simple, while others will be more complex and protracted.
Once you’ve successfully held discussions, you can decide on the format of the alliance and whether you need a formal agreement. There are a number of common factors that will underpin any alliance:
Strategic alliances can be a great business strategy if you choose carefully. There must not only be common goals but incentives for each partner. A successful partnership is going to depend on all partners working towards those common goals and sharing any benefits. You may have to work together closely in any business environment, and that can include devising a co-marketing strategy.
Business leaders need to weigh up the pros and cons of any potential alliance carefully. While saving on costs may look attractive on its own, you also need to look at what other benefits the partnership may bring. Also, check whether any negatives exist. You may already be enjoying the benefits of partnering with other brands and agencies, so a strategic alliance may be the next logical step.
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