There are many reasons you might decide to join forces with another company. You might want access to their customer base or see it as a valuable supplier. Or, as Becca Millstein, CEO and cofounder of Fishwife, discovered, you might find that, together, you and your partner can offer something extraordinary.
“Jing [Gao] and I decided to launch a co-branded partnership for the simplest, purest reason possible: Because we tried our products together, and they tasted incredible in combination,” says Becca of Fishwife’s partnership with Szechuan pantry staple seller Fly By Jing.
“We ate our smoked salmon with her Sichuan Chili Crisp and found that the sweet, smoky, fattiness of the salmon with the numbing spiciness and umami crunch of the chili crisp created an uncommon, unexpected, and incredible flavor combo.”
Here’s what strategic alliances are and how business owners use them to maintain a competitive advantage.
What is a strategic alliance?
In business, a strategic alliance is a partnership between two or more companies to collaborate while each participant remains a separate business entity. Many businesses form strategic alliances to enter new markets, pool resources, and increase their capacity to innovate.
A perfect example is Fishwife’s strategic alliance with Fly by Jing, a collaboration that benefited both businesses. “Jing was one of my first mentors and friends in the CPG industry,” says Becca, who partnered with Fly By Jing in Fishwife’s first few months of operation. “We had zero rubric to guide brand partnerships—but, if we had had one, the FBJ membership would have ticked every box,” she adds. “We both were new, buzzy brands growing very quickly and getting a lot of earned media.”
Types of strategic alliances
The term “strategic alliance” encompasses various business relationships. Here’s an overview of the three main types:
Joint venture
A joint venture occurs when two or more parent companies establish a third company, known as the joint venture or child company. When one company owns more than 50% of the new entity, the child company is referred to as a majority-owned venture. Bottled beverage maker North American Coffee Partnership is a joint venture between Starbucks and PepsiCo, for example.
Equity strategy alliance
In an equity strategic alliance, one company invests financial resources in the other. In most cases, the investing company purchases a percentage of the other company’s stock. To expand its grocery and takeout delivery capabilities, Amazon purchased 16% of food delivery company Deliveroo in 2019.
Non-equity strategic alliance
A non-equity strategic alliance is any partnership between independent firms that doesn’t involve an equity investment or the creation of a joint venture. Examples include business strategies like co-marketing, where two companies team up to promote each other’s products, and co-branding, where alliance partners collaborate on a product marketed under both brand names. Fishwife’s co-branding partnership with Fly By Jing is an example of such an alliance.
Benefits of strategic alliances
- Capital infusion
- Amplified capabilities
- Reduced risk
- Access to new markets and customers
- Flexibility
Successful strategic alliances have multiple advantages, depending on the type of alliance and the specific business needs. Here’s an overview:
Capital infusion
Strategic partnerships can infuse a business with cash to pursue partnership business objectives like launching a new product, investing in research and development, entering new markets, or improving infrastructure.
Capital infusion mainly applies to joint ventures and equity partnerships. Non-equity strategic alliances let businesses share resources, but don’t involve a direct transfer of assets.
Amplified capabilities
Strategic alliances let businesses pool valuable expertise, which can help companies develop and build innovative solutions to customer problems. Partners can share industry insights and marketing knowledge, contribute separate skill sets, and combine operational resources. Two apparel companies might pool customer research data when designing a co-branded product, for example.
Reduced risk
Forming a strategic alliance allows businesses to share costs, reducing risks for each partner. An alliance can also increase efficiency, further reducing costs. For instance, a strategic relationship leveraging one partner’s robust manufacturing infrastructure and another’s extensive body of cutting-edge research can help both companies produce higher-quality products for less.
Access to new markets and customers
Building alliances can help partners break into new markets or gain market share in a competitive business environment. For example, an alliance between a national retailer and a local shop can increase both companies’ ability to compete in regional markets, combining the national retailer’s broad reach with the local shop’s community connections and tailored customer service.
Strategic alliances give access to restricted markets: For example, a company that wants to sell products internationally might form a strategic alliance with a trusted local partner to legally navigate markets that restrict foreign ownership of businesses.
Alliances can also help reach new customer groups. Fishwife’s collaboration with Fly By Jing raised brand awareness and even got covered in The New York Times. “We’ve gotten millions of media impressions from the collab alone,” said Becca. “The partnership helped us generate a ton of revenue and gain a bunch of new customers.”
Flexibility
You can shape strategic alliances to meet your specific business needs. You might use them to boost brand awareness, streamline market penetration, establish economies of scale, or undertake a mutually beneficial project (depending on your current business model and your industry’s overall market landscape).
The need for strategic alliances often depends on how quickly a particular company must develop and produce new products to remain competitive within its industry—known as the product life cycle. Product life cycles are categorized as slow, standard, or fast, with companies operating on faster cycles under greater pressure to innovate.
For instance, the pharmaceutical industry operates on a slow cycle, requiring extended development times, so pharmaceutical companies often use strategic alliances to enter new markets or maintain market stability. On the other hand, the software industry operates on a fast cycle, where the company’s competitive advantage depends on rapid innovation, leading software firms to form alliances to accelerate product development.
Challenges of strategic alliances
Relationships, as they say, take work—and the same applies in the business world. Here are some of the difficulties of building a successful strategic alliance:
Communication
A successful relationship means being on the same page about goals, action steps, and roles and responsibilities. Poor communication in any of these areas can lead to wasted resources or, worse, a failed alliance.
Many companies implement formal governance structures and agreements to establish terms. Rebecca Millstein recommends that companies sign contracts to initiate partnerships: “With most collabs where serious time, effort, and cash is invested, you need a document to establish your mutually agreed upon deliverables so that there’s no confusion.”
Administration
Using complementary resources effectively requires ongoing communication; both partners must invest time and money to manage the relationship for its duration. If a strategic alliance creates redundancies—like two hiring managers for a joint venture or two data management systems for a non-equity alliance—partners may need to commit to standing meetings between departments or reorganize processes to allow parallel teams to work effectively.
Benefit distribution
Strategic alliances don’t always benefit partners equally—even if all parties involved contribute the same amount. An alliance can fail if one partner can’t justify its investments in the relationship—for example, if two companies invest in a co-marketing partnership and only one sees a revenue increase.
Conflicting interests
Strategic alliances generate mutual interests, and many alliances arise from shared goals—but not all needs align perfectly between each potential partner. For example, alliances link companies’ reputations; a partnership can fail if one company’s actions or communications alienate the other’s target audience.
Examples of strategic alliances
Business leaders use strategic alliances to improve market position and build industry influence. Here are some examples of successful alliances:
Hulu
In 2007, NBCUniversal, Providence Equity, and News Corporation, three leading media companies, teamed up to launch the joint venture Hulu, a streaming platform with more than 50 million paid subscribers as of May 2024. Disney joined the venture in 2009, earning a majority stake in the venture with its 2019 purchase of 21st Century Fox.
Hulu was conceived to counteract the negative impacts of piracy by providing major media partners a direct profit avenue for their content. Hulu introduced a subscription revenue stream with the 2010 launch of Hulu Plus.
Tesla and Panasonic
In 2010, electronics company Panasonic invested $30 million in Tesla, acquiring 1.4 million shares of the auto manufacturer’s stock. This equity strategic alliance helped Panasonic secure a strong position in the electric car battery market, while Tesla gained crucial funding and access to a key lithium-ion battery supplier. In 2011, the partnership was solidified with a supply agreement in which Panasonic committed to delivering 80,000 electric vehicle batteries from 2010 and 2015.
Starbucks and Barnes & Noble
In 1993, Barnes & Noble and Starbucks formed a non-entity strategic alliance in which Starbucks became the bookstore’s exclusive coffee supplier, opening 36 Starbucks-owned cafés within Barnes & Noble locations and committing to an increased presence in the bookstore.
This partnership is a classic example of a non-equity strategic alliance: Neither company invested funds in the other, yet both benefited from aligned goals, an overlapping audience, and complementary branding. Starbucks cafés attracted Barnes & Noble customers, encouraging them to spend more time in-store, increasing purchases and average order volume. It also drove traffic to Starbucks, enticing visitors to enjoy a beverage while browsing.
Coca-Cola and Kith
Fashion brand Kith formed a non-equity strategic alliance with Coca-Cola, producing a limited run of co-branded products that paired the legacy beverage company’s iconic brand imagery with the Kith’s modern sensibility. The alliance helped Kith reach a larger target audience, and the limited release strategy created demand and boosted interest in both brands.
Strategic alliances FAQ
What is the difference between a strategic alliance and a partnership?
A strategic alliance is a relationship between two or more businesses in which each business remains an independent entity. A partnership is an agreement that creates a new business. Companies form strategic alliances to pursue mutual benefits; they create partnerships to share the profits and losses of a new business entity.
What is a strategic alliance example?
The partnership between Starbucks and Barnes & Noble is an example of a non-equity strategic alliance. Another example is the early partnership between tinned fish company Fishwife and Szechuan condiments maker Fly by Jing.
What is the most common form of a strategic alliance?
Non-equity strategic alliances are the most common type of strategic alliance. Co-branding, co-marketing, and licensing agreements are all examples of non-equity strategic alliances.
