Chapter 1

What Is an Alliance?

A business alliance is a formal association of two or more business parties to further their common interests, presumably over the long term. As such, these alliances can take many forms with varying degrees of complexity and difficulty. While some of the negotiating guidelines in Chapter 4 may apply, this book does not focus on “one of” transactions like buying a cup of coffee.

In its simplest form, an alliance can be described as a buy/sell arrangement. On a more complex level, a long term relationship and alliance may result from an effort to co-develop or share technology, or even an agreement to enter into a technology licensing agreement. Even more complex are partnerships or joint ventures. This latter alliance achieves the ultimate level of complexity, particularly when the global aspect of business is introduced and especially if the parties to the alliance are from different countries and different cultures.

Unfortunately, there are too many examples of alliances formed between business entities that were predicated upon the premise that “everyone else in the industry is doing it, so it must be the right course of action.” Others have been formed based upon some whim of upper-level management with no real analysis of whether or not an alliance was necessary In almost all cases where inadequate planning superseded the formation of the alliance, the likelihood of success is infinitesimal and the likelihood of failure is almost assured.

In contrast, when properly developed and formed, joint ventures represent an opportunity to leverage expertise from each party, thereby creating a more powerful and a more competitive entity than one based on an extension of a single party’s existing base. This becomes even more critical in today’s global business environment wherein the right alliance partner can provide local market knowledge, legal expertise, knowledge of local business practices, customs, etc.

Before attempting to form an alliance, you need to make sure that you are familiar with the steps. Preparing in advance is like practicing the steps before your first dance. It will help you avoid possible costly mistakes, and perhaps stepping on someone’s toes.

You need to answer the following key questions before you take that first dance step:

To answer these questions you will need to do a thorough, objective and honest assessment of your company’s business environment, the internal and external challenges it faces, its resource capabilities and limitations, AND its strengths and its weaknesses. You’ll also want to evaluate the opportunities and threats facing your business. To complete this assessment, you need to develop a detailed business plan.

To assist you, chapter 7 outlines a business planning process that was successfully implemented at many North American and European automotive supplier company locations. It also proved to be a useful tool in a number of non-automotive manufacturing companies, at a charitable institution and at a variety of entrepreneurial enterprises, which suggests that the process is flexible and has broad application. Although developed and refined during the 1990’s, several locations continue using it in one form or another today.

Now, let’s proceed to the initial steps and the three processes outlined in this book to ensure that any future efforts you undertake to establish an alliance have the potential to be better than if you had gone to the dance without understanding the steps.