A business alliance is a tool used by businesses to stabilize a market so that each company benefits. There are several types of business alliances with each specialized to effect certain conditions for different scenarios. A business should consider the needs before entering an alliance so that the correct type can be addressed for the best and most beneficial results.
The types of alliances include:
- Sales
- Solution-specific
- Geographic-specific
- Investment
- Joint-Ventures
Sales
A sales alliance is best used when the focus is just growing sales. An agreement is made between the businesses to sell complementary products or services. This is designed where both businesses produce either a tangible product or other services that result in mutual benefit for both sides. This could be licensing fees paid to one business for services or products sold by the second one to operate with the first.
Solution-specific
A solution-specific alliance is when two businesses jointly develop and sell a specific product or service to satisfy the market. The advantage of this is that both businesses will have the only solution initially demanded by the market. This is used for market specific solutions.
Geographic-specific
A geographic-specific alliance is powerful expansion into a new territory. An example could be fulfilling a local identity with tailored food products, or soft drink flavors, or translations for manuals or literature.
Investment
An investment alliance is when two businesses agree to share funds for mutual investment. The benefit for both businesses would be the shared return.
Joint-venture
A joint venture is when two businesses agree to perform a unified economic activity and many times, they will create a separate company that is jointly owned by the founding businesses. This would be like building a factory or to develop land. The benefit is that each business will have access to the outcome.
Business alliances reduce the independent risk for each business since it is shared. It is noted that different alliances result in a different share of risk because of the agreement with the businesses, but market factors also affect this disparity. In an example, a sales alliance may not equally divide the risk because the market may have a greater need for one product over the other.
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