Learn what strategic alliances are and how leading companies are using them to reduce risk, increase profits, and drive innovation.

There are many reasons why you might decide to join forces with another company. You might want to gain access to their customer base, or you might see them as a valuable supplier. Or, as Becca Millstein, CEO and co-founder of Fishwife, discovered, you might think you can offer something special with a partner.

Becca says of her partnership with Szechuan grocery brand Fly By Jing : “Jing and I decided to start a co-branding partnership for the simplest and purest reason: because we tried our products together and the combination was incredibly delicious.”

“We tried the smoked salmon with her Sichuan Chili Crisp, and it was an unexpectedly wonderful flavor combination, with the sweet, oily flavor of the smoked salmon paired with the numbing spiciness and savory crunch of the Chili Crisp.”

Here's what strategic alliances are and how business owners can use them to gain a competitive edge.

What is a strategic alliance?

In business, a strategic alliance is a partnership between two or more companies, where each participant maintains a separate business independence while working together. Many companies form strategic alliances to enter new markets, pool resources, and enhance their ability to innovate.

The strategic partnership between Fishwife and Fly By Jing is a perfect example of this collaboration. Becca Milestein partnered with Fly By Jing in the early months of Fishwife’s launch, and says, “Jing was one of my first mentors and friends in the CPG industry.” She adds, “We never had a guideline for how to lead a brand partnership, but if we had, the partnership with FBJ would have ticked all the boxes.” “Both of our brands were young, growing quickly and getting a lot of media attention.”

Types of strategic alliances

The term 'strategic alliance' encompasses a variety of business relationships. Let's briefly introduce the three main types.

Joint Venture

A joint venture is when two or more parent companies establish a third company. This third company is known as a joint venture or a child company. If one company owns more than 50% of the newly formed company, the subsidiary is called a majority-owned joint venture. For example, the North American Coffee Partnership , which manufactures bottled beverages, is a joint venture between Starbucks and PepsiCo.

Equity Strategic Alliance

In an equity strategic alliance, one company invests financial resources in another company. In most cases, the investing company purchases a certain percentage of the other company’s stock. For example, Amazon acquired 16% of food delivery company Deliveroo in 2019 to expand its grocery and takeout delivery capabilities.

Non-Equity Strategic Alliance

Non-equity strategic alliances are partnerships between independent companies that do not involve equity investment or the establishment of a joint venture. Examples include co-marketing, where two companies work together to promote each other's products, or co-branding, where two companies jointly develop products that are marketed under two brand names. The co-branding partnership between Fishwife and 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

Strategic alliances offer a variety of benefits, depending on the type of alliance and specific business needs. Here are some of the key benefits:

Capital Infusion

Strategic partnerships can provide companies with funding to pursue the partnership's business objectives, such as launching new products, investing in research and development, entering new markets, or improving infrastructure.

Capital injections primarily apply to joint ventures and equity partnerships, while non-equity strategic alliances may involve sharing of resources but do not involve direct changes in assets.

Amplified Capabilities

Strategic alliances allow companies to pool their valuable expertise to develop and build innovative solutions to solve customer problems. Partners can share industry insights and marketing knowledge, contribute different skill sets, and combine operational resources. For example, two apparel companies can combine customer research data when designing a co-branded product.

Reduced Risk

Strategic alliances allow companies to share costs and reduce the risks of each partner. Alliances can also increase efficiency and reduce costs further. For example, by combining the robust manufacturing infrastructure of one partner with the cutting-edge research capabilities of another, both companies can produce high-quality products at a lower cost.

Access to New Markets and Customers

By forming alliances, partners can enter new markets or gain market share in competitive business environments. For example, an alliance between a national retailer and a local store can combine the broad reach of a national retailer with the community connections and personalized customer service of a local store to gain a competitive edge in the local market.

Strategic alliances provide access to restricted markets. For example, a company seeking to sell its products in a foreign market may form a strategic alliance with a trusted local partner to gain legal access to a market that restricts foreign ownership.

Partnerships also help reach new customer groups. Fishwife and Fly By Jing’s collaboration has raised brand awareness and even been featured in the New York Times . “That collaboration alone has generated millions of media impressions,” Becca says. “This partnership has helped us generate significant revenue and acquire many new customers.”

Flexibility

Strategic alliances can be tailored to specific business needs. They can be used in a variety of ways, depending on your current business model and the overall market environment of your industry, such as increasing brand awareness, streamlining market penetration, achieving economies of scale, or undertaking mutually beneficial projects.

The need for strategic alliances depends on the speed at which a particular company must develop and produce new products to remain competitive in its industry. This is known as the product life cycle, and product life cycles are classified into slow, standard, and fast cycles, with companies operating in fast cycles experiencing greater pressure to innovate.

For example, the pharmaceutical industry operates in a slow cycle and requires long 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 in a fast cycle and competitive advantage depends on rapid innovation, so software companies form alliances to accelerate product development.

Challenges of Strategic Alliances

• Communication
• Administration
• Benefit Distribution
• Conflicting Interests

Building a successful strategic alliance is not easy and comes with many challenges. Here are some common challenges faced in strategic alliances:

Communication

A successful relationship requires a clear understanding of goals, action steps, roles and responsibilities. Poor communication in these areas can result in wasted resources or even the failure of the partnership itself.

Many companies address this by establishing terms through formal governance structures and contracts. Rebecca Millstein recommends signing a contract at the beginning of a partnership. “In most collaborations where time, effort, and money are seriously invested, the mutually agreed upon outcomes need to be documented to avoid confusion,” she says.

Administration

Effectively leveraging complementary resources requires ongoing communication, and both parties must invest time and money to manage the relationship. If a strategic alliance creates redundancy—for example, two hiring managers in a joint venture or two data management systems in a non-equity alliance—the partners may need to set up regular cross-functional meetings or reorganize processes so that teams working in parallel can work together effectively.

Benefit Distribution

Strategic alliances do not always provide equal benefits to all partners—even if all participants contribute equally. Alliances can fail when one partner cannot justify their investment in the relationship. For example, two companies may invest in a joint marketing partnership, but only one company experiences increased sales.

Conflicting Interests

Strategic alliances create mutual benefits, and many alliances are born of shared goals—but not all needs are perfectly aligned between potential partners. For example, alliances link the reputations of the companies, and alliances can fail if one company’s actions or communications alienate the other company’s target customers.

Examples of strategic alliances

• Hulu
• Tesla and Panasonic
• Starbucks and Barnes & Noble
• Coca-Cola and Kith

Business leaders use strategic alliances to improve their market position and build influence within their industries. Here are some examples of successful strategic alliances:

Hulu

In 2007, three major media companies, NBCUniversal, Providence Equity, and News Corporation, joined forces to launch the streaming platform Hulu. As of May 2024, Hulu had over 50 million paid subscribers . In 2009, Disney joined, acquiring a majority stake in Hulu through its acquisition of 21st Century Fox in 2019.

Hulu was conceived to offset the negative impact of piracy by providing major media partners with a direct monetization path for their content. In 2010, it introduced a subscription revenue model by launching Hulu Plus.

Tesla and Panasonic

In 2010, electronics company Panasonic invested $30 million in Tesla, acquiring 1.4 million shares of Tesla stock. This equity strategic partnership gave Panasonic a strong position in the electric vehicle battery market, while Tesla secured significant funding and access to a major lithium-ion battery supplier. The partnership was further strengthened in 2011 when Panasonic signed a contract to supply 80,000 electric vehicle batteries from 2010 to 2015.

Starbucks and Barnes & Noble

In 1993, Barnes & Noble and Starbucks entered into a non-corporate strategic alliance, making Starbucks the exclusive coffee supplier to bookstores and increasing its presence in bookstores by opening 36 Starbucks-operated cafes inside Barnes & Noble stores.

This partnership is a classic example of a non-equity strategic alliance. Neither company invested any money in the other, but their goals were aligned, their customer bases overlapped, and their brands were complementary, so everyone benefited. Starbucks Cafes attracted Barnes & Noble customers to spend more time in the store, which increased purchases and average order value. At the same time, Starbucks increased sales by encouraging visitors to browse the bookstore while enjoying their drinks.

Coca-Cola and Kith

Fashion brand Kith has formed a non-equity strategic partnership with Coca-Cola to release limited edition co-branded products. The collaboration combines the iconic brand image of a long-established beverage company with Kith’s contemporary sensibility. The partnership has helped Kith reach a wider target audience, and the limited edition release strategy has increased demand and interest for both brands.

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