An important mode of doing international business. An alliance is an inter-firm collaboration over a given economic space and time for the attainment of the participating companies’ goals.
Alliances are particularly flexible tools – they can include 2, 12, 20 or 200 companies, they can be written for London, Europe or the World, they can be defined in real time or until certain key objectives are met and they are capable of being used for many strategic goals.
They may have unforeseen consequences however and may tie companies in to a particular set of partners, excluding others (such as the Japanese Keirestu system) and they may constrain strategy. An equity joint venture is a particularly strong type of alliance where ownership links are involved – the typical alliance will not necessarily involve ownership links.
In the present global economy “internalisation” as represented by foreign direct investment (FDI) and ownership has receded relative to “externalisation” – the use of arm’s length contracts, outsourcing and out-tasking.
It is estimated that more than 25 per cent of the revenues of Fortune 500 companies come from their alliances - General Electric has more than 180 of them. British Airways and Japan Airlines are currently negotiating a joint venture and alliances are very popular in the airline industry where full mergers and acquisitions are ruled out by international regulation.