Definition of strategic alliance
A legal agreement between two distinct organisations that provides for sharing resources collaboratively in pursuit of a mutually beneficial goal.
Strategic alliance agreements are common in the biotechnology sector, where large pharmaceutical organisations sponsor research activities at small, often start-up, research companys. These small organisations often excel in a particular research discipline, but lack the sales, marketing and distribution resources to bring their innovations to market.
Likewise, the large organisations may lack specialised research knowledge in a specific research discipline. A strategic alliance in this setting may take the following form: the pharmaceutical company sponsors research at the small company by either direct cash payments or through a purchase of equity. This may be combined with a revenue sharing agreement that allows the small company to receive a fraction of any proceeds arising from commercialised products that use their research output. By forming a strategic alliance, the organisations share resources to their mutual gain.
The 2009 strategic alliance agreement between Monsanto and GrassRoots Biotechnology is a recent example of an alliance between a large company and small research-focused organisation. Monsanto is a globally recognised agriculture company. GrassRoots Biotechnology is a small, research-oriented agricultural biotechnology company. The Monsanto/ Grassroots strategic alliance agreement called for GrassRoots to conduct research on Monsanto’s behalf.
Strategic alliances also occur in many other business settings. The strategic alliance between the Dutch airline KLM and the American carrier Northwest Airlines is a famous example of a strategic alliance that allowed two companies to share their routing networks but still remain distinct companies.