Strategic alliance or corporate partnerships – Alternative to merger

In general, firms don’t have to merge to gain control, thereby combining their efforts. There is other ways of combining two firms’ efforts, which are done via strategic alliance or corporate partnerships.


Takeovers has a broader set of activities than just acquisitions. Takeover is a general term referring to the transfer of control of a firm from one group of shareholders to another. Takeover can occur through any one of three means: acquisitions, proxy contests, and going-private transactions. A takeover achieved by acquisition will occur by merger, acquisition of stocks, or acquisition of assets.

However, firms don’t have to merge to gain control, thereby combining their efforts. Two (or more) firms can simply agree to work together by selling each other’s products, perhaps under different brand names, or jointly developing a new product or technology, which is so called strategic alliance or corporate partnerships. Firms will frequently establish a strategic alliance with a formal agreement to cooperate in pursuit of a joint goal.

Category of strategic alliance

Strategic alliances are categorized as either equity or non-equity arrangements.
Equity arrangements include joint ventures, which involve the formation of a separate entity to
operate what is essentially a separate business, and complete combinations of strategic assets
and resources through some form of negotiated acquisition. As opposed to creation of a new business entity by way of a joint venture or merger or consolidation, non-equity
arrangements are essentially contractual in nature, and are premised on one or more long-term contracts that set out the understanding of the parties with respect to sharing of resources,
costs and profits.

Technology-based industries, including biotechnology, telecommunications, information technology have been unceasingly active in forming corporate partnering
arrangements and alliances, which mainly involves a substantial contribution of some combination of products, technology/intellectual property and/or research and development by at least one party (typically the smaller party) and some sort of investment (equity, debt or R&D funding) and/or services by the other party (typically the larger party). For example, by partnering with Daimler and Toyota, Tesla would modify an off-the-shelf Daimler smart car into an-all-electric vehicle in only six week, while Tesla took ownership of an automotive factory from Toyota (According to Frank T. Rothaermel, Tesla Inc.)

Why strategic alliance is important

Here are some reasons for entering into corporate partnering arrangements from practitioners’ point of view:

• Funding;

• Risk Sharing;

• Access to Technology and Expertise;

• Access to Domestic and International Distribution Channels and Customer Bases

• Access to Regulatory Expertise;

• Access to Manufacturing Capacity and Second-Source Arrangements;

• Creation of Manufacturing Capacity;

• Critical Mass: Market Share and Economies of Scale;

• Preventing Competition; Prelude to Acquisition;

• Reduced Time to Market.

Depending on firm’s ultimate goals from time to time, certain motives are more important than others. It is commonplace that corporate partnering agreements are used daily by lawyers, executives, corporate development staffs, venture capitalists, investment bankers, accountants—anyone involved in strategic alliances. As a complex arrangement, a combined team of professionals should work together to craft and establish the most workable corporate partnering arrangement.

Bui Tien Long (Rudy)