Laying ground for a stable business strategic alliance

Other issues to consider would be the ratio of contribution of capital and profit sharing ratios, financing issues, restriction of competition and reporting obligations.

The term of the alliance should be clearly stated to avoid ambiguity.

A termination clause should also be included as alliances are usually temporary arrangements.

Obligations of each partner must be clearly set out and events of default also included.

The penalties for any defaults should be highlighted to avoid ambiguity.

One of the most important clauses in an alliance agreement is the control mechanism for the alliance.

Depending on resource endowment, one partner can have more control of the alliance than the others.

Dispute resolution is also another important clause to consider with arbitration being more favourable.

Where the alliance is a foreign entity, then differences in culture must be considered for the alliance to be successful.

Alliances are advantageous in that, each partner is independent of the other and continues with its other affairs independently.

Alliances are usually formed where there is one project or a series of projects to be undertaken.

However, there is some element of loss of control in aspects like sharing profits and decision making.

There is also loss of privacy as all the necessary information must be shared.

With networking alliances, where technological knowhow is shared, the mentor loses as it exposes his/her technological know how to the protégé.

A firm has to balance the benefits to be derived from an alliance vis a vis the disadvantages.