An increasing number of companies have been engaged in alliances to deal with their rapidly changing business environment (Duysters and De Man, 2003). Alliances manifest in many forms, and in all industries, and there are numerous terms to describe forms of strategic partnering; they go from ‘international coalitions’, ‘strategic networks’, networks of agreement, cross border alliances, to what is most commonly described as, ‘strategic alliances’. (Porter and Fuller, 1986, Jarillo, 1988)
However they all refer to essentially the same phenomenon of; "At least two partner companies who retain legal independence, who share managerial control over the company's performance and who each contribute and share in one or more strategic areas of the company, such as products, services or technology"(Todeva et al., 2001).
Most theories used as a basis for explaining alliance formation incorporate the assumption that companies either adapt to their external environment or they attempt to influence their environment. Companies are using alliances, to overcome legal barriers, to extend the scope of existing operations, or to reduce competition. In industries where the costs of ventures are high and the future of the technology uncertain, collaborations have also been used to minimize exit costs when divesting operations (Prevezer and Toker, 1996).
In industries, like, pharmaceuticals, biotechnology and software technology, small start-ups that are developing new products enter into alliances with larger companies that can manufacture and distribute more efficiently (Lucenko, 2000). Strategic alliances allow organizations to combine the strengths of all partners and enhance all partners’ competitive positions. They also provide production efficiency and quality and at the same time, reducing time to market and time to profit pressures. And finally, alliances usually require less capital than other options such as merger, acquisition or business start-up and allow companies to respond faster to dynamic market conditions