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In this section, strategic alliances will be clearly defined, along with the presentation of their key characteristics; motives behind their formation; different categories; reasons for failures and key success factors.

2.2.1.1 Definitions

Spekman and Sawhney (1990) have defined strategic alliance as “a type of inter-

organisational relationship in which the partners make substantial investments in developing a long-term collaborative effort and common orientation toward their individual and mutual goals” (p. 90). A more detailed definition refers to strategic

alliances as a partnership of two or more companies who make a long-term commitment to cooperate on operational and key strategic matters, and attempt to enhance competitive advantages collectively by sharing risks and resources, market accessibility, improving product quality and customers services and increasing profitability (Oum, Park and Zhang, 2000). As it can be identified from the above definitions, it is the long- term commitment and mutual goals that are key conditions for a strategic alliance to exist.

2.2.1.2 Dynamic Organisations

The size and nature of an alliance can change dramatically over time since the objectives and targets of its members may be redefined as well as the actual membership size since some members may leave the alliance whereas other new members may join. Therefore, an alliance is a very dynamic construct that consists of members with separate entities that have agreed to cooperate in order to achieve some mutual and agreed objectives.

2.2.1.3 Motives behind their Formation

Mockler (1999) has identified eight main factors that can act as motives for companies to enter into multinational strategic alliances. These factors are: 1) Access to new markets; 2) Adding value (both customer and organisational); 3) Expansion of distribution channels and access to resources; 4) Development and improvement of

operations, facilities and processes, and access to new capabilities, knowledge and technologies; 5) Provision of additional financial resources; 6) Risk decrease and rapid adaptation to changing competitive environments; 7) Creation of new opportunities despite facing increasingly intense global competition, and 8) Reduction of competition.

Airline alliances have claimed that the main reasons behind their formation is to offer passengers benefits in terms of seamless travel (e.g. transfers; procedures, etc), service support, and increased opportunity to accumulate air miles (Coltman, 1999). Nevertheless, it seems that the largest beneficiaries until now are the airlines themselves since they have gained large economies of scale, obtained access to scarce landing slots and expanded in foreign markets (Park and Zhang 2000, Kraats 2000). Moreover, the sharp decrease in global air traffic after September 11th 2001, the deregulation and liberalisation of several air markets around the world and the rapid growth of low-cost carriers have resulted in most of the largest traditional carriers being forced to form and join the airline alliances (He and Balmer, 2004). Examples of the airlines’ anticipated benefits for forming and joining the global strategic alliances include the risk decrease and rapid adoption to changing competitive environments and the reduction of competition.

2.2.1.4 Categories of Alliances

Johnson, Scholes and Whittington (2005) have argued that there are three categories of alliances, which are:

1. Loose (market): which involves joining networks; agreeing and working together for common objectives, and gaining mutual benefits, but without having any legal obligations;

2. Contractual: involve the same activities described above but with legal binding such as licensing, franchising and/or subcontracting;

3. Ownership: involve common ownership agreements such as consortia and joint ventures.

It makes sense to start an alliance relationship from the first category (Loose) and then if successful to progress to the next category (Contractual) and finally, if all alliance members involved are entirely satisfied and willing to move to the ultimate category

(common ownership) to become partners which is not actually a form of alliance but has been grouped as an alliance category since it can be the ultimate result of a successful alliance. However, for the case of the airline strategic alliances it has been argued that the alliance stage is their final destination and not an intermediate step for their future merger (Iatrou, 2004), mainly because of the lack of willingness of the airlines themselves to merge.

2.2.1.5 Reasons for Alliance Failures

Market experience has demonstrated that only 45% of all strategic alliances were found to be successful for all partners and only three out of five lasted for more than four years, whereas only 14% of them lasted for more than a decade (Harrigan, 1989). These statistics demonstrate the difficulty in creating a successful alliance since this requires a number of conditions to be present and a number of rules to be followed. These conditions and rules vary considerably depending on the specific alliance case. The identification of the reasons of alliance failures as well as the alliance success factors will provide a guidance of what needs to be avoided and what needs to be done for creating and maintaining a successful alliance.

A survey by Rigsbee (2000) identified the three basic reasons for alliance failures, which according to their order of importance were:

1. Lack of continuous attention and planning (72%); 2. Unequal contribution/commitment of resources (65%); 3. Contrast of partners’ culture style and level of trust (56%).

The lack of continuous attention and planning, which has been identified as the number one reason for alliance failures, is a clear management task and therefore it can be argued that alliances are suffering from poor management. This might be either because alliance members are not willing to give up management power to the alliance in order to remain totally independent in terms of management or because they do not see it as necessary since they consider the alliance as a non-permanent situation. In either case, the result is that the alliance cannot be efficient without a management function that ensures continuous attention and planning, which are also both required for the branding tasks of the alliance in order to become and remain successful.

Unequal contribution and unequal commitment of resources, which has been identified as the second most important reason for alliance failures, arise when the alliance members are contributing at a different extent to the alliance, or because different members have different abilities of contribution either because they have different levels of commitment to the alliance. Either way, this usually leads high-contributor members to feel that the alliance is unfair towards them since they are not getting back benefits in proportion to their contribution. In some cases, the most powerful alliance members are intentionally being the high contributors since this way they are more likely to be alliance shapers and lead the alliance the way they want to.

Contrasting partners’ culture and trust have been identified as the third most important reason for alliance failures and arises when the organisations that belong in the same alliance have a completely different working culture. This is more likely to happen when organisations are coming from different countries as it is in the case of the airline global alliances. The level of trust that the alliance members place into their partners will largely dependent on each member’s contribution to the alliance goals and to the extent that the alliance has been beneficial for all its members. The level of trust that consumers place in an alliance will be dependent upon the degree to which the alliance has developed a cohesive brand that communicates to consumers a strong commitment to the alliance long-term existence and the potential benefits generated by the alliance for the consumers. Iatrou (2004) has argued that beyond a defined minimum standard, the airlines have the possibility to differentiate and to improve even more the service already provided based on their cultures and policies, which could lead to a contrast of cultures.

After having identified the main reasons behind alliance failures, it is important to identify the success factors for an alliance.

2.2.1.6 Success Factors

Kuglin and Hook (2002) have argued that strong and successful alliances usually satisfy the majority of the following factors:

2. A message that combines passion and focus and is clearly communicated to everyone involved;

3. A strong commitment to succeed without having any fear of failure or second thoughts regarding the usefulness of the alliance;

4. The strength and fairness of meaningful alliance agreements;

5. The knowledge of responsibilities and obligations in order to become an appreciated partner;

6. The determination to remain within the alliance even during difficult periods; 7. The ability and knowledge to estimate correctly when to hold and when to

terminate an alliance.

Although the above factors do not constitute a checklist of whether an alliance is successful or not, they can be used as a test of whether a particular alliance has taken the appropriate actions in order to have a good chance of becoming successful.