Definition of Horizontal Strategic Alliance
A horizontal strategic alliance (a.k.a horizontal complementary strategic alliance) is a strategic partnership in which firms share certain types of resources and capabilities from the same parts (stages) of the supply chain (not to confuse with the value chain.)
These partners operate in the same business area. This means that they have offered similar products or product lines to the same market and/or market segment.
What is a Horizontal Strategic Alliance Strategy?
A horizontal strategic alliance strategy is a strategy firms deploy to pursue a horizontal strategic alliance.
This type of strategic alliance is formed by firms that operate in the same business area. In general, they are either indirect or direct competitors.
The degree of interaction among the partners might be adjusted based on the firms’ goals and objectives.
Why Do Horizontal Strategic Alliances Exist?
The main purpose of horizontal strategic alliances is to create a new competitive advantage for the firms. Thus, firms can improve their position against other competitors and gain more market share.
The second purpose of this type of strategic alliance is to focus firms’ efforts on joint long-term product development opportunities, economies of scale, or transference of technological knowledge.
Benefits of Horizontal Strategic Alliance Strategy
Firms joining a horizontal strategic alliance may enjoy the following benefits:
- Horizontal strategic alliances can reduce costs and uncertainty. This is because the firms might feel confident with suggestions and recommendations made by the other party.
- Horizontal strategic alliances help firms spend their limited resources on new product development to keep pace with changes in the market. This is because firms now encounter less vicious competition in the market.
- Horizontal strategic alliances can help firms gain more bargaining power when negotiating with suppliers or distributors. This way, firms can offer products at a more competitive price, or with differentiated features.
- Horizontal strategic alliances might help reduce firms’ engagement in certain negative practices such as charging extremely low prices or behaving unethically. This is because firms can have mutual trust and long-term relationships.
- Horizontal strategic alliances help firms improve operational accuracy. This is because as firms share their product development knowledge and skills, they might be able to use the shared information more effectively and efficiently toward pursuing synergies.
Limitations of Horizontal Strategic Alliance Strategy
One major limitation of this type of strategic partnership is that it is difficult to manage effectively.
This is because the partners are often direct competitors. Firms involving must always be aware of opportunistic and unethical behaviors the other firm may commit.
Therefore, to overcome this limitation, choosing the right partner is a critical success factor.
Horizontal Symmetric versus Horizontal Asymmetric Alliance
A horizontal asymmetric alliance is a type of horizontal strategic alliances in which a larger firm cooperating with a smaller firm.
In horizontal asymmetric alliances, the larger firm has a stronger power to gain control of the alliance, thus reduce the coordination costs. This happens because in an alliance, the greater the interdependence, the higher the coordination costs might be.
Furthermore, forming a strategic alliance with an inferior firm in a sub-network also enhances the bargaining power of the superior firm in the entire network.
A horizontal symmetric alliance is a type of horizontal strategic alliances in which a firm cooperating with a similar-size firm.
Generally, horizontal asymmetric alliances gain more returns than horizontal symmetric alliances.
Resources
Further Reading
- Horizontal vs. Vertical Strategic Alliances (yourbusiness.azcentral.com)
- Strategic Alliance (efinancemanagement.com)
Related Concepts
References
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2019). Strategic Management: Concepts and Cases: Competitiveness and Globalization (MindTap Course List) (13th ed.). Cengage Learning.
- Vertical vs. Horizontal: How Strategic Alliance Type Influence Firm Performance? (2019). Research Gate. Published.