Bellsouth Enterprises and the Cellular Billing Project

1. How should alliances be structured?

Alliance means Coordination and collaboration between two or more persons or organizations that produces better
synergies then what can gained individually. The term strategic alliance means a conglomerate between two or more
organizations for the sole purpose of combining resources, capacity and core competencies to pursue and achieve
common interests. Normally strategic alliances formed for a set period of time. The partnered companies though are not in
direct competition with each other yet deal with similar products or services that are meant for the same target customers.
Strategic alliance are part of a cooperative strategy for growth of businesses and like any other strategies Alliances need to
be structured in various ways depending upon the nature of business and the macro and micro environments prevailing
around the partner companies and depending on their purpose viz. Non-equity strategic alliances, equity strategic
alliances, and joint ventures are some of the basic types of strategic alliances. Managing alliances is much more difficult
task than managing a single company because of the inherent complications attached to them. Studies have suggested
that the failure rate for alliances can be as high as 50 percent in their initial years of formation when they are most
vulnerable to both external and internal risk factors. Furthermore success rate of a strategic alliances is quite lower than
traditional alliances because of high level of risk involved in it.some of the risk are specific to strategic alliances as they
may not be available in case of a single organization, thus it is important to identify those inherent risk factors beforehand.
Alliances are not like normal business arrangements like merger & Acquisitions where full control can be established on
the target company to keep the conglomerate on track on the other hand an alliance is a partnership between two business
organizations bonded by trust and obligations towards each other , hence it could not just possible to impose restrictions
on the other company as this could result in .Before forming a strategic alliance, the structure of the relationship should be
decided and detailed planning should be made about how to manage it.Following mentioned are ways to structure the
alliances.
Explain the basics of how the alliance and the related business are going to operate to achieve the expected
results.
Evaluate and outline expected synergies from the relationship for all partners of the strategic alliance.
Prepare an Agreement containing Clear description of responsibilities and scope of the partnership, the Mutual
ongoing benefits to be derived from the alliance, provisions for Dispute resolution and Winding up or termination
provisions.
The Terms & Conditions Sheet which includes the agreed upon business expectations of the partner
companies, along with Time frame and schedules for future events and situations ,Obligations and rights of each
partner ,Financing and pricing terms , Intellectual property policy and Non solicitation clauses etc.
Outline the contributions expected from each party to the allied business and the benefits to be derive if the
alliance remain successful in the future.
Specify the factors that will cause the alliance to be most advantageous for your business and define the
structural and operating concerns that need to be dealt with to achieve them.
Formulate and Draft means to protect the company's IP rights by means of legal agreements and restrictions
when transferring proprietary information.
2. What are the pros and cons of Equity vs. Non- Equity alliances?
Strategic alliances can take different shapes as per the needs of the participants. most notable form of alliance is called
equity strategic alliance .which is a form of alliance in which two or more companies joined their resources and gain
ownership rights of different proportions in a new conglomerate or alliance company formed by them, thus by combining
their resources they create a business unit which has one goal, to create synergies for the allied companies. On the other
hand a non-equity alliances is one in which two or more firms develop a contractual- relationship to share some of their
resources and unique capabilities to create a competitive niche in the market. Following are some of the pros & cons of
both type of alliances:
Equity alliances: Pros Useful in case of creation of joint ventures or participating with an existing entity ,stronger
bond between partners due to clear ownership rights, Enhanced trust and commitment to-wards the conglomerate,
provides window of opportunity for new technology and concepts due to liberal entry conditions for new partners.
Cons: less flexible as could not be easily terminated or change its shape if situation demands, it requires significant
time and investments to form an equity alliance. Both risk and rewards need to be shared.
Non-Equity alliances: Pros Useful for creating contractual partnerships to share technical knowhow, joint R&D of
products and technologies without equity participation, sharing of cost and risks, more flexible then equity alliances

as it can take any shape and size with ease, helpful in overcoming various legal and governmental barriers.
Cons: Higher inherent risk of unstableness and uncertainty, Relatively high coordination cost and risk of leakage of
Intellectual property and vital information, Reduced management control ,could failed due to Lack of financial
commitment
3. What are the legal pitfalls that should be avoided in alliance negotiations?
Legal aspect of an alliance negotiation is an important exercise that to be conducted by the companies in order to maintain
a healthy dispute free alliance in the future. There are different legal frameworks for alliances in different parts of the world
hence in case of an international alliance between companies of different countries it becomes difficult to comply with each
and every of them. Following are some common legal aspects of alliance negotiation process need to be taken in to
consideration before considering an alliance agreement.
a. Establishment Issues:
A confidentiality agreement and a non-disclosure agreement required to be framed for both the parties to the
contract. This could be combined with lock out provisions to prevent the other company from conducting parallel
negotiations with a competitor. Thus it is advisable to take help of lawyers before framing any documents such as
MOU as even if any such document is not legally binding yet they can create termination barriers for the partner
companies.
Control issues related to profit participation and asset ownership rights between the partners companies should
be clearly mentioned in the governance provisions and there must be some provisions in the contract under
governance clause to break potential deadlocks on crucial alliance decisions.
Partners must agree on the proportion of managers or senior staff that need to come from each company
including their minimum qualifications and job skills. Source and level of remunerations etc.
It is always advisable to brought all type of documents that has been concluded between the partners to the
alliance in to legally binding alliance agreement even if they are not originally drafted from a legal perspective, in
order to avoid any vague and broad terms and conditions and which can be done by including a entire
agreement clause to the contract.
Mention dispute resolution clauses in the agreement and the form and structures of steering committee for
dispute resolution which should ideally consist of equal participation from all the allied companies and its main
function should be to raise concern about troubles that arise with in the collaboration.
b. Performance clauses contains the duties and obligations of the partners and the timing of any performances and
should not be too much detailed as it may create confusion hence should be flexible and relevant. In case of
imposing restrictions on each other by the partners such as non-competition or non-solicitation clauses, it is always
advisable to sought legal advice. Consent of all the partners needed to be obtained for the disclosure of any
statement or press release relating to the formation or about ongoing business.
4. Why is understanding alliance termination important?
Strategic alliances are basically reciprocally favorable business relationships work on basis of mutual trust with pursuing
common goal between the allied companies and they get terminated when the combined attempts and means required to
continue such relationships are not producing the expected synergies i.e. when the future of the alliance is no longer looks
promising and maintaining the alliance could be a costly exercise for either of the partners. Termination of strategic Alliance
can be of following categories.
a. Deliberately planned by both the partners to the alliance with successful ending terms & disbursement of
compensations.
b. Unintended termination generally as a result of failure of the business to deliver the expected synergies
associated with the alliance.
Alliances are often get terminated after a certain period of time following are most common reasons for termination of
alliances:
The incompetence of partners to effectively manage alliance because of lack of coordination and cooperation
between operations, company strategies or resolving difference in cultural aspects
Lack of adequate structures and resources to manage the alliance suitably. In case of any acquisition activity by
another superior company thus reducing the possibility of synergy realization out of the alliance. Obsoleting
existing technology used by the business due to arrival of a disruptive, yet inexpensive, new technology.
A change in the company tactic in an reaction to fluctuations in macroeconomic, change in government
regulations, laws or developing intense competition
Because of the risks and instability attached to a strategic alliances process and inter firm rivalry, lack of coordination,
changes in the business and economic environments that might not be anticipated by the partners at the time of

establishment of the alliance hence it is necessary to keep track the factors which may contribute to disintegration and by
understanding the alliance termination consequences properly can help the partners to plan in advance for preservation of
assets , Ip rights ,ongoing contracts and obligations relating to the alliance.