Germany’s Volkswagen AG and Japan’s Suzuki Motor Corp. sign an agreement to form a long-term strategic alliance that will provide the partners a stronger global presence, particularly in the emerging markets of India and China.

VW reportedly is paying €1.7 billion ($2.5 billion) for a 19.9% stake in Suzuki as part of the complex cross-shareholding alliance, while Suzuki will buy VW shares, spending up to half the amount received from the German car maker. The total transaction is expected to be completed in January.

“In an automotive industry, where globalization and diversification proceed in parallel, both companies will establish a cooperative relationship while respecting each other’s independence as a stand-alone entity,” Volkswagen says in a statement.

“Both parties are focused on achieving synergies in the areas of rapidly growing emerging markets, as well as in the development and manufacturing of innovative and environmentally friendly compact cars.”

In particular, the tie-up gives VW access to the Japanese auto maker’s expertise in small cars and dominance in the booming Indian market, where industry sales soared 61% in November, according to the Society of Indian Automobile Manufacturers. Suzuki holds a 54.2% stake in Suzuki Maruti India Ltd., which holds about 50% of the domestic small-car market.

Suzuki will be able to take advantage of VW’s strong presence in China and says it will use Volkswagen technology to build hybrid and electric vehicles, which would be prohibitively expensive for the auto maker to do on its own.

Chairman and CEO Osamu Suzuki says Volkswagen approached his company about the partnership, Reuters reports. “The companies shall cooperate taking advantage of the strength of the other with the maximum consideration to the global environment,” he says in a statement.

Analysts say the tie-up with Suzuki will help VW achieve its aggressive global expansion strategy, aimed at passing Toyota Motor Corp. to become the world’s largest auto maker by 2018.

Volkswagen’s total global sales in 2008, including commercial vehicles, were 5,819,019, while Suzuki delivered 2,036,396 units, for a combined 7,855,415 million, according to Ward’s data. Toyota sold 7,748,215 vehicles in the year.

The VW-Suzuki agreement marks the second time in as many weeks a European and Japanese auto maker have confirmed their intention to form a global alliance.

PSA Peugeot Citroen of France and Mitsubishi Motors Corp. last week announced a deal that would see PSA take a 30%-50% stake in the Japanese car company.

Renault SA and Nissan Motor Co. Ltd. formed a successful alliance in March 1999, overseen by Carlos Ghosn, in which Renault holds a controlling 44% share.