Partnering for competitive advantage
“An alliance is a lot like a marriage. There may be no formal contract. There is no buying and selling of equity. There are few, if any, rigidly binding provisions. It is a loose, evolving kind of relationship. There are guidelines and expectations, but no one expects a precise, measured return on the initial commitment. Both partners bring to an alliance a faith that they will be stronger together than either would be separately. Both believe that each has unique skills and functional abilities the other lacks. And both have to work diligently over time to make the union successful”. Kenichi Ohmae
In a competitive market where there are various uncertainties, and where the environment is fast changing, no company may have all the expertise it needs within. To gain fast access to knowledge not available in-house, global companies may have no option but to partner with others. Alliances are becoming an increasingly important tool to meet one or more of several objectives – share knowledge, set industry standards, gain quick access to new technology, launch new products, enter new markets or pre-empt competition.
Partnering can help in various ways. Alliances can help set standards, influence market development and direct its course. By roping in partners, the value of the offering can be increased. This increases the importance of the network, attracting more players, leading to a virtuous circle.
The rising costs of product development and shrinking product development cycles are giving an impetus to alliances in which different partners pool their technological expertise. Without the involvement of partners, not only would risks be disproportionately high but also the time taken to develop the product may be far too long.
Alliances between two companies may also be helpful when they are trying to penetrate unfamiliar markets. Honda, Ford, General Motors, Gillette, Yamaha and McDonald's have all chosen the joint venture route to enter India. Gillette (which recently merged with P&G) has been known to enter into distribution tie-ups with local partners in many overseas markets. When it entered India, Pepsi had global brands but needed local support to understand the country's business environment and develop a meaningful marketing plan. This led to the alliance with Voltas.
In other cases, companies have come together to take on well-entrenched competitors. A good example is the Airbus consortium consisting of four major European aerospace manufacturers (from the UK, France, Spain and Germany). Without the pooled expertise of these partners, it would have been difficult if not impossible for Airbus to challenge the industry leader Boeing.
The big difference between 2001, when the first edition of this book was published and now is that opportunities for partnering have multiplied thanks to the Internet and various online collaboration tools. Thanks to these tools, partnering arrangements have become flexible. Even more important it has become easier to monitor the contribution of different partners in an alliance arrangement more effectively.
An integral part of corporate strategy
For some transnationals, alliances have been an integral part of their corporate strategy. Motorola, looked at alliances as a way to catch up with formidable rivals such as Philips, Siemens, NEC, Toshiba, Hitachi, Fujitsu and Matsushita. It felt that these alliances would help it to overcome its relative weaknesses in design, research and development, and enable it to get closer to many Japanese manufacturers who consumed large quantities of semiconductors and microprocessors. To tap the Japanese market, Motorola licensed its technology to NEC and Hitachi in the late 1970s. (The Japanese partners later broke away, teaching Motorola an important but expensive lesson). Motorola subsequently formed joint ventures with several Japanese...