Today, many companies are seeking strategic alliances to gain competitive advantage in the global marketplace.
Competition and cooperation sure make strange bedfellows, but in today's global marketplace many companies are discovering that their long-term survival may depend on the partnerships they build with other companies in similar businesses. These partnerships, or strategic alliances, bring together two or more companies whose core competencies are complementary, enabling them to gain access to new markets, overcome trade barriers or introduce new products. Today, "the benchmark of competition is no longer individual companies-you have to benchmark potential combinations of firms that may not have developed yet," says Jordan Lewis, an expert on strategic alliances.
"No company can do it all itself," says David Ernst, a consultant with McKinsey & Company, and coauthor with Joel Bleeke of Collaborating to Compete: Using Strategic Alliances and Acquisitions in the Global Marketplace (John Wiley & Sons, 1993). Ernst contends that the costs of developing each new generation of technology, machinery or pharmaceuticals, for example, have increased to such a degree that in order to minimize risks and costs, companies are seeking partners. And in consumer businesses, the number of new markets that have opened up in the European Community, Eastern Europe, Asia and the former Soviet Union are "too many to cover on a go-it-alone basis," he says.
Thanks to strategic alliances, however, "you no longer have to have all the skills, resources and capabilities yourself; you can partner with others," says Lewis, who is also author of Partnerships for Profit: Structuring and Managing Strategic Alliances (Free Press, 1990). "Strategic alliances make it possible to draw on excellence from anywhere in the world."
A very recent example is the alliance announced by Cummins Engine Co., an Indiana manufacturer of heavy-duty diesel engines, and Komatsu Ltd., a Japanese equipment manufacturer, to apply their technological expertise to the joint development of high-quality engines in order to strengthen their competitive position in the markets they serve. But numerous other examples exist across industries as diverse as automotive, telecommunications, consumer products, pharmaceuticals and electronics.
Regardless of industry, several common threads exist in the composition of successful strategic alliances. Very often, the metaphor of a marriage is used to describe the necessary elements leading to the formation of a strategic alliance (see Case Study, page 12).
There is an initial period of courtship when two or more companies determine whether they share a common business vision and if their resources and skills are complementary. Chemistry is also extremely important, because personalities as well as business idealogies have to blend in order for the partnership to work. If the chemistry is there, then the foundation has been laid to build a relationship of trust and mutual commitment. Potential problems should be discussed in advance to avoid any later irreconcilable differences. Once all parties are in accord, then they can enter into a legal agreement.
No Magic Formula
The duration of the relationship depends on what the parties together have determined they want to get out of the partnership. Some companies view an alliance as a long-term commitment that may lead to the formation of a new company. Others view alliances as a way to exploit a given opportunity, where the parties eventually will separate amicably. As Alan Merten, dean of Cornell University's Johnson Graduate School of Management, puts it, "The purpose of strategic alliances is to get into an interim opportunity." But, experts caution, alliances should not be viewed as a quick-fix management solution.
"There is no magic formula to succeed in alliances," Ernst concludes. Based …