Trading in Other Places

Article excerpt

Industry is fast resembling a large urban park, criss-crossed by an increasingly complex network of trails, as companies beat paths towards one another to forge new corporate relationships.

Those with technological expertise are looking for partners who might provide access to new markets, especially overseas. Even large companies want allies who will share the risk and research development costs of launching new products more frequently. As products and projects, whether semi-conductors, new vans or suspension bridges, grow more complex, so it becomes more difficult for a single company to be expert in all aspects of its manufacture.

The days of the monolithic corporation which was capable of going it alone are fading fast. In future even large companies ill have to see themselves as the hub of a network of alliances, partnerships and joint ventures, if they are to succeed in increasingly competitive, international markets.

Once large companies might have strived to stand independently; now they have to accept interdependence as a condition of their success. In the past conglomerates might have relied on their power to own and tightly control upstream suppliers and downstream distributors. in the future companies will have to be much more open, flexible and trusting. They will have to rely on independent partners whom they cannot control through ownership.

Yet the growing importance of strategic alliances between partners who retain their independence will put new pressures on companies. The skills needed to develop a set of equal partnerships are very different from those needed to run a set of subsidiaries. How will companies need to change to make the most of alliances where their future is dependent upon an ally whom they cannot control?

There is little systematic evidence that international joint ventures and strategic alliances are spreading faster than cross-border mergers and acquisitions. But a recent survey by KPMG Peat Marwick McLintock's corporate partnership service found that, in the final quarter of last year, 287 partnerships were formed involving West European companies. Dick Porter, a KPMG analyst, says: The mid-1980S saw British companies on the acquisition trail, but now many companies see corporate partnerships as a low-risk, low-cost alternative, and as a way of sharing the high fixed costs of expanding into Europe.'

The capacity to engage in partnerships will become more important in the 1990S. In aerospace even Boeing has sought a partnership with three Japanese, heavy-engineering companies to launch its new 777 plane. Ten years ago British Aerospace was used to working largely on its own in the UK defence business. As the company has Internationalised and diversified, so it has become more dependent on a set of alliances - With Honda of Japan, Thomson of France, Daimier-Benz of west Germany and its other partners in the European Airbus aircraft programme.

The car industry is peppered with collaboration agreements. Even Ford and VW are having to collaborate to develop a new mini van to compete with the Renault Espace. Component makers are becoming used to collaboration not just horizontally with other component manufacturers but also vertically with their customers, the car manufacturers.

Western car manufacturers are seeking to reduce product development cycles from about 7-10 years a decade ago, to 2-3 years in the early 1990s. This means component makers will have perhaps 18 months to develop their components for a new vehicle. …