Strategic Alliances Keep Customers Plugged In

Management Review, March 1993 | Go to article overview

Strategic Alliances Keep Customers Plugged In


Negotiating successful strategic alliances combines art and science. lose A. Collazo, at age 50, is an experienced practitioner. As chairman and CEO of Infonet Services Corporation, he has been involved with more than 100 alliances in 46 countries on six continents. This has helped make Infonet a leading provider of public and private data networks to multinational companies. Its market share of international value-added network services is the largest of seven such providers, Infonets customer base represents 20 percent of the 1,000 largest global corporations, and its alliance partners comprise a who's who of global equipment manufacturers, telecommunication carriers and services. Businesses and government agencies use Infonet networks to exchange critical financial and planning information, orders and production data at speeds as fast as millions of bits per second-- the equivalent of transmitting "War and Peace" in the blink of an eye.

Computer Sciences Corporation, a public company, spun off Infonet as a private concern in 1988 with Collazo as its CEO. In the most strategic of strategic alliances, 11 major telecommunications administrations in the United States, Europe and the Asian-Pacific area acquired equity positions in Infonet, with MCI obtaining a 25 percent stake. The reason for strategic partners having equity in Infonet was, as Collazo says, because "venture capital investors and Wall Street want to cash in on a company's success. Strategic partners as investors understand Infonet's business and share the company's objective of selling and supporting telecommunication services within their own countries."

Recently, Management Review contributor Patrick Flanagan asked Collazo to pass along what he has learned about strategic alliances, both domestically and internationally.

Q. What makes for a successful strategic alliance?

A. The key is that an alliance should not be a quick-fix to a problem. Form a strategy based on the benefits that the alliance brings to both parties. Never be pressured so that you react, rather than act. A simplistic but effective way to pursue alliances is to challenge yourself and your alliance team to come up with a real reason, rather than one that sounds good. This approach helps to bring out the contrary thinking that makes for success. It also can open your thinking to new possibilities and prevent you from falling into "me too" or quick cash flow traps.

Q. What's the most important thing to remember during an alliance negotiation?

A. Retain the ability to walk away. If you get emotionally involved, if the participants have a high profile, or if a lot of money has been invested, the temptation is to make a deal for the sake of a deal. It's never easy, but it's less costly not to enter into an alliance than it is to dissolve one.

Q. What are the most common reasons for forming strategic alliances?

A. In my experience, there are eight strategic reasons:

* Fill gaps in your current market and technological bases.

* Turn excess manufacturing capacity into profits.

* Reduce your risk and entry costs into new markets.

* Accelerate product introductions.

* Produce economies of scale.

* Overcome legal and trade barriers.

* Extend the scope of your existing operations.

* Cut your exit costs when divesting operations.

Q. What types of alliances can be formed?

A. Virtually all fit into the three basic classifications of trading, functional and dynamic alliances, A trading alliance is straightforward, nothing more than buyers and sellers forming a largely passive sales-and-distribution or export-import arrangement based on contractual terms.

A functional alliance integrates certain business functions between the two parties by pooling efforts to attain specific goals and establish on-going management relationships. …

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