Strategic Alliances between Firms Key to Corporate Survival

By Seigel, Joel | THE JOURNAL RECORD, October 27, 1989 | Go to article overview

Strategic Alliances between Firms Key to Corporate Survival


Seigel, Joel, THE JOURNAL RECORD


Since change is a primary constant in business today, companies must be able to adopt new and more flexible strategies in order to survive. It is becoming clear to an increasing number of both small and large enterprises - in the United States and overseas - that collaboration between competitors often enables companies to win the competitive war by reaching new markets quickly, gaining flexibility and achieving better market position.

The latest, and perhaps most far-reaching example is the formation of U.S. Memories, Inc. This consortium of IBM, Digital Equipment and Hewlitt-Packard was recently formed to develop and produce the next generation of dynamic randon-access memory (DRAMs) computer chips.

"No single company can cover all the bases, all the technologies," said Larry Woodson, manager of strategic marketing for Texas Instruments, in Fortune. In industries such as computers; communications systems and services; automobile; financial services; and pharmaceuticals, joint ventures and strategic alliances are a growing trend.

An A. T. Kearney study in Industry Week showed the number of strategic alliances in many of these sectors since 1983 has exceeded all previously announced ventures. "This trend is expected to continue for the rest of this century," predicts Kearney's Marshall Field, Jr., senior vice president-business and marketing strategy group.

Adds Monsanto Chemical Company vice president Hilliard Williams: "We are very much in favor of collaborating with other companies - both large and small - in order to obtain technologies and skills we do not have. We are continually exploring various kinds of joint ventures in line with company strategies."

The Kearney study estimates that the number of strategic alliances has jumped from 345 in the 1950s to more than 2,000 in the 1980s - ranging from equity joint ventures and licensing agreements to technology transfers, R&D partnerships and supplier or marketing arrangements.

In the 1940s and 1950s, companies tended to grow primarily by developing internal resources. In the 1960s and 1970s, they grew externally, through mergers and acquisitions. Partnering - the idea of share-to-gain - at that time still wasn't a part of the American management psyche. An in-bred sense of individualism made it difficult for American managers to accept any deal that did not give them complete control. Now, however, alliances may be the only recourse for companies seeking to fill the whole spectrum of market niches.

In the broadest sense, a joint venture is a cooperative agreement between two or more firms that want to achieve similar objectives. This agreement usually involves creating a new entity to satisfy the needs of all parties involved.

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