In this video we conclude our investigation of the methods we can employ to expanding businesses into new markets by looking at strategic alliances.
These agreements are at the top of the investment return food chain for good reason. It takes a large long-term potential win to pry open your innermost operations to outside parties.
How to Craft a Winning Market Entry Strategy — Part 5: Transcript
In the last video we talked about Direct Investment alternatives and how it’s profile is very appealing to many businesses that believe in the long-term potential of an opportunity and have patient capital.
In this video we take a look at strategic partnerships. Although often driven by the same market potential as direct investments recent changes in the political, economic and technological environment have combined to change the relative importance of licensing and ownership strategies.
With the fall of trade barriers, market globalization, the convergence of consumer wants, and the emergence of new communications technologies product life cycles have shortened. Although these developments provide unprecedented market opportunities, there are strong strategic implications and new challenges for product developers. Going forward more business development strategies will undoubtedly incorporate—or may even be structured around—a variety of intense collaborations. Once thought of only as joint ventures with the dominant party reaping most of the benefits (or losses), cross-boundary alliances are taking on surprising new configurations and even more surprising players.
The terminology used to describe this new form of cooperation varies widely. The phrases
· Business-to-business alliance
· collaborative agreements
· and strategic alliances
are frequently used to refer to linkages between companies from different arenas (countries, industries, etc) to jointly pursue a common goal. Broad spectrums of inter-firm agreements, including joint ventures, are often stuck under this umbrella terminology. However, the descriptor that I find best captures the essence of this new paradigm is strategic alliance.
A Strategic Alliance is:
A formal relationship between two or more parties to pursue a set of agreed upon goals to meet a critical business need while remaining independent business entities.
Strategic alliances exhibit three characteristics.
· Participants remain independent following the formation of the alliance
· Participants share the benefits as well as control over performance of assigned tasks
· Participants make ongoing contributions in technology, products, and other key strategic areas
Now that we have defined what a Strategic Alliances is let’s look at what it really entails and how it runs.
If you take nothing else away from this video remember that strategic alliances are the ultimate expression of relationship marketing. The size and location of the partners are not important. It is what each partner can offer the other that is important.
Unlike collaboration, each partner is promising to work very closely with the others. Real mission critical resources like product lines, product & market knowledge, innovation, or customer service is brought to the alliance in order to achieve mutual objectives and gain a competitive advantage. Essentially you are pulling back the covers on a part of your operation exposing its inner most workings.
Because each partner is committed to bringing its most valuable asset to bear on exploiting a market opportunity one finds many types of strategic linkages. Some are horizontal alliances at the same level in areas like research or supply chain, while others define vertical links between adjacent stages.
What is interesting is that you can find these alliances between firms that don’t even reside in the same industry. An example of this is alliance between NBC Sports and the Kentucky Derby, which gives the television network the exclusive rights to broadcast the annual horse race.
Regardless of the alliance size, structure, or industry those forming them must keep the following factors in mind. Moreover, successful collaborators are guided by the following four principles.
- First, despite the fact that partners are pursuing mutual goals in some areas, they must remember that they are competitors in others.
- Second, some conflict is to be expected. Harmony is not the most important measure of success.
- Third, everyone must understand where cooperation ends and competitive compromise begins.
- And finally, as noted earlier, learning from partners is critically important.
Here are the 6 success factors:
- Mission: Successful strategic alliances create win-win situations, where partners pursue objectives on the basis of mutual need or advantage.
- Strategy: An organization may establish separate alliances with different partners (usually in different markets – geographic or product). This means that the overall strategy must be thought out up front to avoid conflicts.
- Governance: Discussion and consensus must be the norms. Partners must be viewed as equals.
- Culture: Organizational chemistry is important, as is the successful development of a shared set of values.
- Organization: Innovative structures and designs may be needed to offset the complexity of multi-country management.
- Management: Divisive issues must be identified in advance, and clear, lines of authority must be established.
This concludes the How to Craft a Winning Market Entry Strategy series. Listed below are the links for the other episodes.