Alliances can be short cuts to growth. One recent overseas study found that the average number of alliances in which fast-growing companies were involved has increased in the past few years from three to four. And many allies are small. This statement is supported by another recent survey, conducted in the US, of CEOs of small, fast-growing companies in which 90% reported forming alliances.
The Advantages of a Strategic Alliance
Small businesses in search of growth favour alliances because these partnerships can quickly and inexpensively provide a company with access to technology, expertise, marketing, production, distribution and other capabilities. Studies show that businesses that participate in alliances grow faster, increase productivity faster and report higher revenues than those which do not.
Alliances are also excellent for testing the waters before a full-scale merger. Because no ownership changes hands, it’s easy to back out. Another advantage to alliances, compared with mergers or acquisitions, is that you can participate in several at the same time.
Synergy is the benefit most alliances are after. If you have a product but lack distribution, you may seek synergy by allying with a company that has good distribution and no competing product. Companies that own technologies that can be combined with yours to create a compelling product are also potential allies.
In international alliances, one company can provide local market skills while another supplies imported products or technologies. Allies may also benefit by purchasing co-operatively, marketing jointly, combining research and development, co-sponsoring training, or agreeing to set standards in a new technology.
A Word of Caution
Yet it requires skills to maintain healthy alliances. According to the survey, three out of four corporate alliances disappoint, producing higher costs or lower returns than expected.
Finding a partnership that works is key. Allying well is almost as difficult as marrying well.
