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How to develop strategic alliances print Print

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Business owners are increasingly discovering the advantages of joint ventures and strategic alliances. This guide looks at some of the reasons for forming strategic alliances and the benefits flowing from such alliances.

Thinking bigger and wider

The concept of strategic alliances and joint ventures is leading many business owners to change their whole attitude to business. They are discovering that they don't have to 'stand alone' in the marketplace or suffer from the disadvantages of being seen as a 'small business'. Strategic alliances can provide creative solutions to business difficulties and provide synergies leading to a result where the total greatly exceeds the sum of the parts.


What is a strategic alliance?

Strategic alliances are alliances between one or more businesses designed to further the strategic interests of both or all parties. Strategic alliances are very popular with large businesses and corporations, but they can be just as valuable - and arguably even more so - for small businesses.

There are many ways in which you can work with other businesses or people, ranging from short-term joint ventures to more formal long-term commitments. You can form strategic alliances with suppliers, with customers or with complementary businesses or with non-profit organisations such as charities. The possibilities are probably limited only by the imagination.


Benefits of developing strategic alliances

Businesses form strategic alliances for many reasons. Read through the following examples and then ask yourself how many could help your business develop faster and more profitably:

Gaining a competitive advantage

The synergies of strategic alliances can give you new clout in the market place and a distinct competitive edge.

Opening new doors to growth

One of the main advantages of strategic alliances is that they allow you to grow quickly beyond small. For example, forming a strategic alliance with a larger, complementary business can make you look much bigger in the eyes of potential customers. Small no longer needs to be a disadvantage.

Building credibility

Strategic alliances can enhance the credibility of both parties. In the case of a small business, featuring the logos of well-known strategic partners on stationery and promotional material can be particularly effective.

A 'one-stop shop' convenience

Strategic alliances can help you offer your customers the convenience of a 'one stop shop'. In fact one of the triggers that should lead you to consider looking for suitable strategic partnerships is if you're getting frequent enquiries from customers or clients for complementary products or services. It obviously enhances your value to customers if you can offer them a more complete range under one roof.
 

Competing against big businesses

Do you feel at a disadvantage compared to your larger competitors? A strategic alliance may enable you to compete against a much larger company or corporate, because your combined resources can match the capabilities of the larger company. Suddenly you can project yourself as a larger entity and protect yourself from cut-throat competition.

Tendering for big projects

A small building business might not be in a position to undertake a construction project because it has neither the full range of skills or the financial resources to handle the task or survive the due diligence process the developer might undertake. However, by forming a strategic alliance with other construction businesses, it can tender for the project as part of a syndicate capable of handling all aspects of the work.

Sharing marketing costs

The attraction of strategic alliances for many rapid-growth technology companies in particular is that alliances enable them to share marketing costs. Another example many businesses follow is to ask suppliers to help with marketing, advertising or signage costs.

Gaining access to skills at bargain rates

Forming a strategic alliance (for instance, for the duration of a certain project) could give you access to specialised skills and knowledge at a fraction of the market rate. Without this alliance you might not otherwise be able to afford these skills.

Pooling complementary resources

Strategic alliances allow two or more businesses to share equipment, people and ideas. The synergies allow you to progress your business development at a far faster rate than if you were functioning alone. You can extend your technical and other resources through the alliance while still being able to focus on your key strengths.

A decision not to compete

A web hosting company made a conscious strategic decision early on not to develop websites for their customers. "We got many requests from customers to develop websites for them," reports the founder, "But we decided not to go down that road. This allows us instead to work closely in alliance with website designers who encourage their clients to host with us because they realise we're not competitors. This strategy has paid off handsomely."

Sharing R & D costs

Sharing research and development costs is another benefit of strategic alliances, allowing you to achieve more and faster than if you were working alone. These research and development costs can often be beyond the reach or capacity of smaller businesses.
 

Reducing the risk

Sharing costs also means reducing the risk for the businesses in the alliance and managing the uncertainty of new launches. For example, the cost and risk (in dedicated resources) to introducing new products can be high. In addition, alliances can allow you to exploit economies of scale (producing more widgets at a time to lower the unit cost).

Conserving precious cash

Strategic alliances can help you keep precious cash resources in the business. Many of the advantages discussed above, involve a form of barter (for example, trading ideas or sharing equipment that doesn't involve cash) or a significantly discounted rate for the supply of specialised skills.

Sharing customer databases

Strategic alliances can also lead to valuable new business. For examples, two businesses that offer complementary products or services can promote each other's products to their respective customers and markets. An example might be offering to support a charity, since many charities have well-developed databases.

International exposure, trade barriers and new market penetration

Forming the right alliance with an overseas company could help you get valuable exposure and a shortcut into international markets that might otherwise take you years to penetrate. The alliance could also help you overcome trade barriers. Similarly, teaming up with businesses that have developed different channels of supply and/or distribution can greatly aid your business.

Tax advantages

Strategic alliances could bring possible tax breaks and advantages, such as the spreading of taxes between companies, or possible tax breaks in the case of strategic alliances with overseas companies.

These possibilities need to be explored with a tax expert as they require a specialised knowledge of local and international tax regimes.

Lowering supply costs

Forming a strategic alliance with a company with a stronger supply chain or a very advantageous relationship with key suppliers could help lower your costs. Or a particular project might need some specialised technology, such as a machine or perhaps a software licence. The cost can be shared.

 

Selecting alliance partners

Here are some of the key issues to consider:

  • Check references first! Make sure the prospective alliance partner is respectable and solid. If they're not, the association could seriously damage your credibility in the marketplace.
  • Clarify the objectives and the expected benefits. If you have very different agendas and expectations, the alliance could be heading for trouble.
  • Write down what each side will do or contribute (such as an initial deposit if appropriate) so you can measure progress and outcomes through regular meetings.
  • Make sure you like the people you're dealing with and share their values. Alliances work best when there's open and honest communications between the parties. One expert on strategic alliances comments that if he sees a strategic alliance agreement that's 30 pages long, full of dense legalese text, he knows there's much less chance of the alliance working out than a one-page Heads of Agreement type document.
  • Don't wait for your phone to ring - be proactive. Strategic alliances are unlikely to happen unless you make them happen.
  • Decide what you want to achieve. Ask: What if? What could we do? How could we speed up? What would better our chances of getting what we want? What are we lacking? What synergies could we develop? What can we get into?
  • Look for genuine synergies: the partnership should lead to something bigger than its parts and it should be win/win for both sides.
  • Have a desired outcome in mind, in other words, what you want to achieve from establishing a strategic alliance (distribution, complementary products/services)
  • It's a good idea to have an exit clause in case the alliance does not work out as expected.
  • Try a limited time period strategic partnership to test out the relationship.
  • If appropriate, each party might need to submit a deposit to get the project started (for example, to prepare tender documents).
  • If appropriate, consider appointing a project manager for the duration of a project to coordinate the efforts and contributions of both parties.
  • Make sure your branding is protected and enhanced by the alliance.
  • Protect your business. Clarify who will end up owning what in the way of intellectual property through the alliance. Should your strategic partner have full access to your intellectual property, or are there limitations?


Limited trials

"I always like to test strategic alliances first," comments a business person, "before we cement the process in a longer-term relationship. I like to set up the alliance for a specific purpose (such as a project) with a set termination point (such as the end of the project). If it all works out, I'll look at building a longer-term relationship. If not, well, we've agreed to go our separate ways anyway at the end of the project, so there's no messiness or hard feelings."

 

Further information:

To talk to an ANZ Business Specialist:
Call 0800 269 249
Visit anz.co.nz/business
Visit your nearest ANZ branch

         

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