Strategic alliances have influenced history, from Anthony and Cleopatra to Hitler and Mussolini, and since the latter part of the twentieth century, have become commonplace in business, as a means of both corporate survival and development.
The impetus for co-operation has derived from three inter-related phenomena - technological change, the demand for innovation, and the blurring of various boundaries, across countries as manifested by global get-togethers, and across industries.
The increasing pace and complexity of technological change incurs high costs and risks for any one company. Costs and risks for partners are decreased when R&D is shared, especially for projects that spell significant departures from the prevailing paradigm.
The staggering sums paid by bidders at the auction for UK third generation mobile phone licences has prompted some companies seeking permits in other European countries, such as the Netherlands and Germany, to team up to bid.
Another instance of large scale collaboration is Airbus Industrie, originally a joint venture between four partners, Aerospatiale of France, British Aerospace (BAe), Casa of Spain, and Daimler-Benz Aerospace (Dasa) of Germany. Airbus was formed to build civil aircraft, an industry demanding longterm investment capital and intensive technology, dominated by the formidable US competitor, Boeing. Now, the consortium is down to two members, since Aerospatiale, Casa and Dasa have merged, but the venture continues on its mission of developing aircraft to take on the might of Boeing. Its current high stakes project is to produce a long haul superjumbo, the A3XX to rival the Boeing version.
Today's competitive environment necessitates innovation, much of it dependent on technology and knowledge intensity. Besides being expensive, innovation is often short lived, and hard won technological innovative advantages are quickly copied or leapfrogged. Thus, with shortening product lifecycles, time is another scarce resource. Strategic alliances may be the only timely, cost-effective way to gather together the knowledge and resources to be in the forefront of innovation.
An example is the Symbian consortium, formed by Psion, Ericsson, Nokia and Motorola to use Psion's EPOC operating system as the industry standard for the next generation of wireless communications devices, in opposition to Microsoft's CE system. For the three mobile telephone manufacturers, this was a protection against becoming commodity vehicles for Microsoft's system in consumer electronics, much as PC manufacturers are in computers. By joining the alliance, Ericsson, Nokia and Motorola are getting in on the knowledge intensive part of the action, the operating system. Meanwhile, Psion has the support of three companies which between them, supply more than three quarters of the world's mobile phones. This gives Psion the resources to develop not only the technology, but also the market and critical economies of scale in R&D and production.
Symbian exemplifies another impetus for alliances - the blurring of industry boundaries. As the computers and telecommunications industries converge, Psion has the expertise in computers, and the three equipment makers in telecommunications. Alliances across the two industries are copious, involving diverse companies around the world, in computer hardware and software, media distribution and content, Internet and cable distribution, etc. This allows companies to hedge their bets about emerging technologies and channels of distribution in communication.
Nowadays, companies often require assets and skills that transcend their own industries. Strategic alliances can give them access to these complementary resources.
Industry convergence, and especially the speed and ease of communication is enabling the fourth trend - globalisation - the blurring of national and regional boundaries, that allows the establishment of global products and brands. Globalisation offers volumes, which, in turn, allow economies of scale to recoup the prodigious costs of technology development and innovation.
Globalisation entails entering foreign countries as target markets or as sources of knowledge, goods or labour. A partner from the "host" country may be necessary to overcome government resistance to foreign ownership and/or to by-pass own gaps in knowledge about the market and the ways of doing business in it. The Japanese market is almost impossible to penetrate without a partner to provide distribution channels. As in military situations, alliances can be formed for offensive or defensive purposes. Nestle and General Mills formed Cereal Partners to challenge Kellogg in the growing European cereal market, as Kellogg was recovering from falling market share. Airlines form alliances as they jockey for position, to gain footholds in strategically vital markets. Those which fail to join alliances may be left behind. Now, there appear to be two emerging major airline alliances, facing each other around the globe - the Star Alliance led by Lufthansa and United and the Oneworld Alliance led by American Airlines and British Airways, recently joined by Aer Lingus.
In all cases, strategic alliances provide opportunities to learn from partners. Learning can take the form of filling gaps in knowledge and skills. When Rover had fallen hopelessly behind in automobile engine design and lean production processes through insufficient investment, it turned to an alliance with Honda to make up its knowledge deficits. Meanwhile Honda learned a lot about European styling and marketing from Rover, areas where it was lacking. Alliances are cited as one of three possible methodologies to enable growth and development, the other two being merger/acquisition and organic expansion. When companies do not have the resources to grow by the other two methods, or indeed merely to survive on their own, an alliance may be the move of choice.
It allows the company to continue as an independent entity. Given the relatively small size of the Irish market, and the importance of global corporations in our economy, strategic alliances are becoming more commonplace for entrepreneurial Irish companies to take advantage of the trends in technology (as developers or receivers), innovation, convergence, and globalisation.
How do you know if an alliance is successful? Success has to be gauged from the point of view of each partner.
Dr Eleanor O'Higgins is a lecturer in strategic management and business ethics at UCD graduate business school
