Few can afford to do it alone in today’s markets. Partnerships, including strategic alliances and joint ventures, provide great flexibility for companies when adapting to disruptions or crises that require fast responses.
Unanticipated shocks (e.g. global pandemics), or paradigm shifts (e.g. disruptive technologies) leave no time for companies to acquire resources on their own and even make it riskier to do so.
Entering into a strategic alliance is a fast and flexible way to access complementary resources – assets and skills – that reside in other companies instead of outright acquisitions. It is a less costly and less risky option. Increasingly, CEOs prefer alliances to acquisitions to expand their company’s product, geographic, and customer reach.
By looking at some of the industries that are leading in this field, it is easier to grasp why these collaborations can be mutually beneficial for partners.
From self-driving cars to vaccines
Given the game-changing disruption that is on the horizon for them, it is hardly a surprise that the automotive industry has seen a surge of alliances. Self-driving technology, electrification and connectivity are the main trends driving the change in this industry.
Car ownership is expected to become obsolete and replaced by car-sharing services and platforms. In the very near future, autonomous electric vehicles will drive us around and we will say goodbye to our old gas-powered cars. Ordered something? A self-driving car will deliver it.
Companies like VW are pouring billions of dollars into research to get ahead of the competition in this market with vast opportunities. They need innovative software and hardware solutions.
To overcome the challenges of developing complex autonomous driving technology, these companies form extensive partnerships with competitors and tech companies to gain access to know-how and new technology.
VW has an extensive portfolio of alliances (see illustration below) with companies such as Ford, Daimler, Microsoft, Apple, TomTom, Huawei, and various smaller, specialized tech companies for projects ranging from boosting their autonomous driving technology, automotive cloud, mapping services to autonomous connectivity.
Pharmaceutical and biotech companies have also been setting the pace for alliances for a long time. The race to combat COVID-19 has led to multiple global alliances and company partnerships between companies across the two industries. These partnerships are key for developing and manufacturing effective vaccines and treatments.
Success factors for alliances facing changing market conditions
Based on research into strategic alliances and joint ventures, we have three tips for companies interested in ensuring mutually rewarding partnerships:
- Define partner roles, but make sure they are adjustable
Collaborations can be extraordinarily complex and risky. An alliance creates resource interdependence between partners since the benefits of the alliance depend on others’ contributions.
Alliance partners need clear division of roles, effective communication channels, and good conflict resolution procedures to complete their joint and individual tasks.
Partners should also be willing to adjust the alliance agreement to adapt to changing market conditions to turn alliances into important tools for crises response or capturing new market opportunities.
- Invest in building and maintaining the relationship
In our research, we found that investors reward companies when they form international new product development alliances in the short term.
Although investors view sharing of innovation resources and learning on a global scale as a competitive advantage in the short term, they suspect that these partnerships might be risky and inhibit innovation in the long term.
One partner might act with self-interest by taking advantage of acquired knowledge, before sharing it with other competitors or becoming a future competitor themselves. As time passes, high trust can lock companies in stable, yet suboptimal relationships instead of seeking novel alternatives.
These risks are elevated in volatile times, when companies need more flexibility and support from their allies. To prevent these risks, companies need to invest in managing the health of the relationship by deepening personal contacts and acting reliably and with reciprocity.
- Manage your alliance portfolio with purpose
In another study, we are currently analyzing recent financial downturns to explore how companies can become less vulnerable to economic crises by configuring their alliance portfolios better.
Our initial results signal that careful management of alliance portfolios can help companies survive after extraordinary and unanticipated short-term shocks in the markets.
A portfolio that provides access to complementary resources from each cross-sector partner enable companies to weather storms more effectively, provided the company does not stretch their resources by engaging in too many alliances simultaneously.
References:
This article is written for BI Marketing Magazine 01/2020.
Harmancioglu, Nukhet, David A. Griffith, and Tuba Yılmaz (2019). "Short-and Long-Term Market Returns of International Codevelopment Alliances of New Products," Journal of the Academy of Marketing Science, 47(5), 939-959.
Yılmaz, Tuba and Mariia Koval (2020). “Performance Implications of Alliance Portfolio Reconfiguration During Economic Contractions,” Working paper, BI Norwegian Business School