Purpose and Benefits of Strategic Alliances
From a theoretical perspective, strategic alliances bring enterprises
numerous benefits as discussed below.
- · Increase in capital for research and product development and yet lower risk associated with new product development. This facilitates innovation. Trust Bank wanted to develop a sustainable product for export agriculture. It therefore created a strategic alliance with Europort, a consortium of horticultural farmers, to create Trustea (Trust Export Agriculture). In the deal at listing, Europort was offered some Trust Holding shares and Trust acquired an interest in Europort. This created mutual interests and assured Trust of a committed client base, thereby reducing the main risk of product development, having no takers for the product. It was assured of customers. The close relationship enabled Trust to acquire knowledge of the structure of the agricultural market in general, giving it a competitive advantage in crafting products relevant to the agricultural export market.
- · Decrease in product lead times and life cycles (time pressures).
- · Ability to bring together complementary skills and assets that neither company could easily develop on its own. The Heritage Group, which owned Bard Discount House (100%) as well as significant stakes in First Merchant Bank Holdings (FMBH) and udcH, championed an equity-based strategic alliance of the three companies through a share swap, creating African Banking Corporation (ABC), a huge investment bank. This strategic alliance created synergies and complementary skills that made ABC a huge regional bank. Subsequently the bank dually listed on both the Botswana and Zimbabwe Stock Exchanges.
- · Access to knowledge, expertise and complementary resources beyond company borders (technology and resource transfer). The key to technological competitiveness is an ability to manage a portfolio of technologies that have become increasingly complex and more integrated. But the increasing complexity of technology, the rising costs of R&D, and the need to integrate new technology quickly to obtain maximum advantage have made it nearly impossible for companies to develop internally all the technology they need. In the case of proprietary or highly specialized technologies, alliances may be the only option, but even when internal development is possible, technology alliances can be an attractive alternative. Alliances are almost always the fastest and most cost effective way to gain technological competence.
- · Rapidly achieve economies of scale, critical mass and momentum (-bigger is better).
- · Expansion of channel and international market presence. Trust Holdings and FML consummated a complex strategic alliance deal which was meant to enable each organisation to enter new foreign markets.
- · Building credibility and brand awareness in the industry. First Bank was an underrated bank until it acquired controlling equity stakes in a building society and an insurance company. This increased its brand visibility and credibility.
- · Providing added value to customers through value added services. Most banks created strategic alliances with technology firms and cellular firms to provide value added services to their clients e.g. bill payments through cell phones.
- · Beating rivals in the rush to market. Speed to market is particularly important. The greatest share of profits usually comes at the beginning of a product’s life cycle. In some highly competitive sectors, such as the financial sector, being late to market can spell death for a product. If a company is sufficiently quick to market, it can pre-empt competition and lock up market share. Since development and perfection of technology is one of the most time-consuming aspects of product development, outsourcing key technology can dramatically cut lead time.