Rather than compete, join forces

In the process of enterprise development, especially in the process of entering the global market, some well-known Chinese enterprises have adopted three different growth strategies.

Huawei and Haier have adopted organic growth strategies. The so-called organic growth is that the company relies on its own resources to achieve growth.

The second strategy is the M&A strategy. Lenovo and TCL have recently adopted this strategy. They buy other people's brands and technologies, and they also recruit people.

The purpose of the third strategy is: "Don't engage in competition, join hands and cooperate." This is the slogan of more and more Chinese enterprises that are forming strategic alliances.

In line with current global trends, more and more Chinese companies are seeking to form strategic alliances. Looking at the world, it is the general trend that enterprises form strategic alliances. It has become an important part of corporate strategy. A Booz Allen study found that the world's top 2,000 companies maintain a 17% return on investment by forming strategic alliances. McKinsey & Company also found that, in most strategic alliances, more than 70 percent of companies saw their share prices rise. Strategic alliances have a higher success rate than M&A strategies.

Why are strategic alliances so popular with companies?

The main reason is that strategic alliances are less risky than organic growth strategies and M&A strategies. Organic growth strategy is to do all the value-added behavior by the enterprise itself. But there are too many important factors for business success—few companies have enough resources to do everything. Moreover, organic growth strategies have been slow to implement and pay off. The great difficulty facing M&A strategy is how to integrate two different companies.

Many companies find strategic alliances a useful strategy when they are in a situation of high uncertainty, or when they see an opportunity for growth, but cannot or do not want to take risks on their own. Companies in fast-changing, uncertain industries like electronics, mass media, and software are more willing to adopt this strategy.

Research by consulting firm McKinsey shows that the long-term success rate of strategic alliances is approximately 50%. In other words, half of all strategic alliances are unsuccessful. If you are considering this strategy, or you have formed a strategic alliance with other companies, then you should know that this road is not so easy to go. The formation and maintenance of a strategic alliance is not as simple as making a plan and then implementing it.

Fortunately, the factors that make strategic alliances successful are no secret, and the reasons for their failures have in common. Therefore, managers can better plan and implement their strategic alliances accordingly. This article will explore several decisive success factors of strategic alliances, analyze some global success stories, and summarize common problems that should be avoided.

First of all, companies need to understand, what exactly is a strategic alliance?

Larraine Segil, in her book Intelligent Business Alliances, defines a strategic alliance as: "two or more parties with aligned or complementary business interests and objectives, A strategic or tactical relationship formed on the premise of mutual benefit." A true strategic alliance is a mutually beneficial relationship that helps members of the alliance achieve strategic goals that they cannot accomplish alone.

Pierre Dussauge and Bernard Garrette pointed out in their book "Cooperative Strategy" that companies can use the capabilities of other companies to enter into strategic alliances by forming strategic alliances. New markets, launching new products, purchasing new components, learning new ways of producing or serving, and learning about new ways of organizing your business.

In a strategic alliance, each company maintains its independence and cooperates only on a limited basis—that is, providing only the necessary resources for a specific product, customer group, or market.

What was the result? A successful strategic alliance benefits both Company A and Company B, as well as mutual customers of the two companies.

However, the premise of meeting this definition is that the business strategic goals between you and the partner should be consistent. As we'll see from the examples below, knowing whether you have aligned business goals is the most critical of all factors.

Galanz, Midea, Changhong: Entering the global market with alliances

China Europe International Business School professor Yang Guoan wrote on the China Europe Knowledge Online website that strategic alliances are the choice of Chinese companies in their pursuit of globalization main mode. These companies recognize that because they "lack sufficient resources and capabilities, they need to focus on one area. They focus their efforts on a specific part of the value chain, and then use strategic alliances to achieve sales, production, R&D and The Integrated Operation of Marketing".

The three companies Galanz, Midea and Changhong have all chosen this path.

In the beginning, Galanz was in the feather duster business. By 1993, Galanz and Toshiba reached an agreement to introduce Toshiba's microwave oven production technology. According to its website, Galanz has OEM microwave ovens for 250 brands around the world. Yang Guoan pointed out: "Galanz seized the opportunity and established cooperative relations with European companies. Some European companies sold machines to Galanz in exchange for its OEM service. Some leased production machines to Galanz, and agreed to guarantee that every day Eight hours of OEM production for them, Galanz spends the rest of the time using these machines to produce its own brand of microwave ovens."

John Child, a well-known organizational behavior researcher, pointed out in Management and Organization Review : While producing its own brand, Galanz also adopts the "Intel-inside" brand promotion method (that is, as long as the computer manufacturer adds the Intel-inside suffix to the trademark and advertisement of the whole machine, Intel will reimburse part of the Advertising costs - Translator's Note). "Galanz has gradually grown into an important microwave oven manufacturer, and its bargaining power has also improved step by step, so it can affix the words 'Made by Galanz' on its own microwave ovens. Now, Galanz invites potential customers on the company's website to directly Place an order. Obviously, this strategy has laid a solid foundation for it to build a strong international brand in the future."

Midea took another approach to strategic alliances. In China's home appliance industry, there is a trend to ensure product supply through alliances with upstream suppliers, especially in the air-conditioning market. To follow this trend, Midea, one of China's largest air conditioner manufacturers, signed a cooperation agreement with Pangang Group, the largest steel company in western China.

The agreement specifies that the two parties who form a strategic alliance will strengthen cooperation in research and development and supply. Under this clause, Midea will give priority to adopting the latest products and technologies of Panzhihua Iron and Steel Group, and Panzhihua Iron and Steel Group will also give priority to promoting its new products to Midea.

The cooperation between Changhong and Shanda is another way of strategic alliance. Changhong's President Zhao Yong and Shanda Group's President and CEO Chen Tianqiao signed a memorandum of strategic cooperation. In the memorandum, the two sides said they would work together to create a new type of electronic home entertainment center in China. Changhong and Shanda will cooperate in product design, technology development, production, marketing promotion, channel sales and cooperative services.

Experience summary

Yang Guoan believes that the above three alliance methods show two benefits of strategic alliances: "The first is to reduce costs, because companies can use the resources and advantages of strategic partners. Low risk is another benefit. "Galanz is reducing R&D costs while reducing risks. Through the cooperation with Panzhihua Iron and Steel, Midea not only shortened the product development time, but also quickly achieved economies of scale. Changhong and Shanda allow each other to use their own products, technologies and intellectual property.

Additionally, by forming strategic alliances, partners can enter previously unavailable markets. Changhong and Shanda are examples.

These examples also illustrate that the primary motivation behind strategic alliances is access to resources, not financial gain, although this is certainly an objective of the business as well. "In contrast to strategic alliances, the primary driver behind most mergers is the short-term, immediate financial outcome," said Dorothy Langer of the ACG Network, an association that studies corporate growth, development and mergers. Ge also pointed out that most strategic alliances are formed for relatively simple purposes, such as to develop a new product. Galanz is an example. However, after sharing the initial joy of success, many partners continued to pursue and expand the scope of cooperation.

Canon and HP: Complementary resources

Like many companies with proud histories, HP is committed to independent research and development. After all, it has a glorious history of independently developing new products, such as developing the first portable scientific calculator, and has leading technologies in printers and network servers.

However, like many other leading companies, HP faces the pressures of globalization and increased competition that are forcing it to change its mind.

Lew Platt, who was Hewlett-Packard CEO in the 1990s, said: "I don't think even a company of HP's size has the knowledge in all areas. So finding an alliance partner is very important. Important." With this line of thinking, HP entered a new era of strategic alliances.

Most notable of these was a partnership with Canon, which agreed to develop and supply built-in units for HP laser printers. That's because HP sees that Canon has developed a laser technology similar to that used in CD players, with which it can make printers that are easier to use.

FEPAC, a Panamerican federation of consultants, notes that Canon is already a veteran of strategic alliances, and the company is good at combining its technology with the commercial capabilities of other companies. It is also looking for bigger partners to lead the way into Silicon Valley, where HP is headquartered. Hiroshi Tanaka, one of Canon's project leaders, said: "Finding a partner in Japan is purely useless, and companies in Silicon Valley are 10 or even 20 years ahead of companies in the rest of the world."

So Canon found HP. In order to jointly outperform other competitors, the two companies have combined their advantages. Canon's strength lies in the hardware part, so it is mainly responsible for manufacturing ink cartridges. Hewlett-Packard dominates the business software segment, so it provides the software and the microprocessor that controls the printer, and is responsible for the commercialization of the printer.

This strategic alliance benefits both parties. HP gets the technology it wants at a lower cost than it would have cost to develop the technology itself. And Canon's market share is far greater than it can alone.

Lessons Learned

Canon and HP's strategic alliance embodies an important management principle. Tokuda Akio of Ritsumeikan University in Japan pointed out: "Among all the important roles of strategic alliances, the complementary management resources between enterprises should be emphasized. If an enterprise's accumulated management resources are not enough to meet its strategic development requirements , then it can utilize the resources of the cooperative enterprises in the form of alliances, so that it can use its own management resources in the most advantageous areas and give full play to the effectiveness of these resources.”

The strategic alliance between the two companies also Shows us how synergy makes 1+1 = 3 from impossible to possible. Each company is willing to share its strengths with the other, and the efficiency of the entire system is improved.

Just because they are collaborators doesn't mean the two companies won't compete in other areas. Canon and HP are rivals in color inkjet printers and other products. However, because their goals and procedures are clearly defined in the alliance agreement, the two companies can maintain a relationship that is both pleasant and competitive.

Platt later remarked on the strategic alliance: "The people who compete with us today may be our partners tomorrow. The strategic alliance is so necessary that we can't do everything alone."

Finally, this alliance underscores the top priority for companies seeking strategic partners—finding partners with the same goals. According to Platt: "This is a successful example of finding a partner with complementary strengths."

Procter & Gamble and Walmart: Rivals Become Allies

A strategic alliance agreement allows Walmart and P&G to become partners in the supply chain, ending their long-standing rivalry.

Procter & Gamble is a global leader in consumer products, and retail giant Walmart is one of its largest customers. In the mid-1980s, the relationship between the two giants became tense. P&G has strong promotions, giving retailers big discounts. Walmart took the opportunity to eat in and stock up on P&G products in larger-than-normal quantities.

This caused a lot of trouble for P&G, it produced too much and it hurt cash flow. To boost cash flow, P&G offered more promotional offers, and Walmart responded by buying more, and the vicious cycle between the two companies continued.

In "Reflections," Jennifer M. Kemeny and Joel Yanowitz describe this: "Both companies have responded by doing their best to disrupt The possibility of the other party's success."

So, P&G was determined to turn enemies into friends, and threw an olive branch to Walmart to establish a strategic alliance.

“The first challenge was how to form an operational team of managers from both sides,” said Kemeny and Janowitz. “They held several days of workshops, using systems thinking tools , reached a consensus on the outcomes that common business activities would bring to both parties. Executives from P&G and Walmart found that each other's actions could have been rational rather than self-interested behavior."

Fully After understanding each other's needs, the two companies began to cooperate on the basis of a win-win strategy, and P&G no longer needed to offer discounts to Wal-Mart. "The strategy was so successful that it spread - P&G even stopped almost all of its price-cut promotions, and it almost offended the entire retail industry. But as a result of this, P&G's profits soared."

To make the collaboration work, the two companies linked software systems together, and much information was shared. Now, when stocks of P&G products are low in Walmart's distribution centers, their integrated messaging system will automatically alert P&G to restock, according to reports.

The system also allows P&G to remotely monitor the sales of P&G product sections in each Walmart store through satellite and network technology, and the network will reflect this information to P&G factories in real time. These factories can know whenever a P&G product is scanned at the checkout. This real-time information allows P&G to more accurately schedule production, shipping, and product promotion plans for Walmart. The savings on inventory allows P&G to offer Walmart lower prices, so Walmart can continue its "everyday low price" strategy.

Lessons Learned

Half of strategic alliances end in failure. Procter & Gamble and Wal-Mart avoided several common pitfalls that lead to failure to ensure their healthy partnership.

Procter & Gamble and Walmart work together to ensure the following four areas, the lack of which will result in the failure of the alliance.