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Should Companies Jointly Venture by Sauvik Banerjee Part - III ALTERNATE STRATEGY OR REAR GUARD ACTION The huge losses burnt a hole even in the deepest pockets and forced strategists to look at other alternative models of growth and diversification, which would be safe as well as, functional. Formation of alliances and joint ventures with companies that provide complementary products and services are one of the options that has gained momentum in the last 15 yrs (Contractor & Lorange 2002) and is proving to be a successful alternative strategy which hedges against imminent risks and also acts as a catalyst to fuel growth. A Booz Allen and Hamilton report shows that between 1987-1997 alliances grew by 25% (Harbison & Pekar, 1997) while a survey by Arthur Anderson indicated that JV's and alliances were expected to in five years account for 16-25% of median company value and more than 40% of market value. Anand and Khanna (2002) in their study have indicated that alliances account for 6-16% of the total market capitalization of US firms. Thus from being just an emerging market curiosity alliances have indeed revived (Oxley, 1999) and have been accepted as a method of adding value to a firm which is more direct, focussed and central to a company's strategy (Lorange & Roos, 1992), is more likely to involve a large number of competitors and is more knowledge intensive (Duysters, Kok and Vaandrager, 2000). It has emerged as a viable alternative to M&A's, which is more expensive as they require a large capital outlay. ALLIANCES & JOINT VENTURES
"The imperative to build or buy has diminished considerably in the past few years, as chastened managers lick their wounds caused by failed acquisitions. But instead of a buying spree, managers are on a "bonding spree, discovering, for all the right reasons, that alliances are a far more predictable - and manageable - engine for growth. And if the "marriage doesn't work," well... nothing ventured, nothing lost."
"Alliance may be the most powerful trend that has swept (global) business in the past 100 years. Strategic Alliances are hot."
"There is not only a surge in alliances, but a worldwide restructuring for major corporations is occurring in the shape of alliances and partnerships." The above statements by the guru's of modern management point to the fact that alliances and joint ventures are arguably the best way forward and the first statement by Pekar.P.Jr and Margulis.M (2003) is made keeping the perspective of inexperienced small to middle market firms in mind and is a follow up to their article "The next wave of alliance formation: Forging successful partnerships with emerging and middle market companies (2000). |
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