Should Companies Jointly Venture

by Sauvik Banerjee
MBA (International Business),
Leeds University Business School,
Asso. Manager, PwC Leeds.

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Part - VI

ADVANTAGES OF ALLIANCES FOR SME's

The formation of trade blocks like the EU, NAFTA and ASEAN has opened up avenues for industry and more importantly has given SME's the opportunity to withstand the pressure that MNE's exert to push down prices as they used locational advantages which provided them with both trade as well as non trade subsidies along with the opportunity to use transfer pricing to kill competition. Most strategic management practitioners would agree that the two main foundations for a company to be successful would be either to become a cost leader or have a differentiated portfolio of products.

SHORT COMINGS

Many experts have argued that alliance are fragile and do not last for ever. Statistics show that half the number of alliances formed dissolve after a certain period of time but most do because they achieve what they had set out to and die a natural death. Issues in relation to running of alliances crop up which if not dealt with can hinder the functioning of most partnerships. Primary amongst them is the issue of control. The management of the alliance is a crucial element in determining its effectiveness. Non-conflicting objective are important as are clear organizational arrangements. Being sensitive to each other's culture also plays a significant part in the success of alliances and the most successful alliances display attitudes of commitment and complete trust between the partners. To be effective over the longer-term partners should display organizational learning in order to be assigned new responsibilities and new projects. If the alliance does not show long-term effectiveness it is important that one partner does not benefit at the expense of the other and that one partner does not become too dependent on the other. Any of the above mentioned problems could lead partnerships to premature deaths.

CONCLUSION

To argue that alliances and joint ventures are the only effective way forward would be a rather unreasonable deduction. But for most SME's with limited resources and technological know how this process of growth seems to be the ideal option. Not for once would we argue that M&A's are a bad or an obsolete management tool for growth. Far from that it is something that all companies should look into when ever possible and in fact alliances often lead to a merger or an acquisition. But can one argue with the understandable premise that it is sometimes better to live together for a while before tying the knot.

Concluded.