Business alliances

A business alliance is an agreement between businesses, usually motivated by cost reduction and improved service for the customer. There are five basic categories or types of alliances:

·         A sales alliance occurs when two companies agree to go to market together to sell complementary products and services.

·         A solution-specific alliance occurs when two companies agree to jointly develop and sell a specific marketplace solution.

·         A geographic-specific alliance is developed when two companies agree to jointly market or co-brand their products and services in a specific geographic region.

·         An investment alliance occurs when two companies agree to joint their funds for mutual investment.

·         A joint venture alliance occurs when two or more companies agree to undertake economic activity together.

Benefits

• Allows you to enter a target market rapidly and give you immediate credibility so that it is easier to develop business.

• This will help you to reduce operating costs by sharing office space, using local staff, and reducing travel and communications costs etc.

• Enable you to address local regulatory requirements that may prevent or delay you from independently carrying out your business.

• Increase customer confidence by working with a well-known local partner.

• A good alliance will assist you to learn and understand local culture and business practices quickly.

• Immediate access to an existing contact / customer network from your partner.

• Ensure increased business by partnering with partners in “complementary” businesses e.g. Engineering/HSE Consultancy firm can partner with a local Business Consultant.

Threats

The last thing a business would need is a failure in the export market because of problems with a local partner. Some common problems would be:

• Managing differences in market positioning - Every business positions its market image and operations typically. If this does not match with that of your local partner, you will not be able to create and sustain a market image that fits with the type of service you are offering.

• Handling varying work styles and service standards – Different cultures tend to have differing work styles and service approaches. If these differ from that of your partner, these could result in clashes.

• Creating internal competition through exactly similar business offerings. Choosing a partner with the same core skills instead of complementary ones, you will find that you are creating internal competition despite your partnership.

• Failure due to lack of commitment in the partnership - Any successful partnership requires an equitable investment of time and resources. Any partner who views it otherwise will tend to get disillusioned and the partnership may fail.

• Legal problems due to absence of an exit agreement – Companies evolve and change over a period of time. Such changes may make it impossible to continue with partners who are not in sync with your company’s evolution. Provisions should thus be made to amicably end your partnerships without legal consequences or damaging your future prospects in the foreign market.