Know your strategic alliance options

Are you looking for a way to speed up entry into a new market, improve your productivity, gain a competitive edge or increase your range of products? A strategic alliance may be your answer. For instance, a manufacturer could benefit by outsourcing distribution to a specialized firm, focus on its core business and improve profits. An Internet-based store could fuse with an overseas courier company to accelerate delivery to clients in a specific market. There are many strategic alliance options available today; what's important is to choose the one that fits your business profile.

• Enter new markets with new products and services
• Extend your market reach
• Increase the scale of your production output
• Get better prices through bulk purchasing
• Get access to new technology
• Accelerate research and development by sharing costs and resources

Key factors to consider
When you're shopping for a potential partner, you should carefully assess the risks. Ask yourself these questions:

• Do you have a specific list of attributes that you're looking for: location, market reach, business culture?
• Does your partner have management buy-in or commitment from its board?
• Have you ranked candidates with your specific attributes in mind? Set up a good accounting system and clarify anything that could make data exchange difficult, e.g., rules for writing figures, measures or local currency.
• Do you have the same objectives or goals as your partner? Have you established your expectations together? Don't offer exclusivity to anybody unless a certain sales level is achieved or objectives are attained.
• Will you be competing in the same market? Will this alliance affect your market position?
• Are your brands compatible? For example, a cost-focused company and high-end consumer business might not be an ideal pairing.
• Do you have a clear exit strategy?
• How long will the relationship last; is it a one-time deal or a long-term engagement? Put everything in writing and be sure you have a systematic way of communicating other than the telephone.
• Do you have a strategic plan in mind for your alliance down the road?
• Do you know what kind of contract you'll be signing? If there is a contract, ensure that it's governed by Canadian law. You will also need to define your terms of payment, which vary in different countries.

Types of strategies

• A manufacturer of veneers and plywood joined forces with nine of its competitors to select a common transportation company. After guaranteeing the transportation company a minimum volume, these businesses convinced the organization to give them a flat rate and to invest in equipment to protect their products during shipping.
• Having experienced strong growth through acquisitions, a manufacturer of stone products decided to outsource transportation to a group of employees interested in taking over this part of the operations on their own. To help them get started, the manufacturer convinced 3 other small businesses to use the group's delivery services. As a result, each business obtained better rates and the new transportation company was guaranteed a minimum volume.

Use a larger company's distribution network
By striking agreements with distributors, you can drive more profits in your company. However, it is crucial to assess risks such as performance, relationship structure and product training. Profile potential distributors to ensure that they are aligned with your needs and that your products do not directly compete with theirs. Forming an alliance is much like recruiting a new employee. You want someone who matches your company profile and represents you well. After all, your distributor has both your product and image in hand. This can be a cost-effective strategy; not only do you save costs by forming strategic alliances with local people, you can also rely on their distribution and marketing knowledge. Examples:

• A manufacturer of concrete products convinced a large local lumber company to handle its deliveries as their markets overlapped. Both companies took advantage of this arrangement to simultaneously expand their basic market. The multinational now promotes concrete products in lumberyards, and the small business promotes wood products in superstores and renovation businesses where it already had a presence.
• Because of differences in regulations in the provinces and in the United States, a supplier of truck and auto-body parts had to acquire the knowledge to adapt its products to over 2,000 different requirements. To tap into the American market, it entered into an alliance with a large U.S. company in the same sector. Orders are now centralized in a joint service centre, which checks compliance with local standards and provides some of the after-sales service.

Pass useful knowledge down the chain
You can also work with suppliers closely to develop new products and share knowledge and training to improve your production process. For instance, you can coordinate your production schedule with theirs, reduce costs through size and timing of orders and increase your range of products and services. Keep in mind that you will have to update your partner on any changes in new products and share forecasts to develop accurate sales plans. Example:

Choose the best partner
You should choose your partner based on how the company ranks according to your key criteria, whether it's to expand your market reach in a specific location or improve your transportation. It's important not to be lured by sales pitches that don't meet your demands. You should take the time to do some research, check the credit of potential suppliers and get first-hand advice from other companies that may have dealt with your prospective partner. Remember, that although the price is important, so are reliability and speed. Example:

• A custom furniture manufacturer had difficulties with handling, transportation, and storage. Thanks to an agreement with installers in British Columbia and Mexico, the products for these markets are now shipped in pieces and assembled on-site. The shipments, now less bulky and fragile, are sent by train and save considerable costs.

A joint venture for on-site production
Another alliance strategy is to set up a joint venture where an onsite partner is responsible for production and the distribution of products in a specific area. In general, your partner would transfer knowledge and know-how and you would collect royalties in return. Your business gains from your partner's specific market expertise and gives you easier access to the market. Examples:

• Having developed an innovative product and the requisite machines for production, a manufacturer of timber frame components decided to issue exclusive manufacturing licenses in each U.S. state. This small business now sells, installs, and maintains its equipment remotely via telecommunications. It also collects royalties on the products sold, based on the linear foot. The company prefers this formula to exporting as it foresees an uncertain future for the lumber industry.
• A company that specializes in manufacturing metal structural components had to ship its products by sea to distant markets. In order to penetrate the South American market, this company invested in a Venezuelan business where it transferred its technology and knowledge. Since local companies are familiar with the economic characteristics, business environment and cultural aspects of their region, they have a much better chance of breaking into the market and generating a better return on the invested capital.

In the end, there are many other types of alliances you can consider, depending on your business needs. It's important to select a strategy that will help you bring your business to a whole new level of growth.