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SMEs: Mastering the art of collaboration

The novel coronavirus has been devastating in terms of impact on economies, businesses and household. Due to this, businesses and activities today are facing increasing levels of competitive pressure and difficulty in improving or sustaining performance. The new normal has made the management of many companies seek innovative strategies to advance their company’s competitive advantage as well as their profitability. To stem the negative impact of COVID-19 on businesses, among the strategic tools gaining prominence at present is a strategic alliance. Different strategies can be employed by SMEs and large firms to gain entry into new markets or stem the tide of the COVID-19 impact, however, strategic alliance comes with a cost advantage.

It is usually a collaborative arrangement and has been adjudged the core elements of today’s business tactics. A strategic alliance can be described as a concerted effort by two or more independent firms to have a collaborative and synergistic relationship in terms of human and material resources for mutually beneficial objectives.

Simply explained, in the street of Lagos State Nigeria, a usual scene is that of food hawkers, one that comes to mind is that of local cooked beans sellers (ewa aganyin) on one hand and bread sellers (Agege bread) on the other hand. They strategically collaborate to hawk side by side, thereby securing more patronage as bread taken with beans is a popular staple meal for teeming Lagosians. Even at that level, evidence suggests that forming alliances enhance business performance. The formation of strategic alliances in these times can be seen as a strategic business response to the COVID-19 pandemic and the increasing uncertainty and complexity in the business environment.

Strategic alliance is crucial and can guarantee an improved competitive advantage. However, it is a bit different from the formal business partnership because the collaboration may not involve stringent business partnership registrations and logo adoption

In simple words, a strategic alliance is an agreement between two or more organisations or individuals to cooperate in specific business activity so that each benefits from the strengths of the other and eventually gains competitive advantage. Strategic alliances involve organisations of at least two enterprises or specialty units that cooperate to accomplish deliberate critical objectives that are commonly useful. With the COVID-19 pandemic, it is expected that an increasing trend towards business and multi-company alliances will help companies in their business process and corporate culture reviews.

As an example, we might see hardware and software companies collaborate, even creative and musical collaborations are very likely, the strategic alliance between the restaurant and bottled water producers, a delivery company with retail outlets, eateries and poultry farm ventures, a telecommunications company and phone manufacturers including software companies. In addition, producers/manufactures can directly collaborate with supermarket and retail stores. An excellent strategic alliance is generally between two or more parties that provide complementary expertise to each other. Firms can equally explore the opportunity of an international strategic alliance with a foreign company to improve competitiveness and reduce operational cost.

Strategic alliance is crucial and can guarantee an improved competitive advantage. However, it is a bit different from the formal business partnership because the collaboration may not involve stringent business partnership registrations and logo adoption. However, a strategic alliance is just a cooperative agreement between business firms for mutual benefit.

It is simply a collaborative effort that allows businesses to pool and/or share resources such as finance, staffing, skills, expertise and information or knowledge; this approach benefits the collaborators’, and it is a powerful strategic option to grow business performance.

I foresee within the next two years, significant collaboration and several corporate alliances worldwide to sustain business performance and also mitigate the impact of the COVID-19 pandemic. Companies will form this strategic alliances to obtain one or more of the following, technological advantage, product or service demand optimization, reduce the burden of infrastructure constraints, reduce costs of operation, improve customer satisfaction, improve inventory and increase market share, improve economies of scale, a way to bring a new product/service to market faster, reduce financial risk and/or spread the risk, and a way to remain competitive.

There is a large body of knowledge and academic references to suggest that firms engaging in strategic alliances achieve more significant gains and business performance. In fact, many global companies have multiple alliances, and even some global businesses adopt collaborations with numerous partners to improve competitiveness. Therefore, the main reason for strategic alliance adoption is to increase profitability and overall business performance. Application of corporate alliance and collaboration as a strategy helps tackle problems such as lack of capital, marketing issues, weak innovative capability, high operational, poor technology usage, and ineffective logistics management.

Significantly, a strategic alliance is mostly done as a complementary business relationship. More so the alliance amongst businesses is usually based on mutual trust, and a large body of research identifies that the main desire of firms to engage in an alliance is to improve firm’s performance. More so it gives the competitiveness to produce a better performance than when not collaborating.

The overall advantage of the strategic business alliance is that it gives ample opportunities for relational rents and competitive advantage, where relational rent is defined as ‘a supernormal profit jointly generated in an exchange relationship that cannot be generated by either firm in isolation and can only be created through the joint  contributions of the specific alliance partners

It is essential to state that, like any other SME a business alliance may equally face possible problems such as a clash of cultures, a lack of trust, lack of clear goals if not initially defined, lack of coordination between management teams and differences in operating procedures among partners. Cultural clash is probably one of the biggest problems that corporations’ alliances face today. “These cultural problems consist of language, egos, and different attitudes to business can all make the going rough. However, evaluating the performance of alliance partners is an important issue. Furthermore, the individual companies in the alliance should recognise the capacity of their partners to realise the integration of sustainable partnership management through communication, visions, missions, motivation and attention to achieve a conducive collaboration.

Consequently, companies can stay aloft during and after pandemic and gain economies of scale by considering a strategic alliance proposal, which may be a better option than a merger or acquisition. Because forming alliances with complementary businesses can expand company scope and capabilities. It will make a substantial impact during this era, and organisations seeking alliances can always look for partners who will help them create value for customers at lower costs.

Conclusively, strategic alliances are increasingly becoming an essential part of overall corporate strategy, as a way to grow product and service offerings, develop new markets and leverage technology and R&D. Vibrant markets for products and technologies, combined with the expanding expenses of cost of doing business, have brought about a noteworthy increment in the utilisation of alliance.

Strategic alliances are progressively turning into a critical piece of general corporate strategy, to develop goods and services, grow new markets, influence technology, research & development. So, if you require any form of help to address a question like “What does it take for strategic alliances to succeed?” Then you might need to get across to the author. Good luck!

How may you obtain advice or further information on the article? 

Dr. Olubiyi is an Entrepreneurship and Small Business Management expert. He is a prolific investment coach, Chartered Member of the Chartered Institute for Securities & Investment (CISI) and a financial literacy specialist. He can be reached on the twitter handle @drtimiolubiyi and via email: drtimiolubiyi@gmail.com, for any questions, reactions, and comments.

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