Mr. Muhamed Muneer

Recent news about competitors joining hands in the name of  strategic alliances rocked the industry to a great  extent. Airlines giants British Airways and American Airlines decided to work together a few months ago. Similarly telecom goliaths MCI and British Telecom also joined hands forgetting their enmity. The grapevine has it that the electronics and entertainment industry leader Sony is planning to have a tie up with Toshiba and Philips pretty soon. Closer home, we had Godrej Soaps and P&G sometime back although they broke up soon afterwards. Glaxo and SmithKline Beecham is  another example. All these created big news. So, the question is, is strategic alliance a tool designed only for the Goliaths?

Quite on the contrary. Small businesses form strategic alliances more often than one might imagine. More than that, many of the firms that do are among the most successful. For instance, advertising agencies such as Chaitra and Sista owe their success to such a strategic alliance with international ad agencies Leo Burnett and Saatchi & Saatchi respectively. The makers of Velvette shampoo and Anoop Hair Oil owe their outstanding success to this strategy.  Both had tied up with Godrej Soaps although Velvette broke away later on.

The practice is known by various names: strategic alliances, outsourcing, and specialising, among other terms. What is important is that whatever it is called, it is happening.

Alliances no longer are the exclusive realm of  big companies. Some of the more noteworthy forms included making long-term alliances with the following:

* Advertising agencies:-  They are increasingly being used for functions such as product research, acquiring databases, and designing market strategy. Such alliances exist especially among the upcoming small agencies in every country. Ulka, Ambience and  Clarion have recently sold part of their equity to their foreign partners in a move that would help them grow in the country and to provide upgraded services to their global clients. Most agencies go for such tie-ups with major international agencies. Many prominent industrial groups have realised the potential of having either an in-house agency or a stake in their agency. Mudra is one example.

* Suppliers:-  It is expected that they and buyers will operate together over a period of time to develop  mutually beneficial operations. This is widely seen in the tread rubber industry where tread rubber manufacturers and tyre re-treading units form such long-term relationships. It is also seen in other industries also. For instance Akai is having an arrangement with their local distributors for manufacturing their TVs here. The hospitality industry frequently gets into such alliances with FMCG manufacturers in the small sector.

* Transportation carriers:-  This includes trucking firms, for moving and storing goods and for helping in the  decision-making of logistics. It would not be long before you see leading courier firms fitting into alliances with local transportation firms.

* Public warehouses:-  An example is contracting  for  storage services, meshing operations to the extent that they operate much like a department of the small business. Sometimes even major multinationals get into a tie-up with such warehouses.

* Freight  forwarders:-  This  is especially important for companies that sell some or all of their output abroad. Some of the 100% export oriented units in the small sector entertain this kind of alliance. MSAS, the international air freight agency, works in close collaboration with a local agency in India and advises their small clients on cost-effective freight forwarding.

* Supplier and customer firms:- In some cases, small businesses are making minority investments in supplier and   customer companies to cement their joint efforts. For example, Xerox encourages their customers to set up Xerox Copy Centres with ample assistance from them. Last heard, Ricoh, the world's largest manufacturer of copiers, is also planning a similar move to popularise their own terminology for copies, the Richopy.

What is significant is not that small businesses are forming co-operative ventures, it is that more are doing so.

What are their motivations for bringing up such alliances?  These are many and varied. One is the desire to specialise in the core business. Numerous small marketers have found that they cannot be experts in advertising, transportation, warehousing and servicing, and still be competitive in their major business functions.

Increased  competition  is  another  spur  to   forming  strategic alliances among small businesses. This is  what  drives the Goliaths on the same path. Faced with a sluggish economy and heightened competition from domestic  and global rivals, many of the small companies are looking for ways to trim costs and deliver value.

Their continued existence may hinge on how well they outdo rivals. Perhaps the most widely publicised form of alliance is outsourcing. Some small firms restrict their functions primarily to marketing and buy their finished  goods inventory from suppliers, often located abroad. Most television companies were doing this till recently. Computer firms here are doing this even now. Today, fax machines are sold in this manner by small business houses. Muratech is just one of them.

If the suppliers are able to contain costs and maintain product quality, forming a long-term contract with them may be  a good  arrangement for the marketer. It is precisely for this reason that Shivaki sticks to their Korean suppliers. Shivaki is yet another example with a registration in Japan, and assembly unit in Jebel Ali in Dubai, with components sourced from all places but Japan.

The  need for speed in adjusting the marketing  mix  is another factor adding impetus to the strategic alliance movement. In  the past, small firms could comfortably introduce products, alter  prices, bring in new promotion  strategies, and change distribution channels at their own pace.

Today, however, the rate of change has picked up, and the more successful firms often are the first to make  needed changes. In most cases, it is quicker to form a union with an existing company with expertise or resources in some function than it is to generate the needed expertise or resources alone, starting  from scratch. It is in this respect that one should recall the case of Velvette shampoo. Their makers lacked all these at the time of start-up and so wisely joined hands with Godrej Soaps. This in fact helped Velvette to become a leader in its segment and in the process they created the sachet revolution.

If the goal is to develop new products, for example, a company that has technological strength may be wed to  one  that has  fine-tuned marketing  expertise. Golden Valley was a new brand in the mineral water segment. Its manufacturers, a Kerala-based company, approached Godrej Foods to market it nationally. Similarly, many small companies had marketing arrangements with Voltas.

Stronger demands by consumers also tend to advance the need for alliances. When consumers demand more value -- products or services tailored to their needs at reasonable prices -- many small  businesses are unable to provide it themselves. With the help of a well-placed partner, however, the skill, funds, and other inputs needed to satisfy consumer demands can be met. The small-time Vysya Bank recently finalised  an arrangement with a Belgium Group to provide upgraded services. They had an arrangement earlier with Citibank to launch their credit cards. They knew that it would be impossible for them to add value to their card what with their humble existence.

Pooling resources on a continuing basis with another company can help to create goods and services that are in  demand by potential customers. The efforts by some banks in offering networked ATM facilities to their combined customers is a case in point. Research and development functions of individual banks can complement each  other, filling voids rather than weaken the other's efforts.

Creating a jointly owned company to carry out research and development can be a good move towards building up a quality customer satisfaction unit. Many small businesses are joining together in sponsoring research organisations for their shared interest. This is an area many of the small businesses here could concentrate on. Automobile dealers, textile traders, electronic resellers and other retailers can get together in conducting consumer research, and joint promotions such as the one organised by the Times of India group in Bangalore recently.

Some  industries  are  becoming  more  technologically complex, which also is expanding the practice of forming  alliances. Production processes are demanding larger doses of technology than before, and small firms often are unable to keep up with the skill level needed in this field. This is one major reason for the makers of Old Spice to invite Procter & Gamble for management control. Today, this brand is getting a lot of support from Procter & Gamble worldwide.

However way they choose to do it, small businesses that form alliances have a chance to improve their status in  the marketplace. Yes, it is time for the small firms to sit up and look around a bit more carefully. Caution  to  them:  If  you thought strategic alliances are for the likes of P&G and Sony, you better watch out. Others of lesser size are doing it in their industry and elsewhere, and are moving ahead. Why shouldn't you?  

(By arrangement with Innovative Media)

Feedback and queries may be e-mailed to him directly at muneermuhamed@hotmail.com