Strategic alliances are considered the “need of the hour” in today’s business world because they enable companies to achieve goals that cannot be achieved alone. Strategic alliances help companies to gain  competitive advantage, access new markets and technologies, reduce costs and reduce risks, and rapidly scale up their operations in a fast-paced and complex global business environment. In today’s VUCA world of complexities and competition is making survival of businesses difficult. Partnering with other companies allows businesses to combine resources and expertise to innovate and thrive.

Joint ventures are strategic collaborations where companies pool complementary assets and resources to achieve common goals, such as accessing new markets, sharing risks, or fostering innovation. The JV partnership is complimentary in many ways. Companies contribute supportive resources like technology, market access, distribution channels, or manufacturing expertise to the venture.

A joint venture (JV) typically creates a new, separate legal entity, while it is a formal legal structure because it involves the creation of a separate, new legal entity. A strategic alliance is a less formal partnership that can occur with or without an equity exchange. The key is the synergy created by combining unique strengths, expertise, and capabilities that a single company might not possess, leading to shared profits, losses, costs, and rewards.

How JVs work

Joint ventures create value for customers by bringing together combined resources and expertise to develop innovative products and services, offering access to new markets, and providing more compelling and higher-quality offerings than a single company could deliver alone. This collaboration results in a wider range of choices, competitive pricing due to shared costs, enhanced product features, and increased customer convenience through bundled offerings.

Partnering for specialized strengths

Companies form a joint venture to pool their unique skills, resources, and assets that complement each other.

Shared goals

They work towards a common objective, such as creating a new product, entering a new market, or developing a specific technology.

Defined contributions

Each partner contributes its specific complementary assets to the venture.

Complimenting Partnership TATA-Starbucks JV

The Tata-Starbucks joint venture, called Tata Starbucks Limited, pooled assets by leveraging Tata Group’s real estate and properties (like Taj hotels and Star Bazaar) for opening Starbucks outlets, and Tata Coffee’s sourcing and roasting facilities for the Indian market. Starbucks contributed its global brand, modern retail expertise, store design, and supply chain capabilities, while Tata provided its local market knowledge, existing brand equity, and access to consumer segments. Tata leveraged its existing properties and relationships with other Tata Group firms like Taj Hotels and Star Bazaar to find locations for Starbucks outlets. Tata Coffee provided its facilities and expertise in sourcing and roasting green coffee beans from India for the Indian market.

Tata provided crucial understanding of the Indian consumer, market dynamics, and regulatory environment, which was essential for adapting the Starbucks brand to Indian tastes. Starbucks brought its globally recognized premium brand, its extensive experience in running a global coffeehouse chain, and modern retail strategies. Starbucks shared its expertise in establishing and managing supply chains and introduced innovative products and store designs. Starbucks provided its advanced management systems and operational processes for managing the business effectively. The 50:50 joint venture used its combined resources to create a unified, integrated business model. Tata’s physical infrastructure and knowledge of the local consumer were integrated with Starbucks’ global standards and brand management. This allowed Starbucks to enter and establish itself in the Indian market quickly and efficiently, while simultaneously giving Tata a position in the premium coffee retail sector.

Creation of Synergy

When two or more things work together to produce a combined effect that is greater than the sum of their individual effects, essentially meaning “the whole is greater than the sum of its parts”. It describes a cooperative action where combined efforts create a more valuable or effective outcome than those same efforts would achieve separately.

Another example is of Honda-LG

In 2022, Honda and LG announced a joint-venture aimed at leveraging LG’s expertise to boost the production of lithium-ion EV batteries for Honda’s electric vehicles. Plans included the construction of a state-of-the-art battery plant in Colombus, Ohio, by the end of 2024 and commencing mass production by the end of 2025.

The companies jointly agreed to set up their battery manufacturing facility in the U.S., stemming from their mutual understanding that increasing local electric vehicle production and securing a timely battery supply would optimally position them to tap into the fast-expanding North American EV market. The venture will not only help meet the increasing demand for electric vehicles but also bring significant economic benefits to the region . 3,000 new jobs in Ohio. What made this JV successful? It created synergies

Combined expertise

This partnership allows Honda to build on its expertise in vehicle manufacturing while benefiting from LG’s expertise in lithium-ion battery technology.

Strengthening the supply chain

By pooling resources from both companies, the joint-venture has been able to strengthen the overall supply chain.

Developing innovation

The collaboration has resulted in a cross-pollination of expertise that will feed the growing demand for EV vehicles and create profits for both companies.

Conclusion

Joint ventures (JVs) between two or more companies have proven to be a highly effective way to develop new business opportunities or expand into new markets.

SWOT analysis is a strategic planning tool which is used in helping an organization to identify Strengths, Weaknesses, Opportunities, and Threats related to competition and in strategic planning. SWOT helps in situational assessment or situational analysis.

Like the 4 Ps of marketing (Product, Price, Place and Promotion) there are 5 Cs of marketing.   The 5 C’s stand for Company, Collaborators, Customers, Competitors, and Climate. These five elements help in performing situational analysis which is strategic process that helps in identifying opportunities and threats both internal and external to an organization. The 5 Cs also help product positioning which helps in reaching the target segment. 

Company

Strengths and weaknesses are internal factors. They are the areas on which organizations have some control over; they can be changed or modified little easily as they are internal. For examples weaker employees can be trained, can be mentored, if organization has patents and intellectual properties it enjoys an upper hand over competitors.  Location advantage is big strength of an organization.  However, opportunities and threats are external in nature. Companies can take advantage of opportunities and protect against threats, but they can’t change them. Examples include competitors’ pricing, prices of raw materials which depend largely on supplier cartel, and buyer behaviour trends.

Before analysing external factors, organizations need to look at internal factors. They need to look at areas in which they enjoy competitive edge over their competitors. If an organization maintains innovative company culture for example Apple whose success largely comes from their approach to innovation. The company continuously improve their existing products which eventually leads to ‘Creative Destruction’. The iPhone which is Apple’s most successful product came from mixing their existing products the iPod and iTunes and combining them with a phone and camera which resulted in a product unlike any other at the time. Apple’s iPhone created huge market disruption. Apple enjoys unique product knowledge, excellent efficiency and productivity among employees and it is too good in giving customer service that creates fantastic sales and happy customers.

Customer

Happy customers build the company brand. Positive brand reputation leads to higher growth. Reputation goes a long way in a business. It attracts customers, investors, partnerships, and employees. While seeking to improve reputation organizations must start with excellent customer service. Keeping current customers happy results in more stable revenue and more accurate predictions. Exceptional customer service is the unconditional commitment to giving the highest level of product or service to every person, regardless of the circumstances.

Today’s digital age is compelling organizations to relook at their customer-centricity promises. Companies struggle to get customer insights from other industries to match their offering. Organizations cannot rely on benchmarking from the industry they exist. For example, HDFC Bank mobile banking app was compared with the Ola app in terms of simplicity. Consumers are now accustomed to best-in-class user experiences both online and offline. A customer-centric organisational culture is no longer just a good thing rather it is a necessity for survival.

With Taj hotels is the best known for its customer service. Customer delight is present in every interaction with guests. The staff whether in housekeeping, at the restaurants, or room service all are very kind and at the service of their customers. Taj employees go out of their way to give the best hotel stay experience to their customers. So, rather than a customer service process, the customer service culture shines through.

Climate

The climate in the 5 Cs of marketing approach stands for external factors opportunities and threats of SWOT. It refers to the attitude of government and lending institutions towards business activity. It also includes the tax rate, inflation and attitude of labour unions towards the employers. Favourable business climates lower risks, reduce costs and connect companies to customers and quality workers. There is no one-size-fits-all approach to business climate change. Each company’s approach depends on its particular business model. Energy, Commodity, Financial, Technology sectors are most volatile industries.

Since past 2 years, sports utility vehicles (SUV) sector is performing well. India’s major automobile manufacturing companies includes Tata Motors, Ashok Leyland, Mahindra & Mahindra, Force Motors, Maruti, Toyota, Hyundai, Kia etc. The craze for SUVs is increasing day by day. At present that waiting periods for some of the most popular models are stretching to over two years, and fresh orders are still flowing in. Car buyers are now willing to spend more on their personal mode of travel and are preferring top-end cars. The SUV segment is enjoying a healthy business climate in India. The SUV segment’s contribution, which was around 19 per cent of the industry, has now gone up to 40 per cent in 2021-22.

Collaborators

In today’s business world, companies are usually deeply tangled, providing each other with services that are vital for day-to-day operations. Collaboration is when a group of people come together and contribute their expertise for the benefit of a shared objective, project, or mission. For example, if an organization needs to control its marketing efforts, it needs to map out entire supply chain, listing all of the third-party distributors, suppliers, partners and contractors. The reason collaborators must be a part of the 5 C analysis is that collaborations create synergy.

Last year Sabyasachi the famous women designer Indian clothing collaborated with H&M global brand. For Sabyasachi Mukherjee also it is a first with a high-street retailer. He has collaborated successfully before with French Shoe Designer Christian Louboutin and New York-based luxury department store, Bergdorf Goodman. Sabyasachi has dedicated a lot of attention to online interactions with consumers and is aware that online interaction with consumers can increase the position of the brand in the market. #SabyasachiSaree is a trend that never goes out of fashion in India. This, he has used to an advantage. It is for the first time that H&M have had a saree in their collection. Being the second largest clothing retailer in the world, it is present in 74 countries with over 5,000 stores under the various company brands, and the saree has never before featured as fast fashion. Imagine, if the trend takes off, this would be what saree enthusiasts only dream of. Sabyasachi’s collaboration with H&M has deepened Sabyasachi’s global market share.

Collaboration leads to more innovation, efficient processes, increased success, and improved communication. Collaboration helps in increasing strengths of a company.

Competitors

No business operates in a vacuum. Whether its sole proprietor shop or a or a large company, a product is always being judged in comparison that provides the same value. Healthy market competition is fundamental to a well-functioning economy. Basic economic theory says that when firms have to compete for customers, it leads to lower prices, higher quality goods and services, greater variety, and more innovation. Competition is critical not only in product markets, but also in labour markets. When firms compete to attract good employees, they must increase compensation and improve working conditions.  Firms grow when they are grounded and they spend sufficiently on market intelligence. Competition is an important C in the 5 Cs model. 

The detergent market in India can be divided into premium (Surf, Ariel), mid-price (Rin, Henko, Tide) and popular segments (Ghadi, Wheel, Nirma, Mr. White). Regional and small unorganized players still account for the 40% market. Per-capita consumption of detergent in India at 2.7 kg is the lowest in the world.

In 1987, Ghadi was launched by RSPL (Rohit Surfactancts Pvt. Ltd.), the product was also less priced and targeted at the rural customers, middle class and lower-middle class customers. It also had more or less the same positioning strategy as Nirma. In 1988, HUL launched Wheel to take on Nirma. In early 2000’s Wheel beats Nirma and takes the No.1 spot. In late 2011 and early 2012, Ghari beats Wheel and takes the number one spot in Indian detergent industry. These detergent brands fought with each other on the basis of price.  Competition reduces prices which helps people from lower income strata to buy products.

In the 70s the multifactoral GE matrix was created by McKinsey consulting company for GE (General Electric Company). GE is famous for handling a wide array of complex and unrelated products under its umbrella. The company was not happy for the returns on investment it was getting from many of its products. After all running too many diverse businesses is not a joke. The method for investment decisions was based on various projections such as future cash flows, market growth, quarterly investments, employee retention and operational adversities etc. There projections remained unreliable and inaccurate. GE brought the consulting firm McKinsey & Co on board and the 9 box matrix was designed.

The matrix is a 3×3 grid. The Y-axis measures industry/market attractiveness while the x-axis measures the business unit strength. The scale is high, medium and low. A few key steps are necessary to create this matrix.

1. List the entire range of products created or sold by a particular strategic business unit.
2. Identify the factors that make a specific market attractive.
3. Evaluate the strategic business unit’s position in the market.
4. Calculate the business strength and market attractiveness.
5. Determine the strategic business unit’s category: High, Medium or low.

Steps to use GE Matrix:

Step 1: Determine Industry Attractiveness of Different Business Units

Industry attractiveness can be determined by compiling a list of relevant factors which determine industry attractiveness. The company must assign scores to the factors such 5 for high, 1 for lowest. Then it must calculate the final scores of ach SBU.

Because there is no rule for assigning weights and ratings, companies will usually need to hire a consultant or an industry expert to help ensure that an accurate analysis is conducted.

Step 2: Determine the Competitive Strength of each Business Unit

 In this step the firm must compile strengths and weaknesses of each SBU. Also, make sure of how to make best use of each SBU for the business on the whole.

Step 3: Plot the business units on a matrix

 with all the scores needed in hand, the business units can now be plotted in the matrix. Each unit is denoted by a circle with the size of the circle representing the same proportion as the business revenue that the unit brings in for the company.

Step 4: Analysis of Information

 Based on the position of each business unit in the matrix, there are three actions a company can take for each unit. These actions are to invest/grow selectivity/earnings and harvest/divest. Each unit falls within a certain set of boxes and this position determines the action to be taken.

Invest/Grow:  These are the units that will gain the most investment as they promise the greatest future returns. Because of their growth potential, these units will also require large amounts of investment to allow them to grow or maintain their share in a growing industry.

Selectivity/Earnings: Investment is put into these business units if there is some to spare after giving it to those units in the grow category. These are uncertain businesses and it cannot be stated with any clarity if they will continue to grow in the future or decline. If the unit is in an important and bigger market, then it may be worthwhile to invest further to keep a step in the door.

Harvest/Divest: These are units in an unattractive industry with no sustainable competitive advantage. They are not able to achieve any advantage and perform under expectations. If the company has surplus cash, then there can be investment in those units who manage to make enough cash to break even and there is some strategic advantage to keeping them around. If this is not the case, then the units should be divested and liquidated.

Step 5: Identify future direction of each unit

 This matrix only helps a company determine the current state of the industry and competitive strength with no indication of the future and where things may be headed. With the help of an industry analyst, the company may be able to determine the potential direction the future will take. Will the industry grow more or less attractive or will it stay the same? Within the matrix, an arrow is added to each circle, showing its future direction.

Step 6: Prioritize Investments

The final step in the matrix analysis is to decide how much amount to invest in SBUs? Are some units really worth the investment? How much should be invested in each unit? Which area within a unit should get more investment than others?

Example: For instance, in 2013 Apple Inc took help of this matrix. Apple Inc has a variety of business units each operating in a different market. Business units include desktop computers, laptops, tablets, portable music devices, smart phones, watches and smart phones etc. The market attractiveness access was determined easily by the researcher using information about external factors such as current market size, market growth rate, barriers to entry and state of technological development. The matrix showed that Apple remains moderately or very strongly in each of its units and is competing in many attractive and fast growing sectors such as tablets and smart phones. These units were unlikely to be divested and instead will be fed from the revenues of cash cows such as personal computers and iPods. There were significant barriers to entry in these high-tech markets with high investment required to gather the required expertise and technology, despite Apple’s dominance, the best areas to compete with Apple remain the newer and faster growing markets of tablets and smart phones.

Limitations of GE McKinsey Matrix:

1. GE Matrix is costly to manage.
2. The Matrix does not consider the synergies existing between the businesses (SBUs).
3. The matrix cannot be interpreted without help of a senior business analyst to determine the company strength or industry attractiveness.
4. It does not help predicting future of industry.

Some negative facts about synergy are that many of the attempts to synergise never get beyond a few obligatory meetings. Others generate a quick burst of activities and then slowly fade out. Others become permanent corporate fixtures without ever fulfilling their original goals. In short, the attempts are termed as ‘learning experience’ to coax the failures.  The quest of synergy often represents a major opportunity cost as well. It distracts managers’ attention from the nuts and bolts of their businesses, and it gushes out other initiatives that might or might not generate real benefits. At times, the synergy programs actually backfire, eroding good relations with customers and marketing channels damaging brands, or damaging employee morale. A simple fact is, many synergy efforts end up destroying value rather than creating it. Synergy is sought in all functional areas by businesses.

What does Operating Synergy mean?

When the combined value of two firms is greater than the sum of the separate firms apart and, when the combined firm allows for the firms to increase their operating income and achieve higher growth it is termed as ‘’Operating synergy’.’ Operating synergies arise from the following:

Economies of scale, greater pricing power and higher margins resulting from greater market share and lower competition, combination of different functional strengths such as marketing skills and good product line, or higher levels of growth from new and expanded markets.

Operating synergies are achieved through merger, acquisition or takeovers of firms which have competencies in different areas such as production, research and development or marketing and finance can also help achieve operating efficiencies. Tata Steel which is one of the biggest Indian steel companies; it took over Corus which was Europe’s second largest steel company in 2007. Tata Steel’s takeover of the European steel major Corus for the price of $12.02 billion made the Indian company, the world’s fifth-largest steel producer. The acquisition was intended to give Tata steel access to the European markets and to achieve potential synergies in the areas of manufacturing, procurement, R&D, logistics, and back office operations.

What does Financial Synergy mean?

Financial synergies are most often appraised in the context of mergers and acquisitions, but latest strategic alliances include strategic partnerships. These types of synergies relate to improvement in the financial metric of a combined business such as revenue, debt capacity, cost of capital, profitability, etc. Examples of positive financial synergies include: Increased revenues through a larger customer base, lower costs through streamlined operations, talent and technology harmonies.

In addition to above, financial synergies can result in the following benefits post acquisition: Increased debt capacity, greater cash flows, lower cost of capital, tax benefits etc. The Renault-Nissan (Franco – Japanese) strategic partnership or car making alliance expects to generate 5.5 billion euros ($6 billion) of synergies in 2018 by integrating more divisions and sharing resources better within the partnership. Increased union between the French carmaker and its 43.4 percent-owned Japanese partner generated more than 4 billion euros in synergies in 2015.

The two companies go together to benefit from cost cutting.  As of December 2016, the Alliance is the world’s leading plug-in-electric vehicle manufacturer, with global sales since 2010 of almost 425,000 pure electric vehicles, including those manufactured by Mitsubishi Motors which is also now part of the Alliance. The strategic alliance partnership between Renault and Nissan is not a merger or an acquisition. The two companies are joined together through a cross-sharing agreement. The structure was unique in the auto industry during the 1990s consolidation trend and later served as a model for General Motors and PSA Peugeot Citroen.

What is Marketing synergy

Marketing synergy implies that the marketing-mix makes for overall effectiveness. For example, by grabbing an opportunity which makes it possible to gain increased utilisation of existing marketing and distribution facilities, it may be possible to enhance sales revenues without causing a proportionate increase in costs. Hero Honda Ltd was a joint venture between Hero Cycles of India and Honda Motor of Japan. Hero Cycle’s long experience about Indian road conditions including Indian rural and urban customers was wholly combined with Honda Motor’s superior technological capability to create the expected  synergy effect for producing a highly fuel efficient and sturdy motor cycle to suit the exact requirements of the Indian customers and meet the rough road conditions as early as 1985. The partnership lasted for 26 years.

What is Synergy Bias

The quest of synergy often distracts managers’ attention from the nuts and bolts of their businesses. It has been observed that most corporate executives, whether they have any special insight into synergy opportunities or not, feel they ought to be creating synergy. The achievement of synergy among their businesses is vividly linked to their sense of their work and worth. In large business groups, the synergy bias reflects executives’ need to justify the existence of their corporation, particularly to investors. Perhaps primarily, it reflects executives’ real fear that they would be left without a role if they are not able to promote coordination, standardization, and other links among the various businesses they control.

The synergy bias becomes an obsession for some executives. Desperately seeking synergy, they make unwise decisions and investments. It’s been observed that when companies with surplus human resources in terms of skilled managers and staff can best be utilized only if they have problems to solve. When organizations start utilising their senior managers and skilled staff for focusing on synergy, they tend to lose focus due to failure to devise a concrete plan with suitable involvement and control, and lack of establishing necessary integration processes. Ebay purchased Skype for USD 2.6 billion, later to be sold at just USD 1.9 billion after four years, was a failure due to challenges in technical integration and over-expectations from customers. Ebay expected synergy coming from Skype being established as the communication medium between buyers and sellers on its marketplace platform, which unfortunately did not become popular among its market participants. Avoiding such failures is possible which requires a whole new way of looking at and thinking about synergy.

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