Strategic Alliances: together we are stronger

| March 25, 2020 | Articles

alianzaThe high level of competition in international markets has led companies to realize that in order to survive and be successful it not sufficient to improve internal operations. It is necessary to reach out beyond the organization in search of strategic alliances among members of the supply chain in order to compete successfully.

With the increase in trade agreements among different countries and regions in the world, small and medium enterprises (SMEs) must face international competition as equals, both in external and internal markets. Given this scenario, forming strategic alliances among members of the productive chain is an excellent way of improving competitiveness and efficiency among all players. 

Through cooperation it is possible to combine competitive advantages between players in the supply chain for purposes of sharing resources, reducing risks and facilitating joint projects that will allow improving the risk-cost-benefit relationship for all. The organizations that form strategic alliances can access a greater variety of external resources: from improved market access, credit for expanding working capital, better input prices, general advisory, market research, advertising support and learning through interaction.

What are strategic alliances?

A strategic alliance means several companies in a value chain developing a close relationship. This implies a change in the traditional positions, where suppliers, wholesalers and retailers are seen as “partners”. They share more information and jointly draw up business, sales and promotion plans, participating as a single team in the research and development of products. They also analyze and plan the way of growing together, in other words, they analyze supply and demand as well as coverage.   

As a result of this collaboration, the productive process becomes more agile and benefits all members of the value chain. According to an Economic Commission for Latin America and the Caribbean (ECLAC) publication, it is important to take into account that all members should have the same central approach in regard to diminishing inventory raw material levels (input), intermediate and finished products and distribution costs. 

Cooperation advantages

In an efficient supply chain it is easier to identify the exchange and production costs throughout the chain. Bringing these costs down allow the the price of the final product to go down as well, making it more competitive in the market, and therefore, more beneficial for the entire chain. Integrated productive chains also facilitate a more efficient use of working capital. A higher coordination among members can facilitate a more efficient use of raw materials, of the manufacturing process inventory and final inventory, and can also optimize the exchange between available products and inventory possession costs.

A document from the Spanish Ministry of Industry, Tourism and Trade also indicates that one of the main objectives of forming strategic alliances is lowering the cost of inefficiencies. Enhanced coordination among players seeks to diminish total production and product delivery times, increases service quality, regular availability of goods, improves reliability on demand statistics, establishes more reliable trade relationships with partners in the chain, and promotes synergies, among other aspects.

An adequate supply chain plan helps to maximize knowledge and feedback, hence diminishing transaction costs among participants in the chain. Learning through interaction is key in the innovation process, especially where dynamic competitive advantages are created in the value chain. It is important to keep in mind that the value chain must be structured with the aim of improving customer service. An effective alliance seeks to assure the company that the product will be available at the required time and place, at the adequate price and with the added value to the customer as a result of a better understanding of its needs, translating into an increase in user satisfaction.

Also, in value chain cooperation strategies prevails the notion that the competition will cease to be a zero-sum game, where the earnings of a competitor are necessarily at the expense of the other, and where strategies are oriented not so much towards the competitors but towards the customers. From this perspective, new collaboration paradigms and win-win models have emerged both for SMEs and for the other players in the productive chain.

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