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The globalization of business models and dramatic changes in the way that businesses operate and compete have resulted in a shift in mergers and acquisitions (M&A) strategy and execution. M&A or organic growth is not always feasible, nor is it always the fastest route to achieving desired objectives in a competitive marketplace. Increasingly, corporations and investors are moving beyond the traditional acquisition/disposal model and using joint ventures (JVs) and strategic business alliances to achieve their business development objectives.
Alliances play a key role in a corporate growth strategy. They are an alternative to the organic option of building a new business from the ground up, or the inorganic option of making an acquisition. Consistent with previous years, PwC's 22nd annual CEO survey results show that 40% of US CEOs plan to pursue a new strategic alliance or joint venture in order to drive corporate growth or profitability in the coming year.
Even as partnerships and strategic business alliances are becoming more important to CEOs, the challenge of managing them is rising. The need for trust, collaboration, and equitable risk-sharing make these arrangements far more delicate to navigate than traditional M&A transactions.
Alliances, if done well, can lead to outperformance and competitive advantage. Nevertheless, these rewards can be accompanied by high risk. Constant vigilance and significant commitment from the senior leaders of each parent is necessary to maintain rigorous, professional end-to-end execution. Despite the fact that there is no “silver bullet” to help facilitate the success of an alliance, there are several factors that can help.
As globalization and competitiveness intensify, more organizations are likely to turn to JVs and alliances as an effective strategy to win in the marketplace. Nevertheless, the complexity and level of commitment associated with these arrangements cannot be underestimated. Organizations that take a collaborative approach built on trust and gain sharing — and combine it with formalized and well-planned execution — will dramatically increase their chance of success and be well-positioned to leverage these arrangements to create a sustainable competitive advantage.
Financial Services Deals Leader, PwC US