Hey. How are you? I’m dandy! Before I talk about strategic alliances let’s a take a moment of silence to reflect on some of the reasons why some Zimbabwean companies fail.
- Poor management
- Insufficient capital
- Lack of planning
- Over expansion (The Herald, 2012)
You can find some more reasons here in an article that I wrote, 3 Reasons Why Some Zimbabwean Companies Are Failing.
I will also add the crowd favourite right here:
- The state of the economy
OK. According to Forbes 90% of startups fail. According to The Herald hundreds of main stream companies have been liquidated over the past few years. I am sure if this issue was it be put to a vote most people would select the state of the economy as the major reason why businesses fail. I would select poor management. Anyway I think that some Zimbabwean companies need strategic alliances right now because they are failing and shutting down like computers. Strategic alliances will help to deal with a lot of the problems that I have listed above. Let us see why this is the case.
A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organisations. This form of cooperation lies between mergers and acquisitions and organic growth. Strategic alliances occur when two or more organisations join together to pursue mutual benefits. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialisation, shared expenses and shared risk. (Wikipedia)
In business it’s hard to soar with the eagles when you are surrounded by turkeys. Choose your strategic allies carefully.
Before we get to how strategic alliances would save Zimbabwean companies you have to know that as a business there are rules that you should follow when you choose your allies. Otherwise you will end up chilling with the turkeys. Here are some of the rules below:
- Focus on your core competencies, then fill the gaps with partners. In strategic alliances hire a strategic ally so that they can do something that you cannot do well. For example HP has an alliance with Canon in the ink jet printer market even though they have products that are related to that. Canon is better than HP when it comes to ink jet printers.
- Analyse and determine if there is a strategic fit between you and the potential ally. Of well known strategic alliances between Daimler and Chrysler collapsed because the two companies had different management styles. Daimler is bureaucratic and Chrysler is the opposite.
- Determine whether or not the positive (financial) impact that this alliance will have is worth the hassle. Some companies just want to grab everything that is in their path and they end up with a portfolio of diamonds and stones. Avoid this at all costs.
- In strategic alliances check to see if the potential partner has been in a partnership before, and how that worked out. It’s like a background check a guy does when he is interested in a lady.
- Check the financial health of your potential partner. You might partner with an entity which is about to go under if you are not careful.
There are many other checks that you have to perform but we will stop here.
Growing up I spent long periods of time walking alone. It was not because I was a bad person or that I was antisocial. It was because I and my ‘friends’ did not share much in common. I was in the wrong alliance.
You also cannot just expect to attract good allies without having something to offer yourself. You also should be able to accept that some alliances suit you and that some do not. You have to know the traits and qualities that define you and that these traits will make some parties want to associate with you and at the same time they will drive others away. I remember in university I had group of people that I liked to call my friends. There was something that I did not share in common with these guys, and that was alcohol. They drank, and I did not. Every time they would point this issue out to me urging me to drink but I did not take it up. It is no surprise that a lot of the times that they went out to have fun they left me behind. After university they stopped hanging out with me altogether. I understood, I just did not fit in. Let us see what qualities you have to possess so that you can attract good strategic allies that will stick around.
- You have to share the right information to prospective allies. From the get go your partners have to know all of the information that can affect them both negatively and positively. You do not want a situation where someone will get a nasty surprise and then end the union. Issues like the risk and benefit analysis have to be accurate and have to be shared before any commitment is made.
- Pay the utmost attention to detail. This is critical as you have to account for as many factors as possible. You have to look at how each partner had planned for the short term and the long term and how your alliance will affect those plans. Everything has to be accounted for down to the fates of the tea boys in both sides of the alliance. If a prospective ally notices that you do not leave any stone unturned it will make them confident that you have the ability to make the partnership succeed.
- Your corporate culture type has to be The Clan or The Adhocracy. This is because you have to be flexible in order for you to merge well and work around the cultural differences that your staff and the staff of your ally will have. The example of the failed merger between Daimler and Chrysler that I mentioned above would come into mind in this respect.
Partners in crime. The Nile Crocodile uses the Egyptian Plover as a toothpick. After a tasty meal the crocodile lies like a log with its mouth open waiting for the Egyptian Plover to show up and pick up the bits of food that are left stuck on its teeth. (Warren Photographic).
The following are the benefits that would accrue to some Zimbabwean companies if they became a part of strategic alliances. These benefits would, if utilised properly, would help to reduce the failure rate of Zimbabwean businesses offering them an escape route from doom.
1 Using Ancillary Services to Improve Your Offerings
Over the years I have seen food outlets like Pizza Inn start certain services, then they stop them, then they start them again. An example of one of these services is Dial-A-Delivery. I do not think that it really caught on with people because it was expensive and you needed to make an order of a minimum size among other factors. Innscor made approximately $5 million dollars less in 2015 than they made in 2014 as shown in the image below:
As you can see Innscor’s revenue is going down. They could do with one or two tactics to make the situation better.
Given their current situation a strategic alliance (or alliances) might be in order. Dial-A-Delivery has the following advantages that could increase revenue for Innscor:
- It would save customers time making take aways easier to obtain as they do not have to go to the food court. This could increase sales
- Traffic at the outlets themselves could be reduced and this added convenience (a better environment and less waiting times) would increase sales from those who like to visit the outlets regardless of whether or not delivery is available
Now the problem of providing such a service is that Innscor would have to incur additional costs such as the following:
- Purchasing the vehicles
- Branding the vehicles
- Licensing for the vehicles
- Unscheduled repairs
- Scheduled maintenance
- Preventive maintenance
- Staff costs etc.
What if Innscor embarked on a logistical alliance with a taxi company or taxi companies? After ironing out all of the potential problems like the possible impact on Innscor’s image Dial-A-Delivery would be back and would probably be cheaper than if Innscor used its own fleet. You see where I am going with this? This could help to push up sales and help to buck the trend. In this case this Zimbabwean company needs a logistical alliance in order to push sales and stop a financial trend that looks like it might become a real problem in the future.
2 Entering New Markets
According to Webdev they are the market leader in Zimbabwe of ‘all things online’. I have always liked Webdev and they seem to be doing well. They have created a lot of websites like:
Things look good on the surface but there is a theme that runs through their whole portfolio. My opinion is that in the long term these websites will probably not give the clients what they require from them in terms of results as they do not seem to be supported by a strategy that will make them very useful. What will happen now is that with time having a website will go down the list of priorities for many companies as they cannot see the return on investment. This will lead to less people knocking on Webdev’s door and so on.
I do not know if Webdev made this next move out of the realisation of what I have just said or it was a result of how they are evolving naturally as a technology company but Webdev has now gone into online payments through their company Softwarehouse (Private) Limited. They launched a website topup.co.zw which has the following promotional alliances, among others:
Through this website the companies mentioned above sell their airtime and electricity vouchers. Through this one move Webdev suddenly has the customers of all of these companies as a target market and income generator. It has entered new markets in the form of energy and telecommunications. This Zimbabwean company needed this service alliance because if it continues to follow its business model as far as websites are concerned there might be tough times ahead for it, now they have a Plan B. Well done!
Here is another company that is showing signs that it needs a strategic alliance. Let us see why.
3 Increasing Brand Awareness
Allow me to quote source.co.zw. ‘Zimbabwe has four oil producing firms – ETG Parrogate, Surface Investments, Olivine and United Refineries whose combined production of 10,500 metric tonnes comes short of the country’s monthly requirement of 11,500 metric tonnes.
These four firms are failing to meet market demand for one reason or the other. The possible effects of failing to meet demand are:
- Foreign or local competition will come in to cover the gap. The article in The Source states that $41 million dollars’ worth of edible oils was imported in 2014. That is loss of revenue and who knows if a new competitor will not only come in to fill the gap but will also eat into your own market share as well?
- Failing to meet market demand also means that you might not fully utilising your equipment, staff, etc as they lie idle during production ‘down’ times. This will increase the cost per unit as the benefits of economies of scale are reduced. This will make the companies less competitive on the market as they will have to charge higher prices so as to make a good margin
- Less sales means less profits that can be used to reduce debt obligations. In the worst case this can lead to bankruptcy and the liquidation of the firm. To fight this a company might have to put in place stringent cost controls such as salary cuts and you know what will happen after that.
As you can see these four firms might need a strategic alliance so as to survive. They can form an alliance with Choppies and get shelf space in shops in Botswana and the other countries that Choppies operates in. The trade-off will be getting less shelf space in Zimbabwe and getting more shelf space in the more lucrative foreign markets like Dairibord seems to be doing. The quality of our local oils are good enough I am sure. The higher returns from the exports will hopefully lead to more capital being available to cover local demand. Phase 2 would be to use the brand awareness in the foreign markets gained from the association with Choppies and the extra capacity that will have been gained (from the higher profit margins) to sell their products to other supermarket chains in those foreign countries.
Strategic alliances may be key in saving a lot of our companies that are failing for various reasons. Strategic alliances not only offset some of the challenges that a company faces but they can also strengthen a company position in terms of things that it is good at. Do not forget that before you get into a strategic alliance there is a checklist that you have to tick ranging from the qualities that you should have yourself to what you should look for in a strategic partner. Do you think that Zimbabwean companies now need strategic alliances to survive? Will the strategic alliances be enough to save these firms? Let us know in the comments section below.