Company alliances, an opportunity for Middle East companies, says A.T. Kearney

Recent international A.T. Kearney research has found that industries which commonly use alliances as a means of collaboration for the good of all parties are; pharmaceuticals (18%), high-tech (16%) and energy (11%).

Other sectors with significant alliance activity include automotive (7%), banking (6%) and transportation and travel (6%).

An alliance can take several forms from a contractual agreement to collaborate in any part of the value chain, to the shared ownership of a joint venture with a specific purpose/mission. Regardless of the type of alliance it offers companies a way of reaping some of the potential benefits often sought in mergers.

The decision of whether to work in a strategic alliance or a merger is based on careful analysis of the benefits and level of control sought through collaboration.

"Alliances, which are low-risk and low-control, are just one option companies should consider. They are reversible by their very nature and can take many different forms and serve a variety of purposes," Dr. Dirk Buchta, Partner and Managing Director, A.T. Kearney, Middle East, said.

So far this region has already witnessed the first mergers in the real estate and banking sector.

"We expect to see more strategic alliances, mergers and acquisitions to occur in the Middle East both within banking and other industries. The energy sector is one of the regional industries where we expect to see more alliances occurring either as a result of utilities companies aiming to achieve economies of scale, focusing on core business and outsourcing other areas into, for example joint ventures, or as an enabler to build up capabilities and knowhow," said Dr. Buchta.

The report from A.T. Kearney shows that alliances are very popular among companies in the same industry (60%), with only 30% of the surveyed alliances being between buyers and seller and even less so between players in non-related industries at just 10%.

"The reason for this is likely that the value proposition is more straightforward to all parties when in the same industry, such as co-development of a new drug component," Dr. Buchta said. "Whether it is a merger or a strategic alliance the success will be determined by the quality of the preparation as well as execution."

A good starting point for any strategic alliance, merger or acquisition is to consider the benefits sought and then apply a unique set of criteria to evaluate the benefits from any close collaboration with another company, such as geographic footprint, access to skills and expertise, access to customers, economies of scale or scope as well as optimizing the risk portfolio.

"What distinguishes the winners from the losers of the current crisis will be the ability of companies to align their strategies to the new reality. This will, for any company, include considerations of how best to reap benefits from collaboration with other players, as well as the skills and capabilities to implement change," Dr. Buchta added.