Competitive alliances can in fact offer mutual benefits for both parties engaged in such relationships. First it is important to consider the how and why we have come to the place where such alliances are becoming more commonplace than ever.

Clearly, we are living in a global marketplace where competition is fierce, and the marketplace has been opened up to more players than ever. Businesses realize that they can’t do it all alone, and that no one company has a singular monopoly on all the innovation that exists in an industry. Smaller businesses, especially, don’t have the patience to wait for internal growth to take place, while the bigger companies just pounce ahead, gobbling up market share with more resources at their disposal.

Companies realize that it might be more advantageous for them to share resources. For a small business, the prospect of teaming up with a large firm—most notably an industry leader—has its own unique appeal. An established, national brand goes a long way in opening up new vistas of market opportunities.

Some companies join forces for the purpose of outsourcing certain manufacturing and marketing functions to a competitor, especially where one company is better positioned to succeed in certain geographic locations. Another scenario would be competitors who agree to join forces for the purposes of expanding a new product line that would be mutually profitable.

An example given is Uniformity LLC, a Los Angeles manufacturer of fashionable high school uniforms. The company approached the department store Macy’s West with the prospect of selling Uniformity’s clothing line through Macy’s nationwide franchise.

The proposal appealed to Macy’s, as they had never entered the uniform market before that time. The two joined forces, in an obvious win-win situation: Macy’s got into the uniform market, while Uniformity got nationwide exposure for its products through the Macy’s nationwide chain.

It should be noted that a competitive alliance is, effectively, a marriage of convenience. They are temporary partnerships, and the transitory nature of the union make them more palatable to entrepreneurs than say, mergers or acquisitions, where one party or the other faces a considerable loss of corporate identity and reign over the operations of the business.

In order to benefit from a competitive alliance, a business must determine first why it is intending to enter into the relationship. Each business still retains its own unique identity. Therefore you must ask yourself plainly, how does entering into this competitive alliance enter into your business plan? Many businesses, eager to jump on the bandwagon of competitive alliances, fail to give proper forethought to their decision, and wind up making the wrong choices.

The preceding example given, of Uniformity LLC, was the correct decision because the company was seeking nationwide distribution of its product line and a partnership with Macy’s was the perfect vehicle to that end.

Once it is determined why you are entering into a relationship, you should then know what to look for. You are not interested in entering into a competitive alliance with just any competitor. For that matter, your choice should not even be based on size or market share alone. For a small business, the ideal choice is a competitor that is established as a market leader, those companies that are setting the pace for their particular industries.

A small business can effectively piggby-back onto a market leader to gain widespread market exposure, as in the example cited above. The advantage of this ideal arrangement is that the smaller business can focus on developing their product line rather than spending money on, and worrying about, a nationwide marketing campaign.

Beyond market leaders, small businesses may also consider partnering with a key customer. This would be advantageous if you were selling large quantities of your product or service to this customer. Explore opportunities to cement the relationship further by entering into a competitive alliance. This arrangement would help to ensure that you continue to retain the position of this client as a key customer, while exploring avenues for advancement that are mutually beneficial.

Once you have identified a potential partner in a competitive alliance, evaluate the competitor’s financial situation, its current market share, and interview companies with which it has been allied in the past to find out about their relationship with the competitor. Do as much background investigation as possible to determine the nature of, and the risks involved in, the relationship you are about to enter.

Even though it is temporary, it will still involve your having to adapt in order to blend in with your new partner. In this respect, you will also want to consider the corporate culture of the company you are considering partnering with, and ask how their corporate culture will fit in with your own. Evaluate their management styles to determine how compatible yours would be with theirs, and be able to prepare your employees to make the transition.

David
Small Business Resource