Some fairly superficial internet research unearths a real mixture of feeling with regard to the value of a “strategic alliance.” Canny investors often question the true level of engagement such a partnership may bring, especially where two companies operate in the same (or similar) business environments – and certainly in the mobile industry, today’s partner may become tomorrow’s rival, or vice-versa. There is also some suggestion that while a company may benefit from a short-term share price gain, over a period of time this tends to be cancelled out.
In the last couple of weeks, Telefonica has named two new partners for its global partner efforts – Bouygues in France and MEA giant Etisalat. They join Telecom Italia and China Unicom on what is shaping up to be an impressive roster of alliances. But in both cases, the announcements are heavy on possibilities, but light on details. Certainly there is a fair chance that this is due to the relative immaturity of the new relationships. But it will be interesting to see how these partnerships develop in the medium term, once the ink is dried.
Probably the most difficult issue is how to quantify the value achieved from a strategic alliance. Many of the potential benefits of a partnership are difficult, if not impossible, to quantify on a profit and loss statement. Knowledge and best practise sharing, for example, are both valuable facets of an alliance, but communicating this to stakeholders is no straightforward task.
Contrastingly, there are areas where clear, easy-to-identify financial benefits can be achieved, and obviously it also makes sense to highlight these. As an example, joint procurement contracts enable partners to benefit from economies of scale, while using group experience to ensure that best practice is followed. According to Deutsche Telekom when it announced its sourcing partnership with Orange earlier in 2011, after the initial implementation period the companies jointly stand to save EUR1.3 billion per year – impressive figures which highlight the potential value of a strategic alliance.
While it is easy to see how the smaller player may be able to benefit through the expertise and learning of a senior partner, it is also important to note that the smaller company will have its own specialisms which have value in their own right. A leader in emerging markets may be a good fit for a company which has grown from more established territories, in order to ensure that both companies are well-placed to capitalise on potential opportunities which may present themselves as markets develop. And new entrants may be able to contribute some start-up innovation to a more developed business, in return for some hard-earned knowledge gained through experience.
The looser ties of a strategic alliance can offer some benefits over a deeper, equity-based relationship. As has already been noted, partners become rivals swiftly, so the ability to easily add distance is a definite bonus. In some cases, cross-shareholdings have previously drawn the attentions of regulators and shareholders, keen to ensure that there is no impropriety in a company’s operations. Vodafone’s recent strategy has clearly shown that based on its considerable experience, minority ownership positions are (generally) not worth holding on to – but by inking partner agreements with its former affiliates at sale, it has managed to keep relationships in place where this may be beneficial.
And should the opposite be the case, a strategic alliance could prove a good base for a deeper partnership, with both companies being fully aware of what the partner has to offer before taking things to the next level.
The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members