Alliance and Its Setbacks as a Small Business Strategy: A Closer Look at APEC

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The recently concluded Asia-Pacific Economic Cooperation (APEC) summit held in Honolulu, Hawaii displayed, yet again, the importance of alliance in this tough and competitive economic condition.

While the seven-day APEC conference had its focus on advancing the interests of its 21-member economies, alliance is not limited to the economy-to-economy relationship. It is also crucial to the business-to-business functioning.

Alliance is an arrangement in which two or more independent entities cooperate to perform business activities like exchange of good, information and technology. It is a means to capitalize on resources made available through coalition.

In alliance, a member is allowed to tap into collective resources of a group, which it would not have access otherwise. In APEC, member economies believe that, collectively, they are better able to secure market opportunities across the region. Likewise, in business, alliance can be a useful method to protect an establishment's market position.

Recognizing its importance, the U.S. Small Business Administration (SBA) pursued a series of domestic and global alliances in the past years. In the last three months alone, the organization developed at least two essential networks.

In mid-November, the U.S. SBA's district office in San Diego sought an alliance with the National Association of Minority Contractors (NAMC), San Diego and Imperial County Chapter. Both institutions aimed at improving business access to technological information through educational opportunities for their constituents. NAMC is a national nonprofit trade association, which promotes the economic and legal interests of African American, Asian American, Hispanic American, and Native American contractors in the construction industry.

Two months before the pact with NAMC, the U.S. SBA signed a tripartite Memorandum ofUnderstanding (MOU) with the Department of Commerce's International Trade Administration (ITA) and the Republic of Turkey's Small and Medium Enterprises Development Organization (KOSGEB). Parties involved envisioned assisting small and medium-sized businesses penetrate the global marketplace. Turkey, with its investment-friendly climate and good, solid growth prospects, is considered to be among the top emerging markets by the U.S. Department of Commerce.

The U.S. SBA's moves demonstrated the utility of alliance in moving a small business toward improved entrepreneurial activity and productivity. However, like any business strategy, alliance has also its setbacks. At least three of these setbacks like financial cost, clash of interest, and the need to compromise can be referenced to events in the APEC summit. These issues should be addressed in deciding the appropriateness of a specific alliance to the life of a small business.

Financial Cost. Honolulu Mayor Peter Carlisle pegged the city's budget for the summit at $43 million, which included the $18 million appropriation for the city's police force. This was a big sum for a cash-strapped Hawaii. In business, alliance-related financial cost arises from the firms' need for a different set of management skills. Parties may need to hire additional personnel to be able to carry out the tasks of configuring, coordinating, evaluating, and promoting activities between firms. These new functions can add up to a firm's expenses. The rule of thumb is the many the anticipated joint projects between alliance partners are, the greater the need for substantial monitoring and control efforts, which translate to programming and operational costs.

Clash of Interest. The back-to-back banter between U.S. President Barack Obama and President Hu Jintao of China was a headline during the APEC summit. Like in any other relationship founded on advancing own party's interest, the chances for conflict and clash of interest between partners in an alliance are high. Larraine D. Segil in Making Business Alliances Work published in Management Quarterly said around 55 percent of alliances disintegrates within three years after establishment due to partners' failure to work in unison. As such, issues concerning corporate culture, operating style, values and approaches to business, should be evaluated prior the sealing of an alliance.

The Need to Compromise. For this year's APEC summit, leaders of the 21-member economies did not wear time-honored costumes of the host nation for the official photo session practiced since 1993. Regardless of Obama's reason for skipping the tradition, a compromise, like what he did, becomes necessary when a "win-win" situation is sought for all parties involved. Encapsulated in the compromise mindset is the possible water down of a small business' independence, proprietary information, management expertise, or technology. The need to compromise on the aforementioned aspects should be weighed in vis-à-vis the firm's possible gains.

There is no arguing that collaborative ventures like alliance play a strategic role to the growth of a small business. However, it is still important to remember that the approach, like any other business and organizational strategies, has its setbacks. As such, alliance should be evaluated with objective eyes to its costs. A small firm should make necessary adjustments like developing and executing programs to address known problems prior to instituting a partnership. Inherent organizational weaknesses or incompatibilities between organizations may cause bigger problem in post-alliance setting. A planned cooperation should be put to a halt until subsequent reevaluations indicate that the firm is ready for an alliance.

 

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