Collaborating to compete.

• Author: Bleeke, Joel
• Position: Corporate alliances

Here are some major themes and common lessons emerging from McKinsey & Co.'s detailed studies of corporate alliances.

For most global businesses, the days of flat-out, predatory competition are over. The traditional drive to pit one company against the rest of an industry, to pit supplier against supplier, distributor against distributor, on and on through every aspect of a business no longer guarantees the lowest cost, best products or services, or highest profits for winners of this Darwinian game. In fact, the exact opposite is true. In businesses as diverse as pharmaceuticals, jet engines, banking, and computers, managers have learned that fighting long, head-to-head battles leaves their companies financially exhausted, intellectually depleted, and vulnerable to the next wave of competition and innovation.

In place of predation, many multinational companies are learning that they must collaborate to compete. Multinationals can create highest value for customers and stakeholders by selectively sharing and trading control, costs, capital, access to markets, information, and technology with competitors and suppliers alike. Competition does not vanish. The computer and commercial aircraft markets are still brutally competitive.

Instead of competing blindly, companies should increasingly compete only in those precise areas where they have a durable advantage or where participation is necessary to preserve industry power or capture value. In packaged goods, that power comes from controlling distribution; in pharmaceuticals, having blockbuster drugs and access to doctors. Managers are beginning to see that many necessary elements of a global business are so costly (like R&D in semiconductors), so generic (like assembly), or so impenetrable (like some of the Asian markets) that it makes no sense to have a traditional competitive stance. The best approach is to find partners that already have the cash, scale, skills, or access you seek.

When a company reaches across borders, its ability and willingness to collaborate is the best predictor of success. The more equal the partnership, the brighter its future. This means that both partners must be strong financially and in the product or function that they bring to the venture. Of 49 alliances that we examined in detail, two thirds of those between equally matched strong partners succeeded, while about 60% of those involving unequal partners failed. So, too, with ownership. Fifty-fifty partnerships had the highest rate of success of any deal structure that we have examined.

Three Themes

The need for better understanding of cross-border alliances and acquisitions is increasingly clear. Cross-border linkages are booming, driven by globalization, Europe 1992, the opening of Eastern European and Asian markets, and an increased need for foreign sales to cover the large fixed costs of playing in high-technology businesses. Go-it-alone strategies often take too long, cost too much, or fail to provide insider access to markets. Yet, large numbers of strategic alliances and cross-border acquisitions are failing. When we examined the cross-border alliances and acquisitions of the largest 150 companies in the United States, Europe, and Japan, we found that only half of these linkages succeed. The average life expectancy for most alliances is approximately seven years. Common lessons from the wide experience of many companies in cross-border strategies are beginning to emerge.

In general, three themes emerge from our studies of alliances:

* First, as we have mentioned, companies are learning that they must collaborate to compete. This requires different measurements of "success" from those used for traditional competition.

* Second, alliances between companies that are potential competitors represent an arbitrage of skills, market access, and capital between the companies. Maintaining a fair balance in this arbitrage is essential for success.

* Third, it is important for managers to develop a vision of international strategy and to...