Alliance Management At Forbes Marshall
Forbes Marshall (FM), a company that initially specialized in supplying textile accessories to the Western Indian Market, has truly transformed the competitive industrial landscape of the 20th and 21st century by being a leader in joint ventures, technological innovations and strategic investments. By forming alliances with more than 10 companies in a range of markets, FM rapidly grew through the industry life cycle and ultimately became a leader in process efficiency and energy conservation in Asia, Europe and North America. This report will highlight why FM chose to engage in alliances instead of acquisitions as its primary method of creating a competitive advantage as an innovative global manufacturing firm.
Horizontal integration strategies offer certain similar advantages but have various differences that are attractive to companies depending on their objectives and ultimately their risk appetite. Strategic alliances and acquisitions both lead to operational synergies, increased market penetration, access to human capital, decreased competition and potential for greater profitability. However, in the case of FM, the company relied very heavily on alliances due to a number of reasons mentioned below and is also highlighted in Appendix A (Comparative Analysis of Acquisitions and Alliances) :
1) Decreased Risk Capital- Risk Capital is defined as the capital that can’t be recovered if the company goes bankrupt. FM has absolutely no exposure to their partner’s risk capital through horizontal integration as it allows them to sell products and reap the benefits as one entity but not be exposed to any potential suffering due to the other’s financial performance. Strategic alliances make it a lot easier to walk away from if the worst-case scenario were to occur, not only mitigating risk factors but also eliminating downside risk as a whole. It becomes an alternate to vertical integration, without the problematic bureaucratic costs from inefficient production
Horizontal integration strategies offer certain similar advantages but have various differences that are attractive to companies depending on their objectives and ultimately their risk appetite. Strategic alliances and acquisitions both lead to operational synergies, increased market penetration, access to human capital, decreased competition and potential for greater profitability. However, in the case of FM, the company relied very heavily on alliances due to a number of reasons mentioned below and is also highlighted in Appendix A (Comparative Analysis of Acquisitions and Alliances) :
1) Decreased Risk Capital- Risk Capital is defined as the capital that can’t be recovered if the company goes bankrupt. FM has absolutely no exposure to their partner’s risk capital through horizontal integration as it allows them to sell products and reap the benefits as one entity but not be exposed to any potential suffering due to the other’s financial performance. Strategic alliances make it a lot easier to walk away from if the worst-case scenario were to occur, not only mitigating risk factors but also eliminating downside risk as a whole. It becomes an alternate to vertical integration, without the problematic bureaucratic costs from inefficient production
References: About Us. Web. 7 Nov. 2014. <http://www.forbesmarshall.com/Aboutus.aspx> Hill, Charles W. L., and Gareth R. Jones. Strategic Management: An Integrated Approach. 3rd ed. Boston: Houghton Mifflin, 1995. Print.