M. A. P. Insights
By Mary Jade T. Roxas-Divinagracia
CEOs prefer partnerships and alliances to access new markets
“Alone we can do so little, together we can do so much.” — Helen Keller
This is PwC Philippines’ third consecutive year as Knowledge Partner of the Management Association of the Philippines (M.A.P.) for its International CEO Conference. We are very excited to present the results of the 3rd Philippine CEO Survey during the Conference. In the last three years, we have conducted online surveys to gauge CEOs’ and business leaders’ sentiments on matters involving the economy, business opportunities and threats, as well as hot topics relating to the Conference theme.
We have also spoken to selected CEOs to gather more insights and to gain knowledge from their experience. As one of the Zen proverbs puts it, “It takes a wise man to learn from mistakes, but an even wiser man to learn from others.” It is such an invaluable experience to listen to the stories of these CEOs.
For its 15th International CEO Conference, the M.A.P. has aptly selected the theme “ASEAN in Business: Building Partnerships in a Growth Network.” It is timely and relevant as demonstrated in the initial results of our recently concluded Philippine CEO survey.
More and more business leaders are realizing that in today’s fast-paced, innovation-driven environment, “doing it alone” is no longer a wise decision, even for the most private of family businesses. Almost 78% of the CEO respondents say that they have plans to engage in partnership and collaboration for the next 12 months.
Increasingly, CEOs choose partnerships over traditional acquisition models to drive business growth, whether in expanding locally or abroad. In the same survey, only 36% of the CEOs surveyed have said that they will complete a domestic M&A and 27% have said they will complete a cross-border M&A. Needless to say, both partnerships and M&A are important to pursuing growth objectives. However, unlike M&A which often involves buying into or adding a business, partnerships or strategic alliances are arrangements where two or more organizations pool resources or knowledge to pursue a common objective while remaining independent organizations. The process starts with having a shared vision or aspiration where all parties mutually benefit. This vision should be regularly monitored to ensure that the parties are still aligned and continue to profit from the relationship.
The most common reasons for these partnerships are still the traditional drivers, at least insofar as Philippine CEOs are concerned. The top three reasons cited by CEOs are access to new customers, access to new geographic markets, and ability to strengthen brand or reputation.
ACCESS TO NEW CUSTOMERS
Growing a customer base can be expensive and challenging. Forging a strategic partnership with another organization which has a ready market base to tap is a compelling proposition (see illustration).
This could also apply to attracting a different segment of the market than what the organization currently has. For instance, when Hyundai decided to target the higher end of the market segment, it partnered with Prada and co-branded their Hyundai Genesis model.
ACCESS TO NEW GEOGRAPHIC MARKETS
Expanding into a new territory can be daunting and risky. This has given rise to partnerships and alliances to spread the risks and address regulatory and operational issues. For some countries, even in ASEAN, finding a local partner is a requirement due to foreign ownership limitations. About a third of the CEOs surveyed said entering into a partnership is one of their strategies in expanding abroad.
ABILITY TO STRENGTHEN BRAND OR REPUTATION
Building a brand can take years and will require significant investments. Partnering with an entity that is already known in the market is a quicker way to gain “brand equity by association.”
We see this more often in consumer goods like Oreo-flavored ice cream or Tide with Downy.
As opposed to CEOs surveyed globally and even in the US alone, Philippine CEOs ranked access to new and emerging technology only fourth on their list. Though we have seen major transactions completed recently which were motivated by technology transfer, market expansion appears to be the primary concern of most CEOs in the country.
In particular, CEOs of mature companies in mature industries enter what many might think as unlikely alliances: Telecommunications companies working with entertainment firms to offer content; competitors pooling their resources to bid for an infrastructure project; or organizations partnering with their customers to pursue corporate social responsibility initiatives. There is an adage that says, “If you want to go fast, go alone but if you want to go far, go together.” The former no longer holds true as, in the latter, partnerships can bring quicker results. Instead of the organization developing the technology and investing significantly, they can now partner with someone who has that capability. More and more companies are choosing to collaborate and explore complementary capabilities and resources.
While the benefits are clear, entering a partnership can likewise be complex. Finding the right partner is a critical first step. As the relationship requires sharing of resources and risks, trust is an important ingredient in a partnership. Well-articulated plans, clear roles and responsibilities, and fair allocation of risks and rewards should be tabled at the outset.
As competition intensify and delineation among industries blur, we will likely see an increasing number of companies embracing partnership and alliances as a way forward.
More insights from CEOs will be presented at the M.A.P. PwC CEO Survey Report which comes out on Sept. 12 in time for the 15th M.A.P. International CEO Conference.
For previous reports, you can visit our Web site at www.pwc.com
Mary Jade T. Roxas-Divinagracia, CFA, is a member of the M.A.P. CEO Conference Committee and the M.A.P. Trade, Investments and Tourism Committee, and Managing Partner for Deals & Corporate Finance of the PwC Philippines/Isla Lipana & Co.
