Emerging Companies in Developing Markets Teaming Up in Strategic Alliances

Our last post focused on a recent article that appeared in The Economist relating to a Boston Consulting Group report on the “rising stars of the developing world” relating to the extraordinarily rapid progress that firms from emerging countries have made in challenging traditional industry leaders from the West.  One particularly interesting aspect of the report was the decision of these challengers from developing countries to rely on strategic alliances with other emerging-market firms rather than multinational companies headquartered in the West.  As noted in the article, these partnerships allow the participants “to share knowledge, penetrate new markets and spread the risk of especially hair-curling investments.”  The financial rewards can be huge since partnering in emerging markets today means tapping into the dynamic growth of countries such as Brazil, China and India.  Assuming that the alliances are effective, more and more firms will soon be able to negotiate and collaborate with large Western countries from what the article described as “a position of strength”.

Others have studied the use and impact of strategic alliances in developing markets including alliances between local partners.  An article on “The Changing Face of Strategic Alliances in Latin America” written in 2002 and appearing in Strategy + Business noted many of the large multinational companies in Latin America grew through cross-border alliances and acquisitions with local firms to increase market share, gain access to synergistic assets and other resources and create a portfolio of products and markets that will be perceived as having “value” to foreign investors who might then be willing to provide new capital.  Alliance activities among emerging markets firms also allows them to build a company that is seen a regional leader and thus achieve greater leverage when dealing with larger multinationals from the industrialized world.  Finally, companies in emerging countries that are involved in alliances with partners in several other countries are perceived as less “risky” by investors who are otherwise concerned about having all of their “eggs’ in a single country basket that could be tipped over without warning by currency issues or political instability.

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