Post on 06-Mar-2018
transcript
STRATEGIC ALLIANCE IMPLEMETATION BETWEEN NATION MEDIA
GROUP AND MEDIA24 OF SOUTH AFRICA
REUBEN ONYIMBO
A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS, UNIVERISTY OF
NAIROBI
NOVEMBER 2013
ii
DECLARATION
This research project is my original work and has not been presented for a degree in any
other university or institution.
Signature: ……………………………… Date:…………………………….
RUEBEN ONYIMBO OTEDO REG. NO: D61/7097/2006
This research project has been submitted for examination with my approval as the
University Supervisor.
Signature:…………………………………. Date:………………………………..
Pro. Evans Aosa.
Associate Dean, School of Business, University of Nairobi
iii
ACKNOWLEDGEMENT
First and foremost, I would like to thank my supervisor Professor Evans Aosa for his
guidance, support and very valuable advice in every step of the project and his
understanding of my situation when I had difficulties which were personal. I would also
like to thank my moderator Professor Martin Ogutu for his useful advice. I would like to
thank my family for their understanding when I had to be way several hours during my
studies. I also thank the senior management of Nation Media Group for allowing me to
interview them and to access some confidential documents. Last but not least, I thank the
Almighty God for giving life, providing finances for the study and keeping my family
together though I was away from home for many hours due to work and studies.
iv
DEDICATION
This study is dedicated to my dear wife Janet and my children Vivian, Bryson, Hillary
and Laura
v
Table of Contents DECLARATION ................................................................................................................ ii
ACKNOWLEDGEMENT ................................................................................................. iii
DEDICATION ................................................................................................................... iv
LIST OF ABBREVIATIONS ........................................................................................... vii
ABSTRACT ..................................................................................................................... viii
CHAPTER ONE: INTRODUCTION .............................................................................................. 1
1.1 Background of the Study ........................................................................................................... 1
1.2 Research Problem ..................................................................................................................... 8
1.3 Research Objective ................................................................................................................. 10
1.4 Value of the Study .................................................................................................................. 10
CHAPTER TWO: LITERATURE REVIEW ................................................................................ 12
2.1 Introduction ............................................................................................................................. 12
2.2 Conceptual Foundation ........................................................................................................... 12
2.3 Concepts of Stategic Alliances ............................................................................................... 15
2.4 Startegic Alliance Partner Selection Criteria .......................................................................... 17
2.5 Critical Success Factors for Strategic Alliances ..................................................................... 19
2.6 Problems of Strategic Allainces .............................................................................................. 23
CHAPTER THREE: RESEARCH METHODOLOGY ................................................................ 27
3.1 Introduction ............................................................................................................................. 27
3.2 Research Design....................................................................................................................... 27
3.3 Data collection ......................................................................................................................... 27
3.4 Data analysis ............................................................................................................................ 28
CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION .................................. 30
4.1 Introduction ............................................................................................................................. 30
4.2 Background information .......................................................................................................... 30
4.3 How the Strategic Alliance was implemented ......................................................................... 30
4.4 Challenges faced in the Implementation of the Strategic Alliance .......................................... 33
4.5 Discussion of findings.............................................................................................................. 35
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMENDATIONS ....................... 39
5.1 Introduction ............................................................................................................................. 39
5.2 Summary .................................................................................................................................. 39
5.3 Conclusion ............................................................................................................................... 41
vi
5.4 Recommendations .................................................................................................................... 43
5.5 Limitations of the Study ........................................................................................................... 44
5.6 Suggestions for Further Research ............................................................................................ 44
REFERENCES .............................................................................................................................. 47
APPENDIX .................................................................................................................................... 52
vii
LIST OF ABBREVIATIONS
NMG - Nation Media Group
SMG - Standard Media Group
GCEO - Group Chief Executive Officer
EAM - East African Magazines
SME - Small and Medium Enterprises
ROI - Return on Investment
viii
ABSTRACT
Strategic alliances have gained popularity in the recent decades and has become
increasingly favorable choice for companies that intend to achieve competitive advantage
over rival firms so as to make a stand in the global market. Firms are faced with rapid
changing global trends and dramatic economic development, it is always impossible for
firms to grow individually. This study examines how the Strategic alliance between
Nation Media Group and Media24 was formed and the implementation challenges. The
study was carried out as a case study to allow for in-depth examination and analysis of
various data collected. The primary data was collected through interviewing top
management of Nation Media Group including the Group Chief Executive Officer
(GCEO) who were involved in the formation of the strategic alliance by virtue of their
position in the company. Secondary data was obtained in the form of relevant
documented materials on strategic alliances, strategy papers, and minutes of meetings by
the alliance partners and agreements signed by both Nation Media Group and Media24 of
South Africa. The data obtained in qualitative form was analyzed through content
analysis. This approach helps in getting areas of consensus and disagreements from
various interviews done and the already documented data. The major findings of study
indicates that the alliance faced a number of challenges in the formation and
implementation. Given the urgency in the formation of the alliance, Nation Media Group
were mainly reacting to the perceived threat from the local competitor entering into
alliance with another firm from the same country, that is, South Africa. The company
(NMG) did not develop a strategic vision and fit, conducted its own research to determine
the real value of the alliance and due diligence in the partner selection which are critical
success factors in any alliance. Lack of cultural fit and mistrust among the partners were
also were also challenges that were encountered in the alliance implementation. There are
a number of important factors that were ignored and which made implementation very
difficult. The study will help the companies that would like to enter into alliances to first
ask themselves important questions such as, does the proposed alliance contribute its
objectives more effectively and efficiently, are there competitive advantages in forming
the alliance, does the alliance fit within the strategic plan of the company what are the
channels and mechanisms to be used in identifying a potential strategic partner and what
barriers that are to be overcome in order to establish a strategic alliance. One of the
limitation of the study is that researcher was unable to interview the Media24
management who were involved in the formation and implementation of the alliance as
they had all left for South Africa as the alliance came to an abrupt end.
1
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
Today’s business environment is one of intense global competition, rapid changes in
technology, demanding consumers, and other pressures (Ring, 1994). Firms operating in
this environment are challenged by consumers to rapidly develop wider product lines that
encompass greater technological sophistication and quality, yet are still low priced. At the
same time, global competition has forced corporations to seek new markets, which in turn
has speeded up this cycle of product development, and simultaneously created world
markets. However, firms are finding that the costs of increased research and development
and entry into new markets are formidable
Strategic alliances have become increasingly popular in the world for organizations
pursuing development of new strategies. This is because organizations cannot always
cope with increasingly complex environments (such as globalization) from the internal
resources and competence alone. Organizations may see the need to obtain materials,
skills, innovation, finance or access to markets, and may recognize that these may be as
easily available through cooperation as through ownership. Many companies rely on
alliances for up to 25 percent of their activities and the top 500 global companies have an
average of 60 alliances each (Dyer and Singh 2001). Despite this huge number of
strategic alliances, half of alliances will fail (Doz and Hamel, 1998).
Moreover, today’s corporations are realizing that the days of large, vertically integrated
businesses are rapidly vanishing, that one firm can no longer afford ( monetarily and/or
2
organizationally) to maintain sophistication in all levels of technology, develop
international distribution channels or develop new markets.
The Nation Media Group having built strong brands in the newspapers business for a
period of over forty years, realized that there is need to diversify from solely newspapers
to magazines business. The company also realized that the consumers were becoming
more sophisticated and demanded more leisure magazines which are glossy as opposed to
ordinary magazines done on newsprint and inserted in newspapers. Furthermore, the
magazines in the daily newspapers would last for only one day and are then thrown away.
Advertisers also demanded much more platform than the newspapers could provide. The
shelf life for magazines last longer than the newspapers therefore more period of
exposure. The Nation Group lacked the expertise and experience in magazines business
and therefore looked for a partner which could bridge the gap. The Media24 also wanted
partner who could enable them enter the East African and Central African market as entry
through ownership could be risky and costly. Furthermore, Media24 needed a local
partner with long experience in distribution and marketing as their business model in
South Africa could not be possibly replicated given the background of so many other
companies having tried their home made models in Kenya ending up with disastrous
endings.
Alliances often seem to spread in waves. In many businesses, a period of increasing
alliance formation has been followed by a slowdown. In the computer hardware industry,
for example, the formation of alliances increased dramatically in the first half of the
1980s and declined in the second. Similar booms and busts in alliance formation
appeared to have occurred in other industries, although no comprehensive data exist to
3
show this conclusively. In the early 1990s, there were waves of alliance formation in the
telecommunications, airline, health-care, and commercial real estate industries, to name a
few examples. Biotechnology alliances were most popular in the mid-1980s. Earlier, the
late 1970s and early 1980s saw alliance waves in the automobile, aircraft, and chemicals
industries. Historical data on the foreign operations of large U.S. manufacturing firms
indicate an increase in the use of joint ventures in the late 1950s, followed by a sharp
decline in the 1960s (Gomes-Casseres, 1988).
Studies on strategic alliances have increasingly attracted the attention of scholars, policy
makers, trade practitioners and international organizations in the last two decades (Foss,
1999). Its proliferation has led to a growing stream of research by scholars who have
examined some of the causes and consequences of such partnerships. Scholars who have
studied in the area of strategic alliance have given a lot of different definitions of these
relationships. This study has explored a number of definitions of strategic alliances from
different theoretical framework definitions which tend to highlight specific features of
alliances.
For example, from the view of the Transaction Cost Theory, collaboration or alliances
between firms is defined as a contractual relationship between two or more companies, in
which they agree to jointly carry out one or several tasks, or specific projects, which are
difficult or too costly to carry out alone. For each partner, it normally involves only one
major activity respective of its value- chain or at least is clearly defined and limited in its
objective.
Another view, from the strategic perspective, collaborative- Strategic alliances, joint
ventures, cooperative agreement are defined as partnerships among firms that work
4
together to attain some strategic objectives as part of marketing of a product as a stream
of value-chain activities where alliances enable each value-chain to be accomplished with
the help of a partner, or it can be inter-firm cooperative arrangements aimed at achieving
the strategic objectives of the partners in the alliance (Kogut, 1988).
From a learning perspective, alliances are defined as co-alignments between two or more
firms in which the partners hope to learn and acquire from each other the technologies,
products, skills, and knowledge that are not otherwise available to their competitors
(Kogut, 1988a, Doz and Hamel 1998). The last view, resource based perspective defines
alliance as voluntary inter-firm agreements aimed at achieving competitive advantage for
the partner (Van de Ven, 1976).
1.1.1 Strategy Implementation
According to Dyer and Singh (2001) strategy is defined as a pattern plan that interrogates
an organization’s major goal, policies and action sequence into cohesive whole. It is a
well formulated strategy which helps to marshal and allocate an organization’s resources
into unique and viable posture based on its relative internal competencies and weakness
anticipated changes in environment. Business must formulate a comprehensive strategy
that maximizes its value and distinguishes capabilities against the competitors.
Strategy implementation is the translation of chosen strategy into organizational action so
as to achieve strategic goals and objectives (Doz and Hamel, 1998). Strategy is also
defined as the manner in which an organization should develop, utilizes, and amalgamate
organizational structure, control systems, and culture to follow strategies that lead to
competitive advantage and a better performance (Smith & Barclay, 1997). Organization
structure allocates special value developing tasks and roles to the employees and states
5
how these can be correlated so as to maximize efficiency, quality, and customer
satisfaction which are key pillars of competitive advantage. An organizational control
system is also required. This control system equips managers with motivational
incentives for employees as well as feedback on employees and organizational
performance.
According to Minztberg and Quinn (1991) the most frequent occurring strategy
implementation challenges include understanding the time needed for implementation
and emergence strategy that had not been anticipated in addition to the uncontrollable
factors in the external environment. Foss (1999) identifies two key challenges in strategy
implementation that include fit between strategy and structure. He argues that there is a
need for a clear fit between strategy and structure and claim that the debate on which
comes first is irrelevant provided there is congruence in the context of the operating
environment. The author further argues the management style must be appropriate for the
strategy being implemented or else there is likelihood of failure.
Excellently formulated strategies will fail if they are not properly implemented. Also, it is
essential to note that strategy implementation is not possible unless there is stability
between strategy and each organizational dimension such as organizational structure,
resource- allocation process and the strategy fit with the long term organizational goals.
Strategy implementation poses a threat to many managers and employees in an
organization. New groups (formal as well as informal) are formed whose values,
attitudes, beliefs and concerns may not be known. With the change in power and status
roles, the managers and employees may employ confrontational behavior.
6
1.1.2 Overview of Media Industry in Kenya
At independence in 1963, there were only two main print media companies in Kenya.
The oldest print company in Kenya is the East African Standard which started operations
in Kenya in 1902. Before independence there were regional newspapers that were
published to champion the interest of the Kenya towards the attainment of self-rule and
were mainly critical of colonial rule. The other main national daily newspapers were the
Taifa Leo and Taifa Jumapili in 1959, mostly for the Africans whose majority had very
limited education, and were followed the following year by the Daily Nation and Sunday
Nation. The former ruling party Kenya African Union (KANU) started daily newspapers
called The Kenya Times for the main reason of spreading the government propaganda as
the main newspapers were critical of the government about the manner in which it was
running its affairs. Many other publications that were started in 1980s did not survive
owing to the government crackdown of what was perceived as works of dissidents who
were out to wrest power from the then incumbent president and the ruling party KANU.
Currently we have five main daily newspapers namely; The Daily Nation, The Standard,
The Kenya Times, The People and The Star all circulating about three hundred copies
daily. There has also been existence of some weekly publications which are termed as the
alternative press or “gutter” which normally thrive on rumors but still have followers.
The electronic media has also gone under a number of changes. From independence up to
late 1980s, the electronic media was being controlled by the fully government owned
company formerly Voice of Kenya (VoK) and now Kenya Broadcasting Corporation
(KBC). The first independent TV station was started in 1987 under brand name Kenya
Television Network (KTN) and from then henceforth the air waves was opened to many
private companies. Currently we have about thirteen TV stations and about three hundred
7
radio stations in Kenya. Most the TV stations are national with a few ones being local. A
number radio stations broadcast in vernacular and a few have national outlook. The
vermicular stations are a major concern to the government as some have been accused of
spreading hatred among Kenyans especially in the post-election violence that rocked the
country in the year 2007/08.
Competition among the industry players have been intense with the freeing of the
airwaves. A number of these media companies have been establishing multiple
publications, TV stations and radio stations to target some market niches. The other
dilemma facing the industry players is the signing of media bill into law which prohibits
cross ownership of media platforms in Kenya amid protest. Print media is also faced with
low levels of literacy and poor reading culture, the world declining print media
consumption and diminishing ad spend and a surge in the newsprint prices . With this
intense competition in the industry, will firms look for strategic partners for resources and
learning?
1.1.3 The Nation Media Group (NMG)
Nation Media Group Ltd (formerly Nation Printers and Publishers) was formed by His
Highness the Agha Khan in 1959. Its first product was Taifa Leo which is a Kiswahili
publication. This publication was meant to be the voice of the people of Kenya in their
struggle for independence. In 1960 the company launched English newspapers, the Daily
Nation and the weekly publication of Sunday Nation.
The company has been successfully launching products which have been market leaders
in their respective market segment. Apart from the print media the company has
electronic and digital media. Among the brand for the electronic media are NTV, ETV,
8
QTV, Easy FM and QFM and in digital it has nationmedia .com. In the print media the
company has 7 brands which include Daily Nation, Saturday Nation, Sunday Nation,
Taifa Leo, Taifa Jumapili, Business Daily and the East African, which are market leaders
in their respective market segments.
Nation Media Group and Media24 of South Africa formed a strategic alliance and as a
result of this a new company by the name of East Africa Magazine Limited was
established in the year 2004 with NMG having a majority shareholding of 51% and the
rest owned by the partner. Nation Media Group (NMG) which had hitherto been mainly
involved in publishing daily newspapers, radio and TV had not entered into the
magazines publishing for which the Media24 had had a long history. The strategic
alliance was mainly to publish glossy magazines with Media24 bringing expertise in
publishing and Nation Media Group bringing their expertise in distribution and market
knowledge within the East Africa market. In the first one year of joint venture two new
magazine titles with local content were launched, namely True Love and Drum.
1.2 Research Problem
Strategic alliances have become a means of meeting the combined challenges of entering
or maintaining markets with better products, leveraging cost and learning. Many firms are
realizing that they must find outside partners to share risks and, hence are forming
collaborative alliances (Horton, 1998). As a result of the consequences of several trends
which began in 1980s- intensified foreign competition, shortened product cycles, soaring
capital investment costs, and the ever growing demand for new technologies , alliances
are becoming attractive strategy for the future (Inkpen, 1996). Despite the many
successes in the strategic alliances, not all alliances have lasted forever to be considered
9
successful. Constantly changing market forces make long term alliances a thing of the
past.
Print media industry in Kenya just like others around the world has experienced slow
growth due to changes in consumer tastes and changes in technology where readers do
not have to necessarily read from hard copy but can get the same information from
internet. Nation Media Group with its over fifty years in newspaper business needed to
enter into an alliance with a partner who had a long experience and expertise in magazine
publishing. The experience and expertise could not be secured locally and therefore
NMG looked for this outside the Kenyan borders. The Media24 having had a successful
history in both newspapers and magazine business publishing also got interested in
entering the East African market by looking for a partner with a competitive advantage in
marketing and distribution in the local market. Magazine publishing could provide the
NMG with additional stream of revenue given the consumers’ change in taste for glossy
magazines as opposed to newsprint based magazines inserted in newspapers.
There are a few studies that have been done on the strategic alliances with the Kenyan
context. One of the few studies that have been done on strategic alliance with Kenyan
context includes; Strategic alliance experience of Kenya Post Office and Savings and
City Bank (Koigi, 2002). The study established that it is very difficult to have successful
alliances between partners with deep culture difference. City Bank is a very big
international bank with American cultural leaning as opposed to Kenya Post Office &
Savings Bank which has a culture of civil service being a parastatal corporate. Other
similar studies include Musyoka (2003) who looked at the Creation and Implementation
of Strategic Alliances among NGOs’ in Kenya and Wachira (2003) who analyzed
10
Strategic Alliances in Pharmaceutical Drug Development. Both studies concluded that
the greatest challenge to strategic alliances is the ability to sustain them. None of the
researchers has analyzed the implementation of strategic alliance in media industry. The
study therefore aims to bridge the gap by analyzing strategic alliance in media industry
with Kenyan context. The study sought to answer the question on how the strategic
alliance between Nation Media Group and Media24 of South Africa was Implemented
and the challenges that were faced in the implementation.
1.3. Research Objective
This study had two objectives:
i. To establish how the alliance between Nation Media Group and Media24 of South
Africa was implemented.
ii. To establish challenges faced in the implementation of the strategic alliance.
1.4 Value of the Study
Most corporate entities are now realizing that entry in some markets may prove to be
very difficult if the firm has to go it alone as the cost, capabilities and risks factors
involved are quite high. The study will therefore help management of both Nation
Group and Media24 of South Africa to have better understanding of strategic alliances so
as to be better equipped in engaging in future alliances
The study is also very important to the investors and the general public to be able to
understand the implementation of strategic alliances and challenges. By better
understanding strategic alliance, the shareholders will be able to allow and support the
management in undertaking the strategic alliance with other firms with the main aim of
11
creating and increasing their wealth in both short and long run. Finally, this study will act
as a useful reference point to scholars, academicians, and researchers for the better
understanding and further research on strategic alliances.
12
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
Strategic alliance has become widely used in the business language to refer to different
types of partnership, agreement between two or more companies that pursue clear
strategic collaboration objectives with different levels of possible integration among
members. This section will examine the concept of strategy, concept of strategic alliance,
strategic alliance partner selection, and critical success factor for strategic alliance and
problems of strategic alliances.
2.2 Conceptual Foundation
There are different definitions of strategy by different authors and scholars. Strategy is a
multi-dimensional concept and has long been used implicitly in different ways though its
origin can be traced in military. While it has no single definition, strategy may be seen as
a multidimensional concept that embraces all critical activities of an organization. Lack
of a single definition points to the selective attention given to the various aspects of
strategy by different authors (Aosa, 1992).
Minzeberg et al (1999) defines strategy as a pattern or plan that integrates an
organization’s major goals, policies and action sequences into cohesive whole. They view
strategy as a ploy, pattern, position, plan and perspective. Strategy as a ploy is the action
taken by an organization with an intention of outwitting its rivals. As a pattern, strategy
emerges without preconception from a series of actions visualized only after the events it
governs. Strategy as a position is a means of competitively positioning an organization in
its external environment. As a plan, strategy specifies a deliberate course of action
13
designed before the action it governs while as a pattern strategy reveals an organization’s
perception of the outside world.
Johnson and Scholes (2001) define strategy as the direction and the scope of the firm in
the long term. It ideally matches its resources with its changing environment and in
particular its markets and clients so as to meet the stakeholders’ expectations. Strategy is
therefore a plan, the primary means of reaching the firm’s focal objective. Aosa observes
that strategy creates a fit between the external characteristics and internal conditions of a
firm to solve a strategy problem. He further observes that for a strategy to be effective, it
must be consistent with the firm’s goals, values, the external environment, the firm’s
resources and its systems.
Thus, strategy defines organizational purpose, in terms of objectives, goals and priorities
with the organizational competitive advantage. In a nutshell, strategy is about the future
of the organization, the present posture, developing superior strategy and effective
implementation of the strategy. It is about where the business would like to be in the long
run.
Theory driven approaches to studying alliances continue to be a truly multi-disciplinary
affair. Certain approaches can be classified as belonging to the economic theory
viewpoint. A range of external conditions may stimulate the creation of strategic
alliances. However, firms will only enter into such arrangements when their internal
circumstances makes this seem to be the right move. These theories include; transaction
cost theory, market power theory and resource- based agency theory.
14
Williamson (1975) Transaction cost theory suggests that an organization will engage in
an alliance when this option is cheaper than, for example, conducting market operation or
internalizing the transaction and integrating it the organization’s existing structure. This
theory further suggests that an organization will base its partner upon a trade-off between
two criteria. One, the transaction cost incurred in allying with a particular partner. Two,
the ability to control the particular partner’s action. Thus, the optimal candidate partner is
the one that necessitates the lowest transaction cost, which at the same time is most
controllable.
Market power theory (MPT) suggest that the constitution of industrial competition and
profitability is largely the result of an organization’s industrial positioning. Thus MPT
suggests that partner selection should be based upon the ability of the partner to
contribute to the alliance successfully positioning the organization within a given
industry. Organizations with market power do tend to have a lot of bargaining power
when strategic alliance do occur. This is due to their intensive market base and the ability
to attract and retain more customers in their respective markets (Wolak, 2005).
Organizational learning perspective theory suggests that firms, especially those in
knowledge intensive industries, seek alliances to acquire new and valuable competitive
knowledge. Such an interpretation leads to the conclusion that organizations must acquire
the skills necessary to absorbs and employ the knowledge that a partner brings to the
alliance (Powel, 1996). Organizational learning is a social process, involving interactions
among many individuals leading to well-informed decision making. Thus, a culture that
learns and adapts as part of everyday working practices is essential. Reuse must equal or
exceed reinvent as a desirable behavior. Adapting an idea must be rewarded along with
15
its initial creation. Sharing to empower the organization must supersede controlling to
empower an individual.
Resource dependency theory suggest that an organization cannot develop or internally
access all of the resources that it require to operate competitively in its environment. The
key to survive is the ability to acquire and maintain resources. It must therefore form ties
with external stakeholders to exchange some of the resources that it does have for some
that it perceives its lacking. Resource dependence theorists argue that organizations
attempt to obtain stability and legitimacy, which is achieved through interdependencies
and the exercise of power and control (Pfeffer and Salancik, 1978). The effectiveness of
organizations depends on their ability to acquire the resources needed for survival.
2.3 Concept of Strategic Alliances
Since the 1980s, strategic alliances have been a very popular topic in the literature
(Dousage and Garnette, 1988). The topic of strategic alliances has become one of the
most significant topics in the strategic management literature. The incidence of strategic
alliances among organizations has dramatically increased over 10-15 years, and research
interest in the topic has followed suit (Barney and Hansen 1994). Recently, an
unprecedented number of business firms in many industries have been entering into a
variety of inter-organizational relationships to conduct their business deals. These
transactions often were undertaken through either discrete market transactions or internal
hierarchical arrangements. These organizational relationships include strategic alliances,
partnerships, coalitions, franchises, research consortia and various forms of network
organizations (Ring, 1994).
16
Alliances have become an important research topic covering a range of theoretical bases
and perspectives. Previous studies have progressed basically on three main paths: first,
some researchers have focused on partner characteristics, as an explanation for alliance
behavior and outcomes (Lewis 1998). Therefore resources exchange and the value of the
resource accessed in alliance are central concern (Peffer and Salancik, 1978). Scholars
and researchers articulating this perspective consider alliances and networks as
alternative mechanisms to markets and hierarchies for addressing specific strategic needs.
In this tradition, alliances are undertaken to secure scarce and valuable resources critical
for a firm’s survival and posterity.
Second, researchers have focused on the interactive nature of cooperation between
organizations (Gulati, Heide and Miner, 1992). From here, the link between firms is the
focus of the analysis. Rather than viewing each alliance as a separate transaction,
researchers in this tradition emphasize the importance of positioning a transaction in the
context of the ongoing relationship between the firms involved. A history of trust and the
prior relationship between firms engaged in a relationship influence the willingness to
partner. It is not the resource per se, but social network of relationships in which a firm is
embedded that leads to partnering. According to this view, the understanding alliance
behavior and outcome could point out because it is the characteristics of the relationship
between firms as an ongoing pattern.
More recently, the literature presents studies about learning in alliance (for example,
Dousage and Hamel, 1988), which explain how the tension between cooperation and
competition affects the dynamics of learning alliances as well as considering the
outcomes and duration of strategic alliances among competing firms, using alliance
17
outcomes as indicators of learning by partner firms to examine inter-firm relationship and
outcomes.
However, while there has been growing attention paid to understanding the formation of
inter-organizational ties, including the motivation of firms participating and explaining
the differential proclivity of firms to enter them, and also the behavior and satisfaction of
partners: less attention has been paid in latter field especially in developing countries like
Kenya.
2.4 Strategic Alliance Partner Selection Criteria
There are many statements emphasizing the importance of “good”, optimal , or “right
“partner selection are ubiquitous in numerous streams of literature that have addressed
strategic alliance formation and management. Most references are perfunctory, and are
not supported by empirically evidence or critical argument, as to the in-use or optimum
partner selection criteria. Nevertheless, a series of studies that focus on selection criteria
used in different context are identifiable.
Tomlinson (1970) from his studies of 71 International Joint ventures (IJV) suggested six
broad categories of selection criteria. The six criteria were favorable past association,
facilities, resources, partner status, forced choice and local identity. Of the six selection
criteria, Tomlinson found that “favorable past association” was most important for
managers.
Daniels (1971) in his study of Joint ventures in US concluded that firms look for partners
of similar sizes. He explained this is an attempt by firms to ensure that the two firms
placed similar amount of importance on the Joint venture and were relatively equal in
18
positions of bargaining strength. Similarly, another study by Littler and Leverick (1995)
sought, in a broad manner, to understand the creation of, and antecedents for, success, in
new-product collaborations in UK. They found out that “careful attention needs to be
paid to the selection of collaborators. In particular, their case study respondent indicated
that organizations should choose partners that exhibit cultural fit, who preferably have
already had experience of working together.
Another study that confirmed partner prior selection understanding in a different context
was the Austrian survey by Hoffmann and Schlosser (2001). They posited that context of
small medium enterprises (SMEs) might base partner selection on four factors: presence
of trust, complementary contribution, resources and strategy, partners excellence in co-
operation and agreement of fundamental values and cultures. Of these four factors,
managers ranked trust and complementarities most highly, with cultural agreement
somewhat lower and cultural match even lower still. Hoffmann and Schlosser (2001)
concluded that SMEs should seek partners that have the strength to contribute specific
complementary resources in order to lay a foundation at the initiation.
Luo (1997) stressed that the importance of organization’s abilities to absorb partnering
experience on strategic fit, with an examination of local frames engaged in manufacturing
in China. Luo showed that the strategic traits of product relatedness and market position
both critically impact the major dimensions in JV performance. Second, Luo found out
that partners strategic fit is determined not only by the resources they contribute, but also
by the previous collaboration and international experience.
19
In summary, many of these studies have, either explicitly or implicitly, attempted to show
causality between partner selection criteria and alliance success. Whereas it would be
naïve to suggest that such a relationship does not exist, actually corroborating it to a
significant degree or certitude and ascertaining that confounding or intermediate factors
are not more important, is programmatically impossible. Furthermore, common
managerial wisdom and commonsense suggests that success or failure is more of the
result of motivated and technically competent managers “making it work”, than
coherence between static pre-alliance criteria.
2.5 Critical Success factors for Strategic Alliances
Current literature does not provide any comprehensive answer to this question. Much
attention has recently been devoted to issues surrounding strategic alliances as
organizations are increasingly turning to alliances to help them successfully compete in
the market place (Varadanajan and Cunnigham, 1995; Ring, 1994; and Das and Teng,
1997). Cunningham and Varadanajan (1995) provocatively noted that some firms seem to
have been quite successful in establishing and maintaining a web of lasting alliances, a
few firms at the other end of the continuum seem to their credit of long list of failed
alliances.
Spekman and Mohr (1994) argue that although the characteristics of strategic alliance
formation have been well explored in the literature, little has been written about the
characteristics associated with strategic success or failure. It is therefore necessary that a
research of this kind is undertaken to add more knowledge to the underlying factors that
directly contribute to the reasons why many alliances fail. The conditions for alliance
20
survival can be grouped into three main underlying factors which are strategic fit,
secondly, cultural fit and attitude and lastly appropriate organizational arrangement.
One of the critical success factors for strategic alliances is partner match which calls for
the creation of alliances in which the chosen partners are similar in management style and
company culture. Considerations such as domain similarity and goal compatibility have
been found to enhance the effectiveness of inter-organizational dyads (Moore, 1998).
The findings of the study that was undertaken by Sengupta (1991) indicate that
compatibility of the partners is critical to alliance success. The findings were, “the higher
the level of partner match is positively associated alliance success and that the partner
match and alliance success association is mediated by alliance relationship attributes”.
The second critical success factor for strategic alliance is strategic orientation. The
strategic orientation of a firm reflects the willingness of the firm to enter into strategic
alliances and to adopt innovative strategies. Firms select strategies to improve their
competitive postures and to gain an advantage over one or more competitors (Kogut
1988). Strategic alliances are formed based on strategies of how to manage
environmental uncertainties, how to overcome lack of resources and, in particular, how to
manage firm’s range of inter-organizational relations. The degree of strategic orientation
of a firm will exhibit higher levels alliance success and an association with alliance
relationship attributes.
The other critical success factor of any alliance is trust. Centrality of trust in developing
long term organizational relationship has been emphasized in the many alliance literature
(Jennings 2000; Smith, 1995. The existence of trust in a relationship reduces the
21
perception of risk associated with opportunistic behavior (Moore, 1998). Partners that
trust each other generate greater profits, serve customers better, and are more adaptable.
Barney and Hansels (1994) posits that when exchanges are governed on trust, the
transactor can reduce transaction costs. Several studies have also shown that the
performance of partners will be higher and hence the chance for success (Bleek, 1993;
Smith, 1997).
Unless trust develops early in the relationship the alliances soon ceases to be the
appropriate organizational arrangement, as transaction cost rise due to monitoring
systems installed to overcome lack of trust. Trust does in any way imply naïve revelation
of company secrets outside alliance agreement, but it implies the belief that a partner will
act with integrity, and will carry out its commitments. The appropriate attitude must be
exhibited from the start. An example of an alliance which might have failed due to trust is
the alliance between Olivetti and AT&T. During negotiation to enter an alliance,
friendliness, should be exhibited, and a deal struck that is clearly “win-win”.
The fourth critical success factor for strategic alliance is communication.
Communications between partners is critical for building a successful relationship. In
order to achieve the benefits of collaboration, effective communication between partners
is essential (Cunnings, 1984). Communications allows partners to understand the alliance
goals, roles and responsibilities of all actors. It also helps with the sharing and
dissemination of individual experiences (Inkpen, 1996). More successful alliance are
expected to exhibit higher levels of communication quality, more information sharing
between partners and more participation in planning and goal setting than less successful
alliances are between partners.
22
Commitment to the alliance by partners is another key success factor for any alliance.
Commitment suggests a future orientation in which partners attempt to build a
relationship that can weather unanticipated problems. A high level of commitment
provides the context in which both parties can achieve individual and joint goals without
raising the specter of the opportunistic behavior (Cunnings, 1984). Indications of
commitment include investment by the participating organizations, exclusive agreements.
Committed partners are likely to be more cooperative, communicative and flexible in
accommodating conflict issues. Commitment development between partners within an
alliance would act as a counter –balance against failure of the strategic alliance.
Sixthly, culture can be a key to strategic alliance survival, as many alliances have
foundered on the question of incompatible culture alone. The alliance between Olivetti
and AT & T came to dissonance which stemmed from contrasting bureaucratic culture of
the US giant and the entrepreneurial Italian marketing company. Cultural difference does
not necessarily lead to problems in alliance but where there is a strong will to understand
them and bridge the gap, then the effect of culture clash can be mitigated and the alliance
can still succeed.
Lastly, collaboration is the key dimension of strategic alliance relationship. The alliance
partners must collaborate to achieve their strategic objectives. The collaborative
associations are interactive and adaptive in nature as noted by Anderson (1991).
Understanding the nature and scope of collaboration is essential in analyzing the
operation and success of an alliance. A highly collaborative relationship provides the
flexibility necessary to overcome uncertainties, resolve conflicts and achieve mutually
beneficial outcomes. In short, “the greater the extent that a collaborative relationship
23
exists between the alliance partners the higher the probability of success” (Sengupta,
1991).
In summary, the literature cited above in this section suggests that more successful
alliance relationships are expected to be more characterized by higher levels of partner
match, strategic orientation, trust, communication, culture match, commitment and
collaboration. The absence of many of these critical factors may or has led to strategic
failures. Care must be taken to ensure that in partner selection, much attention is paid to
the inclusion of the critical success factors for the success of the alliance.
2.6 Problems of Strategic Alliances
An alliance can be broken or underperforming, yet too many companies fail to see their
partnerships are just drifting or not producing. Recognizing that an alliance is broken and
taking steps to amend the various relationships are vital if a company is to realize its
expected Returns on Investment (ROI).
One of the biggest problem facing alliances and which has contributed to the high failure
rate is the clash of cultures and “incompatible chemistry”. The cultural problems which
firms are likely to face in the alliance include; language, egos, chauvinism, and different
attitudes to business can all make the going very rough. The first thing that causes
problem is the language barrier the firms may face. It is important for companies working
together to be able to communicate and understand each other well or they are doomed to
before they start. After the communication is worked out the firms now face the problems
of operation. Different cultures work or operate in different ways, for instance, the US
companies tend to evaluate performance on the basis of profit, market share, and specific
24
financial benefits. Japanese companies tend evaluate performance primarily on how an
operation helps build its strategic position, particularly by improving its skills according
to study by Daniels (1971). From a different perspective, Steensman (1998) indicated that
national cultural traits directly influence strategic alliance formation and moderate the
relationship between perceived technological uncertainty and alliance formation.
The second problem among the alliance partners is lack of trust. Risk is the primary
bonding in partnership. What will happen if one company experience success and the
other one failure? .A sense of commitment must be generated throughout the partnership.
In many alliance cases one company will point failure finger at the partnering company.
Shifting the blame does not solve the problem, but increases the tension between the
partners and companies often lead to ruin (Lewis, 1991). Building trust is the most
important and yet most difficult aspect of a successful alliance. Only people can trust
each other, not the company. Therefore, alliances need to be formed to enhance trust
between individuals. The companies must form the tree forms of trust, which include
responsibility, equality, and reliability. Many alliances have failed due to lack of
understanding and despondent relationships.
The third problem facing alliance is the performance risks. Performance risk is the
probability that an alliance may fail even when partner firms commit themselves fully to
the alliance. The sources of performance risks according to study by Das and Teng
(1999) include, environmental factors, such as government policy changes, wars and
economic recession; market factors such as fierce competition and demand fluctuations
and, internal factors, such as lack of competence in critical areas, or sheer bad lack.
25
Fourthly, Lack of clear goals and objectives can create problem among the strategic
alliance partners. In today’s business world, many strategic alliances are formed for the
wrong reasons. This will surely lead to disaster in the future. Many companies enter into
alliances to combat industry competitors. Corporate management feels this type of action
will deter competitors from focusing on their company. On the contrary, this action will
raise flags that problems exist within the joining companies. The alliance may put the
companies in the spotlight causing more competition. Once again, the management feels
that an increase in numbers signifies quick fix. In this case, the company is probably
already doomed and is just taking another along for the ride (Foss, 1999).
The other reason why strategic alliances have problems is lack of coordination between
management teams. In many instances action taken by subordinates that are not in
congruence with top-level management can prove disruptive, especially in instances
where companies remain competitors in spite of their strategic alliance. If it were to
happen that one company would go off on its own and do its own marketing and sell its
own products while in alliance with another company it would for sure be grounds for the
two to break up, and they would most likely end up in legal battle which could take years
to solve if it were to settle at all. An example of lack of coordination between
management teams is the merger between Volvo and Renault (1993).
Sixthly, Strategic alliances might create a future local or even global competition. One
partner, for example, might be using the alliance to test a market and prepare the launch
of a wholly owned subsidiary. By declining to cooperate with the other partners, in the
area of its core competency, a company can reduce the likelihood of creating a
competitor that would threaten its main area of business; likewise, a company, can insist
26
on contractual clauses that constrain the other partner from competing against it in certain
products or geographic regions. Further to this, strategic alliance can also fail if the
partners in the alliance do not grasp and articulate their strategic intent and failure to
recognize the interplay between the overall strategy of the company and the role of the
alliance in that strategy.
27
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
This chapter presents the study design and methodology used in gathering information
needed for the purpose of completing the study. This chapter involves a blueprint for the
collection, measurement and analysis of data. In this section the following subsections are
included; research design and target population, sampling design, and data collection
instrument and procedures and data analysis criteria that will be used.
3.2 Research Design
The research was undertaken via case study. Case study was found to be most ideal as it
allowed in-depth examination of the problem and because the study was qualitative in
nature. The research design entailed utilization of qualitative research technique for data
collection to better understand how strategic alliance was implemented and the
challenges faced.
Koller (2004) asserts that a case study research design is appropriate where a detailed
analysis of a single unit is desired as they provide a focused and valuable insight into
phenomenon that otherwise would be wrongly and vaguely known. It would also be
necessary to seek various clarifications on important issues that probably would have not
been formally laid bare by the interviewees. This kind of research design has been used
by Wachira (2002), and Musyoki (2002).
3.3 Data collection
Both primary and secondary data, in qualitative form was used for the study. Cooper and
Schindler ( 2003) define qualitative research as that which deals with information
28
too difficult or expensive to quantify, such as subjective opinions and value
judgments , typically unearthed during interviews or discussion groups. Primary data
was mainly collected through interviews and discussions with the help of interview
guide, which was developed in line with the research objective. The questions were
prepared in line with the literature review and pre-tested before the actual data collection.
The questions were open -ended to allow for collection of as much information as
possible from the respondents.
The researcher conducted interviews among the senior managers of the Nation Media
Group who were involved in the whole process of the partner selection and
implementation of the strategic alliance strategy. The researcher also interviewed one of
the senior managers of the Media24 who was in involved in the project from the start to
the implementation stage to countercheck information provided by the other alliance
partner. Before the actual interview took place, an appointment was made and the
interview guide sent in advance to enable the interviewee be prepared. The researcher
also administered the questionnaire personally to allow more probing and also keep the
discussion on tract to the subject of study.
3.4 Data analysis
Data was analyzed using content analysis. Content analysis sets a procedure for
collecting and analyzing of non-structured information into a standardized format that
allows one to make inferences about the research objectives. The collected data was
evaluated to determine its adequacy, credibility, usefulness and consistency. Cooper and
Schindler (2003) points out that content analysis measures the semantic content or “what”
aspect of the message. Its breadth makes it flexible and wide-ranging tool that may be
29
used as a methodology or a problem specific technique. He further points out that content
analysis guards against selective perception or context provide for rigorous application or
reducing data validity criteria.
Furthermore, content analysis aims at identifying pattern that account for behavior of a
given study unit and its relationship with the environment. The method also allows the
respondents to give a wide range of ideas about the issue in much detail. In coding the
qualitative data, the researcher shall read all the responses, identify key words and
phrases in the responses then relate key words to emerging patterns. From these themes
and patterns, a category of data was drawn out and the meaning to interpret the results.
30
CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION
4.1 Introduction
This chapter reports the findings from the selected data under study. The purpose of this
research was to investigate strategic alliance formation and implementation challenges
between Nation Media Group and Media24 of South Africa. The data analysis was
designed with the intention of answering the research question.
4.2 Background information
The respondents were asked to state their gender composition, position held, department
and the number of years served in their positions. All the respondents were top managers
who had worked in the organization for over five years and were involved in the strategic
alliance formation and implementation by virtue of their position in the organization as
such they were appropriate candidates for the interview.
Out of the 6 questionnaires sent to the respondents for discussion, one did not avail
himself for interview only five did. The composition was 4 males and 1 female. All the
respondents held different positions in the company and departments with over 5-8 years’
experience.
4.3 How the Strategic Alliance was implemented
According to David (2001), formulating strategy is not enough. For effective strategy
implementation the strategy must be supported by decisions regarding organization’s
culture, structure, management, leadership resources and capacity. He further alludes that
the strategy of an organization must match the external environment, it must also fit the
multiple factors responsible for the implementation.
31
There was an agreement among the respondents that the alliance formation to the
implementation took a period of three months. A number of meetings were held in
Nairobi and Pretoria to work out the responsibility of the each of the alliance partners.
The shareholding of the alliance was also agreed. The Nation Media Group had the
majority shareholding of 51% while Media24 had the remaining 49%. The shareholding
structure meant that NMG had greater control over the joint venture as compared to the
partner. However, the head agreement signed by the partners did not give the NMG much
power in decision making as they had equal number of representation in the alliance
board of management.
On the human resources required for the management of the alliance, it was agreed that
Nation Media Group was to provide the head of the joint venture and other key staff in
distribution, marketing, advertising and information technology. The Media24 provided
the key staff in editorial and production of the magazines. Each of the alliance partners
provided staff in key areas where they had competencies. The human resource of the
alliance was to be managed by Nation Media Group head of human resources. This
brought a lot of issues in harmonizing the human resource policies of the alliance
partners.
The salary structure for the Media24 staff was much higher than the one for NMG.
Though some staff in the alliance were doing same job but the salary of the foreign
employees could not match the local staff recruited and this brought disharmony. The
mixing of both the local and the expatriates from South Africa was to allow for
knowledge transfer among the partners. Media24 had a long history of magazines
32
publishing which NMG had very little knowledge but lacked the distribution and market
knowledge.
Nation Media Group sent a number of its local staff in the joint venture to South Africa to
study magazines publishing. The Media24 also sourced a number of staff in Kenya to
understand the distribution and advertising strategy of its alliance partner.
There was a consensus among the respondents that there was a policy that was agreed on
the management of the cash and non- cash resources. According to the framework agreed
upon, the alliance partners were to contribute resources in the same proportion as the
shareholding in the joint venture. Profit and loss were shared in the same proportion as
the shareholding. Strategies were also put to ensure that there was adequate resources for
the alliance.
There was a strategic policy that supported the alliance management. The head of the
alliance was from Nation Media Group. Teamwork between the alliance partners was
encouraged. On the question of the management team and the employees prepared for the
alliance, the respondents did state there was initial resistance to this alliance as there was
not enough preparation for the staff involved so that they could understand one another
on long term goals of the alliance.
From the discussions, it emerged that there was conflict in managing the alliance. The
head of the joint venture was initially from NMG. The senior manager was perceived to
be learning towards the advice of the parent company who had a bigger shareholding in
the joint venture. Media24 was not comfortable with this and they later agreed and
33
appointed the head of joint venture from its rank which was later perceived in the same
way as the one from the other alliance partner.
4.4 Challenges faced in the Implementation of the Strategic Alliance
The respondents stated that one of the major challenges involved in the implementation
of the alliance were appointments and the remunerations for the directors which was
costly to NMG. The staff that were seconded to the alliance from the Media24 were
earning way above the salary for the local staff seconded by NMG. Given that NMG was
the principal shareholder, it was aware that high salaries could lead to greater revenue
loss as the joint venture was in its initial stages of planned loss making. The Media24
also maintained that its staff seconded to the joint venture could not less than what they
were earning in their parent company in South Africa.
Cultural difference was also a challenge. Media24 organization culture was clearly
different with NMG culture in the paper works and processes. It was a perception by
Media24 that NMG was bureaucratic as opposed to Media24. It was perceived that
decision making was a long process which involved so ma many managers and
departments. It was noted that there was very little attempts during the implementation to
marry the two cultures of the partners.
Mistrust was also key evidence. Whereby Media24 had a broader vision on the payback
period for the alliance while NMG had an opposing view. Sources of this challenges were
from the negotiations phase where key negotiators could not clearly elaborate their
motives resulting to mistrust. The challenges were resolved by dissolution of the alliance
as the alliance was proven to be non-profitable for the 4 years it operated. There was an
over-optimistic expansion whereby NMG and Media24 used high debt to finance
34
investments in new facilities and equipment, then getting trapped with high fixed costs
while the demand for the magazines was lower.
Another challenge the alliance faced was selling the Sizzle without the Steak: that is the
alliance spent more money on marketing and sales promotions to try to get around
problems with product quality and performance. Depending on cosmetic product
improvements to serve as a substitute for real innovation and extra customer value.
Inability to predict environmental reaction was a key pitfall in the strategy
implementation between NMG and Media24 as NMG did not anticipate what SMG
would do of them not joining the Johnnic holding group.
There was no partners match between the Nation Media Group and Media24. The
turnover and profitability of the two companies was not comparable. The latter company
had turnover and profitability that was about ten times higher than the former company.
Nation Media Group felt that losses from the alliance was not sustainable for a long time
while the partner could sustain it, given the long term goal they had in East and Central
African market.
Strategic orientation of the two partners were different, that is, the willingness of the two
firms to adopt innovative strategies. Nation Media Group failed to turn around the losses
into profit yet they were aware of the Kenyan market. NMG were unable to manage the
environmental uncertainties of making the market buy the magazines that they were
publishing. From the interview all the respondents agreed that the main reasons as to why
NMG entered the alliance was to fight competition posed by SMG joining Johnnic
holding group. While Media24 had a long term stay in East Africa Market.
35
Communication among the partners was restricted to the board of directors of the two
companies but most of the senior management of the partners were not quite aware all the
dealings in the joint venture. Communication between the partners is critical for building
a successful relationship. Communication allows partners to understand the alliance
goals, roles and responsibilities of all the actors in the alliance. . Top management is
necessary for buying and the success of any alliance
4.5 Discussion of findings
This section endeavors to look at how the findings of this study relates to the strategic
alliance theory and to compare the findings with the studies that have been carried in the
area of strategic alliance implementations in Kenya and elsewhere. The discussion is
intended to demonstrate the importance of the findings in corroborating existing
knowledge and areas that require further attention for those companies that would like to
enter into strategic alliance and for researchers and practitioners.
4.5.1 Comparison of findings with Theory
The study found that one of the reasons why the alliance was formed was learning
experiences. Nation Media had a long history in newspaper publishing had no experience
in magazines publishing. On the other had Media24 lacked the local market knowledge
and distribution network within the East and Central African market. According to study
by Powel (1996) it was found that organizations seek alliances to acquire new and
valuable competitive knowledge. Most firms are competent in some areas and lack
expertise in other areas as such, forming a strategic alliance can allow ready access to
knowledge and expertise in areas that a company lacks. The information, knowledge and
expertise that a company gains can be used, not just in the strategic alliance but for other
36
projects and purposes. The learning can range from knowing how to deal with a
government regulations, product knowledge or learning how to acquire resources. A
learning organization is a growing organization.
The study further found that one the challenges in the strategic alliance implementation is
lack of partner match. Media24 turnover was incomparable to Nation Media Group. The
former company had enormous resources such that it had no difficulty spending millions
of Kenya shilling in the alliance and had estimated their loss period to be about ten years.
Whereas Nation Media Group had estimated the loss period for five years of which it
NMG could not match the partner in the alliance. Sengupta (1991) indicates that
compatibility of partners is critical to alliance success. The findings were, the higher the
level of partner match positively the higher the alliance is likely to succeed achieving
the intended objectives.
Another study by Daniels (1971) concluded that firms looks for partners of similar sizes.
He explained this as an attempt by firms to ensure that the two firms placed similar
amounts of importance on the alliance and were in relatively equal positions of
bargaining strength. Partner match would ensure that there is no fear among the partner
of being threatened by hostile takeover when one party fails to meet financial obligations
as contained in the alliance agreement.
The other finding of the study was that there was no congruent of goals among the
partners. The Nation Media Group was mainly driven by the fear of Standard Media
Group entering into partnership with another media house from South Africa which they
perceived to be a threat to its dominance in the market. Once the perceived threat was
37
over the NMG interest in continued stay in the alliance was shaky. The alliance partner
had a strategy to stay in the alliance longer and had intention in the market longer by
heavily investment in magazines publishing and printing plant. According to Foss (1999)
lack of clear strategy among partners will lead to a challenge in strategy implementation.
This study further indicates that companies that enter into alliance to combat industry
competition are likely to fail so long as the perceived threat is over.
4.5.2 Comparison with other Studies
The study found that learning and knowledge sharing was one of the benefit from the
strategic alliance and the reason for alliance formation. Nation Media Group had no
knowledge in magazines publishing as for over forty years they had only been
newspapers business. The Media24 had no knowledge of local market and distribution
network. The finding was similar to a similar study done by Koigi (2002) on the strategic
alliance implementation between Kenya Posts and Savings and City Bank. The latter
company had difficulties in cheque clearing as it had not been given the authority by the
Central Bank of Kenya and therefore could not be present in the clearing house. City
Bank being an international company had long experience in international money transfer
and cheque clearing. In both studies, there was both knowledge transfer and technology.
The study found that partner selection is one the critical success factor in strategic
alliance implementation. Strategic alliance match calls for the creation of alliances in
which chosen partner are similar in size and management style. This will ensure that
organizations place amount of importance on the alliance and will also have equal
bargaining power and bargaining power. When there are two firms that do not match then
there will always mistrust as the smaller one might fear hostile takeover by the bigger
38
partner. A similar study by Kinyua (2011) had a similar conclusion as this study on the
partner match as a key critical success factor in strategic alliance implementation.
Cavugil and Evirgen (1997) concluded that firms look for partners which have the same
size, similar business and compatibility for better implementation and success of the
alliance.
Cultural fit is an important factor in any strategic alliances. The study concluded that
there was cultural differences between Nation Media Group and Media24. The decision
process in Nation Media Group was perceived to be long and bureaucratic while the
Media24 management empowered the managers seconded to the alliance to make some
important decision without reference to the parent company in South Africa. Managers
that were seconded by Nation Group had to seek approval from the parent company for
the decision that the partner felt could be made immediately without consultation to the
parent company. Ndarwa (2011) from her study of the study of strategic alliance between
USAID and selected commercial banks also concluded that cultural fit among the
partners is key to successful implementation of alliances. Before any strategic alliance
implementation there is a need for the managers in loved from the partners be trained and
modelled in certain specific direction regarding the way of doing things so that one
culture is created. Culture clash is one of the main reasons why alliances fail to achieve
the intended objectives.
39
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS
5.1 Introduction
This is the final chapter in this study which gives the summary of the findings,
conclusions and recommendations of the study based on the objective of the study. The
study sought to investigate strategic alliance implementation between Nation Media
Group and Media24 of South Africa.
5.2 Summary
One of the challenges faced in the implementation of the alliance was the clash of
cultures. Media24 organization system was open making decision making to be very
simple and prompt. NMG cultural system was based bureaucracy. The culture of
Media24 and NMG on how organization was to be structured was also a matter of debate.
An alliance has to be looked at from three different angles. The strategic scope of the
alliance considers the overall impact of the alliance on the industry. The economic scope
refers to the impact of the alliance activities on the partners. Operational scope is
concerned with the day to day activities of people directly or indirectly involved in the
alliance. All the three aspects should be examined carefully while the alliance is being
structured.
Understanding the firm's strategic needs, exploring ways by which alliances can meet
these needs and identifying suitable partners are obviously key issues. A part by part
analysis of the value chain will reveal which activities should be retained internally and
which can be shared with partners. It is also important to examine carefully the pros and
cons of sharing activities all at once or in stages, over time, with the partners. A related
40
issue is whether to choose one partner for many activities or different partners for
different activities. Mechanisms by which synergies can be maximized for all the partners
involved, must be explored. Ultimately, an alliance can succeed only if it creates a win-
win situation for the partners. At the same time, safeguard mechanisms to protect core
competencies need to be put in place, based on insights into the ways in which partners
might take unfair advantage or misuse the firm’s competencies
Strategic fit was lacking in NMG whereas Media24 was willing to accept a longer pay
back period by the losses that were evident, NMG could not sustain such losses. Whereas
Media24 was prepared to make losses for even 10 years before realizing the payback
period for the alliance, NMG could not agree to this arrangement due to their belief of
profit making in five year period in any investment they undertake.
The initial motive of NMG joining this alliance was due to SMG initial alliance plan with
Johnnic holding Group which never materialized. Thus NMG was forced by
circumstance to join this alliance.
The issue of trust did affect the alliance. Media24 had a long term vision for the alliance
that is why they were ready to have a longer payback period. This was not NMG position
since they believed Media24 was doing this on purpose to make NMG vulnerable and
invest in a venture that was never going to yield any benefit to them but would eventually
benefit the partner .
The communication of goals and visions for the alliance was not clearly elaborated and
emphasized by the two partners resulting to the dissolution after operations for four years
only. Failure of NMG to do market analysis and research to find out the cost of
41
distribution of the magazines and the market demand for magazines contributed to the
increase in operating expenses and the losses thought the four year operation.
Understanding the firm's strategic needs, exploring ways by which alliances can meet
these needs and identifying suitable partners are obviously key issues. A part by part
analysis of the value chain will reveal which activities should be retained internally and
which can be shared with partners. It is also important to examine carefully the pros and
cons of sharing activities all at once or in stages, over time, with the partners. A related
issue is whether to choose one partner for many activities or different partners for
different activities.
Mechanisms, by which synergies can be maximized for all the partners involved, must be
explored. Ultimately, an alliance can succeed only if it creates a win-win situation for the
partners. At the same time, safeguard mechanisms to protect core competencies need to
be put in place, based on insights into the ways in which partners might take unfair
advantage or misuse the firm’s competencies. This was not the case in NMG and
Media24 alliance.
5.3 Conclusion
Strategic alliances are more than simple instrumental means for achieving collective
goals directly benefiting the collaborators. They also constitute each partner firms’
corporate social capital, providing potential access to various assets controlled by other
strategic alliance network members. Alliances provide opportunities for participants to
tap into the resources, knowledge, and skills of their immediate partners in a portfolio of
inter-firm agreements.
42
Further, given latent reach-ability across strong ties and possibilities for activating
brokerage efforts to interconnect the partners, these complex patterns of social capital
embedded within an organizational field-net of a strategic alliance offer enormous
potential for significantly leveraging its member firms’ resource capabilities. Theoretical
conjectures and empirical investigations of strategic alliances over the past two decades
reveal an accelerating proliferation of these inter-organizational phenomena. Arm’s-
length market exchanges may prove less efficient than alternative inter-firm arrangements
for carrying out many complex co-production processes, such as R&D on highly
uncertain technologies, as well as for overcoming legal-political-cultural barriers to
cross-national transactions.
The strategic orientation of a firm should reflect the willingness of the firm to enter into
strategic alliances and to adopt innovative strategies. With new innovative strategies,
future media alliances will be possible as both parties will join the alliances with different
and new ways of improving the alliance critical success.
Current debates over the globalization of business systems emphasize how both local and
international environments foster international joint venture partnerships, but these
environments may also inhibit the full realization of benefits obtainable through such
relationships. The images of mixed advantages and drawbacks accruing from
collaborative enterprises reflect the current ambiguous state of knowledge about strategic
alliance networks and their multidimensional consequences.
Also critical to alliances is trust and total commitments to alliances whereby all the issues
of concerns are dealt with openly and communicated to all parties involved. By building
43
trust, parties to such alliances will be able to overcome environmental uncertainties such
as regulations, business cycles and dynamics due to management leadership styles.
Partner selection comprises the largest and richest body of empirical research. It seeks to
explain who collaborates with whom, at what rates, for how long, and deploying what
governance forms (especially equity or none equity ownership of joint enterprises). An
important subset focuses on JVs, with their added complexity of diverse cross-national
cultures and legal-governmental systems. Analysis of alliance formation processes should
feature more explicit contingency perspectives that explicitly identify how variations in
business systems, industries, strategic alliance networks (organizational field nets),
markets, and organizational attributes condition participation opportunities and
organizational perceptions of collaborative efficacy.
5.4 Recommendations
Future alliances should involve all senior management teams from the very beginning of
any alliances. To enable such managers to identify any challenges in alliance
implementation. Companies entering alliances should conduct enough market study, have
clear plans and goals that they want to achieve before coming to any alliance.
Not all alliances are intentionally designed to achieve mutually beneficial outcomes for
all parties. Some organizations may enter strategic alliances as cautious, lower-risk
pathways for exploring opportunities for subsequent mergers, takeovers, or business-unit
divestitures. Researchers need a deeper understanding of conditions promoting such
manipulative behavior, with or without partner consent, and how such arrangements
differ from collaborations intended to preserve partner autonomy.
44
Analysts should increasingly disentangle the relative impacts of organizational,
relational, and environmental contexts on various performance measures. Theorists could
construct more nuanced specifications of detailed social mechanisms that conditionally
influence outcomes in strategic alliance networks. For example, which formal governance
structures interact with what organizational components to boost learning and knowledge
transfer and how the corporate social capital embedded in inter-firm trust relations
combine with social norms emerging from a collaboration to shape the distribution of
outcome rewards among the partners. Strategy orientation of both partners coming to any
alliance must be aligned towards a common objective and vision.
5.5 Limitations of the Study
The researcher did not interview Media24 managers due to their unavailability for the
interview. By time of this study all the managers were back in South Africa. The study
would have been more conclusive had all the alliance partners interviewed and their
views incorporated in the study.
The other limitation of the study was lack of funds to enable the researcher to travel to
South Africa so as to have a one on one interview with the top managers who were
involved in the strategic alliance formation and implementation. The other limitation is
that some managers of Nation Media Group had left the company by the time this study
was done and therefore could not be accessed. However, it is worth noting that extra care
was taken to minimize the effects of the limitations as much as possible.
5.6 Suggestions for Further Research
Researchers can apply network principles to investigate important questions about
alliance formation processes across several levels of analysis. At the micro-level of a
45
firm, how do individual organizations’ varied positions within the strategic alliance
network facilitate or impede the construction of more diverse portfolios. Among the
several alternative centrality conceptualizations, which measures yield greater
explanatory accuracy in predicting new and repeat alliances? At the macro-level of a
complete field-net, how do changes in various structural dimensions alter alliance
formation rates over time? Most intriguing, what cross-level conditional effects occur,
involving interactions among firm attributes, ego-centric positions, and complete
networks on collaborative dynamics.
Researchers also should recognize a strong tendency for partners to repeat their alliances
over time, but the conditions favoring persistence and desistence aren’t fully understood.
Brokerage processes, involving third-party introductions and vetting, are crucial social
mechanisms for forging new ties between unacquainted organizations. But, more needs to
be learned about the characteristics and conditions favoring successful as well as failed
match-making. The complementarity principle suggests that brokers will perform better if
they serve to connect somewhat disparate, rather than highly similar, partners.
More study of innovative dynamics occurring at the strategic alliance network level; that
is, not by examining the creation of new products and technologies, but explaining how
tie-formation processes subsequently feedback to transform the global network structure
itself.
The period after an alliance announcement, from implementation to termination, is less
thoroughly investigated. Analysts routinely stress the importance of trust as a crucial
form of corporate social capital important to overcoming awkwardness and potential
46
conflicts while partners attempt to turn their plans into practices. Power dynamics also
come into play as project managers negotiate the practical allocation of authority,
property rights, management responsibilities, and division of rewards or losses from the
undertaking.
We have little information about imminent failures during initial attempts to implement a
formal agreement. What conditions lead to the abrupt breakdown of negotiations and
discourage further efforts to re-launch a new partnership. Organizational researchers have
conducted too few ethnographic studies to comprehend the full range of patterns and
problems encountered by real alliance participants. What institutional, relational, and
organizational features of a strategic alliance network push projects along increasingly
cooperative or hostile trajectories.
Further research should be conducted to find out the real cause of strategic alliance
failure between NMG and Media24. As this study only focused in the formation and
challenges of implementation of the alliance.
47
REFERENCES
Anderson, J.C. (1990): A Model of Distributing Firm and Manufacturing Working
Partnership. Journal of Marketing .54(7)
Aosa, E. (1992). An Empirical Investigation of Aspects of Strategy Formulation and
Implementation with large Private Manufacturing Companies in Kenya.
Unpublished PhD Dissertation, University of Strathcylde , Scotland
Barney, J. B. & Hansen, M. H. (1994). Trustworthiness as a Source of Competitive
Advantage. Strategic Management Journal. 15
Bleek, J.A & Ernest, D.F. (1993). Collaborating to Compete, New York. John Wiley and
Sons.
Cooper, D. R. & Schindler, P.S. (2003). Business Research Methods (8th ed.) Boston.
McGraw- Hill Irwin.
Cunnings, T. (1984). Trans-organizational Development. Research in Organizational
Behavioral, 6.
Daniels, J. (1971). Recent Foreign Direct Manufacturing Investment in the USA. Praeger,
New York
Das T. K., & Teng, B. (1997): Sustaining Strategic Alliance: Options and Guidelines.
Journal of General Management. 22(4).
Dousage, P. & Garnette, B. (1988). Co-operations, Managing Alliance, Networks and
Joint Ventures. Oxford University Press.
48
Doz, Y. L. & Hamel, G. (1998). Alliance Advantage: The Art of Creating
Value through Partnering. Harvard Business School Press Boston,
Massachusetts.
Dyer, J. H., &. Singh (2001). The Relational View: Cooperative Strategy and Sources of
Interorgazational Competitive Advantage. Academy of Management Review.
23(4): 600-679
Foss, N.J. (1999). Equilibrium versus Evolution in the Resource Based Perspective in
Resources, Technology and Strategy. Routhelge Inc.
Gomes- Casseres, B. (1996). The Alliances Revolution: The new Shape of Business
Rivalry. Harvard University Press, MA
Gulati, R. (1995). Social Structure and Alliance Formation Partners. A Longitudinal
Analysis. Administrative Science Quarterly. 40 (4)
Heide, J. B. & Miner, A. A. The Shadow of the Future: Effect of the Anticipated
Interaction and Frequency of Buyer- Seller Cooperation. Academy of
Management Journal, 35(2)
Hoffman, W. & Scholosser, R. (2001). Success Factors of Strategic Alliances in Small
and Medium-size Enterprises: An Empirical Survey. Long Range Planning.34
Inkpen, A. (1996). Risk and Strategic Intent in Cross- border Alliance Choice:
Theoretical and Empirical Investigation. Unpublished Doctoral Dissertation,
Memphis State
49
Jennings, D. F. (2000). Determinants of Trust in Global Alliances: Amrad and the
Australian Biomedical Industry. Competitive Review. 10(1)
Johnson, G., Scholes, K. and Whittington, R. (2009). Exploring Corporate Strategy.
Pearson Education.
Kinyua, J. K. (2011). Strategic Alliance Between Jomo Kenyatta University of
Agriculture and Technology and Some Middle Level Colleges, Unpublished
MBA Project, School of Business, University of Nairobi, Kenya
Kogut, B. (1988) . A Study of the Life cycles of Joint Ventures. In F. Contractor & P.
Lorange (Eds), Cooperative Strategies in International Business. Lexington Books,
Mass.
Koigi A. N. (2002). Implementation of Strategic Alliances: Experience of Post Office
Savings and City Bank. Unpublished MBA Project School of Business University of
Nairobi, Kenya.
Lewis, J. D. (1991). Competitive Alliances Redefine Companies. Management Review.
April.
Littler, D.& Leverick, F. (1995). Joint Venture for Product Development. Learning from
Experience. Long Range Planning. 28(3).
Luo, Y. (1997). Partner Selection and venturing Success: The Case of Joint Ventures in
the Peoples’ Republic of China. Organization Science 8(6): 648-662
Minztberg, H. and Quinn, J. B. (1991). The Strategy Process, Concepts, Contexts and
Cases. 2nd edition, Prentice Hall, Inc.
50
Moore, K. R. (1998). Trust and Relationship Commitment in Logistics Alliance: A Buyer
Perspective. Journal of Supply Chain Management. 34(1)
Musyoki C. (2002). Creation and Implantation of Strategic Alliances among NGOs in
Kenya. A Case of Gedo Health Consortium. Unpublished MBA Project, School of
Business, University of Nairobi- Kenya
Ndarwa C. (2011). Implimentation of the Strategic Alliance Between USAID and Some
Selected Commercial Banks. Unpublished MBA Project, School of Business,
University of Nairobi-Kenya
Pfeffer. J., & Salancik, G. R. (1978). The External Control of Organizations. Harper and
Row Publishers Inc, New York.
Ring, P. S. (1994). Development Processes of cooperative Inter-organizational
Relationships. Academy of Management Review. 19(1). 90-118
Sengupta, S. (1991). Strategic Alliances for Complementary Products. A Theoretical and
Empirical Study. Berkeley, CA: University of California.
Spekman, R. & Mohr, J. (1994). Characteristics of Partnership: Partnership Attribute,
Communication Behavior and Conflict Resolution. Strategic Marketing Journal
.15
Smith, J. B. & Barclay. D. W. (1997). The effect of organizational Differences and Trust
on Effectiveness Selling Partner Relationship. Journal of Marketing. 61(1).
Tomlinson, J. & Thomson, M. (1970). A Study of Canadian Joint Ventures in Mexico”.
University of Columbia, Vancouver.
51
Varadanajan, P., & Cunningham, M. H. (1995). Strategic Alliances: A Synthesis of
Conceptual Foundation. Journal of the Academy of marketing Science. 23(4): 28-
296
Van de Ven, A.H (1976). On the Nature, Maintenance of Relations among Organizations.
Academy of Management Science, Review.
Wolak, F., (2005), “Managing Unilateral Market Power in Electricity”, World Bank
Policy Research Working Paper 3691, September 2005.
Zajac, E. J. (1998). From Transaction Cost to Transaction Value Analysis: Implication
for Study of inter-organizational. Journal of Management Science, Vol. 30.
Review.
52
APPENDIX
Interview Guide on Strategic Alliance Implementation between Nation
Media Group and Media24 of South Africa
This interview guide has been prepared in relation to the objectives of the study. Any
issue that requires clarification will be discussed with the researcher during or after the
interview.
Part 1. Background Information
i. Gender of the respondent: male ………… female…………
ii. Position held in the Company……………………………..
iii. Department………………………………………………….
iv. Number of years served in the position: (a) 1-4 years (b) 5-8 years (c) over 9
years.
Part 2. Creation of the strategic alliance-
a. Motivation for the strategic alliance formation.
i. How did the idea of forming the strategic alliance come up?
ii. How was the partner identified?
iii. What were the interests of the partners in the alliance?
iv. What were the objectives of forming the alliance?
v. Were the objectives communicated to the people concerned in the organization?
vi. Who communicated the objectives to you?
vii. How were they communicated
Verbally
Circular/memo
53
Any other means.
b. Process followed in formation of the strategic alliance
i. Describe the process the company went through in forming the alliance, i.e. what
steps were followed?
ii. How long did it take to create the alliance
iii. Were there any problems/challenges encountered during the process of forming
the alliance?
a. Were these problems /challenges resolved (being addressed)?
b. How were they addressed (being addressed)?
Part 3. Implementation and the performance of the alliance
a. Benefits from the alliance
i. What were the benefits expected of the alliance from your organization?
ii. Were the expected benefits been achieved?
iii. To what extent did your stakeholders benefit from this alliance?
54
Implementation of the strategic alliance
i. How strong was the sense of urgency when implementing the alliance objectives?
Very strong
Not strong
None at all.
ii. Has there been any transfer of knowledge through the alliance?
iii. Do you require specialized know-how in performance relating to the alliance? If
yes, explain how this has been acquired.
Resource Management
i. How did the alliance manage its resources (both cash and no-cash)?
ii. Were you satisfied with the tools/techniques in place for resources management?
iii. Was the alliance adequately financed?
iv. What strategies were put in place to ensure that resources were available?
Managing the alliance
i. Did the organization have strategic policy (guidelines that supported the strategic
alliance? was it comprehensive and effective?
55
ii. Did your organization encourage collaboration and teamwork between the
partners and the alliance?
iii. How were the management team and other employees prepared for alliance?
iv. Was there performance benchmarks set relating to the alliance? If yes, which
ones?
v. Did partners make contribution that are easy to value
vi. Were there differences /shifts in the nature of individual partner participation in
the alliance?
vii. Was one partner putting in more effort and contributions to the alliance?
Part 4. Challenges faced in the Implementation of the Strategic
Alliance
i. Were there any challenges faced during the implementation of the alliance
ii.
iii. If yes, what were the challenges faced in the implementation of strategic alliance?
iv. What were the sources of the challenges
v. How were the challenges solved or managed?