Developed-market companies can combine forces with Asian companies so that both parties make the most of each other’s strengths and capabilities.
Asian companies have expanded rapidly and achieved a huge amount in a short period. However, inevitably, gaps remain in their competencies and capabilities.
Companies from Asia are often cash-rich, but may lack the intellectual property (IP), technology or expertise they need to further their own strategic goals. By contrast, some developed-market companies have strong IP, technology and expertise, with the potential to benefit from new capital.
Combining the two can result in a winning situation for both parties. In our survey for Beyond Asia: strategies to support the quest for growth, respondents rated access to new technology and innovations as one of the most important benefits they expected to gain by expanding into developed markets.
What are the most important benefits you would be looking to achieve through international expansion in developed markets?
Note: Scores shown = percentage of respondents
In December 2011, for instance, Siemens and Shanghai Electric announced plans to form a strategic alliance for the Chinese wind-power market.
Many partnerships between developed-market and Asian companies exist in the extractive industries, where the technical difficulties, cost and political sensitivities that are associated with getting natural resources out of the ground require oil majors to combine forces.
“Although these partnerships are often difficult to manage, they are often seen as a way of spreading financial risk and making difficult projects commercially viable,” says Timothy Teuscher of Ernst & Young’s Energy Advisory Practice in the US.
In fact, as their geographical dominance in overseas markets disappears, developed-market companies may have to fall back on their technological competence, asserts the IMD business school’s Allen Morrison. “As Asian companies become stronger, what do US and European companies have to offer?” he says.
“The principal way they can compete is with the technology. And to stay at the forefront of technology, they will need to explore new kinds of partnerships and strategic options in Asia and other markets.”
Find Asian companies’ competency gaps – and fill them
Form strong partnerships with Asian companies seeking to fill niche technology gaps
Developed-market companies must look for Asian competitors’ competency gaps – and fill them. China, for example, now has the largest automotive sector in the world. However, as Jay Young, a partner at Ernst & Young in the US who serves the automotive industry, explains, the depth of its supplier relationships has not kept up with the rapid pace of its expansion.
“The sector in China has not yet developed a very strong or reliable Tier One supplier network,” he says. “This creates opportunities for companies in developed markets that form part of this network to build partnerships with Chinese companies to achieve common goals.”
These Tier One suppliers in developed markets are increasingly an acquisition target for Chinese companies. In 2010, for example, Beijing-based Pacific Century Motors acquired GM’s steering business, known as Nexteer Automotive, previously owned by Delphi.
Chinese companies have also been targeting specialist companies among Germany’s Mittelstand to beef up their supply chains. These small family-owned businesses are the “hidden champions” of Germany’s economy, but many have experienced difficult times since the financial crisis.
In addition to becoming targets for acquisition, specialist suppliers also have opportunities to form strong partnerships with Asian companies seeking to fill niche technology gaps in their supply chains. “There’s clearly an opportunity for Tier One suppliers to partner with Asian companies to form joint ventures,” says Young.
“They can then benefit from access to Asian markets, while the local companies benefit from access to the technology they need. Despite this there are a lot of challenges associated with the governance of these relationships that need to be managed extremely carefully.”
The dangers of IP leakage in partnerships are an obvious problem. “You have got to be very tight on the control of intellectual property,” cautions Williamson of the Judge Business School.
“One approach is to slice up the IP assets so that the company does not have to disclose everything to its partners. Often, this means keeping the core R&D as a ‘black box’ but sharing the more peripheral assets such as interfaces and applications.”
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