After a pause, the return of business alliances

The last two decades of the 20th century witnessed the explosive growth of corporate partnerships, ranging from global airline alliances to licensing partnerships between small biotech research firms and large pharmaceutical companies.

According to one recent study published in the Netherlands, approximately 35 percent of all 2002 corporate revenues worldwide were a direct result of alliances - up from just 2 percent in 1980.

While the bursting of the dotcom bubble in the late 1990s brought the formation of new alliances to a near standstill, the phenomenon appears to be back on track, though at a slower pace than in the past. The implications are important for workers, investors, and policymakers alike.

A successful alliance may spell the difference between success and failure for an entire company. They are not a cure-all, however. The same characteristics that make alliances so attractive at times - sharing costs or risk, for example - also may limit their usefulness. One question that frequently arises is obvious: Who's in charge? Sharing risk is one thing; sharing governance is quite another, especially when legal liability issues loom so large, as they do in the wake of recent corporate accounting scandals.

Not all business alliances are the same, of course. There are many types, serving a variety of different purposes, ranging from simple, short-term "transactional" relationships, between a company and one of its suppliers, to a full-fledged buyout, in which one company takes ownership of another: Disney's recently announced purchase of Pixar Animation, for example, or Ford's purchase of Jaguar and Volvo.

To understand what kinds of alliances are most successful, we recently analyzed 103 corporate alliances in the United States and Europe, involving 233 partners, both competitors and noncompetitors. We found four broad categories.

Expertise alliances bring together noncompetitors who wish to share specific expertise and capabilities: a small, specialized biotech-research firm, for example, entering into a licensing arrangement with a large pharmaceutical company to take advantage of its global sales and marketing capabilities.

New business alliances involve noncompetitors that join together to enter a new business or market. Examples include Microsoft's and Ericsson's alliance to create Web-enabled mobile telephones and the Japanese mobile-telephone company NTT DoCoMo's alliance with the Japanese credit card company Sumitomo Mitsui Card.

Cooperative alliances are joint ventures in which traditional competitors join forces in an effort to attain critical mass in an activity: joint research and development efforts in the auto industry, for example.

Merger and acquisition alliances are partnerships in which competitors would probably prefer total marriage, but are prevented from merging by legal or regulatory barriers or by unfavorable conditions in the stock market. This is typified by the multicarrier airline alliances - Star, Oneworld, and SkyTeam - which accounted for roughly 49 percent of all passenger traffic worldwide last year.

Star Alliance, for example, involves more than a dozen carriers, including Air Canada, Air New Zealand, Japan's ANA, LOT Polish Airlines, Scandinavian Airlines, Singapore Airlines, United, and US Airways. By partnering in this way, member companies are able to offer passengers a choice of more flights, better connections between destinations, and consolidated frequent-flyer miles. This has not only been a boon to air travelers, but has helped many of the partner airlines bypass existing legal and regulatory restrictions on international consolidation and has helped boost revenues in an industry that sorely needs it.

According to one estimate, the participation of Germany's Lufthansa airline in Star Alliance was responsible for an estimated $250 million in incremental annual profits between 1999 and 2001.

During this era of high-tech change, rapid globalization and continued trade liberalization, business alliances are likely to play an ever-increasing role in the corporate world. Although the number of new alliances has declined from the peaks of the Internet boom years, they remain central to many companies' ability to compete in the global economy, especially in the telecommunications and pharmaceutical industries. The jobs of the future may depend on them.

As more and more companies shift their attention to growth after a period of consolidation and restructuring, the upward swing in alliances should resume again. The trend already has begun in the Americas.

• Kees Cools and Alexander Roos of the Boston Consulting Group are the primary authors of the recent report, "The Role of Alliances in Corporate Strategy."