Business alliance definitely workable in Indonesia

By Bob Widyahartono

JAKARTA (JP): Business alliance is emerging as a new strategy to meet diversifying markets and a changing environment.

The concept underlying business alliance in Japan was introduced by Yoshiya Teramoto, a professor at University of Tsukuba, who defined it as "economy of scope".

Given the emerging trends, business top executives are being forced to shift their emphasis of business management from an "economy of scale" to an "economy of scope".

Will it work in our Indonesian setting taking into account the legality in which the new Corporate Business Act is still not enacted while the existing regulation fails to cover several forms of alliances.

The strategy of "economy of scope" is a way to generate a synergistic effect in management of business resources by running diversified operations.

Basically, business alliances represent a corporate endeavor to add value and create advantages which are difficult for a single company to attain.

In the "economy of scope", process of combining its resources with complementary resources of other companies, even Small and Medium Enterprises (SMEs) can cultivate or create new business fields.

Such alliances also give large corporations the organizational flexibility they need to meet diversifying market requirements.

This economy of scope is made possible by the existence of managerial resources, including technologies and marketing channels which can be applied to different kinds of products and services.

Business alliances offer an umbrella concept for joint ventures, joint investments, consortiums of companies with different specializations, backward/forward business integration, and the like.

These collaborative arrangements are not one-time cooperations, but are spread over a period of time. The form of a business alliance depends on the phase and pace of industrial/business development and also the level of competition in the countries involved.

However, business alliance means doing collaborative arrangements with other firm(s). This model does not cover agreement involving full ownership forms such as: mergers, acquisition, or internal ventures. Business alliances are surely not hostile take-over of small and medium firms by large ones.

In this kind of arrangement, provisions are made for the pooling of core technologies and strategic resources among participating companies for the mutual benefit of the group.

Most alliances carry out Research and Development followed by production and marketing. Participating companies are enabled to develop jointly new products, use outside resources, and diversify their business.

Irrespective of the stage of national development, business alliances have the potential to open up new avenues for business diversification and economic growth in any country including Indonesia.

The first type is alliances between SMEs in different business fields. More and more SMEs could be participating in these alliances, which offer opportunities to exchange business know- how and technical expertise.

Rapid progress in microelectronics and other process technologies and quickly diversifying market needs opportunities for them to pool technologies and create new market niches.

The second type is alliance between large and SMEs. Large automobile manufactures in Japan create, for example, business alliance with SMEs in the electronics field.

These large companies seek alliances with SMEs which can help them to upgrade their technology. The SMEs, on the other hand, can transact business with any number of large companies.

The third and last type is international alliances with industries in developed countries. The alliances between Toshiba and Olivetti and between Toyota and General Motors are two examples.

They are aimed at mutual learning on long term strategy basis, rather than at cost or complementary technology sharing. Inter- organizational networks must accommodate different business behavior and value systems.

Could business alliance feasibly work in our Indonesian business meeting?

First of all, the enactment of Corporate Business Act which provides for the definition covering the criteria of size, amount of employees, capital and turn-over for each category.

How could a company from small be considered ripe for escalation in category and what are the rules of demotion from a larger scale to a smaller one.

Furthermore, the rights, responsibilities and scope of operations of the small, medium and large enterprises should be clearly stipulated.

Once the categorizations are set along the lines of the Corporate Business act, then clear cut criteria should be made with regard to tax rules in entering business alliance for the participating partners.

Will there be tax incentives for such alliances as in the case of Japanese ones?

Again this opportunity should be legally founded and covered by the new Corporate Business Act which is now in process of finalization by our Indonesian Parliament.

The writer is a senior lecturer at Trisakti University in Jakarta.