Business alliance definitely workable in Indonesia

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.