ST.

FRANCIS METHODIST SCHOOL

BUSINESS MANAGEMENT ENTERPRISE
ATAR YEAR 12

TASK 3 – RESEARCH PROJECT

STRATEGIC ALLIANCES- MANAGEMENT:
MARKETING, OPERATIONS

NAME: LOURDES KUSUMADI

CLASS: PU2A
Introduction

This essay is written to address the issues of joint ventures and mergers that has
occurred in Australia. For illustration and discussion purpose, two specific mergers and
joint ventures will be discussed. The joint ventures that will be discussed in this essay
are Channar Mining Pty Ltd, and KT Maritime Services. For both joint venture, one party
is an Australian company and has come to an agreement with an international company
to create a joint venture.

In order to understand the basic aspects of joint ventures and mergers, definitions and
overview will be provided. In addition, company profiles will be analysed to help
highlight the purposes of their mergers and joint ventures, the fit and the failures of
specific entities of these mergers and joint ventures.

To close of this essay, further discussions on how future companies may need to think
of how they can develop a successful merger will be analysed.

Joint venture is when two or more firms formed a new firm to achieve the specific
objectives that the parties involved have discussed beforehand.

Definition and purpose of strategic alliance

Strategic alliance is when two or more business entities has agreed on forming an
alliance with each other to achieve a specific objective. Strategy alliance allows
business to be able to achieve an objective that neither would be able to reach on their
own.

The purpose of strategic alliance is that it enables businesses to have a broader

database, knowledge, contacts, capital, people, technology, people, and resources
which result for the business to gain a competitive advantage in the evolving market that
has continuously change throughout the years, in customer demands and supply. Many
new businesses create a strategic alliance in order to benefit from access to the
established marketing and brand reputation of a larger established business, and
channels of distribution. Additionally, as for established businesses use strategic
alliances to benefit to increase their chances for geographic expansion or even to reach
the global market, cost reduction, manufacturing, and other supply-chain synergies.

There are five different types of strategic alliances; outsourcing, acquisition, mergers,
franchising and joint ventures. The focus of this essay will be more towards mergers
and joint ventures. A merger is when the shareholders have come to an agreement to
become a new shareholders of the new merged company. Although merger is similar to
acquisition, in merger rather than a purchase or takeover, it is an agreement between
two companies that are of a similar size and agree to form a new company. Additionally,
for joint venture it is an alliance where two or more parties agree to start up an
independent company by pooling together their resources, knowledge, and skills for the
purpose of accomplishing a specific achievement, as well as creating a new company
so that way the company can focus on their individual entities and they could operate
under a joint venture agreement.

Company Profile 1 – Channar Joint Venture

The Channar joint venture is 60% owned by Rio Tinto and 40% by Chinese mining
company Sinosteel. The joint venture owns the Channar mine in the Pilbara region of
Western Australia. The aim of the joint venture was to produce 200 million tons from the
Channar mine, which was signed in November 1987. Both Australian and Chinese
government has strongly support this joint venture. The mine is operated and managed
by Rio Tinto and the joint venture agreement provides Sinosteel with an off-take rights
to the iron ore that the mine produces. An offtake agreement involves parties that has
an agreed upon trading of resources with one another, which one is a buyer of the
resource that the other party is going to produce, this agreement is done for the purpose
of securing the market for future output of the facility.

Strategies for Company 1

The main strategy for Channar joint venture is to produce iron ore for export to China
with the help of Sinosteel Australia Pty Ltd, a subsidiary of the China-based Sinosteel
Corporation, primary activity is for the investment in the Channar mine, where the iron
ore that it produces will be predominantly exported to China according to the
agreement. Channar joint venture agreement was one of the starter of the iron ore
relationship between Australia and China. The iron ores are only sold to Sinosteel
Trading company and the iron ore is imported to iron and steel industry, where China is
dominating the global market.

Company Profile 2 – KT Maritime Service Australia Pty Ltd

KT Maritime Services Australia Pty Ltd is a joint venture agreement that was
established in July 2012 between Kotug International B.V. and Teekay Shipping
Australia Pty Ltd. This joint venture combines Kotug’s world class technical marine
towage image with Teekay’s local knowledge and their Australian track record. The joint
venture will bring complimentary skills from both partners, resulting in a strong
partnership to pursue a new business.

Strategies for company 2

KT Maritime establishment is due to the rapid growth in the Australian and Resources
sector and the increase in the market demand, KT Maritime has been established to
provide marine towage solution with a higher level of safety, proper sustainability
practices, technical innovation, and operational expertise. This joint venture main
strategy is by combining KOTUG technical and practical experience in towage field, for
illustration, to deploy their highly maneuverable RotorTug technology with Teekay’s
operational leadership that has earned a worldwide reputation, with profound knowledge
and expertise in the Australian crewing and ship management field. This will create a
new unique business that both business could benefit from.
Standardization and Adaptation
Channar Mining Joint Venture and KT Maritime are conducting a joint venture with a
business from outside of Australia and they will be aware of the differences between the
overseas market and domestic market. The differences would be such as the culture,
background, how the business is conducted, etc. Thus, devising a standard policy or
regulation that will be followed by both of the parties will provide better chances of not
resulting in a marketing failure. This results in both of the business to conduct the joint
venture from only one chain of command instead of two.
Generally, standardisation or adaptation can be applied to the elements of marketing
mix such as:

i. Positioning

Positioning refers to the position that a business occupies in the mind of the
customer and how it is unique or different from competitors.

Fig. 1 - Market Positioning Strategy and How a Company Selects a Positioning

Fig. 1 shows how companies generally position itself to gain competitive advantage.
Positioning is important understand where a company can gain the highest value for its
invested capital. The Channar Minning Project and KT Maritime joint venture have to
understand their positioning to allow for a successful alliance. Although they may not
have to look at the Target Customers, they may have to look at the competitive frame
and point of difference as there are many other firms that are undertaking similar but
smaller projects . Thus, standardisation on positioning helps the companies to achieve
its fullest potential against its competitors.

ii. Product features

Fig. 2 – Product Strategy Templates

Product can be in variety of forms depending on the business target markets, products
can be tangible in the form of goods or even could be intangible in form of a service. KT
Maritime is an alliance that provides marine towage services, where they will be looking
at their goals, market needs, and features & innovation to supply the demand. The
features of their service will also include the sets of laws, regulations, and common
practice that needs to be followed. Additionally, although Channar project only product
is iron ore and they all look very similar to teach other and only aim is to mine iron ore
for their partner Sinosteel, and do not have any market demand that they need to follow
but they are still running upon the agreement on the alliance. Hence, standardasation
on product will give the upper hand to stand out from competitors and to effectively
achieve sales growth.
iii. Process
Process is one of the element of the services in the marketing mix and will also
need to be adapted to international markets. The various kinds of processes are
electronic processes, technological processes, direct activities, and indirect
activities. KT Maritime and Channar Joint Venture must have understand the
processes in order to be able to survive and to have a strong business
foundation. Channar project that is operated by Rio Tinto will be wanting to
outperform the competitiors for bigger, more profitable sales, and faster as they
are using Hlsmelt technology to mine the iron ore, it is the first commercial direct
smelting process, it delivers greater efficiency, safety, and environmental
performance.

iv. People
Standardasation and adaptation was introduced to the employees aspect of the
companies involved as the business is an alliance with an overseas business
where the people will be trained differently, culture, and background. Thus, a
standard rule will need to be put in place so there is no confusion in the
infrastructure of the new alliance. This will include the measure taken in the
training, customer service, and the employees, where all of them follow only one
set of regulations and rules when they are doing their job or even when they are
tackling a problem. KT Maritime and Channar will need to understand the
changes in the standards of the people in the business when they have done the
alliance.

 Culture
KT Maritime is a service company that all the employees work on the sea
where it will be difficult for them to work with people from other nationalities
as there will be language barrier, different way to solve a problem, etc. KT
Maritime operation is going to be in Australia, therefore the expats from
Netherlands (KOTUG) will need to adapt to the business culture, such as
punctuality and deadlines are one of the most important value that needs to
obeyed and unlike in Netherlands it’s not as highly valued as in Australia.
Thus, training will be conducted for these expats to provide a better
adaptation to work.
 Health and Safety
In order to have the maximum health and safety for the employees as the
mining company has one of the highest safety risks while in the field. In
general, all mining industry would apply this to their own strict regulations
and policies. Channar joint venture has specifically design a radiation
exposure control for all the employees under Health, Safety, Environment,
and Communities (HSEC) with following local legal requirements and
industry standards.
Success and Failure Analysis of Strategic Alliance

A successful strategic alliance is an effective way to use for companies to achieve their
goals, it delivers growth effectively in form of shareholder wealth through increased
profitability. It may be an alternative way to accelerate the ability for companies to enter
a new market or able to introduce a new product. Strategic alliance needs both of the
participants to be willingly modify their business practice or in the other words
standardisation and adaptation to the new merger with a purpose to reduce duplication
and waste while being able to improve their performance.

For example, Channar joint venture proven their successful long-term relationship by
recently extending their joint venture agreement on April 15, 2016. After 30 years,
Channar joint venture has stood out to be one of the significant agreement that has put
in place between Australia and China, including strengthen the two nations economic
ties. In addition, although the joint venture just only started recently in 2012, it already
has a total over 60 tugs operated and managed by KT Maritime. KT Maritime has
awarded the contract to supply specialized tugs for one of the world’s largest floating
offshore facility, Shell Prelude Floating LNG Facility. The specialized tugs are known as
Infield Support Vessels (ISVs), and this contract is a resulted by Teekay’s and Kotug’s
excellent choice to pursue this joint venture as this could give the JV new opportunities
in the new and evolving market for towage services to support LNG exports. This
signifies that both merger has successfully implement their strategic plan that offers
both entities a chance to mutually benefit each other with opportunities and sustained
competitive advantage.

However, the joint venture operations were suspended in June 2016 because of an
accident that cause a death of one of their employee, Lee Buzzard. He was crashed
between the drill rod centralizer arm and drill head while performing a maintenanceon a
blast-hole rig. The drill centralizer arm moved unexpectedly, and this uncontrollable
movement have been identified in the past but not yet had been taken care by the
maintenance team. Rio Tinto spokesperson has recommend that this accident that
happens is due to their recent staff operation restructuring that has reduced the on-site
safety experts, specialized trainers, and workers are wearing using lesser safety
equipment. On the other hand, there are no published information for KT Maritime
failure just yet, this may be due to the fact that KT Maritime is a new joint venture.

Recommendation
Generally, before starting a strategic alliance the business should set a clear goal, that
is realistic to be reached. Creating a goal will result in increased visibility, increased
responsibility, achieving things faster, and better collaboration between the alliances.
When the company have clearly defined goals it allows the employees, stakeholders,
and owners to align and relate to what they are doing for the company goals, which in
return results in motivation, sense of purpose, and synergy to achieve the merge
company vision and mission. It is very challenging to have a successful alliance when
there is no goals to be reached, it allows the teams to measure their responsibilities
against success metrics developed by the merged companies. Having a clear goal will
also help the alliance in term of making decision, initiating projects or task, and for
employees to work with little supervision.

A business should consider doing a merger is because it offers the ease of international
market entry. Entering a foreign market may be challenging because the cost of
entering it may beyond the capabilities of a single firm, but by entering into a strategic
alliance will resulting into a more efficient entry while keeping the cost down.
Additionally, choosing a strategic partnership would reduce the process where the
business needs to learn the foreign market because merger will indirectly provide the
culture of the business in Australia, and to be able to overcome competitors and
government regulations easier. Entering foreign markets promote advantages such as
economic of scale and scope in marketing and distribution. For example, KT Maritime
joint venture has enable KOTUG to penetrate Australian marine towage service market
through collaborating with Teekay for providing the innovative technology to the merger.

The second advantage an alliance would offer is the ability to share risk, especially
when a new market just opened up, or when there is a high uncertainty and instability in
a particular market. Being able to share risks becomes particular important in the
beginning of the merger, specifically the nature of every market will be competitive or
even when the business is launching a product. A formation of strategic alliance is an
efficient way to reduce or control a firm’s risks. Not being liable for all the obstacle will
provide a clearer strategy in the management of the operations and a much more
competitive edge. In illustration, a marine towage service provided by KT Maritime is a
new market in Australia, therefore they may be a lot of obstacles, however by forming a
joint venture will minimize it because KOTUG will have guidance from Teekay since
they have been in the market for a much longer period of time. Using KOTUG’s great
experience in towage to focus on the design and engineering, while gaining Teekay’s
extensive experience in Australian towage services and their access to Australia’s
busiest bulk export Ports.

The next advantage will be there will exchange and shared of knowledge and expertise.
Most business firms are competent in some areas and lack expertise in other areas by
forming a strategic alliance can provide a better understanding in the access of the
market and the expertise in a company lacks. For instance, Channar joint venture is
born with the collaboration of both expertise from Rio Tinto’s mining operation,
knowledge, and skills with Sinosteel access to China market that has a high demand for
iron ore. This information, knowledge and expertise can be used in other projects and
purposes as well not only for the joint venture project. The expertise and knowledge can
range from production knowledge, tackling government regulations, and learning how to
acquire resources. Additionnally, for KT Maritime, Using KOTUG’s great experience in
towage to focus on the design and engineering, while gaining Teekay’s extensive
experience in Australian towage services and their access to Australia’s busiest bulk
export Ports.
The last advantage of creating a strategic alliance is being able to gain synergy and
competitive advantage. Competition becomes more effective when the partners are able
to use each other’s strengths, while bringing energy into the process that would be hard
to gain. For example, Rio Tinto has been able to create a new joint ventures with new
importer of iron ore in China and Sinosteel has benefited from being iron ore importer to
China, they have gained much more acknowledgement to be one of the leading iron ore
and steel producer. On the other hand, KT Maritime will be providing each client with
the synergy that they have created which is “Partnership in Power”, by drawing upon the
key management and board level management at both KOTUG and Teekay. KT
Maritime synergy provides the client with the best combination of safe and innovative
technology with proven knowledge and expertise in Australia towage service industry.

There are countless lists of reasons of what strategic alliance offers for the success of a
business, but there are also many factors of why strategic alliance fails and risks that a
business should consider before starting an alliance. Statistics show that fewer than
20% of alliance in the United States reached their financial goals. In a study by Bleeke
& Ernst, around 32 out of 49 international strategic alliances faced difficulties in their
management and finance after 2 years they have come to the agreement, and about
33% of those alliance were failures.

One of the real reason that most alliances fail is the constant change in the business
environment. Not adapting for the business environment may cost the alliance a
breakup because they are not able to chase what they left, therefore this is why trust
and discussions between the executive of the alliance is the most important. For
instance, the market and environment for Channar joint venture wont be the same when
they first formed in 1987 compared to now. Both parties must have done difficult
discussions that have transform the alliance over the time and give it longevity. Thus,
this is why Channar joint venture has not crumble and still going strong after 30 years,
additionally they have just recently extended the historic joint venture.

The second reason for alliance failure is the clashing of culture. In most alliances,
parties tend to pay closer attention to their strategy, financial, and management aspect
resulting in less attention for cultural aspect. This is the main reason why
standardasation in culture is significantly important, to have a mutual respect and better
understanding between the two parties. Assessing cultural fit and understanding the
cultural differences, and understanding the implications that has been put in place is
important to reduce the risk of strategic alliance failure. For instance, Australians
respect punctuality, hence, when there are an event or discussions regarding the
alliance happening the other parties should come punctually resulting in no
mistreatment for each other.

The last reason for the failure is when there are no trust between the partners. Trust is
the foundation of strategic alliance and the relationship that builds among the individuals
will represent how the joint venture is going to run, and trust also effects in the decision
making, operations and management in the business.
Finally, the last recommendation is to list the operating issues that need to be
addressed to achieve the results. The purpose of this action is to have an advanced
planning for the strategies and method that could be put in place to overcome the issue
when it is face by the business in the future, such as having a critical competitive
strategy, by developing an intellectual property. Intellectual property (IP) refers to the
manifestations of the mind, such as inventions, artistic works, designs, symbols, names,
and images used in business activity. IP is protected in law which allows the creator to
earn recognition or financial benefit. Patents is one from of IP, patent is a grant of
property for an invention. A patent provides the creator with the right to decide how or if
the invention can be used by the others. However, in exchange, the patent must make a
detailed information about the invention to be publicly available. A patent could be
advantageous for this business because even if a competitor wants to imitate what the
business is doing they are legally not allowed. In a scenario, where Company A is the
competitor for Company B, Company A have suddenly decides to do a merger with a
similar concept that Company B done. In order to secure, Company B place in market,
they are advised to do a patent for an exclusive right for the invention that the merger
have created. A patent provides the patent owner with the right to decide how or
whether the invention can be used by others.

Conclusion
In this essay, mergers and joint ventures were discussed to highlight the aspects of
global alliances and its benefits to the companies. Global alliances can be both
successful and can fail, but with the right strategies, they can become a glorified
example to other companies .

Although there were evidently insufficient public information available due to the lack of
transparency adopted by these companies, based on the gathered information, we can
notice that there were specific strategies especially in standardization within the
companies that were undertaken to have a successful merger.

The essay also looked at recommendation for other companies who may wish to
undertake a global alliance. Overall, the essay has highlighted the general alliance
benefits along with the strategies adopted.
References:
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 Figure 1. Retrieved from http://4.bp.blogspot.com/-oZ-
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ng.png
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