A well-rounded set of strengths is needed to succeed, and that is where alliances come in handy.
SMEs generally account for a good proportion of economic growth and employment.
The business landscape in any economy is characterised by the presence of thousands of small and medium-sized enterprises (SMEs).
They are often involved in a range of activities – from low-technology to high-technology manufacturing – and also in various kinds of services.
However, mortality rate for SMEs seems high.
Typically, SMEs have a narrow set of skills and strengths. Many businesses are born out of an interesting product or service idea of the business owner.
Tesla Motors was born out of Elon Musk’s passion for electric cars.
However, narrow sets of skills – even if they are in the form of a superior product or service – often do not translate into business performance.
Alliances are looser forms of cooperation than acquisitions – minority equity stakes, or arrangements involving research, distribution and cross-licensing.
Alliances can be altered to address an evolving environment.
A key benefit of alliances is that they can be formed with a variety of partners, each enabling an SME to fill a specific gap in its skills.
An alliance with a university might provide access to laboratory facilities for product testing, or research done by scientists at the university.
SMEs can also collaborate with students on projects to solve specific problems relating to either technology or business strategy.
Venture capitalists – such as those working with start-ups at universities – can provide seed as well as later-stage capital infusions and valuable advice.
SMU in Singapore run Incubator unit for seeds and growth. Uni professors and students sit together with business owner, for evolving the strategy.
Also, successful entrepreneurs conduct Talks and Seminars for sharing their success. Key is the connections the speaker provides during following mentoring sessions (an option for participants).
SMEs can also benefit in a variety of ways through corporate partnerships.
providing funding, distribution and branding.
Many SMEs, for instance, serve as original equipment manufacturers (OEM) suppliers for bigger corporates that possess superior skills in marketing and distribution.
Singapore Exchange-listed Hi-P international, has grown larger than an SME – supplyng mobile phones to a variety of customers including Xiaomi and Apple.
These alliances allow Hi-P to focus on its strengths in managing supply chains and assembly efficiency, while leaving marketing and distribution to partners that excel in those areas.
Stone Apple, a technology services firm that was once classified as an SME in Singaore.
It won the Enterprise 50 awards and has been growing at 55 per cent per year, so much so that today, with 1,400 employees, it no longer falls under the definition of an SME.
Stone Apple has benefited from investments by backers such as Khazanah, SBI Brunei and Philip Capital.
What is also noteworthy is that in addition to serving as sources of capital, such investments play a role in enhancing the credibility of the company in the eyes of stakeholders.
Stone Apple is a “platinum partner” of software giant Oracle, and has been able to successfully complete many enterprise resource planning (ERP) implementations, mainly because of this partnership.
Alliances have been an important reason behind Stone Apple’s success over the past several years.
There are instances where Singapore companies were acquired by foreign parents and subsequently benefited greatly from their expertise.
Nonstop Games, a Singapore local gaming company has profited in a variety of ways especially in terms of talent and resourcing, marketing and distribution, after its acquisition by King Digital (maker of Candy Crush games).
Alliance can provide some of these benefits – through an acquisition of a minority stake in the Singapore company by the foreign investor.
Mind the gaps
An alliance strategy can serve the interests of many SMEs well. SME must figure out its focus, strengths, and key gaps such as skill shortages. Once these gaps are identified, a company identify a strategy to fill the gaps.
SMEs should manage risks in alliances by choosing the right partners who are interested in helping SMEs develop further and not extort their key skills, e.g., technology.
SMEs also face Partner management challenge. There could be significant differences in the way that an SME and its partner operate.
However, partner management is a “soft” skill (an art rather than a science) and there may be a learning curve for SME managers.
Join us at Pathfinders. We periodically sit together with clients for identify the gaps and alliances that can fill such gaps.
Suresh Shah, M.D., Pathfinders Enterprise