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Collaborating To Grow

KPMG study foresees increase in strategic alliances and joint ventures.

Although they sometimes bitterly disappoint both executives and investors, joint ventures and strategic alliances are apparently increasing in popularity among U.S. companies.

Sixty-four percent of U.S. executives responding to a March 2005 survey by KPMG LLP reported they plan to increase the use of strategic alliances during the next two years, and 52% said they plan to enter into more joint ventures during the same period. The survey was of U.S. executives who had been involved in alliances or joint ventures during the previous 12 months in publicly traded or privately held U.S. companies with at least $500 million in annual revenue. Nearly 70% of the executives responding said that strategic alliances and joint ventures help companies reach growth objectives, in part because they hold out the prospect of attractive returns and shared risk. Executives also expected to see the number of alliances and joint ventures increasing in China and other burgeoning world markets where collaboration with local enterprises might be important to market entry.

"We see alliances, ventures and any forms of collaboration as absolutely essential to future growth, innovation and sustainability," generalized a KPMG white paper on alliances and joint ventures released in April. But, as the white paper noted, the failure rate for alliances can be 40% or more.

Indeed, companies need to figure out how they can best work together to achieve their financial goals, counseled Rob Coble, KPMG's southeast area partner in charge of transaction practices and a co-author of the white paper. "When companies view alliances holistically, as strategic relationships, they increase their chances of success," he stressed. "Identifying strategic and cultural similarities is as important as understanding aspects such as the target's financial fitness, its IT capabilities or its research and development track record." Or, as KPMG's white paper put it, "When partners view alliances as strategic relationships, rather than financial deals only, they increase their chances for success."

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