It may be advantageous to enter into a production alliance with one of your competitors: if it means that you both stand to benefit from a cost advantage, this will thrust both of you ahead of other competitors. A single competitor grows in tandem with you, while the rest are left lagging behind. This form of alliance for example occurs in the automotive industry, since setting up a production line is a very costly affair. Certainly outside the domestic market, sharing capacity is an attractive option. For instance in the US, Toyota Camrys are finished in a Subaru plant in Indiana.
Another example is the collaboration between the two low-cost airline carriers Air Asia and Jetstar. This alliance is primarily targeted at defining the new generation of single aisle aircraft, as well as the joint procurement of these aircraft. Where the traditional airline alliances focus on commercial agreements and passenger benefits such as loyalty programmes, this alliance aims to cut costs by sharing some operational functions. Air Asia and Jetstar want to make sure that the new airplane types, which will be around for 40 to 50 years, are designed in a way that fulfils their own requirements.
Generally speaking, this type of collaboration does not carry much risk, and the important risks that do occur can be insured against. Depending on the settlement structure, there is a risk in the exploitation of the shared investment, yet that risk would be far greater if one of the parties were to make that investment on his own. The joint operational management, particularly of shared service centres, tends to be a trickier aspect. Many managing directors of shared service centres get a taste for independence and start to focus more on expanding their activities than on achieving the lowest possible costs for the partners.
The value of collaborating in this way is usually easy to calculate: the costs of investing directly and of investing jointly are generally quite transparent. The only hard part is to estimate the extra efficiency achieved by scale size. One should also take into account that joint purchasing often enables the negotiation of larger discounts.
Reciprocal hiring agreement
In a reciprocal hiring agreement, the partners share their resource pools in order to achieve a better staffing. This may involve consultants with a particular expertise, but also installation technicians with diverse abilities. Deploying each other ' s people is settled applying market-level rates, but the collaboration gives partners the advantage of not needing to keep extra people on the payroll with a view to peak periods. This form of collaboration is distinct from shared investing in that there are hardly any costs up front, and the collaboration is easily arranged, also in terms of operational management. The main condition is to share information, particularly regarding planning.
The value for both parties is better capacity utilisation, and being able to keep fewer people on the payroll.
A good example is the collaboration of TNT in Germany. In Germany there are around 150 regional mail service providers, all working within a confined geographical region. This is a viable business model, for with a lot of local governments, banks and insurance companies present, most of the mail is sent within the region. The mail services accept all mail from their clients and use the nation-wide firm Deutsche Post for the portion destined for outside the region.
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