Business Collaboration between Firms - Literature review Example

Introduction

Rittgen (2007) opines, business collaborations are business combinations with a strategic motive of transferring ownership, management and control rights from one company to another. These are actually corporate restructuring which aims at overall business expansion.

This Literature Review provides a basis for intricate analysis of the multi-dimensional facets of business collaboration illustrated in various scholarly publications and the differences in their respective views.

Definition of Business Collaboration

Ceroni, et al (2015), defines business collaboration as an arrangement wherein two business units combine either to form a new business or to carry out their businesses jointly, so as to increase their productivity, technological infrastructure, financial stability, market share and goodwill as well.

Some popular sorts of business collaborations are Joint Ventures, Mergers and Acquisitions, and Amalgamation.

Key Findings and Comparing the Differences between Them

According to Austin & Seitanidi (2014), in case of business collaborations, both the companies either surrender their individual distinct legal identities or, their original identities may get reflected in the newly commenced business depending on the mode of collaboration, but certainly creates some value for both the businesses. As per Business Maps of India (2010), a Buy-Out can also be regarded as business collaboration when both the parties to the contract agree to mutually combine their businesses for their overall betterment. The meaning of Business Collaboration has been reflected in a negative way by many authors although it is not the fact.

Todeva (2006) says, there are many motives of business collaborations. The most significant one being synergy. Synergy is said to be gained when, the collaborating companies are better-off after the collaboration. This means, the post-collaboration performance of the companies is better than their individual pre-collaboration performance. It is often described as “2+2=5”. The extra one unit (5-2-2=1) is the value of synergy attained. If synergy is not achieved, then it is not worth entering into the collaboration. Periasamy (2009) argues that, some business collaborations, such as mergers, aim at increasing market-share, gaining economies of scale, minimising risks.

Zhang (2014) opines, the issue of collaboration between firms is gaining much importance than ever before. The global business environment has experienced this event many a times in the last two decades. Corporate bodies across the world consider this as a great strategy, which is helpful for internationalisation, gaining synergies, to achieve economies of scale, saving or reducing costs, challenging the rivals, fighting against competition, and taking measures against pressures of pricing laws. Angrisani & Goldman (2010) asserts that, Mergers are the forms of business collaboration which is becoming important in the health care industry as well to keep pace with the increased level of health-care consciousness.

Prescott & Swartz (2010), states that, joint venture is a special mode of business collaboration where the collaborating firms share the resources and risks among themselves and jointly carry out the production process. Whereas, it can be stated that, entering new market segments, diversifying products and markets, enhancing the resource-base, improving Research and Development, availing tax-benefits and access to intangible assets are also certain motives of joint ventures, so that the company can compete, compare and operate on a global platform. According to the National Research Council (2010), Private-Public-Partnership Model is very helpful in collaboration between a privately owned entity and a public organization, where the service is to be delivered from the private entity but the administration is in the hands of the public entity.

Mendenhall & Stahl (2005), ascertains, in this growing age of globalization, all the business houses need to achieve high-end competitive advantages, ranging from efficient manpower, high productivity, cost effectiveness, advanced technological infrastructure, good amount of access to scarce raw materials and updates about relevant and important business information, in order to survive in the global industry and flourish in their respective fields of business expertise. Beena (2014) justifies, M&A is an important source of business collaboration for the Indian Corporates in the 21st Century. The changes in the macro-economic policies of the Indian Government have paved a way for better overseas acquisitions since 2000.

According to Inc. (2010), the objectives of M&A may vary from one company to another depending on its requirements. Oinonen (2010) says, a large company may collaborate with a small undertaking or acquire a small business from the same industry to sell its products to their customers, possess a particular technology which it does not have in possession, to obtain the skilled employees of the organisation. But the author has not pointed out the other reason behind this i.e. to outsource a portion of its business activities to that company.

Ferenczy (2015), says, a small business entity may agree to a collaboration with a bigger entity which provides the similar products and services to the consumers since the smaller business entity will be able to increase its market shares and popularity and its employees will get benefitted, if it happens to work under the name of a big brand, which has much more recognition and goodwill. Perhaps, after the merger, the smaller business unit will become financially much more stable in the long run. Whereas, World Finance, (2016) says, the small firms often find it difficult to expand its business considerably and experiences tough times. This problem gets eliminated in the post-collaboration period.

Brown et al (2011), asserts that, before collaboration, the firm’s management attains some degree of equilibrium in examining its business environment and the success or failure of a merger depends on whether synergy can be actually realized through corporate integration or not, rather than on how much synergy can be attained. However, it can be argued that, synergy is not the sole motive of merger; there are some other aspects too. Halibozek & Kovacich (2005) states that, four out of five collaborations in business fail to succeed.

But what actually benefits the acquirer firm is, it can attain cost efficiencies by paying a low salary to the employees of the acquired firm, gaining access over their technology through minimum investment, etc. Two big companies which are the greatest competitors in an industry may collaborate to form a new company so as to eliminate the high-end cut-throat competition between them, which constantly offer constraints in the path of their progress. In spite of being big business sectors, their rate of growth gets retarded as they have to face continuous competition from the rivals. This leads to the emergence and eventual development of the small and mid-sized business firms belonging to the same industry. Whereas, Moles & Wallace (2012) argues that, business collaborations may take place among any business concerns, if it assures value-creation.

It can be ascertained that, if two big corporate houses get united, then it is inevitable that, the new business formed as a result of merger will become the market leader and will be in a position to dominate the market to a great extent. With the help of their combined economical background, financial stability, resource power, manpower, access to as well as availability of relevant information, the merged company will be in a better bargaining position in the fields of international competition and can effectively handle threats from the overseas competitors. Warter & Warter (2014) argues, firms that have large amount of intangible assets are seen to be engaging in cross-border mergers and acquisitions. Moreover, two small companies can also merge to form a new company so as to try and compete with a big rival in the industry, which is never possible for them if they operate individually.

Essence of this Paper as a Research Paper

The prime objective of this paper is that, it strives to find out and critically analyse all the views and opinions given by several renowned scholars and authors in their books, journals and articles on the concept of collaboration between corporate bodies across the world and their contemporary development in the last two decades. This paper also has a research motive which aims at finding out the differences in the views given by different authors.

The authors and scholars have provided their individual ideas about business collaboration on a purely theoretical basis and related those views with some examples from the real world. They rather explained the detailed theoretical concept of the topic in their publications and cited some practical occurrences of the event over the recent years. On the other hand, this paper has adopted those views provided by the scholars and implemented them to produce a critical analytical output wherein, the various features of business collaborations have been examined and their advantages and disadvantages have been discussed in brief. This paper can be regarded as a research paper since it not only puts emphasis on the descriptive aspects of the topic (or its practical examples) but also affords to examine and analyse the many facets of collaborations between business entities. It puts forward all the prospective merits and demerits of corporate restructuring and business collaborations to the small and big business houses all over the world. This paper makes an attempt to vividly analyse the topic without getting into the detailed theoretical aspect but certainly retains the conventional and popular concepts of collaborations between business units. It definitely keeps at par with the concepts provided by the eminent scholars but presents the same in an analytical form which gives it the class of a research paper.

Collaborating with another business enterprise is an efficient and effective method to execute expansion-plans by a company and thereby grow at a faster rate. This helps in increasing the territory of the business in terms of asset appreciation, addition in shareholder’s wealth, increase in working capital, diversification of risks, technology transfer, resources-sharing and enhancement in the overall financial health of the company. The rapid advancements in the fields of technology and internet have paved a way for better tie-up between two companies from two different countries, thus making the world a global business industry (global village), where competitions take place on a global platform and business units get a vast scope for international exposure. Cultural differences also play a vital role in cross-border collaboration between companies, where transitions in cultural aspects are influencing factors which need to be considered by the combining companies.

Conclusion

The paper has attempted to point out all the important issues and factors related to business collaboration between firms from all over the world. This Literature Review includes a critical analysis of the fundamentals of business collaboration and relates them with the scholarly views on the same topic. It takes into account the various underlying aspects of business collaboration which are not normally discussed in theories, and hence gives it a standard similar to a research paper.