Advantages of Partnerships and Alliances of Origin Energy and Australian Carbon Trust Companies - Essay Example

Strategic Management Strategic Alliance A strategic alliance is a coalition formed by two or more parties in the same or complementary businesses to enhance the effectiveness of competitive strategies of the parties involved. The main aim of a strategic alliance is to gain long-term operational, financial and marketing advantages without jeopardizing the independence of the parties involved (Yoshino 28). Partner firms contribute on a continuing basis in one or more key strategic areas such as products, capital equipments, distribution channels, knowledge, manufacturing capability, intellectual property, or expertise. Generally, an alliance may involve technology transfer, (access to knowledge or expertise), economic specialization or sharing of expenses or risks. Strategic alliances can take a variety of forms depending on equity involvement in partnership. The most common forms of strategic alliances are joint venture, equity strategic alliance, non-equity strategic alliance and global strategic alliances. According to Glover and Wasserman (49), a joint venture is a strategic alliance in which the companies involved create a separate entity by sharing their resources and capabilities to carry out the implementation and operation of a specific business transaction or project. The prime objective of this is to develop new products or services or to expand into new markets. Equity strategic alliance is a case where firms agree to cooperate with each other to create a competitive advantage. To enhance this, they share resources and capabilities to form a new and separate legal entity. Each of the parties involved owns a distinct number of shares in the new formed company. Non-equity strategic alliances on the other hand occur where firms enter into a variety of contractual agreements which may consist of technology agreements, marketing agreements, R&D partnership, production sharing, supplier agreements and franchising and licensing, in order to create a competitive advantage (Culpan 37). Finally, a global strategic alliance is the one that includes cross-bolder transactions often involving more than two organizations based in different countries and/or industries (Sporleder). Sometimes, such alliances are formed between a firm and a foreign government or between many firms and governments. The aim of such alliances is to share ownership of a newly formed venture and to maximize competitive advantages of the firms involved in their combined territories (Sporleder). The histories of Origin Energy and Australian Carbon Trust companies provide perfect illustrations of how strategic alliances are formed. Origin Energy Origin Energy Company is the Australia’s leading integrated energy producer and it focuses on oil and gas exploration and production, power generation and energy retailing. The company was formed in 2000 and it managed to gain world wide popularity in 2002. It was formed as a result of the dissolution of Conglomerate Boral Ltd, in which the energy business was separated from a house-building and construction materials company. Between 2001 and 2002, Origin Energy purchased Powercor and CitiPower, electricity retail businesses which are based in Victoria. This helped the company to increase its customer base and retailing capability, which increased its opportunities to explore the surrounding oversees market. In 2004, Origin Energy completed the construction and commissioning of SEA Gas Pipeline linking Victoria and Southern Australian gas markets. In 2007, it acquired Queensland’s Sun Retail, adding approximately 890,000 customers to its original retail base in the local market. In 2010, Origin Energy declared its intention to purchase the retail divisions of country energy and integral energy from the government of Southern Wales. More recently, in March 2011, Origin Energy signed a GenTrader agreement with Eraring Energy Company in which origin can dispatch and sell electricity output while Eraring Energy owns, operates and maintains the power stations (Origin Energy, 2008). Remarkably, Origin Energy owes much of its current success to strategic alliances through acquisition. Australian Carbon Trust The Low Carbon Australia or The Australian Carbon Trust as it is formally called was established in 2010 by the Federal Government of Australia. It is an independent public company and it is limited by guarantee with $100m initial funding (Melero and Guppy). The prime objective of this company is to finance and give advice to businesses in Australia and to the wider community. To achieve this, the company uses innovative programs to encourage investments in and take-up of energy-efficient practices and technologies for cost-effective carbon reductions. This company manages two innovative programs in Australia namely the Energy Efficiency Program and the Carbon Neutral Program. The Energy Efficiency Program provides funding and advice to eligible Australian businesses and the public sector for the retrofit of commercial properties. On the other hand, the Carbon Neutral Program provides accreditation for firms whose operations or products that are certified as carbon neutral under the National Carbon Offset Standard. On 26, Nov 2010, Australian Carbon Trust and Origin Energy signed an agreement to develop a strategic alliance aimed at increasing dedication and accessibility of funds. As well, the alliance was designed to accelerate the uptake of energy efficiency technologies and practices by Australian businesses. The first step in the joint venture involved a co-funded $12.7 million energy efficiency project which was aimed at delivering cost-effective energy saving projects to businesses, industrial and public sector organizations in Australia (Perinotto). Further, Australian Carbon Trust agreed to provide Origin Energy with loan finance and to share its energy efficiency expertise and experience. This gave Origin Energy an opportunity to offer its business customers an Energy Savings Guarantee product for them to access energy saving equipment without upfront capital expenditure. Jointly, the two companies were able to combine technology to provide various energy saving guarantee products including lighting upgrades, chiller control upgrades, upgrades to heating and cooling systems, more efficient escalators and lifts, electric hot water replacements, trigeneration and co-generation and real time energy monitoring in buildings. Initially, the companies rolled this program under pilot. On the basis of uptake rates, the program managed to scale up by engaging approximately 200-300 businesses and helping them to realise significant operational energy savings. According to, Mr Grant King, Managing Director of Origin Energy, the alliance was sparked by the need to adopt a national approach to address national challenges such as climate change (Melero and Guppy). In his speech, Mr King pointed out that: “We are pleased to be involved with Australian Carbon Trust’s national Energy Efficiency Program. Energy Efficiency enables all Australians to take proactive action both in relation to emission reductions as well as their own power usage and costs. At Origin, we are committed to delivering value to customers and through our alliance with Australian Carbon Trust, we will be lowering the cost for businesses to take up energy efficient technologies” (Melero and Guppy, 2010). Meg McDonald, CEO of Australian Carbon Trust, further asserted that the alliance with Origin Energy would increase access of Australian businesses to energy saving and cost saving technology. In summary, as Meg McDonald stated, the alliance between Origin Energy and Australian Carbon Trust was an important step forward for Australian Carbon Trust in accelerating Australia’s move to achieve the objective of a low carbon economy. Advantages of partnerships and alliances As demonstrated by Origin Energy and Australian Carbon Trust companies, partners in a strategic alliance can benefit from many aspects of a cooperative relationship. According to Delaney, strategic alliance provides an opportunity for a firm to get instant market access or at least it speeds the entry of a firm into a market. Also, in the shared structure, the firms in an alliance gain an opportunity to enlarge distribution channels and hence increase sales. As well, a firm in a joint venture gains access to new facilities, skills, expertise and technology, which assists in attaining more flexibility and speed in development of new products. In addition, strategic alliance increases the business and political contact base, which gives rise to new opportunities and thus, it strengthens a company’s position in the already existing market. As well, an alliance enhances a firm’s image in the local and global market and this leads to improved access to capital. Importantly, forming an alliance is less costly compared to buying a new company and thus, it is one way of saving a firm’s costs. Delaney further notes that alliances provide firms with opportunities to gain new knowledge and knowhow regarding production as well as customs and culture of different population groups within the targeted market and this helps to minimize risks. Firms in a strategic alliance gain an opportunity to fill gaps in knowledge of technical expertise required in the market as they learn from each other and as a result, they avoid the need to reinvent what has already been invented elsewhere. As well, this helps to strengthen weak areas in a firm’s operations, to reduce costs and enables a firm to become more efficient in penetrating the market. Finally, a joint venture leads into increased capital base and provides an opportunity to share input resources and production costs of company. Disadvantages of partnerships and alliances There are various drawbacks associated with partnerships and alliances. One of them is the problem of overcoming language barriers especially in cases where a partnership is formed with partners from foreign countries (Delaney). Second, such alliances often lead to diverse or conflicting operational practices. Third, there is a potential of reducing future financial and other opportunities due to the fact that a firm may no longer be able to enter into agreements with its partner’s competitors. Fourth, there is risk that a company’s partner may become a competitor especially when partners share too much knowledge about each other. Fifth, there firms in a partnership may encounter problems while sharing the future profits (Ackerman 20). Finally, alliances may result into unexpected disappointments such as lack of commitment from one or more of the partners. Works Cited Ackerman, L. J. Blackwell's five-minute veterinary practice management consult. Victoria: Wiley Blackwell, 2007. Culpan, R. Global business alliances: Theory and practice. Westport: Greenwood Publishing Group, 2002. Delaney, L. “Global Strategic Alliances: Advantages and Disadvantages.” 2011, accessed, 30 August 2011, http://importexport.about.com/od/MarketingAndSellingGlobally/a/Global-Strategic-Alliances-Advantages-And-Disadvantages-To-Global-Strategic-Alliances.htm Glover, S. T. & Wasserman, C. M. Partnerships, joint ventures & strategic alliances. New York: Law Journal Press, 2003. Melero, L, & Guppy, S. S., Joint Origin & Australian Carbon Trust Press Release. “Origin & Australian Carbon to work Together on Energy Efficiency.” 2010.accessed, 30 August 2011 http://www.originenergy.com.au/news/files/Australian_Carbon_Trust_Origin_Energy_Efficiency.pdf Origin Energy. “Our history; Origin has a rich heritage in energy exploration, production and retailing.” 2008. accessed, 30 August 2011] http://www.originenergy.com.au/233/History Perinotto, T. “More money for property… again – this time it’s the Australian Carbon Trust.” 2010. [accessed, 30 August 2011]. http://www.thefifthestate.com.au/archives/18558 Sporleder, T. L. “Knowledge management, learning and performance measurement: Strategic alliances and networks In supply chains.” accessed, 30 August 2011. http://library.wur.nl/frontis/quantifying_supply_chain/12_sporleder.pdf Yoshino, M. Y. Strategic alliances: an entrepreneurial approach to globalization. Boston, MA: Harvard Business Press, 1996. Read More