STRATEGIC ALLIANCE IMPLEMETATION BETWEEN NATION MEDIA

GROUP AND MEDIA24 OF SOUTH AFRICA

REUBEN ONYIMBO

A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF

BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS, UNIVERISTY OF

NAIROBI

NOVEMBER 2013

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DECLARATION

This research project is my original work and has not been presented for a degree in any

other university or institution.

Signature: ……………………………… Date:…………………………….

RUEBEN ONYIMBO OTEDO REG. NO: D61/7097/2006

This research project has been submitted for examination with my approval as the

University Supervisor.

Signature:…………………………………. Date:………………………………..

Pro. Evans Aosa.

Associate Dean, School of Business, University of Nairobi

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ACKNOWLEDGEMENT

First and foremost, I would like to thank my supervisor Professor Evans Aosa for his

guidance, support and very valuable advice in every step of the project and his

understanding of my situation when I had difficulties which were personal. I would also

like to thank my moderator Professor Martin Ogutu for his useful advice. I would like to

thank my family for their understanding when I had to be way several hours during my

studies. I also thank the senior management of Nation Media Group for allowing me to

interview them and to access some confidential documents. Last but not least, I thank the

Almighty God for giving life, providing finances for the study and keeping my family

together though I was away from home for many hours due to work and studies.

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DEDICATION

This study is dedicated to my dear wife Janet and my children Vivian, Bryson, Hillary

and Laura

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Table of Contents DECLARATION ................................................................................................................ ii

ACKNOWLEDGEMENT ................................................................................................. iii

DEDICATION ................................................................................................................... iv

LIST OF ABBREVIATIONS ........................................................................................... vii

ABSTRACT ..................................................................................................................... viii

CHAPTER ONE: INTRODUCTION .............................................................................................. 1

1.1 Background of the Study ........................................................................................................... 1

1.2 Research Problem ..................................................................................................................... 8

1.3 Research Objective ................................................................................................................. 10

1.4 Value of the Study .................................................................................................................. 10

CHAPTER TWO: LITERATURE REVIEW ................................................................................ 12

2.1 Introduction ............................................................................................................................. 12

2.2 Conceptual Foundation ........................................................................................................... 12

2.3 Concepts of Stategic Alliances ............................................................................................... 15

2.4 Startegic Alliance Partner Selection Criteria .......................................................................... 17

2.5 Critical Success Factors for Strategic Alliances ..................................................................... 19

2.6 Problems of Strategic Allainces .............................................................................................. 23

CHAPTER THREE: RESEARCH METHODOLOGY ................................................................ 27

3.1 Introduction ............................................................................................................................. 27

3.2 Research Design....................................................................................................................... 27

3.3 Data collection ......................................................................................................................... 27

3.4 Data analysis ............................................................................................................................ 28

CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION .................................. 30

4.1 Introduction ............................................................................................................................. 30

4.2 Background information .......................................................................................................... 30

4.3 How the Strategic Alliance was implemented ......................................................................... 30

4.4 Challenges faced in the Implementation of the Strategic Alliance .......................................... 33

4.5 Discussion of findings.............................................................................................................. 35

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMENDATIONS ....................... 39

5.1 Introduction ............................................................................................................................. 39

5.2 Summary .................................................................................................................................. 39

5.3 Conclusion ............................................................................................................................... 41

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5.4 Recommendations .................................................................................................................... 43

5.5 Limitations of the Study ........................................................................................................... 44

5.6 Suggestions for Further Research ............................................................................................ 44

REFERENCES .............................................................................................................................. 47

APPENDIX .................................................................................................................................... 52

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LIST OF ABBREVIATIONS

NMG - Nation Media Group

SMG - Standard Media Group

GCEO - Group Chief Executive Officer

EAM - East African Magazines

SME - Small and Medium Enterprises

ROI - Return on Investment

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ABSTRACT

Strategic alliances have gained popularity in the recent decades and has become

increasingly favorable choice for companies that intend to achieve competitive advantage

over rival firms so as to make a stand in the global market. Firms are faced with rapid

changing global trends and dramatic economic development, it is always impossible for

firms to grow individually. This study examines how the Strategic alliance between

Nation Media Group and Media24 was formed and the implementation challenges. The

study was carried out as a case study to allow for in-depth examination and analysis of

various data collected. The primary data was collected through interviewing top

management of Nation Media Group including the Group Chief Executive Officer

(GCEO) who were involved in the formation of the strategic alliance by virtue of their

position in the company. Secondary data was obtained in the form of relevant

documented materials on strategic alliances, strategy papers, and minutes of meetings by

the alliance partners and agreements signed by both Nation Media Group and Media24 of

South Africa. The data obtained in qualitative form was analyzed through content

analysis. This approach helps in getting areas of consensus and disagreements from

various interviews done and the already documented data. The major findings of study

indicates that the alliance faced a number of challenges in the formation and

implementation. Given the urgency in the formation of the alliance, Nation Media Group

were mainly reacting to the perceived threat from the local competitor entering into

alliance with another firm from the same country, that is, South Africa. The company

(NMG) did not develop a strategic vision and fit, conducted its own research to determine

the real value of the alliance and due diligence in the partner selection which are critical

success factors in any alliance. Lack of cultural fit and mistrust among the partners were

also were also challenges that were encountered in the alliance implementation. There are

a number of important factors that were ignored and which made implementation very

difficult. The study will help the companies that would like to enter into alliances to first

ask themselves important questions such as, does the proposed alliance contribute its

objectives more effectively and efficiently, are there competitive advantages in forming

the alliance, does the alliance fit within the strategic plan of the company what are the

channels and mechanisms to be used in identifying a potential strategic partner and what

barriers that are to be overcome in order to establish a strategic alliance. One of the

limitation of the study is that researcher was unable to interview the Media24

management who were involved in the formation and implementation of the alliance as

they had all left for South Africa as the alliance came to an abrupt end.

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CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

Today’s business environment is one of intense global competition, rapid changes in

technology, demanding consumers, and other pressures (Ring, 1994). Firms operating in

this environment are challenged by consumers to rapidly develop wider product lines that

encompass greater technological sophistication and quality, yet are still low priced. At the

same time, global competition has forced corporations to seek new markets, which in turn

has speeded up this cycle of product development, and simultaneously created world

markets. However, firms are finding that the costs of increased research and development

and entry into new markets are formidable

Strategic alliances have become increasingly popular in the world for organizations

pursuing development of new strategies. This is because organizations cannot always

cope with increasingly complex environments (such as globalization) from the internal

resources and competence alone. Organizations may see the need to obtain materials,

skills, innovation, finance or access to markets, and may recognize that these may be as

easily available through cooperation as through ownership. Many companies rely on

alliances for up to 25 percent of their activities and the top 500 global companies have an

average of 60 alliances each (Dyer and Singh 2001). Despite this huge number of

strategic alliances, half of alliances will fail (Doz and Hamel, 1998).

Moreover, today’s corporations are realizing that the days of large, vertically integrated

businesses are rapidly vanishing, that one firm can no longer afford ( monetarily and/or

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organizationally) to maintain sophistication in all levels of technology, develop

international distribution channels or develop new markets.

The Nation Media Group having built strong brands in the newspapers business for a

period of over forty years, realized that there is need to diversify from solely newspapers

to magazines business. The company also realized that the consumers were becoming

more sophisticated and demanded more leisure magazines which are glossy as opposed to

ordinary magazines done on newsprint and inserted in newspapers. Furthermore, the

magazines in the daily newspapers would last for only one day and are then thrown away.

Advertisers also demanded much more platform than the newspapers could provide. The

shelf life for magazines last longer than the newspapers therefore more period of

exposure. The Nation Group lacked the expertise and experience in magazines business

and therefore looked for a partner which could bridge the gap. The Media24 also wanted

partner who could enable them enter the East African and Central African market as entry

through ownership could be risky and costly. Furthermore, Media24 needed a local

partner with long experience in distribution and marketing as their business model in

South Africa could not be possibly replicated given the background of so many other

companies having tried their home made models in Kenya ending up with disastrous

endings.

Alliances often seem to spread in waves. In many businesses, a period of increasing

alliance formation has been followed by a slowdown. In the computer hardware industry,

for example, the formation of alliances increased dramatically in the first half of the

1980s and declined in the second. Similar booms and busts in alliance formation

appeared to have occurred in other industries, although no comprehensive data exist to

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show this conclusively. In the early 1990s, there were waves of alliance formation in the

telecommunications, airline, health-care, and commercial real estate industries, to name a

few examples. Biotechnology alliances were most popular in the mid-1980s. Earlier, the

late 1970s and early 1980s saw alliance waves in the automobile, aircraft, and chemicals

industries. Historical data on the foreign operations of large U.S. manufacturing firms

indicate an increase in the use of joint ventures in the late 1950s, followed by a sharp

decline in the 1960s (Gomes-Casseres, 1988).

Studies on strategic alliances have increasingly attracted the attention of scholars, policy

makers, trade practitioners and international organizations in the last two decades (Foss,

1999). Its proliferation has led to a growing stream of research by scholars who have

examined some of the causes and consequences of such partnerships. Scholars who have

studied in the area of strategic alliance have given a lot of different definitions of these

relationships. This study has explored a number of definitions of strategic alliances from

different theoretical framework definitions which tend to highlight specific features of

alliances.

For example, from the view of the Transaction Cost Theory, collaboration or alliances

between firms is defined as a contractual relationship between two or more companies, in

which they agree to jointly carry out one or several tasks, or specific projects, which are

difficult or too costly to carry out alone. For each partner, it normally involves only one

major activity respective of its value- chain or at least is clearly defined and limited in its

objective.

Another view, from the strategic perspective, collaborative- Strategic alliances, joint

ventures, cooperative agreement are defined as partnerships among firms that work

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together to attain some strategic objectives as part of marketing of a product as a stream

of value-chain activities where alliances enable each value-chain to be accomplished with

the help of a partner, or it can be inter-firm cooperative arrangements aimed at achieving

the strategic objectives of the partners in the alliance (Kogut, 1988).

From a learning perspective, alliances are defined as co-alignments between two or more

firms in which the partners hope to learn and acquire from each other the technologies,

products, skills, and knowledge that are not otherwise available to their competitors

(Kogut, 1988a, Doz and Hamel 1998). The last view, resource based perspective defines

alliance as voluntary inter-firm agreements aimed at achieving competitive advantage for

the partner (Van de Ven, 1976).

1.1.1 Strategy Implementation

According to Dyer and Singh (2001) strategy is defined as a pattern plan that interrogates

an organization’s major goal, policies and action sequence into cohesive whole. It is a

well formulated strategy which helps to marshal and allocate an organization’s resources

into unique and viable posture based on its relative internal competencies and weakness

anticipated changes in environment. Business must formulate a comprehensive strategy

that maximizes its value and distinguishes capabilities against the competitors.

Strategy implementation is the translation of chosen strategy into organizational action so

as to achieve strategic goals and objectives (Doz and Hamel, 1998). Strategy is also

defined as the manner in which an organization should develop, utilizes, and amalgamate

organizational structure, control systems, and culture to follow strategies that lead to

competitive advantage and a better performance (Smith & Barclay, 1997). Organization

structure allocates special value developing tasks and roles to the employees and states

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how these can be correlated so as to maximize efficiency, quality, and customer

satisfaction which are key pillars of competitive advantage. An organizational control

system is also required. This control system equips managers with motivational

incentives for employees as well as feedback on employees and organizational

performance.

According to Minztberg and Quinn (1991) the most frequent occurring strategy

implementation challenges include understanding the time needed for implementation

and emergence strategy that had not been anticipated in addition to the uncontrollable

factors in the external environment. Foss (1999) identifies two key challenges in strategy

implementation that include fit between strategy and structure. He argues that there is a

need for a clear fit between strategy and structure and claim that the debate on which

comes first is irrelevant provided there is congruence in the context of the operating

environment. The author further argues the management style must be appropriate for the

strategy being implemented or else there is likelihood of failure.

Excellently formulated strategies will fail if they are not properly implemented. Also, it is

essential to note that strategy implementation is not possible unless there is stability

between strategy and each organizational dimension such as organizational structure,

resource- allocation process and the strategy fit with the long term organizational goals.

Strategy implementation poses a threat to many managers and employees in an

organization. New groups (formal as well as informal) are formed whose values,

attitudes, beliefs and concerns may not be known. With the change in power and status

roles, the managers and employees may employ confrontational behavior.

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1.1.2 Overview of Media Industry in Kenya

At independence in 1963, there were only two main print media companies in Kenya.

The oldest print company in Kenya is the East African Standard which started operations

in Kenya in 1902. Before independence there were regional newspapers that were

published to champion the interest of the Kenya towards the attainment of self-rule and

were mainly critical of colonial rule. The other main national daily newspapers were the

Taifa Leo and Taifa Jumapili in 1959, mostly for the Africans whose majority had very

limited education, and were followed the following year by the Daily Nation and Sunday

Nation. The former ruling party Kenya African Union (KANU) started daily newspapers

called The Kenya Times for the main reason of spreading the government propaganda as

the main newspapers were critical of the government about the manner in which it was

running its affairs. Many other publications that were started in 1980s did not survive

owing to the government crackdown of what was perceived as works of dissidents who

were out to wrest power from the then incumbent president and the ruling party KANU.

Currently we have five main daily newspapers namely; The Daily Nation, The Standard,

The Kenya Times, The People and The Star all circulating about three hundred copies

daily. There has also been existence of some weekly publications which are termed as the

alternative press or “gutter” which normally thrive on rumors but still have followers.

The electronic media has also gone under a number of changes. From independence up to

late 1980s, the electronic media was being controlled by the fully government owned

company formerly Voice of Kenya (VoK) and now Kenya Broadcasting Corporation

(KBC). The first independent TV station was started in 1987 under brand name Kenya

Television Network (KTN) and from then henceforth the air waves was opened to many

private companies. Currently we have about thirteen TV stations and about three hundred

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radio stations in Kenya. Most the TV stations are national with a few ones being local. A

number radio stations broadcast in vernacular and a few have national outlook. The

vermicular stations are a major concern to the government as some have been accused of

spreading hatred among Kenyans especially in the post-election violence that rocked the

country in the year 2007/08.

Competition among the industry players have been intense with the freeing of the

airwaves. A number of these media companies have been establishing multiple

publications, TV stations and radio stations to target some market niches. The other

dilemma facing the industry players is the signing of media bill into law which prohibits

cross ownership of media platforms in Kenya amid protest. Print media is also faced with

low levels of literacy and poor reading culture, the world declining print media

consumption and diminishing ad spend and a surge in the newsprint prices . With this

intense competition in the industry, will firms look for strategic partners for resources and

learning?

1.1.3 The Nation Media Group (NMG)

Nation Media Group Ltd (formerly Nation Printers and Publishers) was formed by His

Highness the Agha Khan in 1959. Its first product was Taifa Leo which is a Kiswahili

publication. This publication was meant to be the voice of the people of Kenya in their

struggle for independence. In 1960 the company launched English newspapers, the Daily

Nation and the weekly publication of Sunday Nation.

The company has been successfully launching products which have been market leaders

in their respective market segment. Apart from the print media the company has

electronic and digital media. Among the brand for the electronic media are NTV, ETV,

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QTV, Easy FM and QFM and in digital it has nationmedia .com. In the print media the

company has 7 brands which include Daily Nation, Saturday Nation, Sunday Nation,

Taifa Leo, Taifa Jumapili, Business Daily and the East African, which are market leaders

in their respective market segments.

Nation Media Group and Media24 of South Africa formed a strategic alliance and as a

result of this a new company by the name of East Africa Magazine Limited was

established in the year 2004 with NMG having a majority shareholding of 51% and the

rest owned by the partner. Nation Media Group (NMG) which had hitherto been mainly

involved in publishing daily newspapers, radio and TV had not entered into the

magazines publishing for which the Media24 had had a long history. The strategic

alliance was mainly to publish glossy magazines with Media24 bringing expertise in

publishing and Nation Media Group bringing their expertise in distribution and market

knowledge within the East Africa market. In the first one year of joint venture two new

magazine titles with local content were launched, namely True Love and Drum.

1.2 Research Problem

Strategic alliances have become a means of meeting the combined challenges of entering

or maintaining markets with better products, leveraging cost and learning. Many firms are

realizing that they must find outside partners to share risks and, hence are forming

collaborative alliances (Horton, 1998). As a result of the consequences of several trends

which began in 1980s- intensified foreign competition, shortened product cycles, soaring

capital investment costs, and the ever growing demand for new technologies , alliances

are becoming attractive strategy for the future (Inkpen, 1996). Despite the many

successes in the strategic alliances, not all alliances have lasted forever to be considered

9

successful. Constantly changing market forces make long term alliances a thing of the

past.

Print media industry in Kenya just like others around the world has experienced slow

growth due to changes in consumer tastes and changes in technology where readers do

not have to necessarily read from hard copy but can get the same information from

internet. Nation Media Group with its over fifty years in newspaper business needed to

enter into an alliance with a partner who had a long experience and expertise in magazine

publishing. The experience and expertise could not be secured locally and therefore

NMG looked for this outside the Kenyan borders. The Media24 having had a successful

history in both newspapers and magazine business publishing also got interested in

entering the East African market by looking for a partner with a competitive advantage in

marketing and distribution in the local market. Magazine publishing could provide the

NMG with additional stream of revenue given the consumers’ change in taste for glossy

magazines as opposed to newsprint based magazines inserted in newspapers.

There are a few studies that have been done on the strategic alliances with the Kenyan

context. One of the few studies that have been done on strategic alliance with Kenyan

context includes; Strategic alliance experience of Kenya Post Office and Savings and

City Bank (Koigi, 2002). The study established that it is very difficult to have successful

alliances between partners with deep culture difference. City Bank is a very big

international bank with American cultural leaning as opposed to Kenya Post Office &

Savings Bank which has a culture of civil service being a parastatal corporate. Other

similar studies include Musyoka (2003) who looked at the Creation and Implementation

of Strategic Alliances among NGOs’ in Kenya and Wachira (2003) who analyzed

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Strategic Alliances in Pharmaceutical Drug Development. Both studies concluded that

the greatest challenge to strategic alliances is the ability to sustain them. None of the

researchers has analyzed the implementation of strategic alliance in media industry. The

study therefore aims to bridge the gap by analyzing strategic alliance in media industry

with Kenyan context. The study sought to answer the question on how the strategic

alliance between Nation Media Group and Media24 of South Africa was Implemented

and the challenges that were faced in the implementation.

1.3. Research Objective

This study had two objectives:

i. To establish how the alliance between Nation Media Group and Media24 of South

Africa was implemented.

ii. To establish challenges faced in the implementation of the strategic alliance.

1.4 Value of the Study

Most corporate entities are now realizing that entry in some markets may prove to be

very difficult if the firm has to go it alone as the cost, capabilities and risks factors

involved are quite high. The study will therefore help management of both Nation

Group and Media24 of South Africa to have better understanding of strategic alliances so

as to be better equipped in engaging in future alliances

The study is also very important to the investors and the general public to be able to

understand the implementation of strategic alliances and challenges. By better

understanding strategic alliance, the shareholders will be able to allow and support the

management in undertaking the strategic alliance with other firms with the main aim of

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creating and increasing their wealth in both short and long run. Finally, this study will act

as a useful reference point to scholars, academicians, and researchers for the better

understanding and further research on strategic alliances.

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CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

Strategic alliance has become widely used in the business language to refer to different

types of partnership, agreement between two or more companies that pursue clear

strategic collaboration objectives with different levels of possible integration among

members. This section will examine the concept of strategy, concept of strategic alliance,

strategic alliance partner selection, and critical success factor for strategic alliance and

problems of strategic alliances.

2.2 Conceptual Foundation

There are different definitions of strategy by different authors and scholars. Strategy is a

multi-dimensional concept and has long been used implicitly in different ways though its

origin can be traced in military. While it has no single definition, strategy may be seen as

a multidimensional concept that embraces all critical activities of an organization. Lack

of a single definition points to the selective attention given to the various aspects of

strategy by different authors (Aosa, 1992).

Minzeberg et al (1999) defines strategy as a pattern or plan that integrates an

organization’s major goals, policies and action sequences into cohesive whole. They view

strategy as a ploy, pattern, position, plan and perspective. Strategy as a ploy is the action

taken by an organization with an intention of outwitting its rivals. As a pattern, strategy

emerges without preconception from a series of actions visualized only after the events it

governs. Strategy as a position is a means of competitively positioning an organization in

its external environment. As a plan, strategy specifies a deliberate course of action

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designed before the action it governs while as a pattern strategy reveals an organization’s

perception of the outside world.

Johnson and Scholes (2001) define strategy as the direction and the scope of the firm in

the long term. It ideally matches its resources with its changing environment and in

particular its markets and clients so as to meet the stakeholders’ expectations. Strategy is

therefore a plan, the primary means of reaching the firm’s focal objective. Aosa observes

that strategy creates a fit between the external characteristics and internal conditions of a

firm to solve a strategy problem. He further observes that for a strategy to be effective, it

must be consistent with the firm’s goals, values, the external environment, the firm’s

resources and its systems.

Thus, strategy defines organizational purpose, in terms of objectives, goals and priorities

with the organizational competitive advantage. In a nutshell, strategy is about the future

of the organization, the present posture, developing superior strategy and effective

implementation of the strategy. It is about where the business would like to be in the long

run.

Theory driven approaches to studying alliances continue to be a truly multi-disciplinary

affair. Certain approaches can be classified as belonging to the economic theory

viewpoint. A range of external conditions may stimulate the creation of strategic

alliances. However, firms will only enter into such arrangements when their internal

circumstances makes this seem to be the right move. These theories include; transaction

cost theory, market power theory and resource- based agency theory.

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Williamson (1975) Transaction cost theory suggests that an organization will engage in

an alliance when this option is cheaper than, for example, conducting market operation or

internalizing the transaction and integrating it the organization’s existing structure. This

theory further suggests that an organization will base its partner upon a trade-off between

two criteria. One, the transaction cost incurred in allying with a particular partner. Two,

the ability to control the particular partner’s action. Thus, the optimal candidate partner is

the one that necessitates the lowest transaction cost, which at the same time is most

controllable.

Market power theory (MPT) suggest that the constitution of industrial competition and

profitability is largely the result of an organization’s industrial positioning. Thus MPT

suggests that partner selection should be based upon the ability of the partner to

contribute to the alliance successfully positioning the organization within a given

industry. Organizations with market power do tend to have a lot of bargaining power

when strategic alliance do occur. This is due to their intensive market base and the ability

to attract and retain more customers in their respective markets (Wolak, 2005).

Organizational learning perspective theory suggests that firms, especially those in

knowledge intensive industries, seek alliances to acquire new and valuable competitive

knowledge. Such an interpretation leads to the conclusion that organizations must acquire

the skills necessary to absorbs and employ the knowledge that a partner brings to the

alliance (Powel, 1996). Organizational learning is a social process, involving interactions

among many individuals leading to well-informed decision making. Thus, a culture that

learns and adapts as part of everyday working practices is essential. Reuse must equal or

exceed reinvent as a desirable behavior. Adapting an idea must be rewarded along with

15

its initial creation. Sharing to empower the organization must supersede controlling to

empower an individual.

Resource dependency theory suggest that an organization cannot develop or internally

access all of the resources that it require to operate competitively in its environment. The

key to survive is the ability to acquire and maintain resources. It must therefore form ties

with external stakeholders to exchange some of the resources that it does have for some

that it perceives its lacking. Resource dependence theorists argue that organizations

attempt to obtain stability and legitimacy, which is achieved through interdependencies

and the exercise of power and control (Pfeffer and Salancik, 1978). The effectiveness of

organizations depends on their ability to acquire the resources needed for survival.

2.3 Concept of Strategic Alliances

Since the 1980s, strategic alliances have been a very popular topic in the literature

(Dousage and Garnette, 1988). The topic of strategic alliances has become one of the

most significant topics in the strategic management literature. The incidence of strategic

alliances among organizations has dramatically increased over 10-15 years, and research

interest in the topic has followed suit (Barney and Hansen 1994). Recently, an

unprecedented number of business firms in many industries have been entering into a

variety of inter-organizational relationships to conduct their business deals. These

transactions often were undertaken through either discrete market transactions or internal

hierarchical arrangements. These organizational relationships include strategic alliances,

partnerships, coalitions, franchises, research consortia and various forms of network

organizations (Ring, 1994).

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Alliances have become an important research topic covering a range of theoretical bases

and perspectives. Previous studies have progressed basically on three main paths: first,

some researchers have focused on partner characteristics, as an explanation for alliance

behavior and outcomes (Lewis 1998). Therefore resources exchange and the value of the

resource accessed in alliance are central concern (Peffer and Salancik, 1978). Scholars

and researchers articulating this perspective consider alliances and networks as

alternative mechanisms to markets and hierarchies for addressing specific strategic needs.

In this tradition, alliances are undertaken to secure scarce and valuable resources critical

for a firm’s survival and posterity.

Second, researchers have focused on the interactive nature of cooperation between

organizations (Gulati, Heide and Miner, 1992). From here, the link between firms is the

focus of the analysis. Rather than viewing each alliance as a separate transaction,

researchers in this tradition emphasize the importance of positioning a transaction in the

context of the ongoing relationship between the firms involved. A history of trust and the

prior relationship between firms engaged in a relationship influence the willingness to

partner. It is not the resource per se, but social network of relationships in which a firm is

embedded that leads to partnering. According to this view, the understanding alliance

behavior and outcome could point out because it is the characteristics of the relationship

between firms as an ongoing pattern.

More recently, the literature presents studies about learning in alliance (for example,

Dousage and Hamel, 1988), which explain how the tension between cooperation and

competition affects the dynamics of learning alliances as well as considering the

outcomes and duration of strategic alliances among competing firms, using alliance

17

outcomes as indicators of learning by partner firms to examine inter-firm relationship and

outcomes.

However, while there has been growing attention paid to understanding the formation of

inter-organizational ties, including the motivation of firms participating and explaining

the differential proclivity of firms to enter them, and also the behavior and satisfaction of

partners: less attention has been paid in latter field especially in developing countries like

Kenya.

2.4 Strategic Alliance Partner Selection Criteria

There are many statements emphasizing the importance of “good”, optimal , or “right

“partner selection are ubiquitous in numerous streams of literature that have addressed

strategic alliance formation and management. Most references are perfunctory, and are

not supported by empirically evidence or critical argument, as to the in-use or optimum

partner selection criteria. Nevertheless, a series of studies that focus on selection criteria

used in different context are identifiable.

Tomlinson (1970) from his studies of 71 International Joint ventures (IJV) suggested six

broad categories of selection criteria. The six criteria were favorable past association,

facilities, resources, partner status, forced choice and local identity. Of the six selection

criteria, Tomlinson found that “favorable past association” was most important for

managers.

Daniels (1971) in his study of Joint ventures in US concluded that firms look for partners

of similar sizes. He explained this is an attempt by firms to ensure that the two firms

placed similar amount of importance on the Joint venture and were relatively equal in

18

positions of bargaining strength. Similarly, another study by Littler and Leverick (1995)

sought, in a broad manner, to understand the creation of, and antecedents for, success, in

new-product collaborations in UK. They found out that “careful attention needs to be

paid to the selection of collaborators. In particular, their case study respondent indicated

that organizations should choose partners that exhibit cultural fit, who preferably have

already had experience of working together.

Another study that confirmed partner prior selection understanding in a different context

was the Austrian survey by Hoffmann and Schlosser (2001). They posited that context of

small medium enterprises (SMEs) might base partner selection on four factors: presence

of trust, complementary contribution, resources and strategy, partners excellence in co-

operation and agreement of fundamental values and cultures. Of these four factors,

managers ranked trust and complementarities most highly, with cultural agreement

somewhat lower and cultural match even lower still. Hoffmann and Schlosser (2001)

concluded that SMEs should seek partners that have the strength to contribute specific

complementary resources in order to lay a foundation at the initiation.

Luo (1997) stressed that the importance of organization’s abilities to absorb partnering

experience on strategic fit, with an examination of local frames engaged in manufacturing

in China. Luo showed that the strategic traits of product relatedness and market position

both critically impact the major dimensions in JV performance. Second, Luo found out

that partners strategic fit is determined not only by the resources they contribute, but also

by the previous collaboration and international experience.

19

In summary, many of these studies have, either explicitly or implicitly, attempted to show

causality between partner selection criteria and alliance success. Whereas it would be

naïve to suggest that such a relationship does not exist, actually corroborating it to a

significant degree or certitude and ascertaining that confounding or intermediate factors

are not more important, is programmatically impossible. Furthermore, common

managerial wisdom and commonsense suggests that success or failure is more of the

result of motivated and technically competent managers “making it work”, than

coherence between static pre-alliance criteria.

2.5 Critical Success factors for Strategic Alliances

Current literature does not provide any comprehensive answer to this question. Much

attention has recently been devoted to issues surrounding strategic alliances as

organizations are increasingly turning to alliances to help them successfully compete in

the market place (Varadanajan and Cunnigham, 1995; Ring, 1994; and Das and Teng,

1997). Cunningham and Varadanajan (1995) provocatively noted that some firms seem to

have been quite successful in establishing and maintaining a web of lasting alliances, a

few firms at the other end of the continuum seem to their credit of long list of failed

alliances.

Spekman and Mohr (1994) argue that although the characteristics of strategic alliance

formation have been well explored in the literature, little has been written about the

characteristics associated with strategic success or failure. It is therefore necessary that a

research of this kind is undertaken to add more knowledge to the underlying factors that

directly contribute to the reasons why many alliances fail. The conditions for alliance

20

survival can be grouped into three main underlying factors which are strategic fit,

secondly, cultural fit and attitude and lastly appropriate organizational arrangement.

One of the critical success factors for strategic alliances is partner match which calls for

the creation of alliances in which the chosen partners are similar in management style and

company culture. Considerations such as domain similarity and goal compatibility have

been found to enhance the effectiveness of inter-organizational dyads (Moore, 1998).

The findings of the study that was undertaken by Sengupta (1991) indicate that

compatibility of the partners is critical to alliance success. The findings were, “the higher

the level of partner match is positively associated alliance success and that the partner

match and alliance success association is mediated by alliance relationship attributes”.

The second critical success factor for strategic alliance is strategic orientation. The

strategic orientation of a firm reflects the willingness of the firm to enter into strategic

alliances and to adopt innovative strategies. Firms select strategies to improve their

competitive postures and to gain an advantage over one or more competitors (Kogut

1988). Strategic alliances are formed based on strategies of how to manage

environmental uncertainties, how to overcome lack of resources and, in particular, how to

manage firm’s range of inter-organizational relations. The degree of strategic orientation

of a firm will exhibit higher levels alliance success and an association with alliance

relationship attributes.

The other critical success factor of any alliance is trust. Centrality of trust in developing

long term organizational relationship has been emphasized in the many alliance literature

(Jennings 2000; Smith, 1995. The existence of trust in a relationship reduces the

21

perception of risk associated with opportunistic behavior (Moore, 1998). Partners that

trust each other generate greater profits, serve customers better, and are more adaptable.

Barney and Hansels (1994) posits that when exchanges are governed on trust, the

transactor can reduce transaction costs. Several studies have also shown that the

performance of partners will be higher and hence the chance for success (Bleek, 1993;

Smith, 1997).

Unless trust develops early in the relationship the alliances soon ceases to be the

appropriate organizational arrangement, as transaction cost rise due to monitoring

systems installed to overcome lack of trust. Trust does in any way imply naïve revelation

of company secrets outside alliance agreement, but it implies the belief that a partner will

act with integrity, and will carry out its commitments. The appropriate attitude must be

exhibited from the start. An example of an alliance which might have failed due to trust is

the alliance between Olivetti and AT&T. During negotiation to enter an alliance,

friendliness, should be exhibited, and a deal struck that is clearly “win-win”.

The fourth critical success factor for strategic alliance is communication.

Communications between partners is critical for building a successful relationship. In

order to achieve the benefits of collaboration, effective communication between partners

is essential (Cunnings, 1984). Communications allows partners to understand the alliance

goals, roles and responsibilities of all actors. It also helps with the sharing and

dissemination of individual experiences (Inkpen, 1996). More successful alliance are

expected to exhibit higher levels of communication quality, more information sharing

between partners and more participation in planning and goal setting than less successful

alliances are between partners.

22

Commitment to the alliance by partners is another key success factor for any alliance.

Commitment suggests a future orientation in which partners attempt to build a

relationship that can weather unanticipated problems. A high level of commitment

provides the context in which both parties can achieve individual and joint goals without

raising the specter of the opportunistic behavior (Cunnings, 1984). Indications of

commitment include investment by the participating organizations, exclusive agreements.

Committed partners are likely to be more cooperative, communicative and flexible in

accommodating conflict issues. Commitment development between partners within an

alliance would act as a counter –balance against failure of the strategic alliance.

Sixthly, culture can be a key to strategic alliance survival, as many alliances have

foundered on the question of incompatible culture alone. The alliance between Olivetti

and AT & T came to dissonance which stemmed from contrasting bureaucratic culture of

the US giant and the entrepreneurial Italian marketing company. Cultural difference does

not necessarily lead to problems in alliance but where there is a strong will to understand

them and bridge the gap, then the effect of culture clash can be mitigated and the alliance

can still succeed.

Lastly, collaboration is the key dimension of strategic alliance relationship. The alliance

partners must collaborate to achieve their strategic objectives. The collaborative

associations are interactive and adaptive in nature as noted by Anderson (1991).

Understanding the nature and scope of collaboration is essential in analyzing the

operation and success of an alliance. A highly collaborative relationship provides the

flexibility necessary to overcome uncertainties, resolve conflicts and achieve mutually

beneficial outcomes. In short, “the greater the extent that a collaborative relationship

23

exists between the alliance partners the higher the probability of success” (Sengupta,

1991).

In summary, the literature cited above in this section suggests that more successful

alliance relationships are expected to be more characterized by higher levels of partner

match, strategic orientation, trust, communication, culture match, commitment and

collaboration. The absence of many of these critical factors may or has led to strategic

failures. Care must be taken to ensure that in partner selection, much attention is paid to

the inclusion of the critical success factors for the success of the alliance.

2.6 Problems of Strategic Alliances

An alliance can be broken or underperforming, yet too many companies fail to see their

partnerships are just drifting or not producing. Recognizing that an alliance is broken and

taking steps to amend the various relationships are vital if a company is to realize its

expected Returns on Investment (ROI).

One of the biggest problem facing alliances and which has contributed to the high failure

rate is the clash of cultures and “incompatible chemistry”. The cultural problems which

firms are likely to face in the alliance include; language, egos, chauvinism, and different

attitudes to business can all make the going very rough. The first thing that causes

problem is the language barrier the firms may face. It is important for companies working

together to be able to communicate and understand each other well or they are doomed to

before they start. After the communication is worked out the firms now face the problems

of operation. Different cultures work or operate in different ways, for instance, the US

companies tend to evaluate performance on the basis of profit, market share, and specific

24

financial benefits. Japanese companies tend evaluate performance primarily on how an

operation helps build its strategic position, particularly by improving its skills according

to study by Daniels (1971). From a different perspective, Steensman (1998) indicated that

national cultural traits directly influence strategic alliance formation and moderate the

relationship between perceived technological uncertainty and alliance formation.

The second problem among the alliance partners is lack of trust. Risk is the primary

bonding in partnership. What will happen if one company experience success and the

other one failure? .A sense of commitment must be generated throughout the partnership.

In many alliance cases one company will point failure finger at the partnering company.

Shifting the blame does not solve the problem, but increases the tension between the

partners and companies often lead to ruin (Lewis, 1991). Building trust is the most

important and yet most difficult aspect of a successful alliance. Only people can trust

each other, not the company. Therefore, alliances need to be formed to enhance trust

between individuals. The companies must form the tree forms of trust, which include

responsibility, equality, and reliability. Many alliances have failed due to lack of

understanding and despondent relationships.

The third problem facing alliance is the performance risks. Performance risk is the

probability that an alliance may fail even when partner firms commit themselves fully to

the alliance. The sources of performance risks according to study by Das and Teng

(1999) include, environmental factors, such as government policy changes, wars and

economic recession; market factors such as fierce competition and demand fluctuations

and, internal factors, such as lack of competence in critical areas, or sheer bad lack.

25

Fourthly, Lack of clear goals and objectives can create problem among the strategic

alliance partners. In today’s business world, many strategic alliances are formed for the

wrong reasons. This will surely lead to disaster in the future. Many companies enter into

alliances to combat industry competitors. Corporate management feels this type of action

will deter competitors from focusing on their company. On the contrary, this action will

raise flags that problems exist within the joining companies. The alliance may put the

companies in the spotlight causing more competition. Once again, the management feels

that an increase in numbers signifies quick fix. In this case, the company is probably

already doomed and is just taking another along for the ride (Foss, 1999).

The other reason why strategic alliances have problems is lack of coordination between

management teams. In many instances action taken by subordinates that are not in

congruence with top-level management can prove disruptive, especially in instances

where companies remain competitors in spite of their strategic alliance. If it were to

happen that one company would go off on its own and do its own marketing and sell its

own products while in alliance with another company it would for sure be grounds for the

two to break up, and they would most likely end up in legal battle which could take years

to solve if it were to settle at all. An example of lack of coordination between

management teams is the merger between Volvo and Renault (1993).

Sixthly, Strategic alliances might create a future local or even global competition. One

partner, for example, might be using the alliance to test a market and prepare the launch

of a wholly owned subsidiary. By declining to cooperate with the other partners, in the

area of its core competency, a company can reduce the likelihood of creating a

competitor that would threaten its main area of business; likewise, a company, can insist

26

on contractual clauses that constrain the other partner from competing against it in certain

products or geographic regions. Further to this, strategic alliance can also fail if the

partners in the alliance do not grasp and articulate their strategic intent and failure to

recognize the interplay between the overall strategy of the company and the role of the

alliance in that strategy.

27

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

This chapter presents the study design and methodology used in gathering information

needed for the purpose of completing the study. This chapter involves a blueprint for the

collection, measurement and analysis of data. In this section the following subsections are

included; research design and target population, sampling design, and data collection

instrument and procedures and data analysis criteria that will be used.

3.2 Research Design

The research was undertaken via case study. Case study was found to be most ideal as it

allowed in-depth examination of the problem and because the study was qualitative in

nature. The research design entailed utilization of qualitative research technique for data

collection to better understand how strategic alliance was implemented and the

challenges faced.

Koller (2004) asserts that a case study research design is appropriate where a detailed

analysis of a single unit is desired as they provide a focused and valuable insight into

phenomenon that otherwise would be wrongly and vaguely known. It would also be

necessary to seek various clarifications on important issues that probably would have not

been formally laid bare by the interviewees. This kind of research design has been used

by Wachira (2002), and Musyoki (2002).

3.3 Data collection

Both primary and secondary data, in qualitative form was used for the study. Cooper and

Schindler ( 2003) define qualitative research as that which deals with information

28

too difficult or expensive to quantify, such as subjective opinions and value

judgments , typically unearthed during interviews or discussion groups. Primary data

was mainly collected through interviews and discussions with the help of interview

guide, which was developed in line with the research objective. The questions were

prepared in line with the literature review and pre-tested before the actual data collection.

The questions were open -ended to allow for collection of as much information as

possible from the respondents.

The researcher conducted interviews among the senior managers of the Nation Media

Group who were involved in the whole process of the partner selection and

implementation of the strategic alliance strategy. The researcher also interviewed one of

the senior managers of the Media24 who was in involved in the project from the start to

the implementation stage to countercheck information provided by the other alliance

partner. Before the actual interview took place, an appointment was made and the

interview guide sent in advance to enable the interviewee be prepared. The researcher

also administered the questionnaire personally to allow more probing and also keep the

discussion on tract to the subject of study.

3.4 Data analysis

Data was analyzed using content analysis. Content analysis sets a procedure for

collecting and analyzing of non-structured information into a standardized format that

allows one to make inferences about the research objectives. The collected data was

evaluated to determine its adequacy, credibility, usefulness and consistency. Cooper and

Schindler (2003) points out that content analysis measures the semantic content or “what”

aspect of the message. Its breadth makes it flexible and wide-ranging tool that may be

29

used as a methodology or a problem specific technique. He further points out that content

analysis guards against selective perception or context provide for rigorous application or

reducing data validity criteria.

Furthermore, content analysis aims at identifying pattern that account for behavior of a

given study unit and its relationship with the environment. The method also allows the

respondents to give a wide range of ideas about the issue in much detail. In coding the

qualitative data, the researcher shall read all the responses, identify key words and

phrases in the responses then relate key words to emerging patterns. From these themes

and patterns, a category of data was drawn out and the meaning to interpret the results.

30

CHAPTER FOUR: DATA ANALYSIS, RESULTS AND DISCUSSION

4.1 Introduction

This chapter reports the findings from the selected data under study. The purpose of this

research was to investigate strategic alliance formation and implementation challenges

between Nation Media Group and Media24 of South Africa. The data analysis was

designed with the intention of answering the research question.

4.2 Background information

The respondents were asked to state their gender composition, position held, department

and the number of years served in their positions. All the respondents were top managers

who had worked in the organization for over five years and were involved in the strategic

alliance formation and implementation by virtue of their position in the organization as

such they were appropriate candidates for the interview.

Out of the 6 questionnaires sent to the respondents for discussion, one did not avail

himself for interview only five did. The composition was 4 males and 1 female. All the

respondents held different positions in the company and departments with over 5-8 years’

experience.

4.3 How the Strategic Alliance was implemented

According to David (2001), formulating strategy is not enough. For effective strategy

implementation the strategy must be supported by decisions regarding organization’s

culture, structure, management, leadership resources and capacity. He further alludes that

the strategy of an organization must match the external environment, it must also fit the

multiple factors responsible for the implementation.

31

There was an agreement among the respondents that the alliance formation to the

implementation took a period of three months. A number of meetings were held in

Nairobi and Pretoria to work out the responsibility of the each of the alliance partners.

The shareholding of the alliance was also agreed. The Nation Media Group had the

majority shareholding of 51% while Media24 had the remaining 49%. The shareholding

structure meant that NMG had greater control over the joint venture as compared to the

partner. However, the head agreement signed by the partners did not give the NMG much

power in decision making as they had equal number of representation in the alliance

board of management.

On the human resources required for the management of the alliance, it was agreed that

Nation Media Group was to provide the head of the joint venture and other key staff in

distribution, marketing, advertising and information technology. The Media24 provided

the key staff in editorial and production of the magazines. Each of the alliance partners

provided staff in key areas where they had competencies. The human resource of the

alliance was to be managed by Nation Media Group head of human resources. This

brought a lot of issues in harmonizing the human resource policies of the alliance

partners.

The salary structure for the Media24 staff was much higher than the one for NMG.

Though some staff in the alliance were doing same job but the salary of the foreign

employees could not match the local staff recruited and this brought disharmony. The

mixing of both the local and the expatriates from South Africa was to allow for

knowledge transfer among the partners. Media24 had a long history of magazines

32

publishing which NMG had very little knowledge but lacked the distribution and market

knowledge.

Nation Media Group sent a number of its local staff in the joint venture to South Africa to

study magazines publishing. The Media24 also sourced a number of staff in Kenya to

understand the distribution and advertising strategy of its alliance partner.

There was a consensus among the respondents that there was a policy that was agreed on

the management of the cash and non- cash resources. According to the framework agreed

upon, the alliance partners were to contribute resources in the same proportion as the

shareholding in the joint venture. Profit and loss were shared in the same proportion as

the shareholding. Strategies were also put to ensure that there was adequate resources for

the alliance.

There was a strategic policy that supported the alliance management. The head of the

alliance was from Nation Media Group. Teamwork between the alliance partners was

encouraged. On the question of the management team and the employees prepared for the

alliance, the respondents did state there was initial resistance to this alliance as there was

not enough preparation for the staff involved so that they could understand one another

on long term goals of the alliance.

From the discussions, it emerged that there was conflict in managing the alliance. The

head of the joint venture was initially from NMG. The senior manager was perceived to

be learning towards the advice of the parent company who had a bigger shareholding in

the joint venture. Media24 was not comfortable with this and they later agreed and

33

appointed the head of joint venture from its rank which was later perceived in the same

way as the one from the other alliance partner.

4.4 Challenges faced in the Implementation of the Strategic Alliance

The respondents stated that one of the major challenges involved in the implementation

of the alliance were appointments and the remunerations for the directors which was

costly to NMG. The staff that were seconded to the alliance from the Media24 were

earning way above the salary for the local staff seconded by NMG. Given that NMG was

the principal shareholder, it was aware that high salaries could lead to greater revenue

loss as the joint venture was in its initial stages of planned loss making. The Media24

also maintained that its staff seconded to the joint venture could not less than what they

were earning in their parent company in South Africa.

Cultural difference was also a challenge. Media24 organization culture was clearly

different with NMG culture in the paper works and processes. It was a perception by

Media24 that NMG was bureaucratic as opposed to Media24. It was perceived that

decision making was a long process which involved so ma many managers and

departments. It was noted that there was very little attempts during the implementation to

marry the two cultures of the partners.

Mistrust was also key evidence. Whereby Media24 had a broader vision on the payback

period for the alliance while NMG had an opposing view. Sources of this challenges were

from the negotiations phase where key negotiators could not clearly elaborate their

motives resulting to mistrust. The challenges were resolved by dissolution of the alliance

as the alliance was proven to be non-profitable for the 4 years it operated. There was an

over-optimistic expansion whereby NMG and Media24 used high debt to finance

34

investments in new facilities and equipment, then getting trapped with high fixed costs

while the demand for the magazines was lower.

Another challenge the alliance faced was selling the Sizzle without the Steak: that is the

alliance spent more money on marketing and sales promotions to try to get around

problems with product quality and performance. Depending on cosmetic product

improvements to serve as a substitute for real innovation and extra customer value.

Inability to predict environmental reaction was a key pitfall in the strategy

implementation between NMG and Media24 as NMG did not anticipate what SMG

would do of them not joining the Johnnic holding group.

There was no partners match between the Nation Media Group and Media24. The

turnover and profitability of the two companies was not comparable. The latter company

had turnover and profitability that was about ten times higher than the former company.

Nation Media Group felt that losses from the alliance was not sustainable for a long time

while the partner could sustain it, given the long term goal they had in East and Central

African market.

Strategic orientation of the two partners were different, that is, the willingness of the two

firms to adopt innovative strategies. Nation Media Group failed to turn around the losses

into profit yet they were aware of the Kenyan market. NMG were unable to manage the

environmental uncertainties of making the market buy the magazines that they were

publishing. From the interview all the respondents agreed that the main reasons as to why

NMG entered the alliance was to fight competition posed by SMG joining Johnnic

holding group. While Media24 had a long term stay in East Africa Market.

35

Communication among the partners was restricted to the board of directors of the two

companies but most of the senior management of the partners were not quite aware all the

dealings in the joint venture. Communication between the partners is critical for building

a successful relationship. Communication allows partners to understand the alliance

goals, roles and responsibilities of all the actors in the alliance. . Top management is

necessary for buying and the success of any alliance

4.5 Discussion of findings

This section endeavors to look at how the findings of this study relates to the strategic

alliance theory and to compare the findings with the studies that have been carried in the

area of strategic alliance implementations in Kenya and elsewhere. The discussion is

intended to demonstrate the importance of the findings in corroborating existing

knowledge and areas that require further attention for those companies that would like to

enter into strategic alliance and for researchers and practitioners.

4.5.1 Comparison of findings with Theory

The study found that one of the reasons why the alliance was formed was learning

experiences. Nation Media had a long history in newspaper publishing had no experience

in magazines publishing. On the other had Media24 lacked the local market knowledge

and distribution network within the East and Central African market. According to study

by Powel (1996) it was found that organizations seek alliances to acquire new and

valuable competitive knowledge. Most firms are competent in some areas and lack

expertise in other areas as such, forming a strategic alliance can allow ready access to

knowledge and expertise in areas that a company lacks. The information, knowledge and

expertise that a company gains can be used, not just in the strategic alliance but for other

36

projects and purposes. The learning can range from knowing how to deal with a

government regulations, product knowledge or learning how to acquire resources. A

learning organization is a growing organization.

The study further found that one the challenges in the strategic alliance implementation is

lack of partner match. Media24 turnover was incomparable to Nation Media Group. The

former company had enormous resources such that it had no difficulty spending millions

of Kenya shilling in the alliance and had estimated their loss period to be about ten years.

Whereas Nation Media Group had estimated the loss period for five years of which it

NMG could not match the partner in the alliance. Sengupta (1991) indicates that

compatibility of partners is critical to alliance success. The findings were, the higher the

level of partner match positively the higher the alliance is likely to succeed achieving

the intended objectives.

Another study by Daniels (1971) concluded that firms looks for partners of similar sizes.

He explained this as an attempt by firms to ensure that the two firms placed similar

amounts of importance on the alliance and were in relatively equal positions of

bargaining strength. Partner match would ensure that there is no fear among the partner

of being threatened by hostile takeover when one party fails to meet financial obligations

as contained in the alliance agreement.

The other finding of the study was that there was no congruent of goals among the

partners. The Nation Media Group was mainly driven by the fear of Standard Media

Group entering into partnership with another media house from South Africa which they

perceived to be a threat to its dominance in the market. Once the perceived threat was

37

over the NMG interest in continued stay in the alliance was shaky. The alliance partner

had a strategy to stay in the alliance longer and had intention in the market longer by

heavily investment in magazines publishing and printing plant. According to Foss (1999)

lack of clear strategy among partners will lead to a challenge in strategy implementation.

This study further indicates that companies that enter into alliance to combat industry

competition are likely to fail so long as the perceived threat is over.

4.5.2 Comparison with other Studies

The study found that learning and knowledge sharing was one of the benefit from the

strategic alliance and the reason for alliance formation. Nation Media Group had no

knowledge in magazines publishing as for over forty years they had only been

newspapers business. The Media24 had no knowledge of local market and distribution

network. The finding was similar to a similar study done by Koigi (2002) on the strategic

alliance implementation between Kenya Posts and Savings and City Bank. The latter

company had difficulties in cheque clearing as it had not been given the authority by the

Central Bank of Kenya and therefore could not be present in the clearing house. City

Bank being an international company had long experience in international money transfer

and cheque clearing. In both studies, there was both knowledge transfer and technology.

The study found that partner selection is one the critical success factor in strategic

alliance implementation. Strategic alliance match calls for the creation of alliances in

which chosen partner are similar in size and management style. This will ensure that

organizations place amount of importance on the alliance and will also have equal

bargaining power and bargaining power. When there are two firms that do not match then

there will always mistrust as the smaller one might fear hostile takeover by the bigger

38

partner. A similar study by Kinyua (2011) had a similar conclusion as this study on the

partner match as a key critical success factor in strategic alliance implementation.

Cavugil and Evirgen (1997) concluded that firms look for partners which have the same

size, similar business and compatibility for better implementation and success of the

alliance.

Cultural fit is an important factor in any strategic alliances. The study concluded that

there was cultural differences between Nation Media Group and Media24. The decision

process in Nation Media Group was perceived to be long and bureaucratic while the

Media24 management empowered the managers seconded to the alliance to make some

important decision without reference to the parent company in South Africa. Managers

that were seconded by Nation Group had to seek approval from the parent company for

the decision that the partner felt could be made immediately without consultation to the

parent company. Ndarwa (2011) from her study of the study of strategic alliance between

USAID and selected commercial banks also concluded that cultural fit among the

partners is key to successful implementation of alliances. Before any strategic alliance

implementation there is a need for the managers in loved from the partners be trained and

modelled in certain specific direction regarding the way of doing things so that one

culture is created. Culture clash is one of the main reasons why alliances fail to achieve

the intended objectives.

39

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND

RECOMMENDATIONS

5.1 Introduction

This is the final chapter in this study which gives the summary of the findings,

conclusions and recommendations of the study based on the objective of the study. The

study sought to investigate strategic alliance implementation between Nation Media

Group and Media24 of South Africa.

5.2 Summary

One of the challenges faced in the implementation of the alliance was the clash of

cultures. Media24 organization system was open making decision making to be very

simple and prompt. NMG cultural system was based bureaucracy. The culture of

Media24 and NMG on how organization was to be structured was also a matter of debate.

An alliance has to be looked at from three different angles. The strategic scope of the

alliance considers the overall impact of the alliance on the industry. The economic scope

refers to the impact of the alliance activities on the partners. Operational scope is

concerned with the day to day activities of people directly or indirectly involved in the

alliance. All the three aspects should be examined carefully while the alliance is being

structured.

Understanding the firm's strategic needs, exploring ways by which alliances can meet

these needs and identifying suitable partners are obviously key issues. A part by part

analysis of the value chain will reveal which activities should be retained internally and

which can be shared with partners. It is also important to examine carefully the pros and

cons of sharing activities all at once or in stages, over time, with the partners. A related

40

issue is whether to choose one partner for many activities or different partners for

different activities. Mechanisms by which synergies can be maximized for all the partners

involved, must be explored. Ultimately, an alliance can succeed only if it creates a win-

win situation for the partners. At the same time, safeguard mechanisms to protect core

competencies need to be put in place, based on insights into the ways in which partners

might take unfair advantage or misuse the firm’s competencies

Strategic fit was lacking in NMG whereas Media24 was willing to accept a longer pay

back period by the losses that were evident, NMG could not sustain such losses. Whereas

Media24 was prepared to make losses for even 10 years before realizing the payback

period for the alliance, NMG could not agree to this arrangement due to their belief of

profit making in five year period in any investment they undertake.

The initial motive of NMG joining this alliance was due to SMG initial alliance plan with

Johnnic holding Group which never materialized. Thus NMG was forced by

circumstance to join this alliance.

The issue of trust did affect the alliance. Media24 had a long term vision for the alliance

that is why they were ready to have a longer payback period. This was not NMG position

since they believed Media24 was doing this on purpose to make NMG vulnerable and

invest in a venture that was never going to yield any benefit to them but would eventually

benefit the partner .

The communication of goals and visions for the alliance was not clearly elaborated and

emphasized by the two partners resulting to the dissolution after operations for four years

only. Failure of NMG to do market analysis and research to find out the cost of

41

distribution of the magazines and the market demand for magazines contributed to the

increase in operating expenses and the losses thought the four year operation.

Understanding the firm's strategic needs, exploring ways by which alliances can meet

these needs and identifying suitable partners are obviously key issues. A part by part

analysis of the value chain will reveal which activities should be retained internally and

which can be shared with partners. It is also important to examine carefully the pros and

cons of sharing activities all at once or in stages, over time, with the partners. A related

issue is whether to choose one partner for many activities or different partners for

different activities.

Mechanisms, by which synergies can be maximized for all the partners involved, must be

explored. Ultimately, an alliance can succeed only if it creates a win-win situation for the

partners. At the same time, safeguard mechanisms to protect core competencies need to

be put in place, based on insights into the ways in which partners might take unfair

advantage or misuse the firm’s competencies. This was not the case in NMG and

Media24 alliance.

5.3 Conclusion

Strategic alliances are more than simple instrumental means for achieving collective

goals directly benefiting the collaborators. They also constitute each partner firms’

corporate social capital, providing potential access to various assets controlled by other

strategic alliance network members. Alliances provide opportunities for participants to

tap into the resources, knowledge, and skills of their immediate partners in a portfolio of

inter-firm agreements.

42

Further, given latent reach-ability across strong ties and possibilities for activating

brokerage efforts to interconnect the partners, these complex patterns of social capital

embedded within an organizational field-net of a strategic alliance offer enormous

potential for significantly leveraging its member firms’ resource capabilities. Theoretical

conjectures and empirical investigations of strategic alliances over the past two decades

reveal an accelerating proliferation of these inter-organizational phenomena. Arm’s-

length market exchanges may prove less efficient than alternative inter-firm arrangements

for carrying out many complex co-production processes, such as R&D on highly

uncertain technologies, as well as for overcoming legal-political-cultural barriers to

cross-national transactions.

The strategic orientation of a firm should reflect the willingness of the firm to enter into

strategic alliances and to adopt innovative strategies. With new innovative strategies,

future media alliances will be possible as both parties will join the alliances with different

and new ways of improving the alliance critical success.

Current debates over the globalization of business systems emphasize how both local and

international environments foster international joint venture partnerships, but these

environments may also inhibit the full realization of benefits obtainable through such

relationships. The images of mixed advantages and drawbacks accruing from

collaborative enterprises reflect the current ambiguous state of knowledge about strategic

alliance networks and their multidimensional consequences.

Also critical to alliances is trust and total commitments to alliances whereby all the issues

of concerns are dealt with openly and communicated to all parties involved. By building

43

trust, parties to such alliances will be able to overcome environmental uncertainties such

as regulations, business cycles and dynamics due to management leadership styles.

Partner selection comprises the largest and richest body of empirical research. It seeks to

explain who collaborates with whom, at what rates, for how long, and deploying what

governance forms (especially equity or none equity ownership of joint enterprises). An

important subset focuses on JVs, with their added complexity of diverse cross-national

cultures and legal-governmental systems. Analysis of alliance formation processes should

feature more explicit contingency perspectives that explicitly identify how variations in

business systems, industries, strategic alliance networks (organizational field nets),

markets, and organizational attributes condition participation opportunities and

organizational perceptions of collaborative efficacy.

5.4 Recommendations

Future alliances should involve all senior management teams from the very beginning of

any alliances. To enable such managers to identify any challenges in alliance

implementation. Companies entering alliances should conduct enough market study, have

clear plans and goals that they want to achieve before coming to any alliance.

Not all alliances are intentionally designed to achieve mutually beneficial outcomes for

all parties. Some organizations may enter strategic alliances as cautious, lower-risk

pathways for exploring opportunities for subsequent mergers, takeovers, or business-unit

divestitures. Researchers need a deeper understanding of conditions promoting such

manipulative behavior, with or without partner consent, and how such arrangements

differ from collaborations intended to preserve partner autonomy.

44

Analysts should increasingly disentangle the relative impacts of organizational,

relational, and environmental contexts on various performance measures. Theorists could

construct more nuanced specifications of detailed social mechanisms that conditionally

influence outcomes in strategic alliance networks. For example, which formal governance

structures interact with what organizational components to boost learning and knowledge

transfer and how the corporate social capital embedded in inter-firm trust relations

combine with social norms emerging from a collaboration to shape the distribution of

outcome rewards among the partners. Strategy orientation of both partners coming to any

alliance must be aligned towards a common objective and vision.

5.5 Limitations of the Study

The researcher did not interview Media24 managers due to their unavailability for the

interview. By time of this study all the managers were back in South Africa. The study

would have been more conclusive had all the alliance partners interviewed and their

views incorporated in the study.

The other limitation of the study was lack of funds to enable the researcher to travel to

South Africa so as to have a one on one interview with the top managers who were

involved in the strategic alliance formation and implementation. The other limitation is

that some managers of Nation Media Group had left the company by the time this study

was done and therefore could not be accessed. However, it is worth noting that extra care

was taken to minimize the effects of the limitations as much as possible.

5.6 Suggestions for Further Research

Researchers can apply network principles to investigate important questions about

alliance formation processes across several levels of analysis. At the micro-level of a

45

firm, how do individual organizations’ varied positions within the strategic alliance

network facilitate or impede the construction of more diverse portfolios. Among the

several alternative centrality conceptualizations, which measures yield greater

explanatory accuracy in predicting new and repeat alliances? At the macro-level of a

complete field-net, how do changes in various structural dimensions alter alliance

formation rates over time? Most intriguing, what cross-level conditional effects occur,

involving interactions among firm attributes, ego-centric positions, and complete

networks on collaborative dynamics.

Researchers also should recognize a strong tendency for partners to repeat their alliances

over time, but the conditions favoring persistence and desistence aren’t fully understood.

Brokerage processes, involving third-party introductions and vetting, are crucial social

mechanisms for forging new ties between unacquainted organizations. But, more needs to

be learned about the characteristics and conditions favoring successful as well as failed

match-making. The complementarity principle suggests that brokers will perform better if

they serve to connect somewhat disparate, rather than highly similar, partners.

More study of innovative dynamics occurring at the strategic alliance network level; that

is, not by examining the creation of new products and technologies, but explaining how

tie-formation processes subsequently feedback to transform the global network structure

itself.

The period after an alliance announcement, from implementation to termination, is less

thoroughly investigated. Analysts routinely stress the importance of trust as a crucial

form of corporate social capital important to overcoming awkwardness and potential

46

conflicts while partners attempt to turn their plans into practices. Power dynamics also

come into play as project managers negotiate the practical allocation of authority,

property rights, management responsibilities, and division of rewards or losses from the

undertaking.

We have little information about imminent failures during initial attempts to implement a

formal agreement. What conditions lead to the abrupt breakdown of negotiations and

discourage further efforts to re-launch a new partnership. Organizational researchers have

conducted too few ethnographic studies to comprehend the full range of patterns and

problems encountered by real alliance participants. What institutional, relational, and

organizational features of a strategic alliance network push projects along increasingly

cooperative or hostile trajectories.

Further research should be conducted to find out the real cause of strategic alliance

failure between NMG and Media24. As this study only focused in the formation and

challenges of implementation of the alliance.

47

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APPENDIX

Interview Guide on Strategic Alliance Implementation between Nation

Media Group and Media24 of South Africa

This interview guide has been prepared in relation to the objectives of the study. Any

issue that requires clarification will be discussed with the researcher during or after the

interview.

Part 1. Background Information

i. Gender of the respondent: male ………… female…………

ii. Position held in the Company……………………………..

iii. Department………………………………………………….

iv. Number of years served in the position: (a) 1-4 years (b) 5-8 years (c) over 9

years.

Part 2. Creation of the strategic alliance-

a. Motivation for the strategic alliance formation.

i. How did the idea of forming the strategic alliance come up?

ii. How was the partner identified?

iii. What were the interests of the partners in the alliance?

iv. What were the objectives of forming the alliance?

v. Were the objectives communicated to the people concerned in the organization?

vi. Who communicated the objectives to you?

vii. How were they communicated

Verbally

Circular/memo

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Any other means.

b. Process followed in formation of the strategic alliance

i. Describe the process the company went through in forming the alliance, i.e. what

steps were followed?

ii. How long did it take to create the alliance

iii. Were there any problems/challenges encountered during the process of forming

the alliance?

a. Were these problems /challenges resolved (being addressed)?

b. How were they addressed (being addressed)?

Part 3. Implementation and the performance of the alliance

a. Benefits from the alliance

i. What were the benefits expected of the alliance from your organization?

ii. Were the expected benefits been achieved?

iii. To what extent did your stakeholders benefit from this alliance?

54

Implementation of the strategic alliance

i. How strong was the sense of urgency when implementing the alliance objectives?

Very strong

Not strong

None at all.

ii. Has there been any transfer of knowledge through the alliance?

iii. Do you require specialized know-how in performance relating to the alliance? If

yes, explain how this has been acquired.

Resource Management

i. How did the alliance manage its resources (both cash and no-cash)?

ii. Were you satisfied with the tools/techniques in place for resources management?

iii. Was the alliance adequately financed?

iv. What strategies were put in place to ensure that resources were available?

Managing the alliance

i. Did the organization have strategic policy (guidelines that supported the strategic

alliance? was it comprehensive and effective?

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ii. Did your organization encourage collaboration and teamwork between the

partners and the alliance?

iii. How were the management team and other employees prepared for alliance?

iv. Was there performance benchmarks set relating to the alliance? If yes, which

ones?

v. Did partners make contribution that are easy to value

vi. Were there differences /shifts in the nature of individual partner participation in

the alliance?

vii. Was one partner putting in more effort and contributions to the alliance?

Part 4. Challenges faced in the Implementation of the Strategic

Alliance

i. Were there any challenges faced during the implementation of the alliance

ii.

iii. If yes, what were the challenges faced in the implementation of strategic alliance?

iv. What were the sources of the challenges

v. How were the challenges solved or managed?