Joint Ventures Emerge as a Preferred Strategy for Corporations Expanding into New Markets

As competition in the space launch business intensified, Boeing and Lockheed Martin formed a joint venture, United Launch Alliance, aiming to combine their satellite launch operations and reduce costs. This move highlights the growing trend of strategic alliances in the corporate landscape. Joint ventures are becoming increasingly popular among chief executives, with nearly two-thirds planning to increase their use in the next two years, according to a KPMG poll.

Key Takeaways:

• Boeing and Lockheed Martin's joint venture, United Launch Alliance, will combine 3,800 employees, have $2.5 billion in annual sales, and lead to savings of $100 million to $150 million.
• Joint ventures are often preferred over acquisitions due to the shared risks and costs, making it easier to reverse a failed partnership.
• According to a Harvard Business Review article, 57,000 alliances and 74,000 acquisitions occurred between 1996 and 2001, with a combined value of $12 trillion.
• The pace of alliances has picked up since 2003, driven by the need to access emerging markets and new geographies.
• Microsoft recently announced a joint venture with Shanghai Alliance Investment to launch MSN China, while also acquiring the select assets of TSSX, a prominent mobile software and services company.
• Boston Scientific announced a strategic alliance with Aspect Medical Systems to develop new brain monitoring technology, with the market potential estimated at $2 billion annually.
• Joint ventures can quickly gain a company access to a new market or technology, but require effective communication and planning to succeed.

Statistics:

• 57,000 alliances and 74,000 acquisitions occurred between 1996 and 2001, with a combined value of $12 trillion (Harvard Business Review article)
• Nearly two-thirds of chief executives plan to increase the use of strategic alliances in the next two years (KPMG poll)
• 94 million Internet users and 340 million mobile phone users in China (MSN announcement)
• $2 billion annually market potential for brain monitoring technology (Boston Scientific announcement)
• $2.5 billion in annual sales for United Launch Alliance (Boeing and Lockheed Martin joint venture)

Sources:

• "When to Ally and When to Acquire" by Jeffrey Dyer, Prashante Kale, and Harbir Singh, Harvard Business Review, July [year not specified]
• Microsoft and Shanghai Alliance Investment joint venture announcement (see [MSN announcement])
• Boston Scientific and Aspect Medical Systems strategic alliance announcement (see [Boston Scientific announcement])
• KPMG poll on strategic alliances (see [KPMG announcement])