The risks of collaborating with rivals might seem daunting, but industry pundits believe that the benefits are likely to outweigh the disadvantages when two or more powerhouses combine. And the very thought gets reflected in a new study by TCS’ Thought Leadership Institute, which says that’s going by the current trends, MNCs and Indian firms across sectors, will enter into collaboration with rivals in the next 4-5 years.
The institute conducted a survey of 1,200 CEOs and senior executives across North America, UK, Europe, APAC and Latin America and identified some firms as ‘Leaders,’ that reported higher-than-average gains in revenue in their industries between 2015 and 2019. These companies constituted up to 29% of the survey. While these are pre-pandemic figures, collaboration with competitors is likely to become a significant trend in the coming years, as businesses need to achieve shared goals in the new post-pandemic world.
Why collaboration matters?
Nonetheless, collaboration between competitors was always in vogue. Way back in 1990s and 2000s, General Motors and Toyota assembled automobiles, Siemens and Philips developed semiconductors, Canon supplied photocopiers to Kodak, France’s Thomson and Japan’s JVC manufacture videocassette recorders, among many others.
A few years ago, a consortium of automakers including Ford, Toyota and Suzuki, developing standards for in-vehicle car telematics as an alternative to Google’s Android Auto and Apple’s CarPlay.
In recent years, competing enterprise technology companies increasingly have partnered with one another to benefit their shared customers. For example, Salesforce.com announced several key strategic partnerships, including working with AWS to make it easier for customers to send data back and forth from Amazon’s cloud. Google Cloud and Salesforce are also working together on IoT and analytics applications to serve their shared customers.
Multi-company alliances offer even broader benefits to customers. Microsoft, SAP and Adobe teamed up on the Open Data Initiative in 2018 to bring customer data from all three companies and link products together into a common data lake for processing and analysis.
Microsoft CEO Satya Nadella said at the time that customer demand for collaboration and integration was the driving force behind this initiative. “Organizations must break down their internal silos between functions to increase enterprise agility—and technology must follow suit and that’s possible only through a collaborative effort,” he said.
Today more and more organizations are willing to collaborate with competitors, according to TCS’ Global Leadership Study.
“Clearly, most “Leaders” realize they must collaborate extensively with competitors to be key players in digital ecosystems. Lower performers still regard competitors as enemies to avoid. “Leaders” also anticipate that more of their revenue will come from purely digital offerings compared to “Followers,” it said.
“There are many other industries in which we see competitors collaborating, either for market access, or for better economies of scale, whatever may be the reason, we see this happening across the board,” said Krishnan Ramanujam, president and head of business and technology at TCS, adding that over one-third of Indian companies surveyed said they plan to increase collaboration by 2025.
“It’s easier for different vendors to integrate with one another when business applications reside in the cloud. Different companies can build APIs to facilitate connections with one another. Vendors can also ensure their customers are running on consistent managed environments, which simplifies connections between different vendors. Customers also can more easily change vendors in the cloud era, which puts increased pressure on tech companies to provide products that meet enterprise needs, which means they must integrate more broadly.
Another company that is constantly thriving through collaboration is IBM. The company has very recently collaborated with HPE, TCS and Wipro to help clients in their digital transformation journey. As Gaurav Sharma, Vice President – Cloud and Cognitive Software, IBM India said, “As companies across the world continue to drive digital transformation, decision-makers must rethink radically on how to leverage the combined power of data, cloud and open source technologies to become industry leaders.
According to IBM’s IBV study, nearly two-thirds of the outperforming companies CEOs are increasingly relying on partners and ecosystems for access to broader ideas and innovation opportunities. In addition, IBM noted that leading organizations are also partnering to help address interconnected global issues like climate change and other social issues.
Competitive collaboration is order of the day
But the spread of what we call “competitive collaboration”—joint ventures, outsourcing agreements, product licensing, co-operative research—has triggered unease about the long-term consequences. A strategic alliance can strengthen both companies against outsiders even as it weakens one partner vis-à-vis the other. In particular, alliances between Asian companies and Western rivals seem to work against the Western partner. Cooperation becomes a low-cost route for new competitors to gain technology and market access.
Typically, companies enter into collaboration to achieve common goals where the well-being of the parties involved becomes more important than individual profit maximization. On the other hand, “competition” is seen as the driving force to remain ahead of the curve. These different logic structures assume companies are either interested in sharing the pie through collaboration or capturing a larger piece of the pie by competition.
In high technology industries, the need for co-opetition is felt more due to rapidly changing technologies, shorter life-cycle products and high research and development (R&D) costs.
In today’s fast-moving world, partnering with a rival on technological advances could be an important way of keeping ahead of new entrants. But choosing the right partner is vital and that might even be a close rival, says Jeff Reuer, a distinguished professor at Warwick Business School.
The bottom line is that the cost of introducing disruptive technologies can be prohibitive for a single firm. However, by joining hands, insurmountable challenges become achievable. And, if tech companies don’t partner with one another, other firms will come along to do the job.