Effect of Strategic Alliance on Business Performance in Rwanda

CHAPTER ONE: INTRODUCTION

This chapter covers background to the study, problems statements, objective of the study (both general and specific), research questions, and scope of the study (subject, geographical and time), significance to the study and organization of the study.

1.1 Background of the study During the past two decades, firms have become more embedded in organizational networks as the possible advantages to co-operative relations are pursued. Companies form alliances in order to expand their knowledge portfolio, increasing competitive advantage. Throughout this period, managing multiple alliance formations with multiple partners has become a more common phenomenon (Hoffmann, 2005; Koka & Prescott, 2002). Could this increasing number of collaborations backfire and be too much to handle. Strategic alliances are strategic actions based on the cooperative activities of two or more otherwise independent firms. Strategic alliances allow firms to acquire or use skills or capabilities they lack while focusing their resources on their core skills and competencies. Increasingly turbulent and competitive business environments are forcing firms to become more efficient, innovative and flexible. Many firms have found that it is difficult to address these changing conditions through either acquisition or internal research and development alone.

Thus, it is becoming increasingly important for firms to adopt more flexible structures such as strategic alliances as viable and cost-effective alternatives to internal research and development (Chiou & White, 2005). Companies are forming alliances with their customers, their suppliers and even their rivals (Doz & Hamel, 1998). Moreover, networks of companies are competing against other networks, changing the distribution of economic power in many industrial sectors and forcing more and more single companies, both large and small, into strategic alliances of their own (Gulati, 1995; Human & Provan, 1997). The reasons for this are clear. Strategic alliances have the potential to allow companies to create new products, reduce costs, penetrate additional markets, preempt competitors, generate more revenue, and, therefore, create value (Chan, Kensinger, Keown, & Martin, 1997). In large part this is true because alliances can serve as channels for the transfer of technology and enable other kinds of organizational learning (Anand & Khanna, 2000). They may be even more powerful in strengthening a company’s competitive position than traditional mergers and acquisitions, internal development or traditional arms length agreements. Evidence suggests that an effectively structured and managed alliance can create value for the firm. For example, a study by Coopers and Lybrand (2005) showed that firms involved in alliances had 11% higher revenue and a 20% higher growth rate than companies not engaged in alliance activity (Segil, 1998). Executives confirm the value of the alliances their companies are involved with. In a survey of U.S. executives (2007), approximately 70% said that their strategic alliances have helped them meet their growth objectives and have the continued potential for lucrative returns from Mergers & Acquisitions. Several studies have also identified significant, positive stock market reactions to the announcements of formation of strategic alliances (Anand & Khanna, 2000).

These studies indicate that alliances have become important tools for a company in gaining a competitive edge. It is upon the above background that is why the researcher would like to examine the effect cooperative alliance on business performance in Rwanda by taking NAEB as a case study. NAEB is the National Agricultural Export Development Board registered Under Ministry of Agriculture and Animal Resources. Rwanda Tea Development Authority (RTDA), Rwanda Coffee Development Authority (RCDA) and Rwanda Horticulture Development Authority (RHODA) were merged in 2011 to form NAEB. The formation of the National Agricultural Export Development Board is aimed to improve the balance of payment of Rwanda Economy through increased agricultural exports. NAEB was set up by bringing together three government agencies responsible for the entire Agriculture Export and cash crop base under one management. Now all services from OCIR CAFE, OCIR THE and RHODA are provided under the National Agricultural Export Development Board. Hence the aim of the study is to establish the effect cooperative alliance on NAEB performance.

1.2 Problem Statement

In recent years, the trends of technological innovation have made strategic alliances more critical for business success and profitability. Companies have varied reasons for entering into a strategic alliance. Some, in search of greater efficiency and flexibility, pare down by selling off peripheral businesses, and then enter into alliances that are more cost-effective. Others, in order to take advantage of new technologies, enter into alliances with start-up or established companies, and at times, even non-profit organizations. Strategic alliances may be formed under a spectrum of legal structures, ranging from a licensing agreement to a merger of corporations. No matter what legal structure is used, however, certain economic and other realities often determine the outcome of the alliance. According Hennart & Zeng, (2005), 55% of strategic alliances fail within three to five years. The rest survive an additional 3.5 years on average. It has been suggested in most successful alliances, value creation takes at least a decade, and nevertheless, additional evidence indicates that not all alliances achieve their potential to create value for the partners with alliance failure rates remaining high (Hennart & Zeng, 2005). Failure rates between 40%-70% have been cited in the literature with failure being measured as a premature breakdown of the alliance or financially damaging to one or both parties to the alliance. Most of the empirical studies conducted on the cooperative alliance strategies as seen above are conducted in developed World and few cases in developing world especially agricultural sector and yet agricultural sector is one of the leading sector in developing world which needs a variety of strategies if it is to be supported hence this create a gap because there is no academic research conducted on agricultural cooperatives especially in developing countries like Rwanda. It is upon the above gap that is why the researcher is prompted to establish the effect of cooperative alliance strategies on business performance in Rwanda by taking NAEB as a case study. 1.3 Research Objectives The main objective of this study is to analyze the effect of Strategic Alliance Strategy on Business Performance in Rwanda.

1.3.1 Specific Objectives

1. To examine the effect of Outsourcing Strategy on performance of National Agricultural Export Board 2. To analyze the effect of Equity Alliance strategy on performance of National Agricultural Export Board 3. To assess the effect of Non Equity Alliance strategy on performance of National Agricultural Export Board 1.4 Research Questions This study addresses the specific research objectives via answering the following research questions: 1. What is the effect of Outsourcing Strategy on performance of National Agricultural Export Board? 2. How has Equity Alliance Strategy affected performance of National Agricultural Export Board? 3. To what extent has Non Equity Alliance strategy affected performance of National Agricultural Export Board?

1.5 Significance of the Study This study will benefit the researcher, National Agricultural Export Board and other organizations and future researchers: It will equip the researcher with the knowledge on the effect of strategic strategy on business performance in Rwanda. If the recommendation from the research report is adopted by organization, it will improve on the performance of National Agricultural Export Board accordingly. The research report will help future researchers who would be interested in this area of strategic alliance and business performance.

1.6 Scope of the study The scope of this study was sub divided into subject, geographical and time scope: The researcher examined the effect of strategic strategy on business performance in Rwanda, how they plan and the strategies they have with their respective effects on organization performance. The geographical scope will be National Agricultural Export Board which is located in Kigali city. National Agricultural Export Board is chosen because it is one of the cooperatives which transport agricultural products internationally. The researcher chose time duration of 3 years (2014 – 2017), the above time scope is chosen as an appropriate because a good strategy becomes more result oriented within duration of five years.

1.7 Limitations of the Study Like any other research, the researcher may encounter some limitations as seen below: Unavailability or inaccessibility of the information due to professional secrecy under its performance. The researcher will overcome this by providing introduction letter from the University explaining that this study is purely for academic purposes not any other purpose.