Strategic alliances and competitive advantage: the case of major, oil companies in Kenya
Owuor, Tom O
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Alliances have become an important tool for achieving sustainable competitive advantage. The main reason for strategic alliances is the attempt to decrease costs or risks. Firms can attain the benefits of vertical integration through long-term strategic alliances among firms to share the costs, risks, and profits of business operations. The motivation for this study was based on what has become common within the oil industry not only in Kenya but globally; joint ventures. Being Kenya's major source of commercial energy, petroleum accounts for 80% of the country's commercial energy requirements. Thus the objective of this study was twofold; to identify the kinds of strategic alliances in the major oil companies in Kenya and the issues they are based on and to find out how these alliances are managed and the problems encountered. Being a case study of the five main oil companies in Kenya an interview guide was sent in advance to Mobil Oil, Shell- BP, Caltex, Total, and Kenol-Kobil to give them ample time for preparation. This was followed with an in-depth face-to face interview. These are well-established firms whose information was needed to understand this industry and achieve the objectives of this research. The greatest challenge here was with the mam respondents - the major oil companies-who preferred to remain anonymous despite giving very valuable information. It is in the interest of this study that their identities forever remain protected. The Ministry of Energy, the Petroleum Institute of East Africa as well as one of the independent petroleum dealers were also interviewed to get a bigger picture of the oil industry in Kenya. As Doz and Hamel have stated in their book, "Alliance Advantage", no company can go it alone. For industry giants and ambitious start-ups alike, strategic partnerships have become central to competitive success in fast-changing global markets. More than ever, many of the skills and resources essential to a company's future prosperity lies outside the firm's boundaries, and outside management's direct control. Indeed, right now a plethora of new and imaginative strategic alliances is transforming industries from transportation to communication, health care, life sciences, media and entertainment, information technology, aerospace, and beyond. Hence the challenge: If the "capacity to collaborate" is not already a core competence in an organization, they better be busy making it so. It is in this light, that the recent collaborative arrangement between Kenya Shell and Mobil Oil could be seen. Hitherto averse to any arrangements of this nature with its competitors, Kenya Shell and Mobil Oil started a joint venture in March 2004 and now run a Joint depot in the industrial area of Nairobi. This arrangement has had to make Mobil relocate from its former premises just on the neighborhood to share facilities with its otherwise arch rival. Kenol Kobil, Total and Calrex went into this arrangement much earlier and have over the time managed to strengthen it. These ventures start right from procurement of crude and other petroleum related products. The Ministry of Energy advertises a tender for the Country's oil requirements per quota, which is 80,000 metric tones. All the oil companies are then asked to bid and the winner of the tender consolidates requirements for the entire industry. This marks the first phase of these alliances. The joint processing of crude, transportation via the Kenya Pipeline and storage and stock management at the various depots across the country represents the second phase. The management of the joint terminals is rotational among the members and has staff seconded from the parent companies. Functionally, the terminal manager reports to the companies involved in the joint venture. The selection of staff focuses strictly on skilled and motivated people. They are then provided with training, challenging work, clearly defined performance objectives and rewards for a job well done. These are geared towards achieving the four 4+ 1 strategic intents - cost reduction, operational excellence, capital stewardship and profitable growth and developing the organizational capability. Despite all these rather success stories, alliance design and governance are at the core of every successful joint venture. Typically, managers devote much attention to the formal design of an alliance at its inception. The legal structure, governance structure, gain - sharing terms, and exit clauses are the subjects of protracted bargaining and detailed scrutiny (Doz and Hamel, 1998; Alliance Advantage). Yet, too often, the underlying assumptions about the strategic logic of the alliance have been poorly tested and are most fantasy than reality. Worse still, senior management often disengages once the deal is done, naively hoping that the alliance will fly along on autopilot. The challenge of sustaining the ongoing process of collaboration attracts little top management attention. Clever deal making and grand visions are not enough. Executives should focus attention on the process of value creation within alliances over time. It is recommended that the design of an alliance takes into account the operational scope, that is, the activities, tasks, and operational domains that are combined in the alliance and the way they relate to the economic and strategic scopes of the partners and their learning from each other. It is not the deal per that creates value, but the capacity of two partners dynamically and creatively maneuver their alliance through a thicket of uncertainties, changing priorities, organizational frictions, and competitive surprises. Despite the in-depth coverage of this research and its findings, there still exists a gap that future researchers could explore. A study in the area of learning would she light on how partners have accessed and utilized skins in these joint ventures. It would reveal how companies have determined the value of information and how they have managed its flow.
CitationA Management Research Project Report Submitted in Partial Fulfillment for the Requirements of the Degree of Masters of Business Administration (MBA), School Of Business, University Of Nairobi
School of Business, University of Nairobi