Instead of slugging it out alone or selling out to a giant, SMEs can cooperate and share resources

THE world must seem like a pretty lonely place to owners of small and medium enterprises (SMEs), looking at the devastation caused by the global downturn. Intense competitive pressures are causing cut-throat price wars. Long-standing business relationships are being strained as companies try to squeeze every drop of profit from each deal. They are forced to hammer out tough deals with suppliers, who in turn try to pass on the cost to the next company in the business chain.

Being swallowed by a giant means a loss of identity and the destruction of personal relationships and intimate understanding developed with clients over many years.

The challenges of a recession force all SMEs to think long and hard about the best strategy to ensure survival. For some, trying to go it alone will inevitably lead to failure - larger firms with deeper pockets can outprice and outlast smaller players.

For others, the only option they see is to sell to a bigger player - losing control and the identity of their business in the process. And in a contracting economy where funds for acquisitions are scarce, there is no way the owner of an SME can achieve the best price for the business they have built.

However, there is a third way.

SMEs can find a strong business ally - a sort of 'enterprising big brother' - that can give them reach and capacity that will see them through the tough times ahead. An alliance between the right companies is a powerful way to strengthen each member of the partnership. Smaller companies benefit from joining with a larger, more established player to gain access to technology and marketing expertise. Large companies get a loyal ally in a market where they otherwise would have no representation. And for companies of comparable size and strength working in different markets, an alliance gives both parties access to a new potential client base as well as the ability to claim greater international reach.

So, if your SME is one that needs the expanded reach that comes from forming a global alliance, what benefits should you look for? Brand: Look for a strong brand you can trade on. Brands are all about pre-selling a product or service, so when it comes to converting a potential lead into a contract, the job is already half-done. A strong brand also implies stability and longevity, which in a time of economic turmoil should never be undervalued. Another benefit is the ability of partner companies to share marketing resources so that branding efforts, such as public relations and advertising, are more efficient at reaching a global customer base.

Technology: An alliance between companies can lead to shared access to advanced technology and systems that would be beyond the reach of a smaller company acting alone. SMEs find it hard to justify the cost and investment required to develop a customised technology platform, so it makes sense to parlay a 'big brother's' investments or share the costs across a group of companies. The core member of the alliance may already have technology in place that smaller companies can integrate with.

Regulatory: Access to experienced legal and regulatory compliance services are essential elements for successful international operations. However, legal and regulatory experts are highly specialised people and it is unreasonable for some companies to have experts in every international market. A better approach is for experts in different countries to be available to others in the group, so a seamless service can be offered to all customers.

Customers. An alliance of companies works well when customers can be shared. While you can refer one of your clients to another member, you can expect other members to refer relevant work back to you.

Alliances between companies in different countries already exist in several industries including accounting, real estate, insurance and business/financial services. In the transport and logistics sector, BDP International is one company that has established its own network of like-minded companies, called the BDP Global Network.

This alliance of companies follows an unprecedented period of consolidation in the logistics industry, in which the largest players acquired many smaller firms. The belief of the multinationals is simply that bigger equals better. Yet, for many firms, being swallowed by a giant has meant a loss of identity and the destruction of personal relationships and intimate understanding developed with clients over many years. Most importantly, the quality of core service often suffers.

The logistics and transport industry is fiercely competitive, so the motivation for creating the global network is clear. Survival, let alone success in the 21st century, is being driven by better service, more technology, more sales coverage, more aggressive pricing, more global presence and more knowledge.

So far, 18 companies have joined forces under the BDP Global Network banner. The group now has members from Saudi Arabia, Japan, Egypt, South Africa, New Zealand, Switzerland, Portugal, Turkey, Israel, Venezuela, Peru, Ecuador, Uruguay and Colombia, Philippines, Sri Lanka, Jordan and Greece. The secretariat is based in Singapore and, with BDP's own office network, offers clients access to 120 different countries.

To make a member-based alliance like the BDP Global Network, several ingredients are required. The first key to success is the ability to identify companies with similar corporate values and goals. If the business philosophies match, then the relationships required to make the partnership work fall more easily into place.

Second, the members themselves must share responsibility for the overall direction. It is all too easy for one or two bigger firms to dictate terms, but this approach will lead to division and failure. With the BDP approach, the members themselves have formed a leadership team to set direction for the organisation.

Together, this relatively small number of carefully selected firms can effectively compete with the spending power and reach of the multi-nationals. The membership-based programme enables quality firms to be part of a truly global organisation without compromising client service and local know-how. Each company has maintained its own identity. And most importantly, by working cooperatively and sharing costs, skills, customers and capabilities - the members of the alliance are in a much stronger position to navigate the economic downturn and come away stronger as the recovery begins.

The writer is director of BDP Global Network Services, a unit of BDP International.