Breaking Bad Performance through Strategic Alliance

No doubt like many of you, the bulk of this week (and last) has been spent attempting to get on top of my workload and capitalise upon the opportunity the Easter break has presented. Having said that, work and revision for the June papers is only optimised when effectively combined with an appropriate amount of rest and relaxation. For me that has mainly consisted of over-dosing on the hit TV series Breaking Bad.

Aside from the rather intriguing plotline I have been somewhat captivated by the business themes that are cleverly wrapped up in this deviant tale. The truth is Breaking Bad is, at times, a master-class in strategic decision making and implementation. Obviously I am not particularly well informed on the inner workings of a drug empire (unless that drug is learning!) but what is so apparent from the show is the importance of the collaborative working and the apparent benefits of being aligned to a cartel. This got me thinking about #buss4!

A strategic alliance (or joint venture) is formal agreement between two or more organisations to work together for mutual benefit. Just like the fictional ‘businesses’ in Breaking Bad, an increasing number of real businesses seem to opting for joint ventures in an attempt to crack or even corner the marketplace. In any year this is an important topic as it could feature in a Section B essay title. This year however it is particularly important as it has a more than probable chance of featuring in a Section A essay title on China as it is covered in AQA research bullet point 4 (http://filestore.aqa.org.uk/subjects/AQA-BUSS4-PM-JUN14.PDF). A topic that could feature in both sections of the #buss4 paper is surely worth knowing. I think so!

7 hours ago Tesco announced a 6% fall in profits (http://www.bbc.co.uk/news/business-27046105). Not disastrous I hear you say but I disagree. The truth is that this is just the latest piece of bad news breaking at Tesco HQ. The ongoing struggle in foreign markets, particularly the USA (http://www.bbc.co.uk/news/business-22179255) and Japan (http://www.theguardian.com/business/2011/aug/31/tesco-japan-pull-out-philip-clarke) has left Tesco with serious problems having ‘over milked’ the UK cow to focus on foreign ventures. The ‘Fresh and Easy’ venture in the US cost a staggering £1bn alone! This obsession with foreign growth has gifted UK market share to rivals, particularly ALDI and LIDL further intensifying Tesco’s woes. Perhaps Tesco dream of building an international empire is unravelling (http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10349392/Is-Tescos-dream-of-building-an-international-empire-unravelling.html). What is for certain is that a change of strategy is probably required.

The good news for Tesco is that Philip Clarke appears to have woken up to the fact that fighting alone, even if you are one of the biggest boys in the playground, isn’t always enough. Size does matter but by American and Chinese standards Tesco just aren’t that big and strong. The other thing worth considering is that even if Tesco has the brawn – do they have the brains? Apparently not where foreign markets are concerned. Enter China Resource Enterprise (CRE). It is hoped that by working with CRE Tesco can take advantage of their “local expertise” and begin to make inroads in to a market that has largely eluded them thus far. The truth is that years of under-performance in China has cost Tesco dear. Their inability to understand the complexities of the Chinese market and differing demands of Chinese consumers appears to have finally crystalized their opinion that a joint venture is the way ahead if they are to turn this threat into an opportunity (http://www.thegrocer.co.uk/companies/supermarkets/tesco/tesco-confirms-joint-venture-with-cre-in-china/350054.article). CRE appear to provide Tesco with the opportunity to bridge an ‘expertise gap’ and potentially ‘reconfigure the competitive forces’ (http://www.tutor2u.net/blog/index.php/business-studies/comments/every-takeover-merger-deal-that-has-ever-occurred-in-100-words) without fully integrating (merging) with or acquiring (taking over) another business. These strategic manoeuvres present their own set of challenges and risks. A joint venture appears to offer all of the benefits with none of the costs, or as one of my A2s recently responded to my suggestion “all of the costs but none of the benefits”.

It is not only in China where a change in approach is being adopted. Yesterday Tesco announced another attempt to crack the USA this time with its fashion brand F&F (http://www.thegrocer.co.uk/companies/supermarkets/tesco/tesco-returns-to-the-us-with-ff-fashion-chain/356505.articl). Expanding state-side, this time to the East coast rather than the West coast, Tesco will ‘partner’ with the Retail Group of America (RGA). Both of these alliances signal a significant change in strategy where international expansion is concerned.

Tesco are perhaps a little behind the curve in their realisation of the benefits of joint working. Starbucks has opted for multiple partners in China in order to crack a highly fragmented market (http://www.forbes.com/sites/helenwang/2012/08/10/five-things-starbucks-did-to-get-china-right/2/). Remember the size, geography and population of China means that it should be considered a collection of varying markets rather than one giant homogenous market. In business terms China is effectively a continent. In the same way that 740 million Europeans have differing tastes and preferences so too do the 1.35 billion consumers in China! With this in mind it seems crazy not to exploit the experience and expertise of multiple partners to gain market share. Howard Schultz obviously thinks so as he has adopted a similar approach with TATA in India. It just seems that someone forgot to tell Philip Clarke that joint ventures are the way forward.

Although I accept that the collaborative actions of Starbucks and the delayed joint ventures undertaken by Tesco doesn’t constitute a ‘Cartel’ many similarities can be drawn. Both a cartel and a joint venture help to strengthen the barriers to entry (be it crystal meth, groceries or coffee) whilst safeguarding market share. Furthermore they both rely upon exploiting the strengths or expertise of a partner in order to further understand market complexities and offer a genuine opportunity to firmly establish a brand. I guess the old adage “united we stand, divided we fall” has never been so true? Maybe. Having said that, a strategic partner can be a limiting factor or even destructive to value. They will also expect their share of the spoils meaning perhaps Jack’s notion of “all of the costs but none of the benefits” does have some merit. With regards to China many businesses have proven that going it alone can be a winning formula. IKEA, YUM Brands, JLR (now with Chery) and Pizza Express are just a few examples (http://www.bbc.co.uk/news/business-23364230).

As for Breaking Bad, I am only on series 3 (laggard I hear you say) so if the whole partnering with a drug Cartel (joint venture) doesn’t work out for Walt and Jesse please ignore the whole premise of this blog.