A case for strategic alliance?

Introduction

Although both Brooklin Signs and Tinymark Oy appear to be in a similar business, each is unique in their approach and final output. Essentially, both businesses are in the sign manufacturing business using vinyl graphic applications and both are using state-of-the-art electonic computerized output. Both are catering primarily to advertising in sport stadiums. Both businesses are relatively small operations involving a couple of family members, a secretary-bookkeeper, a sales force and a few casual workers who are drawn upon when needed and both operations are doing about the same amount of gross annual business (FIM 4 million.) A third essential player in this proposal is the sales agency of Arto Allila.

Assuming that all businesses are working as efficiently as possible, it is reasonable to expect that a strategic alliance of the three firms would work in each others favour. Since each business is unique, it is necessary for me to explain the what each does.

Tinymark Oy

Tinymark Oy of Helsinki has a warehouse/office which is about 800 sq m. This allows the company the freedom to work on small projects as well as applying graphics to tractor-trailers indoors.

The business was established about 4 years ago, initally to make restaurant frequent-visitor cards, something unique to the Finnish market. Things changed when they got a contract to produce advertising signs for jäähalli (arenas) and soccer stadiums. They were hired by Arto Vallila as the exclusive producer for these graphics for televised sporting events which he held the advertising rights for. Essentially, Tinymark receives an order for a graphic to be made. An example of which may be a logo for the “Lotto” agency. Then they use their computer design equipment, vinyl cutters and ink jet technology to produce it. The graphics are then delivered and installed in the stadium when there is a game that is televised. The graphics are usually changed after every game, so it may be neccesary to produce many copies of the same graphic. Graphics are also exported to Sweden and Russia for tournaments.

Brooklin Signs

Brooklin Bulletin Signs of Brooklin, Ontario, Canada has a much smaller facility with about 250 sq m, however the space is carefully divided in order to make the most efficient use of it.

Brooklin Signs has been providing “coming event notice boards” (indoor billboards) to hockey arenas in Canada for more than 20 years. The company establishes a contract with the municipality for permission to install the sign box and then goes out to the community to solicit for advertising sponsors. When enough advertisers are obtained, then the sign box and artwork are produced and delivered. The agreement with the arena is on a long-term rental basis and the advertisers commit for a period of usually one year at a time. The sign boxes are maintained by Brooklin, which includes insurance for vandalism and repair if they are not functioning properly.

It is important to understand that the six boxes are neer sold to the arenas, but only supplied as a service in exchange for the right of selling advertising on the signs. In a sense, the actions of Brooklin Signs is by nature a strategic alliance with the arenas who provide the opportunity for Brooklin Signs to earn revenue through the sales of advertising. Brooklin Signs has developed a strong relationship with about 300 municipalities across Canada and a few private facilities in the United States.

Arto Villila

The third player has a smaller role in this network, however it is essential to its success.

Arto Villila has a large percentage of the market share in Sweden and Finland countries for the sales of advertising at sporting events. They are responsible for obtaining sponsors for hockey, soccer, and basketball events which are televised. These are usually very large internationally-broadcasted events and therefore the advertising revenue per ad is relatively high. Since the events that justify the sale of these high priced ads occurs on an irregular basis, Arto Allila’s revenues tend to fluxuate a lot during the annual business cycle. Adding an additional medium to sell to their clients may help to smooth out the rough months where Arto Allila’s income tends to be low.

The Link

Brooklin Bulletin has saturated the most profitable areas of Canada with its bulletin board system but would like to expand in this business area they know best rather than introduce any more diversity in their products.

Tinymark Oy has invested greatly into the most efficient large-graphics output available on the market, and would like to make better productive use of its facilities and capital during slow periods of demand.

The challenge is for each of the businesses to take advantage of a strategic alliance where Brooklin Signs can increase their sales by expanding their presence, Tinymark can make more productive use of their capital assets without investing more and Arto Villila can increase sales to their established business contacts.

Also, there is the opportunity for Brooklin to take advantage of Tiny’s production facility in order to increase sales through rink board advertising in arenas in Canada, a further a value added to their established sales program.

Strategy

Brooklin Signs has the opportunity to expand their successful medium to Finland and Sweden through the production house of Tinymark Oy and the facilities contact person Arto Vallila. This expansion strategy could not be achieved by Brooklin on their own because the cost of developing the market is extremely high relative to the margin of return on investment. (This is one significant reason why Brooklin Signs experiences so little competition in the Canadian market.) Brooklin Signs needs the assistance of the local companies in order to overcome barriers to introduction in the market caused by language and cultural differences.

Brooklin Signs could manufacture the sign boxes and export them to Tinymark Oy who would then install the lighting systems and graphics and deliver the signs to the final destination. An agreement of maintenance and artwork production could be worked out for continued support. The advertising could be sold by Arto Vallila on a percentage basis and that contract would be ongoing.

Brooklin Signs could secure locations in Canada in need of board advertising graphics and order production of the same from Tinymark Oy. The graphics which are very light weight, could then be air shipped to Canada overnight. This would further increase the sales volume for Tinymark Oy and Brooklin Signs and make better use of each company’s area of expertise.

Service Competence and Standards of Performance

The most frequent complaint of any sign production is spelling mistakes. This becomes an even more exaggerated problem when talking about the possibility of four or five different languages involved. In many cases the images being reproduced are of standard logos which identify the business. Most of these can be reproduced from a computer file or scanned from a standard “cut sheet” containing the appropriate use of the logos. When it comes to wording, it is important that the information provided is properly written with correct spelling, or is proof read before productions begins.

In the age of modern electronic communications, it is now possible for images or text to be produced in one part of the world and transfered instantly to another. In the case of the above, logos could be faxed to Canada for development where there is significantly lower wage rates, and then the finished product returned by express mailed in a few days, or downloaded by computer modem overnight. Text in English and French could be proofed by the Canadian company, and Russian, Finnish and Swedish by the Finnish company.

Another problem area is customer satisfaction. These can include design, colour and style. Because these can be misinterpreted by each culture since each has their own style preferences, it would be best if they were specified in the country of origin. Stanadard colour charts are used for the vinyl materials used for manufacturing the graphics so reference to this chart could standardize production in Canada and Finland.

The Value Chain

To make this co-operative project work, it is necessary to provide an incentive for each of the partners.

For Brooklin Signs, the value is added to an existing sales organization who will be able to expand its product line with the addition of rink board advertising. With the co-operation of Arto Villila, they may be able to learn techniques for selling advertising to large corporations, something that they have never been able to achieve. It may even be possible that Arto Villila has contacts who are interested in advertising in North America, or they may have contacts in North America who have clients. Production techniques could be learned from Tinymark Oy that would further enhance the older technologies used in Canada. Of course it also gives Brooklin Signs an opportunity to make more efficient use of a technology which has been used and field tested for two decades.

For Tinymark Oy, the value is added first of all when they receive the sign equipment and have to install the electrical components and lighting. It is necessary that this be done in Scandinavia in order to meet local standards and electrical codes. Next they add the artwork onto the blank panels as specified by the customers. Then, most importantly, they are required to install the sign box and continue to provide service and maintenance under the agreeement with Brooklin. This service is one of the most important aspects of the bulletin board and cannot be facilitated from Canada.

For Arto Villila, there is the opportunity to provide more advertising opportunities to an already well established customer base. In this case, art designs, are usually already prepared since it is consistant with other modes of outdoor advertising, and the interaction to complete a sale would be minimal. Therefore, Arto Villila can take advantage of a cost effective marginal increase in sales. Arto Villila would be responsible for all aspects of the sales program including invoicing its customers and collection of monies owed, thus keeping the new partners invisible to its established customers and making more efficient use of its established fixed costs.

Summary

The basis of this business venture is for Brooklin Signs to do co-operative Scandinavian expansion through the aid of Scandinavian businesses. This is mostly through the sharing of knowledge and technology which is already existing, but not placed where it could be needed.

Brooklin Signs effectiveness in their home market in Canada has reached a satutation level with an approximate 94% of market share of the advertising bulletin board business in arenas (in population areas that can sustain relatively long-term returns on investment.) Brooklin Signs has less than 1% of the rink board advertising business in Canada because it has been too difficult to facilitate production with their existing manufacturing equipment and sales force.

Since all businesses involved are reletively small, the project would require a commitment from the principles to make it work. A cost analysis could quickly determine the optimum time commitment that could be afforded by each, and what should be the appropriate share of the revenues.

Standards of measure on the success of the project would include:

1. Filling all available advertising spaces on the bulletin boards. Since time lost to empty space cannot be recovered, so this needs to be maximized at all times.

2. Timely delivery and turnaround of artwork, easily measured by days, etc. To try to do this from Canada would be a losing battle. Brooklin Signs already experiences difficulties in servicing Canadian markets at extreme distances from the home office.

3. Timely response to reports of damage or required maintenance. Again, Brooklin Signs has had some difficulty servicing even their home market. One solution they have instituted is to hire local contractors to complete the repair work on demand, but this is an expensive solution. To try to provide the same level of service from Canada would require someone answering service calls in at least four languages and be on call nearly 24 hours a day. This would centainly not be feasable based on the volume of sales we are considering here..

4. Return on capital investment, margin on gross sales, and margin on net sales. Models of performance have already been established from past experience.

For an organizational structure I have chosen a strategic alliance because it is the most flexible. When starting out with a new venture, it is difficult to predict all of the possible inconveniences. The strategic alliance may or may not be formalized in a written agreement, it is up to the mutual agreement of the partners to decide what is best. The strategic alliance allows a lot of freedom when it comes to legal issues, insurance, taxation and government regulation because it allows the partners to react promptly through compromise. It also means that there has to be a great deal of trust between the partners.

Service competence is developed as a result of the pooling of knowledge, resources and technologies. In an open-form strategic alliance, there is inherently a certain level of stress for each partner to perform their share as quickly and efficiently as possible. If one falls behind in delivery of their part, all will suffer. There is also the possiblilty that once an idea is executed and implemented, that if one partner loses interest or fails to perform on a co-operative level of efficiency, that that partner may ultimately be replaced. This is a risk that is undertaken in order to have an open relationship.

Future relocation may be considered in the sense that Brooklin Signs may find it more effective in their future to establish an office in Scandinavia and look after matters on their own.

I recommend that the companies involved should meet and discuss the possibilities of this proposal further. There exists an opportunity for those involved to profit from the venture.

References:

Interview with Joni Sipilä, owner Tinymark Oy, Suovatie 2, PL 22 01661 Vantaa Finland

Interview with Brian Wick, General Manager Brooklin Signs, a division of The Brooklin Bulletin Publishing Company Limited 76 Baldwin St, PO Box 490 Brooklin, Ontario L0B 1C0 Canada

Notes from Service Competence in International Business, prepared by Dr. Ajeet Mathur University of Tampere Tampere, Finland

Note: The companies represented in this proposal are real. The idea for international strategic alliance has not been discussed with them, nor are any of them currently engaged in a similar arrangement to the best of my knowledge.

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