Volume 11 - Issue 53
/ May 2022
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DOI: https://doi.org/10.34069/AI/2022.53.05.25
How to Cite:
Yarosh-Dmytrenko, L., Martyniak, I., Domyshche-Medyanyk, A., Lukianets-Shakhova, V., & Yasinska, T. (2022). Business
alliances in the economy of EU countries. Amazonia Investiga, 11(53), 249-258. https://doi.org/10.34069/AI/2022.53.05.25
Business alliances in the economy of EU countries
Бізнес-альянси в економіці країн ЄС
Received: April 23, 2022 Accepted: May 30, 2022
Written by:
Liudmyla Yarosh-Dmytrenko106
https://orcid.org/0000-0001-9113-7923
Iryna Martyniak107
https://orcid.org/0000-0003-0224-6410
Alla Domyshche-Medyanyk108
https://orcid.org/0000-0002-1240-8797
Valentyna Lukianets-Shakhova109
https://orcid.org/0000-0003-2397-613X
Tetiana Yasinska110
https://orcid.org/0000-0001-6558-8376
Abstract
The activities of business alliances in the EU are
being transformed by the aid of the policy
implementation of industrial alliances
development, which provides for a wide network
formation of stakeholders in reducing the
dependence of member states on raw materials of
third countries. The purpose of the academic
paper lies in assessing empirically the business
alliances effectiveness in the EU based on the
case studies analysis on creating strategic
alliances. Methodology. The case method has
been used in the course of the research in order
to analyse the activities and effects of business
alliances within the established network for
cooperation of the European Raw Materials
Alliance (ERMA). The results demonstrate the
uncertainty in the strategic business alliances
effectiveness in the EU; it is difficult to assess the
potential quantitative effect from the company’s
resources synergy – alliance members in the
short-term prospects. Despite the well-
established principles, the choice of the alliance
management form as joint venture, the
company’s market value has decreased. The
106
PhD in Economics, Assistant Professor, Faculty of Economics, Department of International Economics and Marketing, Taras
Shevchenko National University of Kyiv, Kyiv, Ukraine.
107
PhD in Economics, Senior Lecturer, Faculty of Economics and Management, Department of Economic Cybernetics, Ternopil Ivan
Pul’uj National Technical University, Ternopil, Ukraine.
108
Chairman of the cycle commission of hotel and tourism disciplines, PhD, Department of Tourism and Hotel and Restaurant
Business, Separated structural subdivision “Uzhgorod trade and economic professional college” State Trade and Economic University,
Uzhgorod, Ukraine.
109
Candidate of Law Science, Associate Professor of Constitutional Law and Human Rights Department, National Academy of
Internal Affairs, Kyiv, Ukraine.
110
Associate Professor, PhD (Economics), Associate Professor, Department of Management and International Entrepreneurship, Lviv
Polytechnic National University, Lviv, Ukraine.
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advantages of the business alliance include the
supply chain diversification of of raw materials
from Third World countries to EU countries for
industrial production. The theoretical and
practical research value lies in supplementing the
transaction costs theory and the theory of
resources, explaining the business alliances
creation. In practice, companies - members of
business alliances combine the features of both
theories in order to take into accounts both costs
and synergies from resource integration.
Keywords: Business alliance, market
integration, strategic alliances, competition
strategies, partnership, innovative business
alliances.
Introduction
The activities of business alliances in EU
countries are being transformed by the aid of the
implementation of the policy on the development
of industrial alliances, which provides for the
formation of a wide network of stakeholders in
reducing the dependence of member states on
raw materials of third countries. The formation of
the network of alliance members is conducted
based on the strategy of diversification of
primary raw materials regulated by European
Commission.
The European Green Deal and the EU’s new
industrial strategy have identified access to
resources for strategic security issues in order to
ensure green and digital transformations. The
strategy involves the optimization of supply
chains, processing of raw materials to meet the
needs of industrial production. The strategy
includes the EU Recovery Plan with a focus on
developing a green, sustainable, digital economy.
The development of sustainable, diversified raw
material supply chains is a component of a
strategy that includes the functioning of the
European Raw Materials Alliance (ERMA) since
September 2020 as part of the Action Plan on
Critical Raw Materials. Within the framework of
the alliance, the network of key stakeholders has
been established (“industrial actors along the
value chain, Member States and regions, trade
unions, civil society, research and technology
organisations, investors and NGOs”).
Accordingly, the ways of organizing business
alliances in the EU are being transformed, which
makes it relevant to study the features of their
functioning.
The purpose of the academic paper lies in
assessing empirically the effectiveness of
business alliances in the EU based on the analysis
of case studies on creating strategic alliances.
Literature Review
The role of alliances in business
A potential success factor is the company’s
ability to search for partners and establish
business relationships with them, which are
called alliances. The partnership ensures the
commercialization of new innovative products,
which are the ultimate goal of creating alliances
(Valentine et al., 2003). Along with this, the
partnership provides an opportunity for staff
training, creation of new production methods and
innovations, attraction of investments,
exchanging technologies, knowledge,
experience, in contrast to the autonomous
hierarchical structure of the organization
(Liebeskind et al., 1994). According to the
theoretical concept of a resource-oriented
management structure, consociated companies
create new competitive advantages through the
existing network, ecosystem (Lavie, 2006).
Alliances also provide more effective
collaboration policies in various industries with
Yarosh-Dmytrenko, L., Martyniak, I., Domyshche-Medyanyk, A., Lukianets-Shakhova, V., & Yasinska, T. /
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academic circles, financial markets and
technology companies (Harada et al., 2021).
Advantages of business alliances
The scientific literature highlights a number of
benefits in creating business alliances; the basic
ones include as follows: the potential of
financing at the expense of investors,
development of pragmatic management skills,
and evolution of management teams thanks to
venture companies financing start-ups.
Additionally, the other strengths should also be
mentioned, namely: direct strategic guidance,
obtaining pieces of advice on the implementation
of projects from venture capital companies
financing the activities of the business alliance
(Hellmann & Puri, 2002; Faber, Castaldi &
Muskens, 2016). All the advantages of business
alliances can be systematized as follows:
1. Potential for funding, especially if there is a
need to develop innovative products
requiring research and development (Marin
et al., 2015). In the case of financing
business alliances that develop innovations,
investors receive royalties, patents, and the
right to marketing (Lazonick & Tulum,
2011).
2. Gaining new skills and knowledge in order
to bring products to market of production,
marketing, sales, etc., ensuring the success
of research and development (Higgins,
2007).
3. Reduction of time to bringing products to
market due to shortening the period of
research and development (McCutchen Jr &
Swamidass, 2004).
4. Increasing the level of corporate reputation
of business alliances, and, consequently, a
greater potential for attracting investments
due to entering into the stock market
(Nicholson, Danzon & McCullough, 2002).
5. Sustainability in business development due
to the synergy of partners’ resources,
reduction of production costs (Kazakova
et al., 2018).
6. Achieving stability in the market,
competitive advantages through alliances,
which are a strategy for companies
implementing various forms of cooperation
(Gomez, 2015; Hretcanu & Hretcanu, 2016).
Types and strategies of alliances
The investigation of Ortiz-de-Urbina-Criado,
Montoro-Sánchez & Mora-Valentín (2014)
considers the choice of alliance type (the joint
venture based on shareholder agreement or
contractual agreements) depending on business
strategies (expansion (growth), diversification
and internationalization). The type of alliance
influences on the method of managing it (the way
in which cooperation is organized). When
entering into new international markets
(internationalization), the joint venture is usually
chosen, which involves the establishment of a
company independent of the parent one. The
conclusion of contractual agreements assumes
the creation of an alliance based on long-term
contracts, license agreements, and franchises. In
the investigation conducted by Harada et al.
(2021), the following strategies of business
alliances for the successful implementation of
strategic projects and stable business continuity
have been identified, namely: “in-licensing and
value up”, “best-in-class”, “platform leadership”
and “first-in-class”.
Forms of managing business alliances
In order to analyse the form of managing
business alliances, the theory of transaction costs
and the theory based on resources have been
developed. The theory of transaction costs is the
basis for evaluating the effectiveness of
alternative forms of economic organization:
equity or non-equity (Mamédio et al., 2019). The
main type of alliance within the framework of
cooperation based on investments in equity
capital (equity) is the joint venture. This form
involves signing a contract with a unified
management structure, creating an independent
enterprise separate from the parent companies
(Bamel et al., 2021). Non-shareholder alliances
include a wide range of contractual agreements,
such as licensing agreements, franchises and
long-term contracts (Sadegh et al., 2020). In
addition to these traditional forms of organising
alliances, other market transactions can be
carried out between companies, forming
relations between them based on a market and
hierarchical form of management.
The transaction cost theory suggests that an
alliance based on ownership and equity
contributions implies management based on a
hierarchical structure. Along with this, a
contract-based alliance involves management
based on the market structure, other hybrid forms
of management depending on the type of
alliance. Furthermore, the transaction cost theory
also assumes that the chosen form of
management depends on the desired degree of
commitment, control and flexibility (Li et al.,
2012). In this case, alliances gain two
advantages: commitment and control. In the
equity alliance, the partners accept formal
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commitments; they make large investments in
the project, which complicates the emergence of
opportunistic behaviour (Teng & Das, 2008). In
the case of joint ventures, considering that a new
company is established, the partners have more
control over the activities they carry out jointly.
Joint ventures also ensure the use of synergies of
resources and costs (Chen & Chen, 2003). At the
same time, such an alliance is characterized by
shortcomings related to negotiations, the costs
due to any changes in relationships or concluded
agreements. This means less flexibility of joint
ventures. Contractual alliances provide for faster
and more flexible implementation of projects, but
greater vulnerability of partners to the
opportunistic behaviour of other parties, fewer
opportunities for learning and using synergies
(Chen & Chen, 2003).
In contrast to the transaction cost theory, the
resource theory (Barney, 1991) analyzes a
particular firm and its growth process, focusing
on the value or benefits of transactions, rather
than the cost of operations. The company should
maximize the value of transactions through its
own resources, capabilities and organizational
processes. The resource theory involves the
creation of business alliances in order to enable
firms to gain access to valuable additional
partners’ resources. The theory also suggests a
shift in focus to organizational learning and
resource sharing (Osborn & Hagedoorn, 1998).
From the point of view of the resource theory, the
choice of how to manage an alliance is
determined by its ability to receive valuable
resources from another company without losing
control over its own resources. Contractual
agreements are characterized by providing access
to fewer external resources and require less
commitment of resources than equity alliances.
They are also characterized by greater risk of
appropriation of knowledge and less control over
the situation. Thus, the comparison of joint
ventures with contractual agreements suggests
that the former offer more opportunities for the
transfer of resources. Joint ventures are more
common in companies, the main goal of which
lies in gaining tacit knowledge from their
partners and resources that are not easily
assigned to others (Comino et al., 2007).
Methodology
The case method has been used in the course of
the research in order to analyse the activities and
effects of the functioning of the European Raw
Materials Alliance (ERMA), which is one of the
industrial alliances of the European Union
(European Commission, 2022). Information and
data on the alliance posted on the official website
https://erma.eu have been used for the analysis.
ERMA is created to achieve the goals of
stakeholders within the framework of EU policy.
The study of the functioning of ERMA involves
identifying the features of the alliance
(characteristics: participants, principles, funding,
and way of organizing activities).
Results
ERMA is one of the EU’s industrial alliances
towards achieving the goals of sustainability,
competitiveness of the European economy,
digitalization and reduction of the negative
impact on the environment. The EU forms
industrial alliances in order to bring together
public and private partners, civil society in
different sectors or value chains. The main goal
of ERMA is to create sustainability, ensure
strategic autonomy of the EU for “Europe’s rare
earth and magnet value chains” (European
Commission, 2022).
The alliances function in accordance with the
EU’s sustainable development policy and have
the features as follows:
1) the common goal towards achieving the
EU’s goals;
2) involvement of partners at different levels of
management to create a value chain: EU
countries, regions, industrial companies,
private investors, financial institutions,
innovation companies, research
organizations and research institutes,
society, etc.);
3) basic principles of activity: transparency,
openness, diversity, inclusiveness,
compliance with competition rules;
4) the alliances are not involved in the EU
policy, funding or regulatory decisions;
5) lack of direct mechanisms for financing
alliances.
The ERMA network includes partners that are
manufacturers of primary raw materials,
advanced materials and intermediate products,
final products and recycling companies
(Figure 1). Each group of network members
includes private companies from different EU
countries, namely:
1) the companies producing primary raw
materials include the Austrian company
3GSM GmbH (it provides a reduction in the
negative impact of raw material extraction
on the environment), the French company
45‒8 Energy specializing in the ecological
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production of helium, the Polish geological
research and consulting company ABC A
HEAD, the Spanish company Acuvet Biotech
SL for veterinary diagnostics, the French
company Adionics (the supplier of
technologies in the supply chain of
desalination systems), etc.;
2) the companies in the field of advanced
materials and intermediate products include
the Spanish company ALS (the world leader
in laboratory testing, inspection,
certification and verification services), the
German company AMG Lithium GmbH (the
leader in the supply of lithium to the EU for
battery production, with extensive
experience in research and development,
production and marketing), the French
company Arelec in the field of magnetic
innovation and development, the Norwegian
company Bergen Carbon Solutions AS
specializing in the development of
innovative technologies for the production
of carbon nanofibers using CO2 and
Norwegian Hydropower; the Ukrainian
company BGV Group Management on the
extraction of metals for the production of
electric vehicles, etc.
Figure 1. The ERMA partner network.
Source: The European Raw Materials Alliance (2022b).
Projects of business alliances within the
framework of the ERMA partner network
One of the first projects within the ERMA
partner network is the Mkango ‒ Puławy project
(Mkango’s Songwe Hill Rare Earths Project,
abbreviated “Songwe”) based on the cooperation
of the Canadian company Mkango Resources
Ltd., the Polish chemical company Grupa Azoty
Zakłady Azotowe “Pulawy” S. A. on the
extraction of raw materials in Africa (The
European Raw Materials Alliance, 2022a).
Within the framework of this business alliance,
ERMA contributes to the diversification of the
value chain of rare earth elements for Europe’s
green transition. Mkango ‒ Puławy is a
multinational international project based on the
strategy of diversification of raw materials for
industrial production in Europe through the
involvement of the Canadian company Mkango
Resources Ltd., the Polish chemical company
Grupa Azoty Zakłady Azotowe “Pulawy” S. A.
(“Grupa Azoty Pulawy”) for the development of
the Songwe Hill deposit in the Republic of
Malawi (Africa). Mkango Resources Ltd. is the
Canadian company on the exploration and
development of minerals. Grupa Azoty Pulawy
(Warsaw Stock Exchange: ZAP) is part of the
Grupa Azoty Group, the second largest producer
of nitrogen, complex fertilizers in the European
Union, a manufacturer of chemicals, whose
products are exported to more than 20 countries,
including Europe, the USA and Asia. Figure 2
shows the creation of the business alliance in the
form of the joint venture based on an agreement
of shareholders to enter into new international
markets (internationalization of business). This
involves the creation of companies within the
alliance, independent of the parent companies
(MKA Exploration Limited Malawi, Mkango
Polska, HyProMag Limited). The alliance has
chosen a diversification strategy, as well as the
in-licensing and value up strategy for the
successful implementation of strategic projects
and stable business continuity, which will ensure
the growth of added value and profit through the
use of licensed patents for production
technologies.
Primary raw materials companies Advanced materials and
intermediate products companies
Final products companies Recycling companies
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Figure 2. Mkango Resources Ltd. The Company’s Structure.
Source: Mkango Resources Ltd. (2022).
The Mkango ‒ Puławy project provides for the
supply of raw materials to the plant in Poland, the
creation of diversified supply chains, support for
the EU industrial ecosystem, job creation
(Figure 3). The aim of the Mkango ‒ Puławy
project lies in creating an environmentally
friendly supply chain option for rare earth
components (neodymium, praseodymium,
dysprosium and terbium) for European Union,
which are required in the production of electric
vehicles, wind turbines and other forms of clean
energy, the key ones to the EU’s sustainability
strategy.
The Mkango Mine Project, Songwe Hill, is
characterized by a number of benefits provided
by all stakeholders. Songwe Hill is located in a
stable jurisdiction with established infrastructure
(approximately 70 km from the former capital of
Zomba and approximately 90 km from the
commercial center of Blantyre). The
infrastructure includes an international airport, a
railway station, and asphalted roads running from
urban centers 12 km from Songwe Hill.
Secondary gravel and dirt roads provide transport
access to the reconnaissance camp; upgraded
bridges are capable of supporting 20-ton trucks.
There is a deposit of rare earths on Songwe Hill:
rare earth mineralization has occurred in
carbonatites. As part of the project, the resource
estimate was updated in February 2019: the new
estimate indicates a 60 % increase in the
resources of the deposit, which are available by
open-pit mining and are located less than
160 meters from the surface
Figure 3. Songwe Hill Project Highlights.
Source: Mkango Resources Ltd. (2022).
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The Mkango-Pulawa field development project
envisages the creation of a separate jointly built
plant by Mkango and Grupa Azoty Zakłady
Azotowe “Pulawy” S. A. (Grupa Azoty Zakłady
Azotowe “Pulawy” S. A., 2022) on the basis of
cooperation involving the separation of rare earth
elements in Poland. In order to implement the
project, a new Polish subsidiary Mkango,
Mkango Polska, was established; an experienced
director from Poland was appointed; the experts
specializing on the division of rare lands, a team
of technical advisers and engineers were
involved. The stakeholders of the project have
signed an exclusive land lease agreement in
relation to the site, which is part of the complex
of fertilizers and chemicals of Grupa Azoty
Pulawy in Poland. The Polish chemical company
grants access to infrastructure, reagents and
utilities in Poland, provides a working
environment ensuring the alliance with a highly
competitive position in terms of operating costs
for the constructed plant. The cooperation allows
reducing the operating costs of the plant due to
the location of the plant in the Polish Special
Economic Zone, providing access to European
and international markets. The plant’s production
enhances the security of supply of rare earth
elements in Europe, which are used in the
production of electric vehicles, wind turbines and
other green technologies in the framework of
strategic programs. The alliance’s activities are
also in line with European initiatives towards
creating more secure, diversified supply chains
and environmentally friendly production.
As a result of establishing a business alliance,
Mkango will receive a number of benefits,
including as follows:
1. Development of higher value-added
products, growth in sales revenue: the
company plans to mine 2050 tons of raw
materials annually (neodymium (Nd) /
praseodymium (Pr) oxides, dysprosium (Dy)
and terbium (Tb) oxides in the deposit.
2. Integration of resources and gaining
synergies from their combining: the
construction of the plant involves
environmentally friendly production of
mixed rare earth carbonate from the Mkango
Songwe Hill deposit.
3. Increasing the level of marketing flexibility
with the simultaneous potential to attract
more customers, providing the opportunities
to increase production and sales of separated
heavy rare earth elements.
4. The business alliance is a catalyst for
regional growth and “green” transformation
of production, processing of raw materials
and further production of final products.
Furthermore, the business alliance provides
potential for further development of related
companies, including companies in the field
of renewable energy sources.
5. Cooperation also contributes to the creation
of additional jobs in the regions of Poland
and Africa.
Feasibility studies in relation to the construction
of the plant are being conducted in parallel with
the Mkango Songwe Hill project in Malawi and
other opportunities, including the development
of the production of recycled rare earth magnets
Mkango at HyProMag Limited with a short cycle
in the UK. HyProMag Limited Company (2022)
provides development of a complete supply
chain for the processing of rare earth magnets
based on neodymium iron boron (NdFeB). The
company has received a patent licence for the
HPMS (Hydrogen Processing of Magnet Scrap)
technology developed by the Magnetic Materials
Group (MMG) of the University of Birmingham.
This patent and related intellectual property is a
key core and resource of HyProMag.
Market capitalization of Mkango Resources Ltd.
over the past five years (May 2017‒May 2022)
was characterized by multi-vector dynamics,
amounting to 75,10 million USD as of May
2022. The current value of the issued shares of
the company is 1050 Canadian dollars.
Figure 4. Dynamics of the share price of Mkango Resources Ltd. for the period May 2017‒May 2022
Source: Yahoo Finance (2022).
0
0,2
0,4
0,6
0,8
8/05/2017 8/05/2018 8/05/2019 8/05/2020 8/05/2021
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The increase and decrease of capitalization
indicates the insufficient effectiveness of the
chosen management structure of the alliance. The
value of the company is 69,4 million USD. The
company’s value has decreased by 7,31 million
USD. The inefficiency of management is
evidenced by the indicators of return on assets ‒
107, 87 % and return on equity ‒ 204, 47 % as of
May 2022.
Discussion
Within the framework of the EU industrial
alliance ERMA partner network, new types of
relations are being formed between participants
in the business environment, characterized by a
legally defined basis for the activities of business
alliances. At first glance, the ERMA partner
network should simplify the creation of alliances;
however, the type of cooperation under
consideration does not make it possible to assess
the quantitative direct effects of joint ventures.
At the same time, the establishment of the
Mkango-Puławy alliance involves the
diversification of supply chains, support for the
EU’s industrial ecosystem, and job creation. The
project within the framework of the Canadian-
Polish partnership is in line with the EU’s
sustainability and competitiveness strategy,
which envisages the future growth of industry in
member states due to the supply of raw materials
from third world countries. In addition, the
project is implemented on the basis of a growth
strategy that also complies with EU policy. The
growth strategy envisages the creation of a joint
venture based on a shareholder agreement (Ortiz-
de-Urbina-Criado, Montoro-Sánchez & Mora-
Valentín, 2014; Bamel et al., 2021), in the
framework of raw material diversification and
internationalization. The established alliance has
defined the method of managing it (the way of
organizing cooperation): the creation of
companies, independent of the parent ones,
which have the relevant resources (technology,
infrastructure, personnel and working
environment). Along with this, within the
alliance framework, the in-licensing and value up
strategy is used for the successful
implementation of strategic projects and stable
business continuity (Harada et al., 2021). The
establishment of a business alliance corresponds
to the theory of transaction costs, according to
which the form of management determines the
type of alliance (Mamédio et al., 2019).
However, it should be noted that the joint venture
makes it impossible to determine the potential
effects from the synergy of the resources of the
participating companies, which does not
correspond to the theory of transaction costs in
the context of ensuring the use of synergy of
resources and costs in the case of joint ventures
(Chen & Chen, 2003). Consequently, there are no
accurate synergy estimates on the project
website: “Greater integration ‒ plant
development fully underpinned by sustainably
sourced, purified mixed rare earth carbonate
from Mkango’s Songwe Hill operations, with
other synergies being evaluated”. It should be
emphasised that the business alliance does not
fully comply with the theory of transaction costs.
In the course of studying the main advantag,es it
has been determined that the company provides
“development of products with higher added
value, growth of profits from their sale”.
Actually, this means taking into account the
benefits from transactions (costs), which
corresponds to the theory of resources (Barney,
1991). The companies maximize the value of
transactions through their own integration of
resources, capabilities (technological, market)
and organizational processes. In addition, the
theory of resources suggests the formation of
business alliances to gain access to firms to the
valuable additional resources of partners. In the
context of the project under consideration, the
alliance provides access to the resources of the
Republic of Malawi, access to the infrastructure
and working environment in Poland, access to
the EU markets. This means that in practice,
business alliance members combine the features
of the transaction cost theory and the resource
theories in order to take into account both costs
and synergies from resource integration.
Conclusion
In the course of the research, uncertainty in the
effectiveness of strategic business alliances in the
EU has been revealed; it is difficult to assess the
potential quantitative effect from the synergy of
the resources of companies ‒ alliance members
in the short term. Despite the well-established
principles and the choice of the form of alliance
management in the form of joint venture, the
company’s market value has decreased. The
advantages of the business alliance include the
diversification of the supply chain of raw
materials from third world countries to EU
countries for industrial production, the creation
of environmentally friendly technology for
processing raw materials on the basis of a
licensed patent. Furthermore, the other benefits
in creating an alliance are as follows:
development of products with higher added
value, growth of profits from their sale;
integration of resources and obtaining energy
from their integration; increasing the level of
marketing flexibility with the simultaneous
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potential to attract a larger range of customers;
regional growth in the EU countries and the
“green” transformation of production, processing
of raw materials and further production of
finished products.
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