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MEDIA reports suggest that Woolworths has been caught by surprise at the Tata

Group's recent decision to end its partnership in India's consumer electronics and

appliances sector.

In our view, however, this is exactly the outcome that should have been expected. The

surprise would have been if, instead of coming to an end, the partnership had endured formuch longer or become stronger.

For Woolworths, a retail giant with more than $54 billion in revenues, the economicconsequences of this breakdown are trivial. For the financial year 2011, the Indian operationscontributed less than 1 per cent in both revenues and earnings to Woolworths' figures. GivenTata Group's revenues of more than $US70bn ($65.5bn), the numbers are insignificant for it,too. The more important question pertains to the lessons that could be derived from thisepisode.

Woolworths seems to have overlooked a central feature of virtually every strategic alliance:

that the alliance is not just a partnership but also a learning race. In most cases, alliancescome to be because the partners complement each other; the other company has what youneed but don't have and vice versa. Explicitly or implicitly, this complementarity also sets inmotion a learning race.

As they collaborate, each partner learns from the other and accumulates the knowledge andcapabilities it did not have at the start of the alliance. If partner A learns faster than partner B,then B is almost certain to find itself holding the bag at some point on the way to the hoped-for altar. One might argue this is precisely what happened to Woolworths in its partnershipwith the Tatas.

Infiniti Retail, a wholly owned subsidiary of Tata Sons, started the partnership withWoolworths in 2006. Infiniti's goal was to launch India's first chain of retail stores to sellconsumer electronics and home appliances.

In line with government prohibition against foreign equity in multi-brand retail, Infinitiwould own and manage the stores (branded "Croma") entirely on its own. Woolies' role in thealliance was to provide technical support and strategic sourcing from its global network.Woolies had no equity stake or operational involvement in the retail stores themselves.

In the five years since the start of the partnership, Croma has grown into a chain of more than

75 stores. It now has the scale to deal with global suppliers directly and to set up its owndistribution centres. From Infiniti's perspective, the partnership with Woolworths is no longer

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8/3/2019 Woolworth and Infiniti Case

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necessary and thus redundant. In contrast, as and when the Indian government lifts barriers toforeign investment in multi-brand retail, Woolworths would find itself still without any directretail experience in India and in need of a local partner such as Infiniti; a clear-cut case ofasymmetric learning between two erstwhile allies.

Had Woolworths looked at its relationship with the Tatas as not just a partnership but also alearning race, it would have anticipated that the very success of Infiniti's retail operationswould make Woolworths' contribution redundant. Had the company done such an analysis,could it have put in place smarter strategies right at the beginning when it had much strongerbargaining power?

One option would have been to set up a formal agreement that clarified in advance the mutualobligations of the two parties if either decided to end the collaboration. Another option wouldhave been for Woolworths to ask that the partnership agreement include secondments by itsmanagers in Infiniti's retail operations.

A third, seemingly counter-intuitive but perhaps the most powerful, option would have beento ask that Infiniti's retail operations be run under a brand name owned by Woolworths butlicensed to Infiniti. Even without any equity stake in the retail operations, this option wouldhave provided Woolworths with the strongest base in India's retail sector and shifted theleverage from the Tatas to Woolworths.

Of course, the Tatas may have baulked at this proposal. But it is important to remember thatin 2006, when organised retail was just getting started in India, Woolworths might have hadthe luxury of picking one out of several well-financed Indian partners who would agree to itsterms.

Cross-border strategic alliances are becoming an increasingly important mechanism throughwhich a company from one country can exploit market opportunities in another.

While all strategic alliances run the risk of failure due to unexpected strategic or culturalconflicts, smart players can maximise the potential and minimise the risks by anticipatinghow the alliance is likely to evolve. In most cases, analysing the alliance as a learning racewould go a long way in yielding a much higher level of clarity about the likely trajectory ofthe partnership.

Anil K. Gupta is the Michael D. Dingman chair in strategy and entrepreneurship at the Smith

School of Business, the University of Maryland and a visiting professor in strategy atINSEAD. Haiyan Wang is managing partner of the China India Institute. They are the co-

authors of Getting China and India Right (Wiley, 2009) and The Quest for Global

Dominance (Wiley, 2008)