THE BENEFITS OF STRATEGIC BUSINESS PARTNERSHIPS

 Steps to Forming a Business Strategic Partnership

We are used to thinking of business as a competitive endeavor. It’s a natural viewpoint and indeed businesses often do compete for customers and wrestle for market share. However, business can be collaborative as well, and the fruits of a business partnership often outweigh the benefits of competing solo in the marketplace. There are several differing ways that an alliance can benefit your business. I will explain some of them and give you some tips about how to take advantage of them.

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Partnerships for Technology

In today’s business environment, technology is quite important, and it is often the strategic edge that puts you ahead of your competitors. However, developing or acquiring good technology is also quite expensive, and when deploying new technology, it is hard to forecast the value that a strategic business partnership will add. The partnership approach to technology is a technology sharing agreement. This is a useful strategy in a tech­ heavy industry where you are sure you can gain from collaborating on new technology from a certain other firm, but you are unwilling or unable to simply buy them out. Technology sharing allows you to benefit from their unique tech, even if you may have to compromise on strategy, marketing, and management. Some business executives believe that it is best to set up such an agreement with a firm that is not quite a direct competitor so that you can avoid giving away too much to a rival.

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Using Licenses

Licensing agreements are another approach to sharing knowledge, technology, or a process. Again, it is an alternative to an acquisition. Licensing agreements see one firm purchase access to an asset of another firm. That asset might be a technology, a tool, a technique, or anything that can help control costs or otherwise benefit the company. Both sides of the deal profit, so you need to keep a sharp eye out both for opportunities to buy licenses for useful assets in other companies and to sell licenses to your own assets. It’s a potentially golden opportunity to make money or gain access to a useful tool.

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Full Collaboration

For times when you feel you need the resources of two companies to execute a strategy, consider joint ventures. Joint ventures are fully unified collaborations of two or more companies for a specific goal. The classic example is entering a new market. For example, global beer competitors SAB Miller and Molson Coors have a joint venture in the United States, Miller Coors, to handle the logistics of producing in the huge American market.

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Setting the Terms

Partnerships don’t have to be horizontal, they can also be vertical. One of the easiest ways to save time and effort is to create service agreements with your upstream suppliers. These are the skeletons of contracts that both parties create as a guideline for all future agreements. That way, there is a mutually agreed ­upon starting point for all future negotiations. As long as these initial terms are suitable, then when each successive contract expires, the service agreements for each set of negotiating parties will create the first position for the new contract.

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Bargaining Power

Before you start negotiating any partnership, you need to have something set in advance­ as your “walk away” position. This is the point at which you break off negotiations and give up. It is extremely important that you set this point in advance. If you keep changing it based on how the negotiations are going, then you are at risk for being manipulated by the other side. Determine what it would take to push you away from the table, that is,­ what type of offer or deal would be so unreasonable for your company that it would be clear to you that you simply can’t do business with the other side. This walk-away position is a major aspect of your bargaining power. If you, stick to it and don’t waver, will essentially be honest with yourself and you will avoid having to live with a bad deal.

Strategic partnerships can be a great way to get ahead through tapping into a different firm’s resources. However, you need to make sure that you abide by all relevant antitrust laws and avoid getting entangled in a potentially negative contract that would be a net loss for the company.

Partnerships can be dangerous if they turn out to give a rival enough power to push you out of a market, but on the other hand, they might be the only way forward for your company. Remember that the contracts that form the basis for partnerships are legally binding, so don’t commit to anything you cannot carry out.

You will also want to balance the planning you need to put into an alliance with the fact that you might not have much time to act on an opportunity. If you keep these tips in mind, you should be better informed about the different kinds of partnerships available and how you should approach the negotiating table.

If you are considering a business partnership, you may want to read more about the risks of business partnerships and how to mitigate them.