STRATEGIC PARTNERSHIPS

“Businesses once grew by one of two ways; grassroots up or by acquisition… Today businesses grow through alliances – all kinds of dangerous alliances. Joint ventures and customer partnerings which, by the way, very few people understand.” – Peter Drucker, Management Consultant.

Just like a marriage is a union, strategic business alliances are a union promised for better or for worse, in health and in sickness, in good times and in bad and most importantly when they want to get separated, a lot of paperwork is involved. Now that we’ve started with a quote and topped it off with a joke, let’s talk BUSINESS. In this written piece we’re going to try and understand the basics of Strategic Partnerships and the whats, whys, and hows that surround it.

A strategic partnership is a business agreement that involves the sharing of resources between two or more individuals or companies, cooperating in the manufacturing, development, sale of products and services, and other business objectives. Strategic partners are usually non-competing businesses and often share both the risks and rewards of the decisions of both companies. This has also emerged to solve many problems faced by companies through the years.

There are 3 major types of Strategic Partnerships that we will get into.

The first is ‘Joint Venture’. A joint venture is established when the parent companies establish a new company. For example, Company A & Company B can form a joint venture by creating Company C. In addition, both companies each own 50 % of the new establishment. If one of the companies owns a greater percentage, that joint venture is classified as a Majority- owned venture. Car Manufacturer BMW formed a joint venture with the Chinese Automobile manufacturer Brilliance Auto Group in 2003. The venture, named BMW Brilliance, was formed to produce and sell BMW cars in China. The partners jointly invested €450 million in the venture, with BMW taking a 50 % stake while Brilliance Auto took a 40.5 % stake. The remainder went to the Shenyang municipal government. Google and NASA together developing Google Earth is also a Joint Venture.

The second is Equity Strategic Alliance. An equity strategic partnership is created when one company purchases a certain equity percentage of the other company. If Company A purchases 40 % of the equity in Company B, an equity strategic alliance would be formed. Panasonic purchased 1.4 million Tesla shares in 2010 for about $30 million for using their electric batteries in the car.

The third one is Non-Equity Strategic Partnerships. A non-equity strategic alliance is created when two or more companies sign a contractual relationship to pool their resources and capabilities in synergy. The alliance of Suzuki Motor Corporation of Japan and Maruti Udyog Ltd. India is a good example of a non-equity alliance. Suzuki had the resources while Maruti had the capital and a better understanding of the Indian market.

Managing Business Alliances isn’t very tricky, the firms have a discipline that they follow.

The first and foremost thing is understanding the company's capabilities, identifying the strengths and weaknesses that the company brings to the table, and then taking measured steps towards improvement. Above all focusing on forward-thinking ideas for capitalizing on the organizational senses of your company.

Successful partnerships often create a formal alliance in which it incorporates some form of alliance integration, management negotiation, and self and partner assessment.

Bringing two organizations is a complicated process to create an explicit understanding of mutual objectives, expectations, and measurement processes. The relationship goals associate measurement processes and if needed contingency plans and exit strategies are adopted for each party.

The main goal of any partnership agreement is to create profitable increments for both parties. Starting by identifying the appropriate structure to support economic benefit to all parties next by making sure they are preceded with solid sales and performance and success by promoting public relations.

Having knowledge of electronic management systems, educational seminars and periodic networking with alliance teams and finally providing generic training are relevant to any particular situation of a company.

Regularly refreshing and adapting their approach to the strategic relationship is important. As the relationship is changing and evolving as time marches on. It has to follow an approach towards managing a strategic relationship to be nonlinear and dynamic.

These vital steps are what make a successful alliance, bridge critical organizational gaps, and increase the company's chances of success.

Companies sought out for business partnerships as in a Strategic Partnership, the companies involved combine their respective resources, capabilities, and core competencies in order to achieve maximum client satisfaction. They are essential to growth and provide resistance to bigger competitions. Partnering is the quickest, most effective way to re-engineer a business.

Alliances permit companies to enter new markets and field new products that they otherwise couldn’t do on their own. It’s a way to grow your company quickly, particularly in times of change.

Similarly, organizations are also hesitant to form an alliance. More broadly, strategic partnerships are more difficult to manage and coordinate than single ventures; the potential for misunderstanding and disagreement, particularly between partners of different cultures, is great. Many such alliances are short-lived. The bad blood between former partners due to misunderstandings and breaking of trust is not unheard of. You definitely don’t want your partnership to end where Starbucks and Kraft’s alliance did, and that was in a courtroom- blaming each other. Lastly, the legal paperwork required during the coalition and during the separation as it’s mentioned at the very start.

Business Partnerships can be critical in the sense that they can make or break establishments. The relationships between partnerships reflect the way that the companies work with their customers. So, it is important that if there is a presence of a partnership for it to be healthy and trustworthy for the partners involved. The moral ethics are to be always kept in check. Honest partnerships go a very long way!

- Simran Mia, Anusua Das