Strategic partnerships in business are an important and necessary element to take into account for your business. Partnerships can come in many different shapes and sizes, but the two main types are joint ventures and alliances.
A joint venture is a type of investment or partnership where you share resources with another company to pursue a goal, such as opening a new location. Joint ventures allow you to invest less capital than starting up on your own does, so they’re an efficient way of entering into another market without having to spend all that time and money on research and development for that market.
An alliance is like a contract between two companies that work together with mutual benefit, such as saving costs by combining resources or selling products jointly. There are several different types of alliances, and the main differences between them are:
i) Whether they can be terminated, who can terminate it and for what reasons.
ii) Who is responsible for the products and products and services.
iii) The amount of responsibilities or differences of interest each party will feel.
What the agreement of the alliance does not say about one of these points, but written agreements can clarify if you need to specify this point. For example, if you agree that the company that exists before buys products produced by both companies, then you should specify that in writing.
Benefits of Strategic Alliances
Strategic alliances provide benefits such as:
i) Information, knowledge and experience.
ii) Provision of goods or services at a price or quality higher than its own.
iii) The use of resources more efficiently due to joint research and development efforts.
iv) A reduction in risks through shared responsibilities, resources, infrastructure and costs. This can be particularly useful for start-up companies with limited resources. The risk is reduced because they are less likely to fail alone, but it is increased because they are responsible for the alliance together. That means that they are responsible for what goes wrong if they fail to live up to their responsibilities, since it is their reputation on the line.
v) Sharing of knowledge and customer information.
vi) Improving public relations through cross-marketing efforts.
vii) An improvement of supply networks for large companies. This improves efficiency, especially when dealing with problems like spoilage or transportation delays.
viii) Increased revenue by charging higher prices due to economies of scale. In this case, the two companies join their abilities to produce a larger output than each company could achieve on their own. They can then sell this output at a higher price because of the higher production costs from working together as opposed to working alone.
Key Elements of Strategic Negotiations
The most important considerations when carrying out strategic negotiations are to define clearly what exactly is agreed by agreement or consent. This step is an important step for consideration, but also important because it can result in penalties when there is no agreement. Those who agree to enter into an alliance might be loath to break the arrangement if this results in them losing out on some of the benefits they expected. That is why it’s important that you have a clear understanding of what each party gives up so that you know exactly what’s at stake. Contractual agreements are instrumental in determining legal obligations of one partner, so it must be made clear here who has what liability. Also included would be any restrictions, time limits or termination clauses that might affect the agreement. An example of a termination clause would be a change in one company that affects the other, such as a merger or acquisition, the adoption of a policy contrary to the goals of the partnership, which happens to be detrimental to one partner or if one partner undergoes significant financial difficulties.
It is always best to include contingencies in writing for such cases. The most common provisions are:
i) The possibility of terminating an agreement with cause or without cause under certain circumstances.
ii) The standard of proof required to show that the cause for termination actually exists.
iii) The payment of compensation if an agreement is terminated and this is stipulated in the agreement.
The amount and type of compensation, if it is known. Whether different types of compensation are available, such as liquidating damages or other forms such as consequential damages for lost profits or the acquisition of supplies that has gone to waste as a result. The two most common types of liquidating damages are: Liquidated damage equal to what would be considered reasonable for a fair market arbitration contract. Liquidated damage based on market prices at the time negotiations begin and at the time they end, but only if it has been specifically included in this regard.
If the amount of liquidating damages is not known, then it is likely that any agreement to liquidate damages will be set out as a result. This means that the full amount payable is owed by both parties and this is administered by a court. The agreement must clearly include: The date on which they will commence and what provision of the law it will be based on. The estimated date on which the liquidated damages would be paid. When this is known, whether it can be reduced due to other agreements such as bankruptcy regulations or insolvency regulations.
The procedure and timing of payment, including the means to enforce legal force.
The procedure and timing of any lesser or greater amount payable.
The time limit for payment. For example, if the agreement is to be performed within a certain period (most commonly 30 days), then the obligation to pay liquidated damages arises immediately after this date. If it is not known exactly when payment should be made, then this should be stipulated in the agreement.
The definition of insolvency that will apply in such cases and what rights and obligations apply (if any) under insolvency regulations.
The definition of bankruptcy and what shall determine these conditions (if applicable). The rules that apply in such cases and the associated obligations of each party.
The definitions of key terms such as:
Whether the agreement should remain in force if one of the parties changes its form or because it is acquired by another company. The definition of these other companies and under what conditions they should be considered to be included.
Any other provisions than those mentioned above should also be included, such as:
Agreement about who will pay for hiring lawyers and experts, if necessary. If so, may be because there is a dispute over an agreement provision or if it arises from a disagreement over the interpretation of the agreement provisions themselves.
A comparison of the alternatives available before choosing a contractual agreement. Every possible case is considered, including what legal issues they represent and whether the law allows for such provisions to be included in agreements. In order to give you an idea of what is most appropriate, you should consider:
The existing legal arrangement that one partner is already bound by under their current contracts or any other type of agreement with their suppliers. The possibility that there may already be a similar provision (depending on the agreement or contract) in an agreement with another company that has already existed before.
Getting Expert Help for Strategic Negotiations
Before embarking on important strategic negotiations for your business, it is appropriate to consult with lawyers and financial experts given the broad implication of any business agreement entered into on your business. While a lot of the legal jargons are best examined by a legal practitioner, financial as aspects of these negotiations are best analysed by a financial analyst and Valuation Expert to ensure your business is entering a favorable agreement. Fintalent offers a platform to hire some of the best freelance strategic negotiation consultants that can examine the various aspects of your negotiation and ensure only the most favourable agreements are entered.