A strategic partnership agreement is less complex and less binding than a joint venture, in which two businesses combine resources to create a separate business entity. A company may enter into a strategic partnership to expand into a new market, introduce improvements to a product line, or in general, compete more effectively with other companies by achieving organic growth.
Usually, strategic partners are non-competing businesses and often share both the risks and rewards of the decisions of both companies. The goal of a strategic partnership is to create value for each company by offering information, services, and other resources that the other company otherwise either has no access to or could only access via a financial exchange.
The two companies involved in a strategic partnership will often offer overlapping or complementary products or services that aim to achieve a mutually beneficial result. Strategic partnerships are also commonly referred to as strategic alliances. The arrangement allows two businesses to focus their efforts on a goal that can provide benefits for both. The relationship can be short- or long-term, and the agreement can be formal or informal. Generally, the duration of the alliance is determined by the benefits gained by the partnered businesses and their needs.
The parties engaged in a strategic partnership share the benefits, risks, and control of joint actions and continuously make contributions in strategic areas. Most commonly, they are established when companies need to expand a specific area of their existing business. Strategic partnerships can come in the form of minority equity investments, joint ventures, or non-traditional contracts (such as joint research and development, long-term sourcing, shared distribution, or services).
Strategic partnerships present obstacles that have to be overcome in time to ensure the longevity and success of the alliance, such as protecting proprietary information, processing multiple information flows, setting up adaptive governance systems, and managing virtual teams in various time zones. If these hurdles are not overcome, the partnership is likely to fail. According to empirical research, over half of all partnerships fail.
Strategic partnerships can offer the advantage of flexibility without some of the disadvantages of a joint venture. For one, the two participant entities are not required to merge capital and can retain their independence. However, strategic partnerships can bring other risks. While the agreement is usually clearly delineated for both companies, the differences in how the firms conduct business may create opportunities for conflict.
Furthermore, if the partnership necessitates the disclosure of proprietary information, the partners must operate with trust or under an appropriate legal framework. In addition, in a long-term strategic alliance, one party may become dependent on the other. Disruption of the alliance can endanger the health of the company.
One example of a strategic partnership is the arrangement between Starbucks (coffeehouse company) and Barnes & Noble (bookseller). As part of the partnership, Barnes & Noble sold books at Starbucks locations. Both companies shared the costs of space and benefitted mutually from the arrangement. Other examples of strategic partnerships include the following:
- An oil and natural gas company forming a strategic alliance with a research laboratory to develop more efficient recovery processes
- A clothing retailer forming a long-term strategic partnership with a single manufacturer to ensure consistent quality and sizing
- A website arranging a strategic partnership with an analytics company to strengthen marketing
A strategic marketing partnership entails companies in related fields aiding each other to find new customers or clients. Larger businesses such as manufacturers may find partners in companies that market and sell the manufactured products, establishing an agreement to manufacture and sell products exclusively for one another.
Supply partnerships are one of the most common types of strategic partnerships. They involve vendors and manufacturers that supply businesses with essential products, services, and materials. In certain cases, these are exclusive partnerships, such as a company signing an exclusive contract with a paper supplier for its office needs. Another example of a supply partnership is a store selling shelf space to vendors who utilize it for product sales, although such arrangements are frequently non-exclusive.
Supply chain partnerships comprise multiple companies collaborating to create a finished product. Many supply chain partnerships are exclusive, since the finished products are often proprietary.
Strategic integration focuses on integrating separate complementary services and is common in the digital landscape, where customers use social media apps or other multi-function service accounts to log on to online stores and websites. Many companies also partner with payment app providers to enable user-friendly purchasing from both their websites and physical store locations. The aim of an integration partnership is to make customers' interactions with businesses simpler, personalized, and more convenient.
The role of a technology partner is to provide the technological tools and services that enable businesses' daily operations to run smoothly and securely and avoid major disruption. Companies of various types partner with technology services and equipment providers to ensure that their electronic equipment can be purchased and/or repaired at a price that meets their budget or to avail of a cloud service with the cost proportional to the amount of digital space required.
Financial partnerships can comprise the provision of accounting services, stock programs, and benefits plans by one company to another and can also be mutually beneficial. For instance, employees may receive benefits for holding accounts at banks with which their employing company has a strategic partnership.