Business partnership agreements and developing alliances
Key points in this article
- The benefits of alliances
- Choosing the right partner
- Avoiding hassles
A strategic alliance is usually two or more businesses working together for their shared benefit. Each business gets to keep their independence while finding ways to make the benefits of the alliance between them greater than their individual efforts.
What are the benefits?
As part of an alliance, you’ll have greater bargaining power in the market without the risks of rapid expansion. Alliances may help you:
- get bulk discounts
- tender for larger contracts
- provide stronger competition to big business
- keep overheads down.
Improving your image
A well-respected partner’s reputation can rub off on your business and build your credibility overnight.
Improving your profit margins
You can ease the pressure on profits with the right strategic alliance, by lowering your supply costs or sharing costs for research and development or marketing.
You can also pool resources with partners or use each other’s equipment and skills for cheap rates.
Reaching new customers
Your alliance could provide a shortcut into a new market or pair your new product with an established brand. If your new partner is based overseas, you might be able to leverage some tax advantages – but seek specialist taxation advice.
A strategic leg-up
A strategic alliance can be a great way to gain a competitive advantage. If you have complementary products, you can offer one-stop-shop convenience or you may be able to have lower prices.
The benefits of alliances include improving your image, reaching new customers and keeping overheads down
How do I choose the right partner for my alliance?
Alliances should be between businesses with genuine synergy. If the overlap of agendas is strong, you’ll pull in the same direction. Aim to:
- do your research on potential partners
- ask around at trade associations
- examine your supply chain
- think about who your customers buy associated products and services from.
This will help you find compatible organisations with similar values to your own that may be worth talking to about a future alliance.
Finding a compatible partner is the vital part of a successful alliance
Make your alliance work for everyone
A key to any successful alliance is crystal clear communication. You’ll need a transparent plan as to how you’ll work together effectively. To make your alliance work, consider:
- scheduling regular meetings to discuss what’s going well, plus any issues
- how you’ll allocate resources – what will each of you contribute and how will you share returns
- asking your customers what they think about the alliance
- for a large or complicated alliance, consider appointing a project manager to oversee its development.
Avoiding future hassles
There is the potential for legal disputes by working in an alliance if things don’t work out, so think carefully before you join forces. Take time over your agreement, always put it in writing and get your legal adviser to look it over before signing anything.
Be specific about what each partner will contribute and who’ll have ownership of any intellectual property the alliance generates. Include an exit clause in the agreement so you’re clear from the start how the relationship will end.