Pros and Cons of a Business Strategic Partnership

A professional business strategic partnership needs to make sense. Perhaps not as dire as China and Saudia Arabia, partnerships between big businesses can make sense — consider Starbucks in Barnes & Noble or Pizza Hut in Target. But, of course, if you’re shopping, you might want a snack, too. Read on to learn more about the pros and cons of a strategic business partnership.

What is a Strategic Partnership?

At the basic level, a business strategic partnership is a collaboration between at least two entities. They combine resources, people, finances, and technology. They are typically not competing and co-marketing with one another — potentially doubling their reach.

A modern example of this might be influencer marketing — a 5-star vacation with someone well-known in the travel industry opens new doors. However, whether influencer marketing or in-store marketing, there is no guarantee of success in this non-equity partnership. 

The goal is for each partner in the strategic alliance to benefit at a financial cost lower than going it alone. Also, a company can offer a component of what the other needs — for example, GM and Apple Carplay. Apple doesn’t need to create the car, and GM doesn’t need to create a streaming service for this joint venture to be beneficial.

Types of Strategic Alliance

There are three main strategic partnership options. As with any life decision, there are pros and cons. Strategic collaboration can include joint ventures, equity, and non-equity options.

Joint Venture – In this strategic alliance, two or more parties move forward with a single project for profit and awareness. They share the risk, and they share the reward. An example of this involved Microsoft and GE creating Caradigm.

Equity – This strategic partnership happens when one company purchases equity in another (a partial acquisition), or each business buys equity in the other. An example is Tesla’s relationship with Panasonic.

Non-equity – In this strategic alliance, companies agree to share resources without creating a separate entity or sharing equity. These are more informal than a partnership involving financial resources. An example of this is the partnership between Starbucks and Kroeger or Target.

The value of partnerships comes from combining knowledge, resources, relationships, and strategies. For example, cons might include one party wanting to terminate the contract, one party not benefitting from the agreement, or one party not doing their part in the venture.

Why Choose a Strategic Partnership?

Sometimes, a company needs a resource or reach. Leveraging the know-how of another company or person can be the answer. Also, it can fill competency gaps as a company launches a new product or service. For example, companies will align themselves with sports teams or celebrities in new markets to test it without fully immersing operations. 

On the B2B side, companies like Uber and Spotify paired up for an effortless customer experience. In addition, Red Bull and GoPro are working together to support the concept of high-adrenaline sports and activities.

One con of a strategic partnership is that neither side can always share their cards ahead of the agreement. As a result, there might be gaps in expectations, misunderstood responsibilities, and mismanaged services. As with any project, you don’t know what you don’t know until you need to know it.

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Coach Dave