A strategic partnership (also see

strategic alliance A strategic alliance (also see strategic partnership) is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. The alliance is a cooperation or collaboration which aims ...

) is a relationship between two commercial enterprises, usually formalized by one or more business contracts. A strategic partnership will usually fall short of a legal partnership entity, agency, or corporate affiliate relationship. Strategic partnerships can take on various forms from shake hand agreements, contractual cooperation's all the way to equity alliances, either the formation of a joint venture or cross-holdings in each other. Typically, two companies form a strategic partnership when each possesses one or more business

assets In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...

or have expertise that will help the other by enhancing their businesses. This can also mean, that one firm is helping the other firm to expand their market to other

marketplaces A marketplace or market place is a location where people regularly gather for the purchase and sale of provisions, livestock, and other goods. In different parts of the world, a marketplace may be described as a '' souk'' (from the Arabic), ' ...

, by helping with some expertise. According to Cohen and Levinthal a considerable in-house expertise which complements the technology activities of its partner is a necessary condition for a successful exploitation of knowledge and technological capabilities outside their boundaries. Strategic partnerships can develop in

outsourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...

relationships where the parties desire to achieve long-term “ win-win” benefits and innovation based on mutually desired outcomes. No matter if a business contract was signed, between the two parties, or not, a trust-based relationship between the partners is indispensable. One common strategic partnership involves one company providing engineering, manufacturing or product development services, partnering with a smaller,

entrepreneurial Entrepreneurship is the creation or extraction of economic value. With this definition, entrepreneurship is viewed as change, generally entailing risk beyond what is normally encountered in starting a business, which may include other values th ...

firm or inventor to create a specialized new product. Typically, the larger firm supplies

capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used fo ...

, and the necessary product development,

marketing Marketing is the process of exploring, creating, and delivering value to meet the needs of a target market in terms of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to empha ...

, manufacturing, and distribution capabilities, while the smaller firm supplies specialized technical or creative expertise. Another common strategic partnership involves a manufacturer/supplier partnering with a

distributor A distributor is an enclosed rotating switch used in spark-ignition internal combustion engines that have mechanically timed ignition. The distributor's main function is to route high voltage current from the ignition coil to the spark plu ...

wholesale Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In ...

consumer. Rather than approach the transactions between the companies as a simple link in the product or service supply chain, the two companies form a closer relationship where they mutually participate in

advertising Advertising is the practice and techniques employed to bring attention to a product or service. Advertising aims to put a product or service in the spotlight in hopes of drawing it attention from consumers. It is typically used to promote a ...

brand A brand is a name, term, design, symbol or any other feature that distinguishes one seller's good or service from those of other sellers. Brands are used in business, marketing, and advertising for recognition and, importantly, to create an ...

ing, product development, and other business functions. As examples, an

automotive manufacturer The automotive industry comprises a wide range of companies and organizations involved in the design, development, manufacturing, marketing, and selling of motor vehicles. It is one of the world's largest industries by revenue (from 16 % such ...

may form strategic partnerships with its parts suppliers, or a

music distributor The music industry consists of the individuals and organizations that earn money by writing songs and musical compositions, creating and selling recorded music and sheet music, presenting concerts, as well as the organizations that aid, train, ...

with record labels. The activities of a strategic partnership can also include a shared research & development department between the partners. This requires a higher level of

knowledge sharing Knowledge sharing is an activity through which knowledge (namely, information, skills, or expertise) is exchanged among people, friends, peers, families, communities (for example, Wikipedia), or within or between organizations. It bridges the in ...

as well as a higher level of sharing the technological capabilities. But by doing so, the

costs In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in whic ...

and risks of innovation can be spread between the partners. Strategic partnerships also have emerged to solve many company business problems. The book ''Vested: How P&G, McDonald’s and Microsoft are Redefining Winning in Business Relationships'' profiles strategic partnerships in large scale

business process outsourcing Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and ...

relationships, public-private infrastructure projects,

facilities management Facility management or facilities management (FM) is a professional management discipline focused on the efficient and effective delivery of logistics and other support services related to real property and buildings. It encompasses multiple d ...

and supply chain relationships. Contemporary strategic sourcing and procurement processes enable organizations to use performance-based or vested sourcing business models for establishing strategic supplier relationships. There can be many advantages to creating strategic partnerships. As Robert M. Grant states in his book ''Contemporary Strategy Analysis'', "For complete strategies, as opposed to individual projects, creating option value means positioning the firm such that a wide array of opportunities become available". Firms taking advantage of strategic partnerships can utilize other company's strengths to make both firms stronger in the long run. Strategic partnerships raise questions concerning

co-inventor In patent law, an inventor is the person, or persons in United States patent law, who contribute to the claims of a patentable invention. In some patent law frameworks, however, such as in the European Patent Convention (EPC) and its case law, no ...

ship and other

intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, c ...

ownership,

technology transfer Technology transfer (TT), also called transfer of technology (TOT), is the process of transferring (disseminating) technology from the person or organization that owns or holds it to another person or organization, in an attempt to transform inven ...

, exclusivity, competition, hiring away of employees, rights to business opportunities created in the course of the partnership, splitting of profits and expenses, duration and termination of the relationship, and many other business issues. Another risk of strategic partnerships, especially between manufacturer and key supplier, is the potential forward integration by the key supplier. Also different developments or development plans can lead to a broken strategic partnership. The relationships are often complex as a result, and can be subject to extensive negotiation. Strategic partnerships are also prone to conflict. The

University of Tennessee The University of Tennessee (officially The University of Tennessee, Knoxville; or UT Knoxville; UTK; or UT) is a public land-grant research university in Knoxville, Tennessee. Founded in 1794, two years before Tennessee became the 16th state, ...

has done significant research into strategic partnerships, especially in the area of strategic

relationships.

References

{{Reflist Business terms

See also

References