A strategic partnership (also see

strategic alliance A strategic alliance is an agreement between two or more Legal party, parties to pursue a set of agreed upon objectives needed while remaining independent organizations. The alliance is a cooperation or collaboration which aims for a synergy wh ...

) 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 A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to acce ...

or cross-holdings in each other.

Overview

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, market place, or just market, 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 ...

, 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 a business practice in which companies use external providers to carry out business processes that would otherwise be handled internally. Outsourcing sometimes involves transferring employees and assets from one firm to another ...

relationships where the parties desire to achieve long-term “ win-win” benefits and

innovation Innovation is the practical implementation of ideas that result in the introduction of new goods or service (economics), services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a n ...

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.

Types of strategic partnerships

Product development

One common strategic partnership involves one company providing

engineering Engineering is the practice of using natural science, mathematics, and the engineering design process to Problem solving#Engineering, solve problems within technology, increase efficiency and productivity, and improve Systems engineering, s ...

manufacturing Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of the secondary sector of the economy. The term may refer ...

or product development services, partnering with a smaller,

entrepreneurial Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk (assumed by a traditional business), and potentially involving values besides simply economic ones. An entrepreneu ...

firm or inventor to create a specialized new product. Typically, the larger firm supplies capital, and the necessary product development,

marketing Marketing is the act of acquiring, satisfying and retaining customers. It is one of the primary components of Business administration, business management and commerce. Marketing is usually conducted by the seller, typically a retailer or ma ...

, manufacturing, and distribution capabilities, while the smaller firm supplies specialized technical or creative expertise.

Suppliers and distributors

Another common strategic partnership involves a manufacturer/supplier partnering with a

distributor A distributor is an electric and mechanical device used in the ignition system of older spark-ignition engines. The distributor's main function is to route electricity from the ignition coil to each spark plug at the correct time. Design ...

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 A consumer is a person or a group who intends to order, or use purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...

. Rather than approach the transactions between the companies as a simple link in the product or service

supply chain A supply chain is a complex logistics system that consists of facilities that convert raw materials into finished products and distribute them to end consumers or end customers, while supply chain management deals with the flow of goods in distri ...

, 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 (business), product or Service (economics), service. Advertising aims to present a product or service in terms of utility, advantages, and qualities of int ...

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

ing,

product development New product development (NPD) or product development in business and engineering covers the complete process of launching a new product to the market. Product development also includes the renewal of an existing product and introducing a product ...

, and other business functions. As examples, an automotive manufacturer may form strategic partnerships with its parts suppliers, or a

music distributor The music industry are individuals and organizations that earn money by Songwriter, writing songs and musical compositions, creating and selling Sound recording and reproduction, recorded music and sheet music, presenting live music, concerts, ...

with

record label "Big Three" music labels A record label or record company is a brand or trademark of Sound recording and reproduction, music recordings and music videos, or the company that owns it. Sometimes, a record label is also a Music publisher, ...

s. 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 ind ...

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

costs 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 which case the amount of money expended to acquire it is ...

and

risks In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...

of innovation can be spread between the partners.

Business outsourcing

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 relationships, public-private

infrastructure Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function. Infrastructure is composed of public and pri ...

projects,

facilities management Facility management or facilities management (FM) is a professional discipline focused on coordinating the use of space, infrastructure, people, and organization. Facilities management ensures that physical assets and environments are managed effe ...

and

relationships. Contemporary

strategic sourcing Strategic sourcing is the process of developing channels of supply at the lowest total cost, not just the lowest purchase price. It expands upon traditional organisational purchasing activities to embrace all activities within the procurement cyc ...

and

procurement Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual ...

processes enable organizations to use performance-based or

vested In law, vesting is the point in time when the rights and interests arising from legal ownership of a property are acquired by some Legal person, person. Vesting creates an immediately secured right of present or future deployment. One has a vest ...

sourcing business models for establishing strategic supplier relationships.

Advantages and disadvantages

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-inventorship 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, co ...

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 invent ...

, 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 Manufacturing is the creation or Production (economics), production of goods with the help of equipment, Work (human activity), labor, machines, tools, and chemical or biological processing or formulation. It is the essence of the secondary se ...

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, Knoxville (or The University of Tennessee; UT; UT Knoxville; or colloquially UTK or Tennessee) is a Public university, public Land-grant university, land-grant research university in Knoxville, Tennessee, United St ...

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

relationships.

References

{{Reflist Business terms