What is Strategic Partnership?

The term Strategic Partnership refers to 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. Most often, they are established when companies need to acquire new capabilities within their existing business.

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.

In such a relationship, the partners remain independent; share the benefits from, risks in and control over joint actions; and make ongoing contributions in strategic areas.

Strategic partnerships can take the form of minority equity investments, joint ventures or non-traditional contracts (such as joint R&D, long-term sourcing, shared distribution/services).

Strategic partnerships inevitably involve challenges that have to be resolved efficiently to ensure the longevity and success of the alliance, such as isolating proprietary knowledge, processing multiple knowledge flows, creating adaptive governance and operating global virtual teams. If these challenges are not tackled, the partnership will more than likely fail, which, as the empirical research shows, happens in more than half of the cases.

Advantages & Disadvantages

Strategic partnering allows businesses and individuals to expand their existing client bases without the time, expense and risk of launching a new line of services by themselves.

It can also help with introductions to entirely new markets, including overseas markets. Strategic partners also become more valuable in the minds of their customers because they can offer a broad range of coordinated products and services. In strategic partnering relations where partners share financial contributions toward joint ventures, the risk of each partner may decreases by half.

A company owner knows his business, his employees and their talents and skills. Even if a potential strategic partner looks good on paper, until a project or referral has been successfully completed, there is no certainty about the quality of the partner’s work.

Referring an existing client to a strategic partner without full knowledge of the way the customer will be treated or serviced puts the first company’s client relationship at risk if something goes wrong or if the service is below standard.

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