In a strategic partnership, two businesses intertwine their efforts in a certain area, such as marketing, supply chain, integration, technology, finance, or a combination of these.
Such an agreement might exist between a digital marketing agency and a graphic designer, a web designer and a database management firm, or an Internet service provider and an email provider, just to name a few of the many possibilities.
Whether you’re a startup or a growth company, there are many reasons to consider entering into a strategic partnership agreement. At the very least, a strategic partnership will add value to your product or service by expanding what you have to offer. A strategic partnership can even be a proverbial ‘match made in heaven’ if the two parties involved reciprocate each other well enough.
Let’s take a look at five common types of strategic partnerships, as well as what goes into a typical strategic partnership agreement.
Why a strategic partnership?
First, let’s consider why you would want to enter into a strategic partnership agreement in the first place.
A strategic partnership is a mutually beneficial arrangement between two separate companies that do not directly compete with one another.
Companies have long been engaging in strategic partnerships to enhance their offers and offset costs. The general idea is that two are better than one, and by combining resources, partner companies add advantages for both companies through the alliance.
But that’s just the tip of the iceberg.
Virtually everyone who’s anyone is partnering in some way, even if it’s not obvious to the public. In an ideal partnership, you benefit not only from adding value for your customers but lowering costs as well. That’s why every strategic partnership is ultimately an act of leveraging costs versus return.
Before diving into a partnership, size up the other party and carefully evaluate the benefits and risks of entering into the agreement. If you can satisfy your profit goals and customer expectations through the partnership, then it’s the right call for your business.
Now let’s look at each of the 5 types of strategic partnership agreements.
1. Strategic marketing partnerships
This type of strategic partnership agreement is most beneficial to small businesses with a limited selection of products and services to offer customers.
Maybe you have a company that provides one service, say logo design. You might do well to partner with a web developer that will always refer you when graphics are necessary, and vice versa.
Referral agreements are probably the most basic and informal type of strategic alliance, but strategic marketing partnerships can be considerably more complex.
Case in point:
Pharmaceutical company, Abbott India’s agreement to market Zydus Cadila drugs across India. An agreement like this one allows each company to focus on what it does best. In this case, Zydus Cadila gets to focus on manufacturing medications while Abbott India hones in on marketing the drugs.
Marketing partnerships are extremely common in the automotive industry, such as the Toyota IQ also being marketed as the Aston Martin Cygnet. The idea is that one company makes a product and another adds its own marketing spin to it in order to tap into a new market.
The same logic can be applied to a variety of different products, so it’s something worth considering in many situations. If you’re interested in forming a strategic marketing partnership, you want to look for either a referrer that you share a customer base with or a company operating in a related field that can market your goods or services to a new audience.
2. Strategic supply chain partnerships
A popular (and extremely valuable) type of alliance is the strategic supply chain partnership. One of the most obvious places that you can see strategic supply chain partnerships in action is the film industry. If you’ve ever noticed the opening credits of most movies list various oddly named companies before the film starts, it’s because movies are typically made in a supply chain method. A comparatively small production house will handle the filming and post-production, and a larger studio will handle financing, marketing, and distributing the film. Think of J.J. Abrams’ Bad Robot and Paramount Pictures, which maintain such a partnership agreement.
Other examples of supply chain partnerships come to us from the technology sector. Intel makes processors for many computer manufacturers. Toyota makes engines for Lotus sports cars. Texas Instruments makes chips for everything you can think of. These companies are entered into strategic supply chain partnerships with other companies.
If you make a tangible product that you think could benefit from a strategic supply chain partnership, the decision to enter into an alliance comes down to cost. If you can make it for less yourself, then you don’t need a partner. But if you can hand off manufacturing to a dedicated factory and maintain profitability without sacrificing quality, then, by all means, do it. For those of us in the service world, it’s often an even easier decision.
Companies usually enter into supply chain partnerships to cut costs, streamline processes, or improve quality. Unfortunately, as valuable as they can be, supply chain partnerships can also be among the hardest types of alliances to maintain.
“Supply chain partnerships run into problems because, on the supplier’s side, the measures of success focus on time, cost, and quality, whereas your perspective likely focuses on sales and revenue. A supply chain partnership only works if each party involved can meet with end customers’ expectations for quality and price while remaining individually profitable.”According to Dr. Andrew S. Humphries
3. Strategic integration partnerships
Strategic integration partnerships are extremely common in the digital age since it’s always great to have different applications work together or at least communicate with one another.
And, both sides get to offer a more streamlined service to our customers. Strategic integration partnerships can encompass agreements between hardware and software manufacturers or agreements between two software developers who partner to have their respective technologies work together in an integral (and not always exclusive) way.
For instance, Uber and Spotify partnered together to create their “Soundtrack for Your Ride” campaign. In this effort, each brand relied on the other’s technology to create an extraordinary experience for customers. While waiting for their Uber ride to arrive, passengers can connect to their Spotify accounts and control the playlist they’ll be hearing during their trip.
On top of providing a pleasurable ride experience for passengers and improved ratings for drivers, the integration also positioned each brand in a positive light, likely gaining return customers in the process.
Another fantastic example of a strategic integration partnership is the agreement between Nike and Apple. Beginning in the early 2000s, Nike and Apple began pairing their respective products and technology to create what would eventually become Nike+. Upon buying the specific fitness shoes and apparel, customers can pair their products with their Apple iPhone or Watch to track fitness progress and achieve other health goals.
4. Strategic technology partnerships
Another type of alliance is a strategic technology partnership. This type of strategic partnership involves working with IT companies to keep your business afloat. This can be a partnership between your web design firm and a specific computer repair service that you always call in exchange for a discounted rate on services. It could also include partnering with a cloud-based storage platform to handle all of your file storage needs.
Basically, any kind of technological expertise that is necessary for your business that you cannot provide in-house can be relegated to a strategic technology partnership. Choosing a technology partner has to be based on an assessment of your needs and the identification of a positive benefit from entering into the agreement.
You don’t need a monthly retainer on printer servicing if you’d save more money by moving to a paperless solution. So again, assess the situation before signing up for any strategic partnership. Never enter into an alliance just for the sake of being able to say you have a strategic partner.
5. Strategic financial partnerships
Many modern companies wholly outsource their accounting to strategic partners. Strategic financial partnerships are helpful because when you use a dedicated company for accounting, for example, they can monitor your revenue with greater focus than you can do in-house. Because finances are critically important to any business, strategic financial partnerships are among the most important relationships you can foster.
Dedicated finance professionals offer rock-solid expertise in managing cash flow and can report your current revenue position readily and objectively. And that can be of paramount importance to your business.
Types of legal strategic alliances
Similar to strategic partnerships, legal strategic alliances also provide businesses with a series of advantages including additional resources, manpower, and brand power through a legal agreement.
There are 3 main types of strategic alliances:
1. Joint venture
A joint venture occurs when two or more parent companies form a smaller (child) company together.
Partners can choose between a 50/50 joint venture, in which both parent companies own an equal portion of the child company, and a majority-owned venture. In a majority-owned venture, for example, one partner company could own 80% of the child company, while the other partner owned the remaining 20%.
2. Equity alliance
For an equity alliance to occur, one company must purchase a specific percentage of equity in another company.
3. Non-equity alliance
A non-equity alliance occurs when two companies mutually agree on a contractual relationship which allocates specific resources, assets, or other means to one another. Many of the previous strategic partnership examples are also considered non-equity alliances.
What’s in a strategic partnership agreement?
Once you’ve found a strategic partner to work with, you need to create and sign a proposal or strategic partnership agreement with them. This type of document can range for relatively simple to utterly complex, depending upon the scope of the partnership, the terms of the agreement, and the scale of the businesses involved.
In all cases, a basic strategic partnership agreement should include the following:
- The parties involved in the agreement;
- The services to be performed by each partner;
- The terms of the agreement (percentages of profit, method of billing, etc.);
- The reporting structure, person of contact, etc.;
- The duration of the agreement;
- The signatures of company officers or their designees.
It can get quite a bit more complex than that, but you’ll always see these types of things on a strategic partnership agreement. You want to lay everything out in print, so there are no questions of who does what later. Many companies opt for quality control and auditing clauses in their partnership agreements to help maintain the integrity of the products or services that result from the partnership, so that’s something you might want to consider when creating your own agreement.
What is a strategic partnership business model?
A strategic partnership business model is about pursuing partners not only because they provide value to you, but also because they can benefit from your company’s products, services, or brand recognition.
When looking to form a strategic partnership business model, always consider what value you can provide and as well as what resources you require. The business model should be a mutually beneficial structure, not a one-sided relationship formed solely out of a desire for additional revenue. Look for partners you can trust to properly display your brand name and with which you’d be proud to team up in future endeavors.
Would a strategic partnership help you grow your business?
It seems like every company has at least one strategic partner these days. That being said, some are certainly still totally insular. (Look at Dell.) The decision of which way to go with your business comes down to your needs and goals.
If you can perform every function in-house, maintain quality and make a profit, then your company might not get much out of a strategic partnership agreement. But there’s almost always an opportunity to either reduce the costs column or otherwise increase the bottom line in any business, and that’s where strategic partners come in handy. If there’s an opportunity for your company to improve, chances are there’s a partner that can help you do it.
One more thing to bear in mind is that strategic partnerships can also mitigate risk. That means, for example, if you choose a strategic manufacturing partner that operates a factory and insures its workers, you are removed from the liability of operating a similar facility yourself.
Likewise, many accountants and financial advisors are bonded and insured. By partnering to fulfill those roles, you remove the need to incur the costs of operating those types of businesses yourself. Ultimately, two really are better than one. I guess that’s part of why marriage is such an enduring institution in our society.
That’s also why the various strategic partnerships that we’ve mentioned throughout this article exist between some of the biggest names in the business. Joining forces in a strategic partnership has worked for major players like Nokia and Microsoft, and, with careful planning, it can work for your business, too. It all comes down to taking the plunge and saying, “I do” to a strategic partnership agreement.
Is your company in a strategic partnership? Tell us how it’s working for you in the comments below. We’d love to hear your strategic partnership success stories.
Originally published March 6, 2014, updated August 16, 2019