For any small or medium sized business looking to increase market share & credibility, grow business and drive gross profit, few actions are as impactful as adopting a strategic partnership with an established market leader. A strategic partnership is far more than your average buyer/seller relationship. A successful strategic partnership is a symbiotic relationship where two company’s benefit from each others core competencies. The purpose of strategic partnerships are multifaceted and allow each party to grow through their combined efforts. Interested in understanding the basics of strategic partnerships?
What Are Strategic Partnerships?
Consider this the first in a long line of posts on this blog about the importance of strategic partnerships. When looking for an example of a strategic partnership, look no further than Dell Computer and Intel. Both benefit from each other’s market presence and dominance, and both accommodate one another by combining their design and engineering expertise as well as their marketing and sales efforts.
In fact, the most prevalent ingredient of any successful strategic partnership is when both parties share in the costs to make their efforts a success. In this case, they will likely share the following costs.
- Design and Engineering Costs
- Marketing and Advertising Costs
- Technical Support and Expertise Costs
- Manufacturing and Distribution Costs
Can Any Company Pursue a Strategic Partnership?
A number of companies immediately assume that strategic partnerships are the sole domain of large corporations. In fact, this couldn’t be further from the truth. Some of the most successful strategic partnerships include small companies who either combine with other smaller enterprises to increase market share, or pursue partnerships with established market leaders. The most common strategic partnership includes a large company partnering with a smaller one.
What are the Inherent Benefits of a Strategic Partnership?
We’ll analyze the benefits of a strategic partnership in the eyes of a small company aligning itself with a larger market leader.
- What are the benefits for the smaller company?
Large company’s love to enter into partnerships with smaller, more flexible enterprises. In a number of instances, these larger companies might provide working capital, investment, and engineering capabilities to smaller enterprises willing to invest the time and effort in new product designs. This helps put the smaller company in a position to increase its market share and grow its influence.
- What are the benefits for the larger company?
While it’s fairly obvious what the benefits are for smaller enterprises, what can larger ones possibly derive from aligning themselves with a much smaller market player? When looking at this, think of how that small company can help the larger one. First, it helps eliminate the costs associated with new product development. Second, the smaller company may have expertise in design and engineering that may help the larger company reduce their cost structure and improve their own product design capabilities.
An Example of a Strategic Partnership
Let’s assume a large original equipment manufacturer (OEM) is selling product into a given market. This particular equipment manufacturer is only interested in selling their finished products and not supporting any of the ancillary consumables or spare parts because it would simply add to their inventory cost of ownership. In addition, they’re not entirely interested in having a full fledged sales and service department to address every single customer request relating to these spare parts or repairs.
So, this particular company has a strategic partnership with a smaller one who is able to provide those spare parts, sell those consumables and send out a service technician when needed. The larger company reduces its cost structure while the smaller one increase its market share.
There are multiple opportunities represented by working with equipment manufacturers. To read more about these possibilities, please see: Defining Strategic Partnerships Between VARS, Integrators and an OEM
A number of companies assume that strategic partnerships are as simple as buying and selling from one another. It’s simply not the case. Strategic partnerships are the ultimate collaboration between two companies who have invested resources in growing each others business.
If you want to learn more about strategic planning, please refer to: Does Your Business Need a BHAG?
The above video explains the difference betwee two essential strategic planning tools; the SWOT and TOWS analysis.
Comments