You can expand your business by joining forces with another business. While this can create more shared decision-making and possible management and staff issues to resolve, there can be clear advantages. Successful co-operation can deliver:
- more resources
- sharing of the managerial load
- larger skills and talent base
- bigger pool of contacts
- increase in markets
- diversification and organic growth using increased resources
- reduced commercial risk
Mergers and Acquisitions:
Mergers and acquisitions (M&A) are more popular form of partnerships which is simpler to understand. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. A merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are surrendered and new company stock is issued in its place. When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist and the buyer takes over its business.
Partnerships and Joint Ventures:
Partnerships and joint ventures can offer both partners significant benefits, including sharing experience, skills, people, equipment and customer bases. Through a partnership or joint venture arrangement with a complementary, non-competitive business, you may be able to open new markets or improve your offer to existing ones. It's important to be very careful who you link up with. An agreement defining the terms of the partnership or joint venture is essential and further legal protection is advisable. Teaming up must be a win-win situation for both parties. Businesses involved with complementary activities or skills are usually the most appropriate candidates. For example, a group of sole traders - a carpenter, builder and electrician - could form a company, which could increase their credibility in the construction trade and allow them to bid for larger contracts. A group like this also represents greater customer appeal, as it's a one-stop shop.
A joint venture (JV) is a legal partnership between two (or more) companies wherein they both make a new (third) entity for competitive advantage. With a JV you will have something more than simple governance; you'll have a completely new entity with a board, officers, and an executive team. Effectively a JV is a completely new organization, but owned by the founding participants. The board of directors generally is comprised of representatives of the founding organizations.
A strategic alliance is a kind of partnership between two entities in which they take advantage of each other’s core strengths like proprietary processes, intellectual capital, research, market penetration, manufacturing and/or distribution capabilities etc. They share their core strengths with each other. They will have an open door relationship with another entity and will mostly retain control. The length of agreement could have a sunset date or could be open-ended with regular performance reviews. However, they simply would want to work with the other organizations on a contractual basis, and not as a legal partnership.
To choose the best strategy for growth, you'll need to undertake an analysis of your business' current performance. Once you have carried out the review, focus on the option that looks the most logical. Next, make sure this option is also the most practical. Check that the strategy reflects the things your business does well. You'll also need to assess whether you have resources and capacity to make the strategy work.