Four complicating factors in negotiating a partnership

Four complicating factors in negotiating a partnership

Four complicating factors in negotiating a partnership

Forming a business alliance or partnership requires definite prerequisites. Certain factors may only be detected post the experience, but there are a few sure shot red flags that can assist a party to gauge the other side to either make amends or terminate a deal in its initial stages.

1) Big v/s small

Inequality between the two parties can often create worries. It's usually the smaller company that places more on the line than the bigger one. The larger organisation may fear incapabilities of the smaller group. The smaller one may naturally feel neglected or overshadowed or may fear a change of management, hence, a change of mind, in their more powerful partner.

An autonomous business unit that belongs to a multinational enterprise may appear as having large operations due to the linkage to a big company but it may function as a small one. Likewise, a technology firm with 20 employees can differ greatly to a production facility with a similar staff strength. High tech companies though compact can be much more powerful compared to others of the same size.

Another aspect regarding smaller technology firms is that though their need to tie with a big and established multinational may be evident due to lack of commercial experience, there could be a clash of interests at some point. For the tech company, the profits coming in may seem huge compared to the investment made by them but for the backing multinational, they may seem negligible in comparison.

To overcome a loss due to incompatibility between two parties, a deal with short term payments for knowledge transfer and success fees for every market introduction can be struck. Plus strict rules regarding termination of the deal so the smaller tech company can move to others with its product offering if needed.

2) Multiple party alliance

Forming a collaboration with more than two parties is a different ballgame. If this kind of collaboration decides to form a fresh legal entity, there are chances that the majority parties dominate the minor ones. To avoid this situation, two solutions can be presented. One in which it is necessary for every decision to be unanimous or a second in which every party has equal standing and say in matters concerning the alliance. Such a set up can be used between competing companies or complementary parties.

3) Limited manpower companies

Knowledge professionals often form smaller companies consisting of one leading and one or two co-workers. These type of companies tend to collaborate to achieve larger business goals. However, they may get swamped under the legal and fiscal reporting that is required in securing big deals. This can affect their operational efficiency.

In situations such as these, the smaller units can use a standard organisation form for governance, finances, and liability matters. This will also take care of areas such as consultancy structures, marketing, administration and household regulations.

4) Public and private partnerships

When a private organisation wishes to partner with a government, medical, educational etc. institute, there may be a clash of objectives. Public organisations often prioritise the good of the people over their own financial gains. This can work best when the public entity takes on a facilitating role while the private one performs business related functions. An example of this is a public authority selling a plot of land to a private project developer for a housing project, the parameters of which are set by the public company.

Terminating an alliance

Mostly, collaborations end with the commencement of the purpose for which they are formed like a project. At other times there are unforeseen circumstances under which an alliance may be forced to end.

Hence it's important to have two matters predefined:

1) Who holds the power to terminate the contract? Do all partners have an equal say?

2) In the event of a premature termination, what happens to the reserves, debts, patents, rights etc.? Can one party buy out another's share?

Likewise, in case one of the partners goes bankrupt, the continuation of activities needs to be adequately arranged.

A failed product or service can be the reason for the termination of an joint venture. If the concept is yours, then can you engage a new partner with the least losses? What can you do as the bigger company who invests in an idea that drowns? Do you lose your entire investment? Most countries do not have fixed legislature for such cases so you are free to make your own.

Contractual Board

A contractual board is a tool that can be used in the case of a premature exit by either (in the case of two) / any (in the case of more than two) party. It is a body represented by every partner within which decisions are made in agreement. If this board fails to reach a solid agreement, either a neutral third party is formed or then the alliance is dissolved.

This entry was posted in knowledge on February 20, 2017 by specialist.