Choosing the Right Partner

8/12/2019 Choosing the Right Partner

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CHOOSING THE RIGHTPARTNER


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Before you even start looking

for a business partner, the firstthing you must ask yourself is

why you want to have a

partner.?

This applies whether your

business has yet to belaunched or is already

operating.


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Here are some good reasons to

take on a partner: Wanting to have a teammate with whom

to share the day-to-day stresses,decisions and annoying details.

Needing someone to share the financial

risks involved in the business. Having someone with skills you dont

have to establish a firm managementfoundation for the business.


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Now here are some reasons that do not

justify taking on a partner:

Youre lonely and you want company.

You need capital.

You want someone to lighten yourworkload.

You hope to make useful new

business contacts


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Several PartnershipMethods


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Strategic Alliance

Is a voluntary, formal

arrangement between two or

more parties to pool resources

to achieve a common set of

objectives that meet critical

needs while remaining

independent entities.

Strategic alliances involve exchange,

sharing, or co development of

products, services, procedures, and

processes.


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Stages of Alliance Formation

Strategy Development: involves studying

the alliances feasibility, objectives and

rationale, focusing on the major issues and

challenges and development of resource

strategies.

Partner Assessment: involves analyzing a

potential partners strengths and

weaknesses, creating strategies for

accommodating all partners management

styles.


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Stages of Alliance Formation

Contract Negotiation: involves

determining whether all parties

have realistic objectives, defining

each partners contributions and

rewards.

Alliance Operation: involves

addressing senior managements

commitment, finding the caliber of

resources devoted to the alliance,

linking of budgets and resources with

strategic priorities.

Alliance Termination: involves

winding down the alliance, for instance

when its objectives have been met or

cannot be met.


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Types of strategic alliances

Global Strategic Alliances working

partnerships between companies across

national boundaries and sometimes formed

between company and a foreign government,

or among companies and governments.

Equity strategic alliance is an alliance in

which two or more firms own different

percentages of the company they have

formed by combining some of their resources

and capabilities.

Non-equity strategic alliance is an alliance

in which two or more firms develop a

contractual-relationship to share some of

their unique resources and capabilities.


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Advantages

DisadvantagesAllowing each partner to

concentrate on activities that

best match their capabilities.

Learning from partners &

developing competences thatmay be more widely exploited

elsewhere.

Adequate suitability of the

resources & competencies of an

organization for it to survive.

share risk between the

companies.

Significant differences between the

objectives

Irreconcilable differences in business

culture and management styles.

Opportunistic behavior by any

participant.

Loss of control over such important

issues as product quality, operating

costs, employees, etc.


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Starbucks

Starbucks partnered with Barnes and

Nobles bookstores in 1993 to provide

in-house coffee shops, benefiting

both retailers.

In 1996, Starbucks partnered with Pepsico

to bottle, distribute and sell the popular

coffee-based drink, Frappacino.

A Starbucks-United Airlines alliance has

resulted in their coffee being offered on

flights with the Starbucks logo on the cups.


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Apple

Apple partnered recently with Clearwell in order to jointly develop Clearwell's

E-Discovery platform for the Apple iPad. E-Discovery is used by enterprises

and legal entities to obtain documents and information in a "legally

defensible" .


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Hewlett Packard

and DisneyHewlett-Packard and Disney have a long-standing alliance. Disney

wanted to develop a virtual attraction called Mission: SPACE, Disney

Imaginers and HP engineers relied on HP's IT architecture, servers andworkstations to create Disney's most technologically advanced

attraction.


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JOINT VENTURESJoint venture is the co operation of

two or more individuals or business

in which each agrees to share profit,

loss and control in a specific

enterprise.


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FEATURESOF JOINTVENTURE Joint venture is a short duration special purpose

partnership.

Joint venture does not follow the accountingconcept 'going concern'.

The members of joint venture are known as co-ventures.

Joint venture is a temporary business activity.

In joint venture, profits and losses are shared inagreed proportion. If there is no agreementregarding the distribution of profit, they will shareprofit equally.

Joint venture is an agreement for polling ofcapital and business abilities to be employed insome profitable venture.


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INTERN L F CTORS TO STYLE JV Spreading prices

You and JV partners can share prices associated

with advertising, product or service improvement,and other expenditures, reducing your monetary

burden.


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DV NT GESAccessing additional financial

resources:

Sharing the economic risk with co-

venturer Widening economic scope fast

Tapping newer methods, technology,

and approach you do not have Building relationship with vital contacts


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DIS DV NT GES Shared profitSince you share

assets, you also share the profit.

Diminished control over some

important matters - Operational controland decision making are sometimescompromised in joint ventures.

Undesired outcome of the quality of

the product or project. Uncontrolled or unmonitored increase

in the operating cost


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MERGERSMergers happen when two companiesagree to legally combine into one

company, melding their management.


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QUISITIONS Mergers and acquisitions are often

confused. An acquisition involves one

company buying a controlling interest

in the stock of another company andmanaging both companies under one

management team, which might

consist of a mix of managers fromboth companies or only the managers

from the surviving company.


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MERGER

ACQUISITION

COMPANY A COMPANY A COMPANY BCOMPANY B

Company A and Company B

together form the new

Company C

Company A buys Company B

Company A


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TYPES OF MERGERS Horizontal mergers: Ittakes place when the two

organizations producing a similar product combine. E.g.: GAPInc. control three distinct companies, Banana Republic, OldNavy and the GAP itself.

Vertical Mergers: It takes place when the two organizationsworking at different stages in the production of the sameproduct, combine. E.g.: Carnegie Steel company, it controlthe mill, iron ore mines, coal mines, the ships, the rail roads,the coke ovens.

Conglomerate Mergers: It takes place when twoorganizations operate in different industries. A conglomerateis a large company that consists of divisions of oftenseemingly unrelated business. E.g.: Tata group, RelianceIndustries etc.


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TYPES OF CQUISITION Friendly Acquisition: In this generally poorlyperforming organizations board od directors willingly

sells its shares to the acquiring organization.

Hostile acquisition: In this generally poorly performingorganizations board of directors opposes to sell of thecompany. In this situation the acquiring organization hastwo options:

1. A tender offer: It represents an offer to buy the stockof the target organization either directly from theshareholders or through secondary market.

2. Proxy fight: the acquirer solicits the shareholders ofthe target organization in an attempt to obtain the rightto vote their shares. The acquiring organization hopesto secure enough proxies to gain control of the boardof directors and in turn replace the incumbentmanagement.


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MOTIVES BEHIND M ND S To provide improved capacity utilization To provide better use of the existing

sales force

To reduce managerial staff To gain economies of scale

To smooth out seasonal trends in sales

To gain access to new suppliers,

distributors, customers, products andcreditors

To gain new technology

To reduce tax obligations


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DIFFERENCESMERGER:

Merging of two organizationinto one.

It is the mutual decision.

Merger is expensive thanhostile takeover.

Through mergershareholders than merger.can increase their net worth.

It is time consuming and thecompany has to maintain so

much legal issues. Dilution of ownership occurs

in merger

ACQUISITIONS:

Buying one organization byanother.

It can be friendly take over ora hostile takeover.

Acquisition is less expensive

than merger. Buyers cannot raise their

enough capital.

It is faster and easiertransaction.

The acquirer does notexperience the dilution ofownership


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LICENSING &

FRANCHISING


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Franchising


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Definiton

Franchising is a business model in which manydifferent owners share a single brand name. A

parent company allows entrepreneurs to use the

company's strategies and trademarks; in

exchange, the franchisee pays an initial fee androyalties based on revenues. The parent company

also provides the franchisee with support, including

advertising and training, as part of the franchising

agreement.

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Franchising is a faster, cheaper form of expansionthan adding company-owned stores, because it

costs the parent company much less when new

stores are owned and operated by a third party. On

the flip side, potential for revenue growth is morelimited because the parent company will only earn

a percentage of the earnings from each new store.

70 different industries use the franchising business

model.

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How Franchising Works

The franchising business model consists of twooperating partners: the franchisor, or parent

company, and the franchisee, the proprietor that

operates one or multiple store locations.

Franchising agreements usually require thefranchisee to pay an initial fee plus royalties equal

to a certain percentage of the store's monthly or

yearly sales. Initial fees vary significantly across

each industry.

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Advantages of the Franchising

Model Franchisees require less initial capital thanindependently starting a company and can use proven

successful strategies and trademarks.

Franchisees are provided with significant amounts oftraining, not common to most entrepreneurs.

The franchisor benefits because it can expand rapidlywithout having to increase its labor force and operatingcosts, using much less capital.

Franchised stores have a higher margin for the parentcompany than company-owned stores because ofminimal operating expenses in maintaining franchised

stores.

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top 10 franchises


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LICENSING

Is a form of foreign market entry based on a contractualrelationship, where a company (the licensor) grants rights to

intangible property to another company (the licensee) to use in a

specified geographic area for a specific period time and the

licensee ordinarily pays a royalty to the licensor.


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ELEMENTS

Contractual relationship Licensor

Licensee

Rights

Intangible property Payment (Royalties)

Specified geographic area and specific period time


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Contractual relationship

Is the relationship that exists betweenparts to sign a contract, establishing

rights and obligations


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LICENSOR AND LICENSEE

Licensor:Is obliged to furnish technicalinformation and assistance, agrees to makeavailable to another company abroad, use ofits patents and trademarks, its manufacturing

processes, its trade secrets, and itsmanagerial and technical services

Licensee:Is obliged to exploit the rightseffectively and to pay compensation to the

licensor, agrees to pay the licensor a royaltyor other form of payment according to aschedule agreed upon by the two parties


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RIGHTS

May be exclusive (the licensor can giverights to no other company) or

nonexclusive (it can give away right)


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INTANGIBLE PROPERTY

Include any item of worth that is notphysical in nature.

Patents, inventions, formulas, processes,

designs, patterns Copyrights for literary, musical, or artistic

compositions

Trademarks, trade names, brand names Methods, programs, procedures,

systems

Manufacturing techniques


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PAYMENT (ROYALTIES)

The amount and type of payment forlicensing arrangements vary. Each

contract tends to be negotiated on its

own merits. For example, the valuewill be greater if potential sales are

high.


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THE SELECTION PROCESSIf, after careful thought, you conclude that taking on a partner is

the way to go, your first rule of thumb is: Dont choose a partner who is like you. A truly effective partner is

someone with abilities and skills that complement your own and canexpand what you can do as a team.

If youre both engineers or have financial skills, for example, who

will manage the sales and marketing?

On the other hand, both partners must share the same businessgoals. After all, youre each going to be putting in considerableamounts of money, time and effort. You need to know that youagree on where youre trying to go for bvoth the short term andlong term.

If your partners idea of business is to get rich quickly and thatdoesnt jibe with your ethics, better to find out now beforefinalizing any kind of partnership agreement.


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Dont be too quick to make a decision about taking a partner.You should discuss everything in great detail.

Unless the prospective partner is a longtime acquaintance or afamily member, it will take a while to truly understand theperson you may be working with. The wrong partner is worsethan no partner at all.

Difficult as it may be to discuss certain things about your lifesuch as health or personal problemsnothing should be offlimits in a pre-partnership discussion.

Two seemingly perfect partners each had money to invest in agourmet-food business, had different areas of expertise and

shared common goals. Despite having a great idea andworking well together, their partnership dissolved because onpartner became distracted by a recent divorce. This partnerhad conveniently failed to mention the divorce duringdiscussions about the new business.


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Caution: An old friend or family member doesnot necessarily make a good businesspartner. Old friends have the advantage of

being known entities, but being buddies formany years may make you too casual aboutformalizing the business arrangement. Thatcould mean that you would leave critical

details about responsibility andaccountability unmentioned in the planningprocess.

Similar difficulties arise when husbands andwives go into business together. In this case,success comes down to how well thepartners skills complement each other andhow well they can separate their marital andbusiness roles.


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THE PARTNERSHIP

AGREEMENT

A well-thought-out and formally executed

partnership agreement is a must for a

successful, long-lasting partnership. Get thehelp of a good attorney who will write the

contract in understandable English. Ideally,

both partners should have independent legalrepresentation in drafting or at least

reviewing the agreement.


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The partnership agreement should

include

Full description of each partners responsibilities in operating the business including who has responsibility for such matters as hiring and firing taxissues purchasing, etc.

Clear language about each partners initial financial contribution and howprofit/loss will be divided.

Provisions that spell out the timing of withdrawal of partnership profits.

Clear, easily understood buy/sell provisions in the event that one partnerwants out. Spell out how the value of the business will be determined in thissituation, and how a buyout will be executed.

Provisions for continuing the business in the event of death, disability orwithdrawal of one of the partners.

A prohibition against either partner becoming involved in another competingbusiness.

Finally, in a two-person partnership, it is essential to add to the agreement aplan for resolving disputes. A fifty-fifty partnership creates stalemates whendisagreements arise. Having each partner take 49% and giving the remaining2% to a mutually trusted outside individual can solve this. This person, then,can cast the deciding vote and avoid a deadlock.


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THANK YOU

Choosing the Right Partner

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