While traditionally businesses have engaged in competition and many have undertaken competition strategies in a bid to maintain an edge, in this series I make a case for collaboration.
It has been argued that collaboration is the new competition. More businesses are pursuing collaboration as opposed to competition due to the benefits to be gained by collaboration.
There are several benefits that businesses enjoy. There are a couple of strategies used to collaborate including strategic alliances.
A strategic alliance is an arrangement between two or more businesses where they agree to undertake a mutually beneficial engagement.
It enables competitors to come together and work together for a win-win solution. They maintain their independence but collaborate on certain aspects.
For example, the competitors may form an alliance to access a certain market. For instance, in the professional services market, a portion of the competitors may decide to offer a certain service jointly through a strategic alliance.
The benefits to be gained through this are diverse including increased capacity and economies of scale.
Before getting into this type of collaboration the competitors will have to determine if they wish to register a separate entity as the strategic alliance or not.
This decision is important as it will determine the type of legal documentation to be used.
If the strategic alliance is an informal one where there will not be many structures and so on, then they can simply use a strategic alliance document to document their collaboration.
Theoretically, it has been referred to as a non-equity strategic alliance. Equity strategic alliances involve the registration of a separate entity while inviting competitors to take up ownership in the newly formed entity.
A non-equity strategic alliance is best suited for simpler and temporary alliances.
For example, where the competitors wish to undertake a one-off venture such as collaboration on a tender or consultancy opportunity.
An equity strategic alliance is best suited for more complex and permanent alliances. They are usually recommended where the competitors wish to minimise risk exposure from the alliance activities.
The law will treat the competitors and the alliance as separate entities and none of them will be liable for the alliance activities.
The alliance itself will bear the risk and liabilities of any activities it undertakes. An example is when two developers wish to collaborate on a certain development project that will take years to complete.
It is less risky to incorporate a separate entity that will implement the project as this will allow the individual businesses to proceed with their normal business operations, without much exposure from the project.
Setting boundaries
Collaboration requires a lot of clarity and setting clear boundaries, roles and responsibilities. Important issues to be addressed in the alliance document have to do with decision-making, handling of conflicts of interest and dispute resolution.
Before getting into an alliance, it is advisable to do thorough due diligence on your competitor and ensure alignment.
A lot of disputes pertaining to strategic alliances are a result of misalignment and lack of clarity. Therefore, a sound dispute resolution policy is important in preventing and managing disputes.
Ms Mputhia is the founder of C Mputhia Advocates | [email protected]
