Business Partnership Models

A business partnership is a formal agreement between two or more natural or legal persons to conduct business together. It allows value to flow between the business models of the partners, as illustrated in Fig. 1 below. By combining value contributions from both business models, a partnership is able to create new forms of value that benefit both partners (DOORNEWEERT 2014).

Fig. 1: Value exchange between two business models. Source: adapted from DOORNEWEERT (2014)

A partnership agreement is usually drawn up to formalise the terms of the partnership, including the roles and responsibilities of the partners, the sharing of profits and losses, and the procedure for resolving disputes. Business partnerships can offer a number of advantages, such as access to capital, shared expertise and resources, and the ability to share risks and costs. However, partnerships also bring potential disadvantages, such as the need for clear communication and trust between partners, the potential for disputes and disagreements, and the possibility of personal liability for the partnership's debts and obligations.

Business partnerships can be entered into for a variety of reasons, including:

• Access to new markets: A business partnership can provide access to new markets or customers that a company may not have been able to reach otherwise. By partnering with another company that has an established presence in a particular market, a company can tap into that market and expand its customer base.
• Access to new technologies or expertise: A business partnership can provide access to new technologies or expertise that a company may not have in-house. By partnering with another company that has specialized knowledge or expertise, a company can improve its products or services and gain a competitive advantage.
• Cost savings: A business partnership can result in cost savings for a company, as it may be cheaper to share costs or resources with another company than to invest in them separately.
• Risk sharing: A business partnership can help to reduce risk by allowing companies to share the risks associated with a particular project or venture.
• Improved efficiency: A business partnership can improve efficiency by allowing companies to leverage each other's strengths and resources, resulting in a more streamlined and effective operation.
• Increased innovation: A business partnership can foster innovation by bringing together different perspectives, ideas, and resources (see Innovating Business Models).

There are several business partnership models that companies can adopt, depending on their goals and resources. Each partnership model has its own advantages and disadvantages, and companies should carefully evaluate their options before entering into a partnership. Some of the most common partnership models are:

Joint Venture: A Joint Venture (JV) is a business partnership model in which two or more companies join forces to work together on a specific project or business venture. A common use of JVs is to partner with a local company to enter a foreign market (HARGRAVE 2023).

5 key opportunities:

• Access to new markets: JV can provide access to new markets or customers, allowing partners to expand their businesses beyond their traditional markets.
• Access to expertise and resources: Joint ventures can provide access to expertise and resources that one company may not have on its own and pool resources, including capital, expertise, and technology, which can lead to cost savings and increased efficiency.
• Risk sharing: Joint ventures can reduce the risk of a new business venture or project, as partners can share the risks associated with launching a new product or entering a new market.
• Increased innovation: Joint ventures can increase innovation, as partners can leverage each other's expertise and technology to develop new products or services.
• Reduced competition: Joint ventures can reduce competition between partners, as they can work together to achieve a common goal.

5 key risks:

• Lack of control: Joint ventures involve shared control between two or more companies. This can lead to disagreements and conflicts over decision-making and strategy.
• Shared profits: Joint ventures involve sharing profits, which may not be as lucrative as going solo. One company may feel they are contributing more resources and expertise than the other and not receiving their fair share of the profits.
• Cultural differences: Joint ventures may involve companies from different countries or cultures, which can create challenges in communication, decision-making, and business practices.
• Brand dilution: Joint ventures can dilute a partner's brand if the other partner's brand is not well-regarded or if the partnership is perceived negatively by customers.
• Complexity: Joint ventures can be complex to set up and manage, requiring legal and financial expertise.

Strategic Alliance: A Strategic Alliance is a partnership between two or more companies that agree to jointly pursue a mutually beneficial project or business venture, while each partner retains its independence (KENTON 2022). A common application of a Strategic Alliance is, for example, the development of new products or the entering of new markets.

5 key opportunities:

• Access to new markets: Strategic alliances can provide access to new markets, customers, and distribution channels, which can help partners expand their business.
• Shared resources: Partners can share resources, such as technology, expertise, and knowledge, which can reduce costs and increase efficiency.
• Increased innovation: Strategic alliances can stimulate innovation by combining the expertise of partners, resulting in new products, services, or technologies.
• Increased competitiveness: Strategic alliances can increase competitiveness by combining the strengths of each partner, such as technology, brand reputation, or distribution networks.
• Flexibility: Strategic alliances can be flexible in terms of their structure and duration, allowing partners to collaborate on a specific project or strategic goal without having to merge their entire businesses.

5 key risks:

• Conflict of interest: Partners may have conflicting interests or goals, leading to disagreements and potential conflicts.
• Lack of control: Partners may have limited control over the strategic alliance, as decision-making is shared.
• Dependence: Partners may become dependent on each other, which can be a disadvantage if one partner fails or is unable to fulfill its obligations.
• Cultural differences: Partners may have different cultures, values, and business practices, which can lead to misunderstandings and potential conflicts.
• Intellectual property issues: Intellectual property issues can arise when partners share technology or other proprietary information, potentially leading to disputes.

Franchising: Franchising is a business partnership model in which a company (the franchisor) licenses its business model, intellectual property, and brand to another company (the franchisee) in exchange for a fee or royalties. The franchisee operates under the franchisor's brand and business model, following a set of established guidelines and procedures (HAYES 2023).

5 key opportunities:

• Established business model: Franchising provides the franchisee with a proven business model, reducing the risks associated with starting a new business from scratch.
• Brand recognition: Franchisees benefit from the brand recognition and reputation of the franchisor, which can help to attract customers and build loyalty.
• Support and training: Franchisees receive support, training and, and marketing materials from the franchisor, which can help them to succeed and operate their business more efficiently and effectively.
• Marketing and advertising: Franchisees benefit from the marketing and advertising efforts of the franchisor, which can help to attract customers and build brand awareness.
• Access to resources: Franchisees have access to resources, including suppliers, inventory, and equipment, which can be difficult to obtain as an independent business owner.

5 key risks:

• Initial investment: Franchisees must pay an initial fee and ongoing royalties to the franchisor, which can be a significant financial burden.
• Limited independence: Franchisees must adhere to the franchisor's business model, products, and services, which can limit their independence and creativity.
• Brand reputation: The franchisee's reputation is closely tied to the franchisor's brand, and negative publicity or legal issues involving the franchisor can negatively impact the franchisee's business.
• Restrictions on expansion: Franchisees may be limited in their ability to expand their business, as the franchisor may restrict the number of franchise locations in a given area.
• Exit strategy: Exiting a franchise can be difficult and costly, as franchise agreements typically include restrictions on selling or transferring the business.

Licensing: Licensing is a partnership between a licensor and a licensee. The licensor grants the licensee the right to use its intellectual property, such as trademarks, patents, and copyrights, in exchange for a fee or royalty (CFI TEAM 2022).

5 key opportunities:

• Revenue stream: Licensing can provide a steady revenue stream for the licensor, as the licensee pays fees or royalties for the use of the licensed intellectual property.
• Brand recognition: Licensing can increase the licensor's brand recognition, as the licensee may use the licensor's trademarks or logos in association with the licensed product.
• Access and speed to new markets: Licensing can provide access to new markets or customers, allowing licensees to quickly expand their businesses beyond their traditional markets.
• Reduced risk: Licensees can reduce their risk by licensing a proven product or technology, which has already been tested in the market.
• Shared expertise: Licensees may benefit from the expertise and support of the licensor, including product development, marketing, and sales.

5 key risks:

• Limited control: The licensor may have limited control over the licensee's use of the licensed intellectual property, which can be a disadvantage if the licensee does not meet the licensor's standards or expectations.
• Brand dilution: The licensee's use of the licensor's trademarks or logos may dilute the brand if the licensee does not maintain the same quality or standards as the licensor.
• Limited flexibility: Licensees may be restricted in terms of how they use or modify the licensed product or technology, which can limit their ability to innovate or adapt to changing market conditions.
• Limited exclusivity: Licenses may not provide exclusive rights to use the licensed product or technology, which can lead to increased competition.
• Licensing fees: Licensees must pay licensing fees to the licensor, which can be a significant financial burden.

Distribution partnership: Distribution is a business partnership model in which a company (the manufacturer or supplier) sells its products to another company (the distributor), which then sells the products to retailers or end-users. The distributor typically takes possession of the products and assumes responsibility for marketing and selling them.

5 key opportunities:

• Access to new markets: Distribution partnerships allow manufacturers or suppliers to access new markets or customers that they may not have been able to reach otherwise.
• Shared resources: Distribution partners can pool resources, including marketing expertise and distribution networks, which can lead to cost savings and increased efficiency.
• Increased sales: Distribution partnerships can increase sales and revenue for both partners, as they can leverage each other's customer bases and cross-promote products or services.
• Reduced risk: Distributors assume some of the risk associated with marketing and selling the products, which can reduce the manufacturer's or supplier's risk.
• Greater efficiency: Distribution can increase efficiency by allowing manufacturers or suppliers to focus on product development and production while the distributor handles marketing and sales.

5 key risks:

• Lower margins: Distributors typically take a portion of the profits generated from the sale of the products, which can reduce the manufacturer's or supplier's profit margins.
• Limited control: Manufacturers or suppliers may have limited control over the distribution process, which can be a disadvantage if the distributor does not meet their standards or expectations.
• Brand dilution: Distributors may not be as invested in maintaining the manufacturer's or supplier's brand identity, which can lead to brand dilution.
• Potential for conflicts: Conflicts can arise between partners, such as disagreements over pricing or marketing strategies.
• Channel conflict: conflicts can arise alongside the partnership and own existing or planned distributions channels. Competing with your own partner or channel cannibalization can damage relationships and create tensions among stakeholders.

Co-manufacturing: Co-manufacturing is a partnership between two or more manufacturers that agree to collaborate to manufacture a product. In this model, each company contributes its own expertise and resources to the manufacturing process (VAN RITE 2019).

5 key opportunities:

• Shared costs: Co-manufacturing allows partners to share the costs of manufacturing, including equipment, labour, and materials.
• Increased efficiency: Co-manufacturing can share expertise and knowledge, enabling them to benefit from increased efficiency, as partners can leverage each other's strengths and expertise to streamline production processes.
• Improved quality: Co-manufacturing can improve product quality, as partners can share best practices and quality control standards.
• Increased capacity: Co-manufacturing can increase production capacity, allowing partners to meet higher demand without investing in additional manufacturing infrastructure.
• Reduced risk: Co-manufacturing can reduce the risk of product failure, as partners can share the risks associated with launching a new product or entering a new market.

5 key risks:

• Dependence: Co-manufacturing requires a high level of trust and dependence on each other, which can be a disadvantage if one company fails to meet its obligations.
• Conflict: Co-manufacturing can lead to conflicts if there are disagreements about the manufacturing process, quality control, or intellectual property rights.
• Brand dilution: Co-manufacturing can lead to brand dilution if one company's brand identity is not maintained in the manufacturing process.
• Communication challenges: Co-manufacturing requires effective communication and collaboration, which can be a disadvantage if there are language or cultural barriers between the companies.
• Lack of flexibility: Co-manufacturing partnerships can be less flexible than in-house manufacturing, as partners must coordinate schedules and production processes.

Outsourcing: Outsourcing is a business partnership model in which a company hires an external service provider to perform specific business functions or processes on its behalf (TWIN 2022). These functions can include manufacturing, IT support, customer service, or accounting, among others.

5 key opportunities:

• Cost savings: Outsourcing can result in cost savings, as partners can leverage lower labor costs and other economies of scale.
• Access to specialized expertise: Outsourcing can provide access to specialized expertise or technology that may not be available in-house.
• Focus on core competencies: Outsourcing allows companies to focus on their core competencies and strategic priorities, while delegating non-core functions to external service providers.
• Scalability and flexibility: Outsourcing allows businesses to scale their operations quickly and efficiently. When facing fluctuations in demand or seasonality, outsourcing partners can adjust resources and capacity accordingly.
• Risk mitigation: Outsourcing partnerships can help mitigate certain risks by for example offloading functions like compliance, regulatory requirements, or security to specialized partners.

5 key risks:

• Quality concerns: Outsourcing can raise quality concerns, as the service provider may not be as invested in maintaining the quality of the outsourced function as the company would be.
• Communication challenges: Outsourcing can lead to communication challenges if there are language or cultural barriers between the partners or partners are located in different geographic regions or time zones.
• Data security risks: Outsourcing can pose data security risks, as the service provider may have access to the company's sensitive information.
• Dependence: Partners may become dependent on the outsourcing partner, which can be a disadvantage if the outsourcing partner fails or is unable to fulfill its obligations.
• Negative impact on employees: Outsourcing can have a negative impact on employees, as it may result in job losses or reduced job security for in-house staff.

The Partnership Canvas is a complementary tool to the Business Model Canvas that allows mapping, designing, negotiating, adapting and visualising current and future business partnerships, as illustrated in Fig. 2 below. The Partnership Canvas creates empathy between two potential partners regarding the strategic importance of the partnership for both. The canvas can be used as a stand-alone tool but unfolds its full strategic value when used together with the Business Model Canvas (DOORNEWEERT 2014).

Fig. 2: The four building blocks that enable visualization of current and future partnerships: desired value, value offer, transfer activities and created value. Source: DOORNEWEERT (2014)

Building blocks of a partnership and how they relate to the business models of the partners, as illustrated in Fig.3 below (adapted from DOORNEWEERT 2014):

The Desired Value building block is the first building block of the Partnership Canvas. It allows you to describe the missing element(s) of your own business model for which you are looking for a partner. The desired value you are looking for should contribute to a better, more complete experience for your customers. This could relate to aspects of availability, convenience, speed, price, performance, etc.

Once you have identified what value you desire in a partner, you need to develop a matching Value Offer based on one or more elements of your own business model and linked to the desired value. An effective offer complements or enhances the value you desire from a partner. Only when this connection is made do you have a basis for creating a relationship.

The Transfer Activities building block must provide an answer to the question of how the partners’ values are to be connected and made mutually accessible? This building block is the exchange through which synergies are created between the partners’ business models.

The fourth building block (Created Value), addresses the creation of new value that can be utilized to innovate in one of the building blocks of your business model.

Fig. 3: Both the Value Offer and the Created Value relate to the business model of one of the partners, and the Desired Value should relate to an attribute of the other partner. Source: DOORNEWEERT (2014).

Laying the foundations of two Partnership Canvases against each other allows a comparison of whether the Desired Values and Values Offered of potential partners match and whether the partners have a same idea about the transfer activities needed to connect their values, as demonstrated in Fig. 4 below.

Fig. 4: The Partnership Canvas accommodates the comparison of a partnership from both partners’ perspectives. Source: DOORNEWEERT (2014)