Competition is a natural component of running a business. Few companies with broad aspirations are going to exist without competing for customers with rival businesses. That being said, it’s not unheard of for direct business competitors to figuratively lay down their swords and collaborate for a project.
In fact, if employed correctly, this “co-opetition” (as it has come to be known) can actually yield major benefits. A 2018 study conducted by the Multidisciplinary Digital Publishing Institute showed that both companies in a strategic partnership were 50% more likely to reduce overall costs. There’s certainly a reason that notable corporations like Amazon and Apple, Microsoft and Intel, and Ford and Toyota have joined forces at one time or another despite competing for the same customers most of the time.
So, what makes these strategic alliances so attractive, and what are some of the potential drawbacks?
Pros
1. Expand Your Brand Awareness and Customer Base
Strategic alliances can help introduce your brand to an entirely different sector of the consumer market. This is particularly true if you happen to partner with a larger or more established company in your field. But, it can also help if you run the larger operation and are looking to delve into a more niche market.
Strategic alliances are also valuable for improving your brand’s reputation and awareness. Partnering with an industry leader or even an up-and-coming brand can lend even more legitimacy to your company.
2. Streamline or Improve Parts of the Business that are Less Integral
There are things that your business does well. Maybe you make the best products or your supply chain is a really tight ship. Outside influence probably will not improve the already exemplary aspects of your business.
But, you can’t be the best at everything, and a strategic alliance can help cover those deficiencies. It’s only natural that collaboration with a competitor can help offer more resources that you may not be able to access for one reason or another. It’s also a good opportunity to learn about how to improve your business when the partnership is over.
3. Increased Creativity, Less Stress when Solving Problems
Competition is stressful, and it can feel like there is a lot of pressure to complete a project or push out a new product before a rival business does. This is inherent in a competitive business environment in the same way that two teams on a basketball court feel pressure to score more points than the other.
Unlike basketball teams, however, you can alleviate the stress by simply collaborating with the opposition. With co-opetition, you are less likely to commit errors, cut corners unnecessarily, or just generally deemphasize quality. You can take your time while also getting a fresh perspective on an idea, because you are not rushing to beat out the competition.
4. Enter into a New Market Segment
Like the collaboration between Ford and Toyota mentioned above, you can leverage a strategic alliance to make a foray into a new market segment. In the case of the two automobile giants, they formed a partnership to collaboratively research and develop hybrid pickup trucks and sport utility vehicles. Both sides benefitted from having access to the other’s research, and they both undoubtedly produced better products when all was said and done.
If you’re considering branching out into new products or segments, then a collaboration might be the best way to go about it. Again, it also takes the pressure off of you to develop a new product and release before it’s fully realized.
5. Not Entering into a Partnership can Actually be the Worst Idea
The best example of an industry that refused to consolidate into a mutual alliance comes from major record companies in the early to mid-2000s. When the music industry began losing profits due to the ease of illegal music downloads, they responded with half measures. Sony and Universal combined to create their own online music store while a consortium of EMI, Warner, and Bertelsmann set up their own platform.
The problem with this? They refused to license their music to the competing platforms, making it unattractive for consumers to opt in to either service. At the end of the day, Apple’s iTunes swooped in with a more democratized approach to music sales, completely undercutting the record labels and taking some of the market share they could have had as part of a broader collaboration. It’s a cautionary tale about not seeing the bigger picture and losing out on bigger profits out of an unwillingness to collaborate with a competitor.
Cons
1. Partnership May Lack Clarity
As with anything in business, there’s a chance that a strategic alliance could actually backfire. A lack of clearly defined parameters can make the partnership more contentious than productive. Maybe both sides don’t agree on an end date, or they are unwilling to grant access to certain valuable resources. These things need to be ironed out before entering into the partnership, otherwise you could be making your relationship even more adversarial.
It’s also important to make it abundantly clear which portions of your business can be shared in the context of the partnership. Sales tactics, pricing strategies, customer details, marketing campaigns, and other pieces of information need to be explicitly on- or off-limits prior to signing on the dotted line.
2. Goals Can Sometimes Be Achieved without External Help
In some cases, you simply don’t need an outside element to help you achieve your goals. A competitive collaboration could lead to higher costs, slower development times, and legal issues later on if you never actually needed the assistance. It’s important to adjudicate whether you can complete your desired objectives more efficiently without enlisting your competition. Otherwise, you could be spinning your wheels on a deal that provides almost no benefit that you couldn’t have acquired on your own.
3. Legal Rights Can Come Into Question
Again, without a clear agreement between the two parties, you can leave yourself open to potential litigation. A strategic partnership is sometimes commenced for the purposes of creating a new product or line of business. But, ownership rights can become murky, especially if the contract isn’t clear about how those products will be deployed.
Final Thoughts
At the end of the day, we know that strategic partnerships can be successful if they are employed effectively. The benefits are obvious, and there’s a reason that these alliances are made all the time. At a certain point, it becomes difficult for a company to grow without some collaboration. But, of course, you also want to ensure that the collaboration is well thought out and not something hastily thrown together in an effort to capitalize on another company’s popularity.
