Sports legends are so competitive that they could never imagine teaming up with their fiercest competitors. It’s hard to picture basketball icon Michael Jordan, for instance, to team up with fellow superstars Magic Johnson or Larry Bird to win an NBA championship during their heyday.
However, the same level of competitiveness doesn’t apply to business. In fact, collaboration in business has consistently proven to result in success for the companies involved.
If collaborating with competitors is something you’ve considered at one time or another for your business, then this is what you need to know before you decide to get into it.
Reasons to collaborate
There are a number of benefits to collaborating with our business competitors. This may include (but are not limited to) the following:
Get new skills and/or technologies
You can use a partnership with a competitor to get a hold of new competencies and technologies. Take note that this isn’t some underhanded approach to gain a competitive advantage; companies actually collaborate to learn skills or gain technologies.
Reduce expenses and risk
Other companies collaborate with their competitors to minimize costs and risks, especially when they want to enter new markets. Western companies tend to collaborate for this reason.
Build trust and loyalty among customers
Referring customers to other companies you collaborate with–especially those who offer products/services that you don’t have–demonstrates your integrity. It may initially sound like you’re driving business away, but it’s actually a great way to gain trust and loyalty.
More options can increase demand
Recommending each other gives more options to customers, and this can increase the demand for what you and your competitors offer. When the demand increases, the market grows with it.
Higher demand lets you raise prices
Stimulating the demand for what you offer lets you increase your prices, especially if you offer the best quality versions of your product or service. In turn, this allows you to boost your company’s revenue.
The problem in collaboration
Issues may occur when either company gets in a partnership with no other aim except to reduce its costs or gain knowledge/technology. When this happens, the collaboration eventually turns into nothing more than a glorified outsourcing deal.
Consider the hypothetical but all-too-common scenario: business A pays for business B’s components/services, while business B uses the collaboration to boost its skills by learning from business A. The result? Only one company wins, and it’s not necessarily the one who got paid.
Worse, if company A entered the collaboration for merely short-term profits, they may end up in a cycle of reliance on others. But as company A discloses more information and teaches more skills to company B, it gradually diminishes in value in the partnership–the value that keeps the other company interested.
Situations for mutual gain
Here’s the thing: the hypothetical company A doesn’t have to give more than it gets to guarantee the continued existence of the collaboration. There are actually circumstances where the mutual gain is achievable. Here are several:
Neither party encroaches the other’s market. This means neither would feel threatened by the other and would be open to collaboration and mutual gain.
The partners do not lead their respective markets. Size compels both to team-up and avoids antagonizing each other. This could lead to a longstanding partnership.
Both learn from each other while limiting access to proprietary skills. This may occur when the companies have different knowledge goals for their collaboration, but at the same time, both keep a tight rein on their own skills and technologies.
Preventing the transfer of proprietary knowledge
To ensure the success of the business collaboration, both companies should contribute something uniquely theirs. Both need to share enough knowledge for either to learn while averting the comprehensive transfer of proprietary information. It’s certainly not easy to balance this.
However, certain types of information or technology are more easily learned than others, and this can put some companies at a disadvantage, especially when their partner contributes information that’s difficult to sort out or replicate.
Western tech companies, for instance, collaborate with Asian chipmakers for the manufacturing of smartphones and tablets. It’s simple enough for a chipmaker to learn their partner’s designs; but the outsourcing tech company would have difficulty absorbing their colleague’s industrial capabilities, which is a multifaceted network of processes, skilled workers, and suppliers.
As a result, Asian businesses usually learn more than their Western associates. So how does one prevent the transfer of this valuable information? There are several ways:
Regulate the extent of the collaboration agreement. For example, the collaboration may include just one specific product or piece of technology, instead of covering an entire product line.
Establish precise performance conditions in the agreement. This obliges partners to reach certain performance numbers before you deliver your end of the bargain, ensuring that you both get what you want out of the collaboration.
Tips for successful collaboration
Here are a few suggestions on how to make your business collaborations more effective:
Establish your reasons to collaborate
To determine the extent and objectives of your collaboration, you’ll have to establish why you’re doing so, to begin with.
Know your competitor’s reasons for collaborating
You can’t go into collaboration without knowing why your competition is entering one with you. But don’t take their word for it; you need to figure out their true motivations so that you can plan accordingly, especially when fleshing out the conditions of your agreement. As stated earlier, you wouldn’t want to give too much away, particularly when it comes to proprietary knowledge and/or technology.
Consider whether the collaboration truly benefits you
Would the collaboration really prove beneficial to your business in the first place? You need to evaluate the conditions of the alliance to see if they would help your company. Try to look at how the deal may help in the long-term; your objective may help your business right now, but would it be beneficial ten years down the road?