Is a strategic business alliance right for you?

In small business, alliances are nothing new. One of the oldest, and most familiar, examples are retail shop owners who sell one type of product line teaming up with shop owners who sell noncompeting products to enhance sales. Take for example the baker having a bread display in the butcher shop. Bread next to meats just makes sense. The alliance may take the form of trading space in each other’s retail space or simply a referral program. Small trucking companies also have been teaming up for decades to maximize capacity where needed. Big business, however, traditionally shunned the idea of playing in the same sandbox. Any large company alliances in the past were thought to be management trends that were a ‘flavor on the month’ effort soon to be gone. (Thanks to The Butcher Block for the photo.)

Oh, what a difference a stout recession makes and the resulting post-recession byproduct of stiff competition. In today’s hyper-competitive world, strategic alliances are not just popular; alliances seem to be here to stay. Ocean carriers are circling their wagons together, tech companies are teaming up, and even our own TJO Cargo teamed up with Anova Insurance to provide TMS integrated cargo insurance for TMS providers and larger TMS users. The logic behind strategic alliances is sound; two or more companies are sharing resources to reduce costs and increase value to customers. Yep. Just like the butcher allowing the baker to have a bread rack in the butcher shop. (Thanks to The Economic Voice for the photo.)

While reasons companies decide to align may have much in common, each alliance is different and has a particular personality. I noticed an announcement that Tradehelp, http://tradehelp.org/, who runs a physical trading platform integrating traders and service providers into a unified global interface, and Shipnext, https://shipnext.com/, who operates cargo and capacity matching organization, both using advanced technology. Here are the links TradeHelp & Shipnext and Shipnext & TradeHelp if you want a peek at each companies announcement. These two technology-centric companies seem like a natural to team up; one is a company specializing in international trade, the other specializing in international transportation. Peanut butter and jelly, right? I thought the same thing. It just so happened I know the CEO of Tradehelp, Gary Kesser, and he doesn’t get peeved when I bother him. So I decided to ask him what Tradehelp and Shipnext targeted as objectives through their strategic alliance. Here is what Gary sent me:

- This Strategic Alliance creates unique synergy between TradeHelp™ - a global commodity trading marketplace and trade services ecosystem, and SHIPNEXT - a global shipping marketplace and transportation network to complement users on both ends and provide unprecedented economic value by fostering operational transparency, compliance, visibility and high-tech operational ease-of-use.

- Interconnectivity of both digital platforms will facilitate user traffic both ways, providing greater market breadth and operational flow for all participating companies

- Each trader and service provider will benefit from a fully integrated full cycle trading and operational solution including trading tools and mechanisms, pre-trade discovery on commodities and services, trading and services operational interfacing, real-time post-trade execution, digitized end-to-end supply-chain, and transportation-related services.

- This Strategic Alliance will provide the utmost efficient digital solutions for all global trade participants, fostering operational efficiencies, open market opportunities, growth, and sustainability to contribute to and enhance further digitization of supply chain operations for all market constituents.

Did you get all that? Neither did I. But in trying to understand the bullet points correctly, my take is TradeHelp is the ‘butcher,’ and Shipnext is the ‘baker’ or vice versa. It’s hard to tell. However, I can see the benefits in the union of the two companies. Trading can be harder than it looks. On the surface, the act of manufacturing/buying inventory, finding a buyer, selling the inventory to the buyer, transporting the goods, and collecting your money, seems pretty straight forward. There are thousands of deals out there and even more resources, what could go wrong? In practical application, it is a bit more difficult. (Thanks to Ground Floor Partners for the photo.)

Part of the challenge is thousands of deals do exist, and there seems to be an endless supply of resources; although it’s hard to tell which are legitimate opportunities and which are predators, time wasters, and charlatans. Mitigating this uncertainty is one of the benefits TradeHelp and Shipnext feel they can offer by offering end to end digital resources to allow traders to execute deals freely but still operate in a technologically advanced vetted environment. If successful, their union will allow small and medium-sized traders to play with the major traders but not have to wander in the risk-laden wasteland known as the ‘Internet.’ looking for resources and deals.

While strategic business alliances are popular and beneficial to companies joining forces and their customers, there are pitfalls. Aligning companies give up some freedom of how their company is perceived. While one alliance partner may have top quality personnel and give customers a good customer service experience, another may hire the lowest grade of personnel they will pay for and offer a terrible customer experience. Like it or not, the company who endeavors to present a great customer experience is reputationally tied at the hip to their underperforming partner. The reputation risk can extend even further if one partner negatively makes the news. In the event, ‘peanut butter’ receives indictments for tax fraud, ‘jelly’ would not only have their reputation tarnished, and there is also little doubt jelly would also get a friendly visit from the Internal Revenue Service.

There is also the question of liability. Most good alliances have a good working agreement or contract to guide the alliance. Each party may even hold each other harmless for liability created by one or the other partner. It is unfortunate the customers, and potential customers of each partner typically have not signed such an agreement. The nature of alliances sometimes have both alliance partners providing services for customers at the same time or acting as a portal to provide a service or product to the customer. If the executing alliance partner makes a grossly negligent error that causing great harm to a customer, the liability may not stop at the executing partner's door. (Thanks to The Balance Small Business for the photo.)

Not structuring the alliance properly, agreeing to benchmarks, identifying, and living by, service level agreements, and performing due diligence on your potential alliance partner, could make the alliance problematic than profitable.

So are strategic alliances a good thing? You bet they are, customers can benefit very much through savings and expanded resources. But for would-be alliance partners, the devil in is the details.

 

Published By

Tom O'Malley

Owner, TJO CARGO Insurance

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Published on June 10, 2019