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Standard Vs. Strategic Contracts

     

A lot of contracts, if not most, formalize arm's length transactions, essentially implying there is a distant or strictly professional relationship between the parties. In general, these types of contracts are run of the mill, standard form agreements. Even parties who have contracted with each other for years tend to rely on standard contracts.

 

Now, when we say standard contracts, we obviously don't mean that they are short or simple. In fact, standard contracts are often quite the opposite. By classifying most contracts as standard, we are merely referring to the fact that these contracts are fairly straightforward agreements based on each party agreeing to fulfill its contractually obligated duty in exchange for the other party's fulfillment of a duty, which of course may merely entail the payment of financial compensation.

 

However, with the rapid pace of the business world and increasing global competition, there is a growing need for and movement toward the use of strategic contracts. Ideally, a strategic collaboration, and the ensuing contract that arises from such a relationship, involves a long-lasting, mutually beneficial partnership. Here are some advantages to fostering strategic collaboration contracts:

Leverage Resources

Perhaps one of the main benefits of engaging in strategic collaboration is that both companies bring something different to the table. As a result, the parties can capitalize on each other’s strengths. And, more importantly, strategic collaboration enables maximal leverage of the resources of each partner. This can be beneficial in so many ways and various sectors.

 

For example, with respect to manufacturing, a solid partnership can improve production in terms of volume, speed, and/or cost reduction. Or, contracting with the right tech partner may give a company the opportunity to utilize previously inaccessible technological capabilities. Regardless of the type of business, virtually all companies stand to gain from focusing on strategic partnerships, rather than ones that merely fulfill a brief need.

Disperse Risk

Just as a strategic alliance provides companies with access to additional resources, it can also help to alleviate the possibility and impact of risk. For example, if companies want to venture into unchartered territory and doing so is costly or risky in some other way, it can be less daunting knowing that a strong partner will be involved in the process. In addition to shouldering some of the potential costs, strategic partners serve as a sounding board for ideas and may have the connections needed to navigate the situation.

Plan for the Future

It may not be easy to find the right partner, but if or when it does happen, it can help companies forge a long term plan. A lot of people think (or perhaps fear) that a long-term strategic partnership should or will result in some sort of merger or acquisition, but this simply isn’t true. With the right relationship, each company can grow and realize its own unique path and vision, while also benefiting from the strategic contractual arrangement. The whole point of strategic collaboration is to mutually facilitate the achievement of a shared goal, but the attainment of that goal doesn’t have to be central to each company’s ultimate success or direction.

Innovate

The fact that a strategic contract allows the parties to take advantage of combined resources, risk allocation, and long-term planning will also foster each company’s ability to innovate. This innovation may arise individually or it may derive from the partners’ desire to align their goals to work toward the delivery or provision of a new product or service.
 
Ultimately, startups, small companies, and mid-sized firms are likely to benefit from making the right strategic contracts, as the support will enable them to tap into new areas and/or expand on their existing objectives.

 

 

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