SPECTRUM OF BUSINESS RELATIONSHIPS
Main Types of Business Relationships can be summarized briefly as follows but not limited only with those. Many different types of Business Relationships can be developed based on the specific needs of the customers and their strategic plans to improve their business at foreign market(s).
- Agency: An agency is basically an agreement in which a company or an individual acts on behalf of another to perform certain specific services like marketing, customer support and product sales.
- Distributor: Another popular business matching activity is the identification of potential distributors. A distributor is an individual or a company that has the rights (sometimes exclusive) to sell goods or offer services on behalf of a producer in a particular market or geographical areas. The distributor usually imports directly from the exporter.
- Supplier partnership: In this form of relationship, a supplier forms a collaborative relationship with the another supplier(s) (local or foreign) for a project or for a specific purchase agreement. The partnership calls for the sharing of information and commitment from both parties.
- Joint Marketing: Joint marketing occurs when two or more parties enter into an agreement to share marketing expertise and conduct joint marketing in the home or host or third country market.
- Licensing: Licensing arrangement is given when a company with a well-known product or technology allows the licensee to manufacture the product, usually for a country or region. The licensing company collects royalties based on a fixed sum or the quantity produced.
- Contract Manufacturing: Under contract manufacturing, a contract manufacturer manufactures a product or component for another company (the principal). The contract manufacturer provides labour, production capacity and some technical expertise. Marketing and distribution are generally controlled by the principal. The contract is usually for a fixed duration of time and can be terminated.
- Original Equipment Manufacturer (OEM): An original equipment manufacturer (OEM) produces products or components for another manufacturer who resells the products or components to the end users under its own brand name.
- Private labels: In the case of private label, the brand stands for the name of the distributor or retailer rather than the manufacturer. This practice is common in the garment sector.
- Franchise: Franchising is an arrangement where a party which has developed a proven way of running and managing a business successfully, licenses another party the rights to operate that business format under the trade or service mark(s) or trade name(s) of the first party. The business arrangement involves a formal legal contract between the two parties.
- Joint research and development: This type of business relationship takes place especially between advanced technology using companies and/or university research centers.
- Equity participation: In some business relationships, one party purchases equity shares in another company due to strategic reasons e.g. a principal may purchase shares in a supplier. This type of business relationship is called equity participation. Equity participation usually does not result in a management takeover, although the company would be represented on the board of directors. In this type of business relationship especially “International Corporate Governance Rules and Principles” become important and plays a strategic role in the negotiations between the two parties.
- Joint venture: Under a joint venture, a contractual relationship is established between two or more companies to carry out a specific business or project. Joint ventures are often proposed in order to enter an industry for which the company has some, but not all, the critical capabilities. This creates scope for synergy. For example, a company may have the technology but lacks the distribution networks. The company may enter into a joint venture with a distributor.
- Mergers and acquisitions: Merger takes place when the assets and liabilities of one company are combined with the assets and liabilities of another company. If a merger is between two companies in the same line of business, we have a horizontal merger. If the merger is between two companies in the same business but participating in different stages of the value chain, a vertical merger develops. Finally, if the merger is between two companies in different businesses, it is known as a conglomerate merger.