Be it a marriage of technologies or services, or a blend of both, the first question to ask why are we collaborating? Is the driver a product, project or tender, or the aim of achieving increased share in or access to the market? In any event, the pooling of resources and sharing of risk will always be attractive in a downturn. The second question to ask is have we got the mix right, both in terms of value to participants and value to customer?
Collaborative networks cover any commercial arrangement between two or more independents entities, be they companies, sole traders or a blend of both. For governance, we must look to various sources to establish the framework, and, in particular, the nature of the collaboration which will dictate. In this way, a special purpose company will be governed by the laws of the country in which it is incorporated.
In terms of application, collaborative networks are today being used to deliver supply chains, value chains, special purpose projects and clusters. The world is indeed becoming smaller, however, many projects are becoming more complex. The challenge in planning and documenting the collaborative network is to ensure that it meets its operational, financial, regulatory and tax requirements without missing the commercial objective. The balance is between the reward which has led you to collaborate, and the degree of control that needs to be sacrificed in its achievement.
Broadly speaking there are three forms of collaborative network, delivering differing levels of engagement. These are: collaboration by company; collaboration by contract; and collaboration by partnership. Each approach raises its own set of issues, but at a high level:
- collaboration by a company vehicle will involve an incorporated structure. This company will be a separate legal entity with its own limited liability, and the participants will each participate through ownership of shares;
- under the collaboration by contract approach, the relationships are governed by contract. There is no separate legal entity, and, to this extent, collaboration takes place in an unincorporated structure;
- a legal partnership can arise by design or default. It is again an unincorporated structure where common business activities and arrangements for the sharing of profits may result in a legal partnership arising.
There will be issues which steer the choice of collaborative network. Some commercial points to consider are: where are profits and losses to be housed? What is the appetite for risk? How involved a management structure is required? Whether minority protections are required? The likelihood of changes in participants; regulatory issues (if any); exit on termination or expiry. In the abstract, these can be pointers only.
The success or otherwise of the collaborative network is unlikely to depend solely on the structure chosen. Like any relationship, it is an art, not a science. The aim must be to achieve the sum of the whole, but that can only properly be assessed in the context of both its external value – the value of the bundled proposition to the customer; and its internal value – the value of collaboration to each of the participants.
For further information on issues raised in this article, please contact Adrian O’Connell, Head of Contracts & Technology at Tughans, Tel: +44 (0)28 9055 3395, email: firstname.lastname@example.org
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