When money is tight, it only makes sense for companies and municipalities to seek out alliances that can lighten the financial load and reduce risks if projects go awry.
Sometimes they're public-private partnerships. The Virginia I-495 infrastructure project, for example, is a joint effort between the U.S. state's Department of Transportation, two U.S. construction giants and an Australian developer. In other cases, it's two private companies looking to leverage the expertise of global teams with local businesses. U.S.-based Methodist International Medical Center joined forces with Emaar Healthcare Group in the United Arab Emirates, for instance, for projects to build healthcare centers in the Middle East, North Africa and Turkey.
No matter how the players line up, partnerships are a popular way to spread risk and cut costs.
"There used to be more of an emphasis on outsourcing of manufacturing, but in a competitive market-place, companies are beginning to see the business value of broad partnerships to increase operational efficiencies and reduce ramp-up risks," says Borzu Sohrab, principal consultant for Crescent Biomedical, a Los Altos, California, USA-based consultancy. "Many companies have also found that they can reduce headcount and increase competencies through partnerships."
He points to the project to develop a drug-eluting coronary stent launched by U.S.-based medical device manufacturer Boston Scientific and Canadian pharmaceutical company Angiotech. In this case Angiotech brought the intellectual property for the anti-clogging drug that would coat the stents, while Boston Scientific had the manufacturing expertise.
"They were able to leverage manufacturing competencies in a complementary manner," Mr. Sohrab says, adding that device and pharmaceutical companies are developing more joint projects as they race to bring new products to market.
But partnerships can also backfire if careful due diligence is not conducted, warns Gene Smith, founding partner of Smith Brandon International Inc., a strategic management planning consultancy based in Washington, D.C., USA.
"There are a lot of inflated credentials right now," she explains. "Whether it's across industry or across borders, it's all the same. There are huge issues involved with choosing partners."
From verifying that companies actually exist to evaluating their financial, legal and regulatory issues, it takes a lot of scrutiny to ensure potential partners are legitimate and solvent for the long term.
Because of the recession, it can be particularly difficult to assess the financial stability of potential partners. Companies that may have been thriving 12 months ago when their last financial reviews were conducted are now struggling. Funding for projects may also have changed as governments rethink the value of investing funds in major undertakings or banks pull back creditlines.
"Credit issues are the biggest problem today," Ms. Smith says.
One of the best ways to reduce risks and make a more calculated choice is to thoroughly research a company's leadership team, recent project success rate, and any cultural and political issues that may be occurring in their region or industry. After that, find out if the company is a good technical and cultural fit through face-to-face meetings and open dialog about what each party can bring to the project.
"Get to know your potential partner and be objective," Ms. Smith says. "Ask a lot of questions and be prepared to offer your information in return."
The "getting to know you" part of the process always takes longer than expected, but she urges companies to resist the temptation to skip ahead. "Step back and be patient," Ms. Smith says. "If you do your due diligence on the people, the politics and the finances, you can avoid having to ask yourself 'Should we have known about that?' when problems arise down the line."
TAKEAWAY: The right partner can reduce risks and improve delivery time, but the wrong one can lead to project failure.