Introduction
The recent years have been characterized by dramatic business shifts, from equity-based to non-equity based structure of partnership. The great shifts are attributed to research and development activities that have recently dominated the world with an intention of improving scientific and technological knowledge.
The environment of business has also experienced drastic changes, requiring business ventures to take a direction that enhances its competitiveness in a dynamic world.
More over, change is always inevitable since it paves a way for new strategies implementation within business environments. The transition is also responsible for more business productivity and performance (Cantwell and Molero, 2003).
This assessment is aimed at providing a critical assessment of the major causes of business shift from equity-based to non-equity based partnerships. It will also consider the broad changes in the business and technological environment, as well as the features of both equity and non-equity based inter-firm partnerships.
Features of both equity and non-equity based inter-firm partnerships
Two basic models of partnership have been in existence in the business environment. The equity and non-equity based partnerships, though operate in similar business environment, have quite distinct features.
Equity-based partnerships are defined by a linkage of two or more companies forming an organizational unit that is controlled by two or more parent companies. They resemble semi-independent ventures, which are organized hierarchically.
At the same time, they can act independently to perform specific typical functions, including manufacture of products, selling, marketing functions etc. They are mainly characterized by a legalized firm formation that operates indefinitely, where the parent companies share resources, knowledge and collaborate in all activities.
More over, operations management is shared equally among the firms in the control of the independent firm. The long relationship firms established are geared towards enhancing competitive advantage, access to markets and business sustainability (Contractor, 2002).
On the other hand, non-equity partnerships are characterized by relationships that are informal since are formed on contract foundations. They are usually short-term agreements between ventures of choice by a particular company.
For instance, Magna International Inc, a known distributor of technologically developed automotive systems has joined hands with other companies, specifically those that manufacture automotives, i.e General Motors, Ford Motor, Honda companies etc.
These ventures require minimized kind of commitment unlike the equity-based ones, since are based on the principle of outsourcing. This entails engagement of companies in activities that can create value and primary support, in areas that are hard for operation by a single venture.
Less experience is needed since the organizations in contract do not have to share equally their knowledge, resources and control in addition to market and equity shares. Thus, their formation is simple and their formation is aimed at accomplishing a specific project within a given period of time (Contractor, 2002).
Changes in the business and technological environment
Modern developments have paved way for rampant transitions in both the business and technological environment. Competition has dominated the business environment in the recent years due to the increased number of ventures producing similar products.
At the same time, acquiring competitive advantage in the business field has become quite demanding to an extent of overwhelming single businesses in their operations. The fast-paced world today has embraced outsourcing as the best business strategy to gain competitive advantage, a reason for formation of non-equity based joint ventures.
More over, there is an arising need for enhancement of corporate social responsibility in the current environment, which calls for more outgoing strategies that the former (Uddin & Akhter, 2011).
On the other hand, rapid changes have been experienced in the technological world. Technological advancements that enhance marketing mix and selling strategies have been invented. Thus, with the rising level of technology, business enterprises need strategize themselves by adopting the modern means.
This calls for formation of non-equity partnerships that quicken the rate of technology acquisition via support projects. These need not be long-term ventures, but short-term ventures that are out to create outsourcing strategies.
Recent developments have enabled the adoption of social media like the internet, which utilize integrated marketing strategies to operate businesses. It is therefore essential for businesses to take precautionary measures through adoption of modern technology (Fagerberg, Mowery & Nelson, 2006).
Causes for change from equity based partnerships to non-equity based inter-firm partnerships
Equity-based partnership has long dominated the business market until the emergence of non-equity business partnerships. The recent research and development analysis have provided a concrete evidence of a shift from equity-based to non-equity based ventures in the current business environment.
This shift is majorly attributed to the type of formality required for the formation of non-equity business. No formality is needed in order to form a contractual business, since it requires two companies to come together to fulfill a certain mission and then they part.
Thus, their formation is not as complicated as that for the equity-based, which require legalization of long-term business (Uddin & Akhter, 2011).
Additionally, the kind of partnership is short-term, that requires less commitment by the singly joint companies. The joint ventures are normally complicated for they advocate for sharing of resources, knowledge, expertise, as well as operations and equity shares.
However, non-equity based are exempted from such overwhelming commitments, since they operate independently, sharing only in the specific outsourcing project. It is also evident from research that equity ones are complex in their operation, owing to the sharing of resources and management by the parent companies, unlike the non-equity-based ones.
It is also complicated and costly to join such partnerships due to the legalization processes that are involved in their formation, hence rendering non-equity partnerships easy to form (Uddin & Akhter, 2011).
The facts that the current market is dominated by business competition, enterprises choose to go non-equity based, which are out to quickly adopt business and technological advancements, for fitness in the dynamic world.
It is easy to acquire competitive advantage through short-term relationships since every member is very committed to achieve a common goal within the shortest time possible, than a long time where members think that, they have a long time of operation.
The current business environments require swift strategies that transform every activity within the shortest time possible. In addition, change need be implemented within the shortest time possible, and change management practices be adopted rapidly, which is not possible within the long-term ventures (Hagedoorn, 2002).
The sharing of proprietary knowledge by the ventures that are in equity-based partnerships is risky. Every other company aspires to become the best, thus, there is a likelihood to fight for power over control, while others are reluctant to share what they have with partners.
This may hinder developments unlike in the non-equity based, which are mission, or project oriented enterprises. Recent reports from research have indicated great failures experienced by the equity-based organizations, making them unpopular for formation by the business enterprises (Hagedoorn, 2002).
Furthermore, today’s cycle markets movements are extremely unpredictable. This causes great fear to the business ventures in forming long term partnerships, and consider that non-equity ones are more promising.
This also makes them to desire seeking competitive advantage with several other firms due to the unpredictability of the outcome of a single partnership. Thus, the equity-based partnership become unpopular everyday; while the non-equity based ones become popular (Hagedoorn, 2002).
Conclusion
Trends in the business environment are characterized by a shift from equity-based partnership (based on long-term relationships) to contract non-equity based forms. This is attributed to complexity in formation equity based as compared to non-equity alongside other factors.
The shift is also accounted for by the recent changes in technology as well as business environment. However, intensive research should be conducted to establish better polices that can be applied for the effectiveness of both types of business partnerships.
Reference List
Cantwell, J. and Molero, J., 2003. Multinational enterprises, innovative strategies and systems of innovation. Cheltenham: Edward Elgar Publishing.
Contractor, J., 2002. Cooperative strategies and alliances. Oxford: Emerald Group Publishing.
Fagerberg, J. Mowery, D. & Nelson, R., 2006. Innovation: The Oxford handbook of innovation. Oxford: Oxford University Press.
Hagedoorn, J., 2002. Inter-firm R&D Partnerships: An Overview of Major Trends and Patterns since 1960. Research Policy, Volume 31, pg 477-492. Web.
Uddin, M. & Akhter, B., 2011. Strategic Alliance and Competitiveness: Theoretical Framework. International Refereed Research Journal, Vol. ii, issue1. Researcher’s world. Web.