Out-Law / Your Daily Need-To-Know

Supply chain resilience – models for collaboration

Out-Law Analysis | 23 Sep 2020 | 2:41 pm | 4 min. read

A variety of legal models can support collaboration between businesses, helping make supply chains more resilient. However, businesses should take care to understand the pros and cons of each model, so that they select the right option for them.

Collaborative working has been a feature in the delivery of essential goods and services during the coronavirus pandemic, including in the areas of food, drink and pharmaceuticals. As the public health crisis persists, it is placing economic strain on businesses, with many exploring how working with others might help them bring together complementary solutions, gain access to greater pools of capacity and technical expertise, share and test ideas and access new markets and distribution channels.

This article is part of a series on the subject of supply chain resilience.

Joint ventures

Formal joint ventures (JVs), being incorporated or unincorporated entities, may appear comparatively less flexible than some other legal models that can support collaboration and there is some truth in that. However, they are still used in a variety of contexts – to deliver a particular project, such as the construction company JVs working to deliver the HS2 project, to drive a new product line incorporating the partners' respective contributions, or provide a vehicle for innovation.

These joint venture vehicles offer a number of benefits – they provide a well-established basis for managing parties' respective liabilities, as well as allowing for a truly 'shared' basis on which to enter into related supply and distribution arrangements, own assets, and receive revenue, among other things. That being said, the effort of establishing and operating a new corporate entity, including employing or seconding staff, can make them less attractive for shorter term or more initially speculative joint working.

There are a range of specific differences between the various available formal JV models, whether limited liability companies, partnerships, or LLPs, for example. Expert advice is essential in understanding their particular set up and operational requirements.

Corporate venturing

Corporate venture capital (CVC) is a type of collaborative investment where a company acts as a private equity or venture capital investor, taking a minority stake in a young, fast-growing business either on its own or with other investors. CVCs offer companies the opportunity to experiment and to spread their net wide when seeking access to new technology, without committing to a full-blown acquisition. In some cases, the alliance may ultimately lead to a formal merger while in others, one side or the other may back away.

Another article in our supply chain resilience series provides more detail on the issues businesses need to be aware of when considering the CVC model for collaboration.

Collaboration agreements

Increasingly favoured, certainly at the outset of collaborations, are the various forms of collaboration agreement. This involves the contractual commitment of the parties to the aims of the collaboration, with that collaboration agreement setting out the parties' respective inputs and rights in outputs, whether revenue, IP assets, date or otherwise.

Michael Horn

Michael Horn

Solicitor, Legal Director

There can ... be a tendency for collaborations agreements to be proposed that are little more than 'master and servant' contracting – this can counteract the intended collaborative nature of the relationship

These arrangements can be fairly quickly established and offer a highly flexible basis, with the parties able to rapidly agree changes to the collaboration. There can, however, be a tendency for collaborations agreements to be proposed that are little more than 'master and servant' contracting – this can counteract the intended collaborative nature of the relationship, so it is worth developing suitably balanced collaboration agreements which robustly deal with core issues, such as IP ownership, without stifling innovation and openness.

Ongoing collaboration arrangements can result in a statutory legal partnership being established, often unintentionally. This is a form of joint venture vehicle established by statute, whether or not the parties like it, if certain conditions are met. It is important to consider this potential outcome, as legal partnerships attract shared liability, as well as raising tax implications.

R&D and open innovation

Innovation has emerged in recent years as a central aim for many collaborations. To meet the challenge of rapidly creating and bringing to market new and improved products and solutions, many businesses found they needed to look outside of traditional brick and mortar-based R&D strategies and instead sought partners inside and outside their supply chains.

By way of example, Procter & Gamble (P&G) enables some of this innovation through direct procurement of companies and brand assets. However, they have been very explicit in setting out a wider open innovation-orientated strategy, based upon collaboration generally underpinned by collaboration agreements – P&G's "connect + develop". Through a wide range of collaborative initiatives, from licensing-based arrangements with OraLabs, to connecting technology requirements of companies to developers of potential solutions through the NineSigma platform, P&G is realising a large proportion of its overall innovative development through working with others.

A further compelling example in the R&D sphere can be found in the automotive industry. KPMG's Automotive Institute presented an illuminating 2019 report which captures many of the viewpoints and trends of collaboration between the automotive giants and technology firms. Notable is the clear shift in mindset among automotive executives to want to collaborate with technology solution providers, rather than develop competing solutions. As the report recognises, the question then becomes how to structure and operate such co-creation.

von Baum Florian

Dr. Florian von Baum

Rechtsanwalt, Partner, Sector Head Technology, Science & Industry

There is little doubt that collaboration is now seen as fundamental to driving commercial innovation, with the conversation moving to what models and principles should be used to facilitate such cooperative working

Finally, it is also worth noting resources like the Lambert toolkit in the UK, which exists to assist R&D between business and universities. This toolkit features a number of template agreements to use in different situations, as well as other materials such as decision making guides. These help businesses navigate complex areas like IP in the context of collaboration and sharing.

There is little doubt that collaboration is now seen as fundamental to driving commercial innovation, with the conversation moving to what models and principles should be used to facilitate such cooperative working.

Selecting the right model

Selecting the right model requires an appreciation of what each option enables, in terms of benefits, as well as constraints and challenges not just now but as collaborations mature. Nevertheless, it is positive that there are such a range of options – allowing selection of an approach which meets your needs.

Resources such as ISO 44001:2017, which specifies requirements for the effective identification, development and management of collaborative business relationships, can help organisations develop their approaches to collaboration. Pairing written resources with the input of professionals who have implemented a variety of collaboration models in your industry, can go a long way to helping select the right approach for success.

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