When I first started Innovators in Japan, tweeting English headlines of Japanese startup news, I came across one term that stopped me in my tracks: capital tie-up. I usually translate it as a “partnership”, but it came up so frequently that I couldn’t just brush it off as an announcement of a simple business partnership; there seemed to be too much money for it to be just a joint solution, and there would sometimes be acquisitions and joint ventures / subsidiaries spun up for this.
A capital and business tie-up, or Shi’hon Gyomu Teikei (資本業務提携), literally translates to Capital (資本) Operations (業務) Partnership (提携). it’s not a legal term, but a convenient phrase when discussing a wide variety of partnerships. At a high level, this means two or more companies putting capital in one another through stock acquisition or another fund raise, or just creating some sort of alliance.
Types of Capital Tie-Ups
There are two main types of tie-ups: a capital tie-up (資本提携), and business tie-up (業務提携, what could be considered a joint venture or business partnership).
A capital tie-up is when either one company buys some shares in another company, regardless of the amount, or when both partner companies buy shares in one another.
Having shares in another strategic partner means that you have skin in the game, creating literal ownership and accountability for the strategic projects the two companies undertake. However, companies giving up shares do have to also give their partners rights, from voting rights, to sometimes adding a partner member to the board. This could be a problem when there’s a large gap between the size of the partner companies, making the smaller, more vulnerable company effectively a subsidiary rather than its own company.
This is what you’d expect from a normal business partnership, like Apple partnering with Foxconn. This is when two or more companies agree to support one another through what each company does best, share internal knowledge, etc. with little movement in capital.
- Production partnership (生産提携): A partnership by which a company agrees to either provide their products to be sold as part of another company’s product (OEM), or a company providing parts of the end product. The upside is having companies who are top-notch at what they do provide their product. The downside is in figuring out who will be responsible for any product issues. Ex. A car company having their chassis built by a steel production firm.
- Sales partnership (販促提携): Generally known to the rest of the world as reseller partnerships, channel sales, etc. Ex. A systems integrator agreeing to sell a product through their own channels.
- Technology partnership (技術提携): Using a technology built by another company, or helping develop a new commercial piece of technology. The two legal types of technology partnerships cover a) licensing and b) joint research. Ex. A battery company licensing their technology to an electric vehicle company, or perhaps a battery technology R&D firm partnering with a large car company.
While business partnerships help you reach new heights by combining each company’s strengths (comparative advantage), these usually take time to materialize (probably a good thing), and a very long time to dissolve (maybe not the best thing).