1. 1 Managing Business Relationships Prof.Dr. Vesselin Blagoev

2. 2 External Relationships: Introduction Business organisations have many external relationships with Suppliers Customers Distributors Service providers: IT, maintenance, catering Many others

3. 3 External Relationships: Introduction Some relationships are long-term, contractual other are ad-hoc when needed It makes no sense for IBM to make its own stationary, others can do it better and cheaper A key decision is whether to make in-house or to buy Firms should concentrate on activities where they have expertise and are competitive

4. 4 External Relationships: Introduction The simple view of the choice between “make” or “buy” rests on assumptions about markets: Markets are competitive All information about products and producers is easily available Price differences reflect quality differences All companies are honest and do not cheat

5. 5 External Relationships: Introduction Is this true? Let’s look at the used car market: It is difficult to know good from bad for inexperienced buyers The seller knows much more about the car and may well be dishonest “Caveat emptor!” (Buyer buys at his own risk) There is very limited legal comeback

6. 6 External Relationships: Introduction Markets can be risky places for buyers! Similarly, if companies cannot afford to buy an inferior product or service they may decide to do one of two things: Produce in-house even if this is expensive Invest in a long-term relationship with a trusted supplier

7. 7 External Relationships: Introduction What is needed to make such business relationships work? A long-term perspective Mutual trust Common goal orientation

8. 8 External Relationships: Introduction A long-term perspective: Both sides have to be committed. The supplier often makes specific investments to produce exactly what the buyers needs. The supplier must be sure that the buyer does not suddenly change to another supplier and this investment is lost

9. 9 External Relationships: Introduction Mutual trust: The buyer must be confident that the supplier will always do his/her best to meet the buyer’s requirements without the need to constantly check up on him/her The supplier must be confident of the buyer’s loyalty This will produce trust among both parties

10. 10 External Relationships: Introduction A common goal orientation: Both parties need to be clear about their commitment Common objectives and long-term success are recognised as more important than short-term prize gains from switching supplier Regular contact and co-management arrangements should be in place to align expectations and sort out conflicts

11. 11 External Relationships: Introduction What are the advantages of such long- term business relationships: Allows firms to concentrate on core activities Allows firms to gain access to market-leading products/services which they could not develop themselves Allows firms to economise on monitoring and control costs

12. 12 External Relationships: Introduction Advantages continued … Close relationships with other organisations facilitate access to new knowledge and can foster innovation Close relationships with other firms can improve marketing knowledge

13. 13 External Relationships: Introduction Trust-based business relationships offer significant advantages Mutual trust and common goal orientation are key success factors But remember: Trust can always be betrayed! Co-operation is never without risks