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In exchange for the access it will have to PFP technology, Dulux will be expected to pay an annual royalty fee. The said fee is expected to be 15% of the profits Dulux rakes in from the sale of PFP paint. Thus with regard to merchandising, PFP Ltd. plans to have a main partnership with Dulux. On the production front, the company will enter into a one year trial period partnership with Dulux for the production of Power Paint. Mass production of the same will largely be dependent on the results of this trial.
Benefits of Partnership
One of the key benefits of PFP's partnership with Dulux is the specialization each partner brings to the arrangement. Currently, Dulux has an elaborate distribution system and sound customer base to guarantee maximum exposure to Power Paint. The company also has extensive knowledge of the industry. On the other hand, PFP lacks all of the above but has the technical expertise to produce and develop highly innovative paint products like Power Paint.
It is also important to note that should there be a need for additional capital to be pumped into this particular undertaking, the two companies...
Access to funds would be limited were PFP to go it alone. Indeed, as Miller and Jentz (2010) point out, partnerships permit or facilitate greater capital contributions.
Costs of Partnership
It is important to note that in this case, the returns realized from the venture will be shared between the two companies as per the arrangement I have already mentioned elsewhere in this text. PFP would keep 100% of the profits were it to pursue the undertaking on its own. Decision making could also be slowed down as consultations have to be made before critical decisions with regard to the new product are made. For instance, should PFP deem it appropriate to change the formula of the new product, it could be forced to first consult with Dulux based on the partnership existing between the two companies.
References
Hill, C.W. & Jones, G.R. (2012). Strategic Management Theory (10th ed.). Mason, OH: Cengage Learning.
Miller, R.L. & Jentz, G.A. (2010). Business Law Today: The Essentials (9th ed.). Mason, OH: Cengage Learning.
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