Business partnerships aren’t all smooth sailing no matter how much experience a company has. Maintaining one is a challenging task as there are plenty of factors to consider and problems both internal and external can and will emerge at any stage. Being able to overcome these problems without long-lasting feelings of hostility while weathering any hardships together is an impressive achievement in any partnership. Many companies have succeeded in this regard but many have also failed.
The following list shows four notable partnerships that fell apart.
$400 Million Dollar Dispute between Swatch & Tiffany & Co
In 2007, watchmaker Swatch Group Ltd and luxury retailer Tiffany & Co announced a partnership that would see the further development and marketing of Tiffany & Co watches. It was a hopeful endeavor in the beginning and both companies had something to gain from each other. Tiffany & Co who had been looking to re-enter the watch business can take advantage of Swatch’s expertise in the industry while Swatch has permission to operate under Tiffany’s name. Distribution and sales of the new line of watches will be done through Swatch’s own network and Tiffany & Co stores. However, problems soon developed and the partnership ended in 2011. A legal battle soon followed and both companies accused each other of breaching their contract. Ultimately, the court ruled in Swatch’s favor and Tiffany & Co was ordered to pay over $400 million to its former partner.
A more in-depth analysis written by Forbes Contributor Ariel Adams who had followed the partnership from the beginning suggested that the problems may be due to a lack of creative control on Tiffany & Co’s part. In addition to licensing their name for Swatch to use, Tiffany & Co seems to have left most of the business of designing the watches to Swatch. Tiffany & Co may have been unhappy with the new designs and is less than enthusiastic about marketing them in their stores. Likewise, Swatch was probably unhappy about having to redesign their watches and frustrated with the lack of effort from Tiffany & Co to help promote the product. The full article is well worth the read for anyone wanting to gain a deeper insight into what happened.
Disagreements are expected in the formation of any partnerships but failing to address it in the early stages can lead to strong feelings of hostility in the future where both partners are set in their ways and unwilling to change or compromise. Whether it was arrogance, lack of commitment, differing values or hidden agendas, what could have been a very successful business is now in ruins.
LEGO Drops Shell To Save the Arctic
In 2014, toy production company LEGO published a statement to highlight its desire to not continue a Marketing partnership with oil & gas giant Shell. This decision to end the 50-year relationship allegedly came after pressure from Greenpeace and other activists protesting Shell’s plans to drill into the Arctic, a move they argue could cause serious environmental damage and have called on other companies to abandon their partnerships with oil & gas as well.
In its protest, Greenpeace has managed to weaponize the vastly different company values and perception both LEGO and Shell receive from the public. LEGO is beloved by adults and children alike and is often seen as that inspirational company that uses its products to instill creativity and imagination. On the other hand, Shell has had its fair share of controversies and is generally not well-liked by environmental activists. Through a well-calculated protest campaign, Greenpeace succeeded in influencing the public view of the toymaker by pointing out the discrepancies between LEGO’s values and Shell’s actions and by continuing its partnership with Shell, LEGO is indirectly causing environmental damage while Shell polishes its image by hiding behind the more beloved LEGO brand. The breakup between LEGO and Shell may be interpreted as a strategic move to save its image in the face of accusations of prioritizing profits over brand value. However, to LEGO’s credit, the company is also engaged in initiatives for a greener world as well. Two of its more notable efforts is its investment in a Sustainable Materials Centre to develop alternatives for current materials and its achievement in balancing 100% of its energy with investments in two offshore wind farms.
In recent years, environmental concerns have been gaining traction amongst the general populace. Discussions relating to Climate Change, green energy, and importance of conservation have been gaining more prominent coverage and environmental-friendly regulations once thought of as being too radical and crazy are now more accepted. Companies have taken note of this and have tailored their approach to appeal to more environmentally conscious consumers. Public perception has always been an influential factor in a company’s decision-making process and the use of social media that allows near-instantaneous sharing has enhanced this effect. Companies are scrutinized more closely than before and many groups take advantage of this to promote their own agendas. With millions of people taking to the online space to engage in conversations, one wrong move or a highly engaging campaign has the potential to cause massive damage to the brand.
A Century Old Partnership Comes to an End
After a century of doing business together, retailer Sears and long-time partner and manufacturer Whirlpool are cutting ties with each other. The partnership had its beginnings back in the year 1916 when Whirlpool sold its first order of washers to the Sears, Roebuck & Company, Sears’ predecessor. Citing pricing disputes as to the cause of the breakup, Sears accused Whirlpool of using its more dominant position to make impossible demands while Whirlpool’s CEO stated that Sears only accounted for a small fraction of his company’s global business.
Despite being one of the largest retailing companies in the United States, Sears has had its share of troubles in the last decade and has been struggling financially. It came to the point where the company started selling some of its assets and brands to lessen its financial burden. Ultimately, its efforts were in vain, competition from online retailers and other stores along with mismanagement was too much to handle and it declared bankruptcy in 2018. The breakup with Whirlpool is probably taken by many as a sign of the company’s inevitable decline.
McDonald’s Searches for a New Ketchup Supplier
McDonald’s and Burger King are among the most symbolic brands in the fast-food industry. Forming around the same time as each other, the history of both brands goes back decades and is filled with an intense rivalry. In what was popularly known as the “Burger Wars,” both brands and other similar fast-food chains engaged in an on-and-off series of advertising campaigns to one-up each other.
The multinational food company, Heinz supplies ketchup to both brands and has been a partner with McDonald’s for 40 years. Heinz’s relationship with McDonald’s was tarnished in the 1970s during a tomato shortage when it had failed to deliver enough ketchup to McDonald’s leading it to quickly find other suppliers. Since then, Heinz has made some effort to rekindle their relationship with some degree of success. In 2013, Heinz may have taken a step too far when it elected Bernard Hees as CEO to lead the company. Mr. Hees was the former CEO of Burger King and this decision didn’t sit too well with McDonald’s. In response, McDonald’s has decided to terminate their partnership and look for another ketchup supplier. The change isn’t noticeable in the United States as the Heinz branded ketchup is only used in two markets but ketchup fans in international markets where the brand is more commonly used will definitely feel the pinch.
From Heinz’s point of view, the breakup may not have much effect on its business. It is still a global leader with a wide range of other brands that it sells around the world. However, it does bring up an important point about understanding and building relationships with partners. Generally, it may not in a company’s best interest to be associated with their partner’s biggest competitors. Although Burger King probably had valid reasons for the hiring, it can lead to conflicts of interest and in McDonald’s view, probably come off as being one-sided.
Working out problems in a partnership is a complex task and because companies tend to invest a lot into their partnerships, fallouts can be messy. Lawyers get called, assets get lost and the company’s reputation takes a hit. However, breakups are sometimes a necessity and probably the best course of action to take in the event that not everything works out in the way it should be. While many of the risks involved can be reduced by selecting the right partner and establishing a clear understanding of each other’s role, it would also be beneficial to create and agree on an exit strategy that is mutually beneficial.