The business world is so intricately weaved such that one aspect of it often depends on another to be done. Suppliers need wholesalers to do business. Retail investors buy from wholesalers. The business economy is so connected and integrated that there is always the need for partnership.
Lets look at the current challenges of business partnerships globally and then see how blockchain is overcoming these challenges through its many features like immutability.
Business partnerships - current challenges.
The challenges of business partnerships are many and includes the following:
Trust issues: Perhaps the biggest challenge to effective business partnership is trust. Think of a supplier that is based overseas and wants to send goods to a dealer in another part of the world. For this business partnership to work, trust is the most vital element needed. The supplier will only send the goods even without receiving payment if he has some measure of trust on the wholesaler. Or, the wholesaler must send payments for the goods not yet received if they consider the supplier trustworthy.
Another area of trust is on the quality of goods to be delivered. The dealer who will not see the goods before paying have to rely on trust, hoping that the supplier will deliver quality goods. The above are examples of how trust plays a very crucial role in business partnerships. Unfortunately, there have been many instances of lack of trust. A dealer or a supplier might fail to deliver their own part of the agreement. Any of the partners might become dishonest and fail to make a payment, supply faulty goods, reduce quantity or do other sharp business practices. When the trust is broken, it becomes difficult to maintain the business relationship.
Because of the increase in fraudulent partners abroad, many businesses avoid doing any collaboration with overseas partners. Trust kills todays potential for business collaboration.
2. Profit-sharing disputes: Because of the ever-changing economic landscape of most countries, business partners might just find theselves disagreeing over profit-sharing formula. The economic situation of a place might bring about a change in the selling price or the amount of profit made. The other partner might insist on a previously agreed profit sharing rate, not considering prevailing economic circumstances. This often leads to disputes that might necessitate litigations.
for example, inflation in many countries have resulted in the rise of cost of production and the selling price of goods. If such economic factors are not considered and periodically reviewed by overseas partners, it often leads to financial disagreements. That might include the profit-sharing formula or other financial issues. This has been a
3. Legal challenges: To effectively cement a business partnership with an overseas partner usually require rigorous legal processes. The two parties must first of all document their business agreements and state everything clearly. Then, the would need to hire a team of legal experts that will create an agreement document stating all the terms and duly signed by the partners.
Legal processes and requirements vary from place to place. It would present a very big challenge for partners whose businesses are in different countries to successfully navigate the legal procedures for the partnership. This challenge is big enough to stop a business partnership from being successfully concluded.
With all the above mentioned challenges and more, there needs to be a technology that could eliminate them and facilitates a more simple approach to implementing overseas business partnerships. Consider the solution in the next paragraph.
Blockchains simplify global business partnerships
Various features of blockchain technology could be used to eliminate all the many challenges that businesses partners overseas face. One of the primary tool that blockchains can use to achieve this is smart contracts. Below is the Leoglossary definitions of a smart contract:
A smart contract is a self executing agreement between two parties. Both the action of buyer and sellers are determined by the code that is in the contract. There are no external entities that are involved in the transactions. Smart Contract from Leoglossary
Consider below how smart contracts and other features of blockchains solve the problems raised above.
1. Managing trust: The biggest element of successful business partnerships is trust. Currently, each partner has confidence that the other party will without fail deliver on their promises. Whether it is making a payment, delivering exact goods, or other aspects of business involving partners, trust plays a very crucial role. But with blockchain smart contracts, there is no need for trust.
Smart contracts do not require the performance history or success records of either parties. Smart contracts executes only if and when the parties fulfill their agreements. Until they do so, the partner is not afraid of loosing money or other valuables in a business partnership. If the contract requires a certain payment to be made as agreed, it does not execute until this condition is met. So with this feature of smart contracts, there is no need for trust of business history because each party must fulfill their part of the agreement in order to get their rewards.
2. Validating agreements: Today, business partnerships are usually validated using a team of legal experts. The lawyers prepare agreements on behalf of the transacting parties and sign the documents as witness to the agreement. So the legal team becomes the validators and witnesses of a business partnership. With smart contracts, there is no need for legal professionals.
Smart contracts are self-executed agreements. They do not require anyone to make them valid. Once the two parties spell out and agree to terms, they are able code it into the smart contract. As such, the agreement becomes binding on all parties and cannot be altered. Smart contracts thus act as validators and witnesses to a business partnership on the blockchain.
3. Ensuring compliance: Legal teams ensure that business agreements are fulfilled. That is a major work they do today. If any of the parties defaults, the legal team could be summoned to take legal action against the defaulting partner. That is why we see many businesses take their partners to court in order to ensure compliance of the agreed terms. With smart contracts, its entirely different.
Smart contracts are can only execute if each party to the agreement fulfills their responsibility. Otherwise, nothing happens. The smart contract ensures compliance to the terms by making sure nothing happens until a party does their part of the agreement. It does not require a human to check for compliance. It handles that automatically. If all conditions are fulfilled, the smart contract executes automatically or not.
4. Settling disagreements: Today, lawyers settle business disagreements in the court. This often requires going through many legal sittings and procedures. It is time-wasting and resource-intensive. For a business partnership done on a blockchain, the parties agree to what penalties are paid for defaulting. This is included as part of the smart contract. Again it is automated.
So if a party fails to deliver on their promise in any way, the smart contract automatically releases the agreed penalty to the other party. Hence, smart contracts handle conflict resolution and ensures that any party that defaults pays an agreed penalty automatically.
Conclusion
You can see that blockchains have simplified and automated all the processes involved in securing international business partnerships. It is cheap, fast, secure, effective and automated. If you own a business and considers partnering with another organization overseas, you could consider doing that on the blockchain.