There have been many stories recently about strategic partnerships between OEM's for the sake of helping each partner fill a technology/product gap in their offering.  While is makes perfect sense for the OEM's as they can better leverage their partners and their balance sheets, what does it do the supply base?  How does it differ from selling to a joint venture?

 For the strategic partnerships, from a credit perspective, the credit quality naturally lies with the company issuing the purchase order, not with the OEM of the product.  One example would be someone selling to Tesla Motors some componentry destined for inclusion in the Toyota Rav4 Electric - the product might be Toyota, but the credit is not.  In cases like this, sub-suppliers should be very mindful of their true exposure.

 Joint ventures are another story altogether - in the case of joint ventures, a new company, often created for the sole purpose of a contract, is created and becomes the credit risk.  This can be extremely problematic, as these new entities often are created using a plant, equipment, and staff from an/both investor(s).  Also, neither investor usually puts forward any kind of payment guarantee, so suppliers must be comfortable with the implicit support of one/both investor, as well as the quality of the OEM involved and the probability of market success for the underlying vehicle. 

Disclaimer:

The views expressed here are those of the author, and not necessarily of Export Development Canada

 Les vues exprimées dans ce propos sont celles de l'auteur. Elles ne reflètent pas nécessairement le point de vue d'EDC.