Maximizing efficiency and profit is one of the main goals of a business. However, there are many ways in which this can be done. The most common one is to expand operations by entering a joint venture or strategic alliance. However, there are several differences between the two that should be understood before making any decision.
Joint Venture vs Strategic Alliance
The main difference between Joint Venture and Strategic Alliance is that in a joint venture, two or more companies get together to combine resources and operate as a single entity whereas a strategic alliance is when two or more companies get together to share resources, but they have their individual identities and operations.
A joint venture is a term used to describe a business entity that is formed by two or more companies. This happens when they combine their resources to achieve a certain goal or objective. A major characteristic of joint ventures is ‘shared ownership’. In doing so, companies can access new skills and capabilities and open their business to new markets.
Meanwhile, strategic alliances are very similar to joint ventures. However, what makes them different is the fact that the companies remain independent despite working together. Their main goal is to share resources. The avenue is a form of collaboration or corporation that has benefits such as shared expenses, more profit, shared risks, and even access to new resources.
Comparison Table Between Joint Venture and Shared Alliance
| Parameters of Comparison | Joint Venture | Shared Alliance |
| Meaning | It is a business entity formed when to companies get together for financial interests. | It is a form of collaboration or corporation between two or more companies that remain independent. |
| Contract | It is necessary to have an official contract. | It is not necessary to have an official contract. |
| Legal Entity | Two or more companies become one legal entity. | The companies involved are separate legal entities even after the alliance. |
| Management | The management in such cases is bilateral. | The management in such cases is delegated. |
| Partners | The companies involved are non-competitors. | The companies involved may often be competitors. |
What is Joint Venture?
A joint venture is a single entity created by two or more companies coming together. This is done by signing an official agreement or contact, after which the companies involved become one legal entity. It is usually done to enhance the efficiency of working, share risks, share profits, and even access new customers and markets. However, on forming a joint venture, the risk involved in operations does decrease by a downfold.
The management procedure followed by a joint venture is bilateral. This means that all the parties involved sign up for equal obligations and responsibilities. Both sides of the contract agree to take up some kind of objective or work, which may be similar or different depending upon the specific case.
Companies that agree to form a joint venture are generally non-competitors. In doing so, the parties involved can make sure that there is some kind of benefit in expanding the business. However, ventures are not always permanent. They may dissolve after the objective is met or the project is completed.
Sometimes, joint ventures even dissolve because of legal and financial issues. Other reasons include one company acquiring the other, both companies developing new and separate goals, and even expiration of the time agreed.
What is Strategic Alliance?
A strategic alliance is more of a collaboration. There is no official contract or agreement that is necessary. Companies may use this avenue without having legal matters involved. This is because each of the parties involved remains an independent entity. They only come together to fulfil a specific objective.
The objectives of strategic alliances may involve asset and technology transfer, accessing new markets, or even gaining new knowledge. Strategies for management for such an operation is generally delegation. This means that the authority is assigned to a third person, who makes sure that the activities are carried out correctly.
Companies that form a strategic alliance may or may not be competitors. However, it is very often that competitors come together, despite being competitors. An example of this is a possible strategic alliance between McDonald’s and Pizza Hut. Even though each f them competes in the same market, their target audience is different.
There are many ways in which a strategic alliance may come to an end. A natural end involves the objectives of the alliance being fulfilled. However, there may even be premature termination in case the alliance breaks up due to financial issues. Another possibility is when one of the parties involved takes acquisition of the other company.
Main Differences Between Joint Venture and Strategic Alliance
- A joint venture is a business entity formed when to companies get together for financial interests whereas a strategic alliance is a form of collaboration or corporation between two or more companies that remain independent.
- In the case of joint ventures, it is necessary to have an official contract whereas, in the case of strategic alliances, it is not necessary to have an official contract.
- In joint ventures, two or more companies become one legal entity whereas, in strategic alliances, the companies involved are separate legal entities even after the alliance.
- The management in joint ventures is bilateral whereas the management in strategic alliances is delegated.
- In joint ventures, the companies involved are non-competitors whereas, in strategic alliances, the companies involved may often be competitors.
Conclusion
Joint venture and strategic alliance have quite a few similarities. Each of them is a way to expand the operations of a business. Therefore, understanding the difference between the two may be confusing. However, a notable distinguishing factor is that a new business entity is formed in the case of joint ventures whereas, in the case of strategic alliances, the companies operate as separate legal entities.
Another major difference is that joint ventures are mostly formed by companies that are not competing with each other. On the other hand, strategic alliances are often formed by competitors, in order to access new customers.
References
- https://ageconsearch.umn.edu/record/46187/
- https://onlinelibrary.wiley.com/doi/abs/10.1002/(SICI)1097-0266(199702)18:2%3C127::AID-SMJ859%3E3.0.CO;2-H
- https://link.springer.com/article/10.1057/palgrave.jibs.8400005