Difference Between a Joint Venture and a Strategic Alliance
Although joint ventures and strategic alliances are similar, they are very different in practice. How? Read more to find out.
In running a business, your goal is to maximize profit. Depending on your methods, there are many avenues to expand your business. You can do so by entering into a joint venture or a strategic alliance. Although the structure of these two business arrangements are similar in some respects, they are different in practice. Both has its advantages and disadvantages.
Ultimately, which business arrangement you choose depends on the circumstances and nature of your business.
A joint venture (JV) is a business arrangement between two or more parties whereby they combine their resources to perform a specific task or achieve a business objective.
There are two types of joint ventures:
- Incorporated – There is a separate legal personality. Therefore, it can enter into contracts and hold property under its own name.
- Unincorporated – Parties hold specific shares in the joint venture depending on the agreement but does not hold a separate legal existence.
In doing so, parties usually sign a joint venture agreement.
An example of a joint venture is Google and NASA to create Google Earth.
To read more on joint ventures, you can visit this link.
A strategic alliance is an agreement between two or more parties to undertake a mutually beneficial project while remaining independent of one another. Essentially, it allows the independent parties to work towards a common goal that will benefit the parties involved.
An example is Kinokuniya (bookstore) and Black Star Pastry (coffee shop). Both companies work together for a common goal; boost sales by complementing each other. However, they remain independent and share the costs of space.
Differences between a Joint Venture and Strategic Alliance
The objective of a joint venture is to mitigate risk by working together to carry out a business objective. Conversely, the objective of a strategic alliance is to maximize returns and generate profit. A strategic alliance does so by working together to increase the performance of the parties.
A joint venture is a form of business arrangement entered into for the purpose of accomplishing a specific task by combining resources. On the other hand, a strategic alliance is an informal agreement between parties to reach a mutually beneficial goal by sharing resources. Furthermore, a joint venture is a separate legal entity, whereas a strategic alliance is not.
In a joint venture, parties operate as one. They combine their resources to make a separate legal entity. Conversely, in a strategic alliance, parties work together but operates separately and independently.
In a joint venture, there is usually a contract outlining the duties and obligations of each party. On the contrary, a strategic alliance can be no more than a handshake between the parties. However, this may lead to increased risk of trust.
The management of a joint venture is usually shared equally or depending on what is agreed. Therefore, it is bilateral. Sometimes, a new management is also formed for the purposes of the joint venture. On the other hand, the management is usually delegated from existing employees in a strategic alliance.
Ryan currently works in the content team as a Legal Intern for Lawpath. He is in his third year of a Bachelor of Law and Business degree at UTS.