Joint Venture VS Strategic Alliance
The disruption brought about by the COVID-19 pandemic has prompted many organizations to turn to joint ventures and strategic alliances…
December 20, 2021 | 4 mins read
The disruption brought about by the COVID-19 pandemic has prompted many organizations to turn to joint ventures and strategic alliances as means of survival. Unlike mergers and acquisitions (M&As), a joint venture and a strategic alliance come with a certain degree of flexibility for both parties. They’re able to maintain their own identity and continue their core business operations without being overpowered by another organization.
Although both a joint venture and a strategic alliance help organizations gain a competitive edge in the market, offer access to a wider customer base and combine expertise, there’s also a significant difference between strategic alliance and joint venture. Before we begin examining joint venture vs strategic alliance and look at joint venture and strategic alliance differences, let’s find out what each term means.
A joint venture involves two or more entities that pool resources to create synergy and accomplish a set objective, such as a new project or undertaking. The participating organizations share the ownership of the new project and the profits and/or losses associated with it. A joint venture often involves the formation of a new legal entity that’s separate from the participating organizations’ business operations.
A strategic alliance is a business agreement between two or more organizations to take on a project that benefits each party involved. The organizations involved in a strategic alliance retain their autonomy and independence while working toward a shared goal. Entering a strategic alliance allows organizations to take on projects that would otherwise have been too complex to execute independently.
A joint venture and a strategic alliance differ in terms of their very meanings. While a joint venture usually results in forming a separate legal entity, a strategic alliance does not. Now that we know what a joint venture and a strategic alliance mean, let’s examine joint venture vs strategic alliance and look at the difference between joint venture and strategic alliance:
A primary difference between joint venture and strategic alliance is in terms of their objectives. Through a joint venture, organizations aim to minimize, mitigate and limit risks by joining forces to undertake a new business. A strategic alliance’s objective, on the other hand, is to maximize returns, generate profit and boost the performance of each organization involved.
Another key difference that arises while analyzing joint venture vs strategic alliance is in terms of the management involved. In a joint venture, management is bilateral or shared between the two parties involved in the venture. A strategic alliance involves delegated management.
Another important difference between joint venture and strategic alliance is the type of contract involved in each. A joint venture is more binding than a strategic alliance because it includes a formal contract that outlines the terms agreed upon between the parties involved. A strategic alliance doesn’t mandate the existence of a formal contract. It may simply work based on an informal handshake between the parties involved.
A key joint venture and strategic alliance difference is their form. A joint venture is a form of strategic alliance, whereas a strategic alliance is a form of corporate partnership.
Irrespective of their differences, a joint venture and a strategic alliance both yield significant benefits when the organizations involved complement one another. Such benefits not only take the form of better market reach, improved economies of scale and an expanded customer base but also shared expenses, better revenue and enhanced brand image. Participating organizations must be prepared to put aside their differences and respect one another for a collaboration to succeed.
There’s a significant difference between strategic alliance and joint venture. Whether organizations establish a joint venture or enter a strategic alliance depends on their own unique business needs. It’s also essential for the leaders of organizations to analyze the current market scenario, look into legal considerations and assess business goals before opting for either a joint venture or a strategic alliance.
Harappa’s High Performing Leaders program equips senior professionals with a leadership toolkit to help them understand the difference between joint venture and strategic alliance and navigate their current demanding and challenging mandates. They learn to influence clients, expand the business footprint and ensure client delight. They’re able to embrace reflection and a growth mindset to enhance judgment and decision-making.
The program is built on Harappa’s signature 10-on-10 pedagogy and includes a selection of academically-robust concepts such as the Three I Formula, Trust Equation and Pyramid Principle. Thrive skills such as Big-Picture Thinking, Creative Solutioning and Instinctive Adaptability teach senior professionals to decode the strategic big picture without missing out on details, drive innovation with out-of-the-box solutions and respond to change.
Want the leaders of your organization to lead into the future? Sign up today for Harappa’s High Performing Leaders program.