Should I Start a Strategic Alliance or Joint Venture? (593 words)
Strategic Alliance or Joint Venture…you are looking to gain that competitive edge over your competition. Many smart business leaders look to collaboration for expedient advantages. Might a mutually-beneficial relationship with another organization be in your future? If you answered in the affirmative, your next question will be, “Should I start a strategic alliance or a joint venture? This is a question that I’m frequently asked and the answer could be complicated?
More than Just Words
Actually, there is a huge difference between a strategic alliances and joint ventures; culturally, operationally, strategically, and legally. A little bit of strategy and pre-planning can, and will, make a dramatic difference for your organization as your new collaboration is developed and implemented. Let’s get it right from the beginning.
Your reason for developing a strategic alliance relationship with one or more other companies is to take strategic advantage of their core strengths; proprietary processes, intellectual capital, research, market penetration, manufacturing and/or distribution capabilities, and a number of other reasons. You will share your core strengths with them too. You will have an open door relationship with another entity. You will mostly retain control. The length of agreement could have a sunset date or could be open-ended with regular performance reviews. However, you simply want to work with the other organizations on a contractual basis, and not as a legal partnership.
Your reason for creating a joint venture is to take advantage of a fitting or convenient connection or overlap. A joint venture is a legal partnership between two or more entities. With a joint venture you will have something more than simple governance; you’ll have a completely new entity with a board, officers, and an executive team. Effectively a joint venture is a completely new organization, but owned by the founding participants. The board of directors generally is constructed with representatives of the founding organizations. This new company will “do business” with the founding entities—usually as suppliers.
- Your strategic alliance is a contractual or handshake agreement while the joint venture is a legal partnership, LLC, or corporation.
- Your strategic alliance summons the core strengths and differences of another organization to deliver value to your organization while the joint venture becomes a blending of cultures and creates a new organizational culture and path.
- Your strategic alliance requires continued relationship maintenance while the joint venture has its own leadership team.
- Your strategic alliance allows you to remain in control of your own company but the joint venture chooses its own direction; with the guidance of its board.
- You can retain control of your proprietary creations while involved in a strategic alliance but in a joint venture, these creations are the property of the joint venture. If the joint venture fails, dividing the spoils can be a challenge.
Which Is Right for You?
There are numerous reasons, benefits, and pitfalls available to you whichever path you select. The key is to have an understanding of both your and your partner’s long-term desires. You can jump into and out of a strategic alliance quickly but the joint venture takes much more time to start and could be difficult to end. The joint venture takes less necessary attention form stakeholders once launched because of its own leadership team. If you are not willing to devote your time and resources to the health and maintenance of your strategic alliance, perhaps the joint venture is the better path for you? If control is important to you, the strategic alliance would be the better course of action.