Strategic Alliance can be termed as an arrangement wherein two or more entities come together to undertake common interest. Such an arrangement is in vogue in the contemporary business environment. Indeed, it is a response to the vigorous forces of globalisation, change in technology, deregulation and so forth, due to which the environment is now more complex and competitive in nature.
One of the forms of strategic alliance is a joint venture, which can be understood as the temporary partnership, in which two or more entities conjoin to undertake a specific venture. The basic difference between the joint venture and strategic alliance lies in their nature and relationship between the two entities.
In the given article, we’ve presented you all the substantial points of distinction amidst these two, so take a read.
Content: Joint Venture Vs Strategic Alliance
|Basis for Comparison||Joint Venture||Strategic Alliance|
|Meaning||Joint Venture refers to a form of business organization, set up by two or more companies, to carry out financial activity.||Strategic Alliance implies an agreement amidst two or more entities to work jointly with one another, to increase performance of both the entities.|
|Independent Organization||The entities which come together in a joint venture, do not continue to operate as independent companies.||The entities which come together in a strategic alliance, continue to operate as independent companies.|
|Contract||Exist||May or may not exist|
|Form of||Strategic Alliance||Collaboration or corporate partnering|
|Separate legal entity||Yes||No|
|Objective||Risk limitation||Reward maximization|
Definition of Joint Venture
Joint Venture may be defined as a combination of two or more firms, which set up a separate legal entity, which indicates the capital and interests of the two parties. In finer terms, when two or more firms, invest funds for forming a jointly owned new company is known as a joint venture.
The parties to the joint venture, contribute their resources, competencies, skills, technology, in a definite proportion and share the revenues, expenses and company’s control. The four basic reasons for entering into such a strategic alliance is:
- Learning partner’s skills.
- Upgrading and improving skills
- Seeking vertical integration
- Shaping future industry evolution
A joint venture may result in pooling of resources, massive leverage, lower risk, optimum utilisation of resources, high profits, etc.
Definition of Strategic Alliance
Strategic Alliance is an arrangement between two or more firms to carry out a number of objectives agreed upon by the entities or to fulfil a critical business requirement while operating as separate organisations. In finer terms, a strategic alliance is a relation that exists amidst two firms, to do business together, which is more than a regular firm to firm dealing, but less than a merger or complete partnership.
The entities involving in the alliance may pool their resources such as products, knowledge, expertise, goodwill, capital, distribution channels and so forth. The entities may maintain their autonomy, while they achieve new opportunity.
The alliance aims at gaining synergy, wherein each party expects that the strength of the alliance will surpass individual efforts. It encompasses transfer of technical know-how, economic specialisation, divide rewards, risk and expense sharing.
Key Differences Between Joint Venture and Strategic Alliance
The points given below explain the difference between joint venture and strategic alliance
- When an independent entity is formed by two or more other entities, the business venture is known as a joint venture. On the other extreme, a strategic alliance is an arrangement between two or more companies from various nations, work together to collaborate in any activities of value chain system.
- The entities which undergo to form the joint venture, do not operate as independent entities. Conversely, the firms undergoing strategic alliance, operate as independent entities.
- The contractual agreement must exist in the case of joint venture whereas the strategic alliance may be expressly declared or implied between the concerned entities.
- The joint venture is the most complicated type of strategic alliance. As against, a strategic alliance is a form of collaboration or corporate partnering.
- The joint venture is a separate legal entity, created by the conjoining firms. On the contrary, a strategic alliance is not a separate legal entity.
- Joint Venture is aimed at reducing risk, while strategic alliance focuses on reward maximisation.
- When we talk about management, a joint venture has bilateral management. In contrast, a delegated management can be found in a strategic alliance.
Nowadays, most of the companies are turning towards the strategic alliance, with the aim of coping with uncertainty and risk, as well as to approach a gamut of competencies, market and technology. On the other hand, joint ventures can access the knowledge, assets and funds from all the firms to venture, so it is a blend of best features of those entities, without altering the parent enterprise.