Joint Venture & Strategic Alliances
Strategic Alliance is a 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.
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.
Forming a business relationship with a partner, or partners, may provide you with a number of advantages. You may be able to access technologies or patented processes owned by the other partner. Alternatively you may be able to access their distribution network. If you are thinking of forming a partnership, consider your strengths and weaknesses compared to your potential partners. The ideal partnership takes advantage of your core competencies while strengthening weaker areas of your business.
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.
Alliances go wrong most frequently due to neglect of the first stage–strategy development. We focus companies on ensuring that deals are structured correctly from the outset, with a solid understanding of mutual economics.
We assists clients through several stages of the joint venture process: strategy development, partner selection, deal structure and operating implementation. We have found that alliances go wrong most frequently due to neglect of the first stage, strategy development. Therefore, we focus disproportionately on ensuring that alliances are structured correctly from the outset, with a very clear, shared vision and a solid understanding of mutual economics. At the same time, we have experience coming into an alliance after problems have appeared and supporting management on a restructuring to optimize value for both parties.