Joint Venture vs Strategic Alliance

The joint venture is one of the forms of strategic alliance. It can be understood as a temporary partnership where two or more parties undertake a specific project. The basic difference between the joint venture and strategic alliance lies in the relationship they share and the nature of the two entities.

A joint venture is an arrangement between two or more parties. It occurs when two or more parties agree to enter into a contractual agreement to carry out some specific business undertaking.

The joint venture aims to combine its strengths and pool its resources to create a competitive advantage while minimizing the risk. While entering into the contract, the parties should specify the venture's purpose, goals, and limitations. The joint venture can be from corporations, partnerships, Limited Liability companies, and other business entities. It can also combine small and larger companies with big or little projects or long-term continuing projects/ deals.

The most important agreement in the joint venture case is the joint venture agreement, which specifies all the details about the contract. For example, it mentions the partners’ rights and obligations, initial contribution, the objective of the venture, day-to-day operations to be carried out, the profit-sharing ratio, and responsibilities to losses.

A strategic alliance is an agreement where two or more independent parties come together for an objective and do not lose their independence. Two or more parties usually form a strategic alliance when each has some expertise or business resources that help achieve the target or enhance their businesses.

 A joint venture can also start a strategic alliance to create another new company without losing its current existence. It is less than a formal merger or partnership between two firms. The parties with the common interest achieve the common business objectives to earn a profit.

It is an arrangement by which two or more parties share the resources or knowledge. It is an alliance formed to share its internal capabilities and assets and help achieve the common business objective.

Here, we provide you with the top 6 differences between a joint venture and a strategic alliance.

The followings are the key differences between them: -

• A joint venture is an association formed by two or more entities with a separate legal identity to achieve specific business objectives. On the other hand, a strategic alliance is an arrangement between two or more companies that carry out a particular purpose. Here, a new company is formed, with the original companies operating.
• The companies creating a joint venture no longer perform as independent entities, unlike the strategic alliance where the firms continue to work independently.
• In the case of a joint venture, the existence of the contractual agreement is necessary, which specifies all the terms and conditions of the arrangement between the two parties. However, there is no such compulsion in the case of a strategic alliance. It can be expressly declared or can be implied too.
• A joint venture is a form of strategic alliance. However, the strategic alliance is a form of collaboration or corporate partnership.
• The joint venture is a separate legal entity with a distinct identity. However, the strategic alliance is not a separate legal entity.
• The joint venture aims to reduce the risk, whereas maximization of returns drives the strategic alliance.
• Since a joint venture is formed by two firms coming together and joining to create a separate legal entity to carry out mutual objectives, it has bilateral management. However, in the case of the strategic alliance, delegated administration is usually found since the independent entities continue to operate.

Let us now look at the head-to-head differences.

With an era of growing competition and technological advancement, the companies are moving toward the strategic alliance form of concept rather than joint venture as they want to cope with the existing risk by maximizing returns. On the other hand, joint ventures can access the knowledge and resources of member entities to utilize the best of help with the motives of enhancing business.

Thus, after analyzing all the aspects, one shall make the final investment decision. Then, after analyzing the market situation, risk-taking capacity, and taking legal advice, one should decide.

Thus, one should decide after defining their business goals and assessing the risk availing capacities and market situation.

This article has guided joint venture vs. strategic alliance. Here, we also discuss the top differences between a joint venture and a strategic alliance, along with infographics and a comparison table. You may also have a look at the following articles: -

• Joint Venture
• Types of Joint Venture
• Corporation vs. Incorporation
• Joint Venture vs. Partnership