Partnerships for common goals can be strategic alliances or joint ventures. Joint ventures create a new entity and have more legal restrictions, while strategic alliances do not. Both can be international, but risks include potential losses. Clear goals and understanding are crucial for success.
When two or more parties decide to formally work together to pursue a common goal, the partnership could be a strategic alliance or a joint venture. There are similarities between each of these partnerships, including that each situation requires two or more parties to come together. In a joint venture, an entirely new entity is formed to carry out the plans in the arrangement, and there are increased legal restrictions in this type of partnership. A strategic alliance is also a formal agreement that requires a contract, but does not form a separate entity.
Both a strategic alliance and a joint venture are designed to last for a specific amount of time. In an alliance, the agreement is usually between organizations. A joint venture can be a combination of two companies, but it can also be a partnership between individuals.
If an opportunity arises overseas, an international strategic alliance and joint venture are both options. In some cases, a country may, in fact, require that a local company be included in all efforts involving an international entity that benefits that nation. This is more likely to be a requirement in emerging countries than economies that are already developed, according to the Reference for Business. It is also possible for a local government to represent one of the parties to a formal, international agreement.
There are benefits and risks associated with both strategic alliance and joint venture situations. Contracts are designed in advance to outline how profits and sales will be shared between all parties involved in the deal. Risks include the possibility that either partner could suffer a loss if the effort fails. Often, what brings the parties together in both a strategic alliance and a joint venture is the ability to combine resources to pursue projects that may otherwise be out of reach. All parties share the expense and risk, and no entity inherits all the rewards.
The goals and purposes of a strategic alliance and joint venture must be clearly defined between the parties involved. It’s not imperative that each partner enters a relationship with the same exact goal in mind, but those metrics should at least be understood and closely aligned. Each party could bring to the relationship unique and different balances of power that can be leveraged by each other to compete more effectively in an industry.
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