Business Alliance V.S. Joint Venture

Before jumping into a strategic business alliance or join venture, it’s important to understand how either of the two could help you build synergy and gain a competitive advantage in your industry.

How are they similar?

Both alliance and joint venture involve integration through shared expenses, risks, and core competencies (technology transfer, knowledge, economic and skill specialization) that will be mutually beneficial for the parties.

How are they different?

Although both companies are involved in sharing/contributing particular resources in a way that benefit each other, they differ in its way of agreement. A joint venture is a formal and legal partnership, while a strategic business alliance is contractual and may be less formal. In the latter, you can retain full control over the firm whereas the former will have a shared ownership over a newly created company.

Examples

In the telecommunication industry, brands such as Globe and Smart have established alliances with mobile device companies (Huawei, Apple, etc.) to have an offering where both products complement each other (i.e. mobile and plan bundling).

Advantages

Having a business partner can be a win-win situation. Risks and expenses is lessened as it is now borne by two instead of one and, as mentioned, there is an open access to strategies and resources between the two companies.

Disadvantages

When a joint venture fails, it could be difficult to exit the agreement, while in a strategic alliance, there is no certainty that you will gain equal benefits and control over the other company.

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