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Joint Venture vs Strategic Alliance

Updated on May 23, 2024
Article byWallstreetmojo Team
Edited byAaron Crowe
Reviewed byDheeraj Vaidya, CFA, FRM

A joint venture refers to the business arrangement between two or more parties in which the parties come together to pool their resources with the main motive of completing the specific task. In contrast, the strategic alliance refers to the business arrangement between the two or more parties to meet the particular job by remaining independent.

Joint Venture vs. Strategic Alliance Differences

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.

What is a Joint Venture?

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.

Joint Venture vs Strategic Alliance

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What is the Strategic Alliance?

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.

Joint Venture vs. Strategic Alliance Infographics

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

Joint-Venture-vs-Strategic-Alliance-info-new

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Joint Venture vs. Strategic Alliance Key Differences

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.

Joint Venture vs. Strategic Alliance Head-to-Head Differences

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

BasisJoint VentureStrategic Alliance
DefinitionA joint venture is the association of two or more business entities forming a separate legal entity to carry out continued business operations.A strategic alliance is an agreement between two or more entities working jointly with one another to enhance the businesses of each other.
ObjectiveTo mitigate the risk.To maximize the returns.
Agreement/ContractThere exists a contract or agreement before forming a joint venture.The existence of a contract is not necessary. So, there may or may not be a contract.
Separate Legal EntityYes, a separate legal entity has its own distinct identity.No, there does not exist any individual entity.
Independent OrganizationNo independent entities exist once a joint venture is formed. Therefore, creating a joint venture will not affect their autonomy.Here, the separate entities continue to operate and do not lose their existence.
ManagementA bilateral form of management is present as the association is a form of a joint venture.Delegated management exists.

Conclusion

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: –

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Comments

  1. Manjula says

    Excellent information , thankyou!!

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