Joint venture refers to the business arrangement between the two or more than two parties in which the parties come together to pool their resources with the main motive of completing the specific task, whereas, the Strategic Alliance refers to the business arrangement between the two or more than two parties for completing the specific task 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 come together to undertake a specific venture. The basic difference between the Joint Venture vs. Strategic Alliance lies in the relationship that they share and the nature of the two entities.
What is a Joint Venture?
The joint ventureJoint VentureA joint venture is a commercial arrangement between two or more parties in which the parties pool their assets with the goal of performing a specific task, and each party has joint ownership of the entity and is accountable for the costs, losses, or profits that arise out of the venture. is an arrangement between two or more parties. It occurs when two or more parties agree to enter into a contractual arrangement to carry out some specific business undertaking.
The purpose of the joint venture is to combine their strengths and pool their resources to create a competitive advantageCompetitive AdvantageCompetitive advantage refers to a benefit availed by a company that has remained successful in outdoing its competitors in the same industry by designing and implementing effective strategies in offering quality goods or services, quoting reasonable prices and maximizing the wealth of its stakeholders. while minimizing the risk. While entering into the contract, the parties should specify the purpose, goals, and limitations of the venture. The joint venture can be in the form of Corporations, partnerships, Limited LiabilityLimited LiabilityLimited liability refers to that legal structure where the owners' or investors' personal assets are not at stake. Their accountability for business loss or debt doesn't exceed their capital investment in the company. It is applicable in partnership firms and limited liability companies. Companies, and other business entities. It can also combine small and larger companies with taking on some big or little projects or some long term continuing projects/ deals.
The most important agreement in the case of the Joint venture is the JV Agreement, which specifies all the details about the contract. 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.
What is the Strategic Alliance?
The 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 in achieving the target or enhancing their businesses.
A joint venture can also be a form of the strategic alliance when they combine together to form another new company without losing its current existence. It is less than a proper merger or partnership between two firms. The parties with the common interest come together to achieve the common business objectives with the intention to earn a profit.
It is an arrangement by which two or more parties share the resources or knowledge, basically an alliance that is formed to share the internal capabilities, assets, and resources to achieve the common business objective.
Joint Venture vs. Strategic Alliance Infographics
Here we provide you with the top 6 difference between Joint Venture vs. Strategic Alliance.
Joint Venture vs. Strategic Alliance Key Differences
The followings are the key differences between them:
- The joint venture is known as an association formed by two or more entities, having 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 work together to carry out a specific objective. Here a new company is formed with the original companies continuing to operate.
- The companies forming a joint venture does not operate as independent entities anymore, unlike the strategic alliance where the firms forming alliance continue to operate independently as well.
- 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 having its own distinct identity; however, the strategic alliance is not a separate legal entity.
- The purpose of forming the joint venture is to reduce the risk, whereas the strategic alliance is driven by the goal of maximization of returns.
- Since a joint venture is formed by two firms coming together and joining to form a separate legal entity to carry out mutual objectives, it has bilateral management. In the case of the strategic alliance, delegated management is usually found since the independent entities continue to operate.
Joint Venture vs. Strategic Alliance Head to Head Differences
Let’s now look at the head to head differences.
|Basis||Joint Venture||Strategic Alliance|
|Definition||Joint venture defined as the association of two or more business entities coming together to form a separate legal entity to carry out continued business operations||A strategic alliance is an agreement between two or more entities who are working jointly with one another to enhance the businesses of each other.|
|Objective||To mitigate the risk.||To maximize the returns.|
|Agreement/Contract||There exist 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 Entity||Yes, there exists a separate legal entity having its own separate identity.||No, there does not exist any separate entity.|
|Independent Organization||There are no independent entities existing once a joint venture is formed. Forming a joint venture will not affect their autonomy.||Here the independent entities continue to operate and do not lose their existence.|
|Management||A bilateral form of management is there as the association is a form of the joint venture.||Delegated management exists.|
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, the joint ventures can access the knowledge and resources of member entities to utilize the best of resources with the motives of enhancing business.
Thus, the final investment decision shall be made after analyzing all the aspects. One should decide after analyzing the market situation, risk-taking capacity, and taking legal advice.
Thus, after defining their business goals and assessing the risk availing capacities and market situation, one should decide.
This article has been a guide to Joint Venture vs. Strategic Alliance. Here we also discuss the top differences between Joint Venture and Strategic Alliance along with infographics and a comparison table. You may also have a look at the following articles –