Joint venture vs Strategic Alliance

In business world, various arrangements are setup from time to time in order to achieve strategic objectives. But sometimes, it becomes very difficult to undertake new business strategy. The business risk of the organisation does not allow to carry on like this. Keeping in view the difficulties faced in the expansion of the business, one entity has to depend on the other entity. So, when one entity plans to work with the help of another company, there are multiple options available to it. Most common types of arrangements are Joint Ventures and Strategic Alliance.

Joint Ventures – In this sort of arrangement, two or more entity setup a new entity and pool their fund and skills for mutual benefit. This is helpful when an entity has some competitive edge over the other and they combines their efforts, skills and resources to take advantage of opportunities available to them.
But there are issues of each partner trying to acquire the business of the joint venture. Mostly, joint ventures end up in business acquisition by a major joint venture party. If joint venture remains in existence, both parties may have feeling of not owning the venture and as a result, this could lead to failure of the arrangement. The partners share the profit earned through joint venture in proportion to their agreed ratio. As both parties invest the funds or resources, each has the intention to turn the JV business into a profitable one. In a new market, foreign entrant can take help from local company to reduce barriers to entry and reduce the risk of high cost investment. As local company has sound knowledge of local laws and regulations, this is the ideal business arrangement to diversify the business.
On the other hand, local company cannot afford high investment due to its low liquidity assets, so internal big company can be the best source of fund for this local company.

Strategic Alliance – under this arrangement, two or more parties enters into agreement for mutual benefit in such a way that they retain their individual identity. No separate entity is established as this is just a alliance. In this arrangement, parties share knowledge and skills such as Starbucks partnered with Kraft foods to help it market its coffee range in supermarket.
However, as both organization retains their identity, there may be conflict of interest between partners that could lead to failure of strategy. Apart from this, alliances require very little investment as compared to JV, that is why companies try to find out the hidden benefits in SA on a priority basis than JV.
Often people confuse the Strategic Alliance with Joint Venture. But as per our discussion, we have made it clear to understand that both are totally different business development strategies and pros and cons.