Joint ventures and strategic alliances permit corporations with matching abilities to make the best of their strengths (Glover, 2003). Both contracts are usually widespread in technology and real estate businesses. The contracts are very common with corporations wishing to enlarge their sales or operations into the international market. As such, a joint venture contract allows a corporation to establish and invest in a new business, which is mutually possessed by both parent companies (Glover, 2003). On the other hand, strategic alliance is an officially authorized contract binding involved corporations to share their technology, brand names, or other resources.
Concerning inclusiveness, joint venture contract allows two or more corporations to invest their money towards the establishment of a third and mutually owned corporation (Glover, 2003). Since a joint venture contract permits a right to sharing of resources, information, and finances among the involved parties, it has the ability to merge the finest facets of the parties without changing the mother companies. The company resulting from the agreement is a continuing unit that will be in commerce for itself.
However, the mother companies will own profits. In contrast, strategic alliance contracts are established when corporations desire to expand speedily into a new area of knowledge or have a right of entry to latest technology or markets (Glover, 2003). During such situations, the companies are faced with two alternatives. They either purchase a smaller corporation with the required assets or establish a tactical alliance with a different company that would gain similarly from the affiliation. Unlike joint venture, strategic alliance flexibility of relationship is limited. The contract has a narrow scope and function (Campbell & Netzer, 2009).
The two contracts have numerous advantages and disadvantages that should be evaluated before signing into the agreements. To decide between the two contracts, the involved companies must understand their long-term objectives. With respect to performance incentive, a joint venture contract is better than a strategic alliance contract (Campbell & Netzer, 2009). With a strategic alliance contract, the parties can enter and exit the agreement with ease.
In a joint venture, more time and effort is needed to initiate and terminate the contract. Due to this, the joint venture has higher chances of achieving its objectives. Similarly, a joint venture requires minimal attention from the involved companies because its leaders manage it independently. Therefore, a joint venture contract will work best for those who are not ready to dedicate their time and assets to the health and continuation of their tactical alliance (Campbell & Netzer, 2009).
Before entering into a strategic alliance contract, a company should evaluate a number of factors to identify an appropriate partner (Campbell & Netzer, 2009). Primarily, it should choose a company with a related management approaches. Secondly, it is imperative to assess the partner’s goods and services. A strategic alliance is likely to be successful if the companies’ operations match other than compete. Thirdly, the possible risks of the agreement should be factored. Therefore, the companies involved must collect as many facts about each other prior to entering a union. Similarly, when entering into a joint venture contract, a company should assess a number of factors. A company should carefully evaluate what the union will achieve, the period of the union, and if they will need privacy to undertake their negotiations (Campbell & Netzer, 2009).
References
Campbell, D., & Netzer, A. (2009). International joint ventures. Alphen aan den Rijn, The Netherlands: Kluwer Law International.
Glover, S. I. (2003). Partnerships, joint ventures & strategic alliances. New York, N.Y.: Law Press.