A Joint Venture (JV) and Strategic Alliance (SA) plays a key role in a corporate growth strategy. They are an alternative to Internal Growth which is a growth strategy of building a new business from the ground up, and the business integration side of External Growth which requires change of ownership.
The main purpose of forming a Joint Venture (JV) and Strategic Alliance (SA) with other businesses is to gain synergies built upon different strengths of the members. By pooling resources together such as know-how, technology, capital, managerial acumen, etc., all members can benefit from each other’s expertise.
Steps in forming a Joint Venture (JV) or Strategic Alliance (SA)
There are six major stages:
- Conduct feasibility study. Investigate the situation carefully for a period of time to decide on rationale and feasibility of the partnership. Will a new Joint Venture (JV) or Strategic Alliance (SA) drive corporate growth or profitability in the coming years?
- Establish objectives. Having clear priorities and expectations will help to give a very clear picture of the important aspects to be achieved. The agreed-upon new business model will need to be established providing the necessary guidance for the legal and financial frameworks.
- Assess partners. It is important to analyze the potential of different partners to understand the strategic logic operating in each organization for the success of the venture. Find out what partners have to offer to the alliance in terms of both financial and non-financial resources, and expertise what they can share. The need for trust, collaboration and equitable risk-sharing make these arrangements far more delicate to navigate than traditional transactions seen in mergers, acquisitions and takeovers.
- Negotiate the contract. After choosing partners, negotiations will take place to determine each member’s contributions and rewards. You must ensure that all negotiations are win-win for all parties involved. A mutually acceptable contract will be drawn upon.
- Establish assessment criteria. Decide how to evaluate the future success of the Joint Venture (JV) and Strategic Alliance (SA). Businesses that take a collaborative approach that is built on trust and sharing gains will create a sustainable competitive advantage. Evaluating performance of the partnership against well-planned, formalized and established objectives will dramatically increase the chance of success.
- Implement the contract. New operations are initiated with commitment of all parties to the contract. There must be significant commitment from the senior leaders of each partner to maintain rigorous and professional end-to-end execution of the agreement.
In a highly globalized world, more and more corporation are moving beyond traditional model of Internal Growth relying on own resources, and use Joint Ventures (JV) or Strategic Alliances (SA) instead, which are some of the methods of External Growth, to achieve their business development objectives.
