Joint Ventures (JV) and Strategic Alliances (SA) offer one tremendous opportunity for business growth.
Your business can take advantage of another business’s strength in an area where your business is weak and underperforming. While you can offer a complementary benefit to the other business. In this way, the partnership arrangement will be beneficial to both businesses.
Joint Ventures (JV) and Strategic Alliances (SA) can be made with a wide variety of stakeholders. Here are three different types of Joint Ventures (JV) and Strategic Alliances (SA).
1. PROJECT-BASED: Business + University
This is a type of project-based collaboration opens the road to a free interchange between universities and corporations.
These collaborations develop research relationships that can benefit both organizations. The purpose of this venture is strictly defined and limited to the completion of the single project as per the agreement. For example, scientific research conducted by a medical school may lead to a breakthrough in inventing a new anti-malaria drug to be later commercialized by a pharmaceutical company.
The company gains by an association with outstanding researchers whom it probably could never be able to hire. While the university gains some funding for basic research. Finance provided by the business will allow new courses to be offered at the university or research institute that will increase the supply of qualified employees for the firm. One of the disadvantages is the tendency to work on theoretical problems that may not have any meaningful counterpart in the real world.
Example 1: Westinghouse Corporation and Carnegie-Mellon University developed agreement to stimulate research in robotics. This arrangement gives Westinghouse the patent rights to any discoveries that are made in the course of the research either by Westinghouse employees or Carnegie-Mellon University faculty. If Westinghouse licenses these patents, then the university receives a percentage of the royalties. Carnegie-Mellon University has the right to publish those discoveries.
2. HORIZONTAL: Business + Competitor
This form of partnership happens between two business entities producing the same, or very similar, product.
Close competitors will be pooling resources together in order to reduce risks of entering a market that neither firm currently operates in. Once the Joint Venture (JV) or Strategic Alliance (SA) is formed, the companies in the venture no longer compete in the same market, but participate in another market as a single firm.
However, proper consideration must be taken that the actions are not being seen as ‘anti-competitive’ such as price fixing, and, as a result, against the laws of the country whose market is being entered. In the UK, Competition Markets Authority (CMA) published advice on Joint Ventures (JV) and competition law in 2018 listing ‘dos and don’ts’ which describes things to consider when setting up business collaborations.
Example 2: In 2000, four different airlines with half-empty aircrafts decided to collaborate by using a single full airplane to cut staff and fuel costs, and split the profits for mutual benefit. The airlines in this Strategic Alliance (SA) called SkyTeam managed to benefit from economies of scale by operating on a larger scale. Their customers gained added value services such as the convenience of access to wider channels of distribution. These days, SkyTeam encompasses 20-member airlines traveling to over 1,000 destination airports in almost 180 countries.
3. VERTICAL: Business + Supplier
In this case, the cooperation takes place between the buyer and the supplier, or vice versa. Different stages of an industry chain are integrated within to create more economies of scale. The main reasons why companies consider vertical Joint Ventures (JV) and Strategic Alliances (SA) include combining resources, sharing expertise and revenue growth.
a.) Supplier and producer. On one hand, the two businesses involved will join forces in order to design and produce raw materials that will be used in new products. This may help to reduce the total development time for introducing and launching new products to the market. It will help businesses to offer good quality products to customers at reasonable prices, hence gain competitive advantage.
b.) Producer and retailer. On another hand, a company that wants to extend its distribution network to new countries will benefit from an arrangement to sell goods to local businesses in those countries taking advantage of an already established distribution network.
Example 3: The Coca-Cola Company has created a Joint Venture (JV) with San Miguel by shared ownership of Coca-Cola’s bottling plant in the Philippines.
In case of very short-term Joint Ventures (JV) and Strategic Alliances (SA), the project is not given any name nor legal structure to avoid tedious paperwork. Therefore, many smaller and informal Joint Ventures (JV) and Strategic Alliances (SA) are not well-known as the disclosure to the public is also low.
