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What Is the Connection between a Strategic Alliance and Joint Venture?

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  • Written By: Geri Terzo
  • Edited By: PJP Schroeder
  • Last Modified Date: 13 September 2016
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When two or more parties decide to formally work together to pursue a common goal, the partnership could be a strategic alliance or a joint venture. There are similarities between each of these partnerships, including the fact that each situation requires that two or more parties join together. In a joint venture, an entirely new entity is formed to carry out the plans of the agreement, and there are greater legal restrictions in this type of partnership. A strategic alliance is also a formal arrangement that requires a contract, but no separate entity is formed.

Both a strategic alliance and a joint venture are designed to last for a designated period of time. In an alliance, the agreement is typically between organizations. A joint venture may be a combination of two businesses, but it may also be a partnership between individuals.

If an opportunity arises overseas, an international strategic alliance and joint venture are both options. In some cases, a country may, in fact, require that a local company be included in any endeavors that involve an international entity profiting from that nation. This is more likely to be a requirement in emerging countries as opposed to economies that are already developed, according to the Reference for Business. It is also possible for a local government to represent one of the parties in a formal, international agreement.

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There are benefits and risks associated with both strategic alliance and joint venture situations. Contracts are designed ahead of time to outline how profits and sales will be shared among all of the parties involved in the deal. Risks include the possibility that each of the partners could experience a loss if the endeavor fails. Often, what draws parties together in both a strategic alliance and joint venture partnership is an ability to combine resources to pursue projects that might be otherwise unattainable. All of the parties share the expense and the risk, and no one entity inherits all of the rewards.

The goals and purposes of a strategic alliance and joint venture both must be outlined clearly among the parties involved. It is not imperative that each of the partners approach a relationship with the same exact goal in mind, but those parameters should at the very least be understood and closely aligned. Each party might bring unique and different strengths to the relationship that can be leveraged by one another to compete more effectively in an industry.

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