Joint Ventures and Strategic Alliances
1. A joint venture is a type of partnership or strategic alliance between a few entities which engage in the same activity or project. The pool of knowledge and expertise that appears when two companies start a specific project offers a great deal of creativity and technology exchange. Also, it is important to point out that partnership that may seem similar to a joint venture is usually long-term, while the latter is established specifically for one particular purpose.
The main advantage of joint ventures is in complementary abilities that the companies may use to benefit. It refers to finance, channels of distribution, technology and human capital. Moreover, the companies get access to each other’s capacities and expertise, therefore they share knowledge and experience. The entities may also use each other’s technological knowledge and access to markets. They may agree to share their resource bases and involve specialized staff. Moreover, compared to other types of partnerships or strategic alliances, joint ventures are flexible. It may establish limitations in time, commitment and business exposure. The companies which establish joint venture may separate new capacities and a new project from the main business, but they share the risk.
The main disadvantages are related to flexibility and limitation of joint venture. Staff and business processes are not 100% opened and committed to each other. There is an obvious lack of communication between the two entities. Some imbalance between the two entities, for example, the lack of expertise, investment, or assets, may hinder the outcome. Some internal conflicts may also affect the operation and achievement. Joint venture needs a strong leader who may unite culturally different staff of both entities and make them work towards a common goal (“Advantages and Disadvantages of a Joint Venture,” n.d.).
2. There are lots of strategies related to the issue of entering new markets. One of the easiest and most successful ways is to establish a strategic alliance with the company local to the market. Its expertise, management strategies and techniques may be very beneficial for its partner. However, a joint venture may not be as good every time.
The firm may opt for entering the market by itself when it wants to keep some production secrets inside the company. To establish a strategic alliance of any kind means to undertake the responsibility and commitment to share some confidential information, experience and technology to the agreed extent. However, companies, especially if they own patents for some unique goods and products or exceptional technologies, may be unwilling to share its own research and development achievements. Therefore, it may neglect benefits that a local firm can provide to a new player, but to keep its production secrets and confidential information (Carter).
Moreover, some firms may also enjoy benefits of location, and have a rich resource base that might be a subject of interests of its counterpart. Strategic alliances presuppose sharing of such issues as investment and assets. If the costs and benefits analysis of the firm demonstrates that a strategic alliance will cost it more than it will gain as a benefit, this firm will prefer to promote new management initiatives and strategies in order to win the market. Such strategy may be successful for the firm as well. It may hire local workforce, use promotion campaigns or dump the price in order to win a market share, sufficient for a novice.
3. There are many issues that the company would prefer not to share with any partner. For example, company’s finances are the number one issue that I would like to hide from its counterpart in a strategic alliance, however, it would be a primary concern for the latter. Assets, investments, taxation and liability are the most important and the most confidential company’s information. The company’s attempts to protect this information are understandable, as they provide a full record of its performance.
The second most important block of information is any kind of intellectual property and benefits of ownership. The company may have an exclusive trade mark, exceptional patents, and unique technologies that resulted from the firm’s own R&D that it would want to separate from a newly established specific project. Moreover, leadership and management techniques of the staff can also be transferred to the complementary firm on the free of charge basis during collaboration. Normally, the company may sell this experience and expertise at a high cost.
Therefore, it is mostly concerned about losing confidentiality in financial issues and leak of the information regarding innovations and unique knowledge that prevents the firms from active involvement into any kind of partnership, including strategic alliances and joint ventures. In any case, they prefer to limit commitments and liabilities as much as possible in order to be able to avoid information disclosure. However, some benefits outweigh the risks, and this pushes firms to launch common specific projects and undertakings. In general, joint ventures are compromises between the firms’ unwillingness to share its information and the benefits that cooperation and collaboration may provide.
References
Advantages and Disadvantages of a Joint Venture. (n.d.). RP Emery & Associates. Retrieved from http://www.rpemery.com/articles/advantages_and_disadvantages_jv.htm
Carter, Christopher. (n.d.). The Advantages & Disadvantages of Joint Ventures or Pertnership Relationships. Chron. Retrieved from http://smallbusiness.chron.com/advantages-disadvantages-joint-ventures-partnership-relationships-24009.html
