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Frequently Asked Questions: What is the difference between a joint venture and a strategic alliance? Strategic alliances tend to be short-term collaborations (typically 18 to 48 months) in which two parties share resources for a combined purpose. Joint Ventures, by contrast, set up income streams on a perpetual, never-ending basis, or at least for the useful life cycle of the product or service. Why are joint ventures so important? Joint ventures are one of the quickest ways to grow a company. Such partnering allows your company to leverage the resources of another company without having to raise capital. Not only can joint venturing shore up weak areas in your own company, but it can also give you otherwise unavailable access to new expertise & knowledge, technology, and facilities. Joint venturing also allows you to keep your company small and focused on your core competencies. The result is improved cash flow with reduced overhead. Most importantly, joint venturing reduces risk. In this world of rapid change and shorter product cycles, you have increased access to more products, more innovative products, and of course, the creative people that develop them. Correspondingly, your partners give you the ability to move quickly to adapt to evolving market conditions. The result is speed and flexibility in delivering new products. Joint ventures also increase your credibility, and with it, larger pools of capital in the form of both cash and resources. This means better supply chains, product distribution, diversification into new markets, and higher quality manufacturing capabilities. What are the most common surpluses and shortfalls that joint venture partners share? Marketing and distribution channels - - perhaps more than any other… not only is this the key to leverage and exponential growth, but leveraging outside marketing is often the difference between the life and death of any company. The growth is critical to both producer and distributor. Non-cash forms of Capital - - most small, and even medium-sized businesses, have a very difficult time raising cash; but, there is an absolutely huge glut of underutilized, undervalued, underperforming assets hidden in all kinds of companies, just wasting away. These resources are generally accompanied by know how; in other words, non-cash capital is usually much more valuable than cash itself. Human capital - - often in the form of salespeople and technicians - - can often be redeployed in a joint venture to equalize surpluses and shortfalls between two or more companies in somewhat related fields. Manufacturing often requires economies of scale. Joint ventures increase the scope of full utilization and corresponding lower prices. Most critical of all is the sharing of technology and expertise. We are moving into a world where the truly successful will be measured by how much they can cooperate instead of by how much they can compete. The new goal is ever-strengthening relationships with key stakeholders in any demand-supply cycle. |
