Should Companies Jointly Venture

by Sauvik Banerjee
MBA (International Business),
Leeds University Business School,
Asso. Manager, PwC Leeds.

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Part - IV

But what are alliance and joint ventures? According to Faulkner D, (1995) strategic alliances is an excellent tool for two companies to work together successfully and is generally a broad based agreement that cover a number of customers and a number of situations over an extended and identified period of time. The term alliance covers several modalities ranging from relational contracting, to licensing, to logistical supply chain relationships, to equity joint ventures (Gulati & Singh, 1998).

TYPES OF ALLIANCES *

As such a true alliance is a written agreement between two companies that complement each other in a particular identified area. It is not a partnership and neither company has the legal power to remove the other, instead is a commitment by the two companies to provide capabilities or cross servicing in certain identified areas. But the best definition in the context of formation of virtual organizations would be by Peter Pekar.Jr and Marc S.Magulis (2003) who state that "a strategic alliance is an organizational and legal construct where in partners are willing-in fact, motivated-to act in concert and share core competencies". It can be deducted that most alliances differing to the level of degree result in virtual integration of the parties. Joint Ventures are also alliances but more like a partnership where equity transfer takes place and is formed for the purpose of goals either one or a series in business projects. Depending on the terms, joint ventures may have the power to obligate each other and each may be liable, within defined limits, for the actions of the other on the project in question (Buckley & Casson, 1998b). To make it simpler alliance and joint ventures are both common methods of partnership formation but differ in that the latter usually encompasses investing in equity, which gives them certain legal powers, but also make them liable to a greater degree.

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* Source: Pekar.P. Jr and Marc S.Margulis Ivey Business Journal (2003).