Alliances
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Joint ventures and strategic alliances allow companies to grow in scale and capabilities with less risk than mergers or acquisitions. They involve partnerships that maintain autonomy for each organization while aligning long-term goals for mutual benefit. Key differences are that joint ventures create a separate legal entity to carry out specific projects for a set time, while strategic alliances do not form a new entity and generally have a more indefinite relationship.
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Alliances
- 1. Joint Ventures and Strategic Alliances
- 2. Why… … are more and more corporations getting involved in strategic alliances and joint ventures?
- 5. Basic Components of a Strategic Alliance
- 10. Examples of Best Practices for Strategic Alliances
- 14. Basic Components of a Joint Venture
- 28. Differences Between Joint Ventures and Strategic Alliances
- 32. JV vs. Strategic Alliance Companies remain independent Companies A and B combine to form a new company C Joint Venture Strategic Alliance A B C A B A B
- 34. Joint Ventures and Strategic Alliances
Editor's Notes
- S.E.
- Examples:
- 132
- To ensure success, each party should have some equity ownership or stake. This must be spelled out to avoid disputes. Parties must determine how each will nurture and care for their offspring. They have to agree to strong commitment, expressing mutual obligations to each other and the child. Must agree to avoid competing and act in good faith towards one another. Must also agree to assist in procuring quality management and staff. Must determine who or what body will direct operations of the JV and what will those responsibilities be. Establish role of parties in management. Voting procedures, authority for expenditures, restrictions of parties, who can enter into agreements on behalf of the JV, who can obligate the JV Once the initial resource outlay is defined, must determine how to value and assess the contribution. Each party must define extent of contributions and valuation of those contributions. Who will be the decision maker and on what matters? Will all parties have an equal say? Or, will one party have a major say in a specific area? How will internal/start up expenses be paid? Who will be in charge of accounts? Who will be the external auditors, bankers, and other professional service providers. Who will be the signatory on accounts. Need to provide for disputes and how and where they will be resolved. Will it be by conciliation or a from of arbitration?
- Most common structure is a LLC. The LLC is taxed as a partnership and pays no federal income taxes. Profits and losses are passed through to members. Can also be a corporation. Both arrangements shelter parties from direct liabilities. Mutual indemnities between parties is critical. Same as 2 on previous page. Who and how will operations be managed? What activities can parties carry out exclusively vs. through the JV? What can they carry out independently? What must they first offer to the JV? What is the general scope of the JV? How can the JV decide to increase scope? What is the impact on scope of activities on existing, proposed or potential activities of parties? Who will own the intellectual properties? Can parties license for use? Terms must be defined. Will party’s intellectual property be sold or licensed to the JV? What are terms of each sale/license? Can parties use IP assigned to or created by the JV for non-JV purposes? Under what terms and conditions? Determine what applies and the impact on the JV. Sometimes, a “constitution” or local articles must be drawn up in accordance with local laws to avoid disputes. Provisions should be made for parties to exit honorably and amicably with consequences fully spelled out and limits on what can or cannot be transferred to an outside party.
- Who will have custody of account books, prepare periodic financial statements, what statements will be prepared, what accounting standards will apply? Provisions must be made for obtaining external loans and to which party is to source for such loans. Who can obligate the JV? Who will be signatories? How will profits and dividends be distributed, and in what shares. What % of net earnings will be retained as reserves and plowed back into the business. How to split of the proportion of responsibility in event of loss? Can differ from how profits are split. Who an withdraw? How much? Under what conditions? Impact on ownership interests.
- JVs usually have a predetermined end. The parties come to a mutual end at a specific time. The agreement should detail what would happened if the union ends sooner than expected. The agreement should spell out what specific situations, actions, activities and the like that, if occurs, will be cause for separation. Sold, dissolved, adopted…what? S.E.
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