Joint ventures and strategic alliances allow companies with complementary skills to benefit from one another’s strengths. They are common in technology, manufacturing and commercial real estate development, and whenever a company wants to expand its sales or operations into a foreign country. In a joint venture, the companies start and invest in a new company that’s jointly owned by both of the parent companies. A strategic alliance is a legal agreement between two or more companies to share access to their technology, trademarks or other assets. A strategic alliance does not create a new company.
When two companies invest funds into creating a third, jointly owned company, that new subsidiary is called a joint venture. Because the joint venture can access assets, knowledge and funds from both of its partners it can combine the best features of those companies without altering the parent companies. The new company is an ongoing entity that will be in business for itself, but profits are owned by the parents.
When companies want to quickly gain a new area of expertise or access to new technology or markets, they usually have two options: buy a smaller company with those assets or form a strategic alliance with another company that would benefit equally from the partnership. These agreements often have a limited scope and function, such as trading access to a strong brand for access to an emerging technology.
Both forms of partnership can be used to transfer technology, assets and knowledge between complementary companies. Strategic alliances are usually undertaken to allow each company to pursue a new market, product or strategy that they can’t manage on their own. Joint ventures are often used to shield the parent companies from the risk of a new venture failing; if the new product flops, the joint venture can go bankrupt without harming the parent company except to the extent of its investment. Some countries require that all companies that do business within their borders be at least partly owned by citizens of that country. In this case, a foreign company can start a joint venture with a domestic company to comply with the law.
Source : Evangeline Marzec