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Joint Ventures and Alliances

In many situations, a company may prefer to partner with another organization instead of buying it outright. Joint ventures and alliances allow one organization to tap into another’s expertise, infrastructure, or customer base without shouldering all of the risk or committing all of the resources.

Alliances are collaborations in which two or more companies jointly invest in an activity and share the risks and potential returns, while remaining independent economic agents. Some alliances, such as joint ventures, involve the creation of a new legal entity. But most alliances are simply contractual relationships of longer duration and greater complexity than traditional customer-supplier relationships. 

Both joint ventures and alliances can be extremely useful in situations characterized by high uncertainty or unpredictability, or in markets with growth opportunities that a company can’t or doesn’t want to pursue entirely on its own. But unclear governance, operational inefficiencies, and lack of commitment can offset any advantages of shared risk. It’s essential that alliances are carefully managed every step of the way.

Eight Ways to Succeed with Joint Ventures

Thinking about pursuing a joint venture? Overcome the common pre-deal, post-deal, and breakup challenges by following these eight imperatives.

  1. Create clear, strategic objectives.  Before signing on the dotted line, outline everything up front. Identify and communicate strategic objectives, expected contributions, and any other concerns.
  2. Customize your partnership strategy. Standard joint venture templates don’t always work. There are many factors at play for both partners, so create a strategy that takes those into account.
  3. Consider unconventional partners. There is value to be had in “coopetition.” A joint venture with existing competitors or customers could be more successful than expected.
  4. Leverage your partners’ expertise. Consider their resources—customers, suppliers, distributors, processes, employees, production facilities, technical expertise, and government relations. Are there ways in which your organization could use these resources more effectively?
  5. Tailor the operating model to the partners’ capabilities. Don’t try to control every aspect of the partnership. Instead, create a governance structure that benefits all of the partners by taking full advantage of the strengths and synergies that occur along the entire value chain.
  6. Assign a strong and dedicated team. Joint ventures require a different mindset and set of skills than do mergers and acquisitions. Having the right people on board to manage the partnership and focus on driving value at every stage of the venture’s life cycle can make a significant difference.
  7. Manage the joint venture’s external ecosystem. For added value, foster relationships with outside players, such as governments, industry groups, educational institutions, suppliers, distributors, and customers.
  8. Plan your exit in advance. Every partnership has a shelf life, yet only 19% of joint ventures reported having an exit strategy in place before breakup. Using a third party to negotiate the exit strategy before you sign the deal can ensure each partner’s best interests are considered.
M&A and Divestitures
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