Advantages and Disadvantages of
Joint Ventures and Strategic Alliances
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Your business may have strong potential for growth, and you may have innovative ideas and products. If lack of resources is hampering your growth, the advantage a joint venture could give you might be greater production capacity and access to new technologies and bigger markets.
Other reasons you might have for forming a joint venture include —
- Expand quickly by "borrowing" another company's resources
- Exploit their established distribution channels and dealer network
- Share the costs and spread the risks with a partner
- Team up with someone with more money than you
- Partner with a larger company to access their large list of customers
- Have access to advanced technical expertise and research
- Gain access to and benefit from their innovative managerial practices
- Exploit synergies between partners
- Diversify your product line
But, you must be able to offer something your partner needs and does not have.
For example, your new and innovative product could gain access to another company's large customer base and give them a new product to diversify their product line.
While much can be gained by the partners in a joint venture, it takes time and effort to build the right relationships. Partnering with another business is not always easy, especially if some of the staff fear for their jobs. This can be quite a disadvantage and "turf wars" could result. Problems may arise if the objectives of the venture are not absolutely clear and communicated to everyone involved.
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Make sure there is a good balance in levels of expertise, investment or assets brought into the joint venture by the different partners, otherwise this might cause difficulties over time. Again, good Communication and common goals will alleviate this. An experience mentor will help keep everything on an even keel.
May I mentor your joint venture?
Recommended book - The Collaboration Challenge: How Nonprofits and Businesses Succeed Through Strategic Alliances
James E. Austin, author of numerous books on business and a business professor at Harvard, identifies major alliances and examines how they function. He explains the role of top leadership and emphasizes the importance of a strategic "fit" between the partners. Austin suggests ways for partners to analyze the value of their collaboration and then considers ongoing practical management issues. He concludes with guidelines for collaborations and questions that must be addressed.
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JOINT VENTURES
