Question

3. Explain alliances and joint ventures. (please keep response under 3 paragraphs)

Answer 1

Alliances

An alliance is formed when a group of persons or organisations or countries or political parties agreed to work together because of shared interests or objectives. It can also be defined as an agreement to work with another person or organisation in order to accomplish same objective or a merging of efforts by a group to achieve the same goal. Generally, as strategic alliance is created in an organisation to get benefits. A strategic alliance basically an agreement between organisations or company's to undertake a mutually beneficial project with retention of own independence. The relationship can be long term or short term with a formal or informal agreement.

The Objectives Of An Alliance

Expansion In New Markets

Product Line Improvement

Gaining Competitive Advantage

To Increase Effectiveness and Efficiency

Achievement Of Globalisation

Business Development

To Leverage Resources

Expansion In New Markets- The point also defines Alliance Marketing. The expansion in new market can be very tough as the investments are huge along with development of distribution channels. An alliance can help the organisations in terms of terms of cutting those costs by signing an agreement. Alliances are an excellent way to crack new markets.

Product Line Improvement- One company licenses another to produce its product or two businesses agreed to join their products or form a new product. Example would be credit cards.

Gaining Competitive Advantage

Alliances can be specifically used for combining and also to enhance to the knowledge, skills and competence of the partners. Example Nissan sources Maruti A star from its factory and sell it as Nissan Pixo in Europe.

To Increase Effectiveness and Efficiency

An alliance can help the agreed organisations to achieve their objective within the time frame along with reduced costs.

Globalisation

A effective strategic alliance will always in gaining international market exposure and also gives access to international access to networks and distributions.

Business Development

Expansion and Growth with obvious maintenence of individual entity.

To Leverage Resources

Alliances can be used to concentrate, accumulate, complement and conserve resources.

Advantages and Disadvantages of Strategic Alliance

Advantages	Disadvantages
Access to New Markets	Poor Resource Allocation
Creation of Economies of Scale	Lost Control Over Employees, Product Quality
Risk Sharing	Fear of Market Insulation
Strenghtens the Objectives	Lack of Efficient Communication

Joint Ventures

A joint venture is formed when a cooperative enterprise entered by two or more business entities for the purpose of achieving a specific objective by keeping its individual legal status. Each party have to share risks and contribute assets and also have to share income and expenses. It can also be formal or informal, short term or long term just like an Alliance. A joint venture agreement needs to be prepared if the parties agree for the proposal.

Tha Joint Venture Agreement Contains:-

- Distribution Of Profits - How and in what percentage profits will be distributed?

- Formation - Purpose of forming a joint venture?

- Management - Who will be responsible for managing day to day activities?

- Term - Whether the venture is for a limited time or for a indefinite period?

- No Partnership - No creation of partnership or an fidicuary relationship between parties

A joint venture enable the agreed businesses to fill taxes separately yet by taking advantages of a partnership such as sharing or risks and resources. A joint venture not a partnership though it may have some similarities, a partnership is a single business formation with two or more parties whereas a joint venture joins several business entities to form a new entity. Income taxes are being paid by the owners individually in partnership where as in a joint venture taxes are paid individually by the agreed business entities. A joint venture can be very flexible according to the needs and requirements of organisations.

Characterstics Of Joint Venture

- Sharing of Risks and Rewards

- Usage of Advanced Technology

- No Special Organisation Name

- Agreement Between Parties Involved

- Shared Resources

Advantages Of Joint Venture

Innovation

Technology Access

New Markets Access

Minimal Cost of Production

Hope, that answers the question. Do comment in case of queries.