Question

What are the various types of joint ventures and strategic alliances? How do they benefit both partners? Discuss with some examples, including the Fuji-Xerox case.

Answer 1

Types of Joint Ventures:

1. Limited Co-operation: This is when a company agree to collaborate with another business in a limited and specific way. For example, a small business with an exciting new product might want to sell it through a larger company's distribution network. The two partners agree a contract setting out the same terms and conditions of how this would work.

2. Separate Joint Venture business: This is when you set up a separate joint venture business, possible a new company, to handle a particular contract. A joint venture company like this can be a very flexible option. The partners each own shares in the company and agree how they should manage it.

3. Business partnerships: In some cases, a limited company may not be the right choice. Instead, a company could form a business partnership or a limited liability partnership. A company could even merge the two businesses.

Types of Strategic Alliances:

1. Joint Venture: A joint venture is established when the parent companies establish a new child company. For example, Company A and Company B can form a joint venture by creating Company C. In addition, if company A and company B each own 50% of the child company, it is defined as a 50-50 joint venture. If company A owns 70% and company B owns 30%, the joint venture is classified as a Majority-owned venture.

2. Equity Strategic Alliance: An equity strategic alliance is create when one company purchases a certain equity percentage of the other company. If company A purchases 40% of the equity in company B, an equity strategic alliance would be formed.

3. Non-equity Strategic Alliance: A non-equity strategic alliance is created when two or more companies sign a contractual relationship to pool their resources and capabilities together.

Benefits of Joint Venture:

• Access to new markets and distribution networks
• Increased capacity
• Sharing of risks and costs with a partner
• Access to greater resources, including specialized staff, technology and finance
• To market the product to a large customer database
• Join forces in purchasing, research and development

Benefits of Strategic Alliances:

• To improve current operations of companies
• To change the competitive environment
• To enter into foreign markets
• Risk and cost sharing between partners
• To increase the brand value