1.6-- growth and evolution (JV + SA)

joint venture defintion

based on an agreement between 2 or more organisations to undertake a particular business activity . the joint venture becomes a separate legal entity and all organisations share in profits or losses of the enterprise and will share the investment

advantages of joint venture

1. relatively cheap

2. synergy

3. easier entry into foreign markets

relatively cheap —joint venture

1. Fewer legal costs ( in terms of drafting and negotiation fees) compared to merger/acquisition → cheaper way to expand lowering risk

2. Share costs with partner → lower financial burden

synergy defintion

created where the joint skills , resources and experience of the businesses collaborating far exceed those of the two business acting independently

synergy — joint venture

Share expertise/resources → better innovation/more ideas → improved products/unique products → increase competitiveness → more customers → increase revenue

easier entry to foreign markets —joint venture

Local partners knowledge → better understanding of market → fewer mistakes → reduce COP in terms of defects → increase profits

disadvantages of joint venture

1. rely heavily on other company

2. conflict

3. difficult to terminate a joint venture

rely heavily on other company—joint venture

Rely on partner → loss of control → if partner performs badly → overall performance + brand reputation decreases →lesser customers →reduce sales

• rely too much on partner = they make most decisions

• cant act independently anymore

conflict —joint venture

Different objectives/leadership styles → conflict → slow decision making → inefficiency (produce lesser output /slower to produce same amount of output) → decrease productivity

difficult to terminate joint venture

It is a legal agreements → legally binding responsibilities committed by the parent companies of joint venture → harder to terminate

strategic alliance defintion

a collaborative agreement between two or more firms to pursue a set of agreed goals , but the firms remain completely independent organisation . the alliance ends when the goals are achieved

advantages of strategic alliance

1. fosters cooperation rather than competition

2. retain individual corporate identites

3. synergy

fosters cooperation rather than competition —strategic alliance

Share knowledge/resources ( instead of competing , they coordinate actions) → improve processes / products produced more unique → increase efficiency / more customers → reduce costs/gain competitive advantage → increase profits

firms have aligned objectives and interdependent outcomes, which incentivises them to support each other instead of acting as rivals.

sharing resources —> lesser duplicates = reduce costs

• faster innovation

• access to new markets

• competitive advantage

synergy —SA

Combining strengths → better innovation → improved products → increase in sales

retain their individual corporate identities—SA

1. Not a full merger (remain legally separate)→less risk and internal conflict as compared to merger →smoother operations → stable performance

disadvantages of strategic alliance

1. short term agreements

2. potential misconduct of member firms

3. few barrier to entry and exit in a strategic alliance

short term agreement —SA

Temporary partnership → less commitment (might not fully commit / withdraw anytime/creating uncertainty and less trust)→ limited investment (restrict deeper external growth strategies)→ smaller long term gains

potential misconduct of member firms / lack of privacy —SA

1. Partner may steal knowledge/tactics/leak secrets → loss of competitive advantage → reduce future profits 

few barriers to entry and exit in a strategic alliance —SA

Partners can leave easily → instability → disrupted operations → inefficiency

• partners withdraw easily —> creates uncertainty in planning —> reduce trusts between both organisations —>lead to incomplete projects