Advantages of strategic alliances and joint ventures include:
- Overcoming trade barriers
- Reducing transport and production costs
- Sharing risks
- Improving market credibility, penetration and access
Strategic alliances
A strategic alliance with stronger overseas partners can help New Zealand companies overcome the challenges of small size and lack of resources by accessing the superior capability and networks of established international companies. They are particularly relevant for New Zealand companies in sectors such as information technology, electronics and component supply, who need greater production, distribution and marketing capability to access fast changing and complex markets.
Strategic alliances take many forms ranging from technology transfer, purchasing and distribution agreements, to marketing and promotional collaboration and joint product development.
A typical strategic alliance is a loosely structured relationship in which each partner retains their business independence while contributing their distinctive core strengths to achieve mutual benefits.
Benefits and challenges
Strategic alliances require a long term view. They offer exciting opportunities for growth but, above all else, require commitment – in hours as much as dollars - to identify the right partners and reach agreement. Developing a strong and lasting relationship can take years.
Before establishing a strategic alliance you need a clear idea of your company’s strategic direction, what you want from a partner and what you have to offer. Give careful consideration to compatibility and capability.
- Compatibility matters much more than unequal size. Examine operating styles, company cultures and whether key people can get along
- Ensure your partner has the complementary skills, resources and networks you are looking for
Joint ventures
Joint ventures involve two or more parties contributing funds, facilities and services to a combined enterprise for mutual benefit. A joint venture may be a separate legal entity or company or could take the form of a Heads of Agreement or a Strategic Cooperation Agreement.
They are formed for a variety of purposes including manufacturing product in a target market, providing resources and networks to penetrate and build profile in target markets and adding new technology and expertise to your product.
Joint ventures are a common way of getting around a trade barrier that is preventing entry into a target market.
Benefits and challenges
Joint ventures can achieve many of the advantages of a fully owned operation, without the long lead-time and at a fraction of the cost. Flexibility is a key attraction as they can be moulded and shaped to suit the specific needs of the partners and the markets. However, joint ventures involve a high level of commitment, both funds and time, carry a degree of risk and require a long term view.
Critical success factors include good rapport and communications channels between the partners and positive results within a reasonable and agreed timeframe.
There is no set formula for putting together a joint venture. The best known arrangement involves 50-50 shareholding, but majority and minority joint ventures can also be successful. It is vital to develop a clear joint venture strategy before selecting a partner and beginning what can be a time consuming process of establishing a business structure, resolving investment and legal issues and negotiating a final agreement.
