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Strategic partnership or joint venture?

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in Leaders & Managers

Sooner or later, you’ll find yourself presented with a project—or an opportunity— that outstrips your in-house capabilities. That’s when it makes sense to join forces with another organization. But entering into a joint venture when you should agree to a strategic alliance (or vice versa) could lead to disaster.

What’s the difference? To create a joint venture, two businesses form a third new business such as a corporation, at least on paper. It consumes more time than a strategic alliance, costs more and requires legal assistance.

 Strategic alliances are informal arrangements that two businesses easily end when finishing a project together. A lawyer might not be necessary.

When to use a strategic alliance: You receive a purchase order you can’t fill, you want to increase advertising or you want to temporarily boost sales inexpensively.

Make sure your partner’s products and services complement your own. Example: Two years ago, a Detroit maker of maintenance and cleaning chemicals wanted to grow and diversify without going deep into debt. The company formed a strategic alliance with a distributor of maintenance and repair supplies to avail itself of a bigger sales force.

 A supplier can offer a discount in exchange for putting its label on a manufacturer’s product.

When to use a joint venture: Business is growing into new areas too fast for you to manage on your own. You want to expand but lack the money and don’t want to borrow it. You are willing to give up total control of your business. You plan a major long-term shift in business strategy.

 Example: Four years ago, an Illinois construction company decided to bid on larger contracts and formed a joint venture with a bigger building firm. Revenue and cash flow increased 30 percent.

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