Joint Ventures and Strategic Alliances

Joint Ventures and Strategic Alliances

 
A strategic alliance's character as a long-term but flexible relationship makes its especially attractive during economic downturns. It may allow parties to extract the efficiencies of a business combination without the financing or other up-front commitments required for an outright acquisition. This article identifies some of the most widely used strategic alliance structures and highlights key issues that recur during alliance negotiations.
 
The authors write: As anyone who has watched Survivor knows, strategic alliances can be a path to success. Alliance partners can enhance each others' strengths and offset each others' weaknesses, while each partner retains the flexibility to re-align their strategies and tactics over time.

Of course, joint ventures and strategic alliances ("strategic alliances") preceded reality television by millennia. Ancient societies developed codes and laws to define the rights and responsibilities of partnerships, marriages and other strategic alliance-like relationships long before reality TV became entertainment for the masses. Feudal property laws recognized and gave legitimacy to strategic alliances in the forms of tenancies in common, tenancies by the entirety and joint tenancies. Strategic alliances and the legal structures that surround them continue to evolve to this day. Although some strategic alliances are simple single-project businesses, many other strategic alliances are complex, multinational commercial organizations.

Whatever the nature, parties in a strategic alliance must have a common understanding and be willing to coordinate their efforts over time. A strategic alliance's character as a long-term but flexible relationship makes strategic alliances especially attractive during economic downturns. Using a strategic alliance structure may allow parties to extract the efficiencies of a business combination without the financing or other up-front commitments required for an outright acquisition. Strategic alliances are also attractive for businesses seeking to expand into new jurisdictions, where forming a strategic alliance with a local partner can offer advantages in navigating complex regulatory schemes. In fact, some countries, like China and India, require certain foreign businesses to form joint ventures with domestic businesses in order to enter the market.

The options for structuring strategic alliances are virtually unlimited and continue to evolve. In all cases, strategic alliances need to be tailored to the specific needs of the parties. This article identifies some of the most widely used strategic alliance structures and highlights certain key issues that recur during strategic alliance negotiations. No two strategic alliances are exactly alike. They vary in size, structure, assets, purpose and duration, among other characteristics, and they represent a wide range of issues and challenges. There is no "standard form" strategic alliance agreement. That being said, there are a few recurring structures that are widely used as building blocks for forming strategic alliances. These structures are founded in two basic categories: (1) entity-based strategic alliances and (2) contractual strategic alliances. The choice of structure of a strategic alliance is typically driven by tax considerations and liability issues.