Joint Ventures, Strategic Alliances and Co-Marketing

Q: What’s the difference between a Joint Venture, a Strategic Alliance and a Co-Marketing Deal?

A: The short answer is Strategic Objectives and Legal Complexity.

Joint Ventures

A Joint Venture usually refers to the creation of a new legal entity with equity shared among participants. A Strategic Alliance is limited in scope and involves sharing resources among participants. Co-Marketing is the simplest of them all; it typically involves one company promoting another’s product for a share of revenues.

JV-Cross

It’s easy to get confused with the terminology. A quick Google search returned several misleading definitions:

“A joint venture (JV) is an association of two or more businesses temporarily formed to carry out a single business activity or project for profit in which they combine their property, capital, efforts, skill and knowledge. The association is limited in scope and duration. ” source

“Joint venture is an association of two or more small business concerns to engage in and carry out a single, specific business venture for joint profit, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally.” source

Ed Rigsbee offers a much better explanation of a Joint Venture

A joint venture is a legal partnership between two or more entities. With a joint venture you will have something more than simple governance; you’ll have a completely new entity with a board, officers, and an executive team. Effectively a joint venture is a completely new organization, but owned by the founding participants. The board of directors generally is constructed with representatives of the founding organizations. This new company will “do business” with the founding entities—usually as suppliers.

Nolo’s Plain-English Law Dictionary

“An enterprise entered into by two or more people for profit and for a limited purpose, such as the purchase or improvement of real estate. A joint venture has most of the elements of a partnership, except that it anticipates a defined period of operation after which it terminates.”

 Cornell University Legal Information Institute

“A joint venture is a legal organization that takes the form of a short term partnership in which the persons jointly undertake a transaction for mutual profit. Generally each person contributes assets and share risks. Like a partnership, joint ventures can involve any type of business transaction and the “persons” involved can be individuals, groups of individuals, companies, or corporations.”

Thoroughly confused? Think of it this way then; a joint venture can be defined as many different things. Don’t assume all involved share a mutual understanding – instead, spell it out in a detailed agreement.

Strategic Alliances

A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives need while remaining independent organizations. This form of cooperation lies between Mergers & Acquisition M&A and organic growth.

One typology of strategic alliances conceptualizes them as horizontal, vertical or inter-sectoral:

  • Horizontal strategic alliance: Strategic alliance characterized by the collaboration between two or more firms in the same industry, e.g. the partnership between Sina Corp and Yahoo in order to offer online auction services in China;
  • Vertical strategic alliances: Strategic alliance characterized by the collaboration between two or more firms along the vertical chain, e.g. Caterpillar‘s provision of manufacturing services to Land Rover;
  • Intersectoral strategic alliances: Strategic alliance characterized by the collaboration between two or more firms neither in the same industry nor related through the vertical chain, e.g. the cooperation of Toys “R” Us with McDonald’sin Japan resulting in Toys “R” Us stores with built-in McDonald’s restaurants.

Another typology distinguishes between four forms of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance, and global strategic alliances:

  • Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.
  • Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage.
  • Non-equity strategic alliance is an alliance in which two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage.
  • Global Strategic Alliances working partnerships between companies (often more than two) across national boundaries and increasingly across industries, sometimes formed between company and a foreign government, or among companies and governments.  Source

Let me give you a simple, small business example to help drive home the differences.

Co-Marketing:

One business gives out promotional offers to its clients that promote another, non-competing business.  These are most often short-term “promotional” activities.

Example: Used Car Dealer gives out coupons to the local Car Wash.

Strategic Alliance:

Example: Used Car Dealer showcases inventory for sale in the Car Wash lot and pays the the Car Wash owner a commission when these vehicles sell.

Joint Venture:

Example: Used Car Dealer and the Car Wash purchase an adjacent lot of real estate with the intention of selling it in 5 years for a profit.

Partnership:

Example: Used Car Dealer and Car Wash open a Gas Station on an adjacent lot.