Forming Strategic Alliances and Joint Ventures
You may have reached a point where you’ve decided to explore alternatives to exporting on your own. Forming a strategic alliance or joint venture with another business of similar size and market presence can often be mutually beneficial.
A strategic alliance is when you and another business agree to work together towards a common exporting goal – pooling your resources, skills and even capital for mutual gain. Each business in the alliance usually retains their independence, either one is the main seller and the end customer usually only contracts or buys off one of the businesses.
Strategic alliance activities might include:
- Technology transfers where you’ll use a product, piece of software or tool from another business and add it to your product list to on-sell it to an export customer. It also works in reverse, where another business may add your product/service to their sales offer.
- Marketing and promotional collaboration where you may be introduced to an existing customer, share the costs of exhibiting at a trade show or online promotions.
- Sharing knowledge and expertise that the other party doesn’t have.
- Complying with local rules and regulations if your ally is in your chosen export market. They can also help with local business conditions.
- Reducing and sharing your costs –sales staff, advertising, minimum orders, shipping. Everything becomes much cheaper if you’re sharing.
- Speeding up your entry into a new export market.
- Strengthening a position you already hold – and increasing sales.
- Gaining new skills and technology.
- Sharing costs, resources and risks.
- Gaining greater knowledge of international customs and culture.
- Opportunities for growth – access to your partner’s distribution networks may help you gain market share faster than if you go it alone.
- Accessing resources which might include your partner’s specialized staff, finance or technology.
When to form a strategic alliance
Some countries limit foreign investment in some sectors and prohibit it in others. You may have no choice other than to form a strategic alliance with a local partner to enter the market.
Even when foreign ownership isn’t limited, you may find it beneficial to form a strategic alliance with a local business to take advantage of its existing distribution network, supplier relationships, brand reputation and customer base.
A joint venture is different to a strategic alliance, in that it often involves forming a separate company that both parties co-own. It’s a longer-term investment of funds, facilities and resources and has much more commitment from everyone.
A joint venture may be formed to:
- Run production facilities in another country.
- Establish a marketing and distribution presence.
- Use complementary technologies held by each participant.
- It’s a requirement for a contract or agreement to supply that there is only one legal entity.
Joint ventures can also be used to manage country trade barriers, if a wholly owned overseas company is prohibited from operating in a country (it can happen when a country wants to protect their local industry).
Where to look for partners
It’s important to thoroughly research and evaluate all potential joint venture partners. Often companies will form joint ventures with their overseas agent or distributor, and sometimes their customer, as it’s easier to be in business with someone you know and trust.
Your competitors could also be some of the best allies for your business – especially if they can help you gain a market share in your target export market, and you can separate out your local interests with the export market.
Seek out companies which share your business’s ethics – and make sure that both you and your partner are clear about expectations and outcomes.
Get it in writing
Formalize your joint venture with a clear, written agreement that spells out each party’s roles and responsibilities. It’s best to be crystal clear about:
- Scope and duration of the venture.
- Roles and responsibilities – along with dividing costs.
- Goals and objectives – of both your business and your partner.
- Impact of foreign currency fluctuations and inflation.
- An exit strategy, especially when the expected trading life of the company is to be decades rather than years.
By sharing resources, costs and risks, your strategic alliance or joint venture may catapult your growth in a way you might never achieve on your own. Do your homework and export market research to make sure it’s the right strategy for your business. Target a strategic and motivated partner — and be prepared for benefits and potential risks that may come your way.
Note that the resources listed here are meant solely as overviews and helpful information. Please consult experts regarding your specific security needs for your business.