Strategic alliances are considered the “need of the hour” in today’s business world because they enable companies to achieve goals that cannot be achieved alone. Strategic alliances help companies to gain competitive advantage, access new markets and technologies, reduce costs and reduce risks, and rapidly scale up their operations in a fast-paced and complex global business environment. In today’s VUCA world of complexities and competition is making survival of businesses difficult. Partnering with other companies allows businesses to combine resources and expertise to innovate and thrive.
Joint ventures are strategic collaborations where companies pool complementary assets and resources to achieve common goals, such as accessing new markets, sharing risks, or fostering innovation. The JV partnership is complimentary in many ways. Companies contribute supportive resources like technology, market access, distribution channels, or manufacturing expertise to the venture.
A joint venture (JV) typically creates a new, separate legal entity, while it is a formal legal structure because it involves the creation of a separate, new legal entity. A strategic alliance is a less formal partnership that can occur with or without an equity exchange. The key is the synergy created by combining unique strengths, expertise, and capabilities that a single company might not possess, leading to shared profits, losses, costs, and rewards.
How JVs work
Joint ventures create value for customers by bringing together combined resources and expertise to develop innovative products and services, offering access to new markets, and providing more compelling and higher-quality offerings than a single company could deliver alone. This collaboration results in a wider range of choices, competitive pricing due to shared costs, enhanced product features, and increased customer convenience through bundled offerings.
Partnering for specialized strengths
Companies form a joint venture to pool their unique skills, resources, and assets that complement each other.
Shared goals
They work towards a common objective, such as creating a new product, entering a new market, or developing a specific technology.
Defined contributions
Each partner contributes its specific complementary assets to the venture.
Complimenting Partnership TATA-Starbucks JV
The Tata-Starbucks joint venture, called Tata Starbucks Limited, pooled assets by leveraging Tata Group’s real estate and properties (like Taj hotels and Star Bazaar) for opening Starbucks outlets, and Tata Coffee’s sourcing and roasting facilities for the Indian market. Starbucks contributed its global brand, modern retail expertise, store design, and supply chain capabilities, while Tata provided its local market knowledge, existing brand equity, and access to consumer segments. Tata leveraged its existing properties and relationships with other Tata Group firms like Taj Hotels and Star Bazaar to find locations for Starbucks outlets. Tata Coffee provided its facilities and expertise in sourcing and roasting green coffee beans from India for the Indian market.
Tata provided crucial understanding of the Indian consumer, market dynamics, and regulatory environment, which was essential for adapting the Starbucks brand to Indian tastes. Starbucks brought its globally recognized premium brand, its extensive experience in running a global coffeehouse chain, and modern retail strategies. Starbucks shared its expertise in establishing and managing supply chains and introduced innovative products and store designs. Starbucks provided its advanced management systems and operational processes for managing the business effectively. The 50:50 joint venture used its combined resources to create a unified, integrated business model. Tata’s physical infrastructure and knowledge of the local consumer were integrated with Starbucks’ global standards and brand management. This allowed Starbucks to enter and establish itself in the Indian market quickly and efficiently, while simultaneously giving Tata a position in the premium coffee retail sector.
Creation of Synergy
When two or more things work together to produce a combined effect that is greater than the sum of their individual effects, essentially meaning “the whole is greater than the sum of its parts”. It describes a cooperative action where combined efforts create a more valuable or effective outcome than those same efforts would achieve separately.
Another example is of Honda-LG
In 2022, Honda and LG announced a joint-venture aimed at leveraging LG’s expertise to boost the production of lithium-ion EV batteries for Honda’s electric vehicles. Plans included the construction of a state-of-the-art battery plant in Colombus, Ohio, by the end of 2024 and commencing mass production by the end of 2025.
The companies jointly agreed to set up their battery manufacturing facility in the U.S., stemming from their mutual understanding that increasing local electric vehicle production and securing a timely battery supply would optimally position them to tap into the fast-expanding North American EV market. The venture will not only help meet the increasing demand for electric vehicles but also bring significant economic benefits to the region . 3,000 new jobs in Ohio. What made this JV successful? It created synergies
Combined expertise
This partnership allows Honda to build on its expertise in vehicle manufacturing while benefiting from LG’s expertise in lithium-ion battery technology.
Strengthening the supply chain
By pooling resources from both companies, the joint-venture has been able to strengthen the overall supply chain.
Developing innovation
The collaboration has resulted in a cross-pollination of expertise that will feed the growing demand for EV vehicles and create profits for both companies.
Conclusion
Joint ventures (JVs) between two or more companies have proven to be a highly effective way to develop new business opportunities or expand into new markets.