Alternatives to

M&A
 Strategic Alliance & Reasons
• Alliance : cooperation between groups that
produces better result that can be gained
from a transaction Entering new
markets

• Strategic Alliance is when two or more Reducing

business join together for a set period of manufacturing
cost
time

Developing &
diffusion
• It is a form of cooperative strategies technology

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Types of SA

Complementar
Market alliance Sales alliance
y alliance

Concentration
R&D alliance Supply alliance
alliance
Implication of alliance
Formal Structure of Relationship between Partners
• Partners in SA enter into well defined relationship

Internationality of Alliance
• Cultural and business differences

Value added chain

Profit\ownership related issues

Orientation of alliance
Benefits
Benefits
Combining R&D

Obtain new capacity and expertise

Efficient commercialization of property

Developing marketing expertise

Sharing of Scientist

Entry in new geography market

Do not represent long term commitment

Access to financial resources

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Benefits
Sharing of economic risk

Proper Utilization of recourses

Ability to increase profit margin

New Product Development

Higher rate of profit

Sharing of risk

Tax Advantage

It is a flexible arrangement
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Weakness
 Weakness
Objective are not 100% clear and communicated to every one
Partner have different objective
Varied organizational structure
Cultural Difference
Partners don’t provide sufficient leadership in early stage
High level of commitment to staff
Time consuming
Political risk
Working in diff. legal and commercial system
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Joint Venture

• A joint venture is a business entity

created by two or more parties,
generally characterized by shared
ownership, shared returns and risks,
and shared governance

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Basic Elements

Contractual Specific ltd purpose Joint Property

Agreements & Duration Interest

Common Financial Shared P/L

and intangible goals management and
and objective control

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Equity Variation

Majority Joint 50-50 Joint Minority joint

Venture Venture venture
• Foreign • Each partner • A local
company has an equal company
has contribution becomes
controlling dominant
share

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Reasons for forming a JV

Risk Sharing

Economies of Scale

Market Access

Geographical Constrains

Funding Constrains

Prelude to acquisition
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Factors Affecting JV
Joint Development of
Screening of
detailed business Due Diligence
Prospective Partner
plan

Availability of
Develop an exit Most Appropriate
property available for
Strategy structure
JV

Special Allocation for Compensation to all

P/L service providers

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Joint venture V/S Strategic Alliance
Joint Venture
• In joint venture 2 or more organization set up a separate
independent organization for a specific purpose
• Formalities are made, a formal contract is written
• It has clear legal boundaries
• It capitalize knowledge from the parent firm and to generate
knowledge
Strategic Alliance
• Its B2B Collaboration with 2 or more firms shares resources
and capabilities to achieve some business purpose. No new
entity is created
• Less formal
• The boundaries are decided by partnering firm
• It is former in order to learn from the partners knowledge
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