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21 joint ventures joint venture can be defined as an

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2.1 Joint Ventures Joint venture can be defined as an agreement between two or more parties to form an entity in order to share capabilities and resources while sharing revenue, expenses and profits (Zoogah, Vora, Richard & Peng, 2018). Google and NASA collaborating to develop Google Earth is a perfect example for Joint Ventures (Horan, 2012). 2.2 Global Strategic Alliance Ajami & Khambata (1991) defined Global strategic alliance as agreement between firms from across national boundaries and industries. This type of an alliance can be formed between companies or companies and foreign government. An example for global strategic alliance is the agreement between Coca-Cola and Procter & Gamble(P&G). This alliance was established for P&G take advantage of Coca-Cola’s mass distribution system (Barnes, 2001). 2.3 Equity Strategic Alliance An alliance where partner firms own different percentages of the company they have established (Mathews, 2003). An equity alliance will be formed if a firm purchase 40% of the equity of another firm. Panasonic and Tesla Motors formed an equity alliance when Panasonic invested USD 30 million in Tesla with the intention of expanding the electric car industry (Horan, 2012). 2.4 Non Equity Strategic Alliance An alliance in which firms develop a contractual agreement with the intention of 2
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sharing their unique resources and capabilities in order to create a competitive advantage (Mathews, 2003). This type of alliances is more informal compared to equity alliances. Alliance between Starbucks and Kroger is an example for non- equity alliance where Starbucks pays Kroger for space while Kroger customers get the chance to relax with a coffee during their shopping trips (Lingley, 2009). 3. Pros and Cons of Strategic Alliances 3.1 Pros of Strategic Alliances Companies gain various benefits by forming alliances as it is known to be one of the most ideal approach to build up principles of innovation or standard of technology in the area (Strategic Alliances, 2018). Alliances are designed to react favorably to the vulnerabilities and complexities of the present globalized business environment while providing partner firms with access to better resources which helps in building up or enhancing the competitive strategies of the organization ( Russo & Cesarani, 2017). Furthermore, strategic alliances provide access to new trading markets, expediting entry, research and development (R&D), expanding products and learn additional skills (Strategic Alliances, 2018). Another major advantage of forming alliance is the improved production volumes as a result of dividing the fixed cost of production and distribution among allies. Additionally, many countries have various regulations regarding market entry for foreign firms. Companies can overcome these barriers by forming an alliance which gives easy access for a company to penetrate the host country’s’ local market (Strategic Alliances, 2018).
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