Besides international equity joint ventures or equity investments in another firm, firms might still form alliances without any equity ownership. This type of collaboration is called a non-equity alliance. The major forms include licensing, franchising, management contracts, turn-key operations, subcontracting, buyer coalitions, supplier partnership, R&D partnership, marketing agreements, technology partnership, and joint production. This list, however, is not all-inclusive. There might be some other types given increasingly changing market conditions, technological advancements, and creative new arrangements by firms. The common characteristic of these kinds of ventures is that they do not require any equity ownership differently from equity-based alliances discussed in the previous chapter.
Although non-equity alliances are contractual agreements (market transactions) between firms, as we pointed out earlier they are different from typical contractual agreements in the way they are constructed and managed. In other words, to be considered a strategic alliance, a contractual venture should be a long-term agreement affecting the value chain activity of the firm and providing benefits for the firm’s sustainable competitive advantage. Therefore, for example, while a long-term supply-chain agreement is deemed a non-equity agreement, an interim procurement agreement is not considered a strategic alliance. This general category of non-equity alliances is called international contractual ventures (ICVs). 1