© 2006 by Nelson, a division of Thomson Canada Limited. 10-1

Cooperative Strategy

Chapter Ten

© 2006 by Nelson, a division of Thomson Canada Limited. 10-2

The Strategic Management Process

Chapter 5Bus. - Level

Strategy

Chapter 6Competitive

Dynamics

Chapter 9International

Strategy

Chapter 10CooperativeStrategies

Chapter 8Acquisitions &Restructuring

Chapter 11Corporate

Governance

Chapter 12Structure& Control

Chapter 13Strategic

Leadership

Chapter 14Entrepreneurship & Innovation

Str

ateg

icIn

pu

ts

Str

ateg

icA

ctio

ns

Str

ateg

ic O

utc

om

esChapter 4Internal

Environment

Chapter 3External

Environment Strat. Intent

Strat. Mission

The Strategic .

Management .

Process

Strategy Formulation Strategy Implementation

Strategic Competitiveness

Chapter 1

Above Average Returns

Chapter 2 Feedback

Strategic Competitiveness

Chapter 1

Chapter 7Corp. - Level

Strategy

Chapter 5Bus. - Level

Strategy

Chapter 10CooperativeStrategies

© 2006 by Nelson, a division of Thomson Canada Limited. 10-3

Cooperative Strategy

Knowledge Objectives:1. Define cooperative strategies & explain why firms use

them.

2. Define & discuss three types of strategic alliances.3. Name the business-level cooperative strategies &

describe their use.

4. Discuss the use of corporate-level cooperative

strategies & describe their use.5. Understand the importance of cross border strategic

alliances as an international cooperative strategy.

6. Describe cooperative strategies’ risks.7. Describe two approaches used to manage cooperative strategies.

© 2006 by Nelson, a division of Thomson Canada Limited. 10-4

A Cooperative Strategy

A strategy in which firms work together to achieve a shared objective.

© 2006 by Nelson, a division of Thomson Canada Limited. 10-5

DevelopDevelopDevelopDevelop

ManufactureManufactureManufactureManufacture

DistributeDistributeDistributeDistribute

Goods

Services

where their

are combined to pursue mutual interests to

Core Competencies

CapabilitiesResources

Partnerships between firms

Firm A

Firm B

Strategic Alliances

© 2006 by Nelson, a division of Thomson Canada Limited. 10-6

Alstream Inc. Microcell & NR Communications

RIM - Research in Motion’s “Blackberry” services used on wireless devices worldwide.

Domtar & Cascades formed Norampac

Types of Strategic Alliances

Strategic alliance in which two or more firms create a legally independent company to share some of their resources & capabilities to develop a competitive advantage.

Joint Venture

Partnership where the 2 partners don’t own equal shares.

Equity Strategic Alliance

Contract is given to supply, produce or distribute a firm’s goods or services (without equity sharing).

Non-Equity Strategic Alliance

© 2006 by Nelson, a division of Thomson Canada Limited. 10-7

Standard Cycle Market

* * Gain market power* * Gain access to complementary resources** Overcome trade barriers* * Meet competitive challenge* * Pool resources for large projects** Learn new business techniques

Fast Cycle Market

* * Form an industry technology standard* * Share risky R&D expenses* * Overcome uncertainty

* * Maintain market leadership* * Speed-up product, service or market entry

* * Gain access to a restricted market* * Establish franchise in a new market* * Maintain market stability

Slow Cycle Market

Reasons for Alliances by Market Type

© 2006 by Nelson, a division of Thomson Canada Limited. 10-8

Business-level Cooperative Strategies

© 2006 by Nelson, a division of Thomson Canada Limited. 10-9

Vertical & Complementary Strategic Alliances

© 2006 by Nelson, a division of Thomson Canada Limited. 10-10

Explicit Collusion: When firms directly negotiate production output & pricing agreements in order to reduce competition.

Competition Reduction Strategies Often illegal types of cooperative strategy which are used to reduce competition.

Tacit Collusion: When several firms in an industry indirectly coordinate their production & pricing decisions by observing each others competitive actions & responses.

Types of Business-level Strategic Alliances

© 2006 by Nelson, a division of Thomson Canada Limited. 10-11

Firms join forces to respond to a strategic action of another competitor.

Competition Response Strategies

Mega Bloks’ agreement with Disney.

Alliances can be used to hedge against risk & uncertainty.Uncertainty Reduction Strategies

Siemens & Fujitsu – “Fujitsu Siemens Computers” sharing technical resources & capabilities.

Types of Business-Level Strategic Alliances

© 2006 by Nelson, a division of Thomson Canada Limited. 10-12

Create economies of scope between 2 or more firms, creating synergy across multiple businesses between firms.

Synergistic Strategic Alliances

Allows firms to grow with relatively strong centralized control without significant capital investments.

Franchising

Boston Pizza with 200 restaurants in Western Canada.

Cisco Systems has many synergistic strategic alliances.

Allows a firm to expand into a new product or market area with an acquisition.

Diversifying Alliances

Flynn Canada created strategic alliances with U.S. contractors.

Types of Corporate-level Strategic Alliances

© 2006 by Nelson, a division of Thomson Canada Limited. 10-13

Host partner knows local market & customs.

However....

International Cooperative Strategies

Allows risk sharing by reducing financial investment.

International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints.

Must gauge partner’s strategic intent so they do not gain access to important technology and become a competitor.

© 2006 by Nelson, a division of Thomson Canada Limited. 10-14

Network Cooperative Strategy

Alliance network types:

• Stable Alliance network

Built for the exploitation of economies available

between firms.• Dynamic Alliance network

Used in industries characterised by frequent

product innovations & short product life cycles.

© 2006 by Nelson, a division of Thomson Canada Limited. 10-15

Competitive Risks With Cooperative Strategies

While cooperative systems can offer many advantages, there are also significant risks associated with them.

Poor contract development.

Misrepresentation of partners’ competencies.

Failure of partners to make complementary resources available. Being held hostage through specific investments made with partner.

Misunderstanding partner’s strategic intent.

© 2006 by Nelson, a division of Thomson Canada Limited. 10-16

Competitive Risks

Inadequate contracts

**

Holding alliance partner’s specific investments hostage

**

Risk & Asset Management Approaches

Detailed contracts and monitoring

**

Misrepresentation of competencies

**

Partner fails to use complementary resources

**

Developing trusting relationships

**

Outcome

Value Creation

Detailed contracts and monitoring

*

Developing trusting relationships

*

Managing Risks in Cooperative Strategies

Holding alliance partner’s specific investments hostage

*

Inadequate contracts

*

Misrepresentation of competencies

*

Partner fails to use complementary resources

*