1 Cooperative Strategy Chapter 9 Who can we trust?

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Cooperative StrategyCooperative Strategy

Chapter 9Chapter 9

Who can we trust?

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Cooperative StrategyCooperative Strategy Cooperative strategy is a strategy in which Cooperative strategy is a strategy in which

firmsfirms– work togetherwork together– to achieve a shared objectiveto achieve a shared objective

Cooperating with other firms is a strategy Cooperating with other firms is a strategy thatthat– creates value for a customercreates value for a customer– exceeds the cost of constructing customer exceeds the cost of constructing customer

value in other waysvalue in other ways– establishes a favorable position relative to establishes a favorable position relative to

competitioncompetition

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Strategic AllianceStrategic Alliance A strategic alliance is a cooperative A strategic alliance is a cooperative

strategy in whichstrategy in which– firms combine some of their resources and firms combine some of their resources and

capabilitiescapabilities– to create a competitive advantageto create a competitive advantage

A strategic alliance involvesA strategic alliance involves– exchange and sharing of resources and exchange and sharing of resources and

capabilitiescapabilities– co-development or distribution of goods or co-development or distribution of goods or

servicesservices

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CombinedCombinedResourcesResources

CapabilitiesCapabilitiesCore CompetenciesCore Competencies

ResourcesResourcesCapabilitiesCapabilities

Core CompetenciesCore Competencies



Strategic AllianceStrategic Alliance

Firm AFirm A Firm BFirm B

Mutual interests in designing, manufacturing,Mutual interests in designing, manufacturing,or distributing goods or servicesor distributing goods or services

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Types of Cooperative StrategiesTypes of Cooperative Strategies Joint ventureJoint venture: two or more firms create an : two or more firms create an

independent company by combining parts of independent company by combining parts of their assetstheir assets

Equity strategic allianceEquity strategic alliance: partners who own : partners who own different percentages of equity in a new different percentages of equity in a new ventureventure

Nonequity strategic alliancesNonequity strategic alliances: contractual : contractual agreements given to a company to supply, agreements given to a company to supply, produce, or distribute a firm’s goods or produce, or distribute a firm’s goods or services without equity sharingservices without equity sharing

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CombinedCombinedResourcesResources

CapabilitiesCapabilitiesCore CompetenciesCore Competencies





Joint VentureJoint VentureFirm AFirm A Firm BFirm B

Firm CFirm C

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Business-Level Cooperative Business-Level Cooperative Strategies:Strategies:ComplementaryComplementary

AlliancesAlliances• complementary strategic complementary strategic

alliances are designed to alliances are designed to take advantage of market take advantage of market opportunities by opportunities by combining partner firms’ combining partner firms’ assets in complementary assets in complementary ways to create new valueways to create new value

– these include distribution, supplier or outsourcing these include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream alliances where firms rely on upstream or downstream partners to build competitive advantagepartners to build competitive advantage

Complementary Strategic AlliancesComplementary Strategic Alliances

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Business-Level Cooperative Business-Level Cooperative Strategies:Strategies:

• competition response strategic competition response strategic alliances occur when firms join alliances occur when firms join forces to respond to a strategic forces to respond to a strategic action of another competitoraction of another competitor

• because they can be difficult to because they can be difficult to reverse and expensive to operate, reverse and expensive to operate, competition response strategic competition response strategic alliances are primarily formed to alliances are primarily formed to respond to strategic rather than respond to strategic rather than tactical actionstactical actions

Competition Response AlliancesCompetition Response Alliances

CompetitionCompetitionResponse AlliancesResponse Alliances

ComplementaryComplementaryAlliancesAlliances

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• uncertainty reducing strategic uncertainty reducing strategic alliances are used to hedge alliances are used to hedge against risk and uncertaintyagainst risk and uncertainty

• these alliances are most noticed in these alliances are most noticed in fast-cycle marketsfast-cycle markets

• alliance may be formed to reduce alliance may be formed to reduce the uncertainty associated with the uncertainty associated with developing new product or developing new product or technology standardstechnology standards

Uncertainty Reducing AlliancesUncertainty Reducing Alliances


UncertaintyUncertaintyReducing AlliancesReducing Alliances


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• competition reducing strategic competition reducing strategic alliances may be created to avoid alliances may be created to avoid destructive or excessive competitiondestructive or excessive competition

• explicit collusion exists when firms explicit collusion exists when firms directly negotiate production output directly negotiate production output and pricing agreements in order to and pricing agreements in order to reduce competition (illegal)reduce competition (illegal)

• tacit collusion exists when several tacit collusion exists when several firms in an industry indirectly firms in an industry indirectly coordinate their production and coordinate their production and pricing decisions by observing each pricing decisions by observing each other’s competitive actions and other’s competitive actions and responsesresponses

Competition Reducing AlliancesCompetition Reducing Alliances

Competition ReducingCompetition ReducingAlliancesAlliances




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• mutual forbearance is a form of mutual forbearance is a form of tacit collusion in which firms tacit collusion in which firms avoid competitive attacks against avoid competitive attacks against those rivals they meet in multiple those rivals they meet in multiple marketsmarkets

• competition reducing strategic competition reducing strategic alliances may require alliances may require governments to find ways to governments to find ways to permit collaboration among rivals permit collaboration among rivals without violating antitrust lawswithout violating antitrust laws

Competition Reducing AlliancesCompetition Reducing Alliances

Competition ReducingCompetition ReducingAlliancesAlliances




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Corporate-Level Cooperative Corporate-Level Cooperative StrategiesStrategiesCorporate-level cooperative strategies are Corporate-level cooperative strategies are

designed to facilitate product and/or designed to facilitate product and/or market diversificationmarket diversification- diversifying strategic alliancediversifying strategic alliancesynergistic strategic alliancesynergistic strategic alliance- franchisingfranchising

Diversifying alliances and synergistic Diversifying alliances and synergistic alliances allow firmsalliances allow firms - to grow and diversify their operationsto grow and diversify their operations- through a means other than a merger or through a means other than a merger or

acquisitionacquisition

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Corporate-Level Cooperative Corporate-Level Cooperative Strategies:Strategies:

DiversifyingDiversifyingAlliancesAlliances

• diversifying strategic alliance diversifying strategic alliance allows a firm to expand into new allows a firm to expand into new product or market areas without product or market areas without completing a merger or an completing a merger or an acquisitionacquisition

• provides some of the potential provides some of the potential synergistic benefits of a merger or synergistic benefits of a merger or acquisition, but with less risk and acquisition, but with less risk and greater levels of flexibilitygreater levels of flexibility

• permits a “test” of whether a permits a “test” of whether a future merger between the future merger between the partners would benefit both partners would benefit both partiesparties

Diversifying AlliancesDiversifying Alliances

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• synergistic strategic alliances synergistic strategic alliances create joint economies of scope create joint economies of scope between two or more firmsbetween two or more firms

• create synergy across multiple create synergy across multiple functions or multiple businesses functions or multiple businesses between partner firmsbetween partner firms

SynergisticSynergisticAlliancesAlliances

Synergistic AlliancesSynergistic Alliances


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• franchising spreads risks and uses franchising spreads risks and uses resources, capabilities, and resources, capabilities, and competencies without merging or competencies without merging or acquiring another companyacquiring another company

• contractual relationship contractual relationship concerning the franchise that is concerning the franchise that is developed between two parties, developed between two parties, the franchisee and the franchisorthe franchisee and the franchisor

• an alternative to pursuing growth an alternative to pursuing growth through mergers and acquisitionsthrough mergers and acquisitions

FranchisingFranchising

FranchisingFranchising


SynergisticSynergisticAlliancesAlliances

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International Cooperative International Cooperative StrategiesStrategies Cross-border strategic allianceCross-border strategic alliance– an international cooperative strategy in which an international cooperative strategy in which

firms with headquarters in different nations firms with headquarters in different nations combine some of their resources and combine some of their resources and capabilities to create a competitive advantagecapabilities to create a competitive advantage

– a firm may form cross-border strategic a firm may form cross-border strategic alliances to leverage core competencies that alliances to leverage core competencies that are the foundation of its domestic success to are the foundation of its domestic success to expand into international marketsexpand into international markets

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International Cooperative StrategiesInternational Cooperative Strategies Allows risk sharing by reducing financial Allows risk sharing by reducing financial

investmentinvestment Host partner knows local market and Host partner knows local market and

customscustoms International alliances can be difficult to International alliances can be difficult to

manage due to differences in management manage due to differences in management styles, cultures or regulatory constraintsstyles, cultures or regulatory constraints

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

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Competitive Risks with Competitive Risks with Cooperative StrategiesCooperative Strategies

• Partner may act opportunistically Partner may act opportunistically

• Misrepresentation of competencies brought to the Misrepresentation of competencies brought to the partnershippartnership

• Partner fails to make committed resources and Partner fails to make committed resources and capabilities available to its partnerscapabilities available to its partners

• Firm may make investments that are specific to Firm may make investments that are specific to the alliance while its partner does notthe alliance while its partner does not

Documents

1 Cooperative Strategy Chapter 9 Who can we trust?