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Strategic Management
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© 2006 by Nelson, a division of Thomson Canada Limited. 10-1
Cooperative Strategy
Chapter Ten
© 2006 by Nelson, a division of Thomson Canada Limited.
© 2006 by Nelson, a division of Thomson Canada Limited. 10-2
The Strategic Management Process
Chapter 8:Acquisition & Restructuring
Chapter 9:International
Strategy
Chapter 10:Cooperative
Strategy
Strategy Formulation
Chapter 11:Corporate
Governance
Ch. 12: Org. Structure & Controls
Chapter 13:Strategic
Leadership
Chapter 14:Org. Renewal & Innovation
Strategy Implementation
StrategicActions
Chapter 3:The External Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 1: Strategic
ManagementStrategic
Competitiveness Ch. 2: Strat. Mgmt . &
Performance
Chapter 3:The External Environment
Chapter 3:The External Environment
Chapter 4:The Internal Environment
Chapter 5: Bus.-Level Strategy
Chapter 6:Competitive Dynamics
Chapter 7:Corp.-Level
Strategy
Chapter 10:Cooperative
Strategy
© 2006 by Nelson, a division of Thomson Canada Limited. 10-3
Cooperative StrategyKnowledge Objectives:1. Explain cooperative strategies & 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 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
Independent firm is created by the joining assets from two other firms where each contributes 50% of the total
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
Complementary Alliances
Diversification Alliances
Synergistic Alliances
Franchising
Competition Reduction Alliances
Competition Response Alliances
Uncertainty Reduction Alliances
Types of Strategic Alliances
Business-Level
Corporate-Level
© 2006 by Nelson, a division of Thomson Canada Limited. 10-9
Partnerships that build on the complementarities among firms that make each more competitive
Supplier Value Chain
Buyer Value Chain
Include distribution, supplier or outsourcing alliances where firms rely on upstream partners
Japanese manufacturers rely on close relationships with and among suppliers to implement Just-In-Time inventory systems
Vertical Alliance
Complementary Strategic Alliances
or downstream partnersto build competitive advantage
© 2006 by Nelson, a division of Thomson Canada Limited. 10-10
Used to increase the strategic competitiveness of the partners
Complementary Strategic Alliances
Horizontal Alliance
Buyer Value Chain Buyer Value Chain
For example: Marketing agreements between Various Airlines
© 2006 by Nelson, a division of Thomson Canada Limited. 10-11
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
e.g. the OPEC petroleum cartel
e.g. gas stations
© 2006 by Nelson, a division of Thomson Canada Limited. 10-12
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. 10-13
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 without an acquisition.
Diversifying Alliances
Flynn Canada created strategic alliances with U.S. contractors.
Types of Corp.-level Strategic Alliances
© 2006 by Nelson, a division of Thomson Canada Limited. 10-14
Host partner knows local market & customs
However....
International Cooperative Strategies Allows risk sharing by reducing financial investment
International alliances can be difficult tomanage due to differences in management styles, cultures or regulatory constraints
Must gauge partner’s strategic intent so theydo not gain access to important technology and become a competitor
© 2006 by Nelson, a division of Thomson Canada Limited. 10-15
Network strategies involve a group of interrelated firms that work for the common good of all
Dynamic Networks
Network Strategies
The types of networks are:
Stable Networks
Built for the exploitation of economies available between firms
Used in industries characterised by frequent product innovations & short product life cycles
© 2006 by Nelson, a division of Thomson Canada Limited. 10-16
Competitive Risks with Cooperative Strategies
While cooperative systems offer many advantages, there are also significant risks associated with them:
Poor contract development
Misrepresentation of partners’ competencies
Failure of partners to make complementaryresources available
Being held hostage through specificinvestments made with partner
Misunderstanding partner’s strategic intent
© 2006 by Nelson, a division of Thomson Canada Limited. 10-17
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
*
© 2006 by Nelson, a division of Thomson Canada Limited. 10-18
The Strategic Management Process
Chapter 8:Acquisition & Restructuring
Chapter 9:International
Strategy
Chapter 10:Cooperative
Strategy
Strategy Formulation
Chapter 11:Corporate
Governance
Ch. 12: Org. Structure & Controls
Chapter 13:Strategic
Leadership
Chapter 14:Org. Renewal & Innovation
Strategy Implementation
StrategicActions
Chapter 3:The External Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 1: Strategic
ManagementStrategic
Competitiveness Ch. 2: Strat. Mgmt . &
Performance
Chapter 3:The External Environment
Chapter 3:The External Environment
Chapter 4:The Internal Environment
Chapter 5: Bus.-Level Strategy
Chapter 6:Competitive Dynamics
Chapter 7:Corp.-Level
Strategy
Chapter 10:Cooperative
Strategy