Cooperative Strategy
Definition
- A strategy in which firms work together to achieve a shared objective
Cooperating with other firms is a strategy that:
- Creates value for a customer
- Establishes a favourable position relative to competitors
Strategic Alliance
A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage
- Involves the exchange and sharing of resources and capabilities to co-develop to distribute goods and services
- Requires cooperative behaviour from all partners
Strategic Alliance behaviours
Examples known to contribute to alliance success
- Active solving problems
- Being trustworthy
- Consistently pursuing ways to combine partners resources and capabilities to create values
Collaborative (Rational) Advantage
- A competitive advantage developed through a cooperative strategy
Three Types of Strategic Alliances
a) Joint Venture
- Two or more firms create a legally independent company by sharing some of their resources and capabilities
b) Equity Strategic Alliance
- Partners who own different percentages of equity in a separate company they have formed
c) Non-equity Strategic Alliance
- Two or more firms develop a contractual relationship to share some of their unique resources and capabilities
Reasons for Strategic Alliances
a) Market - Slow Cycle
- Gain Access to a restricted market
- Establish a franchise in a new country
- Maintain market stability (e.g. establishing standards)
b) Market - Fast Cycle
- Speed up development of new goods or service
- Speed up new market entry
- Maintain market leadership
- Form an industry technology standard
- Share risky R&D expenses
- Overcome uncertainty
c) Market - Standard Cycle
- Gain Market power (reduce industry overcapacity)
- Gain access to complementary resources
- Establish economies of scale
- Overcome trade barriers
- Meet competitive challenges from other competitors
- Pool resources for very large capital projects
- Learn new business techniques
Business Level Cooperative Strategies
a) Complementary Strategic Alliances
- Combine partner firms assets in complementary ways to create new value
- Include Distribution, supplier, or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage
Vertical Complementary Strategic Alliance
- Formed between firms that agree to use their skills and capabilities in different stages of the value chain to create value for both firms.
- Example: Outsourcing
Horizontal Complementary Strategic Alliance
- Formed when partners who agree to combine their resources and skills to create value in the same stage of the value chain
- Focus is on long-tern product development and distribution opportunities
- The partners may become competitors which requires a great deal of trust between the partners
b) Competition Response Alliance
- Occurs when firms join forces to respond to a strateguc action of another competitor
- Because they can be difficult to reverse and expensive to operate, strategic alliances are primarily formed to respond to strategic rather than tactical
c) Uncertainty Reducing Strategy
- Use a hedge against risk and uncertainty
- These alliances are most noticed in fast cycle markets
- An alliance may be formed to reduce the uncertainty associated with developing new product or technology standards
d) Competition Reducing Alliances
- Created to avoid destructive or excessive competition
- Explicit Collusion: When firms directly negotiate production output and pricing agreements to reduce competition (illegal)
- Tacit Collusion: when firms indirectly coordinate their production and pricing decisions by observing other firms actions and responses
- Mutual forbearance: form of tacit collusion in which firms do not take competitive actions against rivals they meet in multiple markets
Corporate Level Cooperative Strategies
Help the firm diversify in terms of :
- product offered to the market
- the markets it serves
Permit greater flexibility in terms
a) Diversifying Strategic Alliances
- Allows a firm to expand to new product or market areas without completing a merger or an acquisition
- Permits a “test” of whether a future merger between the partners would benefit both parties
b) Synergistic Strategic Alliance
- Creates joint economies of scope between two or more firms
- Creates synergy across multiple businesses between partner firms
c) Franchising
- Spreads risks and uses resources, capabilities, and competencies without merging or acquiring another firm
- A contractual relationship (franchise) is developed between two parties, the franchisee and the franchisor
Assessing Corporate-Level Cooperative Strategies
Compared to business-level strategies
- Broader in scope
- More complex
- More costly
Can lead to competitive advantage and value when:
- the firm uses such strategies to develop useful knowledge about how to succeed in the future