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Chapter 9
 

Chapter 9

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    Chapter 9 Chapter 9 Presentation Transcript

    • Chapter 9: Cooperative Strategy
      • Overview:
        • Cooperative strategies and why firms use them
        • Three types of strategic alliances
        • Business-level cooperative strategies & their use
        • Corporate-level cooperative strategies in diversified firms
        • Cross-border strategic alliances’ importance as an international cooperative strategy
        • Network alliances
    • Introduction
      • Cooperative strategy
        • A strategy in which firms work together to achieve a shared objective
        • One of 3 means firms use to grow and improve performance
          • Internal development, mergers and acquisitions, and cooperation
        • Core and critical parts of firms strategies today
        • Has implications for a firm’s corporate, business, and international strategy
        • Competitive advantage and above average returns
          • Collaborative or relational advantages
    • Primary Type of Cooperative Strategy: Strategic Alliances
      • Strategic Alliance
        • A cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage
        • Involve firms with some degree of exchange and sharing of resources and capabilities to co-develop, sell, and service goods or services
      • 3 major types of strategic alliances
        • Joint Venture
          • Two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage
          • Partners typically own equal percentages and contribute equally to the ventures operations
    • Primary Type of Cooperative Strategy: Strategic Alliances
      • 3 major types of strategic alliances
        • Equity Strategic Alliance
          • Two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to develop a competitive advantage
        • Nonequity Strategic Alliance
          • Two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage
            • Licensing agreements
            • Distribution agreements
            • Supply contracts
            • Outsourcing commitments
          • A separate independent company is NOT established
    • Reasons Firms Develop Strategic Alliances
      • Why firms develop strategic alliances
        • They allow partners to create value that they couldn’t develop by acting independently
        • They allow partners to enter markets more quickly and with greater market penetration possibilities
        • Most firms lack the full set of resources and capabilities needed to reach their objectives
        • They are a prime vehicle for firm growth – mode of entry into new product or geographic markets
    • Reasons Firms Develop Strategic Alliances
      • Strategic alliances can be used to
        • Reduce competition
        • Gain market power
        • Enhance a firm’s competitive capabilities
        • Gain access to resources and new (restricted) markets
        • Take advantage of opportunities
        • Build strategic flexibility
        • Help the firm innovate
        • Provide for a new source of revenue and for firm growth
        • Enhance organizational response times
        • Gain new knowledge and experiences
        • Overcome trade barriers
        • Establish better economies of scale and scope
        • Lower costs
    • Business-Level Cooperative Strategy
      • Business level cooperative strategies are used to grow and improve firm performance in individual product markets
      • 4 types
        • Complementary strategic alliances
        • Competition response strategy
        • Uncertainty-reducing strategy
        • Competition-reducing strategy
    • Business-Level Cooperative Strategy
      • Complementary Strategic Alliances
        • Firms share some of their resources and capabilities in complementary ways to develop competitive advantages
        • Two Types:
          • Vertical CSA
            • Partnering firms share resources & capabilities from different stages of the value chain to create a competitive advantage.
          • Horizontal CSA
            • Partnering firms share resources & capabilities from the same stage(s) of the value chain to create a competitive advantage
            • Commonly used for long-term product development and distribution opportunities
    • Business-Level Cooperative Strategy
      • Competition Response Strategy
        • Competitive Rivalry
          • Competitors initiate competitive actions to attack rivals and launch competitive responses to their competitor’s actions
        • Strategic alliances can be used at the business level to respond to competitor’s attacks
          • Primarily formed to take strategic actions vs. tactical actions
            • Can be difficult to reverse and expensive to operate
    • Business-Level Cooperative Strategy
      • Uncertainty-Reducing Strategy
        • Can be used to hedge against risk and uncertainty
        • As examples, entering new product markets, emerging economies and establishing a technology standard are unknown areas so by partnering with a firm in the respective industry, a firm’s uncertainty (risk) is reduced
        • Uncertainty is reduced by combining knowledge & capabilities
    • Business-Level Cooperative Strategy
      • Competition-Reducing Strategy
        • Collusive strategies differ from strategic alliances in that they are often illegal
        • 2 Types
          • Explicit collusion
            • Direct negotiation among firms to establish output levels and pricing agreements that reduce industry competition
          • Tacit collusion
            • Indirect coordination of production and pricing decisions by several firms, which impacts the degree of competition faced in the industry
    • Business-Level Cooperative Strategy
      • Assessment of Business-level cooperative strategies
        • Used to develop competitive advantages in individual product markets
        • The integrated resources and capabilities must be valuable, rare, imperfectly imitable, and nonsubstitutable
        • Vertical alliances have greatest probability of creating competitive advantage
        • Horizontal alliances are sometimes difficult to maintain since they are usually between rival companies
        • Alliances designed to respond to competition and reduce uncertainty are more temporary in comparison with complementary (horizontal and vertical) strategic alliances
        • Competition-reducing alliances have lowest probability of creating sustainable competitive advantages
    • Corporate-Level Cooperative Strategies
      • Corporate-level cooperative strategies used to help firm diversify itself in terms of products offered or markets served or both
      • 3 Common Forms
        • Diversifying strategic alliance
          • Firms share some of their resources & capabilities to diversify into new product or market areas
        • Synergistic strategic alliance
          • Firms share some of their resources & capabilities to create economies of scope
          • Diversifies the involved firms into a new business in a synergistic way
    • Corporate-Level Cooperative Strategies
      • 3 Common Forms (cont.)
        • Franchising
          • Firm uses a franchise as a contractual relationship to describe and control the sharing of its resources and capabilities with partners
            • Franchise: contractual agreement between two legally independent companies whereby the franchisor grants the right to the franchisee to sell the franchisor's product or do business under its trademarks in a given location for a specified period of time
    • Corporate-Level Cooperative Strategies
      • Assessment of corporate-level cooperative strategies
        • Costs incurred regardless of type selected
          • Important to monitor costs!
        • In comparison with business-level strategies
          • Usually broader in scope, more complex and therefore more costly
        • Can be used to develop useful knowledge about how to succeed in the future
        • Can lead to competitive advantage if they are managed in ways that are valuable, rare, imperfectly imitable, and nonsubstitutable
    • International Cooperative Strategy
      • Cross-Border Strategic Alliance
        • International cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage
      • Why cross-border strategic alliances?
        • Can help firms use their resources and capabilities to create value in locations outside their home market
        • Multinational corporations outperform firms that operate only domestically
        • Due to limited domestic growth opportunities, firms look outside their national borders to expand business
        • Some foreign government policies require investing firms to partner with a local firm to enter their markets
        • Local partners can help firms overcome liabilities of moving into a foreign country (example: lack of knowledge about local culture)
    • Network Cooperative Strategy
      • Network Cooperative Strategy
        • Cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared objectives
        • Very effective when formed by geographically clustered firms (i.e., Silicon Valley in N. California)
          • Effective social relationships and interactions among partners, while sharing resources and capabilities increase likelihood of success, including innovation
          • Japanese keiretsus and Korean Chaebols
        • Firm’s gain access to their partners other partners
        • Can increase competitive advantage potential as set of shared resources and capabilities expands
        • Can be problematic - could lock firm in with partners and exclude development of alliances with others
    • Network Cooperative Strategy
      • Alliance network types: Set of strategic alliance partnerships resulting from use of a network cooperative strategy
        • Stable alliance network
          • Formed in mature industries where demand is relatively constant and predictable
          • Directed primarily toward developing products at a low cost and exploiting economies of scale and scope
        • Dynamic Alliance Networks
          • Used in industries characterized by environmental uncertainty, frequent product innovations, and short product life cycles
          • Directed primarily toward continued development of products that are uniquely attractive to customers
    • Competitive Risks with Cooperative Strategies
      • Risks
        • 2/3 have serious problems in first 2 years and 70% end up failing
        • Partners may choose to act opportunistically due to inadequate contracts
        • Partner competencies may be misrepresented
        • Partner may fail to make available the complementary resources and capabilities that were committed
        • One partner may make investments specific to the alliance while the other partner may not – holding alliance partner's specific investments hostage