Chapter 9

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Chapter 9

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

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