BA220

1. Strategy Theory and
Practice
© Stewart R. Clegg, Christos Pitelis,
Jochen Schweitzer & Andrea
Whittle

2. Chapter 6
Strategy, inter-
organizational
cooperation and
alliances

3. Learning objectives
• Understand the nature and role of inter-firm cooperation,
coopetition and collaborative strategies from different
theoretical perspectives
• Discuss the nature, advantages and disadvantages of
different types of collaboration (strategic alliances,
partnerships and joint ventures)
• Identify the issues faced by organizations in cooperative
relationships, including partner selection, contracts, life
cycle stages and governance
• Understand the importance of organizational networks,
digital networks and alliancing for cooperative strategies
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4. Inter-firm cooperation
• Inter-firm cooperation (IFC)
involves quasi-stable and
durable, formal or informal
arrangements between two
or more independent firms,
aiming to further the
perceived interests of the
parties involved
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5. Forms of inter-firm cooperation
• Subcontracting/outsourcing
• Equity joint ventures (EJVs)
• Strategic alliances
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6. Perspectives on inter-firm cooperation
• The ‘industrial organization’ (IO) approach
• The transaction costs approach
• The resource-knowledge-capabilities-based approach
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7. IFC and Industrial organization
• Michael Porter’s application of the IO approach to strategy
does not recognize any reasons for co-operation other than
collusion over prices:
– The Five Forces approach seeks to reduce the power of
competitors and other forces such as suppliers, making
practices such as price collusion attractive (and hence
made illegal in many countries)
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8. IFC and industrial organization
– Firms may also cooperate informally to agree (explicitly or
implicitly) not to lower prices beyond a certain point, or
keep prices high at certain times of peak demand, or
agree not to respond ‘tit-for-tat’ when one competitor
introduces a new feature or price discount
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9. IFC and transaction costs
• Transaction Cost Economics (TCE) asks: Why do firms
(hierarchies) exist? Why aren’t all transactions undertaken
in a market?
– Coase’s (1937) classic article attributed integration by
firms to high market transaction costs
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10. IFC and transaction costs
– The number and length of transactions, hence their ‘cost’,
can be very high in voluntary market exchanges and can
be reduced through a hierarchy (the employer directing
employees)
– From a TCE perspective, in transactional terms, inter-firm
cooperation is a more inferior form of organizing
economic activity in terms of economizing behaviour than
is integration by firms (i.e. by hierarchy)
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11. IFC and resource-knowledge-
capabilities approach
• Based on the observation that firms differ in their ability to
create value
• For Penrose (1959), firms are superior to markets in terms
of their endogenous creation of knowledge, innovation and
value
• For other RBV scholars, each firm is unique in its ability to
create and appropriate value (Eisenhardt and
Schoonhoven, 1996)
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12. IFC and resource-knowledge-
capabilities approach
• Even if IFC is inferior to integration in terms of transaction
costs, it may be superior in terms of value-creation benefits
(Kale et al., 2001)
– The cost-benefit calculation is more complex than one
based on transaction costs alone
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13. Similarity and complementarity
• Richardson (1972) analysed inter-firm cooperation in terms
of concepts of similarity and complementarity of activities:
– Similar and complementary activities are best integrated
in a single firm
– Dissimilar yet complementary activities are best
undertaken through cooperative arrangements
– Markets work best when activities are both dissimilar and
non-complementary
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14. Strategic alliances
• Strategic alliances are
commonly defined as
purposive linkages between
organizations that cover
collaborations involving an
exchange, a co-development
or a sharing relationship
(Gulati, 1995)
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15. Features of strategic alliances
• An alliance brings two or more individual organizations
together.
• An alliance requires these parties to be interconnected in
some way, involving reciprocal relations.
• An alliance strives to define itself through shared goals,
interests or values.
• An alliance involves a presumption that the individual
parties maintain at least some level of autonomy.
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16. Types of strategic alliances
• Comprehensive alliances
– involve the participants’ agreement to perform multiple
stages of the process by which goods and services are
brought to market involving multiple functional areas,
such as finance, production and marketing, often
involving complex contractual agreements or structured
as joint ventures
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17. Types of strategic alliances
• Functional alliances
– are less complex and have a narrower scope involving
collaboration, for example, in only a single functional area
of the business, e.g. marketing alliances, financial
alliances, R&D alliances
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18. Types of strategic alliances
• Production alliance:
– A type of functional alliance in which two or more firms
each manufacture products or provide services in a
shared or common facility
– Production alliances can also occur as technology cross-
licensing agreements where trademarks, intellectual
property and trade secrets are licensed to a partner firm
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19. Types of strategic alliances
• Production licensing:
– This allows a partner to manufacture and sell a certain
product, often being given an exclusive geographic area
– Production alliances are a lower-risk and lower-cost
strategy to expand the reach of a firm’s products and
services compared to building their own manufacturing
facilities and distribution networks
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20. Types of strategic alliances
• Marketing alliance:
– Two or more firms share marketing expertise or services
– Typically, this type of agreement involves one partner
introducing its products or services into a market in which
the other partner already has a presence, or endorsing
their product in their advertising campaign
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21. Types of strategic alliances
• Investment alliance:
– This involves firms that collaborate to reduce the financial
risks associated with a project
– The risk may be reduced when financial contributions
toward the project are shared or when one partner
provides the bulk of the financing while the other partner
provides special expertise, for instance
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22. Types of strategic alliances
• Research and development (R&D) alliance:
– involves an agreement by partners to commit to
undertake joint research to develop new products or
services, beneficial due to short technology life cycles and
high R&D costs
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23. Types of strategic alliances
• Public–private partnership (PPP):
– a special type of alliance that involves one or more
privately owned firms and a government organization,
either because the country in question does not allow
wholly owned foreign firms or because of the potential of
PPPs to provide financing for public projects, reduce
costs or spread risk
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24. Why cooperate?
• Reducing risk: Alliances can help partners minimize or
control risk because they imply that two or more
organizations work together and share, for example,
investment in crucial technologies, knowledge and
production facilities.
• Entering markets: Alliances are a way for firms to overcome
obstacles that restrict entry to new markets, thereby
expanding faster, globally, while keeping costs down.
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25. Why cooperate?
• Gaining knowledge: A firm may be able to gain access to
knowledge and expertise that it lacks via a strategic
alliance, transferring learning to other parts of the
organization in the process.
• Achieving synergy: The complementary strength of alliance
can result in synergies that allow for more efficient and
effective use of resources, thereby providing a source of
competitive advantage.
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26. Difficulties with strategic partnerships
• When partners:
– are unable to match resources and align cultures,
decision-making processes and systems
– are unable to create trusting relationships
– have to manage conflict
– need to handle rivalry and managerial complexity
– differ in their methods of dealing with strategic change in
the two firms
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27. Joint ventures
• A joint venture is an entity
owned by multiple parent firms
that is legally distinct from the
parent firms. The joint venture
is undertaken to share the
cost and profit of a specific
business project
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28. Organizing alliances: contractual
agreements and governance
• Alliance governance concerns the way the alliance is co-
governed by the partners, in particular regarding the
integration of their interests, the use of combined resources
and their relationship
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29. Alliance governance
• Equity alliances, such as joint
ventures, involve the creation
of a separate, new
organizational entity
• Non-equity alliances are
based on contractual
agreements and entail any
form of cooperative
relationship between two or
more firms
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30. Alliance governance
• Alliance contracts also differ in their complexity given
varying environmental, situational and behavioural
conditions:
– Explicit contracts in alliances determine the roles and
responsibilities of each party, the allocation of decision
rights, the ownership structure, the arrangements for
different unforeseen events and the policies for
communication and determination of conflicts
– Implicit contracts between partnering organizations are
not always covered or enforceable by laws, but by mutual
interest of the collaborating parties
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31. Managing strategic alliances through
different stages
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32. Strategic networks
• ‘The network form of organization can be defined as a
collection of two or more actors engaged in repeated and
enduring exchange relations with one another, but that lacks
a legitimate organizational authority to resolve disputes that
may arise during exchange’ (Podolny and Page, 1998: 59)
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33. Strategic networks
• The progressive emergence of the network society has
been captured in the field of strategy across broad streams
of research:
– hierarchy after bureaucracy
– resource-based views of networks
– networks as strategic devices
– digital networks and digital strategies
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34. Alliancing
• One form of inter-firm
cooperation that has rapidly
developed in recent years is
known as alliancing
• Here the stress is less on the
governance structure and more
on the creation of appropriate
processes
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35. Conclusion
• You should now know about:
– Strategic alliances
– Joint ventures
– Global alliances
– Strategic networks
– Alliancing
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36. References
• Coase, R. (1937) ‘The nature of the firm’, Economica, 4:
386–405.
• Eisenhardt, K.M. and Schoonhoven, C.B. (1996) ‘Resource-
based view of strategic alliance formation: Strategic and
social effects in entrepreneurial firms’, Organization
Science, 7: 136–150.
• Gulati, R. (1995) ‘Social structure and alliance formation
pattern: A longitudinal analysis’, Administrative Science
Quarterly, 40(4): 619–642.
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37. References
• Kale, P., Dyer, J.H. and Singh, H. (2001) ‘Value creation and
success in strategic alliances: Alliancing skills and the role
of alliance structure and systems’, European Management
Journal, 17(5): 463–471.
• Penrose, E.T. (1959) The Theory of the Growth of the Firm
(3rd edn). Oxford: Oxford University Press.
• Pitelis, C.N. (2012) ‘Clusters, entrepreneurial ecosystem co-
creation, and appropriability: A conceptual framework’,
Industrial and Corporate Change, 21(6): 1359–1388.
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38. References
• Pitsis, T., Clegg, S.R., Marosszeky, M. and Rura-Polley, T.
(2003) ‘Constructing the Olympic Dream: Managing
innovation through the future perfect’, Organization Science,
14(5): 574–590.
• Podolny, J.M. and Page, K.L. (1998) ‘Network forms of
organization’, American Review of Sociology, 24: 57–76.
• Porter, M. [reference to add here from slide 6]
• Richardson, G. (1972) ‘The organisation of industry’, The
Economic Journal, 82(327): 883–896.
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