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1. Volume 1, Issue 1, pp 1-10; September 2012.
Journal of Business Management and Corporate Affairs
©2012 Online Research Journals
Full Length Research
Available Online at http://www.onlineresearchjournals.org/JBMCA
An Overview of Strategic Alliance: Competitive
Advantages in Alliance Constellations
Mohammad Masrurul Mowla
Department of Business Administration, International Islamic University Chittagong, Karnafuly Bhavan, 240, Nawab
Sirajuddowla Road, Chawkbazar Chittagong, Bangladesh. Email: mmm_iiuc@yahoo.com; Tel: +8801554329168
Downloaded 5 July, 2012 Accepted 17 September, 2012
Strategic alliances, which are cooperative strategies in which firms combine some of their resources to
create competitive advantages, are the primary form of cooperative strategies. Strategic alliances are
an important source of resources, learning, and thereby competitive advantage. Few firms have all of
the resources needed to compete effectively in the current dynamic landscape. Thus, firms seek access
to the necessary resources through alliances. Research on strategic alliance in the past few decades
has suggested that strategic alliance dramatically reshaped the dynamic of competition. This article
provides an important and useful perspective on strategic alliances, approaches, examples, models,
and other tools are discussed to develop a deeper understanding of how competitive advantage of the
alliance can be achieved. In this paper, it tries to identify what determines the success of a firm
competing as part of an alliance constellation and how does the spread of alliances affects the
dynamics of competition.
Keywords: Competitive advantage, alliance, joint venture, merger, acquisition.
INTRODUCTION
In today's environment, creating sustainable value for
customers and shareholders requires creating effective
alliances. Alliances are essential building blocks for
companies to achieve stronger and more effective market
presence. Alliances are now a fact of life for business, an
important piece of current operations as well as future
strategy.
During the past decades, we witnessed the widespread
phenomenon of Strategic alliances across all types of
firms competing in every imaginable industry. Hardly a
day goes-by without the media reporting the signing of an
agreement between two or more firms. As costs and risks
of new product and process development are sky-
rocking, strategic alliances become even more common
place in the economic landscape, especially those with
cross-national borders and cultures. Alliances reportedly
the competitiveness of firms by providing access to
external resources, by providing synergies and by
fostering rapid learning and change. Large and fast-
growing enterprises, be they Microsoft, Philips, or
Unilever rely heavily on alliances to support their growth
strategy.
The historical data clearly shows that now companies
are becoming more and more dependents on strategic
alliances. It is important to investigate why the companies
are intent to engage in such a strategic relationship and
how it yields competitive advantages. Doing so
necessitates the identification and implementation of the
key elements of successful strategic alliance strategy and
point out how it reshapes the dynamics of competitive
advantage.
Rationale of the Study
There is not a sector of the economy that has not
witnessed a dramatic increase in the number of alliances
used by its firms to improve their competitive positions.
Despite the fact that an alliance is formed nearly every 90
seconds, failure rates appear to occur in nearly 60
percent of all alliances [1]. In most instances, failure is
not a function of the alliance being a bad strategic option;
rather, failure is attributable to managerial error. These
errors can occur at any phase in the development,
nurturing, or management of the alliance. Alliances fail
because managers do not understand the complex
interplay of a number of factors that can cause even the

2. 2 J. Bus. Manag. Corp. Aff.
Table 01. Definitions of strategic alliances [29-32]
Douma, 1997 [23] A strategic alliance is a contractual, temporary relationship
between companies remaining independent, aimed at reducing
the uncertainty around the realization of the partners’ strategic
objectives (for which the partners are mutually dependent) by
means of coordinating or jointly executing one or several of the
companies’ activities. Each of the partners is able to exert
considerable influence upon the management or policy of the
alliance. The partners are financially involved, although by
definition not through participation, and share the costs, profits
and risks of the strategic alliance.
Dussauge & Garrette, 1995
[22]
An alliance is a cooperative agreement or association between
two or more independent enterprises, which will manage one
specific project, with a determined duration, for which they will be
together in order to improve their competences. It is constituted
to allow its partners to pool resources and coordinate efforts in
order to achieve results that neither could obtain by acting alone.
The key parameters surrounding alliances are opportunism,
necessity and speed.
Faulkner, 1995 [24] A strategic alliance is a particular mode of inter-organizational
relationship in which the partners make substantial investments
in developing a long-term collaborative effort and common
orientation.
Gulati, 1998 [25] Strategic alliances are voluntary arrangements between firms
involving exchange, sharing, or co-development of products,
technologies, or services.
Phan, 2000 [29] Alliances are long-term, trust-based relationships that entail
highly relationship-specific investments in ventures that cannot
be fully specified in advance of their execution.
Porter, 1990 [26] Strategic alliances are long-term agreements between firms that
go beyond normal market transactions but fall short of merger.
Forms include joint ventures, licenses, long-term supply
agreements, and other kinds of inter-firm relationships.
Yoshino & Rangan, 1995 [29] A strategic alliance is a partnership between two or more firms
that unite to pursue a set of agreed upon goals but remain
independent subsequent to the formation of the alliance to
contribute and to share benefits on a continuing basis in one or
more key strategic areas, e.g. technology, products
most well intended alliance to experience problems.
Businesses striving to enhance its competitive
advantages by building a successful strategic alliance
and changed competitive environment could be missing a
major element by not focusing on understanding the key
operational determinants of successful alliance and the
best way to achieve excellent strategic relationship in the
light of a new modified competitive environment. This
study is guided by the rationale of exploring these
determinants.
Aims and Objectives of the Study
The aim of the study is to identify the key factors that
determine the success of a firm competing as part of an
alliance constellation and the ways in which the
performance of these firms may be improved by facing
and utilizing new challenges provided by the dynamics of
competition.
As influenced by the aim of the study, the primary
objective of this study is to examine and analyze how

3. 3
alliance reshape the dynamic of competition and to
examine what determinants affect the success of a firm
competing as part of an alliance constellation. In this
context the main objectives of the research study could
be stated as:
1. To gain an overview of Strategic Alliance, its formation
and management.
2. To better understand when alliances make sense and
when another organizational form is more appropriate.
3. To develop a solid approach for assessing the alliance
capabilities of partner(s) and own firm.
To get a deeper understanding of how competitive
advantage of the alliance can be achieved.
An Overview of Strategic Alliance
Strategic alliances are agreements between companies
(partners) to reach objectives of common interest.
Strategic alliances are among the various options which
companies can use to achieve their goals; they are based
on cooperation between companies [2]. Strategic
alliances are agreements between companies that
remain independent and are often in competition. In
practice, they would be all relationships between
companies, with the exception of (a) transactions
(acquisitions, sales, loans) based on short-term contracts
(while a transaction from a multi-year agreement between
a supplier and a buyer could be an alliance); (b)
agreements related to activities that are not important, or
not strategic for the partners, for example a multi-year
agreement for a service provider (outsourcing) [3].
Strategic alliance can be described as a process wherein
participants willingly modify their basic business practices
with a purpose to reduce duplication and waste while
facilitating improved performance [4].
Wheelen [5] defined strategic alliance as "an
agreement between firms to do business together in
ways that go beyond normal company-to-company
dealings, but fall short of merger or a full partnership”.
Others define these more restrictively; for example,
Professor Benjamin Gomes-Casseres of Brandeis
University [6] views them as open-ended, incomplete
agreements with shared control that create value by
combining the capabilities of separate firms. An
"incomplete" agreement means that the full terms or
conditions of the alliance are not fully established at its
conception because if they were, the need for a strategic
alliance would not exist [7].
A strategic alliance has to contribute to the successful
implementation of the strategic plan; therefore, the
alliance must be strategic in nature. The relationship has
to be supported by executive leadership and formed by
lower management at the highest, macro level. While the
following does not represent a comprehensive definition
for a strategic alliance, at this stage, one might define a
strategic alliance as a relationship between organizations
Mowla 3
for the purposes of achieving successful implementation
of a strategic plan.
In simple words, a strategic alliance is sometimes just
referred to as “partnership” that offers businesses a
chance to join forces for a mutually beneficial opportunity
and sustained competitive advantage [8]. A literature
review of the definitions of strategic alliances is given in
table 01.
Strategic Alliances Vs Traditional Relationship
To understand the power of an alliance, a comprehensive
comparison has been shown making it clear how it differs
from traditional relationships. Seven differences might
stand out:
Cost
Alliances understand the sources of cost and then
eliminate them. Traditional relationships push costs onto
others. This is the outcome of classical win-lose
negotiating the zero-sum game.
Value
Alliances focus on the ultimate customer, and partners
add value that customers pay for. Traditional
relationships view value as a cost, where there is a
perceived trade-off. Low-cost bids usually win, resulting
in process and product problems.
Productivity
Alliances understand failures, bottlenecks and variability.
They optimize systems to achieve flow at the customers
demand. By partnering with a critical few suppliers,
alliances reduce variability of the source of flow
problems. Traditional relationships increase variability by
introducing more suppliers into the mix.
Information
Alliances practice open communications and encourage
transparency throughout the supply chain. They
understand that knowledge shared is more powerful than
knowledge protected. Traditional relationships use
information as a weapon in win-lose negotiations.
Resources
Alliance partners invest resources to design and operate
the partnership. They engage people, since human
resources make the process work. They provide
resources to improvement initiatives jointly including
people, time and money to ensure the alliance meets its
potential. Traditional relationships view people, time and
money as resources to protect on their own side and
extract from the other.

4. 4 J. Bus. Manag. Corp. Aff.
Relations
Alliance partners structure the relationship with operating
principles that survive the people assignments.
Traditional relationships are personality-dependent
systems that reflect the agendas of the people in the
system.
Risks and Rewards
Alliance partners share risks and rewards. The
traditionalist assigns the risks and keeps the rewards.
Motives Underlying Entry of Firms into Alliances
1. Market entry and market position-related motives;
(a) to gain access to new international markets, (b) to
circumvent barriers to entering international markets
posed by legal regulatory and/or political factors, (c) to
defend market position in present markets, and (d) to
enhance market position in present markets.
2. Product-related motives;
(a) to fill gaps in present product line and (b) to broaden
present product line.
3. Product-market-related motives;
(a) to enter new product-market domains and (b) to enter
or maintain the option to enter evolving industries whose
product offerings may emerge as either substitutes for or
complements to the firm’s product offerings.
4. Market structure modification-related motives;
(a) to reduce potential threat of future competition. (b) To
raise entry barriers/erect entry barriers and (c) to alter the
technological base of competition.
5. Market entry timing-related motives; to accelerate pace
of entry into new product-market domains by accelerating
pace of RandD, product development and/or market
entry.
6. Resource Utilization Efficiency-related motives;
(a) to lower manufacturing costs and (b) to lower
marketing

5. 5
costs.
7. Resource extension and risk reduction-related motives;
(a) to pool resources in light of large outlays required and
(b) to lower risk in the face of large resource outlays
required, technological uncertainties, market
uncertainties and/or other uncertainties.
8. Skills enhancement-related motives; (a) to team new
skills from alliance partners and (b) to enhance present
skills by working with alliance partners (figure 02).
Underlying Philosophies and Relevant Theories
The two basic philosophies which underlie the theories of
firm behavior are that companies either adapt to their
environment or that companies attempt to influence their
environment [9]. In reality, companies develop and
implement strategies constantly and rarely follow either of
these two approaches alone. For explanatory purposes,
the two philosophies can be seen as anchor points on a
continuum on which various theories of firm behavior can
be examined.
Several theories of firm behavior can be used as a
basis for explaining strategic alliance formation:
transaction cost theory, resource dependency theory,
organizational theory, relationship marketing, and
strategic behavior theory. These theories of rational
behavior can be positioned with respect to the underlying
philosophies as shown in Figure 03. Non rational theories
such as mimetic behavior or convenience are not
included in this framework. Transaction cost theory [10]
suggests that companies form alliances in order to
minimize their costs and/or risks. Forming a strategic
alliance
represents an internalization process for a firm, thereby
removing it from the price vagrancies of the market place,
accompanying negotiation and risk. Thus, forming an
alliance represents one way a firm adapts to an uncertain
world.
Resource dependency theory states that firms have
specific resources but that few companies are self
sufficient in these resources [11], and therefore must
depend on others for important resources. A deficiency in
one or more strategic resource (i.e., core competencies)
is seen as the driving force for collaboration and a means
of reducing uncertainty and managing this dependency.
Transaction cost economics and resource dependency
theories can be summarized into a broader theory of
structure and governance which implies that companies
adapt or react to their environment [12].
Organizational learning differentiates between tacit and
specific knowledge. Whereas specific knowledge can be
transferred through licensing, tacit knowledge is that
knowledge embedded in an individual and which can only
be transferred by learning alongside the individual [13]. It
cannot be bought or licensed [14]. This theory sits at the
midpoint of the two underlying philosophies: companies
could be seen to view knowledge as a means of retaining
or acquiring competencies, in a similar approach to
Mowla 5
resource dependency theory and therefore adapting to
their environment. Alternatively, companies could be
seen as acquiring knowledge in order to compete at
different points in the value chain, thereby changing the
industry structure in which they operate.
Relationship marketing can be traced back to the
notion of domesticated markets, which refers to the
tendency of firms in industrial markets to form strong
relationships with their customers and suppliers [15]. The
focus of relationship marketing is that firms act in order to
provide superior customer value. Within this new
approach to marketing, marketing alliances are seen as
the least risky and most effective means of providing
services/products that will enhance the relationship with
the customer base [16].
Strategic behavior theory addresses the issue of a
firm’s behavior from a managerial, rather than a
marketing approach. Companies are expected to form
cooperative agreements if they believe that these
arrangements will better enable them to meet their
strategic objectives with the focus being on maximizing
profits [13]. Both relationship marketing and strategic
behavior theory propose that firms form strategic
alliances as a means of acting proactively and in so
doing, altering their environment
Types of Strategic Alliances
Strategic alliances take many forms, including contractual
arrangements (such as license agreements, marketing
agreements, and development agreements), minority
equity investments and joint ventures that are operated
as separate legal entities (such as corporations, limited
liability companies, or partnerships). Regardless of the
form, strategic alliances share common features such as:
(i) defined scope and strategic objectives; (ii)
interdependent contractual arrangements within the
defined scope and to achieve the strategic goals; (iii)
specifically defined responsibilities and commitments for
each party; (iv) independence of the parties outside of the
defined scope of the alliance; and (v) a fixed time period
in which to achieve the strategic goals.
The simplest form of strategic alliance is a contractual
arrangement. Contractual-based strategic alliances
generally are short-term arrangements that are
appropriate when a formal management structure is not
required. While the specific provisions of the contract will
depend upon the business arrangement, the contract
should address: (i) the duties and responsibilities of each
party; (ii) confidentiality and non-competition; (iii)
payment terms; (iv) scientific or technical milestones; (v)
ownership of intellectual property; (vi) remedies for
breach; and (vii) termination. Examples of contractual
strategic alliances are license agreements, marketing,
promotion, and distribution agreements, development
agreements, and service agreements. The most complex
form of strategic alliance is a joint venture. A joint venture
involves creating a separate legal entity (generally a

6. 6 J. Bus. Manag. Corp. Aff.
corporation, limited liability company, or partnership)
through which the business of the alliance is conducted.
A joint venture may be appropriate if: (i) the parties intend
a long-term alliance; (ii) the alliance will require a
significant commitment of resources by each party; (iii)
the alliance will require significant interaction between the
parties; (iv) the alliance will require a separate
management structure; or (v) if the business of the
alliance may be subject to unique regulatory issues. In
addition, a joint venture will be appropriate if the parties
expect that the alliance ultimately may be able to function
as a separate business that could be sold or taken public.
Historically, information technology and life sciences
companies have sought minority equity investments from
strategic commercial partners. This form of strategic
alliance has gained increased popularity in the current
economic climate. In many cases, the equity investment
will also be accompanied by a contractual arrangement
between the parties such as a license agreement or a
distribution agreement. From the company’s perspective,
an equity investment from a strategic commercial partner
may be structured on more favorable terms than those
obtained from venture capitalists and it may increase the
company’s valuation and enhance the company’s ability
to secure future rounds of funding. Venture capitalists
and underwriters generally view these types of strategic
alliances as validating an early stage company’s
technology and business model. In some cases, they
Figure 01. Definition of “Alliance
Arm’s Length
Contract
Merger or
Acquisition
1. creates values by combining capabilities
2. of separate firms
3. which share control
4. in an open-ended (incomplete) agreement.
Definition of “Alliance”
Source: Gomes-Casseres 1996
[9] www.alliancestrategy.com
Figure. 04 Types of Strategic Alliances
Figure 05. The type of alliance chosen for a particular venture needs to suit the circumstances
Source: www.compasspartnership.co.uk
Greater integration
Greater autonomy
Strategic
partnership
Informal
collaboration
Joint
venture
Shared
Box-office
Merger
Federal
structure
Group
structure

7. 7
have even become a condition to an underwriter taking a
life science company public. The strategic commercial
partner may desire this form of alliance to gain a
competitive advantage through access to new
technologies and to share in the upside of the other
party’s business through equity ownership. Strategic
alliances can be considered on a spectrum ranging from
informal collaboration (which hardly merits the term
strategic alliance) to group structures and finally merger.
Alliances at the left hand end of the spectrum allow
organizations to maintain a great deal of autonomy.
Moving across the different types (to the right) requires
greater commitment and leads to greater integration.
In a study by Coopers and Lybrand, they identified the
following alliances, and found their clients were engaged
in them as follows; (Figure 04 and 05).
The Arc of Alliance Strategy
For generating competitive advantage it is important to
focus not only on ‘doing the deal’ but also on ‘an overall
alliance strategy’ that is tied to overall business strategy.
Superior performance comes from managing this whole
array of issues. To help keep track of these issues, the
Arc of Alliance Strategy has been designed as shown in
Figure 1. The four elements of the alliance strategy arc
rest on a foundation that is the general strategy and
organization of the firm. This arc represents an integrated
view of what it takes to succeed with alliances.
Although mastery of these individual elements of
alliance strategy is essential, it is the overall workings of
the arc that drive success. Within the arc, the strongest
links are between alliance design and management. The
success of one clearly depends on the other. The design
must set the stage for management, and management
must strive to bring to fruition the goals set at design.
These two elements apply to every alliance of the firm,
and carry roughly equal weight in the success of any
given alliance.
Crafting Alliance Strategy
It should now be clear that an alliance strategy is so
much more than a strategic alliance, in that it creates the
very context for successful partnerships. According to
Gomes-Casseres [7], success of any given alliance
typically depends on 10 key factors:
1. Have a clear strategic purpose - alliances are never
end in themselves, they are always used as tools in
service of a business strategy
2. Find a fitting partner - a partner with compatible goals
and complementary capabilities
3. Specialize - allocate tasks and responsibilities in the
alliances in a way that enables each party to do what
they do best
4. Create incentives for cooperation - working together
never happens automatically, particularly when partners
Mowla 7
were formerly rivals.
5. Minimize conflicts between partners - the scope of the
alliance and of partners' roles should avoid pitting one
against the other in the market.
6. Share information – continual communication develops
trust and keeps joint projects on target
7. Exchange personnel - regardless of the form of the
alliance, personal contact and site visits are essential for
maintaining communication and trust
8. Operate with long time-horizons - mutual forbearance
in solving short-run conflicts is enhanced by the
expectation of long-term gains
9. Develop multiple joint projects - successful cooperation
on one project can help partners weather the storm in
less successful joint projects
10. Be flexible - alliances are open-ended and dynamic
relationships that need to evolve in pace with their
environment and in pursuit of new opportunities.
To craft a successful alliance strategy, one needs to
establish an internal culture that views alliances as simply
another business option, not as a panacea; they have
risks and rewards, and they will work for some things but
not for others. Effective management of alliances also
relies on the ability to cope with change. Do for alliances
what would it can be done for any other aspect of
business - recognize change and demands flexibility. If
the market changes, will the production schedule not
change? The same thinking should be applied for
alliances. It is unlikely that a company will get everything
it wants out of an alliance, but it can also obtain much
that it did not expect. The secret is to grab opportunities
for change, not ignore them.
With such elements in place, the number of deals in
which your company is engaged can be expected to grow
and will need to be managed. This means prioritizing
alliances and creating an organizational hierarchy
responsible for optimizing the portfolio. This will call for
making trade-offs among partners or even among the
goals of different business units. Remember that ad hoc
growth of your alliance portfolio is costly to your alliance
strategy. As your alliances grow in numbers, the
importance of a supportive internal infrastructure will also
become evident. Suddenly, tending to alliances will begin
to place substantial demands on scarce resources. When
the organization is taxed, it will either resist change or
find new ways to accommodate and support the alliance
strategy. Only the latter route offers a hope of success.
The companies of today and tomorrow will not survive if
they try to do everything themselves, nor will they be
saved by a strategic alliance here or there. But having a
real alliance strategy will at the very least give them a
strong fighting chance.
Competitive Advantages in Alliance Constellations
In today's environment, creating sustainable value for
customers and shareholders requires creating effective

8. 8 J. Bus. Manag. Corp. Aff.
Table 02. Some factors shaping group-based advantages
Resources assembled: how valuable in the domain?
Total scale of operations
Technological capabilities
Market reach
Presence in key value chain segments
Organizational structure: how effective are the resources combined?
Unifying vision
Limited internal rivalry
Leadership at the core—one or a few firms
Limited membership, or norms and rules for similar members
alliances. Alliances are essential building blocks for
companies to achieve stronger and more effective market
presence. Alliances are now a fact of life for business, an
important piece of current operations as well as future
strategy.
There are many ways to build a competitive advantage
which depend a lot on management of the alliance. Some
firms place alliance management under a centralized
organization, while others prefer to distribute
responsibility for alliances across all business units.
Furthermore, the competitive advantage of a strategic
alliance also depends on its organizational and strategic
circumstances.
The Nature of Group-Based Advantage
The group-based advantage of a constellation
differentiates it from rival constellations and determines
the share of the industry profits that it can earn.
Analogous to the traditional model based on firms, group-
based advantage stems from the relative value of the
resources controlled by the constellation.
Let us focus on the two elements in this statement: first,
the nature of the resources in each constellation; and
second, how the constellation controls these resources.
Since constellations are groups of allied firms, the
resources in the constellation are the sum of the
resources contributed to the group by member firms.
These resources are not controlled as tightly as they
would be inside a firm, because of the incomplete
contracts (and possibly partial ownership) in the alliances
that tie the member firms together. Just like in a single
alliance, therefore, the potential of a constellation to
create joint value is realized only by how well the
constellation is structured and managed. Research and
anecdotal evidence suggests that group-based
advantage is affected by the factors shown in (Table 02).
The table shows an illustrative set of resources
(‘Resources assembled’), the value of which clearly
depends on the nature of the competitive domain. This
listing is not exhaustive; but the point is that a
constellation can potentially gain group advantage only to
the extent that it assembles those resources that are
critical for success in its domain. Even when it does,
however, it is not assured of success, because the
resources need to be deployed and integrated effectively.
The second set of table represents four factors of
‘Organizational structure’. They are consistent with
theory. A unifying vision is important to bring together
disparate partners. A corollary of this is that competition
among members erodes the cohesion of the
constellation. Leadership is important in making collective
decisions and in disciplining constellation members that
stray from the collective goals; constellations that are
weak at the center tend to be pulled in multiple directions
by their members. Group size is a self-evident factor: the
larger the group, the harder it is to manage, all else being
equal. Those constellations that have grown large and
successfully managed their size by issuing norms and
rules that make management of the group more of a
routine. Again, this list is not exhaustive, but the point
should be clear: a constellation only gains advantage
from member resources if it is able to combine and
govern them effectively. This first cut at a theory of group-
based advantage raises many research questions.
Firstly, what is the relative importance of assembled
resources and organizational structure? As a
constellation grows, it often faces a trade-off between the
added resources from new members and the added
management burden.
Secondly, when compared with a single firm, is the
organizational structure of the constellation in itself an
advantage or disadvantage? In many domains, the tight
control that a firm can exercise over its resources is an
advantage; but in others, the looser arrangements in a
constellation may offer gains from flexibility.
Thirdly, how is group-based advantage affected when
members participate in more than one constellation?
When membership is not exclusive, constellation
boundaries overlap and resources from one can benefit a
competing unit.
Fourthly, what organizational approaches are helpful in
managing a constellation’s resources? No doubt the
management of these loosely controlled resources is

9. Mowla 9
Table 03. Some factors shaping a firm’s claim on value created by its constellation
Value-Added Perspective: What is the bargaining power of the firm within the group?
 The firm controls scarce, valued, and well-protected assets
 Competition among the firm’s suppliers of complements
 Lack of competition between the firm and its partners
Structural Perspective: What is the position of the firm within the network of allies?
 Centrality of the firm’s position
 The firm occupies structural holes
 The firm participates in multiple constellations
subject to special techniques, perhaps analogous to
techniques that have proven useful in managing
resources inside a firm.
Forces Shaping a Firm’s Claim on Group Advantage
Although constellations are created to generate group-
based advantages, they must yield value at the level of
the firm in order to attract and retain members.
The game of competition may have changed, but we still
keep score the old way. What determines the value that a
firm can actually appropriate from participation in a
constellation?
Two strands of work on alliances and networks are
relevant to this question.
Authors taking a structural approach have argued that the
position of the firm in a network shapes its power over
partners.
Others have emphasized that the scarce resources
added by each firm shapes its ability to extract profit from
partners. These different approaches are related to the
debate in social network analysis between the roles of
structural position and identity.
As with many such debates, it is likely that both
perspectives are important. The two sets of factors are
often interdependent. A firm with unique and highly value-
added can often bargain for a central position in a
constellation. A synthesis of these approaches might lead
to factors such as in Table: 03.
These factors in Table: 03 suggest some questions for
future research. Firstly, what are the relative roles of the
value-added and structural explanations? Firms in
standards battles often find themselves at the center of a
network of licensees, but may have to yield bargaining
power to get there. Secondly, how does bargaining
among members of a constellation affect the overall
governance of the organization?
The group advantages discussed above may well be
influenced by the internal dynamics discussed here.
Thirdly, how are entries and exits from a constellation
affected by the distribution of benefits within the group?
Presumably, firms weigh their private costs and benefits
in these moves, but they may also be influenced by their
benefits relative to other members.
CONCLUSION
A balance between a cooperative and a competitive
interaction among the same firms, so that neither one of
the two ways of conduct will harm the other is a strategic
challenge or dilemma for many firms. This research
proposes a way to think about the interaction between
alliances and competition. It begins by reviewing what the
literature in industrial organization has to say about this
question. The competition increasingly takes the form of
groups of allied firms against other groups instead of the
traditional battle of firm versus firm. This kind of
competition is different from that assumed in standard
models of industrial organization and strategy.
Understanding this new kind of competition dictates to
broaden unit of analysis and to consider explicitly the
various ways in which competition and cooperation
interact.
The strategic dilemma of cooperation and competition
is a very intriguing question for managers. The context
specific factors will have a great impact on the decision
as well as the manager’s perceptions of benefits and
drawback. The present strategic focus on core
competence and outsourcing indicates a need for
cooperation. In addition, many markets are stagnating
and immature which might indicate a need for
cooperation. But we do not actually know if more
research is needed concerning these questions. And also
the basic questions are; who is your competitor and what
would your cooperative partner need to be enlightened?
Another strategic dilemma that needs to be discussed
is the managerial problems occurring on the individual
level caused by different types of role conflicts. These
conflicts are caused by the firms having various roles
towards each other i.e. as buyer, supplier, competitor and
cooperative partner.
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