Senior Seminar in Business Administration BUS 499 Cooperative Strategy Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. (2009). BUS499: Strategic management: Competitiveness and globalization, concepts and cases: 2009 custom edition (8th ed.). Mason, OH: South-Western Cengage Learning. Welcome to Senior Seminar in Business Administration. In this lesson we will discuss Cooperative Strategy. Please go to the next slide. ObjectivesUpon completion of this lesson, you will be able to:Identify various levels and types of strategy in a firm Upon completion of this lesson, you will be able to: Identify various levels and types of strategy in a firm. Please go to the next slide. Supporting TopicsStrategic alliancesCooperative strategiesCompetitive risks In order to achieve this objective, the following supporting topics will be covered: Strategic alliances; Cooperative strategies; and Competitive risks. Please go to the next slide. Strategic AlliancesCooperative strategyStrategic allianceCombination of resources and capabilitiesExchange and sharing of resourcesFirms leverage existing resourcesCornerstone of many firms’ competitive strategy Recognized as a viable engine of firm growth, cooperative strategy is a strategy in which firms work together to achieve a shared objective. Thus, cooperating with other firms is another strategy firms use to create value for a customer that exceeds the cost of providing that value and to establish a favorable position relative to competition. A strategic alliance is a cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage. Thus, strategic alliances involve firms with some degree of exchange and sharing of resources and capabilities to co-develop, sell, and service goods or services. Strategic alliances allow firms to leverage their existing resources and capabilities while working with partners to develop additional resources and capabilities as the foundation for new competitive advantages. To be certain, the reality today is that strategic alliances have become a cornerstone of many firms’ competitive strategy. Please go to the next slide. Strategic Alliances, continuedJoint ventureEquity strategic allianceNonequity strategic alliance The three major types of strategic alliances include joint venture, equity strategic alliance, and nonequity strategic alliance. A joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. Joint ventures, which are often formed to improve firms’ abilities to compete in uncertain competitive environments, are effective in establishing long-term relationships and in transferring tacit knowledge. Because it can’t be codified, tacit, or implied, knowledge is learned through experiences such as those taking place when people from partner firms work together in a join.

1. Senior Seminar in Business Administration
BUS 499
Cooperative Strategy
Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. (2009). BUS499:
Strategic management: Competitiveness and globalization,
concepts and cases: 2009 custom edition (8th ed.). Mason, OH:
South-Western Cengage Learning.
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Cooperative Strategy.
Please go to the next slide.
ObjectivesUpon completion of this lesson, you will be able
to:Identify various levels and types of strategy in a firm
Upon completion of this lesson, you will be able to:
Identify various levels and types of strategy in a firm.
Please go to the next slide.
Supporting TopicsStrategic alliancesCooperative

2. strategiesCompetitive risks
In order to achieve this objective, the following supporting
topics will be covered:
Strategic alliances;
Cooperative strategies; and
Competitive risks.
Please go to the next slide.
Strategic AlliancesCooperative strategyStrategic
allianceCombination of resources and capabilitiesExchange and
sharing of resourcesFirms leverage existing
resourcesCornerstone of many firms’ competitive strategy
Recognized as a viable engine of firm growth, cooperative
strategy is a strategy in which firms work together to achieve a
shared objective. Thus, cooperating with other firms is another
strategy firms use to create value for a customer that exceeds
the cost of providing that value and to establish a favorable
position relative to competition.
A strategic alliance is a cooperative strategy in which firms
combine some of their resources and capabilities to create a
competitive advantage. Thus, strategic alliances involve firms
with some degree of exchange and sharing of resources and
capabilities to co-develop, sell, and service goods or services.
Strategic alliances allow firms to leverage their existing
resources and capabilities while working with partners to
develop additional resources and capabilities as the foundation
for new competitive advantages. To be certain, the reality today

3. is that strategic alliances have become a cornerstone of many
firms’ competitive strategy.
Please go to the next slide.
Strategic Alliances, continuedJoint ventureEquity strategic
allianceNonequity strategic alliance
The three major types of strategic alliances include joint
venture, equity strategic alliance, and nonequity strategic
alliance.
A joint venture is a strategic alliance in which two or more
firms create a legally independent company to share some of
their resources and capabilities to develop a competitive
advantage. Joint ventures, which are often formed to improve
firms’ abilities to compete in uncertain competitive
environments, are effective in establishing long-term
relationships and in transferring tacit knowledge. Because it
can’t be codified, tacit, or implied, knowledge is learned
through experiences such as those taking place when people
from partner firms work together in a joint venture.
An equity strategic alliance is an alliance is an alliance in
which two or more firms own different percentages of the
company they have formed by combining some of their
resources and capabilities to create a competitive advantage.
Many foreign direct investments, such as those made by
Japanese and U.S. companies in China, are completed through
equity strategic alliances.
A nonequity strategic alliance is an alliance in which two or
more firms develop a contractual relationship to share some of

4. their unique resources and capabilities to create a competitive
advantage. In this type of alliance, firms do not establish a
separate independent company and therefore do not take equity
positions. For this reason, nonequity strategic alliances are less
formal and demand fewer partner commitments than do joint
ventures and equity strategic alliances.
Please go to the next slide.
Check Your Understanding
Business-Level Cooperative StrategyGrow and improve
performance in individual product marketsCompetitive
advantages it can’t create itselfFour strategies
A firm uses a business-level cooperative strategy to grow and
improve its performance in individual product markets.
Business-level strategy details what the firm intends to do to
gain a competitive advantage in specific product markets. Thus,
the firm forms a business-level cooperative strategy when it
believes that combining its resources and capabilities with those
of one or more partners will create competitive advantages that
it can’t create by itself and that will lead to success in a specific
product market.
The four business-level cooperative strategies are:
Complementary strategic alliances;

5. Competition response strategy;
Uncertainty-reducing strategy; and
Competition-reducing strategy.
Please go to the
Business-Level Cooperative Strategy, continuedComplementary
strategic alliancesVerticalHorizontalCompetition response
strategyUncertainty-reducing strategyCompetition-reducing
strategyExplicit collusionTacit collusion
Complementary strategic alliances are business-level alliances
in which firms share some of their resources and capabilities in
complementary ways to develop competitive advantages.
Vertical and horizontal are the two types of complementary
strategic alliances. In a vertical complementary strategic
alliance, firms share their resources and capabilities from
different stages of the value chain to create a competitive
advantage. A horizontal complementary strategic alliance is an
alliance in which firms share some of their resources and
capabilities from the same stage of the value chain to create a
competitive advantage.
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. Because they can be difficult to reverse
and expensive to operate, strategic alliances are primarily
formed to take strategic rather than tactical actions and to
respond to competitors’ actions in a like manner.
Some firms use business-level strategic alliances to hedge
against risk and uncertainty, especially in fast-cycle markets.

6. Also, they are used where uncertainty exists, such as in entering
new product markets or emerging economies. In other instances,
firms form business-level strategic alliances to reduce the
uncertainty associated with developing new products or
establishing a technology standard.
Used to reduce competition, collusive strategies differ from
strategic alliances in that collusive strategies are often an
illegal type of cooperative strategy. Two types of collusive
strategies are explicit collusion and tacit collusion. When two
or more firms negotiate directly with the intention of jointly
agreeing about the amount to produce and the price of the
products that are produced, explicit collusion exists. Tacit
collusion exists when several firms in an industry indirectly
coordinate their production and pricing decisions by observing
each other’s competitive actions and responses.
Please to the next slide.
Corporate-Level Cooperative StrategyDiversifying strategic
allianceSynergistic strategic allianceFranchising
A firm uses a corporate-level cooperative strategy to help it
diversify in terms of products offered or markets served, or
both. Diversifying alliances, synergistic alliances, and
franchising are the most commonly used corporate-level
cooperative strategies.
A diversifying strategic alliance is a corporate-level cooperative
strategy in which firms share some of their resources and
capabilities to diversify into new product or market areas.
A synergistic strategic alliance is a corporate-level cooperative

7. strategy in which firms share some of their resources and
capabilities to create economies of scope. Similar to the
business-level horizontal complementary strategic alliance,
synergistic strategic alliances create synergy across multiple
functions or multiple businesses between partner firms.
Franchising is a corporate-level cooperative strategy in which a
firm uses a franchise as a contractual relationship to describe
and control the sharing of its resources and capabilities with
partners.
Please go to the next slide.
International Cooperative StrategyHeadquarters in different
nationsContinues to increaseComplex and hard to
manageOutperform domestic-only competitors
A cross-border strategic alliance is an international cooperative
strategy in which firms with headquarters in different nations
decide to combine some of their resources and capabilities to
create a competitive advantage.
Taking place in virtually all industries, the number of cross-
border alliances continues to increase. These alliances too are
sometimes formed instead of mergers and acquisitions.
Even though cross-border alliances can themselves be complex
and hard to manage, they have the potential to help firms use
their resources and capabilities to create value in locations
outside their home market.
In general, cross-border alliances are more complex and risky
than domestic strategic alliances. However, the fact that firms

8. competing internationally tend to outperform domestic-only
competitors suggests the importance of learning how to
diversify into international markets.
Please go to the next slide.
Network Cooperative StrategyForm multiple
partnershipsGeographically clustered firms
Increasingly, firms use several cooperative strategies. In
addition to forming their own alliances with individual
companies, a growing number of firms are joining forces in
multiple networks. A network cooperative strategy is a
cooperative strategy wherein several firms agree to form
multiple partnerships to achieve shared objectives.
A network cooperative strategy is particularly effective when it
is formed by geographically clustered firms.
Please go to the next slide.
Competitive RisksMany cooperative strategies failOpportunistic
behaviorsCompetence misrepresentationFailure of available
resources and capabilitiesOne firm making investments while its
partner does not
Stated simply, many cooperative strategies fail. In fact,
evidence shows that two-thirds of cooperative strategies have
serious problems in their first two years and that as many as
seventy percent of them fail.

9. One cooperative strategy risk is that a partner may act
opportunistically. Opportunistic behaviors surface either when
formal contracts fail to prevent them or when an alliance is
based on a false perception of partner trustworthiness.
Some cooperative strategies fail when it is discovered that a
firm has misrepresented the competencies it can bring to the
partnership. The risk of competence misrepresentation is more
common when the partner’s contribution is grounded in some of
its intangible assets.
Another risk is a firm failing to make available to its partners
the resources and capabilities that it committed to the
cooperative strategy. This risk surfaces most commonly when
firms form an international cooperative strategy.
A final risk is that one firm may make investments that are
specific to the alliance while its partner does not.
Please go to the next slide.
SummaryStrategic alliancesCooperative strategiesCompetitive
risks
We have reached the end of this lesson. Let’s take a look at
what we have covered.
First, we discussed strategic alliances. The three major types of
strategic alliances include joint venture, equity strategic
alliance, and nonequity strategic alliance.
Next, we went over cooperative strategies. These include

10. business-level cooperative strategy, corporate-level cooperative
strategy, international cooperative strategy, and network
cooperative strategy.
We concluded the lesson with a discussion on competitive risks.
These include opportunistic behaviors, competence
misrepresentation, failing to make available resources and
capabilities, and one firm making investments while its partner
does not.
This completes this lesson.
UNKNOWN-0.unknown
Senior Seminar in Business Administration
BUS 499
Cooperative Strategy
Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. (2009). BUS499:
Strategic management: Competitiveness and globalization,
concepts and cases: 2009 custom edition (8th ed.). Mason, OH:
South-Western Cengage Learning.
Welcome to Senior Seminar in Business Administration.
In this lesson we will discuss Cooperative Strategy.
Please go to the next slide.
ObjectivesUpon completion of this lesson, you will be able
to:Identify various levels and types of strategy in a firm

11. Upon completion of this lesson, you will be able to:
Identify various levels and types of strategy in a firm.
Please go to the next slide.
Supporting TopicsStrategic alliancesCooperative
strategiesCompetitive risks
In order to achieve this objective, the following supporting
topics will be covered:
Strategic alliances;
Cooperative strategies; and
Competitive risks.
Please go to the next slide.
Strategic AlliancesCooperative strategyStrategic
allianceCombination of resources and capabilitiesExchange and
sharing of resourcesFirms leverage existing
resourcesCornerstone of many firms’ competitive strategy
Recognized as a viable engine of firm growth, cooperative
strategy is a strategy in which firms work together to achieve a
shared objective. Thus, cooperating with other firms is another
strategy firms use to create value for a customer that exceeds
the cost of providing that value and to establish a favorable

12. position relative to competition.
A strategic alliance is a cooperative strategy in which firms
combine some of their resources and capabilities to create a
competitive advantage. Thus, strategic alliances involve firms
with some degree of exchange and sharing of resources and
capabilities to co-develop, sell, and service goods or services.
Strategic alliances allow firms to leverage their existing
resources and capabilities while working with partners to
develop additional resources and capabilities as the foundation
for new competitive advantages. To be certain, the reality today
is that strategic alliances have become a cornerstone of many
firms’ competitive strategy.
Please go to the next slide.
Strategic Alliances, continuedJoint ventureEquity strategic
allianceNonequity strategic alliance
The three major types of strategic alliances include joint
venture, equity strategic alliance, and nonequity strategic
alliance.
A joint venture is a strategic alliance in which two or more
firms create a legally independent company to share some of
their resources and capabilities to develop a competitive
advantage. Joint ventures, which are often formed to improve
firms’ abilities to compete in uncertain competitive
environments, are effective in establishing long-term
relationships and in transferring tacit knowledge. Because it
can’t be codified, tacit, or implied, knowledge is learned
through experiences such as those taking place when people
from partner firms work together in a joint venture.

13. An equity strategic alliance is an alliance is an alliance in
which two or more firms own different percentages of the
company they have formed by combining some of their
resources and capabilities to create a competitive advantage.
Many foreign direct investments, such as those made by
Japanese and U.S. companies in China, are completed through
equity strategic alliances.
A nonequity strategic alliance is an alliance in which two or
more firms develop a contractual relationship to share some of
their unique resources and capabilities to create a competitive
advantage. In this type of alliance, firms do not establish a
separate independent company and therefore do not take equity
positions. For this reason, nonequity strategic alliances are less
formal and demand fewer partner commitments than do joint
ventures and equity strategic alliances.
Please go to the next slide.
Check Your Understanding
Business-Level Cooperative StrategyGrow and improve
performance in individual product marketsCompetitive
advantages it can’t create itselfFour strategies
A firm uses a business-level cooperative strategy to grow and

14. improve its performance in individual product markets.
Business-level strategy details what the firm intends to do to
gain a competitive advantage in specific product markets. Thus,
the firm forms a business-level cooperative strategy when it
believes that combining its resources and capabilities with those
of one or more partners will create competitive advantages that
it can’t create by itself and that will lead to success in a specific
product market.
The four business-level cooperative strategies are:
Complementary strategic alliances;
Competition response strategy;
Uncertainty-reducing strategy; and
Competition-reducing strategy.
Please go to the
Business-Level Cooperative Strategy, continuedComplementary
strategic alliancesVerticalHorizontalCompetition response
strategyUncertainty-reducing strategyCompetition-reducing
strategyExplicit collusionTacit collusion
Complementary strategic alliances are business-level alliances
in which firms share some of their resources and capabilities in
complementary ways to develop competitive advantages.
Vertical and horizontal are the two types of complementary
strategic alliances. In a vertical complementary strategic
alliance, firms share their resources and capabilities from
different stages of the value chain to create a competitive
advantage. A horizontal complementary strategic alliance is an
alliance in which firms share some of their resources and
capabilities from the same stage of the value chain to create a
competitive advantage.

15. 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. Because they can be difficult to reverse
and expensive to operate, strategic alliances are primarily
formed to take strategic rather than tactical actions and to
respond to competitors’ actions in a like manner.
Some firms use business-level strategic alliances to hedge
against risk and uncertainty, especially in fast-cycle markets.
Also, they are used where uncertainty exists, such as in entering
new product markets or emerging economies. In other instances,
firms form business-level strategic alliances to reduce the
uncertainty associated with developing new products or
establishing a technology standard.
Used to reduce competition, collusive strategies differ from
strategic alliances in that collusive strategies are often an
illegal type of cooperative strategy. Two types of collusive
strategies are explicit collusion and tacit collusion. When two
or more firms negotiate directly with the intention of jointly
agreeing about the amount to produce and the price of the
products that are produced, explicit collusion exists. Tacit
collusion exists when several firms in an industry indirectly
coordinate their production and pricing decisions by observing
each other’s competitive actions and responses.
Please to the next slide.
Corporate-Level Cooperative StrategyDiversifying strategic
allianceSynergistic strategic allianceFranchising

16. A firm uses a corporate-level cooperative strategy to help it
diversify in terms of products offered or markets served, or
both. Diversifying alliances, synergistic alliances, and
franchising are the most commonly used corporate-level
cooperative strategies.
A diversifying strategic alliance is a corporate-level cooperative
strategy in which firms share some of their resources and
capabilities to diversify into new product or market areas.
A synergistic strategic alliance is a corporate-level cooperative
strategy in which firms share some of their resources and
capabilities to create economies of scope. Similar to the
business-level horizontal complementary strategic alliance,
synergistic strategic alliances create synergy across multiple
functions or multiple businesses between partner firms.
Franchising is a corporate-level cooperative strategy in which a
firm uses a franchise as a contractual relationship to describe
and control the sharing of its resources and capabilities with
partners.
Please go to the next slide.
International Cooperative StrategyHeadquarters in different
nationsContinues to increaseComplex and hard to
manageOutperform domestic-only competitors
A cross-border strategic alliance is an international cooperative
strategy in which firms with headquarters in different nations
decide to combine some of their resources and capabilities to
create a competitive advantage.

17. Taking place in virtually all industries, the number of cross-
border alliances continues to increase. These alliances too are
sometimes formed instead of mergers and acquisitions.
Even though cross-border alliances can themselves be complex
and hard to manage, they have the potential to help firms use
their resources and capabilities to create value in locations
outside their home market.
In general, cross-border alliances are more complex and risky
than domestic strategic alliances. However, the fact that firms
competing internationally tend to outperform domestic-only
competitors suggests the importance of learning how to
diversify into international markets.
Please go to the next slide.
Network Cooperative StrategyForm multiple
partnershipsGeographically clustered firms
Increasingly, firms use several cooperative strategies. In
addition to forming their own alliances with individual
companies, a growing number of firms are joining forces in
multiple networks. A network cooperative strategy is a
cooperative strategy wherein several firms agree to form
multiple partnerships to achieve shared objectives.
A network cooperative strategy is particularly effective when it
is formed by geographically clustered firms.
Please go to the next slide.

18. Competitive RisksMany cooperative strategies failOpportunistic
behaviorsCompetence misrepresentationFailure of available
resources and capabilitiesOne firm making investments while its
partner does not
Stated simply, many cooperative strategies fail. In fact,
evidence shows that two-thirds of cooperative strategies have
serious problems in their first two years and that as many as
seventy percent of them fail.
One cooperative strategy risk is that a partner may act
opportunistically. Opportunistic behaviors surface either when
formal contracts fail to prevent them or when an alliance is
based on a false perception of partner trustworthiness.
Some cooperative strategies fail when it is discovered that a
firm has misrepresented the competencies it can bring to the
partnership. The risk of competence misrepresentation is more
common when the partner’s contribution is grounded in some of
its intangible assets.
Another risk is a firm failing to make available to its partners
the resources and capabilities that it committed to the
cooperative strategy. This risk surfaces most commonly when
firms form an international cooperative strategy.
A final risk is that one firm may make investments that are
specific to the alliance while its partner does not.
Please go to the next slide.
SummaryStrategic alliancesCooperative strategiesCompetitive

19. risks
We have reached the end of this lesson. Let’s take a look at
what we have covered.
First, we discussed strategic alliances. The three major types of
strategic alliances include joint venture, equity strategic
alliance, and nonequity strategic alliance.
Next, we went over cooperative strategies. These include
business-level cooperative strategy, corporate-level cooperative
strategy, international cooperative strategy, and network
cooperative strategy.
We concluded the lesson with a discussion on competitive risks.
These include opportunistic behaviors, competence
misrepresentation, failing to make available resources and
capabilities, and one firm making investments while its partner
does not.
This completes this lesson.
UNKNOWN-0.unknown