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Chapter 9 cooperative strategy
- 1. Strategic Management: Concepts andCases 9e Part II: Strategic Actions: Strategy Formulation Chapter 9: Cooperative Strategy ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 2. Chapter 9: CooperativeStrategy • Overview: Seven content areas – Cooperative strategies and why firms use them – Three types of strategic alliances – Business-level cooperative strategies & their use – Corporate-level strategies in diversified firms – Cross-border strategic alliances’ importance as an international cooperative strategy – Competitive risks with cooperative strategies – Two approaches to manage cooperative strategies ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 3. Introduction • Cooperative strategy – Firms work together to achieve a shared objective ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 4. Primary Type ofCooperative Strategy: Strategic Alliances • Introduction: Strategic Alliance – Cooperative strategy in which firms combine resources and capabilities to create a competitive advantage • Three types of strategic alliances – 1. Joint venture – 2. Equity strategic alliance – 3. Nonequity strategic alliances, which include • Licensing agreements • Distribution agreements • Supply contracts • Outsourcing commitments ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 5. Primary Type ofCooperative Strategy: Strategic Alliances (Cont’d) • 1. Joint venture – Two or more firms create a legally independent company to share resources and capabilities to develop a competitive advantage • 2. Equity strategic alliance – Two or more firms own a portion of the equity in the venture they have created • 3. 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 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 6. Primary Type ofCooperative Strategy: Strategic Alliances (Cont’d) • Why firms might develop strategic alliances – Most firms lack the full set of resources and capabilities needed to reach their objectives – Cooperative behavior allows partners to create value that they couldn't develop by acting independently – Aligning stakeholder interests (both inside and outside of the organization) can reduce environmental uncertainty – Alliances can … • provide a new source of revenue • be a vehicle for firm growth • enhance the speed of responding to market opportunities, technological changes, and global conditions • allow firms to gain new knowledge and experiences to increase competitiveness ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 7. Primary Type ofCooperative Strategy: Strategic Alliances (Cont’d) • In summary, strategic alliances … – …can reduce competition and enhance a firm’s competitive capabilities and – …create avenue for firm to gain access to resources – …allows firm to take advantage of opportunities, build strategic flexibility and innovate ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 8. Reasons for StrategicAlliances by Market Type Market Reason Slow-Cycle • Gain access to restricted market • Establish a franchise in a new market • Maintain market stability (e.g., establishing standard) • Speed up development of new goods or services • Speed up new market entry Fast-Cycle • Maintain market leadership • Form an industry technology standard • Share risky R&D expenses • Overcome uncertainty • Gain market power (reduce industry overcapacity) • Gain access to complementary resources • Establish better economies of scales Standard-Cycle • Overcome trade barriers • Meet competitive challenges from other competitors • Pool resources for very large capital project • Learn new business techniques ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 9. Business-Level Cooperative Strategy •Business level cooperative strategies are used to grow and improve firm performance in individual product markets. • Achieved through Complementary Strategic Alliances (CSA) ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 10. Business-Level Cooperative Strategy (Cont’d) • Complementary Strategic Alliances (CSA) – Firms share some of their resources and capabilities in complementary ways to develop competitive advantages – Partners may have different • Learning rates • Capabilities to leverage complementary resources • Marketplace reputations • types of actions they can legitimately take – Some firms are more effective at managing alliances and deriving benefits from them – Two forms include vertical and horizontal ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 11. Business-Level Cooperative Strategy (Cont’d) –2 Types of CSA: •1. Vertical CSA – partnering firms share resources & capabilities from different stages of the value chain to create a competitive advantage. •2. Horizontal CSA – partnering firms share resources & capabilities from the same stage of the value chain to create a competitive advantage – commonly used for long-term product development and distribution opportunities ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 12. Business-Level Cooperative Strategy (Cont’d) • Competition response strategy – Competitors • initiate competitive actions to attack rivals • launch competitive responses to their competitor’s actions – Strategic alliances (SA) • can be used at the business level to respond to competitor’s attacks • primarily formed to take strategic vs. tactical actions • can be difficult to reverse • expensive to operate ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 13. Business-Level Cooperative Strategy (Cont’d) • Uncertainty-reducing strategy – For example, 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 reduced by combining knowledge & capabilities ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 14. Business-Level Cooperative Strategy (Cont’d) • Competition-reducing strategy: Two Collusive Strategies – Collusive strategies (CS) differ from strategic alliances in that CS are usually illegal –1. Explicit collusion – Direct negotiation among firms to establish output levels and pricing agreements that reduce industry competition –2. Tacit collusion – Indirect coordination of production and pricing decisions by several firms, which impacts the degree of competition faced in the industry – Mutual forbearance: firms do not take competitive actions against rivals they meet in multiple markets ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 15. Business-Level Cooperative Strategy (Cont’d) • Business-level cooperative strategy – assessment – Used to develop competitive advantages (CA) for contributing to successful positions & performance in individual product markets – Developing a CA using a strategic alliance, the integrated resources and capabilities must be valuable, rare, imperfectly imitable and nonsubstitutable – Vertical alliances have greatest probability of creating CA; horizontal are sometimes difficult to maintain since they are usually between competitors – SA’s designed to respond to competition and reduce uncertainty are more temporary than complementary (horizontal and vertical) strategic alliances – Competition-reducing has lowest probability of creating a sustainable CA ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 16. Corporate-Level Cooperative Strategies •Corporate-level cooperative strategies (CLCS) help firm to diversify itself in terms of products offered, markets served or both • Common CLCS forms – 1. Diversifying strategic alliance • Firms share some of their resources & capabilities to diversify into new product or market areas – 2. Synergistic strategic alliance • Firms share some of their resources & capabilities to create economies of scope – 3. 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 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 17. Corporate-Level Cooperative Strategies (Cont’d) • Assessment of corporate-level cooperative strategies – Costs incurred regardless of type selected • Important to monitor expenditures! – In comparison w/ business-level strategies • Usually broader in scope • More complex and therefore more costly – Can develop useful knowledge … and, in order to gain maximum value should organize and verify proper distribution with those involved in forming and using alliances ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 18. 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? – 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 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 19. Competitive Risks inCooperative Strategies • Risks – Partners may choose to act opportunistically – 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 ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 20. Managing Cooperative Strategy •Two primary approaches – 1. Cost minimization – 2. Opportunity maximization ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 21. Managing Cooperative Strategy (Cont’d) • 1. Cost minimization – Relationship with partner is formalized with contracts – Contracts specify how cooperative strategy is to be monitored and how partner behavior is to be controlled – Goal is to minimize costs and prevent opportunistic behaviors by partners – Costs of monitoring cooperative strategy are greater – Formalities tend to stifle partner efforts to gain maximum value from their participation ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
- 22. Managing Cooperative Strategy (Cont’d) • 2. Opportunity Maximization – Focus: maximizing partnership's value-creation opportunities – Informal relationships and fewer constraints allow partners to • take advantage of unexpected opportunities • learn from each other • explore additional marketplace possibilities – Partners need a high level of trust that each party will act in the partnership's best interest, which is more difficult in international situations ©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.