Cooperative Strategy
A strategy in which firms work together to achieve a shared objective
Cooperating with other firms is a strategy that:
-Creates value for a customer.
-Exceeds the cost of constructing customer value in other ways.
-Establishes a favorable position relative to competitors
Strategic Alliances
A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage
Strategic Alliance Behaviors
Examples of cooperative behavior known to contribute to alliance success:
-Actively solving problems.
-Being trustworthy.
-Consistently pursuing ways to combine partners' resources and capabilities to create value.
Strategic Alliance Behaviors
Collaborative (Relational) Advantage
A competitive advantage developed through a cooperative strategy.
Type of Strategic Alliances:
Joint Venture
Two or more firms create a legally independent company by sharing some of their resources and capabilities
Type of Strategic Alliances:
Equity Strategic Alliance
Partners who own different percentages of equity in a separate company they have formed
Type of Strategic Alliances:
Nonequity Strategic Alliance
Two or more firms develop a contractual relationship to share some of their unique resources and capabilities
Slow-cycle
-Gain access to a restricted market
� Establish a franchise in a new market
� Maintain market stability
Fast-Cycle
-Speed up development of new goods or services
-Speed up new market
-Maintain market leadership
Standard-Cycle
-Gain market power
-Gain access to complementary resources
-Better establish economies of scale
-Overcome trade barriers
Complementary Alliances
-Combine partner firms' assets in complementary ways to create new value.
-Include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage
Vertical Complementary Strategic Alliance
Formed between firms that agree to use their skills and capabilities in different stages of the value chain to create value for both firms
Horizontal Complementary Strategic Alliance
Formed when partners who agree to combine their resources and skills to create value in the same stage of the value chain.
Competition Response Alliances
-Occur when firms join forces to respond to a strategic action of another competitor.
-Because they can be difficult to reverse and expensive to operate, strategic alliances are primarily formed to respond to strategic rather than tactical actions.
Uncertainty Reducing Alliances
-Are used to hedge against risk and uncertainty.
-These alliances are most noticed in fast-cycle markets
-An alliance may be formed to reduce the uncertainty associated with developing new product or technology standards.
Competition Reducing Alliances
Created to avoid destructive or excessive competition
Explicit Collusion
when firms directly negotiate production output and pricing agreements in order to reduce competition (illegal)
Tacit collusion
when firms in an industry indirectly coordinate their production and pricing decisions by observing other firm's actions and responses
greatest probability of creating a sustainable competitive advantage
vertical complementary alliances
difficult to maintain because they are often between rival competitors
horizontal complementary alliances
Corporate-level strategies
-help the firm be more diversification
-Require fewer resources commitments
-Permit greater flexibility in terms of efforts to diversity partners' operations
Diversifying Strategic Alliance
-Allows a firm to expand into new product or market areas without completing a merger or an acquisition.
-Provides some of the potential synergistic benefits of a merger or acquisition, but with less risk and greater levels of flexibility.
-Permits a "tes
Synergistic Strategic Alliance
-Creates joint economies of scope between two or more firms.
-Creates synergy across multiple functions or multiple businesses between partner firms
Franchising
-Spreads risks and uses resources, capabilities, and competencies without merging or acquiring another company.
-A contractual relationship (the franchise) is developed between two parties, the franchisee and the franchisor.
-An alternative to pursuing gr
Corporate-Level Cooperative Strategies compared to business-level strategies
-Broader in scope
-More complex
-More costly
Cross-border strategic alliance
A strategy in which firms with headquarters in different nations combine their resources and capabilities to create a competitive advantage
network cooperative strategy
A cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared objectives
Stable alliance network
-Long term relationships that often appear in mature industries where demand is relatively constant and predictable
-Stable networks are built for exploitation of the economies (scale and/or scope) available between the firms
Dynamic alliance network
-Arrangements that evolve in industries with rapid technological change leading to short product life cycles.
-Primarily used to stimulate rapid, value-creating product innovation and subsequent successful market entries.
-Purpose is often exploration of
Competitive Risks of Cooperative Strategies:
-Partners may act opportunistically.
-Partners may misrepresent competencies brought to the partnership.
-Partners fail to make committed resources and capabilities available to other partners.
-One partner may make investments that are specific to the al
Compeititve Risks
-Inadequate contracts
-Misrepresentation of competencies
-Partners fail to use their complementary resources
-Holding alliance partner's specific investments hostage
Risk and Asset Managment Approaches
Detailed contracts and management
Developing trusting relationships
Desired outcome
creating value
Managing Cooperative Strategies
Cost Minimization Management Approach:
-Have formal contracts with partners.
-Specify how strategy is to be monitored.
-Specify how partner behavior is to be controlled.
-Set goals that minimize costs and to prevent opportunistic behavior by partners
Managing Cooperative Strategies
Opportunity Maximization Approach:
-Maximize partnership's value-creation opportunities
-Learn from each other
-Explore additional marketplace possibilities
-Maintain less formal contracts, fewer constraints