Strategy Final Chapter 9 Cooperative Strategy
Strategic alliance
- A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage - Involves the exchange and sharing of resources and capabilities to co-develop or distribute goods and services - Requires cooperative behavior from all partners
International Strategic Alliance
- Allows risk sharing by reducing financial investment - Host partner knows local market and customs - International alliances can be difficult to manage due to differences in management styles, cultures, or regulatory constraints - Must gauge partner's strategic intent such that the partner does not gain access to important technology and become a competitor
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 Strategy
- 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
Network Cooperative Strategies: Dynamic Alliance Network
- 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 new ideas
Diversifying Strategic Alliance
- Expand into new product or market areas without completing a merger or an acquisition - Synergistic benefits over a merger or acquisition less risk greater flexibility - Assess benefits of future merger between the partners
Vertical Complementary Alliances
- Firms agree to use their skills and capabilities in different stages of the value chain to create value for both firms - Outsourcing
Synergistic Strategic Alliance
- Joint economies of scope between two or more firms - Synergy across multiple functions or multiple businesses between partner firms
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
Horizontal Complementary Alliances
- Partners combine resources and skills to create value in the same stage of the value chain - Focus is on long-term product development and distribution opportunities - Partners may become competitors
Competitive Risks
- 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 alliance while its partner does not
Equity Strategic Alliance
- Partners who own different percentages of equity in a separate company they have formed
Franchising
- Spreads risks and uses resources, capabilities, and competencies without merger or acquisition - A contractual relationship (the franchise) is developed between the franchisee and the franchisor - Alternative to growth through mergers and acquisitions
Joint Venture
- Two or more firms create a legally independent company by sharing some of their resources and capabilities
Cross-Border Strategic Alliance
- a strategy in which firms with headquarters in different countries decide to combine some of their resources to create a competitive advantage - a firm may form cross-border strategic alliances to leverage core competencies that are the foundation of its domestic success to expand into international markets
Nonequity Strategic Alliance
- two or more firms develop a contractual relationship to share some of their unique resources and capabilities
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.
Network Cooperative Strategy
A cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared objectives - Stable alliance network - Dynamic alliance network Keys to a successful network cooperative strategy - Effective social relationships - Interactions among partners
Cooperative Strategy
A strategy in which firms work together to achieve a shared objective.
Assessment of Corporate-Level Cooperative Strategies
Compared to business-level strategies - Broader in scope - More complex - More costly Can lead to competitive advantage and value when: - Successful alliance experiences are internalized - The firm uses such strategies to develop useful knowledge about how to succeed in the future
Managing Cooperative Strategies
Cost minimization management approach Formal contracts with partners Specify: - How strategy is to be monitored - How partner behavior is to be controlled Goals that minimize costs and prevent opportunistic behavior by partners
Successful 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 Competitive advantage developed through a cooperative strategy is called a collaborative or relational advantage
A major risk of a network cooperative strategy is that firms gain access to their partner's partners thus exposing their proprietary processes to loss or theft.
False
Acquisitions are the most common cooperative strategy used in standard-cycle markets.
False
In the cost minimization approach to managing competitive strategies, the relationship between the firms is based on trust of the other partner.
False
Network Cooperative Strategies: Stable Alliance Network
Long term relationships - mature industries where demand is - relatively constant - predictable Stable networks exploit economies (scale and/or scope) available between the firms
Assessment of Cooperative Strategies
More Proactive Complementary business-level strategic alliances, especially the vertical ones, have the greatest probability of creating a sustainable competitive advantage. Horizontal complementary alliances are sometimes difficult to maintain because they are often between rival competitors. More Reactive Competitive advantages gained from competition and uncertainty reducing strategies tend to be temporary.
Managing Cooperative Strategies—cont'd
Opportunity maximization approach - Maximize partnership's value-creation opportunities - Learn from each other -Explore additional marketplace possibilities - Less formal contracts, fewer constraints
Why are strategic alliances becoming so important?
Proliferation of knowledge (e.g., pharmaceutical industry) -leads to increasing specialization, requires collaboration across companies Converging industry boundaries (e.g., telecommunications industry) - requires collaborations across industries
Collusion is a form of cooperative strategy.
True
Firms consider entering international alliances because multinational firms outperform firms operating only in their home markets.
True
Research in the airline industry suggests that tacit collusion reduces service quality and on-time performance.
True
Strategic alliances are cooperative strategies between firms that combine their resources and capabilities to create a competitive advantage.
True
The cost minimization approach of managing alliances is more expensive to put into place and to use than is the opportunity maximization management approach.
True
Strategic alliances have become the cornerstone of many firms' competitive strategy, particularly large global competitors.
True, think Starbucks
Firms in a standard-cycle market may form alliances in order to
capture economies of scale.
A strategy in which firms work together to achieve a shared objective is a
cooperative strategy
A _______ cooperative strategy helps the firm diversify in terms of products offered, markets served, or both.
corporate-level
The alliance between Nokia and Microsoft calls for Nokia to transition its smartphone portfolio to Microsoft's Windows phone platform. This is an example of using an alliance in a _________ to speed up development of new products and services.
fast-cycle market
In a(n) __________, two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.
joint venture
A competitive advantage that is developed through a cooperative strategy is called a collaborative or a(n) ___________ advantage.
relational
Firms in ___________ markets cooperate to pool resources and gain market power.
standard-cycle
The cooperation between Fiat and Chrysler to produce a Fiat-designed car in Chrysler's Illinois factory is a(n) _____________ alliance because it allows the firms to share resources and capabilities across multiple functions.
synergistic
A ______________ is a strategy in which firms share some of their resources and capabilities to create economies of scope and is similar to the business-level horizontal complementary alliance.
synergistic strategic alliance
A nonequity strategic alliance exists when
two or more firms have a contractual relationship to share resources and capabilities.
A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and vineyard growing rare strains of fruit. This is a(n) ________ strategy.
vertical complementary