Chapter 9
business level cooperative strategies
-complementary strategic alliances (vertical and horizontal) -competition response strategy -Uncertainty reducing strategy -Competition reducing strategy
two basic approaches to managing cooperative strategies are
-cost minimization -opportunity maximization
other types of non equity strategic alliances
-licensing -distribution agreements -supply contracts -marketing agreements
Reasons firms develop strategic alliances
-tech companies cannot acquire the technology they need fast enough, so partnering becomes essential. -the most powerful trend in American business in a century -allow partners to create value that they couldn't develop by acting independently -to enter markets more quickly than they could without a partner.
Franchising
a corporate level cooperative strategy used by a franchisor to describe and control the sharing of its resources and capabilities. A franchise refers to a contract between two legally independent companies that allows the franchisee to sell the franchisor's product or do business under its trademarks over a given time and location.
Cooperative strategy
a stratedy in which firms work together to achieve a shared objective. Third major alternative (internal growth and mergers and acquisitions are the other two) firms use to grow, develop value-creating competitive advantages, and create differences between them and competitors.
Joint venture
a type of strategic alliance where new, independent firm is formed form tow or more partners, with each partner firm contributing some of their resources and capabilities. Effective in establishing long-term relationships and in transferring tacit knowledge. BC it can't be codified, tacit knowledge is through experiences such as those taking place when people from partner firms work together
Equity strategic alliance
alliance where partner firms own unequal shares of equity in a venture, formed by combining some of their resources and capabilities to create a competitive advantage.
non-equity strategic alliance
alliance where tow or more firms contract to share some of their resources and capabilities to create a competitive advantage. -firms do not establish a separate independent company and therefor don't take equity positions. -these are less formal and demand fewer partner commitments -these are unsuitable for complex projects requiring effective transfers of tacit knowledge between partners.
Synergistic strategic alliance
allow firms to combine some of their resources and capabilities to create joint economies of scope between partner firms. These alliances: -are similar to business level horizontal complementary strategic alliances at the business level -create synergy across multiple functions or multiple businesses.
Horizontal complementary strategic alliance
an arrangement that links similar segments of competing firms' value chains, such as linking R&D or new product development activities. used to increase firms competitive advantage and often focus on the long-term development of product and service technology. may require equal investments of resources by the partners but they rarely provide equal benefit to the partners. BC -the partners have different opportunities as a result of the alliance. -partners may learn at different rates and have different capabilities to leverage the complementary resources provided in the alliance. -some firms are more effective in managing alliances and in deriving the benefits from them. -the partners may have different reputations in the market thus differentiating the types of actions firms can legitimately take in the marketplace
cross-border strategic alliance
an international cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage. Reasons for the increasing use of cross-border strategic alliances: -multinational cooperations outperform firms operating on only a domestic basis -a firm can form cross-border strategic alliances to leverage core competencies that are the foundation of its domestic success to expand into international markets. -limited domestic growth opportunites also cause firms to form cross-border alliances -government economic policies -strategic alliances with local partners can help firms overcome certain liabilities of moving into a foreign country, such as lack of knowledge of the local culture or institutional norms. -firms also use cross-border alliances to help transform themselves to better use their competitive advantages to exploit opportunities surfacing in the rapidly changing global economy.
Alliance network types: Stable alliance networks
appear in mature industries with predictable market cycles and demand. through this, firms try to extend their competitive advantages to other settings while continuing to profit from operations in their core, relatively mature industry.
Collusive strategy
cooperative strategy through which two or more firms cooperate to raise prices above the fully competitive level.
Coporate-level cooperative strategy
designed to facilitate product and market diversification through a means other than a merger and acquisition.
fast cycle markets
entrepreneurial and dynamic with new products or services imitated rapidly. Cooperative strategies are used to increase the speed of product development or market entry or to improve strategic competitiveness.
tacit collusion
exist when several firms in an industry observe others' competitive actions and respond to reduce industry output below the potential competitive level to maintain higher-than-competitive prices. Tends to be used as a business-level competition-reducing strategy in highly concentrated industries.
Competition - reducing strategy
explicit collusion exists when firms get together to negotiate production output and pricing agreements with the goal of reducing competition. Illegal in the US and most developed economies.
slow-cycle markets
firms in this market often use strategic alliances to enter restricted markets or to establish franchises in new markets (especially global markets) -becoming rare in the 21st century competitive landscape for several reasons. -the privatization of industries and economies, the rapid expansion of the internets capabilities in terms of the quick dissemination of information, and the speed with which advancing technologies make quickly imitating even complex products possible.
diversifying strategic alliance
firms share some of their resources and capabilities to diversify into new product or market ares. Highly diverse networks of alliances can lead to poorer performance by partner firms. Cooperative ventures re also used to reduce diversification in firms that have been over diversified.
Opportunity maximization approach
focuses on a partnership's value-creation opportunities. Partners are prepared to take advantage of unexpected opportunities to learn from each other and to explore additional marketplace possibilities. Less formal contracts, with fewer constraints on partners' behaviors, make it possible for partners to explore how their resources and capabilities can be shared in multiple value-creating ways.
vertical complementary strategic alliance
formed between firms that agree to use their resources and capabilities in different stages of the value chain to create value. often formed in reaction to environmental changes. a critical issue is how much technological knowledge the should share with their partner. part of this decision depends on trust and social capital developed between the partners. links suppliers, manufacturers, and distributors and represents linkages between different segments of each partner's value chain.
Uncertainty reducing strategy.
formed to hedge against risk and uncertainty (especially in fast cycle markets). often used where uncertainty exists such as in entering new product markets or emerging economies.
network cooperative strategy
instead of cooperative alliances being between tow or very few firms, alliances can also be expanded to include a larger number (or network) of partners as a complement to other forms of cooperative strategy. An important advantage of a network cooperative strategy is that firms gain access to the partners of their partners.
competitive risks with cooperative strategies
many fail. -poor contract development that may result in one (or more) of the partners acting opportunistically and taking advantage of other venture partners -misrepresentation on partner firms' competencies by misstating exaggerating an intangible resource such as knowledge of local market conditions -failure of partner firms to make complementary resources available to the venture as agreed -the possibility that a firm may make investments that are specific to that alliance while its partner does not.
competition response strategy
may be established to enable partner firms to respond to major strategic actions initiated by competitors. Because the can be difficult to reverse and expensive to operate, strategic alliances are primarily formed to respond to strategic rather than tactical actions.
standard cycle markets
often large and oriented toward economies of scale. Alliances are more likely to be between partners with complementary resources and capabilities. Companies also may cooperate in standard cycle markets to gain market power.
Dynamic alliance networks
often used in industries with frequent technological innovation and short product life cycles. Primarily used to stimulate rapid, value-creating product innovations and subsequent successful market entries.
strategy alliance
partnership between firms whereby their resources and capabilities are combined to create a competitive advantage. Many firms, especially large global competitors, establish multiple strategic alliances. Success requires cooperative behavior from all partners.
complementary strategic alliances
partnerships that are designed to take advantage of market opportunities by combining partner firms' resources and capabilities in complementary ways so that new value is created.
cost minimization approach
the firm develops formal contracts with its partners. These contracts specify how the cooperative strategy is to be monitored and how partner behavior is controlled. The goal is to minimize the cooperative strategy's cost and to prevent opportunistic behavior by partners
Mutual forbearance
type of tacit collusion by which firms avoid competitive attacks against rivals they meet in multiple markets. Rivals learn a great deal about each other when engaging in multi market competition, including how to deter the effects of their rival's competitive attacks and responses. Given what they know about each other as a competitor, firms choose not to engage in what could be destructive competitions in multiple product markets.
outsourcing
typically takes the form of a non equity strategic alliance. the purchase of a value-creating primary or support activity from another firm.
business level cooperative strategy
used to help the firm improve its performance in individual product markets. there are four business-level cooperative strategies. A firm forms this when it believes combining its resources and capabilities with one or more partners creates competitive advantages that it can't create by itself and that will lead to success in a specific product market.
