Chapter 9 - Cooperative Strategy

Assessing Corporate-Level Business Strategies

- Broader and more complex than business-level strategies - makes them relatively more challenging and costly to use -Internalizing successful alliance experiences increases likelihood the strategy will attain the desired advantages - aka those involved with forming and using corporate-level strategies can also use them to develop useful knowledge about how to succeed in the future - Additional competitive advantage for those firms who manage their corporate level strategy in ways that are valuable, rare, imperfectly imitable, and non-substitutable

Standard-Cycle Markets

- alliances are likely between partners that have complementary resources and capabilities Use alliances to: -Gain market power (reduce industry overcapacity) - Gain access to complementary resources - Establish better economies of scale - Overcome trade barriers - Meet competitive challenges from other competitors - Pool resources for very large capital projects - Learn new business techniques

Fast-Cycle Markets

- unstable, unpredictable, and complex - aka hyper-competitive - "collaboration" mindset is essential Use alliances to: - speed up development of new goods/services - speed up new market entry - maintain market leadership - Form industry technology standard - Share risky R&D expenses - overcome uncertainty

Competitive Risks of Cooperative Strategy

1. Firm may act in a way that its partner thinks is opportunistic 2. Firm may have misrepresented the competencies it can bring to a partnership 3. Firm may fail to make available to its partners the resources and capabilities (such as the most sophisticated technologies) that it committed to the cooperative strategy 4. Firm may make investments that are specific to the alliance while its partner does not

4 Factors Affecting Trust

1. Initial Condition 2. Negotiation Process 3. Reciprocal experience 4. Outside Behavior

Managing Cooperative Strategies

Important means of growth and enhanced performance but strategies are difficult to manage Assigning responsibility for a firm's cooperative strategies to a high-level executive or to a team improves the likelihood the strategy will be well managed Firms must learn how to manage both tangible and intangible assets (such as knowledge) that are involved with a cooperative arrangement - sometimes fail to focus on intangible

Slow-Cycle Markets

Use alliances to: - gain access to a restricted market - establish a franchise in a new market - maintain market stability (ex:establishing standards) Rare in todays competitive landscape due to: - privatization of industries and economies - raid expansion of internet capabilities results in quick dissemination of info. - rapid advancements in technology make it easy to recreate even complex products

Diversifying Strategic Alliance

a strategy in which firms share some of their resources and capabilities to engage in product and/or geographic diversification EX: - Samsung uses diversifying alliances to reduce its dependence on Google's Android operating system for mobile phones after Google purchased a potential competitor, Motorola - simultaneously the company uses diversifying alliances to get new hardware parts and major software inputs

Network Cooperative Strategy

a strategy where several firms agree to form multiple partnerships for the purpose of achieving shared objectives - Firms in networks tend to be more innovative, they have access to more information Disadvantages: - Can be locked into partnerships, precluding the development of alliances with others - Burden of having to help other firms whenever support is required

Horizontal Complementary Alliances

alliance in which firms share some of the resources and capabilities from the same stage (or stages) of the value chain for the purpose of creating a competitive advantage - *focused on joint long-term product development and distribution opportunities* Ex: Hulu is a joint website that Comcast, News Corp., and Walt Disney Company formed for the purpose of distributing video content - Alliance partners provide content (one vertical stage of the value chain) to Hulu for distribution (another part of the value chain)

Non-Equity Strategic Alliance

alliance involving two firms that develop a contractual relationship to share some resources/capabilities to create a competitive advantage - do not establish separate independent company and therefore do not take equity positions - less formal, fewer partner commitments, dont foster strong relationships with partners - bad for complex projects - good for projects such as licensing agreements, distribution agreements, and supply contracts

Trust

an increasingly important aspect of successful cooperative strategies. Firms place high value on opportunities to partner with companies known for their trustworthiness. When trust exists, a cooperative strategy is managed to maximize the pursuit of opportunities between partners. Without trust, formal contracts and extensive monitoring systems are used to manage cooperative strategies. In this case, the interest is "cost minimization" rather than "opportunity maximization

Competition Response Strategy

business level strategic alliances used to respond to competitor's attacks - Primarily focused to take strategic rather than tactical actions and to respond to competitor's actions in a like manner EX: Redbox $1/day movie rentals were significantly affected by competitors that provided streaming video content such as Netflix, Amazon, and Hulu - Redbox signed a strategic partnership with Verizon to launch a streaming video service

Complementary Strategic Alliances

business-level alliances in which firms share some of their resources and capabilities in a complementary way for the purpose of creating a competitive advantage 2 types - Vertical and Horizontal

Strategic Alliance

cooperative strategy in which firms combine some of their resources and capabilities for the purpose of creating a competitive advantage - firms use to leverage their existing resources/capabilities while working with partners to develop additional resources Cooperative behaviors for successful alliance: - actively solve problems - trustworthiness - consistently pursue ways to combine partners and resources

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 - Results in production output that is below fully competitive levels and above fully competitive prices - Firms engaging do not directly negotiate output and pricing decisions - Used as a competition-reducing business-level strategy in industries with a high degree of concentration Ex- the airline industry - Research suggests that their competitive actions and responses significantly affect competitor's behavior towards them

Explicit Collusion

exists when two or more firms negotiate directly to jointly agree about the mount to produce as well as the prices for what is produced - Illegal in the United States and most developed economies - Competitors and regulatory bodies might challenge the acceptability of their competitive actions

Business-Level Cooperative Strategy

firm forms when it believes that combining some of its resources and capabilities with those of one or more partners will create a competitive advantage the firm can't create by itself and will lead to success in specific market

Cooperative Strategy

firms collaborate for the purpose of working together to achieve a shared objective - strategy used to create value for a customer it likely couldn't create by itself - Collaborative Advantage: relationship between collaborating partners is the basis for which competitive advantage is formed EX: Fiat and Chrysler - equity alliance where Fiat has a significant ownership position in Chrysler, Chrysler will now produce Fiats in the USA

Vertical Complementary Alliances

firms share some of their resources and capabilities from different stages of the value chain for the purpose of creating a competitive advantage - Often formed in order to adapt to environmental changes, sometimes the changes represent an opportunity for partnering firms to innovate while adapting

Uncertainty-Reducing Strategy

firms use business level strategic alliance to hedge against risk and uncertainty (especially in fast cycle markets) also used when uncertainty exists - such as when entering a new market or those of emerging economies

Cross-Border Corporate Alliance

firms with headquarters in different countries decide to combine some of their resources and capabilities for the purpose of creating a competitive advantage - Use when there are limited domestic growth opportunities and foreign governmental economic policies - *Research shows that firms with foreign operations have longer survival rates than domestic-only firms* - Shows importance of learning how to geographically diversify into international markets

Mutual Forbearance

form of tacit collusion where firms do not take a competitive action against rivals they met in multiple markets - given what they know about competitors, firms choose not to engage in what could be destructive competition in multiple product markets

Stable Alliance Network

formed in mature industries where demand is relatively constant/stable. - firms try and to extend their competitive advantages to other settings while continuing to profit from operations at their core, relatively mature industry - built primarily to exploit the economies (scale and/or scope) that exists between the partners

Outsourcing

leads many firms to introduce modularity, so the contract producer only generates part of the whole product - prevents the contracting partner/outsourcee from gaining too much knowledge or from sharing private aspects of the business - associated with Non-equity alliances

Cooperative Strategy & Failure

many cooperative strategies fail - 2/3 have serious problem in first 2 years - 50% end up failing failure can be a valuable learning experience and can be used to gain valuable insights on how to manage future cooperative arrangements

Alliance Network

set of strategic alliance partnerships firms develop when using a network cooperative strategy - in a network, cooperative strategy firms gain access to their partners' other partners. - Access to many collaborations increases the likelihood that additional competitive advantage will be formed as a set of shared resources and capabilities expands

Joint Venture

strategic alliance in which two or more firms create a legally independent company to share resources/capabilities to develop competitive advantage - partners own equal % and contribute equally to joint ventures operations - often formed in order to compete in uncertain environments such as an economic downturn **EFFECTIVE IN ESTABLISHING LONG-TERM RELATIONSHIPS AND TRANSFERRING TACIT KNOWLEDGE***

Synergistic Strategic Alliance

strategy in which firms share some of their resources and capabilities to create economies of scope - Create synergy across multiple functions or multiple businesses between partner firms - Corporate synergistic alliances can be carried out at the same time as their "twin", complementary alliances at the business-unit level - Without economies of scope at business level strategy, the probability for success for all companies involved is reduced

Corporate-Level Cooperative Strategy

strategy through which a firm collaborates with one or more companies for the purpose of expanding its operations -diversifying alliances - synergistic alliances - franchising

Franchising

strategy where the firm (the franchisor) uses a franchise as a contractual relationship to describe and control the sharing of its resources and capabilities with its partners (the franchisees) - Success is determined by how well the franchisors can replicate its success across multiple partners in a cost-effective way - Alternative to pursuing growth through mergers and acquisitions Particularly attractive in fragmented industries - retailing, hotels and motels, and commercial printing

Equity Strategic Alliance

two or more firms own different % of company they have formed by combining some resources and capabilities for the purpose of creating a competitive advantage - message used by many foreign direct investments in China by multinational coroprations - used for capital infusions and for changing ones strategy

Dynamic Alliance Networks

used in industries characterized by frequented product innovations and short product life cycles partners explore new ideas and possibilities with the potential to lead to: 1. product innovations 2. entry to new markets 3. the development of new markets *important outcome for small firms that successfully partnered with larger firms - the credibility they build by being associated with their larger collaborators