CHAPTER 7

COOPERATIVE STRATEGY

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 Introduction
• Cooperative strategy is the attempt by organizations to
realize their objectives through cooperation with other
organizations, rather than in competition with them.
• It focuses on the benefits that can be gained through
cooperation and how the management of cooperation can
realize these benefits.
• A cooperative strategy can offer significant advantages
for companies or public authorities that lack significant
competencies, resources or opportunities.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 Learning Objectives
• Understand the strategic alliances
• Name the business-level cooperative strategy
• Identify the corporate-level cooperative strategy
• Define the international strategy
• Analyze the network cooperative strategy
• Managing competitive risks with cooperative strategies

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

Strategic Alliances

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 Strategic Alliances as a Primary
Type of Cooperative Strategy

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

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 TYPES OF MAJOR STRATEGIC ALLIANCES

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 different percentages of the
company they have formed by combining some of their resources and
capabilities for the purpose of creating a competitive advantage.
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.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 REASONS FIRMS 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 could
not develop by acting independently
• Collaborative strategies are particularly valuable for small firms with
constrained resources for reaching new customers and broadening their
distribution channels

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 REASONS FIRMS DEVELOP STRATEGIC ALLIANCES

The competitive market conditions:

Slow-cycle markets – firm’s competitive advantages are shielded from imitation
for relatively long periods of time and where imitation is costly.
Fast-cycle markets - Firm’s competitive advantages are not shielded from
imitation, preventing their long-term sustainability; hypercompetitive, unstable,
unpredictable, and complex.
Standard-cycle markets – Competitive advantages are moderately shielded from
imitation in these markets, typically allowing them to be sustained for a longer
period of time than in fast-cycle market situations, but for a shorter period of time
than in slow-cycle markets.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

BUSINESS-LEVEL COOPERATIVE
STRATEGY

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 BUSINESS-LEVEL COOPERATIVE STRATEGY

BUSINESS-LEVEL COOPERATIVE STRATEGY: firms combine some of

their resources and capabilities for the purpose of creating a competitive
advantage by competing in one or more product markets.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 BUSINESS-LEVEL COOPERATIVE STRATEGY

1. Complementary Strategic Alliances

• Firms share some of their resources and capabilities in
complementary ways to develop competitive advantages.
• Two forms include vertical and horizontal

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 COMPLEMENTARY STRATEGIC ALLIANCES

Vertical Complementary Strategic Alliance

• Partnering firms share resources and capabilities from different stages
of the value chain to create a competitive advantage.
Horizontal Complementary Strategic Alliance
• Partnering firms share resources and capabilities from the same stage
of the value chain to create a competitive advantage.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 BUSINESS-LEVEL COOPERATIVE STRATEGY

2. Competition Response Strategy

Competitors
• Initiate competitive actions to attack rivals
• Launch competitive responses to their competitor’s actions
Strategic alliances
• Can be used at the business level to respond to competitor’s attacks
• Can be difficult to reverse, expensive to operate

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 BUSINESS-LEVEL COOPERATIVE STRATEGY

3. Uncertainty Reducing Strategy

• Uncertainty is reduced by combining knowledge and capabilities
4. Competition Reducing Strategy
• Created to avoid destructive or excessive competition

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

CORPORATE-LEVEL COOPERATIVE
STRATEGIES

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 CORPORATE-LEVEL COOPERATIVE STRATEGIES

CORPORATE-LEVEL COOPERATIVE STRATEGY is a strategy through

which a firm collaborates with one or more companies for the purpose of
expanding its operations.
1. Diversifying Strategic Alliance
• Firms share some of their resources and capabilities to diversify into new
product or market areas
• Allows a firm to expand into new product or market areas without completing
a merger or acquisition
2. Franchising
• Firm uses a franchise as a contractual relationship to describe and control the
sharing of its resources and capabilities with partners.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

INTERNATIONAL COOPERATIVE
STRATEGY

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 INTERNATIONAL COOPERATIVE STRATEGY

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.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

NETWORK COOPERATIVE STRATEGY

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 NETWORK COOPERATIVE STRATEGY

Network cooperative strategy: a cooperative strategy wherein several

firms agree to form multiple partnerships to achieve shared objectives.
• Stable Alliance Network – Stable networks are built for exploitation
of the economies available between the firms.
• Dynamic Alliance Network – Primarily used to stimulate rapid, value-
creating product innovation and subsequent successful market entries.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

Managing competitive risks with
cooperative strategies

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

 MANAGING COOPERATIVE STRATEGIES

1. Cost minimization
• Relationship with partner is formalized with contracts
• Costs of monitoring cooperative strategy are greater
2. Opportunity maximization
• Focus: maximizing partnership's value-creation opportunities
• 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.

© Hitt, Ireland and Hoskisson, 2017, published by South-Western Cengage Learning

THANK YOU   