Chapter 9

Cooperative
Strategy
Dr. Farhana Ferdousi
Associate Professor
Department Of Business Administration
 Cooperative Strategy

Cooperative strategy is 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
competition
Strategic Alliance
A strategic alliance is a
cooperative strategy in which
 firms combine some of their
resources and capabilities
 to create a competitive
advantage
A strategic alliance involves
 exchange and sharing of
resources and capabilities
 co-development or distribution
of goods or services
 Strategic Alliance
Firm A Firm B
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies

Combined

Resources
Capabilities
Core Competencies

Mutual interests in designing, manufacturing,

or distributing goods or services
 Types of Cooperative Strategies
• Joint venture: two or more
firms create an independent
company by combining parts of
their assets
• Equity strategic alliance:
partners who own different
percentages of equity in a new
venture
• Non-equity strategic alliances:
contractual agreements given to
a company to supply, produce,
or distribute a firm’s goods or
services without equity sharing
Reasons for Strategic Alliances by Market
Type
Slow Cycle Fast Cycle
• Gain access to a • Speed up development
restricted market of new goods or service
• Establish a franchise in • Speed up new market
a new market entry
• Maintain market • Maintain market
stability (e.g., leadership
establishing standards) • Form an industry
technology standard
• Share risky R&D
expenses
• Overcome uncertainty
Reasons for Strategic Alliances by Market
Type
Standard Cycle
• Gain market power (reduce industry overcapacity)
• Gain access to complementary resources
• Establish economies of scale
• Overcome trade barriers
• Meet competitive challenges from other competitors
• Pool resources for very large capital projects
• Learn new business techniques
 Business-Level Cooperative Strategies
Complementary Strategic
Alliances
 designed to take advantage of
market opportunities by
combining partner firms’ assets
in complementary ways to create
new value

 these include distribution,

supplier or outsourcing alliances
where firms rely on upstream or
downstream partners to build
competitive advantage
 Business-Level Cooperative Strategies
Complementary Strategic Alliances
M
ar
gin gin
ar
M
Technological Development
• vertical complementary
Human Resource Mgmt.

Service
Support Activities

strategic alliance is formed

Firm Infrastructure

Marketing & Sales

Buyer
Procurement

Outbound Logistics

Operations
between firms that agree to
Inbound Logistics use their skills and
capabilities in different
Vertical Alliance

Primary Activities

stages of the value chain to

M
ar
gin
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gin create value for both firms
M
• outsourcing is one
Technological Development
Human Resource Mgmt.

Service
example of this type of
Support Activities

Firm Infrastructure

Marketing & Sales

Supplier alliance
Procurement

Outbound Logistics

Operations
Inbound Logistics

Primary Activities
 Business-Level Cooperative Strategies
Complementary Strategic Alliances
Buyer Horizontal Alliance Supplier
Potential Competitors
M M
ar ar
gin gin gin gin
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M M
Technological Development

Technological Development
Human Resource Mgmt.

Human Resource Mgmt.

Service Service
Support Activities

Support Activities
Firm Infrastructure

Firm Infrastructure
Marketing & Sales Marketing & Sales
Procurement

Procurement
Outbound Logistics Outbound Logistics
Operations Operations
Inbound Logistics Inbound Logistics

Primary Activities Primary Activities

• horizontal complementary strategic alliance is formed between partners who agree

to combine their resources and skills to create value in the same stage of the value
chain
• focus on long-term product development and distribution opportunities
• the partners may become competitors
• requires a great deal of trust between the partners
 Business-Level Cooperative Strategies
Competition Response Uncertainty Reducing
Alliances Alliances
• occur when firms join • used to hedge against risk
forces to respond to a and uncertainty
strategic action of another
competitor • most noticed in fast-cycle
markets
• because they can be difficult
to reverse and expensive to • alliance may be formed to
operate reduce the uncertainty
associated with developing
• primarily formed to respond new product or technology
to strategic rather than standards
tactical actions
 Business-Level Cooperative Strategies
Competition Reducing Alliances
• created to avoid destructive or excessive competition
• explicit collusion exists when firms directly negotiate production
output and pricing agreements in order to reduce competition
(illegal)
• 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
• mutual forbearance is a form of tacit collusion in which firms avoid
competitive attacks against those rivals they meet in multiple
markets
• competition reducing strategic alliances may require governments to
find ways to permit collaboration among rivals without violating
antitrust laws
 Corporate-Level Cooperative Strategies
• Corporate-level cooperative
strategies are designed to facilitate
product and/or market
diversification
- diversifying strategic alliance
- synergistic strategic alliance
- franchising
• Diversifying alliances and
synergistic alliances allow firms
- to grow and diversify their
operations
- through a means other than a
merger or acquisition
 Corporate-Level Cooperative Strategies
Diversifying Alliances Synergistic Alliances
• allows a firm to expand into • create joint economies of
new product or market areas scope between two or
without completing a merger more firms
or an acquisition
• provides some of the potential • create synergy across
synergistic benefits of a multiple functions or
merger or acquisition multiple businesses
• less risk and greater levels of between partner firms
flexibility
• permits a “test” of whether a
future merger between the
partners would benefit both
parties
Corporate-Level Cooperative Strategies
Franchising
• spreads risks and uses resources,
capabilities, and competencies
without merging or acquiring
another company
• contractual relationship
concerning the franchise that is
developed between two parties, the
franchisee and the franchisor
• an alternative to pursuing growth
through mergers and acquisitions
 Corporate-Level Cooperative Strategies
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
 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
 Network Cooperative Strategies
• wherein several firms agree to form multiple
partnerships to achieve shared objectives
– stable alliance network
– dynamic alliance network
• Effective social relationships and interactions
among partners are keys to a successful
 Network Cooperative Strategies
Stable Alliance Network Dynamic Alliance Network
• long term relationships that • arrangements that evolve in
often appear in mature industries with rapid
industries where demand is technological change
relatively constant and leading to short product life
predictable cycles

• stable networks are built • primarily used to stimulate

for exploitation of the rapid, value-creating
economies available product innovations and
between firms subsequent successful
market entries

• purpose is often exploration

 Competitive Risks with Cooperative
Strategies
• Partner may act opportunistically
• Misrepresentation of competencies brought to the
partnership
• Partner fails to make committed resources and
capabilities available to its partners
• Firm may make investments that are specific to
the alliance while its partner does not
Risk and Asset Management Approaches
• Manage the balance between learning from partners
while protecting knowledge and sources of competitive
advantages from excessive learning by partners
• Assign managerial responsibility for a firm’s cooperative
strategies to a high-level executive or team
• Specify resources and capabilities that will be shared and
those that will not be shared (detailed contracts and
monitoring)
• Develop trusting relationships
Approaches for Managing Cooperative
•
Strategies
Cost minimization
– formal contracts specify how the cooperative strategy is
to be monitored and how partner behavior is to be
controlled
• Opportunity maximization
– maximize partnership’s value-creation opportunities
– partners take advantage of unexpected opportunities to
learn from each other and to explore additional
marketplace possibilities
– fewer formal, limiting, contracts
Competitive Risks with Cooperative
Strategies
Risk and Asset Desired
Competitive
Management Outcome
Risks
Approaches

• Creating value
• Above-average
returns