Collaborating with Competitors

Introduction Alliances among competitors can introduce considerable risks.  in 1995, U.S. companies lost $50 billion a year for collaborating with foreign competitors Alliances among competitors are also more popular than before. Lots of companies try to collaborate with competitors  gaining future benefits Ray Noorda created a new term to describe the process of collaborating with a competitors called “co-opetition.”

Introduction (Con’t) Alliances involving co-opetition come in a variety forms and touch virtually all industries.  For example, by reinventing the new modern camera, Arch- rivals Eastman Kodak and Fuji Photo Film together with other companies spent a large amount of money, $1 billion into 10 years, for researching program.  Another example, Pillsbusy, Kellogg, and Nabisco, they all joined together and worked with online grocery pioneer Webvan in order to learn how to sell their food products online.

 Reasons for Co-opetition is important The rise of the Internet and the concomitant need for competitors to come together to define and expand a new market. The industry boundaries’ blur  Drivers of Co-opetition The speed and uncertainty of change  Company should not only think one point of view  All aspects that may affect to them including competitors, non-competitors, and the degree of competitive threat.

 Drivers of Co-opetition (Con’t) To identify the future strategic direction of current and new competitors, companies can use a broad radar screen to help them. There are 3 main drivers motivate companies collaborating among rival:  Setting standards  Sharing risks  Entering emerging markets

 Four emerging reasons that accelerate the prevalence of co- opetition : 1.Expanding product lines 2.Reducing costs 3.Gaining market share 4.Creating new skills.

1.) Expanding Product Lines It brings companies to form alliances  entering a new alliance create new potential competitors For example, First Union alliances with Charles Schwab in order to differentiate its bank from others and provide its potential customers with OneSource, a one-stop financial service provider. But Schwab was not a traditional bank, it was a broad financial service product portfolio. In addition, the partners, Schwab, may form the co-opetition and manage it in the future.

2. Reducing Costs  Alliances with direct competitors help reduce costs in term of assets because they use similar type of assets or raw materials.  Rises in use in the middle to late 1990s  Many of these ventures were in traditional, capital- intensive industries such as machinery, oil, gas, and chemicals.  For example, Sony and Erricson, combined their mobile handset businesses to reduce cost and also try to become more competitive against cell-phone leaders like Nokia and Motorola.

3.) Gaining Market Share  Companies formed alliance to create greater, powerful network in order to increase in market share  For example, in the multipartner joint ventures in the auto and retail industries to create online business-to-business exchanges.  The reason that direct competitors like DaimlerChrysler, Ford, and General Motors or Carrefour and Sears Roebuck have been willing to work with one another is that such alliances are the only way to attract a large number of suppliers, customers and hence create the scale and network effects needed for success.  However, they have to manage these relationships as co-opetition.

4.) Creating New Businesses  Many alliances are formed in order to combine complementary capabilities and create new sets of skills. For example, MSNBC, the joint venture between NBC and Microsoft in the online and capable news business  NBC continued contributed traditional broadcasting skills and assets to the alliance, while Microsoft added substantial online and technical expertise  As a result, they aimed to create skills in a new medium that merged TV and computing  Thus, Microsoft had been expanding into the communications business, with alliances with Comcast and AT&T, and NBC had been moving outside traditional broadcasting  Therefore, the managers need to form this alliance as a form of co-opetition

Managing the Risks of Co- opetition  As a general rule, co-opetition does not create so much new risks as it intensifies risks found in other alliances. . However, in alliances between competitors the chances of this outcome increase ; the creation of essentially free competitive benefits for the partner.  The reason:  partner has similar business industry

Managing the Risks of Co- opetition  How do the companies manage these and other risks?  risk an alliance introduces, the more likely the firms are to use an equity-based structure  found that a period relationship  There are five common risks in co-opetition  Technology Leakage  Telegraphing Strategic Intention  Customer Defection  Slow Decision Making  Business or Asset Fire Sale

Managing the Risks of Co- opetition  Risks1: Technology Leakage  A common risk in co-optetion is the company’s core technology or process will fall into a competitors’ hands.  Reducing such risk means controlling information.

Risk 2: Telegraphing Strategic Intention  The telegraphing strategic intention is a risk that alliances with competitors can tip a partner off as to the firm’s future strategic plans.  To be able to avoid telegraphing strategic intention, the alliances must provide better managing information flows.

Risk 3: Telegraphing Strategic Intention  This type of risks usually occurs because companies share the contract of their customer with their current or potential competitors.  To avoid this risk, the alliance must limit the threat of customer defection by allowing partners access to customers only when selling a jointly owned product. Second, the alliances must allow customer contact only when the alternatives are few.

Risk 4: Slow Decision Making  Alliances with competitors are more likely than other alliances to result in slow decision making, shallow cooperation, or even abandonment. An example case: General Electric and Rolls Royce.  To avoid slow decision making: - focus their efforts at different points along the value chain. In simpler word “do what you are doing well” E.g. Pharmaceutical firms - Concentrate on the basics of sound decision making

Risk 5: Business or Asset Fire Sale  The risk of a fire sale is that the firm will be forced to sell its interest in the alliance at a below-market price.  80% of all joint ventures are acquired by one of the partners within 7 years and most likely to happen if your partner is your competitor.  To avoid falling into a fire sale: - Follow an independent joint venture structure - Small companies should avoid traditional joint ventures with larger companies - Never agree on the joint venture altogether!