Collaborating with Competitors

Introduction Co-opetition is a new term to describe the process for collaborating with competitors. Even though it is considered very risky, at the same time it can be very effective for the firms. Example: Kodak aligned with Fuji to reinvent the modern camera. Dow Jones aligned with Reuters for greater scale.

Why co-opetition is vital? Internet era which forces competitors to work together to expand a new market. Blurring of industry boundaries where many companies are moving to new industries and seek for innovative way for increasing their capabilities. Example: Microsoft formed alliances with bank sectors because they both see the opportunities for future expansion.

Drivers of co-opetition Radar screen helps in identifying the future strategic direction of both traditional and non traditional competitors.

Drivers of co-opetition After identify the degree of competition of the potential partners, the firm must seek for potential benefits gained from collaborating. Old trends for collaborating Setting standards, Sharing risks, Entering emerging markets 4 new reasons emerged in the late 1990s Expanding product lines, reducing costs, gaining market share, and creating new skills

Expanding product lines To extend their product lines For example: First union aligned with Charles Schwab First union expands its product to a one stop financial service. Charles Schwab expand its service to traditional customers.

Reducing costs Direct competitors tend to own similar types of assets, so combine these assets can help in reducing costs. Sharing assets can be machinery, oil, gas and chemicals. Example: Sony and Ericsson reduced cost by combining their mobile handset businesses. Leads to competitive over Nokia and Motorola.

Gaining market share To increase market share To generate powerful network effects Example: Daimler Chrysler, Ford, General Motor To attract a suppliers and customers, so can create greater scale and network effects.

Creating New Businesses Companies share complementary capabilities and create the new sets of skills. Example: Joint venture between NBC and Microsoft to form a new medium that merged TV and computing together.

Risks of alliance with competitors And now you guys already know why we should do the alliance with competitors. However, you need to be very careful about the following risks also.

Risk 1: Technology Leakage The technology is in the hand of our alliances, which are competitors The alliances can have the competitive advantages and become our No.1 competitor.

Risk 1: Technology Leakage Solutions: need to control the information Limit the scope of the alliance Two companies may share the production line together, but the intellectual properties are still with their own. Do the contacts that clearly define who owns which technologies Create rules for employees that describe what they can and cannot discuss with the partners

Risk 2: Telegraphing Strategic Intention The alliances know our SWOT They can predict the direction that we move They can use them to become their opportunities

Risk 2: Telegraphing Strategic Intention Solutions: need better information management Limit the number of staffs that have direct contact to partners Establishing a separate site for the alliance that is away from the parent company

Risk 3: Customer Defection The alliances are able to have the access to our current and potential customers They steal our customers!

Risk 3: Customer Defection Solutions: Jointly interacting with customers and never yield full contact to the partners demand the “mutually assured destruction,” access to partner customers Allowing partners’ access to customers only when selling a jointly owned product. (not every product)

Risk 4: slow decision making Alliance with competitors usually creates a high level of slow decision making, shallow cooperation or even abandonment. For example, the joint venture between General Electric and Rolls Royce, they join together in order to produce jet engines. - Alliances with competitors usually end up with “a zero-sum game.” This is because if every partner has the same purpose and try to get the same thing, the conflict will occur instead of complementary

Risk 4: slow decision making The companies should focus on their effort at different points along the value chain. They should make an agreement on who are responsible in which area. For example, in Pharmaceutical firms which usually manage their alliance in this way, a small biotech firm develops and produces a drug while a large pharmaceutical company is responsible for selling it.

Risk 5: Business or asset fire sale Alliances between competitors can create the risk of a fire sale, which meaning that the firm will be forced to sell the asset at a below-market price. Then after they are separated, the value of their asset will be lower than the market price because they didn’t have the contract to lock down the asset price during negotiation.

Risk 5: Business or asset fire sale In order to agreeing up front on a sale price, firms should determine other actions to avoid falling into a fire sale. The first one approach is to favor an independent joint venture structure, which can help reduce cost and help increase the interest of other buyers. Another approach is to avoid joint ventures altogether.

Collaborating with Competitors Conclusion and q&a