1. 1 Cooperative Strategy Chapter 9 Who can we trust?

2. 2 Cooperative Strategy Cooperative strategy is a strategy in which firms Cooperative strategy is a strategy in which firms –work together –to achieve a shared objective Cooperating with other firms is a strategy that 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

3. 3 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

4. 4 CombinedResourcesCapabilities Core Competencies ResourcesCapabilities ResourcesCapabilities Strategic Alliance Firm A Firm B Mutual interests in designing, manufacturing, or distributing goods or services

5. 5 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  Nonequity strategic alliances: contractual agreements given to a company to supply, produce, or distribute a firm’s goods or services without equity sharing

6. 6 CombinedResourcesCapabilities Core Competencies ResourcesCapabilities ResourcesCapabilities Joint Venture Firm A Firm B Firm C

7. 7 Business-Level Cooperative Strategies: ComplementaryAlliances complementary strategic alliances are designed to take advantage of market opportunities by combining partner firms’ assets in complementary ways to create new valuecomplementary strategic alliances are 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 Complementary Strategic Alliances

8. 8 Business-Level Cooperative Strategies: competition response strategic alliances occur when firms join forces to respond to a strategic action of another competitorcompetition response strategic alliances occur when firms join forces to respond to a strategic action of another competitor because they can be difficult to reverse and expensive to operate, competition response strategic alliances are primarily formed to respond to strategic rather than tactical actionsbecause they can be difficult to reverse and expensive to operate, competition response strategic alliances are primarily formed to respond to strategic rather than tactical actions Competition Response Alliances Competition Response Alliances ComplementaryAlliances

9. 9 Business-Level Cooperative Strategies: uncertainty reducing strategic alliances are used to hedge against risk and uncertaintyuncertainty reducing strategic alliances are used to hedge against risk and uncertainty these alliances are most noticed in fast-cycle marketsthese alliances are most noticed in fast-cycle markets alliance may be formed to reduce the uncertainty associated with developing new product or technology standardsalliance may be formed to reduce the uncertainty associated with developing new product or technology standards Uncertainty Reducing Alliances Competition Response Alliances Uncertainty Reducing Alliances ComplementaryAlliances

10. 10 Business-Level Cooperative Strategies: competition reducing strategic alliances may be created to avoid destructive or excessive competitioncompetition reducing strategic alliances may be 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)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 responsestacit collusion exists when several firms in an industry indirectly coordinate their production and pricing decisions by observing each other’s competitive actions and responses Competition Reducing Alliances Competition Reducing Alliances Competition Response Alliances Uncertainty Reducing Alliances ComplementaryAlliances

11. 11 Business-Level Cooperative Strategies: mutual forbearance is a form of tacit collusion in which firms avoid competitive attacks against those rivals they meet in multiple marketsmutual 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 lawscompetition reducing strategic alliances may require governments to find ways to permit collaboration among rivals without violating antitrust laws Competition Reducing Alliances Competition Reducing Alliances Competition Response Alliances Uncertainty Reducing Alliances ComplementaryAlliances

12. 12 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

13. 13 Corporate-Level Cooperative Strategies: DiversifyingAlliances diversifying strategic alliance allows a firm to expand into new product or market areas without completing a merger or an acquisitiondiversifying strategic alliance allows a firm to expand into new product or market areas without completing a merger or an acquisition provides some of the potential synergistic benefits of a merger or acquisition, but with less risk and greater levels of flexibilityprovides some of the potential synergistic benefits of a merger or acquisition, but with less risk and greater levels of flexibility permits a “test” of whether a future merger between the partners would benefit both partiespermits a “test” of whether a future merger between the partners would benefit both parties Diversifying Alliances

14. 14 Corporate-Level Cooperative Strategies: synergistic strategic alliances create joint economies of scope between two or more firmssynergistic strategic alliances create joint economies of scope between two or more firms create synergy across multiple functions or multiple businesses between partner firmscreate synergy across multiple functions or multiple businesses between partner firms SynergisticAlliances Synergistic Alliances DiversifyingAlliances

15. 15 Corporate-Level Cooperative Strategies: franchising spreads risks and uses resources, capabilities, and competencies without merging or acquiring another companyfranchising 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 franchisorcontractual relationship concerning the franchise that is developed between two parties, the franchisee and the franchisor an alternative to pursuing growth through mergers and acquisitionsan alternative to pursuing growth through mergers and acquisitions Franchising Franchising DiversifyingAlliances SynergisticAlliances

16. 16 International 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

17. 17 International Cooperative Strategies  Allows risk sharing by reducing financial investment  Host partner knows local market and customs  International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints  Must gauge partner’s strategic intent so they do not gain access to important technology and become a competitor

18. 18 Competitive Risks with Cooperative Strategies Partner may act opportunisticallyPartner may act opportunistically Misrepresentation of competencies brought to the partnershipMisrepresentation of competencies brought to the partnership Partner fails to make committed resources and capabilities available to its partnersPartner 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 notFirm may make investments that are specific to the alliance while its partner does not