CHAPTER 9-COOPERATIVE STRATEGY
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Knowledge Objectives
Studying this chapter should provide you with the
strategic management knowledge needed to:
Define cooperative strategies and explain why firms use them.
Define and discuss three types of strategic alliances.
Name the business-level cooperative strategies and describe their
use.
Discuss the use of corporate-level cooperative strategies in
diversified firms.
Understand the importance of crossborder strategic alliances as an
international cooperative strategy.
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Knowledge Objectives (cont’d)
Studying this chapter should provide you with the
strategic management knowledge needed to:
Describe cooperative strategies’ risks.
Describe two approaches used to manage cooperative
strategies.
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The Strategic
Management
Process
Figure 1.1
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Cooperative Strategy
Cooperative Strategy
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
competitors
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Strategic Alliance
A primary type of cooperative strategy in
which firms combine some of their resources
and capabilities to create a mutual
competitive advantage
Involves the exchange and sharing of resources
and capabilities to co-develop or distribute goods
and services
Requires cooperative behavior from all partners
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Strategic Alliance Behaviors
Examples of cooperative behavior known to
contribute to alliance success:
Actively solving problems
Being trustworthy
Consistently pursuing ways to combine partners’
resources and capabilities to create value
Competitive advantage developed through a
cooperative strategy is called a collaborative
or relational advantage
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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
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Three Types of Strategic
Alliances
Joint Venture
Two or more firms create a legally independent
company by sharing some of their resources and
capabilities
Equity Strategic Alliance
Partners who own different percentages of equity
in a separate company they have formed
Non-equity Strategic Alliance
Two or more firms develop a contractual
relationship to share some of their unique
resources and capabilities
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Reasons for Strategic Alliances
Market Reason
Slow Cycle • Gain access to a restricted market
• Establish a franchise in a new market
• Maintain market stability (e.g.,
establishing standards)
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Reasons for Strategic Alliances
(cont’d)
Market Reason
Fast Cycle • Speed up development of new goods
or service
• Speed up new market entry
• Maintain market leadership
• Form an industry technology
standard
• Share risky R&D expenses
• Overcome uncertainty
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Reasons for Strategic Alliances
(cont’d)
Market Reason
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
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Business-Level Cooperative
Strategies
Complementary strategic alliances
Vertical
Horizontal
Competition response strategy
Uncertainty reducing strategy
Competition reducing strategy
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Business-Level Cooperative
Strategies
Figure 9.1
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Business-Level Cooperative
Strategies
Combine partner firms’
assets in complementary
Complementary ways to create new value
Alliances Include distribution,
supplier or outsourcing
alliances where firms rely
on upstream or
downstream partners to
build competitive
advantage
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Vertical Complementary
Strategic Alliances
• Firms agree to use their skills and
capabilities in different stages of
the value chain to create value for
both firms
• Outsourcing
Adapted from Figure 9.2
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Horizontal Complementary
Strategic Alliances
• Partners combine resources and skills to create value in
the same stage of the value chain
• Focus is on long-term product development and
distribution opportunities
• Partners may become competitors
Adapted from Figure 9.2
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Competition Response
Strategy
Occur when firms join forces to
respond to a strategic action of
another competitor
Complementary
Alliances Because they can be difficult to
reverse and expensive to
Competition operate, strategic alliances are
Response Alliances primarily formed to respond to
strategic rather than tactical
actions
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Uncertainty Reducing
Strategy
Are used to hedge against risk
and uncertainty
Complementary These alliances are most
Alliances noticed in fast-cycle markets
An alliance may be formed to
Competition reduce the uncertainty
Response Alliances associated with developing
new product or technology
Uncertainty standards
Reducing Alliances
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Competition Reducing
Strategy
Created to avoid destructive or
Complementary excessive competition
Alliances
Explicit collusion: when firms
directly negotiate production
Competition output and pricing agreements
Response Alliances in order to reduce competition
(illegal)
Uncertainty Tacit collusion: when firms in an
Reducing Alliances industry indirectly coordinate
their production and pricing
Competition decisions by observing other
Reducing Alliances firm’s actions and responses
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Assessment of Cooperative
Strategies
Complementary business-level strategic
alliances, especially the vertical ones, have the
greatest probability of creating a sustainable
competitive advantage
Horizontal complementary alliances are
sometimes difficult to maintain because they are
often between rival competitors
Competitive advantages gained from
competition and uncertainty reducing strategies
tend to be temporary
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Corporate-Level Cooperative
Strategies
Figure 9.3
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Corporate-Level Cooperative
Strategy
Corporate-level strategies
Help the firm diversify in terms of:
Products offered to the market
The markets it serves
Require fewer resource commitments
Permit greater flexibility in terms of efforts to
diversify partners’ operations
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Diversifying Strategic
Alliances Expand into new product or
market areas without
completing a merger or an
acquisition
Diversifying
Strategic Alliance Synergistic benefits of a merger
or acquisition
less risk
greater flexibility
Assess benefits of future
merger between the partners
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Synergistic Strategic
Alliances
Joint economies of scope
Diversifying between two or more
Strategic Alliance firms
Synergy across multiple
Synergistic functions or multiple
Strategic Alliance businesses between
partner firms
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Franchising
Diversifying Spreads risks and uses resources,
Strategic Alliance capabilities, and competencies
without merger or acquisition
Synergistic A contractual relationship (the
Strategic Alliance franchise) is developed between
the franchisee and the franchisor
Franchising Alternative to growth through
mergers and acquisitions
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Assessment of Corporate-
Level Cooperative Strategies
Compared to business-level strategies
Broader in scope More complex
More costly
Can lead to competitive advantage and value when:
Successful alliance experiences are internalized
The firm uses such strategies to develop useful knowledge
about how to succeed in the future
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International Cooperative
Strategies
Cross-border Strategic Alliance
A strategy in which firms with headquarters in
different nations combine 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
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International Cooperative
Strategies (cont’d)
Synergistic Strategic Alliance
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 such that the
partner does not gain access to important technology and
become a competitor
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Network Cooperative Strategy
A cooperative strategy wherein several firms
agree to form multiple partnerships to
achieve shared objectives
Stable alliance network
Dynamic alliance network
Keys to a successful network cooperative
strategy
Effective social relationships
Interactions among partners
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Network Cooperative
Strategies (cont’d)
• Long term relationships
– mature industries where
Stable Alliance demand is
Network – relatively constant
– predictable
• Stable networks exploit
economies (scale and/or
scope) available
between the firms
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Network Cooperative
Strategies (cont’d)
• Evolve in industries with
rapid technological change
Stable Alliance leading to short product life
Network cycles
• Primarily used to stimulate
Dynamic Alliance rapid, value-creating product
Network innovation and subsequent
successful market entries
• Purpose is often exploration
of new ideas
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Competitive Risks of
Cooperative Strategies
Partners may act opportunistically
Partners may misrepresent competencies
brought to the partnership
Partners fail to make committed resources and
capabilities available to other partners
One partner may make investments that are
specific to the alliance while its partner does not
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Managing Risks in
Cooperative Strategies
Figure 9.4
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Managing Cooperative
Strategies
Cost minimization management approach
Formal contracts with partners
Specify
How strategy is to be monitored
How partner behavior is to be controlled
Goals that minimize costs and prevent
opportunistic behavior by partners
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Managing Cooperative Strategies
(cont’d)
Opportunity maximization approach
Maximize partnership’s value-creation opportunities
learn from each other
explore additional marketplace possibilities
less formal contracts, fewer constraints
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