Chapter 9

Cooperative
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 Strategy

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 Learning Objectives
Studying this chapter should provide you with
the strategic management knowledge needed to:
1. Define cooperative strategies and explain why firms use them.
2. Define and discuss the three major types of strategic alliances.
3. Name the business-level cooperative strategies and
describe their use.
4. Discuss the use of corporate-level cooperative strategies
in diversified firms.
5. Understand the importance of cross-border strategic alliances as
an international cooperative strategy.
6. Explain cooperative strategies’ risks.
7. Describe two approaches used to manage cooperative strategies.
 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.
 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
• Collaborative (Relational) Advantage
– A competitive advantage developed through a
cooperative strategy.
 Strategic
Alliance

Firm A Firm
Resources B Resources
Capabilitie Capabilities
s
Core Core Competencies
Competencies Combined
Resources
Capabilities
Core Competencies

Mutual interests in designing,

manufacturing, or distributing goods
Strategic
Alliance
or services
 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.
Reasons for Strategic Alliances by Market
Type
 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
Market Reason
Standar • Gain market power (reduce industry
d overcapacity)
Cycle • 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
• Combine partner firms’ assets
in complementary ways to
Strategic create new value
Alliances
• Include distribution, supplier or
outsourcing alliances where
firms rely on upstream or
downstream partners to build
competitive advantage
 Vertical and Horizontal Complementary
Strategic Alliances

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 Complementary Strategic
Alliances
• Vertical Complementary Strategic Alliance
– Formed between firms that agree to use their skills and
capabilities in different stages of the value chain to create
value for both firms.
• Outsourcing is one example of this type of alliance.

• Horizontal Complementary Strategic Alliance

– Formed when partners who agree to combine their resources
and skills to create value in the same stage of the value chain.
• Focus is on long-term product development and
distribution opportunities.
• The partners may become competitors which requires a great
deal of trust between the partners.
 Uncertainty-Reducing Strategy

• Occurs when firms join forces

Complementary to respond to a strategic
Strategic Alliances
action of another competitor
• Because they can be
Competition difficult to reverse and
Response expensive to operate,
Alliances strategic alliances are
primarily formed to respond
to strategic rather than
tactical actions
 • Used to hedge against risk
Complementary and uncertainty
Strategic Alliances
• These alliances are most
noticed in fast-cycle markets.
Competition • An alliance may be formed
Response to reduce the uncertainty
Alliances associated with developing
new product or technology
Uncertainty standards.
Reducing Alliances
 Complementary
Strategic Alliances

• Created to avoid destructive or

Competition excessive competition
Response • Explicit collusion: when firms directly
Alliances negotiate production output and
pricing agreements to reduce
competition (illegal).
Uncertainty • Tacit collusion: when firms indirectly
Reducing Alliances coordinate their production and
pricing decisions by observing other
firm’s actions and responses.
Competition
Reducing Alliances
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.
Corporate Level Cooperative Strategies
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
Diversifying Strategic
Alliances
• Allows a firm to expand into
Diversifying
new product or market areas
Strategic
without completing a merger or
Alliance
an acquisition
• Provides 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 parties
 Franchising

Diversifying
Strategic Alliance
• Creates joint economies of scope
between two or more firms
Synergistic • Creates synergy across
Strategic multiple functions or multiple
Alliance businesses between partner
firms
Diversifying
Strategic • Spreads risks and uses resources,
Alliance capabilities, and competencies
without merging or acquiring another
firm
Synergistic
• A contractual relationship (franchise)
Strategic
is developed between two parties, the
Alliance
franchisee and the franchisor
• An alternative to pursuing growth
through mergers and acquisitions
Franchising
 Assessing 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 Strategy

• 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 Strategy (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
• Effective social relationships and
interactions among partners are keys to a
successful network cooperative strategy.
Network Cooperative Strategies (cont’d)

Stable • Long term relationships that

Alliance often appear in mature
Network industries where demand is
relatively constant and
predictable
• Stable networks are built for
exploitation of the economies
(scale and/or scope)
available between the firms
Stable Alliance • Arrangements that evolve in
Network industries with rapid
technological change leading
to short product life cycles
Dynamic
Alliance • Primarily used to stimulate
Network rapid, value-creating product
innovation and subsequent
successful market entries
• Purpose is often exploration
of new ideas
 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 Competitive Risks in
Cooperative Strategies

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Managing Risks in Cooperative Strategies

• Inadequate contracts
• Misrepresentation of competencies
Competitiv • Partners fil to use their
e complementary resources
Risks
• Holding alliance partner’s specific
investments hostage

Risk and Outcome

Asset
Management
Approaches

Desired
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 • Detailed contracts
and management
• Developing
trusting
relationships

• Creating Value

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 Managing Cooperative Strategies

• Cost Minimization Management Approach

– Have formal contracts with partners
– Specify how strategy is to be monitored
– Specify how partner behavior is to be controlled
– Set goals that minimize costs and to 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
– Maintain less formal contracts, fewer constraints

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