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Cooperative Strategy
Cooperative StrategyA strategy in which firms work together toachieve a shared objective
Cooperating with other firms is a strategythat:
Creates value for a customer
Exceeds the cost of constructing customer value
in other waysEstablishes a favorable position relative tocompetitors
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Strategic Alliance
A primary type of cooperative strategy inwhich firms combine some of theirresources and capabilities to create amutual competitive advantage
Involves the exchange and sharing of resourcesand capabilities to co-develop or distributegoods and services
Requires cooperative behavior from all partners
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Strategic Alliance Behaviors
Examples of cooperative behavior known tocontribute to alliance success:
Actively solving problems
Being trustworthyConsistently pursuing ways to combine partnersresources and capabilities to create value
Competitive advantage developed through acooperative strategy is called a collaborativeor relational advantage
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Strategic Alliance
Combined Resources
CapabilitiesCore Competencies
ResourcesCapabilities
Core Competencies
ResourcesCapabilities
Core Competencies
Firm A Firm B
Mutual interests in designing, manufacturing,or distributing goods or services
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Three Types of Strategic Alliances
Joint VentureTwo or more firms create a legally independentcompany by sharing some of their resources andcapabilities
Equity Strategic AlliancePartners who own different percentages of equityin a separate company they have formed
Nonequity Strategic Alliance
Two or more firms develop a contractualrelationship to share some of their uniqueresources and capabilities
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Market Reason
Fast Cycle Speed up development of new goodsor service
Speed up new market entry Maintain market leadership Form an industry technology
standard Share risky R&D expenses Overcome uncertainty
Reasons for Strategic Alliances (contd)
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Market Reason
Standard Cycle Gain market power (reduce industryovercapacity)
Gain access to complementaryresources Establish economies of scale Overcome trade barriers Meet competitive challenges from
other competitors Pool resources for very large capital
projects Learn new business techniques
Reasons for Strategic Alliances (contd)
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Business-Level Cooperative Strategies
Combine partner firmsassets in complementaryways to create new value
Include distribution,
supplier or outsourcingalliances where firms relyon upstream ordownstream partners tobuild competitive
advantage
ComplementaryAlliances
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Vertical Complementary Strategic Alliances
Firms agree to use their skills andcapabilities in different stages ofthe value chain to create value forboth firms
Outsourcing
Adapted from Figure 9.2
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Adapted from Figure 9.2
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 anddistribution opportunities
Partners may become competitors
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Competition Response Strategy
Occur when firms joinforces to respond to astrategic action of anothercompetitor
Because they can bedifficult to reverse andexpensive to operate,strategic alliances areprimarily formed to respondto strategic rather thantactical actions
ComplementaryAlliances
CompetitionResponse Alliances
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Uncertainty Reducing Strategy
Are used to hedge againstrisk and uncertainty
These alliances are mostnoticed in fast-cyclemarkets
An alliance may be formedto reduce the uncertainty
associated with developingnew product or technologystandards
ComplementaryAlliances
CompetitionResponse Alliances
UncertaintyReducing Alliances
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Competition Reducing Strategy
Created to avoid destructive orexcessive competition
Explicit collusion: when firmsdirectly negotiate production
output and pricing agreements inorder to reduce competition(illegal)
Tacit collusion: when firms in anindustry indirectly coordinate their
production and pricing decisionsby observing other firms actionsand responses
ComplementaryAlliances
CompetitionResponse Alliances
UncertaintyReducing Alliances
CompetitionReducing Alliances
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Assessment of Cooperative Strategies
Complementary business-level strategic alliances,especially the vertical ones, have the greatestprobability of creating a sustainable competitiveadvantage
Horizontal complementary alliances are sometimesdifficult to maintain because they are often betweenrival competitors
Competitive advantages gained from competitionand uncertainty reducing strategies tend to betemporary
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Corporate-Level Cooperative Strategies
Figure 9.3
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Diversifying Strategic Alliances
Expand into new product ormarket areas withoutcompleting a merger or anacquisition
Synergistic benefits of amerger or acquisition
less risk
greater flexibility Assess benefits of future
merger between the partners
DiversifyingStrategic Alliance
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Synergistic Strategic Alliances
Joint economies of scopebetween two or more firms
Synergy across multiple
functions or multiplebusinesses betweenpartner firms
DiversifyingStrategic Alliance
SynergisticStrategic Alliance
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Franchising
Spreads risks and usesresources, capabilities, andcompetencies without mergeror acquisition
A contractual relationship (thefranchise) is developedbetween the franchisee andthe franchisor
Alternative to growth throughmergers and acquisitions
DiversifyingStrategic Alliance
SynergisticStrategic Alliance
Franchising
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Assessment of Corporate-Level CooperativeStrategies
Compared to business-level strategiesBroader 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 usefulknowledge about how to succeed in the future
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International Cooperative Strategies
Cross-border Strategic AllianceA strategy in which firms with headquarters indifferent nations combine their resources andcapabilities to create a competitive advantage
A firm may form cross-border strategic alliancesto leverage core competencies that are thefoundation of its domestic success to expandinto international markets
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International Cooperative Strategies (contd)
Synergistic Strategic AllianceAllows risk sharing by reducing financialinvestment
Host partner knows local market and customsInternational alliances can be difficult to managedue to differences in management styles,cultures or regulatory constraints
Must gauge partners strategic intent such thatthe partner does not gain access to importanttechnology and become a competitor
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Network Cooperative Strategy
A cooperative strategy wherein several firmsagree to form multiple partnerships toachieve shared objectives
Stable alliance network
Dynamic alliance network
Keys to a successful network cooperative
strategyEffective social relationships
Interactions among partners
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Network Cooperative Strategies (contd)
Long term relationshipsmature industries wheredemand is
relatively constant
predictable
Stable networks exploit economies (scale and/or
scope) available betweenthe firms
Stable AllianceNetwork
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Network Cooperative Strategies (contd)
Evolve in industries withrapid technological changeleading to short productlife cycles
Primarily used to stimulaterapid, value-creatingproduct innovation andsubsequent successful
market entries Purpose is often
exploration of new ideas
Stable AllianceNetwork
Dynamic AllianceNetwork
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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 doesnot
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Managing Risks in Cooperative Strategies
Figure 9.4
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Managing Cooperative Strategies
Cost minimization management approachFormal 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 (contd)
Opportunity maximization approachMaximize partnerships value -creationopportunities
learn from each otherexplore additional marketplace possibilities
less formal contracts, fewer constraints