Chapter 9: Cooperative Strategy
 Overview:
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Cooperative strategies and why firms use them
Three types of strategic alliances
Business-level cooperative strategies & their use
Corporate-level cooperative strategies in diversified
firms
Cross-border strategic alliances’ importance as an
international cooperative strategy
Network alliances
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Chapter 9: Cooperative Strategy
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Introduction
 Cooperative strategy
 A strategy in which firms work together to achieve a
shared objective
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One of 3 means firms use to grow and improve
performance (mode)
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Go beyond normal company to company dealings
Internal development, mergers and acquisitions, and
cooperation
Core and critical parts of firms strategies today
Has implications for a firm’s corporate, business,
and international strategy
Competitive advantage and above average returns
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Collaborative or relational advantages
Primary Type of Cooperative Strategy:
Strategic Alliances
 Strategic Alliance
 A cooperative strategy in which firms combine some of their
resources and capabilities to create a competitive advantage
 Involve firms with some degree of exchange and sharing of
resources and capabilities to co-develop, sell, and service
goods or services
 3 major types of strategic alliances
 Joint Venture
 Two or more firms create a legally independent company to
share some of their resources and capabilities to develop a
competitive advantage
 Partners typically own equal percentages and contribute
equally to the ventures operations
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Primary Type of Cooperative Strategy:
Strategic Alliances
 3 major types of strategic alliances
 Equity Strategic Alliance
 Two or more firms own different percentages of the
company they have formed by combining some of their
resources and capabilities to develop a competitive
advantage
 Nonequity Strategic Alliance
 Two or more firms develop a contractual relationship to
share some of their unique resources and capabilities to
create a competitive advantage
 Licensing agreements
 Distribution agreements
 Supply contracts
 Outsourcing commitments
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A separate independent company is NOT established
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Reasons Firms Develop Strategic
Alliances
 Why firms develop strategic alliances
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They allow partners to create value that they couldn’t
develop by acting independently
They allow partners to enter markets more quickly and
with greater market penetration possibilities
Most firms lack the full set of resources and capabilities
needed to reach their objectives
They are a prime vehicle for firm growth – mode of
entry into new product or geographic markets
Can account for 25% of sales revenue in large
firms
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Reasons Firms Develop Strategic
Alliances
 Strategic alliances can be used to
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Reduce competition
Gain market power
Enhance a firm’s competitive capabilities
Gain access to resources and new (restricted) markets
Take advantage of opportunities
Build strategic flexibility
Help the firm innovate
Provide for a new source of revenue and for firm growth
Enhance organizational response times
Gain new knowledge and experiences
Overcome trade barriers
Establish better economies of scale and scope
Lower costs
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Business-Level Cooperative Strategy
 Business level cooperative strategies are
used to grow and improve firm performance
in individual product markets (industries)
 4 types
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Complementary strategic alliances
Competition response strategy
Uncertainty-reducing strategy
Competition-reducing strategy
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Business-Level Cooperative Strategy
 Complementary Strategic Alliances
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Firms share some of their resources and capabilities in
complementary ways to develop competitive advantages
Two Types:
 Vertical CSA
 Partnering firms share resources & capabilities from different
stages of the value chain to create a competitive advantage
 Supplier or distributor
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Horizontal CSA
 Partnering firms share resources & capabilities from the same
stage(s) of the value chain to create a competitive advantage
 Competitor
 Commonly used for long-term product development and
distribution opportunities
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Business-Level Cooperative Strategy
 Competition Response Strategy
 Competitive Rivalry (Ch. 5)
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Competitors initiate competitive actions to attack
rivals and launch competitive responses to their
competitor’s actions
Strategic alliances can be used at the business
level to respond to competitor’s attacks
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Primarily formed to take strategic actions vs. tactical
actions
 Can be difficult to reverse and expensive to operate
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Business-Level Cooperative Strategy
 Uncertainty-Reducing Strategy
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Can be used to hedge against risk and uncertainty
As examples, entering new product markets, emerging
economies and establishing a technology standard are
unknown areas so by partnering with a firm in the
respective industry, a firm’s uncertainty (risk) is reduced
Uncertainty is reduced by combining knowledge &
capabilities
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Business-Level Cooperative Strategy
 Competition-Reducing Strategy
 Collusive strategies differ from strategic alliances in that
they are often illegal
 2 Types
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Explicit collusion
 Direct negotiation among firms to establish output levels
and pricing agreements that reduce industry competition
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Tacit collusion
 Indirect coordination of production and pricing decisions by
several firms, which impacts the degree of competition
faced in the industry
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Business-Level Cooperative Strategy
 Assessment of Business-level cooperative strategies
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The integrated resources and capabilities must be valuable, rare,
imperfectly imitable, and nonsubstitutable
Complementary alliances, especially the vertical ones, have
greatest probability of creating competitive advantage
Horizontal alliances are can be hard to maintain since they are
usually between rival companies
Competition response and uncertainty reducing alliances tend to
create advantages that are more temporary in nature
Competition-reducing alliances have lowest probability of creating
sustainable competitive advantages
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Corporate-Level Cooperative Strategies
 Corporate-level cooperative strategies used to help
firm diversify itself in terms of products offered or
markets served or both
 3 Common Forms
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Diversifying strategic alliance
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Firms share some of their resources & capabilities to diversify
into new product or market areas
Synergistic strategic alliance
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Firms share some of their resources & capabilities to create
economies of scope
Diversifies the involved firms into a new business in a
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synergistic way
Corporate-Level Cooperative Strategies
 3 Common Forms (cont.)
 Franchising
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Firm uses a franchise as a contractual relationship to describe
and control the sharing of its resources and capabilities with
partners
 Franchise: contractual agreement between two legally
independent companies whereby the franchisor grants the
right to the franchisee to sell the franchisor's product or do
business under its trademarks in a given location for a
specified period of time
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Corporate-Level Cooperative Strategies
 Assessment of corporate-level cooperative
strategies
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In comparison with business-level strategies
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Can be used to develop useful knowledge about how to
succeed in the future
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Usually broader in scope and more complex
Also more challenging and costly
Learn and then acquire or internally develop
Can lead to competitive advantage if they are managed in
ways that are valuable, rare, imperfectly imitable, and
nonsubstitutable
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International Cooperative Strategy
 Cross-Border Strategic Alliance
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International cooperative strategy in which firms with headquarters
in different nations combine some of their resources and capabilities
to create a competitive advantage
 Why cross-border strategic alliances?
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Can help firms use their resources and capabilities to create value
in locations outside their home market
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Multinational corporations outperform firms that operate only
domestically
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Due to limited domestic growth opportunities, firms look outside their
national borders to expand business
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Some foreign government policies require investing firms to partner
with a local firm to enter their markets
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Local partners can help firms overcome liabilities of moving into a
foreign country (example: lack of knowledge about local culture)
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Network Cooperative Strategy
 Network Cooperative Strategy
 Cooperative strategy wherein several firms agree to form
multiple partnerships to achieve shared objectives
 Very effective when formed by geographically clustered
firms (i.e., Silicon Valley in N. California)
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Japanese keiretsus and Korean Chaebols
Firm’s gain access to their partners other partners - so
multiple alliances with multiple partnerships
Can increase competitive advantage potential as set of
shared resources and capabilities expands
Can be problematic - could lock firm in with partners and
exclude development of alliances with others
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Network Cooperative Strategy
 Alliance network types: Set of strategic alliance
partnerships resulting from use of a network
cooperative strategy
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Stable alliance network
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Formed in mature industries where demand is relatively constant
and predictable
Directed primarily toward developing products at a low cost and
exploiting economies of scale and scope
Dynamic Alliance Networks
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Used in industries characterized by environmental uncertainty,
frequent product innovations, and short product life cycles
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Directed primarily toward continued development of products
that are uniquely attractive to customers
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Competitive Risks with Cooperative
Strategies
 Risks
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2/3 have serious problems in first 2 years and 50% end
up failing
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Partners may choose to act opportunistically due to
inadequate contracts
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Partner competencies may be misrepresented
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Partner may fail to make available the complementary
resources and capabilities that were committed
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One partner may make investments specific to the
alliance while the other partner may not – holding
alliance partner's specific investments hostage
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