Collaborating with Competitors
Introduction
 The concept is called co-opetition. It can be very risky to alliance with competitors, but it
can also be very effective
 Examples of successful co-opetition
◦ Eastman Kodak aligned with Fuji Photo to perform a successful R&D program.
◦ Dow Jones and Reuters aligned their online service and database businesses to gain
greater scale.
◦ Pillsbury, kellogg and Nabisco worked together with Webvan to learn how to sell
their products online.
 Reasons why co-opetition is important
 The rise of the internet, which makes competitors to come together to define and
expand a new market.
 Blurring of industry boundaries, as many companies are trying to move into new
industries to seek for innovative ways to expand their capabilities.
 For example, Microsoft aligned with companies in both telecom companies
and banks, as they see these industries to be their future opportunities.
However, only fews companies have mastered the art of co-opetition. The key success to this is to
have a good balance between cooperation and conflict. The failure is commonly caused by
extensive challenges of co-opetition, which the managers may have lack in abilities to solve these
challenges.
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Drivers of Co-opetition
 In todays the world of uncertainty and changes, the firm needs to think in term of of
level of competition rather than competitor versus non-competitor. Due to speed of
change, and non-competitor could quickly turn into an arch-rival.
The example of degree of competition of Electric utility is shown here.
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potential benefits gained from collaborating with these partners.
In the past drivers of co-petition used to be setting standards, sharing risks, and
entering emerging markets. However, due to industries changes, and changes in ways
of doing business, these drivers have evolved into a four new drivers which are
expanding product lines, reducing costs, gaining market share, and creating new
skills.

Expanding Product Lines
 Example of this is the alliance between the two rivals, First Union Bank and Charles
Schwab to expand their scope of services to their customers and to differentiate
themselves from competitors. They do this by allowing allowing first union to use
Schwab's OneSource service which is Schwab-branded basket of mutual funds. This
helps First union to provide a one-stop financial service to the customers.
 However, this can create potential competitor. Therefore, this form of co-petition
must be well managed.

Reducing cost
 The driver is to share similar type of assets between partners to reduce cost, Since
most rivals will share similar types of assets. This type of co-opetition is common
among capital intensive industries, such as machinery, oil and gas, and chemicals.
 Example of this type of alliance is Sony and Ericsson. They aligned their cellphone
businesses together to share resources and to reduce cost and to compete with strong
rivals such as Nokia and Motorola.

Gaining Market Share
 Companies form alliance to gain market share, and create powerful network.
 Example, is alliance constellation between car manufacturers and their rivals. The
constellation consists of DaimlerChysler, Ford, and General Motors, etc. This big
powerful alliance will attract large numbers of suppliers and customers. This allows
each companies to gain more market share. However, this alliance need to be
manages accordingly to maintain good cooperation relationships.

Creating New Businesses
 This last type of drivers is to combine the capabilities of each alliance members to
form a set of new skills, which open the door to new businesses.
 Example is the alliance between NBC and Microsoft. They create a joint venture
together called the MSNBC. Since each of them have different expertise. NBC
contribute their broadcasting skills to the alliance, while Microsoft contribute their
technical online and computing skills. Together, they create a business that has a
mixture of TV and computing.
 At first this was an alliance between competitor and non-competitor, but soon
Microsoft started to expand their business into communication business, while NBC
started to move out of their traditional broadcasting.
 Industry countries are becoming blur, and partners are becoming competitors.
Therefore, good management is required.
Managing the Risks of Co-opetition
 This type of alliance, it is more likely that noncooperation between partners will occur, as
alliance members are competitors. This leads the the one common risk, which is technology
leakage. The technology processes are normally revealed to the alliance partners. Since the
partners have similar businesses, and they will be in a look out for these skills.
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According to Gulati, one of the way to eliminate this risk is to create a joint venture, where
the scope of information flows to the partners are limited. Another way is to create some
kind of equity swap, where both partners have to rely on one another, which can promote
trust and commitment among partners.
Another way to avoid risk is to create payoff structure of the alliance. This consist of returns
and benefits for each alliance members, and consequences if the partners cheat.
Example of payoff structure is the alliance between two arch rivals, IBM, and Dell. They
has contribute to a successful alliance program as they consider the payoff benefits, they will
gain from this alliance.
However, to do alliance with competitors is very dangerous, and there are a lot of risks that
investors should take them into the consideration.
Risk 1: Technology Leakage
It is very common that when competitors do alliance together. A company’s core technology
or process will fall into a competitor’s hand. The knowledge that the competitors get from you may
come back to haunt you if you don’t limit the information scope well. Our partners can be the direct
competitors from the alliance. There are some ways to avert this risk.
Solutions
Reducing risk means controlling the information.
 One approach is to limit the scope of the alliance. Two companies may share the
production line together, but the intellectual properties are still with their own.
 Another method is to do the contacts that clearly define who owns which technologies,
so and how the technologies can be used. Therefore, they can separate the
responsibility and keep the technology with themselves.
 The last approach is to create rules for employees that describe what they can and
cannot discuss with the partners
Risk 2: Telegraphing Strategic Intention
This risk is basically when our partners know the firm’s future strategic plan because of
experiences that the partners and your company work together. They can predict your firm’s next
move because they already knew the strengths and weaknesses of the firm. Then the partners can
use our weaknesses to become their opportunities.
Solutions
This risk can be reduced by good managing of information, same as above. For example,
senior management should teach managers what information is strategic and develop guideline for
sharing the information.
 One approach is to limit the number of staffs that have direct contact to partners.
 Another way is to establishing a separate site for the alliance that is away from the
parent company
Risk 3: Customer Defection
When a company does an alliance with competitors, its current and potential customers of
the company can be in the hand of our alliances, or in other word, our competitors. If the
competitors can get into the contact with our customers, it is very dangerous that they can steal our
customers.
Solutions
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One is to jointly interacting with customers and never yield full contact to the
partners
Another is to demand the customers’ access from each other, and having a
“mutually assured destruction” approach to collaboration. On one steal each other’s
customers.
Lastly, allowing partners’ access to customers only when selling a jointly owned
product.
Risk 4: slow decision making
Alliance with competitors usually creates a high level of slow decision making, shallow
cooperation or even abandonment.
For example, the joint venture between General Electric and Rolls Royce, they join together
in order to produce jet engines. Both of them are direct competitors who sell very similar products
and have similar markets. Finally, they cannot cooperate and have to cancel the venture after Roll
Royce come up with the idea to introduce a jet engine which directly compete to their own joint
venture’s engine.
Moreover, alliances with competitors usually end up with “a zero-sum game.” This is
because if every partner has the same purpose and try to get the same thing, the conflict will occur
instead of complementary
Solutions:
 The companies should focus on their effort at different points along the value chain. They
should make an agreement on who are responsible in which area.
o For example, in Pharmaceutical firms which usually manage their alliance in this
way, a small biotech firm develops and produces a drug while a large pharmaceutical
company is responsible for selling it.
 Focus on the basics of sound decision making, meaning that to identify from 10 to 50 of the
most important decisions that alliance will encounter and then define which decision makers
will participate in those decisions.
Risk 5: Business or asset fire sale
Alliances between competitors can create the risk of a fire sale, which meaning that the firm
will be forced to sell its interest in the alliance at a below-market price. Within 7 years, almost 80
percent of all joint ventures are acquired by one of the partners. The figure would be even stronger
when the partners are competitors. This is because they usually focus more on interest in the
partner’s business and have less demand for long-term cooperation.
Unfortunately, many firms lack of carefulness about the endgame, so they usually fail to
lock in a price or pricing formula for their own assets during the negotiation and structuring. Then
after they are separated, third party buyers will have much less interest in the assets once they are
tied up in a joint venture, so the firm is left with only one real buyer, who is usually their own
partner, who is already in a powerful position in order to acquire the assets at a favorable price.
Solutions: Avoid falling into a fire sale
 First one approach is to favor an independent joint venture structure, which can help reduce
cost and help increase the interest of other buyers.
 Another approach is to avoid joint ventures altogether.
In conclusion, in order to succeed in terms of co-opetition, firms must wisely manage the risks
of alliance; develop the best tool that is suitable for different situation.