Chapter 9
Cooperative Strategy
Who can we trust?
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Cooperative Strategy

Cooperative strategy is 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
competition
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Strategic Alliance

A strategic alliance is a cooperative
strategy in which
– firms combine some of their resources and
capabilities
– to create a competitive advantage
 A strategic alliance involves
– exchange and sharing of resources and
capabilities
– co-development or distribution of goods or
services
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Strategic Alliance
Firm A
Resources
Capabilities
Core Competencies
Firm B
Resources
Capabilities
Core Competencies
Combined
Resources
Capabilities
Core Competencies
Mutual interests in designing, manufacturing,
or distributing goods or services
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Types of Cooperative Strategies

Joint venture: two or more firms create an
independent company by combining parts
of their assets
 Equity strategic alliance: partners who
own different percentages of equity in a
new venture
 Nonequity strategic alliances: contractual
agreements given to a company to supply,
produce, or distribute a firm’s goods or
services without equity sharing
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Joint Venture
Firm A
Firm B
Resources
Capabilities
Core Competencies
Resources
Capabilities
Core Competencies
Combined
Resources
Capabilities
Core Competencies
Firm C
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Business-Level Cooperative
Strategies: Complementary Strategic Alliances
Complementary
Alliances
• complementary strategic
alliances are designed to
take advantage of market
opportunities by
combining partner firms’
assets in complementary
ways to create new value
– these include distribution, supplier or outsourcing
alliances where firms rely on upstream or downstream
partners to build competitive advantage
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Business-Level Cooperative
Strategies: Competition Response Alliances
Complementary
Alliances
Competition
Response Alliances
• competition response strategic
alliances occur when firms join
forces to respond to a strategic
action of another competitor
• because they can be difficult to
reverse and expensive to operate,
competition response strategic
alliances are primarily formed to
respond to strategic rather than
tactical actions
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Business-Level Cooperative
Strategies: Uncertainty Reducing Alliances
Complementary
Alliances
Competition
Response Alliances
Uncertainty
Reducing Alliances
• uncertainty reducing strategic
alliances are used to hedge against
risk and uncertainty
• these alliances are most noticed in
fast-cycle markets
• alliance may be formed to reduce
the uncertainty associated with
developing new product or
technology standards
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Business-Level Cooperative
Strategies: Competition Reducing Alliances
Complementary
Alliances
Competition
Response Alliances
Uncertainty
Reducing Alliances
Competition Reducing
Alliances
• competition reducing strategic
alliances may be created to avoid
destructive or excessive competition
• explicit collusion exists when firms
directly negotiate production output
and pricing agreements in order to
reduce competition (illegal)
• tacit collusion exists when several
firms in an industry indirectly
coordinate their production and
pricing decisions by observing each
other’s competitive actions and
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responses
Business-Level Cooperative
Strategies: Competition Reducing Alliances
Complementary
Alliances
Competition
Response Alliances
Uncertainty
Reducing Alliances
Competition Reducing
Alliances
• mutual forbearance is a form of
tacit collusion in which firms
avoid competitive attacks against
those rivals they meet in multiple
markets
• competition reducing strategic
alliances may require
governments to find ways to
permit collaboration among rivals
without violating antitrust laws
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Corporate-Level Cooperative
Strategies
Corporate-level cooperative strategies are
designed to facilitate product and/or
market diversification
- diversifying strategic alliance
- synergistic strategic alliance
- franchising
Diversifying alliances and synergistic
alliances allow firms
- to grow and diversify their operations
- through a means other than a merger or
acquisition
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Corporate-Level Cooperative
Strategies: Diversifying Alliances
Diversifying
Alliances
• diversifying strategic alliance
allows a firm to expand into new
product or market areas without
completing a merger or 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
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parties
Corporate-Level Cooperative
Strategies: Synergistic Alliances
Diversifying
Alliances
Synergistic
Alliances
• synergistic strategic alliances
create joint economies of scope
between two or more firms
• create synergy across multiple
functions or multiple businesses
between partner firms
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Corporate-Level Cooperative
Strategies: Franchising
Diversifying
Alliances
Synergistic
Alliances
Franchising
• franchising spreads risks and uses
resources, capabilities, and
competencies without merging or
acquiring another company
• contractual relationship
concerning the franchise that is
developed between two parties,
the franchisee and the franchisor
• an alternative to pursuing growth
through mergers and acquisitions
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International Cooperative
Strategies

Cross-border strategic alliance
– an international cooperative strategy in which
firms with headquarters in different nations
combine some of 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

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 so
they do not gain access to important
technology and become a competitor
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Competitive Risks with
Cooperative Strategies
• Partner may act opportunistically
• Misrepresentation of competencies brought to the
partnership
• Partner fails to make committed resources and
capabilities available to its partners
• Firm may make investments that are specific to
the alliance while its partner does not
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