Chapter 10
Cooperative Strategy
Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland
©2004 by South-Western/Thomson Learning
1
The Strategic Management Process
Strategic
Thinking
Chapter 1
Introduction to
Strategic Management
Chapter 2
Strategic Leadership
Strategic
Analysis
Chapter 3
The External
Environment
Chapter 4
The Internal
Organization
Strategic Intent
Strategic Mission
Chapter 5
Business-Level
Strategy
Chapter 6
Competitive Rivalry and
Competitive Dynamics
Chapter 7
Corporate-Level Strategy
Chapter 8
Acquisition and
Restructuring Strategies
Chapter 9
International Strategy
Chapter 10
Cooperative Strategy
Creating
Competitive
Advantage
Monitoring
And Creating
Entrepreneurial
Opportunities
Chapter 11
Corporate Governance
Chapter 12
Strategic Entrepreneurship
2
Discussion Questions
Click
Here
1.
What is cooperative strategy?
Click
Here
2.
What are the four general types of
strategic alliances that introduce
Chapter 10? How is a strategic
cooperative network different from a
single strategic alliance?
Click
Here
3.
What are the central reasons why firms
are motivated to engage in strategic
alliances in each market type (slow,
standard and fast cycle)?
Click
Here
More discussion questions
3
Discussion Questions (cont.)
Click
Here
4.
What is the difference between
horizontal and vertical complementary
business level strategic alliances?
Click
Here
5.
Are competition reduction, competition
response and uncertainty reduction
strategic alliances likely to lead to
competitive advantage?
Click
Here
6.
What is the difference between
corporate level and business level
strategic alliances?
Click
Here
More discussion questions
4
Discussion Questions (cont.)
Click
Here
7.
When are international cooperative
strategies used and how are they
implemented?
Click
Here
8.
How can you classify networks which
are formed for different purposes?
Click
Here
9.
What are the competitive risks of
strategic alliances? How is the strategic
approach different if an alliance is
based on a formal contract versus
trust?
5
Discussion Question 1
What is cooperative strategy?
6
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
7
Strategic Alliance as a
Cooperative Strategy

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
8
Click
Here
Strategic Alliance
Firm A
Resources
Capabilities
Core Competencies
Return to
Discussion
Questions
Firm B
Resources
Capabilities
Core Competencies
Combined
Resources
Capabilities
Core Competencies
Mutual interests in designing, manufacturing,
or distributing goods or services
9
Discussion Question 2
What are the four general types of
strategic alliances that introduce
Chapter 10? How is a strategic
cooperative network different from a
single strategic alliance?
10
Four Types of Strategic Alliances




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
Strategic cooperative network: multiple firms
agree to form partnerships to achieve shared
objectives
11
Strategic Network
Strategic
Center
Firm
12
Strategic Network

A strategic network is a grouping of
organizations that has been formed to
create value through participation in an
array of cooperative arrangements, such
as alliances and joint ventures
 The strategic network seeks to develop a
competitive advantage in primary or
support activities
 A strategic center firm often manages the
network
13
Strategic Network

strategic center firm engages in four
primary tasks
– strategic outsourcing (outsources and
partners with more firms than do other
network members)
– competencies (supports each member’s
efforts to develop core competencies that can
benefit the network)
14
Strategic Network

strategic center firm engages in four
primary tasks
– technology (manages the development and
sharing of technology-based ideas among
network members)
– race to learn (guides participants in efforts to
form network-specific competitive advantages)
Click
Here
Return to Discussion Questions
15
Discussion Question 3
What are the central reasons why
firms are motivated to engage in
strategic alliances in each market
type (slow, standard and fast cycle)?
16
Reasons for Strategic Alliances
by Market Type
Market
Slow Cycle
Reason
• Gain access to a restricted market
• Establish a franchise in a new market
• Maintain market stability (e.g.,
establishing standards)
17
Reasons for Strategic Alliances
by Market Type
Market
Fast Cycle
Reason
• 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
18
Reasons for Strategic Alliances
by Market Type
Market
Standard Cycle
Click
Here
Reason
• Gain market power (reduce industry
overcapacity)
• 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
Return to Discussion Questions
19
Discussion Question 4
What is the difference between
horizontal and vertical
complementary business level
strategic alliances?
20
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
21
Business-Level Cooperative
Strategies: Complementary Strategic Alliances
Marketing & Sales
Procurement
Technological Development
Human Resource Mgmt.
Firm Infrastructure
Support Activities
Service
Outbound Logistics
Operations
Inbound Logistics
Primary Activities
• vertical complementary
strategic alliance is 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
Service
Marketing & Sales
Procurement
Technological Development
Human Resource Mgmt.
Firm Infrastructure
Supplier
Support Activities
Vertical Alliance
Buyer
Outbound Logistics
Operations
Inbound Logistics
Primary Activities
22
Business-Level Cooperative
Strategies: Complementary Strategic Alliances
Buyer
Click
Here
Primary Activities
Service
Marketing & Sales
Procurement
Inbound Logistics
Technological Development
Operations
Human Resource Mgmt.
Outbound Logistics
Firm Infrastructure
Marketing & Sales
Support Activities
Service
Procurement
Technological Development
Human Resource Mgmt.
Firm Infrastructure
Potential Competitors
Support Activities
Return to
Discussion
Questions
Buyer
Horizontal Alliance
Outbound Logistics
Operations
Inbound Logistics
Primary Activities
• horizontal complementary strategic alliance is formed
between partners who agree to combine their resources and
skills to create value in the same stage of the value chain
• focus on long-term product development and distribution
opportunities
• the partners may become competitors
• requires a great deal of trust between the partners
23
Discussion Question 5
Are competition reduction,
competition response and uncertainty
reduction strategic alliances likely to
lead to competitive advantage?
24
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
25
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
26
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
27
responses
Business-Level Cooperative
Strategies: Competition Reducing Alliances
Complementary
Alliances
Competition
Response Alliances
Uncertainty
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
Competition Reducing
Alliances
28
Implementing Business-Level
Cooperative Strategies

Complementary business-level strategic
alliances have the greatest probability of
creating a sustainable competitive
advantage
 Strategic alliances designed to respond to
competition and reduce uncertainty can
create competitive advantages that may
be more temporary in nature
 Competition reducing strategy has lowest
probability of creating a sustainable
competitive advantage
Click
Here
Return to Discussion Questions
29
Discussion Question 6
What is the difference between
corporate level and business level
strategic alliances?
30
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
31
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 parties
32
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
33
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
34
Implementing Corporate-Level
Cooperative Strategies

Corporate-level cooperative strategies are
broader in scope, more complex and more
costly than business-level strategies
 Competitive advantages and value are
created when those employing the
strategies can also use them to develop
useful knowledge about how to succeed in
the future
Click
Here
– imperfectly imitable
– valuable
– nonsubstitutable
– rare
Return to Discussion Questions
35
Discussion Question 7
When are international
cooperative strategies used and
how are they implemented?
36
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
37
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
38
Implementing International
Cooperative Strategies
Differences among countries’ regulatory
environments increase the challenge of
managing international networks and
verifying that, at a minimum, the network’s
operations comply with all legal
requirements
 Distributed strategic networks are often
the organizational structure used to
manage international cooperative
strategies

39
Distributed Strategic Network
Main
Strategic
Strategic
Center
Center
Firm
Firm
= Distributed Strategic Center Firms
40
Distributed Strategic Network

International cooperative strategies often
require more complex networks
 Many large multinational firms form
distributed strategic networks with
multiple regional strategic centers to
manage their array of cooperative
arrangements with partner firms
 Breaking large networks into multiple
manageably-sized networks helps to
manage the complexity of maintaining
many relationships
Click
Here
Return to Discussion Questions
41
Discussion Question 8
How can you classify networks which
are formed for different purposes?
42
Network Cooperative Strategies

A network strategy is a cooperative
strategy wherein several firms agree to
form multiple partnerships to achieve
shared objectives
– stable strategic cooperative network
– dynamic strategic cooperative network

Effective social relationships and
interactions among partners are keys to a
successful network cooperative strategy
43
Network Cooperative Strategies:
Stable Strategic Cooperative Network
Stable Strategic
Cooperative Network
• long term relationships that often
appear in mature industries where
demand is relatively constant and
predictable
• stable networks are built for
exploitation of the economies
available between firms
44
Network Cooperative Strategies:
Dynamic Strategic Cooperative Network
Stable Strategic
Cooperative Network
Dynamic Strategic
Cooperative Network
Click
Here
• arrangements that evolve in
industries with rapid technological
change leading to short product life
cycles
• primarily used to stimulate rapid,
value-creating product innovations
and subsequent successful market
entries
• purpose is often exploration of new
ideas
Return to Discussion Questions
45
Discussion Question 9
What are the competitive risks of
strategic alliances? How is the strategic
approach different if an alliance is
based on a formal contract versus
trust?
46
Competitive Risks with
Cooperative Strategies
Competitive
Risks
• 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
47
Managing Competitive Risks in
Cooperative Strategies
Competitive
Risks
Risk and Asset
Management
Approaches
• Manage the balance between learning from partners while
protecting knowledge and sources of competitive advantages
from excessive learning by partners
• Assign managerial responsibility for a firm’s cooperative
strategies to a high-level executive or team
• Specify resources and capabilities that will be shared and those
that will not be shared (detailed contracts and monitoring)
48
• Develop trusting relationships
Approaches for Managing
Cooperative Strategies

cost minimization
– formal contracts specify how the cooperative
strategy is to be monitored and how partner
behavior is to be controlled

opportunity maximization
– maximize partnership’s value-creation
opportunities
– partners take advantage of unexpected
opportunities to learn from each other and to
explore additional marketplace possibilities
– fewer formal, limiting, contracts
49
Managing Competitive Risks in
Cooperative Strategies
Competitive
Risks
Risk and Asset
Management
Approaches
Desired
Outcome
• Creating value
• Above-average
returns
50