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
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
3
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
4
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
5
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
6
Strategic Network
Strategic
Center
Firm
7
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
8
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)
9
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)
10
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)
11
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
12
Reasons for Strategic Alliances
by Market Type
Market
Standard Cycle
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
13
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
14
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
15
Business-Level Cooperative
Strategies: Complementary Strategic Alliances
Buyer
Buyer
Horizontal Alliance
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
Support Activities
Potential Competitors
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
16
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
17
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
18
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
19
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
20
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
21
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
22
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
23
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
24
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
25
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
– valuable
– rare
– imperfectly imitable
– nonsubstitutable
26
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
27
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
28
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

29
Distributed Strategic Network
Main
Strategic
Strategic
Center
Center
Firm
Firm
= Distributed Strategic Center Firms
30
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
31
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
32
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
33
Network Cooperative Strategies:
Dynamic Strategic Cooperative Network
Stable Strategic
Cooperative Network
Dynamic Strategic
Cooperative Network
• 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
34
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
35
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)
36
• 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
37
Managing Competitive Risks in
Cooperative Strategies
Competitive
Risks
Risk and Asset
Management
Approaches
Desired
Outcome
• Creating value
• Above-average
returns
38