PART III
CREATING COMPETITIVE ADVANTAGE
Chapter 7
Cooperative Strategy
1
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Key Terms
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Cooperative strategy
Strategy in which firms work together to achieve a shared
objective
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Relational advantage
Condition which exists when a firm’s relationships with other
firms put it at an advantage relative to rival firms
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Strategic alliance
Cooperative strategy in which firms combine resources and
capabilities to create a competitive advantage
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Most firms lack the full set of resources and
capabilities needed to reach their objectives.
Cooperative behavior allows partners to
create value that they couldn't develop by
acting independently.
Aligning stakeholder interests, both inside
and outside of the organization, can reduce
environmental uncertainty.
Alliances can provide a new source of
revenue.
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Alliances can be a vehicle for firm growth.
Alliances can enhance the speed of
responding to market opportunities,
technological changes, and global conditions.
Alliances are a way that firms can gain new
knowledge and experiences to increase
competitiveness.
Cooperative strategies can enhance strategic
flexibility.
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Key Terms
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Co-opetition
Condition that exists when firms that
have formed cooperative strategies
also compete against one another in
the marketplace
In slow-cycle markets, competitive
advantages are shielded from imitation
for relatively long periods, and imitation
is costly.
Competitive advantages are sustainable.
In fast-cycle markets, competitive
advantages are not shielded from
imitation.
Long-term sustainability is not possible.
In standard-cycle markets, competitive
advantages are moderately shielded
from imitation.
Competitive advantages are partially
sustainable.
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Key Terms
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Equity strategic alliance
Alliance in which two or more firms own a
portion of the equity in the venture they have
created
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Nonequity strategic alliance
Alliance in which two or more firms develop a
contractual relationship to share some of their
unique resources and capabilities to create a
competitive advantage
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Key Terms

Joint venture
Strategic alliance in which two or more firms
create a legally independent company to share
resources and capabilities to develop a
competitive advantage
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Tacit knowledge
Knowledge which is complex and difficult to
codify
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Complementary Strategic Alliances
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Network Cooperative Strategies
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Key Terms

Complementary strategic alliance
Business-level alliance in which firms share some of their
resources and capabilities in complementary ways to develop
competitive advantages
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Vertical complementary strategic alliance
When firms share resources and capabilities from different
stages of the value chain to create a competitive advantage
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Horizontal complementary strategic alliance
When firms share resources and capabilities from the same
stage of the value chain to create a competitive advantage
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Key Terms
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Network cooperative strategy
Cooperative strategy in which multiple firms
agree to form partnerships to achieve shared
objectives
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Gain information and knowledge
from multiple sources
Use heterogeneous knowledge to
innovate
Achieve additional competitive
advantages
Stimulate product innovation critical
to value creation
Firms involved in alliance networks tend
to be more innovative.
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Effective social relationships
and interactions among
partners while sharing
resources and capabilities
Effective strategic center firm
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Outsource and partner with network
members
Encourage other members to outsource
and partner within the network
Foster development of core competencies
and competitive advantages with and
across network members
Serve as gatekeepers to exchange of
information among members
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Stable Alliance Network
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Dynamic Alliance Network
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Formed in mature industries in which
demand is relatively constant and
predictable
Directed primarily toward developing
products at a low cost
Built for exploitation of economies
available between firms
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Used in industries characterized by
environmental uncertainty, frequent
product innovations, and short product life
cycles
Directed primarily toward continued
development of products that are uniquely
attractive to customers
Built to discover new product innovations,
enter new markets, or develop new markets
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Competitive Response Alliances
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Uncertainty-Reducing Alliances
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Competition-Reducing Cooperative
Strategies
Associations And Consortia
Used to respond to competitors'
strategic attacks
Used to reduce environmental
uncertainty
Used to reduce competition in an
industry
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Explicit collusion - direct negotiation
amongst firms to establish output levels
and pricing agreements to reduce
industry competition
Tacit collusion - several firms indirectly
coordinate production and pricing
decisions which impact the degree of
competition faced in the industry
Used to form coalitions with
stakeholders to achieve common
objectives
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Diversifying Strategic Alliances
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Franchising
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International Cooperative Strategies
Cooperative strategies are attractive because
they require fewer resource commitments and
permit greater strategic flexibility.
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Key Terms
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Diversifying strategic alliance
Cooperative strategy in which firms share
some of their resources and capabilities to
diversify into new product or market areas
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Key Terms
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Franchising
Cooperative strategy in which a firm uses a
franchise as a contractual relationship to
describe and control the sharing of its resources
and capabilities with partners
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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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Partners work closely together in ways that
strengthen the brand
Franchisors develop strong programs to transfer
knowledge and skills needed for franchisees to
successfully compete at the local level
Franchisees provide feedback to franchisors
regarding how to become more effective and
efficient
Use the strategy in fragmented industries where
no firm has a dominant share
Franchisees encouraged to own multiple sites
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Key Terms
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Cross-border strategic alliance
International cooperative strategy in
which firms with headquarters in
different nations combine some of their
resources and capabilities to create a
competitive advantage
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Limited domestic growth
opportunities
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Restrictive governmental
economic policies
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To leverage core competencies
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To draw from the local expertise
of partners
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Partners may choose to act opportunistically.
Partner competencies may be
misrepresented.
Partner may fail to make available the
complementary resources and capabilities
that were committed.
Partner may make investments specific to the
alliance while the other partner does not.
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Internalize experiences with successful cooperative strategies
to gain maximum value from the knowledge learned.
Establish appropriate controls to manage both tangible and
intangible assets.
Assign managerial responsibility for cooperative strategy to
high-level executive or team responsible for overseeing the
entire portfolio of alliances.
Include alliances with companies from a variety of value
chain activities.
Increasing the level of trust between partners increases the
likelihood of alliance success and is an efficient way to
influence and control alliance partners' behaviors.
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Cost Minimization
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Opportunity Maximization
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Formalized partnership
relationship – contracts
Goals – minimize costs
and prevent opportunistic
behaviors
Requirements –
monitoring mechanisms
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Informal relationships –
fewer constraints
Goals – maximize
partnership's value-creation
opportunities
Requirements – high level
of trust
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Creates relationship stability
Reduces alliance monitoring costs
Maximizes opportunities to create value
Positively influences partner behaviors
Creates social capital
Increases the likelihood of alliance success
Offers the potential to be a source of
competitive advantage
From an ethical perspective, how much
information is a firm obliged to provide to a
potential complementary alliance partner
about what it expects to learn from a
cooperative arrangement?
“A contract is necessary because most
firms cannot be trusted to act ethically in a
cooperative venture such as a strategic
alliance.” In your opinion, is this
statement true or false? Why? Does the
answer vary by country? Why?
Ventures in foreign countries without
strong contract law are risky because
managers may be subjected to bribery
attempts once their firms’ assets have
been invested in the country. How can
managers deal with these problems?
This chapter mentions international strategic
alliances being formed by the world’s airline
companies. Do these companies face any
ethical issues as they participate in multiple
alliances? If so, what are the issues? Are they
different for airline companies headquartered
in the United States than for those with
European home bases? If so, what are the
differences, and what accounts for them?
Firms with a reputation for ethical
behavior in strategic alliances are likely to
have more opportunities to form
cooperative strategies than companies that
have not earned this reputation. What
actions can firms take to earn a reputation
for behaving ethically as a strategic alliance
partner?