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Strategic

Management:
Concepts and
Cases 9e
Part II: Strategic Actions:
Strategy Formulation
Chapter 9: Cooperative Strategy
The Strategic Management Process
Chapter 9: Cooperative Strategy
Overview: Seven content areas
Cooperative strategies and why firms use them
Three types of strategic alliances
Business-level cooperative strategies & their use
Corporate-level strategies in diversified firms
Cross-border strategic alliances importance as an
international cooperative strategy
Competitive risks with cooperative strategies
Two approaches to manage cooperative strategies
Introduction
Cooperative Strategy
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 competitors
Primary Type of Cooperative Strategy:
Strategic Alliances
Introduction: Strategic Alliance
Cooperative strategy in which firms combine resources and
capabilities to create a competitive advantage

https://www.youtube.com/watch?v=0fX2N4oFHYA
Primary Type of Cooperative Strategy:
Strategic Alliances (Contd)

1. Joint venture
Two or more firms create a legally independent company to
share resources and capabilities to develop a competitive
advantage

(Network Application and Services -


NAS) bagi perusahaan Indonesia,
perusahaan multi-nasional dan
perusahaan Australia yang beroperasi di
Indonesia.
Primary Type of Cooperative Strategy:
Strategic Alliances (Contd)

2. Equity strategic alliance


Two or more firms own a portion of the equity in the venture
they have created

20%
Distribution of
Japanese
games,
animation, and
comic books in
China
80%
Primary Type of Cooperative Strategy:
Strategic Alliances (Contd)

3. Nonequity strategic alliance


Two or more firms develop a contractual relationship to share
some of their unique resources and capabilities to create a
competitive advantage
Licensing
Distribution agreements
Supply contracts includes outsourcing
West Point Stevens
(bedding),
Reebok
(casual shoes),
ICI Paints
(Ralph Lauren Home Products)
Why firms might develop strategic alliances

Alliances can
provide a new source of revenue
be a vehicle for firm growth
enhance the speed of responding to market opportunities,
technological changes, and global conditions
allow firms to gain new knowledge and experiences to
increase competitiveness
Reasons for Strategic Alliances

Market Reason

Slow Cycle Gain access to a restricted market


Establish a franchise in a new market
Maintain market stability (e.g.,
establishing standards)

910 Copyright 2004 South-


Western. All rights
Reasons for Strategic Alliances (contd)

Market Reason

Fast Cycle 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

911 Copyright 2004 South-


Western. All rights
Reasons for Strategic Alliances (contd)

Market Reason

Standard Gain market power (reduce industry


overcapacity)
Cycle 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
912 Copyright 2004 South-
Western. All rights
Business-Level Cooperative Strategy
Defined:
A strategy through which firms combine some of their
resources and capabilities for the purpose of creating a
competitive advantage by competing in one or more product
markets.
Types:
Complementary strategic alliances (CSA)
vertical
horizontal
Competition response strategy
Uncertainty-reducing strategy
Competition-reducing strategy
Business-Level Cooperative Strategy (Contd)

Complementary Strategic Alliances (CSA)


Firms share some of their resources and capabilities in
complementary ways to develop competitive advantages
Partners may have different
Learning rates
Capabilities to leverage complementary resources
Marketplace reputations
types of actions they can legitimately take
Some firms are more effective at managing alliances and
deriving benefits from them
Two forms include vertical and horizontal
Business-Level Cooperative Strategy (Contd)
Business-Level Cooperative Strategy (Contd)

Competition response strategy


Competitors
initiate competitive actions to attack rivals
launch competitive responses to their competitors actions
Strategic alliances (SA)
can be used at the business level to respond to competitors attacks
primarily formed to take strategic vs. tactical actions
can be difficult to reverse
expensive to operate
Business-Level Cooperative Strategy (Contd)

Uncertainty-reducing strategy
For example, entering new product markets, emerging
economies and establishing a technology standard are
unknown areas so by partnering with a firm in the
respective industry, a firms uncertainty (risk) is reduced
Uncertainty reduced by combining knowledge &
capabilities

Samuel Electric Lithium ion battery


for hybrid cars
Business-Level Cooperative Strategy (Contd)

Competition-reducing strategy
Collusive strategies (CS) differ from strategic alliances in
that CS are usually illegal
Two types of CS:
Explicit collusion
Tacit collusion
Business-Level Cooperative Strategy (Contd)

Competition-reducing strategy: Two Collusive Strategies


1. Explicit collusion
Direct negotiation among firms to establish output levels and pricing
agreements that reduce industry competition -- OPEC
2. Tacit collusion
Indirect coordination of production and pricing decisions by several
firms, which impacts the degree of competition faced in the industry
Typically occurs in oligopoly industry

Mutual forbearance firms do not take competitive


actions against rivals they meet in multiple markets
Corporate-Level Cooperative Strategies
(Contd)

Introduction
Corporate-level cooperative strategies (CLCS) help firm to
diversify itself in terms of products offered, markets served or
both
Common CLCS forms (N=3)
Corporate-Level Cooperative Strategies
(Contd)

Common CLCS forms


1. Diversifying strategic alliance
Firms share some of their resources & capabilities to diversify into new
product or market areas
Corporate-Level Cooperative Strategies
(Contd)

Common CLCS forms


2. Synergistic strategic alliance
Firms share some of their resources & capabilities to create economies
of scope
Corporate-Level Cooperative Strategies
(Contd)

Common CLCS forms


3. Franchising
Firm uses a franchise as a contractual relationship to describe and
control the sharing of its resources and capabilities with partners
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

PT Fast Food Indonesia and


Corporate-Level Cooperative Strategies
(Contd)

Assessment of corporate-level cooperative strategies


Costs incurred regardless of type selected
Important to monitor expenditures!
In comparison w/ business-level strategies
Usually broader in scope
More complex and therefore more costly
Can develop useful knowledge and, in order to gain
maximum value should organize and verify proper distribution
with those involved in forming and using alliances
International Cooperative Strategy
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
Why cross-border strategic alliances?
Multinational corporations outperform firms that operate only
domestically
Due to limited domestic growth opportunities, firms look
outside their national borders to expand business
Some foreign government policies require investing firms to
partner with a local firm to enter their markets
International Cooperative Strategy (Contd)

Risks
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
One partner may make investments specific to the alliance
while the other partner may not
Managing Competitive Risks in Cooperative
Strategies
Managing Cooperative Strategy
Two primary approaches
1. Cost minimization
2. Opportunity maximization
Managing Cooperative Strategy (Contd)

1. Cost minimization
Relationship with partner is formalized with contracts
Contracts specify how cooperative strategy is to be
monitored and how partner behavior is to be controlled
Goal is to minimize costs and prevent opportunistic behaviors
by partners
Costs of monitoring cooperative strategy are greater
Formalities tend to stifle partner efforts to gain maximum
value from their participation
Managing Cooperative Strategy (Contd)

2. Opportunity Maximization
Focus: maximizing partnership's value-creation opportunities
Informal relationships and fewer constraints allow partners to
take advantage of unexpected opportunities
learn from each other
explore additional marketplace possibilities
Partners need a high level of trust that each party will act in
the partnership's best interest, which is more difficult in
international situations