Chapter 9

Cooperative
Strategy
Michael
Michael A.
A. Hitt
Hitt
R.
R. Duane
Duane Ireland
Ireland
Robert
Robert E.
E. Hoskisson
Hoskisson

©2000 South-Western College Publishing

Ch9
 Chapter 2
Strategic External
Environment
The Strategic
Management
Inputs
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Process

Strategy Formulation Strategy Implementation

Chapter 4 Chapter 5 Chapter 6 Chapter 10 Chapter 11

Business-Level Competitive Corporate-Level Corporate Structure
Strategic
Actions

Strategy Dynamics Strategy Governance & Control

Chapter 7 Chapter 8 Chapter 9 Chapter 12 Chapter 13

Acquisitions & International Cooperative Strategic Entrepreneurship
Restructuring Strategy Strategies Leadership & Innovation
Outcomes
Strategic

Strategic
Competitiveness
Above Average
Feedback
Returns
Ch9
Strategic Alliances Firm A
Firm B
Partnerships between firms
where their
Resources
Capabilities
Core
are combined to pursue Competencies
mutual interests to

Develop
Goods
Manufacture
Distribute Services
Ch9
 Types of Strategic Alliances
Joint Venture
Independent firm is created by the joining assets from two
other firms where each contributes 50% of the total
Example: Dow Corning from Dow Chemical and Corning Inc.

Equity Strategic Alliance

Partnership where the two partners do not own equal shares
Example: Chrysler and Mitsubishi Automotive

Non-Equity Strategic Alliance

Contract is given to supply, produce or distribute a firm’s
goods or services (without equity sharing)
Example: Chrysler’s supplier network Ch9
Reasons for Alliances by Market Type
Slow Gain access to a restricted market
Cycle Establish franchise in a new market
Market Maintain market stability

Gain market power

Gain access to complementary resources
Standard Overcome trade barriers
Cycle Meet competitive challenge
Market Pool resources for large projects
Learn new business techniques

Increase speed of product, service or market entry

Fast Maintain market leadership
Cycle Form an industry technology standard
Market Share risky R&D expenses
Overcome uncertainty Ch9
 Types of Strategic Alliances

Complementary Alliances
Competition Reduction Alliances
Business-
Level Competition Response Alliances
Uncertainty Reduction Alliances

Diversification Alliances
Corporate-
Synergistic Alliances
Level
Franchising
Ch9
 Types of Business-Level Strategic Alliances
Complementary Strategic Alliances
Partnerships that build on the complementarities
Supplier Value Chain
among firms that make each more competitive

Include distribution, supplier or

outsourcing alliances where
firms rely on upstream or
downstream partners to build
competitive advantage
Buyer Value Chain
Vertical
Alliance
Example: Japanese manufacturers
rely on close relationships among
suppliers to implement Just-In-Time
inventory systems
Ch9
Types of Business-Level Strategic Alliances
Complementary Strategic Alliances
Used to increase the strategic competitiveness of the partners

Supplier Value Chain Buyer Value Chain

Horizontal
Alliance

Example: Product development agreements between Microsoft

and Dreamworks SKG
or
Joint ventures between BMG Entertainment and
Universal Music Ch9
Types of Business-Level Strategic Alliances
Competition Reduction Strategies
Avoiding competition by using tacit collusion such as price fixing
Example: OPEC petroleum cartel

Competition Response Strategies

Firms join forces to respond to a strategic action of
another competitor
Example: DirecTV has agreement with Time
Warner for exclusive programming

Uncertainty Reduction Strategies

Alliances can be used to hedge against risk and uncertainty
Example: ATT acquires Teleport, a provider of
telecommunications services to business customers
Ch9
Types of Corporate-Level Strategic Alliances
Diversifying Alliances
Allows a firm to expand into a new product or market area
with an acquisition
Example: Samsung Group joins with Nissan
to build new autos

Synergistic Strategic Alliances

Create economies of scope between two or more firms,
creating synergy across multiple businesses between firms
Example: Sony shares development with many small firms

Franchising
Allows firms to grow and relatively strong centralized control
without significant capital investments
Example: McDonald’s or Century 21 Ch9-
 International Cooperative Strategies

Allows risk sharing by reducing financial investment

Host partner knows local market and customs

However....

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

Ch9-
 Network Strategies

Network strategies involve a group of interrelated firms

that work for the common good of all
Example: Japanese keiretsus or U.S. R&D consortia

Stable Networks

The
The three
three types
types Dynamic Networks
of
of networks:
networks:
Internal Networks
Ch9-
 Network Strategies
Stable network
Long term relationships that often appear in mature
industries with largely predictable market cycles
Example: NIKE’s relationships with suppliers and distributors

Dynamic network
Arrangements that evolve in industries with rapid
technological change leading to short product life cycles
Example: Apple computer and Sharp electronics

Internal network
Management system used to coordinate a global web of
suppliers and customers
Example: Asea Brown Boveri’s network
Ch9-
Competitive Risks with Cooperative Strategies
While cooperative systems can offer many advantages,
there are also significant risks associated with them
Poor contract development

Misrepresentation of partners’ competencies

Failure of partners to make complementary resources

available

Being held hostage through specific investments made

with partner

Misunderstanding a partner’s strategic intent

Ch9-
Managing Risks in Cooperative Strategies

Competitive Risks Risk and Asset Outcome

* Inadequate Management
contracts Approaches Value
Creation
* Misrepresentation * Detailed
of competencies
contracts and
* Partner fails to use monitoring
complementary
resources * Developing
trusting
* Holding alliance relationships
partner’s specific
investments
hostage
Ch9-