Bachelors Thesis 123

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The concept of Coopetition

Simultaneous competition and cooperation


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Bachelors Thesis

Department Organization & Strategy

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Management summary

Traditionally the relationships between competitors in the industrial market to

gain a competitive advantage have been based on competition. Now, a major

strategic action is to put together a network of firms to build the set of capabilities

necessary to deliver high value to the customer. The way firms assemble this

network of firms is through developing strong relationships with other firms who

can add value to the market offering. Firms seek access to the necessary resources

through cooperation with other firms to improve their competitive position and

performance by sharing resources. Next to competing and cooperating there is

another relationship between vertical and horizontal actors. Success in todays

business world often requires that firms pursue both competitive and cooperative

strategies simultaneously in order to gain a competitive advantage. This is called

coopetition, and the central question that needs to be answered is;

How does coopetition lead to a sustainable competitive advantage for firms?

The structure of the thesis contains clear building blocks. Information is given on

the different types of competitors relationships that exist. The characteristics of

the concept of coopetition are described, as well as the value gained by this type

of strategy, and how competition and cooperation are to be balanced. Conflict

between individuals can also arise due to the fact that coopetition is a complex

strategy. Consequently, coopetition does lead to a competitive advantage and it is

up to management to maximize its advantages.

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Acknowledgment

I want to thank everyone who has given me a contribution and support in

completing this thesis. The group meetings and criticisms were especially

important as I was challenged to focus on the important issues concerning this

topic.

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Index

Management summary.........................................................................................................3

Acknowledgment ................................................................................................................4Chapter 1 Introduction

..............................................................................................................................................6

1.1 Introduction................................................................................................................61.2 Problem indication.....................................................................................................6

1.3 Problem statement......................................................................................................8

1.4 Research questions ....................................................................................................81.5 Research design & data collection.............................................................................8

1.5.1 Research design..................................................................................................8

1.5.2 Data collection....................................................................................................9

1.6 Structure of the thesis.................................................................................................9Chapter 2 Relationships between competitors...................................................................102.1 Introduction..............................................................................................................10

2.2 Competitors relationships........................................................................................10

2.3 Horizontal relationships...........................................................................................12

Chapter 3 Coopetition........................................................................................................183.1 Introduction..............................................................................................................18

3.2 The concept of Coopetition......................................................................................18

3.3 Forms of interaction in Coopetition ........................................................................203.4 Summary..................................................................................................................22

Chapter 4 The benefit of coopetition.................................................................................23

4.1 Introduction..............................................................................................................234.2 Value creation..........................................................................................................23

4.3 The balance between cooperation and competition.................................................24

4.4. Individuals in coopetition.......................................................................................25

4.5 Summary..................................................................................................................26Chapter 5 Conclusion, discussion & recommendations ...................................................27

5.1 Conclusion...............................................................................................................27

5.2 Discussion................................................................................................................285.3 Recommendations....................................................................................................29

References..........................................................................................................................30

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Chapter 1 Introduction

1.1 Introduction

This document is a bachelor thesis. This thesis will give an addition to the already

existing research concerning the various relationships between firms.

This chapter contains the baseline on how this research is performed. The

problem indication is included in paragraph 1.2, followed by the problem

statement in paragraph 1.3. Paragraph 1.4 contains the sub-questions. The

research design and data collection are located in paragraph 1.5 and finally in

paragraph 1.6 the structure of the thesis is presented.

1.2 Problem indication

In business networks relationships there are two types of relationships between

competitors; vertical and horizontal. In the relationships between competitors,

Bengtsson and Kock (2000) argue that cooperation and competition are visible,

as the different relationships provide the firm with different advantages. There

are different types of relationships between competitors in horizontal

relationships, and these differ from vertical relationships (Easton and Araujo,

1992). It is important to understand the link between competitors in these

relationships and how these firms strive for competitive advantage.

Traditionally the relationships between competitors in the industrial market to

gain a competitive advantage have been based on competition (Bengtsson &

Kock, 1999), but just carefully watching ones competitors is not enough. Now, a

major strategic action of the firm is to put together a network of firms to build the

set of capabilities necessary to deliver high value to the customer. The way firms

assemble this network of firms is through developing strong relationships with

other firms who can add value to the market offering (Kothandaraman &Wilson,

2001). Firms seek access to the necessary resources through cooperation with

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other firms to improve their competitive position and performance by sharing

resources, as 80% of companies find themselves very dependent on external

sources for their success (Lichtenthaler & Lichtenthaler, 2004). Cooperation

therefore has become increasingly important in the modern business

environment. In literature, cooperationamong competitors is analyzed and

argued to be advantageous. The resources and capabilities of firms are combined

and this has in affect that these firms can compete better with their rivals, which

can lead to a competitive advantage (Bengtsson & Kock, 2000).

Next to competing and cooperating there is another relationship between vertical

and horizontal actors. Success in todays business world often requires that firmspursue both competitive and cooperative strategies simultaneously (Lado, Boyd

& Hanlon, 1997). If the elements of cooperation and competition are visible, the

relationship between the competitors is named coopetition (Bengtsson & Kock,

2000). Coopetition goes beyond the old rules and combines competition and

cooperation to give companies a competitive advantage (Luo, 2007). To give an

example, Philips and Sony collaborate to develop and manufacture new DVD

players, but compete intensively in other product categories. These firms

cooperate on one end and compete on the other end.

How and in which situations does a company choose cooperation? What is

coopetition and how does it lead to competitive advantage? Since little research

has considered that two firms can be involved in and benefit from both

cooperation and competition simultaneously (Bengtsson & Kock, 2000), the

purpose of this study is to analyze how companies are involved in and take

advantage from this kind of relationship. These types of relationships are of

strategic importance for managers within competing companies.

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1.3 Problem statement

The central question in this thesis is:

How does coopetition lead to a sustainable competitive advantage for firms?

This research studies the concept of coopetition, to give a better understanding of

what it is and its importance to the business environment. The main focus of this

research is to analyze the advantages, the elements for success and how the mix

of this concept leads to a sustainable competitive advantage. The relationships

between competitors will be studied and it will give a clear picture how

coopetition influences the nature of business relationships.

1.4 Research questions

The problem statement is divided into three research questions which are:

What are the different relationships between competitors in the business

network?

What are the characteristics of coopetition?

How do companies benefit from the effect that coopetition has on the

business relationships?

1.5 Research design & data collection

1.5.1 Research design

This research is descriptive in order to ascertain and to be able to describe the

characteristics of the variables (Sekaran, 2003), in this case it the concept of

coopetition. A qualitative study will be performed to answer the problems

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statement. The method that will be used is a literature research; a comprehensive

review of published and unpublished literature from secondary data sources

(Sekaran, 2003). It will be based on earlier research with additional comments

that will be explored. The research questions will be answered with the help of

existing theories and literature.

1.5.2 Data collection

This research will contain secondary data, which is the documentation of a

comprehensive review of published and unpublished work from secondary

sources (i.e. information gathered by other people) of data (Sekaran, 2003). The

data is found in academic books, academic papers, journal articles, government

publications and study books (Sekaran, 2003). These data are also found in theOnline Database of Tilburg University and other databases such as ABI-

INFROM, JSTOR and Science Direct. A few examples of journals are; Strategic

Management journal, Management Science and the journal of Management.

These resources are full of theories and studies about the overall environment of

a firm. Some of the keywords that are used to find the necessary information are:

competitors, cooperation and coopetition.

The limitations are that each article was written in a certain perspective and each

article must be interpreted in context.

1.6 Structure of the thesis

The basic structural guideline will be stated as follows. Chapter 2 describes the

various relationships among the competitors. In chapter 3 the topic of

coopetition is analyzed and its characteristics are described. Chapter 4 gives

insight on how companies benefit from coopetition and finally the conclusions,discussion and recommendations of this research are presented in chapter 5.

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Chapter 2 Relationships between competitors

2.1 Introduction

This chapter describes the relationships between the actors in the business

network. First in paragraph 2.2 the various relationships between competitors

are addressed. Four types of horizontal relationships among competitors are

described in paragraph 2.3 and in paragraph 2.4 the summary is given.

2.2 Competitors relationships

Through interactions with other firms, a firm can develop and expand its

business. Inter-firm relationships realize the true potential of the value-creation

in business network (Morgan and Hunt, 1994). Relationships between

competitors differ depending upon the companies' motives for action and how

intensely competitors interact with each other. The degree of distance between

competitors is also of importance for the kind of relationship that emerges. The

degree of distance can be related to the degree of dependency between

competitors, meaning that the more dependant these competitors are on each

other, the closer they will work together (Easton, Burrell, Rothschild &

Shearman, 1993).

Caves and Porter (1977) point out that competition within a business group (or

strategic group) is less intensive then between business groups. They argue that

competitors within a business group tend to avoid rivalry, because mutual

dependence can be more easily understood by firms within the same business

group.


competitors; vertical and horizontal (Quintana-Garca & Benavides-Velasco,

2004). In studying business networks, the relationships between competitors

have not been analyzed to the same extent as vertical relationships (Bengtsson

and Kock, 2000). Even though similarities can be found, vertical and horizontal

relationships are, in many senses, totally different types of relationships.

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Cooperative relationships between vertical actors, i.e. buyers and sellers, are

easier to grasp as they are usually visible and are built on a distribution of

activities and resources among actors in a supply chain. In comparing vertical

and horizontal relationships, the vertical ones are often built upon a mutual

interest to interact, whereas competitors often are forced to interact with each

other, giving rise to rivalry and mutual dependence between them (Bengtsson &

Kock, 1999). Horizontal relationships are more informal and invisible in that

information and social exchanges are more common than economic exchange. In

addition, vertical relationships often contain economic exchange (Easton and

Araujo, 1992) which seldom is the case in horizontal relationships as these

relationships are built mainly on information and social exchanges. Horizontal

relationships can be as important as vertical relationships for a focal firm whencarrying out activities in a network context.

It is obvious that the trades-offs between cooperation/harmony in vertical

relationships and competition/conflict in horizontal relationships, respectively,

are of different natures and accordingly have to be managed differently (Gadde,

Lars-Erik, Mattsson, Lars-Gunnar, 1987). Contrary to vertical relationships,

relationships between competitors often are conflicting, as the interests of

competitors often cannot be fulfilled simultaneously. Competitors therefore try to

avoid interaction, whereas buyers and sellers try to maintain interaction

(Quintana-Garca & Benavides-Velasco, 2004). Competitors are almost always

informed about each others movements, often through buyers, but also directly,

for example through trade fairs, brochures, meetings, buying competitors

products (Bengtsson, 1998).

In the relationships between competitors, it has been shown in that both

competition and cooperation are advantageous, asactors must compete to a

certain extent to make the business network effective and there is a demand for

cooperation to create long term relationships (Mattsson, Lars-Gunnar, Lundgren,

Anders, 1992; Wilkinson, Ian F., Young, Louise C, 1995).

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2.3 Horizontal relationships

Easton et al. (1993) argue that relationships between competitors differ

depending upon the companies' motives for action and how intensely

competitors interact with each other, and that the degree of distance betweencompetitors is of importance for the kind of relationship that emerges.

When analyzing the nature of the relationships between competitors, four

different types of horizontal relationships can be identified (Easton and Araujo,

1992). These are coexistence, competition, cooperation and coopetition.

2.3.1 Coexistence

Bengtsson and Kock (1999) state that this relationship does not include any

economic exchange, it includes merely information and social exchanges. The

competitors usually know about each other but do not interact with each other.

Power is commonly derived from an actor's dominating position or strength, and

this means that dependence is present, as the smaller actors are in the hands of

the larger actor. There is distance between the competitors, based on

psychological factors. Trust must be regarded as high, but informal, as one actor

is dependent on the other actor not interfering with him. Norms are informal and

quite strong, though the rules of play are not discussed. The competitors' goals

are stipulated independently.

2.3.2 Competition

The idea behind competition, one part of the coopetitive relationship, is built on

the assumption that individuals act to maximize their own interest (Hobes, 1973).

Abrahamsson (1992), states that the assumption that rational ego-centered self-

interest steers human action means that the individual will not participate incollective action. The different self-interests are in conflict with each other, which

in consequence mean that people compete against each other to best fulfill their

own self-interests.

According to Kohn (1986), competition in business is defined as "the effort of two

or more parties acting independently to secure the business of a third party by

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offering the most favorable terms". Bengtsson and Kock (2000), define

competition as the conflicting and rivaling relationship between competitors.

As the world becomes more complex, the analytical task of managers is also

becoming more complex as they can no longer just examine the major

competitor, but must examine the network of firms that relate to that competitor

(Kothandaraman & Wilson, 2001).

Todays business networks are complex gatherings of different kinds of

relationships, which mean that the traditional neoclassical way of analyzing

competition is no longer valid. A focal firm can be, and usually is, involved in

several different relationships at the same time in order to defend its position in

the business network (Bengtsson & Kock 2000).

It is argued that competition in the future will shift to the network level from thefirm level (Kothandaraman & Wilson, 2001), as data suggest that increasingly

competition occurs between sets of allied companies rather than between

individual firms (Dyer, Kale & Singh, 2001). Competition may stimulate

innovation, encourage efficiency, or drive down prices, because in order for

companies gain competitive advantage, it is a must to provide the best services to

customers (Kohn, 1986).

An action-reaction pattern arises as competitors follow each other; if one of the

competitors launches a new product line, the other will immediately follow.

Interactions are therefore simple and direct (Easton and Araujo, 1992).

2.3.4 Cooperation

During the 1990s markets have become increasingly global, there was a boom in

technology, and product life cycles became shorter. As a result, there was a shift

in strategy and cooperation became more common and the formation rate of

inter-firm collaborations has increased in recent years (Faulkner & Rond, 2000).Cooperation is defined as a joint-action between two parties (Toumela, 1992).

During the last decades firms have been approaching each other more often to

cooperate, to form innovating strategies and collaborations to achieve a better

competitive position (Dunning & Narula, 1995). One of the main reasons

companies enter into cooperative agreement is to get a sustainable competitive

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advantage (Liao, Chang & Lee, 2007). Thus, firms seek access to the necessary

resources through cooperation with other firms to improve their competitive

position and performance by sharing resources.

Cooperation has been a key strategic emphasis since the last decade

(Lichtenthaler & Lichtenthaler, 2004) and it must be effectively managed for its

benefits to be realized. In a business environment where some businesses would

not survive without a partner it important task is how to effectively evaluate and

select a partner (Ireland, Hitt & Vaidyanath, 2002). A successful cooperation

partner selection can therefore reduce the possible risk and avoid failure results

on business cooperation (Liao, Chang & Lee, 2007). Makadok (2001) states that

there are two types of competitive advantages created by cooperation. The first

one results from a successful collaboration in which complementary resources

are integrated to create value. And competitive advantage is developed when a

companys cooperation management skills are superior to competitors. Therefore

firms can create value by learning how to successfully manage cooperative

relationships.

According to Easton and Araujo (1992) exchanges are frequent, comprising

business, information and social exchange and this relationship has similaritieswith the value chain and can have a formal or informal character. Formal

agreements are present if the competitors have formed partnerships, and

informal agreements are built on social norms and trust. These norms, and

sometimes formal agreements, adjust the distribution of power and dependence

among the competitors, which means that conflicts are rare and furthermore,

competitors have common goals.

Motives for cooperation

A business can strengthen its competitive advantage and increase its market

share by forming a cooperative agreement with a partner. Through cooperation

businesses can bring to bear significant resources beyond the capabilities of the

individual cooperating firms (Byrne, 1993) therefore, the formation rate of inter-

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firm collaborations has increased dramatically in the last decade (Dyer, Kale &

Singh, 2001). Often, these partnerships bring together firms with complementary

core competencies that enable the firms to enter new markets, deal with trade

barriers, and develop new products (Mason, 1993).

Jarillo and Stevenson (1991) state that companies are stronger with their partners

than they would be on their own; cooperation allows them to divide the costs for

developing new products among the cooperating companies. Thus, each company

can concentrate on its distinctive competences, while capturing efficiencies in

other firms who, in turn, concentrate their efforts in their areas of expertise.

These motives are the primary reasons for entering a cooperative arrangement

with another company. All these motives emphasize one main purpose; to

achieve a sustainable competitive advantage (Dunning & Narula, 1995; Liao,

Chang & Lee, 2007; Ireland et al., 2002).

The need for external resources is also, however, the main driving force behind

establishing long-term cooperative relationships to secure access to unique

resources (Hgg, Ingemund, Johanson & Jan, 1982). Through cooperation,

companies can gain access to the other firms unique resources or share the cost

of developing new unique resources (Kock, 1991).

Advantages of cooperation

The advantages derive from the motives to form a cooperative agreement. As

noted earlier, firms seek to leverage their resources through cooperation to

achieve a competitive advantage. Advantages of cooperation can be gained in

technology, in global issues, organizationally and financially.

TechnologicallyFirms share knowledge on process innovation and product innovation in order to

improve each others competitive advantages in respective markets. Firms seek

partners with resources that are complementary to their own (Ireland et al.,

2002) and so cooperate in jointly developing, sharing, and exploiting various

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operational resources and capabilities. That way specific assets not currently

possessed by the firm can be accessed through the partner (Faulkner, 2000).

Global

Through cooperation, global and regional distribution channels are shared. Thus,

initial international expansions of inexperienced firms are objectives that are

facilitated (Luo, 2005). These objectives are more easily achieved with a partner

(Lado et al., 1997), because companies also share experiences and practice in

dealing with local business stakeholders, and in overcoming liabilities of

foreignness such as cultural differences (Luo, 2005).

Organizationally

Firms cooperate in developing, sharing, and exploiting a large array of

managerial experience and organizational capabilities. These firms cooperatively

develop, transfer, and share managerial knowledge, such as management

information systems, team-work programs, output control, and administrative

rules and procedures (Luo, 2005), and so through organizational learning it

enables an improved strategic position to be achieved (Kogut, 1988).

Financially

Firms cooperate in intra-corporate financing, as well as sharing experience in

managing cash flows, and formulate viable policies toward working capital

management (Luo, 2005). This way the need to minimize costs and to spread the

financial risk is facilitated (Faulkner, 2000). Through the sharing of financial

resources firms can overcome government mandated trade and investment

barriers (Contractor & Lorange, 1988).

Experience in managing cash flows, capital structure, workingcapital, assets and

foreign exchange is gained (Luo, 2005). Thus, making an extensive use of

cooperation lets a company, and this is particularly important for young, fast

growing companies, to blow through the limits of sustainable growth, since they

do not have to bear all the investments required by the developments (Jarillo &

Stevenson, 1991).

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2.3.5 Coopetition

The next relationship is coopetition and it involves simultaneous cooperation and

competition. The focus of this study is on coopetition and is its description and

characteristics are further described in the rest of thesis.

2.4 Summary

Through interactions with other firms, a firm can develop and expand its

business, as competitors work together to obtain a competitive advantage.

Relationships between competitors differ depending upon the companies'

motives for action and how intensely competitors interact with each other.


competitors; vertical and horizontal. There are four types of horizontalrelationships between competitors that are identified. First, coexistence, in which

competitors know each other but do not interact. Secondly, competition, in which

competitors compete constantly. Thirdly, cooperation, in which competitors work

together with one another and fourthly, coopetition, in which there is

simultaneous cooperation and competition between competitors.

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Chapter 3 Coopetition

3.1 Introduction

In this chapter the characteristics of coopetition are described. In paragraph 3.2 a

description of the concept coopetition is given. Paragraph 3.3 describes the

different forms of interaction in cooperation and paragraph 3.4 summarizes the

chapter.

3.2 The concept of Coopetition

Coopetition is an important strategy that goes beyond competition and

cooperation to achieve the advantages of both (Brandenburger & Nalebuff, 1996).

Through cooperative relationships, rivals work together to collectively enhance

performance by sharing resources and committing to common goals in certain

domains, for example product-market or value-chain activities. At the same time,

they compete by taking independent actions in other domains to improve their

own performance (Luo, 2004). Under the coopetition scheme, rivals cooperate in

some areas while competing in others (Lou, 2007)

Bengtsson and Kock (2000) state that actors involved in coopetition are involved

in a relationship that on the one hand consists of hostility due to conflicting

interests (i.e. competition) and on the other hand consists of friendliness due to

common interests (i.e. cooperation).

Barney and Hoskisson (1990) state that companies have unique characteristics

and through their own efforts, they can develop new resources and new

preconditions for competition. Personnel knowledge and skills, as well as the type

of machinery and products are not homogeneous across the population of

competitors. Thus, through specific resources a firm can create a competitive

advantage and be able to serve customers better than its competitors and to be

unique in ways of serving the customers can be means in the development of

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competitive relationships within an industry. Heterogeneity in resources can

promote coopetitive relationships, as unique resources can be advantageous both

for cooperation and competition (Kock, 1991).

Coopetition can be regarded as an effective way of handling both cooperation and

competition between competitors (Bengtsson & Kock, 2000). Consequently

cooperation is important for utilizing the companys limited resources in the most

efficient way. And through competition, competitors are forced to further develop

their products and carrying out their activities in the most efficient way, thereby

gives rise to a pressure to develop new products and markets (Ilinitch, Richard &

Lewin, 1996).

To give a clear picture how coopetition is balanced between competitors an

illustration is given in table 3.1. This is an example from an empirical study of

Bengtsson and Kock (2000) and it shows in which scenarios companies

cooperate and otherwise compete.

Table 3.1 Coopetitve relationships (Bengtsson & Kock, 2000)

Bengtsson and Kock (2000) state that in these relationships, competitors

cooperate with the input activities and compete in the output activities. As seen

in the table, in the lining industry companies worked together to develop new

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materials, but when it came to selling these products each company did it their

own way. Each company used its own marketing campaign to sell their products,

thus competing with the same companies they cooperated with. In the brewery

industry the cooperative and competitive interactions were separated between

different parts of the value chain. The competitors compete in the distribution of

beer to wholesalers but cooperate in bottle returns. The competitors have also

developed a common system of packing that makes cooperation in bottle return

easier. The competitors are very positive to the cooperation, as they can achieve a

more rational and cost efficient way of solving the problem with the collection of

empty bottles. In the Dairy industry all the actors have implemented a joint

system of transport containers for the distribution of products. And then each has

its own unique way of selling these products, thus in a form of competition.

In the relationship of coopetition, competition often takes place close to

customers while competitors can cooperate in activities more distant from the

customer. Bengtsson and Kock (2000) state that in coopetitive relationships, the

closeness of activities to the buyer seems to matter, as their empirical findings,

point out that the firms tend to more frequently cooperate in activities carried out

at a greater distance from buyers and compete in activities closer to buyers. The

driving force behind this behavior is the heterogeneity of resources, as each

competitor holds unique resources that sometimes give a competitive advantage

and sometimes are best utilized in combination with other competitors

resources. For example R&D activities can be carried out in cooperation with a

competitor, but when it comes to launching a new product, competitors choose to

compete to distinguish the products from each other.

3.3 Forms of interaction in Coopetition

Bengtsson and Kock (2000) state that all coopetitive relationships are complex as

they are built around different logics of interaction.

The relationship of coopetition can differ depending on the degree of cooperation

and the degree of competition. On one hand, it can have a relationship between

two competitors consisting only of cooperation. On the other hand, there are

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relationships between two competitors consisting solely of competition (Lado,

Boyd & Hanlon, 1997). Between these two relationships there can be at least three

types of coopetitive relationships depending on the degree of cooperation and

competition (Quintana-Garca & Benavides-Velasco, 2004).

1. Cooperative-dominated relationships: coopetitive relationships consisting of

more cooperation than competition. This strategic behavior represents a

situation where relationships between partners consist of more cooperation

than competition, seeking mutual benefits by pooling complementary

resources, skills, and capabilities. In this case, the common goals are more

important than one actors profit maximization or opportunism. Partners

contribute to the total created value in the relationships, and they are satisfiedwith a smaller share of the profit to maintain the relationship (Bengtsson and

Kock, 2000).

2. Equal relationships: cooperation and competition are equally distributed. An

equal relationship may be explained by structural conditions within an

industry that force companies to act in rivalry relatively to each other, such as

social conditions and dependence. The dependence between competitors due

to structural conditions can explain why competitors cooperate and compete

at the same time (Quintana-Garca & Benavides-Velasco, 2004). However,

Bengtsson and Kock (2000) state that the two different types of interaction

are not divided between counterparts but between activities. This relationship

can give rise to internal disagreement and the activities where competitors

interact in cooperation and in competition must be separated.

3. Competition-dominated relationships: coopetitive relationships consisting of

more competition than cooperation. They reflect a firms orientation to

achieve a position of superior performance and to generate competitive

advantage over other firms by either manipulating the structural parameters

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of an industry to its advantage (Porter, 1985) or developing difficult to imitate

distinctive competencies (Barney, 1991).

3.4 Summary

Coopetition is the term used when cooperation and competition are

simultaneously present in a business relationship. Coopetition can be regarded as

an effective way of handling both cooperation and competition between

competitors. In the relationship of coopetition, competition often takes place

close to customers while competitors can cooperate in activities more distant

from the customer. The driving force behind this behavior is the heterogeneity of

resources, as each competitor holds unique resources that sometimes give a

competitive advantage and sometimes are best utilized in combination with other

competitors resources. The relationship of coopetition can differ depending on

the degree of cooperation and the degree of competition. There a three types of

coopetition relationships; cooperative-dominated relationships, equal

relationships and competition-dominated relationships.

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Chapter 4 The benefit of coopetition

4.1 Introduction

The way companies benefit from coopetition is of great importance to the thesis.

Bengtsson and Kock (2000) observed a few factors that are of importance for the

success of the coopetition strategy. These factors are described in this chapter,

starting in paragraph 4.2 with the value that coopetition gives firms, followed by

importance of the right balance between cooperation and competition in

paragraph 4.3. The role of individuals firms with the coopetition strategy is

described in paragraph 4.4 and finally the summary is given in paragraph 4.5.

4.2 Value creation

As previously described coopetition strategy concerns inter-firm strategy which

allows the firms involved to manage a partially convergent interest and goal

structure and to create value by means of coopetitive advantage (Bengtsson and

Kock, 2000; Quintana-Garca & Benavides-Velasco, 2004). Dagnino and Padula

(2002) state that coopetition leads to value creation and it is considered a two-

dimension concept. Two kinds of value creation are introduced; knowledge value

and economic value. The knowledge value is given by the growth in the inter-firm

knowledge stock that the coopetitive strategy is able to grant. The economic value

is represented by the added value in terms of inter-firm cost reduction or revenue

increase that through the coopetitive strategy is obtained. The benefits in terms

of knowledge and economic value outspreading from these kinds of relationships

are addressed next.

These scholars argue that knowledge value is added by intense communication

and information flows, inter-industry new knowledge creation and transfer,which in turn, allow more knowledge stock.

Economic value is achieved through reduced aggressive profit and fund sharing

arrangements, and through increased R&D investment, workforce training

investment, joint R&D and production. Due to the sharing of knowledge and

resources in R&D, products are developed in a more efficient manner, which also

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contributes to the reduction of the costs (Faulkner, 2000). Thus, through the

creation in knowledge value and economic value a competitive advantage can be

achieved.

4.3 The balance between cooperation and competition

A firm is usually assumed to cooperate with one competitor and compete with

another, thereby participating in totally different relationships with different

actors. Therefore it is of importance to emphasize both the cooperative and

competitive dimensions of a relationship.

It is of crucial importance to separate the two different parts of the relationship to

manage the complexity and thereby make it possible to benefit from such a

relationship (Bengtsson and Kock, 2000). According to Quintana-Garca &Benavides-Velasco (2004), power in the cooperative side of the relationship is

based on functional aspects in accordance with the value chain, while in the

competitive side of the relationship power is based on the actor's position and

strength.

Ring and Van de Ven (1992) argue that in a similar manner, dependence arises in

two ways. When cooperating, dependence is stipulated in formal agreement.

When competing, the dependence is related to the actor's strength and position

in the business network, and is more equally distributed. These scholars also

state that conflicts are rare in cooperation as the competitors live in harmony, but

in competition they arise frequently. There are also clear norms when

cooperating, partly based on the formal agreement. When competing, invisible

norms are a part of the competition climate. Goals are jointly stipulated when the

competitors cooperate, while this is not the case when they compete.

Two competitors can complement each other by creating new markets, but willcompete when it comes to separating the markets and these kinds of cooperative

relationships among firms may actually enhance competition, rather than hinder

it (Hunt, 1996). Thus, the advantage of coopetition is the combination of a

pressure to develop within new areas provided by competition and access to

resources provided by cooperation (Quintana-Garca & Benavides-Velasco,

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2004).The coopetition strategy has a positive effect on capacity to innovate to a

greater extent than pure cooperative or competitive strategy (Bengtsson and

Kock, 2000). Lado et al. (1997) state that the syncretism between competition

and cooperation will promote greater knowledge seeking, development and

progress than either competition or cooperation pursued separately. So, this

implies that a proper equilibrium between cooperation and competition may

affect success and growth in a positive way.

4.4. Individuals in coopetition

In the coopetition scheme, internal conflicts can arise between cooperative and

competitive logics of interaction in the relationships (Bengtsson and Kock,

2000). The internal conflict can be explained by the fact that the meaning thatindividuals ascribe to their own operations can differ from one individual to

another, as individuals exist and act in different contexts that can be more or less

competitive or cooperative (Lowerence & Loarch, 1967). This can lead to the

development of sub-optimized goals in different functions of the organization.

Bengtsson and Kock (2000) argue that the conflict not need be seen as a threat,

instead it must be accepted and as issue for managerial considerations within the

organization. The goals of individuals can be similar even if different means are

used to achieve these ends, as some individuals can use competition as a means

to obtain common organizational goals whereas other can use cooperation as a

mean to obtain the same goals. These scholars state that it is of great importance

to make the individuals within the organization aware of the advantages of

cooperation and competition, respectively, to help them accept that different

individuals contribute to the coopetitive relationship in different ways, and that

they together enhance the business of the firm. An organizations interaction in

cooperation and in competition therefore has to be divided between individuals.The goals of the individuals are then jointly stipulated in cooperation, but not, of

course, in competition.

In their study Bengtsson and Kock (2000) observed that in some cases, the same

individuals are involved in both cooperative and competitive activities. These

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scholars argue that in such a case, an intermediate actor, for example, a collective

association, is needed to coordinate and define how to compete or how to

cooperate with each other. The intermediate actor thereby exhibits a formal logic

of interaction collectively agreed upon and accordingly the forming of a strategic

alliance around one or the other of the to activities could also be a alternative

whereby one of the two parts of the relationship is detached from the hierarchy.

It is thereby possible for individuals within the hierarchy and individuals in the

alliance to participate in one or other part of the relationship and together to

contribute to the maintenance of the coopetitive relationship.

Thus, firms have a managerial task on how individuals are to operate in the

coopetition strategy, in order to benefit from this type of strategy.

4.5 Summary

There are a few issues that are of importance for the success of the coopetition

strategy. Coopetition leads to value creation and it is considered a two-dimension

concept; knowledge value and economic value. Knowledge value is gained

through intense communication and information flows between firms and

economic value is achieved through fund sharing arrangements that leads to

lower cost. It is also of importance to emphasize both the cooperative and

competitive dimensions of a relationship. It is of crucial importance to separatethe two different parts of the relationship to manage the complexity. This implies

that a proper equilibrium between cooperation and competition may determine

the success of the coopetitive relationship. Finally individuals can not cooperate

and compete with each other simultaneous, and therefore the two logics of

interactions need to be separated. The two logics of interaction inherent in

coopetition can be divided between different units within the firm, but if that is

not possible the conflict can instead be controlled and coordinated by a

intermediate organization.

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Chapter 5 Conclusion, discussion &

recommendations

5.1 ConclusionHow does coopetition lead to a sustainable competitive advantage for firms?

The fact is that todays business networks are complex gatherings of different

kinds of relationships, which means that the traditional neoclassical way of

analyzing competition is no longer valid. Firms are involved in several different

relationships at the same time in order to defend their position in the business

network. Relationships between competitors differ depending upon the

companies' motives for action and how intensely competitors interact with each

other. Coopetition is one of four different horizontal relationships which

competitors have with each other. Coopetition is an effective way of handling

both cooperation and competition between competitors. Cooperation is

important for utilizing the companys limited resources in the most efficient and

through competition, the competitors are forced to further develop their products

and carrying out their activities in the most efficient way thereby gives rise to a

pressure to develop new products and markets. The way coopetition works is thatthe competition often takes place close to customers while competitors cooperate

in activities more distant from the customer, thus having both of these

relationships working effectively together for gaining a competitive advantage.

Coopetition can create value in knowledge and lowering costs which in turn adds

economic value, and these can lead to a competitive advantage.

In order for the coopetition strategy to succeed there must be a proper balance in

the way cooperation and competition are managed. These two must be separated

in order to avoid conflicts and thus making it possible for the inter-firm units to

stay clear on the goals of each relationship, thus optimizing the advantages of

both, and gaining a competitive advantage.

In order for the coopetition strategy to be affective the individuals in the firm

must contribute to it, by staying clear on the objectives of the different types of

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relationships. Thus, the management of a firm is responsible for allocating and

guiding these individuals in this complex strategy. If the management isnt able

to reduce to conflict, an intermediate organization should intervene and

coordinate the process so that the strategy is affective and competitive advantage

is gained.

5.2 Discussion

According to some scholars (Quintana-Garca & Benavides-Velasco, 2004;

Bengtsson and Kock, 2000) little research has considered that two firms can be

involved in and benefit from both cooperation and competition simultaneously,

meaning that there is a lack of empirical research concerning the topic of

coopetition.This is an interesting topic since it is of interest to know how the benefits of

cooperation and the benefits of competition are combined in one and the same

relationship and how such a relationship should be managed.

Due to the lack of research, coopetition is only studied in certain industries, such

as in the studies of Bengtsson and Kock (2000) and Quintana-Garca and

Benavides-Velasco (2004). It is therefore of importance to extend this type of

studies to other industries, and to know what different features in these other

industries can still lead to a competitive advantage.

Though the competitors cooperate and also compete it does not mean that

conflicts do not arise and perhaps that even distrust exists. It is also not clear if

one of the competitors in the coopetition relationship benefits more then the

other. If this is then the case and the advantages of coopetition are not visible,

should the other competitor who has little benefit stay in the relationship? The

question if coopetition is only a long term relationship is of importance, as itshould be known in which situation competitors can break the relationship.

All these issues should be considered by a company before it enters into a

coopetitive relationship.

However, coopetition does add value to companies, as it is regarded to be the

most advantageous one, when companies in some respect help each other and to

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some extent force each other towards more innovative performance. It is the

managements task to bring the right balance between cooperation and

competition and to resolve internal conflicts between individuals to make it a

successful strategy and so gaining a competitive advantage.

5.3 Recommendations

It would be of interest to expand the research in the topic of coopetition. Both

qualitative and quantitative studies are needed to penetrate this area of research

deeper, as the findings in this study cannot be generalized into a common pattern

for all industries.

An interesting research question would be to see if the preparedness to cooperate

and compete is the same in different lines of business, or if manufacturingindustries alone can benefit most from coopetitive relationships. Another

important question is when the competitive advantage of using unique resources

in activities close to the buyer is lost, as the buyers cannot distinguish between

the focal firm and the competitor. Therefore, it is of great importance to further

develop the knowledge about this kind of business relationship.

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