Ch10 Discussion Light

©2004 by South-Western/Thomson Learning 1

Cooperative StrategyCooperative Strategy

Robert E. HoskissonMichael A. Hitt

R. Duane Ireland

Chapter 10Chapter 10

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Chapter 2Chapter 2Strategic LeadershipStrategic Leadership

Chapter 4Chapter 4The InternalThe InternalOrganizationOrganization

Chapter 6Chapter 6Competitive Rivalry andCompetitive Rivalry andCompetitive DynamicsCompetitive Dynamics

Chapter 9Chapter 9International StrategyInternational Strategy

Chapter 1Chapter 1Introduction toIntroduction to

Strategic ManagementStrategic Management

Chapter 3Chapter 3The ExternalThe ExternalEnvironmentEnvironment

Chapter 5Chapter 5Business-LevelBusiness-Level

StrategyStrategy

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11Corporate GovernanceCorporate Governance

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Chapter 7Chapter 7Corporate-Level StrategyCorporate-Level Strategy

Chapter 10Chapter 10Cooperative StrategyCooperative Strategy

Chapter 12Chapter 12Strategic EntrepreneurshipStrategic Entrepreneurship

StrategicAnalysis

StrategicThinking

CreatingCompetitiveAdvantage

MonitoringAnd CreatingEntrepreneurialOpportunities

The Strategic Management ProcessThe Strategic Management Process

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Discussion QuestionsDiscussion QuestionsClick Here

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1. What is cooperative strategy?2. What are the four general types of

strategic alliances that introduce Chapter 10? How is a strategic cooperative network different from a single strategic alliance?

3. What are the central reasons why firms are motivated to engage in strategic alliances in each market type (slow, standard and fast cycle)?

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Discussion Questions (cont.)Discussion Questions (cont.)4. What is the difference between horizontal

and vertical complementary business level strategic alliances?

5. Are competition reduction, competition response and uncertainty reduction strategic alliances likely to lead to competitive advantage?

6. What is the difference between corporate level and business level strategic alliances?

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Discussion Questions (cont.)Discussion Questions (cont.)

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7. When are international cooperative strategies used and how are they implemented?

8. How can you classify networks which are formed for different purposes?

9. What are the competitive risks of strategic alliances? How is the strategic approach different if an alliance is based on a formal contract versus trust?

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Discussion Question 1Discussion Question 1

What is cooperative strategy?

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Cooperative StrategyCooperative Strategy Cooperative strategy is a strategy in which Cooperative strategy is a strategy in which

firmsfirms– work togetherwork together– to achieve a shared objectiveto achieve a shared objective

Cooperating with other firms is a strategy Cooperating with other firms is a strategy thatthat– creates value for a customercreates value for a customer– exceeds the cost of constructing customer exceeds the cost of constructing customer

value in other waysvalue in other ways– establishes a favorable position relative to establishes a favorable position relative to

competitioncompetition

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Strategic Alliance as a Strategic Alliance as a Cooperative StrategyCooperative Strategy A strategic alliance is a cooperative A strategic alliance is a cooperative

strategy in whichstrategy in which– firms combine some of their resources and firms combine some of their resources and

capabilitiescapabilities– to create a competitive advantageto create a competitive advantage

A strategic alliance involvesA strategic alliance involves– exchange and sharing of resources and exchange and sharing of resources and

capabilitiescapabilities– co-development or distribution of goods or co-development or distribution of goods or

servicesservices

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CombinedCombinedResourcesResources

CapabilitiesCapabilitiesCore CompetenciesCore Competencies

ResourcesResourcesCapabilitiesCapabilities

Core CompetenciesCore Competencies

ResourcesResourcesCapabilitiesCapabilities

Core CompetenciesCore Competencies

Strategic AllianceStrategic Alliance

Firm AFirm A Firm BFirm B

Mutual interests in designing, manufacturing,Mutual interests in designing, manufacturing,or distributing goods or servicesor distributing goods or services

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Discussion Questions

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What are the four general types of strategic alliances that introduce Chapter 10? How is a strategic cooperative network different from a single strategic alliance?

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Four Types of Strategic AlliancesFour Types of Strategic Alliances Joint venture: two or more firms create an Joint venture: two or more firms create an

independent company by combining parts of independent company by combining parts of their assetstheir assets

Equity strategic alliance: partners who own Equity strategic alliance: partners who own different percentages of equity in a new venturedifferent percentages of equity in a new venture

Nonequity strategic alliances: contractual Nonequity strategic alliances: contractual agreements given to a company to supply, agreements given to a company to supply, produce, or distribute a firm’s goods or services produce, or distribute a firm’s goods or services without equity sharingwithout equity sharing

Strategic cooperative network: multiple firms Strategic cooperative network: multiple firms agree to form partnerships to achieve shared agree to form partnerships to achieve shared objectivesobjectives

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Strategic NetworkStrategic Network

StrategicStrategicCenterCenterFirmFirm

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Strategic NetworkStrategic Network A strategic network is a grouping of A strategic network is a grouping of

organizations that has been formed to organizations that has been formed to create value through participation in an create value through participation in an array of cooperative arrangements, such array of cooperative arrangements, such as alliances and joint venturesas alliances and joint ventures

The strategic network seeks to develop a The strategic network seeks to develop a competitive advantage in primary or competitive advantage in primary or support activities support activities

A strategic center firm often manages the A strategic center firm often manages the networknetwork

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Strategic NetworkStrategic Network strategic center firm engages in four strategic center firm engages in four

primary tasksprimary tasks– strategic outsourcing (outsources and strategic outsourcing (outsources and

partners with more firms than do other partners with more firms than do other network members)network members)

– competencies (supports each member’s competencies (supports each member’s efforts to develop core competencies that can efforts to develop core competencies that can benefit the network)benefit the network)

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Strategic NetworkStrategic Network strategic center firm engages in four strategic center firm engages in four

primary tasksprimary tasks– technology (manages the development and technology (manages the development and

sharing of technology-based ideas among sharing of technology-based ideas among network members)network members)

– race to learn (guides participants in efforts to race to learn (guides participants in efforts to form network-specific competitive advantages)form network-specific competitive advantages)

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What are the central reasons why firms are motivated to engage in strategic alliances in each market type (slow, standard and fast cycle)?

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MarketMarket ReasonReasonSlow Cycle • Gain access to a restricted market

• Establish a franchise in a new market• Maintain market stability (e.g.,

establishing standards)

Reasons for Strategic Alliances Reasons for Strategic Alliances by Market Typeby Market Type

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MarketMarket ReasonReasonFast 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


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MarketMarket ReasonReasonStandard Cycle • 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


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What is the difference between horizontal and vertical complementary business level strategic alliances?

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Business-Level Cooperative Business-Level Cooperative Strategies:Strategies:ComplementaryComplementary

AlliancesAlliances• complementary strategic alliances complementary strategic alliances

are designed to take advantage of are designed to take advantage of market opportunities by combining market opportunities by combining partner firms’ assets in partner firms’ assets in complementary ways to create new complementary ways to create new valuevalue– these include distribution, supplier these include distribution, supplier

or outsourcing alliances where or outsourcing alliances where firms rely on upstream or firms rely on upstream or downstream partners to build downstream partners to build competitive advantagecompetitive advantage

Complementary Strategic AlliancesComplementary Strategic Alliances

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Business-Level Cooperative Business-Level Cooperative Strategies:Strategies:

Margin Margin

Primary Activities

Sup

port

Act

iviti

es Service

Marketing & Sales

Outbound Logistics

Operations

Inbound LogisticsFirm

Infra

stru

ctur

e

Hum

an R

esou

rce

Mgm

t.

Tech

nolo

gica

l Dev

elop

men

t

Pro

cure

men

t

Margin Margin

Primary Activities

Sup

port

Act

iviti

es Service

Marketing & Sales

Outbound Logistics

Operations


Infra

stru

ctur

e

Hum

an R

esou

rce

Mgm

t.

Tech

nolo

gica

l Dev

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Pro

cure

men

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Ver

tical

Alli

ance

Ver

tical

Alli

ance

SupplierSupplier

• vertical complementary vertical complementary strategic alliance is formed strategic alliance is formed between firms that agree to between firms that agree to use their skills and use their skills and capabilities in different stages capabilities in different stages of the value chain to create of the value chain to create value for both firmsvalue for both firms

• outsourcing is one example outsourcing is one example of this type of allianceof this type of alliance

BuyerBuyerComplementary Strategic AlliancesComplementary Strategic Alliances

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Margin Margin

Primary Activities

Sup

port

Act

iviti

es Service

Marketing & Sales

Outbound Logistics

Operations


Infra

stru

ctur

e

Hum

an R

esou

rce

Mgm

t.

Tech

nolo

gica

l Dev

elop

men

t

Pro

cure

men

t

Margin Margin

Primary Activities

Sup

port

Act

iviti

es Service

Marketing & Sales

Outbound Logistics

Operations


Infra

stru

ctur

e

Hum

an R

esou

rce

Mgm

t.

Tech

nolo

gica

l Dev

elop

men

t

Pro

cure

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Horizontal AllianceHorizontal AllianceBuyerBuyerPotential CompetitorsPotential Competitors

• horizontal complementary strategic alliance is formed horizontal complementary strategic alliance is formed between partners who agree to combine their resources and between partners who agree to combine their resources and skills to create value in the same stage of the value chainskills to create value in the same stage of the value chain

• focus on long-term product development and distribution opportunities

• the partners may become competitorsthe partners may become competitors• requires a great deal of trust between the partnersrequires a great deal of trust between the partners

BuyerBuyerComplementary Strategic AlliancesComplementary Strategic Alliances

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Are competition reduction, competition response and uncertainty reduction strategic alliances likely to lead to competitive advantage?

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• competition response strategic competition response strategic alliances occur when firms join alliances occur when firms join forces to respond to a strategic forces to respond to a strategic action of another competitoraction of another competitor

• because they can be difficult to because they can be difficult to reverse and expensive to operate, reverse and expensive to operate, competition response strategic competition response strategic alliances are primarily formed to alliances are primarily formed to respond to strategic rather than respond to strategic rather than tactical actionstactical actions

Competition Response AlliancesCompetition Response Alliances

CompetitionCompetitionResponse AlliancesResponse Alliances

ComplementaryComplementaryAlliancesAlliances

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• uncertainty reducing strategic uncertainty reducing strategic alliances are used to hedge against alliances are used to hedge against risk and uncertaintyrisk and uncertainty

• these alliances are most noticed in these alliances are most noticed in fast-cycle marketsfast-cycle markets

• alliance may be formed to reduce alliance may be formed to reduce the uncertainty associated with the uncertainty associated with developing new product or developing new product or technology standardstechnology standards

Uncertainty Reducing AlliancesUncertainty Reducing Alliances


UncertaintyUncertaintyReducing AlliancesReducing Alliances


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• competition reducing strategic competition reducing strategic alliances may be created to avoid alliances may be created to avoid destructive or excessive competitiondestructive or excessive competition

• explicit collusion exists when firms explicit collusion exists when firms directly negotiate production output directly negotiate production output and pricing agreements in order to and pricing agreements in order to reduce competition (illegal)reduce competition (illegal)

• tacit collusion exists when several tacit collusion exists when several firms in an industry indirectly firms in an industry indirectly coordinate their production and coordinate their production and pricing decisions by observing each pricing decisions by observing each other’s competitive actions and other’s competitive actions and responsesresponses

Competition Reducing AlliancesCompetition Reducing Alliances

Competition ReducingCompetition ReducingAlliancesAlliances




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• mutual forbearance is a form of mutual forbearance is a form of tacit collusion in which firms avoid tacit collusion in which firms avoid competitive attacks against those competitive attacks against those rivals they meet in multiple marketsrivals they meet in multiple markets

• competition reducing strategic competition reducing strategic alliances may require governments alliances may require governments to find ways to permit collaboration to find ways to permit collaboration among rivals without violating among rivals without violating antitrust lawsantitrust laws

Competition Reducing AlliancesCompetition Reducing Alliances




Competition ReducingCompetition ReducingAlliancesAlliances


Implementing Business-Level Implementing Business-Level Cooperative StrategiesCooperative 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

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What is the difference between corporate level and business level strategic alliances?

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Corporate-Level Cooperative Corporate-Level Cooperative StrategiesStrategies• Corporate-level cooperative strategies are Corporate-level cooperative strategies are

designed to facilitate product and/or designed to facilitate product and/or market diversificationmarket diversification

- diversifying strategic alliancediversifying strategic alliancesynergistic strategic alliancesynergistic strategic alliance- franchisingfranchising

• Diversifying alliances and synergistic Diversifying alliances and synergistic alliances allow firms alliances allow firms

- to grow and diversify their operationsto grow and diversify their operations- through a means other than a merger or through a means other than a merger or

acquisitionacquisition

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Corporate-Level Cooperative Corporate-Level Cooperative Strategies:Strategies:

DiversifyingDiversifyingAlliancesAlliances

• diversifying strategic alliance diversifying strategic alliance allows a firm to expand into new allows a firm to expand into new product or market areas without product or market areas without completing a merger or an completing a merger or an acquisitionacquisition

• provides some of the potential provides some of the potential synergistic benefits of a merger or synergistic benefits of a merger or acquisition, but with less risk and acquisition, but with less risk and greater levels of flexibilitygreater levels of flexibility

• permits a “test” of whether a future permits a “test” of whether a future merger between the partners would merger between the partners would benefit both partiesbenefit both parties

Diversifying AlliancesDiversifying Alliances

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• synergistic strategic alliances create synergistic strategic alliances create joint economies of scope between joint economies of scope between two or more firmstwo or more firms

• create synergy across multiple create synergy across multiple functions or multiple businesses functions or multiple businesses between partner firmsbetween partner firms

SynergisticSynergisticAlliancesAlliances

Synergistic AlliancesSynergistic Alliances


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• franchising spreads risks and uses franchising spreads risks and uses resources, capabilities, and resources, capabilities, and competencies without merging or competencies without merging or acquiring another companyacquiring another company

• contractual relationship concerning contractual relationship concerning the franchise that is developed the franchise that is developed between two parties, the franchisee between two parties, the franchisee and the franchisorand the franchisor

• an alternative to pursuing growth an alternative to pursuing growth through mergers and acquisitionsthrough mergers and acquisitions

FranchisingFranchising

FranchisingFranchising


SynergisticSynergisticAlliancesAlliances

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Implementing Corporate-Level Implementing Corporate-Level Cooperative StrategiesCooperative 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

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When are international cooperative strategies used and how are they implemented?

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International Cooperative International Cooperative StrategiesStrategies Cross-border strategic allianceCross-border strategic alliance

– an international cooperative strategy in which an international cooperative strategy in which firms with headquarters in different nations firms with headquarters in different nations combine some of their resources and combine some of their resources and capabilities to create a competitive advantagecapabilities to create a competitive advantage

– a firm may form cross-border strategic a firm may form cross-border strategic alliances to leverage core competencies that alliances to leverage core competencies that are the foundation of its domestic success to are the foundation of its domestic success to expand into international marketsexpand into international markets

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International Cooperative International Cooperative StrategiesStrategies Allows risk sharing by reducing financial Allows risk sharing by reducing financial

investmentinvestment Host partner knows local market and Host partner knows local market and

customscustoms International alliances can be difficult to International alliances can be difficult to

manage due to differences in management manage due to differences in management styles, cultures or regulatory constraintsstyles, cultures or regulatory constraints

Must gauge partner’s strategic intent so Must gauge partner’s strategic intent so they do not gain access to important they do not gain access to important technology and become a competitortechnology and become a competitor

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Implementing International Implementing International Cooperative StrategiesCooperative 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

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StrategicStrategicCenterCenterFirmFirm

Distributed Strategic NetworkDistributed Strategic Network

= Distributed Strategic Center Firms= Distributed Strategic Center Firms

MainMainStrategicStrategicCenterCenterFirmFirm


Distributed Strategic NetworkDistributed Strategic Network International cooperative strategies often International cooperative strategies often

require more complex networksrequire more complex networks Many large multinational firms form Many large multinational firms form

distributed strategic networks with distributed strategic networks with multiple regional strategic centers to multiple regional strategic centers to manage their array of cooperative manage their array of cooperative arrangements with partner firmsarrangements with partner firms

Breaking large networks into multiple Breaking large networks into multiple manageably-sized networks helps to manageably-sized networks helps to manage the complexity of maintaining manage the complexity of maintaining many relationshipsmany relationships

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How can you classify networks which are formed for different purposes?

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Network Cooperative StrategiesNetwork Cooperative Strategies A network strategy is a cooperative A network strategy is a cooperative

strategy wherein several firms agree to strategy wherein several firms agree to form multiple partnerships to achieve form multiple partnerships to achieve shared objectivesshared objectives– stable strategic cooperative networkstable strategic cooperative network– dynamic strategic cooperative networkdynamic strategic cooperative network

Effective social relationships and Effective social relationships and interactions among partners are keys to a interactions among partners are keys to a successful network cooperative strategysuccessful network cooperative strategy

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Network Cooperative Strategies:Network Cooperative Strategies:

Stable StrategicStable StrategicCooperative NetworkCooperative Network

• long term relationships that often long term relationships that often appear in mature industries where appear in mature industries where demand is relatively constant and demand is relatively constant and predictablepredictable

• stable networks are built for stable networks are built for exploitationexploitation of the economies of the economies available between firmsavailable between firms

Stable Strategic Cooperative NetworkStable Strategic Cooperative Network


Network Cooperative Strategies:Network Cooperative Strategies:

Dynamic StrategicDynamic StrategicCooperative NetworkCooperative Network

• arrangements that evolve in arrangements that evolve in industries with rapid technological industries with rapid technological change leading to short product life change leading to short product life cyclescycles

• primarily used to stimulate rapid, primarily used to stimulate rapid, value-creating product innovations value-creating product innovations and subsequent successful market and subsequent successful market entriesentries

• purpose is often purpose is often explorationexploration of new of new ideasideas

Dynamic Strategic Cooperative NetworkDynamic Strategic Cooperative Network

Stable StrategicStable StrategicCooperative NetworkCooperative Network

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What are the competitive risks of strategic alliances? How is the strategic approach different if an alliance is based on a formal contract versus trust?

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Competitive Risks with Competitive Risks with Cooperative StrategiesCooperative Strategies

CompetitiveCompetitiveRisksRisks

• 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

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Managing Competitive Risks in Managing Competitive Risks in Cooperative StrategiesCooperative Strategies

Risk and Asset Risk and Asset ManagementManagementApproachesApproaches


• 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)

• Develop trusting relationships

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Approaches for Managing Approaches for Managing Cooperative StrategiesCooperative 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

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Managing Competitive Risks in Managing Competitive Risks in Cooperative StrategiesCooperative Strategies

Risk and Asset Risk and Asset ManagementManagementApproachesApproaches


DesiredDesiredOutcomeOutcome

• Creating value• Above-average

returns

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