MNGT2001 - Week 9 - Chapter 9

8/3/2019 MNGT2001 - Week 9 - Chapter 9

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Dr. Huong [email protected]

University of Newcastle, Singapore

Trimester 3, 2011

@2011, Ha


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F I S H

F - Fun

I - Innovative

S - Sharing

H - Helping

Work together as a group

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Knowledge objectives

Strategic alliances as a primary type ofcooperative strategy

Business-level cooperative strategyCorporate-level cooperative strategy

International cooperative strategy

Network cooperative strategy

Competitive risks with cooperative strategies

Managing cooperative strategies

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Studying this chapter should provide youwith the strategic management knowledgeneeded to:1. define cooperative strategies and explain why

firms use them

2. define and discuss three types of strategic

alliances3. name the business-level cooperative strategies

and describe their use

Copyright 2011 Cengage Learning Pty Limited


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4. discuss the use of corporate-level cooperativestrategies in diversified firms

5. understand the importance of cross-border

strategic alliances as an internationalcooperative strategy

6. explain the cooperative strategies risks

7. describe two approaches used to managecooperative strategies.



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Three types of strategic alliances

Joint venture

Two or more firms create a legallyindependent company to share some of their

resources and capabilities to develop acompetitive advantage.

Joint venture is effective in establishing long-term relationships and in transferring tacit

knowledge.



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Equity strategic alliance

Two or more firms own different percentages of

equity in a new venture.

Non-equity strategic alliance

Two or more firms form alliances through

contractual agreements given to a company tosupply, produce or distribute a firms goods or

services without equity sharing.


Three types of strategic alliances(cont.)


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Reasons firms develop strategicalliances



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A business-level cooperative strategyimproves a firms performance in individual

product markets.

The combination of resources and thecapabilities of partnering firms createcompetitive advantages that a firm cannotcreate by itself.



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Business-level cooperative strategy

(cont.)



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Business-level cooperative strategy(cont.)


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Combine partner firms assets incomplementary ways to create newvalue

Two types: Vertical(firms share resources and

capabilities from different stages ofthe value chain to create acompetitive advantage)

Horizontal (firms share some of theresources & capabilities from thesame stage of the value chain tocreate a competitive advantage)

Complementarystrategic

alliances




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Complementarystrategic alliances

Firms join forces to respondto a strategic action of a

competitor.

Often difficult to reverse andexpensive to operate, sostrategic alliances are

primarily formed to respond tostrategic rather than tacticalactions.

Competitionresponse strategy




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Complementaryalliances

Competitionresponsestrategy

Uncertainty-reducing strategy

These strategic alliances areused to hedge/evade against risk

and uncertainty.They are particularly used infast-cycle markets.

An alliance may be formed toreduce the uncertaintyassociated with developing newproduct or technology standards.


Business-level cooperative strategy

(cont.)


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Complementary

alliances

Competitionresponse strategy

Uncertainty-reducing strategy

Competition-reducing strategy

Created to avoid destructive orexcessive competition

Explicit collusion:when firmsdirectly negotiate production output

and pricing agreements in order toreduce competition (illegal)

Tacit collusion:when firms in anindustry indirectly coordinate their

production and pricing decisions byobserving other firms actions andresponses. Tends to be used inhighly concentrated industries.

Legal aspect




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Assessment of business-level

cooperative strategies Complementary business-level strategic

alliances have the greatest probability ofcreating a sustainable competitive advantage.

Alliances used to reduce competition are morelikely to achieve competitive parity/similaritythan competitive advantage.

Horizontal complementary alliances aresometimes difficult to sustain because they areoften partnerships between rival competitors.



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This strategy consists of alliances designed tofacilitate product and/or market diversification.



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A diversifying strategic alliance allowsa firm to expand into new product ormarket areas without completing amerger or an acquisition.

This has the synergistic benefits of amerger or acquisition, but also has:

less risk

greater flexibility.

It enables the firm to assess thebenefits of a future merger between

partners.

Diversifying

strategicalliance

Corporate-level cooperativestrategy (cont.)



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Creates joint economies of scopebetween two or more firms

Creates synergy across multiplefunctions or multiple businessesbetween partner firms

Diversifyingstrategic

alliance

Synergisticstrategic

alliance




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Spreads risk and uses resources,capabilities, and competencieswithout merger or acquisition

A contractual relationship (thefranchise) is developed between thefranchisee and the franchisor.

Alternative to growth through mergers

and acquisitions

It is an increasingly popular strategicoption on a global basis.

Diversifyingstrategicalliance

Synergisticstrategicalliance

Franchising




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Assessment of corporate-levelcooperative strategies

Compared to business-level strategies,corporate-level cooperative strategies:

are broader in scope, more complex and more costly;

can be influenced by opportunistic managerialmotives, such as growth of the firm to increasemanagers compensation;

require time and effort to monitor and maintaintrusting relationships;

can lead to competitive advantage and value whensuccessful alliance experiences are internalised.



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Cross-border strategic alliance a strategy in which firms with headquarters in different

nations combine their resources and capabilities tocreate a competitive advantage

reasons for forming cross-border alliances:

multinational corporations outperform domestic firms

limited growth opportunities in the home nation

foreign government policy requires an alliance witha local company

to facilitate organisational transformation in corebusinesses



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International cooperative strategy

(cont.) Synergistic strategic alliance

allows risk sharing by reducing financial investment;

host partner knows local market and customs;

international alliances can be difficult to manage dueto differences in management styles, cultures orregulatory constraints;

must assess partners strategic intent such that thepartner does not gain access to importanttechnology and become a competitor.



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Definition

A cooperative strategy wherein several firms formmultiple partnerships to achieve shared objectives.

An alliance network helps to form geographicallyclustered firms.

It creates effective social relationships and interactionsamong partners increasing mutual commitment

The mutual dependence induces partners to worktogether to serve the common interests of all parties.



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Long term relationships Typical of mature industries

where demand is relativelyconstant and predictable

Stable networks are built toexploit economies (scale andscope) available between firms.

Stable alliancenetworks

Network cooperative strategy(cont.)

Alliance network types



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Evolve in industries with rapidtechnological change leading toshort product life cycles of goodsand services

Stimulate rapid, value-creating

product innovation and subsequentsuccessful market entries

Often exploration of new ideas is akey purpose

Stable alliancenetworks

Dynamicalliance

networks


Network cooperative strategy(cont.)

Alliance network types (cont.)


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Partners may act opportunistically.

Partners may misrepresent competencies brought tothe partnership.

Partners may fail to make committed resources andcapabilities available to other partners.

One partner may make investments that are specificto the alliance while its partner does not.

Failure to make complementary resources availableto a partner most commonly occurs betweenpartners located in different nations.



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Managing competitive risks incooperation strategies



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Cost minimisation management approach

formal contracts with partners that specify:

how the cooperative strategy is to be monitored

how the partner behaviour is to be controlled

The goal is to minimise costs and prevent

opportunistic behaviour by a partner.



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Managing cooperative strategies(cont.)

Opportunity-maximisation managementapproach:

maximises partnerships value-creation opportunities;

takes advantage of unexpected opportunities to learnfrom each other;

allows exploration of additional marketplace

possibilities;

fewer formal contracts & constraints make it possible toexplore multiple alternatives for sharing resources andcapabilities, leading to value-creation.



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