Chapter 9: Cooperative Strategy
9-1
Chapter 9
Cooperative Strategy
LEARNING OBJECTIVES
1. Define cooperative strategies and explain why firms use them.
2. Define and discuss the three major types of strategic alliances.
3. Name the business-level cooperative strategies and describe their use.
4. Discuss the use of corporate-level cooperative strategies in diversified firms.
5. Understand the importance of cross-border strategic alliances as an international
cooperative strategy.
6. Explain cooperative strategies’ risks.
7. Describe two approaches used to manage cooperative strategies.
CHAPTER OUTLINE
Opening Case: Google, Intel and Tag Heuer: Collaborating to Produce a Smartwatch
STRATEGIC ALLIANCES AS A PRIMARY TYPE OF COOPERATIVE STRATEGY
Types of Major Strategic Alliances
Reasons Firms Develop Strategic Alliances
BUSINESS-LEVEL COOPERATIVE STRATEGY
Complementary Strategic Alliances
Competition Response Strategy
Uncertainty-Reducing Strategy
Competition-Reducing Strategy
Strategic Focus: Strategic Alliances as the Foundation for Tesla Motors’ Operations
Assessing Business-Level Cooperative Strategies
CORPORATE-LEVEL COOPERATIVE STRATEGY
Diversifying Strategic Alliance
Synergistic Strategic Alliance
Franchising
Assessing Corporate-Level Cooperative Strategies
INTERNATIONAL COOPERATIVE STRATEGY
NETWORK COOPERATIVE STRATEGY
Alliance Network Types
COMPETITIVE RISKS WITH COOPERATIVE STRATEGIES
Strategic Focus Failing to Obtain Desired Levels of Success with Cooperative Strategies
MANAGING COOPERATIVE STRATEGIES
Chapter 9: Cooperative Strategy
9-2
SUMMARY
KEY TERMS
REVIEW QUESTIONS
MINI-CASE: Alliance Formation, Both Globally and Locally, in the Global Automobile
Industry
ADDITIONAL QUESTIONS AND EXERCISES
MINDTAP RESOURCES
LECTURE NOTES
Chapter Introduction: This chapter provides students with a slightly different
perspective on strategic management. It represents a shift from achieving strategic
competitiveness and above-average returns through competitive strategy to achieving
them through cooperative strategies—i.e., competitive advantage gained by
cooperating with other firms.
OPENING CASE
Google, Intel and Tag Heuer: Collaborating to Produce a Smartwatch
Teaching Note
The Opening Case profiles the cooperative strategies (strategic alliances) that have
been established by several firms to create a smart watch. Students should realize that
cooperative strategies allow firms to combine resources and capabilities that
contribute to successful performance. More specifically, these are resources and
capabilities that neither partner possesses individually. A good discussion could be
initiated by asking students to identify other examples of firms that utilize cooperative
Chapter 9: Cooperative Strategy
9-3
strategies and to explain how these cooperative strategies contribute to the success of
both partners.
1
Define cooperative strategies and explain why firms use them.
A cooperative strategy is a strategy in which firms work together to achieve a shared
objective.
Teaching Note
It should be noted that a more extreme form of collusion exists. Explicit collusion
(which is illegal in the United States and most developed economies, except in
regulated industries) exists when one firm negotiates a production output and pricing
agreement with another firm in an effort to reduce competition. Used more frequently
than explicit collusion, tacit collusion is considered later in the chapter in the
discussion of business-level cooperative strategies.
STRATEGIC ALLIANCES AS A PRIMARY TYPE OF COOPERATIVE
STRATEGY
Chapter 9: Cooperative Strategy
9-4
A strategic alliance is a partnership between firms whereby their resources and capabilities
are combined to create a competitive advantage.
2
Define and discuss the three major types of strategic alliances.
Three Types of Strategic Alliances
Three types of strategic alliances: joint ventures, equity strategic alliances, and non-equity
strategic alliances.
A joint venture is an alliance where a new, independent firm is formed from two or more
partners, with each partner firm contributing some of their resources and capabilities.
A nonequity strategic alliance is an alliance where two or more firms contract to share some
of their resources and capabilities to create a competitive advantage. This type of strategic
alliance:
• Does not establish a separate independent company and therefore firms don’t take equity
positions.
Chapter 9: Cooperative Strategy
9-5
Reasons Firms Develop Strategic Alliances
Technology companies cannot possibly acquire the technology they need fast enough, so
partnering becomes essential. Some believe strategic alliances may be the most powerful
trend in American business in a century.
Firms form strategic alliances to reduce competition, enhance their competitive capabilities,
gain access to resources, take advantage of opportunities, and build strategic flexibility. To
do so means that they must select the right partners and develop trust.
FIGURE 9.1
Reasons for Strategic Alliances by Market Type
Figure 9.1 presents reasons for strategic alliances for firms operating in slow-cycle, fast-
cycle, and standard-cycle markets.
Chapter 9: Cooperative Strategy
9-6
Fast-Cycle:
Standard-Cycle:
Slow-Cycle Markets
Firms in slow-cycle markets often use strategic alliances to enter restricted markets or to
establish franchises in new markets (especially global markets).
Fast-Cycle Markets
Chapter 9: Cooperative Strategy
9-7
Standard-Cycle Markets
3
Name the business-level cooperative strategies and describe their
use.
BUSINESS-LEVEL COOPERATIVE STRATEGY
A business-level cooperative strategy is used to help the firm improve its performance in
individual product markets. There are four business-level cooperative strategies (see Figure
9.2).
Complementary Strategic Alliances
Vertical Complementary Strategic Alliance
Figure Note
Figure 9.2 outlines options for business-level cooperative strategies.
Chapter 9: Cooperative Strategy
9-8
FIGURE 9.2
Business-Level Cooperative Strategies
The four general business level cooperative strategies are:
Figure Note
Two types of complementary strategic alliances—vertical and horizontal partnership
agreements—are illustrated in Figure 9.2.
FIGURE 9.3
Vertical and Horizontal Complementary Strategic Alliances
Horizontal Complementary Strategic Alliance
Horizontal complementary strategic alliances are partnerships that link similar activities of
firms. Horizontal complementary alliances are used to increase each firm’s competitive
advantage and often focus on the long-term development of product and service technology.
Chapter 9: Cooperative Strategy
9-9
Competition Response Strategy
Uncertainty-Reducing Strategy
Firms also may form strategic alliances to hedge against risk and uncertainty (especially in
fast-cycle markets).
Alliances are often used where uncertainty exists, such as in entering new product markets or
emerging economies. For example, Dutch bank ABN AMRO signed on to a venture called
ShoreCap International, which will invest capital in and advise local financial institutions
Competition-Reducing Strategy
Explicit collusion exists when firms get together to negotiate production output and pricing
agreements with the goal of reducing competition. Explicit collusion strategies are illegal in
the United States and most developed economies (except in regulated industries).
Teaching Note: Some firms may adopt explicit alliances to reduce competition that is
perceived as potentially destructive or excessive. Examples include the following:
• OPEC, which manages the price and output of oil companies in member countries
Chapter 9: Cooperative Strategy
9-10
attacks against rivals they meet in multiple markets. Rivals learn a great deal about each
other when engaging in multimarket competition, including how to deter the effects of their
rival’s competitive attacks and responses. Given what they know about each other as a
competitor, firms choose not to engage in what could be destructive competitions in multiple
product markets.
Assessing Business-Level Cooperative Strategies
Firms use business-level strategies to develop competitive advantages that can contribute to
successful positioning and performance in individual product markets. To develop a
competitive advantage using an alliance, the particular set of resources and capabilities that
are combined and shared in a particular manner through the alliance must be valuable, rare,
imperfectly imitable, and nonsubstitutable.
Chapter 9: Cooperative Strategy
9-11
4
CORPORATE-LEVEL COOPERATIVE STRATEGY
Corporate-level cooperative strategies are designed to facilitate product and market
diversification (discussed in Chapter 6) through a means other than a merger or an
acquisition. When a firm seeks to diversify into markets in which the host nation’s
Figure Note
Figure 9.4 shows the most common corporate-level cooperative strategies.
FIGURE 9.4
Corporate-Level Cooperative Strategies
Diversifying Strategic Alliance
A diversifying strategic alliance is a corporate-level cooperative strategy in which firms
share some of their resources and capabilities to diversify into new product or market areas.
Teaching Note: Note that a diversification alliance enables firms that do not want to
grow by merger or acquisition to achieve growth by forming strategic alliances.
Chapter 9: Cooperative Strategy
9-12
Exiting a strategic alliance is less difficult and less costly compared to divesting an
acquisition that did not contribute expected levels of strategic success. In addition,
some governments restrict acquisitions (especially horizontal ones) when regulators
conclude that horizontal acquisitions foster explicit collusion.
STRATEGIC FOCUS
Strategic Alliances as the Foundation for Tesla Motors’ Operations Founded in 2003,
Tesla Motors, the manufacturer of electric vehicles, has formed many alliances as a means of
competing during the early years of its life. For example, the company created an R&D
partnership with Dana Holding Corporation initially for the purpose of jointly designing and
producing a system capable of controlling the build-up of heat in its car batteries. Overall,
Teaching Note
The Strategic Focus gives insight into Tesla’s use of alliances as a form of corporate
strategy to, expand market reach, and develop technology that will result in lower vehicle
Chapter 9: Cooperative Strategy
9-13
Synergistic Strategic Alliance
Synergistic strategic alliances allow firms to combine some of their resources and
capabilities to create joint economies of scope between partner firms. These alliances:
• Are similar to business-level horizontal complementary strategic alliances at the business
level
• Create synergy across multiple functions or multiple businesses
Teaching Note
Through technology-oriented synergistic alliances, Toyota is attempting to gain
access to technologies that it has had difficulty developing on its own. Avoiding
equity alliances, the carmaker elected to link up with GM to develop electric, hybrid,
Franchising
Franchising is a corporate-level cooperative strategy used by a franchisor to describe and
control the sharing of its resources and capabilities. In other words, a franchise refers to a
contract between two legally independent companies that allows the franchisee to sell the
franchisor’s product or do business under its trademarks over a given time and location.
Chapter 9: Cooperative Strategy
9-14
Franchising is a particularly attractive strategy to use in fragmented industries where no firm
or small set of firms has a dominant share in the industry, making it possible for a company
to gain a large market share by consolidating independent companies through contractual
relationships.
Assessing Corporate-Level Cooperative Strategies
Teaching Note
Corporate-level strategic decisions, such as pursuing cooperative strategies and
diversification, may be the result of managerial motives instead of the appropriate
desire to achieve strategic competitiveness and earn above-average returns for a
company. Firms need corporate governance mechanisms to ensure managers do not
use alliance strategies inappropriately. For example, without governance, top-level
managers can use alliances to:
Note
Managers may use the intricacy of alliance networks to enrich their own position in
the firm since alliances can be built on an upper-level manager’s personal contacts,
which may be lost if that person leaves the company, thus making dismissal difficult.
5
Understand the importance of cross-border strategic alliances
as an international cooperative strategy.
INTERNATIONAL COOPERATIVE STRATEGY
Chapter 9: Cooperative Strategy
A cross-border strategic alliance is an international cooperative strategy in which firms with
headquarters in different nations combine some of their resources and capabilities to create a
competitive advantage.
competitive advantages to exploit opportunities surfacing in the rapidly changing global
economy.
In general, cross-border alliances are more complex and risky than domestic strategic
alliances.
NETWORK COOPERATIVE STRATEGY
Rather than cooperative alliances between two or very few firms, alliances can also be
expanded to include a larger number (or network) of partners as a complement to other forms
of cooperative strategy. This is a network cooperative strategy.
Teaching Note
The strategic approach of networks is discussed in this chapter whereas the structural
characteristics of network organizations are covered in Chapter 11.