Chapter 9: Cooperative Strategy
9-16
Alliance Network Types
An important advantage of a network cooperative strategy is that firms gain access to the
partners of their partners.
6
Explain cooperative strategies’ risks.
COMPETITIVE RISKS WITH COOPERATIVE STRATEGIES
Many cooperative strategies fail. Evidence suggests that two-thirds of cooperative strategies
have serious problems in their first two years and that as many as 70 percent of them
eventually fail. This failure rate suggests that even when the partnership has potential
synergies, alliance success can be elusive.
Chapter 9: Cooperative Strategy
9-17
• The possibility that a firm may make investments that are specific to that alliance while its
partner does not
Figure Note: Competitive risks of cooperative strategies, as well as risk management
approaches, are summarized in Figure 9.5.
FIGURE 9.5
Managing Competitive Risks in Cooperative Strategies
As Figure 9.5 indicates, the competitive risks of cooperative strategies are:
And can be managed by:
Strategic Focus
Failing to Obtain Desired Levels of Success with Cooperative Strategies
Teaching Note
Chapter 9: Cooperative Strategy
9-18
7
Describe two approaches used to manage cooperative strategies.
MANAGING COOPERATIVE STRATEGIES
Cooperative strategies are an important option for firms competing in the global economy;
however, they are complex and challenging to manage.
In the cost-minimization approach, the firm develops formal contracts with its partners.
These contracts specify how the cooperative strategy is to be monitored and how partner
behavior is controlled. The goal of this approach is to minimize the cooperative strategy’s
cost and to prevent opportunistic behavior by partners.
Firms can successfully use both approaches to manage cooperative strategies. However, the
costs to monitor the cooperative strategy are greater with cost minimization, in that writing
detailed contracts and using extensive monitoring mechanisms is expensive, even though the
approach is intended to reduce alliance costs.
ANSWERS TO REVIEW QUESTIONS
Chapter 9: Cooperative Strategy
9-19
1. What is the definition of cooperative strategy, and why is this strategy
important to firms competing in the twenty-first century competitive
landscape?
2. What is a strategic alliance? What are the three major types of strategic
alliances firms form for the purpose of developing a competitive advantage?
A strategic alliance is a partnership between firms whereby each firm’s resources
and capabilities are combined to create a competitive advantage.
An equity strategic alliance is an alliance where partner firms share resources and
capabilities, but own unequal shares of equity in a new venture. Many foreign
direct investments are completed through equity strategic alliances, such as those
involving Japanese or US companies operating in China.
Chapter 9: Cooperative Strategy
9-20
3. What are the four business-level cooperative strategies? What are the key
differences among them?
Chapter 9: Cooperative Strategy
9-21
likely to result in inefficiencies in both manufacturing and service industries and
these often lead to below-average firm performance in international markets.
4. What are the three corporate-level cooperative strategies? How do firms use
each of these strategies for the purpose of creating a competitive advantage?
Chapter 9: Cooperative Strategy
9-22
alliance that is used at the business level, synergistic strategic alliances create
synergy across multiple functions or multiple businesses controlled by partner
firms. Two firms might, for example, create joint research and manufacturing
facilities that they both use to their advantage and thus attain economies of scope
without a merger.
5. Why do firms use cross-border strategic alliances?
The first reason firms decide to use cross-border strategic alliances is that
multinational corporations usually outperform firms operating in domestic-only
markets. In the context of cooperative strategies, this general evidence suggests that a
firm can form cross-border strategic alliances to leverage core competencies that are
the foundation of its domestic success to expand into international markets.
Chapter 9: Cooperative Strategy
9-23
6. What risks are firms likely to experience as they use cooperative strategies?
Because firms that are cooperating may also be competing with each other, four
significant risks accompany cooperative strategies. As summarized in Figure 9.4,
7. What are the differences between the cost-minimization approach and the
opportunity-maximization approach to managing cooperative strategies?
Two primary approaches are used to manage cooperative strategies. In one
instance, the firm develops formal contracts with its partners. These contracts
Chapter 9: Cooperative Strategy
9-24
MINI-CASE
Alliance Formation, Both Globally and Locally, in the Global Automotive Industry
A common rationale for alliances is that firms seek out complementary resources from an
alliance partner. The Mini-Case notes that a new rationale for alliances has emerged in the
literature – that firms are often co-located in the same country, and often in the same region
partner possesses individually. A good discussion could be initiated by asking students to
identify other examples of firms that utilize cooperative strategies and to explain how these
cooperative strategies contribute to the success of both partners.
1. How can the resource-based view of the firm (see Chapters 1 and 3) help us
understand why firms develop and use cooperative strategies such as strategic
alliances and joint ventures?
Chapter 9: Cooperative Strategy
9-25
2. What is the relationship between the core competencies a firm possesses, the core
competencies the firm feels it needs, and decisions to form cooperative strategies?
3. What does it mean to say that the partners of an alliance have “complementary
assets?” What complementary assets to Renault and Nissan share?
4. What are the risks associated with the corporate-level strategic alliance between
Renault and Nissan? What have these firms done to mitigate these risks?
5. Is it possible that some of the firms mentioned in this Mini-Case (e.g., Renault,
Nissan, Mazda, Peugot-Citroen, Opel—Vauxhall) might form a network cooperative
strategy? If so, what conditions might influence a decision by these firms to form this
particular type of strategy?
Chapter 9: Cooperative Strategy
9-26
ADDITIONAL QUESTIONS AND EXERCISES
The following questions and exercises can be presented for in-class discussion or assigned as
homework.
Application Discussion Questions
1. Ask students to visit the website for Financial Times (http://www.ft.com). Find three or
four articles that discuss different firms’ uses of cooperative strategies. What types of
cooperative strategies are revealed in each article? What objective is each firm pursuing
as it uses a particular cooperative strategy?
2. Ask students to use the Internet to find two articles describing firms’ use of a cooperative
strategy: one where trust is being used as a strategic asset and another where contracts
and monitoring are being emphasized. What are the differences between the managerial
approaches being used in the two companies? Which of the cooperative strategies has the
highest probability of being successful? Why?
3. Each student should choose a Fortune 500 firm that has a significant need to outsource a
primary or support activity (such as information technology). Given the activity the firm
can outsource, should the firm form a non-equity strategic alliance to outsource the focal
activity?
4. Ask students to use the Internet to determine whether DaimlerChrysler has formed
strategic alliances to build its small cars. If these alliances have been formed, what factors
caused this decision to be made? If alliances have not been formed for this purpose, why
not?
5. Ask students to use the Internet to visit the websites of Deutsche Telekom AG, Sprint,
and France Telecom SA. What is the role each firm has in the Global One Alliance they
have all joined?
1. From an ethical perspective, how much information is a firm obliged to tell a potential
strategic alliance partner about what it expects to learn from the cooperative
arrangement?
Chapter 9: Cooperative Strategy
9-27
2. “A contract is necessary because most firms cannot be trusted to act ethically in a
cooperative venture such as a strategic alliance.” Is this statement true or false? Why?
Does the answer vary by country? Why?
3. Ventures in foreign countries without strong contract law are more risky, because
managers may be subjected to bribery attempts once their firms’ assets have been
invested in the country. How can managers deal with these problems?
4. Many international strategic alliances are being formed by the world’s airline companies.
Do these companies face any ethical issues as they participate in multiple alliances? If so,
what are the issues? Are the issues different for airline companies headquartered in the
United States than for those with European home bases? If so, what are the differences,
and what accounts for them?
5. Firms with a reputation for ethical behavior in strategic alliances are likely to have more
opportunities to form cooperative strategies than will companies that have not earned this
reputation. What actions can firms take to earn a reputation for behaving ethically as a
strategic alliance partner?
INSTRUCTOR’S NOTES FOR MINDTAP
Cengage offers additional online activities, assessments and resources inside MindTap,
our online learning platform. The following activities can be assigned within MindTap
for students to complete.
INSTRUCTOR’S NOTES FOR DIRECTED
CASE
Itaipu Binacional
Students will review these concepts:
Chapter 9: Cooperative Strategy
9-28
INSTRUCTOR’S NOTES FOR EXPERIENTIAL
EXERCISES
Flying the Friendly Skies: Strategic Actions with Airlines and Alliances
The text says a strategic alliance “is a partnership between firms whereby their resources
and capabilities are combined to create a competitive advantage.” The first airline
alliance was formed in 1993 and resulted in a variety of benefits for both consumers and
airline employees. In this group exercise, students investigate the history and purpose of
forming an alliance in the passenger airline industry. The instructor will assign an
alliance to each small group.
In this group project, students will have the opportunity to practice valuable strategic
management skills, including: teambuilding, data analysis, critical thinking and research
management.
Chapter 9: Cooperative Strategy
9-29
INSTRUCTOR’S NOTES FOR VIDEO
EXERCISES
1. What is a joint venture?
2. If you were an executive at Jaguar-Land Rover, why might a joint venture be
a safer option over another entry mode?
3. By entering into a joint venture with Chery’ Automobile, Jaguar-Land
Rover will be depending on some of Chery’s distinct competencies. What is
one of those competencies that will aid Jaguar-Land Rover in diversifying its
car manufacturing to China?