Chapter 9
Cooperative Strategy
CHAPTER OVERVIEW
LEARNING OBJECTIVES
LECTURE NOTES
9-1 STRATEGIC ALLIANCES AS A PRIMARY TYPE OF COOPERATIVE
STRATEGY
9-1a Types of Major Strategic Alliances
9-2e Assessing Business-Level Cooperative Strategies
9-3 CORPORATE-LEVEL COOPERATIVE STRATEGY
9-3a Diversifying Strategic Alliance
9-3b Synergistic Strategic Alliance
9-3c Franchising
9-3d Assessing Corporate-Level Cooperative Strategies
9-4 INTERNATIONAL COOPERATIVE STRATEGY
What Would You Do?
Video Quiz
Guided Case
Group Project
Chapter 9: Cooperative Strategy
CHAPTER OVERVIEW
Chapter 9 provides an in-depth look at the concept of a cooperative strategy, which refers
to firms working together to achieve a shared objective. A firm typically engages in a
cooperative strategy when it wants to create value for a customer that it probably couldn’t
create by itself.
Next, students learn about the two main reasons firms enter into strategic alliances. One is
to create value for a customer that it probably couldn’t create by itself, and the other is to
gain access to resources it lacks but needs in order to pursue all identified opportunities
and reach objectives. However, the reasons firms use strategic alliances vary by slow-,
fast-, and standard-cycle market conditions. To enter restricted markets (slow cycle), to
move quickly from one competitive advantage to another (fast cycle), and to gain market
power (standard cycle) are among the reasons firms decide to use strategic alliances.
By contrast, firms use corporate-level cooperative strategies to engage in product and/or
geographic diversification. Through diversifying strategic alliances, firms agree to share
some of their resources to enter new markets or provide new products. Synergistic
alliances are ones in which firms share some of their resources to develop economies of
Chapter 9: Cooperative Strategy
scope. Synergistic alliances are similar to business-level horizontal complementary
alliances whereby firms try to develop operational synergy, except that synergistic
alliances are used to develop synergy at the corporate level. Franchising is a corporate–
level cooperative strategy in which the franchisor uses a franchise as a contractual
relationship to specify how resources will be shared with franchisees.
In a network cooperative strategy, several firms agree to form multiple partnerships to
achieve shared objectives. A firm’s opportunity to gain access “to its partner’s other
partners” is a primary benefit of a network cooperative strategy. Network cooperative
strategies are used to form either a stable alliance network or a dynamic alliance network.
In mature industries, stable networks are used to extend competitive advantages into new
areas. In rapidly changing environments where frequent product innovations occur,
dynamic networks are used primarily as a tool of innovation.
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.
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 is gained by cooperating with other
firms.
OPENING CASE
Google’s Diversified Alliance Portfolio: A Response to Competitors and an Attempt
to Be a Dominant Force
The Opening Case looks at Google’s many cooperative alliances in its portfolio that allow
the firm to create value for customers that it probably couldn’t create by itself and gain
Teaching Note
Open the discussion by encouraging students to identify some of Google’s many
products and services. Explain that some of these are the result of strategic alliances
Chapter 9: Cooperative Strategy
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.
Cooperative strategy is the third major alternative (internal growth and mergers and
A collusive strategy is a cooperative strategy through which two or more firms cooperate
to raise prices above the fully competitive level.
Teaching Note
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
Teaching Note
Strategic alliances can serve a number of purposes, but they are also difficult to
manage.
• Two-thirds of all alliances have serious problems in their first two years, and as
9-1 STRATEGIC ALLIANCES AS A PRIMARY TYPE OF
COOPERATIVE STRATEGY
A strategic alliance is a partnership between firms whereby their resources and
capabilities are combined to create a competitive advantage.
Chapter 9: Cooperative Strategy
9-1a Types of Major Strategic Alliances
Three types of strategic alliances are joint ventures, equity strategic alliances, and
nonequity 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 its resources and capabilities.
An equity strategic alliance is an alliance where partner firms own unequal shares of
equity in a venture formed by combining some of their resources and capabilities to create
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
Chapter 9: Cooperative Strategy
9-1b 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.
FIGURE 9.1
Reasons for Strategic Alliances by Market Type
Figure 9.1 presents reasons for strategic alliances for firms operating in slow-, fast-, and
standard-cycle markets.
Slow-Cycle:
• Gain access to a restricted market
Chapter 9: Cooperative Strategy
Fast-Cycle:
• Speed up development of new goods or services
Standard-Cycle:
• Gain market power
• Gain access to complementary resources
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).
Chapter 9: Cooperative Strategy
Fast-Cycle Markets
Fast-cycle markets are entrepreneurial and dynamic, with new products or services
Standard-Cycle Markets
In standard-cycle markets (which are often large and oriented toward economies of scale),
9-2 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).
9-2a Complementary Strategic Alliances
Complementary strategic alliances are partnerships that are designed to take advantage of
market opportunities by combining partner firms’ resources and capabilities in
complementary ways so that new value is created.
Vertical Complementary Strategic Alliance
A vertical complementary strategic alliance is formed between firms that agree to use
their resources and capabilities in different stages of the value chain to create value.
Chapter 9: Cooperative Strategy
Figure Note
Figure 9.2 outlines options for business-level cooperative strategies.
FIGURE 9.2
Business-Level Cooperative Strategies
The four general business-level cooperative strategies are:
• Complementary strategic alliances (vertical and horizontal)
Figure Note
Two types of complementary strategic alliances—vertical and horizontal partnership
agreements—are illustrated in Figure 9.3.
FIGURE 9.3
Vertical and Horizontal Complementary Strategic Alliances
A vertical complementary strategic alliance links suppliers, manufacturers, and/or
distributors and represents linkages between different segments of each partner’s value
chain.
Horizontal Complementary Strategic Alliance
Chapter 9: Cooperative Strategy
9-2b Competition Response Strategy
Cooperative strategic alliances also may be established to enable partner firms to respond
9-2c 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, ABN AMRO, a Dutch bank, signed on to a venture
called ShoreCap International, which will invest capital in and advise local financial
institutions that do small and microbusiness lending in developing countries. Through this
Chapter 9: Cooperative Strategy
STRATEGIC FOCUS
Tesla Losing Critical Strategic Alliances and Experiencing Challenges Creating
Efficient 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. Overall, Tesla has
manufacturer.
Teaching Note
After citing some examples of Tesla’s alliances, lead students to understand that the
company has pursued these partnerships as a means of gaining access to resources and
9-2d 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
Implicit cooperative alliances, such as tacit collusion, exist when several firms in an
industry observe others’ competitive actions and respond to reduce industry output below
the potential competitive level to maintain higher-than-competitive prices. Another form
9-2e 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.
Complementary business-level strategic alliances (especially vertical ones) are the most
likely to create sustainable competitive advantage. Horizontal complementary alliances
are sometimes difficult to maintain because they are often formed between rival firms.
Chapter 9: Cooperative Strategy
4
9-3 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
Figure Note
Figure 9.4 shows the most common corporate-level cooperative strategies.
FIGURE 9.4
Corporate-Level Cooperative Strategies
The three corporate-level strategies are:
9-3a 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
Chapter 9: Cooperative Strategy
Teaching Note
Firms might form a diversifying alliance to determine if a future merger would benefit
both parties—e.g., the formation of technology partnerships between GM and Toyota
that may lead to broader linkups between the automakers.
Highly diverse networks of alliances can lead to poorer performance by partner firms.
9-3b 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:
SBC Communications and EchoStar Communications were synergistically diversified by
the arrangement to offer satellite TV billing services through SBC’s system. A synergistic
strategic alliance is different from a complementary business-level alliance in that it
diversifies both firms into a new business, but in a synergistic way.
Teaching Note
Through technology-oriented synergistic alliances, Toyota is attempting to gain access
9-3c 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
Chapter 9: Cooperative Strategy
Franchising is a popular strategy. In fact, the companies using it account for one-third of
annual U.S. retail sales while competing in over 75 industries. Already frequently used in
developed nations, franchising is expected to account for significant portions of growth in
emerging economies in the twenty-first century.
9-3d Assessing Corporate-Level Cooperative Strategies
Compared to those at the business-level, corporate-level cooperative strategies are usually
broader in scope and more complex, making them relatively more costly.
Firms able to develop corporate-level cooperative strategies and manage them in ways that
are valuable, rare, imperfectly imitable, and nonsubstitutable (see Chapter 3) develop a
competitive advantage that is added to advantages gained through the activities of
individual 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
Chapter 9: Cooperative Strategy
9-4 INTERNATIONAL 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.
There are several reasons for the increasing use of cross-border strategic alliances.
• Multinational corporations outperform firms operating on only a domestic basis.
• A firm can form cross-border strategic alliances to leverage core competencies that are the
STRATEGIC FOCUS
The Cross-Border Alliance between Ford and Mahindra: Developing the Automobile
of the Future
A growth market for automobiles, India has attracted many American and other automobile
manufacturers. However, Ford, which has been operating in the country for more than a
decade, has seen disappointing results. Thus, it has decided to enter into an alliance with