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Coopetition Strategy: Theory Experiments and Cases

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 1
2 Part I
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Coopetition strategy
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Conceptual development
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 1
2 2 Coopetition strategy
3
4 A new kind of interfirm dynamics for
5
6
value creation
7
8 Giovanni Battista Dagnino
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13 1  Introduction
14
The strategic management field is currently facing a number of new and unex-
15
pected challenges which find their roots in the restless dynamics of environmen-
16
tal change and firms’ strategic action and thinking. As a result, we need to adapt
17
and integrate existing theoretical lenses and conceptual categories or develop
18
19
20
new interpretive category in strategy.
F
entirely new ones. In this second vein, we advance the study of coopetition as a
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21 As known, mainstream economics and managerial research has been largely
22 based on the dichotomy between competition and cooperation. This chapter
23 addresses the following issue: how to overcome the above oversimplified con-
ception of interfirm interdependence and develop a more comprehensive frame-
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24
25 work in which both aspects, the competitive and the cooperative, are
26 simultaneously considered?
27 In management literature the hybrid behavior comprising competition and
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28 cooperation has been named coopetition. Whereas a number of authors

29 (Brandenburger and Nalebuff 1996; Lado et al. 1997; Gnyawali and Madhavan
30 2001) have emphasized the increasing importance of coopetition for
31 today’s  interfirm dynamics, scientific investigation on the issue of coopetition
32 has not gone much farther beyond naming, claiming and evoking it (Walley
33 2007). Therefore, whilst, on one hand, we acknowledge the weaknesses of
34 conventional approaches, on the other, we underline that coopetition is an
35 underresearched theme which claims escalating attention. In light of its
36 limited theoretical foundations, we take a required exploratory approach to the
37 topic.
38 The purpose of this chapter is threefold. First, with the aim of moving away
39 from the mere recognition of the oversimplified conventional conception to a
40 deeper and clear-­cut understanding of the nature of coopetition, we start from
41 the compared analysis of competition and cooperation in management and
42 propose a first definition of coopetition. By suggesting that coopetition is a
43 matter of “incomplete interest (and goal) congruence” concerning firms’ interde-
44 pendence, we stress that coopetition does not simply emerge from coupling com-
45 petition and cooperation issues, but rather it implies that cooperation and

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 26   G.B. Dagnino
competition merge together to form a new kind of strategic interdependence 1
between firms, giving rise to a coopetitive system of value creation. 2
Second, we advance a typology of coopetition based on the differing explana- 3
tory variables of this incomplete interest (and goal) congruence. Third and 4
finally, by taking into account a number of coopetition microcases, especially 5
referring to firms operating in the automobile industry, we clarify both the con- 6
tribution and the potential of coopetition strategy to the advancement of strategic 7
management, organization theory and managerial practice. 8
9
10
2  The nature of coopetition: coopetition strategy as a new
11
kind of interfirm dynamics
12
According to conventional management wisdom, the term coopetition was 13
coined by Ray Noorda, the founder and first CEO of Novell, and introduced into 14
strategy research by Brandenburger and Stuart (1996) and Brandenburger and 15
Nalebuff (1996). This term was inaugurated in order to elucidate the strategic 16
interplay among “coopetitors”.1 17

F
According to (Afuah 2000), the word coopetitors is used in the place of the
phrase “suppliers, customers and complementors” (i.e. manufacturers of goods
which are complementary to the goods produced by the firm at hand). This idea
18
19
20
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suggests that the word and notion of coopetition is a mere substitute of the more 21
familiar “stakeholders”. 22
We take distance from such a position. First, Brandenburger and Nalebuff 23
O
(1996) have originally used the term coopetitors to embrace – in addition to sup- 24
pliers, customers and complementors – a fourth pivotal group of strategic 25
players; i.e. the firm’s competitors. 26
They have suggested taking into account five different kinds of players: the 27
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firm, its customers, its competitors, its suppliers and its complementors. Second, 28
distancing from a simple replication of the well-­known idea of stakeholders, 29
Brandenburger and Nalebuff have modeled a structure of multiple relationships 30
(or the value net) in which the firm is embedded. Third, given the above charac- 31
teristics, coopetition is a way of defining a strategic game of interaction which 32
models the whole “interplay range” in detecting firms’ interdependence. For it 33
refers to a complex structure of firms’ interdependence where cooperation and 34
competition are simultaneously present and intertwined, in this chapter we main- 35
tain that coopetition – although it is pretty diffused in practice – is a new way to 36
conceptualize interfirm dynamic interdependence. By doing so, on one hand, we 37
acknowledge that the growing business phenomenology is exposing us to a 38
habitually unintended and unrecognized variety of coopetitive empirical experi- 39
ences. On the other, we contend that the scientific investigation of coopetition is 40
at the onset of its lifecycle. In entrepreneurial terms, we could argue that coope- 41
tition is a start-­up theme in the strategic management landscape that requires to 42
be fed up via dedicated investigators’ attention. 43
In defining coopetition our proposal is focused on the analysis of interest (and 44
goal) structures. We move from the consideration that both the competitive and 45

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 Coopetition strategy   27
1 the cooperative perspectives focus on entirely diverging and converging interest
2 structures. Since it takes into account firm interdependence on the base of par-
3 tially congruent interest structures, coopetition represents an integrative theoret-
4 ical bridge which stretches to join the two contrasting mentioned perspectives.
5 In the following paragraphs, departing from a thorough analysis of relevant strat-
6 egy and strategy-­related literature in the field, we briefly illustrate the contribu-
7 tion of both competitive and cooperative perspectives to management and
8 eventually frame out a first sketch of the coopetitive approach.
9
10
2.1  The competitive perspective
11
12 The competitive perspective has dominated for a long time several fields of man-
13 agement research: from strategic management (Porter 1980; Barney 1986) to
14 organizational economics (Williamson 1975, 1985) to marketing management
15 (Borden 1964), and it has actually represented the dominant paradigm during the
16 1980s. This approach assumes that firms’ interdependence, both horizontal and
17 vertical, is based on a “Smithsonian” individual interest search. The metaphor of
18
19
20
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the firm as an “island in a sea of market relations” (Richardson 1972) captures
fully the distinctive feature of this standpoint.
With reference to horizontal interdependence, the competitive perspective
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21 emphasizes the search for above than normal profit realized either when a firm
22 gains an advantageous position in an industry (Porter 1985), or when it mobi-
23 lizes and deploys resources and distinctive competences (Wernerfelt 1984; Pra-
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24 halad and Hamel 1990) that enable it to offer superior products in relation to its
25 competitors. In other words, this perspective aims to a firm rent-­seeking behav-
26 ior which takes place through value-­creation strategies and brings to above-­
27 normal economic returns.
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28 With reference to vertical interdependence, the competitive perspective high-

29 lights the search for value appropriation in economic exchanges. By solidly
30 sinking its roots in neoclassical economic theory, the competitive perspective
31 assumes that the exchange is a discrete event in which the economic value previ-
32 ously generated by the firms is shared among them according to the principle of
33 allocative efficiency. The value sharing can take place either according to an
34 instant fairness principle, as the traditional marketing theory implicitly assumes
35 (Drucker 1954; Borden 1964), or making use of opportunistic behavior as admit-
36 ted by Williamsonian transaction cost economics (Williamson 1975, 1985). By
37 way of summary, in the case of vertical interdependence, the competitive per-
38 spective claims for a rent-­seeking behavior, which takes place through value-­
39 appropriation strategies.
40 Independently from the type of firm interdependence and the specific man-
41 agement field of research, the competitive perspective shares a unified theoret-
42 ical framework which can be briefly described as follows:
43
44 1 The creation of economic value occurs within the firm whereas interfirm
45 interactions influence the distribution of that value. That is the case of both

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 28   G.B. Dagnino
vertical and horizontal interdependence. With reference to the former, the 1
price of exchange explains the part of economic value retained by the sup- 2
plier and the part of economic value allocated to the client. With regards to 3
the latter, the above normal returns results from the allocation of customers’ 4
preferences among competitors. 5
2 Since competitive success and value appropriation by one firm means the 6
defeat and the loss of value of the other firms involved in the game, inter- 7
firm interdependence is based on a zero-­sum game. 8
3 In a business world in which any interdependence qualifies a zero-­sum 9
game, the interest functions of firms involved in the game are an unrecover- 10
able contrast. 11
12
13
2.2  The cooperative perspective
14
An alternative strategic perspective, partly spread out as a reaction to the com- 15
petitive approach, emphasizes the development and nurturing of “collaborative” 16
advantage. With the spread of the cooperative perspective, the view of the busi- 17

F
ness world has changed thoroughly, taking distance from a mainstream “pure”
competitive world, and giving rise to a network of strategic interdependence
among firms pursuing convergent interests and deriving mutual benefits (Con-
18
19
20
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tractor and Lorange 1988). First upsurged in the marketing management field 21
with reference to vertical interdependence (Håkansson and Ostberg 1976), this 22
perspective has rapidly developed – at the turn of the decade between the 1980s 23
O
and 1990s – in other more familiar research fields, ranging from strategic man- 24
agement (Contractor and Lorange 1988; Hamel et al. 1989; Dyer and Singh 25
1998) to organizational economics (Griesinger 1990; Hill 1990), and virtually 26
covering a wide array of strategic interfirm arrangements (e.g. joint ventures, 27
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M&As, strategic alliances). 28

The first insights of cooperative perspective have marked the transition from 29
the transactional to the relational marketing paradigm (Håkansson and Ostberg 30
1976; Borg 1991). According to the relational paradigm, the market is not (any 31
more) an atomistic structure based on instant exchange or arbitrage, but it 32
becomes a system of interactive and continuous relationships in which various 33
firms progressively strengthen their reciprocal commitments and realize a 34
process of mutual adaptation and joint value creation. 35
Second, the complexity of technological systems (Powell et al. 1996) and the 36
increasing turbulence in the competitive scenario (D’Aveni 1994; Bettis and Hitt 37
1995) have strengthened further the importance of interfirm relationships as loci 38
of value creation and a way to stimulate firm performances (Dyer and Singh 39
1998; Lorenzoni and Lipparini 1999). By helping firms to enhance their strategic 40
flexibility and learning capability (Volberda 1996), interfirm relationships are 41
considered a strategic asset and a source of competitive leadership in the current 42
fast-­moving competitive environments (Teece et al. 1997). 43
Third, the economic interest to keep on with the current relationship and to 44
enter new relationships in the future makes reputational concerns to emerge 45

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 Coopetition strategy   29
1 (Axelrod 1984; Hill 1990) and keep the partners aligned to the norms of trust-
2 worthy behavior (Brusco 1996; Griesinger 1990). As a consequence, vis-­à-vis
3 the competitive approach the cooperative perspective significantly reduces the
4 room for Williamson’s opportunistic behavior.
5 The theoretical framework underlying the cooperative perspective is summar-
6 ized as follows:
7
8 1 The sources of economic value creation and the roots of firms’ superior per-
9 formances are located within the structure of firms’ interdependence.
10 2 Firms’ interdependence is based on a positive-­sum game. Whether value
11 creation is a joint process which takes place among two or more partners or
12 whether partners take part at the cooperative game with the goal of deriving
13 mutual benefits, it follows that the more successful a partner is the larger are
14 the benefits for the other partner and vice versa. Moreover, the importance
15 of joint value creation implies a mutual dependence game structure that is a
16 strong antidote against the risk of opportunistic behavior and, by con-
17 sequence, a powerful incentive to a collaborative orientation.
18
19
20
3

F
In a business world which emphasizes a strong mutual dependence among
firms and the economic value of cooperation, it follows a picture of business
interdependence based on strongly convergent firms’ interest-­functions.
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21
22
2.3  The coopetitive perspective
23
O
24 The coopetitive perspective stems from the acknowledgment that, within inter-
25 firm interdependence, both processes of value creation and value sharing take
26 place, giving rise to a partially convergent interest (and goal) structure, where
27 both competitive and cooperative issues are simultaneously present and strictly
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28 interconnected. Accordingly, they give rise to a new kind of strategic interde-

29 pendence among firms that we term coopetitive system of value creation. This
30 third perspective can be viewed as an attempt to rebalance the cooperative bias
31 affecting the second perspective at hand. In fact, whereas the ultimate rationale
32 of collaborative interdependence advanced by the cooperative approach is the
33 economic and competitive benefits that a firm derives by taking part in a cooper-
34 ative game, the cooperative perspective has been mainly focused on the sources
35 and mechanisms of value creation at two levels of analysis, the dyad level and,
36 sometimes, the network level. Thus, it has overlooked to derive analytically how
37 the value jointly created by firms is translated into actual benefits at the indi-
38 vidual firm level.
39 The coopetitive perspective, on the contrary, stresses the fact that the supreme
40 interests of a partner are not necessarily aligned with the supreme interest of the
41 other partner(s), but they can be partially coupled. This partial or incomplete
42 interest congruence requires to explicitly take into consideration the fairness
43 problem within the cooperative game structure (Grandori and Neri 1999), which
44 has been instead, implicitly or explicitly, taken for granted in the cooperative
45 perspective. In other words, the coopetitive perspective pays attention to the

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 30   G.B. Dagnino
positive-­but-variable game structure. This structural variability enlightens the 1
presence of uncertainty due to the competitive pressures of firms’ interdepend- 2
ence, provided that it is not known ex ante to what extent each partner would 3
benefit from cooperation compared to the other(s). 4
Some of the motives that explain competitive pressures, emerging within a 5
cooperative structure, can be summarized as follows. Some scholars have 6
claimed that, in highly innovative cooperative contexts, the capability to detect 7
opportunistic behavior is low and, as a consequence, the reputational incentives 8
are weak (Hill 1990). Other studies have stressed that, with the development of 9
trust in a cooperative context, the control processes carried out by the partners 10
are sensibly weakened and this may result in an incentive, to one or more part- 11
ners, to behave opportunistically (Grandori and Neri 1999). In other words, a 12
number of theoretical and empirical studies have been carried out in the last few 13
years criticizing the cooperative perspective and claiming that opportunism and 14
trust are all but incompatible behavioral assumptions. Far from being antitheti- 15
cal, opportunism and trust are behavioral variables generally coexisting in the 16
same context with various degrees. 17

F
Matching Williamson’s (1985) type of opportunism with Barney and
Hansen’s (1994) three types of proposed trust, we first model four resulting dis-
trust/trust forms and second we position these forms in a continuum (a continued
18
19
20
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line), which goes from opportunism/distrust to strong form of trust (Figure 2.1), 21
and which may prove useful in interpreting interfirm coopetitive exchanges. 22
A coopetitive system of interfirm relationships may be characterized by dif- 23
O
ferent trust degrees which include: weak trust, semi-­strong and strong trustwor- 24
thy behaviors, and even distrust. Interfirm strategic trust contexts are inherently 25
dynamic as they continuously evolve and change from one form to the other 26
(e.g. especially between the two middle forms; weak and semi-­strong trust types) 27
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and accommodate the presence of different types of trust at the same time (e.g. 28
semi-­strong and strong trust). Trust evolves both vertically (in degree) and hori- 29
zontally (in time) and may be a source of temporary or sustained competitive 30
advantage. Nevertheless, sustained above-­normal returns in interfirm coopetition 31
are usually earned when trust tends to be more stable in time and stronger in 32
form. 33
In most strategic partnerships, each of these dyadic relationships is neither 34
strictly competitive nor strictly cooperative: they are simultaneously competitive 35
and cooperative. Typically, they involve mixed motives in which the partners 36
have private and common interests (Gulati et al. 2000). Some empirical contri- 37
butions in the field of interfirm learning have highlighted that, when mutual 38
dependence is not balanced, the more dependent partner is subject to the risk of 39
holding up from his counterparts. This type of competitive pressure results from 40
41
Opportunism Weak trust Semi-strong Strong/pure
42
distrust trust trust 43
44
Figure 2.1  Forms of trust in a continuum. 45

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 Coopetition strategy   31
1 coupling an asymmetric learning pace among partners (Hamel 1991) and a low
2 relative scope of the alliance (Khanna 1998; Khanna et al. 1998). The competit-
3 ive pressure emerging from this “learning race”2 is related to the fact that the
4 fastest learner may decide to end the cooperative relationship once he has
5 achieved his own learning objectives, without considering the interest of the
6 other partners to protract the relationship. The relative scope of an alliance
7 describes the business shares of the partners who fall into the object of the alli-
8 ance and explains the distribution between individual or private benefits (stem-
9 ming from the whole application of knowledge learned in businesses which are
10 different from the alliance object) and the common benefits (emerging from the
11 application of knowledge to pursue the alliance objectives). When both asym-
12 metric learning pace and low relative scope are present, the fastest learner has
13 higher incentives to end the relationship before his counterpart has managed to
14 capture the whole benefits he expects from the alliance.
15 The forces driving to diverging (though partially) interests are not only related
16 to opportunism incentives à la Williamson. Exogenous environmental dynamics
17 (Doz 1996), a shift in the strategic priorities of a firm (Koza and Lewin 1998), or
18
19
20
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a loss of leadership which makes a partner less attractive than it was earlier, are
all drivers that induce the once cooperative interest structure to diverge, with the
effect to rebalance the individual incentive towards cooperation.
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21 In addition, complementary firms coming from different industries may not
22 be completely aligned in the choice of the courses of action in the ongoing rela-
23 tionship. This may be related to the fact that, since the value of a resource
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24 depends on the way in which a resource is combined to other resources (Penrose
25 1959), it follows that a different resource endowment brought by firms coming
26 from different industries may result in an incomplete alignment as concerns the
27 alliance’s most convenient course of action.
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28 Efficiency purposes may lead a partner who has made an investment in an

29 alliance to apply the yield of that investment into other cooperative contexts
30 (Håkansson 1993). This replication activity may result in an interest conflict with
31 the first partner whenever it brings to spillover its private knowledge or, more
32 generally, to enhance the competitive position of his competitors (Dowling et al.
33 1996; The Economist 1999).
34 The theoretical framework underlying the coopetitive perspective is summar-
35 ized as follows:
36
37 1 Firms’ interdependence is both a source of economic value creation and a
38 place for economic value sharing.
39 2 Firms’ interdependence is based on a variable-­positive-sum game which
40 may bring to mutual but not necessarily fair benefits to the partners because
41 of several competitive pressures of different nature that may undermine
42 their coopetitive structure.
43 3 In a variable-­sum game structure, firm interdependence is based on a par-
44 tially convergent interfirm interest function.
45

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 32   G.B. Dagnino
3  Coopetition strategy for value creation: a typology of 1
coopetition 2
3
In this section, we advance a typology of coopetition based on the differing explan-
4
atory variables of this incomplete interest (and goal) congruence, then we sketch
5
how coopetition strategy may contribute to value creation. As previously main-
6
tained, coopetition is a concept which may prove helpful to interpret a new kind of
7
interfirm dynamics where competition and cooperation frameworks merge together.
8
Starting from these premises, we introduce the notion of coopetition strategy.
9
As we have argued earlier, coopetition strategy refers to a kind of interfirm strat-
10
egy which consents the competing firms involved to manage a partially conver-
11
gent interest and goal structure and to create value by means of coopetitive
12
advantage. Far from being a compact monolith, coopetition strategy is a multidi-
13
mensional and multifaceted concept which assumes a number of different forms
14
and multiple levels of analysis and for which it is all but easy to grasp its struc-
15
ture, processes and evolving patterns. As previously understood, coopetition
16
encompasses both economic and social issues related to interfirm interdepend-
17
ence. Blurring boundaries in the firms’ value chain(s) and relationships among

F
coopetitive players develop a coopetitive system of value creation. For this
reason, most of the study that has initially recognized the importance of coopeti-
18
19
20
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tion has not gone much farther beyond naming, claiming or evoking it. This
21
characteristic of the earlier investigation on coopetition has stimulated us to take
22
a step forward in conceptualizing coopetition. We move far from considering
23
coopetition simply as a new term and, by thoroughly exploring its explanatory
O
24
and symbolic power and giving it significance, we advance to a concept helpful
25
to strategy investigation. We first advance a typology of coopetition and second
26
identify and stratify three coopetition levels in relation to value creation.
27
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28
3.1  A typology of firm coopetition 29
30
As regards the typology of interfirm coopetition (Table 2.1), our proposal is
31
based on two basic coopetition forms: i.e. dyadic coopetition and network
32
coopetition. Dyadic coopetition refers to firm dyads or simple two-­firm relation-
33
ships and relates to:
34
a coopetition (both competitive and cooperative) relationships between the 35
same two firms along one single level of the value chain (i.e. strategic con- 36
sortia as R&D consortia). This is what we term “simple dyadic coopetition”; 37
b coopetition (competitive and cooperative) relationships between the same 38
two firms along several levels of the value chain (i.e. a number of firm dyads 39
in the automobile industry who cooperate on car R&D and/or production 40
and compete in car distribution). This is what we label “complex dyadic 41
coopetition”. 42
43
Network coopetition concerns a structure of complex relationships among 44
more than two firms at the same time and links up with: 45

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 Coopetition strategy   33
1 a coopetition (competitive and cooperative relations) among multiple firms
2 along one single level of the value chain (i.e. buyer–supplier relationships
3 known as “parallel sourcing”). This is what we name “simple network coo-
4 petition”;
5 b coopetition (competitive and cooperative relations) among multiple firms
6 along several levels of the value chain (i.e. industrial districts, firm clusters
7 and multilateral agreements). This is eventually what we term “complex
8 network coopetition”.
9 Simple dyadic coopetition is evident by considering a basic strategic dyadic
10 alliance, such as R&D consortia. An R&D consortium is a legal entity estab-
11 lished by two (or more) organizations that pool resources and share decision
12 making for coopetitive research and development activities (i.e. at same level of
13 the value chain). It is possible to operationalize R&D consortia as those entities
14 filing with the US Justice Department under the National Cooperative Research
15 Act of 1984 (Doz et al. 2000) or in Europe filing with the EU prescriptions on
16 the matter. Many R&D consortia are of limited duration as they are linked with
17 specific projects with given time horizons. The so-­called “shadow of the future”
18
19
20
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can propel the formation or favor the continuation or extension in scope and
duration of such kinds of agreements (i.e. escalation of commitment).
Complex dyadic coopetition is utterly apparent if we consider a number of
O
21 recent alliances in the automobile sector (i.e. BMW–Daimler Chrysler, Ford–
22 PSA, Honda–Isuzu, Fiat–GM, Opel–Renault, PSA–Toyota, Opel–Suzuki and
23 Volkswagen–Porsche) which offer a fair representation of the heretofore
O
24 described structure of coopetition strategy. These agreements assume different
25 forms and focus on cooperation in R&D and manufacturing of one or more car
26 components or product lines (e.g. automatic gears, diesel or petrol engines,
27 sports or utility cars, vans, or commercial trucks) while distribution generally
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28 remains competitive (see Table 2.2). The alliances above are widely known
29 under the press common label of “allied in costs, rival on markets” or “marry
30 nobody, collaborate with everybody”.
31 As reported above, simple network coopetition is represented by coopetition
32 among multiple firms at one level of the value chain. As concerns the Japanese-­
33 like buyer–supplier relationships in car manufacturing known under the label of
34 “parallel sourcing” (in opposition to sole sourcing, see Richardson 1993), we
35 observe that for every type of auto components parallel sources (i.e. Toyota)
36 normally select two or three suppliers, at least one of which coming from the
37
38 Table 2.1  A matrix representation of a typology of coopetition
39
40 Level of value chain Number of firms
41
Two More than two
42
43 Single Simple dyadic coopetition Simple network coopetition
44 Several Complex dyadic coopetition Complex network coopetition
45

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 34   G.B. Dagnino
Table 2.2 Complex dyadic coopetition: recent agreements in the world automobile industry 1
2
Dyadic agreement Joint products
3
BMW Engines for Mini and Pt Cruiser 4
Daimler-Chrysler 5
Volkswagen Sport utility 6
Porsche Highest market end 7
8
PSA Engines and automatic gears
9
Renault
10
PSA Compact car (start 2005) 11
Toyota
12
Opel Micro Monovolume (Agila and Wagon R+) 13
Suzuki 14
Opel Commercial light vehicles 15
Renault 16
17
FIAT
PSA (Peugeot 806)
FIAT
GM
F
Monovolume (FIAT Ulysse, Lancia Z,
Commercial light vehicles
Product plan
Powertrains (engines + transmissions)
18
19
20
O
21
Honda Diesel engines 22
Isuzu Common rail type 23
O
Source: Il Sole24Ore, September 2, 2001: 8.
24
25
internal market. This choice allows Japanese car-­makers to keep their supplier 26
under the continuous pressure of the relentless menace of potential competition 27
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from the exclusive suppliers of similar components for the same final product or 28
of the same component for different final products, or eventually of upward ver- 29
tical integration from the same buyer firm. This peculiar relational structure is 30
aimed to keep a constant and intense transfer of material and information on 31
process techniques among the participants in the supply chain, discouraging 32
obnoxious opportunistic behaviors from one of the two parties or blocked situ- 33
ations as it occurs in bilateral monopoly.3 Commitment to long-­term cooperation 34
need not imply abandonment of competition between suppliers. In fact, Japanese 35
car-­makers have traditionally relied on multiple suppliers embedded in a multi-­ 36
tier system for a higher share of their externally sourced parts than did their US 37
counterparts. The secret to fusing competition and cooperation lies in a willing- 38
ness to work with a supplier to solve technical and economic problems, instead 39
of simply switching immediately to an alternative source (i.e. the practice of 40
“non-­switching”). 41
Complex network coopetition is epitomized by taking into account a number 42
of Italian industrial districts (e.g. Valenza Po for gold jewelry, Carpi for knit- 43
wear, jumpers and sweaters, Parma for cured ham and parmesan cheese, Prato 44
for textiles and clothing). The concentration of small and medium firms in these 45

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 Coopetition strategy   35
1 aggregate bodies unveils a model of tightly connected dynamic fabric of mul-
2 tiple relationships which intervenes at different levels and with mutable protean
3 intensity. They present high self-­organizing power in that they usually cover all
4 the value net of production and distribution. In the same vein, we consider an
5 agreement set up among some of the biggest players in the tyre industry on a
6 particular car component as a characteristic example of complex network coope-
7 tition. Michelin, Goodyear, Pirelli and Dunlop – though remaining fierce rivals
8 on world’s tyre markets – have jointly designed and realized the “tyre pax
9 system” already available as an optional part on the Renault Scenìc model and
10 on some Audi automobiles.
11 Last but not least, coopetition is equally important to manage the link between
12 R&D and production within the firms. In competitive markets part of success
13 often hinges on the speed with which firms can turn invention into innovation
14 and innovation into products ready-­for-market. Achieving a quick effective
15 transition from invention and innovation to production requires extensive
16 coordination among the various stages of the process, which is a function of the
17 organization arrangements used by the firm and the degree of communication
18
19
20
F
among those involved. Japanese car-­makers offer an instructive illustration of
the benefits of firm-­level coopetition strategy (Kenney and Florida 1993). Instead
of relying on the individual contributions of atomized, fractionalized depart-
O
21 ments, they organize the design and development process for a particular car
22 model around one or more teams of cooperating employees coming from various
23 functional departments of the firm (product planning, styling, engineering,
O
24 factory operations, marketing and so on). The teams are assigned to the develop-
25 ment project for the duration of its life, moving it through its various stages. The
26 teams are often working unencumbered and competing on the same project. This
27 approach, on one hand, originates what a Western-­oriented perspective considers
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28 redundancies but, on the other, these redundancies reveal more effective ways to
29 speed up process and to solve R&D and development product problems (Nonaka
30 1991, 1994). This continuity enables a much smoother and more rapid transition
31 through the design, development and production process. The result was a time-­
32 to-market reduction from 60 months and three million engineering hours for US
33 car-­makers to 46 months and 1.7 million engineering hours for Japanese car
34 manufacturers in the 1980s (Clark and Fujimoto 1991).
35 As it is easy to fathom, all the heretofore mentioned experiences force strat-
36 egy scholars and practitioners to accept the possibility that the two alternative
37 concepts of competition and collaboration may be insufficient to explain the
38 ever-­changing business reality, summoning the new spirit, logic and puzzle of
39 coopetition.
40
41
3.2  Coopetition strategy and value creation
42
43 As previously maintained, coopetition strategy concerns interfirm strategy which
44 allows the firms involved to manage a partially convergent interest and goal
45 structure and to create value by means of coopetitive advantage. This partially

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 36   G.B. Dagnino
convergent interest and goal congruence is the baseline of a “coopetitive system 1
of value creation”. While we have heretofore conceptualized and exemplified 2
two kinds of coopetition (i.e. network and dyadic), in this subsection our inten- 3
tion is to show how coopetition strategy is able to guarantee value creation to 4
firms involved by way of a variable-­positive-sum game structure. First, by con- 5
sidering the coopeting actors involved, we identify three coopetition levels (i.e. 6
macro, meso and micro). Second, we analyze these levels in relation to firms’ 7
value creation. Since value creation may be considered a two-­dimensional 8
concept, we introduce two kinds of value creation (i.e. knowledge value and eco- 9
nomic value). Whereas the knowledge value is given by the growth in the inter- 10
firm (firm) knowledge stock that the coopetitive strategy framework is able to 11
grant from a given time t0 to a ensuing time t1, the economic value is repre- 12
sented by the added value in terms of interfirm (firm) cost reduction or revenue 13
increase that the strategic coopetitive framework may confer. By juxtaposing 14
coopetition levels and value creation, we eventually provide a matrix representa- 15
tion of coopetition for value creation (see Table 2.3). As argued beforehand, this 16
17

Coopeting actors Knowledge value

F
Table 2.3  A matrix representation of coopetition levels for value creation

Economic value
18
19
20
O
21
Macro 22
Clusters of firms Communication and Reduced aggressive and
23
information flows suboptimal rent-seeking
O
24
Firms across industries Inter-ndustry new knowledge Profit and fund-sharing 25
creation and transfer arrangements
26
27
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Levels of Coopetition Strategy

Meso 28
Firms in a industry Intraindustry new knowledge R&D Investment workforce 29
(horizontal relations) creation and transfer training investment 30
Purchasers and suppliers Communication and Quicker agreement on 31
(vertical relations) information flows standards 32
Co-design Reduced time-to-market 33
Co-development Joint R&D 34
35
Joint production
36
Micro 37
Functions and divisions Communication and Quicker and more effective
38
within a firm information flows transition from R&D to
production (e.g. from 60 to 46 39
Intra-Firm New Knowledge 40
months)
Creation and Transfer
41
Workers in a Firm Greater incentive and Heightened productivity 42
commitment to (hard) work through commitment
43
and create knowledge
44
Source: Authors’ elaboration from Kenworthy (1995). 45

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 Coopetition strategy   37
1 representation disentangles the idea of coopetition for value creation basically
2 from two perspectives: the firm level and the interfirm level.
3 In order to achieve a representation that may fit better the partial interest con-
4 gruence involved in the dynamic process of coopetition, we have matched the
5 three coopetition levels to the two main dimensions of firms’ value creation
6 (Tidstrom 2008). First, we consider the coopeting actors. As concerns the coope-
7 tition strategy levels, the macro level refers to interconnecting clusters of firms
8 and firms across industries, the meso level concerns relationships among firms
9 connected vertically or horizontally – i.e. firms that interact with one another as
10 competitors or as buyers and suppliers, the micro level concerns actors as the
11 functions and divisions within a firm or the workers in a firm. As already men-
12 tioned, it is amenable to understand that all the three levels taken into account
13 may accommodate a coopeting behavior. Clusters of firms and firms across
14 industries coopete in that, whereas they usually compete on government R&D
15 spending/funds, access to capital markets and shareholders investments, and
16 activity diversification when entering new markets, they may find themselves
17 cooperating on best practice and technology transfer and new markets explora-
18
19
20
F
tion and exploitation (Peng and Bourne 2008). Firms within an industry coopete
in that, while they traditionally compete on product and factor markets, they
cooperate in product design, manufacturing or distribution and the definition of
O
21 new standards. Purchasers and suppliers coopete in the form of the aforemen-
22 tioned complex dyadic coopetition (see pp. 000–000 for details). Functions and
23 divisions and workers within a firm coopete in that they traditionally compete
O
24 fiercely for corporate intrafirm fund allocation, while they cooperate in product
25 and workforce development and interchange.
26 Now, what are the benefits in terms of knowledge and economic value out-
27 spreading from these kinds of relationships? At the macro level, while know-
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28 ledge value is added by intense communication and information flows and

29 interindustry new knowledge creation and transfer, which in turn allow to join
30 more knowledge stock, economic value is achieved through reduced aggressive
31 and suboptimal rent-­seeking and profit and fund sharing arrangements. At the
32 meso level, whereas knowledge value is attained through intra-­industry new
33 knowledge creation and transfer, deep communication and information flows
34 and product co-­design and co-­development, economic benefit is accomplished
35 through increased R&D investment and workforce training investment, joint
36 R&D and production, faster agreement on standards and reduced time-­to-market
37 for products. Finally, at the micro or firm level, while knowledge stock added
38 value is bestowed by extended communication and information flows and
39 intrafirm new knowledge creation and transfer, higher incentive and commitment
40 to work, and knowledge creation by the workforce, economic benefit is granted
41 by a quicker and more effective transition from R&D to production and an
42 increased productivity by the overall commitment of the workforce.
43
44
45

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 38   G.B. Dagnino
4  Discussion and conclusions 1
2
A number of business cases and experiences have shown that value creation is
3
achieved by combining competition and cooperation, a “paradoxical” behavior
4
that has been termed “coopetition”. Arguably, as it urges us to confront two dif- 5
ferent and antithetical firm behaviors (the competitive and the cooperative), at 6
first glance coopetition strategy appears both hybrid and puzzling. By consider- 7
ing in a single unifying framework that we have termed “coopetitive system of 8
value creation”, this paradox may be solved at least partially. In the context of a 9
coopetitive system where the behavior of two or more firms is jointly analyzed, 10
as they are part of a variable-­positive-sum game structure, the two antagonistic 11
behaviors are seen as a part of a complex strategy context where both play a key 12
role and interact in the context of the same time and space structure. It becomes 13
hence possible to define the budding coopetition framework as one partial con- 14
vergence of actors’ interests and goals. 15
First, the “coopetitive value creation framework” we propose suggests new 16
clues that can contribute to the strategic management debate. Since coopetition 17

F
strategy brings the promise to explain strategic network interdependence among
firms by means of a “coopetitive system of value creation”, we need to update
our relational terminology and relational behavior in firm strategy comprising a
18
19
20
O
more coopetitive orientation where competition and cooperation are both con- 21
sidered and coevolving (i.e. we need to read previous and current firm experi- 22
ence under the coopetitive lenses and to foster firm coopetitive strategic 23
behavior).
O
24
Second, distancing from approaches to strategy simply competitive or coop- 25
erative, under coopetition strategy the two crucial processes of value creation 26
and value sharing occur in the context of a variable-­positive-sum game structure. 27
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A strategy of coopetition, rather than encouraging value appropriation or rent-­ 28

seeking behavior, nurtures value creation and favors an entrepreneurial oriented 29
behavior (Rumelt 1987) by firms or within a single firm. In Hirschman’s (1970) 30
terms, coopetition is voice-­based as opposed to exit-­based market-­based rela- 31
tionships. Whereas an exit-­based strategy, as the traditional US arms-­length 32
model of procurement, discourages communication between purchasers and sup- 33
pliers, thereby locking the information transfer, a voice-­based procurement strat- 34
egy, as the Japanese one, insists on effective and timely transfer of information 35
on process techniques among the participants in the supply chain. Supported by 36
the insurance of a long-­term stable relationship, a voice-­based procurement 37
system of such a kind stimulates suppliers to seek continuous improvements in 38
productivity. The superior efficiency of the Japanese auto manufacturers (well 39
known as the “Toyota way”) is virtually unquestioned, and their supplier rela- 40
tionships are widely acknowledged to be a key factor contributing to that 41
supremacy. 42
Third, while firm and interfirm coopetition may be a matter of short- or long-­ 43
term sight, only if viewed over an extended time period coopetition strategy 44
proves really helpful to the creation of knowledge and economic value (Lado 45

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 Coopetition strategy   39
1 et al. 1997). Even if in a short time period a coopetition strategy may add to
2 firms involved more value than conventionally does a traditional competitive
3 structure, this differential value may be only a small fraction more than the one
4 that is gained by sheer competition. Since we consider coopetition as variable-­
5 positive-sum game structure, this coopetitive differential strategic value in rela-
6 tion to a pure competitive framework may accrue to one only of the two (or
7 more) actors involved (Kale et al. 2002), thereby raising an equality problem in
8 (re)balancing the rents accumulated. Contrary to conventional wisdom, a long-­
9 term commitment to a cooperative relationship does not preclude competition.
10 Commitment to long-­term cooperation need not imply to disavow competition
11 between suppliers. As observed erstwhile, Japanese car-­makers rely on multiple
12 suppliers for higher share of their externally sourced parts than do US auto man-
13 ufacturers. If a suppliers’ performance is consistently unsatisfactory, some of its
14 business is shifted to a competitor for a short time as a penalty. During that time
15 the assembler firm works closely with the supplier to try to remedy the problem.
16 But the supplier firm is not permanently dismissed unless it proves unable or
17 unwilling to adapt over a substantial period of time.
18
19
20
F
Fourth, analyzing coopetition we have detected three levels of coopetition
strategy; i.e. the macro, meso and micro levels. They refer, respectively, to rela-
tions among firms across industries or among different clusters, among firms in
O
21 the same industry, within a firm. The incorporation in our analysis of these three
22 coopetitive levels rests on the idea that coopetition, far from being a narrow
23 concept, is encompassing both interfirm and intrafirm relationships. By way of
O
24 implication, we see no hindrance to the fact that the coopetitive framework here
25 proposed may be extended in the future to a gamut of analytical levels referring
26 to other market, nonmarket or extramarket institutions such as relationships
27 between governments, interest groups, unions and firms and among entire coun-
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28 tries and blocks of countries.

29 Fifth, coopetition strategy contributes to conceptualize a specific strategy in
30 that it accommodates in principle both deliberate action and spontaneous or
31 emergent strategic behavior à la Mintzberg. Coopetition strategy in fact does not
32 detect a sharp distinction between spontaneous behavior and deliberate goal-­
33 seeking. This is an approach where firms are both carried along by their chang-
34 ing environment and deliberately pursue coopetition to improve their position,
35 resources and capabilities. For the reason of additional value creation, the more
36 firms and managers improve their understanding of coopetition and the open
37 potential of coopeting, the more they will deliberately choose a strategy of
38 coopetition.
39 Sixth, the coopetition strategy skeleton provides an encompassing basis for
40 integrating theories of coopetition and theories of cooperation to generate an
41 enhanced understanding of sustained business performance. Business perform-
42 ance has largely been conceptualized as a zero-­sum game in which a firm must
43 either gain a competitive advantage or be forced out of the industry (i.e. Porter
44 1980). When cooperation among firms is recognized as a strategy, it can be ana-
45 lyzed in terms of its ability to influence firms to address competitive problems

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 40   G.B. Dagnino
(Hamel 1991) and to generate sustained competitive advantage (Barney 1991). 1
Such a perspective is hemmed in by the structures of the competitive paradigm: 2
it confers supremacy to the invisible hand of competition over the visible hand 3
of cooperation (Hill 1990). In contrast, perspectives that are used to advocate 4
cooperation and trust among firms as moral and strategic imperatives (Harrison 5
1994; Kanter 1994) provide only a partial explanation of how business perform- 6
ances are achieved and sustained. Our proposal of coopetitive system of value 7
creation sensitizes researchers and managers to consider strategic phenomena as 8
a firm’s quest for both competitive advantage and cooperative advantage by 9
simultaneously competing and cooperating. 10
Seventh and finally, the coopetitive system of value creation that we have 11
proposed both challenges and extends the competitive perspective of strategic 12
management for value creation. First as concerns the resource-­based theory, 13
second as refers to the emerging strategic network perspective. Whereas 14
resource-­based scholars emphasize the relevance for competitive advantage of 15
causally ambiguous and firm-­specific resources that diminish in value when they 16
are shared with other firms, we suggest that profits also result from the nonfinite, 17

F
symbolic and idiosyncratic resources, such as altruism, trust and reciprocal
exchange (Chapter 5, this volume), that make critical resources increase in value
when they are shared with selected firms in a cooperative network. By opening
18
19
20
O
new room for a coopetitive space or arena, we are compelled to view strategic 21
networks (Gulati et al. 2000) as effective governance devices of interfirm rela- 22
tionships that are conducive to superior performance in that they accommodate 23
O
competition and cooperation for network resources at the same time and among 24
the same firms. 25
26
27
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4.1  Limitations and future research

28
By discussing the possible conceptualization of coopetition and considering a 29
typology of coopetition through some microcases referring particularly to firms 30
operating in the automobile industry, in this chapter we have clarified the contri- 31
bution and the potential of coopetition strategy to the advancement of strategic 32
management, organization theory and managerial practice. 33
If we attempted to draw conclusions solely on the basis of the experience and 34
the perspective of an individual firm, coopetition would look a naïve or useless 35
concept. Conversely, looking at coopetition strategy framework from a range of 36
interfirm perspectives, we have been able to explain coopetition as a variable-­ 37
positive-sum game based on a partial interest and goal congruence. Empirical 38
research on coopetition behavior will subsequently assist to show what 39
typology(ies) and what levels of coopetition (taken by themselves or in interrela- 40
tionship) are pro tempore more efficient and create more knowledge and eco- 41
nomic value both in quality and quantity. 42
We have acknowledged that coopetition is an entirely new field of explora- 43
tion which brings vast attention-­grabbing promise of advancement for both stra- 44
tegic management scholars and practitioners. We thus envision to be just at the 45

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 Coopetition strategy   41
1 onset of a true “coopetitive pathway of investigation”, which has already been
2 revealed to be a rapidly emerging field (Walley 2007; Tidstrom 2008), an open
3 avenue for a significant part of current strategy and organizational research.
4
5 Notes
6
1 To date the term “coopetition” has not yet been incorporated either in general diction-
7 aries (e.g. Oxford, Webster), those dedicated to economics (e.g. New Palgrave, MIT),
8 or in management theory or practice.
9 2 In most situations, partners ally with each other because by working together they hope
10 to generate some common returns that they can share in a certain way. But the know-
11 ledge or information each partner obtains from the partnership can also have purely
private benefits that accrue to one partner alone. Under some circumstances, the part-
12 ners may find themselves engaged in a race to learn or exploit as much as they can the
13 other’s assets and then exit the alliance. Such learning races are likely to occur when
14 the private benefits that can accrue to one of the partners after he has learned from the
15 other partner outweighs the common benefits of the alliance (Gulati et al. 2000: 211).
16 3 As concerns the cooperative-­competitive benefits of parallel sourcing in terms of com-
munication and coordination costs:
17
18
19
20
F
We have seen how the practice of parallel sourcing works to provide competitive
incentives for supplier performance while at the same time providing the benefit
of sole sourcing, principally reduced costs for communication and coordination
O
associated with both quality control and JIT production.
21 (Richardson 1993: 348)
22
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