CHAPTER 9 – COOPERATIVE STRATEGY

REVIEW QUESTIONS:

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 that firms form for the purpose of
developing a competitive advantage?
3. What are the four business-level cooperative strategies? What are the key differences among them?
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?
5. Why do firms use cross-border strategic alliances?
6. What risks are firms likely to experience as they use cooperative strategies?
7. What are the differences between the cost-minimization approach and the opportunity-maximization approach to
managing cooperative strategies?

CASE STUDY: READ AND UNDERSTAND

The academic literature on alliances has some interesting recent findings, one of which is the rationale that because
firms are often located in the same country, and often in the same region of the country, it is easier for them to
collaborate on major projects. As such, they compete globally, but may cooperate locally. Historically, firms have learned
to collaborate by establishing strategic alliances and forming cooperative strategies when there is intensive competition.
This interesting paradox is due to several reasons. First, when there is intense rivalry, it is difficult to maintain market
power. As such, using a cooperative strategy can reduce market power through better norms of competition; this
pertains to the idea of “mutual forbearance”. Another rationale that has emerged is based on the resource-based view
of the firm (see Chapter 3). To compete, firms often need resources that they don’t have but may be found in other
firms in or outside of the focal firm’s home industry. As such, these “complementary resources” are another rationale
for why large firms form joint ventures and strategic alliances within the same industry or in vertically related industries.
Because firms are co-located and have similar needs, it’s easier for them to jointly work together, for example, to
produce engines and transmissions as part of the powertrain. This is evident in the European alliance between Peugeot-
Citroën and Opel-Vauxhall (owned by General Motors). It is also the reason for a recent U.S. alliance between Ford and
General Motors in developing upgraded nine- and ten-speed transmissions. Furthermore, Ford and GM are looking to
develop, together, eleven- and twelve-speed automatic transmissions to improve fuel efficiency and help the firms
meet new federal guidelines regarding such efficiency.

In regard to resource complementarity, a very successful alliance was formed in 1999 by French-based Renault and
Japan-based Nissan. Each of these firms lacked the necessary size to develop economies of scale and economies of
scope that were critical to succeed in the 1990s and beyond in the global automobile industry. When the alliance was
formed, each firm took an ownership stake in the other. The larger of the two companies, Renault, holds a 43.3 percent
stake in Nissan, while Nissan has a 15 percent stake in Renault. It is interesting to note that Carlos Ghosn serves as the
CEO of both companies. Over time, this corporate-level synergistic alliance has developed three values to guide the
relationship between the two firms: 1. trust (work fairly, impartially, and professionally) 2. respect (honor commitments,
liabilities, and responsibilities) 3. Transparency (be open, frank, and clear) Largely due to these established principles,
the Renault Nissan alliance is a recognized success. One could argue that the main reason for the success of this alliance
is the complementary assets that the firms bring to the alliance; Nissan is strong in Asia, while Renault is strong in
Europe. Together they have been able to establish other production locations, such as those in Latin America, which
they may not have obtained independently. Some firms enter alliances because they are “squeezed in the middle;” that
is, they have moderate volumes, mostly for the mass market, but need to collaborate to establish viable economies of
scale. For example, Fiat Chrysler needs to boost its annual sales from $4.3 billion to something like $6 billion, and
likewise needs to strengthen its presence in the booming Asian market to have enough global market power. As such, it
is entering joint ventures with two undersized Japanese carmakers, Mazda and Suzuki. However, the past history of
Mazda and Suzuki with alliances may be a reason for their not being overly enthusiastic about the prospects of the
current alliances. Fiat broke up with GM, Chrysler with Daimler, and Mazda with Ford. This is also the situation in Europe
locally for PeugeotCitroën of France, which is struggling for survival along with the GM European subsidiary, Opel-
Vauxhall. More specifically, Peugeot-Citroën and Opel-Vauxhall have struck a tentative agreement to share platforms
and engines to get the capital necessary for investment in future models. As such, in all these examples, the firms need
additional market share, but also enough capital to make the investment necessary to realize more market power to
compete. In summary, there are a number of rationales why competitors not only compete but also cooperate in
establishing strategic alliances and joint ventures in order to meet strategic needs for increased market power, take
advantage of complementary assets, and cooperate with close neighbors, often in the same region of a country

ANSWER THE FOLLOWING QUESTIONS:

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?

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 do 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 MiniCase (e.g., Renault, Nissan, Mazda, Peugot-Citroen,
OpelVauxhall) might form a network cooperative strategy? If so, what conditions might influence a decision by these
firms to form this particular type of strategy?