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CHAPTER SUMMARY
This chapter discusses the reasons cooperative strategies are important in the current
competitive environment. The topic is examined generally as well as by market type.
Examples of various cooperative strategy types are provided on the basis of their primary
strategic objectives, with strategic alliances highlighted as a frequently-used form of cooperative
strategy.
Associated risks and effective management to overcome risks are presented to complete
the discussion of cooperative strategies.
CHAPTER OUTLINE
KNOWLEDGE OBJECTIVES
1. Define cooperative strategies and explain why they are important in the current competitive
environment.
2. Explain how the primary reasons for the use of cooperative strategy differ depending on
market context (fast-cycle, slow-cycle, or standard cycle).
3. Define and discuss equity and nonequity strategic alliances.
4. Discuss the types of cooperative strategies that are formed primarily to reduce costs or
increase differentiation.
5. Identify and describe cooperative strategies that help a firm address forces in the external
environment.
6. Explain the cooperative strategies that firms use primarily to foster growth.
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Chapter 7—Cooperative Strategy
LECTURE NOTES
Cooperative Strategy – This section describes how today’s business environment is conducive
to interorganizational cooperation and opens the discussion of forming cooperative relationships
with other firms for strategic purposes.
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Chapter 7—Cooperative Strategy
Discussion points:
- Firms that use cooperative strategies successfully gain
relational advantages that allow them to out-perform their
rivals in terms of strategic competitiveness and above-average
returns.
- Strategic alliances are the most common form of cooperative
strategy.
Importance of Cooperative Strategy – This section discusses how cooperative strategies have
become integral to the competitive landscape and central to the success of partnered companies.
Discussion points:
- They are used to leverage company resources and capabilities.
- They are used to develop new resources and capabilities.
- They enable companies to leverage or build resources and
capabilities more quickly than if they were acting
independently.
- They are a powerful mechanism for aligning interests and
reducing uncertainty in the external environment.
Example: Cooperative relationships of automobile
manufacturers and their suppliers
- They enhance strategic flexibility, as they tend to not be
permanent arrangements.
- Firms can enter and exit cooperative strategies more easily than
they can start up or shut down parts of their internal operations.
- Consistent with the stakeholder perspective (from Chapter 1),
organizations, as inherently cooperative systems, are inclined to
act with partners to achieve common objectives.
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Chapter 7—Cooperative Strategy
Discussion points:
- Co-opetition between firms encourages co-opetition among
other firms in the same industry.
- Despite potential advantages, some research suggests that
cooperating with a competitor may be associated with lower
levels of ground-breaking innovation in the service sector.
Example: One study found that firms using their own R&D
produce more market innovations than those who rely on
information from competitors
- In some industries, alliance v. alliance competition is becoming
more common than firm v. firm competition.
Example: Global airline industry
1. Why might service firms that use information from their own
research and development processes as well as firms who are
involved in science-based product innovation collaborations be
more likely to introduce new-to-the-market innovations than
firms that rely on information coming from competitors?
Firms are probably unlikely to release genuinely novel ideas
and technologies to their biggest rivals.
See slide 7. Reasons for Strategic Alliances by Market Type – The individually
Table 7.1 unique competitive conditions of slow-cycle, fast-cycle, and standard-
cycle markets (discussed in Chapter 6) lead to firms using cooperative
strategies for slightly different reasons. This chapter focuses
specifically on the most common form of cooperative strategy, strategic
alliances, to describe how purposes tend to vary across the three market
types.
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Chapter 7—Cooperative Strategy
Strategic Alliances in Slow-Cycle Markets – This section discusses why firms use strategic
alliances in slow-cycle markets and how low-velocity environments affect business strategy.
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Chapter 7—Cooperative Strategy
Strategic Alliances in Fast-Cycle Markets – This section discusses why firms use strategic
alliances in fast-cycle markets and how high-velocity environments affect business strategy.
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Chapter 7—Cooperative Strategy
Strategic Alliances in Standard-Cycle Markets – This section discusses why firms use strategic
alliances in standard-cycle markets and how medium-velocity environments affect business
strategy.
Types of Alliances and Other Cooperative Strategies – This section discusses two basic types
of strategic alliance based on legal form and introduces other cooperative strategies as they relate
to the primary strategic objectives of firms.
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Chapter 7—Cooperative Strategy
Discussion points:
- Equity strategic alliances
o Many direct foreign investments are completed through
equity strategic alliances.
o Some equity strategic alliances take the form of purchasing
stock in an existing company.
Example: BMW AG purchase of 15% stake in SGL Carbon
SE
- Nonequity strategic alliances
o Firms in nonequity strategic alliances do not establish a
separate independent company.
o These alliances are less formal.
o These alliances demand fewer partner commitments.
o These alliances foster less intimate relationships between
partners.
o These alliances are not suitable for complex projects
requiring the transfer of tacit knowledge (see Slide 12)
between partners.
o Research indicates that, even under these constraints,
nonequity alliances still create value for participating
partners.
- Joint ventures
o Joint ventures also involve equity.
o Typically, partners in a joint venture own equal percentages
and contribute equally to operations.
Example: JV between Walter Energy and Peace River Coal
o Partners share resources, costs, and risks associated with the
venture.
o Joint ventures are an attractive way to deal with uncertain
competitive conditions, such as economic downturns.
o Joint ventures are effective mechanisms for establishing
long-term relationships and transferring tacit knowledge.
- Tacit knowledge
o It is learned through experience.
o It can be difficult to for rivals to duplicate, making it an
important source of competitive advantage.
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Chapter 7—Cooperative Strategy
Complementary Strategic Alliances – This section introduces the two types of complementary
strategic alliances used to support differentiation and low cost objectives and discusses why the
benefits of such partnerships are not always balanced evenly across partnering firms.
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Chapter 7—Cooperative Strategy
Discussion points:
- Complementary
o Even with similar investment levels, the benefits are not
always balanced evenly across partnering firms
- Vertical
o Frequently created with either a current supplier or
customer
o Often an effort to innovate as a response to environmental
changes
Example: Dairy industry
- Horizontal
o Commonly used for long-term product development and
distribution opportunities
o More likely when resource requirements to develop new
products are great and the resources available for
development are limited
Example: Worldwide aircraft industry
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Chapter 7—Cooperative Strategy
Network Cooperative Strategies – This section discusses the effective use of network
cooperative strategies and the role that strategic center firms play in alliance networks.
Discussion points:
- They are particularly effective when formed by geographically
clustered firms.
Examples: Silicon Valley and Singapore’s Silicon Island
- They facilitate the matching of firms with complementary
markets and compatible resources.
- Research suggests that the positive financial effects of network
cooperative strategies will continue to make these strategies
important to the success of both suppliers and buyers.
- However, one of the disadvantages to belonging to an alliance
network is that a firm can be locked into its partners, precluding
the development of alliances with others.
- Also, in certain types of networks, such as a Japanese keiretsu,
firms in the network are expected to help other firms in the
network whenever they need aid, which can become a burden to
the firm rendering assistance, thus reducing its performance.
See slide 17. Alliance Network – set of strategic alliance partnerships resulting from
Discussion the use of a network cooperative strategy
Discussion points:
- They provide information and knowledge from partners and
partners’ partners which can be used to produce more and better
innovation.
- Access to multiple collaborations increases the likelihood that
additional competitive advantages will be formed as the set of
resources and capabilities being shared expands.
- They stimulate development of product innovations that are
critical to value creation in the global economy.
Example: Lockheed Martin Cyber Security Alliance
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Chapter 7—Cooperative Strategy
See slide 18. Alliance Network Success – Effective strategic center firms and social
Discussion relationships and interactions achieved among partners while sharing
resources and capabilities make network cooperative strategy success
more likely.
See slide 20. Strategic Center Firms – serve as the foundation for an alliance
Discussion network's structure
See slide 21. Types of Alliance Networks – Alliance networks vary by industry
Major Types condition and goal orientation.
See slide 22. Stable Alliance Networks – Through a stable alliance network, firms
Discussion try to extend their competitive advantages to other settings while
continuing to profit from operations in their core, relatively-mature
industry.
See slide 23. Dynamic Alliance Networks – tend to develop where the pace of
Discussion innovation is too fast for any one company to maintain success over
time
Discussion points:
- In some cases these networks even take the form of “open
innovation,” composed of collaborators and competitors who
share knowledge in the pursuit of co-development of new
technologies.
Example: Mobile phone industry
- Members of these alliances can come and go as they please.
Cooperative Strategies That Address Forces in the External Environment – This section
introduces a discussion of business-level cooperative strategies used to combine resources and
capabilities to meet the challenges of complex and ever-changing external environments.
See slide 24. Cooperative Strategies That Address Forces in the External
Major Types Environment – introduces a discussion of business-level cooperative
strategies that combine resources and capabilities to meet the challenges
of complex and ever-changing external environments
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Chapter 7—Cooperative Strategy
Competitive Response Alliances – This section describes how competitive response alliances
are used to respond to competitors’ strategic attacks.
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Chapter 7—Cooperative Strategy
Discussion points:
- They give partnering firms differential advantages in their
markets.
- Collusive strategies are a more direct form of competition-
reducing strategy (see Slide 28).
See slide 28. Collusive Strategies – Often illegal, two types of collusion work to
Discussion reduce competition.
Discussion points:
- Explicit collusion
o Two or more competing firms negotiate directly to jointly
agree about the amount to produce as well as the prices that
will be charged for what is produced
o Illegal in the U.S. and most developed economies, where
firms can face litigation for noncompetitive actions
o Exception is regulated industries
- Tacit collusion
o Common to highly-concentrated industries
Examples: Cereal and airline industries
o When coordination of production and pricing results from
observing competitor actions and responses
o Firms recognize interdependence among industry
participants and that their competitive behavior significantly
affects each firm in the industry
o Results in less than fully competitive production levels and
prices that exceed competitive pricing models
o Mutual forebearance – one form of tacit collusion that
occurs because firms fear and avoid competitive attacks
against rivals who they compete with in multiple markets
Example: PC industry
- Governments in free market economies need to determine how
rivals can collaborate to increase competitiveness without
violating established regulations.
Examples: Global pharmaceutical and biotechnology industries
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Chapter 7—Cooperative Strategy
Associations and Consortia – This section describes how associations and consortia are used to
form coalitions with stakeholders to achieve common objectives.
See slide 30. Cooperative Strategies That Promote Growth and/or Diversification
Major Types – introduce a discussion of cooperative strategies that serve as an
attractive alternative when the firm's primary goal is growth and/or
diversification
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Chapter 7—Cooperative Strategy
Discussion points:
- Growth is a primary goal in most organizations.
- Firms may pursue growth through:
o Internal strategies, like new product development or market
development
o External strategies, like mergers and acquisitions (see
Chapter 9)
- Cooperative strategies are an attractive alternative to M&As for
achieving growth.
- Cooperative strategies can be more attractive than M&A
because they require fewer resource commitments and are not
permanent, which permits greater strategic flexibility.
- Alliance can be used to “test” if a M&A is a viable long-term
strategy.
Example: Davies Arnold Cooper LLP and Seguros Lex alliance
- Three types of cooperative strategies are frequently used to
stimulate growth.
- These strategies may also promote market diversification
(increased market scope) and sometimes product diversification
(which is explored more comprehensively in Chapter 8).
Diversifying Strategic Alliances – This section describes how diversifying strategic alliances are
used to achieve firm growth and/or diversification objectives.
Franchising – This section describes how franchising is used to achieve firm growth and/or
diversification objectives.
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Chapter 7—Cooperative Strategy
Franchising
Discussion points:
- Firm is the franchisor.
- Partners are the franchisees.
- It is estimated that there are 825,000 franchise businesses across
300 different businesses in the U.S. that generate approximately
18 million jobs and contribute $2.1 trillion to the economy.
- Considered a hallmark of well-developed economies,
franchising is expected to contribute significantly to growth in
emerging economies over the next century.
- Brand name is usually the most important competitive
advantage for franchisees operating in their local markets.
Discussion points:
- Partners work closely together, finding ways to strengthen the
core company's brand name.
- Franchisor develops strong programs to transfer to the
franchisees the knowledge and skills needed to compete
successfully at the local level.
- Franchisees provide feedback to the franchisor for ways to
improve effectiveness and efficiencies.
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Chapter 7—Cooperative Strategy
13. What are some of the reasons for the widespread use of cross-
border strategic alliances?
a. Limited domestic growth opportunities
b. Restrictive governmental economic policies
c. Enable firms expanding into international markets to
leverage core competencies that are the foundation for
their domestic success
d. Offers firms expanding into new international markets
the local expertise of a domestic partner in that market
Discussion points:
- Due to limited domestic growth, firms look outside their
national borders for business expansion opportunities.
- Some foreign government policies require investing firms to
partner with a local firm to enter their markets.
Example: Local ownership policies in India and China
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Chapter 7—Cooperative Strategy
See slide 36. A Distributed Strategic Network – Because firms often have multiple
Figure 7.3 alliances in different geographical regions and countries often have
different regulatory environments, alliance networks are frequently
formed to manage the complexity and challenges of international
cooperative strategies.
Competitive Risks of Cooperative Strategies – This section discusses the high failure rate of
cooperative strategies and the factors that have a negative impact on their success.
Discussion points:
- Despite their advantages, cross-border alliances tend to be more
complex and risky than domestic strategic alliances, especially
if they are in emerging markets.
- Although their use has increased significantly, there is a high
failure rate for cooperative strategies.
o 2/3 of cooperative strategies have serious problems in their
first 2 years.
o As many as 70% of them fail.
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Chapter 7—Cooperative Strategy
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Chapter 7—Cooperative Strategy
Implementing and Managing Cooperative Strategies – This section explains the value of
building superior skills at effectively implementing and managing cooperative strategies.
Discussion points:
- Internalizing learned experiences associated with both
successful and unsuccessful cooperative strategies involves
organizing and properly distributing the knowledge to those
involved with forming and using cooperative strategies.
- Learn how to manage all assets associated with cooperative
arrangements.
- Since one of the primary reasons for cooperative agreements is
to gain knowledge, partnering firms should have explicit
systems and processes in place to record and disseminate
venture-related knowledge within their firms.
- Specific managers or teams should be assigned to oversee the
firm’s portfolio of alliances in general and the specific learning
associated with each particular venture.
o Maintaining an alliance portfolio has both benefits and
costs, so the net benefits depend on how effectively a
portfolio is managed.
o Portfolio managers should be able to visualize it in the
context of the entire industry rather than as a series of
individual alliances.
- Firms can increase the performance of their alliance portfolios
by including alliances with companies from a variety of
different value chain activities, which provides more
opportunities to acquire knowledge which they do not already
possess.
- Firms can benefit from experience associated with repeated
relationships with the same partners.
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Chapter 7—Cooperative Strategy
See slide 43. Benefits of Building Trust with Alliance Partners – A psychological
Discussion state, trust involves expectations of positive behavior from partners and
a willingness to be vulnerable.
Discussion points:
- It is impossible to specify all of the operational details of a
cooperative strategy in a formal contract.
- When partners trust each other, there is less need for detailed
formal contracts to specify behavior, and the cooperative
relationship tends to be more stable.
- When trust exists, monitoring costs are reduced and
opportunities to create value are maximized.
- Social capital provides a stronger position in social networks
that are designed to jointly create value.
- Trust may be the most efficient way to influence and control
alliance partners’ behaviors.
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Chapter 7—Cooperative Strategy
Ethical Questions – Recognizing the need for firms to effectively interact with stakeholders
during the strategic management process, all strategic management topics have an ethical
dimension. A list of ethical questions appears after the Summary section of each chapter in the
textbook. The topic of ethics is best covered throughout the course to emphasize its prevalence
and importance. We recommend posing at least one of these questions during your class time to
stimulate discussion of ethical issues relevant to the chapter material that you are covering. (See
slides 44-48.)
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"Kun nainen sanoo vihaavansa miestä —"
Kymmenes luku.
"Aivan varma."
"Teillä näyttää olevan niin kovin kiire", sanoi hän epäröiden. "Minä
luulin — niin — ehkä teillä sittenkin oli jotakin määrättyä
mielessänne. Vai kuinka?"
"Brannon", sanoi hän, "kun te lähditte äsken ulos, oli teillä aikomus
etsiä Denver käsiinne ja tappaa hänet!"
"Enpä luule."
Yhdestoista luku.
Denver oli tappanut Brannonin, siitä hän oli varma. Sillä hän oli
lähettänyt Brannonin pois aseettomana, hyvin tietäen, että Denverillä
yhä oli sama ase vyöllään, jota hän oli yrittänyt käyttää Brannonin
ilmestyttyä akkunaan. Brannonista oli nyt tullut hänen järjettömän,
aseita kohtaan tuntemansa ennakkoluulon uhri. Hän tiesi nyt, että
hänen katsantokantansa oli ollut aivan väärä, sillä koska kaikki
Lännen miehet kantoivat asetta, niin oli Brannonkin siihen pakoitettu
jo itsepuolustuksenkin kannalta. Nyt saattoi Josephine käsittää
arvoituksellisen katseen, jonka hän Brannonin silmissä oli nähnyt
hänen jättäessään pistoolinsa pöydälle. Vallitseva sävy siinä oli ollut
jonkinlainen häikäilemätön vaaran halveksunta.
Josephine hätkähti sielussaan nousevaa kuvaa, kuinka Denver oli
ampunut Brannonin. Hän ei vähääkään epäillyt, että Brannon yhtä
kylmän tyynesti oli ottanut vastaan kuolettavan luodin kuin hän oli
jättänyt aseensakin pöydälle.
Kahdestoista luku.
Denveriä ei näkynyt.
Sittenkin Brannon odotti, sillä hän tunsi Denverin. Jos hän oli
päättänyt käyttää rihlaansa, jota hän erinomaisesti olisi voinut
käsitellä esimerkiksi asuntolan akkunassa, niin olisi rakennusten
välinen kenttä tullut hyvin vaaralliseksi liikkumapaikaksi.
Hän ei itse ollut varma, pitikö hän tytöstä. Ainakin hän häntä sääli
— sääli sen vuoksi, että jos tyttö yritti muuttaa sen seudun tapoja ja
tottumuksia, johon hän sattumalta oli tullut, niin oli hän varmasti
epäonnistuva aikeissaan. Hänellä oli rohkeutta puolustaa
mielipiteitään ja mielipiteethän ovat vallan paikallaan aatteina, vaikka
useimmat ihmiset pitävät mielipiteensä hämärässä puolitajussa ja
seuraavat jatkuvasti vain hetken mielijohteita. Sehän se tekeekin
ihmiset inhimillisiksi.
"Hän noudattaa omaa päätään liian paljon", oli Brannonin
seuraava ajatus. "Hän koettaa istuttaa tänne Idän ajatustapoja,
toivoen hävittävänsä meikäläiset, joko sitten tahdomme tai emme.
Hän olisi sietämätön, ellei —."
"Mutta Itä ei ole Länsi", ajatteli hän taas, "ja minä luulen että hän
pian pääsee siitä perille."
Brannon sai tämän käsityksen siitä, että miehen oikea polvi oli
vedetty eteenpäin ja oikea käsi oli aivan polven vieressä velttona ja
vääntyneenä.
Hän oli ilmeisesti juuri tullut tajuihinsa ja mietti mitä oli tapahtunut.