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A Coopetition Perspective of Global Competition

Article in Journal of World Business · June 2007

DOI: 10.1016/[Link].2006.08.007 · Source: RePEc

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 Journal of World Business 42 (2007) 129–144
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A coopetition perspective of global competition

Yadong Luo *
Department of Management, School of Business Administration, University of Miami,
414 Jenkins Building, Miami, FL 33124, United States

Abstract
This article elucidates an increasingly prevalent facet of global competition: simultaneous competition and cooperation between
global rivals (i.e., coopetition). In order to develop an overall framework to analyze coopetition, this article explains why
coopetition occurs, discusses situations in which cooperation or competition increases or decreases in a coopetition scheme, and
presents a typology for understanding the intensity and diversity of coopetition with major global rivals. The typology of the
intensity of coopetition identifies four situations (contending, isolating, partnering, and adapting) to describe the varying degrees of
cooperation and competition between a pair of global rivals. To capture the diversity of coopetition, this article also identifies four
positions (dispersing, concentrating, connecting, and networking), depending on the number of global rivals and the number of
international markets the firm involves in coopetition. The article provides several broad guidelines for building coopetition
relationships.
# 2006 Elsevier Inc. All rights reserved.

An emerging facet of global competition is enhance performance by sharing resources and com-
coopetition—simultaneous competition and coopera- mitting to common goals in certain domains (e.g.,
tion between global rivals. Coopetition, originally product-market or value-chain activities). At the same
coined in the 1980s by Raymond Noorda, founder of time, they compete by taking independent actions in
Novell, is an important philosophy or strategy that goes other domains to improve their own performance (Luo,
beyond the conventional rules of competition and 2004).
cooperation to achieve the advantages of both This paper aims to provide a framework to analyze
(Brandenburger & Nalebuff, 1996). In the context of the rationality, behavior, evolution, and tactics of
global competition, multinational enterprises (MNEs) coopetition for MNEs in global competition. It
often engage in complex and simultaneous competitive- addresses: (1) why global coopetition is on the rise,
cooperative relationships with global rivals. For (2) how cooperation and competition will dynamically
instance, NEC cooperates with rivals such as Honey- change over time, (3) what types of coopetition we can
well, Siemens, and Northern Telecom in R&D and joint classify to reflect differing situations (degrees and
production; Philips and Sony collaborate to develop and scopes) of competition and cooperation, and (4) what
manufacture new DVD players, but compete intensively strategies MNEs should consider in different situations
in other product categories. Through cooperative to maximize gains from different configurations of
relationships, global rivals work together to collectively coopetition. Addressing all of these issues in a single
article seems ambitious, but a holistic view toward this
increasingly important yet inadequately described issue
* Tel.: +1 305 284 4003; fax: +1 305 284 3655. seems merited. Because several concepts, arguments
E-mail address: yadong@[Link]. and notions developed in this framework are normative

1090-9516/$ – see front matter # 2006 Elsevier Inc. All rights reserved.
doi:10.1016/[Link].2006.08.007
130 Y. Luo / Journal of World Business 42 (2007) 129–144

and descriptive, future research should continue to emphasizes cooperation only. Its unit of analysis is
extend, verify or challenge them, theoretically or the alliance itself rather than the parent organizations.
empirically. Alliances between competitors represent only a part of
cooperative endeavors; they cannot reflect the effects of
1. Defining coopetition in global competition comprehensive competition on a diverse list of products
between rivals, nor the insights of other types of
In the context of global competition, coopetition is cooperation such as collective efforts in lobbying
the simultaneous competition and cooperation between governments, establishing industry standards, or build-
two or more rivals competing in global markets. Under ing global or regional clusters of production and supply.
coopetition, the relationship between global rivals is a Coopetition does not deal with cases in which
simultaneous, inclusive interdependence with coopera- cooperation occurs during one period and competition
tion and competition as two separate yet interrelated occurs during another period. This temporal concur-
continua. The interdependence entails competitive and rence distinguishes coopetition from cooperation or
collaborative activities undertaken in the pursuit of competition in isolation. Under the coopetition scheme,
global reach, expansion, and profit. Between diversified rivals cooperate in some areas while competing in
MNEs, competition may occur at multi-points (multiple others. Functional areas that are more likely to inspire
nations and multiple products) and via multi-units cooperation include primary value chain activities (both
(multiple subsidiaries and divisions). The firms may upstream and downstream), especially long-term out-
globally compete for inputs (e.g., technology, informa- sourcing or supply agreements, co-production, and co-
tion, human resources, natural resources, indigenous marketing, and supporting value chain activities,
supplies, and favorable government treatment) as well especially R&D, information systems, organizing
as outputs (e.g., orders, contracts, and market share). experience, and managerial expertise. Product areas
Cooperation is a joint effort between competitors for that are more likely to exhibit cooperation include
mutual gain. It is not limited merely to cooperative products that are untested by the market, involve
alliances, such as international joint ventures, out- complementary strengths but divergent competing
sourcing agreements, licensing, franchising, R&D markets or competitive goals, and offer learning
consortia, co-production, or co-marketing, but extends opportunities to firms that have limited access to
to all types of collective efforts, such as improving a proprietary skills. Geographical areas that are more
host country’s industry infrastructure, pressing local likely to exhibit cooperation include those markets that
authorities for market access or fair competition, are promising but volatile, difficult to access due to
uniting against uncompensated leakage of proprietary tangible and intangible barriers, and superior in
knowledge to local firms, sharing common supplies location-specific resources possessed only by local
or global distribution channels, and forming clusters for rivals. Many joint ventures established in emerging
production, development, or resource supply at home or markets between foreign and local rivals share these
abroad. This cooperation is prevalent and widespread. features.
For example, together, GM and Toyota assemble Finally, coopetition may occur at corporate-, divi-
automobiles, Siemens and Philips develop semicon- sion-, or subsidiary-levels, depending on an MNE’s
ductors, and Thomson and JVC manufacture VCRs. strategic intent and organizational needs. The scope of
In line with the above definition, several properties of coopetition with a given rival may increase along these
coopetition should be delineated. First, coopetition same lines, ceteris paribus. The higher the relatedness
implies the coexistence of cooperation and competition in product and market domains between two rivals, the
between the same global rivals, not cooperation with more the scope of coopetition is likely to widen.
one rival and competition with another. The latter McDonnell Douglas (merged with Boeing in 1997), for
scenario, also an important issue and prevalent instance, competes and cooperates with Mitsubishi
phenomenon, has already been addressed by several Heavy Industries largely at the corporate level: both co-
studies. Dyer and Singh (1998), Gnyawali and produce F-15 fighters, commercial helicopters, and the
Madhavan (2001), and Lado, Boyd, and Hanlon new MD-900 Explorer helicopter, while competing for
(1997), for instance, have examined global business orders and contracts to produce air-jet components and
strategies that involve cooperating with some firms helicopters in China, India, and Malaysia. Royal Dutch
while competing against others. Additionally, coopeti- Shell maintains coopetition with RWE (the leading
tion differs from a cooperative alliance between global energy group in Germany) at the division level – petrol
rivals. Establishing an alliance with competitors stations. Through a 50/50 joint venture, they cooperate
 Y. Luo / Journal of World Business 42 (2007) 129–144 131

in building and running petrol stations throughout geographic markets, new products, and new businesses.
Germany. This joint venture comprises the country’s As Hamel (1991) noted, cooperation with rivals may be
largest petrol station company by far. In other European not only a means for gaining access to each other’s skills
markets, however, they compete for petrol station (quasi-internalization) but also a mechanism for
business. As an example of coopetition at the foreign actually acquiring a partner’s skills (de facto inter-
subsidiary-level, Nokia’s subsidiaries in China rigor- nalization).
ously compete with other players’ (e.g., Motorola, Competitive collaboration also reduces the costs,
Erickson, and Fujitsu) subsidiaries for mobile phone risks, and uncertainties associated with innovation or
market share. At the same time, they work together to new product development during global expansion. In
improve the infrastructure of China’s telecommunica- some cases, it is too costly for a single firm to develop or
tion industry, pressure the government for greater penetrate new markets alone. To a focal MNE, a global
market access, and build telecom equipment clusters to competitor may be the best partner with which to share
enhance efficiency and effectiveness. such costs, risks, and uncertainties since it has strong
expertise in the area and shares common interest in the
2. Understanding reasons for coopetition target market. Time is another critical factor since
cooperation with competitors is an effective method for
Several economic and strategic factors give rise to quickly improving production efficiency, quality con-
coopetition in global competition. First, interdepen- trol, and product innovation in both domestic and
dence between multinationals has never been so foreign markets. It is true that some MNEs give away
noteworthy and necessary as it is today. Increasing more than they gain in the risk-return equation or
competition and increasing cooperation at the inter- contribution–payoff ratio. Such an imbalance is usually
organizational level have significantly heightened the result of improperly applying the competitive
economic, technological, and transactional intercon- collaboration strategy.
nections between global rivals. Two rigorous forces, Furthermore, coopetition is propelled by the need to
namely, competitive pressure and collaborative desires, solidify global players’ collective power in dealing with
are simultaneously in play, provoking a situation in outside stakeholders (such as home and host govern-
which two global competitors exhibit syncretic rent- ments) and in strengthening market position for
seeking behavior (Lado et al., 1997). Cooperative members within a coopetition group. This is especially
linkages between competitors have particularly prolif- true when these players dominate the global market.
erated in the past decade – 50% of new cooperative Competition between global players dilutes the pressure
arrangements are between competitors (Harbison & of anti-trust regulations, anti-monopoly demands, and
Pekar, 1998). Coopetition is fortified by the coexistence anti-MNE voices in both developed and developing
of market commonality and resource asymmetry nations. Competition also promotes technological
between global competitors. Market commonality advancement, product innovation, and national adapta-
contributes more to competition whereas resource tion, which are beneficial to society (Porter, 1985).
asymmetry contributes more to cooperation. Cooperation, on the other hand, fortifies MNEs’
MNEs increasingly realize that collaboration is an collective bargaining power with independent institu-
important means by which to better compete globally. tions, especially home and host country government
The coopetitive behavior seeks the positive-sum, authorities. Despite increasing interdependence
efficiency-enhancing effects of competition and coop- between governments and MNEs, some clashes of
eration. While competition is inevitable, especially interest inevitably remain because the economic and
when market parameters facing global rivals are social goals governments seek do not always comple-
virtually zero-sum (e.g., fixed market size, restricted ment MNE interests. By uniting, global players will
investment, or limited market access), competitive achieve a stronger position to bargain for inputs (e.g.,
collaboration helps a pair of rivals enhance their internal production factors, infrastructure access), processes
skills and technologies while guarding against transfer- (e.g., lobbying government decision-makers and thus
ring competitive advantages to ambitious partners influencing regulatory policies), and outcomes (e.g.,
(Hamel, Doz, & Prahalad, 1989). Cooperative arrange- industry access, market penetration, and financial
ments with competitors enable a firm to internalize a returns). If successful, these bargaining returns will
partnering rival’s skills. These skills are embodied in benefit all participating global rivals.
specific outputs of the cooperative relationship. Once Coopetition is further bolstered by the need for
internalized, however, they can be applied to new strategic flexibility. MNEs that follow coopetition may
132 Y. Luo / Journal of World Business 42 (2007) 129–144

possess increased strategic flexibility due to the wider chips, and supplied systems on an original equipment
variety of strategic options than those available through manufacturing (OEM) basis to the resellers. At the same
pure competition or cooperation in isolation. Given the time, members within each group also internally
diversity of product lines and geographical territories competed, especially along the downstream activities.
for many global players, coopetition helps participating Sun Microsystems, for example, did little to discourage
rivals realize a multitude of competitive and collabora- competition among its semiconductor producers in
tive options in various areas. In contrast, either the group. It used a different producer for each succ-
competition or cooperation in isolation offers much essive generation of its chip and let these producers
more limited strategic options. Under pure competition, compete each time for its business. Internal competi-
a global player seeks to become a dominant market tion, to some extent, can increase group flexibility, drive
power by imposing entry barriers against followers, innovation and ensure security of supply.
lobbying host governments not to ratify investment
projects to other players, wielding market power to curb 3. Dynamic nature of coopetition
competitive rivalry, or colluding with a few local or
foreign incumbents by restraining outputs, raising After coopetition between global players is estab-
prices, and controlling supplies. Although advanta- lished, the cooperative and competitive element mix
geous to the focal MNE in the short term, such rivalrous does not necessarily remain constant over time. These
behavior may undermine the long-term viability of the opposing elements are not static, but rather dynamic in
firm, engender substantial rigidity whereby managerial response to changing parameters in both their external
systems, organizational skills, and cultural values fizzle, and internal environments. This movement is inevitable
and escalate organizational complacency that inhibits for three reasons. First, whenever market conditions and
innovation, flexibility, and entrepreneurship. Likewise, internal needs associated with coopetition change, the
pure cooperation alone can also be disadvantageous. desired level of cooperation or competition will change
Opportunism is pervasive and difficult to obviate, accordingly. Second, coopetition is a loosely coupled
especially when cooperative arrangements are loosely relationship in which players maintain certain inter-
governed and structured. Moreover, habitually coop- dependence without losing organizational separateness.
erative firms may gradually lose competitive innovation Competition proceeds without any formal governance.
and become more dependent on other firms, thus While cooperation is subject to some formal govern-
running the risk of losing their competitive positions in ance (e.g., contract terms or jointly formalized policies)
highly competitive markets after the cooperation or informal governance (e.g., norms in socially
arrangements end. embedded exchanges), this cooperation often accounts
Finally, coopetition is growing in battles over for a small portion of the total interplay between global
technical standards. In emerging industries, various players. Consequently, there is ample room for a pair of
technologies may contend for market share (e.g., Beta players to change the level of cooperation or competi-
versus VHS used in DVDs; GSM versus CDMA used in tion. Third, coopetition between a pair of global players
wireless communication products). The outcome of this is also affected by dynamic conditions happening
battle often depends on the number of companies outside of the relationship: there are many other
adopting each technology or standard. Cooperation competitors in the global market. Coopetition captures
(often through alliance networks or constellation) can the duality of cooperation and competition between a
help contending companies promote their technologies given pair or among a group of rivals, however, there are
and gain the critical mass required to persuade more many other players, especially followers or later
businesses to use their design or architecture. To do that, movers, who join global competition in the same field
they must persuade more ‘‘sponsors’’ to join their and pose new competitive threats to existing coopetitive
group. In the RISC (reduced instruction-set computing) players. Cooperation and competition between a given
field during the 1990s, for instance, Silicon Graphics pair or group of MNEs are likely to change to respond to
cooperated with NEC, Sony, Siemens, Olivetti and these threats.
Daewoo, while HP constellated with Hitachi, Samsung
and Stratus, and Sun Microsystems networked with 3.1. When does cooperation increase?
Toshiba, Unisys, AT&T, Matsushita, Philips and Fujitsu
(Gomes-Casseres, 1994, p. 64). Within each group, the The cooperation element under coopetition, once
leading company usually designed the RISC technol- established, changes with the following external or
ogy, licensed the semiconductor companies to produce internal parameters. First, it will increase when
 Y. Luo / Journal of World Business 42 (2007) 129–144 133

coopetiting players face increasingly competitive value chain activities; each player still controls its value
threats from other players who challenge their joint chain integration, but some primary or support activities
position in the areas in which they collaborate or their are ‘‘subcontracted’’ to other players in the same
common interest in specific areas. The response is to industries but in different nations. Many global rivals
intensify collaboration in order to strengthen collective (especially developed and developing country rivals)
bargaining power, impose new entry barriers (e.g., using cooperate today under the OEM model. The original
predatory pricing, manipulating technological stan- equipment manufacturer (typically a strong player)
dards, lobbying governments to use tougher policies) supplies a weaker rival in another nation with the
against later movers, and improve their own competitive technology and sophisticated components so that the
advantages through such efforts as joint development latter can manufacture goods that the former will market
and innovation. In China, Siemens increased coopera- under its own brand in international markets. Flextronics,
tion with its rival, Motorola, when it realized the threat a Singapore-based company is now the world’s third
of competition from followers such as Hitachi, 3Com, largest subcontractor in electronics, providing cost-
Cisco, Acer, and Samsung. Siemens and Motorola efficient manufacturing services that free its OEM clients
together increased technological standards and lobbied including Honeywell, GE, Pratt & Whitney, HP-
the Chinese government not to ratify the followers’ Compaq, and Nortel. Similarly, China’s Kelon, a local
projects in cities where they had already invested and competitor for many Western and Japanese MNEs
operated. operating in China, is GE’s largest subcontractor for
Second, cooperation increases as global consumers household appliance products. This helps GE reduce
become increasingly sophisticated by demanding new production costs, rationalize its value-chain process, and
technology, online services, additional functionality, expedite large volume productions.
superior quality, and innovative designs. To respond to Fourth, cooperation increases when global rivals
these emerging demands from global consumers, global confront increasing hazards from institutional environ-
rivals deliberately cooperate and share complementary ments, especially regulatory hindrances, whether
resources in order to develop new products. Increased originating at home or in foreign countries. Cooperation
cooperation is beneficial because of cost- and risk- increases with institutional hazards because it is
sharing considerations associated with the product and difficult for individual global players to mitigate these
process innovations needed to cope with fundamental hazards without uniting. Collective bargaining power
changes in global demand. This is illustrated in the and a harmonious group voice improve the contending
emerging coopetitive relationship between Apple position for all members in the group when dealing with
Computer (iPod technology) that allows for the use regulatory agencies or other institutions in power. In the
of iTunes on Motorola designed phones for Cingular’s 1990s, many U.S. MNEs united and lobbied federal
digital cell phone network. In the retailing industry, legislators to grant China the most favored nation status,
Sears (US), Carrefour (France), Ahold (Netherlands), and later the WTO membership, because it would create
Metro (Germany), and Sainsbury (UK) established e- enormous Chinese market opportunities.
procurement alliances among them to more quickly Finally, cooperation increases with greater inter-
respond to the various needs of global consumers by organizational attachment over time. As such an
sharing purchasing systems. attachment grows, global cooperating rivals will be
Third, MNEs encounter increasing pressure for global committed to continuously investing in their relational-
value chain integration. This pressure may stem from (a) specific routines. This attachment often accompanies
the increasing importance of economies of scale and deeper interdependence characterized by accumulated
internalizing worldwide operations, (b) the reduction of trust, heightened reciprocal learning, and ascended
profit margins as a result of global competition or mutual adaptations. Idiosyncratic interfirm linkages
decreasing demand, and (c) the intensifying need for between global rivals can be a source of relational rents
improving productivity and efficiency. In any case, and competitive advantage (Dyer & Singh, 1998). But
cooperation becomes more imperative. While witnessing reaching this point may take a long time during which
increasing global value chain integration in many two players gradually adapt to each other with
industries (e.g., electronics, pharmaceuticals, and com- increasing familiarity and trust. Each party’s confidence
puters), we also see a tendency for fewer MNEs to in the other may also increase as the interdependence
actually conduct each and every primary activity in the becomes socially embedded (Granovetter, 1985). With
global value chain within their own houses. The upshot is such confidence or trust, each player is willing to
that global rivals now cooperate along a wider range of continue increasing collaborative links because critical
134 Y. Luo / Journal of World Business 42 (2007) 129–144

resources may span firm boundaries and may be emb- Third, competition will decrease if competitive
edded in interfirm routines and process. This symbiosis asymmetry increases. The competitive relationship
is, in turn, likely to yield competitive advantages for the between a pair of firms is asymmetric, depending on
collaborating firms. With such confidence and trust, the which competitor is the focal firm under consideration
costs of coordination, information processing, transac- (Chen, 1996). That is, if A is B’s primary competitor, it
tions, and safeguarding are also expected to decrease. does not necessarily follow that B is A’s primary
Despite competition among them, Toyota has progres- competitor. For instance, Mexico’s Mabe, a home
sively elevated its cooperation with GM, Saab, and appliance producer active in Central and Latin America,
Suzuki as reciprocity, attachment, and trust with these would find Whirlpool as having expanded aggressively
players have increased. in Central and Latin America. However, Whirlpool
perceives Mabe as a competitor only in Central and
3.2. When does competition increase? Latin America, where they overlap, but not as a direct
competitor in general. Typically, this asymmetry is
Dynamically, the competition element under coopeti- associated with low levels of market commonality and
tion, once established, changes along with the following resource similarity. Given these conditions, each player
external or internal factors. First, competition increases will define global competitors differently and will also
as global rivals’ competitive goals increasingly converge experience different degrees of competitive threat from
or overlap. This may occur if (a) the rivals use the same those competitors because of the differences in market
competitive strategies or place emphasis on the same commonality and resource similarity. Overall competi-
competitive advantage building blocks, (b) market fields tion between global rivals decreases in response to
for competing firms expand, wherein two players both increased competitive asymmetry due to the reduced
envision the common market(s) as strategically para- market breadth of rivalry and asymmetric geographical
mount to their global operations, or (c) product and dispersion of globalization.
business portfolio similarity increases, causing two Lastly, competition will increase if resource inter-
players to globally compete in the same line of businesses dependence between global rivals decreases. Weakened
and in the same domain of products. Germany’s interdependence is likely to reduce cooperation and
Bertelsmann and France’s Vivendi Universal, two of increase competition (Henderson & Mitchell, 1997). In
the world’s largest media groups that both cooperate and the absence of strong interdependence, rivals are likely
compete, increased their rivalry in striving to build a to engage in a competitive rent-seeking behavior in
competitive foothold in each other’s home markets which each seeks to individually generate a competitive
(increasing market commonality). Vivendi eventually advantage over other firms by either manipulating the
shifted to marketing sports teams and events in Europe, structural parameters of the industry to its advantage
an area dominated by Bertelsmann for many years (Porter, 1985) or by developing and nurturing hard-co-
(increasing portfolio similarity). copy distinctive competencies (Barney, 1991). Wea-
Second, competition will increase when industry kened interdependence also curtails mutual opportu-
competition solidifies. Over time as the industry’s life nities for realizing positive-sum benefits through
cycle moves into maturity, industry-level competition effective collaboration, further pushing competitors to
among participating players intensifies (Baum & Korn, follow a zero-sum orientation toward other rivals (Lado
1999; Bettis & Hitt, 1995). In this situation, global et al., 1997). Germany’s Vodafone and France’s Vivendi
players may compete heavily in order to maximize cash Universal have been competing and cooperating for
inflows from their respective market positions. Within a years. Recently, with the dissolution of Vizzavi, their
coopetitive network, members’ competitive interests Internet joint venture, due to weakened interdepen-
may become more conflicted if the industry is dence, their mutual competition significantly rose in the
shrinking. For instance, in Sun Microsystems’ con- pan-European mobile telephone market.
stellation mentioned earlier, competition among semi-
conductor producers, including Toshiba, Unisys, 4. Typology and tactics of coopetition
Fujitsu, Philips, and Matsushita, increased drastically
when the RISC technology became obsolete after IBM Rich (1992) notes that organizational classifications,
(whose PC unit was acquired by China’s Lenovo in especially where multidimensional, significantly con-
2005 for $1.75 billion), Motorola, and Apple joined tribute to theory development by providing parsimony
together to develop the PowerPC chip and Intel while retaining richness and diversity. Coopetition with
redoubled efforts to develop the Pentium chip. global rivals is complex, dynamic, and multifaceted, and
 Y. Luo / Journal of World Business 42 (2007) 129–144 135

thus necessitates classification schemes that can illumi- similarity, and market commonality are high. Market
nate systematic and cogent differences among different competition makes collusion among global oligopolis-
situations or positions in coopetition. More importantly, tic players difficult, while resource similarity and
using typologies allows us to further discuss strategic product similarity reduce the players’ desire to
responses in different coopetition situations. cooperate (Bernheim & Whinston, 1990). Product
similarity in a global common market increases
4.1. Intensity of coopetition pressure for competition, not cooperation, because it
curbs the potential for cooperation and encourages
Intensity of coopetition is the extent to which a focal jockeying for strategic position. Resource similarity, on
global player is both competing and cooperating with a the other hand, weakens the complementarity of
major global rival in international markets. This resource endowments and dispels the collective synergy
pairwise analysis is a measure of the vigor of a specific creation. A long history of global competition, weak
coopetitive relationship with a leading competitor. interorganizational trust, and noticeable cultural dis-
Generally, a diversified MNE has a number of global tance between two global players may be additional
competitors, but many coopetitive relationships with factors that intensify competition and retard coopera-
these competitors are bilateral in nature. Thus, a tion. Finally, a contending situation is also likely to arise
pairwise diagnosis enables the firm’s executives to between global players in both backyard and foreign
examine the detailed dynamics and dyadic insights with battlefields. The rivalries between Coco-Cola and Pepsi,
each major rival. When such pairwise examinations are Fuji and Kodak, Airbus and Boeing, and Sun
combined, one can essentially view the totality of the Microsystems and Microsoft illustrate this point.
firm’s coopetition with all global rivals. Depending on Under a contending situation, the MNE may
the intensity of competition and cooperation that emphasize intelligence gathering, niche filling, or
simultaneously occur with a global rival, an MNE position jockeying as strategic tactics to respond to a
may find itself in a (1) contending situation, (2) high competition – low cooperation relationship with its
isolating situation, (3) partnering situation, or (4) major rival. Intelligence gathering is collecting and
adapting situation. analyzing data and information to better understand and
predict another player’s objectives, strategies, capabil-
4.1.1. Contending situation ities, and plans (Hitt, Ireland, & Hoskisson, 2007).
A contending situation exists when the firm vies with Legally and ethically legitimate intelligence gathering
another major global player for market power, helps a player gain the insights needed to create a
competitive position, and market share in critical competitive advantage in the global market and to
international markets, maintaining high competition increase the quality of its strategic decisions. It further
and low cooperation with its counterpart. Before helps the MNE to formulate its global strategic plans
merging with Boeing in 1997, McDonnell Douglas and investment priorities so that it is better prepared to
was in a contestant position in relation to both Boeing act or counteract a rival’s strategic move. Although
and Airbus. Its bilateral relationships with Boeing and intelligence gathering should be used in all competitor
Airbus were dominated by competition, with only a analysis situations, no other situations (Cells II, III, and
small scale of cooperation in the area of parts and IV in Fig. 1) should emphasize it as rigorously as in a
components between their foreign subunits. At the contending position. This is because other firm
corporate level, McDonnell Douglas strove to solidify identities often have more channels to obtain informa-
those competitive advantages that would transform its tion about competitors or can better anticipate a
commercial aircraft business into a truly global competitor’s behaviors through a higher level of
enterprise with the resources and capabilities to cooperation (Cells II and IV); sometimes intelligence
compete and succeed across the board against Boeing is less important because the firm does not significantly
and Airbus. A contending situation is especially likely interact with competitors (Cell III).
to occur in an oligopolistic circumstance in which Niche-filling is a global player’s effort to identify,
several global players occupy the majority share of penetrate, and hold a promising market focus associated
global markets characterized by high competition, with geographic territory, product domain, and/or
industry deregulation in most nations, and increasingly technological leadership (Day & Reibstein, 1997).
sophisticated demand from worldwide customers or Global expansion provides the firm in a contending
clients (Malnight, 2001). Such a situation is also more situation with a great deal of geographical, technolo-
likely to occur when product similarity, resource gical, and product niche opportunities to leverage its
136 Y. Luo / Journal of World Business 42 (2007) 129–144

Fig. 1. Intensity of coopetition with a major global rival.

capabilities or exploit its competencies around the 4.1.2. Isolating situation

world. Deploying resources in new niche overseas An isolating situation arises when the firm does not
markets is now a prevalent strategy for MNEs, large and interact significantly with other global rivals, main-
small, from developed or developing countries, to avoid taining low competition and low cooperation with
fierce competition in more established markets or for another leading global player. The firm acts or reacts
more mature products. Because the firm in a contending virtually independently in the international markets in
situation maintains low cooperation with another which it participates and streamlines its global
player, niche-seeking is likely to be undertaken alone. investments and operations by itself. In this extreme
In some cases, niche-filling also engenders first-mover situation, interdependence and interaction with a
advantages such as stronger market power (technical major global competitor are low, either limiting the
leadership, customer loyalty, market position, brand firm in certain segmented national markets (typically
recognition) and weaker competitive threats. the case for specialized MNEs) or capitalizing on its
Lastly, position jockeying is a global player’s effort monopolistic power in global markets (normally the
to tactically defend, hold, and strengthen its established case for monopolistic MNEs). With the increasing
market position against another global player (Hitt integration of the world economy and the increasing
et al., 2007). In contrast to niche-filling, which seeks a interdependence of firms, the number of monoplayers
new market or new position, typically overseas, has declined in most industries (Casson, 1987),
jockeying emphasizes the ways in which a firm can however, some specialized MNEs that succeed with
maintain and fortify its market position, both domestic a limited scope of products or markets in which global
and offshore, vis-à-vis a close global rival. Therefore, competition remains very low may find themselves in
jockeying focuses on optimizing the firm’s strategic a sustained solid position underpinned by their stand-
positions with respect to another player with whom it alone strategies without strong cooperation with other
already competes in established ‘‘old’’ markets, players (Gimeno & Woo, 1999). Intel’s microchip
whereas niche-filling focuses on exploring new markets business (especially Pentium microprocessors), now
or areas in which competition from another player is holding about 80 percent of global market share, is an
absent. Common jockeying methods include but are not example showing an isolating situation in a specia-
limited to: (a) forming strategic groups that unify lized area. Likewise, a small number of monopolistic
suppliers and distributors against a leading rival, (b) MNEs that continuously benefit from low global
establishing a leadership position in industrial or competition may still thrive with their logic of
technological standards, (c) dominating certain inbound strategic independence. Low competition arises
and outbound logistics, especially global distribution largely because of entry barriers erected against late
networks, (d) controlling critical value chain activities entrants (through regulatory blockage, technological
that can shape global competition (e.g., controlling a standards, or capital requirements) and the required
few big global suppliers), (e) manipulating global price, specialized expertise or know-how with which many
and (f) enticing a competitor’s clients and customers. rivals are not equipped. Low competition that benefits
 Y. Luo / Journal of World Business 42 (2007) 129–144 137

monopolistic MNEs arises mainly because of their 4.1.3. Partnering situation

dominant market power and position that no other A partnering situation exists where a global player
players, domestic or foreign, can challenge. The voluntarily maintains high cooperation and low
isolating situation also applies to the subunit level, competition with another major global player in search
especially to foreign subsidiaries. That is, in the same of joint synergies created by both players’ comple-
host market, two subsidiaries belonging to two mentary resources and capabilities. High resource
different parent firms maintain low inter-connections complementarity and low market commonality are
with low competition as well as low cooperation with two necessary conditions under which global rivals may
each other. become partners. High resource complementarity
MNEs facing an isolating situation may consider magnifies resource interdependence, thus bolstering
domain specialization, scale expansion, and vertical economic ties and competitive collaboration between
integration as their strategic responses to a low partners. Low market commonality eases competitive
competition – low cooperation situation with global pressure that may otherwise occur if the companies
rivals. Domain specialization is a strategic tactic that compete head-to-head for the same consumers in the
emphasizes certain product segments or market seg- same geographic markets. The US’s McDonnell
ments in which the firm has a fundamental edge Douglas and Japan’s Kawasaki Heavy Industries have
supported by its unique knowledge or specialized know- been collaborating in numerous areas for many years,
how. It is this specialized know-how that makes it from F-4 and F-15 jets to commercial helicopters and
possible for a firm to become a solo player in a the MD-900. This cooperation occurs in the absence of
segmented or specialized product-market mix. Domain substantial direct competition between the two due to
specialization is especially preferred when the specia- low market commonality. While McDonnell Douglas
lized product-market mix has not yet been sizably seeks cost-efficient global reach and production for air
challenged by other players and this tendency is jets, Kawasaki focuses on upgrading its heavy equip-
anticipated to hold well into the future. ment technologies. With these conditions in play, a
Scale expansion is a strategic tactic that aims partnering relationship is a channel for each company to
to capitalize on the firm’s existing strong position acquire new knowledge. Whether through formal (e.g.,
by increasing production and sales volumes equity joint venture) or informal (e.g., co-production)
(Gimeno & Woo, 1999; Lado et al., 1997). For firms cooperative relationships, global competitors work
in an isolating position, increased economies of scale together to collectively enhance performance by sharing
have the dual advantage of improving their cash resources and committing to common task goals in
inflows and escalating entry barriers against fol- various domains (e.g., product-market or value-chain
lowers. Along with enhanced innovation, customer activity). Because completely comprehensive partner-
responsiveness, and national adaptations, these firms ing relations (i.e., cooperating in every aspect of
may focus on scale expansion to seize all possible business, including product areas, geographic markets,
market opportunities. This strategy, of course, and value-chain functions, undertaken by both compa-
requires discreet decision-making concerning the nies) between two global competitors are uncommon
global deployment of distinctive resources, safe- (unless two players are merged such as Daimler Benz
guarding proprietary know-how from appropriability and Chrysler or McDonnell Douglas and Boeing),
hazards, and relocating production facilities to ideal partnering ties generally occur in some specific areas
sites that help reduce production costs and enhance important to both players. The unique feature of the
customer satisfaction. partner identify compared to other identities (Fig. 1)
Lastly, vertical integration is a strategic tactic that resides in the fact that partnering players seek joint
expands, whether backwards or forwards, global payoffs by fostering and maintaining reciprocal inter-
operations for a firm in an isolating situation, thus dependencies, rather than by gaining unilateral advan-
accentuating its global market power in a specialized tages over their partner. Such interdependencies may
product-market mix in which it has peculiar and generate ‘‘composite quasi rents,’’ referring to the
powerful capabilities (for specialized MNEs) or in economic rents resulting from a resource that depends
various national markets in which it has dominant on continued association with the resources of others
market power and monopolistic position (for mono- (Hill, 1990, p. 500).
polistic MNEs). Vertical integration may also improve MNEs in a partnering situation may consider synergy
the firm’s profit margin and increase entry barriers extension, value sharing, and attachment enhancement
against followers (Hitt et al., 2007). as possible strategic responses to high cooperation – low
138 Y. Luo / Journal of World Business 42 (2007) 129–144

competition combinations vis-à-vis another global independent action to improve its own performance.
player. Synergy extension is a strategic attempt that Between a pair of global rivals, competition and
identifies and explores additional benefits, whether cooperation may take place across different contexts
technological or operational, arising from an estab- (e.g., cooperate in a given product market and compete
lished cooperative relationship (Lado et al., 1997). in others; cooperate in one value-chain activity and
Accumulated satisfactory cooperation often invites compete in others). What makes an adapting situation
further, deeper, or bolder cooperation in pursuit of different from other situations is that the degrees of both
additional synergies. The generation of these synergies cooperation and competition are high, thus elevating
is much less costly than those arising from brand-new inter-player competitive and collaborative connections
cooperation due to decreased costs in interparty at the same time. Hitachi is in an adapting situation in
coordination, internal transaction, and information relation to HP since it simultaneously competes and
exchange. This tactic is especially preferred when cooperates intensely with the latter. They compete
resource complementarity, goal compatibility, and formidably in the race for global market share in such
cooperative culture are already working within a areas as rewritable DVD drivers and storage area
current cooperation framework. network (SAN) technologies and products. Meanwhile,
Value sharing is an organizational attempt to they have successfully cooperated for many years in the
accommodate the respective cultures, philosophies, RISC computer field in areas such as technology
and values of two players. Since the central force agreement, product supply, chip use commitment, and
supporting ongoing competitive collaboration is mutual equity investment. In an adapting situation, the firm’s
understanding, commitment, and accommodation (Doz, philosophy and behavior emphasize the positive-sum,
1996), co-opting is often necessary, allowing partners to efficiency-enhancing effects of both competition and
neutralize potential conflicts. Cooperation is enhanced cooperation with another leading global player.
if one player co-opts the other into sharing mutual goals Cooperation between rivals can enhance a firm’s
(Oliver, 1991). Mutual assimilation of goals and competitive position by enabling partners to build
attitudes becomes more likely when the players gain and leverage idiosyncratic, rent-yielding critical com-
greater understanding of each other’s values and petencies while simultaneously reducing the costs and
behavior through routine contact. Value sharing also risks associated with the global deployment, mobiliza-
spurs reciprocity, an important condition for sustained tion, and exploitation of such competencies. Further-
interorganizational links (Oliver, 1990). more, global rivals rarely compete in every business,
Finally, attachment enhancement is a managerial every product, or every market. That is, the breadth of
attempt to seek stronger interparty ties at both the competition between two global rivals is always smaller
individual level (interrelationships between the firms’ than the breadth of the business lines each operates.
CEOs) and the organizational level (connections Although global rivals increasingly engage in multi-
between two firms). Attachment at either level is point competition, complete rivalry between the two
improved by familiarity, socialization, and knowledge (i.e., total duplication of business and market scopes) is
sharing (Levinthal & Fichman, 1988). For a pair of rare because of variances in: (a) the composition of
global players that have already built a great deal of geographic diversification in global markets, (b) the
trust at the personal and company levels, attachment composition of business portfolios, (c) entry modes in
enhancement is a viable option because a firm’s critical international expansion, and (d) the importance of
resources may be embedded in interfirm resources and individual national markets to each.
routines. MNEs in an adapting situation may consider
boundary analysis, loose coupling, and strategic
4.1.4. Adapting situation balance as possible strategic tactics in response to a
An adapting situation refers to the case in which two high competition–high cooperation combination with a
global players mutually depend on each other to achieve major global rival. Boundary analysis is a managerial
their respective goals, maintaining high cooperation as effort that identifies the appropriate areas (products,
well as high competition with each other. Unlike a markets, or functions) in which two players should
partnering situation wherein the relationship with compete and those in which they should cooperate
another player is overwhelmingly characterized by a (Gimeno & Woo, 1999). Finding boundaries or
cooperative atmosphere, a firm in this situation territories for cooperation and competition is a critical
cooperates with its major rival in certain areas while early step in this situation since it determines the
competing with the latter in other domains by taking subsequent structure of coopetition. Switching costs are
 Y. Luo / Journal of World Business 42 (2007) 129–144 139

extremely high if a firm shifts from cooperation to diversification, asset utilization, and opportunity exploi-
competition or vice versa (e.g., additional set-up and tation.
reappraising resource interconnectedness). Increasing
global expansion makes boundary identification more 4.2. Diversity of coopetition
difficult but also more important. Geographical
boundary expansion creates more potential and oppor- The intensity of coopetition involves the dynamics of
tunities for competitive collaboration due to greater competition and cooperation between a focal MNE and
resource indivisibility and lower market commonality. one particular rival, and each player’s global level of
Loose coupling is a strategic tactic that employs coopetition entails a number of such pairs. In contrast,
loosely structured partnerships, such as licensing, the diversity of coopetition involves both geographic
research consortia, co-production, distribution-sharing, breadth (the number of foreign markets in which the
OEM production, and subcontracting, in relation to a MNE undertakes coopetition) and rivalrous breadth (the
rival. Coupling facilitates cooperation and produces number of rivals with which the MNE simultaneously
stability while looseness allows flexibility and fosters competes and cooperates). These comprise two distinct
competition. Loosely structured forms of networking axes because the former captures the total field in which
reduce the pressure of ‘‘equity hostage’’ – the risks and coopetition takes place, whereas the latter captures all
costs involved in quitting from equity investments – and of the rivals with which the coopetitive links are built. A
accords with the nature of competitive collaboration – global player’s coopetition may involve many foreign
cooperation is a means of winning competition (Hamel, national markets but with only one or few major
1991; Perlmutter & Heenan, 1986). Strategic flexibility competitors; alternatively, a global player’s coopetition
arising from looseness allows the players to maintain may instead involve a large number of rivals, with
mobility, adaptability, and separateness, which in turn different countries of origin, with which it maintains
foster global competition (Nelson & Winter, 1982). coopetition in only a few concentrated national markets.
Lastly, strategic balance is an organizational As graphically shown in Fig. 2, four situations are
structuring of the appropriate proportions of coopera- derived from these two dimensions: (1) dispersing
tion and competition to satisfactorily meet the firm’s situation (2) concentrating situation (3) connecting
global objectives. This balance is necessary in relation situation or (4) networking situation. Generally, the
to all major rivals competing in the same global markets intensity of coopetition with one rival (Fig. 1) and
(Jorde & Teece, 1989). Competition and cooperation diversity of coopetition with all rivals (Fig. 2) are
with a particular major rival should be framed and related such that each situational quadrant in Fig. 2
structured within a firm’s overall coopetition profile. could encompass some or all situational quadrants in
Overly depending on one rival’s cooperation increases Fig. 1. Because the networking and connecting
the firm’s vulnerability to that rival’s opportunistic and quadrants involve a larger number of rivals with which
conflicting behaviors. On the other hand, overly to both cooperate and compete, these two quadrants are
focusing on global competition against one rival is more likely to comprise multiple situations reflecting
likely to deter optimal resource allocation, risk varying intensity than the concentrating and dispersing

Fig. 2. Diversity of coopetition with multiple global rivals.

140 Y. Luo / Journal of World Business 42 (2007) 129–144

quadrants. For instance, under the networking situation, leading competitors or by a player whose product or
a firm may keep high cooperation and high competition service lines are more narrowly focused compared to
with one group of rivals (adapting quadrant in Fig. 1) other competitors. It avoids direct and fierce competi-
while maintaining high competition and low coopera- tion with stronger competitors on every front of every
tion with another group (contending quadrant in Fig. 1). worldwide battlefield (Bettis & Hitt, 1995). Emphasis
also aligns with the mutual need for collaborations in
4.2.1. Dispersing situation specific areas, such as soliciting collective bargaining
A dispersing situation exists when a global player power or consummating operational infrastructure in
simultaneously competes and cooperates with a small certain focused markets where all players are present.
number of global rivals in a wide array of international
markets. The asymmetry of the amount of rivalry with 4.2.2. Concentrating situation
respect to the number of markets indicates an MNE’s This situation arises when a global player is largely
efforts to stretch the geographic domain of coopetition insulated from a flock of other MNEs by maintaining
with a limited number of incumbent competitors. simultaneous competition and cooperation with a small
Global players in certain sunset industries such as number of rivals in very few international markets. This
plastic, textiles, shoes, and other light industry products, situation is more likely to arise for newer or smaller
often find they always compete with a few ‘‘old’’ rivals MNEs whose global expansion is still focused on a few
and few new entrants (e.g., Rubbermaid versus Sterilite, segmented areas and whose operations have not yet
Tucker House wares or Tupperware; Levi Strauss versus reached a large worldwide scale, thus competing with
BBH (UK), Milliken, or Gap). The dispersing position very few big players. For example, China’s Chunlan
may also apply to a few oligopolistic global players, like Group, a relatively new and small global player
Coco-Cola and Pepsi, or Kodak and Fuji, whose mutual producing electric appliances (ACs, TVs, washers,
coopetition occurs in almost every country around the etc.), competes and cooperates with few rivals (e.g.,
world. Huge competitive pressures force these incum- Japan’s Daiken and Sanyo, Korea’s LG, and China’s
bents to expand geographically into various foreign Kelon) in the greater China market only (Mainland
markets. Among a few global players, firms in a China, Hong Kong, Taiwan, Singapore, Macau). MNEs
dispersing position compete in diversified geographic that focus on geographical, technological, and product
markets in the race for market share, position holding, niches are also likely to face this situation. Niche-
and cash inflows. Meanwhile, they cooperate, bilater- seeking reduces the likelihood that a focal player will
ally or multilaterally, in widespread fields to unify their have to simultaneously compete and cooperate with a
collective power against substitutes, government inter- great number of various rivals. Miami-based Bacardi
ference, and newcomers, as well as to share common Ltd., for instance, strategically targets the high-end
supplies or other upstream resources that are cost vodka market in the U.S. and South America and has
effective to the cooperating members. coopetition relations with only a few rivals, including
Firms in a dispersing situation may consider Pernod-Ricard SA (France) and Allied Domecq (UK).
solidification or emphasis as a strategic response. Firms in a concentrating situation may consider
Solidification is a tactic designed to strengthen a firm’s turnaround or participation as strategic tactics to
position in both competition and cooperation with respond to their peculiar landscape of global competi-
respect to a limited number of other global players. It is tion, competing with only a few rivals in a few markets.
often realized through strengthening market power or Turnaround is a strategic and prudent move into new or
competitive position through differentiation, innova- additional geographic markets. When firms are rela-
tion, economies of scale, customer service, and pricing tively new or small relative to other global players,
strategy (Barney, 1986). Solidification may be preferred turnaround may improve strategic flexibility, reduce
by companies that are more powerful vis-à-vis other fixed costs and exit costs associated with concentrated
rivals in numerous international markets. For firms in a investment in limited markets, and diversify economic
dispersing situation, emphasis is typically placed on the exposure and transactional risks (Jorde & Teece, 1989).
boundary of a product line rather than on a geographical To companies in a concentrating situation, evolutionary
market. With this tactic, firms with a dispersing position turnaround and expansion is most advisable when it
may be able to build, maintain, and upgrade their matches the company’s organizational, operational, and
competitive advantages for emphasized products in financial capabilities, especially global experience and
geographically dispersed markets. Emphasis is more risk-management capability. For product-niche-seeking
likely to be chosen by a firm that is weaker compared to MNEs, incremental expansion into additional foreign
 Y. Luo / Journal of World Business 42 (2007) 129–144 141

markets is also a viable strategy, helping firms in a Mitsubishi, and Hyundai, in a few concentrated markets
concentrating position ameliorate the results of the such as India and South East Asia.
increasing competition that will inevitably occur in old Firms in a connecting situation may consider
territories. With this turnaround, coopetition is expected position or differentiation as strategic responses to
to occur with new rivals in new territories. In contrast to global competition. Position is a strategic tactic for
turnaround, which seeks new market opportunities in firms that intend to occupy certain geographic markets
new host countries, participation is an effort to or segments in which economic returns can be
strengthen a firm’s existing relationships with leading maximized by exploiting distinctive resources and
global players in current markets. The firm may capabilities. For leading players, position tactics can
participate in the leading players’ global networks as reinforce influence over global competition through
a supplier, subcontractor, distributor, co-producer, controlling or manipulating prices, technical standards,
alliance partner, and/or association member. Participa- exit costs, global distribution, and product innovation
tion is an important step towards pursuing subsequent (Barney, 1986; Chen, 1996). Position also helps small
collaborations with established leaders in international players identify and survive in certain footholds in
markets. Such collaborations are essential to firms in a which they may gain a competitive edge. Mach-One, for
concentrating situation for surviving and thriving in instance, has positioned itself only in the mainland
existing territories. Chinese and the U.S. markets where demand for plasma
TVs is just emerging but is expected to grow
4.2.3. Connecting situation substantially. To avoid direct competition with bigger
This situation exists when a global player simulta- players from Japan, Mach-One follows a low cost
neously competes and cooperates with a large number of strategy, achieved mainly by relocating production from
global rivals but only in a few concentrated markets. This the U.S. to Taiwan and from Taiwan to Jiangsu, China.
player is hence a well-connected geoemphasizer, who Differentiation is the strategic tactic of providing
geographically focuses on several national markets in different product offerings with respect to innovation,
which many global players compete. In some industries quality, customer responsiveness, and national adapta-
or segments, such as sports utility vehicles, plasma TVs, tions so that a firm’s competitive position is distinct
fashion apparel, and jewelry, to name a few, the major from that of other players. Samsung, for instance, used
international markets are concentrated in just a few its latest-generation fabs to produce HDTV-compliant
advanced national economies. MNEs that narrowly focus panels in the 30–50 in. range, competing against other
on such products become geoemphasizers who cooperate plasma TV producers that have primarily focused on
with other players in the same businesses to develop a 42 in. or larger screens.
bigger pie from which they compete for a piece. Although
companies in this situation compete in a limited number 4.2.4. Networking situation
of international markets, the number of global rivals This situation arises when a global player simulta-
participating in such product-markets is enormous, neously competes and cooperates with a large number
which is attributable to great opportunities, low entry of global rivals in a large number of international
barriers, and/or perceived vast potential. In the plasma markets. Diversified MNEs active in various foreign
TV market, California-based Mach-One Corp. is now markets are likely to fall within this category. Global
focusing on two markets with great potential for plasma diversification along geographic and product dimen-
TV consumption, China and the U.S. Rivals, with which sions engenders ample opportunities for competitive
Mach-One both competes (e.g., in price, product quality, collaborations with a multitude of rivals, both large and
advertising, and customer service) and cooperates (e.g., small, local and foreign, and with operations in various
establishing industry standards, avoiding price wars, industries (Bettis & Hitt, 1995; Noda & Collis, 2001).
sharing supplies, and cross-licensing technologies), are Diversification increases the likelihood of complemen-
numerous, including Korea’s LG and Samsung and tarity with competitors in resource exchange and
Japan’s Pioneer, Sharp, Sony, Matsushita, and Hitachi, knowledge sharing and decreases the chance of overlap
among others. Some MNEs from emerging markets may with competitors in product lines and geographic
also operate in a connecting or geoemphasizing position. markets (Jorde & Teece, 1989). In order to capitalize on
Tata Motors, for example, both cooperates (in joint these opportunities and underlying benefits, MNEs
marketing, research consortia, supply sharing) and network with globally dispersed rivals to build a loosely
competes (in production, sales and marketing) with coupled yet structurally differentiated and coopetitively
many rivals, including Fiat, Ford, GM, Suzuki, Kia, heterogeneous framework. By ‘‘loosely coupled’’, we
142 Y. Luo / Journal of World Business 42 (2007) 129–144

mean that there is no legal or formal structure, whether it may opt for some of the corresponding strategic
through contractual obligation or equity ownership, tactics explained earlier. Still, firms in a networking
designed to govern the entire network and restrain situation need an overarching strategy consistent with
member behaviors. Such a network is ‘‘structurally its overall, system-wide diversity of coopetition. They
differentiated,’’ composed of the various forms of may choose sponsorship or integration. Sponsorship is
competitive collaborations that may exist within the an effort to: (1) pacify the volatility of steep rivalry
network. It may include such forms as R&D consortia, among competitors that are members of the firm’s
co-production, technical assistance, co-management, global network, (2) establish collaborative opportunities
OEM, licensing, distribution-sharing, and equity joint and platforms for these members to share complemen-
ventures, among others, with different players in the tary resources (e.g., R&D consortia, common supply
network. The network is also ‘‘coopetitively hetero- bases, production clustering), and (3) create more
geneous,’’ meaning that the degree of pairwise favorable conditions in the global industry by shaping
coopetition between a focal player and every other either industrial environments (such as competitive
player in the network varies. A focal player may pressures from new entrants and substitutes and
maintain a contending position with one rival, a bargaining power from suppliers and buyers) or
partnering position with another, and an adapting national/global environments (such as government
position with a third, as displayed in Fig. 1. policies and international treaties). These efforts may
Royal Philips Electronics of the Netherlands is an result in greater financial returns for the sponsor, who
example of the above position. It cooperates with its benefits from both reduced competition and enhanced
long time semiconductor and electronics rival, Toshiba, cooperation within the network (Gomes-Casseres,
by way of: an R&D consortium for developing new 1994). Sponsorship also heightens a firm’s influence
chips, a co-marketing program for DVDs, and a over global competition. Integration is an effort to put a
technical assistance program to enhance the Linux firm’s coopetition schemes under a unified and
open-source computer operating system. Thus, Philips coordinated umbrella so as to better nurture the
maintains an adapter position (i.e., high competition implementation of its international expansion and
and high cooperation) with Toshiba, however, it has a global strategy. This is an internal effort to establish
partner-type coopetitive relationship (low competition a well-coordinated coopetition program within the
and high cooperation) with Taiwan’s Beng, a major company. By integrating coopetition agreements, firms
global producer of low-cost optical storage devices such in a networking position may prioritize which member
as CD-Rom and DVD-Rom. Although the companies players should play which role (e.g., are they to be in
still compete for sales of such devices in the Middle partnering or adapting positions?), and how they should
East, their relationship is dominated by cooperation; cooperate. The focal firm will also identify which
they formed an equity joint venture based in Taiwan to member players should be in a contending or isolating
produce digital storage devices, have had co-production position and in which international markets they should
and OEM agreements since 1994, signed several license primarily compete (Lado et al., 1997). Finally,
agreements for technology transfer, and collaborated in integration requires careful coordination of the
joint distribution and sales in the greater China market. resources needed for both cooperation exchanging
Philips also maintains low cooperation and low and competition contesting.
competition ties with several telecom service compa-
nies in Europe, such as Telefonica Spain, Telecom 5. Conclusion
Italia, and Duetsche Telekom, which serve as mono-
players in Philips’s global network. In contrast to the This article addresses coopetition in global competi-
aforementioned relationships, the relationship link tion. Coopetition goes beyond the old rules of
between Philips and Matsushita is characterized by competition and cooperation to combine the advantages
harsh competition and minimal cooperation; they are of both. Its rise is attributable to increasing inter-
contenders. Due to their resource similarity and market dependence between global players and the heightened
commonality, Philips and Matsushita compete in a large need for collective action, risk sharing, and strategic
array of product lines, from PCs and semiconductors to flexibility. Each global player has a unique position in
home appliances, consumer electronics and medical the game of coopetition, requiring peculiar tactics, such
systems, without any substantial collaboration. as those explained above, to respond to forces of
Since a networking position is essentially an cooperation and competition so as to secure maximum
amalgam of the other situations in Fig. 1’s typology, returns. Not every global player should establish and
 Y. Luo / Journal of World Business 42 (2007) 129–144 143

maintain coopetition at the same level or in the same cooperation may increase the firm’s vulnerability to
way. Some may be more proactive than others in that rival’s opportunistic and conflicting behaviors. On
undertaking coopetition, depending on firm attributes, the other hand, overly focusing on global competition
such as global experience, corporate culture, and against one rival is likely to arouse counterattacks. In
strategic orientation, as well as dyadic attributes short, forward-looking players in global competition,
between competitors, such as goal divergence, resource irrespective of type, identity, or category, will sharpen
complementarity, and market commonality. their vision, prepare viable strategies, and take
In order to practice coopetition effectively, MNEs measures toward combining competitive and coopera-
must enhance organizational learning and global tive forces to create synergies that will lead to
experience associated with coopetition. Such experi- collective payoffs.
ence nurtures the morphogenetic mindset that accepts Finally, global coopetition is complex, requiring
tensions between competition and cooperation and careful designs and regular inputs from functional
embraces related conflict, diversity and variety. Global directors, subunit executives and country managers.
executives should also develop a corporate culture that Creating a diagram of coopetition networks, updating it
fosters a yin-yang philosophy. The yin-yang philosophy, regularly, and evaluating the strengths and weaknesses
deeply rooted in the East Asian culture, aligns with the of each member in this diagram may help. Both
sprit of coopetition. Unlike polar oriented thinking, in opportunities and pressures to forge links with other
which patterns such as good or bad are predominant, the global players are often great, particularly when one’s
yin-yang philosophy is based upon the simultaneous major competitors are doing so proactively. However,
consideration of both sides of a problem. Thus, an MNE develops and expands its coopetition network
corporate culture and managerial cognition that only when it makes strategic sense. Global executives
embrace a synthesis of yin and yang will more likely should understand what drives simultaneous coopera-
engender repertoires of syncretic rent-seeking behavior tion and competition, who might be worth learning
compared to those that emphasize polarized yin from, how to reorganize coopetition in response to new
(cooperation) or yang (competition). Moreover, global conditions, and where to position the company
executives should gauge strategic goal convergence and strategically in terms of market, product, function,
competitive goal divergence between their own and resources in a coopetition network. Executives who
companies and their competitors. Strategic goals are excel in the design and implementation of coopetition
the predominant vision and derived objectives that may avoid some pitfalls in global competition and reap
describe an organization’s overarching, far-reaching, most benefits from collaborative competitive advan-
and long-haul direction and emphasis. In contrast, tages.
competitive goals are specific objectives that describe
short-term, immediate target goals to be achieved in a Acknowledgements
particular product-market mix by a particular subunit.
The co-existence of strategic goal convergence and The author would like to thank the two anonymous
competitive goal divergence between global players reviewers for their comments and suggestions.
facilitates their coopetition and continued prosperity in
the shared business.
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