Chapter 9

Cooperative Strategy

Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson

©1999 South-Western College Publishing

Transparency 9-1
 Chapter 2
External The Strategic
Environment
Inputs
Strategic
Strategic Intent Management
Strategic Mission
Chapter 3
Internal
Process
Environment

Strategy Formulation Strategy Implementation

Chapter 4 Chapter 5 Chapter 6 Chapter 10 Chapter 11

Business-Level Competitive Corporate-Level Corporate Structure
Strategy Dynamics Strategy Governance & Control
Actions
Strategic
Chapter 7 Chapter 8 Chapter 9 Chapter 12 Chapter 13
Acquisitions & International Cooperative Strategic Entrepreneurship
Restructuring Strategy Strategies Leadership & Innovation

Strategic
Strategic
Outcomes Competitiveness
Above Average
Feedback
Returns
Transparency 9-2
Strategic Alliances Firm A
Firm B
Partnerships between firms

Transparency 9-3
Strategic Alliances Firm A
Firm B
Partnerships between firms
where their
Resources
Capabilities
Core
Competencies

Transparency 9-4
Strategic Alliances Firm A
Firm B
Partnerships between firms
where their
Resources
Capabilities
Core
are combined to pursue Competencies
mutual interests to

Develop
Goods
Manufacture
Distribute Services
Transparency 9-5
 Types of Strategic Alliances
Joint Venture
Independent firm is created by the joining assets from two
other firms where each contributes 50% of the total
Dow Corning from Dow Chemical and Corning Inc.

Transparency 9-6
 Types of Strategic Alliances
Joint Venture
Independent firm is created by the joining assets from two
other firms where each contributes 50% of the total
Dow Corning from Dow Chemical and Corning Inc.

Equity Strategic Alliance

Partnership where the two partners do not own equal shares
Chrysler and Mitsubishi Automotive

Transparency 9-7
 Types of Strategic Alliances
Joint Venture
Independent firm is created by the joining assets from two
other firms where each contributes 50% of the total
Dow Corning from Dow Chemical and Corning Inc.

Equity Strategic Alliance

Partnership where the two partners do not own equal shares
Chrysler and Mitsubishi Automotive

Non-Equity Strategic Alliance

Contract is given to supply, produce or distribute a firm’s
goods or services (without equity sharing)

Transparency 9-8
Chrysler’s supplier network
 Reasons for Alliances by Market Type
Slow Cycle * Gain access to a restricted market
Market * Establish franchise in a new market
* Maintain market stability

Transparency 9-9
 Reasons for Alliances by Market Type
Slow Cycle * Gain access to a restricted market
Market * Establish franchise in a new market
* Maintain market stability

* Gain market power

* Gain access to complementary resources
Standard * Overcome trade barriers
Cycle Market
* Meet competitive challenge
* Pool resources for large projects
* Learn new business techniques

Transparency 9-10
 Reasons for Alliances by Market Type
Slow Cycle * Gain access to a restricted market
Market * Establish franchise in a new market
* Maintain market stability
* Gain market power
Standard * Gain access to complementary resources
Cycle * Overcome trade barriers
* Meet competitive challenge
Market * Pool resources for large projects
* Learn new business techniques
* Increase speed of product, service or
Fast Cycle market entry
Market * Maintain market leadership
* Form an industry technology standard
* Share risky R&D expenses
Transparency 9-11
* Overcome uncertainty
 Types of Strategic Alliances

Complementary Alliances
Competition Reduction Alliances
Business-
Level Competition Response Alliances
Uncertainty Reduction Alliances

Transparency 9-12
 Types of Strategic Alliances

Complementary
ComplementaryAlliances
Alliances
Competition
Competition Reduction
ReductionAlliances
Alliances
Business-
Business-
Level Competition
Competition Response
ResponseAlliances
Alliances
Level
Uncertainty
Uncertainty Reduction
ReductionAlliances
Alliances

Diversification Alliances
Corporate-
Level Synergistic Alliances
Franchising
Transparency 9-13
Types of Business-Level Strategic Alliances
Complementary Strategic Alliances
Partnerships that build on the complementarities among
firms that make each more competitive

Transparency 9-14
 Types of Business-Level Strategic Alliances
Complementary Strategic Alliances
Partnerships that build on the complementarities
Supplier Value Chain
among firms that make each more competitive

Include distribution, supplier

or outsourcing alliances where
firms rely on upstream or
downstream partners to build
competitive advantage
Buyer Value Chain
Vertical
Alliance

Transparency 9-15
 Types of Business-Level Strategic Alliances
Complementary Strategic Alliances
Partnerships that build on the complementarities
Supplier Value Chain
among firms that make each more competitive

Include distribution, supplier

or outsourcing alliances where
firms rely on upstream or
downstream partners to build
competitive advantage
Buyer Value Chain
Vertical
Alliance
Japanese manufacturers rely on
close relationships among
suppliers to implement Just-In-
Time inventory systems
Transparency 9-16
Types of Business-Level Strategic Alliances
Complementary Strategic Alliances
Used to increase the strategic competitiveness of the partners

Supplier Value Chain Horizontal Buyer Value Chain

Alliance

Transparency 9-17
Types of Business-Level Strategic Alliances
Complementary Strategic Alliances
Used to increase the strategic competitiveness of the partners

Supplier Value Chain Horizontal Buyer Value Chain

Alliance

Product development agreements between Microsoft and

Dreamworks SKG
or
Marketing agreements between Delta and SwissAir
Transparency 9-18
Types of Business-Level Strategic Alliances
Competition Reduction Strategies
Avoiding competition by using tacit collusion such as price
fixing
OPEC petroleum cartel

Transparency 9-19
Types of Business-Level Strategic Alliances
Competition Reduction Strategies
Avoiding competition by using tacit collusion such as price
fixing
OPEC petroleum cartel

Competition Response Strategies

Firms join forces to respond to a strategic action of another
competitor
DirecTV has agreement with Time Warner for
exclusive programming

Transparency 9-20
Types of Business-Level Strategic Alliances
Competition Reduction Strategies
Avoiding competition by using tacit collusion such as price
fixing
OPEC petroleum cartel

Competition Response Strategies

Firms join forces to respond to a strategic action of another
competitor
DirecTV has agreement with Time Warner for
exclusive programming

Uncertainty Reduction Strategies

Alliances can be used to hedge against risk and uncertainty
ATT acquires Teleport, a provider of telecommunications
services to business customers
Transparency 9-21
Types of Corporate-Level Strategic Alliances
Diversifying Alliances
Allows a firm to expand into a new product or market area
with an acquisition
Samsung Group joins with Nissan to build new autos

Transparency 9-22
Types of Corporate-Level Strategic Alliances
Diversifying Alliances
Allows a firm to expand into a new product or market area
with an acquisition
Samsung Group joins with Nissan to build new autos

Synergistic Strategic Alliances

Create economies of scope between two or more firms,
creating synergy across multiple businesses between firms
Sony shares development with many small firms

Transparency 9-23
Types of Corporate-Level Strategic Alliances
Diversifying Alliances
Allows a firm to expand into a new product or market area
with an acquisition
Samsung Group joins with Nissan to build new autos

Synergistic Strategic Alliances

Create economies of scope between two or more firms,
creating synergy across multiple businesses between firms
Sony shares development with many small firms

Franchising
Allows firms to grow and relatively strong centralized
control without significant capital investments

Transparency 9-24
McDonald’s or Century 21
 International Cooperative Strategies

Allows risk sharing by reducing financial investment

Transparency 9-25
 International Cooperative Strategies

Allows risk sharing by reducing financial investment

Host partner knows local market and customs

Transparency 9-26
 International Cooperative Strategies

Allows risk sharing by reducing financial investment

Host partner knows local market and customs
However....

International alliances can be difficult to manage due

to differences in management styles, cultures or
regulatory constraints

Transparency 9-27
 International Cooperative Strategies

Allows risk sharing by reducing financial investment

Host partner knows local market and customs
However....

International alliances can be difficult to manage due

to differences in management styles, cultures or
regulatory constraints

Must gauge partner’s strategic intent so they do not

gain access to important technology and become a
competitor

Transparency 9-28
 Network Strategies

Network strategies involve a group of interrelated

firms that work for the common good of all

Japanese keiretsus or U.S. R&D consortia

Transparency 9-29
 Network Strategies

Network strategies involve a group of interrelated

firms that work for the common good of all

Japanese keiretsus or U.S. R&D consortia

The three types of networks are:

Stable Networks

Dynamic Networks

Internal Networks
Transparency 9-30
 Network Strategies
Stable network
Long term relationships that often appear in mature
industries with largely predictable market cycles
NIKE’s relationships with suppliers and distributors

Transparency 9-31
 Network Strategies
Stable network
Long term relationships that often appear in mature
industries with largely predictable market cycles
NIKE’s relationships with suppliers and distributors

Dynamic network
Arrangements that evolve in industries with rapid
technological change leading to short product life cycles
Apple computer and Sharp electronics

Transparency 9-32
 Network Strategies
Stable network
Long term relationships that often appear in mature
industries with largely predictable market cycles
NIKE’s relationships with suppliers and distributors

Dynamic network
Arrangements that evolve in industries with rapid
technological change leading to short product life cycles
Apple computer and Sharp electronics

Internal network
Management system used to coordinate a global web of
suppliers and customers
Asea Brown Boveri’s network
Transparency 9-33
Competitive Risks with Cooperative Strategies
While cooperative systems can offer many advantages,
there are also significant risks associated with them

Transparency 9-34
Competitive Risks with Cooperative Strategies
While cooperative systems can offer many advantages,
there are also significant risks associated with them

Poor contract development

Transparency 9-35
Competitive Risks with Cooperative Strategies
While cooperative systems can offer many advantages,
there are also significant risks associated with them

Poor contract development

Misrepresentation of partners’ competencies

Transparency 9-36
Competitive Risks with Cooperative Strategies
While cooperative systems can offer many advantages,
there are also significant risks associated with them

Poor contract development

Misrepresentation of partners’ competencies
Failure of partners to make complementary
resources available

Transparency 9-37
Competitive Risks with Cooperative Strategies
While cooperative systems can offer many advantages,
there are also significant risks associated with them

Poor contract development

Misrepresentation of partners’ competencies
Failure of partners to make complementary
resources available
Being held hostage through specific investments
made with partner

Transparency 9-38
Competitive Risks with Cooperative Strategies
While cooperative systems can offer many advantages,
there are also significant risks associated with them

Poor contract development

Misrepresentation of partners’ competencies
Failure of partners to make complementary
resources available
Being held hostage through specific investments
made with partner

Misunderstanding
Transparency 9-39
a partner’s strategic intent
 Managing Risks in Cooperative Strategies

Competitive
Risks

* Inadequate contracts
* Misrepresentation of
competencies

* Partner fails to use

complementary
resources
* Holding alliance
partner’s specific
investments hostage

Transparency 9-40
 Managing Risks in Cooperative Strategies
Risk and Asset
Competitive
Management
Risks
Approaches

* Inadequate contracts
* Misrepresentation of * Detailed
competencies contracts and
monitoring
* Partner fails to use
complementary * Developing
resources trusting
* Holding alliance relationships
partner’s specific
investments hostage

Transparency 9-41
 Managing Risks in Cooperative Strategies
Risk and Asset
Competitive
Management Outcome
Risks
Approaches

* Inadequate contracts
* Misrepresentation of * Detailed
competencies contracts and
monitoring Value
* Partner fails to use
complementary * Developing Creation
resources trusting
relationships
* Holding alliance
partner’s specific
investments hostage

Transparency 9-42