Hitt13e PPT Ch09

Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
CHAPTER
9
Cooperative Strategy
LEARNING OBJECTIVES
Studying this chapter should provide you with the strategic
management knowledge needed to:
9-1 Define cooperative strategies and explain why firms use them.
9-2 Define and discuss the three major types of strategic alliances.
9-3 Name the business-level cooperative strategies and describe
their use.
9-4 Discuss the use of corporate-level cooperative strategies.
9-5 Understand why firms use cross-border strategic alliances as an
international cooperative strategy.
9-6 Explain cooperative strategies’ risks.
9-7 Describe two approaches used to manage cooperative strategies.
Chapter Introduction
• A cooperative strategy is a means by which

firms collaborate to achieve a shared objective.
• A firm uses a cooperative strategy to:
• Create value for a customer that it likely could not create by
itself
• Try to create competitive advantages
• A competitive advantage developed through a cooperative
strategy often is called a collaborative or relational advantage.
• Outperform its rivals in terms of strategic competitiveness
• Earn above-average returns
9-1 Strategic Alliances as a Primary
Type of Cooperative Strategy
• A strategic alliance is a cooperative strategy in which firms
combine some of their resources to create a competitive advantage.
• Strategic alliances:
• Involve firms with some degree of exchange and sharing of resources to
jointly develop, sell, and service goods or services
• Are used by firms to leverage their existing resources while working with
partners to develop additional resources as the foundation for new
competitive advantages
• Examples of cooperative behavior that contribute to alliance
success include:
• Actively solving problems
• Being trustworthy
• Consistently pursuing ways to combine partners’ resources to create
value
9-1a Types of Major
Strategic Alliances (slide 1 of 4)
• Three major types of strategic alliances that
firms use include:
1. Joint ventures
2. Equity strategic alliances
3. Non equity strategic alliances
9-1a Types of Major
• A joint venture is a strategic alliance in which two or more
firms create a legally independent company to share some
of their resources to create a competitive advantage.
• Joint ventures:
• Have partners who own equal percentages and contribute
equally to the venture’s operations
• Are often formed to improve a firm’s ability to compete in
uncertain competitive environments
• Joint ventures can be effective in:
• Establishing long-term relationships
• Transferring tacit knowledge between partners
• Because it can’t be codified, tacit knowledge is critical to firms’
efforts to develop competitive advantages.
9-1a Types of Major
• An equity strategic alliance is an alliance in
which two or more firms own different
percentages of a company that they have
formed by combining some of their resources to
create a competitive advantage.
• Companies commonly form equity alliances because
they want to ensure that they have control over
assets that they commit to the alliance.
• Control of firms’ resources, especially intellectual capital, can
be quite important when R & D alliances are formed.
9-1a Types of Major
• An non equity strategic alliance is an alliance in which
two or more firms develop a contractual relationship to
share some of their resources to create a competitive
advantage.
• Non equity strategic alliances:
• Are less formal
• Demand fewer partner commitments than do joint ventures and
equity strategic alliances
• Generally do not foster an intimate relationship between partners
• The informality and lower commitment levels make non equity
strategic alliances unsuitable for complex projects where success
depends on the transfer of tacit knowledge between partners.
• Outsourcing commonly occurs through non equity strategic
alliances.
9-1b Reasons Firms Develop
Strategic Alliances
• Two key reasons why firms form strategic
alliances are:
1. To create value they couldn’t generate by acting
independently and entering markets more rapidly
2. Because most (if not all) companies lack the full set
of resources needed to pursue all identified
opportunities and reach their objectives in the
process of doing so on their own
• The reasons firms use strategic alliances also
vary by slow-cycle, fast-cycle, and standard-
cycle market conditions.
Figure 9.1
Reasons for Strategic Alliances by Market Type
9-2 Business-Level
Cooperative Strategy
• A business-level cooperative strategy is a strategy
through which firms combine some of their resources to
create a competitive advantage by competing in one or
more product markets.
• Four business-level cooperative strategies are used to
help the firm improve its performance in individual
product markets:
1. Complementary strategic alliances
2. Competition response strategy
3. Uncertainty-reducing strategy
4. Competition-reducing strategy
Figure 9.2
Business-Level Cooperative Strategies
9-2a Complementary
Strategic Alliances
• Complementary strategic alliances are business-level
alliances in which firms share some of their resources in
complementary ways to create a competitive advantage.
• Two dominant types of complementary strategic
alliances are:
1. Vertical
• In a vertical complementary strategic alliance, firms share some of
their resources from different stages of the value chain to create a
competitive advantage.
2. Horizontal
• A horizontal complementary strategic alliance is an alliance in which
firms share some of their resources from the same stage (or
stages) of the value chain for creating a competitive advantage.
Figure 9.3
Vertical and Horizontal Complementary Strategic Alliances
9-2b Competition
Response Strategy
• Competition response strategies are formed to
respond to competitors’ actions, especially
strategic actions.
9-2c Uncertainty-Reducing Strategy
• Uncertainty-reducing strategies are used to

hedge against the risks created by the
conditions of uncertain competitive
environments (such as new product markets).
9-2d Competition-Reducing
Strategy (slide 1 of 3)
• Competition-reducing strategies are used to
avoid excessive competition while the firm
marshals its resources to improve its strategic
competitiveness.
• Collusion is often used to reduce competition.
• Collusive strategies differ from strategic alliances in
that collusive strategies are often an illegal
cooperative strategy.
• Two types of collusive strategies are:
1. Explicit collusion
2. Tacit collusion
• Explicit collusion exists when two or more firms
negotiate directly to jointly agree about the
amount to produce as well as the prices for what
is produced.
• In many economies, explicit collusive strategies are
illegal unless sanctioned by government policies.
• Increasing globalization has led to fewer government-
sanctioned situations involving explicit collusion.
• Tacit collusion exists when several firms in an industry
indirectly coordinate their production and pricing
decisions by observing each other’s competitive actions
and responses.
• Tacit collusion:
• Tends to take place in industries dominated by a few large firms
• Results in production output that is below fully competitive levels
and above fully competitive prices
• Can lead to less competition in markets in which both firms operate
• Mutual forbearance is a form of tacit collusion in which firms do
not take competitive actions against rivals they meet in multiple
markets.
• Rather, firms learn how to deter the effects of rivals’ competitive
attacks and responses without resorting to destructive competition.
9-2e Assessing Business-Level
Cooperative Strategies
• Complementary business-level strategic alliances,
especially vertical ones, have the greatest probability of
creating a sustainable competitive advantage.
• Horizontal complementary alliances are sometimes
difficult to maintain because often they are formed
between firms that compete against each other at the
same time they are cooperating.
• Uncertainty-reducing and competition-reducing
strategies have the lowest probability of creating a
sustainable competitive advantage.
9-3 Corporate-Level
Cooperative Strategy (slide 1 of 2)
• A corporate-level cooperative strategy is a strategy through
which a firm collaborates with one or more companies to expand its
operations.
• Corporate-level strategic alliances are attractive:
• When a firm seeks to diversify into markets in which the host nation’s
government prevents mergers and acquisitions
• Because they can be used as a “test” to determine whether partners
might benefit from a future merger or acquisition between them
• Compared to mergers and acquisitions, corporate-level strategic
alliances:
• Require fewer resource commitments
• Permit greater flexibility in terms of efforts to diversify partners’
operations
9-3 Corporate-Level
• The most commonly used corporate-level
cooperative strategies are:
• Diversifying alliances
• Synergistic alliances
• Franchising
Figure 9.4
Corporate-Level Cooperative Strategies
9-3a Diversifying Strategic Alliance
• A diversifying strategic alliance is a strategy in which
firms share some of their resources to engage in product
and / or geographic diversification.
• Companies using this strategy typically seek to enter
new markets (either domestic or outside of their home
setting) with existing products or with newly developed
products.
• Managing diversity gained through alliances has fewer
financial costs but often requires more managerial
expertise.
9-3b Synergistic Strategic Alliance
• A synergistic strategic alliance is a strategy in

which firms share some of their resources to
create economies of scope.
• Similar to the business-level horizontal
complementary strategic alliance, synergistic
strategic alliances create synergy across
multiple functions or multiple businesses
between partner firms.
9-3c Franchising (slide 1 of 2)
• Franchising is a strategy in which a firm (the franchisor)
uses a franchise as a contractual relationship to describe
and control the sharing of its resources with its partners
(the franchisees).
• A franchise is a form of business organization in which a firm
that already has a successful product or service (the franchisor)
licenses its trademark and method of doing business to other
businesses (the franchisees) in exchange for an initial franchise
fee and an ongoing royalty rate.
• Franchising’s effectiveness is a product of how well the franchisor
can replicate its success across multiple partners in a cost-effective
way.
9-3c Franchising (slide 2 of 2)
• Franchising is:
• An alternative to pursuing growth through mergers and acquisitions
• A particularly attractive strategy to use in fragmented industries, such as
hotels and motels and retailing, where no firm has a dominant market
share
• In the most successful franchising strategy, the partners work
closely together.
• The franchisor should develop programs that transfer to the franchisees
the knowledge and skills that are needed to successfully compete at the
local level.
• The franchisee should provide feedback to the franchisor regarding how
their units could become more effective and efficient.
• The core company’s brand name is often the most important
competitive advantage for franchisees.
9-3d Assessing Corporate-Level
Cooperative Strategies
• Compared with business-level cooperative strategies, corporate-
level cooperative strategies commonly are:
• Broader in scope
• More complex
• More challenging
• More costly to use
• Corporate-level cooperative strategies can create competitive
advantages and value for customers when:
• Successful alliance experiences are internalized.
• The firm uses such strategies to develop useful knowledge about how to
succeed in the future.
• The firm is able to develop such strategies and manage them in ways
that are valuable, rare, imperfectly imitable, and non substitutable.
9-4 International
• Firms use cross-border strategic alliances as a type of
• A cross-border strategic alliance is a strategy in which firms
with headquarters in different countries decide to combine some
of their resources to create a competitive advantage.
• In a cross-border strategic alliance, the partners cooperate in one
or more areas such as development and production processes,
partly with the intent to create value in markets throughout the
world that neither firm could create operating independently.
• Cross-border strategic alliances:
• Are increasing in number
• Are not as risky as mergers and acquisitions
• Can be complex
• Can be difficult to manage
9-4 International
• Key reasons firms use cross-border alliances include:
• The performance superiority of firms competing in markets outside
their domestic market
• Governmental restrictions on a firm’s efforts to grow through
mergers and acquisitions
• Commonly, cross-border strategic alliances are riskier than their
domestic counterparts, because of:
• The differences in companies and their cultures
• The frequent difficulty in building trust in order to share resources
among the partners
9-5 Network Cooperative Strategy
• A network cooperative strategy is a strategy by which
several firms agree to form multiple partnerships to
achieve shared objectives.
• A firm’s opportunity to gain access “to its partner’s other
partnerships” is a primary benefit of a network
cooperative strategy.
• Having access to multiple collaborations increases the likelihood
that additional competitive advantages will be formed as the set
of shared resources expands.
• In turn, being able to develop new resources further
stimulates product innovations that are critical to achieving
strategic competitiveness.
9-5a Alliance Network Types
• The set of strategic alliance partnerships that

firms develop when using a network cooperative
strategy is called an alliance network.
• Alliance networks:
• Can be stable or dynamic
• Vary by industry characteristics
• In mature industries, stable alliance networks are used to
extend competitive advantages into new areas.
• In rapidly changing environments where frequent product
innovations occur, dynamic alliance networks are used primarily
as a tool of innovation.
9-6 Competitive Risks with
Cooperative Strategies (slide 1 of 2)
• There are four risks that cooperative strategies
often carry.
1. A firm may act in a way that its partner thinks is
opportunistic.
• In general, opportunistic behaviors surface either when:
• Formal contracts fail to prevent them
• An alliance is based on a false perception of partner
trustworthiness
2. A firm misrepresents the resources it can bring to the
partnership.
• This risk is more common when the partner’s contribution is
based on some of its intangible assets.
9-6 Competitive Risks with
Cooperative Strategies (slide 2 of 2)
3. A firm may fail to make available to its partners the
resources that it committed to the cooperative
strategy.
• This risk surfaces most commonly when firms form an
• Different cultures and languages can cause misrepresentations
of contractual terms or trust-based expectations.
4. One firm may make investments that are specific to
the alliance while its partner does not.
• This causes the firm that is making investments to be at a
relative disadvantage in terms of returns earned from the
alliance compared with investments made to earn the
returns.
Figure 9.5
Managing Competitive Risks in Cooperative Strategies
9-7 Managing Cooperative
Strategies (slide 1 of 3)
• Assigning managerial responsibility for a firm’s
cooperative strategies to a high-level executive or to a
team improves the likelihood that the strategies will be
well managed.
• Those responsible for managing the firm’s cooperative strategies
should take the actions necessary to:
• Coordinate activities
• Categorize knowledge learned from previous experiences
• Make certain that what the firm knows about how to effectively form
and use cooperative strategies is in the hands of the right people at
the right time
• Learn how to manage both tangible and intangible assets
• Two primary approaches firms use to manage
cooperative strategies are:
1. Cost minimization
• In the cost-minimization approach, the firm develops formal
contracts with its partners that specify:
• How the cooperative strategy is to be monitored
• How partner behavior is to be controlled
2. Opportunity maximization
• In the opportunity-maximization approach, the firm develops
less formal contracts, with fewer constraints on partners’
behaviors, which makes it possible for partners to explore
how their resources can be shared in multiple value-creating
ways.
• Trust is an increasingly important aspect of
successful cooperative strategies.
• In the context of cooperative arrangements, trust is
the belief that a firm will not do anything to exploit its
partner’s vulnerabilities, even if it has an opportunity
to do so.
• Trust between partners increases the likelihood of
success when using alliances.
• This highlights the benefits of the opportunity-maximization
approach to managing cooperative strategies.
• When partners trust each other, there is less need to write
detailed formal contracts to specify each firm’s behaviors.
APPENDIX
NOTE TO INSTRUCTOR: Choose from the following questions (also found in the text at the end of the chapter)
to conduct in-class discussions around key chapter concepts.
Discussion:
• What is the definition of cooperative strategy,

and why is this strategy important to firms
competing in the current competitive landscape?
Discussion:
• What is a strategic alliance? What are the three

major types of strategic alliances that firms form
for the purpose of developing a competitive
advantage?
Discussion:
• What are the four business-level cooperative

strategies? What are the key differences among
them?
Discussion:
• What are the three corporate-level cooperative

strategies? How do firms use each of these
strategies for the purpose of creating a
competitive advantage?
Discussion:
• Why do firms use cross-border strategic

alliances?
Discussion:
• What risks are firms likely to experience as they

use cooperative strategies?
Discussion:
• What are the differences between the cost-

minimization approach and the opportunity-
maximization approach to managing cooperative
strategies?

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Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.

• A cooperative strategy is a means by which

• Uncertainty-reducing strategies are used to

• A synergistic strategic alliance is a strategy in

• The set of strategic alliance partnerships that

• What is the definition of cooperative strategy,

• What is a strategic alliance? What are the three

• What are the four business-level cooperative

• What are the three corporate-level cooperative

• Why do firms use cross-border strategic

• What risks are firms likely to experience as they

• What are the differences between the cost-

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