Cooperative Strategies

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Cooperative Strategies

• Cooperative strategy is a strategy in which
  firms work
• together to achieve a shared objective.
• Cooperating with other firms is a strategy that

• Creates value for a customer
• Exceeds the cost of constructing customer
• value in other ways
• Establishes a favorable position relative to
• competition

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Cooperative Strategies

• A strategic alliance is a cooperative strategy
  in which

• Firms combine some of their resources and
  capabilities
• to create a competitive advantage.

• A strategic alliance involves

• Exchange and sharing of resources and
• capabilities.
• Co-development or distribution of goods or
  services.

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Cooperative Strategies
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Cooperative Strategies

• Four types of alliances

• Joint Venture

• Two or more firms create an independent
  company by
• combining parts of their assets.
• Each partner owns 50 of the stock.
• JV may be publicly traded.
• Examples

- Sprint and Virgin Groups alliance targets
15-30 years olds for their pay as you go
wireless phone service.
Brand from Virgin and service from Sprint.

- Sony Pictures, Warner Bros., Universal
Pictures, Paramount Pictures, and
Metro-Goldwyn-Mayer, each has a 20 stake in
a joint venture to use the Internet to
deliver feature films on demand.
- OwensCorning Fiberglas.
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Cooperative Strategies

• Four types of alliances

• Equity Alliance

• Partners who own different percentages of
  equity
• in a new venture.
• Examples

- Cott Corporation, the worlds largest soft
drink supplier, and J.D. Iroquois Enterprises
formed an equity strategic alliance. Cott
gained exclusive supply rights for Iroquois
private label spring water products and Iroquois
expanded its branded business in the West and
Far East.

• Ford Motor Company and Mazda. Ford owns 70
  while
• Mazda owns 30.

• Chrysler and Mitsubishi. Chrysler owns 52,
  Mitsubishi owns
• 48.

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Cooperative Strategies

• Four types of alliances

• Non-Equity Alliance

• Contractual agreements given to a company to
  supply, produce,
• or distribute a firms goods or services
  without equity sharing.
• Examples

• Chemical processes tend to be improved along
• technology corridors, and therefore licensing
  and cross
• licensing are well-established practices in
  chemical and
• pharmaceutical industries.

• Magna International, a leading global supplier
  of
• automotive systems, components, and modules,
  has
• formed many non-equity strategic alliances
  with GM,
• Ford, Honda, DaimlerChrysler, Toyota.

• Ralph Lauren uses licensing agreements to
  support its Polo
• brand. It uses 29 domestic licensing
  agreements, including
• West Point Stevens (bedding), Reebok (casual
  shoes), and ICI
• Paints (Ralph Lauren Home Products).

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Cooperative Strategies

• Four types of alliances

• Strategic Cooperative Network

• Multiple firms agree to form partnerships to
  achieve shared
• objectives.
• The strategic network seeks to develop a
  competitive
• advantage in primary or support activities.
• A strategic center firm often manages the
  network.
• Strategic center firm engages in four primary
  tasks

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Cooperative Strategies

• Four types of alliances

• Strategic Cooperative Network

• Strategic center firm engages in four primary
  tasks

• Strategic outsourcing (outsources and partners
  with more firms
• than do other network members).
• Competencies (supports each members efforts to
  develop core
• competencies that can benefit the network).
• Technology (manages the development and sharing
  of
• technology-based ideas among network members).
• Race to learn (guides participants in efforts
  to form network-
• specific competitive advantages).

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Cooperative Strategies
Strategic Cooperative Network
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Cooperative Strategies

• Reasons for alliances Determined by market
  situation

• Slow-cycle markets
• Standard-cycle markets
• Fast-cycle markets

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Cooperative Strategies
Market
Reason
Slow Cycle

• Gain access to a restricted market
• Establish a franchise in a new market
• Maintain market stability (e.g., establishing
  standards)
• Railroads, utilities and historically
  telecommunications.

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Cooperative Strategies
Market
Reason
Standard Cycle

• Gain market power (reduce industry overcapacity)
• Gain access to complementary resources
• Establish economies of scale
• Overcome trade barriers
• Meet competitive challenges from other
  competitors
• Pool resources for very large capital projects
  (Airbus Industrie).
• Learn new business techniques

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Cooperative Strategies
Market
Reason
Fast Cycle

• Speed up development of new goods or service
• Speed up new market entry
• Maintain market leadership
• Form an industry technology standard
• (Sematech UNIX).
• Share risky RD expenses
• Overcome uncertainty

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Cooperative Strategies

• Business-level alliances

• Complementary strategic alliances are designed to
  take advantage of market opportunities by
  combining partner firms assets in complementary
  ways to create new value

• These include distribution, supplier or
  outsourcing alliances where firms rely on
  upstream or downstream partners to build
  competitive advantage

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Vertical complementary alliance

• Vertical complementary strategic alliance is
  formed between firms that agree to use their
  skills and capabilities in different stages of
  the value chain to create value for both firms.
• Outsourcing is one example of this type of
  alliance.
• Examples

Buyer

• Marks Spencer
• McDonalds alliances with oil
• companies and independent
• store operators. With just one
• stop, customers can fill up car,
• buy a meal, and pick up items
• for the home.

Supplier
Vertical Alliance
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Horizontal complementary alliance
Buyer
Buyer
Horizontal Alliance
Potential Competitors

• Horizontal complementary strategic alliance is
  formed between partners who agree to combine
  their resources and skills to create value in the
  same stage of the value chain.
• Focus on long-term product development and
  distribution opportunities.
• The partners may become competitors.
• Requires a great deal of trust between the
  partners.

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Cooperative Strategies
Horizontal complementary alliance

• Examples

• Microsoft Dream Works.
• Compaq and Fisher-Price.
• - Joint marketing agreements (Delta, SwissAir
  Singapore Air).

- CSK Auto Inc. and Advance Auto Parts
established PartsAmerica.com. The venture
provides easy access to nearly 1.5 billion in
inventory and 3,000 locations in all 50
states, where buyers can use either stores to
pick up and return parts ordered online.
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Competition Response Alliances

• Competition response strategic alliances occur
  when firms join forces to respond to a strategic
  action of another competitor.

• Marathon Oil and Russias Yukos formed
• an alliance to achieve international expansion
  
• and as a response to rivals alliances.

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Uncertainty Reducing Alliances

• Uncertainty reducing strategic alliances are used
  to hedge against risk and uncertainty.
• These alliances are most noticed in fast-cycle
  markets.
• Alliance may be formed to reduce the uncertainty
  associated with developing new product or
  technology standards.

• GM and Toyota ( 1 U.S. Japanese
• automakers) formed an RD alliance to
• develop and standardize alternative-power
• cars.
• GM, Toyota, Ford, DaimlerChrysler, and
• Renault joined to develop a standard for
• communications and entertainment
• equipment for automobiles.

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Competition Reducing Alliances

• Competition reducing strategic alliances may be
  created to avoid destructive or excessive
  competition.
• Explicit collusion exists when firms directly
  negotiate production output and pricing
  agreements in order to reduce competition (ADM
  price fixing).
• Tacit collusion exists when several firms in an
  industry indirectly coordinate their production
  and pricing decisions by observing each others
  competitive actions and responses (OPEC, Japan
  kieretsu).

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Cooperative Strategies

• Corporate-level Alliances

• Diversifying strategic alliance allows a firm to
  expand into new product or market areas without
  completing a merger or an acquisition.
• Provides some of the potential synergistic
  benefits of a merger or acquisition, but with
  less risk and greater levels of flexibility.
• Permits a test of whether a future merger
  between the partners would benefit both parties

• Boeing and Insitu formed an alliance to develop
  an unmanned aerial vehicle
• system. Boeing brings systems integration,
  communications technologies,
• and payload technologies while Insitu is
  designing its capabilities in producing
• low-cost, long-endurance unmanned aerial
  vehicles. Boeing hopes to diversify into
• government and commercial markets. Insitu
  gains big-firm experience, access to
• Boeings technology, resources, and
  capabilities.

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Cooperative Strategies
Synergistic Alliances

• Synergistic strategic alliances create joint
  economies of scope between two or more firms.
• Create synergy across multiple functions or
  multiple businesses between partner firms

• Cisco Systems and HP formed a synergistic
  strategic alliance to meld
• computing, networking, data and voice, and
  Unix and Windows NT. Synergy
• is expected as HP integrates its
  telecommunications management solutions
• with Ciscos networking solutions.

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Cooperative Strategies
Franchising

• Franchising spreads risks and uses resources,
  capabilities, and competencies without merging or
  acquiring another company.
• Contractual relationship concerning the
  franchise that is developed between two parties,
  the franchisee and the franchisor.
• An alternative to pursuing growth through mergers
  and acquisitions.

• Papa Johns, McDonalds, Hilton International,
• Century 21, Charles Schwab, HCA/Columbia
  Hospitals.

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Cooperative Strategies

• Competitive Risks

• Inadequate contracts (leads to cheating and
  dissolution).

• Misrepresentation of capabilities

• Partners fail to use complementary resources
  (concern over the loss
• of their technology or competitive advantage.

• Holding alliance partners investments hostage

• Trustworthiness of the partner.