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Chapter 9 –Cooperative Strategy
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Agenda1. Introduction to Cooperative Strategy
2. Business-Level Cooperative Strategy
3. Corporate-Level Cooperative Strategy
4. International Cooperative Strategy
5. Network Cooperative Strategy
6. Managing the Risks of Cooperative Strategy
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The Age of “Alliance Capitalism”
“If you think you can go it alone in today’s global economy, you are highly mistaken.”
Jack Welch, former CEO of General Electric
“Not all the smart people work for Sun.”
William Joy, Vice President of R&D, Sun Microsystems
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Cooperative Strategy & Alliances
Cooperative Strategy
A strategy in which firms work together to achieve a shared objective
Strategic alliance
A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage
Involves the exchange and sharing of resources and capabilities to co-develop or distribute goods and services
Requires cooperative behavior from all partners
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Three Types of Strategic Alliances1. Joint venture
Two or more firms create a legally independent company to share resources and capabilities to develop a competitive advantage
2. Equity strategic alliance Two or more firms own a portion of the equity in the venture
they have created
3. Nonequity strategic alliance Two or more firms develop a contractual relationship to
share some of their unique resources and capabilities to create a competitive advantage
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New products,marketing andsales partners
Channelpartners
(corporate sales)
Barnes & Noble(in-store stores)
Chapters(Canadian bookstores)
United Airlines(in-flight coffee)
Dreyer’s(premium coffee
ice cream)
Pepsico(bottled coffee
beverages)
Alsea(Mexico)
Shinsegne(Korea)
Rustan(Philippines)
Bonvests(Singapore)
Sazaby(Japan)
Westin Hotelsand Resorts
(Coffee servedthroughout hotel)
Host Marriott Services(worldwide airport kiosksand in-hotel coffee cafes)
Geographicexpansion partners
Retail formatpartners
Example for Alliance Strategy
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Business-Level Cooperative Strategy
Created to avoid destructive or excessive competition
Explicit (illegal) vs Tacit collusion
ComplementaryComplementaryAlliancesAlliances
Competition Competition Response AlliancesResponse Alliances
UncertaintyUncertaintyReducing AlliancesReducing Alliances
CompetitionCompetitionReducing AlliancesReducing Alliances
Used to hedge against risk and uncertainty
Occur when firms join forces to respond to a strategic action of another competitor
Combine partner firms’ assets in complementary ways to create new value
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Corporate-Level Cooperative Strategy
A contractual relationship (the franchise) is developed between the franchisee and the franchisor
DiversifyingDiversifyingStrategic AllianceStrategic Alliance
SynergisticSynergisticStrategic AllianceStrategic Alliance
FranchisingFranchising
Joint economies of scope between two or more firms
Expand into new product or market areas without completing a merger or an acquisition
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International Cooperative StrategyCross-Border Strategic Alliance
International cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage
Why cross-border strategic alliances?
Multinational corporations outperform firms that operate only domestically
Due to limited domestic growth opportunities, firms look outside their national borders to expand business
Some foreign government policies require investing firms to partner with a local firm to enter their markets
However…
International alliances can be difficult to manage due to differences in management, cultures, or regulatory constraints
Must gauge partner’s strategic intent such that the partner does not become a competitor
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Network Cooperative Strategies
Evolve in industries with rapid technological change leading to short product life cycles
Purpose is often exploration of new ideas
Stable AllianceStable AllianceNetworkNetwork
Dynamic AllianceDynamic AllianceNetworkNetwork
Long term relationships
mature industries where demand is relatively constant predictable
Stable networks exploit economies (scale and/or scope) available between the firms
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Example: Star AllianceCharacteristics (2004):• linking 133 countries, 722
destinations• partner total revenue US-$ 79.3• 271,983 employees• common branding• no cross-shareholding
Areas of cooperation:• global code-sharing• Equipment• flight plans• spare parts• landing rights/airport slots• mile collection programs
Potential extension on• reservation systems• cabin crew• security systems• employee training
Lufthansa
Varig
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Agenda1. Introduction to Cooperative Strategy
2. Business-Level Cooperative Strategy
3. Corporate-Level Cooperative Strategy
4. International Cooperative Strategy
5. Network Cooperative Strategy
6. Managing the Risks of Cooperative Strategy
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Cooperative Strategy“While you are alone you are entirely your own master, and if you have one companion you are but half your own and the less so in proportion to the indiscretion of his behavior.”
Leonardo da Vinci
“Out in the barren plains, cowboys would tie their horses to each other at night, knowing that each horse would pull in a different direction and the group would go nowhere.”
Wild West Analogy
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Managing Competitive Risks in Cooperative Strategies
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Managing Cooperative StrategiesCost minimization management approach
Formal contracts with partners
Contracts specify how cooperative strategy is to be monitored and how partner behavior is to be controlled
Goals that minimize costs and prevent opportunistic behavior by partners
Opportunity maximization management approach
Maximize partnership’s value-creation opportunities
Learn from each other
Explore additional marketplace possibilities
Less formal contracts, fewer constraints, Requires higher Trust