9 - Cooperative Strategy Flashcards
cooperative strategy
firms work together to achieve a shared objective
strategic alliance
cooperative strategy in which firms combine resources + capabilities to create a CA
types of strategic alliances
joint venture
equity strategic alliance
non-equity strategic alliance
joint venture
2 or more firms create a legally independent company to share resources + capabilities to develop a CA
- operate as one
equity strategic alliance
2 or more firms own different portions of the equity in the venture they have created
non-equity strategic alliance
2 or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a CA
- licensing agreements
- distribution agreements
- supply contracts
- outsourcing commitments
reasons for strategic alliances
- most firms lack full set of resources + capabilities needed
- creates value that could not be possible individually
- new source of revenue
- vehicle for growth
- enhance speed of responding to market opportunities + changes
- gain new knowledge
- reduce competition
business-level cooperative strategies
- complementary strategic alliances
- competition response strategy
- uncertainty reducing strategy
- competition reducing strategy
complementary strategic alliances (CSA)
alliance where firms share resources + capabilities in complementary way to create CA
2 types:
- vertical CSA
- horizontal CSA
effect of different cycles on reasons for strategic alliances
slow: to enter restricted markets + maintain stability
standard: to gain market power + economies
fast: to move quickly from one CA to another + spread risk
difference between vertical CSA and horizontal CSA
in both cases the firms share resources + capabilities to create a CA, but from:
- different stages in value chain (vertical)
- same stage in value chain (horizontal)
competition response strategy
alliances can be used at the business level to respond to competitor’s attacks
- can be difficult to reverse
- expensive to operate
= usually used for strategic responses
uncertainty reducing strategy
firms sometimes use business-level strategic alliances to hedge against risk and uncertainty
- uncertainty is reduced by combining knowledge + capabilities
ex: creation of new product market
competition reducing strategy
avoid excessive competition while the firm marshals its resources to improve its strategic competitiveness
- collusive strategies (illegal)
which of the business-level cooperative strategies have the lowest and highest probabilities of creating a sustainable CA?
lowest: competition-reducing alliances
highest: complementary alliances (vertical)
- because they have a stronger focus on creating value whereas the other focus too much on competition
types of collusive strategies
explicit collusion: direct negotiation b/w firms to establish output levels + pricing agreements that reduce competition
tacit collusion: indirect coordination of production + pricing decisions, which impacts the degree of competition in industry
corporate level cooperative strategies
firm collaborates with one or more companies to expand its operations
- diversifying strategic alliance
- synergistic strategic alliance
- franchising
diversifying strategic alliance
firms share some of their resources & capabilities to diversify into new product/market areas
synergistic strategic alliance
firms share some of their resources & capabilities to create economies of scope on a corporate level
franchising
firm uses a franchise as a contractual relationship to describe and control the sharing of its resources + capabilities w/ partners
assessment of corporate level cooperative strategies
broader in scope + more complex than business level cooperative strategies = more challenging + costly
international cooperative strategy
cross-border strategic alliance: firms w/ headquarters in different nations combine some of their resources + capabilities to create a CA
why?
- greater performance
- expand business that was limited by domestic growth opportunities
- some foreign government policies require investing firms to partner w/ a local firm to enter their markets (easier than M&A)
risks of cooperative strategies
inadequate contracts
partners may choose to act opportunistically
misrepresentation of competencies
partner may fail to commit promised resources + capabilities
partner may hold investments hostage
approaches for managing cooperative strategy (CS)
cost minimization
opportunity maximization
cost minimization
contracts that specify how the CS is to be monitored + how partner behaviour is to be controlled
- goal is to minimize costs + prevent opportunistic behaviour
opportunity maximization
informal relationships + fewer constraints that allow partners to:
- take advantage of unexpected opportunities
- learn from each other
- explore additional markets
requires high level of trust
