9 - Cooperative Strategy

Question 1

cooperative strategy

Answer 1

firms work together to achieve a shared objective

Question 2

strategic alliance

Answer 2

cooperative strategy in which firms combine resources + capabilities to create a CA

Question 3

types of strategic alliances

Answer 3

joint venture
equity strategic alliance
non-equity strategic alliance

Question 4

joint venture

Answer 4

2 or more firms create a legally independent company to share resources + capabilities to develop a CA

• operate as one

Question 5

equity strategic alliance

Answer 5

2 or more firms own different portions of the equity in the venture they have created

Question 6

non-equity strategic alliance

Answer 6

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

Question 7

reasons for strategic alliances

Answer 7

• 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

Question 8

business-level cooperative strategies

Answer 8

• complementary strategic alliances
• competition response strategy
• uncertainty reducing strategy
• competition reducing strategy

Question 9

complementary strategic alliances (CSA)

Answer 9

alliance where firms share resources + capabilities in complementary way to create CA

2 types:

• vertical CSA
• horizontal CSA

Question 10

effect of different cycles on reasons for strategic alliances

Answer 10

slow: to enter restricted markets + maintain stability
standard: to gain market power + economies
fast: to move quickly from one CA to another + spread risk

Question 11

difference between vertical CSA and horizontal CSA

Answer 11

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)

Question 12

competition response strategy

Answer 12

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

Question 13

uncertainty reducing strategy

Answer 13

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

Question 14

competition reducing strategy

Answer 14

avoid excessive competition while the firm marshals its resources to improve its strategic competitiveness

• collusive strategies (illegal)

Question 15

which of the business-level cooperative strategies have the lowest and highest probabilities of creating a sustainable CA?

Answer 15

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

Question 16

types of collusive strategies

Answer 16

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

Question 17

corporate level cooperative strategies

Answer 17

firm collaborates with one or more companies to expand its operations

• diversifying strategic alliance
• synergistic strategic alliance
• franchising

Question 18

diversifying strategic alliance

Answer 18

firms share some of their resources & capabilities to diversify into new product/market areas

Question 19

synergistic strategic alliance

Answer 19

firms share some of their resources & capabilities to create economies of scope on a corporate level

Question 20

franchising

Answer 20

firm uses a franchise as a contractual relationship to describe and control the sharing of its resources + capabilities w/ partners

Question 21

assessment of corporate level cooperative strategies

Answer 21

broader in scope + more complex than business level cooperative strategies = more challenging + costly

Question 22

international cooperative strategy

Answer 22

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)

Question 23

risks of cooperative strategies

Answer 23

inadequate contracts

partners may choose to act opportunistically

misrepresentation of competencies

partner may fail to commit promised resources + capabilities

partner may hold investments hostage

Question 24

approaches for managing cooperative strategy (CS)

Answer 24

cost minimization

opportunity maximization

Question 25

cost minimization

Answer 25

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

Question 26

opportunity maximization

Answer 26

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