Cooperative Strategy Flashcards
cooperative strategy
a strategy through which independent firms choose to
work together to achieve a shared objective.
firms execute cooperative strategy by forming ____________
strategic alliances
strategic alliance
a cooperative strategy in which firms combine some of their resources and capabilities in attempt to create a competitive advantage
What must happen for strategic alliances to be formed and continue?
must benefit every side involved
strategic alliances are __________ partnerships
mutually lucrative
describe Spotify and Hulu’s diversifying alliance
- corporate level, non-equity
- Spotify wanted to match Apple
- offers bundle with Hulu
What would Spotify’s other options (other than partnering with Hulu)?
- diversify organically into video
- acquire Hulu
reasons for Spotify to not acquire Hulu
- Spotify isn’t profitable, is losing money (struggling financially)
- -> maybe not have the capital
- less commitment to be an alliance
- ->if things don’t work out, can part ways easily
- -> more risk with acquisition
Reasons to not diversify organically (for Spotify into video)
- unpredictable costs
- would take time to develop
- don’t necessarily have the capabilities (hard to predict results)
- just generally unpredictable over all
- don’t have brand recognition in the space
- don’t have industry knowledge, relationships with suppliers
What is Spotify’s reasoning for partnering with Hulu?
looking for a quick way to compete with Apple and Amazon
also less financially challenging
What is Hulu’s reasoning for partnering with Spotify?
- Spotify is a distribution channel for them
- entered revenue sharing arrangement with Spotify
- customer acquisition
- -> can upsell them
- Spotify has a large customer base
describe the synergistic alliance for Hulu with Sprint (and Spotify)
- corporate level, non-equity
- good for Sprint because Hulu is value added for customers
- distribution + customer base for Hulu
- alliances are temporary
- -> when T-Mobile acquired Sprint, stopped with the alliance
Why should orgs engage in strategic alliances? (5)
- By forming alliances firms can gain access to resources and capabilities they don’t possess internally.
- Firms can enter multiple alliances with different partners for different purposes:
creating a portfolio of ongoing alliances. - Alliances don’t require a large investment like M&A, don’t have the same integration challenges and are not permanent.
- While some alliances last for a long time, most are short-lived and cease to exist as soon as participating firms no longer gain value from the alliance.
- For firms to enter into an alliance, it must be lucrative for all sides.
joint venture
- a legally independent company created by two or more firms
* Have partners who own equal percentages and contribute equally to the venture’s operations
equity alliance
- a legally independent company formed by firms who own different percentages of a company
- a greater (controlling) equity stake is owned by a partner who contributes more resources and capabilities to the alliance
non-equity alliance
- A contractual agreement, no separate legal entity is formed
- Licensing agreements, distribution agreements, supply contracts, outsourcing agreements
describe Apple and IBM’s complementary alliance
- business-level, horizontal, joint venture
- wanted to create an operating system (IBM wanted to replace Windows, Apple wanted to replace their own)–> joint-venture
Before
- Apple used a closed-system, but it’s operating system wasn’t as good as others
- -> and had to spend lots on R&D for only a small market share
- ->nobody wanted to develop for it
- IBM was industry standard
- ->software develops wanted to develop for IBM, since they had the market share
- problem for IBM was that Microsoft became too powerful of a supplier that it was eating up profits
Alliance
- two competitors worked together (challenging because they may not want to share knowledge)
- –> horizontal because they are within the same industry
- joint venture failed
- –> no results, just sunk cost
- then Apple entered into alliance with Intel
- -> Intel was industry expectation
- ->business level, vertical, non-equity
- -> Apple converted to run on Intel chips (eventually didn’t work and went back to in-house)
describe the alliance between Microsoft Bing and Yahoo
- horizontal, non-equity
- Microsoft tried to acquire Yahoo, was denied by anti-trust authorities, so formed alliance instead
- Created Yahoo! powered by Bing
- alliance as an alternative to acquisition
describe alliance between Starbucks and Oatly
- vertical, non-equity
- integrated a bit more permanently
- might want this partnership because more and more consumers looking for milk alternatives
- helps Starbucks brand image
- Starbucks is huge distribution channel for Oatly
- -> can sell so much more
- alliances can serve as testing ground for acquistion
describe walmart and mcdonalds’ synergistic alliance
- corporate, non-equity
- maxmize sales by taking advantage of each other’s foot traffic
- have same customer base
describe franchising through the lens of McDonald’s
- strategy as a way to expand
- an alliance between franchisor (McD) and franchisee (entrepreneur)
- advantages for entrepreneur:
- ->brand name, revenue, gets a proven concept
- -> national advertising benefits
- -> doesn’t do R&D
- –> have to make few decisions, everything decided at corporate level
- -> less risky
- advantage for franchisor
- -> can avoid some start-up costs (franchisee pays license fee)
- ->make money from sales of raw materials
- ->royalty fee –> 4-5% of sales
- ->don’t have to invest with own money (financial risk is with franchisee)
what is a risk of franchising
some reputation risk
–> some quality control issues could arise
describe IKEA’s franchising
- Ingka prefers to own stores in western countries
- uses franchising in some markets that have specifics
- mixed strategy
describe Eli Lilly and Ranbaxy’s cross-border joint venture
- US pharmaceutical company (Eli Lilly) and Indian pharmaceutical company (Ranbaxy)
- Eli Lilly gets opportunity to get established in the Indian market, take advantage of cheap labour
- Ranbaxy who mostly did reverse engineering to develop products, got the opportunity to learn from a world class innovator, prep for world expansion
- Eli Lilly also restricted by gov, not allowed FDI above 51%
- –> could not acquire Ranbaxy
- venture very successful initially
- -> after 6 years, Eli Lilly felt they didn’t need Ranbaxy (had knowledge of markets and connections), Ranbaxy felt the same –> just needed cash for world expansion
- Ranbaxy willing to sell share, Eli Lilly bought it
describe the general airline partnerships
- business level, horizontal, joint venture (contract)
- -> share revenue and costs on shared routes
Generate sales:
-Provide more route options to customers
-Customers’ frequent flyer programs work across partnering airlines
Manage costs:
-Share costs on common routes
Overall benefit: maximize sales and share costs in a competitive industry
describe alliance between Cirque du Soleil and MGM Mirage
- synergistic alliance, non-equity
- Cirque needed venue to maximize ticket sales
- MGM needed entertainment to draw customers to the hotel
- MGM would build the stage
- ticket sales divided half and half
- cirque could be stationary
- -> can take advantage of huge rotation of tourists
What should you do when evaluating alliances as a strategic option? (6)
▪ Think what strategic objectives can be achieved through an alliance
▪ Evaluate a target partner to fit objectives (partner’s resources, capabilities, trustworthiness)
▪ Estimate value (synergies) that can be created by working together in an alliance
▪ Make sure to understand benefits for each partner involved
▪ Considering the temporary, non-committal nature of most alliances, evaluate the risks: intellectual property leakage, partners acting in an opportunistic way, misrepresentation of resources and capabilities
▪ Remember the role of the human factor in making alliances succeed: partnerships are formed among human leaders where personalities, values and visions matter
