Week 3 - Cooperative Strategy

Question 1

Czakon et al (2020)

Answer 1

• Coopetition: simultaneous competition and cooperation among firms with the intent to create value
• Firms engage in the relationships with the goal of value creation (private or mutual)
• Difference from collusion: agreement on terms for private benefits, but no additional value creation
• Coopetition enhances performance by simultaneously increasing private and common benefits
• To succeed, the organisation needs to develop unique capabilities, distinct form the allies
• Managing coopetition:
  o Organisational separation between competitive and cooperative activities
  o Co-management of collaborative activities
  o Arbitration by top management
  o Individual integration of coopetitive paradox
• Deep-level diversity contributes to positive outcomes
• Small firms are less reluctant to coopete when striving for cost reductions and learning from competitors, whereas large firms agree to coopete to reduce time-to-market
• Examples: R&D consortium, between small companies, between platforms, open source, internal coopetition

Question 2

Wormald et al (2021)

Answer 2

• Examines the international expansion of firms entering the mobile money industry, and their effects on the market
• Classification of firms:
  o Pre-entry experience: startup vs diversifying entrant
  o Multinational status: single vs multiple country operations
  o Location of initial platform launch: developing vs developed country
• None of the single-country diversifying entrants expanded globally
• Propensity of international expansion was lowest among developing country startups and highest among multinational diversifying entrants
• Startups from developing countries launched in multiple national markets quickly because they had the capabilities (tech, adaptation, problem-solving) to taylor their product easily, whereas diversifying giants went for the markets where they already had operations
• Developed country startups could only thrive after acquisition (they focused on standardisation and did not have downstream capabilities)
• Spread of new tech was mostly on developing country startups
• E.g. Vodafone launched the first mobile money platform (M-PESA) in Kenya through its partial subsidiary Safaricom – the startup could focus on addressing customer needs (“Send Money Home”), while Vodafone provided the upstream resources by partnering up with the tech-development firm Sagentia

Question 3

Dyer at al (2018)

Answer 3

• “Relational view” – theory of inter-firm value creation
• Determinants:
  o Complementary resources and capabilities
  o Relation-specific assets (RSA)
  o Knowledge-sharing routines (KSR)
  o Effective governance
• The paper argues it is not performance that is influenced by goodwill trust, but trust that increases/decreases due to performance with time
• Firms look for complementary resources when they look for allies
• Investment in RSA or KSR is needed to create value if there is a high level of interdependence between the products. Not true for e.g. McDonalds and Coca-Cola (U-shape), but the higher the interdependence, the greater the potential value creation (S-shape)
• RSA and KSR dynamically co-evolve
• E.g. Toyota had 50% higher profits in the 1980-2000 time period than competing automakers and their suppliers due to its high-quality relationships that provided it with valuable, rare, and inimitable resources

Question 4

Hannah & Eisenhardt (2018)

Answer 4

• Example of Apple: the company was sinking in 1996, when the firm bet on a novel ecosystem to provide seamless music experience. The company cooperated with Universal Music, but also competitively captured some of its profits
• Ecosystems are organised around a final product, so their components are complementary
• The paper argues that firms either adopt a system strategy (enter multiple components and minimise cooperation) or a component strategy (enter one or a few components and cooperate for the rest) + bottleneck strategy (competing with rival ecosystems)
• Core tradeoff: cost to develop multiple components vs the benefit of capturing multiple profit margins
• US residential solar industry between 2007 and 2014: ecosystem of several components, bottleneck was finance – the absolute winners were the companies that targeted this area, then diversified into the complementary sectors or built ecosystems of high-quality complementors
• Firms are successful when they simultaneously create value (address bottleneck + cooperate to assemble an ecosystem) and capture value (compete via market power)
• Competing by innovating in the bottleneck is key (e.g. sales technology, branding)
• Shift in the bottleneck might need component strategists to reevaluate their strategy and move quickly (dynamic capabilities)
• Bottleneck crowdedness affect how firms balance cooperation and competition – with many firms, it is difficult to stand out, so innovation becomes critical, whereas in uncrowded areas exploiting market power and reinforcing barriers to entry is the way to go

Question 5

Ritala (2012)

Answer 5

• Incentives to coopete:
  o Mutually increase the total value they can individually capture
  o Increasing the size of the current market or creating totally new ones
  o Use fewer resources, or use their current resources more efficiently in serving their existing share of the market
  o Protect the share of the market they have been able to capture and to conquer a larger share of what remains (e.g. Samsung and Sony collaborating to develop LCD tech to beat competition from electronic equipment multinationals)
• Coopetition helps to innovate : joint R&D and knowledge source
• E.g. sharing manufacturing facilities and platforms in the automotive industry to produce different brands, benefits of scale and scope
• Uncertainty and network effects increase the motivation to coopete as it is beneficial to splitting risk and capturing markets more quickly

Question 6

Brandenburger & Nalebuff (2021)

Answer 6

• Example: USSR and USA nearly cooperated on space exploration, Jeff Bezos and Elon Musk were discussing combining Blue Origin and SpaceX
• Reasons: save costs and avoid duplication of effort
• Sometimes coopetition is inevitable, e.g. Samsung sold its Super Retina display to iPhone X because otherwise Apple would have turned to LG or BOE, strengthening its competitors
• Incentives:
  o Neither parties have a special abilities but they can create more value if they team up: collab of Apple and Google – sharing contact-tracing tech during covid to share locations with governments
  o Both parties have special abilities, which put them ahead of rivals if combined: Ford invited Volkswagen to join its investment into Argo AI, an autonomous vehicle startup
  o One party has a strong competitive advantage, and sharing only heightens it; less-powerful parties are willing to cooperate: Amazon gives rival sellers on Amazon Marketplace access to its customers and warehouses, and it receives commission from the markup, and strengthens the hub itself
  o One party shares its resources to reach another’s customer base, even though it is risky for both parties: Samsing sharing the screen with Apple
• Structuring an agreement:
  o Establishing scope and control (esp with two powerful parties)
  o Agreeing on how to divide benefits

Question 7

Kretschmer et al (2022)

Answer 7

• Defining feature of platform ecosystems: interdependence between the ‘core’ platform and a dynamic and heterogenous set of components to generate a stream of derivative products, e.g. Amazon and its distributors
• Platforms are characterised by a large set of relationships that are neither long-term, nor spot
• Key features affecting organisations:
  o Interpersonal authority: rises from control over the tech architecture, the platform can control its participants via contractible actions, not managerial discretion
  o The motivation and incentives it creates to attract participants: incentives and compensation are indirect, and involve transactions between the participants themselves
  o Governance and coordination structures: though boundaries are set, participants get to decide how they want to contribute – activities are structured more independently
• Platform meta-organisations emerge when there are intermediate-level interdependencies among participants
• New competitors tend to emphasize flexibility and autonomy (unlike large platforms)

Question 8

Cutolo et al (2021)

Answer 8

Platform companies are able to influence the dynamics of markets - they can decide what and how to sell
e.g. in 2019, Apple made a deal with Amazon to ban resellers of its products
Platforms are valuable because entry costs are low for sellers and advertisers, and none for customers
Nearly perfect comptition - companies need to rely on differentiation
Easier to adapt to trends and analyse customer behaviour if a company sells on a platform
Platforms can limit the source of competitive advantage in three ways:
1. Limit the construction of unique value proposition: dictating the presentation of products, limiting pricing flexibility
2. Platforms own the customer relationship: prevent off-platform contracts, existential uncertainty for sellers
3. No room to manoeuvre for platform-dependent businesses: competitors can copy setups, platform can dictate trends
Strategies for safety: change channels & multihoming, use platform to market themselves, play algorithm game, diversify income streams