week 7 Flashcards
what is a cooperative strategy
is a strategy which independent firms choose to work together to achieve a shared objective
how do firms create a cooperative strategy
Firms create a cooperative strategy through forming strategic alliances
strategic alliance
A strategic alliance is a cooperative strategy in which firms combine some of their resources and capabilities in attempt to create a competitive advantage
For strategic alliances to be formed and carry on, they must benefit every side involved
In other words, strategic alliances are mutually lucrative partnerships
why would spotify want to get into a strategic alliance with Hulu
most of spotifys competitors offer streaming platforms , spotify was missing
Spotify was not able to match the bundles that amazon and apple were able to put out
To match what competitors were doing, spotify found a partner that could help it compensate for what it was missing and match competitors , mulitpoint competition
Hulu: got into an alliance with spotify, but they have multiple partners
Hulu wanted to gain market share and gain customers
why does hulu want a strategic alliance with Spotify
What does hulu want→ gets spotifys customer base, spotify customers have to create an account
Spotify is the market share leader, was a chance for hulu to acquire customers and upsell them for more services and monetize these customers they got from spotify
How else can spotify get these results without forming an alliance
spotify could of bought hulu (acquire), spotify could also create their own video streaming services
if spotify acquires hulu
would cost them a lot more money, spotify is not very cash rich, integration challenges with combining two firms together because of a lot of integration needed, outside of spotify’s area of expertise (video streaming),
creating from scratch
ery expensive, wouldn’t have resources, would take a lot of time, but getting into alliance it speeds things up and can match apples bundle, they dont have knowledge or a brand name in streaming would need to invest a lot in marketing, unknown outcomes→ may be bad outcome, alliance is more certain less risky
why would sprint want to partner with hulu
Economies of scope, multipoint competition, more consumers
Sprint has its own competition within the US, by offering video streaming its a way to lure customers away from competition, which is why sprint would agree to this partnership
disadvantages of alliances
No guarantee for an alliance, can get broken up if one company feels like its not in their best interesting, mutual agreement
why form strategic alliances
By forming alliances, firms can gain access to resources and capabilities they dont possesses internally
Firms can enter multiple alliances with different partners for dif purposes: creating a portfolio of ongoing alliances
Alliances don’t require a large investment like m&a, dont 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
differences between mergers and alliances
When companies merge, the parent companies integrate into one, in an alliance parent companies are separate entities
types of strategic alaicnws
joint venture, equity alliance, non equity alliance,
joint venture
A legally independent company created by 2 or more firms
Have partners who own equal percentages and contribute equally to the ventures 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
creating a separate company
The partner who invests more resources—whether money, technology, or expertise—typically holds a greater (controlling) equity stake
