Cooperative Strategy

9-1
Agenda
1. Introduction to Cooperative Strategy
2. Business-Level Cooperative Strategy
3. Corporate-Level Cooperative Strategy
4. International Cooperative Strategy
5. Network Cooperative Strategy
6. Managing the Risks of Cooperative Strategy

9-2
The Age of “Alliance Capitalism”
“If you think you can go it alone in today’s
global economy, you are highly mistaken.”

Jack Welch, former CEO of General Electric

“Not all the smart people work for Sun.”

William Joy, Vice President of R&D,

Sun Microsystems
9-3
 Cooperative Strategy & Alliances
Cooperative Strategy
➢ A strategy in which firms work together to achieve a
shared objective
Strategic alliance
➢ A primary type of cooperative strategy in which firms
combine some of their resources and capabilities to
create a mutual competitive advantage
➢ Involves the exchange and sharing of resources and
capabilities to co-develop or distribute goods and
services
➢ Requires cooperative behavior from all partners

9-4
 Three Types of Strategic Alliances
1. Joint venture
➢ Two or more firms create a legally independent company to
share resources and capabilities to develop a competitive
advantage

2. Equity strategic alliance

➢ Two or more firms own a portion of the equity in the venture
they have created

3. Nonequity strategic alliance

➢ Two or more firms develop a contractual relationship to
share some of their unique resources and capabilities to
create a competitive advantage

9-5
Example for Alliance Strategy
Sazaby
Shinsegne (Japan) Rustan
(Korea) (Philippines)

Alsea Bonvests
(Mexico) Geographic (Singapore)
expansion partners

Westin Hotels
Dreyer’s and Resorts
(premium coffee (Coffee served
ice cream) throughout hotel)

New products, Channel

marketing and partners
Pepsico sales partners (corporate sales)
(bottled coffee United Airlines
beverages) (in-flight coffee)

Retail format
Barnes & Noble partners Chapters
(in-store stores) (Canadian bookstores)
Host Marriott Services
(worldwide airport kiosks
and in-hotel coffee cafes) 9-6
Business-Level Cooperative Strategy
Combine partner firms’ assets in
Complementary complementary ways to create new
Alliances value

Competition Occur when firms join forces to

respond to a strategic action of
Response Alliances another competitor

Uncertainty Used to hedge against risk and

Reducing Alliances uncertainty

Created to avoid destructive or

Competition excessive competition
Reducing Alliances Explicit (illegal) vs Tacit collusion

9-7
Corporate-Level Cooperative Strategy
Diversifying Expand into new product or
market areas without completing
Strategic Alliance a merger or an acquisition

Synergistic Joint economies of scope between

two or more firms
Strategic Alliance

A contractual relationship (the

Franchising franchise) is developed between
the franchisee and the franchisor

9-8
 International Cooperative Strategy
Cross-Border Strategic Alliance
➢ International cooperative strategy in which firms with headquarters
in different nations combine some of their resources and capabilities
to create a competitive advantage
Why cross-border strategic alliances?
➢ Multinational corporations outperform firms that operate only
domestically
➢ Due to limited domestic growth opportunities, firms look outside
their national borders to expand business
➢ Some foreign government policies require investing firms to partner
with a local firm to enter their markets
However…
➢ International alliances can be difficult to manage due to
differences in management, cultures, or regulatory constraints
➢ Must gauge partner’s strategic intent such that the partner does
not become a competitor
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Network Cooperative Strategies
Long term relationships
➢ mature industries where
Stable Alliance demand is relatively constant
predictable
Network
Stable networks exploit economies
(scale and/or scope) available
between the firms

Evolve in industries with rapid

technological change leading to
Dynamic Alliance short product life cycles
Network
Purpose is often exploration of
new ideas

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Example: Star Alliance
Characteristics (2004):
• linking 133 countries, 722
destinations
• partner total revenue US-$ 79.3 Lufthansa
• 271,983 employees
• common branding
• no cross-shareholding

Areas of cooperation:
• global code-sharing
• Equipment
• flight plans
• spare parts
• landing rights/airport slots
• mile collection programs

Potential extension on Varig

• reservation systems
• cabin crew
• security systems
• employee training 9-11
Agenda
1. Introduction to Cooperative Strategy
2. Business-Level Cooperative Strategy
3. Corporate-Level Cooperative Strategy
4. International Cooperative Strategy
5. Network Cooperative Strategy
6. Managing the Risks of Cooperative Strategy

9-12
Cooperative Strategy
“While you are alone you are entirely your own
master, and if you have one companion you are but
half your own and the less so in proportion to the
indiscretion of his behavior.”
Leonardo da Vinci

“Out in the barren plains, cowboys would tie their

horses to each other at night, knowing that each
horse would pull in a different direction and the group
would go nowhere.”
Wild West Analogy

9-13
Managing Competitive Risks in
Cooperative Strategies

9-14
 Managing Cooperative Strategies
Cost minimization management approach
➢ Formal contracts with partners
➢ Contracts specify how cooperative strategy is to be
monitored and how partner behavior is to be controlled
➢ Goals that minimize costs and prevent opportunistic
behavior by partners

Opportunity maximization management approach

➢ Maximize partnership’s value-creation opportunities
➢ Learn from each other
➢ Explore additional marketplace possibilities
➢ Less formal contracts, fewer constraints, Requires
higher Trust
9-15