Explicit and Implicit Cooperation among

MNCs

International Business

Prof. dr. Sascha Albers

Sascha.albers@uantwerpen.be

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 Objectives of this session

1. Get to know nature and management

challenges of strategic alliances for
multinational firms
2. Understand the role, specificities and dynamics
of multilateral alliances for MNEs
3. Get to know and discuss the concept of
multimarket contact and its strategic
implications

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 International Strategic Alliances

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 Alliances and Alliance Portfolios

 (International) Strategic Alliance (ISA): formalized

cooperative relationship between two or more firms
(headquartered in different countries) that share compatible
goals and strive for mutual benefits
 Bilateral and multilateral alliances
 Strategic networks
 Alliance Portfolio: The set of discrete bilateral or multilateral
alliances entered into by a firm

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 Alliances: Why bother?

Company A Company B
Goals Goals

Pursued Pursued via Pursued

independently
Alliance A+B independently

2nd order systems

 Multiple decision making centers

(lack of central authority)
 Constant bargaining
 Transient nature
 Potential clash of interests

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 Why International Strategic Alliances?

ISA are an instrument to:

 Access markets (protectionism, local knowledge)
 Access resources (tangible, know how)
 Share costs and risks of R&D
 Achieve efficiency (scale economies, market
share/power)
 Set standards
 Gain legitimacy

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 Typical Alliance Legal Forms

1. Non-equity Cooperation
Cooperation between firms is managed directly through contracts,
without cross-equity holdings or an independent firm created.
2. Equity Cooperation
Cooperative contracts are supplemented by equity investments by one
partner in the other partner. Sometimes these investments are
reciprocated.
3. Joint Venture
Cooperating firms form an independent firm in which they invest.
Profits from this independent firm compensate partners for this
investment.
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 The Alliance Management Process

Source: Hoang/Rothaermel (2016)

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 Forms of International Strategic Networks

• Networks of Learning: International R&D

• Networks of Efficiency (1): Horizontal Multi-Partner
Alliances
• Networks of Efficiency (2): Value Chain Collaboration
• Networks of Dominance: International Standard Setting
Coalitions
• Networks for Regional Competitiveness: Government-
supported International Consortia.

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 So what?

What is different if we go
from 2 to 3 (i.e. >2)?

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 Specificities of Networks
(compared to Dyadic Alliances)

Complexity Power
1 2

3 4

Timing Dynamics

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 Strategic Alliance Dynamics

Competition in Competition in Competition in

alliance alliance alliance
formation composition governance

Alliance Dynamics

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 An analytical step back: Reaction Options

An example from the mobile phone market

 Initial situation:
T-Mobile gets the exclusive Rival Alliance Link
license to sell the Apple
iPhone
 Telefonicas options to
react:

Common Rival Link

o Ally with
Apple
Intra-network competition Alliance Tie

o Forming a rival
alliance with HTC
o Align with Vodafone
Inter-network competition

o Do nothing

Source: adapted from Gimeno J. 2004. Competition within and between networks: the contingent effect of competitive embeddedness on alliance
formation. Academy of Management Journal 47(6): 824.

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 Competition in Alliance Formation and
Composition: Star vs Oneworld

1997 2000 2003 2006 2012

5* 13 16 - 1 22 ... 28 - 1
13 -
5 9-1 11 - 1 ...
1
1999 2000 2007 2012

* Alliance members
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 Opportunities and Threats in Alliance Composition
Changes (Examples)

 Members collapse (e.g. Varig, Ansett)

 Members merge with rival alliance members (e.g.
LAN + TAM)
 Members ally with rival alliance members
(e.g Air Berlin + Air France)
 Members ally with non-members
(Qantas + Emirates)
 Incoming members “derail”
(Air India)

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 Different solutions to the multilateral alliance governance:
the LTL examples

• The LTL business is based on highly standardized processes

• Network coverage is essential
• Many SME trucking firms are active on this market
• Even though alliance networks are
generally considered inferior Example: op LTL providers in Germany 2008
to integrated firms in Revenue in Mio. €
efficiency-contexts, LTL alliance 0 200 400 600 800

networks compete successfully 1. Dachser

2. Schenker
with their integrated rivals 3. System Alliance…
4. Danzas/DHL
• Different “good” management/ 5. IDS (Alliance)
governance solutions have 6. CargoLine (Alliance)
7. 24plus…
been found depending on 8. CTL (Alliance)
the network aims and
compositions
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 Differences in Alliance Design and Governance:
The Example of LTL Networks

Alliance Alpha Alliance Beta

 Autocratic organized alliances with
over 100 small members
 High power of alliance CEO –
central management unit and the
non-existence of additional units
 High degree of formalization and
standard operating procedures
 No dedicated alliance staff of the
partners
 No decision involvement of
partners
 Clear separation of alliance and
partner tasks
 Participative organized alliances
with just a few members, bigger in
size
 Concentration of decision authority
in the top management –
decentralized among CEOs of
alliance partners
 Delegation of staff to dedicated
forums and workgroups for the
alliance
 Participative decision involvement
of partners
 Highly interwoven processes
between alliance and partners

 The alliances create efficiency and are successful with different

organizational design and governance structures
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 Summary: Competition Arenas of Alliance Dynamics

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 Case: GE and Siemens product markets

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 What is the impact of multimarket encounters?

Source: The Economist (2019), Britain‘s Nightmare Before Christmas. Source: The Economist (2014), The Decline of Deterrence.
URL https://www.economist.com/leaders/2019/12/05/britains-nightmare-before-christmas URL https://www.economist.com/united-states/2014/05/01/the-decline-of-deterrence

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 Multimarket-Competition and Intensity of Competition

Multimarket contact
between focal firm and rivals

Larger number of interaction

Thicker shadow of the future
with rivals

Better understanding of Greater attention to rivals Ability to hurt Opportunity to hurt

interdependence and in market scanning and Larger revenue exposure Rivals‘ opportunity to
overlapping market competitor information to rivals‘ actions retaliate in multiple
fortunes with rivals acquisition markets

Richer competitive history Lower expected payoff from rivalry

Increased familiarity Increased deterrence

Mutual forbearance

Lower intensity of competition

Source: Adapted from Jayachandran S, Gimeno J, Varadarajan PR. (1999): The Theory of Multimarket
Competition: A Synthesis and Implications for Marketing Strategy. Journal of Marketing 63(3):
53.
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 The relationship between MMC and market entry /1

Market entry by multimarket firms

Low High
Multimarket contact
Multimarket contact Multimarket contact

Source: Adapted from Gimeno J. 1999. Reciprocal Threats in Multimarket Rivalry: Staking out 'Spheres of
Influence' in the U.S. Airline Industry. Strategic Management Journal 20(2): 101-128

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 The relationship between MMC and market entry /2

Low multimarket contact: Increasing market entry High multimarket contact: Decreasing market entry
 Situation: Focal firm is only weakly embedded in the  Situation: Focal firm is deeply embedded in the network
network of firms operating in a certain market of firms operating in a certain market
 Hypothesis: In such circumstances, multimarket entry  Hypothesis: In such circumstances, multimarket entry
increases with level of multimarket contact decreases with level of multimarket contact
 Firm enters into market of competitors in order to  Firm refrains from entering market of competitors in
reinforce footholds in competitors’ domains and to use order to show mutual forbearance from aggression
knowledge of other markets  In this situation, mutual forbearance is more important
 In this situation, market entry is more important than than market entry
mutual forbearance

Source: Adapted from Gimeno J. 1999. Reciprocal Threats in Multimarket Rivalry: Staking out 'Spheres of Influence' in the U.S. Airline
Industry. Strategic Management Journal 20(2): 101-128

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 Host Country Factors and Mutual Forbearance

Source: Yu, T., Subramaniam, M. & Cannella Jr, A. A. (2009). Rivalry Deterrence in International Markets: Contingencies Governing the Mutual Forbearance
Hypothesis. Academy of Management Journal, 52, 127-147.

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 Introducing Spheres of Influence

 Traditional MMC does not consider that firms may assign different degrees of
strategic importance to their different positions across multiple markets
 “asymmetric territorial interests”
 The concept of spheres of influence refines the MMC construct
1. by recognizing that multimarket contacts in markets where the rival has
more to lose are more effective at reducing rivalry
2. by suggesting that firms do not equally benefit in all their markets from
threats
of multimarket retaliation

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 Spheres of Influence: Concept
Market M
Scenario A: Firm
am
Single-market A
contact
with asymmetric bm Firm
territorial interests B

Scenario B: Market M
Firm an
Multi-market am
A
contact with
asymmetric and bn
reciprocal bm Firm
Market N B
territorial interests

Scenario C: Market M
Firm
Multi-market an am
A
contact with
asymmetric and
non-reciprocal bn bm Firm
Market N
territorial interests B

Source: Gimeno, Javier (1999): Reciprocal threats in multimarket rivalry: Staking out `spheres of influence' in the U.S. airline
industry. Strategic Management Journal 20 (2), pp. 101-128.

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 Spheres of Influence: Implications – here: corporate
portfolio and market presence

Part of the sphere Strategic purpose

• Keep economies of scale and value leadership
Core • Build critical core competencies

• Create economies of scope and integration

Vital Interests • Support, leverage or fund core initiatives

• Use blocking brands/products as barriers to entry

Buffer Zones • Fill in a “power vacuum” before rival does

• Invest in real options – risky, big upside opportunities

Pivotal Zones • Absorb into (and hence migrate) the core in the long term

• Launch offensive strikes to capture rivals’ strongholds

Forward Positions • Establish multimarket contact in a rival’s core
• Harass, distract or divert a rival’s resources or attention

• Monitor in order to anticipate further threats and opportunities in

Power Vacuums emerging areas not controlled by any major player

Source: D'Aveni, R. A. (2004). Corporate Spheres of Influence. MIT Sloan Management Review, 45(4), 38-46.

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 Example for geographic spheres: CEMEX

CEMEX, a Mexico-based cement company, built a global sphere of

influence in four logical phases:

Offensive Growth
Domestic Defensive
Threats Opportu-
Stronghold Posturing
(Forward nities
(Core) (Buffer Zones)
Positions) (Pivotal Zones)
Secure Mexican Secure flanks Counter Market leadership
base  In US: Firewall in Europeans in in emerging
• Consolidate South; Chinese their home base markets
Mexico via imports; dumping  Dominate Spain  Philippines
acquisition of no. to pin down low-  Build  Indonesia
2 player priced product export/ocean-  Egypt
 In Latin America: borne capability
Moves into from Spain
Central America,
Caribbean,
Northern Latin
America
(Venezuela,
Colombia); Has a
toehold in Chile

Source: D'Aveni, R. A. (2004). Corporate Spheres of Influence. MIT Sloan Management Review, 45(4), 38-
46.

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 The Role of inter-organizational relations

Strategic alliances in the global steel

Code sharing within the airline industry
industry

Source: Gnyawali DR, He J, Madhavan R. 2006. Impact of Co-Opetition on Firm Source: Albers/Fischbach (2011)
Competitive Behavior: An Empirical Examination. Journal of Management
32(4): 507-530.

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 MMC and market entry:
The impact of alliance membership

Source: Klein, K., Semrau, T., Albers, S., & Zajac, E. J. 2020. Multimarket coopetition: How the interplay of competition and cooperation affects entry into
shared markets. Long Range Planning 53(1). 101868.

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 What do you think you should take away from this
session?
Take 2 minutes to reflect

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