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Chapter 9: Cooperative Strategy
Chapter 9
Cooperative Strategy
LEARNING OBJECTIVES
1. Define cooperative strategies and explain why firms use them.

2. Define and discuss the three major types of strategic alliances.
3. Name the business-level cooperative strategies and describe their use.
4. Discuss the use of corporate-level cooperative strategies in diversified firms.
5. Understand the importance of cross-border strategic alliances as an international
cooperative strategy.
6. Explain cooperative strategies’ risks.
7. Describe two approaches used to manage cooperative strategies.
CHAPTER OUTLINE
Opening Case: Google, Intel and Tag Heuer: Collaborating to Produce a Smartwatch
STRATEGIC ALLIANCES AS A PRIMARY TYPE OF COOPERATIVE STRATEGY
Types of Major Strategic Alliances
Reasons Firms Develop Strategic Alliances
BUSINESS-LEVEL COOPERATIVE STRATEGY
Complementary Strategic Alliances
Competition Response Strategy
Uncertainty-Reducing Strategy
Competition-Reducing Strategy
Strategic Focus: Strategic Alliances as the Foundation for Tesla Motors’ Operations
Assessing Business-Level Cooperative Strategies
CORPORATE-LEVEL COOPERATIVE STRATEGY
Diversifying Strategic Alliance
Synergistic Strategic Alliance
Franchising
Assessing Corporate-Level Cooperative Strategies
INTERNATIONAL COOPERATIVE STRATEGY
NETWORK COOPERATIVE STRATEGY
Alliance Network Types
COMPETITIVE RISKS WITH COOPERATIVE STRATEGIES
Strategic Focus Failing to Obtain Desired Levels of Success with Cooperative Strategies
MANAGING COOPERATIVE STRATEGIES
© 2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a
publicly accessible website, in whole or in part.
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SUMMARY
KEY TERMS
REVIEW QUESTIONS
MINI-CASE: Alliance Formation, Both Globally and Locally, in the Global Automobile
Industry
ADDITIONAL QUESTIONS AND EXERCISES
MINDTAP RESOURCES
LECTURE NOTES
Chapter Introduction: This chapter provides students with a slightly different

perspective on strategic management. It represents a shift from achieving strategic
competitiveness and above-average returns through competitive strategy to achieving
them through cooperative strategies—i.e., competitive advantage gained by
cooperating with other firms.
OPENING CASE
Google, Intel and Tag Heuer: Collaborating to Produce a Smartwatch
A key reason cooperative strategies are used is that individual firms sometimes identify
opportunities they can’t pursue because they lack the type and/or quantity of resources
needed to do so. Some partnerships are formed between similar firms that desire to
develop scale economies to enhance their competitiveness. For years, automobile
manufacturers have formed large numbers of partnerships for this reason. In other
instances, firms competing in different industries uniquely combine their resources to
pursue what they believe is a value-creating shared objective. This reason describes the
rationale driving the partnership among Google, Intel and TAG Heuer to design and
produce a smartwatch. A number of observers of the partnership viewed it positively,
given their conclusion that TAG Heuer lacked the technology skills to build a
competitive smartwatch while the Silicon Valley firms lacked the design skills to make a
watch successfully.
Teaching Note
The Opening Case profiles the cooperative strategies (strategic alliances) that have
been established by several firms to create a smart watch. Students should realize that
cooperative strategies allow firms to combine resources and capabilities that
contribute to successful performance. More specifically, these are resources and
capabilities that neither partner possesses individually. A good discussion could be
initiated by asking students to identify other examples of firms that utilize cooperative
9-2
strategies and to explain how these cooperative strategies contribute to the success of
both partners.
1 Define cooperative strategies and explain why firms use them.
A cooperative strategy is a strategy in which firms work together to achieve a shared

objective.
Cooperative strategy is the third major alternative (internal growth and mergers and
acquisitions are the other two) firms use to grow, develop value-creating competitive
advantages, and create differences between them and competitors. Thus, cooperating with
other firms is another strategy used to create value for a customer that exceeds the cost of
creating that value and to create a favorable position in the marketplace relative to the five
forces of competition (see Chapters 2 and 4).
A collusive strategy is a cooperative strategy through which two or more firms cooperate to
raise prices above the fully competitive level.
Teaching Note
It should be noted that a more extreme form of collusion exists. Explicit collusion
(which is illegal in the United States and most developed economies, except in
regulated industries) exists when one firm negotiates a production output and pricing
agreement with another firm in an effort to reduce competition. Used more frequently
than explicit collusion, tacit collusion is considered later in the chapter in the
discussion of business-level cooperative strategies.
Teaching Note: It is important to emphasize that strategic alliances can serve a

number of purposes, but they are also difficult to manage.
 Two-thirds of all alliances have serious problems in their first two years, and as
many as 50 percent fail.
 A corporate alliance mind-set (one through which both the strengths and risks of a
firm’s entire set of alliance relationships are recognized and understood by all
involved with alliance formation and use) increases the probability of alliance
success.
STRATEGIC ALLIANCES AS A PRIMARY TYPE OF COOPERATIVE

STRATEGY
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A strategic alliance is a partnership between firms whereby their resources and capabilities
are combined to create a competitive advantage.
Many firms, especially large global competitors, establish multiple strategic alliances. As
described in the Opening Case, IBM has formed alliances with Sun Microsystems, SAP,
Lenovo, and Cisco, among others. The goal with each cooperative relationship is different
and very specific.
In general, strategic alliance success requires cooperative behavior from all partners.
Actively solving problems, being trustworthy, and consistently pursuing ways to combine
partners’ resources and capabilities to create value are examples of cooperative behavior
known to contribute to alliance success.
2 Define and discuss the three major types of strategic alliances.
Three Types of Strategic Alliances
Three types of strategic alliances: joint ventures, equity strategic alliances, and non-equity
strategic alliances.
A joint venture is an alliance where a new, independent firm is formed from two or more
partners, with each partner firm contributing some of their resources and capabilities.
Joint ventures are effective in establishing long-term relationships and in transferring tacit
knowledge. Because it can’t be codified, tacit knowledge is learned through experiences such
as those taking place when people from partner firms work together in a joint venture.
An equity strategic alliance is an alliance where partner firms own unequal shares of equity
in a venture formed by combining some of their resources and capabilities to create a
competitive advantage. For example, Citigroup Inc. has formed a strategic alliance with
Shanghai Pudong Development Bank Co. through an equity investment totaling 25 percent.
This equity strategic alliance served as a launching pad for Citigroup to enter the credit card
business in China.
A nonequity strategic alliance is an alliance where two or more firms contract to share some
of their resources and capabilities to create a competitive advantage. This type of strategic
alliance:
 Does not establish a separate independent company and therefore firms don’t take equity
positions.
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 Is less formal and demands fewer partner commitments.

 Is unsuitable for complex projects requiring effective transfers of tacit knowledge between
partners.
Typically taking the form of a non-equity strategic alliance, outsourcing is the purchase of a
value-creating primary or support activity from another firm.
Other types of non-equity strategic alliances include licensing, distribution agreements,
supply contracts, and marketing agreements (such as code-sharing agreements among
airlines).
Reasons Firms Develop Strategic Alliances
Technology companies cannot possibly acquire the technology they need fast enough, so
partnering becomes essential. Some believe strategic alliances may be the most powerful
trend in American business in a century.
Among other benefits, strategic alliances allow partners to create value that they couldn’t
develop by acting independently and to enter markets more quickly than they could without a
partner.
In large firms, alliances account for more than 20 percent of revenue and are a prime vehicle
for firm growth.
In some industries (e.g., airlines), firms compete more alliance against alliance than firm
against firm.
Firms form strategic alliances to reduce competition, enhance their competitive capabilities,
gain access to resources, take advantage of opportunities, and build strategic flexibility. To
do so means that they must select the right partners and develop trust.
FIGURE 9.1
Reasons for Strategic Alliances by Market Type
Figure 9.1 presents reasons for strategic alliances for firms operating in slow-cycle, fast-
cycle, and standard-cycle markets.
Slow-Cycle:
 Gain access to a restricted market
 Establish a franchise in a new market
 Maintain market stability
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Fast-Cycle:
 Speed up development of new goods or services
 Speed up new market entry
 Maintain market leadership
 Form an industry technology standard
 Share risky R&D expenses
 Overcome uncertainty
Standard-Cycle:
 Gain market power
 Gain access to complementary resources
 Establish better economies of scale
 Overcome trade barriers
 Meet competitive challenges from other competitors
 Pool resources for very large capital projects
 Learn new business techniques
Slow-Cycle Markets
Firms in slow-cycle markets often use strategic alliances to enter restricted markets or to
establish franchises in new markets (especially global markets).
Slow-cycle markets are becoming rare in the 21st century competitive landscape for several
reasons, including the privatization of industries and economies, the rapid expansion of the
Internet’s capabilities in terms of the quick dissemination of information, and the speed with
which advancing technologies make quickly imitating even complex products possible.
Firms competing in slow-cycle markets should recognize the future likelihood that they’ll
encounter situations in which their competitive advantages become partially sustainable (in
the instance of a standard-cycle market) or unsustainable (in the case of a fast-cycle market).
Cooperative strategies can be helpful to firms making the transition from relatively sheltered
markets to more competitive ones.
Fast-Cycle Markets
Fast-cycle markets are entrepreneurial and dynamic, with new products or services imitated
rapidly. Cooperative strategies are used to increase the speed of product development or
market entry or to improve strategic competitiveness.
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Standard-Cycle Markets
In standard-cycle markets (which are often large and oriented toward economies of scale),
alliances are more likely to be between partners with complementary resources and
capabilities. Companies also may cooperate in standard-cycle markets to gain market power.
Name the business-level cooperative strategies and describe their

3
use.
BUSINESS-LEVEL COOPERATIVE STRATEGY
A business-level cooperative strategy is used to help the firm improve its performance in
individual product markets. There are four business-level cooperative strategies (see Figure
9.2).
A firm forms a business-level cooperative strategy when it believes combining its resources
and capabilities with one or more partners creates competitive advantages that it can’t create
by itself and that will lead to success in a specific product market.
Complementary Strategic Alliances
Complementary strategic alliances are partnerships that are designed to take advantage of
market opportunities by combining partner firms’ resources and capabilities in
complementary ways so that new value is created.
Vertical Complementary Strategic Alliance
A vertical complementary strategic alliance is formed between firms that agree to use their
resources and capabilities in different stages of the value chain to create value. Oftentimes,
vertical complementary alliances are formed in reaction to environmental changes, thus they
serve as a means of adaptation to the environmental changes.
A critical issue for firms is how much technological knowledge they should share with their
partner. They need the partners to have adequate knowledge to perform the task effectively
and to be complementary to their capabilities. Part of this decision depends on the trust and
social capital developed between the partners.
Figure Note
Figure 9.2 outlines options for business-level cooperative strategies.
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FIGURE 9.2
Business-Level Cooperative Strategies
The four general business level cooperative strategies are:

 Complementary strategic alliances (vertical and horizontal)
 Competition response strategy
 Uncertainty-reducing strategy
 Competition-reducing strategy
Figure Note
Two types of complementary strategic alliances—vertical and horizontal partnership
agreements—are illustrated in Figure 9.2.
FIGURE 9.3
Vertical and Horizontal Complementary Strategic Alliances
A vertical complementary strategic alliance links suppliers, manufacturers, and/or

distributors and represents linkages between different segments of each partner’s value chain.
A horizontal complementary strategic alliance is an arrangement that links similar segments

of competing firms’ value chains, such as linking R&D or new product development
activities.
Horizontal Complementary Strategic Alliance
Horizontal complementary strategic alliances are partnerships that link similar activities of
firms. Horizontal complementary alliances are used to increase each firm’s competitive
advantage and often focus on the long-term development of product and service technology.
Importantly, horizontal alliances may require equal investments of resources by the

partners but they rarely provide equal benefits to the partners. There are several potential
reasons for the imbalance in benefits.
 Frequently, the partners have different opportunities as a result of the alliance.
 Partners may learn at different rates and have different capabilities to leverage the
complementary resources provided in the alliance.
 Some firms are more effective in managing alliances and in deriving the benefits from
them.
 The partners may have different reputations in the market thus differentiating the types of
actions firms can legitimately take in the marketplace.
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Competition Response Strategy
Cooperative strategic alliances also may be established to enable partner firms to respond to
major strategic actions initiated by competitors. Because they can be difficult to reverse and
expensive to operate, strategic alliances are primarily formed to respond to strategic rather
than tactical actions.
Uncertainty-Reducing Strategy
Firms also may form strategic alliances to hedge against risk and uncertainty (especially in
fast-cycle markets).
Alliances are often used where uncertainty exists, such as in entering new product markets or
emerging economies. For example, Dutch bank ABN AMRO signed on to a venture called
ShoreCap International, which will invest capital in and advise local financial institutions
that do small and microbusiness lending in developing countries. Through this cooperative
strategy with other financial institutions, ShoreBank (the venture’s leading sponsor) hopes to
be able to reduce the risk of providing credit to smaller borrowers in disadvantaged regions.
It also hopes to reduce poverty in the regions where it invests.
In other cases, firms form alliances to reduce the uncertainty associated with developing new
product or technology standards. For example, the alliance between France Telecom and
Microsoft is a competition response alliance for France Telecom but it is an uncertainty
reducing alliance for Microsoft. Microsoft is using the alliance to learn more about the
telecom industry and business. It wants to learn how it can develop software to satisfy needs
in this industry. By partnering with a firm in this industry, it is reducing its uncertainty about
the market and software needs. And the alliance is clearly designed to develop new products
so the alliance reduces the uncertainty for both firms by combining their knowledge and
capabilities.
Competition-Reducing Strategy
Explicit collusion exists when firms get together to negotiate production output and pricing
agreements with the goal of reducing competition. Explicit collusion strategies are illegal in
the United States and most developed economies (except in regulated industries).
Teaching Note: Some firms may adopt explicit alliances to reduce competition that is
perceived as potentially destructive or excessive. Examples include the following:
 OPEC, which manages the price and output of oil companies in member countries
9-9
 Manufacturing and distribution cartels in Japan

 Industry trade organizations
 Government-industry relationships
 Direct collusion or price-fixing agreements among participants in an industry or
between industry participants and government agencies
There are implicit cooperative alliances, such as tacit collusion, which exist when several
firms in an industry observe others’ competitive actions and respond to reduce industry
output below the potential competitive level to maintain higher-than-competitive prices.
Another form of tacit collusion is mutual forbearance, by which firms avoid competitive
attacks against rivals they meet in multiple markets. Rivals learn a great deal about each
other when engaging in multimarket competition, including how to deter the effects of their
rival’s competitive attacks and responses. Given what they know about each other as a
competitor, firms choose not to engage in what could be destructive competitions in multiple
product markets.
Tacit collusion tends to be used as a business-level competition-reducing strategy in highly

concentrated industries.
At a broad level in free-market economies, governments must determine how rivals can
collaborate to increase their competitiveness without violating established regulations.
Assessing Business-Level Cooperative Strategies
Firms use business-level strategies to develop competitive advantages that can contribute to
successful positioning and performance in individual product markets. To develop a
competitive advantage using an alliance, the particular set of resources and capabilities that
are combined and shared in a particular manner through the alliance must be valuable, rare,
imperfectly imitable, and nonsubstitutable.
Complementary business-level strategic alliances (especially vertical ones) are the most
likely to create sustainable competitive advantage. Horizontal complementary alliances are
sometimes difficult to maintain because they are often formed between rival firms.
Although strategic alliances designed to respond to competition and to reduce uncertainty can
also create competitive advantages, these advantages tend to be more temporary than those
developed through complementary (vertical and horizontal) strategic alliances. The primary
reason is that complementary alliances have a stronger focus on the creation of value
compared to competition-reducing and uncertainty-reducing alliances, which are far more
reactive.
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Of the four business-level cooperative strategies, the competition-reducing strategy has the
lowest probability of creating a sustainable competitive advantage. This suggests that
companies using such competition-reducing business-level strategic alliances should
carefully monitor them as to the degree to which they are facilitating the firm’s efforts to
develop and successfully create competitive advantages.
Discuss the use of corporate-level cooperative strategies

4
in diversified firms.
CORPORATE-LEVEL COOPERATIVE STRATEGY
Corporate-level cooperative strategies are designed to facilitate product and market

diversification (discussed in Chapter 6) through a means other than a merger or an
acquisition. When a firm seeks to diversify into markets in which the host nation’s
government prevents mergers and acquisitions, alliances become an especially appropriate
option. Corporate-level strategic alliances are also attractive compared to mergers and
particularly acquisitions, because they require fewer resource commitments and permit
greater flexibility in terms of efforts to diversify partners’ operations. An alliance can be used
as a way to determine if the partners might benefit from a future merger or acquisition
between them.
Figure Note
Figure 9.4 shows the most common corporate-level cooperative strategies.
FIGURE 9.4
Corporate-Level Cooperative Strategies
The three corporate level strategies are:

 Diversifying strategic alliances
 Synergistic strategic alliances
 Franchising
Diversifying Strategic Alliance
A diversifying strategic alliance is a corporate-level cooperative strategy in which firms

share some of their resources and capabilities to diversify into new product or market areas.
Teaching Note: Note that a diversification alliance enables firms that do not want to
grow by merger or acquisition to achieve growth by forming strategic alliances.
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Exiting a strategic alliance is less difficult and less costly compared to divesting an
acquisition that did not contribute expected levels of strategic success. In addition,
some governments restrict acquisitions (especially horizontal ones) when regulators
conclude that horizontal acquisitions foster explicit collusion.
Teaching Note: Firms might form a diversifying alliance to determine if a future

merger would benefit both parties—e.g., the formation of technology partnerships
between GM and Toyota that may lead to broader linkups between the automakers.
Highly diverse networks of alliances can lead to poorer performance by partner firms.
However, cooperative ventures are also used to reduce diversification in firms that have
overdiversified. For example, Fujitsu, realizing that memory chips were becoming a financial
burden, dumped its flash-memory business into a joint venture company controlled by
Advanced Micro Devices. This alliance helped Fujitsu refocus on its core businesses.
STRATEGIC FOCUS
Strategic Alliances as the Foundation for Tesla Motors’ Operations Founded in 2003,
Tesla Motors, the manufacturer of electric vehicles, has formed many alliances as a means of
competing during the early years of its life. For example, the company created an R&D
partnership with Dana Holding Corporation initially for the purpose of jointly designing and
producing a system capable of controlling the build-up of heat in its car batteries. Overall,
Tesla has partnered with many companies working in the value chain that is used to produce
its products. Interestingly, its ongoing work with batteries and recent hints from founder and
CEO Elon Musk suggest that Tesla may at its core become a battery company rather than an
automobile manufacturer. The firm’s decision to build and operate a 10-million-square-foot
facility (dubbed the Gigafactory) to build batteries seems to reflect Tesla’s capacity to build
an array of batteries with different functionalities. In early 2015, Apple announced an
internal project that was aimed at developing an Apple-branded electric vehicle. Other recent
speculation regarding Tesla and Apple centered on the possibility of Apple acquiring Tesla,
at a rumored cost of roughly $75 billion. In contrast, some analysts were suggesting that
“some sort of joint venture or collaboration remains the smartest get for both companies.”
Teaching Note
The Strategic Focus gives insight into Tesla’s use of alliances as a form of corporate
strategy to, expand market reach, and develop technology that will result in lower vehicle
and battery costs. Rather than trying to develop everything it needs in-house, Tesla has
sought partners with complementary resources to achieve results. Students should realize
that Tesla is a fast-growing company and yet it lacks some of the resources necessary to
position itself for future growth. Forming alliances with companies that have the
necessary resources should result in benefits for all of the partners.
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Synergistic Strategic Alliance
Synergistic strategic alliances allow firms to combine some of their resources and
capabilities to create joint economies of scope between partner firms. These alliances:
 Are similar to business-level horizontal complementary strategic alliances at the business
level
 Create synergy across multiple functions or multiple businesses
SBC Communications and EchoStar Communications were synergistically diversified by the

arrangement to offer satellite TV billing services through SBC’s system. Thus, a synergistic
strategic alliance is different from a complementary business-level alliance in that it
diversifies both firms into a new business, but in a synergistic way.
Teaching Note
Through technology-oriented synergistic alliances, Toyota is attempting to gain
access to technologies that it has had difficulty developing on its own. Avoiding
equity alliances, the carmaker elected to link up with GM to develop electric, hybrid,
and fuel cell vehicles. The firm has also joined Volkswagen for intelligent
transportation systems, recycling, and marketing. In addition, it has a tie-in with
Panasonic EV Energy for batteries.
Franchising
Franchising is a corporate-level cooperative strategy used by a franchisor to describe and

control the sharing of its resources and capabilities. In other words, a franchise refers to a
contract between two legally independent companies that allows the franchisee to sell the
franchisor’s product or do business under its trademarks over a given time and location.
Franchising is a popular strategy. In fact, the companies using it account for one-third of
annual US retail sales while competing in over 75 industries. Already frequently used in
developed nations, franchising is expected to account for significant portions of growth in
emerging economies in the 21st century.
The most successful franchising strategy is one in which the partners (i.e., franchisor,
franchisees) work closely together. The franchisor is to develop programs to transfer
knowledge and skills to the franchisees that are needed to successfully compete at the local
level, and franchisees should provide feedback to the franchisor regarding how their units
could become more effective and efficient.
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Franchising is a particularly attractive strategy to use in fragmented industries where no firm

or small set of firms has a dominant share in the industry, making it possible for a company
to gain a large market share by consolidating independent companies through contractual
relationships.
Assessing Corporate-Level Cooperative Strategies
Compared to those at the business-level, corporate-level cooperative strategies are usually

broader in scope and more complex, making them relatively more costly.
Firms able to develop corporate-level cooperative strategies and manage them in ways that
are valuable, rare, imperfectly imitable, and nonsubstitutable (see Chapter 3) develop a
competitive advantage that is added to advantages gained through the activities of individual
cooperative strategies.
Teaching Note
Corporate-level strategic decisions, such as pursuing cooperative strategies and
diversification, may be the result of managerial motives instead of the appropriate
desire to achieve strategic competitiveness and earn above-average returns for a
company. Firms need corporate governance mechanisms to ensure managers do not
use alliance strategies inappropriately. For example, without governance, top-level
managers can use alliances to:
 Increase the size of the business for the purpose of increasing his/her own
compensation
 Increase his/her worth or value to—or extend his/her tenure with—the firm by
being the only top-level manager who understands the intricacies of a network of
alliance partners
Note
Managers may use the intricacy of alliance networks to enrich their own position in
the firm since alliances can be built on an upper-level manager’s personal contacts,
which may be lost if that person leaves the company, thus making dismissal difficult.
Understand the importance of cross-border strategic alliances

5
as an international cooperative strategy.
INTERNATIONAL COOPERATIVE STRATEGY
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A cross-border strategic alliance is an international cooperative strategy in which firms with

headquarters in different nations combine some of their resources and capabilities to create a
competitive advantage.
There are several reasons for the increasing use of cross-border strategic alliances:
 Multinational corporations outperform firms operating on only a domestic basis.
 A firm can form cross-border strategic alliances to leverage core competencies that are the
foundation of its domestic success to expand into international markets.
 Limited domestic growth opportunities also cause firms to use cross-border alliances.
 Government economic policies can influence firms to form cross-border alliances.
 Strategic alliances with local partners can help firms overcome certain liabilities of
moving into a foreign country, such as lack of knowledge of the local culture or
institutional norms.
 Firms also use cross-border alliances to help transform themselves to better use their
competitive advantages to exploit opportunities surfacing in the rapidly changing global
economy.
In general, cross-border alliances are more complex and risky than domestic strategic
alliances.
NETWORK COOPERATIVE STRATEGY
Rather than cooperative alliances between two or very few firms, alliances can also be
expanded to include a larger number (or network) of partners as a complement to other forms
of cooperative strategy. This is a network cooperative strategy.
A network cooperative strategy is particularly effective when it is formed by geographically

clustered firms, as in California’s Silicon Valley and Singapore’s Silicon Island. Effective
social relationships and interactions among partners while sharing their resources and
capabilities make it more likely that a network cooperative strategy will be successful, as
does having a productive strategic center firm. Firms involved in networks of alliances tend
to be more innovative than firms that are not involved in these networks.
However, disadvantages to participating in networks include:

 becoming locked into partnerships that preclude the development of alliances with others;
 firms in a network are expected to help other network firms whenever support is required.
Teaching Note
The strategic approach of networks is discussed in this chapter whereas the structural
characteristics of network organizations are covered in Chapter 11.
9-15
Alliance Network Types
An important advantage of a network cooperative strategy is that firms gain access to the
partners of their partners.
The set of partnerships, such as strategic alliances, that result from the use of a network
cooperative strategy is commonly called an alliance network.
Stable alliance networks often appear in mature industries with predictable market cycles
and demand. Through a stable alliance network, firms try to extend their competitive
advantages to other settings while continuing to profit from operations in their core,
relatively mature industry.
Teaching Note: An example of a US firm’s stable network is Nike’s long-established

relationships between the firm and its global network of suppliers and distributors.
Dynamic alliance networks often are used in industries with frequent technological
innovation and short product life cycles. Thus, dynamic alliance networks are primarily used
to stimulate rapid, value-creating product innovations and subsequent successful market
entries.
6 Explain cooperative strategies’ risks.
COMPETITIVE RISKS WITH COOPERATIVE STRATEGIES
Many cooperative strategies fail. Evidence suggests that two-thirds of cooperative strategies
have serious problems in their first two years and that as many as 70 percent of them
eventually fail. This failure rate suggests that even when the partnership has potential
synergies, alliance success can be elusive.
The risks associated with cooperative strategies are significant because the firms that are
cooperating may also be competing with each other. These risks include:
 Poor contract development that may result in one (or more) of the partners acting
opportunistically and taking advantage of other venture partners
 Misrepresentation of partner firms’ competencies by misstating or exaggerating an
intangible resource such as knowledge of local market conditions
 Failure of partner firms to make complementary resources available to the venture as
agreed
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 The possibility that a firm may make investments that are specific to that alliance while its
partner does not
Figure Note: Competitive risks of cooperative strategies, as well as risk management

approaches, are summarized in Figure 9.5.
FIGURE 9.5
Managing Competitive Risks in Cooperative Strategies
As Figure 9.5 indicates, the competitive risks of cooperative strategies are:

 Inadequate contracts
 Misrepresentation of competencies
 Partners failing to use complementary resources
 Holding alliance partners’ specific investments hostage
And can be managed by:

 Detailed contracts and monitoring
 Developing trusting relationships to ensure that the strategy creates value.
Strategic Focus
Failing to Obtain Desired Levels of Success with Cooperative Strategies
The complexity associated with most cooperative strategies increases the difficulty of
successfully using them. One complexity is the fact that often, firms collaborating to
complete certain projects are simultaneously competing with each other as well. This
describes the relationship between Cisco and IBM, as well as those existing with airline
companies that have joined one of the three major alliance networks (Star, Oneworld, and
SkyTeam). Another complication is that firms sometimes form a partnership with a
company that is itself a collaboration between other companies. Carefully executing the
operational details of a planned cooperative strategy is foundational to its performance and
influences if it will succeed or fail.
Teaching Note
The Strategic Focus discusses the challenges of implementing a successful cooperative
strategy. Ask students to identify some recent successful and unsuccessful strategies of
which they are aware. Ask students to do a little research on those companies, and
discover what factors contributed to success or failure.
9-17
7 Describe two approaches used to manage cooperative strategies.
MANAGING COOPERATIVE STRATEGIES
Cooperative strategies are an important option for firms competing in the global economy;
however, they are complex and challenging to manage.
The two basic approaches to managing cooperative strategies are:

 Cost minimization
 Opportunity maximization
In the cost-minimization approach, the firm develops formal contracts with its partners.
These contracts specify how the cooperative strategy is to be monitored and how partner
behavior is controlled. The goal of this approach is to minimize the cooperative strategy’s
cost and to prevent opportunistic behavior by partners.
The opportunity-maximization approach focuses on a partnership’s value-creation

opportunities. In this case, partners are prepared to take advantage of unexpected
opportunities to learn from each other and to explore additional marketplace possibilities.
Less formal contracts, with fewer constraints on partners’ behaviors, make it possible for
partners to explore how their resources and capabilities can be shared in multiple value-
creating ways.
Firms can successfully use both approaches to manage cooperative strategies. However, the
costs to monitor the cooperative strategy are greater with cost minimization, in that writing
detailed contracts and using extensive monitoring mechanisms is expensive, even though the
approach is intended to reduce alliance costs.
As a strategic asset, trust can enable partner firms to reduce the cost of contracting and
monitoring because the probability of opportunistic behavior is reduced if partners are able to
trust each other. Trust also may enable the venture to take advantage of unforeseen
opportunities.
Because trust enables partner firms to reduce venture-related contracting and monitoring
costs and increase venture flexibility, a venture between trusted partners is more likely both
to reduce costs and add/create value.
ANSWERS TO REVIEW QUESTIONS

9-18
1. What is the definition of cooperative strategy, and why is this strategy

important to firms competing in the twenty-first century competitive
landscape?
A cooperative strategy is a strategy in which firms work together to achieve a

shared objective. Cooperative strategy is the third major alternative (internal
growth and mergers and acquisitions are the other two) firms use to grow, develop
value-creating competitive advantages, and create differences between them and
competitors. Thus, cooperating with other firms is another strategy that is used to
create value for a customer that exceeds the cost of creating that value and to
create a favorable position in the marketplace. The increasing importance of
cooperative strategies as a growth engine shouldn’t be underestimated. This
means that effective competition in the 21st century landscape results when the
firm learns how to cooperate with, as well as compete against, competitors.
2. What is a strategic alliance? What are the three major types of strategic
alliances firms form for the purpose of developing a competitive advantage?
A strategic alliance is a partnership between firms whereby each firm’s resources

and capabilities are combined to create a competitive advantage.
The three types of explicit cooperative strategies mentioned are (1) joint ventures,
(2) equity strategic alliances, and (3) non-equity strategic alliances. However,
tacit collusion and mutual forbearance (the latter being a form of tacit collusion)
are also included as implicit cooperative arrangements.
A joint venture is an alliance where a new, independent firm is formed by two or

more partners who share some of their resources and capabilities to develop a
competitive advantage.
An equity strategic alliance is an alliance where partner firms share resources and
capabilities, but own unequal shares of equity in a new venture. Many foreign
direct investments are completed through equity strategic alliances, such as those
involving Japanese or US companies operating in China.
A non-equity strategic alliance is an alliance where a contract is granted to a

company to supply, produce, or distribute a firm’s products or services. No equity
sharing is involved. Other types of cooperative contractual arrangements concern
marketing and information sharing. Because they do not involve the forming of
9-19
separate ventures or equity investments, non-equity strategic alliances are less

formal and demand fewer commitments from partners as compared to both joint
ventures and equity strategic alliances. However, the attributes of non-equity
alliances make them unsuitable for complex projects where success is influenced
by effective transfer of tacit knowledge between partners.
3. What are the four business-level cooperative strategies? What are the key
differences among them?
Complementary strategic alliances are partnerships that are designed to take

advantage of market opportunities by combining partner firms’ assets in
complementary ways so that new value is created. These are classified as either
vertical or horizontal complementary strategic alliances.
Vertical complementary strategic alliances are formed between firms that agree to
use their skills and capabilities in different stages of the value chain to create
value.
Horizontal complementary strategic alliances represent partnerships that link

similar activities of rival firms. Horizontal complementary alliances often are
used to increase each firm’s strategic competitiveness, focusing on the long-term
development of product and service technology and distribution opportunities.
Competition response strategies are cooperative strategic alliances that are

established to enable partner firms to respond to major strategic actions (but
typically not tactical actions) initiated by competitors or to enable firms to more
effectively compete in emerging markets.
Uncertainty-reducing strategies represent cooperative alliances used as strategic

options to hedge against risk and uncertainty. Thus, the rapidly changing 21st
century competitive landscape may create uncertain outcomes for firms as their
rivals form and use cooperative strategies to reduce their own risks. For example,
firms form alliances to reduce the uncertainty associated with developing new
product or technology standards. However, in terms of competitive dynamics, one
firm’s alliances can create risks and uncertainty for its competitors.
Competition-reducing strategies are cooperative strategies adopted by some firms

to reduce competition that they perceive as potentially destructive or excessive.
Examples of competition-reducing strategies include explicit collusion and tacit
collusion (or mutual forbearance). Alliances formed to reduce competition are
9-20
likely to result in inefficiencies in both manufacturing and service industries and

these often lead to below-average firm performance in international markets.
Tacit collusion exists when several firms in an industry cooperate tacitly to reduce
industry output below the potential competitive level, thereby increasing prices
above the competitive level. Most strategic alliances, however, exist not to reduce
industry output but to increase learning, facilitate growth, or increase returns and
strategic competitiveness. Cooperative agreements may also be explicitly
collusive, but this is illegal in the United States unless regulated by the
government (for example, the telecommunications industries prior to
deregulation). Mutual forbearance is tacit recognition of interdependence, but it
has the same effect as explicit collusion in that it reduces output and increases
prices.
4. What are the three corporate-level cooperative strategies? How do firms use
each of these strategies for the purpose of creating a competitive advantage?
Strategic alliances used to facilitate product or market diversification are called

corporate-level cooperative strategies. Three types of strategic alliances are used
at the corporate level to facilitate cooperation among diversified companies. As
shown in Figure 9.3, the corporate-level strategic alliances are called diversifying
alliances, synergistic alliances, and franchising. However, it is instructive to note
that managing a large number of strategic alliances is difficult. Therefore, if
relatively few firms are able to do it well, alliance management in itself may
represent a source of competitive advantage. Nonetheless, though alliance
networks may enable firms to achieve industry leadership, they also involve risks
and their management is a complex and potentially costly challenge.
Diversifying strategic alliances allow a company to expand into new product or

market areas without completing a merger or an acquisition. A corporate-level
strategic alliance is a viable strategic option for a firm that wants to grow but
chooses not to merge with or acquire another company to do so. Such corporate-
level alliances provide some of the potential synergistic benefits of a merger or
acquisition, but with less risk and greater levels of flexibility. These benefits
accrue to a firm because exiting a strategic alliance is less difficult and costly as
compared to divesting an acquisition that did not contribute as expected to
strategic success.
Synergistic strategic alliances allow firms to share resources and capabilities to

create joint economies of scope. Similar to the horizontal complementary strategic
9-21
alliance that is used at the business level, synergistic strategic alliances create
synergy across multiple functions or multiple businesses controlled by partner
firms. Two firms might, for example, create joint research and manufacturing
facilities that they both use to their advantage and thus attain economies of scope
without a merger.
Franchising is a cooperative strategy a firm uses to spread risk and to use

resources and capabilities productively, but without merging with or acquiring
another company. As a cooperative strategy, franchising is based on a contractual
relationship concerning a franchise that is developed between two parties—the
franchisee and the franchisor. Thus, franchising is an alternative to diversification.
Defined formally, a franchise is a contractual arrangement between two
independent companies whereby the franchisor grants the right to the franchisee
to sell the franchisor’s product or do business under its trademarks over a given
territory and time period. The foundation for this cooperative strategy’s success is
the ability to gain economies of scale by forming multiple units while deriving
operational efficiencies from the work of individual units competing in specific
local markets. Franchising permits relatively strong centralized control and
facilitates knowledge transfer without significant capital investment. Brand name
is thought to be the most effective competitive advantage for a franchise since this
can signal both tangible and intangible consumer benefits. Franchising reduces
financial risk because franchisors often invest some of their own capital in the
local venture, and this capital investment motivates franchisors to perform well by
emphasizing quality, standards, and a brand name that are associated with the
franchisee’s original business. Because of these potential benefits, franchising
may provide growth with less risk than diversification.
5. Why do firms use cross-border strategic alliances?
The first reason firms decide to use cross-border strategic alliances is that
multinational corporations usually outperform firms operating in domestic-only
markets. In the context of cooperative strategies, this general evidence suggests that a
firm can form cross-border strategic alliances to leverage core competencies that are
the foundation of its domestic success to expand into international markets.
Second, cross-border alliances can be used when opportunities to grow through either
acquisitions or alliances are limited within a firm’s home nation.
The third reason firms choose to form cross-border alliances revolves around
government policies. Some countries regard local ownership as an important national
9-22
policy objective, so investment by foreign firms may be allowed only through

cooperative agreements such as cross-border alliances. This is often true in newly
industrialized and developing countries with emerging markets. Cooperative
arrangements can be helpful to foreign partners because the local partner can provide
information about local markets, capital sources, and management skills.
The fourth primary reason cross-border alliances are used is to help a firm transform
itself in light of rapidly changing environmental conditions.
In general, cross-border alliances are complex and more risky than domestic strategic
alliances. However, the fact that firms competing internationally tend to outperform
domestic-only competitors suggests the importance of learning how to diversify into
international markets. Compared to mergers and acquisitions, cross-border alliances
may be a better way to learn this process, especially in the early stages of the firms’
geographic diversification efforts.
6. What risks are firms likely to experience as they use cooperative strategies?
Because firms that are cooperating may also be competing with each other, four
significant risks accompany cooperative strategies. As summarized in Figure 9.4,
the primary competitive risks associated with cooperative strategies are:
(1) poor contract development that may result in one (or more) of the partners acting
opportunistically and taking advantage of other venture partners;
(2) misrepresentation of a partner firm’s competencies by misstating or exaggerating
an intangible resource such as knowledge of local market conditions;
(3) failure of partner firm(s) to make complementary resources available to the
venture; and
(4) being held hostage through specific investments (whose value is associated only
with the venture or the local partner), especially if laws in a country do not protect
investments in the case of nationalization.
7. What are the differences between the cost-minimization approach and the
opportunity-maximization approach to managing cooperative strategies?
Two primary approaches are used to manage cooperative strategies. In one

instance, the firm develops formal contracts with its partners. These contracts
specify how the cooperative strategy is to be monitored and partner behavior
controlled. The goal is to minimize the cost of an alliance and to prevent
opportunistic behavior by a partner, thus the use of the term cost-minimization.
9-23
The focus of the second managerial approach is on maximizing value-creation

opportunities as the partners participate in the alliance. In this case, partners are
prepared to take advantage of unexpected opportunities to learn from each other
and to explore additional marketplace possibilities. Trust-based relationships and
complementary assets must exist between partners for this approach to be used
successfully. When trust exists, there is less need to write detailed formal
contracts to specify each firm’s alliance behaviors, and the cooperative
relationship tends to be more stable. Research showing that trust between partners
increases the likelihood of alliance success seems to highlight the benefits of the
opportunity maximization approach to managing cooperative strategies.
MINI-CASE
Alliance Formation, Both Globally and Locally, in the Global Automotive Industry
A common rationale for alliances is that firms seek out complementary resources from an
alliance partner. The Mini-Case notes that a new rationale for alliances has emerged in the
literature – that firms are often co-located in the same country, and often in the same region
of the country, so that it is easier for them to collaborate locally (even though they may
compete globally). Examples provided in the Mini-Case include the alliances in the auto
industry between Peugeot-Citroen and Opel-Vauxhall; Ford and General Motors; Renault
and Nissan; and Fiat-Chrysler, Mazda, and Suzuki. As the Mini-Case shows, there are a
number of rationales for why competitors form alliances and joint ventures in order to meet
strategic needs for increased market power, take advantage of complementary assets, and
cooperate with close neighbors, often in the same locale.
Teaching Note: The Mini-Case profiles the cooperative strategies (strategic alliances) that
have been established by several automobile manufacturers. Students should realize that
cooperative strategies allow firms to combine resources and capabilities that contribute to
successful performance. More specifically, these are resources and capabilities that neither
partner possesses individually. A good discussion could be initiated by asking students to
identify other examples of firms that utilize cooperative strategies and to explain how these
cooperative strategies contribute to the success of both partners.
1. How can the resource-based view of the firm (see Chapters 1 and 3) help us
understand why firms develop and use cooperative strategies such as strategic
alliances and joint ventures?
The resource-based view of the firm helps us by having us realize the restraints that
businesses have for raw materials, capabilities, and for human assets (talent). Having
an edge on any of the resources typically translates into a significant competitive
9-24
advantage. But, when one firm has a resource that another needs, and vice versa,
strategic alliances form so that both terms are better off.
2. What is the relationship between the core competencies a firm possesses, the core
competencies the firm feels it needs, and decisions to form cooperative strategies?
The relationship between the core competencies a firm possesses, needs, and
decisions to form cooperative strategies are all linked. If a firm has a competency it
needs, there is no need for a cooperative strategy. If a firm does not have a
competency that it needs, a cooperative strategy will be formed. Also, if there is a
competency that a firm has that it does not need, it will form a cooperative strategy to
aid other firms in competency’s and form alliances.
3. What does it mean to say that the partners of an alliance have “complementary
assets?” What complementary assets to Renault and Nissan share?
Complementary assets are when firms share assets that can be used and aid both firm
create a greater competitive advantage if used in tandem. The complementary assets
to Renault and Nissan are knowledge based. Renault is very strong in Europe, and
Nissan is very strong in Asia. Together, they aided their efforts in these different
geographical and cultural markets to become more successful.
4. What are the risks associated with the corporate-level strategic alliance between
Renault and Nissan? What have these firms done to mitigate these risks?
The risk that is associated with the corporative-level strategic alliances between
Renault and Nissan is the trust factor. Both companies will hold industry secrets and
completive factors of the others that may leave the company exposed if decided to be
used maliciously. Nissan and Renault deterred some of these issues with three values;
trust, respect, and transparency. Because of these values, the alliance was deemed a
success.
5. Is it possible that some of the firms mentioned in this Mini-Case (e.g., Renault,
Nissan, Mazda, Peugot-Citroen, Opel—Vauxhall) might form a network cooperative
strategy? If so, what conditions might influence a decision by these firms to form this
particular type of strategy?
It is possible that some of the firms will form a network cooperative strategy. The
conditions needed will be transparency in the organizations and in communication so
that the other firms will be able to know how to aid their ally. The influencers of these
9-25
decisions will be the amount of trust and respect each firm has for the other. This
sharing of knowledge can quickly lead to companies loosing competitive advantages,
it will take a substantial amount of trust for alliances to be significantly helpful for
each company.
ADDITIONAL QUESTIONS AND EXERCISES
The following questions and exercises can be presented for in-class discussion or assigned as
homework.
Application Discussion Questions
1. Ask students to visit the website for Financial Times (http://www.ft.com). Find three or
four articles that discuss different firms’ uses of cooperative strategies. What types of
cooperative strategies are revealed in each article? What objective is each firm pursuing
as it uses a particular cooperative strategy?
2. Ask students to use the Internet to find two articles describing firms’ use of a cooperative
strategy: one where trust is being used as a strategic asset and another where contracts
and monitoring are being emphasized. What are the differences between the managerial
approaches being used in the two companies? Which of the cooperative strategies has the
highest probability of being successful? Why?
3. Each student should choose a Fortune 500 firm that has a significant need to outsource a
primary or support activity (such as information technology). Given the activity the firm
can outsource, should the firm form a non-equity strategic alliance to outsource the focal
activity?
4. Ask students to use the Internet to determine whether DaimlerChrysler has formed
strategic alliances to build its small cars. If these alliances have been formed, what factors
caused this decision to be made? If alliances have not been formed for this purpose, why
not?
5. Ask students to use the Internet to visit the websites of Deutsche Telekom AG, Sprint,
and France Telecom SA. What is the role each firm has in the Global One Alliance they
have all joined?
Ethics Questions
1. From an ethical perspective, how much information is a firm obliged to tell a potential
strategic alliance partner about what it expects to learn from the cooperative
arrangement?
9-26
2. “A contract is necessary because most firms cannot be trusted to act ethically in a

cooperative venture such as a strategic alliance.” Is this statement true or false? Why?
Does the answer vary by country? Why?
3. Ventures in foreign countries without strong contract law are more risky, because
managers may be subjected to bribery attempts once their firms’ assets have been
invested in the country. How can managers deal with these problems?
4. Many international strategic alliances are being formed by the world’s airline companies.
Do these companies face any ethical issues as they participate in multiple alliances? If so,
what are the issues? Are the issues different for airline companies headquartered in the
United States than for those with European home bases? If so, what are the differences,
and what accounts for them?
5. Firms with a reputation for ethical behavior in strategic alliances are likely to have more
opportunities to form cooperative strategies than will companies that have not earned this
reputation. What actions can firms take to earn a reputation for behaving ethically as a
strategic alliance partner?
INSTRUCTOR'S NOTES FOR MINDTAP
Cengage offers additional online activities, assessments and resources inside MindTap,
our online learning platform. The following activities can be assigned within MindTap
for students to complete.
INSTRUCTOR'S NOTES FOR DIRECTED
CASE
Directed Case exercises are a series of multiple choice questions designed to focus on the
concepts from the chapter utilizing the case study analysis steps, such as gaining
familiarity, recognizing symptoms, identifying goals, conducting the analysis, making the
diagnosis and doing the action planning.
Itaipu Binacional
Itaipu Binacional is a partnership between Brazilians and Paraguayans who together

constructed a hydroelectric plant called Itaipu Dam, which guaranteed a renewable clean
energy source from the Paraná River.
Students will review these concepts:

9-27
 Cooperative Strategies
 Related Diversification Strategy
 Globalization
 Outsourcing
INSTRUCTOR'S NOTES FOR EXPERIENTIAL

EXERCISES
Flying the Friendly Skies: Strategic Actions with Airlines and Alliances
The text says a strategic alliance “is a partnership between firms whereby their resources
and capabilities are combined to create a competitive advantage.” The first airline
alliance was formed in 1993 and resulted in a variety of benefits for both consumers and
airline employees. In this group exercise, students investigate the history and purpose of
forming an alliance in the passenger airline industry. The instructor will assign an
alliance to each small group.
 Students will research their alliance, including:

 Why airlines form alliances?
 The history of the assigned alliance
 The main benefits airlines hope to gain through membership. Is there a
competitive advantage to the alliance?
 Categorize the alliance in terms of three types of alliances.
 Think through issues of future of airline alliance as if you were the airline
CEO
 Students will prepare an oral presentation that may include a visual aid
 They will present findings to the class in 15-20 minutes. All members are required
to present.
In this group project, students will have the opportunity to practice valuable strategic
management skills, including: teambuilding, data analysis, critical thinking and research
management.
To modify this project as an individual assignment, consider requiring just one

deliverable – a poster, a presentation or a paper.
9-28
To enhance the project, the instructor may also challenge the students to discuss in detail
the short- and long-term outcomes of the different types of cooperative strategies.
INSTRUCTOR'S NOTES FOR VIDEO

EXERCISES
Title: Jaguar-Land Rover Joint Venture with Chery

RT: 1:37
Topic Key: Cooperative Strategy, Growth Industry, Global Economy
British carmaker Jaguar-Land Rover and leading Chinese carmaker Chery Automobile
have established a joint venture. The companies are building a factory together in China
as the Chinese market for Jaguar grows at a fast pace. The factory will manufacture well-
known British luxury brands as well as a new vehicle designed for the growing Chinese
middle class.
Suggested Discussion Questions and Answers
1. What is a joint venture?
A strategic alliance in which two or more firms create a legally independent

company to share some of their resources to create a competitive advantage.
2. If you were an executive at Jaguar-Land Rover, why might a joint venture be

a safer option over another entry mode?
As a merger, the two companies would have combined each of their operations to
work together, rather than implemented one company’s operations over the other
3. By entering into a joint venture with Chery’ Automobile, Jaguar-Land

Rover will be depending on some of Chery’s distinct competencies. What is
one of those competencies that will aid Jaguar-Land Rover in diversifying its
car manufacturing to China?
Chery’s competency in serving the Chinese market helps Jaguar-Land Rover

because they are unfamiliar with operating in China and what Chinese customers
need from them as an emerging car company.
9-29
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refrigerator. He has the appetite and stomach capacity of an ostrich.
What do you say?"
"Possible," McGinity concurred. "Let's go."
As I crept stealthily downstairs, with the reporter at my side, I fully
expected, at any moment, to be confronted with a long hairy arm,
stretching out from some dark corner, to clutch at my throat. My
feeling of nervousness increased when, in the midst of our search on
the ground floor, my flashlight suddenly failed. We had just stepped
into the dining room. I was reluctant to switch on the wall, or ceiling
lights, for fear of alarming the servants, or attracting the attention of
the night watchman who patrolled the grounds. Under no
consideration could we afford to arouse the household, especially
Henry.
So we elected to sit down in the darkness and wait for something to
happen, possibly the discovery of the prowling Mr. Zzyx. I marveled
at the instinct which enabled him to move about so freely in the dark.
It was so quiet in the dining room that we could hear the ticking of
the grandfather's clock in the library. There we sat, waiting, in the
utter silence of the night. One o'clock struck—then half-past.
All the time we were seated there, I fancied I heard a sound quite
distinct above the ticking of the clock; a faint, crackling sound, like a
dog makes when it is crunching bones between its teeth. I made no
mention of it to McGinity, but my heart was going in great sickening
thumps. Another ten minutes of strained silence in the darkness, and
my nerves were stretched to the limit.
As it turned out, McGinity had heard the same mysterious sound.
Also, his eyes becoming more quickly adjusted to the darkness,
being so much younger than mine, he saw something that had so far
escaped my notice. Flecks of white on the floor, just to the right of
us, in front of the heavily curtained French window.
Suddenly, he put his hand on my arm warningly. I heard him draw his
breath sharply as he slowly rose, and tiptoed a few steps beyond
where we were seated. As I craned forward to try to see what he
was up to, he lit his cigarette lighter.
"My God! Look!" I heard him breathe; and, rising, I saw, in the
flickering glimmer, a lot of white feathers on the floor. As his lighter
quickly burned itself out, the room once more was in darkness. But I
had seen enough in that momentary flash to realize that at last we
had found something we were waiting for.
"What do you make out of those white feathers?" McGinity
whispered, gripping my arm.
"It wouldn't surprise me a bit," I replied, "to find that Mr. Zzyx has
killed Pat's white cockatoo."
"Yes; and I'll bet you anything he's somewhere close by, in one of
these rooms, enjoying a cold bird, bones and all," his quick whisper
came back. "That will account for the funny sound I've been hearing
all the time we've been sitting here. Let's turn on the light—take a
chance. What do you say?"
My memory of what immediately followed is rather blurred and
confused. I have some memory of feeling my way through the library
doorway, although how I accomplished it in the dark is more than I
can figure out. What I most remember clearly is the strange, eerie
sight that met our startled gaze after I had turned on the lights.
Crouching on the floor of the library, confronting us, was Mr. Zzyx, in
his pajamas, and surrounded by feathers and bits of bone of the
cockatoo, which obviously he had so cruelly slaughtered and
devoured. And as we stood there gazing at him, he snarled at us like
a wild beast defending its spoils.
Quick as a flash, McGinity's hand went to his hip pocket, but I
restrained him. "Leave him alone," I advised. "Let him finish his
feast."
"Pat's heart will be broken," McGinity sighed. "How could he do such
a horrible, cruel thing?" He lit a cigarette.
"Because he's more animal than man," I answered; "a very
dangerous and vicious animal."
We continued to watch him in silence until he had finished crunching
the last bone. Then he got to his feet, and started to walk towards
McGinity, round whose head spirals of tobacco smoke were curling.
There was a dark stain all around the creature's mouth, which made
him more repellent and disgusting.
"He wants a cigarette," I suggested.
McGinity gave him one, and lit it. And then, to our amazement, he
followed us meekly as we led the way upstairs, and opened the door
of his bedroom. He climbed into bed, and pulled the bedclothes over
his head, like a child who has been caught in the act and is ashamed
of his wrong-doing. Presently he was fast asleep.
XXIII
The after-midnight experience, especially the cruel killing of Pat's pet
cockatoo, distressed me terribly. I was still feeling nervous and
depressed the next morning when, after a hasty breakfast, I caught
an early train for the city. I took a taxi-cab at the railroad terminal,
and drove straight to the office of the Royal Parchment Paper
Company, in Beekman Street, which is in the downtown district.
I did not reveal my identity—there was no reason why I should—
simply explaining that I was interested in seeking out the maker of a
very interesting scroll that had come into my possession, the
parchment paper of which bore the firm's water-mark. In less than
ten minutes, a point of high importance was settled. The parchment
paper used in the scroll was identified as a heavy grade formerly
manufactured by this concern but discontinued about three years
before.
As it was a wholesale house, selling its products only in bulk to
retailers, I was beginning to lose hope that I should ever be able to
track this particular brand of parchment paper when, by great good
luck, one of the assistant officials recalled having sold a small
quantity of it, from the remaining store-room stock, to an aged, silver-
haired man, four months back.
He remembered the transaction very well indeed because the
customer explained that he had been looking for some time for this
special, heavy grade of parchment paper, as he made it a business
of transforming newly manufactured parchment into ancient-looking
family and historical documents, for which he found a ready market
among dealers in antiques.
He walked out of the office carrying his purchase, leaving no name
and no address. As it was raining heavily at the time, the assistant
official, because of the customer's age and apparent infirmities,
followed him to the door with an umbrella, and politely volunteered to
call a taxi. After he had done this, he put the old man into the cab.
And now, after an interval of four months, he recalled the address
the customer had given the taxi-driver: "Stuyvesant Place and
Twelfth Street."
This remarkable display of memory sent me off at once to another
field of inquiry. In a small, musty, corner curio and book shop, at
Stuyvesant Place and Twelfth Street, I found a courteous, white-
haired old man, looking rather shaggy and unkempt, who recognized
the scroll at once as a sample of his own handicraft. He did not
know, of course, he said, for what purpose it was to be used, nor did
he seem to care; and he appeared equally unconcerned over the
strange inscriptions it contained. He seemed both surprised and
grieved when I showed him the water-mark. Apparently, he believed
that I had been taken in by some antique dealer, in the purchase of
the scroll as an ancient document.
"I do not often make a slip like that," he said, "and I am very sorry
indeed if I've caused my customer any embarrassment. He did not
specify that it should look old, but just different from the usual run of
scrolls. For instance, he requested me to perfume the gum that holds
the parchment securely to the ebony roller."
"That's all very interesting," I said, as calmly as I could. "Now, there's
just one more question—did your customer reveal his name?"
The old bookseller shook his head. "I have no idea who he is," he
replied; "no idea at all of his actual identity. He paid me a pretty stiff
price in advance for my work. That's all that interested me."
"Can you describe him?" I asked.
He took off his spectacles, and wiped them carefully on a frayed,
white silk handkerchief. "No," he said, finally and slowly. "I'm afraid I
can't describe him. My memory and eye-sight are both failing fast. If
you were to leave here now, and an hour later, some one was to ask
me to describe your appearance, I would be utterly at a loss. I do
recall, however, that he was middle-aged, well-dressed, and well
bred—a gentleman, I should say."
"And that is all you know of him?" I persisted.
"That's all I know of him," the old man assented. "Well, yes, I do just
remember one other thing. The day he called for the scroll, he
apologized for his hurried departure, saying that he had only a few
minutes in which to keep an important engagement in Radio Center,
and make his train."
"Ah!" I breathed. "Did he mention taking a train on any particular
railroad?"
"No," was the reply. "But after he'd gone, I found a Long Island
Railroad time-table on my desk. Evidently he had left it behind—
forgotten it in his haste."
After some further questioning, I went away. At noon, I met McGinity,
having promised the night before to join him at lunch, in town, and
submit all the evidence I had collected about the water-mark in the
scroll. The restaurant was one of his own choosing, a cheerful but
obscure eating-place in the Times Square section, noted for its
home-cooking and excellent beer, and largely patronized by
newspaper reporters working in that district.
The reporter listened to my story with signs of ever increasing
interest, as we sat together in a dining nook, and when it came to an
end, he exclaimed: "'Middle-aged—well-dressed—well bred!' You
see? Olinski! without a doubt."
"No, I don't see it at all," I answered. "The old bookseller's vague
description of the man who gave him the order for the scroll, in my
opinion, doesn't fit Olinski. True, there's evidence that the man left
hurriedly for an important engagement at Radio Center, and later, to
catch a train on the Long Island Railroad, but that proves nothing
against Olinski. Why should he rush off to keep an appointment in
Radio Center, when he spends most of his time in his laboratory
there? Besides, he's perfectly familiar with the time schedules of the
railroad, so far as Sands Cliff is concerned."
"Then, if it wasn't Olinski, it must have been his accomplice,"
McGinity persisted. "There's more than one person mixed up in this."
"Undoubtedly you're right," I concurred. "But it would be just as easy
and logical to suspect Prince Matani. Personally, I would suspect the
Prince of doing anything, short of murder, for money. He's been
trying to force Henry's hand for some time, in regard to Pat, and
failing, this may have been his revenge. But acting only as a paid
agent for a superior intellect, who put the thing over in a much bigger
way, perhaps, than the Prince had anticipated."
"If this is true, then it will account for the Prince falling in a fit the first
time he set eyes on Mr. Zzyx," the reporter suggested. "He expected
to find a small baboon, and he finds a monster. Then, he vanishes.
Very odd that he should go off to California—disappear like that."
"You've taken the words right out of my mouth," I rejoined, with a
benign smile. "However, as matters are now shaping themselves, it's
my opinion that any suspicions we may have regarding either Olinski
or the Prince are coming to a quick end. We might as well attach
suspicion to Mamie Sparks, our colored laundress."
"Well, at any rate, Mr. Royce," said McGinity, "one thing is pretty well
established in my mind, and that is—if the perpetrator of this gigantic
fraud isn't a lunatic, he's certainly been carried away by some
strange fanatical motive."
"The facts of the case are all very strange, and very puzzling," I
observed. "I have been reflecting on the matter for the last hour or
so, since leaving the old bookseller, and I'm beginning to feel that
we're up against a pretty difficult task—perhaps an impossible one."
"Oh, please, don't say that, Mr. Royce!" the reporter said, earnestly.
"We may be all tangled up in this web of mystery, but we've got a
start—just a thread of a clue—haven't we? Not such a big one but
still a start. If we keep on the alert, we may run into something else
that will put us in possession of another thread of a clue. That'll be
two threads, won't it?"
"Yes," I replied, lugubriously; "but as far as I can see at present,
things look pretty hopeless, and we might as well stop now with our
investigations, and let matters take their natural course."
"That I'll never do," said McGinity, bringing his fist down on the table,
as though to accentuate his determination to see things through.
"You must remember, I've been taken in, as well as your brother
Henry, and on my shoulders rests the responsibility of all those
printed articles of mine."
"And not inventions, either," I said, "but stories founded on facts. You
can excuse—facts."
"Not if they're fictitious facts," said McGinity; "and it's my duty now to
expose their falsity to the public. No, Mr. Royce, we can't turn back
now!"
As he spoke the last word, a boy selling a special extra of an
afternoon paper, entered the restaurant, and came straight to our
table. "Want a paper, Mister?" the boy asked me. I shook my head,
but as soon as McGinity had glimpsed the big, front page headline
he snatched a paper out of the boy's hand.
Within a second he was directing my attention to the glaring
headline, which read: "Martian Rocket Disappears—Stolen!" and
then to a space in the center of the page, headed: "Very Latest
News," under which appeared a few lines, printed in red ink.
Together we read them:
"New York police notified today by officials of New York Museum of
Science that the Martian rocket, found on Long Island, near the
estate of Henry Royce, millionaire scientist, and placed on exhibition
in the museum, was stolen from its glass-case during the night.
Watchman found bound and drugged. While nothing uncovered so
far to establish clue to identity of daring thieves, police have obtained
information showing theft was committed by two men, who were
seen to leave the museum, carrying the rocket, and drive off in a
small van, about three o'clock this morning."
Before I could speak, McGinity jumped to his feet, and made for a
telephone booth. Five tense minutes passed, then he burst out of the
booth, and came to me.
"Ah!" he said, excitedly; "now, we're getting somewhere."
"What do you mean?" I asked.
"Just this," the reporter replied. "The theft of this rocket proves
conclusively that the superior intellect, the master mind, is back on
the job. Something has forced him out of hiding—out of the unknown
into which he passed about three months ago. He's getting scared.
He realizes that the finger of suspicion, sooner or later, will be
pointed at him, and he's trying to destroy all evidence of his guilt."
"That is, of course, a possibility," I agreed. "But this theft of the
rocket, now. Why, to me, it makes the whole thing seem more and
more of a puzzle."
"It's the best thing that could have happened," McGinity observed. "It
will prepare the public for the exposé, which is bound to come now,
and put your brother in right. Public sentiment is always with the man
who has been duped."
"Does this mean that we will not go on with our investigations?" I
inquired.
McGinity shook his head. "My instructions from the Desk," he
answered, "which I just received on the phone, are to continue with
our private investigations. And my first job is to make contact as
soon as possible with your brother Henry. And let me say, right here,
that I think it highly important that we keep nothing back from him.
We must give him a clear, succinct account of the whole matter as
we know it up to this moment."
"Whew!" I exclaimed. "You don't know Henry. He would consider any
move like that, on our part, as highly meddlesome, even offensive."
"But in enlisting his services in tracking down the stolen rocket—ten
to one, it's been dumped in the East River, which is only a few blocks
from the museum—we must acquaint him with all the particulars that
have come to light. Tell what we know and suspect in the matter.
He's got to know sometime—why not now?"
"Very well, then," I assented; adding, with an amused chuckle:
"Looks like we've got a very busy afternoon ahead of us."
"Busy isn't the word," McGinity rejoined, as he began making some
hasty notes on a bunch of copy-paper, which he always kept handy
in his coat pocket. "However, this is only the beginning."
"What are you making notes for?" I asked, curiously. "Are they for
your paper, or the police?"
"Neither," replied McGinity. "They are intended for broadcasting.
After I'd talked to my City Editor, I got Mr. Scoville of the NRC on the
phone, and he's promised to have a good description of the rocket
put on the air at three o'clock this afternoon, again at six, and at nine
this evening."
"Excellent idea," I said, enthusiastically. "I only wish there was
something I could do. What can I do?"
"Well, Mr. Royce," replied McGinity, as he finished making his notes,
and gave me a smile and roguish wink that meant much, "a reward
is always useful in these matters. Money can do things that mere
words can't do."
"I see what you mean," I responded slowly. I thought a moment, and
then said: "If my belief's correct, the sooner we lay hands on the two
men who stole the rocket the better! Yes? Well, Mr. McGinity, I'm
quite willing to help out on this, in a small way, of course. I'll offer a
reward of $5,000—"
"Five thousand dollars!" McGinity interrupted, gleefully. "That's a
whole lot of money, Mr. Royce, and I'm sure it's going to help solve
the mystery. And say—here's an idea that occurs to me. Why not
phone Olinski now, at once, and get a detailed description of the
rocket from him. And then ask him—also for me—if he ever visited a
certain curio and bookseller's shop at the corner of Stuyvesant Place
and Twelfth Street. If he doesn't answer you directly, and begins to
question you—well, just hang up. Better hurry now!"
I am easily excited, and I certainly felt my heart thump as I hurried
into one of the compartments of the telephone booth, to carry out the
reporter's suggestions, while McGinity stepped quickly into the
adjoining section, to conclude the necessary arrangements by
telephone for broadcasting the $5,000 reward.
I smiled to myself as I impatiently awaited a response to my call.
There I was, a staid member of society, a pillar of the church, holding
dignified offices in at least a dozen of the most exclusive and
conservative clubs of New York—tracking down an ingeniously
concocted scheme to ruin my brother's reputation as a scientist, with
the self-possession of a Hercule Poirot, or any other equally
distinguished detective of fiction; lunching at a reporters' hangout,
and, now, about to perform a rather dirty trick on my good friend,
Olinski—altogether putty in the hands of a very audacious but
ingratiating reporter.
Luckily for me, Olinski was reported "out" at his laboratory. In fact, he
hadn't been in for two days; obviously his staff was worried.
"Of course, Olinski's out," muttered McGinity, when I told him; "he's
got other business to attend to—pressing business." And then he
proceeded to begin preparations to leave. "Now, we'd better get
along to Sands Cliff—quick! Our next job's there."
The reporter's car was waiting for us, and in less than an hour we
were outside our lodge-gate. The big iron gate is usually kept open
during the day-time, but now it was closed. As there was no sign of
the lodge-keeper, McGinity got out and opened the gate. When we
rolled through, the radiator was spouting hot water and steam like a
miniature Yellowstone Park geyser. The reporter had whirled me
along country roads and through villages, in the drab light of a cloudy
November afternoon, at a speed not at all to my liking.
Parking the car just inside the gate, we drew near the gray-walled
castle. Something ominous was in the air. A deadly chill, floating in
across the terrace from the dark waters of the Sound, seemed to
penetrate to our very bones. Everything was weirdly silent. No sign
of life. I grew very anxious and uncomfortable, although the
incredible truth did not dawn upon me. Why was everything so
horribly silent? Where were the usual sounds and stir of a big
country estate? Why this tomb-like castle?
I was surprised to find the front door open. Within a few seconds we
had entered, and were standing in the great, vaulted entrance hall,
now dark and gloomy. Not a sound, nor a movement!
And then, suddenly, in the gloom and silence, we saw something
that struck terror in our hearts. Jane—dear, lovable old Jane—lying,
still as death, face downward, on the floor, at the base of the great
staircase. Showing vividly on the stone steps, from top to bottom,
were blotches of dark red. They looked like bloody footprints.
XXIV
I have often wondered, since all this occurred, how it happened that
McGinity and I arrived at the castle at this very critical moment,
which, afterwards, proved to be the crucial stage of our adventures
in trying to detect and trace the utterly unscrupulous scoundrel who
perpetrated the Martian hoax. Seconds—or minutes—later, and I
might now be recording a much more terrible series of events. It was
all horrible enough, God knows!
To our great relief, we found that Jane had fainted from shock. She
showed signs of returning to consciousness as the reporter and I
sprang to her side. She was, of course, the first person to give us the
news. After we had assisted her to her feet, we partly carried her to a
big easy chair, propping her up with sofa pillows. Luckily, her
smelling salts were in her handbag, which I had picked up from the
floor, and as I waved the vial of sal volatile to and fro under her nose,
I urged her gently to tell us what had happened.
"Where's Henry?" was my first question.
"He went away—er—after lunch," Jane replied, slowly and painfully.
She was still breathing with difficulty, and her words came in little
gasps.
"Did he say where he was going?"
"No place—in particular. He was completely fagged out. I think he
went for a drive."
"And Pat? Where is she?"
"She went out about an hour ago. I begged her not to go. She's been
crying all day—about her white cockatoo."
"Did she say where she was going, Miss Royce?" McGinity asked.
"She said something about the dock. What she did say was that she
felt that some fresh air, and a little exercise, would do her good."
"Did she mention any particular kind of exercise?" McGinity
questioned again.
"No—she merely said—oh, yes—she spoke of rowing—that was it."
"Pat's very fond of rowing," I explained to McGinity, "and frequently
goes over to the island, and potters about the old lighthouse ruins."
Then I turned again to Jane: "Now, Jane, tell us—what about Mr.
Zzyx?"
At the mention of the creature's name, she turned more pale and
sank back in the chair, gasping. I thought she was going to faint
again. Between us, McGinity and I rubbed her hands and forearms
briskly. Quickly rallying, she murmured, with quivering lips: "He went
mad—or something—stark crazy!"
I glanced at McGinity, and whispered: "He must have gone on a
rampage—just as I feared."
"Where are all the servants, Miss Royce?" McGinity asked, as Jane
recovered some semblance of her natural poise.
She smiled a little grimly. "I guess they've all been frightened away,"
she answered. "You see, I don't know about everything that
happened, but it's my belief that all the servants have locked
themselves up in the service wing. Oh, neither of you can
comprehend the utter reign of terror we've just passed through. Here
I was, by myself—Henry and Pat both out—the servants fleeing in
alarm. Naturally, at first, I was in a state of absolute despair as to
what to do."
"Let's begin at the beginning, Jane," I counselled, softly. "When did
you first hear of Mr. Zzyx acting up?"
"About half an hour ago," she replied. "I was in my room, reading,
when Schweizer knocked at my door. His face was as white as a
sheet. He said a great commotion was going on in the State
Apartment, and hadn't he better call the police. But I advised him to
summon all the men-servants in the place, as I felt they could handle
the situation, whatever it might be."
"Then what?"
"The butler had not been gone two minutes when I heard that
dreadful thing, screeching—oh, terrible to hear!—and running up and
down the hall, outside my room, and smashing the furniture. Then
everything became quiet. He must have gone downstairs, for, a few
minutes later, I heard the woman servants screaming—such
screaming as I never heard before and never want to hear again."
"What did you do, then?"
"As soon as the screaming had subsided, I decided that something
must be done, for I suddenly realized that all the men on the place
had gone off on a half holiday. Besides, the telephone extension on
the second floor went out of order this morning. My intention, as I
slipped out of my room, was to go downstairs to the library, lock
myself in, and phone the police. As none of the servants, not even
my personal maid, had shown themselves, and viewing the awful
wreckage that creature had made of the tables, chairs and tapestries
in the hall, I was convinced that something terrible was going on."
"But how did you happen to be lying at the foot of the staircase?"
"I will tell you." She drew a long, painful breath, and then continued.
"All went well until I reached the bottom of the stairs, when I heard
heavy footsteps above me. I turned and looked. Mr. Zzyx was
coming down towards me, chattering, and showing his teeth, rolling
his head, and waving his arms convulsively, like he had a fit. I was
frozen with terror to the spot. I couldn't move. I remember seeing
blood on his hands and clothes, as he came nearer to me. I recall
receiving a heavy blow on my arm. After that, I remember nothing."
"Thank God! you escaped without a scratch," I breathed. "But where
do you suppose he's gone? The front door was open when we
arrived. He may have gone out that way."
"I have no idea," Jane said. Then she wailed: "Oh, what are we to
do?"
"We'll do something," I replied, and immediately went into action. I
had a police whistle in my pocket, and, leaving Jane in charge of
McGinity, I went quickly into the library. Opening the window that
gave on to the terrace, I blew the whistle. Just then, I saw Schweizer
coming from the servants' wing. I waved a hand to him, and he came
hurrying on to the terrace and up to the window.
"What's become of everyone?" I inquired.
"The women have barricaded themselves in their quarters, sir," the
butler replied. "That hairy fellow nearly scared the life out of 'em.
Mamie Sparks went into a faint, and isn't out of it yet."
"Isn't there a strong-armed man left on the place?"
"None, sir," Schweizer replied. "The two chauffeurs went with your
brother on a drive. I was afraid to tackle that hairy thing unarmed and
single-handed, and ever since leaving Miss Jane locked up in her
room, I've been searching everywhere for a gun."
"Did you see Mr. Zzyx leaving by the front door?"
"I saw nothing, sir, after I went back to the servants' wing to look for
a weapon. If I'd found one, I meant to shoot that fellow dead. He
surely made a mess of things with his tearing and smashing."
"Yes, I know," I rejoined, glancing back over my shoulder. The dining
room looked as though a small whirlwind had struck it. "Better come
inside, Schweizer, and help us get things straightened out."
"Just a word, sir," the butler said, coming up closer to the window,
and speaking in little more than a whisper. "I think murder's been
committed."
"Oh, I don't believe that," I replied, "but we'll soon see."
While alarmed and mystified at first over the red blotches on the
marble staircase, it was my belief now that Mr. Zzyx must have cut
himself severely during his rampage, which would account for the
blood stains. But after the butler had joined us, and had told of
hearing Niki screaming, during the commotion in the State
Apartment, that put a different complexion on the matter. Leaving
Schweizer to guard Jane, McGinity and I hastened upstairs.
It was my earnest hope that Niki was in hiding somewhere. I could
not picture a person of his athletic prowess being outmatched, even
by a strong-limbed creature like Mr. Zzyx. First, I tried Mr. Zzyx's
door. It was locked on the inside. Then I knocked on the door which
opened into the room occupied by Niki, a double room, one half of
which was fitted as a bedroom. There was no response. Dead
silence followed each knock—an eerie silence that caused my blood
to run chill.
In a moment I had opened the door, and we were standing in his
room. There were unmistakable traces of some sort of struggle.
Several chairs and a reading-table were overturned, rugs
disarranged, and books and magazines scattered over the floor. But
no sign of Niki. I called him by name. "Niki! Niki!" my voice echoing
weirdly from the high ceiling.
Then, at McGinity's suggestion, I opened the door connecting Niki's
apartment with Mr. Zzyx's luxurious sleeping quarters. I gave one
glance into the room, then recoiled with an exclamation of horror.
The reporter leapt forward to look. The sight that met our gaze
stayed with me for many days afterwards.
Niki was lying on the bed, on his back, his clothes almost torn to
tatters, and the upper part of his body and head hidden under pillows
and bedclothes, which bore crimson stains. I made no comment at
the moment. My thoughts were going back to the performance of
Verdi's "Otello" at the Metropolitan-Civic Opera House; the night I
had studied Mr. Zzyx attentively as he watched, as if spellbound, the
smothering to death of Desdemona by the jealous and enraged
Moor. Had my surmises at that time been right? Had this violent
climax of the opera taken hold of his primitive mind and obsessed
him until it had quickened him to this deed of incredible violence?
Beyond any reasonable doubt, Niki had been overcome and
smothered to death after a terrific fight with this hairy monster. The
wreckage of the furnishings of the room bore evidence of such a
struggle.
McGinity spoke first. "Awful!" he said in a faint voice.
"Poor Niki!" I said, in a tone which I scarcely recognized as my own.
"If that fiend smothered Niki to death, how do you account for all that
—" McGinity checked himself as his voice choked.
"As Niki's face bears only scratches," I replied, "it's possible that Mr.
Zzyx cut himself seriously while smashing window-panes and
picture-glass. That will account for the bloodstains on the pillows and
bedclothing."
"Then he must have killed Niki after going on a rampage through the
castle," McGinity suggested.
"No, I don't think so," I replied. "I figure that he killed Niki first. He
must have returned to the second floor by the back stairs, and by
some strange instinct, re-enacted the killing with his cut and bleeding
hands, to make sure his victim was dead."
"A cruel, murderous affair any way you look at it," said McGinity.
"Better call the police at once."
"No," I demurred. "I mean to keep things quiet until Henry returns."
"In that case, then," the reporter suggested, "we'd better split up. You
go and find Pat, and I'll start looking for Mr. Zzyx. It's my belief that
he's escaped into the thick woods, back of the castle."
"Be careful, young man," I advised, in assenting to his proposed plan
of action. "That fellow is mad—desperate, and likely to show fight."
"He'll not escape me, don't you worry," the reporter rejoined, his
hand moving instinctively to his hip pocket. "I'll take no chances in
tackling that bird. So now," he concluded, "whatever it is we're in for
—"
He had no time to finish that sentence. The butler's voice broke in,
coming from the hall. "Come, quickly, Mr. Royce! Come, at once, sir!"
the butler shouted.
We left the chamber of death, taking good care to lock the door, and
hurried down the hall to join Schweizer, who had only come to the
head of the stairs, so as not to let Jane out of his sight. He had
surprising news to tell. The gate-keeper, who had deserted his post
at the first alarm, had come running up from his hiding-place, behind
the terrace wall, at the brink of the cliff, to report that he had seen Mr.
Zzyx go down to the dock, and, a few minutes later, cast off in a
runabout, heading for the island.
The effect of this news was terrifying. The same thought must have
struck McGinity and myself at the same instant. Pat was on the
island. To be caught there—alone—by—It was too terrible to
contemplate.
If the effect of the news was terrifying to us both, it was also
electrical, so far as McGinity was concerned. Without uttering a
word, he dashed out of the castle, ran across the terrace, and
disappeared down the steps to the dock.
Apprehensive of the effect of this news, as well as the killing of Niki,
on Jane, who was now comfortably ensconced on a divan in the hall,
with her personal maid in attendance, I gave Schweizer a quick,
whispered account of what we had found, and enjoined him to
secrecy.
"Then there was murder, sir?" he said, in a low voice. "Niki
murdered! Murder, says you, murder!" His mind couldn't seem to
grasp it. "Lord help us!" he added. "I hope that reporter person gets
that hairy, murdering thing, and gets it good!"
Increasingly disturbed and anxious about Pat's fate, I left the butler,
signaling to him as I went outside, to stay back and look after Jane.
Emerging on the terrace, another surprising sight met my gaze,
giving a startling and dramatic turn to the tragic proceedings of the
afternoon.
The shanty, which stood on the island, near the lighthouse ruins, was
on fire. The bitterly cold, north-east wind was already whipping the
flames and sending them upward in long, red tongues, which
seemed to lick the lowering November sky. Cold and biting as the
wind was, I was not sure that the quiver which shook me from head
to foot was more from cold than from the dread anticipation of what
was at hand.
Shaking and shivering, I somehow managed to get to the dock.
McGinity had already cast off, and, as I breathed a prayer for the
safety of Pat, I watched him struggling against the wind and
incoming tide in a big, unwieldy dory, the only boat available at the
dock. A flat-bottomed boat with high flaring sides, largely used on the
New England coast, and by American fishing vessels, and
christened "The Tub" by our servants, who used it for fishing
excursions.
Mr. Zzyx must have reached the island with incredible speed. The
runabout was tied up at the tiny dock, on the far side of which Pat's
row-boat rocked with the tide. The flames from the burning shanty
were mounting still higher, their reflection turning the expanse of
surrounding water into turbulent pools of fiery red. Still, no movement
was noticed on the island that would indicate the presence there,
either of Pat, or of the maddened creature, Mr. Zzyx. I was beginning
to be more alarmed than ever, when suddenly things began to take
shape.
First, I saw McGinity beach his boat at the far end of the island,
where there was a small, pebbly beach. Then came a flutter of
something white—Pat's scarf, or handkerchief—at the pinnacle of
the ruins.
At that moment the flames died down, and myriads of sparks flew
upward as the walls of the shanty collapsed. Visibility became
obscure on account of the smoke. Presently I saw McGinity running
up the steps, cut in the rocks, to the door of the lighthouse, the lower
part of which was practically intact. I saw him enter the doorway.
Then everything became indistinct in a cloud of smoke, and out of
that obscurity, I saw a black figure come stealthily around the ruins,
moving from the ledge of rock on the side next to the Sound, as
though it had been in hiding. As it crept into the doorway, and
disappeared into the dark interior of the ruins, I cried, "Oh, God!" It
was Mr. Zzyx. Pat and McGinity were trapped in the lighthouse.
Standing there alone on the dock, in the biting cold and gathering
gloom, and helpless to assist Pat and McGinity in their perilous
position, I passed into a state of anxiety bordering on frenzy. It was
only my abounding faith in the courage and resourcefulness of the
reporter in meeting the situation that kept me sane. Also, I felt sure
then, as I do still, that Mr. Zzyx did not go to the island in pursuit of
Pat. By no possible means could he have known that she was there.
Mad with fury, and out to wreck and kill, he was winding up his
abnormal excitation with all the mischief he could do on the island.
It is natural to assume that when he rushed out of the castle and
reached the dock, he saw in the runabout a means to further satisfy
his madness for excitement; or the boat may have suggested a
means of escape. As I learned afterwards, he had gone with Niki for
a spin in the runabout, directly after lunch. The engine may still have
been warm, for he seemed to have had no difficulty in starting it
himself, and he had long ago become proficient in casting off and
tying up. The fact remains that he got to the island.
Of course, from the dock, I could not see what was transpiring inside
the lighthouse. But I know now what happened. As Pat told her story
afterwards, she had spent about an hour on the island when she
decided to row back to the mainland. The exercise of rowing, the
cold, bracing wind, and quiet moments spent in wandering about the
ruins, had refreshed her wonderfully. She was walking down the
rocky slope to the island dock, when she saw the runabout
approaching. Naturally, she suspected nothing out of the way.
"At first, I thought," she said, after it was all over, "that it must be
either one of our servants, or—improbable as it seemed—Mr.
McGinity. The runabout was halfway across before I recognized Mr.
Zzyx.
"My first horrified thought was that he was coming after me," she
went on, her voice still strained by excitement. "And to me that
meant only one thing: that he was going to make an attempt on my
life, using the same tactics as he had employed when he so cruelly
killed my white cockatoo. He'd always seemed mild to me, and while
I was afraid of him, I never considered him really dangerous. I had
developed a sort of fondness for him, as I would for a big dog. But
after killing my poor bird—well, that settled everything. I had decided
not to spend another night in the castle while he was in it, and I was
prepared to give Uncle Henry my ultimatum, and stay with friends in
town, if he didn't rid the premises at once of that—killer.
"I was scared into a fit, too scared for a minute or so to think of
anything to do. Then I thought of setting fire to the shanty. That's a
thought that might occur to anybody in the same fix. I counted on the
fire bringing someone, quickly, from the castle to the island, for I had
told Aunt Jane I was going for a row, and I believed the fire would
indicate that I was at the lighthouse, and in danger. I had been inside
the shanty, and had noticed a barrel filled with waste paper and
pasteboard boxes—probably gathered up from one of the picnic
parties trespassing on the island during the summer. So I ran back,
into the shack, and threw a burning match into the barrel. The flames
leapt up so quickly, it was a close call getting outside without getting
singed.
"I was pretty shaky by this time, so I decided to hide in the ruins. Mr.
Zzyx was tying up at the dock. I could hear him chattering; he was
acting very queerly. I got down, and crawled on my hands and
knees, behind the rocks, until I reached the lighthouse doorway. I
don't believe he saw me.
"When I got inside the ruins it was so dark I had to light a match to
find my way. As I did so, something rushed at me from above, and
struck me on the head. It was a big bat. I screamed, and ran up the
winding, stone stairway as far as I could go. I crawled behind one of
the larger stones that had fallen inside, on the third landing, and
stayed there until I got my breath. The clouds were hanging so low
over my head, I felt I could almost reach up and touch them. This
feeling suggested something, so I climbed up on one of the
dislodged stones, leaned over the broken ledge of the circular wall,
and waved the white silk scarf I had been wearing under my wool

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Strategic Management Concepts and

Cases Competitiveness and

1. Define cooperative strategies and explain why firms use them.

Chapter Introduction: This chapter provides students with a slightly different

1 Define cooperative strategies and explain why firms use them.

A cooperative strategy is a strategy in which firms work together to achieve a shared

Teaching Note: It is important to emphasize that strategic alliances can serve a

STRATEGIC ALLIANCES AS A PRIMARY TYPE OF COOPERATIVE

2 Define and discuss the three major types of strategic alliances.

Three Types of Strategic Alliances

 Is less formal and demands fewer partner commitments.

Reasons Firms Develop Strategic Alliances

Name the business-level cooperative strategies and describe their

BUSINESS-LEVEL COOPERATIVE STRATEGY

Complementary Strategic Alliances

Vertical Complementary Strategic Alliance

The four general business level cooperative strategies are:

A vertical complementary strategic alliance links suppliers, manufacturers, and/or

A horizontal complementary strategic alliance is an arrangement that links similar segments

Horizontal Complementary Strategic Alliance

Importantly, horizontal alliances may require equal investments of resources by the

Competition Response Strategy

 Manufacturing and distribution cartels in Japan

Tacit collusion tends to be used as a business-level competition-reducing strategy in highly

Assessing Business-Level Cooperative Strategies

Discuss the use of corporate-level cooperative strategies

CORPORATE-LEVEL COOPERATIVE STRATEGY

Corporate-level cooperative strategies are designed to facilitate product and market

The three corporate level strategies are:

Diversifying Strategic Alliance

A diversifying strategic alliance is a corporate-level cooperative strategy in which firms

Teaching Note: Firms might form a diversifying alliance to determine if a future

Synergistic Strategic Alliance

SBC Communications and EchoStar Communications were synergistically diversified by the

Franchising is a corporate-level cooperative strategy used by a franchisor to describe and

Franchising is a particularly attractive strategy to use in fragmented industries where no firm

Assessing Corporate-Level Cooperative Strategies

Compared to those at the business-level, corporate-level cooperative strategies are usually

Understand the importance of cross-border strategic alliances

INTERNATIONAL COOPERATIVE STRATEGY

A cross-border strategic alliance is an international cooperative strategy in which firms with

NETWORK COOPERATIVE STRATEGY

A network cooperative strategy is particularly effective when it is formed by geographically

However, disadvantages to participating in networks include:

Alliance Network Types

Teaching Note: An example of a US firm’s stable network is Nike’s long-established

6 Explain cooperative strategies’ risks.

COMPETITIVE RISKS WITH COOPERATIVE STRATEGIES

Figure Note: Competitive risks of cooperative strategies, as well as risk management

As Figure 9.5 indicates, the competitive risks of cooperative strategies are:

And can be managed by:

Failing to Obtain Desired Levels of Success with Cooperative Strategies

7 Describe two approaches used to manage cooperative strategies.

MANAGING COOPERATIVE STRATEGIES

The two basic approaches to managing cooperative strategies are:

The opportunity-maximization approach focuses on a partnership’s value-creation

ANSWERS TO REVIEW QUESTIONS