Ch9-1

Chapter 9
Cooperative Strategy
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
2000 South-Western College Publishing
Ch9-2
Competitiveness
Chapter 3
Internal
Environment
Chapter 2
External
Environment
The Strategic
Management
Process
Strategic Intent
Strategic Mission
Strategic
Competitiveness
Above Average
Returns
Feedback
Strategy Formulation
Chapter 4
Business-Level
Strategy
Chapter 5
Competitive
Dynamics
Chapter 6
Corporate-Level
Strategy
Chapter 8
International
Strategy
Chapter 9
Cooperative
Strategies
Chapter 7
Acquisitions &
Restructuring
Strategy Implementation
Chapter 10
Corporate
Governance
Chapter 11
Structure
& Control
Chapter 12
Strategic
Leadership
Chapter 13
Entrepreneurship
& Innovation
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Ch9-3
Partnerships between firms
are combined to pursue
mutual interests to
Develop
Manufacture
Distribute
Goods
Services
Firm A
Firm B
where their
Core
Competencies
Capabilities
Resources
Strategic Alliances
Ch9-4
Example: Dow Corning from Dow Chemical and Corning I nc.
Example: Chrysler and Mitsubishi Automotive
Example: Chryslers supplier network
Types of Strategic Alliances
Independent firm is created by the joining assets from two
other firms where each contributes 50% of the total
Joint Venture
Partnership where the two partners do not own equal shares
Equity Strategic Alliance
Contract is given to supply, produce or distribute a firms
goods or services (without equity sharing)
Non-Equity Strategic Alliance
Ch9-5
Reasons for Alliances by Market Type
Slow
Cycle
Market
Gain access to a restricted market
Establish franchise in a new market
Maintain market stability
Standard
Cycle
Market
Gain market power
Gain access to complementary resources
Overcome trade barriers
Meet competitive challenge
Pool resources for large projects
Learn new business techniques
Fast
Cycle
Market
Maintain market leadership
Form an industry technology standard
Share risky R&D expenses
Overcome uncertainty
Increase speed of product, service or market entry
Ch9-6
Corporate-
Level
Diversification Alliances
Synergistic Alliances
Franchising
Types of Strategic Alliances
Business-
Level
Complementary Alliances
Competition Reduction Alliances
Competition Response Alliances
Uncertainty Reduction Alliances
Ch9-7
Partnerships that build on the complementarities
among firms that make each more competitive
Complementary Strategic Alliances
Supplier Value Chain
Buyer Value Chain
Include distribution, supplier or
outsourcing alliances where
firms rely on upstream or
downstream partners to build
competitive advantage
Types of Business-Level Strategic Alliances
Vertical
Alliance
Example: J apanese manufacturers
rely on close relationships among
suppliers to implement J ust-I n-Time
inventory systems
Ch9-8
Used to increase the strategic competitiveness of the partners
Example: Product development agreements between Microsoft
and Dreamworks SKG
Supplier Value Chain Buyer Value Chain
Complementary Strategic Alliances
Types of Business-Level Strategic Alliances
Horizontal
Alliance
or
Joint ventures between BMG Entertainment and
Universal Music
Ch9-9
Example: OPEC petroleum cartel
Example: DirecTV has agreement with Time
Warner for exclusive programming
Example: ATT acquires Teleport, a provider of
telecommunications services to business customers
Types of Business-Level Strategic Alliances
Avoiding competition by using tacit collusion such as price fixing
Competition Reduction Strategies
Firms join forces to respond to a strategic action of
another competitor
Competition Response Strategies
Alliances can be used to hedge against risk and uncertainty
Uncertainty Reduction Strategies
Ch9-10
Types of Corporate-Level Strategic Alliances
Example: Samsung Group joins with Nissan
to build new autos
Example: McDonalds or Century 21
Example: Sony shares development with many small firms
Allows a firm to expand into a new product or market area
with an acquisition
Diversifying Alliances
Create economies of scope between two or more firms,
creating synergy across multiple businesses between firms
Synergistic Strategic Alliances
Allows firms to grow and relatively strong centralized control
without significant capital investments
Franchising
Ch9-11
However....
International Cooperative Strategies
Allows risk sharing by reducing financial investment
Host partner knows local market and customs
International alliances can be difficult to manage due
to differences in management styles, cultures or
regulatory constraints
Must gauge partners strategic intent so they do not gain
access to important technology and become a competitor
Ch9-12
Dynamic Networks
Internal Networks
Network strategies involve a group of interrelated firms
that work for the common good of all
Example: J apanese keiretsus or U.S. R&D consortia
Stable Networks
Network Strategies
The three types
of networks:
Ch9-13
Example: NIKEs relationships with suppliers and distributors
Example: Asea Brown Boveris network
Example: Apple computer and Sharp electronics
Network Strategies
Long term relationships that often appear in mature
industries with largely predictable market cycles
Stable network
Arrangements that evolve in industries with rapid
technological change leading to short product life cycles
Dynamic network
Management system used to coordinate a global web of
suppliers and customers
Internal network
Ch9-14
Competitive Risks with Cooperative Strategies
While cooperative systems can offer many advantages,
there are also significant risks associated with them
Poor contract development
Misrepresentation of partners competencies
Failure of partners to make complementary resources
available
Being held hostage through specific investments made
with partner
Misunderstanding a partners strategic intent
Ch9-15
Competitive Risks
Risk and Asset
Management
Approaches
Outcome
Value
Creation
Managing Risks in Cooperative Strategies
Inadequate
contracts
Misrepresentation
of competencies
Partner fails to use
complementary
resources
Holding alliance
partners specific
investments
hostage
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Detailed
contracts and
monitoring
Developing
trusting
relationships
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