Hitt M.A., Ireland R.D., Hoskisson R.E. Strategic Management: Competitiveness and Globalization: Concepts
Подождите немного. Документ загружается.
268
Part 2: Strategic Actions: Strategy Formulation
Mrs. Fields Cookies, Subway, and Ace Hardware are well-known examples of firms using
the franchising corporate-level cooperative strategy.
Franchising is a particularly attractive strategy to use in fragmented industries, such
as retailing, hotels and motels, and commercial printing. In fragmented industries, a large
number of small and medium-sized firms compete as rivals; however, no firm or small
set of firms has a dominant share, making it possible for a company to gain a large market
share by consolidating independent companies through contractual relationships.
In the most successful franchising strategy, the partners (the franchisor and the fran-
chisees) work closely together.
92
A primary responsibility of the franchisor is to develop
programs to transfer to the franchisees the knowledge and skills that are needed to suc-
cessfully compete at the local level.
93
In return, franchisees should provide feedback to
the franchisor regarding how their units could become more effective and efficient.
94
Working cooperatively, the franchisor and its franchisees find ways to strengthen the
core company’s brand name, which is often the most important competitive advantage
for franchisees operating in their local markets.
95
Assessment of Corporate-Level Cooperative
Strategies
Costs are incurred with each type of cooperative strategy.
96
Compared with those at the
business level, corporate-level cooperative strategies commonly are broader in scope and
more complex, making them relatively more costly. Those forming and using coopera-
tive strategies, especially corporate-level ones, should be aware of alliance costs and care-
fully monitor them.
In spite of these costs, firms can create competitive advantages and value when they
effectively form and use corporate-level cooperative strategies.
97
When successful alli-
ance experiences are internalized, it is more likely that the strategy will attain the desired
advantages. In other words, those involved with forming and using corporate-level
cooperative strategies can also use them to develop useful knowledge about how to suc-
ceed in the future. To gain maximum value from this knowledge, firms should organize
it and verify that it is always properly distributed to those involved with forming and
using alliances.
98
We explain in Chapter 6 that firms answer two questions to form a corporate-level
strategy—in which businesses will the diversified firm compete and how will those
businesses be managed? These questions are also answered as firms form corporate-
level cooperative strategies. Thus, 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 in addition
to advantages gained through the activities of individual cooperative strategies.
(Later in the chapter, we further describe alliance management as another potential
competitive advantage.)
International Cooperative Strategy
A cross-border strategic alliance is an international cooperative strategy in which
firms with headquarters in different nations decide to combine some of their resources
and capabilities to create a competitive advantage. Taking place in virtually all industries,
the number of cross-border alliances continues to increase.
99
These alliances too are
sometimes formed instead of mergers and acquisitions (which can be riskier).
100
Even
though cross-border alliances can themselves be complex and hard to manage,
101
they
have the potential to help firms use their resources and capabilities to create value in
locations outside their home market.
A cross-border strategic
alliance is an international
cooperative strategy
in which firms with
headquarters in different
nations decide to combine
some of their resources
and capabilities to create
a competitive advantage.
269
Chapter 9: Cooperative Strategy
IMG Worldwide, Inc. is one of the largest producers and distributors of sports
entertainment in the world. It pursues its strategy through international joint ven-
tures with other broadcasting firms. The events that it currently broadcasts include
two tennis “Grand Slam” events, Wimbledon and the Australian Open. In an effort
to expand into emerging economies, IMG recently signed a 20-year sporting event
partnership with China Central Television, the main Chinese broadcasting organiza-
tion. A national broadcast of this size could have an audience of 740 million viewers
daily. The first two events that will be broadcast through this venture are the China
Open Tennis Tournament in Beijing and the Chengdu Open Tennis Tournament
in 2009. The top 50 women players in the world are expected to play in the China
Open tournament. Through this strategic alliance, IMG will substantially broaden its
international reach.
102
Several reasons explain the increasing use of cross-border strategic alliances, includ-
ing the fact that in general, multinational corporations outperform domestic-only
firms.
103
What takes place with a cross-border alliance is that a firm leverages core com-
petencies that are the foundation of its domestic success in international markets.
104
Nike provides an example as it leverages its core competence with celebrity marketing
to expand globally with its diverse line of athletic goods and apparel. With a $2 billion
celebrity endorsement budget, Nike has formed relationships with athletes who have
global appeal. Tiger Woods, Michael Phelps, and LeBron James are recent endors-
ers, while seven-time Tour de France winner Lance Armstrong, Michael Jordan, and
Magic Johnson are historic examples of these types of individuals. In addition, Nike
has endorsement relationships with star athletes and organizations outside the United
States, such as Brazilian soccer star Ronaldo and Manchester United, the world’s most
popular soccer team.
105
Coupling these alliances with Nike’s powerful global brand
name helps the firm apply its marketing competencies in foreign markets. However, the
downturn in the economy is causing problems such that even these relationships are not
protecting sales declines.
106
Limited domestic growth opportunities and foreign government economic poli-
cies are additional reasons firms use cross-border alliances. As discussed in Chapter
8, local ownership is an important national policy objective in some nations. In India
and China, for example, governmental policies reflect a strong preference to license
local companies. Thus, in some countries, the full range of entry mode choices that
we described in Chapter 8 may not be available to firms seeking to diversify interna-
tionally. Indeed, investment by foreign firms in these instances may be allowed only
through a partnership with a local firm, such as in a cross-border alliance. Especially
important, strategic alliances with local partners can help firms overcome certain lia-
bilities of moving into a foreign country, such as lack of knowledge of the local culture
or institutional norms.
107
A cross-border strategic alliance can also be helpful to foreign
partners from an operational perspective, because the local partner has significantly
more information about factors contributing to competitive success such as local mar-
kets, sources of capital, legal procedures, and politics.
108
Interestingly, recent research
suggests that firms with foreign operations have longer survival rates than domestic-
only firms, although this is reduced if there are competition problems between foreign
subsidiaries.
109
In general, cross-border alliances are more complex and risky than domestic
strategic alliances, especially in emerging economies.
110
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
with 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.
Starbucks is a case in point.
270
Part 2: Strategic Actions: Strategy Formulation
When Starbucks sought overseas expansion, it wanted to do so quickly as a means
of supporting its strong orientation to continuous growth. Thus, it agreed to a complex
series of joint ventures in many countries in the interest of speed. While the company
receives a percentage of the revenues and profits as well as licensing fees for supplying its
coffee, controlling costs abroad is more difficult than in the United States. Starbucks is
learning from the results achieved from the collaborative relationships it initially estab-
lished. In light of what it has learned, the firm continues to collaborate with others in
different countries including China. At Starbuck’s 10-year anniversary mark in China, one
analyst noted that “China, conventionally a coffee exporter, may become a net importer
in 2009 with demand outpacing supply, as Starbucks Coffee Co. and other coffee chains
mushroom around the country.”
111
Among other actions, Starbucks is taking larger equity
positions in some of the joint ventures with which it is now involved in different countries
(such as China).
Network Cooperative Strategy
In addition to forming their own alliances with individual companies, a growing number
of firms are joining forces in multiple networks.
112
A network cooperative strategy
is a cooperative strategy wherein several firms agree to form multiple partnerships to
achieve shared objectives. As noted, Cisco has multiple cooperative arrangements with
IBM and HP, and with service providers Accenture Ltd. and Tata Consulting Services
Ltd. Demonstrating the complexity of network cooperative strategies is the fact that
Cisco has a set of unique collaborations with both IBM and HP, but is also competing
with them as they move into servers. The fact is that the number of network cooperative
strategies being formed today continues to increase as firms seek to find the best ways
to create value by offering multiple goods and services in multiple geographic (domestic
and international) locations.
A network cooperative strategy is particularly effective when it is formed by geo-
graphically clustered firms,
113
as in California’s Silicon Valley (where “the culture of
Silicon Valley encourages collaborative webs”
114
) and Singapore’s Biopolis (in the
bio-medical sciences) and the new fusionopolis (collaborations in “physical sciences
and engineering to tackle global science and technology challenges”).
115
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,
116
as does having a productive strategic center firm (we discuss strategic
center firms in detail in Chapter 11). Firms involved in networks gain information
and knowledge from multiple sources. They can use these heterogeneous knowledge
sets to produce more and better innovation. As a result, firms involved in networks
of alliances tend to be more innovative.
117
However, there are disadvantages to par-
ticipating in networks as a firm can be locked into its partnerships, precluding the
development of alliances with others. In certain types of networks, such as Japanese
keiretsus, firms in the network are expected to help other firms in the network when-
ever they need aid. Such expectations can become a burden and reduce the focal
firm’s performance over time.
118
Alliance Network Types
An important advantage of a network cooperative strategy is that firms gain access to
their partners’ other partners. Having access to multiple collaborations increases the
likelihood that additional competitive advantages will be formed as the set of shared
resources and capabilities expands.
119
In turn, being able to develop new capabilities
further stimulates product innovations that are critical to strategic competitiveness in
the global economy.
120
A network cooperative
strategy is a cooperative
strategy wherein several
firms agree to form
multiple partnerships to
achieve shared objectives.
271
Chapter 9: Cooperative Strategy
The set of strategic alliance partnerships resulting from the use of a network coop-
erative strategy is commonly called an alliance network. The alliance networks that
companies develop vary by industry conditions. A stable alliance network is formed in
mature industries where demand is relatively constant and predictable. 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. Thus,
stable networks are built primarily to exploit the economies (scale and/or scope) that
exist between the partners such as in the airline industry.
121
Dynamic alliance networks
are used in industries characterized by frequent product innovations and short product
life cycles.
122
For instance, the pace of innovation in the information technology (IT)
industry (as well as other industries that are characterized by fast-cycle markets) is too
fast for any one company to be successful across time if it only competes independently.
Another example is the movie industry, which has a lot of collaborative ventures and
networked firms to produce and distribute movies.
123
In dynamic alliance networks,
partners typically explore new ideas and possibilities with the potential to lead to prod-
uct innovations, entries to new markets, and the development of new markets.
124
Often,
large firms in such industries as software and pharmaceuticals create networks of rela-
tionships with smaller entrepreneurial startup firms in their search for innovation-based
outcomes.
125
An important outcome for small firms successfully partnering with larger
firms in an alliance network is the credibility they build by being associated with their
larger collaborators.
126
Competitive Risks with Cooperative
Strategies
Stated simply, many cooperative strategies fail. In fact, evidence shows that two-thirds
of cooperative strategies have serious problems in their first two years and that as many
as 50 percent of them fail. This failure rate suggests that even when the partnership has
potential complementarities and synergies, alliance success is elusive.
127
Although failure
is undesirable, it can be a valuable learning experience, meaning that firms should care-
fully study a cooperative strategy’s failure to gain insights with respect to how to form
and manage future cooperative arrangements.
128
We show prominent cooperative strat-
egy risks in Figure 9.4.
• Inadequate contracts
• Misrepresentation of
competencies
• Partners fail to use their
complementary resources
• Holding alliance partner's
specific investments hostage
• Detailed contracts and
monitoring
• Developing trusting
relationships
• Creating value
Competitive Risks
Risk and Asset Management
Approaches
Desired Outcome
Figure 9.4 Managing Competitive Risks in Cooperative Strategies
272
Part 2: Strategic Actions: Strategy Formulation
One cooperative strategy risk is that a partner may act opportunistically.
Opportunistic behaviors surface either when formal contracts fail to prevent them or
when an alliance is based on a false perception of partner trustworthiness. Not infre-
quently, the opportunistic firm wants to acquire as much of its partner’s tacit knowl-
edge as it can.
129
Full awareness of what a partner wants in a cooperative strategy
reduces the likelihood that a firm will suffer from another’s opportunistic actions.
130
The Strategic Focus on TNK-BP, a 50/50 joint venture between three Russian oil
tycoons and British Petroleum, demonstrates potential opportunistic actions by par-
ties involved and some of the potential risks of joint ventures, especially in an emerg-
ing economy like Russia.
Some cooperative strategies fail when it is discovered that a firm has misrepre-
sented the competencies it can bring to the partnership. The risk of competence mis-
representation is more common when the partner’s contribution is grounded in some
of its intangible assets. Superior knowledge of local conditions is an example of an
intangible asset that partners often fail to deliver. An effective way to deal with this
risk may be to ask the partner to provide evidence that it does possess the resources
and capabilities (even when they are largely intangible) it will share in the cooperative
strategy.
131
Another risk is a firm failing to make available to its partners the resources and capa-
bilities (such as the most sophisticated technologies) that it committed to the cooperative
strategy. For example, in the Strategic Focus, TNK-BP did not meet agreed-upon targets
and this put them in a situation of weakness relative to both its powerful partners and
the Russian government. This risk surfaces most commonly when firms form an inter-
national cooperative strategy, especially in emerging economies.
132
In these instances,
different cultures and languages can cause misinterpretations of contractual terms or
trust-based expectations.
A final risk is that one firm may make investments that are specific to the alliance
while its partner does not. For example, the firm might commit resources and capabili-
ties to develop manufacturing equipment that can be used only to produce items coming
from the alliance. If the partner isn’t also making alliance-specific investments, the firm
is at a relative disadvantage in terms of returns earned from the alliance compared with
investments made to earn the returns. This is certainly an issue in the TNK-BP alliance
in which BP is continuing to make investments, although it is losing control in managing
those investments.
Managing Cooperative Strategies
Although cooperative strategies are an important means of firm growth and enhanced
performance, managing these strategies is challenging. However, learning how to effec-
tively manage cooperative strategies is important such that it can be a source of com-
petitive advantage.
133
Because the ability to effectively manage cooperative strategies is
unevenly distributed across organizations in general, assigning managerial responsibility
for a firm’s cooperative strategies to a high-level executive or to a team improves the likeli-
hood that the strategies will be well managed.
Those responsible for managing the firm’s set of cooperative strategies should take
the actions necessary to coordinate activities, categorize knowledge learned from previous
experiences, and make certain that what the firm knows about how to effectively form and
use cooperative strategies is in the hands of the right people at the right time. Firms must
also learn how to manage both the tangible and intangible assets (such as knowledge)
that are involved with a cooperative arrangement. Too often, partners concentrate on
managing tangible assets at the expense of taking action to also manage a cooperative
relationship’s intangible assets.
134
The situation in 2009 with the joint venture
that British Petroleum (BP) formed in 2003
with three Russian oil tycoons, Mikhail
Fridman, Viktor Vekselberg, and Leonard Blavatnik, demonstrates opportunistic behavior
as well as political risks. These three oil oligarchs own 50 percent of the venture labeled
TNK-BP, and BP owns the remaining 50 percent. The venture gave a Western company
unprecedented access to vital Russian oil and gas resources. However, the Kremlin is
becoming increasingly involved in the nation’s energy production activities and it has
claimed that TNK-BP failed to fulfill all terms of its license regarding a particular oil field
(the Kovykta field). This claim threatens the joint venture’s viability. Part of the problem is
that members of the Kremlin feel uncomfortable with the Russian tycoons having control
of the state-owned assets and are even more uncomfortable with the fact that BP officials
head the joint venture. It has been speculated that Gazprom, the state-run gas giant,
may join the venture as a partner to improve the production deficit in the main oil field. If
Gazprom does indeed become part owner, it is questionable what it will compensate BP
for its ownership position. Over the years, BP has tried to develop a good relationship with
the Russian government and demonstrate its commitment by investing billions of dollars.
BP has also invested in other Russian ventures to drill in other oil fields, for instance, as a
minority stakeholder with Rosneft.
This situation culminated with a battle over who
would run TNK-BP, the third largest oil operation in
Russia with 17 percent of Russia’s reserves. The Russian
shareholders charged that BP was running TNK-BP
as a BP subsidiary and thereby depressing its values.
BP officials considered the conflict as an attempt at
“corporate raiding,” accusing the rich Russian partners
of hardball tactics. For example, Robert Dudley, the
nominated chief executive of TNK-BP, was unable to
get a visa and subsequently was banned by Russian
courts from serving as CEO. BP officials suspected
that this “paper-work problem” was orchestrated by
Russian shareholders.
Fridman, one of the Russian owners, was appointed
as the interim CEO, and all officials agreed to hire
a new CEO that must be fluent in Russian and have
business experience in Russia. New members were
appointed to help keep the peace on the board,
including former German Chancellor Gerhard Schroder.
Not only did Dudley leave from the BP side, but the
chief financial officer also felt pressure and resigned and
left Russia. Thus, the bottom line appears to be that
BP is conceding overall control to the Russians, but it is
at least maintaining its 50 percent ownership position.
Although BP has realized a positive return on its investment, it faces continued risk because
of the organization’s power structure and it will likely be under the control of the Russian
tycoons, who are also subject to influence by government policy. As this example shows, firms
that are pursuing international joint ventures need to be concerned about the opportunistic
behavior of their partners as well as the political risks involved. Interestingly, other firms have
had less control than BP in Russian joint ventures and in fact have lost their ownership positions
through pressure by the Russian partners. In this light BP has done better than others, but risks
obviously remain.
TROUBLES IN THE RUSSIAN
OIL JOINT VENTURE, TNK-BP
The fate of the second biggest
foreign investment company in Russia
and one of the world’s biggest oil
companies, TNK-BP, hangs in the
balance amid signs of a shifting mood
in the Kremlin.
Sergei Kappukhin/Reuters/Landov
274
Two primary approaches are used to manage cooperative strategies—cost
minimization and opportunity maximization
135
(see Figure 9.4). In the cost minimization
management 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 to be controlled. The TNK-BP joint venture discussed previously is managed
through contractual agreements. The goal of the cost-minimization approach is to
minimize the cooperative strategy’s cost and to prevent opportunistic behavior by a
partner. The focus of the second managerial approach—opportunity maximization—is
on maximizing 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 minimiza-
tion, in that writing detailed contracts and using extensive monitoring mechanisms is
expensive, even though the approach is intended to reduce alliance costs. Although mon-
itoring systems may prevent partners from acting in their own best interests, they also
often preclude positive responses to new opportunities that surface to use the alliance’s
competitive advantages. Thus, formal contracts and extensive monitoring systems tend
to stifle partners’ efforts to gain maximum value from their participation in a cooperative
strategy and require significant resources to be put into place and used.
136
The relative lack of detail and formality that is a part of the contract developed by firms
using the second management approach of opportunity maximization means that firms
need to trust each other to act in the partnership’s best interests. The psychological state of
trust in the context of cooperative arrangements is “the expectation held by one firm that
another will not exploit its vulnerabilities when faced with the opportunity to do so.”
137
When partners trust each other, there is less need to write detailed formal contracts to
specify each firm’s alliance behaviors,
138
and the cooperative relationship tends to be more
stable.
139
On a relative basis, trust tends to be more difficult to establish in international
cooperative strategies compared with domestic ones. Differences in trade policies, cultures,
laws, and politics that are part of cross-border alliances account for the increased difficulty.
When trust exists, monitoring costs are reduced and opportunities to create value are maxi-
mized. Essentially, in these cases, the firms have built social capital.
140
According to com-
pany officials, the alliance between Renault and Nissan is built on “mutual trust between
the two partners … together with operating and confidentiality rules.”
141
Research showing that trust between partners increases the likelihood of alliance suc-
cess seems to highlight the benefits of the opportunity-maximization approach to man-
aging cooperative strategies. Trust may also be the most efficient way to influence and
control alliance partners’ behaviors. Research indicates that trust can be a capability that
is valuable, rare, imperfectly imitable, and often nonsubstitutable.
142
Thus, firms known
to be trustworthy can have a competitive advantage in terms of how they develop and
use cooperative strategies.
143
One reason is that it is impossible to specify all operational
details of a cooperative strategy in a formal contract. Confidence that its partner can
be trusted reduces the firm’s concern about the inability to contractually control all
alliance details.
Sources: Associated Press, 2009, TNK-BP names tycoon Mikhail Fridman interim CEO, Forbes, http://www
.forbes.com, May 27; C. Belton & E. Krooks, 2009, Schroder a vital link with Russian TNK-BP, Financial Times,
January 16, 19; B. Gimbel, 2009, Russia’s king of crude, Fortune, February 2, 88; I. Gorst, 2009, BP moves to
settle TNK clash, Financial Times, May 26, 15; J. Herron, 2009, Corporate news: Schroder to join TNK-BP board;
Venture makes room for ex-German leader, two other independent directors, Wall Street Journal, January 16,
B2; S. Reed & M. Elder, 2008, BP’s dream deal hits a rough patch, BusinessWeek, August 11, 50; G. L. White &
G. Chazan, 2008, International business: BP retains its stake in TNK-BP; Russians gain clout, oust CEO Dudley;
IPO in 2010 likely, Wall Street Journal, September 5, B2; 2008, BP pays price for staying in Russia: Company
must take account of increased political risk, Financial Times, September 5, 8.
275
SUMMARY
A cooperative strategy is one such that firms work together •
to achieve a shared objective. Strategic alliances, where
firms combine some of their resources and capabilities to
create a competitive advantage, are the primary form of
cooperative strategies. Joint ventures (where firms create
and own equal shares of a new venture that is intended
to develop competitive advantages), equity strategic alli-
ances (where firms own different shares of a newly created
venture), and nonequity strategic alliances (where firms
cooperate through a contractual relationship) are the three
basic types of strategic alliances. Outsourcing, discussed
in Chapter 3, commonly occurs as firms form nonequity
strategic alliances.
Collusive strategies are the second type of cooperative
•
strategies (with strategic alliances being the other). In many
economies, explicit collusive strategies are illegal unless
sanctioned by government policies. Increasing globaliza-
tion has led to fewer government-sanctioned situations of
explicit collusion. Tacit collusion, also called mutual forbear-
ance, is a cooperative strategy through which firms tacitly
cooperate to reduce industry output below the potential
competitive output level, thereby raising prices above the
competitive level.
The reasons firms use cooperative strategies vary by
•
slow-cycle, fast-cycle, and standard-cycle market condi-
tions. To enter restricted markets (slow cycle), to move
quickly from one competitive advantage to another (fast
cycle), and to gain market power (standard cycle) are
among the reasons why firms choose to use cooperative
strategies.
Four business-level cooperative strategies are used to
•
help the firm improve its performance in individual prod-
uct markets. (1) Through vertical and horizontal comple-
mentary alliances, companies combine their resources
and capabilities to create value in different parts (verti-
cal) or the same parts (horizontal) of the value chain. (2)
Competition-responding strategies are formed to respond
to competitors’ actions, especially strategic ones. (3)
Competition-reducing strategies are used to avoid exces-
sive competition while the firm marshals its resources and
capabilities to improve its competitiveness. (4) Uncertainty-
reducing strategies are used to hedge against the risks
created by the conditions of uncertain competitive environ-
ments (such as new product markets). Complementary alli-
ances have the highest probability of yielding a sustainable
competitive advantage; competition-reducing alliances
have the lowest probability.
Firms use corporate-level cooperative strategies to engage
•
in product and/or geographic diversification. Through
diversifying strategic alliances, firms agree to share some
of their resources and capabilities to enter new markets
or produce new products. Synergistic alliances are ones
where firms share resources and capabilities to develop
economies of scope. This alliance is similar to the business-
level horizontal complementary alliance where firms try to
develop operational synergy, except that synergistic alli-
ances are used to develop synergy at the corporate level.
Franchising is a corporate-level cooperative strategy where
the franchisor uses a franchise as a contractual relationship
to specify how resources and capabilities will be shared
with franchisees.
As an international cooperative strategy, a cross-border alli-
•
ance is used for several reasons, including the performance
superiority of firms competing in markets outside their
domestic market and governmental restrictions on growth
through mergers and acquisitions. Commonly, cross-border
alliances are riskier than their domestic counterparts, particu-
larly when partners aren’t fully aware of each other’s purpose
for participating in the partnership.
In a network cooperative strategy, several firms agree to
•
form multiple partnerships to achieve shared objectives.
A primary benefit of a network cooperative strategy is the
firm’s opportunity to gain access “to its partner’s other
partnerships.” When this happens, the probability greatly
increases that partners will find unique ways to share their
resources and capabilities to form competitive advantages.
Network cooperative strategies are used to form either
a stable alliance network or a dynamic alliance network.
Used in mature industries, partners use stable networks to
extend competitive advantages into new areas. In rapidly
changing environments where frequent product innova-
tions occur, dynamic networks are primarily used as a tool
of innovation.
Cooperative strategies aren’t risk free. If a contract is not
•
developed appropriately, or if a partner misrepresents its
competencies or fails to make them available, failure is likely.
Furthermore, a firm may be held hostage through asset-
specific investments made in conjunction with a partner,
which may be exploited.
Trust is an increasingly important aspect of successful cooper-
•
ative strategies. Firms recognize the value of partnering with
companies known for their trustworthiness. When trust exists,
a cooperative strategy is managed to maximize the pursuit
of opportunities between partners. Without trust, formal con-
tracts and extensive monitoring systems are used to manage
cooperative strategies. In this case, the interest is to minimize
costs rather than to maximize opportunities by participating
in a cooperative strategy.
Chapter 9: Cooperative Strategy
276
COOPERATION VS. COMPETITION
Lynda Gratton/Professor of Management Practice/
London Business School
Lynda Gratton, Professor of Management Practice at the London
Business School, talks about the role of cooperation coming from a
profession that is really quite competitive. As you prepare for this
video consider the concepts of cooperation and competition in
dynamic environments. Are they complementary or contradictory?
Before you watch the video consider the following concepts
and questions and be prepared to discuss them in class:
Concepts
Trust •
Networking •
Cooperation •
Questions
Cooperation vs. competition: Which drives performance the 1.
most? Can we have one without the other?
Think about what you consider to be the firm of the future. 2.
What will it look like and how will employee roles shift?
Is cooperation necessary in today’s environment, or is it 3.
merely a nicety?
VIDEO CASE
REVIEW QUESTIONS
EXERCISE 1: WHAT IS IT: TV, INTERNET, OR BOTH?
Hulu (http://www.hulu.com) is a Web site and a cooperative alli-
ance that offers commercially supported content of TV (video
on demand) shows through the Internet. The name is derived
from a Chinese word which translated means “holder of precious
things.” The alliance has many different partners related in inter-
esting ways. In addition, the alliance includes firms and partners
from very different market types.
Working in groups, answer the following questions:
How would you describe the alliance partners? Characterize the 1.
market type for each (slow cycle, fast cycle, standard cycle).
What type of strategic alliance has Hulu become?2.
In what type of market is Hulu competing?3.
Why did this alliance form? List some competitive pressures 4.
that made this alliance a necessity for its partners.
What does the future hold for this alliance?5.
EXERCISE 2: THE SWATCHMOBILE
Swatch is well known for its line of stylish, affordable wristwatches.
In the early 1990s, Swatch CEO Nicholas Hayek had a novel idea
to diversify his company’s product offerings: a stylish, affordable
automobile. His vision was to create a two-seat car with minimal
storage space. Hayek expected these fuel-efficient cars would be
highly attractive to younger European car buyers. Drawing on the
company’s watch designs, the Swatch car was intended to have
removable body panels so that owners could change the car’s
look on a whim.
Swatch initially partnered with Volkswagen, but the alliance
never reached production. In 1994, Swatch partnered with
Mercedes-Benz. The vehicle was named SMART, which stood for
“Swatch Mercedes Art.”
Using Internet resources, answer the following questions:
What resources did each partner bring to the partnership?1.
How successful has the partnership been for each 2.
company?
Which company seems to be deriving the greatest benefit 3.
from the partnership and why?
What is the definition of cooperative strategy, and why is 1.
this strategy important to firms competing in the twenty-first
century competitive landscape?
What is a strategic alliance? What are the three types of stra-2.
tegic alliances firms use to develop a competitive advantage?
What are the four business-level cooperative strategies, and 3.
what are the differences among them?
What are the three corporate-level cooperative strategies? 4.
How do firms use each one to create a competitive advan-
tage?
Why do firms use cross-border strategic alliances?5.
What risks are firms likely to experience as they use coopera-6.
tive strategies?
What are the differences between the cost-minimization 7.
approach and the opportunity-maximization approach to
managing cooperative strategies?
EXPERIENTIAL EXERCISES
Part 2: Strategic Actions: Strategy Formulation
277
NOTES
D. Lavie, 2009, Capturing value from 1.
alliance portfolios, Organizational
Dynamics, 38(1): 26–36; J. L. Morrow, Jr.,
D. G. Sirmon, M. A. Hitt, & T. R. Holcomb,
2007, Creating value in the face of
declining performance: Firm strategies
and organizational recovery, Strategic
Management Journal, 28: 271–283.
T. W. Tong, J. J. Reuer, & M. W. Peng, 2.
2008, International joint ventures and
the value of growth options, Academy of
Management Journal,
51:
1014–1029.
H. Ness, 2009, Governance, negotiations, 3.
and alliance dynamics: Explaining the
evolution of relational practice, Journal
of Management Studies, 46(3): 451–480;
R. C. Fink, L. F. Edelman, & K. J. Hatten,
2007, Supplier performance improvements
in relational exchanges, Journal of
Business & Industrial Marketing, 22: 29–40.
M. J. Chen, 2008, Reconceptualizing the 4.
competition cooperation relationship:
A transparadox perspective, Journal of
Management Inquiry, 17(4): 288–304;
P. E. Bierly III & S. Gallagher, 2007,
Explaining alliance partner selection:
Fit, trust and strategic expediency,
Long Range Planning, 40: 134–153;
K. Singh & W. Mitchell, 2005, Growth
dynamics: The bidirectional relationship
between interfirm collaboration and
business sales in entrant and incumbent
alliances, Strategic Management Journal,
26: 497–521.
W. M. Bulkeley, 2008, Business technology, 5.
A service rival looms for IBM: H-P deal for
EDS to pose challenges for big blue unit,
Wall Street Journal, May 20, B6.
S. Hamm, 2009, Big blue goes into 6.
analysis, BusinessWeek, April 27, 16.
R. Agarwal & C. E. Helfat, 2009, Strategic 7.
renewal of organizations, Organization
Science, 20(2): 281–293; P. M. Senge,
B. B. Lichtenstein, K. Kaeufer, H. Bradbury,
& J. Carroll, 2007, Collaborating for
systemic change, MIT Sloan Management
Review, 48(2): 44–53; R. Vassolo,
J. Anand, & T. B. Folta, 2004, Non-additivity
in portfolios of exploration activities:
A real options-based analysis of equity
alliances in biotechnology, Strategic
Management Journal, 25: 1045–1061.
R. C. Marshall, L. M. Marx, & M. E. Raiff, 8.
2008, Cartel price announcement: The
vitamins industry, International Journal of
Industrial Organization, 26(3): 762–802;
T. L. Sorenson, 2007, Credible collusion
in multimarket oligopoly, Managerial and
Decision Economics, 28: 115–128.
C. E. Ybarra & T. A. Turk, 2009, The 9.
evolution of trust in information
technology alliances, Journal of High
Technology Management Research, 20(1):
62–74; R. D. Ireland, M. A. Hitt, &
D. Vaidyanath, 2002, Alliance management
as a source of competitive advantage,
Journal of Management, 28: 413–446;
J. G. Coombs & D. J. Ketchen, 1999,
Exploring interfirm cooperation and
performance: Toward a reconciliation of
predictions from the resource-based view
and organizational economics, Strategic
Management Journal, 20: 867–888.
M. A. Schilling, 2009, Understanding 10.
the alliance data, Strategic Management
Journal, 30(3): 233–260; J. J. Reuer &
A. Arino, 2007, Strategic alliance
contracts: Dimensions and determinants
of contractual complexity, Strategic
Management Journal, 28: 313–330;
M. R. Subramani & N. Venkatraman, 2003,
Safeguarding investments in asymmetric
interorganizational relationships: Theory
and evidence, Academy of Management
Journal, 46(1): 46–62.
S. Lahiri & B. L. Kedia, 200911. , The effects
of internal resources and partnership
quality on firm performance: An
examination of Indian BPO providers,
Journal of International Management,
15(2): 209–22; R. Krishnan, X. Martin, &
N. G. Noorderhaven, 2007, When does
trust matter to alliance performance?
Academy of Management Journal, 49:
894–917; P. Kale, J. H. Dyer, & H. Singh,
2002, Alliance capability, stock market
response, and long-term alliance success:
The role of the alliance function, Strategic
Management Journal, 23: 747–767.
K. H. Heimeriks & G. Duysters, 2007, 12.
Alliance capability as a mediator between
experience and alliance performance: An
empirical investigation into the alliance
capability development process, Journal
of Management Studies, 44: 25–49.
R. E. Hoskisson, M. A. Hitt, R. D.Ireland, & 13.
J. S. Harrison, 2008, Competing for
Advantage, 2nd ed., Thomson/
Southwestern, 184.
B. S. Bulik, 2009, Kodak develops 14.
as modern brand with digital shift,
Advertising Age, April 27, 26.
R. Lunnan & S. A. Haugland, 2008, 15.
Predicting and measuring alliance
performance: A multi-dimensional analysis,
Strategic Management Journal, 29(5):
545–556; R. Seppanen, K. Blomqvist, &
S. Sundqvist, 2007, Measuring
interorganizational trust—A critical review
of the empirical research in 1990–2003,
Industrial Marketing Management, 36:
249–265; T. K. Das & B.-S. Teng, 2001,
A risk perception model of alliance
structuring, Journal of International
Management, 7: 1–29.
L. F. Mesquita, J. Anand, & T. H. Brush, 16.
2008, Comparing the resource-based and
relational views: Knowledge transfer and
spillover in vertical alliances, Strategic
Management Journal, 29: 913–941; F. F.
Suarez & G. Lanzolla, 2007, The role of
environmental dynamics in building a first
mover advantage theory, Academy of
Management Review, 32: 377–392; M. A.
Geletkanycz & S. S. Black, 2001, Bound
by the past? Experience-based effects on
commitment to the strategic status quo,
Journal of Management, 27: 3–21.
A. Pasztor & A. Cole, 2008, New multirole 17.
missile is planned, Wall Street Journal,
July 16, A13.
K. H. Heimeriks, E. Klijn, & J. J. Reuer, 18.
2009, Building capabilities for alliance
portfolios, Long Range Planning, 42(1):
96–114; D. Gerwin, 2004, Coordinating
new product development in strategic
alliances, Academy of Management
Review, 29: 241–257; Ireland, Hitt, &
Vaidyanath, Alliance management as a
source of competitive advantage.
X. Lin & C. L. Wang, 2008, Enforcement 19.
and performance: The role of ownership,
legalism and trust in international joint
ventures, Journal of World Business,
43(3): 340–351; Y. Luo, 2007, Are joint
venture partners more opportunistic in
a more volatile environment? Strategic
Management Journal, 28: 39–60.
F. Evangelista & L. N. Hau, 2008, 20.
Organizational context and knowledge
acquisition in IJVs: An empirical study,
Journal of World Business, 44(1): 63–73;
S. L. Berman, J. Down, & C. W. L. Hill,
2002, Tacit knowledge as a source of
competitive advantage in the National
Basketball Association, Academy of
Management Journal, 45: 13–31.
M. Becerra, R. Lunnan, & L. Huemer, 21.
2008, Trustworthiness, risk, and the
transfer of tacit and explicit knowledge
between alliance partners, Journal of
Management Studies, 45(4): 691–713.
Y. Yamaguchi, 2009, Leading the news: Fujitsu 22.
targets 10% share of markets for servers,
Asian Wall Street Journal, March 31, 3.
A. Tiwana, 2008, Do bridging ties 23.
complement strong ties? An empirical
examination of alliance ambidexterity,
Strategic Management Journal
,
29
(3):
251–272; R. E. Hoskisson & L. W. Busenitz,
2002, Market uncertainty and learning
distance in corporate entrepreneurship
entry mode choice, in M. A. Hitt,
R. D. Ireland, S. M. Camp, & D. L. Sexton
(eds.), Strategic Entrepreneurship:
Creating a New Mindset, Oxford, UK:
Blackwell Publishers, 151–172.
J. Xia, J. Tan, & D. Tan, 2008, Mimetic 24.
entry and bandwagon affect: The rise
and decline of international equity joint
venture in China, Strategic Management
Journal, 29(2): 195–217.
A. Tudor & A. Lucchetti, 2009, MUFG’s 25.
Hirano takes Morgan Stanley role, Wall
Street Journal, March 12, C5.
Chapter 9: Cooperative Strategy