9-1 Chapter 9 – Cooperative Strategy

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

9-3 The Age of Alliance Capitalism If you think you can go it alone in todays global economy, you are highly mistaken. Jack Welch, former CEO of General Electric Not all the smart people work for Sun. William Joy, Vice President of R&D, Sun Microsystems

9-4 Cooperative Strategy & Alliances Cooperative Strategy A strategy in which firms work together to achieve a shared objective Strategic alliance A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage Involves the exchange and sharing of resources and capabilities to co-develop or distribute goods and services Requires cooperative behavior from all partners

9-5 Three Types of Strategic Alliances 1. Joint venture Two or more firms create a legally independent company to share resources and capabilities to develop a competitive advantage 2. Equity strategic alliance Two or more firms own a portion of the equity in the venture they have created 3. Nonequity strategic alliance Two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage

9-6 New products, marketing and sales partners Channel partners (corporate sales) Barnes & Noble (in-store stores) Chapters (Canadian bookstores) United Airlines (in-flight coffee) Dreyers (premium coffee ice cream) Pepsico (bottled coffee beverages) Alsea (Mexico) Shinsegne (Korea) Rustan (Philippines) Bonvests (Singapore) Sazaby (Japan) Westin Hotels and Resorts (Coffee served throughout hotel) Host Marriott Services (worldwide airport kiosks and in-hotel coffee cafes) Geographic expansion partners Retail format partners Example for Alliance Strategy

9-7 Business-Level Cooperative Strategy Created to avoid destructive or excessive competition Explicit (illegal) vs Tacit collusion ComplementaryAlliances Competition Response Alliances Uncertainty Reducing Alliances Competition Reducing Alliances Used to hedge against risk and uncertainty Occur when firms join forces to respond to a strategic action of another competitor Combine partner firms assets in complementary ways to create new value

9-8 Corporate-Level Cooperative Strategy A contractual relationship (the franchise) is developed between the franchisee and the franchisor Diversifying Strategic Alliance Synergistic Strategic Alliance Franchising Joint economies of scope between two or more firms Expand into new product or market areas without completing a merger or an acquisition

9-9 International Cooperative Strategy Cross-Border Strategic Alliance International cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage Why cross-border strategic alliances? Multinational corporations outperform firms that operate only domestically Due to limited domestic growth opportunities, firms look outside their national borders to expand business Some foreign government policies require investing firms to partner with a local firm to enter their markets However… International alliances can be difficult to manage due to differences in management, cultures, or regulatory constraints Must gauge partners strategic intent such that the partner does not become a competitor

9-10 Network Cooperative Strategies Evolve in industries with rapid technological change leading to short product life cycles Purpose is often exploration of new ideas Stable Alliance Network Dynamic Alliance Network Long term relationships mature industries where demand is relatively constant predictable Stable networks exploit economies (scale and/or scope) available between the firms

9-11 Example: Star Alliance Characteristics (2004): linking 133 countries, 722 destinations partner total revenue US-$ ,983 employees common branding no cross-shareholding Areas of cooperation: global code-sharing Equipment flight plans spare parts landing rights/airport slots mile collection programs Potential extension on reservation systems cabin crew security systems employee training Lufthansa Varig

9-12 Agenda 1.Introduction to Cooperative Strategy 2.Business-Level Cooperative Strategy 3.Corporate-Level Cooperative Strategy 4.International Cooperative Strategy 5.Network Cooperative Strategy 6.Managing the Risks of Cooperative Strategy

9-13 Cooperative Strategy While you are alone you are entirely your own master, and if you have one companion you are but half your own and the less so in proportion to the indiscretion of his behavior. Leonardo da Vinci Out in the barren plains, cowboys would tie their horses to each other at night, knowing that each horse would pull in a different direction and the group would go nowhere. Wild West Analogy

9-14 Managing Competitive Risks in Cooperative Strategies

9-15 Managing Cooperative Strategies Cost minimization management approach Formal contracts with partners Contracts specify how cooperative strategy is to be monitored and how partner behavior is to be controlled Goals that minimize costs and prevent opportunistic behavior by partners Opportunity maximization management approach Maximize partnerships value-creation opportunities Learn from each other Explore additional marketplace possibilities Less formal contracts, fewer constraints, Requires higher Trust