Cooperative Strategy 0

Chapter Ten

© 2006 by Nelson, a division of Thomson Canada Limited. 10-1

 Chapter 3

Strategic
External The Strategic .

Inputs
Environment
The Strategic
Management Process
Strat. Intent
Chapter 4 Strat. Mission
Management .

Internal
Environment
Process
Strategy Formulation Strategy Implementation
Strategic Actions

Chapter 5 Chapter 6 Chapter 7 Chapter 11 Chapter 12

Bus. - Level Competitive Corp. - Level Corporate Structure
Strategy Dynamics Strategy Governance & Control

Chapter 8 Chapter 9 Chapter 10 Chapter 13 Chapter 14

Acquisitions & International Cooperative StrategicEntrepreneurship
Restructuring Strategy Strategies Leadership& Innovation
Outcomes
Strategic

Chapter 2 Chapter 1 Feedback

Above Average Strategic
Returns Competitiveness

© 2006 by Nelson, a division of Thomson Canada Limited. 10-2

 Cooperative Strategy
Knowledge Objectives:
1. Define cooperative strategies & explain why firms use
them.
2. Define & discuss three types of strategic alliances.
3. Name the business-level cooperative strategies &
describe their use.
4. Discuss the use of corporate-level cooperative
strategies & describe their use.
5. Understand the importance of cross border strategic
alliances as an international cooperative strategy.
6. Describe cooperative strategies’ risks.
7. Describe two approaches used to manage cooperative
strategies.
© 2006 by Nelson, a division of Thomson Canada Limited. 10-3
 A Cooperative Strategy

A strategy in which firms work together to

achieve a shared objective.

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Strategic Alliances Firm A
Partnerships between firms Firm B

where their
Resources
Capabilities Core
Competencies
are combined to pursue
mutual interests to
Develop
Goods
Manufacture
Distribute Services

© 2006 by Nelson, a division of Thomson Canada Limited. 10-5

 Types of Strategic Alliances
Joint Venture
Strategic alliance in which two or more firms create a legally
independent company to share some of their resources &
capabilities to develop a competitive advantage.
Domtar & Cascades formed Norampac

Equity Strategic Alliance

Partnership where the 2 partners don’t own equal shares.
Alstream Inc. Microcell & NR Communications

Non-Equity Strategic Alliance

Contract is given to supply, produce or distribute a firm’s
goods or services (without equity sharing).
RIM - Research in Motion’s “Blackberry” services used
on wireless devices worldwide.
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 Reasons for Alliances by Market Type
Slow * Gain access to a restricted market
Cycle * Establish franchise in a new market
* Maintain market stability
Market
* Gain market power
Standard * Gain access to complementary resources
Cycle * Overcome trade barriers
* Meet competitive challenge
Market * Pool resources for large projects
* Learn new business techniques
Fast * Speed-up product, service or market entry
* Maintain market leadership
Cycle * Form an industry technology standard
Market * Share risky R&D expenses
* Overcome uncertainty
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Business-level Cooperative Strategies

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Vertical & Complementary Strategic Alliances

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 Types of Business-level Strategic Alliances

Competition Reduction Strategies

Often illegal types of cooperative strategy which are
used to reduce competition.
Explicit Collusion: When firms directly negotiate
production output & pricing agreements in order to
reduce competition.
Tacit Collusion: When several firms in an industry
indirectly coordinate their production & pricing
decisions by observing each others competitive
actions & responses.

© 2006 by Nelson, a division of Thomson Canada Limited. 10-10

Types of Business-Level Strategic Alliances

Competition Response Strategies

Firms join forces to respond to a strategic action of
another competitor.

Mega Bloks’ agreement with Disney.

Uncertainty Reduction Strategies

Alliances can be used to hedge against risk & uncertainty.

Siemens & Fujitsu – “Fujitsu Siemens Computers”

sharing technical resources & capabilities.

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 Types of Corporate-level Strategic
Alliances
Diversifying Alliances
Allows a firm to expand into a new product or market
area with an acquisition.
Flynn Canada created strategic alliances with
U.S. contractors.
Synergistic Strategic Alliances
Create economies of scope between 2 or more firms, creating
synergy across multiple businesses between firms.
Cisco Systems has many synergistic strategic alliances.
Franchising
Allows firms to grow with relatively strong centralized
control without significant capital investments.
Boston Pizza with 200 restaurants in Western Canada.
© 2006 by Nelson, a division of Thomson Canada Limited. 10-12
 International Cooperative Strategies
 Allows risk sharing by reducing financial investment.
 Host partner knows local market & customs.

However....
 International alliances can be difficult to
manage due to differences in management
styles, cultures or regulatory constraints.
 Must gauge partner’s strategic intent so they
do not gain access to important technology and
become a competitor.
© 2006 by Nelson, a division of Thomson Canada Limited. 10-13
 Network Cooperative Strategy

Alliance network types:

• Stable Alliance network
Built for the exploitation of economies available
between firms.
• Dynamic Alliance network
Used in industries characterised by frequent
product innovations & short product life cycles.

© 2006 by Nelson, a division of Thomson Canada Limited. 10-14

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 partner’s strategic intent.

© 2006 by Nelson, a division of Thomson Canada Limited. 10-15
 Managing Risks in Cooperative Strategies
Competitive Risks

* Inadequate
Inadequate Risk & Asset
contracts
contracts Management
Approaches
* Misrepresentation
Misrepresentation Outcome
of
of competencies
competencies
* Detailed
Detailed
**Partner
Partner fails
failsto
touse
use contracts
contractsand
and Value
complementary
complementary monitoring
monitoring Creation
resources
resources
** Developing
Developing
* Holding
Holding alliance
alliance trusting
trusting
partner’s
partner’s specific
specific relationships
relationships
investments
investments
hostage
hostage

© 2006 by Nelson, a division of Thomson Canada Limited. 10-16