PUJA
h6000
cap_9_hitt.pptx
PART 2: STRATEGIC ACTIONS:
STRATEGY FORMULATION
CHAPTER 9 COOPERATIVE STRATEGY
Authored by:
Marta Szabo White, PhD.
Georgia State University
THE STRATEGIC MANAGEMENT PROCESS
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KNOWLEDGE OBJECTIVES
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
● Define cooperative strategies and explain why firms use them.
● Define and discuss the three major types of strategic alliances.
● Name the business-level cooperative strategies and describe their use.
● Discuss the use of corporate-level cooperative strategies in diversified firms.
KNOWLEDGE OBJECTIVES
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
● Understand the importance of cross-border strategic alliances as an international cooperative strategy.
● Explain cooperative strategies’ risks
● Describe two approaches used to manage cooperative strategies.
INTRODUCTION
COOPERATIVE STRATEGY
Examples of cooperative behavior known to contribute to alliance success:
Actively solving problems
Being trustworthy
Consistently pursuing ways to combine partners’ resources and capabilities to create value
Collaborative (Relational) Advantage
A competitive advantage developed through a cooperative strategy
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STRATEGIC ALLIANCES AS A PRIMARY TYPE OF COOPERATIVE STRATEGY
Strategic alliance: cooperative strategy in which firms combine resources and capabilities to create a competitive advantage
Three types of strategic alliances
Joint venture
Equity strategic alliance
Nonequity strategic alliances, which include:
Licensing agreements
Distribution agreements
Supply contracts
Outsourcing commitments
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TYPES OF MAJOR STRATEGIC ALLIANCES
Joint venture: two or more firms create a legally independent company to share resources and capabilities to develop a competitive advantage
Optimal when firms need to combine their resources and capabilities to create a competitive advantage that is substantially different from individual advantages, and when highly uncertain, hypercompetitive markets are targeted.
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TYPES OF MAJOR STRATEGIC ALLIANCES
2. Equity strategic alliance: two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities for the purpose of creating a competitive advantage
Many foreign direct investments, such as those companies from multiple countries are making in China, are completed through an equity strategic alliance
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TYPES OF MAJOR STRATEGIC ALLIANCES
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
Separate independent company NOT established, thus no equity positions: less formal, fewer partner commitments, and intimate relationship among partners is not fostered
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
TYPES OF MAJOR STRATEGIC ALLIANCES
1. Joint Venture
EXAMPLE: 1999 - Germany’s Siemens AG and Japan’s Fujitsu Ltd. each owned 50 percent of the joint venture Fujitsu Siemens Computers B.V., later to become Fujitsu Technology Solutions when Fujitsu bought Siemens’ share of the joint venture.
2. Equity Strategic Alliance
EXAMPLE: Japanese telecom operator NTT DOCOMO Inc. and Chinese Internet search operator Baidu Inc. established an equity strategic alliance in China to distribute games and other mobile-phone content.
3. Nonequity Strategic Alliance
EXAMPLES: Licensing agreements, distribution agreements, and supply contracts. Hewlett-Packard (HP) actively uses this type of cooperative strategy to license some of its intellectual property.
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REASONS FIRMS DEVELOP STRATEGIC ALLIANCES
Slow-cycle markets – firm’s competitive advantages are shielded from imitation for relatively long periods of time and where imitation is costly
These markets are close to monopolistic conditions. Railroads and, historically, telecommunications, utilities, financial services, and steel manufacturers are industries characterized as slow-cycle markets.
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REASONS FIRMS DEVELOP STRATEGIC ALLIANCES
Market
Reason
Slow-cycle
Gain access to a restricted market
Establish a franchise in a new market
Maintain market stability (e.g., establishing standards)
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REASONS FIRMS DEVELOP STRATEGIC ALLIANCES
Fast-cycle markets: hypercompetitive, unstable, unpredictable, and complex
Firm’s competitive advantages are not shielded from imitation, preventing their long-term sustainability.
These conditions virtually preclude establishing long-lasting competitive advantages, forcing firms to constantly seek sources of new competitive advantages while creating value by using current ones.
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REASONS FIRMS DEVELOP STRATEGIC ALLIANCES
Market
Reason
Fast-cycle
Speed up development of new goods or service
Speed up new market entry
Maintain market leadership
Form an industry technology standard
Share risky R&D expenses
Overcome uncertainty
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REASONS FIRMS DEVELOP STRATEGIC ALLIANCES
Standard-cycle markets
Competitive advantages are moderately shielded from imitation in these markets, typically allowing them to be sustained for a longer period of time than in fast-cycle market situations, but for a shorter period of time than in slow-cycle markets.
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
REASONS FIRMS DEVELOP STRATEGIC ALLIANCES
Market
Reason
Standard-cycle
Gain market power (reduce industry overcapacity)
Gain access to complementary resources
Establish economies of scale
Overcome trade barriers
Meet competitive challenges from other competitors
Pool resources for very large capital projects
Learn new business techniques
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BUSINESS-LEVEL COOPERATIVE STRATEGY
BUSINESS-LEVEL COOPERATIVE STRATEGY: firms combine some of their resources and capabilities for the purpose of creating a competitive advantage by competing in one or more product markets
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COMPLEMENTARY STRATEGIC ALLIANCES
Vertical Complementary Strategic Alliance
Partnering firms share resources and capabilities from different stages of the value chain to create a competitive advantage
Outsourcing is one example of this type of alliance
Horizontal Complementary Strategic Alliance
Partnering firms share resources and capabilities from the same stage of the value chain to create a competitive advantage
Commonly used for long-term product development and distribution opportunities
The partners may become competitors, which requires a great deal of trust between the partners.
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CORPORATE-LEVEL COOPERATIVE STRATEGIES
Diversifying Strategic Alliance
Firms share some of their resources and capabilities to diversify into new product or market areas
Allows a firm to expand into new product or market areas without completing a merger or acquisition
Provides some of the potential synergistic benefits of a merger or acquisition, but with less risk and greater levels of flexibility
Permits a “test” of whether a future merger between the partners would benefit both parties
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CORPORATE-LEVEL COOPERATIVE STRATEGIES
Synergistic Strategic Alliance
Diversifying Strategic Alliance
Firms share some of their resources and capabilities to create economies of scope
Creates synergy across multiple functions or multiple businesses between partner firms
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CORPORATE-LEVEL COOPERATIVE STRATEGIES
Franchising
Synergistic Strategic Alliance
Diversifying Strategic Alliance
Firm uses a franchise as a contractual relationship to describe and control the sharing of its resources and capabilities with partners
Franchise: contractual agreement between two legally independent companies whereby the franchisor grants the right to the franchisee to sell the franchisor's product or do business under its trademarks in a given location for a specified period of time
Spreads risks and uses resources, capabilities, and competencies without merging or acquiring another company
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INTERNATIONAL COOPERATIVE STRATEGY
CROSS-BORDER STRATEGIC ALLIANCE: an international cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage
● These alliances are sometimes formed instead of mergers and acquisitions, which can be riskier
● Cross-border alliances can be complex and hard to manage
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
NETWORK COOPERATIVE STRATEGY
Network cooperative strategy: a cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared objectives
Stable alliance network
Dynamic alliance network
Effective social relationships and interactions among partners are keys to a successful network cooperative strategy.
Firms involved in networks of alliances use heterogeneous knowledge and are more innovative.
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COMPETITIVE RISKS WITH COOPERATIVE STRATEGIES
FIGURE 9.5
Managing Competitive Risks in Cooperative Strategies
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