Chapter 9:

Cooperative Strategy
 Cooperative Strategy
A cooperative strategy is a means by which firms collaborate to
achieve a shared objective. Cooperating with other is a strategy a
firm uses to create value for a customer that it likely could not create
by itself.
Firms also try to create competitive advantages when using a
cooperative strategy .A competitive advantage develop through a
cooperative strategy often is called a collaborative or relational
advantage, indicating that the relationship that develops among
collaborating partners is commonly the basis on which to build a
competitive advantage.
 9-1a Strategic Alliances as a Primary Type of Cooperative Strategy
A strategic alliance is a cooperative strategy in which firms
combine some of their resources to create a competitive
advantage. Strategic alliances involve firms with some
degree of exchange and sharing of resources to jointly
develop, sell, and service goods or services.
 Types of Major Strategic Alliances
Joint ventures, equity strategic alliances, and non-equity strategic
alliances are the three major types of strategic alliances that firms
use. The ownership arrangement is a key.
A joint venture is a strategic alliance in which two or more firms
create a legally independent company to share some of their
resources to create a competitive advantage.
 Types of Major Strategic Alliances
An equity strategic alliance is an alliance in which two or more firms own
different percentages of a company that they have formed by combining some
of their resources to create a competitive advantage. As with most alliances, the
partners are seeking complementary resources and/or capabilities, hopefully
allowing them to learn from each other.
A non-equity strategic alliance is an alliance in which two or more firms develop
a contractual relationship to share some of their resources to create a
competitive advantage.
 9-1b Reasons Firms Develop Strategic Alliances
There are many reasons firms choose to participate in strategic alliances. We
mention two key reasons here and discuss additional ones below by explaining
how strategic alliances may help firms improve their competitiveness while
competing in either slow-, fast-, or standard-cycle markets.
The first important reason firms form strategic alliances is to create value they
couldn't generate by acting independently and entering markets more rapidly.
Those forming this alliance, called Pangaea, concluded that the collaboration
would help the firms efficiently expand on a global basis.
A second major reason firms form strategic alliances is that most (if not all)
companies lack the full set of resources needed to pursue all identified
opportunities and reach their objectives in the process of doing so on their own.
 9-1b Reasons Firms Develop Strategic Alliances
Slow-cycle markets are markets where the firm's competitive advantages are
shielded from imitation for relatively long periods of time and where imitation is
costly, Railroads and, historically, telecommunications, utilities, and financial
services are industries characterized as slow-cycle markets.
In fast-cycle markets, the firm's competitive advantages are not shielded from
imitation, preventing their long-term sustainability.
Competitive advantages are moderately shielded from imitation in standard-
cycle 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.
9-2 Business-Level Cooperative Strategy
A business-level cooperative strategy is a strategy through which firms combine
some of their resources to create a competitive advantage by competing in one
or more product markets. The firm forms a business-level cooperative strategy
when it believes that combining some of resources with those of one or more
partners will create competitive can't create alone and will lead to success in a
specific product four business-level cooperative strategies in Figure 9.2.
9-2a Complementary Strategic Alliances
Complementary strategic alliances are business-level alliance since in which
firms share some of their resources in complementary ways to create a Vertical
and Horizontal are the two dominant types of complementary strategic
alliances.
COMPLEMENTARY STRATEIC ALLIANCES
• VERTICAL
• HORIZONTAL

COMPLETITION-RESPONSE STRATEGY

UNCERTAINTE-REDUCING STRATEGY

COMPETITION-REDUCING STRATEGY
Vertical Complementary Strategic Alliance
In a vertical complementary strategic alliance, firms share some of
their resources from different stages of the value chain to create a
competitive advantage. Oftentimes, vertical complementary
alliances are formed to adapt to environmental changes; sometimes
the changes represent an opportunity for partnering firms to
innovate while adapting.
 Horizontal Complementary Strategic Alliance
A horizontal complementary strategic alliance is an alliance in which
firms share some of their resources from the same stage (or stages)
of the value chain for creating a competitive advantage.
Pharmaceutical companies make frequent use of this type of
alliance.
Commonly, firms use complementary strategic alliances to focus on
joint long- term product development and distribution
opportunities.
9-2b Competition Response Strategy
As discussed in Chapter 5, competitors initiate competitive
actions (strategic and tactical) to attack rivals and launch
competitive responses (strategic and tactical) to their
competitors' actions. Strategic alliances can be used at the
business level to respond to competitors' attacks.
 9-2c Uncertainty-Reducing Strategy
Firms sometimes use business-level strategic alliances to hedge
against risk and uncertainty, especially in fast-cycle markets. These
strategies are also used where uncertainty exists, such as in entering
new product markets, especially those within emerging economies.
The development of new products to enter new markets and the
entry into emerging markets often carry with them significant risks.
Thus, to reduce or mollify these risks, firms often develop R&D
alliances and alliances with emerging market firms, respectively.
9-2d Competition-Reducing Strategy
Used to reduce competition, collusive strategies differ from strategic alliances in that collusive
strategies are often an illegal cooperative strategy. Explicit collusion and tacit collusion are the
two types of collusive strategies.
Explicit collusion exists when two or more firms negotiate directly to jointly agree about the
amount to produce as well as the prices for what is produced. Explicit collusion strategies are
illegal in the United States and most developed economies (except in regulated industries).
Tacit collusion exists when several firms in an industry indirectly coordinate their production and
pricing decisions by observing each other's competitive actions and responses. Tacit collusion
tends to take place in industries dominated by a few large firms. Mutual forbearance is a form of
tacit collusion in which firms do not take competitive actions against rivals they meet in multiple
markets. Rivals learn a great deal about each other when engaging in multimarket competition,
including how to deter the effects of their rivals' competitive attacks and responses
 9-2e Assessing Business-Level Cooperative Strategies
Firms use business-level cooperative strategies to develop
competitive advantages that can contribute to successful positions in
individual product markets.
9-3 Corporate-Level Cooperative Strategy
A corporate-level cooperative strategy is a strategy through
which a firm collaborates with one or more companies to
expand its operations. Diversifying alliances, synergistic
alliances, and franchising are the most commonly used
corporate-level cooperative strategies.
9-3a Diversifying Strategic Alliance
A diversifying strategic alliance is a strategy in which firms share some of their resources to
engage in product and/or geographic diversification.

9-3b Synergistic Strategic Alliance

A synergistic strategic alliance is a strategy in which firms share some of their resources to create
economies of scope.
9-3c Franchising
Franchising is a strategy in which a firm (the franchisor) uses a franchise as a contractual
relationship to describe and control the sharing of its resources with its partner (the
franchisees).
A franchise is a form of business organization in which a firm that already has a successful
product or service (the franchisor) licenses its trademark and method of doing business to other
businesses (the franchisees) in exchange for an initial franchise fee and an ongoing royalty rate.
9-3d Assessing Corporate-Level Cooperative Strategies
Costs are incurred to implement each type of cooperative strategy.
9-4 International Cooperative Strategy
In the new competitive landscape, firms use cross-border
transactions for several purposes.
A cross-border strategic alliance is a strategy in which firms with
headquarters in different countries decide to combine some of their
resources to create a competitive advantage.
 9-5 Network Cooperative Strategy
A network cooperative strategy is a strategy which several firms
agree to form multiple partnerships to achieve shared objectives.
The set of strategic alliance partnerships that firms develop when
using a network cooperative strategy is called an alliance network.
A stable alliance network is formed in mature industries where
demand is relatively constant and predictable.
Dynamic alliance networks are used in industries characterized by
frequent product innovations and short product life cycles.
 9-6 Competitive Risks with Cooperative
Strategies
•Partners may choose to act opportunistically
•Partner competencies may be misrepresented
•One partner may make investments specific to the alliance while the
other partner may not
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.
9-7 Managing Cooperative Strategies
Although they are difficult to manage, cooperative
strategies are an important means of growth and enhanced
firm performance. 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 likelihood that the strategies will
be well managed.
9-7 Managing Cooperative Strategies
Cost minimization and opportunity maximization are the two
primary approaches firms use to manage cooperative strategies.
In the cost-minimization approach, the firm develops formal
contracts with its partners. The goal of the cost-minimization
approach is to minimize the cooperative strategy's cost and to
prevent opportunistic behavior by a partner.
Maximizing a partnership's value-creating opportunities is the focus
of the opportunity-maximization approach. Partners need a high
level of trust that each party will act in the partnership’s best
interest, which is more difficult in international situations.
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