The concept of Coopetition

Simultaneous competition and cooperation

Bachelors Thesis

Department Organization & Strategy

Management summary
Traditionally the relationships between competitors in the industrial market to gain a competitive advantage have been based on competition. Now, a major strategic action is to put together a network of firms to build the set of capabilities necessary to deliver high value to the customer. The way firms assemble this network of firms is through developing strong relationships with other firms who can add value to the market offering. Firms seek access to the necessary resources through cooperation with other firms to improve their competitive position and performance by sharing resources. Next to competing and cooperating there is another relationship between vertical and horizontal actors. Success in todays business world often requires that firms pursue both competitive and cooperative strategies simultaneously in order to gain a competitive advantage. This is called coopetition, and the central question that needs to be answered is; How does coopetition lead to a sustainable competitive advantage for firms? The structure of the thesis contains clear building blocks. Information is given on the different types of competitors relationships that exist. The characteristics of the concept of coopetition are described, as well as the value gained by this type of strategy, and how competition and cooperation are to be balanced. Conflict between individuals can also arise due to the fact that coopetition is a complex strategy. Consequently, coopetition does lead to a competitive advantage and it is up to management to maximize its advantages.

Acknowledgment
I want to thank everyone who has given me a contribution and support in completing this thesis. The group meetings and criticisms were especially important as I was challenged to focus on the important issues concerning this topic.

Index
Management summary.........................................................................................................3 Acknowledgment ................................................................................................................4 Chapter 1 Introduction ..............................................................................................................................................6 1.1 Introduction................................................................................................................6 1.2 Problem indication.....................................................................................................6 1.3 Problem statement......................................................................................................8 1.4 Research questions ....................................................................................................8 1.5 Research design & data collection.............................................................................8 1.5.1 Research design..................................................................................................8 1.5.2 Data collection....................................................................................................9 1.6 Structure of the thesis.................................................................................................9 Chapter 2 Relationships between competitors...................................................................10 2.1 Introduction..............................................................................................................10 2.2 Competitors relationships........................................................................................10 2.3 Horizontal relationships...........................................................................................12 Chapter 3 Coopetition........................................................................................................18 3.1 Introduction..............................................................................................................18 3.2 The concept of Coopetition......................................................................................18 3.3 Forms of interaction in Coopetition ........................................................................20 3.4 Summary..................................................................................................................22 Chapter 4 The benefit of coopetition.................................................................................23 4.1 Introduction..............................................................................................................23 4.2 Value creation..........................................................................................................23 4.3 The balance between cooperation and competition.................................................24 4.4. Individuals in coopetition.......................................................................................25 4.5 Summary..................................................................................................................26 Chapter 5 Conclusion, discussion & recommendations ...................................................27 5.1 Conclusion...............................................................................................................27 5.2 Discussion................................................................................................................28 5.3 Recommendations....................................................................................................29 References..........................................................................................................................30

Chapter 1 Introduction

1.1 Introduction
This document is a bachelor thesis. This thesis will give an addition to the already existing research concerning the various relationships between firms. This chapter contains the baseline on how this research is performed. The problem indication is included in paragraph 1.2, followed by the problem statement in paragraph 1.3. Paragraph 1.4 contains the sub-questions. The research design and data collection are located in paragraph 1.5 and finally in paragraph 1.6 the structure of the thesis is presented.

1.2 Problem indication

In business networks relationships there are two types of relationships between competitors; vertical and horizontal. In the relationships between competitors, Bengtsson and Kock (2000) argue that cooperation and competition are visible, as the different relationships provide the firm with different advantages. There are different types of relationships between competitors in horizontal relationships, and these differ from vertical relationships (Easton and Araujo, 1992). It is important to understand the link between competitors in these relationships and how these firms strive for competitive advantage. Traditionally the relationships between competitors in the industrial market to gain a competitive advantage have been based on competition (Bengtsson & Kock, 1999), but just carefully watching ones competitors is not enough. Now, a major strategic action of the firm is to put together a network of firms to build the set of capabilities necessary to deliver high value to the customer. The way firms assemble this network of firms is through developing strong relationships with other firms who can add value to the market offering (Kothandaraman & Wilson, 2001). Firms seek access to the necessary resources through cooperation with

other firms to improve their competitive position and performance by sharing resources, as 80% of companies find themselves very dependent on external sources for their success (Lichtenthaler & Lichtenthaler, 2004). Cooperation therefore has become increasingly important in the modern business environment. In literature, cooperation among competitors is analyzed and argued to be advantageous. The resources and capabilities of firms are combined and this has in affect that these firms can compete better with their rivals, which can lead to a competitive advantage (Bengtsson & Kock, 2000).

Next to competing and cooperating there is another relationship between vertical and horizontal actors. Success in todays business world often requires that firms pursue both competitive and cooperative strategies simultaneously (Lado, Boyd & Hanlon, 1997). If the elements of cooperation and competition are visible, the relationship between the competitors is named coopetition (Bengtsson & Kock, 2000). Coopetition goes beyond the old rules and combines competition and cooperation to give companies a competitive advantage (Luo, 2007). To give an example, Philips and Sony collaborate to develop and manufacture new DVD players, but compete intensively in other product categories. These firms cooperate on one end and compete on the other end. How and in which situations does a company choose cooperation? What is coopetition and how does it lead to competitive advantage? Since little research has considered that two firms can be involved in and benefit from both cooperation and competition simultaneously (Bengtsson & Kock, 2000), the purpose of this study is to analyze how companies are involved in and take advantage from this kind of relationship. These types of relationships are of strategic importance for managers within competing companies.

1.3 Problem statement

The central question in this thesis is: How does coopetition lead to a sustainable competitive advantage for firms? This research studies the concept of coopetition, to give a better understanding of what it is and its importance to the business environment. The main focus of this research is to analyze the advantages, the elements for success and how the mix of this concept leads to a sustainable competitive advantage. The relationships between competitors will be studied and it will give a clear picture how coopetition influences the nature of business relationships.

1.4 Research questions

The problem statement is divided into three research questions which are: What are the different relationships between competitors in the business network? What are the characteristics of coopetition? How do companies benefit from the effect that coopetition has on the business relationships?

1.5 Research design & data collection

1.5.1 Research design
This research is descriptive in order to ascertain and to be able to describe the characteristics of the variables (Sekaran, 2003), in this case it the concept of coopetition. A qualitative study will be performed to answer the problems

statement. The method that will be used is a literature research; a comprehensive review of published and unpublished literature from secondary data sources (Sekaran, 2003). It will be based on earlier research with additional comments that will be explored. The research questions will be answered with the help of existing theories and literature.

1.5.2 Data collection

This research will contain secondary data, which is the documentation of a comprehensive review of published and unpublished work from secondary sources (i.e. information gathered by other people) of data (Sekaran, 2003). The data is found in academic books, academic papers, journal articles, government publications and study books (Sekaran, 2003). These data are also found in the Online Database of Tilburg University and other databases such as ABIINFROM, JSTOR and Science Direct. A few examples of journals are; Strategic Management journal, Management Science and the journal of Management. These resources are full of theories and studies about the overall environment of a firm. Some of the keywords that are used to find the necessary information are: competitors, cooperation and coopetition. The limitations are that each article was written in a certain perspective and each article must be interpreted in context.

1.6 Structure of the thesis

The basic structural guideline will be stated as follows. Chapter 2 describes the various relationships among the competitors. In chapter 3 the topic of coopetition is analyzed and its characteristics are described. Chapter 4 gives insight on how companies benefit from coopetition and finally the conclusions, discussion and recommendations of this research are presented in chapter 5.

Chapter 2 Relationships between competitors

2.1 Introduction
This chapter describes the relationships between the actors in the business network. First in paragraph 2.2 the various relationships between competitors are addressed. Four types of horizontal relationships among competitors are described in paragraph 2.3 and in paragraph 2.4 the summary is given.

2.2 Competitors relationships

Through interactions with other firms, a firm can develop and expand its business. Inter-firm relationships realize the true potential of the value-creation in business network (Morgan and Hunt, 1994). Relationships between competitors differ depending upon the companies' motives for action and how intensely competitors interact with each other. The degree of distance between competitors is also of importance for the kind of relationship that emerges. The degree of distance can be related to the degree of dependency between competitors, meaning that the more dependant these competitors are on each other, the closer they will work together (Easton, Burrell, Rothschild & Shearman, 1993). Caves and Porter (1977) point out that competition within a business group (or strategic group) is less intensive then between business groups. They argue that competitors within a business group tend to avoid rivalry, because mutual dependence can be more easily understood by firms within the same business group. In business networks relationships there are two types of relationships between competitors; vertical and horizontal (Quintana-Garca & Benavides-Velasco, 2004). In studying business networks, the relationships between competitors have not been analyzed to the same extent as vertical relationships (Bengtsson and Kock, 2000). Even though similarities can be found, vertical and horizontal relationships are, in many senses, totally different types of relationships.

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Cooperative relationships between vertical actors, i.e. buyers and sellers, are easier to grasp as they are usually visible and are built on a distribution of activities and resources among actors in a supply chain. In comparing vertical and horizontal relationships, the vertical ones are often built upon a mutual interest to interact, whereas competitors often are forced to interact with each other, giving rise to rivalry and mutual dependence between them (Bengtsson & Kock, 1999). Horizontal relationships are more informal and invisible in that information and social exchanges are more common than economic exchange. In addition, vertical relationships often contain economic exchange (Easton and Araujo, 1992) which seldom is the case in horizontal relationships as these relationships are built mainly on information and social exchanges. Horizontal relationships can be as important as vertical relationships for a focal firm when carrying out activities in a network context. It is obvious that the trades-offs between cooperation/harmony in vertical relationships and competition/conflict in horizontal relationships, respectively, are of different natures and accordingly have to be managed differently (Gadde, Lars-Erik, Mattsson, Lars-Gunnar, 1987). Contrary to vertical relationships, relationships between competitors often are conflicting, as the interests of competitors often cannot be fulfilled simultaneously. Competitors therefore try to avoid interaction, whereas buyers and sellers try to maintain interaction (Quintana-Garca & Benavides-Velasco, 2004). Competitors are almost always informed about each others movements, often through buyers, but also directly, for example through trade fairs, brochures, meetings, buying competitors products (Bengtsson, 1998). In the relationships between competitors, it has been shown in that both competition and cooperation are advantageous, as actors must compete to a certain extent to make the business network effective and there is a demand for cooperation to create long term relationships (Mattsson, Lars-Gunnar, Lundgren, Anders, 1992; Wilkinson, Ian F., Young, Louise C, 1995).

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2.3 Horizontal relationships

Easton et al. (1993) argue that relationships between competitors differ depending upon the companies' motives for action and how intensely competitors interact with each other, and that the degree of distance between competitors is of importance for the kind of relationship that emerges. When analyzing the nature of the relationships between competitors, four different types of horizontal relationships can be identified (Easton and Araujo, 1992). These are coexistence, competition, cooperation and coopetition.

2.3.1 Coexistence
Bengtsson and Kock (1999) state that this relationship does not include any economic exchange, it includes merely information and social exchanges. The competitors usually know about each other but do not interact with each other. Power is commonly derived from an actor's dominating position or strength, and this means that dependence is present, as the smaller actors are in the hands of the larger actor. There is distance between the competitors, based on psychological factors. Trust must be regarded as high, but informal, as one actor is dependent on the other actor not interfering with him. Norms are informal and quite strong, though the rules of play are not discussed. The competitors' goals are stipulated independently.

2.3.2 Competition
The idea behind competition, one part of the coopetitive relationship, is built on the assumption that individuals act to maximize their own interest (Hobes, 1973). Abrahamsson (1992), states that the assumption that rational ego-centered selfinterest steers human action means that the individual will not participate in collective action. The different self-interests are in conflict with each other, which in consequence mean that people compete against each other to best fulfill their own self-interests. According to Kohn (1986), competition in business is defined as "the effort of two or more parties acting independently to secure the business of a third party by 12

offering the most favorable terms". Bengtsson and Kock (2000), define competition as the conflicting and rivaling relationship between competitors. As the world becomes more complex, the analytical task of managers is also becoming more complex as they can no longer just examine the major competitor, but must examine the network of firms that relate to that competitor (Kothandaraman & Wilson, 2001). Todays business networks are complex gatherings of different kinds of relationships, which mean that the traditional neoclassical way of analyzing competition is no longer valid. A focal firm can be, and usually is, involved in several different relationships at the same time in order to defend its position in the business network (Bengtsson & Kock 2000). It is argued that competition in the future will shift to the network level from the firm level (Kothandaraman & Wilson, 2001), as data suggest that increasingly competition occurs between sets of allied companies rather than between individual firms (Dyer, Kale & Singh, 2001). Competition may stimulate innovation, encourage efficiency, or drive down prices, because in order for companies gain competitive advantage, it is a must to provide the best services to customers (Kohn, 1986). An action-reaction pattern arises as competitors follow each other; if one of the competitors launches a new product line, the other will immediately follow. Interactions are therefore simple and direct (Easton and Araujo, 1992).

2.3.4 Cooperation
During the 1990s markets have become increasingly global, there was a boom in technology, and product life cycles became shorter. As a result, there was a shift in strategy and cooperation became more common and the formation rate of inter-firm collaborations has increased in recent years (Faulkner & Rond, 2000). Cooperation is defined as a joint-action between two parties (Toumela, 1992). During the last decades firms have been approaching each other more often to cooperate, to form innovating strategies and collaborations to achieve a better competitive position (Dunning & Narula, 1995). One of the main reasons companies enter into cooperative agreement is to get a sustainable competitive 13

advantage (Liao, Chang & Lee, 2007). Thus, firms seek access to the necessary resources through cooperation with other firms to improve their competitive position and performance by sharing resources. Cooperation has been a key strategic emphasis since the last decade (Lichtenthaler & Lichtenthaler, 2004) and it must be effectively managed for its benefits to be realized. In a business environment where some businesses would not survive without a partner it important task is how to effectively evaluate and select a partner (Ireland, Hitt & Vaidyanath, 2002). A successful cooperation partner selection can therefore reduce the possible risk and avoid failure results on business cooperation (Liao, Chang & Lee, 2007). Makadok (2001) states that there are two types of competitive advantages created by cooperation. The first one results from a successful collaboration in which complementary resources are integrated to create value. And competitive advantage is developed when a companys cooperation management skills are superior to competitors. Therefore firms can create value by learning how to successfully manage cooperative relationships. According to Easton and Araujo (1992) exchanges are frequent, comprising business, information and social exchange and this relationship has similarities with the value chain and can have a formal or informal character. Formal agreements are present if the competitors have formed partnerships, and informal agreements are built on social norms and trust. These norms, and sometimes formal agreements, adjust the distribution of power and dependence among the competitors, which means that conflicts are rare and furthermore, competitors have common goals. Motives for cooperation A business can strengthen its competitive advantage and increase its market share by forming a cooperative agreement with a partner. Through cooperation businesses can bring to bear significant resources beyond the capabilities of the individual cooperating firms (Byrne, 1993) therefore, the formation rate of inter-

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firm collaborations has increased dramatically in the last decade (Dyer, Kale & Singh, 2001). Often, these partnerships bring together firms with complementary core competencies that enable the firms to enter new markets, deal with trade barriers, and develop new products (Mason, 1993). Jarillo and Stevenson (1991) state that companies are stronger with their partners than they would be on their own; cooperation allows them to divide the costs for developing new products among the cooperating companies. Thus, each company can concentrate on its distinctive competences, while capturing efficiencies in other firms who, in turn, concentrate their efforts in their areas of expertise. These motives are the primary reasons for entering a cooperative arrangement with another company. All these motives emphasize one main purpose; to achieve a sustainable competitive advantage (Dunning & Narula, 1995; Liao, Chang & Lee, 2007; Ireland et al., 2002). The need for external resources is also, however, the main driving force behind establishing long-term cooperative relationships to secure access to unique resources (Hgg, Ingemund, Johanson & Jan, 1982). Through cooperation, companies can gain access to the other firms unique resources or share the cost of developing new unique resources (Kock, 1991). Advantages of cooperation The advantages derive from the motives to form a cooperative agreement. As noted earlier, firms seek to leverage their resources through cooperation to achieve a competitive advantage. Advantages of cooperation can be gained in technology, in global issues, organizationally and financially. Technologically Firms share knowledge on process innovation and product innovation in order to improve each others competitive advantages in respective markets. Firms seek partners with resources that are complementary to their own (Ireland et al., 2002) and so cooperate in jointly developing, sharing, and exploiting various

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operational resources and capabilities. That way specific assets not currently possessed by the firm can be accessed through the partner (Faulkner, 2000). Global Through cooperation, global and regional distribution channels are shared. Thus, initial international expansions of inexperienced firms are objectives that are facilitated (Luo, 2005). These objectives are more easily achieved with a partner (Lado et al., 1997), because companies also share experiences and practice in dealing with local business stakeholders, and in overcoming liabilities of foreignness such as cultural differences (Luo, 2005). Organizationally Firms cooperate in developing, sharing, and exploiting a large array of managerial experience and organizational capabilities. These firms cooperatively develop, transfer, and share managerial knowledge, such as management information systems, team-work programs, output control, and administrative rules and procedures (Luo, 2005), and so through organizational learning it enables an improved strategic position to be achieved (Kogut, 1988). Financially Firms cooperate in intra-corporate financing, as well as sharing experience in managing cash flows, and formulate viable policies toward working capital management (Luo, 2005). This way the need to minimize costs and to spread the financial risk is facilitated (Faulkner, 2000). Through the sharing of financial resources firms can overcome government mandated trade and investment barriers (Contractor & Lorange, 1988). Experience in managing cash flows, capital structure, working capital, assets and foreign exchange is gained (Luo, 2005). Thus, making an extensive use of cooperation lets a company, and this is particularly important for young, fast growing companies, to blow through the limits of sustainable growth, since they do not have to bear all the investments required by the developments (Jarillo & Stevenson, 1991). 16

2.3.5 Coopetition
The next relationship is coopetition and it involves simultaneous cooperation and competition. The focus of this study is on coopetition and is its description and characteristics are further described in the rest of thesis.

2.4 Summary
Through interactions with other firms, a firm can develop and expand its business, as competitors work together to obtain a competitive advantage. Relationships between competitors differ depending upon the companies' motives for action and how intensely competitors interact with each other. In business networks relationships there are two types of relationships between competitors; vertical and horizontal. There are four types of horizontal relationships between competitors that are identified. First, coexistence, in which competitors know each other but do not interact. Secondly, competition, in which competitors compete constantly. Thirdly, cooperation, in which competitors work together with one another and fourthly, coopetition, in which there is simultaneous cooperation and competition between competitors.

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Chapter 3 Coopetition
3.1 Introduction
In this chapter the characteristics of coopetition are described. In paragraph 3.2 a description of the concept coopetition is given. Paragraph 3.3 describes the different forms of interaction in cooperation and paragraph 3.4 summarizes the chapter.

3.2 The concept of Coopetition

Coopetition is an important strategy that goes beyond competition and cooperation to achieve the advantages of both (Brandenburger & Nalebuff, 1996). Through cooperative relationships, rivals work together to collectively enhance performance by sharing resources and committing to common goals in certain domains, for example product-market or value-chain activities. At the same time, they compete by taking independent actions in other domains to improve their own performance (Luo, 2004). Under the coopetition scheme, rivals cooperate in some areas while competing in others (Lou, 2007) Bengtsson and Kock (2000) state that actors involved in coopetition are involved in a relationship that on the one hand consists of hostility due to conflicting interests (i.e. competition) and on the other hand consists of friendliness due to common interests (i.e. cooperation). Barney and Hoskisson (1990) state that companies have unique characteristics and through their own efforts, they can develop new resources and new preconditions for competition. Personnel knowledge and skills, as well as the type of machinery and products are not homogeneous across the population of competitors. Thus, through specific resources a firm can create a competitive advantage and be able to serve customers better than its competitors and to be unique in ways of serving the customers can be means in the development of 18

competitive relationships within an industry. Heterogeneity in resources can promote coopetitive relationships, as unique resources can be advantageous both for cooperation and competition (Kock, 1991). Coopetition can be regarded as an effective way of handling both cooperation and competition between competitors (Bengtsson & Kock, 2000). Consequently cooperation is important for utilizing the companys limited resources in the most efficient way. And through competition, competitors are forced to further develop their products and carrying out their activities in the most efficient way, thereby gives rise to a pressure to develop new products and markets (Ilinitch, Richard & Lewin, 1996). To give a clear picture how coopetition is balanced between competitors an illustration is given in table 3.1. This is an example from an empirical study of Bengtsson and Kock (2000) and it shows in which scenarios companies cooperate and otherwise compete. Table 3.1 Coopetitve relationships (Bengtsson & Kock, 2000)

Bengtsson and Kock (2000) state that in these relationships, competitors cooperate with the input activities and compete in the output activities. As seen in the table, in the lining industry companies worked together to develop new

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materials, but when it came to selling these products each company did it their own way. Each company used its own marketing campaign to sell their products, thus competing with the same companies they cooperated with. In the brewery industry the cooperative and competitive interactions were separated between different parts of the value chain. The competitors compete in the distribution of beer to wholesalers but cooperate in bottle returns. The competitors have also developed a common system of packing that makes cooperation in bottle return easier. The competitors are very positive to the cooperation, as they can achieve a more rational and cost efficient way of solving the problem with the collection of empty bottles. In the Dairy industry all the actors have implemented a joint system of transport containers for the distribution of products. And then each has its own unique way of selling these products, thus in a form of competition. In the relationship of coopetition, competition often takes place close to customers while competitors can cooperate in activities more distant from the customer. Bengtsson and Kock (2000) state that in coopetitive relationships, the closeness of activities to the buyer seems to matter, as their empirical findings, point out that the firms tend to more frequently cooperate in activities carried out at a greater distance from buyers and compete in activities closer to buyers. The driving force behind this behavior is the heterogeneity of resources, as each competitor holds unique resources that sometimes give a competitive advantage and sometimes are best utilized in combination with other competitors resources. For example R&D activities can be carried out in cooperation with a competitor, but when it comes to launching a new product, competitors choose to compete to distinguish the products from each other.

3.3 Forms of interaction in Coopetition

Bengtsson and Kock (2000) state that all coopetitive relationships are complex as they are built around different logics of interaction. The relationship of coopetition can differ depending on the degree of cooperation and the degree of competition. On one hand, it can have a relationship between two competitors consisting only of cooperation. On the other hand, there are 20

relationships between two competitors consisting solely of competition (Lado, Boyd & Hanlon, 1997). Between these two relationships there can be at least three types of coopetitive relationships depending on the degree of cooperation and competition (Quintana-Garca & Benavides-Velasco, 2004). 1. Cooperative-dominated relationships: coopetitive relationships consisting of more cooperation than competition. This strategic behavior represents a situation where relationships between partners consist of more cooperation than competition, seeking mutual benefits by pooling complementary resources, skills, and capabilities. In this case, the common goals are more important than one actors profit maximization or opportunism. Partners contribute to the total created value in the relationships, and they are satisfied with a smaller share of the profit to maintain the relationship (Bengtsson and Kock, 2000). 2. Equal relationships: cooperation and competition are equally distributed. An equal relationship may be explained by structural conditions within an industry that force companies to act in rivalry relatively to each other, such as social conditions and dependence. The dependence between competitors due to structural conditions can explain why competitors cooperate and compete at the same time (Quintana-Garca & Benavides-Velasco, 2004). However, Bengtsson and Kock (2000) state that the two different types of interaction are not divided between counterparts but between activities. This relationship can give rise to internal disagreement and the activities where competitors interact in cooperation and in competition must be separated. 3. Competition-dominated relationships: coopetitive relationships consisting of more competition than cooperation. They reflect a firms orientation to achieve a position of superior performance and to generate competitive advantage over other firms by either manipulating the structural parameters

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of an industry to its advantage (Porter, 1985) or developing difficult to imitate distinctive competencies (Barney, 1991).

3.4 Summary
Coopetition is the term used when cooperation and competition are simultaneously present in a business relationship. Coopetition can be regarded as an effective way of handling both cooperation and competition between competitors. In the relationship of coopetition, competition often takes place close to customers while competitors can cooperate in activities more distant from the customer. The driving force behind this behavior is the heterogeneity of resources, as each competitor holds unique resources that sometimes give a competitive advantage and sometimes are best utilized in combination with other competitors resources. The relationship of coopetition can differ depending on the degree of cooperation and the degree of competition. There a three types of coopetition relationships; cooperative-dominated relationships, equal relationships and competition-dominated relationships.

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Chapter 4 The benefit of coopetition

4.1 Introduction
The way companies benefit from coopetition is of great importance to the thesis. Bengtsson and Kock (2000) observed a few factors that are of importance for the success of the coopetition strategy. These factors are described in this chapter, starting in paragraph 4.2 with the value that coopetition gives firms, followed by importance of the right balance between cooperation and competition in paragraph 4.3. The role of individuals firms with the coopetition strategy is described in paragraph 4.4 and finally the summary is given in paragraph 4.5.

4.2 Value creation

As previously described coopetition strategy concerns inter-firm strategy which allows the firms involved to manage a partially convergent interest and goal structure and to create value by means of coopetitive advantage (Bengtsson and Kock, 2000; Quintana-Garca & Benavides-Velasco, 2004). Dagnino and Padula (2002) state that coopetition leads to value creation and it is considered a twodimension concept. Two kinds of value creation are introduced; knowledge value and economic value. The knowledge value is given by the growth in the inter-firm knowledge stock that the coopetitive strategy is able to grant. The economic value is represented by the added value in terms of inter-firm cost reduction or revenue increase that through the coopetitive strategy is obtained. The benefits in terms of knowledge and economic value outspreading from these kinds of relationships are addressed next. These scholars argue that knowledge value is added by intense communication and information flows, inter-industry new knowledge creation and transfer, which in turn, allow more knowledge stock. Economic value is achieved through reduced aggressive profit and fund sharing arrangements, and through increased R&D investment, workforce training investment, joint R&D and production. Due to the sharing of knowledge and resources in R&D, products are developed in a more efficient manner, which also 23

contributes to the reduction of the costs (Faulkner, 2000). Thus, through the creation in knowledge value and economic value a competitive advantage can be achieved.

4.3 The balance between cooperation and competition

A firm is usually assumed to cooperate with one competitor and compete with another, thereby participating in totally different relationships with different actors. Therefore it is of importance to emphasize both the cooperative and competitive dimensions of a relationship. It is of crucial importance to separate the two different parts of the relationship to manage the complexity and thereby make it possible to benefit from such a relationship (Bengtsson and Kock, 2000). According to Quintana-Garca & Benavides-Velasco (2004), power in the cooperative side of the relationship is based on functional aspects in accordance with the value chain, while in the competitive side of the relationship power is based on the actor's position and strength. Ring and Van de Ven (1992) argue that in a similar manner, dependence arises in two ways. When cooperating, dependence is stipulated in formal agreement. When competing, the dependence is related to the actor's strength and position in the business network, and is more equally distributed. These scholars also state that conflicts are rare in cooperation as the competitors live in harmony, but in competition they arise frequently. There are also clear norms when cooperating, partly based on the formal agreement. When competing, invisible norms are a part of the competition climate. Goals are jointly stipulated when the competitors cooperate, while this is not the case when they compete. Two competitors can complement each other by creating new markets, but will compete when it comes to separating the markets and these kinds of cooperative relationships among firms may actually enhance competition, rather than hinder it (Hunt, 1996). Thus, the advantage of coopetition is the combination of a pressure to develop within new areas provided by competition and access to resources provided by cooperation (Quintana-Garca & Benavides-Velasco, 24

2004).The coopetition strategy has a positive effect on capacity to innovate to a greater extent than pure cooperative or competitive strategy (Bengtsson and Kock, 2000). Lado et al. (1997) state that the syncretism between competition and cooperation will promote greater knowledge seeking, development and progress than either competition or cooperation pursued separately. So, this implies that a proper equilibrium between cooperation and competition may affect success and growth in a positive way.

4.4. Individuals in coopetition

In the coopetition scheme, internal conflicts can arise between cooperative and competitive logics of interaction in the relationships (Bengtsson and Kock, 2000). The internal conflict can be explained by the fact that the meaning that individuals ascribe to their own operations can differ from one individual to another, as individuals exist and act in different contexts that can be more or less competitive or cooperative (Lowerence & Loarch, 1967). This can lead to the development of sub-optimized goals in different functions of the organization. Bengtsson and Kock (2000) argue that the conflict not need be seen as a threat, instead it must be accepted and as issue for managerial considerations within the organization. The goals of individuals can be similar even if different means are used to achieve these ends, as some individuals can use competition as a means to obtain common organizational goals whereas other can use cooperation as a mean to obtain the same goals. These scholars state that it is of great importance to make the individuals within the organization aware of the advantages of cooperation and competition, respectively, to help them accept that different individuals contribute to the coopetitive relationship in different ways, and that they together enhance the business of the firm. An organizations interaction in cooperation and in competition therefore has to be divided between individuals. The goals of the individuals are then jointly stipulated in cooperation, but not, of course, in competition. In their study Bengtsson and Kock (2000) observed that in some cases, the same individuals are involved in both cooperative and competitive activities. These

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scholars argue that in such a case, an intermediate actor, for example, a collective association, is needed to coordinate and define how to compete or how to cooperate with each other. The intermediate actor thereby exhibits a formal logic of interaction collectively agreed upon and accordingly the forming of a strategic alliance around one or the other of the to activities could also be a alternative whereby one of the two parts of the relationship is detached from the hierarchy. It is thereby possible for individuals within the hierarchy and individuals in the alliance to participate in one or other part of the relationship and together to contribute to the maintenance of the coopetitive relationship. Thus, firms have a managerial task on how individuals are to operate in the coopetition strategy, in order to benefit from this type of strategy.

4.5 Summary
There are a few issues that are of importance for the success of the coopetition strategy. Coopetition leads to value creation and it is considered a two-dimension concept; knowledge value and economic value. Knowledge value is gained through intense communication and information flows between firms and economic value is achieved through fund sharing arrangements that leads to lower cost. It is also of importance to emphasize both the cooperative and competitive dimensions of a relationship. It is of crucial importance to separate the two different parts of the relationship to manage the complexity. This implies that a proper equilibrium between cooperation and competition may determine the success of the coopetitive relationship. Finally individuals can not cooperate and compete with each other simultaneous, and therefore the two logics of interactions need to be separated. The two logics of interaction inherent in coopetition can be divided between different units within the firm, but if that is not possible the conflict can instead be controlled and coordinated by a intermediate organization.

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Chapter 5 Conclusion, discussion & recommendations

5.1 Conclusion
How does coopetition lead to a sustainable competitive advantage for firms? The fact is that todays business networks are complex gatherings of different kinds of relationships, which means that the traditional neoclassical way of analyzing competition is no longer valid. Firms are involved in several different relationships at the same time in order to defend their position in the business network. Relationships between competitors differ depending upon the companies' motives for action and how intensely competitors interact with each other. Coopetition is one of four different horizontal relationships which competitors have with each other. Coopetition is an effective way of handling both cooperation and competition between competitors. Cooperation is important for utilizing the companys limited resources in the most efficient and through competition, the competitors are forced to further develop their products and carrying out their activities in the most efficient way thereby gives rise to a pressure to develop new products and markets. The way coopetition works is that the competition often takes place close to customers while competitors cooperate in activities more distant from the customer, thus having both of these relationships working effectively together for gaining a competitive advantage. Coopetition can create value in knowledge and lowering costs which in turn adds economic value, and these can lead to a competitive advantage. In order for the coopetition strategy to succeed there must be a proper balance in the way cooperation and competition are managed. These two must be separated in order to avoid conflicts and thus making it possible for the inter-firm units to stay clear on the goals of each relationship, thus optimizing the advantages of both, and gaining a competitive advantage. In order for the coopetition strategy to be affective the individuals in the firm must contribute to it, by staying clear on the objectives of the different types of

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relationships. Thus, the management of a firm is responsible for allocating and guiding these individuals in this complex strategy. If the management isnt able to reduce to conflict, an intermediate organization should intervene and coordinate the process so that the strategy is affective and competitive advantage is gained.

5.2 Discussion
According to some scholars (Quintana-Garca & Benavides-Velasco, 2004; Bengtsson and Kock, 2000) little research has considered that two firms can be involved in and benefit from both cooperation and competition simultaneously, meaning that there is a lack of empirical research concerning the topic of coopetition. This is an interesting topic since it is of interest to know how the benefits of cooperation and the benefits of competition are combined in one and the same relationship and how such a relationship should be managed. Due to the lack of research, coopetition is only studied in certain industries, such as in the studies of Bengtsson and Kock (2000) and Quintana-Garca and Benavides-Velasco (2004). It is therefore of importance to extend this type of studies to other industries, and to know what different features in these other industries can still lead to a competitive advantage. Though the competitors cooperate and also compete it does not mean that conflicts do not arise and perhaps that even distrust exists. It is also not clear if one of the competitors in the coopetition relationship benefits more then the other. If this is then the case and the advantages of coopetition are not visible, should the other competitor who has little benefit stay in the relationship? The question if coopetition is only a long term relationship is of importance, as it should be known in which situation competitors can break the relationship. All these issues should be considered by a company before it enters into a coopetitive relationship. However, coopetition does add value to companies, as it is regarded to be the most advantageous one, when companies in some respect help each other and to 28

some extent force each other towards more innovative performance. It is the managements task to bring the right balance between cooperation and competition and to resolve internal conflicts between individuals to make it a successful strategy and so gaining a competitive advantage.

5.3 Recommendations
It would be of interest to expand the research in the topic of coopetition. Both qualitative and quantitative studies are needed to penetrate this area of research deeper, as the findings in this study cannot be generalized into a common pattern for all industries. An interesting research question would be to see if the preparedness to cooperate and compete is the same in different lines of business, or if manufacturing industries alone can benefit most from coopetitive relationships. Another important question is when the competitive advantage of using unique resources in activities close to the buyer is lost, as the buyers cannot distinguish between the focal firm and the competitor. Therefore, it is of great importance to further develop the knowledge about this kind of business relationship.

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