Chapter 9

Cooperative Strategy
Michael A. Hitt R. Duane Ireland Robert E. Hoskisson
2000 South-Western College Publishing
Ch9-1

Strategic Inputs

Chapter 2 External Environment Strategic Intent Chapter 3 Internal Environment Strategic Mission

The Strategic Management Process

Strategy Implementation
Chapter 10 Corporate Governance
Chapter 12 Strategic Leadership Chapter 11 Structure & Control Chapter 13
Entrepreneurship

Strategy Formulation
Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 8 International Strategy Chapter 6 Corporate-Level Strategy Chapter 9 Cooperative Strategies

Strategic Actions

Chapter 7 Acquisitions & Restructuring

& Innovation

Outcomes

Strategic

Feedback

Strategic Competitiveness Above Average Returns

Ch9-2

Strategic Alliances Partnerships between firms

where their Resources

Firm A
Firm B

Capabilities are combined to pursue mutual interests to Core Competencies

Develop
Goods Manufacture Distribute

Services
Ch9-3

Types of Strategic Alliances

Joint Venture
Independent firm is created by the joining assets from two other firms where each contributes 50% of the total Example: Dow Corning from Dow Chemical and Corning Inc.

Equity Strategic Alliance

Partnership where the two partners do not own equal shares Example: Chrysler and Mitsubishi Automotive

Non-Equity Strategic Alliance

Contract is given to supply, produce or distribute a firms goods or services (without equity sharing) Example: Chryslers supplier network
Ch9-4

Reasons for Alliances by Market Type

Slow Cycle Market
Gain access to a restricted market Establish franchise in a new market Maintain market stability Gain market power Gain access to complementary resources Overcome trade barriers Meet competitive challenge Pool resources for large projects Learn new business techniques Increase speed of product, service or market entry Maintain market leadership Form an industry technology standard Share risky R&D expenses Overcome uncertainty

Standard Cycle Market

Fast Cycle Market

Ch9-5

Types of Strategic Alliances

Complementary Alliances BusinessLevel Competition Reduction Alliances Competition Response Alliances Uncertainty Reduction Alliances

Diversification Alliances
CorporateLevel Synergistic Alliances Franchising
Ch9-6

Types of Business-Level Strategic Alliances

Complementary Strategic Alliances
Supplier Value Chain

Partnerships that build on the complementarities among firms that make each more competitive

Buyer Value Chain

Vertical Alliance

Include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage

Example: Japanese manufacturers rely on close relationships among suppliers to implement Just-In-Time inventory systems
Ch9-7

Types of Business-Level Strategic Alliances

Complementary Strategic Alliances
Used to increase the strategic competitiveness of the partners
Supplier Value Chain Buyer Value Chain

Horizontal Alliance

Example: Product development agreements between Microsoft and Dreamworks SKG or Joint ventures between BMG Entertainment and Universal Music Ch9-8

Types of Business-Level Strategic Alliances

Competition Reduction Strategies
Avoiding competition by using tacit collusion such as price fixing Example: OPEC petroleum cartel

Competition Response Strategies

Firms join forces to respond to a strategic action of another competitor Example: DirecTV has agreement with Time Warner for exclusive programming

Uncertainty Reduction Strategies

Alliances can be used to hedge against risk and uncertainty Example: ATT acquires Teleport, a provider of telecommunications services to business customers

Ch9-9

Types of Corporate-Level Strategic Alliances

Diversifying Alliances
Allows a firm to expand into a new product or market area with an acquisition Example: Samsung Group joins with Nissan to build new autos

Synergistic Strategic Alliances

Create economies of scope between two or more firms, creating synergy across multiple businesses between firms

Example: Sony shares development with many small firms

Franchising
Allows firms to grow and relatively strong centralized control without significant capital investments Example: McDonalds or Century 21
Ch9-10

International Cooperative Strategies

Allows risk sharing by reducing financial investment Host partner knows local market and customs

However....
International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints Must gauge partners strategic intent so they do not gain access to important technology and become a competitor
Ch9-11

Network Strategies
Network strategies involve a group of interrelated firms that work for the common good of all
Example: Japanese keiretsus or U.S. R&D consortia

Stable Networks

The three types of networks:

Dynamic Networks Internal Networks

Ch9-12

Network Strategies
Stable network
Long term relationships that often appear in mature industries with largely predictable market cycles Example: NIKEs relationships with suppliers and distributors

Dynamic network
Arrangements that evolve in industries with rapid technological change leading to short product life cycles
Example: Apple computer and Sharp electronics

Internal network
Management system used to coordinate a global web of suppliers and customers Example: Asea Brown Boveris network
Ch9-13

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 a partners strategic intent
Ch9-14

Managing Risks in Cooperative Strategies

Competitive Risks * Inadequate
contracts

Risk and Asset Management Approaches * Detailed

contracts and monitoring

Outcome
Value Creation

* Misrepresentation
of competencies complementary resources

* Partner fails to use

* Developing
trusting relationships

* Holding alliance

partners specific investments hostage

Ch9-15