1. Chapter 9
Cooperative Strategy
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
©2000 South-Western College Publishing
Ch9

2. Strategic
Inputs
Chapter 2
External
Environment
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Strategy Implementation
Chapter 4
Business-Level
Strategy
Chapter 5
Competitive
Dynamics
Chapter 6
Corporate-Level
Strategy
Chapter 10
Corporate
Governance
Chapter 11
Structure
& Control
Chapter 7
Acquisitions &
Restructuring
Chapter 8
International
Strategy
Chapter 9
Cooperative
Strategies
Chapter 12
Strategic
Leadership
Chapter 13
Outcomes
Strategic
Strategic
Actions
Strategy Formulation
The Strategic
Management
Process
Feedback
Entrepreneurship
& Innovation
Strategic
Competitiveness
Above Average
Returns
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3. Strategic Alliances
Firm A
Partnerships between firms
where their
Firm B
Resources
Capabilities
are combined to pursue
mutual interests to
Core
Competencies
Develop
Manufacture
Distribute
Goods
Services
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4. 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 firm’s
goods or services (without equity sharing)
Example: Chrysler’s supplier network
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5. Reasons for Alliances by Market Type
Slow
Cycle
Market
Standard
Cycle
Market
Fast
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
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6. Types of Strategic Alliances
Complementary Alliances
BusinessLevel
Competition Reduction Alliances
Competition Response Alliances
Uncertainty Reduction Alliances
CorporateLevel
Diversification Alliances
Synergistic Alliances
Franchising
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7. Types of Business-Level Strategic Alliances
Complementary Strategic Alliances
Supplier Value Chain
Buyer Value Chain
Partnerships that build on the complementarities
among firms that make each more competitive
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
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8. 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
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9. 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
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10. 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: McDonald’s or Century 21
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11. 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 partner’s strategic intent so they do not gain
access to important technology and become a competitor
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12. 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
The three types
of networks:
of networks:
Dynamic Networks
Internal Networks
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13. Network Strategies
Stable network
Long term relationships that often appear in mature
industries with largely predictable market cycles
Example: NIKE’s 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 Boveri’s network
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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 a partner’s strategic intent
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15. Managing Risks in Cooperative Strategies
Competitive Risks
* Inadequate
contracts
* Misrepresentation
of competencies
* Partner fails to use
complementary
resources
* Holding alliance
partner’s specific
investments
hostage
Risk and Asset
Management
Approaches
* Detailed
Outcome
Value
Creation
contracts and
monitoring
* Developing
trusting
relationships
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