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Cooperative Implications
for
Strategy
Presented By:
Yogesh Kakra
Prabhu Pareek
IBM
• More than 35,000 employees
• Three core business units-
• System & financing, Software, and services
• Using three means to grow internal development, merger
& acquisition and cooperation
• Cooperative strategy means firms work together to
achieve shared objective
• They improve their services for maximize customer
values and able to improve internally
Strategic Alliances
• Primary type
• Firm combine their resources & capabilities to create
competitive advantage
• Like in insurance sectors- ICICI linked with Prudential,
Max with New York Life, Bajaj with Alliance
• Helps in increase confidence level of customer
• Competitive advantage developed through cooperative
strategy called collaboration advantage
• Enhance firm’s marketplace success
• Three types: Joint venture
• Equity Strategic Alliances
• Non equity Strategic Alliances
Types of Strategic Alliances
• Joint Venture
– Two / more firms create a legally independent company to share
of some resources & capabilities
– Establish long term relationship and transferring knowledge
• Equity Strategic Alliances
– Own different percentage of the company by combining their
resources and capabilities
– Like many foreign direct investments
• Non-equity Strategic Alliances
– Develop contractual relationship to share some unique
resources and capabilities
– Firms do not establish a separate company and do not take
equity position
– Like license agreement, supply contracts, distribution agreement
Reasons for Strategic Alliances
• Slow Cycle
– Gain access to a restricted market
– Establish a franchise in a new market
– Maintain market stability (e.g.. establishing standards)
• 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
Cont…
Reasons for Strategic Alliances
• 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
Cont…
Business-Level Cooperative
Strategies
• Complementary strategic alliances
Vertical
Horizontal
• Competition response strategy
• Uncertainty reducing strategy
• Competition reducing strategy
Cont…
Business-Level Cooperative
Strategies
• Complementary Strategy
• Combine partner firms’ assets in complementary ways to
create new value
• Include distribution, supplier or outsourcing alliances
where firms rely on upstream or downstream partners to
build competitive advantage
• Vertical: Firms agree to use their skills and capabilities in
different stages of the value chain to create value for
both firms
• Outsourcing
Cont…
Cont…
Business-Level Cooperative
Strategies
• Horizontal:
• Partners combine resources and skills to create value in
the same stage of the value chain
• Focus is on long-term product development and
distribution opportunities
• Partners may become competitors
• Eg. Pfizer has reached marketing agreement with two
Indian makers of generic drugs: Aurobindo Pharma Ltd.
and Claris Lifesciences Ltd.
Cont…
Assessment of Cooperative
Strategies
• Complementary business-level strategic alliances,
especially the vertical ones, have the greatest probability
of creating a sustainable competitive advantage
• Horizontal complementary alliances are sometimes
difficult to maintain because they are often between rival
competitors
• Competitive advantages gained from competition and
uncertainty reducing strategies tend to be temporary
Corporate-Level Cooperative
Strategy
• Corporate-level strategies
Help the firm diversify in terms of:
• Products offered to the market
• The markets it serves
Require fewer resource commitments
Permit greater flexibility in terms of efforts to diversify
partners’ operations
Cont…
Corporate-Level Cooperative
Strategy• Diversifying Strategic Alliances
• Expand into new product or market areas without
completing a merger or an acquisition
• Synergistic benefits of a merger or acquisition
– less risk
– greater flexibility
• Assess benefits of future merger between the partners
• Synergistic Strategic Alliances
• Joint economies of scope between two or more firms
• Synergy across multiple functions or multiple businesses
between partner firms
Cont…
Corporate-Level Cooperative
Strategy
• Franchising
• Spreads risks and uses resources, capabilities, and
competencies without merger or acquisition
• A contractual relationship (the franchise) is developed
between the franchisee and the franchisor
• Alternative to growth through mergers and acquisitions
Assessment of Corporate-Level
Cooperative Strategies
• Compared to business-level strategies
– Broader in scope More complex
– More costly
• Can lead to competitive advantage and value when:
– Successful alliance experiences are internalized
– The firm uses such strategies to develop useful
• knowledge about how to succeed in the future
International Cooperative
Strategies
• Cross-border Strategic Alliance
– A strategy in which firms with headquarters in different
nations combine their resources and capabilities to create
a competitive advantage
– A firm may form cross-border strategic alliances to
leverage core competencies that are the foundation of its
domestic success to expand into international markets
International Cooperative
Strategies
• Synergistic Strategic Alliance
– Allows risk sharing by reducing financial investment
– Host partner knows local market and customs
– International alliances can be difficult to manage due to
differences in management styles, cultures or regulatory
constraints
– Must gauge partner’s strategic intent such that the partner
does not gain access to important technology and become
a competitor
Network Cooperative Strategy
• A cooperative strategy wherein several firms agree to
form multiple partnerships to achieve shared objectives
– Stable alliance network
– Dynamic alliance network
• Keys to a successful network cooperative strategy
– Effective social relationships
– Interactions among partners
Assessment of corporate-level
cooperative strategies
• In comparison with business-level strategies
• Usually broader in scope and more complex Also
more challenging and costly
• Can be used to develop useful knowledge about how
to succeed in the future
• Can lead to competitive advantage if they are
managed in ways that are valuable, rare, imperfectly
imitable, and non substitutable
International cooperative strategy
• Cross-Border Strategic Alliance
• International cooperative strategy in which firms with
headquarters in different nations combine some of their
resources and capabilities to create a competitive
advantage
• Can help firms use their resources and capabilities to
create value in locations outside their home market
• Due to limited domestic growth opportunities, firms look
outside their national borders to expand business
• Local partners can help firms overcome liabilities of
moving into a foreign country
Network Cooperative Strategy
• Cooperative strategy wherein several firms agree to form
multiple partnerships to achieve shared objectives
• Very effective when formed by geographically clustered
firms (i.e. Silicon Valley in N. California)
• Firm’s gain access to their partners other partners - so
multiple alliances with multiple partnerships
• Can increase competitive advantage potential as set of
shared resources and capabilities expands
• Can be problematic - could lock firm in with partners and
exclude development of alliances with othersCont…
Network Cooperative Strategy
• Alliance network types: Set of strategic alliance
partnerships resulting from use of a network cooperative
strategy
• Stable alliance network
• Formed in mature industries where demand is
relatively constant and predictable
• Directed primarily toward developing products at a
low cost and exploiting economies of scale and scope
Cont…
Cont…
Network Cooperative Strategy
• Dynamic Alliance Networks
• Used in industries characterized by environmental
uncertainty, frequent product innovations, and short
product life cycles
• Directed primarily toward continued development of
products that are uniquely attractive to customers
Cont…
Competitive Risks with Cooperative
Strategies
Managing Cooperative
Strategies
• Cost minimization management approach
– Formal contracts with partners
– Specify
• How strategy is to be monitored
• How partner behaviour is to be controlled
– Goals that minimize costs and prevent opportunistic
behaviour by partners
Cont…
Managing Cooperative
Strategies
• Opportunity maximization approach
– Maximize partnership’s value-creation opportunities
– learn from each other
– Explore additional marketplace possibilities
– less formal contracts, fewer constraints
Cont…
Thank You