Cooperative Strategy
Download
Report
Transcript Cooperative Strategy
Cooperative Strategy
Week 8
1
Outline
Types of cooperative strategies
Reasons firms develop strategic alliances
Business level cooperative strategies
Corporate level cooperative strategies
International cooperative strategies
Network cooperative strategies
2
Strategic Alliance
Partnerships between firms where their:
Resources
Capabilities
Core
Competencies
are combined to pursue mutual interests to:
Develop
Goods
Manufacture
Distribute
Services
3
Strategic Alliance
The primary cooperative strategy
Explicit forms of relationships between firms
Joint venture
Equity strategic alliance
Non-equity strategic alliance
Implicit forms
Tacit collusion
Mutual forebearance
4
Forms of Strategic Alliance
Joint venture
An independent firm is created by joining the assets of
two separate firms, where each contributes 50% of the
total
Equity strategic alliance
A partnership where the two partners do not own equal
shares
Non-equity strategic alliance
A contract is given to supply, produce or distribute a
firm’s goods or services (without equity sharing)
Includes licensing, distribution agreements, supply
contracts
5
Implicit Cooperative Strategies
Tacit collusion**
Tacit cooperation between firms to reduce
industry output below potential competitive level
to maintain higher prices
Mutual forbearance**
Recognition of interdependence
**Illegal, unless regulated by the government
6
Types of Market
Slow Cycle
Standard Cycle
Fast Cycle
7
Slow Cycle Markets
Markets that are sheltered or are near monopolies.
These are often used in emerging markets with
restricted entry.
Cooperation is often designed to develop
standards.
Government regulation generally is present to
avoid price discrimination.
8
Standard-Cycle Markets
Are often large and oriented toward economies
of scale
Alliances are more likely to be between partners
with complementary resources, capabilities, and
core competencies.
9
Fast-Cycle Markets
Fast-cycle markets are entrepreneurial and
dynamic, with new products or services imitated
rapidly.
10
Reasons for Strategic Alliances
In Slow-cycle markets:
Gaining access to a market that is not open to
other entry strategies
Establishing a franchise in a new market
Maintaining market stability
11
Reasons for Strategic Alliances
In Standard-cycle markets:
Gaining market power
Gaining access to complementary resources
Overcoming trade barriers
Meeting competitive challenges from other
competitors
Pooling resources for very large capital projects
Learning new business techniques
12
Reasons for Strategic Alliances
In Fast cycle markets:
Speeding up the development of goods/services
Speeding up new market entry
Maintaining market leadership
Forming an industry technology standard
Sharing risky R&D expenses
Overcoming uncertainty
13
Types of Strategic Alliance
Complementary Alliances
BusinessLevel
Competition-Reduction Alliances
Competition-Response Alliances
Uncertainty-Reduction Alliances
Diversification Alliances
Corporate
- Level
Synergistic Alliances
Franchising
14
Vertical Complementary Strategic Alliance
Supplier Value
Chain
Buyer Value
Chain
Vertical
Alliance
Partnerships that build on the
complementarities among firms
that make each more
competitive
Include distribution, supplier or
outsourcing alliances where
firms rely on upstream or
downstream partners to build
competitive advantage 15
Horizontal Complementary Strategic Alliance
Arrangement that links similar segments of competing
firms value chains, such as R&D or new product
development
Used to increase the strategic competitiveness of the
partners
Supplier Value
Chain
Horizontal
Alliance
Buyer
Value Chain
16
Competition Reduction Strategies
Avoiding competition by using tacit collusion
such as price fixing
Cartels such as OPEC, manufacturing and
distribution cartels in Japan, industry trade
organisations
17
Competition Response Strategies
Established to enable partner firms to respond to
major strategic actions initiated by their
competitors
18
Uncertainty Reduction Strategies
Alliances can be used to hedge against risk and
uncertainty
Used particularly in fast cycle markets
19
Competitive advantage?
Alliances to reduce competition are only likely to
achieve average returns
Complementary alliances (especially vertical)
are more likely to create competitive advantage
when they lead to combined complementary
resources that reduce costs or create
competitive advantage.
Uncertainty reducing strategies historically
resulted in competitive parity and average
returns
20
Corporate level cooperative strategies
Designed to facilitate product and market
diversification
Diversifying
Synergistic
franchising
21
Synergistic Strategic Alliances
Create joint economies of scope
Are similar to horizontal acquisitions at the
business level
Create synergy across multiple functions
22
Franchising
Cooperative strategy to spread risk and use
resources, capabilities and competencies
productively without merging with or acquiring
another company.
Allows firms to grow and enables relatively
strong centralised control without significant
capital investment
23
Franchising
Spreads risk and shares resources (including
knowledge)
In Australia, about 25% of retail volume comes from
franchised operations, while in the USA this figure is
around 40%
The future of new business is likely to be franchising
because of the associated efficiencies
An interesting corollary is the spread of national
culture: McDonalds, for example, provides a powerful
cultural message
24
International Cooperative Strategies
May create more value than if the business
operated as a separate entity
Growth when these opportunities are limited
within the firms home nation
Allows risk sharing by reducing financial
investment
Host partner knows local market and customs
25
But..
More complex and risky than domestic alliances
More likely to fail
Difficult to manage due to differences in
management styles, cultures or regulatory
constraints
Require significant processing of information to
enhance partners ability to cooperate
Must gauge partner’s strategic intent so they do
not gain access to important technology and
become a competitor
26
Network Strategies
Network strategies involve a group of
interrelated firms that work for the common good
of all
Three types
Stable
Dynamic
Internal
27
Network Strategies
Stable
Long-term relationships that often appear in
mature industries with largely predictable market
cycles
Dynamic
Arrangements that evolve in industries
experiencing rapid technological change leading
to short product life-cycles
Internal
A management system used to coordinate a
global web of suppliers and customers
28
Cooperative Buying Online
New technology facilitates cooperative
strategies: for example, on-line buying and
computer networking means cooperation to buy
goods is easier
Fourteen of Australia’s largest companies are in
a cooperative-buying operation: the buying
power they achieve lowers prices
29
Competitive Risks
Inadequate contracts
Misrepresentation of competencies
Partners failing to make complementary
resources available
Being held hostage through specific investments
made with a partner
Misunderstanding a partner’s strategic intent
30
Managing Competitive Risks
Risks can be managed
Detailed contracts, but
Costly
May prevent from taking opportunities
Monitoring
Developing trusting relationships
31
Managing Competitive Risks
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
contracts and
monitoring
* Developing
trusting
relationships
Outcome
Value
Creation
32
Trust as a Strategic Asset
Creates confidence
More predictable partner actions
Less resources to monitor and control the
alliance
Valuable, rare, imperfectly imitable and often
non-substitutable
33
Managing Alliances: Strategic approaches
Cost-minimisation
Value creation maximisation
34
Cost Minimisation
Cost minimisation requires:
Capabilities to create effective partner contracts
Contract monitoring capabilities
35
Value-maximisation
Partners with complementary assets
Emphasises trust
36