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