Chapter 9 Cooperative Strategy

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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Chapter 9Cooperative StrategyMichael A. HittR. Duane IrelandRobert E. Hoskisson©2000 South-Western College PublishingCompetitivenessChapter 3InternalEnvironmentChapter 2ExternalEnvironmentThe StrategicManagementProcessStrategic IntentStrategic MissionStrategicCompetitivenessAbove AverageReturnsFeedbackStrategy FormulationChapter 4Business-LevelStrategyChapter 5CompetitiveDynamicsChapter 6Corporate-LevelStrategyChapter 8InternationalStrategyChapter 9CooperativeStrategiesChapter 7Acquisitions &RestructuringStrategy ImplementationChapter 10CorporateGovernanceChapter 11Structure& ControlChapter 12StrategicLeadershipChapter 13Entrepreneurship & InnovationStrategicInputsStrategicActionsStrategic OutcomesPartnerships between firmsare combined to pursuemutual interests toDevelopManufactureDistributeGoodsServicesFirm AFirm Bwhere theirCore CompetenciesCapabilitiesResourcesStrategic AlliancesExample: Dow Corning from Dow Chemical and Corning Inc.Example: Chrysler and Mitsubishi AutomotiveExample: Chrysler’s supplier networkTypes of Strategic AlliancesIndependent firm is created by the joining assets from two other firms where each contributes 50% of the totalJoint VenturePartnership where the two partners do not own equal sharesEquity Strategic AllianceContract is given to supply, produce or distribute a firm’s goods or services (without equity sharing)Non-Equity Strategic AllianceReasons for Alliances by Market TypeSlow Cycle MarketGain access to a restricted marketEstablish franchise in a new marketMaintain market stabilityStandard Cycle MarketGain market powerGain access to complementary resourcesOvercome trade barriersMeet competitive challengePool resources for large projectsLearn new business techniquesFast Cycle MarketMaintain market leadershipForm an industry technology standardShare risky R&D expensesOvercome uncertaintyIncrease speed of product, service or market entryCorporate-LevelDiversification AlliancesSynergistic AlliancesFranchisingTypes of Strategic AlliancesBusiness-LevelComplementary AlliancesCompetition Reduction AlliancesCompetition Response AlliancesUncertainty Reduction AlliancesPartnerships that build on the complementarities among firms that make each more competitiveComplementary Strategic AlliancesSupplier Value ChainBuyer Value ChainInclude distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantageTypes of Business-Level Strategic AlliancesVertical AllianceExample: Japanese manufacturers rely on close relationships among suppliers to implement Just-In-Time inventory systemsUsed to increase the strategic competitiveness of the partnersExample: Product development agreements between Microsoft and Dreamworks SKGSupplier Value ChainBuyer Value ChainComplementary Strategic AlliancesTypes of Business-Level Strategic AlliancesHorizontal Allianceor Joint ventures between BMG Entertainment and Universal MusicExample: OPEC petroleum cartelExample: DirecTV has agreement with Time Warner for exclusive programmingExample: ATT acquires Teleport, a provider of telecommunications services to business customersTypes of Business-Level Strategic AlliancesAvoiding competition by using tacit collusion such as price fixing Competition Reduction StrategiesFirms join forces to respond to a strategic action of another competitorCompetition Response StrategiesAlliances can be used to hedge against risk and uncertaintyUncertainty Reduction StrategiesTypes of Corporate-Level Strategic AlliancesExample: Samsung Group joins with Nissan to build new autosExample: McDonald’s or Century 21Example: Sony shares development with many small firmsAllows a firm to expand into a new product or market area with an acquisitionDiversifying AlliancesCreate economies of scope between two or more firms, creating synergy across multiple businesses between firmsSynergistic Strategic AlliancesAllows firms to grow and relatively strong centralized control without significant capital investmentsFranchisingHowever....International Cooperative StrategiesAllows risk sharing by reducing financial investmentHost partner knows local market and customsInternational alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraintsMust gauge partner’s strategic intent so they do not gain access to important technology and become a competitorDynamic NetworksInternal NetworksNetwork strategies involve a group of interrelated firms that work for the common good of allExample: Japanese keiretsus or U.S. R&D consortiaStable NetworksNetwork StrategiesThe three types of networks:Example: NIKE’s relationships with suppliers and distributorsExample: Asea Brown Boveri’s networkExample: Apple computer and Sharp electronicsNetwork StrategiesLong term relationships that often appear in mature industries with largely predictable market cyclesStable networkArrangements that evolve in industries with rapid technological change leading to short product life cyclesDynamic networkManagement system used to coordinate a global web of suppliers and customers Internal networkCompetitive Risks with Cooperative StrategiesWhile cooperative systems can offer many advantages, there are also significant risks associated with themPoor contract developmentMisrepresentation of partners’ competenciesFailure of partners to make complementary resources availableBeing held hostage through specific investments made with partnerMisunderstanding a partner’s strategic intentCompetitive RisksRisk and Asset Management ApproachesOutcomeValue CreationManaging Risks in Cooperative StrategiesInadequate contractsMisrepresentation of competenciesPartner fails to use complementary resourcesHolding alliance partner’s specific investments hostage****Detailed contracts and monitoringDeveloping trusting relationships**
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