Pamantasan ng Lungsod ng Maynila (University of City of Manila) Intramuros Manila, Philippines GRADUATE SCHOOL OF MANAGEMENT

Cooperative Strategy

In Partial Fulfilment Of the Requirements for the Subject Corporate Planning Submitted by: Charmaine C. Pastrana

Dr. Cecile S. Garcia Professor

April 9, 2012

Cooperative Strategy
A strategy in which firms work together to achieve a shared objective. Thus, cooperating with other firms work together is another strategy firms use to create value for a customer that exceeds the cost of providing that value and to establish a favorable position relative to competition. The intentions of serving customers better than competitors drive a firm to use a cooperative strategy.

Strategic Alliance
A Cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage. Thus, strategic alliance involves firms in some degree of exchange and sharing of resources and capabilities to co-develop, sell, and service goods or services. Strategic alliances allow firms to leverage their existing resources and capabilities while working with partners to develop additional resources and capabilities as the foundation for new competitive advantages. To be certain, the reality today is that strategic alliances have become a corner stone of many firms competitive strategy. A competitive advantage developed through a cooperative strategy often is called a collaborative or relational advantage. Competitive advantages enhance the firms marketplace success. Rapid technological changes and the global economy are examples of factors challenging firms to constantly upgrade competitive advantages while they develop new ones to maintain strategic competitiveness. Example Company that entered into strategic partnership with Motorola Inc. is the Apple Inc. Motorola is the world leader in the production of memory chip, thus Apple Inc. engaged into strategic alliance with them to sustain their needs. For all cooperative arrangements, including this example, success is more lightly when partners behave cooperatively when interacting with one another. Actively solving problems, being trustworthy, and consistently pursuing ways to combine partners resources and capabilities to create value are examples of cooperative behavior known to contribute to alliance success.

Three Types of Strategic Alliances

1. Joint venture a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. Joint ventures, which are often formed to improve firms abilities to compete in uncertain competitive environments, are effective in establishing long term relationship and in transferring tacit knowledge. Because it cant be codified, tacit knowledge is learned through experiences such as those taking place when people from partner firms work together in a joint venture. Example is the joint venture of Philip Morris Manufacturing Inc. and Fortune Tobacco Corp. which created new monopoly in the Philippine Tobacco Industry. This joint venture own equal percentages and contribute equally to the ventures operations.

2. Equity Strategic Alliance an alliance in which two or more firms on different percentage of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. For example, Citigroup Inc. and Nikko Corporation formed a comprehensive strategic alliance with the intension of creating one of Japans leading financial services groups and to enable to combined franchise to

pursue important new growth opportunities, giving due respect to Japanese culture and business practices. Citigroup was to have the majority ownership stake in this alliance. 3. Nonequity Strategic Alliance an alliance in which two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage. In this type of alliance, firms do not establish a separate independent company and therefore do not take equity positions. Forms of nonequity strategic alliances include licensing agreements, distribution agreements and supply contracts. Hewlett-Packard (HP), which actively partners to create new markets and new business model, licenses some of its intellectual property through strategic alliances. Typically, outsourcing commitments are specified in the form of a nonequity strategic alliance.

Reasons Firms Develop Strategic Alliances

Cooperative strategies are an integral part of the competitive landscape and are quite important to many companies. It allows partners to create value that they couldnt develop by acting independently and to enter markets more quickly and with greater market penetration possibilities. The effects of the greater use of cooperative strategies particularly in the form of strategic alliances are noticeable. In large firms, for example, alliances can account for 25% or more of sales revenue. And many executives believe that alliances are a prime vehicle for firm growth. In summary we can note that firms form strategic alliances to reduce competition, enhance their competitive capabilities, gain access to resources, take advantage of opportunities, build strategic flexibility, and innovate. To achieve these objectives they must select the right partners and develop trust. The individually unique competitive conditions of slow-cycle, fastcycle, and standard-cycle markets find firms using cooperative strategies to achieve slightly different objectives.

Slow-cycle Markets
Markets where the firms competitive advantages are shielded from imitations for relatively long periods of time and where an imitation is costly. Firm in this market often use strategic alliance to enter restricted markets or to establish franchises in new markets. The truth of the matter is that slow-cycle markets are becoming rare in the twenty-first century competitive landscape for several reasons, including the privatization of industries and economies, the rapid expansion of the internets capabilities for the quick dissemination of information, and the speed with which advancing technologies make quickly imitating even complex products possible. Cooperative strategies can be helpful to firms transitioning from relatively sheltered markets to more competitive ones.

Fast-cycle Markets
The firms competitive advantages arent shielded from imitation, preventing long-term sustainability. This market is unstable, unpredictable and complex. Combined, these conditions virtually preclude establishing long-lasting competitive advantages, forcing firms to constantly seek sources of new competitive advantages while creating value by using current ones. Alliances between firms with current excess resources and capabilities and those with promising capabilities help companies competing in fast-cycle markets to effectively transition from the present to the future and gain rapid entry to new markets. The information technology (IT)

industry is a fast-cycle market, motivating firms to form partnerships as a way to effectively cope with the changes occurring in this market setting.

Standard-cycle Markets
Competitive advantages are moderately shielded from imitation in this market, typically allowing them to be sustained for a longer period of time than in fast-cycle market situations, but for a shorter period of time than in slow-cycle markets. In this market, alliances are more likely to be made by partners with complementary resources and capabilities.

Business-Level Cooperative Strategy

A firm uses this strategy to grow and improve its performance in individual product markets. The four business-level cooperative strategies are the following: 1. Complementary Strategic Alliances are business-level alliances in which firms share some of them resources and capabilities in complementary ways to develop competitive advantages. Vertical and horizontal are the two types of complementary strategic alliances. a. Vertical Complementary Strategic Alliances firms share their resources and capabilities from different stages of the value chain to create a competitive advantage. Example Company is the Campaign and Grey. It is a marketing communications company in the Philippines. It provides advertising, strategic planning, public relations, digital marketing, communication for advocacies, graphic design, pre-press etc. to many companies here in the Philippines such as Sun Cellular, Procter & Gamble, SM Super Malls, Universal Robina Corporation, and Wyeth Philippines. b. Horizontal Complementary Strategic an alliance in which firms share some of them resources and capabilities from the same stage of the value chain to create a competitive advantage. Commonly, firms use complementary strategic alliances to focus on long-term product development and distribution opportunities. 2. Competition Response Strategy strategic alliances can be used at the business level to respond to competitors attacks. Because they can be difficult to reverse and expensive cooperate, strategic alliances are primarily formed to take strategic rather than tactical actions and to respond to competitors actions in a like manner. 3. Uncertainty-Reducing Strategy some firms use business-level strategic alliances to hedge against risk and uncertainty, especially in fast-cycle markets. Also, they are used where uncertainty exists, such as in entering new product markets of emerging economies. 4. Competition-Reducing Strategy used to reduce competition, collusive strategies differ from strategic alliances in that collusive strategies are often an illegal type of cooperative strategy. Two types of collusive strategies are explicit collusion and tacit collusion.

a. Explicit Collusion when two or more firms negotiate directly with the intention of jointly agreeing about the amount to produce and the price of the products that are produced. Firms that use this strategy may find others challenging their competitive actions. Any firm that may use explicit collusion as strategy should recognize that competitors and regulatory bodies might challenge the acceptability of their competitive actions. b. Tacit Collusion it exists when several firm in an industry indirectly coordinate their production and pricing decisions by observing each others competitive actions and responses. It results in production output that is below fully competitive levels and above fully competitive prices. Unlike explicit collusion, firms engaging in tacit collusion do not directly negotiate output and pricing decisions.

Assessment of Business-Level Cooperative Strategies

Firms use business-level strategies to develop competitive advantages that can contribute to successful positions and performance in individual product markets. To develop a competitive advantage using an alliance, the resources and capabilities that are integrated through the alliance must be valuable, rare, imperfectly imitable, and nonsubstitutable. Evidence suggests that complementary business-level strategic alliances, especially 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 rivalrous competitors. In this instance, firms may feel a push toward and pull from alliances. Although strategic alliances designed to respond to competition and to reduce uncertainty can also create competitive advantages, these advantages are often are more temporary than those developed through complementary (both vertical and horizontal) strategic alliances. The primary reason is that complementary alliances have a stronger focus on creating value than do competition-reducing and uncertainty-reducing alliances, which are form to respond to competitors actions or reduce uncertainty rather than to attack competitors. Of the for business-level cooperative strategies, the competition-reducing strategy has the lowest probability of creating a sustainable competitive advantage.

References:

Strategic Management (Competitiveness and Globalization: Concepts and Cases) 7th Edition by Michael Hitt, R. Duane Ireland and Robert E. Hoskisson
http://en.wikipedia.org/wiki/AIM_alliance http://articles.marketwatch.com/2010-02-25/news/30936127_1_importantcigarette-market-philip-morris-international-joint-venture http://www.abs-cbnnews.com/business/02/25/10/philip-morris-fortune-tobaccomerge-rp-operations http://en.wikipedia.org/wiki/Nikko_Citigroup http://en.wikipedia.org/wiki/Campaigns_%26_Grey