A cooperative strategy (or cooperation strategy) concerns an attempt by an organization to cooperate with other firms in the achievement of its objectives. Show The cooperation may serve to reduce costs, sure up supply chains, reduce competition, add resources/knowledge/skillsets, and create other synergies. The cooperation can be between suppliers, buyers, unrelated businesses, or even competitors - the antitrust law may be implicated. Generally, this cooperation is carried out in the form of a strategic alliance. Back to: STRATEGY & PLANNING Structure for a Strategic Alliance?The three common structures for a strategic alliance are as follows: Joint VentureA joint venture is similar to a general partnership. Two or more companies come together for a specific purpose for a specific period of time. The companies work together as partners in promoting their business interests. The result is a separate and new legal entity with each company serving as an owner. Equity Strategic AllianceThis is an alliance through which two companies invest money in the other. As such, there is co-ownership between the companies. Generally, the arrangement is a merger of equals and each equity partner receives equal control, authority, recognition, and ownership interest. Non-Equity Strategic AllianceThis is a contractual relationship whereby two or more companies coordinate efforts and share resources. It can also include a commitment concerning operations and the relationship between the companies. Generally, there is no co-ownership between the firms. Any sums of money exchanged or invested are earned as part of service or supply contracts between the companies. Related Topics Strategy
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The Value-added services that differentiate the product from the competition (e.g. after-sales service, warranties)
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A business-level cooperative strategy is a cooperative strategy that affects a firm at business-level. Usually, the use of business-level in context means ways to help firms compete within their current market or market segment. Thus, a firm uses this strategy to cooperate with other firms to better compete within a market. PurposesThe main reason firms use a business-level cooperative strategy is to gain competitive advantage (also called collaborative advantage, relational advantage) in their specific markets. They use this business-level strategy because they believe the resulted competitive advantage is superior to advantages that each of the firms can create independently. Thus, using a business-level cooperative strategy helps firms outperform their rivals in terms of strategic competitiveness and above-average returns. A business-level cooperative strategy may allow firms to enjoy successes that might not otherwise be reached. Firms create unique competitive advantage by combining some of their resources and capabilities with partners. Types of Business-Level Cooperative StrategyComplementary StrategyA complementary strategy is a business-level cooperative strategy that uses a cooperative strategy to create competitive advantage in their current markets. The firms individually could not produce this competitive advantage or cannot do so efficiently. In short, a firm cooperates with others for new competitive advantage. It does this by integrating some of its resources with other firms’ resources. There are two types of complementary strategy: (1) vertical complementary cooperative strategy, and (2) horizontal complementary cooperative strategy. Vertical complementary cooperative strategy is a strategy in which firms come from different stages of the supply chain. A horizontal complementary cooperative strategy is a strategy in which firms come from the same stage of the supply chain. In general, the vertical strategy has a high chance to create a sustainable competitive advantage compared to the horizontal one. Coming from the same stage of the supply chain, firms that cooperate horizontally need to cooperate and compete at the same time. Thus, companies must issue actions and respond simultaneously for cooperation and competition (also called co-opetition). The result can be highly complex and unstable. Also, if firms that are rivals to one another form too many partnerships, governments may suspect explicit collusion activities among the firms. Note that explicit collusion is generally considered illegal in many countries. Competition Response StrategyA competition response strategy is a business-level cooperative strategy that uses a cooperative strategy to respond to competitors’ attacks at business-level. In short, a firm cooperates with others to fight back attacks from its competitors. For example, two firms (A and B) use a cooperative strategy to form a partnership and hold a large portion of shares of their market (brew). This is a competitive attack on other firms operating in the brew market. Other firms (C and D) fight off this attack by using the same cooperative strategy to form a partnership holding a considerable part of the market shares. The strategy of firms C and D is a competition response strategy, while the strategy of A and B is not, even though they are both business-level cooperative strategies. Uncertainty-Reducing StrategyAn uncertainty-reducing strategy is a business-level cooperative strategy that firms use when there is too much risk and uncertainty in their market. In short, a firm cooperates with others so they can better cope with risk and uncertainty. Firms may consider using an uncertainty-reducing strategy when they try to enter new markets, since the risk associated with a market entry is usually high, especially for those markets in emerging countries. For example, a Dutch bank signs a cooperative agreement with a financial institution that provides lending services for developing countries. Through this partnership, the Dutch bank can reduce poverty in the regions where it invests, while also mitigate a major risk of having to provide credit to borrowers in disadvantaged countries and regions. Firms may also consider using a cooperative strategy to deal with risk and uncertainty associated with the research and development of new products, usually the ones with sophisticate and highly advanced technology. For example, a telecom firm joins forces with a software firm to develop software that can satisfy needs in the market. In this partnership, the software firm can reduce its uncertainty about the real market needs and demands for software. Competition-Reducing StrategyA competition-reducing strategy is a business-level cooperative strategy that firms use when they need to reduce competition in the market. It is best to note that any strategy focusing on trying to reduce competition may face investigation from governments (domestic or international). In general, most governments promote free-market and consider any competition-reducing strategy an illegal action. For example, OPEC, as an intergovernmental organization, manages the price and output of oil companies in its member countries. It is mainly to ensure that oil production targets are set at a reasonably competitive level. One of the most well-known forms of competition-reducing strategy is collusion strategy. A collusion strategy is an agreement between firms to reduce their output and raise product prices. This will lead to a market with lower production and higher prices, comparing to those at a fully competitive level. ResourcesFurther ReadingRelated ConceptsReferences
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What are the three corporate level cooperative strategies How do firms use each one to create a competitive advantage?
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