Chapter 9: Cooperative Strategy - Definition and Benefits

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Chapter 9: Cooperative Strategy
1 What is the definition of cooperative strategy, and why is this strategy important to firms competing in the current competitive landscape?
A cooperative strategy is a means by which companies come together to achieve a shared goal. The strategy creates a strong relationship between firms, thereby increasing their level of competitiveness. It offers value to the customers, which cannot be achieved by the independent firms. The successful use of cooperative strategies also helps firms to increase revenues and outperform their competitors in the market.
2 What is a strategic alliance? What are the major types of strategic alliances that firms form from the purpose of developing a competitive advantage?
A strategic alliance is a cooperative strategy that firms use to increase their competitiveness by combining resources. The firms jointly develop, sell, and service their goods. There are three major types of strategic alliances, namely joint ventures, equity, and non-equity strategic alliances. A joint venture is where two or more firms create a legal company to share their resources. The partners usually own shares and contribute equally amongst themselves. In the equity alliance, firms own a different percentage of shares in the formed company. In non-equity alliance, two or more firms form contractual relationships to share resources and increase their degree of competitiveness.
3 What are the four business-level cooperative strategies? What are the key differences among them?
There are four business-level cooperative strategies. The first one is the complementary strategic alliance that allows firms to share their resources in complementary ways. They exist in two ways. The vertical complementary alliances, in which sharing of resources by firms is done at different stages of the value chain. In horizontal complementary alliances, the resources are shared from the same stage (or stages). Secondly is the competition strategy, in which firms collaborate to launch attacks to directly to counter the actions of their rivals. Thirdly, the uncertainty-reducing strategy which helps firms against the risks of uncertainty, especially while entering new product markets. Last, is the competition reduction strategy, here firms use collusive strategies to reduce competition between them.
4 What are the three cooperative-level cooperative strategies? How do firms use each of these strategies for the purpose of creating a competitive advantage?
There are three types of cooperative-level strategies that are commonly used. They include franchising, diversifying, and synergistic alliances. In franchising, a firm with an established brand (franchisor) licenses its trademark to other businesses (franchisee). The franchisee gains a competitive edge as the brand is already recognized in the market. Diversifying alliances is used by firms to enter new markets either with existing or new products. Diversified alliances require low capital input and reach a wide market scope. The synergistic alliance is used by firms to create economies of scope by sharing their resources. The alliances help firms to satisfy multiple needs.
5 Why do firms use cross-border strategic alliances?
Firms opt to use cross-border alliances due to limited growth in their counties of origin. The cross-border alliances are also less risky than mergers and acquisitions. They help firms create value in locations existing outside their domestic markets. The partners collaborate to produce valuable products that can’t be achieved by independent firms. The foreign firms can also gain tremendous knowledge of the domestic market that they are exploring. A perfect example is Ford and Mahindra, where Mahindra is gaining technological capabilities from ford.
6 What risks are firms likely to experience as they use cooperative strategies?
Previous research indicates that approximately 50 percent of cooperative strategies fail due to risks associated with it. Such risks may occur when a firm misrepresents its resources, particularly the intangible assets. Another risk is the failure of a firm to provide available resources to the partners. Other risks can arise when both firms’ investments are directly specific to the alliance. Without diversity on investments, the alliance is not beneficial and is likely to fail.
7 What are differences between the cost-minimization approach and the opportunity-maximization approach to managing cooperative strategies
In the cost-minimization approach, the partners develop formal contracts that specify how their behaviors are controlled. The contracts elaborate on how the cooperative strategy will be monitored. The ultimate goal is to lower costs and prevent opportunistic behaviors from the partners. On the other hand, the opportunity-maximization approach focuses on the preparedness of partners to jump on the unexpected opportunities of learning from each other and exploring additional marketplace possibilities. Usually, it has few formal contracts, unlike in the cost-minimization approach.
Chapter 8: International Strategy.
1 What incentives influence firms to use international strategies?
The concept of international strategy allows firms to sell their goods and services outside its domestic market. However, the decision of a firm to use the strategy is influenced by factors such as; the firm may decide to venture into the market outside the domestic market to gain access to raw materials that it uses to manufacture its products. The firm might be under increased pressure resulting from the demand for its product in a particular market forcing it to integrate the operations of the business on a global scale to boost the efficiency of service delivery to customers. The strategy also helps in increasing the product’s life cycle, locating a company close to the market increases the shelf life of the goods. The business may decide to venture into a foreign market to tap into the opportunities created by the revolution in technology in that particular market. For instance, the potentially large demand for goods and services in China and India created by the digital economy has seen a rise in the number of firms venturing into those markets.
2 What are the three basic benefits firms can gain by successfully implementing an international strategy?
The International strategy to venture into markets outside domestic provides a lot of opportunities for businesses. The strategy increa...