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Chapter 9

COMM 315 Chapter Notes - Chapter 9: Tacit Knowledge, Franchising, Tacit Collusion

Course Code
COMM 315

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Chapter 9- Cooperative Strategy
Recognized as viable engine of firm growth, a cooperative strategy is a means by which firms work
together to achieve a shared objective.
Cooperative strategies:
oStrategic alliances: cooperative strategy in which firms combine some of their resources and
capabilities to create a competitive advantage.
oCollusive alliances: two or more firms cooperate to increase prices above the fully competitive
I. Strategic Alliances as a Primary Type of Cooperative Strategy
Strategic alliances: cooperative strategy in which firms combine some of their resources and
capabilities to create a competitive advantage.
Thus, strategic alliances involve firms with some degree of exchange and sharing of resources
capabilities to co-develop, sell, and service goods or services.
A competitive advantage developed through a cooperative strategy often is called a collaborative or
relational advantage.
Rapid technological changes and the global economy are examples of favors challenging firms to
constantly upgrade current competitor advantages while they develop new ones to maintain strategic
For all cooperative arrangements, success is more likely when partners behave cooperatively.
Examples of cooperative behaviour know to contribute to alliance success: actively solving
problems, being trustworthy, and consistently pursuing ways to combine partners’ resources and
capabilities to create value.
II. 3 types of Strategic Alliances:
Joint venture: is a strategic alliance in which 2 or more firms create a legally independent company to
share some of their resources and capabilities to develop a competitive advantage.
oAre often formed to improve firms’ abilities to compete in uncertain competitive environments,
are effective in establishing long-term relationships and in transferring tacit knowledge.
oTypically, partners in a join venture own equal percentages and contribute equally to the
venture’s operations.
Equity strategic alliance: is an alliance in which 2 or more firms own different percentages of the
company they have formed by combining some of their resources and capabilities to create a
competitive advantage. (Partners who own different percentages of equity in a separate company they
have formed.)
Nonequity strategic alliance: is an alliance in which 2 or more firms develop a contractual relationship
to share some of their unique resources and capabilities to create a competitive advantage.
oIn this type of alliance, firms do not establish a separate independent company and therefore do
not take equity position.
oForms of nonequiety strategic alliances include licensing agreements, distribution agreements,
supply contracts, outsourcing commitments (the purchase of a value-creating primary or support
activity from another).

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III. Reasons Firms Develop Strategic Alliances
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, fast-cycle, and standard-cycle markets find
firms using cooperative strategies to achieve slight different objectives.
Slow cycle markets: are markets where the firm’s competitive advantage are shielded from imitation
for relatively long periods of time and where imitation is costly.
oAre becoming rare due to privatization of industries and economies, the rapid expansion of the
Internet’s capabilities for the quick dissemination of information, and the speed with which
advancing technologies make quickly imitating even complex product possible.
oThus, future likelihood that there competitive advantages become partially sustainable
(standard-cycle markets) or unsustainable (fast-cycle markets).
oCooperative strategies can be helpful to firms transitioning from relatively sheltered markets to
more competitive ones.
Fast-cycle markets: the firm’s competitive advantages are not shielded from imitation, preventing their
long-term sustainability.
oFast-cycle markets are unstable, unpredictable, and complex; in a word, “hypercompetitive”.
oForces firms to constantly seek sources of new competitive advantages while creating value by
using current ones.
oAlliances between firms with current excess resources and capabilities and those with promising
capabilities help companies compete in fast-cycle markets to effectively transition from present
to the future and to gain rapid entry into new markets—“collaboration mindset”.
Standard-cycle markets: competitive advantages are moderately shielded from imitation.
oAlliances are more likely to be made by partners with complementary resources and
Market Reason
Slow-Cycle • Gain access to a restricted market
• Establish a franchise in a new market
• Maintain market stability (such as establishing
Fast-Cycle • Speed up development of new goods or services
• Speed up new market entry
• Maintain market leadership
• Form an industry technology standard
• Share risky R&D expenses
• Overcome uncertainty
Standard-Cycle • Gain market power (reduce industry overcapacity)
• Gain access to complementary resources
• Establish better economies of scale
• Overcome trade barriers
• Meet competitive challenges from other competitors
• Pool resources for very large capital projects
• Learn new business techniques
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