Cooperative nature is an association with other companies to out-perform competitors. There are two cooperative strategies; Collusion and Strategic Alliances.
It is the active cooperation of firms within an industry to reduce output and raise prices in order to get around the normal economic law of supply and demand. Collusion may be explicit, in which case firms cooperate through direct communication and negotiation, or tacit, in which case firms cooperate indirectly through an informal system of signals. The act of collusion involves people or companies which would typically compete against one another, but who could conspire to work together to gain an unfair market advantage. The colluding parties may collectively choose to influence the market supply of a good or agree to a specific pricing level.
A strategic alliance is a long-term cooperative arrangement between two or more independent firms or business units that engage in business activities for mutual economic gain. A strategic alliance is a popular way of doing business in the modern business world. This is happening because of globalization, rapid change in technology, etc. as a result of which the business environment has become complex and sheer competitive. Companies or business units may form a strategic alliance for the following reasons:
- To obtain or learn new capabilities and share knowledge.
- To obtain access to specific markets and to increase customer base.
- To reduce financial risk by using the expertise and resources.
- To reduce geo-political risk of operating in different land.
- To enhance competitiveness in the market.
- To overcome the existing competition by setting new standards.
It is not true that every strategic alliance has a success story. There are various challenges with strategic alliances. Some of the challenges are:
- False representation of facts and figures about the company and competencies by partners.
- Partners may fail to commit the promised resources and capabilities to the other partners.
- There is a high chance that one partner may commit to the alliance and another partner may be passive to the alliance.
- Alliance in paper is different from alliance in work. Partners may fail to make use of complementary resources.
Some of the approaches to Strategic Alliances are:
Mutual Service Consortia
A mutual service consortium is a partnership of similar companies in similar industries that pool their resources to gain a benefit that is too expensive to develop alone, such as access to advanced technology. For example, IBM established a research alliance with Sony Electronics and Toshiba to build its next generation of computer chips. The result was the “cell” chip, a microprocessor running at 256 gigaflops—around ten times the performance of the fastest chips currently used in desktop computers. Referred to as a “supercomputer on a chip,” cell chips were to be used by Sony in its PlayStation 3, by Toshiba in its high-definition televisions, and by IBM in its supercomputers.
A joint venture is a “cooperative business activity, formed by two or more separate organizations for strategic purposes, that creates an independent business entity and allocates ownership, operational responsibilities, and financial risks and rewards to each member, while preserving their separate identity/autonomy. Joint ventures are the most popular form of strategic alliance. They often occur because the companies involved do not want to or cannot legally merge permanently. Joint ventures provide a way to temporarily combine the different strengths of partners to achieve an outcome of value to all. For example, Procter & Gamble formed a joint venture with Clorox to produce food-storage wraps. P&G brought its cling-film technology and 20 full-time employees to the venture, while Clorox contributed its bags, containers, and wraps business.
A licensing arrangement is an agreement in which the licensing firm grants rights to another firm in another country or market to produce and/or sell a product. The licensee pays compensation to the licensing firm in return for technical expertise. Licensing is an especially useful strategy if the trademark or brand name is well known but the MNC does not have sufficient funds to finance its entering the country directly. For example, Yum! Brands successfully used franchising and licensing to establish its KFC, Pizza Hut, Taco Bell, Long John Silvers, and A&W restaurants throughout the world.
A value-chain partnership is a strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage. For example, P&G, the maker of Folgers and Millstone coffee, worked with coffee appliance makers Mr. Coffee, Krups, and Hamilton Beach to use technology licensed from Black & Decker to market a pressurized, single-serve coffee-making system called Home Café. The benefits of such relationships do not just accrue to the purchasing firm. Research suggests that suppliers that engage in long-term relationships are more profitable than suppliers with multiple short-term contracts.
Wheelen, L. T., Hunger, D. J., & Wheelen, E. T. (2012). Strategic Management and Business Policy (Vol. 13th). Pearson.
Young, J. (2019, May 19). What is Collusion? Retrieved from Investopedia