Cooperative Strategy

This essay draws on the findings of the vast amounts of research and studies done on cooperative strategy; it attempts to illustrate that a cooperative approach between foreign and local firms is feasible and can provide a host of advantages (including decreased level of competition and costs of doing business) but it may not be the best approach. The first part of this essay deals with the cooperative approach – what kinds there are, its advantages, and what makes it successful. The second and final part of the essay explores other options a domestic firm has against a foreign firm and discusses how to choose make the best strategic choice with regards to its situation. The emphasis is to illustrate that forming an alliance with a foreign firm entering the local market is not a universal “model” answer when international firms like multinational corporations (MNCs) exploit deregulation and venture into emerging economies. There are other options a firm can consider; and even if it decides to cooperate with the incoming foreign firm, it should also keep in mind that there are many factors that determine the success of the alliance. In the following sections, we take a look at the different types of alliances; the advantages of alliances; factors that determine the success of alliances; other actions a firm can take in response to foreign firms; and lastly, how to choose an optimum strategy.

Some 20 years ago in the 1980s, strategic alliances have already started to appear – some sectors in the US economy have seen more domestic ventures announced in a single year than the previous fifteen to twenty years combined (Kanter 1990). Baranson (1990) attributes this trend to two reasons: time and resource costs. He argues that due to the increased competition all around the globe, engineering as well as design cycles are getting increasingly short. For example, where industrial equipment manufacturers once had ten years to come up with a product, they must now come up with one every few years to keep up with the market. For them to do that, resource costs would go up, and that reinforces the need for strategic alliances. An article in Businessline (2001) states that there is a new kind of competition – a global one where firms not only need to compete with local rival products but also those by foreign firms. This new type of competition is attributed to increased efficiency in the production and distribution of products, deregulation of trade in developing countries, and the rise of the internet, thus, further reinforcing the need for strategic alliances. Another article in Businessline (1999) even goes so far as to say that “non-cooperative strategies will bring only short-lived gains”.

TYPES OF STRATEGIC ALLIANCES

Kanter (1990) states that there are three types of strategic alliances:

• Multi-organisational service alliances

• Opportunistic alliances

• Stakeholder alliances

Multi-organisational alliances have the least overlap and the smallest sphere of cooperation between partners. These alliances are usually a group of companies from the same industry coming together to form a new entity to satisfy a common need. A good example would be a research consortium.

Typical examples of opportunistic alliances are joint ventures. In these sorts of alliances, which would make up the bulk of our discussion in this paper, possibilities are opened up for each partner firm that would not have existed if each had been working alone. It allows partners to exploit each others competencies without “owning” them and gives the firm fast access to new markets.

Stakeholder alliances have the most overlap and the firms already have a pre-existing interdependence. Stakeholders are found in different parts of the value chain and are the people that a company depends on – they are the ones who make or break a company: suppliers, customers, and employees. These alliances are usually quality- and innovation-driven. These firms treat their suppliers as partners; build good relationships with customers; and works closely with labour organisations.

Garcia-Canal et al. (2002) built a typology of cooperative strategies (see Appendix i) based on two dimensions. A horizontal axis measures the importance of exploration versus exploitation to the firm when participating in international alliances. A vertical axis measures the scope of the alliance (the number of countries directly and indirectly involved in the alliance). Based on their research, four cooperative strategies were identified.

Strategy One: Local alliances. Only local alliances are formed, mainly