KIGALI INDEPENDENT UNIVERSITY

MBA
EVENING PROGRAMME
COURSE: STRATEGIC MANAGEMENT
ASSIGNMENT

Chapter 9:
COOPERATIVE STRATEGY
GROUP COMPOSITION
1

TWAGILIMANA Balthazar

UWILINGIYIMANA Callixte

NSABIMANA MATABISHI Dsir

NKURUNZIZA Idrissa

MUTAMBA Patience

NSHUNGUYINKA Eric

KAYIRERE BALINDA Patty

NKUNDABAKURA KARIMA Javan

MUREKATETE KANGEYO Dorothe

1
0

NDABARAMIYE Dodos

1
1

MANZI NEMEYE

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LECTURER: Dr MOSES AHMED

November 2012

Kigali,

TABLE OF CONTENTS
INTRODUCTION........................................................................................................ 3
1. DEFINITION OF COOPERATIVE STRATEGIES.................................................4
2. NATURE OF STRATEGIC ALLIANCES...............................................................5
Reasons for firms to enter in alliances....................................................................6
3. USE OF THE BUSINESS-LEVEL AND CORPORATE- LEVEL STRATEGIES....8
A.

Business-level strategies.................................................................................8

B.

Corporate-level strategies..............................................................................11

4. INTERNATIONAL COOPERATIVE STRATEGIES.............................................14

NETWORK COOPERATIVE STRATEGY.............................................................15
5. COOPERATIVE STRATEGIES RISKS..............................................................17
6. APPROACHES USED TO MANAGE COOPERATIVE STRATEGIES...............18
CONCLUSION......................................................................................................... 20
REFERENCES......................................................................................................... 21

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INTRODUCTION

This topic corresponds to the ninth chapter of the Strategic Management Course in
MBA programme at ULK. This chapter is one in a series of 13 chapters that
compose the course.
We conduct a documentary research with the objectives to familiarize ourselves with
the research methodology.
As far as the methodology used in this research is concerned, we used to consult
scholars publications about our topic available in the libraries. The following authors
have been consulted: WALKER (2004), THOMPSON et al. (2004), THOMPSON et
al.(1987) etc.
Because some aspects /concepts from our topics were not available in the physical
publications consulted, we have also consulted some recent electronic books of well
known author such as: HARRICAN, HITT et al. etc.
Moreover, by means of Internet we tried to compare the content of our course to
others offered by MBA programmes lecturers and from there we have drawn the
objectives of this topic which form the outline of our presentation.
Our work is structured in six sections:
In the first section, we define cooperative strategies and we explain why
organizations use them;
In the second section, we discuss the nature of strategic alliances;
The third section discusses and describes the use of the business-level and
corporate-level strategies;
In the fourth section, we try to understand the importance network strategies;
In the fifth section we discuss the cooperative strategies risks and the sixth
section we describe the approaches used to manage cooperative strategies.

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1. DEFINITION OF COOPERATIVE STRATEGIES

In this section, we give the definition of cooperative strategy and we draw
relationship between cooperative strategies and strategic alliances.
Cooperative strategies are among strategic actions in the framework of the strategic
management of a firm/organization.
The concept cooperative strategy has been defined by various academics
(BARNEY (2004), ASWATHAPPA (2008), HOSKISSON et al. (2008), etc.) as a
strategy in which firms work together to achieve a shared objective. In fact,
cooperative strategy is one of the three means used by firms to grow, develop valuecreating competitive advantages and create differences between them and their
competitors. The other two alternatives are internal growth and merge and
acquisitions.
According to AZAR (2002), cooperative strategy could be of the following types:
Mergers, Takeovers, Joint ventures and Strategic alliances.
Merger take place when the objectives of the buyer firm and the seller firm are
matched to a large extend.
Takeover or acquisitions usually are based on the strong motivation of the buyer to
acquire.
Joint venture occurs when an independent firm is created by at least two other firms.
Strategic alliances are partnerships between firms whereby their resources,
capabilities and core competencies are combined to pursue mutual interest to
develop, manufacture or distribute goods and services.
2.

NATURE OF STRATEGIC ALLIANCES

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According to BARNEY, strategic alliances are cooperative agreement between firms

that go beyond normal company to company dealings. Alliances and/or cooperative
agreements can involve joint research efforts, technology sharing, joint use of
production facilities, market one anothers products, or joining forces to manufacture
components or assemble finished products.
Other authors like HITT et al. define strategic alliances as partnerships between
firms where their resources, capabilities and core competencies are combined to
pursue mutual interests to develop, manufacture and distribute goods and services.
For BARNEY strategic alliances can be grouped into three broad categories: nonequity alliances, equity alliances, and joint ventures. But HOSKISSON et al. (2008),
said that strategic alliances can be divided into two basic legal forms: equity
strategic alliances (in which firm own different shares of a newly created venture)
and non equity strategic alliances (in which firms cooperate through a contractual
relationship).
Joint ventures are a type of equity alliance in which firms create and own equal
shares of a new business venture that is intended to develop competitive
advantages.
To BARNEY, in non-equity alliance, cooperating firms agree to work together to carry
on activities but they do not take equity position in each other or form an
independent organization to manage their cooperative efforts.
These non-equity alliances are managed through contracts. Supply agreements
(where one firm agrees to supply the others) and distribution agreements (where are
firm agrees to distribute the products of others) are examples of non-equity strategic
alliances. Other types of non-equity strategic alliances include licensing and
marketing agreements.
In an equity alliance cooperating firms supplement contracts with equity holding
alliance partners. Partners firms own unequal shares of equity in a venture formed
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by combining some of their resources and capabilities to create a competitive

advantage.
In a joint venture, two or more cooperating firms create a legally independent firm in
which they invest and share profits, if any, with each partner firm contributing assets.
Reasons for firms to enter in alliances
There are many reasons for firms to enter in alliances. Among those reasons there
are: technology transfer and development, market access, cost reduction, risk
reduction, change industry structure (WALKER, 2003).
According to THOMSON (2004) the most common reasons why companies enter
into strategic alliances are:
-

Collaborate on technology or the development of promising new products

To overcome deficit in their technical and manufacturing expertise

To acquire altogether new competencies

To improve supply chain efficiency

To gain economies of scale in production and marketing

To acquire or improve market access through joint marketing agreement.

HOSKISSON et al.(2008) describes how purposes to enter in alliance vary across

the 3 types of market that are: slow-cycle market (markets that are near
monopolies), fast-cycle markets (entrepreneurial and dynamic with new products
and services imitated rapidly), and standard-cycle markets (which are often large
and oriented towards economies of scales).
In slow cycle market, firms enter into alliance: to gain access to a restricted market;
to establish franchise in a new market and Maintain market stability.
In standard-cycle market, the motive for the firms is: to gain market power; to gain
access to complementary resources; to overcome trade barriers; to meet
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competitive challenge; to pool resources for large projects and to learn new
business techniques.
In fast-cycle market firms enter into alliance to increase speed of product, service or
market entry; to maintain market leadership; to form an industry technology
standard; to share risky R&D expenses and to overcome uncertainty.
According to HOSKISSON et al (2008), firms in slow-cycle markets often use
strategic alliances to enter restricted market or to establish franchise in new
markets.
In standardcycle market, alliances are more likely to be made by partners with
complementary resources and capabilities. Companies also may cooperate in
standard-cycle market to gain market power or to learn new business techniques
and new technologies.
Alliances between firms with current excess resources and capabilities help current
competing in fast cycle markets to make an effective transition from the present to
future and also to gain rapid entry to new markets.

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3. USE OF THE BUSINESS-LEVEL AND CORPORATE- LEVEL

STRATEGIES1

A.

Business-level strategies

According to HITT et al. (2008), a business-level cooperative strategy is used to help

the firm to improve its performance in individual product markets.
A firm forms a business level cooperative strategy when it belives combining its
resources with those of one or more partner will create competitive advantages that
it cant create by itself and that will lead to success in a specific product market.
There are four types of business level cooperative strategies:
1. Complementary strategic alliances
2. Competition response strategy
3. Uncertainty-reducing strategy
4. Competition-reducing strategy
i.

Complementary Strategic Alliances (CSA)

Complementary strategic alliances are partnerships that are designed to take

advantage of market opportunities by combining partner firms resources and
capabilities in complementary ways to develop competitive advantages
According to CHILD et al. (2005), complementary alliances refers to situation where
partners contribute different value-chain activity to allow them to build on their
respective strengths and competitive advantages
There are two types of Complementary Strategic Alliances: Vertical Complementary
Strategic Alliances and Horizontal Complementary Strategic Alliances.

MINTZBERG et al., Strategic Management, 4th Ed., 1994

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a) Vertical Complementary Strategic Alliances

A vertical complementary strategic alliance is formed between firms that agree to
use their resources and capabilities in different stages of the value-chain to create
value represented by agreement between manufacturers and suppliers to improve
the distribution of the manufacturers products.
According to HITT et al. (2008), a vertical complementary strategic alliance links
suppliers with manufacturers or manufacturers with distributors and represent
linkages between different segments of each partners value chain such as in
automobile industry.
b) Horizontal Complementary Strategic Alliances
Horizontal complementary strategic alliances represent partnerships that link similar
activities of competitor firms. Horizontal complementary strategic alliances often
-

Are used to increase each firms strategic competitiveness

Focus on long-term development of product and service technology

Have as goal not only reducing costs, but also increasing revenues and
market power.

Example of horizontal complementary strategic alliances includes the code-sharing

agreements established between Airlines Company to sell seats on a carrier with
which they are allied on routes they do not serve.
Another example is the agreement signed between the Express Mail Service of
Rwanda Post and DHL to carry and distribute mails at the destination where the
partner do not reach.
ii.

Competition Response Strategy

Competitive Rivalry : Competitors initiate competitive actions to attack rivals and
launch competitive responses to their competitors actions
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Strategic alliances can be used at the business level to respond to competitors

attacks

Primarily formed to take strategic actions vs. tactical actions

Can be difficult to reverse and expensive to operate

iii.

Uncertainty-Reducing Strategy

Can be used to hedge against risk and uncertainty

As examples, entering new product markets, emerging economies and

establishing a technology standard are unknown areas so by partnering with a
firm in the respective industry, a firms uncertainty (risk) is reduced

iv.

Uncertainty is reduced by combining knowledge & capabilities

Competition-Reducing Strategy
Collusive strategies differ from strategic alliances in that they are often illegal

There are two types of Competition-Reducing Strategy

a. Explicit collusion which is direct negotiation among firms to establish output
levels and pricing agreements that reduce industry competition
b. Tacit collusion which is indirect coordination of production and pricing decisions
by several firms, which impacts the degree of competition faced in the industry
At the business unit level, the strategic issues are less about the coordination of
operating units and more about developing and sustaining a competitive advantage
for the goods and services that are produced.

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At the business level, the strategy formulation phase deals with:

Positioning the business against rivals

Anticipating changes in demand and technologies and adjusting the strategy

to accommodate them

Influencing the nature of competition through strategic actions such as vertical

integration and through political actions such as lobbying.

Coordinating and integrating unit activities so they conform to organizational

strategies (achieving synergy).

Developing distinctive competencies and competitive advantage in each unit.

Identifying product or service-market niches and developing strategies

for competing in each.

Monitoring product or service markets so that strategies conform

to the needs of the markets at the current stage of evolution.

Michael Porter identified three generic strategies (cost leadership, differentiation,

and focus) that can be implemented at the business unit level to create a
competitive advantage and defend against the adverse effects of the five forces.
B.

Corporate-level strategies

Corporate-level cooperative strategies are designed to facilitate product and market

diversification.
According to HITT et al. (2008), there are three types of corporate level cooperative
strategies such as:
Diversifying strategic alliances
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 Synergistic strategic alliances

Franchising
Diversifying strategic alliances enable a firm to expand into a new product or
market areas without a merger or acquisition.

Synergistic strategic alliances create joint economies of scope between partner

firms. These alliances:
are similar to horizontal acquisitions at the business level
create synergy across multiple functions or multiple businesses

Franchising is a cooperative strategy used to spread risk and use resources and
capabilities.

Corporate level strategy is something that larger businesses get involved in. It
involves long-term planning for businesses with multiple interests. Corporate-level
strategies address the entire strategic scope of the enterprise. This is the view of the
organization and includes deciding in which product or service markets to compete
and in which geographic regions to operate.
Corporate level strategy fundamentally is concerned with the selection of businesses
in which the company should compete and with the development and coordination of
that portfolio of businesses.
Diversified firm is a company that has many products and services serving several
markets. A company may attempt to manufacture the products itself, or it may
acquire or merge with an ongoing organization.
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Use of Corporate level strategy in diversified firms

Reach - defining the issues that are corporate responsibilities; these might
include identifying the overall goals of the corporation, the types of businesses in
which the corporation should be involved, and the way in which businesses will
be integrated and managed.

Competitive Contact - defining where in the corporation competition is to be

localized.

Managing Activities and Business Interrelationships - Corporate strategy seeks to

develop synergies by sharing and coordinating staff and other resources across
business units, investing financial resources across business units, and using
business units to complement other corporate business activities.

Management Practices - Corporations decide how business units are to be

governed: through direct corporate intervention (centralization) or through more
or less autonomous government (decentralization) that relies on persuasion and
rewards.

Corporations are responsible for creating value through their businesses. They do
so by managing their portfolio of businesses, ensuring that the businesses are
successful over the long-term, developing business units, and sometimes ensuring
that each business is compatible with others in the portfolio.

4. INTERNATIONAL COOPERATIVE STRATEGIES

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According to HOSKISSON at All (2008) A cross-border strategic alliance is an

international cooperative strategy in which firms with headquarters in different
nations combine some of their resources and capabilities to create a competitive
advantage.
There are several reasons for the increasing use of cross-border strategic alliances:
Multinational corporations outperform firms operating on only a domestic
basis.
A firm can form cross-border strategic alliances to leverage core
competencies that are the foundation of its domestic success to expand into
international markets.
Limited domestic growth opportunities also cause firms to form cross-border
alliances.
Government economic policies can influence firms to form cross-border
alliance.
Firms also use cross-border alliances to help transform themselves to use
better use their competitive advantages to take advantage of opportunities
surfacing in the rapidly changing global economy.
In general, cross-border alliances are more complex and risky than demotic strategic
alliances.

5. NETWORK COOPERATIVE STRATEGY

This section is borrowed from HITT et al. (2010). Rather than cooperative alliances
between two or very few firms, alliances can also be expanded to include a large
number (or network) of partners as a complement to other forms of cooperative
strategy. This is a network strategy.
A network cooperative strategy is a cooperative strategy where in several firms
agrees to form multiple partnerships to achieve shared objectives. It involves a
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group of interrelated firms that work for the common good of all and can be either
formal or informal.
A network cooperative strategy is particularly effective when it is formed by
geographically clustered firms.
An important advantage of a network cooperative strategy is that firms gain access
to their partners partners.
Always according to HITT et al., firms involved in networks gains information and
knowledge from multiple sources. They can use heterogeneous knowledge sets to
produce more and better innovations. As a result, firms involved in networks of
alliances tend to be more innovative.
However, there are disadvantages to participating in networks as a firm can be
locked into its partnership, precluding the development of alliance with others.
There are 3 types of networks: stable, dynamic, and internal
a) Stable Alliance Network

A stable alliance network is formed in mature industries where demand is relatively

constant and predictable. Through a stable alliance network, firms try to extend their
competitive advantages to other settings while continuing to profit from operations in
their core, relatively mature industry.
b) Dynamic alliance networks
Dynamic alliance networks: are used in industries characterized by frequent
product innovations and short product life cycle. In dynamic alliances networks
partner typically explore new ideas and possibilities with the potentials to lead to
product innovations, entries to news markets and the development of new markets.
Thus, dynamic alliance networks are primarily used to stimulate rapid, value-creating
product innovations and subsequent successful market entry. For instance, in
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information technology industry, the pace of innovation is too fast for any one
company to be successful across the time if it only competes independently.

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6. COOPERATIVE STRATEGIES RISKS

According to THOMSON (2008), although their use by the firms has increased
significantly, many cooperative strategies fail. This failure suggests that even when
the partnership has potential complementarities and synergies, alliance success is
elusive.
The reasons of those failures are the risks that are not addressed. Among those
failures we have:
Misrepresentation of partners competences
Some cooperative strategies fail when it is discovered that a firm has
misrepresented the competencies, it can bring to the partnership. This risk is more
common when the partners contribution is intangible asset that partners grounded
in some of its intangible assets.
Failure of partners to make complementary resources available
A firm fails to make available to its partners that complementary resources and
capabilities (such as its most sophisticated technologies) that is committed to the
cooperative strategy. This risk surfaces most commonly when firms forms an
international cooperative strategy. In these instances, different cultures can result in
different interpretations of contractual terms of trustbased expectations.
Being held hostage through specific investments made with partner
A firm may make investments that are specific to the alliance while its partner does
not.

For example, the firm might commit resources and capabilities to develop

manufacturing equipment that can be used only to produce items coming from the
alliance. If the partner isnt also making alliance- specific investments, the firm is at a
relative disadvantage in terms of returns earned from alliance compared with
investments made to earn the returns.

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7. APPROACHES USED TO MANAGE COOPERATIVE STRATEGIES

According to HITT et al.(2010) there are two primary approaches used to manage
cooperative strategies: cost minimization and opportunity maximization.
In cost minimization management approach the firm develop formal contracts with
its partners. These contracts specify how the cooperative strategy is to be monitor
and how partner behavior is to be controlled.
The goal of cost-minimization approach is to minimize the cooperative strategys
cost and to prevent opportunistic behavior by a partner.
Several strategies can be adopted to reduce cost. According to WALKER (2003)
cost can be reduced from combining the partners activities, improving the learning
curve based on higher cumulative volume, or coordinating the product flow between
two partners more effectively.
To achieve low costs through process innovation requires the establishment of a
separate administrative entity because it is generally not possible for size-based
benefits to achieve without establishing a separate unit from the partners both
physically and administratively.
As far as opportunity maximization is concerned, the focus of this approach is on
maximizing a partnerships value-creation opportunities. In this case, partners are
prepared to take advantage of unexpected opportunities to learn from each other
and to explore additional marketplace possibilities. Less formal contracts, with fewer
constraints on partners behaviors, make it possible for partners to explore how their
resources and capabilities can be shared in multiple value-creating ways (HITT).
Firms can successfully use both approaches to manage cooperative strategies.
However, the costs to monitor the cooperative strategy are greater with cost
minimization, in that writing detailed contracts and using extensive monitoring
mechanisms is expensive, even though the approach is intended to reduce alliance
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costs. Although monitoring systems may prevent partners from acting in their own
best interests, they also often preclude positive responses to new opportunities that
surface to use the alliances competitive advantages.
The relative lack of detail and formality that is a part of the contract developed by
firms using the second management approach of opportunity maximization means
that firms need to trust each other to act in the partnerships best interests.
According to HITT, the psychological state of trust in the context of cooperative
arrangements is the expectation held by one firm that another will not exploit its
vulnerabilities when faced with the opportunity to do so.
When partners trust each other, there is less need to write detailed formal contracts
to specify each firms alliance behaviors, and the cooperative relationship tends to
be more stable.
When trust exists, monitoring costs are reduced and opportunities to create-value
are maximized. The example given is the alliance between Renault and Nissan.
According to company officials, the alliance between Renault and Nissan is built on
mutual trust between the two partners together with operating and confidentiality
rules (HITT, 2010:274).

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CONCLUSION

This chapter is so important in that sense that cooperative strategies have become
an integral part of the competitive landscape and are now quite important to many
companies be it at local or international level, so that all the firms should consider
them in their strategic management.
In our research we tried to understand what are cooperative strategy as well as the
significance of the strategic alliances in all their forms.

We saw that although the cooperative strategies are used in various firms, they
sometime fail due to risks that are not properly addressed. However, although failure
is undesirable, it can be valuable learning experiences, meaning that firms should
carefully study cooperative strategy arrangements.
To mitigate those risks, firms are requested to adopt some approaches such as: to
well negotiate contract and monitor their implementation and to develop a trusting
relationship. That is what will enable the concerned firm to obtain the outcome that is
the value creation.

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REFERENCES
1. AZAR, Business Policy and Strategic Management, 2nd Ed., Tata Mc Graw-Hill
Publishing Company Ltd, New Dehli, 2002
2. CHILD et al., Cooperative Strategy: Managing alliances, networks and Joint
Ventures, 2nd Ed., Oxford University Press, New York, 2005
3. HITT et al., Strategic management Competitiveness & Globalization: Concepts,
8th Ed. South-Western Learning, Mason, USA, 2008
4. HITT et al., Strategic management Competitiveness & Globalization: Concepts,
9th Ed. South-Western Learning, Mason, USA, 2010
5. HOSKISSON et al., Competing for Advantage, 2nd Ed. Masson, 2008
6. MINTZBERG et al., Strategic Management , 4th Edition, 1994
7. THOMSON & STRICKLAND, Strategic Management, Concepts and cases, 4Th
Ed., Business Publications Inc., Plano, Texas, 1987
8. THOMPSON et al., Strategy, core concept, analytical tool, readings, Business
Publications Inc., Plano, Texas, 2004
9. WALKER, G., Modern competitive strategy, McGraw-Hill/Irwin, New York, 2003

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