UNIT 3 :

INTERNATIONAL CO-
OPERATION DECISIONS
G L O B A L A N D I N T E R N AT I O N A L B U S I N E S S C O N T E X T S O U B S 0 9 2 2 2

ANJU MUNGUR
D AT E : 1 4 / 0 3 / 2 0 2 0
Learning Overview
• Overview
• Learning Objectives
• Introduction
• Primary Type of Cooperative Strategy: Strategic Alliance
• Strategic Alliances in Markets
• Types of Strategic Alliances
• Why Firms Might Develop Strategic Alliances?
• Business-Level Cooperative Strategy
Overview :successful strategic alliance
• According to "An Overview of Strategic Alliances," Apple has
partnered with Sony, Motorola, Phillips, and AT&T( American
telephone & Telegrapg); in the past.
• Hewlett-Packard and Disney have a long-standing alliance, starting
back in 1938, when Disney purchased eight oscillators to use in the
sound design of Fantasia from HP founders Bill Hewlett and Dave
Packard. When Disney wanted to develop a virtual attraction called
Mission: SPACE, Disney Imagineers and HP engineers relied on HP's
IT architecture, servers and workstations to create Disney's most
technologically advanced attraction.
Definition
•  Strategic alliances are links between two or more companies to
mutually carry out a specific project by coordinating necessary
resources while still preserving their autonomy (Dussauge and Garette,
1999).
• Wheelen and Hunger (2000) define a strategic alliance as a partnership
between two or more companies to achieve strategically important
targets that are mutually beneficial.
• A strategic alliance is a cooperative strategy in which firms combine
resources and capabilities to create a competitive advantage.
Strategic Alliance in Markets

●
New market entrants easily /faster
●
To enter restricted market
●
To establish franchise in New Markets

Slow-cycle Market
Types of Strategic Alliances
Non- Equity Alliance
• They are contractual agreements are vertical strategic alliances, connecting
different parts of the industry value chain
• The most frequent forms of non-equity alliances are supply agreements,
distribution agreements, and licensing agreements
• Patents, user manuals, fact sheets, and scientific publications are ways to
capture explicit knowledge, which concerns the notion of knowing about a
certain process or product.
Types of Strategic Alliances
Equity Alliance
• Equity alliances are less common than contractual, non-equity alliances
because they often require larger investments
• In an equity alliance, at least one partner takes partial ownership in the other
partner.
• Stronger commitments since they are based on partial ownership rather than
contracts
• Tacit knowledge concerns the knowing how to do a certain task
Types of Strategic Alliances
Joint Ventures
A joint venture (JV) is a stand-alone organization created and jointly owned by
two or more parent companies
Primary reasons for entry
• Vertical integration
• Learning a partner’s skills
• Upgrading and improving skills
• Shaping industry evolution
Why firms develop Strategic Alliance ?
• Strengthen competitive position
Firms can enter strategic alliances in order to change the industry
structure in their favour.
Strategic alliances are often used when competing for industry
standards.
Firms may initiate these alliances by themselves to challenge market
leaders and thus change the underlying market structure.
Car/Automobile Industry, Oil/petrol industry
Why firms develop Strategic Alliance ?
• Enter new markets
• (for example in Saudi Arabia and China) require that foreign firms
have a local joint venture partner before doing business in their
countries.
• A strategic alliance allows firms to enter markets, either in terms of
geography of products and services. In some instances, governments
• Such cross-border alliances involve benefits as well as risks. While the
foreign firm can benefit from local expertise and contacts, it is exposed
to the risk that some of its proprietary know-how may be appropriated
by the foreign partner.
Why firms develop Strategic Alliance ?
• Hedge against uncertainty
• In dynamic markets - allow firms to limit their exposure to uncertainty
in the market.
• For instance, in the wake of the biotechnology revolution, incumbent
pharmaceutical firms such as Pfizer, Novartis, and Roche entered into
hundreds of strategic alliances with biotech start-ups.
Why firms develop Strategic Alliance ?
• Access critical complementary assets
• The successful commercialisation of a new product or service often
requires complementary assets such as marketing, manufacturing, and
after-sale service.
• New firms are particularly in need of complementary assets to
complete the value chain.
• Allow firms to match complementary skills and resources to complete
the value chain.
Why firms develop Strategic Alliance ?
• Learn new capabilities /business know-how
• Firms enter strategic alliances because they are motivated by the desire
to learn new capabilities from their partners.
• Coopetition arises when collaborating firms are also competitors.
• Such coopetition can lead to a situation in which both collaborating
firms are motivated to form an alliance for learning.
• However, the rate at which each firm will learn can vary. The firm that
learns faster and thus accomplishes its goal more quickly has an
incentive to exit the alliance or, at a minimum, to reduce its knowledge
sharing.
Business-level Co-operative Strategy
• Business-level strategy specifies how the firm intends to gain a
competitive advantage in specific product markets.
• It believes that combining its resources and capabilities with those of
one or more partners will create competitive advantages that it cannot
create by itself and that will lead to success in a specific product
market.
• Four Main categories
Complementary strategic alliances
Complementary strategic alliances are business-level alliances in which
firms share some of their resources and capabilities in complementary
ways to develop competitive advantages.

Types of complementary strategic alliances:

1. Vertical
2. Horizontal
Vertical complementary strategic alliances
Vertical alliances mean that an organisation creates an alliance with one
of its suppliers or customers, often in an effort to innovate as a response
to environmental changes.
• Firms share their resources and capabilities from different stages of the
value chain to create a competitive advantage.
• Eg; Dairy industry : Murray Goulburn Co-operative (MGC) and the
French giant Danone that focuses on yoghurts and other processed
food items that allow for greater brand recognition
Horizontal complementary strategic alliances
An alliance in which firms share some of their resources and capabilities
from the same stage of a value chain to create a competitive advantage.
• Focus on long-term product development and distribution
opportunities.
• Research on the worldwide aircraft industry demonstrates that
companies are more likely to form horizontal alliances than to try to
develop new products on their own when resource requirements are
great and the resources available to any one firm are limited.
 Competition response strategy
Competitors undertake competitive actions to attack
rivals and launch competitive responses to their
competitors’ actions. Strategic alliances can be used
at the business level to respond to competitors’
attacks.

June 20, 2016 – Walmart, and JD.com , China’s

largest e-commerce company by revenue, today
announced that they have formed a strategic alliance
to better serve consumers across China through a
powerful combination of e-commerce and retail.
Uncertainty-reducing strategy
• Such strategies may be used in cases of uncertainty, such as in
entering new product markets and especially those emerging
economies
• To reduce uncertainty, auto firms are forming alliances. For example,
Daimler AG of Germany buys Tesla batteries to insert into its “smart”
minicar as well as its Freightliner trucks because it is confident that the
batteries will be of sufficient quality.
Competition-reducing strategy
Collusive strategies are also used to reduce competition and differ from
strategic alliances since they are an illegal type of cooperative strategy.
Two types of collusive strategies :
1. Explicit collusion
2. Tacit collusion.
Explicit collusion
• Explicit collusion occurs when two or more firms negotiate directly to
jointly agree about the amount to produce as well as the prices for what
is produced. These strategies are illegal in the US and most developed
economies.
Tacit Collusion
• Tacit collusion exists when several firms in an industry indirectly
coordinate their production and pricing decisions by observing each
other’s competitive actions and responses.
• Tacit collusion results in production output that is below fully
competitive levels and above fully competitive prices
• Tacit collusion exists when several firms in an industry indirectly
coordinate their production and pricing decisions by observing each
other’s competitive actions and responses. Airlines Industries, Cereal
Industries
Activities
• Evaluate the impact of strategic alliances in the slow-cycle, fast-
cycle and standard-cycles markets. How do they differ?
• There are three main types of strategic alliances: non-equity
alliances, equity alliances and joint venture. Elaborate on each of
them.
• State and explain the motives for having strategic alliances.
• Discuss the four types of cooperative strategies