Exam 9: Cooperative Implications for Strategy

Renault has a cooperative relationship with Bajaj Auto Ltd. of India for the purposes of producing a minicar to compete against Tata Motors' Nano (currently the world's cheapest car). This alliance is an example of a horizontal complementary strategic alliance. (Chapter 9 Strategic Focus)

In practice, the cost minimization strategy can be more expensive than the opportunity maximization strategy. Which of the following is a way in which the cost minimization strategy is less expensive than the opportunity minimization strategy?

Horizontal complementary strategic alliances are designed so that each partner realizes equal benefits from equal investments in the alliance.

Only about 50% of cooperative strategies succeed.

Case Scenario 2: ERP Inc ERP, Inc., (ERPI) is a leading provider of enterprise integration software (EIS). EIS essentially allows a firm to connect and integrate processes across all aspects of its business. To fuel its dramatic growth, ERPI has focused its organization entirely on product development (software programming for a suite of EIS products) and selling (making the sale and then moving onto a new target), while outsourcing the installation and consulting aspects to the world's largest accounting firms. This also makes ERPI basically a "product company," whereas most competitors like Oracle and PeopleSoft in its market space operate as "solutions companies." One benefit of this focused strategy is that ERPI's product is generally recognized as being 200% to 300% better than competitors' software, and thus adopters are thus likely to have a one to two year advantage. In further contrast to the competition, ERPI has used its partnerships with the accounting firms to deliver a turn-key solution, and has focused this solution on a market comprised of the world's largest, global manufacturers and consumer product companies. The accounting firms, in turn, coordinate a comprehensive collection of hardware, operating systems, and complementary software firms. Installation and related consulting for EIS typically cost between $100 and $200 million, with the ERPI software component accounting for only about 20% of the installed cost (the remaining 80% is spent on the actual installation, not counting the value of the customer's time). To incentivize the accounting firms to help sell its product (since, at least initially, the accounting firms had better reputations and controlled access to the target customers), ERPI told its partners that it will never enter the installations and consulting side of the business (aside from installation and consulting that ERPI does as part of its software support). Dangling such a large carrot in front of the accounting firms provided the continuing benefit of encouraging their continued support of ERPI with their customers. -(Refer to Case Scenario 2) Imagine that ERPI has saturated the large-firm market for its products, competitors are undermining its technological advantage, and ERPI needs to look to new markets for revenue. Its CEO has suggested that it start selling its software down-market to middle-market companies, and at the same time enter the consulting and installation side of the business for this target market. What are the risks and opportunities of such a strategy?

U.S. Steel and Nucor (the two remaining major players in the U.S. steel industry) have been forming alliances as a means to enter markets in Europe and Asia. The steel industry is an example of a ________ market in which firms typically use alliances to gain market access.

Strategic alliances have become the cornerstone of many firms' competitive strategy, particularly large global competitors such as BMW.

Synergistic strategic alliances such as the Renault-Nissan alliance discussed in the Opening Case focus on economies of scope by sharing their resources and capabilities to develop manufacturing platforms that can be used to Renault or Nissan cars.

A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and vineyard growing rare strains of fruit. This is a(an) ____ strategy.

In general, cross-border alliances are more ____ and ____ than domestic alliances, especially in emerging markets.

Firms in standard-cycle markets seek to gain economies of scale through cooperative alliances.

Smith Commercial Lighting, Inc., which sells lighting for factories and businesses, has entered into an alliance with Revelation Lighting, Inc., a retailer of home decor lighting, in order to expand into the trend of using industrial-type lighting in non-traditional style homes. Smith has invested 40% and Revelation has invested 60% into the new operation. This is an example of a(an)

The fact that the prices consumers pay for branded breakfast cereals are above the prices that would exist if there were true competition suggests that the cereal manufacturers are engaging in

Case Scenario 3: Bunnywac. Bunnywac is a global producer and seller of batteries for consumer electronics products (radios, flashlights, toys, etc.), and competes primarily with its larger rivals by providing battery products equal in performance at a lower price. The worldwide battery industry suffers from issues of overcapacity and commoditization, brand segmentation and proliferation, the growing strength of global retailers, and the low-cost threat of new entrants from Asia. Thus, the ability to provide dependable batteries at a very low cost is essential to survival in this industry. Bunnywac has grown quickly into one of the leading players in the battery industry primary through horizontal acquisitions financed by a recent successful IPO, and is now counted among the top four companies in North and Latin America. Its presence in Europe and Latin America is negligible. While its market presence and brand is generally strong and market share is growing, Bunnywac has entered into an alliance to obtain the core technologies of its batteries. Bunnywac does not actually own the technology that makes its batteries work. This approach has provided Bunnywac a cost advantage since it has not had to invest in basic R&D and has very little R&D infrastructure. This technology is licensed from Mats (which has 200 engineers dedicated to moving the technology forward), one of Japan's largest technology-based holding companies (like Sharp or Canon). Mats also sells batteries under the Pandemonium brand and commands over 50% of the market share of Asian countries. Mats' market share in other global markets is negligible and its efforts at growing its branded battery share in the North America, Latin America, and Europe has been severely frustrated in recent years. While Mats is very large compared to Bunnywac, the battery technology and battery business are relatively tiny relative to Mats' other technology-based businesses. Bunnywac's decade-long licensing agreement with Mats for the essential battery technology expires in one year; there are no obvious substitute providers of this technology. -(Refer to Case Scenario 3) What should Bunnywac's strategy be with regard to the lapsing technology contract?

The collaboration between Volvo Aero (a subsidiary of Sweden's AB Volvo) and U.S.-based Pratt & Whitney to produce a new jet engine would be characterized as a(an)

Case Scenario 1: Norning International Norning International (NI) states that both its past successes and future growth strategies are based on an evolving network of wholly owned businesses and joint ventures around its core competency in glass making. Through their alliances and owned divisions they compete in four global business sectors: Specialty Glass and Materials (including materials for HDTV and LCD displays), Consumer Housewares (including microwavable dishware), Laboratory Sciences Products and Services (test tubes, testing equipment, and drug trials testing), and Communications (fiber optics and related technologies). Per the company's annual report, "binding all four sectors together is the glue of a commitment to leading edge glass making technologies, shared resources, and dedication to total quality." Each sector is composed of divisions, subsidiaries and alliances. However, the central role played by alliances is demonstrated by the fact that the combined revenue of its 30-some alliances is more than double that of NI on its own. Most of the alliances provide NI with access to particular geographic markets, industries, or channels, although an increasing number of alliances involve both market access and technological development. -(Refer to Case Scenario 1) NI appears to be managing a large number of alliances. What criteria should it use to exit particular alliances?

Greentech, Inc., is a bioengineering firm specializing in food crops. It is considering a cooperative alliance with an Asian agribusiness firm, AsiaFoods, to jointly produce improved crops for the Asian market. The risks that Greentech should consider before entering this alliance include all of the following EXCEPT:

Strategic alliances are cooperative strategies between firms that combine their resources and capabilities to create a competitive advantage.

In the Microsoft/Nokia alliance discussed in the earlier Strategic Focus, the hundreds of pages that were developed to specify the responsibilities of each partner suggests a cost-minimization approach to managing cooperative strategies.

The three main luxury hotels in a major tourist destination keep very close track of their competitors' room pricing, restaurant offerings, tour packages, and special services, such as airport transportation and spa privileges. When one hotel makes adjustments in prices or offerings, the other hotels follow suit. It is possible that these hotels are