Exam 9: Cooperative Implications for Strategy

When using cooperative strategies, a firms most frequently develop strategic alliances that

Mutual forbearance is a form of explicit collusion between firms in which competitors avoid attacking rivals they meet in multiple markets.

In managing cooperative strategies, research indicates that ____ can be a capability that is valuable, rare, imperfectly imitable, and often nonsubstitutable giving these firms a competitive advantage.

In the cost minimization approach to managing competitive strategies, the relationship between the firms is based on trust of the other partner.

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) The cooperative strategy in which Bunnywac licenses technology from Mats is common among technology-based firms and is an example of an equity alliance.

Why are cooperative strategies often used when firms pursue international strategies? What are the advantages and disadvantages of international cooperative strategies?

A network strategy involves a series of horizontal acquisitions by firms that are committed to dominating a particular industry.

The two types of complementary strategic alliances are

Acquisitions are the most common cooperative strategy used in standard-cycle markets.

Cooperation in slow-cycle markets is extremely rare because these industries are declining.

If a large Asian cosmetics firm was to engage in a 50-50 partnership with a large American chemical company to form a new company focused on creating advanced skin care products, this would be considered a joint venture.

The Renault Nissan alliance (Chapter 9 Opening Case) is an example of a _______ created to gain economies of scope by sharing resources and capabilities.

Firms consider entering international alliances because multinational firms outperform firms operating only in their home markets.

The two basic approaches to successfully manage cooperative strategic alliances involve ____ and ____.

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 be Bunnywac's primary concerns about its lapsing technology contract with Mats?

Describe the two strategic management approaches to managing alliances.

Which of the following statements is FALSE?

A cooperative strategy

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). Norning International (NI) is following a network cooperative strategy. This strategy should work best in linking together geographically disperse markets where no one form serves as the leader of the network.

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) After managing this network of alliances for several years, what new strategic assets has ERPI developed?