Business Policy & Strategy
The complexity associated with most cooperative strategies increases the difficulty of successfully using them. One cause of this complexity is the fact that often, firms collaborating on certain projects are simultaneously competing with each other as well. As explained earlier, this reality describes the relationship between Cisco and IBM as well as those existing with airline companies that have joined alliance networks (such as Star, Oneworld, and SkyTeam). Another complication is that firms sometimes form a partnership with a company that is itself a collaboration between other companies. For example, Ford Motor Company formed a joint venture with carbon manufacturer DowAksa, a firm that is a joint venture organized by Dow Chemical Company and Istanbul-based Aksa Akrilik Kimya Sanayii A.S. The purpose of the Ford/DowAksa collaboration is to find ways to develop cheaper grades of carbon fiber components that can be integrated into Ford’s automobiles and trucks.
Because it is much lighter than steel, carbon fiber helps auto manufacturers reduce the weight of their products, which in turn facilitates their efforts to increase products’ gas mileage. We see then that, for multiple reasons, the complexities of cooperative strategies increase the challenge of effectively implementing them and may contribute to alliance failure.
Redbox and Verizon terminated their relationship that was originally developed to become the streaming subscription components of Redbox’s rental business after only two years. (Outerwall founded Redbox in partnership with McDonald’s Ventures, LLC. McDonald’s hoped to distribute DVDs through rental kiosks at its restaurants as a means of attracting customers and providing them with a unique service.) Competing against the likes of Netflix and Hulu Plus, Redbox’s streaming service failed to attract a sufficient number of customers, perhaps in part because it was able to stream to customers only items that its competitors were also streaming. Unlike Netflix and Hulu Plus, Redbox was not developing its own original content as a means of creating unique value for customers. Because the service made available through the Redbox and Verizon collaboration was losing money and was not gaining a sufficient number of subscribers, the partners chose to terminate their relationship.
Carefully executing the operational details of a planned cooperative strategy is foundational to its performance and influences if it will succeed or fail. In mid-2015 for example, First Solar, Inc. and SunPower Corporation, the two largest U.S. solar-panel manufacturers, were in the planning stages to form a joint venture that would own and operate some of the firms’ projects. The proposed partners believed that the collab-oration would create value by combining “SunPower’s polysilicon technology with First Solar’s thin film panels.” However, SunPower recorded a loss in the first quarter of 2015, partly because of costs it was incurring to structure the proposed relationship with First Solar. This demonstrates the importance of identifying efficient as well as effective ways to structure a proposed collabo-ration between companies as a means of increasing the likelihood of operational success.
Earlier, we noted that MillerCoors, the joint venture formed between Molson Coors and SABMiller, is encountering difficulties. Some analysts believe that a reason for this is that, while the partnership had been very successful during its first six years in terms of substantially reducing costs by creating economies of scale, it had failed to increase the market shares held by two of its important products, Miller Lite and Coors Light. The situation with the MillerCoors partnership suggests that long-term cooperative strategy success results when partners find unique ways to create value for customers in addition to finding ways to reduce operating costs.
Sources: M. Armental, 2015, SunPower swings to loss on costs related to planned joint venture, Wall Street Journal Online, www.wsj.com, April 30; D. Harris, 2015, China joint ventures: How not to get burned, Above the Law, www.abovethelaw.com, February 9; Molson Coors, U.S. joint venture MillerCoors facing stiff challenges, Wall Street Journal Online, www.wsj .com, May 7; J. D. Stoll, 2015, Ford to develop carbon-fiber material for cars, Wall Street Journal Online, www.wsj.com, April 17; P. E. Farrell, 2014, The 7 deadly sins of joint ventures, Entrepreneur, www.entrepreneur.com, September 2; Q. Plummer, 2014, Redbox instant will be killed Oct. 7: A failed joint venture, Tech Times, www.techtimes. com, October 6.
Case Discussion Questions
1. What are some of the major complexities encountered in developing cooperative strategies such as strategic alliances and joint ventures?
2. What role does competition from rivals play in the eventual success of cooperative strategies? Please explain.
3. What costs are incurred in developing strategic alliances? How can these costs be managed?
4. Should cost minimization or opportunity maximization be the primary goal of a cooperative strategy? Can both be achieved simultaneously? Why or why not?