For any company growing and advance are main objectives; a strategic collaboration can strengthen companies against outsiders transforming a win-lose scenario to a win-win game where collaborating parties achieve superior benefits.Shah & Jha, 2017
Nowadays, competitors tend to face similar markets and use similar resources and technologies. They typically have to deal with similar challenges at large. Therefore, with rising costs of R&D and globalizing competition, it often makes sense to collaborate with competitors on product development, innovation and joint manufacturing. (Garret, 2017)
How companies can collaborate with competitors?
The four main types of collaboration I have researched are the following:
Strategic alliances are agreements between two or more independent firms that temporarily combine resources and efforts to reach their strategic goals.
A company may enter into a strategic alliance to expand into a new market, improve its product line, or develop an edge over a competitor. The arrangement allows two businesses to work towards a common goal that will benefit both.
It generally enables companies to realize its potential more quickly than if pursuing an objective alone. (Thompson, 2019)
A good example is Apple Pay and MasterCard, it may seem they are competing with each other, but Apple has collaborated with the second largest credit card provider in the world, MasterCard, to gain credibility in the merchant services and processing arena.
While Apple Pay gets the benefit of MasterCard’s reputation, MasterCard gets the cache of being the first to be an Apple Pay authorized option. (Leonard, 2019)
Business portfolio a company stablishes agreements with independent companies but then managed the knowledge flows through specific functions.
Pharmaceutical companies would often collaborate with small biotechnological firms to assimilate knowledge and patents in the most efficient and effective manner. (Pop, 2017)
3. Innovation Networks
Network structures are natural progressions of alliances and portfolios. As collaboration tools and practices spread from high-tech to medium and low-tech sectors, new ways of structuring the innovation activity emerged. The key difference: all firms were now interconnected, arrangement became less strict, and low-medium competition replaced the fierce battles for survival.
Networks include groups of firms that share R&D goals related to products, services, processes or business models.
A business ecosystem, is the network of organizations, including suppliers, distributors, customers, competitors, government agencies, etc. involved in the delivery of a specific product or service through both competition and cooperation. Each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive as in a biological ecosystem.
As ecosystem network, Apple that leads a large ecosystem of suppliers, app developers, hardware add-ons companies, retailers, and users. Most of what happens within the ecosystem is guided by frameworks that Apple creates. (De Ternay, 2019)
What are the pross and cons of collaborating with competitors?
Forming a business collaboration with competitors maybe difficult when it starts but planned correctly and with the company’s commitment to the right level of leadership and resources, a company can win work that was previously out of reach.
- Knowledge and Resource Sharing
A knowledge share can include anything from marketing skills to management to branding to technical know-how. The combination of these shared resources increases the value of each partner in a way that is not possible when each business acts alone. Knowledge and resource sharing often increases speed to market, reduces operational complexity and increases cost efficiency.
- Opportunities for Growth
A business can only sustain and grow organically until they reach a certain ceiling, which is determined by operational and financial capacity. This organic growth might not be sufficient to satisfy the strategic growth requirements of management or stakeholders, meaning that a business cannot grow and extend itself enough without the expertise and support of an external partner.
- Access to Target Markets
Entering a new market almost certainly involves overcoming localized risk and operational hurdles. Often, forming an alliance with an “on the ground” or local partner is the only way to enter a specific market. Especially when entering into developing countries or countries with limited experience dealing with foreign businesses.
- Economies of Scale
When companies pool their resources and allow each other to increase manufacturing and distribution capabilities, economies of scale can be achieved. Forming strategic alliances with the correct partner and developing effective executional strategies also allows smaller businesses to compete against larger competitors.
- Market/Geopolitical Risk
Businesses looking to enter new markets minimize their exposure to market and political risk by entering strategic alliances with businesses in their target markets. This is because the local business will have experience in and understanding of local laws, customs and the cultural climate in the target market. This type of partnership generally works best when the partners’ portfolios complement, but do not compete, with each other. (Martyak, 2014)
Business collaborations also have some downsides:
- Clashing cultures and management styles
Creating a partnership with an entity that has a very different culture and management style could cause problems. Since every organization has its own culture and management style that determines how affairs are run within the company. One organization might have an open-door policy which allows employees to interact freely with their bosses, others might have a more rigid culture where the boss is not readily accessible.
When forming an alliance, it is important to take all the necessary measures to protect from any threats.
Getting into a strategic partnership with another entity places both in a very vulnerable position. A partner could take advantage of the other and cause great damage to the other business. For instance, if they have access to computers, documents or property, they could steal or expose trade secrets.
- Damage to reputation
One of the greatest dangers of forming alliances with other entities is the possibility of getting a reputation tainted. Even if the partner fulfils all the requirements of the alliance, the reputation of a business could still suffer if for example, they don’t deliver the service on tine or if they are involved in other shady activities. (Mburugu C,2015)
How stakeholders are affected by alliances?
A stakeholder is a party that has an interest in a company and can either affect or be affected by the business. The primary stakeholders in a typical corporation are its investors, employees, customers and suppliers.
In traditional thinking, the more suppliers a company engage, the more competition it will foster. By bidding suppliers against one another, then saddling the lowest price “winner” with onerous terms, traditional buyers damage the network.
Consider a bid that wins based on price, resulting in a low profit that restricts business reinvestment by the supplier. The buyer doesn’t care, he won the lowest price. He provides no resources for improvement and passes risks and costs along to the supplier. The supplier, in turn, becomes less viable and more desperate.
Meanwhile, the buyer begins to experience problems in quality, reliability and service. He doesn’t realize that his buying actions elevated the total cost of his ultimate product (stock outs, quality, returns, etc.), making him vulnerable in the market. Neither buyer nor seller wins. (Site, 2005)
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Garret B., 2017. Why Collaborating with Your Competition Can Be A Great Idea. Forbes. URL:https://www.forbes.com/sites/briannegarrett/2019/09/19/why–collaborating-with-your-competition-can-be-a-great-idea/ 21.11.2019
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McKeon M., 2014. Want to Beat the Competition? Try Partnering with Them First Powerlinx. URL: https://www.powerlinx.com/blog/partner-competitor/ Accessed 18.11.2019
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Shah S. & Jha A., 2017. Collaborating with your direct business competitors. URL:https://www.livemint.com/Opinion/4jgt8rLc9TPNb5FMpza3MK/Collaborating-with-your-direct-business-competitors.html Accessed 20.11.2019
Site S., 2005. The Impact of Strategic Alliances. Chief Learning Officer. URL: https://www.chieflearningofficer.com/2005/06/29/the-impact-of-strategic-alliances/ 21.11.2019
Thompson J., 2019. The Advantages of Business Alliances. Chron. URL: https://smallbusiness.chron.com/advantages-business-alliances-22151.html Accessed 20.11.2019