When businesses dismiss the mergers and acquisitions route as a growth strategy and look for alternative options, they often consider market penetration, market development, product development or diversification. However, there is also the 5th option, which is frequently overlooked: coopetition, known as ‘cooperative competition’. Although it might seem that the concepts of cooperation and competition are diametrically opposed, competitors can in fact often benefit from cooperating with each other strategically. The success of coopetition, however, depends on finding creative ways to complement each other and to transform each other’s differences into growth opportunities.
The logic behind coopetition
The main aim of coopetition is to move from a zero-sum game to a plus-sum game. In essence, it means abandoning the-winner-takes-all thinking and sharing profit by working together. There are 3 main motives for pursuing the coopetition strategy:
- Market expansion. Collaboration with a competitor who offers similar products / services can in fact help improve one’s products / services. It can also lead to developing new products / services. That helps minimize both costs and risks and gain a more dominant position in the market.
- Resource efficiency. Due to the scarcity of resources, companies are trying to utilize their resources as efficiently as possible. Coopetition allows companies to integrate their resources and increase their efficiency.
- A better market share. Every company wants to secure its current market share and improve its position against competitors. Coopetition enables companies to gain a more significant market share and compete more successfully against other market players.
3 types of coopetition
There are 3 different types of coopetitive relationships, based on the weight given to cooperation and competition: (1) cooperation-dominated, (2) competition-dominated and (3) equal relationships. The type of coopetition is determined by the nature of business activities. For example, if activities performed by companies are in greater distance from buyers, they tend to cooperate more often. By contrast, if business activities are closer to buyers, companies compete with each other more intensively. Similarly, the type of coopetition is also conditioned by resource heterogeneity. If companies have unique resources, and think that sharing those resources will not undermine their competitiveness, they tend to cooperate more.
Partners in need
In an increasingly networked-economy, more companies realize that their value proposition depends on their ability to forge relationships to add more value to their customers. This is especially important now, at the time of extensive changes in the business environment. On one hand, new technology has taken international trade and economic interdependence to a new level. On the other hand, external factors such as the COVID-19 pandemic, shifts in political agendas and consumer preferences have pushed many companies into the boom and bust cycle. Many companies will thus have to learn how to collaborate with competitors. Otherwise, they risk going out of business.
By its nature, coopetition is unstable and continuously evolving as market conditions keep changing. There is a constant need to monitor shifting consumer preferences, business regulations as well as changes in the supply chain, to name a few. Any coopetition arrangement should thus be considered as a dynamic process, which is often based on time-dependent factors. This in turn makes it difficult to reach a legally binding agreement. Before getting involved in any coopetition agreement, senior executives should consider these 4 principles of successful cooperation:
- Mutual interdependence should bring value.
- The location and timing of that value should be coordinated to avoid the cannibalization of existing business activities by any party.
- All benefits should be clearly defined, even if parties do not benefit equally.
- A positive-sum game should be a direct result of ‘convergent interests’.
Coopetition and innovation
While many companies consider innovation primarily as a “deeply secretive and highly competitive” area of work, an increasing number of companies recognize that coopetition is in fact a more efficient way of developing innovations, and can accelerate one’s innovation capacity. Developing innovative solutions through coopetition requires the ability to find a delicate balance between ‘the forces of cooperation and competition’ as there is an inherent tension between them: unbalanced competition aims to maximize only individual benefit, while cooperation seeks to maximize mutual benefit. Coopetitive partnerships thus need to balance these inherently opposing market forces to be able to tap into their innovative potential.
Not only does innovation capacity give a competitive advantage, regardless of the industry type, it is also a key driver of coopetition. It puts pressure on partners to improve their business activities, which helps boost their overall innovation performance. However, the contradictory nature of coopetition can also hinder innovation activity despite its potential. As there is a constant tension between value creation – the key component of cooperation – and value appropriation – the key component of competition, pursuing coopetition as an innovation strategy can be both beneficial and risky. ‘The paradoxical blend of competition and cooperation’ suggests that companies with common interests can cooperate profitably in one area and compete in another area simultaneously.
References: Phillip Poarch, channelfutures.com | Adam M. Brandenburger and Barry J. Nalebuf, bstrategyhub.com | Michael Morris et al., Coopetition as a Small Business Strategy: Implications for Performance | Joe DiVanna, dukece.com | Chris McCarthy et el., Accelerating Innovation Through Coopetition | Henrik Virtanen, Coopetition as a service innovation strategy | Theresa A. Kirchner, Coopetition (Contemporaneous Cooperation and Competition) Among Nonprofit Arts Organizations: The Case of Symphony Orchestras