Coopetition: What It Means in Practice (Part II)

Business activity has been typically understood in terms of war. Its essence has been well captured by American writer Gore Vidal: “It’s not enough to succeed. Others must fail.” However, research shows that most businesses actually succeed when other businesses can succeed as well. In this context, coopetition can be interpreted as a blend of war and peace. Companies thus need to learn how to manoeuvre between these 2 conflicting aspects of business activity to extract from coopetition as much value as possible and turn it into a competitive advantage. The success of coopetition also highly depends on the ability to make compromises and tradeoffs. Still, despite joint efforts and mutual interests, benefits of cooperation are likely to be unequal: one party can benefit more than the other.


Benefits of coopetition

One of the main benefits of coopetition is the ability to compensate for gaps in one’s business capabilities or competences by relying on a competitor’s expertise but protecting one’s core product / service at the same time. Coopeting companies can also benefit from providing a larger range of services, which is a direct result of a better division of work and investments. Furthermore, joint projects increase work efficiency, which stimulates the internal growth of each partner. Coopetition can also considerably decrease workload, which allows focusing on other aspects of business. Another significant benefit is cost reduction: companies with competing products practically always have overlapping areas that could be shared. Partners can also use their complementary strengths to expand their markets as well as use each other’s customers as potential candidates for additional sales. Moreover, coopetition allows sharing technology risks and fixed operational costs and quicker penetration of new markets. Coopetition also leads to ‘multi-directional learning’ as partners share their expertise. This in turn can help develop joint solutions which can better address customers’ needs than the individual offerings of each partner. 

Disadvantages of coopetition

The benefits of coopetition, however, are offset by its disadvantages. First of all, it involves costs to each party, both in terms of finances and time. Coopeting companies can also lose control over their key activities and resources, including proprietary information. In addition, their competition can hinder their individual performance. It has also been observed that coopetition can in fact hinder or delay the innovation process and slow investments in new technologies. Furthermore, coopeting companies have to develop the managerial skills needed for successful coordination of simultaneous competition and cooperation. They also need to face the challenge of protecting joint investments and trade secrets and establish “parameters […] regarding areas in which information is shared”. Moreover, mutual interdependence can hinder the process of developing and implementing marketing strategies for each company. It is especially difficult to set an appropriate strategy without undermining the objectives of a partner-competitor. What is more, since strategies are subject to modification, commitment to cooperation can decrease over time, which inevitably results in changes in resource allocation. That in turn can have a negative impact on one’s partner. 

Potential risks of coopetition

Due to its inherent tension, coopetition is a risky endeavour. Despite mutual interests, coopeting companies compete with each other for scarce resources and a market share. Other significant risks include a “lack of performance measurement objectives and metrics to track and assess results”, limited strategic and tactical options, a misunderstanding of a partner’s behaviour due to overconfidence and attribution errors, incorrect predictions of a partner’s behaviour as well as decision-makers’ assumption that ‘a cooperative rival’ acts similarly as them. Special attention should be paid to the monitoring of knowledge sharing. In a coopetitive relationship, learning opportunities are typically unequal: companies acquire different amounts of knowledge, and learn in various time frames. Furthermore, each partner seeks to utilize the other party’s expertise for private gains, and there is a potential that once one company acquires the desired knowledge, it can terminate cooperation before the other party acquires the knowledge it needs. There is also a risk that the “expansion of organizational structures to network and boundaryless (cellular) organizations and alliances” can cause some legal and ethical issues as they lie beyond traditional constraints. 

Coopetition and small businesses

Having a product of superior quality or a resource advantage does not guarantee the sustainability of new ventures. The ability of entrepreneurial organizations to compete might be closely tied to their ability to cooperate with others. This paradox reflects the complexity of the competitive environment in which entrepreneurial organizations operate. Turbulent and complex external conditions challenge the existence of small businesses. In many cases, their small size and newness work to their disadvantage. To secure their market position and gain a competitive advantage, they put a lot of emphasis on enhancing their innovation capability. Innovation, however, comes with high costs and risks, which can be too problematic for small companies as they have limited resources, and are especially vulnerable to changes in the business environment. In such circumstances, coopetition can be a viable strategy, especially for companies which face the challenges of a wide product variety or intense competition in the market.

For small businesses, coopetition is dependent on mutual benefit, trust and commitment. Coopeting companies must clearly see how they can actually benefit from cooperation. Small businesses are especially interested in obtaining resources that are otherwise unavailable to them, including information that can enhance their performance. A coopetitive relationship must benefit both parties in “organizationally meaningful ways”, even if they do not benefit in equal measure. 

The success of coopetition also depends on mutual trust. It should be noted that coopetition provides a unique context for trust: a company must trust that its partner will be able to “balance self-interest against mutual interest”. Partners need to trust each other that they will be committed to cooperation, i.e. that they will share resources and information, communicate effectively and meet work deadlines, to name a few. At the same time, partners need to trust that none of them will engage in any competitive action that can significantly undermine the other party’s market position. 

It has been observed that the degree of each party’s commitment to a coopeting relationship determines its viability over time. The level of commitment is closely linked to benefit sharing. If partners share benefits equally, their commitment to partnership increases more rapidly. However, due to their mixed motives, partners might undercommit as well. Since each partner’s efforts affect the success of each other’s business, the implications of undercommitment can be severe. To overcome this scenario, it has been proposed that partners should pursue strategies that help reduce the risk of low commitment.

References: | Theresa A. Kirchner, Coopetition (Contemporaneous Cooperation and Competition) Among Nonprofit Arts Organizations: The Case of Symphony Orchestras | Joe DiVanna, | | Martin Zwilling, | Phillip Poarch, | Michael Morris et al., Coopetition as a Small Business Strategy: Implications for Performance