The notion of "co-opetition" was coined to express the conflict that faces the partners in a strategic alliance or coalition, when they are really competitors at heart. It captures the fact that there are always risks to co-operation.
The risks and benefits of strategic alliances should be weighed up, but some risks are too great, no matter what the potential benefits. The obvious downsides emanate from the possibilities of opportunistic behaviour by partners.
This can entail slacking, delivering unsatisfactory products and services, distorting information, harbouring hidden agendas, and appropriating the partner's resources. While property resources can be protected through ownership rights, intangible resources are not so easily protected.
The most blatant danger is that one partner will use the alliance at the expense of another to acquire a major new competence for the core business. Having built itself permanent advantages by absorbing its partner's competences in this way, it may then ditch the partner, unwittingly transferring its advantages.
Companies with the drive and capacity to internalise the abilities and know-how of the partner end up gaining more from alliances than those that enter alliances to fill a gap by engaging a partner to carry out some critical activity on its behalf. In the latter case, the partner may be outsourcing to compensate for deficits and avoid investment, without absorbing the know-how to eventually go-it-alone.
A company that hands over a function to an ally as a short term solution to fill a gap might avoid handling a fundamental deficiency. In the long term, the deficiency may become untreatable. Thus, this partner develops a dependency relationship. The power balance in the alliance shifts in such a way that the stronger partner either leaves the dependent one high and dry, or buys it out at a bargain price.
Various studies have cited Japanese companies as being master learners in strategic alliances because they often regard the alliance as a temporary arrangement to acquire a competence from its partner. The gatekeeping function in western companies may not be as strict as in Japanese companies, so valuable knowledge may leak to the Japanese partner.
Some observers note that skills in Japanese companies are embedded or context dependent. Therefore, they are not easily extracted and transplanted to another company. McKinsey research showed that of 150 terminated alliances between Japanese and western partners, three quarters were bought out by the Japanese, often because the western company became overdependent. An example of this is the buyout of the UK computer company ICL by Fujitsu.
Along the same lines, one partner might take control of a critical part of the value chain. For example, two companies might enter an alliance to combine the superior technology of one with the marketing and distribution access of the other. However, over time, the technology partner might leverage the alliance to control customer relationships, while eroding the original marketing power of its partner. Or the opposite may happen as the marketing partner learns the technology. In either scenario, eventually one of the partners loses a core resource or capability.
The situation is exacerbated when companies team up out of weakness in the hope that they can achieve some critical mass together. In fact, often their shortcomings are compounded as each drags the other down. Some airline alliances might be an example of this phenomenon.
Alliances incur organisational costs. Different infrastructures and managerial cultures have to be integrated so people can work together constructively. A modus operandi that allocates tasks and responsibilities to achieve the possibly conflicting aims of the allies has to be found.
Differences among allies are often highlighted when it comes to international partnerships. Ford Motors has a number of alliances with other car companies where it is the biggest investor. It is having an especially difficult time with Mazda whose profits fell almost 90 per cent in a recent 12 month period.
Mazda's executives, workers and suppliers in Japan are concerned that Ford excludes the Japanese from important decisions, and is trying to assume a "one size fits all" attitude to its sundry alliances. Like Renault with Nissan, and Daimler with Mitsubishi, Ford is challenging Japanese traditions of lifetime employment, company loyalty and longstanding supplier and dealer relationships through its partners. The prize is the growing Asian automobile market. Various tensions are an inherent part of alliances, especially when the partners are competitors outside the alliance. The Concert alliance, formed by British Telecom and AT&T in an effort to create a leading global telecoms company, is experiencing disharmony.
Firstly, the two parent companies are too distracted by their mainstream businesses to devote sufficient resources and management attention to the venture to make it viable. Then, overlap between the venture's operations and those of its parents creates confusion among customers. Finally, the venture is forced to carry its traffic on BT's and AT&T's networks at a higher cost than it could get from third parties.
On the one hand, trust between the partners is necessary while on the other, barriers must be erected to preclude the loss of control or resources to the partner, especially knowledge assets.
Basically, the right level of co-operation is sought, but it is easy to have too little or too much. Too little can result in mistrust and destructive conflict. Too much means that the partners leave themselves open to the loss of their advantages or they stop bringing different resources or skills to the party.
Of course, what may be seen as excessive collaboration can invite the unfriendly attentions of regulators, in the same way as mergers and acquisitions. For example, the Dutch government is querying collusion among rival bidders for third generation mobile phone licenses in the Netherlands, especially the positions of KPN, the domestic market leader, and Hutchison Whampoa of Hong Kong which are bidding independently, but are in an alliance together with NTT of Japan for licenses in other European countries.
Nowadays, the same company may participate in multiple alliances. This can give rise to conflicts of interests among the partners. Carlsberg's acquisition of the brewing interests of Orkia, a Norwegian conglomerate, to gain an important foothold in the Russian beer market has given the Danish brewer the Nordic bottling and distribution rights for Pepsi. This franchise is in direct conflict with Carlsberg's existing joint venture with Coca Cola, an arrangement that delivered a sharp increase in Carlsberg's overall sales figures.
Even the evaluation of an alliance may not necessarily meet with agreement among the partners, as they may enter with different aims, so success really means different things to different partners, depending on their goals.
Contrary to common belief, apparent peace and harmony between the partners is not necessarily the best criterion. It may be a sign of a stalemate, or that one partner has gained ascendancy over the other. The termination of an alliance is not a sign of failure either.
It may be that the temporary arrangement achieved its purposes for one or more of the parties, whether this is in terms of acquired knowledge, market penetration, or continuing survival. Unless there is more to be gained by all concerned, the alliance dies a natural death. Co-opetition becomes outright competition.
Dr Eleanor O'Higgins is a lecturer in strategic management and business ethics at UCD graduate business school.
