Coopetition: What if your competitor became your best ally?
In the early 2000s, in the suburbs of Toulouse, the mood was tense in the offices of Airbus Defense Space (then known as EADS). The American company Boeing Space Systems had developed a platform for telecommunications satellites capable of carrying heavy and very powerful payloads.
Paul Chiambaretto, Montpellier Business School – UGEI and Anne-Sophie Fernandez, University of Montpellier
This new technology gives the American company an unprecedented competitive advantage in the telecommunications satellite market. Airbus Defense Space is unable to compete and has effectively been shut out of this high-end global market. How can it catch up?
Airbus Defense Space lacks the resources (human, financial, or technological) and the expertise needed to develop a new satellite platform on its own. Its European competitor, Thales Alenia Space, faces the same challenge. As a result, these two European leaders are unable to compete with the American manufacturer on the global market.
Against all odds, despite being competitors, Airbus Defense Space and Thales Alenia Space are joining forces to tackle the technological challenges facing the European space industry. In 2005, they invested more than 400 million euros to launch a project to develop a new high-end satellite platform called Alphabus.
Twelve years later, in 2017, Airbus Defense Space and Thales Alenia Space re-entered the telecommunications satellite market and are now considered major players in the sector. The Alphabus project illustrates a counterintuitive cross-organizational phenomenon of cooperation between competitors and raises the following question: Why would a firm have an interest in to ally with one's worst enemy ?
Coopetition: A New Strategy?
In the mid-1990s, the president of Novell coined the neologism “coopetition” to describe his company’s practices. A portmanteau of “cooperation” and “competition, ” the term coopetition describes interorganizational relationships that are simultaneously cooperative and competitive.
But cooperative relationships between competitors are nothing new. As early asthe 6th century B.C., Sun Tzu recommended this type of strategy in his treatise on military strategy. However, the introduction of the concept of coopetition allows us to move beyond the traditional opposition between competition and cooperation. The concept of coopetition has made it possible to highlight entrepreneurial practices and analyze the phenomenon of cooperation among competitors from the perspective of paradox and duality.
To transcend the paradox of coopetition, Eastern philosophy offers insight. It helps us understand the challenges of coopetition, particularly through the concept of yin and yang. This symbolic representation teaches us that any cooperative relationship necessarily involves a certain degree of competition, and vice versa. Yin and Yang thus perfectly symbolize the interdependence between a firm and its competitor.
Why collaborate with a competitor?
It is, however, difficult to understand why competitors find themselves involved in these paradoxical relationships of coopetition. Strategic management researchers offer some insights.
Generally speaking, firms that adopt coopetition strategies seek to reap the benefits of both cooperation and competition. Why forego the benefits of either strategy when one can aim to reap the combined benefits? On the one hand, cooperation allows firms to create more value, to increase the size of the pie. On the other hand, competition allows each firm to hope to capture a larger share of the value created—a bigger slice of the pie.
More specifically, coopetition strategies are determined by a set of external and internal factors. As perfectly illustrated by the development of the drugs Plavix and Aprovel by the competing pharmaceutical companies Sanofi and BMS, competing firms are more likely to cooperate when it comes to innovation. The high cost of R&D, the rapid pace of technological progress, and the need to be the first company to bring an innovation to market explain the need for alliances between competitors. Consequently, coopetition strategies are widely observed in high-tech sectors.
Firms choose to cooperate to gain access to resources (human, financial, or technological) and capabilities they lack. In many cases, these resources and capabilities are held by a competing firm. Two competing firms have portfolios of resources and skills that are both complementary and similar, making their combination more efficient. By cooperating, competing firms will develop new capabilities that they will then use individually to improve their competitiveness in the markets.
Coopetition: An Everywhere Strategy?
Many companies today are adopting coopetition strategies. In 2004, Sony and Samsung formed a joint venture to jointly develop LCD technology. The jointly developed technology will be incorporated into both partners’ respective product lines. Sony and Samsung thus continue to compete in the market with products based on the same technology.
The digitalization of the economy is increasing the need for cooperation among competing firms. By partnering with a competitor, companies hope to create a breakthrough in their market, thereby enabling them to capitalize on a blue ocean and gain a sustainable competitive advantage. For example, in the IT sector, Microsoft and Salesforce decided to release a joint CRM software called Dynamics CRM. A more iconic example is the partnership between Apple and Samsung, which are otherwise competitors in the smartphone market.
But coopetition strategies are also found in less technology-driven sectors. In the airline industry, an increasing number of airlines (such as Air France) are forming alliances with competitors to offer their customers a wider range of destinations. In the wine industry, some competing winemakers have decided to create shared brands and appellations (such as AOCs) to gain visibility and expand their market share. Similarly, in the tourism sector, we are seeing the development of cooperative strategies (such as joint advertising campaigns) among competing hotels to attract tourists to their city.
However, adopting these coopetition strategies presents new challenges for companies. While cooperating with a competitor may seem like a sound strategy for firms, implementing this paradoxical strategy nonetheless poses a number of difficulties for managers.
How can employees from two competing firms actually work together? What information can—or cannot—be shared with a partner? Coopetition strategies also raise questions about the legal framework. How far can companies go?
New theories and analytical frameworks are needed to understand these coopetition strategies and to support companies in their efforts.
Paul Chiambaretto, Professor, Montpellier Business School – UGEI and Anne-Sophie Fernandez, Associate Professor (HDR) in Strategy, University of Montpellier
The original version This article was published on The Conversation.