Green transition: What if companies chose coopetition?
“I have a tall cappuccino for John…” A phrase John hears every morning at his Starbucks in Palo Alto, before hopping into his Tesla to drive to work in San Francisco. It’s such a natural routine that John almost forgets that both his coffee and his car are the result of an unnatural business strategy: coopetition, a portmanteau combining cooperation and competition.
Anne-Sophie Fernandez, University of Montpellier; Audrey Rouyre, Montpellier Business School and Paul Chiambaretto, Montpellier Business School
The cup that John places in his car’s cup holder is the result of a collaboration between McDonald’s and Starbucks, which—though fierce competitors in the fast-food and takeout beverage markets—are closely aligned in their efforts to reduce food packaging waste. Similarly, the Tesla that John drives on California’s roads is built using numerous parts and technologies from Tesla’s fierce competitors, such as Daimler and Toyota.
The idea that coopetition—that is, alliances between competing companies—enables the development of new innovations is a fairly widespread one. However, as we explain in a book, reducing the benefits of coopetition to the mere creation of economic or financial value is overly simplistic. Over the past decade, various studies in management science have shown how such strategies can generate not only economic value, but also societal and environmental value. Expanding the use of these strategies, however, appears to require changes in European law.
When collaboration equals efficiency
Defining what constitutes a green innovation is not always easy, and two complementary approaches can be considered: one focused on the product and the other on the design process.
The first approach involves using the term “green” if the product in question is more environmentally friendly than existing products. Following this logic, an electric car (such as John’s Tesla) can be considered a green innovation since it produces less pollution than a car powered by fossil fuels.
Developing a greener product often involves more radical and riskier innovation than non-green innovation. To develop such innovations, the resources and capabilities of a single company are often insufficient. It therefore seems necessary to draw on the expertise of an entire sector. This is how competing companies are led to pool their know-how, technologies, and knowledge to develop new green standards within their industries.
To drive the aviation industry’s green transition, for example, eleven competitors—including Airbus, Dassault Aviation, and Saab—have joined forces to create the Cleansky network, which comprises 54 companies of all sizes, with the goal of designing and manufacturing the green aircraft of the future. Also in the aviation sector, CFM International—a joint venture between two competing engine manufacturers, Safran and General Electric—has successfully developed jet engines that reduce carbon dioxide emissions by more than 15% and nitrogen dioxide emissions by 50%. Neither Safran nor General Electric was capable of developing these new green technologies on its own. In the space sector we studied, MTG was developed by the two leaders in satellite manufacturing, Thales Alenia Space and OHB, with the aim of tracking weather patterns and potentially predicting future natural disasters.
The second approach, on the other hand, focuses on the process used to produce the same final product: does it consume fewer resources? From this perspective, a new gasoline or diesel car can be considered a green innovation if its manufacture requires less energy or consumes fewer resources than that of competing models.
Pooling competing production or supply chains can therefore prove effective. This was the strategy adopted by Nestlé in the mid-2000s when it partnered with Pladis, one of its competitors in the United Kingdom, to handle their deliveries jointly. Under the slogan “We compete on the shelf, not in the back of a lorry,” the two companies managed to save an average of 28,000 km in deliveries each year, equivalent to 95,000 liters of fuel and 250 tons ofCO2.
For businesses of all sizes
It’s not just large corporations that are affected. As our research shows, many startups and small and medium-sized enterprises are partnering with competitors to boost their innovation capacity. Their survival often depends on it, because, being smaller, these companies don’t always have sufficient resources to develop products and bring them to market.
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The same is true for issues related to CSR and the green transition. SMEs would very much like to address these issues, especially since their customers and stakeholders are becoming increasingly concerned about them. However, given their limited resources, they often have to make trade-offs that lead them to prioritize their day-to-day operations at the expense of their environmental commitments.
Cooperating with competitors can thus provide them with the necessary resources to both continue their operations and commit to CSR initiatives or the ecological transition. In South Africa, several small competing wineries that lacked the capacity to develop their own bottle recycling systems have thus worked together to develop solutions for recycling glass and reducing waste.
Large corporations and small and medium-sized enterprises can also collaborate. For example, Nestlé Waters and Danone, both competitors in the beverage industry, decided in 2017 to join forces and invest in Origin Materials, a small California-based startup that develops plastic bottles made entirely from sustainable and renewable resources.
Necessary legislative changes
If coopetition is beneficial and helps companies navigate their ecological transition, why aren’t more companies choosing this path?
One reason for this lies in the tensions created by these paradoxical strategies. Indeed, cooperating and competing at the same time creates tensions that are often difficult to ignore. Our study of the space industry suggests, in this regard, that particular attention should be paid to the sharing and protection of information.
Beyond that, there is still some uncertainty regarding the legality of such alliances between competitors. Article 101 of the Treaty on the Functioning of the European Union deems “incompatible with the internal market and prohibited all agreements between undertakings, any decisions by associations of undertakings, and any concerted practices, which may affect trade between Member States and which have as their object or effect the prevention, restriction, or distortion of competition within the internal market.”
However, it is not always easy to prove that a coopetition agreement does not risk restricting or distorting competition. When we examined the real estate sector in Europe, we observed that coopetition strategies can lead to higher property prices, thereby reducing customers’ purchasing power but creating greater value for sellers.
That is why, in the European Union as well as in Australia, regulators are increasingly considering explicitly incorporating exemptions to prevent competition law from preventing competitors from collaborating if the agreement helps accelerate the environmental transition of the companies in question.
The balance between competition law and environmental law remains a delicate one, however, particularly when airlines and their rail competitors enter into partnerships. In any case, an evolution of the legal framework appears necessary to support changes in corporate practices in light of the scale of the environmental challenge that lies ahead.
Anne-Sophie Fernandez, Associate Professor (HDR) in Strategy, University of Montpellier; Audrey Rouyre, Assistant Professor of Strategic Management, Montpellier Business School and Paul Chiambaretto, Associate Professor and Director of the Pégase Chair, Montpellier Business School
This article is republished from The Conversation under a Creative Commons license. Readthe original article.