What is a Corporate-Level Cooperative Strategy?
A corporate-level cooperative strategy is a cooperative strategy that affects a firm at corporate-level. Usually, the use of corporate-level in context means ways to help firms expand their operations by selecting the right portfolio of markets for themselves.
Thus, a firm uses this strategy to cooperate with other firms based on its entire portfolio of markets, instead of just one market.
Purposes
The main reason firms use a corporate-level cooperative strategy is to expand their operations. They can do this by facilitating product and market diversification. Thus, firms can (1) use current products for a new market, (2) create new products for current markets, or (3) create new products for new markets.
A corporation can also use a corporate-level cooperative strategy to develop a competitive advantage that is in addition to the competitive advantage that it gains using business-level cooperative strategy.
Lastly, firms can cooperate at the corporate level to reduce costs. They do this by focusing on the benefit of economies of scope. To have economies of scope, firms must create synergies among themselves.
Types of Corporate-Level Cooperative Strategy
Diversifying Cooperative Strategy
A diversifying cooperative strategy is a corporate-level cooperative strategy in which firms cooperate with other firms to enter new markets or market segments.
Firms can use either their existing products or newly developed products in this strategy.
For example, a helicopter firm headquartered in the U.S uses diversifying cooperative strategy to cooperate with a firm in India. Helicopter cabins are manufactured in India. Thus, the U.S firm has used a diversifying cooperative strategy to cooperate with a firm in India to expand its operations to a new market, in this case, it is the helicopter market in India.
Synergistic Cooperative Strategy
A synergistic cooperative strategy is a corporate-level cooperative strategy in which firms cooperate with other firms to create economies of scope.
In short, firms use a synergistic cooperative strategy to create synergies with other partners.
For example, two motor companies use a synergistic cooperative strategy to join forces and produce cars that cost less than they would if they were to be produced separately by each company. Thus, the cooperation between these two firms creates economies of scope that are beneficial to both firms.
Franchising Strategy
A franchising strategy is a corporate-level cooperative strategy in which firms enter a contractual relationship to share their resources and capabilities with partners.
The initial firms with resources are the franchisors. The firms receiving resources are the franchisees.
Usually, a franchisor is a firm that has already had some success with its products or product lines. It starts licensing its products to other firms in exchange for an initial franchise fee and continuous royalty rate. The franchisor must work closely with its partners to transfer knowledge and skills that are needed for success. The franchisees, in turn, should provide feedback regarding the products to the franchisor. Such collaborative communication can greatly enhance the effectiveness and efficiency of the products.
Franchising strategy is particularly attractive to use in fragmented industries such as hotels or retailing. Many firms are competing as rivals in these industries; however, no firm has dominant shares and a clear competitive advantage. Thus, a franchisor may be able to work with many firms and acquire a large market share.
Resources
Further Reading
Related Concepts
References
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2016). Strategic Management: Concepts: Competitiveness and Globalization (12th ed.). Cengage Learning.
- Wheelen, T. L. (2021). Strategic Management and Business Policy: Toward Global Sustainability 13th (thirteenth) edition Text Only. Prentice-Hall.