Definition
An international (cross-border) cooperative strategy is a cooperative strategy in which a firm located in one country cooperates with a firm located in a different country.
Purposes of International Cooperative Strategy
The main reason firms use an international cooperative strategy is to create competitive advantage. They do this by combining some of their resources and capabilities.
Another reason firms cooperate internationally is to create value in locations that are outside of their home market. An example would be two motor firms located in different countries that use an international cooperative strategy to cooperate in terms of development, procurement, and production processes. Through this collaboration, firms can create and deliver value in markets of both countries, which is something that neither firm could do independently.
The third reason for firms to consider an international cooperative strategy is because of the limited domestic growth opportunities.
The fourth reason firms use cross-border cooperative strategy is because of restrictions in national policies in certain countries. Some nations have governmental policies that reflect a strong preference for local companies. Thus, firms may have limited modes for market entry.
Types of International Cooperative Strategy
Cooperative Strategy Involving Organization Creation
In this type of strategy, two or more companies provide capital in the form of financial, human, or technological resources to enable a new company to be formed. By providing such capital, firms share ownership of the new company.
The local company usually benefits from financial and technological resources from foreign countries. From the side of the foreign company, it can gain entry to unknown markets with less capital and associated risks.
It is also possible for firms to combine their capital to create a new entity and channel their exports. The companies still share ownership of the newly created firm.
Sometimes, governments may create international institutions. However, these entities are not the property of their associate members, but rather of the government financing them. This usually involves large projects of governments to encourage cooperation between companies.
Some examples of international cooperative strategies that create a new organization are (1) joint ventures, (2) export consortiums, (3) foreign trade cooperatives, (4) projects sponsored by governments.
Cooperative Strategy Involving No Organization Creation
In this type of strategy, firms create associations with one another without leading to the creation of a new entity and involving ownership of any partners.
Some examples of international cooperative strategies that do not create a new organization are (1) licensing, (2) franchising, (3) cross-distribution, and (4) administration/manufacturing contracting.
In licensing, companies from different countries establish contractual agreements to access productive processes, patents, and restricted trademarks. The firm granting the license can obtain a market presence without investment cost, while the licensee gains access to technology, brand, patent, and so on.
The license owner usually faces a higher level of risk because most potential profits are left in the hands of the licensee, who may cause the licensing firm to lose prestige, or may develop operations themselves.
In franchising, firms do not need a large investment to create sales networks. Usually, this type of strategy is commonly used for distribution and marketing.
In cross-distribution, the firms can exchange their products for distribution. In this way, the companies can all enjoy a mutual benefit of distributing their products in new markets where they previously would have no access.
In administration/manufacturing contracting a firm exports its administration or manufacturing function to a foreign country. An example of it would be hotel chains, where the administration of hotels may be running in another country rather than in the host country. Another example would be a firm exporting the production of its manufactured goods to another country with low labor costs.
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.