Contribution by Karolina Maziliauskaite – Supply Chain & Inventory Management Blogger at INFORM
Co-optition, co-opetition, collaboration with competitors, etc. – there are many names used to describe the same idea. The fact that there is no universal word yet shows how new and undefined this concept is. For the purpose of consistency, I chose to use the term co-opetition which is defined as the situation in business relationships, when cooperation and competition take place concurrently. The main principle of this concept is also covered by game theory, where the players interact with partial congruence of interests and the result is a non-zero sum game (or a win-win situation). Game theory could also be used as a mathematical tool to solve and formalize co-opetition related issues.
By cooperating with each other, competitors can receive higher payoffs than they otherwise would without working together. Despite the great potential payoffs, there are also some risks involved. Hence, companies should choose co-opetition partners with great care. There are many good examples of successful co-opetition in different industries which will be discussed later.
Collaborating with competitors might seem like an odd thing to do, but it can bring a number of advantages, especially when the market situation is tough (i.e. financial crisis and the resulting slow recovery). Firstly, co-opetition helps companies reduce costs. Through collaboration with competitors, costs are shared with other firms, which mean lower inputs bring higher returns (in the perfect case scenario). If, for example, a company partners with a competitor to expand its logistics network, both companies would benefit from faster and more efficient deliveries without making a significant investment.
Research and development (R&D) efforts could also be shared with competitors. Sharing technologies and research results is a classic feature of co-opetition. Competition works well in encouraging innovation in sustainable products and services. However, as Unilever’s Paul Polman has observed: “In areas where big breakthroughs are needed, we must step up joint working with others.” This is one of the main reasons why co-opetition is more critical in high technology industries. Due to high R&D costs, short product life cycles, convergence of multiple technologies and importance of high technological standards, collaborating with competitors will help mitigate the high level of risk involved in the development of the latest technologies.
Furthermore, market share can be gained through co-opetition. By partnering with lager companies, small and medium size enterprises (SMEs) are able to expand their logistics networks, enabling faster deliveries of their products. This helps SMEs reach new clients which are looking for shorter delivery times. It would not only expand small businesses’ market share, but could also help them win big projects and experience exponential growth. Without co-opetition, this would not be possible in the short-run.
Lastly, the quote, “Rising tides raises all the boats” – makes perfect sense in the case of co-opetition. Through collaboration with competitors, market growth can be attained much faster. If, for example, R&D costs of developing a new product are shared between two big players in the market, the final result could be reached faster and a new market would be created. Moreover, sharing advertising costs enables more customers would be educated about the new product and the adoption of the new technology could be realized at a faster pace. As a result, the new market would grow much faster, ‘raising all the boats in the water’.
Risks and challenges
It is essential not to forget the possible risks that come with co-opetition. According to Bernheim and Peleg: “Cooperation is possible, as soon as it is mutually the best decision. Therefore, cooperation is regarded as a sub form of competition and both terms are closely connected.” However, companies must bear in mind the fact that cooperation with competitors which is ‘too close’ is forbidden by law and might lead to anti-trust lawsuits by the federal government. It is illegal to collaborate with competitors in an effort to arrange monopolies, secure market dominance and fix prices. Companies getting involved in co-opetition should be careful not to cross the line between collaboration which could benefit all the stakeholders, including the customers, and collaboration which solely benefits the involved firms.
It is also highly important to choose the right collaboration partner, define responsibilities and tailor operational middleware. Collaboration partners should share a similar vision and values. Moreover, a clear line must be drawn between co-opetition and competition, defining the extent of collaboration and areas where competition begins again. Hence, it is important for each partner to be clear about their intentions, expectations and agree on all the previously mentioned points before signing the final agreement.
Before entering a co-opetition deal, a company should keep in mind that its competitors are gaining as much as they are. This has to be considered before starting collaboration with rivals. It is also possible that collaborative relationships will give a competitive advantage to other firms in the market or that some of company’s ideas might get copied. Finding the right level of openness and building trust is the key to successful co-opetition.
Collaboration between competitors is especially common in industries related to technology. For instance, there are a number of examples where car manufacturers collaborated to reach better results. Toyota, Peugeot and Citroen collaborated to design and produce a new city car. After sharing R&D results and manufacturing facilities, each company marketed their new model under different names and with minor modifications. The collaboration was so successful, that it is expected to continue when developing new models of Citroen C1, Peugeot 107 and Toyota Aygo at a joint Toyota Peugeot Citroen Automobile (TPCA) facility in Kolin in the Czech Republic.
Another example of co-opetition was observed in the electrical cars market. After Tesla Motors Inc. CEO Elon Musk announced that his company’s electric-vehicle patents will be made public, other top electric car makers – i.e. Nissan and BMW – started talks about standardizing electric car charging technology. Currently, each electric car brand across the globe has different chargers, power needs and plug types. In order to push the growth in the market, manufacturers are planning to collaborate and establish a standard charging technology, so that customers would be able to use any charging station, making saving the environment much more convenient.
Collaboration is also possible between competitors and NGOs or public sector bodies to solve a specific (usually environmental) problem. For example, a project called Refrigerants Naturally, is a non-for-profit initiative established by companies committed to combating climate change and ozone layer depletion by replacing fluorinated gases with natural refrigerants. Companies committed to this aim are: Coca-Cola, PepsiCo, Unilever and Red Bull, which are working together with Greenpeace and UNEP to develop sustainable refrigeration technologies.
Other examples include Samsung providing processors for Apple iPhones, and a joint venture created in 2004 between Samsung Electronics and Sony Corporation called S-LCD. The aim of this joint venture was to develop and manufacture flat screen LCD TV panels.
In addition, famous consumer product manufacturers Unilever and Nestle are collaborating to improve recycling levels for their packaging. The two-year project called REFLEX, aims to match flexible packaging recycling rates with that of plastic-bottles, which now stands at 58%, within 10 years.
The list of advantages which can be realized through co-opetition is quite extensive. When done right, it can help significantly improve supply chain processes and make them more efficient. Important environmental problems can also be resolved more swiftly when competing firms collaborate with each other and with NGOs or public organizations. It is, however, essential to take all the previously mentioned risks and challenges into consideration in order to build a successful co-opetition deal. All examples mentioned above prove that even the biggest rivals are able to benefit from collaborating with each other in certain areas.
Do you think co-opetition can be beneficial in the supply chain context? What other examples have you seen on the market?