Pedro sends in this comment in response to a blog on competition: Interesting thoughts! Anything about coopetition? I think it’s important but nowadays even more!
In reply, here are my thoughts.
Coopetition Defined
Simply put, coopetition occurs when companies collaborate on parts of their business where neither believes it has competitive advantage, yet both stand to benefit from sharing of costs. (Terms like alliance and marketing partner are more frequently used.)
It often comes up in the application of game theory to business strategy: when should a firm compete, and when should it cooperate? There’s a very good and relatively recent book of the same name by Brandenburger and Nalebuff, who use the terms complementor and competitor to describe the roles. When competitors work together, they do so under a canopy of strict anti-competition laws. For our purpose, we’ll assume coopetition is conducted legally.
Coopetition is Everywhere
Some examples include:
- Farming cooperatives where many small farmers share common distribution systems so that they can compete with larger competitors.
- Airline codeshare agreements where two or more airlines share the same flight.
- Automotive manufacturers who sell parts to each other.
- Revenue sharing and salary cap agreements among professional sports teams. (No, it’s not about fairness. Wealthy owners know that subsidizing weaker franchises actually creates greater profits in the long term.)
- Device manufacturers (PCs, tablets, smart phones), operating system providers (Google, Microsoft) and distribution partners (retail, carriers) operate a complex system of interdependencies.
Coopetition Can Only Grow
Gone are the days when a firm can own and control is supply and value chain end-to-end. Even if it could, it puts itself at enormous risk in attempting to do so. Coopetition is increasingly characterizing the structure of business, trade and markets. Here’s why.
Pace of Innovation: The number of innovations brought to market increases each year, while the duration of product life cycles is shrinking. Consider what has been occurring since 1975 regarding recorded media (audio and video) and its effect on distribution. Vinyl has given way to 8-track, cassette tape, CD, streaming, and now the cloud. VHS tapes have ceded to DVD, BluRay, and now streaming video. The impact if brought home in a variant of Joy’s Law: No matter who you are, innovation will occur, and most of it will occur somewhere else. Even if you are agile and possess a competitive advantage today, unexpected innovation can leave you flat-footed tomorrow.
Information speed and availability: Sellers can reach buyers more readily, and in more forms, than just a few years ago. Buyers, likewise, can search and compare offerings online, anytime, anywhere. Access to real-time information can negate competitive advantage.
Global trade: It’s no longer adequate to look over one’s shoulder to keep an eye on competitors; one has to look across bodies of water. The differential in labor costs alone, complemented by gains in quality control, can quickly erode one’s competitive advantage.
Expect to see even more cooperative competition going forward. Don’t be surprised at the strangle bedfellows such arrangements create.
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