Coopetition is an amazing way to grow collaboratively. In fact, I think Coopetition Strategy is soon going to be the next big thing.
But let us start our discussion with something that would help us gain a background of where Coopetition is coming from.
Competition is the reason why Strategy came into existence. It is inevitable for an Industry or a firm to exist without having any competitors around. And the overall motive (as you might have already guessed) is to win customers and market share.
This is the game.
But not all companies can or want to afford to be completely independent. Sometimes, working together makes more sense.
Philosophies like these call for mutual cooperation to do business that brings greater good for everyone including the customers.
Let me tell you more about this.
What is Coopetition?
A philosophy where organizations cooperate with each other and compete (still being as rivals) is known as Coopetition.
It is also commonly known as Cooperative Competition.
Many companies share their secrets with each other in the quest for cooperative competition and to extract maximum value from the market. Although Coopetition Strategy has been around for many years, the concept is starting to pick up more since the 1990s.
Adam M. Brandenburger and Barry J. Nalebuf – 2 Professors from Harvard and Yale universities were the ones bringing this strategy to life.
It offers a lot of benefits to all parties involved and creates a win-win situation. The very idea starts when 2 competitors feel the need to work together and realize value in doing so.
Let us fuel our understanding by considering an example, Shall we?
Netflix and Amazon
If Netflix subscribes to AWS, Amazon is benefitted. Netflix becomes a customer of Amazon. On the other hand, if Netflix gets to host its data on trusted servers of Amazon, it can offer the best viewing experience to its customers.
Thus, This is a classic example of a Coopetition Strategy in the Content Streaming Market. Of course, you can find plenty of such examples.
Advantages of Coopetition Strategy
Every Strategy has a reason for its existence. The need for Coopetition Strategy can be realized by analyzing the following pointers:
1. Coopetition Helps Expand / Grow the Market
A strategic partnership between two competing firms sounds illogical. But in reality, they create opportunities and even grow the market size.
As we read above, Netflix and Amazon partnership is all about enabling each other’s core competencies.
When Netflix offers the best user experience of Content, the market size of this industry increases. More people would consume content online and thereby also expand the opportunities for Amazon Prime.
2. Coopetition Makes Way For Best Use of Limited Resources
Every Company has limitations when it comes to resources. And obviously, it has to run the show with the resources it has.
But as we understand, sharing such resources can prove fruitful in the long run.
These partnerships also help companies develop professional ethics and empathy towards each other which makes the rivalry a healthy one.
You would already know the cut-throat rivals Apple and Samsung are. They have hit at each other’s products time and again but here is an amazing fact:
Apple sources OLED panels for its iPhones from Samsung. YES! You heard me right. Apple doesn’t have their own OLED manufacturing nor any expertise in such products. Whereas Samsung on the other hand is known for its world-class OLED panels.
So, it only makes sense for these competing yet world-class firms to work together thereby presenting to us a good example of Coopetition Strategy.
3. Improve Every Firm’s Performance
As companies collaborate among themselves, they gain access to a variety of resources/capabilities. While they use these for the betterment of the industry/customer value; it also helps them gain purpose and direction.
For example, Telecom companies promoting 5G technology together would result in increased awareness among the consumers.
Obviously, this would lead to an increase in sales for all the companies offering 5G Services plus reduce the cost for promotional activities.
But overall, the Industry would benefit and grow as a result of such partnerships.
Disadvantages of Coopetition
No Business Strategy is Perfect. There are pros and cons to everything that happens in the business world. And Coopetition is not different.
As you might already be thinking by now, this involves some grey areas that are overlooked by firms trusting each other.
Let us check out a couple:
1. Greater Risk Of Revealing More Than Required
Working together can lead to sharing of information. This is inevitable.
But if the extent of Coopetition is uncontrolled, firms (especially smaller ones) stand a risk of sharing more information than required.
And this could lead to losing out on the competitive advantages and differentiation factors that it may have developed over a period of time.
Trusting another firm in your industry ain’t easy. After all, if the firms are competitors – Trust won’t come easy. And even if it does, the companies may stand of risk of revealing more than required to each other in the process.
Of course, even this coin has its 2nd side and there is a lot of risks involved in such a partnership.
2. Temporary Dependency Because Of Coopetition Strategy
A firm’s Strategy is best drafted for its own good. The nature of this business practice is self-centered and competition oriented. But, the Coopetition philosophy can create confusion and dependency on another firm competing in the same industry.
Though such dependency can be taken lightly, the Strategy in itself must not be taken for granted. There are several factors governing an industry such as Political, Economical, Social, Technological, Environmental, Legal (a.k.a PESTEL) and any of these can change over time.
Such changes can become disruptive and ultimately lead to risks. Thus, Coopetition Strategy must be best adopted for short term collaborations and gains.
Why Is This Strategy Even More Important Today?
The Global Coronavirus Pandemic has not spared anyone. Businesses of all sizes have been impacted terribly and the signs of recovery are not promising yet.
If we are to grow in the coming years, it has to be hand in hand. I believe companies must find out ways to work together in their industry and focus on collective value creation for the customer, environment, and their own stakeholders.
This way, the global economy would set course on a growth path thereby securing everyone’s future.
I am sure by now you must be convinced that Coopetition Strategy can do good to businesses of all scales and sizes.
It has been around for a very long and it is high time more businesses make use of it. I think the coming years would feature more examples of Coopetition Strategy being adopted by corporates.
Please share your views with me in the comments.
Author: Ranjeet Mukherjee
Author is the founder of Strategy Weekly & an Alumnus of NMIMS.