A nonequity strategic alliance exists when

WEEK 4 READINGS

Chapter 9 Cooperative Strategy

Studying this chapter should provide you with the strategic management knowledge needed to:

· 1. Define cooperative strategies and explain why firms use them.

· 2. Define and discuss three types of strategic alliances.

· 3. Name the business-level cooperative strategies and describe their use.

· 4. Discuss the use of corporate-level cooperative strategies in diversified firms.

· 5. Understand the importance of cross-border strategic alliances as an international cooperative strategy.

· 6. Explain cooperative strategies' risks.

· 7. Describe two approaches used to manage cooperative strategies.

USING COOPERATIVE STRATEGIES AT IBM

A company widely known throughout the world, IBM, has over 350,000 employees working in design, manufacturing, sales, and service advanced information technologies such as computer systems, storage systems, software, and microelectronics. The firm's extensive lineup of products and services is grouped into three core business units—Systems and Financing, Software, and Services.

As is true for all companies, IBM uses three means to grow—internal developments (primarily through innovation), mergers and acquisitions (such as the recent purchase of France-based ILOG, which produces software tools to automate and speed up a firm's decision-making process), and cooperative strategies. Interestingly, IBM had a ten-year partnership with ILOG before making the acquisition. By cooperating with other companies, IBM is able to leverage its core competencies to grow and improve its performance.

Through cooperative strategies (e.g., strategic alliances and joint ventures, both of which are defined and discussed in this chapter), IBM finds itself working with a variety of firms in order to deliver products and services. However, IBM has specific performance-related objectives it wants to accomplish as it engages in an array of cooperative arrangements. For example, with regard to its systems business, IBM works to develop leading-edge chip technology. In order to do this it has formed five separate alliances to develop the most advanced semiconductor research and expand its facilities by purchasing the latest chip-making equipment. These allies provide brainpower, including more than 250 scientists and engineers that work along with IBM's engineers and scientists to foster innovation. Some of these innovations come through new advances in materials and chemistry. For instance, IBM signed an agreement with Japan's JSR, a Japanese firm engaged in materials science, to develop materials and processes for circuitry necessary to advance futuristic semiconductors.

IBM works in collaboration with several companies in Europe such as CEA, a French public research and technology organization focused on semiconductor and nano-electronics technology.

Even during the economic downturn, IBM's business analytics business is growing. The ILOG acquisition, noted previously, is an example of IBM's thrust into this area. IBM has created a new unit called IBM Business Analytics and Optimization Services. This business provides software solutions to help a firm better analyze data and make smarter decisions. It has 4,000 consultants who examine IBM's research and software divisions for algorithms, applications, and other innovations to help provide solutions to companies. This is just one aspect of the services business that IBM pursues with its consulting services. Of course it needs software to produce the solutions. Many of these solutions come through partnerships with small providers that IBM manages through cooperative agreements and often these cooperative agreements lead to an acquisition (see for instance the ILOG acquisition noted earlier).

However, other firms are entering into this space through their own acquisitions or alliances. For instance, Sun Microsystems had an alliance with IBM to produce software in competition with Hewlett-Packard. IBM bid for Sun in an acquisition attempt but was bested by Oracle, which won with a $7.3 billion bid. Thus the competition for the solutions service and network business has heated up through acquisitions and especially through partnerships, which IBM has used to facilitate its change from solely producing hardware to adding solution services and software. One study concluded that IBM was able to make this significant shift by managing its alliance of networks according to three principles. First, that company alliance networks may be used not just for individual projects but to facilitate strategic change inside a company; second, that two principal mechanisms can bring about this change: (1) increasing speed of change through partners and (2) finding partners in areas outside existing competencies; and finally, that companies can shape their alliance networks by conscious actions. Other firms are observing IBM's actions and learning and seeking to catch up fast through their own partnerships, as illustrated by a recent partnership between Cisco and the Japanese firm Fujitsu. These two firms are traditionally hardware firms that build networks, such as for phone companies, but are moving to increase their service options, especially among mobile telephone providers.

As one might anticipate, a firm as large and diverse as IBM is involved with a number of cooperative relationships. Given the challenges associated with achieving and maintaining superior performance, and in light of its general success with cooperative relationships, IBM will likely continue to use cooperative strategies as a path toward growth and enhanced performance.

A cooperative strategy is a strategy in which firms work together to achieve a shared objective.

As explained in the Opening Case, IBM is involved with a number of cooperative arrangements. The intention of serving customers better than its competitors serve them and of gaining an advantageous position relative to competitors drive this firm's use of cooperative strategies. IBM's corporate-level cooperative strategy in services and software finds it seeking to deliver server technologies in ways that maximize customer value while improving the firm's position relative to competitors. For example, Hewlett-Packard recently bought EDS to battle IBM for the leadership position in the global services market.5 IBM has many business-level alliances with partner firms focusing on what they believe are better ways to improve services for customer firms, such as the cooperative agreements that IBM has through its new division in business analytics.6 The objectives IBM and its various partners seek by working together highlight the reality that in the twenty-first century landscape, firms must develop the skills required to successfully use cooperative strategies as a complement to their abilities to grow and improve performance through internally developed strategies and mergers and acquisitions.7

We examine several topics in this chapter. First, we define and offer examples of different strategic alliances as primary types of cooperative strategies. Next, we discuss the extensive use of cooperative strategies in the global economy and reasons for them. In succession, we describe business-level (including collusive strategies), corporate-level, international, and network cooperative strategies. The chapter closes with discussion of the risks of using cooperative strategies as well as how effective management of them can reduce those risks.

As you will see, we focus on strategic alliances in this chapter because firms use them more frequently than other types of cooperative relationships. Although not frequently used, collusive strategies are another type of cooperative strategy discussed in this chapter. In a collusive strategy, two or more firms cooperate to increase prices above the fully competitive level.8

Strategic Alliances as a Primary Type of Cooperative Strategy
A strategic alliance is a cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage.9 Thus, strategic alliances involve firms with some degree of exchange and sharing of resources and capabilities to co-develop, sell, and service goods or services.10 Strategic alliances allow firms to leverage their existing resources and capabilities while working with partners to develop additional resources and capabilities as the foundation for new competitive advantages.11 To be certain, the reality today is that “strategic alliances have become a cornerstone of many firms' competitive strategy.”12

A strategic alliance is a cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage.

Consider the case of Kodak. CEO Antonio Perez stated, “Kodak today is involved with partnerships that would have been unthinkable a few short years ago.”13 His comment suggests the breadth and depth of cooperative relationships with which the firm is involved. Each of the cooperative relationships is intended to lead to a new competitive advantage as a source of growth and performance improvement. Kodak has changed from a firm rooted in film and imaging into a digital technology-oriented company.14

A competitive advantage developed through a cooperative strategy often is called a collaborative or relational advantage.15 As previously discussed, particularly in Chapter 4, competitive advantages enhance the firm's marketplace success. Rapid technological changes and the global economy are examples of factors challenging firms to constantly upgrade current competitive advantages while they develop new ones to maintain strategic competitiveness.16

Many firms, especially large global competitors, establish multiple strategic alliances. Although we discussed only a few of them in the Opening Case, the reality is that IBM has formed hundreds of partnerships through cooperative strategies. IBM is not alone in its decision to frequently use cooperative strategies as a means of competition. Focusing on developing advanced technologies, Lockheed Martin has formed more than 250 alliances with firms in more than 30 countries as it concentrates on its primary business of defense modernization and serving the needs of the air transportation industry. For instance, Lockheed Martin recently entered into an alliance with Northrop Grumman Corp. and Alliant Techsystems Inc. These three firms are contracted to develop multirole missiles which have both air-to-air and air-to-ground capabilities. This missile would give aircraft much more flexibility in pursuing either air or ground targets and thus boost the target efficiency of each flight sortie.17 For all cooperative arrangements, including those we are describing here, success is more likely when partners behave cooperatively. Actively solving problems, being trustworthy, and consistently pursuing ways to combine partners' resources and capabilities to create value are examples of cooperative behavior known to contribute to alliance success.18

Three Types of Strategic Alliances
The three major types of strategic alliances include joint venture, equity strategic alliance, and nonequity strategic alliance. These alliance types are classified by their ownership arrangements; later, we classify alliances by strategic categorizations.

A joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. Joint ventures, which are often formed to improve firms' abilities to compete in uncertain competitive environments,19 are effective in establishing long-term relationships and in transferring tacit knowledge. Because it can't be codified, tacit knowledge is learned through experiences such as those taking place when people from partner firms work together in a joint venture.20 As discussed in Chapter 3, tacit knowledge is an important source of competitive advantage for many firms.21

A joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

Typically, partners in a joint venture own equal percentages and contribute equally to the venture's operations. Germany's Siemens AG and Japan's Fujitsu Ltd. equally own the joint venture Fujitsu Siemens Computers. Although the joint venture has been losing money, Fujitsu has decided that it wants to increase its market share from 4 to 10 percent, so it is taking over the joint venture. The new entity will be called Fujitsu Technology Solutions.22 Overall, evidence suggests that a joint venture may be the optimal type of cooperative arrangement when firms need to combine their resources and capabilities to create a competitive advantage that is substantially different from any they possess individually and when the partners intend to enter highly uncertain markets.23 These conditions influenced the two independent companies' decision to form Fujitsu Siemens Computers.

An equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. Many foreign direct investments, such as those made by Japanese and U.S. companies in China, are completed through equity strategic alliances.24

An equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage.

Interestingly, as many banks have suffered poor results in the United States, foreign banks have been creating equity alliances to provide U.S. banks with the necessary capital to survive and expand. For instance, 21 percent of Morgan Stanley's ownership was sold to Mitsubishi UFJ Financial Group in 2008. As a result, Nobuyuki Hirano, a senior executive for Mitsubishi, took a seat on the board of directors of Morgan Stanley. This will enhance Mitsubishi's understanding of Morgan Stanley's U.S. strategy. The relationship may move towards combining Mitsubishi's and Morgan Stanley Japan's Securities Corporation into a single entity in Japan.25

A nonequity strategic alliance is an alliance in which two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage.26 In this type of alliance, firms do not establish a separate independent company and therefore do not take equity positions. For this reason, nonequity strategic alliances are less formal and demand fewer partner commitments than do joint ventures and equity strategic alliances, though research evidence indicates that they create value for the firms involved.27 The relative informality and lower commitment levels characterizing nonequity strategic alliances make them unsuitable for complex projects where success requires effective transfers of tacit knowledge between partners.28

A nonequity strategic alliance is an alliance in which two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage.

Forms of nonequity strategic alliances include licensing agreements, distribution agreements, and supply contracts. Hewlett-Packard (HP), which actively “partners to create new markets … and new business models,” licenses some of its intellectual property through strategic alliances.29 Typically, outsourcing commitments are specified in the form of a nonequity strategic alliance. (Discussed in Chapter 3, outsourcing is the purchase of a value-creating primary or support activity from another firm.) Dell Inc. and most other computer firms outsource most or all of their production of laptop computers and often form nonequity strategic alliances to detail the nature of the relationship with firms to whom they outsource. Interestingly, many of these firms that outsource introduce modularity that prevents the contracting partner or outsourcee from gaining too much knowledge or from sharing certain aspects of the business the outsourcing firm does not want revealed.30

Reasons Firms Develop Strategic Alliances
As our discussion to this point implies, cooperative strategies are an integral part of the competitive landscape and are quite important to many companies and even to educational institutions. In fact, many firms are cooperating with educational institutions to help commercialize ideas coming from basic research at universities.31 In for-profit organizations, many executives believe that strategic alliances are central to their firm's success.32 One executive's position that “you have to partner today or you will miss the next wave … and that … you cannot possibly acquire the technology fast enough, so partnering is essential.33 highlights this belief.

Among other benefits, strategic alliances allow partners to create value that they couldn't develop by acting independently and to enter markets more quickly and with greater market penetration possibilities.34 Moreover, most (if not all) firms lack the full set of resources and capabilities needed to reach their objectives, which indicates that partnering with others will increase the probability of reaching firm-specific performance objectives.35 Dow Jones & Co., the publisher of Wall Street Journal and owned by News Corp., is forming a joint venture with SBI Holdings Inc. to create a Japanese edition of the Wall Street Journal's Web site. It will primarily feature Japanese translations of news articles, videos, multimedia print, and other features of online editions of the Wall Street Journal. In particular this venture will develop mobile products and services in conjunction with the Web site. This is the second news Web site launched by Dow Jones in Asia; the first was launched in China in 2002.36

The effects of the greater use of cooperative strategies—particularly in the form of strategic alliances—are noticeable. In large firms, for example, alliances can account for 25 percent or more of sales revenue. Many executives believe that alliances are a prime vehicle for firm growth.37 In some industries, alliance versus alliance is becoming more prominent than firm versus firm as a point of competition. In the global airline industry, for example, competition is increasingly between large alliances rather than between airlines.38

In summary, we can note that firms form strategic alliances to reduce competition, enhance their competitive capabilities, gain access to resources, take advantage of opportunities, build strategic flexibility, and innovate. To achieve these objectives, they must select the right partners and develop trust.39 Thus, firms attempt to develop a network portfolio of alliances in which they create social capital that affords them flexibility.40 Because of the social capital, they can call on their partners for help when needed. Of course, social capital means reciprocity exists: Partners can ask them for help as well (and they are expected to provide it).41

The individually unique competitive conditions of slow-cycle, fast-cycle, and standard-cycle market.42 find firms using cooperative strategies to achieve slightly different objectives (see Table 9.1). We discussed these three market types in Chapter 5 while examining competitive rivalry and competitive dynamics. Slow-cycle markets are markets where the firm's competitive advantages are shielded from imitation for relatively long periods of time and where imitation is costly. These markets are close to monopolistic conditions. Railroads and, historically, telecommunications, utilities, and financial services are examples of industries characterized as slow-cycle markets. In fast-cycle markets, the firm's competitive advantages are not shielded from imitation, preventing their long-term sustainability. Competitive advantages are moderately shielded from imitation in standard-cycle markets, typically allowing them to be sustained for a longer period of time than in fast-cycle market situations, but for a shorter period of time than in slow-cycle markets.

Table 9.1 Reasons for Strategic Alliances by Market Type

Market

Reason

Slow-Cycle

· • Gain access to a restricted market

· • Establish a franchise in a new market

· • Maintain market stability (e.g., establishing standards)

Fast-Cycle

· • Speed up development of new goods or services

· • Speed up new market entry

· • Maintain market leadership

· • Form an industry technology standard

· • Share risky R&D expenses

· • Overcome uncertainty

Standard-Cycle

· • Gain market power (reduce industry overcapacity)

· • Gain access to complementary resources

· • Establish better economies of scale

· • Overcome trade barriers

· • Meet competitive challenges from other competitors

· • Pool resources for very large capital projects

· • Learn new business techniques

Slow-Cycle Markets

Firms in slow-cycle markets often use strategic alliances to enter restricted markets or to establish franchises in new markets. For example, because of consolidating acquisitions that have occurred over the last dozen or so years, the American steel industry has only two remaining major players: U.S. Steel and Nucor. To improve their ability to compete successfully in the global steel market, these companies are forming cooperative relationships. They have formed strategic alliances in Europe and Asia and are invested in ventures in South America and Australia. Most recently Nucor has established a 50/50 joint venture with Duferco Group's subsidiary Duferdofin to produce steel joists and beams in Italy and then to distribute these products in Europe and North Africa. Duferco has been seeking alliances with major players in order to continue operating on a global basis.43 Simultaneously however, companies around the world, especially in China, are forming or expanding alliances in order to establish supply sources that are important for steel-making, in particular coal and iron ore. In 2008 Sinosteel Corp., a Chinese state-owned steelmaker, boosted its ownership in Midwest Corp. to 44 percent. Midwest Corp. is an Australian iron ore producer. The reason for this is that the raw materials account for 50 percent of the selling price where as a decade ago iron ore accounted for about 15 percent of the selling price.44 Although 2009 commodity prices were depressed due to the economic downturn, it is expected that commodity prices will go higher as the economy improves and the partnering and joint venturing pace will increase.

The truth of the matter is that slow-cycle markets are becoming rare in the twenty-first century competitive landscape for several reasons, including the privatization of industries and economies, the rapid expansion of the Internet's capabilities for the quick dissemination of information, and the speed with which advancing technologies make quickly imitating even complex products possible.45 Firms competing in slow-cycle markets, including steel manufacturers, should recognize the future likelihood that they'll encounter situations in which their competitive advantages become partially sustainable (in the instance of a standard-cycle market) or unsustainable (in the case of a fast-cycle market). Cooperative strategies can be helpful to firms transitioning from relatively sheltered markets to more competitive ones.46

Fast-Cycle Markets

Fast-cycle markets are unstable, unpredictable, and complex; in a word, “hypercompetitive” (a concept that was discussed in Chapter 5).47 Combined, these conditions virtually preclude establishing long-lasting competitive advantages, forcing firms to constantly seek sources of new competitive advantages while creating value by using current ones. “You are looking at the future, when U.S. companies will be competing not only with European, Japanese, South Korean and Chinese companies but also with highly competitive companies from every corner of the world: Argentina, Brazil, Chile, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Poland, Russia, Thailand, Turkey, Vietnam and places you'd never expect.”48 Alliances between firms with current excess resources and capabilities and those with promising capabilities help companies compete in fast-cycle markets to effectively transition from the present to the future and to gain rapid entry into new markets. As such a “collaboration mindset” is paramount.49

The rapidly evolving media landscape lead competitors ABC, FOX, and NBC Universal to be cooperative in the development and launch of Hulu.com where many of their top rated shows can be watched online.

The entertainment business is fast becoming a new digital marketplace as television content is now available on the Web. This has led the entertainment business into a fast-cycle market where collaboration is important not only to succeed but to survive. Many of the firms that have digital video content have also sought to make a profit through digital music and have had difficulties in extracting profits from their earlier ventures. In 2007 GE's NBC Universal and News Corp.'s FOX formed a new website named http://www.Hulu.com. Walt Disney Corporation in 2009 became a third partner contributing content and capital in this joint venture along with an investment stake held by private equity firm Providence Equity Partners. Thus this Web site will be co-owned by direct competitors. ABC (owned by Disney) will shift much of its content to the Hulu site and viewers will be able to stream ABC TV shows such as Lost and Grey's Anatomy. CBS will be the only major network not participating in the Hulu venture with NBC Universal, FOX, and ABC. As digital video content moves onto the Web, it will be interesting to see how the competition and cooperation between all of these firms evolve.50

Standard-Cycle Markets
In standard-cycle markets, alliances are more likely to be made by partners with complementary resources and capabilities. Even though airline alliances were originally set up to increase revenue,51 airlines have realized that they can also be used to reduce costs. SkyTeam (chaired by Delta and Air France) developed an internal Web site to speed up joint purchasing and to swap tips on pricing. Managers at Oneworld (American Airlines and British Airways) say the alliance's members have already saved more than $200 million through joint purchasing, and Star Alliance (United and Lufthansa) estimates that its member airlines save up to 25 percent on joint orders.

Given the geographic areas where markets are growing, these global alliances are adding partners from Asia. In recent years, China Southern Airlines joined the SkyTeam alliance, Air China and Shanghai Airlines were added to the Star Alliance, and Dragonair joined as an affiliate of Oneworld. One of the competitive difficulties with the airline alliances is that major partners often switch between airlines. For instance, Continental Airlines, which was part of SkyTeam, recently switched to the Star Alliance with United Airlines, Air Canada, and Lufthansa. Although this move has been approved by the U.S. Department of Transportation, it still lacks approval from the European Union regulators.52 The fact that Oneworld, SkyTeam, and Star Alliance account for more than 60 percent of the world's airline capacity suggests that firms participating in these alliances have gained scale economies.

Business-Level Cooperative Strategy
A firm uses a business-level cooperative strategy to grow and improve its performance in individual product markets. As discussed in Chapter 4, business-level strategy details what the firm intends to do to gain a competitive advantage in specific product markets. Thus, the firm forms a business-level cooperative strategy when it believes that combining its resources and capabilities with those of one or more partners will create competitive advantages that it can't create by itself and will lead to success in a specific product market. The four business-level cooperative strategies are listed in Figure 9.1.

A firm uses a business-level cooperative strategy to grow and improve its performance in individual product markets.

Complementary Strategic Alliances

Complementary strategic alliances are business-level alliances in which firms share some of their resources and capabilities in complementary ways to develop competitive advantages.53 Vertical and horizontal are the two types of complementary strategic alliances (see Figure 9.1).

Complementary strategic alliances are businesslevel alliances in which firms share some of their resources and capabilities in complementary ways to develop competitive advantages.

Vertical Complementary Strategic Alliance

In a vertical complementary strategic alliance, firms share their resources and capabilities from different stages of the value chain to create a competitive advantage (see Figure 9.2).54 Oftentimes, vertical complementary alliances are formed to adapt to environmental changes.55 sometimes the changes represent an opportunity for partnering firms to innovate while adapting.56

The Strategic Focus on complementary alliances discusses what is happening with vertical alliances given the downturn in the world economy. In particular, it points out that economic pressures are creating stress in the vertical alliance relationships between buyers and suppliers in the grocery and apparel retail industry supply chains. However, in other industries it is leading to new partnerships where complementary strategic alliances are more likely to increase, such as in the steelmaking industry.

Figure 9.1 Business-Level Cooperative Strategies

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Another example of a vertical complementary alliance is Nintendo and its need for additional software and games for its Wii game console. To fulfill this need Nintendo has developed a partnership with Electronic Arts. Through this partnership, it will release two sports games prior to the release of its brand new hardware: Tiger Woods PGA Tour 10 and Grand Slam Tennis. Nintendo is allowing these games to be sold even before it releases more of its own games. Previously, Nintendo trailed other game platforms in its production of new releases because it stressed its own games over those of other game software producers and would not release its hardware details to them in advance. It has changed its policy to encourage more vertical relationships with game software producing firms such as Electronic Arts and Activision Blizzard, Inc.57

Figure 9.2 Vertical and Horizontal Complementary Strategic Alliances
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Strategic Focus
HOW COMPLEMENTARY ALLIANCES ARE AFFECTED BY THE GLOBAL ECONOMIC DOWNTURN
Supply chain management principles have changed over the last decade as suppliers have sought to work more closely with buyers. Traditionally a company's purchasing office dealt with a relatively small group of suppliers and had the overall goal of obtaining as many price cuts as possible. This changed, however, because as globalization and outsourcing increased the supply chain decision-making process involved a greater network of partners around the world. This drove companies to collaborate with suppliers and develop stronger relationships to reduce waste and develop products more quickly. As such, supply chain managers have had to shoulder a lot more responsibility, which has required much more emphasis on collaborative skills.

In the economic downturn, however, many of these collaborative relationships and partnerships—which are complementary by nature, especially in the vertical supply chain—have been strained. Large retailers have been squeezing their vendors in order to survive the requirement for heavy sales promotions and lower prices to sell their apparel products. This strategy has affected firms like Liz Claiborne, Phillips-Van Heusen, and Jones Apparel Group. Because large stores such as Macy's have many vendors to choose from, they have power to force price cuts from their suppliers. Macy's has power over Liz Claiborne because it buys in large volume. However, this has strained their relationship because both companies “require long-term, healthy partners to operate efficiently.” Hartmarx Corp., a men's clothing producer whose main customers are Dillard's, Nordstrom, and Bloomingdale's (owned by Macy's), has been forced to file for

Chapter 11 bankruptcy court protection due to the pressure. On the other hand, JCPenney has had long-term relationships with its vendors and its spokesperson noted, “We don't view ‘squeezing’ of vendors to protect our bottom line as a viable long-term strategy.”

Similar events are happening in the grocery industry. For example, Unilever has been trying to stop its price margins from shrinking by forcing price increases on retailers such as the Belgian supermarket chain Delhaize Group SA. Delhaize operates the Food Lion chain and other grocery stores in the United States. In 2008, Unilever pushed worldwide price increases of more than 9 percent. Because of the price increases forced on Delhaize, it banished products by Unilever such as Dove soap and Axe deodorant from its U.S. stores. At the same time, commodity prices dropped and British retailer Tesco PLC urged suppliers to pass onto stores the recent drops in prices for commodities and oil that are used to produce food products. In response, firms like Wal-Mart (Great Value) have started to freshen up their in-house brands. As such, when large food producers such as Unilever do not respond appropriately, Wal-Mart can cut back on stocking national brands.

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Shoppers at Food Lion found Axe and other Unilever products off the shelves as Delhaize, operator of the supermarket, responded to price increases passed on from the manufacturer.

While the downturn has put stress on some vertical alliances as previously noted, it has also created opportunities for new partnerships in other areas. For example, many private equity firms have experienced a significant decrease in the amount of funds invested in the United States. Blackstone Group has formed global joint ventures to increase its fund supply. It has formed a joint venture with Bank Larrain Vial in Latin America and Och-Ziff Capital Management. In Latin America in particular there is a large opportunity in Chile, where private pension funds hold $82 billion in assets due to a pioneering program that places 12.3 percent of all payroll into private pension accounts. This complementary alliance would most likely not have occurred if the economy did not turn for the worse. Blackstone Group will also help diversify pension funds by investing in private equity and hedge funds. South and Central America have almost $200 billion in assets under management, which is comparable to the California Public Employees Retirement System (CalPERS). This is a significant opportunity for private equity funds such as the Blackstone Group to increase their supply of capital.

Horizontal Complementary Strategic Alliance
A horizontal complementary strategic alliance is an alliance in which firms share some of their resources and capabilities from the same stage (or stages) of the value chain to create a competitive advantage (see Figure 9.2). Commonly, firms use complementary strategic alliances to focus on joint long-term product development and distribution opportu-nities.58 As previously noted in the example regarding www.Hulu.com, GE's Universal Pictures, Disney's ABC, and News Corp's FOX Video Production have formed a joint Web site to distribute video content. Recently, pharmaceutical companies have been pursuing horizontal alliances as well. As healthcare reform takes place in the United States, large pharmaceutical firms are seeking relationships with generic drug producers. For example, Pfizer has reached marketing agreements with two Indian makers of generic drugs: Aurobindo Pharma Ltd. and Claris Lifesciences Ltd. These two firms produce and sell 60 and 15 off-patent drugs and injectables, respectively. Similarly, Novartis AG is acquiring Ebewe Pharma, an Austrian drugmaker, which will partner with the Novartis generic drug subsidiary, Sandoz. These moves are targeted to tap into the growing generic drug market, which was $3.5 billion in 2008 and is expected to be $9 billion by 2015.59

The automotive manufacturing industry is one in which many horizontal complementary strategic alliances are formed. In fact, virtually all global automobile manufacturers use cooperative strategies to form scores of cooperative relationships. The Renault-Nissan alliance, signed in March 1999, is a prominent example of a horizontal complementary strategic alliance. Thought to be successful, the challenge is to integrate the partners' operations to create value while maintaining their unique cultures.