Cooperating to Achieve Competitive Advantages in a Global Economy: Review and Trends

By Amin, Sammy G.; Hagen, Abdalla F. et al. | SAM Advanced Management Journal, Autumn 1995 | Go to article overview

Cooperating to Achieve Competitive Advantages in a Global Economy: Review and Trends


Amin, Sammy G., Hagen, Abdalla F., Sterrett, Charles R., SAM Advanced Management Journal


Introduction

Cooperating to achieve a competitive advantage has recently become a trend in the operations of corporate America and corporations worldwide. Further, cooperating to compete has been adopted into nonprofit organizations as well. For example, universities are cooperating with other universities and corporate organizations to strengthen their competitive advantage.

For years, external growth in the form of mergers and acquisitions has been an integral element of corporate strategy both in the U.S. and abroad (Tessema, 1993). Today, multinational firm alliances are touted as critical mechanisms for competing in global markets and coping with the increasingly rapid pace of technological developments (Ghoshal, 1987; Harrigan, 1987). Although the number of global corporations appears to be increasing dramatically (Auster, 1987; Herbert and Morris, 1988), they are known to be unstable, prone to failure, and difficult to govern (Morris and Herbert, 1987; Pucik, 1987).

Firms are said to be motivated to pursue cooperative relationships when the synergies outweigh the externalities, such as technology dissemination and reputation erosion (Harrigan, 1985; Contractor and Lorange, 1988). Cooperative arrangements such as joint ventures are particularly conducive to organizational learning or the transfer of organizationally embedded intangibles such as knowledge (Polanyi, 1967), organizational routines and skills (Nelson and Winter, 1982), experiences, reputation, and goodwill (Berg and Friedman, 1981; Duncan, 1982).

Global mergers and acquisitions are becoming an essential tool in the new direction of the world's economy. Errunza and Senbet (1981), Lloyd et al (1981), as well as Schollhammer and Sand (1985), report increasing integration in the international capital market. A total of 71,893 merger and acquisition announcements were made between 1963 and 1986 (W. T. Grimm & Company, 1987).

Ring and Van de Ven (1992) state that rapid changes in technology, the competitive environment, firm strategies, and other pressures are prompting many firms to seek cooperative relationships with other firms. Porter (1985) suggests that firms are pursuing a diverse set of objectives that require cooperation because they involve reciprocal dependencies. These objectives include gaining access to new technologies or markets; benefiting from economies of scale in joint research, production, and marketing; and gaining complementary skills by tapping into sources of know-how located outside the boundaries of the firm. Other advantages of cooperating include sharing the risks for activities that are beyond the scope or capability of a single organization, and gaining synergy by combining the strengths of firms in ventures that are much broader and deeper than a simple supplier relationship, marketing joint venture, or technology licensing arrangement. Comparable provisions seem to be employed by organizations that contract out in restructuring or downsizing their operations (Freeman and Misha, 1991) or by governmental agencies engaged in the privatization of public services (Bryson and Ring, 1990).

The purpose of this article is to examine the effectiveness of cooperating to achieve competitive advantages in a global economy. Previously selected literature on mergers and acquisitions and strategic alliances will be reviewed, and the implications of these trends will be addressed.

Review of Literature

Corporate mergers, acquisitions, and strategic alliances have grown rapidly in the last two decades. This trend will continue into the 21st century and will be a dominant feature of the corporate world.

Recently, USAir and British Airways formed one of the most visible global alliances in the airline industry. This alliance will give USAir access to British Airways' huge global market, while providing British Airways access to the lucrative American market. However, four years ago KLM "Royal Dutch Airlines" invested $400 million in Northwest Airlines, which has resulted in a tremendous profit drain and has yielded few synergies (Alexander and Payne, 1993). …

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