Cooperative strategy is an essential means through which firms of different sizes are responding to the competitive forces in the current marketplace. It allows firms to operate together to offer products and services that surpass what anyone of them could offer on its own. Cooperative strategy also has various merits for the customers of the firms as well. Among the alternative rationales that are established for cooperative strategy on a business level, the most effective in developing a sustainable competitive advantage are complementary strategic alliances. This paper, therefore, aims to discuss the reasons as to why complementary strategic alliances are the most effective in establishing a sustainable competitive advantage to firms.
Complementary Strategic Alliance
Complementary strategic alliances are business-level in which firms share some of their capabilities and resources in complementary ways to competitive advantages (Culpan, 2009). There are two types of complementary strategic alliances: horizontal and vertical.
- Horizontal Complementary Alliances
A horizontal complementary alliance is one in which firms share some of their capabilities and resources from the same level of the value chain to establish a competitive advantage. Firms apply this type of alliance to concentrate on long-term product distribution and development opportunities (Culpan, 2009). Horizontal complementary alliances are usually found among potential competitors, and the airline alliances are good examples of horizontal complementary alliances.
- Vertical Complementary Alliances
A vertical company alliance is one in which firms share their capabilities and resources from different stages of the value chain to establish a competitive advantage. The alliance is common between a buyer and a seller. Vertical complementary strategic alliances are popular in business transactions and are usually found in the nature of long-term commitments and contracts of both parties (Culpan, 2009). An example of vertical company alliance is the response that Australian dairy producers are using to move up the value chain toward consumers.
Why Complementary Strategic Alliances are the most effective in creating a sustainable competitive advantage
There are various reasons as to why strategic alliances are the most effective in establishing a sustainable competitive advantage. Some of them include:
- They present the firm with a make-or-buy type of decision
Complementary strategic alliances present the firms that are involved in the alliance with a make-or-buy type of decisions. It is cheaper, easier, quicker or more effective for successful market competition to have an important part of a service or a product offering come from an alliance partner. It is the concern of the firm to make such an alliance work rather than trying to do that activity internally (Kuglin & Hook, 2002). For example, in the case of international passenger airlines, it is easy to see that it would be administratively difficult and very costly for any one of the United States carrier to establish and run a worldwide airline on its own. It can be noted that two airlines of the past, TWA and Pan Am, tried to just do that and the travel demands of the public were far less than they are today but both of the airlines failed in spite of a growing market for international air travel.
- They enable firms to acquire management capabilities in a quick way
Complementary strategic alliances allow firms to obtain quick management capabilities. Moreover, the management of component capabilities is carried out by those who can manage them best. For instance, the capabilities of the second firm in an alliance are managed by the other firm’s managers and those managers concentrate on their roles. Therefore, the managers of the first can remain concentrated on what they do best (Kuglin & Hook, 2002).
- They reduce the capital expenditures by Firms
In complementary strategic alliances, there is no need for larger capital expenditures by either firm in the alliance for either buying it through acquisition or merger or developing a new activity from the ground. There is also no urgency to worry about extensive integration in complementary strategic alliance.
It is evident that the cooperative strategy is an essential means through which firms of different sizes have responded to the competitive forces in the contemporary global marketplace. However, it is also evident that among the alternative rationales that are established for cooperative strategy on a business level, the most effective one in establishing a sustainable competitive advantage are complementary strategic alliances.
Culpan, R. (2009). A fresh look at strategic alliances: research issues and future directions. International Journal of Strategic Business Alliances, 1(1), 4. doi:10.1504/ijsba.2009.023649
Kuglin, F., & Hook, J. (2002). Building, leading and managing strategic alliances. New York: AMACOM.