2.1 INTRODUCTION
This chapter explores the existing literature surrounding coopetition. Amongst other themes, the chapter deals with the definition of coopetition, how value is created and appropriated in coopetition relationships, as well as antecedents for, and barriers preventing, successful coopetition. The author opted for a critical literature review rather than a systematic (Tranfield, Denyer, Smart, 2003) literature review. The literature review therefore focused its attention on concepts, gaps, controversies and blind spots.
2.2 THE ORIGINS OF COOPETITION
The term coopetition is a portmanteau of cooperation and competition and describes the practice of cooperative competition, i.e. when competitors cooperate. Although coopetition literature between 1995 and 2010 (Dowling et al., 1996, Bagshaw & Bagshaw, 2001; Dagnino & Padula, 2002; Luo, 2005) often report Raymond Noorda, CEO of Novell in the 1980s, as the source of the word, more recent literature traces the first official documentation to Cherington (1913: 144), who in turn referred to a sales manual from 1911 for a sales force of the Sealshipt Oyster Company by Kirk Pickett:
You are only one of several dealers selling our oysters in your city. But you are not in competition with one another. You are co-operating with one another to develop more business for each of you. You are in co-opetition, not in competition. What competition there is, is of the kind that you all can fight to common advantage. The oyster sold from the wooden tub is your only competition. Remember – co-opetition, not competition between Sealshipt dealers (Pickett in Cherington, 1913: 144).
Although it may not have been called coopetition, collaboration between competitors is not a new phenomenon at all. In fact, evidence of coopetition can be found in early Roman maritime trading practices. Roman merchants collaborated with competing traders by dividing their cargo between the different ships sailing along particular routes. In this way, traders protected themselves against losing a whole cargo if one ship sunk or was attacked by pirates, without incurring any additional costs (Benjamin & Le Roy, 2014). The example illustrates coopetition as a risk management and cost reduction strategy in one industry. Coopetition does not only hold benefits for a single industry, but can hold benefits at the national economic level.
2.3 COOPETITION AND ECONOMIC PERFORMANCE
Economists and policymakers have traditionally viewed competition as the driver of economic success (Kenworthy, 1995: 154). Sceptics of this view have proposed alternative explanations for conditions for economic success, such as government intervention, financial systems, and culture.
Yet, few of these provide robust evidence beyond a handful of cases (ibid.).
Kenworthy (1995: 186) provided an alternative hypothesis and presented evidence that economies that encourage cooperation perform better. Kenworthy (ibid.) considered cooperation at the three levels mentioned earlier, namely: (i) macro (industry); (ii) meso (intra-industry or inter-company); and (iii) micro level (intra-company).
Examples of cooperation would include long term, close relationships between banks and the firms they finance, industry bodies, worker unions, as well as coordination between the latter two.
Kenworthy’s scores were based on the prevalence of such bodies and the extent of coordination.
German businesses, for instance, are organised in strong trade associations that facilitate cooperative activities such as joint R&D and large-scale apprenticeship programmes (ibid.). Japan scores the highest on Kenworthy’s measurement for its high levels of cooperation between and within various business institutions; a phenomenon that is also discussed in other bodies of literature (see for instance Dagnino & Padula, 2002; Dyer et al., 2008; Knoben & Oerlemans, 2006).
Of particular interest in Kenworthy’s study is the link of coopetition with productivity growth (see Table 2.1). The meso-level variable represents inter-firm cooperation and is therefore of particular interest in this dissertation. Although the adjusted R2 of the model is somewhat lower in the 1974-1990 period (0.66) than in the full period of his enquiry (i.e. an R2 of 0.81 in the period 1960-1990), the meso-level coefficient is stronger in this (1974-1990) period, implying that growth in productivity can largely be explained by cooperation between firms.
Table 2.1: Regression results for macro, meso and micro-level cooperation (1974-1990) Productivity growth Misery index
Macro-level cooperation -0.41* -0.62*
Meso-level cooperation
(i.e. cooperation between purchasers and suppliers, between investors and producers, and between competing firms)
0.63** 0.76**
Micro-level cooperation 0.22 -0.74**
Adjusted R2 0.66 0.50
N 17.00 16.00
(* 10% leveI; ** 5% level) Source: Kenworthy, 1995: 186.
This implies that nations that create institutions to stimulate inter-company collaboration, experience stronger productivity growth, which in turn make an economy more competitive. What is interesting though and remains unexplained in Kenworthy’s study is the positive link of meso-level coopetition with unemployment and inflation (commonly referred to as the misery index).
2.4 THE BROAD AND NARROW VIEWS OF COOPETITION
Kenworthy (1995) provided a convenient introduction to coopetition, although he did not use the term itself. In fact, coopetition is not universally accepted as a legitimate field of study, and most opponents question claims that coopetition requires different skills than the sum of the skills required for competition and collaboration. Using different definitions of coopetition may hamper coopetition research (Minà & Dagnino, 2016). It is therefore important to be clear about the definition used in this dissertation. The coopetition body of knowledge is currently dominated by two definitions.
2.4.1 The broad definition
The idea of meso-level cooperation as Kenworthy used it, is akin to the initial wide definition of coopetition as presented by by Brandenburger and Nalebuff (1996). Brandenburger and Nalebuff (1996) described coopetition in the context of game theory, putting forward that collaborating with stakeholders (rather than just competitors) could create more value for companies than if they were to work in isolation. In this wider view, they included customers, complementors (those companies that make your product more attractive), competitors, and suppliers. This was done because these stakeholders compete for value (see Figure 1.1). Some of the most important and influential works in the coopetition literature have taken similar views of coopetition (see for instance Dagnino & Padula, 2002: 5).
Figure 2.1: Brandenburger & Nalebuff’s value net Source: Brandenburger & Nalebuff, 1996: 17.
2.4.1 The narrow definition
Subsequent to the early and broader definition, some authors (Bengtsson & Kock, 2000; Walley, 2007: 11; Gnyawali & Park, 2011) have described coopetition as the practice among competing firms to cooperate and compete at the same time. This is a much narrower definition than the earlier definition proposed by Brandenburger and Nalebuff (1996). This dissertation subscribes to the narrower definition.
Ironically, the seminal proponents of the narrow definition, Bengtsson and Kock (1999; 2000), in recent years (2014) made a call to once again broaden the definition. Their defence of the older (and broader) definition rests on the view that the business world is becoming increasingly networked so that it is no longer strange that your competitor is also a supplier, a customer, or a partner in a joint venture.
2.5 DISAGGREGATING THE BROAD DEFINITION
At a methodological level, the narrower Bengtsson and Kock (1999; 2000) definition delimits this study to a phenomenon with different dynamics than the other relationships mentioned in the broader definition of Brandenburger and Nalebuff (1996).
Brandenburger and Nalebuff (1996) used game theory to show how companies can increase the value pie by collaborating with the various stakeholders shown in Figure 2.1. From such a perspective, these stakeholders represent a homogeneous group. As strategy literature shifted, however, the focus shifted to the heterogeneous nature of the different players and to the resultant differences in the relationships.
2.5.1 Collaboration with competitors
Collaboration with competitors is very much different to collaborating with other stakeholders (Ritala, 2009). Competitors face similar problems in the market, while they are likely to depend on similar resources to address such problems (Ritala & Hurmelinna-Laukkanen, 2009; Pellegrin-Boucher, Le Roy & Gurau, 2013). When competitors collaborate, they gain a lot from learning from each other, while the knowledge they gain is highly relevant for each other (Park et al., 2014).
The resource-based view (RBV) of the firm provides some insight as to why coopetition may benefit competitors. Under the RBV, it is assumed that firms are heterogeneous in terms of their respective resource profiles and that such resources are not perfectly mobile between firms (Barney, 1991). When competing firms cooperate, firms are able to combine idiosyncratic, as well as complementary strengths to gain strategic value (Ritala & Tidström, 2014). Such value can stem from many sources, including, access to an expanded sales team, greater investment in R&D, greater employee training, quicker agreement on standards, reduced costs and reduced risk, assistance with financing, and technology diffusion (Lavie, 2007: 1192; Kenworthy, 1995;
Bengtsson & Kock, 2000; Pellegrin-Boucher et al., 2013). This dynamic is very different from the value creation taking place with customers, with suppliers and with complementors.
2.5.2 Collaboration with customers
Authors such as Hart (2007) and Prahalad and Ramaswamy (2004) described collaboration with customers as the “co-creation of value”. Where customers may previously have been considered only as the “target” of a product or service, firms increasingly realise the value that can be created by collaborating with customers. Simultaneously, social media has enabled a level of interaction between firms and customers that would previously have been impossible. Further, more informed consumers that are unhappy with the choice in the market are increasingly exerting pressure on all aspects of business to co-create what they want. However, what should be clear is that the dynamics of the relationship is somewhat different.
2.5.3 Collaboration with suppliers
Collaboration with suppliers (vertical collaboration) is often described as “supply chain collaboration”. An extensive body of literature exists to address the dynamics and benefits of supply chain collaboration (see for example Donada, 2002). Strong relationships with suppliers can be a sustainable source of a competitive advantage (Dyer & Singh, 1998), but competitors can learn more from each other when they cooperate than what they can learn from their suppliers.
2.5.4 Collaboration with complementors
Collaboration with complementors in turn has developed into a separate field of study (Habets, 2008), but seems to have lost claim to the term coopetition. Firms often collaborate with complementors in alliances. Alliances are closer to cooperation than to competition (Rusko, 2011: 312), but is not considered synonymous with coopetition due to the presence of competition in coopetitive relationships (ibid.).
2.6 INTERACTION OF COOPERATION AND COMPETITION
Coopetition is a dynamic interaction (Bengtsson, Eriksson & Wincent, 2010). Different combinations of strong and weak cooperation and competition are possible. Lindström and Polsa (2015: 3) distinguished between intercompany relationships as cooperation dominated, competition dominated, or as balanced coopetition. It is important to understand how value is created and distributed, as this impacts on the stability of the coopetition relationship (Das & Teng, 2000: 94;
Inkpen & Beamish, 1997; Janssen et al., 2013).
2.6.1 Dynamics of competition and power
The dynamics of competition are important for firms at two levels. Firstly, the value aspect of competition often involves the negotiation (Kim, Pinkley & Fragale, 2005) for the biggest share of the common benefits that may emanate from a coopetition initiative. It is important for firms to
understand how they can capture the most value from coopetition (Dyer et al., 2008). Negotiation power is ultimately one of the biggest determinants of the gain a company can make in negotiation dynamics (Kim, et al., 2005: 799). Power is classically defined as the probability that a person can carry out their will despite resistance (Weber, 1947).
Kim et al. (2005) decouples power into four components, i.e.
i) Potential power as the capacity of a partner to obtain benefits,
ii) Perceived power as the assessment of partners of the other parties’ potential power, iii) Power tactics, i.e. behaviours aimed at changing the power relationship, and lastly iv) Realized power, i.e. the extent to which a party has claimed benefits.
French and Raven (1959) suggest that there are five bases of power. The argue that A’s power over B is determine by:
i) Reward power: how much B can be rewarded and to what extent B believes A controls these rewards,
ii) Coercive power: A can punish B, and the extent to which B believes the punishment can be avoided by complying with the wishes of A,
iii) Expert power: A function of B’s perception that B possesses some special knowledge or expertise,
iv) Legitimate power: A function of how mush B believes that A has lawful authority to influence B, and lastly
v) Referent power: A function of how attracted B is to A and, thus, how much A can influence B’s feelings of personal acceptance, approval and self-esteem.
The points made by French and Raven resonates with coopetition and alliance literature. For instance, firms that bring more resources to an initiative is able to realise more gains (Dyer et al., 2008). Bringing more resources of any kind to an cooperative agreement provides power to such a partner in the form of expert power (if the currency is knowledge) or legitimate power.
Some of the heterogeneous factors that may impact the ability of firms to compete include technical know-how, reputation brand awareness and the ability of managers to cooperate (Chamberlin, 1933).
The literature surrounding competition is vast, and much of it falls outside of the scope of this dissertation (see Table 4.1). This area has, however, been flagged for further research at the end of the study.
2.6.2 Weak versus strong coopetition
Secondly, the intensity of the competition in the market may determine whether companies are willing to collaborate with their competitors at all (Ritala, 2009; 2012).
By classifying cooperation and competition as either strong or weak, Czakon, Mucha-Kus and Rogalski (2014: 131) distinguished between four different mixes of the opposing forces. Effectively these authors split balanced coopetition into four separate classifications based on how strong the two actions are (Figure 2.2). Park et al. (2014: 214) used a similar table to the Czakon et al. (2014) study when elaborating on the importance of balance in coopetition relationships. Park et al. (2014) maintained that a balance of strong competition and cooperation (also referred to as high-intensity coopetition or as syncretic1 rent-seeking behaviour (Lado et al., 1997), allows for maximum common benefits (i.e. available to all partners), while maintaining the possibility to capture private benefits (i.e. the benefits captured by a specific firm).
The relevance of this typology is to provide a theoretical focus to the context of this study. The South African wine industry is highly fragmented. A theme that emerges often is that wine producers do not perceive one another as competitors (more will be said about this in the findings section). It is therefore likely that the coopetition would either be cooperation dominated (in cases where the cooperation is strong) or of low intensity (if the cooperation is weak). The grey area in Figure 2.2 illustrates the two likely positions.