Chapter 9: Cooperative Strategy 281Commonly, outsourcing arrangements are
organized in the form of a nonequity strategic
alliance. (Discussed in Chapter 3, outsourcing is
the purchase of a value-chain activity or a sup-
port-function activity from another firm.) Apple
Inc. and most other companies involved with
selling computers, tablets, and smartphones use
nonequity strategic alliances to outsource most or
all of the activities required to manufacture their
products. Apple, for example, has traditionally
outsourced most of its manufacturing to Foxconn
Technology Group. Recently, Foxconn, with
most of its production facilities located in China,
was manufacturing 70 percent of all iPhone
6 phones.^20 Firms often choose to use nonequity
strategic alliances to outsource manufacturing
activities to Chinese companies because of the
cost efficiencies those firms generate through
scale economies.^21 This collaborative pattern
between a product designer such as Apple and
a manufacturer such as Foxconn is likely to continue. One reason for this is that Foxconn,
for example, works within an ecosystem of firms that supply it with the component parts it
requires to manufacture products for its customers. Effective ecosystems, such as the one in
which Foxconn operates, create value that is difficult for competitors to imitate.^229-1b Reasons Firms Develop Strategic Alliances
Cooperative strategies are an integral part of the competitive landscape and are quite
important to many companies. The fact that alliances can account for up to 25 percent or
more of a typical firm’s sales revenue demonstrates their importance. In addition to part-
nerships among for-profit organizations, alliances are also formed between educational
institutions and individual companies for the purpose of commercializing ideas flowing
from basic research projects that are completed at universities.^23 Moreover, in addition
to dyadic partnerships where two firms form a collaborative relationship for competitive
purposes, competition now occurs between large alliances themselves in some industries.
This pattern of competition exists in the global airline industry where individual airlines
compete against each other but simultaneously join alliances (such as Star, OneWorld
and SkyTeam) which in turn compete against each other.^24 The array of alliances with
which firms are involved highlight the various options available to companies seeking to
increase their competitiveness by cooperating with others.
Overall, there are many reasons firms choose to participate in strategic alliances.
We mention two key reasons here and discuss additional ones below by explaining how
strategic alliances may help firms improve their competitiveness while competing in
either slow-, fast-, or standard-cycle markets.
Making it possible for firms to create value they couldn’t generate by acting inde-
pendently and entering markets more rapidly combine to form the first important reason
firms form strategic alliances.^25 The partnership formed among online news publishers
The Guardian, CNN International, Financial Times, and The Economist for the purpose
of making it possible for advertisers to reach online audiences with scale demonstrates
this reason. Called Pangea, those forming this alliance concluded that the collaboration
would help the firms efficiently expand on a global basis. In commenting about this, one
firm’s executive said that “we’ve come together to ensure the quality that’s represented by
these publisher brands is now available at scale.”^26
Courtesy of ZDnet
This is a Foxconn employee who is working to produce iPhone 6s for
Apple.