Chapter 9: Cooperative Strategy 291operations.^63 An alliance can be used as a way to determine whether the partners might
benefit from a future merger or acquisition between them. This “testing” process often
characterizes alliances formed to combine firms’ unique technological resources and
capabilities.^649-3a Diversifying Strategic Alliance
A diversifying strategic alliance is a strategy in which firms share some of their resources
to engage in product and/or geographic diversification. Companies using this strategy
typically seek to enter new markets (either domestic or outside of their home setting)
with existing products or with newly developed products. Sikorsky Aircraft Corporation,
a subsidiary of United Technologies Corporation, formed an alliance with Tata Advanced
Systems partially to diversify where some of its products are produced. Through this
partnership, Sikorsky’s S-92 helicopter cabins are manufactured in India, as are more than
5,000 detailed aerospace components. This alliance allows Sikorsky to diversify the global
supply chain that is critical to producing its products.^65
9-3b Synergistic Strategic Alliance
A synergistic strategic alliance is a strategy in which firms share some of their resources
to create economies of scope. Similar to the business-level horizontal complementary
strategic alliance, synergistic strategic alliances create synergy across multiple functions
or multiple businesses between partner firms. The partnership between French-based
Renault SA and Japan-based Nissan Motor Company that was formed in 1999 is a syner-
gistic strategic alliance because, among other outcomes, the firms seek to create econo-
mies of scope by sharing their resources to develop manufacturing platforms that can be
used to produce cars that will carry either the Renault or the Nissan brand. BMW relies
on its collaboration with Chinese auto maker Brilliance (BBA is the name of this partner-
ship) to produce engines in China as well as models including “BMW’s 3-series and
5-series vehicles as well as the small X1 SUV.”^66 This relationship is critical to BMW’s
efforts to maintain strong sales in China, a market in which roughly one-fifth of its total
output is sold.
9-3c Franchising
Franchising is a strategy in which a firm (the franchisor) uses a franchise as a contractual
relationship to describe and control the sharing of its resources with its partners (the
franchisees).^67 A franchise is a “form of business organization in which a firm that already
has a successful product or service (the franchisor) licenses its trademark and method of
doing business to other businesses (the franchisees) in exchange for an initial franchise
fee and an ongoing royalty rate.”^68 Often, the effectiveness of these strategic alliances is a
product of how well the franchisor can replicate its success across multiple partners in a
cost-effective way.^69 As with diversifying and synergistic strategic alliances, franchising is
an alternative to pursuing growth through mergers and acquisitions. McDonald’s, Choice
Hotels International, Hilton International, Marriott International, Mrs. Fields Cookies,
Subway, and Ace Hardware are well-known firms using the franchising corporate-level
cooperative strategy.
Franchising is a particularly attractive strategy to use in fragmented industries, such
as retailing, hotels and motels, and commercial printing. In fragmented industries, a large
number of small and medium-sized firms compete as rivals; however, no firm or small set
of firms has a dominant share, making it possible for a company to gain a large market
share by consolidating independent companies through the contractual relationships that
are a part of a franchise agreement.A diversifying strategic
alliance is a strategy in
which firms share some of
their resources to engage in
product and/or geographic
diversification.
A synergistic strategic
alliance is a strategy in
which firms share some of
their resources to create
economies of scope.
Franchising is a strategy in
which a firm (the franchisor)
uses a franchise as a
contractual relationship to
describe and control the
sharing of its resources with
its partners (the franchisees).