Collaborating with your direct business competitors
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Disruptive times are here to stay. The unprecedented pace of technological change and its spillover effects are aptly described as “tsunami impacting human existence”. How do we deal with such complexity? A closer look at personal and professional decision algorithms suggests we divide our world into dichotomies—good or bad, happy or sad, us versus them, friends or foe. Compartmentalizing the complex world gives a false sense of relief that we are in control of the environment. Take, for instance, how collaboration versus competition is viewed in the world of business.
Typically, companies enter into collaboration to achieve common goals where the well-being of the parties involved becomes more important than individual profit maximization. On the other hand, “competition” is seen as the driving force to remain ahead of the curve. These different logic structures assume companies are either interested in sharing the pie through collaboration or capturing a larger piece of the pie by competition. This polarity assumes organizations prefer to work within the current framework and continue to play a zero-sum game.
But what if the win-lose strategy that worked in the old world order is not good enough any more? A special case in point is the start-up ecosystem in India where multiple firms are competing aggressively to solve unique but similar issues. The question is, with limited resources at one’s disposal and enormous challenges to overcome, are these firms in a race towards their own extinction?
The Vuca (volatility, uncertainty, complexity and ambiguity) world demands higher-order thinking. It requires leaders to devise strategies that change the rules of the game. In the now famous book, Adam Brandenburger and Barry Nalebuff presented a framework of Co-opetition. It’s a strategy that includes simultaneous cooperation and competition between two or more firms, which cooperate in some activities while competing in others.
But how does it work? The idea is that when competitors collaborate, a typical win-lose business scenario transforms to a win-win game in which both parties, and sometimes the industry as a whole, reap superior benefits. Though the logic is rather paradoxical, such disruptive strategies, if well implemented, can yield a huge upside. The most celebrated example of success is the Sony-Samsung case. In 2004, Sony Corp. entered into a joint venture (JV) with its fierce competitor Samsung Electronics to develop and produce LCD panels for flat-screen TVs. Collaborating with the competitor, Sony was able to launch a new product popularly known as “Bravia” while Samsung developed “Bordeaux”. Teaming with rivals produced two innovations, toppled other competitors from their positions and more than doubled the combined market share of these two companies.
A recent article in one of the leading Indian publications reported a consortium of automakers including Ford, Toyota and Suzuki, developing standards for in-vehicle car telematics as an alternative to Google’s Android Auto and Apple’s CarPlay. In high technology industries, the need for co-opetition is felt more due to rapidly changing technologies, shorter life-cycle products and high research and development (R&D) costs. The bottom line is that the cost of introducing disruptive technologies can be prohibitive for a single firm. However, by joining hands, insurmountable challenges become achievable.
The intriguing question is, if large competitors across the world can find ways to collaborate, what stops the cash-starved Indian start-up ecosystem from pursuing a similar strategy? Though weak forms of co-opetition are occurring between firms with allied interests, it is the riskier path of collaborating with direct competitors which gives the highest returns.
Some of the biggest challenges that firms face while working on co-opetitive partnerships are related to cartel formation and associated anti-trust issues. The key to make co-opetition succeed is to work through clearly formed R&D centres or JVs dissociated from parent firms. The associations should not intend in any way to reduce the competition from the marketplace because it is the competition that provides better services and solutions to consumers. Firms could share know-how on complex problems and pool resources to find solutions to common challenges like fraud detection for the e-commerce industry. Trust is also a major concern in such partnerships. The parties involved must be willing to abide by the terms of engagement of the partnership. The effort and resources commitment as well as distribution of profits have to be well documented and agreed upon before.
In economies like India, where the expectation is for firms, both large and small, to grow at exponential rates while they are engaged in solving unique problems, such pooling of resources can make the whole market much more efficient. While some of the best-known examples of such collaborations have happened amongst large global players, there is no reason to believe that such strategies would not yield tremendous returns for smaller and nimble start-ups.
Like every other disruptive business process, co-opetition comes with its share of caveats. However, the gains far outweigh the risks. In this case, collaborating with competitors—making friends with your foes—can unlock the capacity of discovering innovative solutions to a disruptive business landscape.
Snehal Shah and Ashish Jha are, respectively, with the SP Jain Institute of Management & Research, Mumbai, and Rennes School of Business, France.
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