A framework for using joint ventures (and other forms of cooperative strategy) within varying competitive environments is constructed, and hypotheses are developed concerning the impact of particular industry traits upon firms' options in pursuing them. Industry examples illustrate the framework's hypotheses. In this framework, demand traits suggest what types of cooperative strategies are needed. Competitor traits suggest how firms will respond to these needs for cooperation.
Since joint ventures can be inherently unstable organizational forms, it is important for managers to (1) select the right cooperative strategy option and (2) modify the autonomy from (and coordination with) sponsoring firms that ventures enjoy as their industry structures evolve. Familiarity with cooperative strategy options is important because (1) as growth slows, (2) as markets shrink or become crowded, (3) as industries become global, or (4) as technological change accelerates to speeds where individual firms cannot recover their initial investments, managers will have less margin for error. If managers do not learn how to use cooperative strategies advantageously their firms may encounter difficulties in delivering adequate value to their customers, replenishing their base of skills, and/or safeguarding their abilities to increase long‐term shareholder value.
Taxonomies, factor analysis and clustering are discussed as tools to investigate the structure of competitors within an industry (‘strategic groups’). An example using cluster analysis is presented as one means of operationalizing this concept. Careful definition and selection of the dimensions used to identify the boundaries between strategic groups (their mobility barriers) are particularly crucial in the effective application of analytical tools.
This paper contrasts the vertical integration strategies of 192 firms in the presence of diverse environmental and strategic forces to suggest how successful uses of vertical integration differ from less successful ones. Briefly, firms which did not use vertical integration as effectively transferred more goods and services internally, and they did so more often under adverse industry conditions. A frequent error was to undertake more integrated activities in‐house and engage in longer chains of processing from ultra‐raw materials to finished goods. Ironically, many of the vertically integrated firms that suffered adversity possessed the bargaining power needed to contract advantageously for goods or services, but accepted an overly risky ownership position unnecessarily by producing them, instead.
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