Cooperation in the financial services sector

Chapter 19 examines alliances in the financial services sector, focusing on banks as the major players. It describes how banks have traditionally formed strategic alliances with other banks and established deep networks. As such they have made themselves into the sector’s banking blocks. However, since the financial crisis of 2008 the terrain has changed and banks are facing the need to digitize and adopt modern technology to a greater degree than previously. The chapter considers the impact of digitization leading to cooperation between banks and software companies and the development of new business models based on the efficiencies digitization offers. It also looks at the cooperative relationship of banks with the new area characterized as Fintech and the emergence of new financial tools like cryptocurrencies and blockchain.

Organizational learning and knowledge acquisition

Chapter 14 recognizes that many alliances are established in order to enhance a company’s knowledge or capacity to generate new knowledge through learning. It identifies different forms of learning in and through alliances. Alliance partners’ motives toward learning are extremely significant, and the chapter distinguishes between alliances in which partners seek to learn collaboratively for their mutual benefit from other alliances in which learning becomes competitive and potentially exploitative. Effective organizational learning through alliances requires several conditions to be in place and the presence or otherwise of these conditions gives rise to a range of learning processes identified by research on international joint ventures. The closing sections of this chapter turn to the process whereby alliance learning can be facilitated. They identify the potential barriers to learning in alliances, and how the process might be managed constructively.

Governance and control

Chapter 11 considers the governance and control of alliances. It begins with the aims of alliance governance. It continues by considering the key issue of partner control, including formal and informal ways of exercising control. It discusses different dimensions of control that apply to alliances. These are the extent of control exercised by partners over their alliance, the activities and decisions which they control (focus), the mechanisms by which control is exercised, and the foundations for control. The chapter then discusses different combinations of control and coordination mechanisms which are appropriate for coping with the alliance governance challenges arising from financial, resource, and market risks as well as from the requirement to overcome potential conflicts and to ensure the necessary level of internal coordination. While the chapter focuses on governance in international joint ventures, it also discusses the governance of collaborations and of global value chains.

Partner selection

Chapter 9 considers the critical issue of what sort of company would make a good partner. It notes that most companies assess their prospective partners in terms of the complementarity of their assets and skills and the possible synergies that arise as a result of them. Fewer, however, devote sufficient attention to the cultural compatibility between the partners. Yet this factor is often responsible for the breakdown of alliances. The culture web (symbols, power structures, organization structure, controls, rituals and routines, and stories) depicted by Johnson et al. (2017) and the cultural profile (employee orientation, environmental orientation, international orientation, customer orientation, technology orientation, innovation orientation, cost orientation, and quality orientation) proposed by Bronder and Pritzl (1992) are both useful tools for assessing the presence of cultural difference between prospective alliance partners and hence the likelihood of culturally-related problems arising.

Cooperative strategies in the platform economy

Chapter 6 analyzes a new form of economy, enabled by ICTs, digital platforms, and smart devices to connect transactors (sharers or buyers and sellers) who may not have been able to cooperate otherwise. It provides an overview of the phenomenon of “the platform revolution” (from classic value chain logic to platform business logic). It goes on to explain different types of platform (innovation platform, transaction platform, integration platform), the principles of platform business (network effects, the distribution power law, asymmetric growth and competition) and the tacit cooperative strategies of suppliers, platform providers, and customers. Cooperation is tacit—providers do not interact and customers do not interact, except through ratings. The platform system is set up to maintain this condition. The chapter concludes with an overview of platform governance.

Types of cooperation and networks

Chapter 5 reviews the traditional forms of strategic alliance and network. It shows that there are many different types, ranging from supplier contracts to equity joint ventures, and all have different levels of interaction and independence. Networks are another well-established form of cooperation; these can embrace several, sometimes many, firms and other partners. This chapter discusses dominated, equal partner, and coordinated networks. This chapter also describes a variety of taxonomies proposed for classifying alliances. It notes that Yoshino and Rangan (1995) and Dussauge and Garrette (1999) have perhaps the most attractive typologies of alliance forms among the many on offer. Yoshino and Rangan categorize alliances into non-traditional contracts, equity alliances, and joint ventures. Dussauge and Garrette identify international expansion joint ventures, vertical partnerships, diversification alliances, complementary alliances, shared supply alliances, and quasi-concentration alliances. The chapter concludes with some suggestions as to which forms may be most appropriate for which situations.

Economic perspectives

Chapter 2 addresses cooperation from economic perspectives, namely market-power theory, transaction cost economics, agency theory, resource-based theory, transaction value theory, dynamic capabilities theory, real-options theory, and increasing-returns theory. Cooperation can engender market power. Transaction cost economics views cooperation and alliances as potentially cost-reducing methods of organizing business transactions. Agency theory is concerned with the behavior of alliance partners. Both are “agents” of the other and as such systems must be set up to reduce the risk of self-serving opportunism. The resource-based perspective suggests that partners set up alliances to tap into each other’s specialized resources and strategic assets. Transaction value theory focuses on joint value maximization for the collaborative transaction. Alliances can be considered a real option to invest under conditions of uncertainty. Increasing returns are the norm in knowledge-based industries, and the formation of a network of alliances enables companies to operate as significant players in such markets.

The international context of cooperation: culture and institutions

Chapter 21 examines ways in which the national context of alliances is relevant to cooperative strategies. It focuses on two salient contextual features. One is national culture. The other is the institutional environment, which particularly refers to governments and interest groups such as NGOs. National context is consequential for alliances in several ways. The context from which international alliance partners originate encourages each of them to internalize a particular set of norms and practices. So, if there is a substantial difference (“distance”) between those contexts, misunderstanding and friction can readily arise between the partners. Additionally, it may be problematic for an alliance partner to build sympathetic and constructive relationships with governmental bodies and interest groups in the host country location of the alliance unit (such as a joint venture), if that location is culturally and institutionally distant from the partner’s domestic environment. The chapter considers “distance” arising from country differences and how it can be highly consequential for the management and ultimate viability of an international strategic alliance.

Cooperation in non-financial services

Chapter 18 focuses on the non-financial service sector and the professional service firm in particular. It describes how professional service firms bent on expansion are increasingly developing characteristics similar to manufacturing firms, enabling them to take advantage of economies of scale and scope, thereby commoditizing their products/services. They are also digitizing back offices. As such they are making themselves good candidates for globalization by means of cooperative strategy. The chapter also considers the position of the smaller professional service firm, which it views as having more limited opportunities due to the weakness of its brand name in terms of international recognition. However, if the smaller firm focuses on bespoke products and developing a good unique selling proposition (USP), it too may use cooperative strategy successfully to aid its international expansion. Finally the chapter discusses how the collaborative movement has impacted on three specific service sectors, aviation, tourism, and academia.

Behavioral perspectives

Chapter 4 presents behavioral perspectives relevant to cooperative strategy. These perspectives are relational signaling theory, attention-based view, justice theory, and sociological views (social network, social exchange). They complement the more traditional economic, organizational, and managerial perspectives by explaining the effects of a set of relational, cognitive, and social-psychological factors on the formation, governance, and management of strategic alliances. A major theme is that trust is an essential component of social order in cooperation. Trust between partner firms facilitates social exchange, and its value is widely appreciated by the managers of strategic alliances. This chapter examines the significance of trust, its multi-level nature and foundations, followed by a discussion of how trust evolves with alliance development. The chapter closes with a discussion of practical ways through which trust can be enhanced in alliances.