By Peju Kukoyi
In 2020, BioNTech and Pfizer, competing pharmaceutical giants, teamed up to get a much needed COVID-19 vaccine quickly into the market. BioNTech was at an advanced stage with a vaccine but it has limited resources to enable it get the vaccine to the market as quickly as possible to stop the rapidly spreading corona virus. Help came in the mould of Pfizer, which brought its strong clinical research and development, as well as its manufacturing and distribution capabilities. Pfizer-BioNTech vaccine, Comirnaty, got to the market faster than expected.
In 2003, the express delivery company DHL decided to make a play for the US market. It was a good decision. The demand for express delivery services was robust and only UPS and FedEx dominated the market. Thus, there was still enough room for other players. But heres the problem: despite the acquisition of Airborne Express, DHL lacked the scale and the necessary resources of FedEx and UPS to deliver services at cost and efficiently. As such, it was making whale-size losses and had to quickly explore ways to save hundreds of millions of dollars in costs. DHL had two choices before it: to quit the US market and perhaps reenter when it had the financial muscle to challenge UPS and FedEx, or approach the competition for help. Determined to remain in the US market, DHL chose the option that seemed imprudent to approach either FedEx or UPS for help. It approached UPS to rent a space on its planes for its cargoes. UPS agreed and was ferrying both its parcels and DHLs parcels across the US.
Let us consider Apple and Samsung, both manufacturers of smartphones and other mobile devices. Samsung supplies hardware components such as OLED displays, DRAM and NAND flash memory, display driver and flexible screen techs to Apple while also competing in the mobile device market with Apple.
What is coopetition?
The above are classic examples of coopetition. What is coopetition? The word coopetition is a portmanteau word derived from the combination of the words cooperation and competition. This means businesses both compete and cooperate, as was/is the case with BioNTech and Pfizer, Apple and Samsung, DHL and UPS, Boeing and Lockheed Martin for a space craft, the Nigeria Inter-Bank Settlement System (NIBSS), where all licensed banks collaborate on a shared infrastructure for interbank payments, and Moniepoint (fintech) and Fidelity Bank (commercial bank) drawing on business synergy to tackle financial fraud.
Coopetition is the coming together of two competing businesses within the same market to increase their chances of growth. This strategic alliance is designed to help two or more competitors with complementary strengths enter into an agreement on a product or service to share common gains. This does not mean that they will collapse their businesses into one entity. No. They still exist as different businesses competing in the market in other areas where they generate greater value creation as stand-alone entities, but cooperate to attain higher value creation when compared to what they created without the strategic alliance, and when they struggle to achieve a competitive advantage.
Why businesses should consider coopetition
In an interview I granted some journalists in the past, which was run in The Nation and Nigerian Tribune newspapers, I mentioned the concept of coopetition in business and how SMEs may need to change their business model to incorporate coopetition as a growth strategy. Indeed, in todays fast-paced business world, where customers’ needs are constantly evolving and quality service is required at the speed of light, it becomes sometimes difficult for a company to serve these needs, hence the need for coopetition to leverage on a broader pool of competencies and infrastructure.
Traditionally, business owners were trained on comparative advantage where a business tries to push the area where it is better than competition. But the competitive advantage strategy, which has guided the operations of most SMEs for years, is no longer as viable as it used to be. The concept of this strategy has meant that each business focuses on highlighting its differential value to be more profitable than its rivals. This has been ongoing with more businesses trying their best to outdo others by presenting some form of value proposition or the other to customers.
However, in areas a business is not better, it would serve a companys interest, in terms of expansion, growth, and marketing perspectives, to collaborate with others. A special purpose vehicle can be created for such collaboration, where SMEs come together to run a business, with strict guidelines because it is not a merger or acquisition, it is just an agreement among SMEs to run certain business together to at least cover the cost of their operations.
And coopetition is not an entirely new business model. In the informal sector, this happens fairly regularly. For instance, a bean cake maker would invite her pap-making friend to share the shop with her. We see a bead maker collaborating with a tailor, like a 50/50 equity partnership. That may not apply to many businesses, but many can always explore collaborative opportunities.
Benefits of coopetition
Cost reduction
A major benefit of coopetition is its ability to reduce operations, research and development, sales, or marketing costs for the companies in the coopetition arrangement. For instance, imagine different Nigerian banks building individual interbank payment infrastructure. That would be a huge drag on their revenues. But by pooling resources together to build NIBSS, each bank is contributing a fraction of what it would have cost to build and manage individual settlement system. Consider the DHL/UPS arrangement. That strategic relationship was reported to have saved DHL $1 billion a year in delivery costs. Coopetition helps to reduce cost and boost operational efficiency. And because the new entity formed from the coopetition arrangement is bigger than the individual companies, it is enjoy economies of scale.
Speed to market
Coopetition helps companies develop products faster to address consumer needs. Neither BioNTech nor Pfizer would have managed to develop a COVID-19 vaccine fast enough to address the viruss speedy spread. But by combining resources and know-how, the two companies working together were able to develop a vaccine in record time. To compete effectively with Elon Musks SpaceX, aerospace companies Lockheed Martin and Boeing had to collaborate to develop their space shuttle. Coopetition helps Lockheed Martin and Boeing to accelerate the development of Curiosity, a rover for Mars exploration, and effectively compete with SpaceXs Mars programme.
Innovation
When two businesses coopete there is a bigger pool of resources available for investment in technology. There is an exchange of knowledge, ideas, tools, and infrastructure, which helps to accelerate research into new products and services and eventually development.
Business expansion
Coopetition is a growth and expansion driver for the companies involved. It is an inorganic way for companies to grow or scale their operations, developing new products or services, and boosting the brands market visibility.
Market expansion
Newer products can lead to newer markets for the collaborating businesses due to bigger advertising budgets, and with a new market comes access to new customers.
Challenges of coopetition
However, there are challenges to the cooperative strategy, which businesses in a coopetition arrangement must fully appreciate before venturing into it. Trust is the elephant in the room. Integrity and transparency are essential ingredients that will help build trust. Another challenge is a clash in professional philosophy; who controls distribution, complementary needs, and equity in risk? To mitigate the risks associated with coopetition, expert guidance is advised to help draw up guidelines to address potential challenges of the partnership.
These challenges notwithstanding, benefits such as cost reduction of the individual entities through shared costs, speed to the market, larger resource pool, elimination of duplication, and technology transfer far outweigh the challenges. Coopetition is a sound growth strategy for Nigerian businesses, which continue to labour under heavy operational costs, limited resources for research and development, shrinking markets, dearth of quality professionals due to japa, and environmental challenges, among other issues.
The late Steve Jobs once famously said, “We have to let go of this notion
