economics of business cooperations - uni-muenster.de · modul uk iib (english) management of...

Prof. Dr. Theresia Theurl1

Economics of Business Cooperations

Prof. Dr. Theresia TheurlDipl.-Wi.-Ing. Kersten LangeWinter 2009 / 2010


Introduction1

Organisation1.1

Business cooperation – an example

The epoch of cooperations1.3

Agenda

1.2


Introduction1

Organisation1.1



Agenda

1.2


Two new english modules offered at the IfG

Economics of Business

Cooperations

Management of Business

Cooperations

Develops the main economic fundamentalsand factors of influence on businesscooperation along a typical cooperationprocess.

Module content Organisation

Develops the main requirements on an effective and efficient cooperationmanagement and their supplementalmethods and tools.

• Offered every winter –starting WS 2009/10

• 2 hrs lecture weekly

• Add. 2 hrs excercises and case studies to deepenand supplement lecturematerial

• Offered every summer –starting SS 2010

• 2 hrs lecture weekly

• Add. 2 hrs excercises and case studies to deepenand supplement lecturematerial

1

2


Modules

Every semester

5 CP module

• Module contents are notsequential

• No Seminar required

• All 5 CPS modules canbe elected as "VWL-Wahlpflichtmodul" or"BWL-Wahlpflichtmodul für Betriebswirte"

Exam(120 Min.)

SummerWinter

Modul UK Ib

Grundlagen und Empirie

Modul UK IIb

Regulierung und Management

Modul UK Ib(English)

Economics of Business Cooperation

Modul UK IIb(English)

Management of Business Cooperation

ExamComment

Both english modules can be selected as 5 credit point modules


Economics of Business Cooperations startingthis semester

Lecture

Exercises& casestudies

Exam

AssistantLecturer

Wednesday, 14:00 – 16:00 c.t., CAWM 1

14.10.0921.10.0928.10.09

04.11.0911.11.0925.11.09

09.12.0906.01.1013.01.10

20.01.1027.01.1003.02.10

Thursday, 14:00 – 16:00 c.t., CAWM 1

05.11.0919.11.0926.11.09

10.12.0914.01.1021.01.10

28.01.10

First exam date will be announced soon

Kersten Lange, [email protected]: 0251 – 83 22895


Relevant information can be found on websitewww.ifg-muenster.de

Shortcut: www.ifg-muenster.de/ebc


Participate in myIfG

Please register online to access lectureresources and materials

• Use ZIV account to register for myIfG

• After initial registration, please use login at the leftside of the homepage

Register at IfG-website Subscribe for this lecture

• Click on „Veranstaltungen“for all current lectures

• Choose this lecture„Unternehmens-kooperation Ib (Englisch)“

• Click on „abonnieren“ to subscribe

• Discuss in the forum

• Download lecture material

• Receive all relevant newsvia e-mail distribution list


Institute's website with a lot ofadditional information

IfG-Website... ...with further information

• Database with old exams("Studium“– "Prüfungen“)

• Glossary for business cooperations("Top-Adressen")

• Coop-Watching – Database withinformation on current businesscooperations ("Top-Adressen")

• IfG contact card ("Studium“)

• New literature on businesscooperations ("Top-Adressen")


Literature

• Contractor, F. J. (Ed.) (2002): Cooperative strategies and alliances, Amsterdam, Pergamnon, pp. 25-33.

• Chen, H. et al. (2003): Governance structures in strategic alliances: transaction cost versus resource based perspective, in: Journal of World Business, No. 38, pp. 1-13.

• Gulati, R. (1998): Alliances and networks, in: Strategic Management Journal, No. 19, pp. 293-317.

• Ménard, C. (2004): The Economics of Hybrid Organizations, Journal of Institutional and Theoretical Economics (JITE), Vol. 160, pp. 1-32 and pp. 345-376.

• Oxley, J./Silverman, B. (2008): Inter-firm Alliances: A News Institutional Economics Approach, in: Brousseau, E./Glachant, J.-M. (Ed.): New Institutional Economics: A Guidebook.

• Theurl, T. (Ed.) (2005): Economics of Interfirm Networks, Tübingen.


Interesting websites

• Collaboration. The one essential key to success.http://www.cnbc.com/id/26868473

• SMEs and cooperationhttp://ec.europa.eu/enterprise/policies/sme/files/analysis/doc/smes_observatory_2003_report5_en.pdf

• Meshbox – Marketing cooperationshttp://www.mesh-box.com

• Directorate General for Competition – European Commissionhttp://ec.europa.eu/dgs/competition/index_en.htm

• COOP-Watchinghttp://www.ifg-muenster.de

All interesting websites will be posted at www.ifg-muenster.de/ebc - Send us your links!


Kennenlernabend at the IfG –you are invited to join!

When: 21. October 2009, 19.00 pm

Where: CAWM, 2nd floor

Please use registration listsand sign in!

Informal get-together for all current and prospective IfG-students


Various perspectives for students of business cooperations

Organisation ConceptionManagement

In companies:• Project teams• Corporate functions• Management

Consulting

In consulting firms and investment banks:• Mergers & aquisitions• Post-merger-integration• Network-specialists

ConceptionImplementation

Regulation EffectsRegulation

In competition authorities:• EU commission• Federal cartel office• Federal network agency


Introduction1

Organisation1.1



Agenda

1.2


Business cooperations have many different characteristics and facets

empiricallyverified

theoreticallywell-founded

international

multifaceted

related topractice

multidisciplinary

Design

Dyn

amic

s

Cau

ses

Regulation Effects

Management


Cooperations matter in every industry!

What are the reasons for firms to cooperate?


Reasoning behind cooperations

Source: Fontanari, M.: Kooperationsgestaltungsprozesse in Theorie und Praxis, Berlin, 1996.

Usually more than one reasonaccountable for cooperations


Cooperation Example: DESERTEC Industrial Initiative

Initial participating partners Background

• Erection of solar power plants and wind farms in the MENA region –Middle East and Northern Africa, i.e. Sahara Desert

• Target: Covering 15% of Europe'syearly energy demand in 2050

• 12 participating companies –including banks, insurancecompanies, energy corporationsand solar cell producers

Source: DESERTEC website: www.desertec.org


Strategic initial situationThe example DESERTEC

Phase I: Strategic positioning

Shortage of oil and natural gas

resources

Use of renewable energies in

Europe limited

High efficiency gains in

renewable energy generation

Rising energyprices

Rising energy demand

Global warming



First step: Establish partner network and increase public relationsThe example DESERTEC

New members since October2009: Grid operators fromFrance, Italy, Spain and companies from Marocco, Tunesia and Egypt

Phase II: Internal preparation


...and formation of DESERTEC foundation

Three studies withpositive results...

...trigger establishment of partner network

"... a hub for realizing theDESERTEC Concept. Itwill also work for creatinga global alliance to ensuresecurity of energysupplies, to promoteeconomic development, and to stabilize the world’sclimate"

Evaluation of...

• the anticipated water and power needs through 2050 in Europe and MENA

• the potential for renewable energy in MENA

• the potential for an electric power transmission grid connecting the three regions.


Institutionalization of cooperationinfrastructure and signing of contractsThe example DESERTEC

Phase III: Institutionalization


Memorandum of Understanding

Foundation of DESERTEC

Industrial InitiativeCooperation contract

• Declaration of intent of all participatingcompanies and institutions

• Signed 13.07.2009

• Foundation is planneduntil end of 2009 as a GmbH

• Target is coordinationand preparation of cooperation contract

• Reach signature stateof negotiations in 2012


Operative cooperation management and continuous performance reviewThe example DESERTEC

Phase IV + V: Operative cooperationmanagement and controlling success


No information available yet:

• Cooperation managementthrough Desertec Industrial Initiatve GmbH?

• Controlling of project risks, costs and distribution of earnings?


Reasoning behind this cooperation?The example DESERTEC

Cost advantages

Time advantages

Access to markets

Access to ressources, know-how and technologies

Distribution of risks

Takeover protection


Lecture is structured along a typical 5-step cooperation process

StrategicPositioning

Internalpreparation

Institution-alization

Operative cooperationmanagement

Controlling success

1 2 3 4 5

Modification

ContinuationStabili-zation

Strategic repositioning

Termination and re-initationFlexibility


1. Introduction1.1 Organisation1.2 Business cooperation – an example1.3 The epoch of cooperations

2. Strategic Positioning2.1 Economic Causes for Business Cooperations

2.1.1 Empirical drivers for Business Cooperations2.1.2 Classical science: market power vs. efficiency2.1.3 Transaction Costs

2.2 Economic effects and the management decision2.2.1 Outsourcing2.2.2 Analysis of cooperation targets2.2.3 Core competencies and boundaries of the firm

Agenda in detail (1/3)Economics of Business Cooperations

02.10.2009


3. Internal Preparation3.1 Determination of microeconomic cooperation targets3.2 Evaluation of cooperation competence (strategy and culture)3.3 Interface analysis of value chains3.4 Decision on cooperation mode

3.4.1 Cooperation modes3.4.2 Constitutive attributes3.4.3 Efficiency criteria: stability vs. flexibility

3.5 Partner selection

4. Institutionalization4.1 Institutionalization of cooperation management

4.1.1 Implementation4.1.2 Organisational anchoring4.1.3 Types of institutionalization

4.2 Institutionalization of the cooperation4.2.1 Target harmonization4.2.2 Agreement on rules

4.3 Fundamentals on regulation4.3.1 Necessity for regulation4.3.2 Economic fundamentals


02.10.2009


5. Operative Cooperation Management5.1 Operationalisation of cooperation targets5.2 Principal-agent-theory5.3 Property rights5.4 Trust management – joint cooperation culture5.5 Internationalisation – Challenge international cooperation5.6 Conflicts of interests – Game theory in Business cooperations

6. Controlling Success6.1 Process controlling6.2 Target controlling6.3 Value reporting6.4 Adjust, modificate or exit


02.10.2009


Objectives of this lecture (1/2)Economics of Business Cooperations

Empirics

Typicalcooperation

process

Types of cooperation

• Learn the empirical findings on cooperation. • Understand how current economic conditions promote and shape cooperative

arrangements. • Understand why enterprises cooperate and assess success factors of cooperation.

• Study the dynamic process of a cooperation. • Understand the 5-step-management approach and the contents of each step.

• Learn about the different types of cooperation. • Learn criteria for selecting a special type of cooperation. • Assess the circumstances under which a special type of cooperation is

advantageous.


Objectives of this lecture (2/2)Economics of Business Cooperations

Theory of cooperation

• Learn theoretical basics on cooperation. • Understand how size and efficiency interact. • Understand the combination of flexibility and stability that shape cooperation. • Understand the role of transaction costs and information asymmetries. • Understand how the theoretical concepts result in decisions on cooperation.

Dynamics of cooperation

Economicimpact of

cooperationand mergers

Regulation: Goals and

implementation

• Understand the determinants of development of cooperation.

• Understand the rationale for cooperation.• Identify possible interferences with competition law.

• Understand the economic purpose of governmental regulations. • Assess regulation impacts.


Introduction1

Organisation1.1



Agenda

1.2


Definition of Business Cooperations

A business cooperation is an...

• intensive (at least for medium term),

• usually contractually stipulated (but voluntary),

• bonding with other legally (and economically) independent companies

− which affects single corporate activities

− comprises repeated actions

− achieves microeconomic objectives better than the isolatedcooperation partners would

− and can be terminated


Differentiation: Business cooperationsvs. mergers & acquisitions

Mergers

ResultExplanation

Acquisitions

Merger of companies to onelegal unit (absorption or newfoundation).

One or morecompanies lose their legal entity

Companies remain legally

independent

Equity participation or bargaining of companies, assets or strategicshares to gain control of economic activities.


Boundaries of the firm are no longer clear cutbut become rather blurry

Leads to continuous optimization of organization and institutionalization

Costs for internaltransactions and

coordination

Costs for externaltransactions and

coordination


Boundaries of the firm are no longer clear cutbut become rather blurry

Costs for internaltransactions and

coordination

Costs for externaltransactions and

coordination

The cooperation of companies concerns thedivision of labor and therefore counts as one of the key questions for economists:

Economic question: What institutional solutionis needed under which set of circumstances?

Organisation of microeconomic activities

Coordination of microeconomic activities


Nobel prize 2009 was awarded for the work on the boundaries of the firm

Oliver Williamson was awarded with theNobel prize 2009...

"for his analysis of economic governance, especially theboundaries of thefirm"


Source: Clemons/Reddi/Row (1993): The Impact of Information Technologyon the Organization of Economic Activity: The Move to the Middle Hypothesis, in: Journal of Management Information Systems, Vol. 10, Nr. 2, S. 9-35.

Future development support cooperations

Market-near organisationswill gain importance

Move-to-the-markethypothesis

Transaction risks

Information asymmetries

Reduction of transactionsand partners

Intensive, long-term relations

Move-to-the-middlehypothesis


1950 20001900

Small independent businesses

Large corporate

conglomerates

Decentralized cooperation networks

Source: Thomas Malone: The Future of Work, Boston 2004.

The epoch of cooperations


Significant share of sales already generatedthrough cooperations

Source: Odenthal/Hannes Säubert/Andreas Weishaar (2002), S.271) DACH = Germany (D), Austria (A), Switzerland (CH)

16

710

25

35

7

0

10

20

30

40

50

0 0-10 10-25 25-50 > 50 NA

Share of sales (%)

Share of companies (%)

Worldwide DACH1 region

19

4

8

23

41

5

0

10

20

30

40

50

0 0-10 10-25 25-50 > 50 NA

Share of sales (%)

Share of companies (%)


• Cmpetition, mobility, flexibility• Competition affects relevant market• Pressure to adapt is rising

• New positioning at the market through cooperation• Adaptability

• Time based competition• Short product lifecycles

• Cooperations in R&D reduces time until readiness for market anddistribute risks

• Specialization• High need for cost reduction

• Use of economies of scales and compentences

General conditions promote cooperations (1/2)


• Information and communication technology (ICT)• Transaction cost sinking, increase in knowledge

• Management of cooperations• ICT facilitate cooperations

• Consumer are not committed to specific companies• Search for comprehensive solutions, Individualization

• Cooperations may offer market-ready, individualized solutions

• Public tasks• Reduction of public expenditure quota

• Cooperations between public and economic companies offer new perspectives• New value-added chains

• Regulative affordances• Cost pressure (e.g. Basel II, Solvency II, Unbundling)

• Cooperations offer new basis of valuation• Risk reduction / Compensation of lost synergies

General conditions promote cooperations (2/2)


Economiesof

Scale

Economiesof

Risks

Economiesof

Scope

Economiesof

Skills

General motives for cooperations


Reasoning behind cooperations (rep.)

• Cost advantages

• Time advantages

• Access to markets

• Access to ressources, know-how and technologies

• Distribution of risks

• Takeover protection

Source: Fontanari, M.: Kooperationsgestaltungsprozesse in Theorie und Praxis, Berlin, 1996.

Usually more than one reasonaccountable for cooperations


Share of european SME (%)

0 10 20 30

Access to new and larger markets

Broader supply of products

Access to know-how and technology

Additional production capacity

Reduced costs

Access to labour

Access to capital

Source: ENSR Enterprise Survey 2003. Note: multiple selections were possible

Empirical studies support these motivesSmall and medium-sized enterprises


Ranking of motives differ with company sizeSmall and medium-sized enterprises


Access to capital

Reduced costs

Additional productioncapacity


Small enterprises(10-49 employees)

Access to capital

Access to know-how and technology

Broader supply of products


Micro enterprises(0-9 employees)

Access to capital

Last ranked reason

Access to new and larger markets3rd ranked reason

Access to know-how and technology2nd ranked reason

Reduced costs

1st ranked reason

Medium enterprises(50-249 employees)


Cooperations play major role in every industrySmall and medium-sized enterprises

0 10 20 30 40 50

Manufacturing

Transport/Communication

Business service

Share of european SMEs (%)

Non-formal

Formal

Retail

Construction

Personal service

Wholesale



Cooperations improve competitivenessSmall and medium-sized enterprises

0

20

40

60

80

100

Ø 82

NO ATIS

Share of SME with improved competitvestrength through cooperation

Country

IE ES CH FI LI EL IT SWFRPTDKNLBELUDUK



Lessons learnedChapter 1

• Wide scope of motives accountable forcooperations

• Definition of business cooperation

• Differentiation between cooperation, mergersand acquistions

• Boundaries of the firm no longer clear-cut – keyquestion: What institutional solution is needed?

• Move-to-the-market vs. Move-to-the-middle?

• The epoch of the cooperation

• General conditions promote cooperations

• Empirical research underlines importance of business cooperations

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