Co-opetition Without Borders

The concept of “co-opetition” — particularly collaboration with rivals involving jointly developing technologies — is inherently paradoxical. After all, as one 2007 working paper states, “Why would anyone voluntarily share with a competitor the very knowledge that could be the basis for future competitive advantage?” That paradox becomes even more acute when considering co-opetition with rivals from overseas, in which barriers of culture, trust and legal scriptures enhance the risks associated with sharing intellectual property rights.

The way forward, say the paper’s authors, could be to adapt the methods used to protect proprietary knowledge. International teams, for example, have different knowledge-sharing requirements than domestic collaborations. “Firms dealing with international co-opetition partners rely on formal methods like patents,” say the authors, in contrast to informal methods like secrecy and long lead times.

Anja Schmiele and Wolfgang Sofka, research fellows in the Department of Industrial Economics and International Management at the Centre for European Economic Research, known as ZEW, in Mannheim, Germany, use German government-funded data from the Mannheim Innovation Panel, a survey conducted by ZEW. From the responses on innovation activity in 2002–2004, the authors were able to study 956 German manufacturing companies and their innovation activities.

Although proprietary knowledge could be given away, the practice of co-opetition continues to hold sway as companies realize that development costs and risks can be shared, even with rivals. In the sample, 74 companies were cooperating with domestic rivals, 47 with foreign companies and 19 companies were bold enough to engage in co-opetition domestically and abroad.

In Internationalizing R&D Co-Opetition: Dress for the Dance With the Devil, Schmiele and Sofka explain how companies engage in co-opetition across borders. “While informal appropriability mechanisms may be sufficient in the home environment, they move toward formal ones (patents) in an international context,” the authors write. “Apparently this provides them with the means to make the relevant knowledge visible, traceable and defendable.”

The international context adds uncertainty to the co-opetition process. So legal forms of IPR protections, such as patents, copyrights and trademarks, help make the terms of the cooperation more explicit and discrete. Indeed, Schmiele points out, “firms will tend to rely on formal forms of IPR [protections] when they cooperate since secrecy is not the most suitable strategy when working together. In addition [formal methods] are defendable in court and signal the knowledge that is possessed by a company.”

In the domestic context, co-opetition can use informal techniques, such as keeping secrets or making designs more complex, because more trust exists in the competitive partnership. Thus, domestic co-opetition is built on personal relationships.

The authors buttress this point by examining the characteristics that make companies more likely to engage in co-opetition. What they found is that smarter work forces, as indicated by the share of employees who have completed higher education, seem to enable more co-opetition. Interestingly, however, that effect is stronger for co-opetition with domestic rivals than with international competitors. “This result is especially surprising as one would assume that educated employees possess superior language skills,” the paper says, which would presumably assist with establishing business relationships overseas.

The authors speculate that this could be because personal relationships, like those developed during university and graduate-level studies, are important for establishing the informal methods of knowledge protection used for domestic co-opetition. “Personal networks are stronger within the country,” explains Schmiele, which makes “teaming up with domestic competitors more likely than with international competitors, because you probably get in touch with the employees from a local competitor more often and therefore get to know them better than with those from the international competitor.”

To bridge borders in the name of co-opetition, it also helps to have experience with collaborations overseas: Companies that collaborated with foreign suppliers and customers were more likely to similarly collaborate with foreign rivals. That familiarity with the process facilitates many kinds of cooperation, Schmiele believes, not limited to joint research and development. Collaborating on industry standards or joint lobbying efforts, for example, are both forms of co-opetition that don’t involve technology development.

However, there was no link between export intensity and international co-opetition, so just doing business over borders doesn’t give the company a boost with foreign co-opetition. The authors intend to broaden the study to cover more European countries to see whether results would be similar in nations that have smaller manufacturing bases or lower export intensities than Germany.

For more information, download the paper at ftp://ftp.zew.de/pub/zew-docs/dp/dp07045.pdf, or contact Anja Schmiele at schmiele@zew.de.