Most of the jargon of business strategy is derived from warfare. Campaigns, guerrilla attacks, capturing markets, and so forth make us think in terms of killing off the opposition, seizing their territory, and establishing a new regime with ourselves as leaders. There's no reason why business should be a battleground, however. It's perfectly possible to cooperate rather than compete - provided you remain within the law.
Cooperation with non-competitors has been a common marketing ploy for numerous years: takeaway food outlets cooperating with video rental stores, for example, and tourist attractions cooperating with nearby hoteliers are obvious partners. Increasingly, though, there's a trend for competitors in the same industry to look for joint projects as a way of cutting improvement expenses - car producers cooperating on design (the Ford Galaxy, VW Sharan, and Seat Alhambra are essentially exactly the same car). This concept can be extended considerably, however.
When Communism ended in most of Eastern Europe in 1989, Western manufacturers soon realized that there could be a relaxation of trade restrictions in between East and West, and the West would be flooded with shoddy, but extremely cheap, Eastern European products. Skoda was already establishing itself in the West, and was really producing some half-decent vehicles (even if the designs had been somewhat old-fashioned).
Their reputation for clunky reliability produced them a threat, but rather than compete head-on with them, and perhaps risking entering a price war if Skoda engineers could recapture their former days of glory, VW decided to cooperate. Investment by VW in Skoda was not just financial. VW took over Skoda in 1991 and redesigned the plant, re-educated the engineers, and cooperated with them in developing new vehicles.
Unlike numerous West German businesses, who simply purchased out Eastern competitors and closed them down, VW went the cooperative route, allowing Skoda to build its personal brand and ultimately to take over all aspects of automobile marketing, from style through to showrooms.
Most other Eastern European automobile producers have sunk with out trace, while Skoda has been in a position to take advantage of Eastern Europe's low overheads and salaries and VW's technical assistance to flatten the opposition.
Skoda operates independently of VW, but is a indicates of increasing VW's consumer base and shutting out possible competitors from low-cost countries. As an investment, that has to be better than competing.
The cooperation must have benefits for both parties - make certain you're bringing something to the party. It should not attract the attention of monopolies regulators - you can't collude to carve up markets! Competitive synergies need to be apparent so that you do not merely cannibalize each other's existing markets. You should be cooperating in order to compete better against other firms. You do not need to purchase out the competitor. You can often cooperate effectively in other ways.
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