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Collaboration vs. competition: What happens when the giants team up?

June 2, 2020

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Collaboration vs. competition: What happens when the giants team up?

Three hundred years ago, Adam Smith emphasised the importance of competition arguing that the “invisible hand”- the natural driving forces of an economy such as competition, should be left to control the market.

Three hundred years ago, Adam Smith emphasised the importance of competition arguing that the “invisible hand”- the natural driving forces of an economy such as competition, should be left to control the market.

This is a concept that has become so ingrained in society today to almost be equivalent to capitalism. When buying products and services we usually choose in a split second between companies that have spent a lot of money on their brands. Do we get a Coke or Pepsi? Do we use Android or Apple? But what happens when companies, particularly big companies such as Google and Apple collaborate rather than compete? 

In many ways Apple and Google are direct competitors. With their own operating systems, Cloud products and hardware each trying to be the go-to product in the market.  But during the pandemic they’ve combined their powers to create contact tracing apps for governments to track COVID-19 cases. 

It’s not the first time Apple has collaborated with a direct competitor. While Samsung’s Galaxy competes fiercely with Apple’s iPhone, Samsung actually supplies Apple’s screens. There are a number of other examples of direct competitors embracing collaboration for the mutual benefits. 

One of the earliest and most famous collaborations between competitors is that of Microsoft and Intel with the now defunct Wintel. The collaboration helped them bring software and hardware to almost every household in the world. 

Amazon Marketplace is a collaboration between Amazon and third party retailers. It offers a win-win situation for both parties. Amazon gets a cut from the third-party Marketplace sales and the sellers get access to a huge customer base on a household-name platform. Third-party sales now account for 58% of Amazon’s gross sales.

Direct competitors YouTube and Vimeo also have a symbiotic relationship. Vimeo allows users to cross publish their videos to YouTube as well as other platforms. According to Vimeo CEO Anjali Sud, this has been a gamechanger for their strategy. 

“It’s one of the biggest value-adds in our product, and it all came from flipping the script in terms of how you think about whether someone is a competitor or a partner, and prioritizing the problem you want to solve,” said Sud.

Although working with competitors might once have been the last thing on a company’s agenda, according to Yale School of Management professor Barry Nalebuff and NYU Stern School of Business professor Adam M. Brandenburger, it’s been a growing trend across many industries since the 1990s. It’s now becoming more widely accepted.

Interbusiness collaboration is not a new concept, but teaming up with a direct competitor is a daunting prospect. But what if the benefits outweigh the risks? According to a study put out by the Multidisciplinary Digital Publishing Institute, this kind of collaboration has a 50% or more chance of reducing costs for both companies, provided it lasts between 3 to 5 years. 

Competitive collaboration can also improve productivity, quality of work and workplace morale. In a collaborative environment, people hand over the fiddly tasks to a competitor who does them better. This way, businesses can focus on what they do best rather than waste time and resources on trying to reinvent the wheel.

In the long-term, collaboration improves employee satisfaction which leads to customer satisfaction, which, if companies play their cards right, leads to more than satisfactory profits. On the other hand, when people work in an environment of extreme competition, they operate under continued stress. With tight deadlines and pressure, costly mistakes happen. 

“Nowadays, the best partner might be your direct competitor,” said Paavo Ritala, a professor of Strategy and Innovation at LUT University of Technology in Finland.

 

“Competitors tend to face similar markets and use similar resources and technologies. They typically have to deal with similar challenges at large. Thus, with rising costs of R&D and globalizing competition, it often makes sense to collaborate with competitors on product development, innovation and joint manufacturing.” 

Could collaboration become the norm rather than the exception? The answer is complicated. It depends on what companies are trying to achieve. 

Adrian Slywotzk, a partner at the consulting firm Oliver Wyman, says businesses don’t want to collaborate with a competitor in the things that make them unique. However, when two companies are trying to achieve the same thing, he says sharing resources between competitors can be a good move.

 

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