Coopetition is Disrupting Ecommerce Order Fulfillment

Coopetition is the act of cooperation between competing companies with partial congruence of interests to gain advantage by cooperation and generating more value by working together.

Amazon makes up most of the US ecommerce sales. However, they rely heavily on 3rd party sellers. These sellers experience major pain related to ecommerce order fulfillment cost and time. It can be a challenge to meet the fast shipping demands of customers with 1-day and 2-day shipping costs nationwide cutting deep into profits.

Fast shipping is now an expectation, but it is expensive for most sellers. Sellers often limit fast shipping to very small items or to local addresses. This limits their Amazon buy box opportunities.

This presentation highlights how Sellers can save time and money on shipping by using strategic coopetition – a concept that has been around for centuries

ANCIENT ROME HAD A LENDING PROBLEM

Rome offers a great example of coopetition strategy. Once upon a time around 3rd Century BC, Roman Empire was immensely extended.

At this time, the 4 most lucrative business activities were: renting buildings, agriculture, lending money and maritime trade. The two last activities were closely linked because in order to engage in a trading business, one needed capital, which meant the need for borrowing money. Transport of goods on land for more than tens of kilometers were not feasible because of high costs and the material conditions to mobilize. Trade (especially maritime trade) had greatly contributed to the development of Rome and its Empire.

During this period of Roman antiquity, the organization of trade was significantly similar to ours, with mostly small businesses. Profession of maritime merchant at this time could be defined as a wholesaler activity. First, they had to purchase goods to sell it afterwards, hence the need to borrow money

But, long distance trade suffered from lack of information until the invention of telegraph. There was uncertainty all along the journey because no information was transmitted until goods’ final delivery. Hence, Landlords didn’t practice long distance trade, they sold their own products to local merchants who exported it afterwards. These merchants operated free markets and were in competition locally because “when several merchants sell the same products in the same area and there is formation of prices, there is competition”

Rich senators and landlords divided their wealth in two activities, on the one hand agriculture and on the other hand individual loans. Lending money was a very profitable activity and maritime loan was the most profitable but riskier. Its reimbursement rate was very low because of a very high level of defection, scams and many malice acts during Republic times. Being a landlord was honorable whereas being a merchant wasn’t. Tradespeople suffered from a very bad reputation. This resulted in a major lending problem at the time.

Around the 3rd century BC, a rich landlord and a senator by the name of Caton, wanted to diversify his investments, and wanted to have more lucrative loans by mitigating his risks. So, he invented a concept of collective loan. To ensure reimbursement of loans, Caton asked his borrowers (the merchants in this case) to form an association. They had to create a society by assembling enough colleagues to gather fifty merchants and fifty ships. He would then loan the money to the group instead of an individual member. Caton allocated loans to a large number of ships, thereby reducing the risks of maritime incidents. He started the activity of collective maritime loan, comparable to modern concept of microcredit. This society worked following a principle of auto-selection and auto-management. Borrowers were therefore linked together and each had a part of responsibility, which established a social pressure on them. So, the merchants cooperated, via this common association. This collective loan had a fixed and high rate. This didn’t only decrease maritime risks, but also the one linked to borrowers’ disloyalty.

These loans allowed merchants to purchase goods, then they repaid it after having sold these goods. Collective loan is the first activity of collaboration between merchants during maritime trade process.

After having purchased their goods, merchants cooperated on another activity: sea freight. Acts of fraud and piracy occurred very often during Roman Republic, and also loss of goods due to weather related hazards. A shipwreck represented a terrible economic loss.

Facing these uncertainties related to navigation conditions and to avoid the complete loss of goods, merchants divided their total quantity of goods on various ships. This divided risks of loss of cargos due to maritime incidents or deliberates acts.

Second, transport of goods by sea were long and expensive. The higher the tonnage was and the cheaper the freight was, which motivated the merchants to fill boats for deliveries by joining forces. It was possible to rent space on a boat of another competing merchant. It did not make financial sense for each merchant to send ships with sub-optimal load to the same destination, hence these competing merchants came together to follow the “common freight for a journey” principle which was win-win for all of them.

With many owners for the same freight, risks were divided; the effect is the same as the one about the association imposed by Caton to his borrowers. It is an act of safety which needs many actors and transactions.

Romans combined cooperative and competitive activities in the trading process:

  1. In the first activity of the value chain, to get collective loan, merchants cooperated via an association asked by the lender (Caton). Cooperation was not only informal but was institutional. Merchants were linked together via the association’s management, which imposed to them a social pressure, diminishing loan default risks.
  1. Once funding is obtained, in the second activity of the value chain, merchants were rivals to purchase goods from suppliers at the best price. Loan obtained collectively allowed them to purchase goods individually, without any form of cooperation.
  1. Into the third activity of the value chain, related to ship freight, merchants cooperated to minimize risks of cargos’ loss due to sea accidents or deliberate acts of piracy. Social pressure stayed strong but wasn’t institutionalized as for collective loan. This was the result of merchants’ deliberate strategy due to strong economies of scale in this activity of the value chain. Transportation costs greatly decreased when cargos’ burden increased, which made collective freight very profitable.
  2. For the last activity of the value chain, once goods arrived at their destination, merchants ended any form of cooperation and sold their goods individually. Rivalry was very strong to sell their goods to the same consumers.
HIGH TIDE LIFTS ALL BOATS

The entire system benefitted:

  • Commerce was a major driver of the Roman Empire and of wealth
  • Maritime commerce one of the most profitable forms of commerce
  • As coopetition increased the maritime merchants position improved, and so did the Empire’s.

 

WHAT IS COOPETITION

Coopetition is the act of cooperation between competing companies with similar interests to gain advantage by cooperation with the goal of generating more value by working together compared to the value created without interaction.

Coopetition is “the dyadic and paradoxical relationship that emerges when two firms cooperate in some activities, such as in a strategic alliance, and at the same time compete with each other in other activities” (Bengtsson and Kock, 2000, p. 412).

Think of it as “firms collaborating in order to increase the size of the business pie, and then compete to divide it up.”

Roman merchants used coopetition since the beginning of the 3rd century BC. Hence, Coopetition is not a modern strategy driven by the double race to globalization and technology, which began at the beginning of the 1980’s. However, many major examples of coopetition are identified from the 1950’s. Driven by public policies in Japan, and in Europe, coopetition is responsible for many industrial successes.

STRATEGIC COOPETITION BENEFITS

Grow Current Markets

In 2004, rivals Sony and Samsung joined forces to build a LCD manufacturing facility in South Korea in order to better compete against LG and Phillips. Partly because of the new factory, the average price for LCD televisions that are 40 inches or larger fell from about $8,000 to $1,500

Gain Resource Efficiency

Formed in 1997, Star Alliance now counts over 27 airlines as partners and serves over 640 million passengers each year. One of the biggest benefits of STAR ALLIANCE is codesharing. Using this arrangement, two or more airlines are able to sell the same flight using the same code. Codesharing reduces the costs associated with operating underbooked flights while it increases the visibility of an airline who is able to boast multiple routes worldwide despite not actually operating them. Increased scale allows partner airlines to gain efficiency and access to complementary assets.

ECOMMERCE ORDER FULFILLMENT PROBLEM

Fast shipping is the expectation, but fast shipping is expensive.

COOPETITION STRATEGY IN ACTION

Changing Dynamics of the Parcel Shipping Industry

  • Explosion in parcel volume due to e-commerce
  • Relationship between the players in the market is changing
  • Coopetition is leading to a “win-win” situation

USPS Core Strengths

  • “Last mile” connectivity
  • Literally touches every doorstep, 153M delivery points
  • Processing and handling capabilities that excel at smaller packages (< 5 lbs.)
  • Low marginal delivery costs

UPS Core Strengths

  • Highly automated distribution hubs that include larger vehicles, rail and airplane
  • Superior routing logistics for large package transport
  • Efficient airport-to-airport delivery
  • Lower per unit upstream cost

Scope

  • UPS picks up a package from the warehouse or distribution center and moves it through the UPS parcel network
  • UPS delivers package to USPS for the “last mile” delivery to a residential address

Coopetition Results

  • UPS and USPS share the revenue
  • Increased market share and revenue
  • Lower cost from optimized distribution efficiency
  • Lower delivery charges for customers
  • Improved customer service
  • Sustainability and lower CO2 emissions
COOPETITION RISKS AND BENEFITS

Whether you are familiar or not with the term, you’ve likely seen examples of coopetition in the news in some form or another. But of course, in these sort of deals, when two large competitors who first and foremost are looking to protect their own interests partner up, conflict happens. In fact, coopetition arrangements between larger competitors are often temporary…

COOPETITION REQUIREMENTS

  • But the best, most successful, most sustainable coopetition arrangements – where you aren’t starting and restarting or terminating permanently – nearly always happen when then participants/stakeholders are looking to achieve something greater then themselves. Something greater than their own individual profits, or their combined benefits.
  • A large external north star provides a guiding light for partners so that they don’t have to spend time, arguing over which priorities are most important. Or spend energy and resources focused on protecting themselves within the partnerships. A big bright, north star keeps them aligned on the same path for the long-term. 

MLS

“And sometimes, competitors come together to change the way an entire industry operates. Back in the 1800’s, U.S. real estate agents began to create multiple listing services.  Essentially, they paid into a listing service that allowed agents to see information regarding potential deals represented by competing agents.  And agents received additional commissions for helping one another out.  The approach allowed even the smallest firms to compete on the same footing as industry behemoths. 

  • Sometimes, come together to change how entire industry operates
  • 1800’s: US RE agents create multiple listing services: “Realtors would meet at the offices of their local association and share with one another information about the properties they were trying to sell.
  • Paid into a listing service that shared deal info of competing agents
  • Shared commissions
  • Fundamental principal: “Help me sell my inventory and I’ll help you sell yours.
  • Smallest firms can compete on same level as industry behemoths. 

Increase probability of long-term coopetition success:

  • information is shared
  • constant communication is present
  • participants feel they can continuously learn
  • information used to collectively adjust to external environment

In fact, MLS’s are still used today, even in the modern information age. Making the market liquid, helping agents earn their keep, and making easier for average citizen to buy into the American dream.

Governance

This case of Roman merchants during Antiquity also shed light on contractual forms of coopetition. Cooperation to get loan is an example of institutionalized coopetition through creation of an association by borrowers, driven by the lender (Caton). We find here an example of coopetition imposed by a third actor, as it could be possible in our contemporary period.

This actor plays a role of initiator and manager of coopetition. Structured management by the third actor appears as a tool and ensures good performance of implemented coopetition strategy.

Size of firms involved in coopetition is another interesting element of discussion. Coopetition in antic maritime trade appears in small business context. This contradicts the commonly shared idea by researchers that coopetition appeared first in big companies, in order to increase their power

  • Another way to play this game. The Roman way. And coopetition works even better when things are set up so that many direct stakeholders benefit along the way.
  • Often times, a collection of small businesses will use this way of coopetition to forward their collective interests in an entire region, market, or industry.

Constant data communication: Knowledge sharing/transfer/creation à competitive information asymmetry

Constant communication facilitates learning, opportunities, and trust

Data: A shared measurement system; Adapt to data

Backbone: Aware potential stakeholder synergies and power dynamics.

Proactive facilitator of stakeholder relationships and resources. Oversight of network performance, environmental risk.

Learning: Each partner believes it can learn from the other. Continuous and dynamic process that adjust to environment and helps participants evolve.

This brings up another point in putting together strategic coopetition arrangements.  An arrangement where information is shared, constant communication is present, and where participants feel they can continuously learn from the experience greatly increases the probable long-term success of a coopetition agreement.  Doubly so when information can be used to help the participants collectively adjust to any threats or changes in the external environment.”

Is Coopetition worth the trouble?

But is this really possible in today’s day and age? Why would two dominate forces look to spend resources to pursue benefits that are achieved beyond themselves?

The Big Reservation

  • And, inevitably, at this point, a few will have a very specific reservation. It’s usually the small business owner.  The man or woman who has owned their business for 2, 5, maybe 20 years, and is worried about supporting their employees and surviving as they compete against companies many times their size.  They’ll say something like…
  • Does coopetition really mean a few large companies orchestrate some way to grow the entire pie, and then have an even larger share of it? How can I be sure I benefit?
  • Or in other words, do these big companies tout cooperation as something everybody benefits from, but really they operate in the same old way of doing business.
Yara Coopetition

We’ll take a broad look at how two very different companies—the Norway-based manufacturer Yara and the retail giant Walmart—have used collective-impact principles to improve their ecosystems for all concerned.

Yara is a global leader in fertilizer manufacturing based in Norway. It faced numerous obstacles in its effort to reach small African farmers from its port of entry in Tanzania. Yara’s Fertilizer had the potential to increase crop yields in the famine-afflicted country. But corruption in the government-controlled port delayed the unloading of shipments for many months. Roads were inadequate for transporting the fertilizer to farms and the produce back to the port; a third of the harvest was typically left to rot for lack of refrigerated transport. Farmers were poor, often illiterate, and unaccustomed to using fertilizer; they also lacked access to credit. A government ban on the export of key crops, meant to protect local consumption, had the unintended consequence of shrinking the market and curbing capital investment.

All this added up to a classic market failure that propagated famine and poverty and also curtailed Yara’s growth. The problem was deeply entrenched: The farmers had little power to influence government policy, and they were suspicious of any changes to their traditional methods. International aid temporarily alleviated hunger but left the underlying issues untouched. No single intervention could prevail; success required that all the interrelated obstacles be addressed at once.

Starting in October 2009, Yara worked to bring together 68 organizations, including multinational companies, civil society groups, international aid agencies, and the Tanzanian government, in a partnership known as the Southern Agricultural Growth Corridor of Tanzania (SAGCOT). The mission was to build a $3.4 billion fully developed agricultural corridor from the Indian Ocean to the country’s western border, covering an area the size of Italy. It involved investing in infrastructure, including the port, a fertilizer terminal, roads, rail, and electricity; fostering better-managed farmer cooperatives; bringing in agro dealers and financial services providers; and supporting agro-processing facilities and transport services. Public sources have provided one-third of SAGCOT’s funding; the rest comes from the participating private enterprises. Although originally envisioned as a 20-year project, the corridor was well established within 3 years and has already bolstered the incomes of hundreds of thousands of farmers. Yara was decisive in launching the effort but did not lead or control it. Nor was the company’s investment—$60 million—a major part of the funding. Yet the project has boosted Yara’s sales in the region by 50% and increased the company’s EBITDA by 42%.

Walmart Coopetition
Societal constraints are not limited to emerging markets, of course.

In 2012, as Walmart was working to reduce its packaging costs by eliminating 20 million tons of greenhouse gas emissions from its supply chain and, it encountered an unexpected roadblock: Its suppliers could not source enough recycled plastic to use in their packaging. It turned out that 45% of the U.S. population lived in cities that were still dumping trash in landfills. Even though recycling would have yielded significant new revenues and savings, cash-strapped municipalities could not afford the up-front investment required for collection and sorting equipment and for campaigns to change consumer behavior. So in April 2013 Walmart, like Yara, convened a cross-sector coalition of NGOs, city managers, recyclers, major consumer brand companies (including direct competitors such as Unilever and P&G), and financing experts from Goldman Sachs. Many of the participants had spent years trying to launch their own recycling programs; by the time they met, all recognized that the problem could be solved only by collectively addressing the challenge of financing municipal curbside recycling.

Together, 10 companies invested in the $100 million Closed Loop Fund, whose purpose is to promote investments in recycling infrastructure across the United States. It is governed by an independent committee of experts in finance, the environment, recycling, supply chain, and municipal management.

To date the fund has financed 10 projects. As the result of one project, every household in Memphis, Tennessee—a city that had no curbside recycling whatsoever—now has access to convenient recycling carts. These 10 projects alone are expected to reduce annual waste to landfill by more than 800,000 tons and cut greenhouse gas emissions by more than 250,000 tons while creating hundreds of jobs.

And the benefits to Walmart are considerable: The increased availability of recycled materials strengthens its supply chain and reduces the cost of packaging. Again like Yara, Walmart neither led nor controlled its cross-sector effort—but it provided the necessary impetus.


A SOLUTION FOR ALL
So at this point, you should have some sense of not only what strategic coopetition means, but when done right, what it can achieve for those who decide to participate.  It’s generally, at this point, when I can get people to understand the true power of coopetition, that people get excited.  They began to think about ways to leverage this approach for the benefit of their own businesses, or problems they know everyone in their industry or neighborhood are facing.

GREED IS GOOD
In the words of Gordon Gekko, “Greed, for lack of a better word, is good.” Greed is a clean drive that “captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.” If the first caveman didn’t greedily want cooked meat and a warm cave, he never would have bothered to figure out how to start a fire.

BUT, GOOD IS BETTER
The problem with greed however is that it’s a zero sum game; somebody wins, somebody loses. Money itself isn’t lost or made as Gekko said; it’s simply transferred.”

The goal of strategic coopetition on the other hand is to increase the size of the pie, such that all the players reap the benefits proportionately.

THE NEW WAY WORKS BEST 

The Power of Many: Coopetition Examples

There’s another way to play this game. The Roman way, if you like. Coopetition works even better when things are set up so that many direct stakeholders benefit along the way. Often times, a collection of small businesses will use this way of coopetition to forward their collective interests in an entire region, market, or industry.

Porto Alegre Beer: For example, in the Porto Alegre region of Brazil, local microbreweries very much did as the Romans.  They worked together to collectively purchase and distribute goods to lower costs and achieve scale in making and delivering their products.  They went one step forward, creating formal and informal associations that worked together to successfully position Porto Alegre beers as premium products.   [5 small firms producing specialty beers located in the Anchieta neighborhood in the city of Porto Alegre, Brazil work together to forward local microbrewery market. Initiatives include purchasing and distribiution. à This all seemed to happen fairly recently, in the 2000’s/2010’s. Led to revitalization of local neighborhood.]

California Dairy: In the United States, dairy farmers across California collectively invested in shared advertising campaigns to further penetrate their collective markets.

Pic Saint Loop Wine: French wineries in the Pic Saint Loup region did same in an even more organized fashion, running creating one organization that successfully position Pic Saint Loup wines as premium brands and grew their collective market in the process. [Informal community to exchange practices and resources. guided by a proactive economic effort: the positioning in a niche for “premium” wines. Decided to found a collective brand in order to follow their individual strategies. Thus, the winemakers of Pic Saint-Loup took part in a global movement to launch a collective brand. The collective brand supports a coopetition strategy based on quality improvement of the products. The relationships between the members, the rules of production and the union were formalized.

BIG CHALLENGES REQUIRE EVOLVED THINKING
In the past, companies rarely perceived themselves as agents of social change. Yet the connection between social progress and business success is increasingly clear. For example: The first large-scale program to diagnose and treat HIV/AIDS in South Africa was introduced by the global mining company Anglo American to protect its workforce and reduce absenteeism. The €76 billion Italian energy company Enel now generates 45% of its power from renewable and carbon-neutral energy sources, preventing 92 million tons of CO2 emissions annually. And MasterCard has brought mobile-banking technology to more than 200 million people in developing countries who previously lacked access to financial services.

If business could stimulate social progress in every region of the globe, poverty, pollution, and disease would decline and corporate profits would rise. In recent years creating shared value—pursuing financial success in a way that also yields societal benefits—has become an imperative for corporations, for two reasons. The legitimacy of business has been sharply called into question, with companies seen as prospering at the expense of the broader community. At the same time, many of the world’s problems, from income inequality to climate change, from childhood obesity to human trafficking, are so far-reaching that solutions require us to combine our expertise and resources and evolve our way of thinking.

But even as corporations pursue shared value strategies, businesses inevitably face barriers at many turns. No company operates in isolation; each exists in an ecosystem where societal conditions may curtail its markets and restrict the productivity of its suppliers and distributors. Government policies present their own limitations, and cultural norms also influence demand.

These conditions are beyond the control of any company. To advance shared value efforts, businesses must foster and participate in multisector coalitions—and for that they need a new framework. Strategic coopetition is one such framework. Companies that embrace such new frameworks will not only advance social progress but also find economic opportunities that their competitors miss.

Learn more about how you can leverage the power of coopetition. Offer 1-day and 2-day shipping at ground rates or less. Drive
down your shipping costs, delight your customers, and scale as big as you want.

Offer 1-day and 2-day shipping at ground rates or less.

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