The new China policy of the Biden administration: Coopetition?

The new China policy of the Biden administration: Coopetition?

Coopetition is the new catch phrase in economy and shall become also the new model for foreign policy and especially the Sino-American relations as former Google CEO Eric Schmidt proposed.. So first some definitions of coopetition in the economy to understand what parts of the US free traders want in the Sino-American economic and political relations. What is coopetition?

Coopetition instead of competition

The times of going it alone are over. Clever partnerships will win in the future – also with the competition.

The evolutionary idea of the “survival of the fittest” has not only shaped how we perceive nature, but also how we move in business contexts. Competitive thinking intuitively determines our individual behavior – and the actions of organizations and companies. But the more the network economy takes shape, the clearer it also becomes that this attitude will more likely harm than do good for companies in the future. In the economy, companies see themselves exposed to an environment in which there is a battle for market share and the exploitation of growth potential. In particular, the high price significance for consumers and the increasing price transparency pose a challenge for companies. The sometimes relentless strategy of extended elbows is often expressed in a ruinous price war, as the insolvency of the DIY chain Praktiker and its subsidiary Max Bahr has shown.

 There are definitely other ways. The establishment of strategic alliances, based on the considerations of the mathematician John von Neumann (1903-1957) and the economist Oskar Morgenstern (1902-1977), also known as “coopetition”, opens up a completely different approach to yield optimization.

The cooperation between the car manufacturers VW and Ford shows how it can work: The initial cooperation in vehicle development was followed by separate marketing as VW Sharan and Seat Alhambra on the one hand and as Ford Galaxy on the other. The cooperation between the chemical and pharmaceutical manufacturer Merck and the US biotech company MedImmune also shows that tactful cooperation is an efficient solution, especially in market segments in which the demand for capacities is subject to strong fluctuations. MedImmune may use Merck’s equipment to develop microbial components. In return, Merck has the right to use MedImmunes biotechnology. A win-win situation that is set to last 15 years.

Cooperations can also be extremely useful for realizing patent rights, as the cooperation between the conglomerate General Electric and the innovation company Quirky shows. While GE provides the means to design new products, the Quirky community provides new innovation ideas. A cooperative mindset is increasingly paying off in the network society. The “survival of the fittest” thinking is no longer appropriate in the age of connectivity. On the contrary: When dealing with the competition, a lot of sensitivity is required – for the right balance between competition and cooperation.“

“Coopetition – Better together than alone

For example Volkswagen. The automaker is now working not only with its traditional suppliers, but also with Ford, Amazon and Microsoft – and even with the Google subsidiary Waymo, which specializes in autonomous driving. Suicide for fear of death? Not at all. What would have been unthinkable in the past is now becoming the norm: supposedly bitter opponents join forces and do common cause. But they don’t have to merge completely for this, individual joint projects do too: a classic case of coopetition. This suitcase word from cooperation and competition goes back to the book of the same name by the two economists Barry Nalebuff and Adam Brandenburger from 1996. But in recent years the term has acquired a completely new dynamic and relevance. Because all companies have to react faster and faster due to digitization and information technology – or, to put it in business terms: because production cycles are getting shorter and shorter – new cross-company and cross-sector networks and alliances are constantly emerging.

Most corporations have understood that they will hardly be able to make it all alone in the globalized and digitized world. Those who are clever therefore recognize their inferiority in certain areas – and benefit from the experiences of their competitors in joint projects. At least when the basis for a successful coopetition is in place: mutual trust. This also includes recognizing your own weaknesses. This sovereignty is not given to everyone. That is why coopetition has progressed further in countries like the USA or Japan than in Germany – but if Barry Nalebuff and Adam Brandenburger have their way, reason should ultimately prevail: “It’s about finding ways to enlarge the cake,” wrote she said in her book, „instead of just arguing with competitors for a cake of acceptable size.“

What Is Coopetition?

Coopetition is the act of cooperation between competing companies; businesses that engage in both competition and cooperation are said to be in coopetition. Certain businesses gain an advantage by using a judicious mixture of cooperation with suppliers, customers, and firms producing complementary or related products. Coopetition is a type ofstrategic alliance  that is particularly common between software and hardware firms.

Key Takeaways

  • Coopetition is the act of cooperation between competing companies by forming a strategic alliance designed to help both companies.
  • Coopetition includes a mixture of cooperation with suppliers, customers, and firms producing complementary or related products.
  • Coopetition is common in the technology industry, particularly between software and hardware firms.

Understanding Coopetition

Coopetition is a business ideology taken directly from insights gained from game theory. Coopetition games are statistical models that consider the ways in which synergycan be created by partnering with competitors. The tactic is thought to be a good business practice between two businesses because it can lead to the expansion of the market and the formation of new business relationships. In this capacity, agreements on standards and developing products across an industry or between two competitors is necessary to implement coopetition.

The Coopetition Model

The statistical model determines the benefits of coopetition and also looks at the allocation of market share between competitors to maximize the market share of leading companies. The model is initially drafted using a diamond shape, with customers, suppliers, competitors, and complementors in each corner. The aim of coopetition, and the model itself, is to move the market from a zero-sum-game, where a single winner takes all, to an environment in which the end result benefits the whole and makes everyone more profitable.

The linchpin of the model is understanding the input variables that influence the players within the diamond to compete or cooperate. This understanding leads to knowing which forces will make the players compete and which forces will make them cooperate, and to what capacity. Professors from Harvard and Yale, Adam M. Brandenburger and Barry J. Nalebuf, pioneered the idea of coopetition.

Benefits of Coopetition to Companies  

The most common sector that acts in coopetition is the technology industry. Cooperation between competitors allows for hardware and software synergies. Many startups, especially in the technology industry, are competing in a similar market but have unique advantages. Two competitors may have complementary strengths, and a coopetition agreement can be formed to share in common gains. Coopetition between two tech companies can increase the chance of user growth within each company through cross-channel promotion.

Often in the startup space and the tech industry, two or more competitors are fighting a larger competitor, and tech companies can integrate to form coopetition against a larger foe. Coopetition in the tech industry is prevalent since it’s common for two competitors to become acquired or merge, forming a stronger entity.

Real World Example of Coopetition

On March 17, 2020, Pfizer Inc. (NYSE: PFE) and BioNTech SE (Nasdaq: BNTX) announced a collaboration to jointly develop a COVID-19 vaccine. The vaccine will be available in the United States and Europe according to the press release from Pfizer. The coopetition agreement between the two companies will eventually increase the manufacturing capacity to meet the global supply for the vaccine. 

The companies hope to produce millions of vaccine doses by the end of 2020 and with regulatory approval, hundreds of millions of additional doses in 2021. BioNTech will contribute the vaccine candidates, while Pfizer will contribute the clinical research and development as well as the manufacturing and distribution capabilities of the company. 

BioNTech will receive an upfront payment from Pfizer of $185 million as well as an equity investment of nearly $113 million. However, there’s a potential of $748 million in total future payments if specific milestones are achieved.

Coopetition in the economic field are strategic alliances and synergies in which you compete in some areas, but cooperate in others as this could be a win-win-situation which expands the benefits for both parties  and would  not be a zero-sum game where the winner takes it all. Due to globalization, digitalization, interconnectedness and reduced production cycles this would be the economic model for the future. However, it is not that new, but seems to become much more popular among the companies, especially in the new IT industries and Silicon Valley.  But parts of the US elite from Kissinger, the Council for Foreign Relations, Blackrock, Goldmann Sachs, Chase Manhattan Bank, Morgan, Harvard and the Ivy league as Graham Allison, Albright Consulting,  former CEO of Google Eric Schmidt to Wallstreet business circles want to prevent that the Sino-American engagement is totally canceled by congagement or containment under the Biden administration and want to promote the concept of coopetition instead of Trump´s America First competition, trade wars, partly decoupling and a more containing and mainly protectionist trade policy. Maybe instead of a partly decoupling, a regulated cooeptition divison of companies labor and functions might be a model. But Niall Fergusson comments on these ideas:

“At a forum on post-Covid-19 world order organized by the Kissinger Center for Global Affairs at Johns Hopkins University, a clear majority of speakers warned of the dangers of a new cold war. Eric Schmidt, the former CEO of Google, instead advocated a model of cooperative competition (“coop-etition”) based on “rivalry and partnership”, in which the two nations compete and work together at the same time – just like Samsung and Apple have practiced for years.

Harvard’s Graham Allison, author of the bestselling book, Destined for War: Can America and China Escape Thucydides’s Trap ?, agreed; As a further example he cited the „friendly enmity“ between the Song Emperor of China and the Kingdom of Liao on China’s northern border. The pandemic, Allison said, “has brought to light the impossibility of clearly identifying China as an enemy or a friend. Rivalry and partnership may sound complicated, but life is complicated. „

„Building productive and predictable cooperation between the US and China,“ wrote John Lipsky, formerly a member of the International Monetary Fund, „is an inevitable step in strengthening the institutions of global leadership.“ The last cold war brought „the shadow of a global Holocaust“ into the world for decades, said James Steinberg, a former deputy foreign secretary. „What can we do to create an environment that limits rivalry and creates space for cooperation?“

Elizabeth Economy, my colleague at the Hoover Institution, had an answer: “The United States and China could. . . get together to face a global challenge », namely climate change. Tom Wright of the Brookings Institution took a similar line: „Concentrating on competition between the great powers and neglecting the need for cooperation will not give the US a permanent strategic advantage over China.“

All of this sounds perfectly reasonable, with one exception: The Chinese Communist Party is not Samsung, and certainly not the Kingdom of Liao. Rather, today’s advocates of “rivalry and partnership” – as was the case in the First Cold War, when academics (especially after 1968) tended to be doves rather than hawks – overlook the possibility that the Chinese are not interested in friendly enemies to be. They know very well that this is a Cold war because they started it. „

The time for the old engagement policy is over, but the new debate will be if the US China policy will be more congagement or coopetition. And it will also be interesting how Mike Pompeo, Trump and the different factions of the Republicans and parts of the Democrats will react to the concepts of congagement and coopetition and in which direction they will and can shift Biden´s China policy.. And it will also be the question if you can transfer such economic models into policy, thinking of the Taiwan and South Chinese Sea issue and other areas or think of the disputed trade deficit of the USA with China, which rose continuously even under the 4 years of Trump. Despite Trump’s America First or because of Trump’s America First or would it have been even higher with coopetition or old engagement? So it remains to be seen whether, after engagement, coopetition is not the next ideology that may not be a win-win after all. Especially since the US government should not forget that China’s economy is still heavily regulated and controlled by the state and that equal conditions would have to be created in this area first – be it through deregulation of China or increased regulation of the US economy. Especially since political unity is also an important factor, and this has been lacking considerably in the USA, not just since Trump´s storm on Capitol Hill.

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