1.3.2.1. Licenses

A license is an arrangement by which a company (A) gives permission to another company (B) to access a certain technology for a limited period of time which is determined in advance.

“This technology can range from property rights, trademarks, patents, know-how (a non-patented secret technology) to a combination of different forms. In addition, the contract may provide the contract-holder with access to any improvement in the technology covered by the pact, as well as to additional technical assistance (some contracts cover only that element) and to staff training” [HUG 84].

Taking this into account, it is difficult to ascertain whether the license is analogous to the simple purchase or sale of a patent – which would clearly place the operation under the market rules – or whether it refers to a cooperation agreement, not to mention a direct investment. Including licenses under one category or another depends on the following criteria:

• – the way in which the grantor will be remunerated (percentage sales, royalties, percentage of profits, etc.). According to [MIC 88], “if, for example, the license or expertise issuer is totally or partially rewarded by a percentage of the turnover or the net profits of his licensee, then the new investment can be considered as a direct investment. If, on the contrary, the license issuer is not interested in the performance of his licensee and receives a fixed fee, the operation can be considered as a simple commercial transaction”;
• – the nature of the patented technology. By definition, licenses refer to an already existing and efficient technology. In this case, licenses can be considered as pure and specific market transactions. As [MOW 88] pointed out in his characterization of international cooperation, the sale of technology via licenses is excluded from the definition.

However, if the license agreement entitles the beneficiary or license holder to access to all forms of technological improvement [KIL 83], technical assistance or staff training, such agreements could be assimilated to cooperation. On the contrary, cross-licensing is an integral part of the agreements.

1.3.2.2. Mergers/Acquisitions

From a legal point of view, a merger brings under “one and the same legal personality the patrimony of two or more companies” [JAC 89a]. To employ the terms coined by [MOR 76], “equal mergers” occur when companies of relatively equal size disappear in order to constitute a new, distinct entity. “Merger acquisitions” occur when one of the more powerful firms absorbs the others.

As [MAR 83] and [JOR 89] concluded, a merger does not constitute a form of cooperation and must be acknowledged from the agreement’s perspective. Merger acquisitions should not be mistaken with the logic of alliances, even if these categories constitute concentration forms and means for external growth. External growth can be interpreted as a partial or total pooling of resources (material, human, financial) exploited by each party in order to develop an activity. It can manifest in two ways:

• – by the irreversible transfer of assets between partners (in a context of partial contributions, withdrawals or mergers) and
• – through financial investments between companies.

A merger is a particular case in which “collaboration” is total, identities are erased and there is no distinction among projects. In a certain way, mergers are like “marriages”, not cooperation agreements. Many authors mistakenly assimilate mergers with the more traditional forms of cooperation, because some agreements may evolve toward mergers [OBR 89]. On the contrary, “a certain number of contractual relations between companies constitute control modalities in disguise” [DEL 91a]. At present, we are witnessing more and more “partial mergers”, which are often designated as joint ventures (JV) or joint companies. As a result of the collaboration, partner companies can pool resources from different units or divisions.

“A joint venture refers to a partial merger […] where – after leaving an existing industrial or commercial environment, necessary to real or potential competition - the partners effectively and irrevocably renounce every possibility of coming back separately to the previous market conditions” [JAC 89a].

Some authors [COL 92] considered this type of partial merger as the “most complex form of strategic partnership”.

1.3.2.3. Wholly owned subsidiaries and share holdings

Purely financial shares and holding acquisitions (generally associated with takeovers) do not constitute strategic alliances.

By contrast, there is little consensus around the question of minority share holdings. These can be considered indifferently, either as international cooperation or as foreign direct investment (see Chapter 8). Minority share holdings have sometimes been referred to as corporate venturing [COL 92], when a large company takes minority interests in the capital of newly created unlisted companies with significant growth prospects. Through this mechanism, very small and medium-sized enterprises can access precious financial resources. On the contrary, large companies can take part in the development of new financial processes incurring in little risk, while making the most of fresh opportunities for applying new technologies and marketing the fruits of the collaboration.

This is the logic of business ecosystems (see Chapter 6), which connect various players, such as large groups and start-ups.

1.3.2.4. International subcontracting

There is a very delicate boundary between international subcontracting and cooperation agreements because of the existence of many sorts of delocalization practices. It is possible to distinguish between commercial and industrial delocalization, and the latter can also be split into specialist subcontracting and capacity subcontracting. Specialist subcontracting corresponds to a firm that has its goods manufactured by a specialist in possession of special equipment or efficient know-how, because – due to its strategy – the firm cannot or simply does not wish to acquire the necessary means for manufacturing an item. On the contrary, we are dealing with capacity subcontracting when – despite the fact of being in possession of the necessary equipment for producing a product – the contracting firm requires the assistance of another firm, be it occasionally (because of seasonal production overload or a technical incident), or in a more frequent manner (the firm desires to allocate its own productive capabilities to other ends) [QUE 87].

Should international subcontracting be considered an outsourcing or a cooperation form? Outsourcing can be found when a company decides to ask another firm to manufacture its goods. The contracting firm may require manufacturing special items, following precise specifications. In this case, the firm is outsourcing its production. However, this type of relation could also have a different character. The contractor may consider the subcontractor as a “true partner”. In fact, the contractor may provide the subcontractor with a certain level of security by offering a long-term collaboration, not only a one-off intervention (which could be related to the existence of a lower price offered by competing firms in the market). Apart from this relation, cooperation may extend to other areas such as the conception of new goods and other production-related fields, including consultation for the choice of special equipment and quality control [MAR 90]. As we can observe, the partnership brings benefits to both firms and thus engenders “synergy” effects [BAR 82]. Following the classification adopted by [HOU 57], outsourcing can result in a temporary or permanent collaboration between the subcontractor and the hiring firm, with the common goal of achieving the production of a product. Without this synergy, the contractor would probably not have been able to produce the product. According to the author, it is not a question of hierarchical, but of “communal” relations between the prime contractor and the subcontractor. Accurately, the relation should be described as “partnership”, which differs from outsourcing in that:

“it lasts longer and it seeks to achieve a common goal (improving the quality or performances of a product or reducing costs) either in the medium or the long term, in conditions allowing for reciprocity in advantages” [BAN 89].

[COL 92] employed the expression “vertical supply alliance”, a term that helps distinguish between the more classical relation of buyers-vendors and outsourcing. They consider that vertical supply alliances possess a set of singular traits.

“For a start, compared to simple outsourcing, it is common for the buyer to rely closely on the research competencies of the vendor during the initial phase of product development. Secondly, close cooperation is generally necessary so that each partner can maximize sales to final users. Thirdly, these alliances involve long-term commercial collaboration. And lastly, the partnership has a measurable effect on the competitive position of one or both partners” [COL 92].

Now, should outsourcing be considered a vertical or horizontal type of alliance? According to their nature, agreements can be vertical, horizontal or “radial”. In view of this typology, outsourcing has generally been included under the category of vertical agreements [GUI 83]. In fact, outsourcing relations constitute a traditional form of vertical alliances. These are often carried out for reducing transaction costs in relation to market operations (see Chapter 2). There is a vertical relationship if during the exchange, the subcontractor is in a situation of subordination or dependence toward the contractor, which results in “unequal exchange”. Conversely, this relationship is a “horizontal” one if the subcontractor is not subordinated to the contractor (or if one of the firms or both are subordinated to a third party).

Broadly speaking, other cooperation agreements focus more on horizontal relations between (competing) firms in the same sector.

“Real cooperation mostly appears in association with horizontal complementarities, in activities of the same type. It is more like a pooling of resources towards a common goal rather than a traditional division of tasks” [DEL 91a].

As we will see in Chapter 7, we can also associate resources with competencies. In horizontal relations, rivalry between firms predominates and does not completely disappear, not even in a cooperative frame. In fact, the question of opportunism and/or trust arises. This question will be analyzed from different theoretical perspectives in the following chapters.

“Horizontal agreements are concluded between competing firms. Compared to vertical agreements, such alliances are far more difficult to settle and wrap up, and more complex to manage. The solution to opportunism problems (free-rider logics) frequently requires the choice of contractual forms involving financial commitments (exchange hostages) such as joint ventures” [GUG 91].

A third form of cooperation is often identified. “Radial” (or inter-sector) cooperation designates the agreements passed between firms belonging to different sectors of activity and which look forward to a certain complementarity over a specific project. This type of cooperation has also been referred to by the term “diagonal alliance” or “conglomerate merger”. It may also adopt the form of inter-organizational networks.

“Technology development and the appearance of systemic products have recently encouraged the configuration of alliances between firms belonging to different branches […] Firms in the fields of microelectronics, biotechnologies and new materials are enthusiastic about cooperating among themselves, in order to access knowledge which is external to their background” [GUG 91].

1.3.2.5. Cartels

Cartels can also be considered as a form of cooperation because, while still retaining a certain level of autonomy and individuality, the actors (countries or enterprises) agree to collaborate during a certain period of time. In particular, the contents of the agreement may refer to the amount of goods to be produced (as well as how to split the market between partners) and the definition of a specific price policy (see Table 1.1)

The fact that cartels are no longer the privileged form of cooperation chosen by firms to develop partnerships can be explained by a number of reasons. Apart from shaping variables such as quantity and price, cartels have little impact on distribution and R&D. Cartelization is often found in the production of raw materials, energy, chemical or steel products. Nowadays, agreements between companies are particularly important in the sectors of information and communication technologies (ICT or IT), where R&D and innovation predominate.

This digression about the nature and characteristics of cartels leads us to make an important difference – not only from a semantic point of view between alliance (cooperation) and collusion (entente): cartels should be interpreted as collusion between the parts. As [GAR 89] pointed out, compared to the entente:

“The alliance does not focus on splitting the market and defining a price policy –which would bring it closer to a cartel-but is used for sharing assets (in the broad sense: production tools, distribution networks, skills, expertise) between partner firms.”

Collusion is different in that it eliminates competition, whereas cooperation modifies the rules of the competitive game itself.

“Cooperation is not an understanding, which would presuppose relatively stable rules of the game and a restraint of the competition arena (at least in its aggressive form). On the contrary, cooperation seeks stable rules of play in an uncertain universe, but does not exclude competition itself” [ARL 87].

A final observation can be made about the use of the term “collusion”. An alliance can foster collusion and have significant repercussions on the dominant positions of firms [WAV 91]. While it is true that cooperation cannot systematically be compared with collusion, cartels can be assimilated to collusive behavior [JAC 89b]. As [DUS 91] explained:

“according to certain authors, alliances are akin to collusive behavior, in that they eliminate competition between allies and reinforce their collective strength towards the economic environment (other competitors, suppliers, customers, governments, etc.). Thus, alliances enter the category of so called “relational” strategies and constitute an advanced form of entente. [For other authors], alliances should be considered as competitive maneuvers in a new form: rivalry between allies. From this perspective, alliances lead to the weakening of one ally to the detriment to the other.”

Furthermore, “an implicit collusion – which most often occurs in the mimetic behavior of one firm toward the other – does not constitute an agreement” [DEL 91a].

It is nevertheless important to observe that an R&D cooperation program may eventually lead to collusive practices in the areas of production and marketing for the product resulting from the technological development. In fact:

“As a result of the alliance, there is an increased possibility of collusion between co-operating companies who have learned to exchange R&D technological information and collaboration, and may thus be tempted to extend their agreement to prices, markets or production” [NIO 91].

However, empirical analyses tend to show that the risk is limited and that collaboration is not generally followed by collusive practices during the production or the marketing phases.

1.3.3.1. R&D agreements

R&D agreements refer to fundamental research agreements as well as applied research agreements, leading to the improvement of a product, a service, a procedure or an application, which can be marketed in the short or long terms. These agreements may take place in a variety of settings: research foundations, public laboratories, university research centers, enterprises, start-ups, incubators, accelerators and so on. Many of these projects are materialized by patent filing, the creation of special structures (in Chapter 3, see the section dedicated to open innovation), joint ventures (JV) or consortiums and so on.

Two (or more) firms constitute a JV when they engage themselves to create an enterprise. This contractual relation entails the pooling of resources from different partners with the aim of achieving technological, financial or commercial results and seeks to increase and share profits. A joint venture is one of the most ancient forms of cooperation, particularly in industrialized countries and in emerging economies. A JV does not necessarily entail an equal distribution of capital between partners. Rather, these firms reach an agreement on how to distribute the benefits and losses of the new entity.

Consortiums pursue the same goals as JVs, namely technological sharpening of products and services, from the first steps of R&D to the marketing phase. However, these forms of agreement differ in two aspects:

• – on the one hand, while consortium re-unites a large number of firms, JVs are limited to a maximum of two or three partners;
• – on the other hand, consortiums appear as a less restraining type of structure, in which the conditions for obtaining and sharing the benefits of cooperation are not as strict as for JVs.

“Contrary to consortiums, which have certain flexibility, joint ventures make it necessary to decide how to split the profits (or the losses) and how to reinvest for the future. This implies that the management philosophies of both enterprises (or more) which constitute the JV are identical and compatible […]. A joint venture is accompanied by numerous legal contracts and forms capital participation [OHM 85].

“The international consortium is the prime contractor of a production system in which the firms involved come from different national origins. In this sense, the consortium is more than a joint venture, a more stable form; it manages products over the long term and is provided with management autonomy, which is far bigger than that given to joint ventures. Nevertheless, consortium also differs from the multinational enterprise, which may result from the merger of two firms. As a result of the merger, the firms which gave origin to the multinational enterprise remain registered in its organizational chart, but are now a unique entity. This is not the case of consortium, which occupies only a part of the activities of the firms involved, and which can, by the same token, be dissolved by the partners at any moment. The creation strategy of a consortium is conceived for the long term, but is not irreversible; it can be modified or reoriented by the firms” [CLA 91].

With regard to the R&D consortiums, they are in some respects similar to JVs, especially when a consortium brings together two companies. According to [EVA 90], the main difference is that R&D consortiums involve direct competitors, in contrast to JVs (in most cases). This is because the consortium, conducting long-term R&D work, does not always arrive at a certain, definite result. On the contrary, an R&D consortium seems to be a more flexible form than a JV, with smaller sums invested and more partners.

R&D consortiums (a form that emerged at the beginning of the 1980s) as well as R&D JVs are developed considerably in the 1990s, even if their original intention was focused on production/manufacturing activities.

1.3.3.2. Conception/design agreements

Design is a very general and polysemic term that can simultaneously refer to a creative activity and a process related to the design of a product/service/application. In this category of cooperation, we may find the original design manufacturer (or ODM) agreements, which designate the conception of white-label products, which will bear the mark of another company once they are sold.

1.3.3.3. Production agreements

These are the agreements concluded between firms in the perspective of producing a good, a system or a component. Cooperation may assume several forms: joint ventures, consortiums, licenses and so on.

As far as consortiums are concerned, they are a form of cooperation that predominated between 2000 and 2010. It was the most popular form of agreement when it came to defending a standard. Such was the case of the battle between Sony and Toshiba, regarding DVD players, which resulted in the victory of the Blue Ray format in 2007, as defended by SONY and the consortium that the firm represented [DAI 10d]. More recently, in January 2017, in the field of connected cars, Ford, Toyota and PSA have joined forces to create a consortium around the SmartDeviceLink platform/technology (see Box 1.1). Currently, data access/control and smartphone applications are at stake.

In addition to R&D JVs, whose characteristics have been discussed earlier, there are production JVs. The typology suggested by [BUC 88] makes a distinction between two categories of JV, according to the position that each partner plays in relation to the common subsidiary: “symmetrical” JVs and “asymmetrical” JVs. We say that JVs are “symmetrical” when each partner is located either upstream or downstream of the joint subsidiary. JVs are “asymmetrical” when one partner is located upstream of the joint subsidiary and the other is downstream (multi-step JV). This type of configuration is often found in the case of technology transfers between countries.

Another mode of cooperation corresponds to what [THI 87] have called “mutual organization”, where all the members are simultaneously prime contractors and subcontractors, thus constituting a real network:

“Properly speaking, in this type of virtual cooperation, there are no formal agreements between partners. The repetitive nature or relations between a prime contractor and a subcontractor creates strong informal bonds which, in due time, acquire all the features of cooperation” [HTI 90].

As [CLA 91] stressed, mutual organization is not limited to production, but to the final marketing stage of a product, not necessarily having taken part during the production phase. Such was the case of EIG from the Airbus Industry for many years (see Box 1.2)

The “simple” supply operation when a company offers its customers readily available standard products chosen by catalogue does not constitute a form of cooperation. This bond is purely commercial. By contrast, subcontractor and “complex” supply agreements can be considered as cooperation. [BAR 82] defined the special supply as:

“the type of relationship in which an “equipment supplier”, for example, carries out a subset corresponding to the specific need of a car manufacturer, while he retains the industrial property of the object on which he affixed his mark and for which he is entirely liable in case of defect”.

1.3.3.4. Commercialization agreements

Commercialization agreements refer to both agreements concluded in order to extend the distribution network and franchising agreements, better known as OEM (Original Equipment Manufacturer).

Franchising is an agreement whereby the owner of a registered trademark (or trade name) concedes a license to use the trademark in a given activity for the supply of goods and services, under specified conditions.

Under the same category, we may find agreements combining both the productive and marketing dimensions. These are essentially OEM agreements and can involve a wide range of relationships:

“They range from providing standard products that the client company will distribute under its own brand, to the design and manufacture of tailor-made products which meet the specific standards required by the OEM. The balance of power between the partners and the level of cooperation varies greatly from one case to another” [COL 92].

In general, the OEM refers to an agreement by which a company (A) supplies a company (B) with intermediate goods (subsystems, components, etc.), which the latter incorporates into a final product and markets with the name of its own brand. The OEM is considered a cooperation agreement in that a true collaboration may exist between supplier and customer. As [GIQ 86] stressed, “the OEM customer may be invited to participate in market research and prototype product evaluation, while the OEM supplier can provide a kind of ‘pre-sales’ service to the OEM customer, bringing support for the integration of subsystems into systems”.

The author refines his analysis by introducing a distinction between the cost saving oriented OEM (the customer can manufacture a product, but at a higher production cost than the supplier) and the specialist OEM, an agreement the customer appeals to in case it he is unable to manufacture the product. Depending on the context, the customer will be totally dependent on his supplier, or conversely, cooperation between the two protagonists will be possible. Finally, according to [TUR 85], the OEM may be interpreted as either a vertical (marketing) or a horizontal (range-sharing) agreement.