Woolworth’s (Safeway) and Caltex Joint Venture Alliance Essay

Why is it important for Woolworth’s Safeway to have strategic alliance (Joint Venture) with Caltex?

The main factors that conditions the importance of the strategic alliance between Woolworth’s (Safeway) and Caltex is the need, stressed by scholars like Dyer et al. (2001) and Kale et al. (2000), to be able to compete with the other market players under the conditions of growing competition and the necessity to reduce costs and prices to remain competitive (Dyer et al. 2001, p. 38; Kale et al., 2000, p. 220). In other words, the main point that made it vital for Woolworth’s (Safeway) and Caltex to have the strategic alliance is their desire to catch up with the market and not to stay behind such competitors as Coles and Shell Australia. Further on, the alliance between Woolworth’s (Safeway) and Caltex can be called a horizontal one as it united two potential competitors in the fuel and retail consumer goods trade in Australia.

According to Koka and Prescott (2002), there are horizontal and vertical strategic alliances. The former are made up by the potential competitors that are on the same stage of the supply chain, while the latter are the unities of manufacturers and suppliers in which the parties have unequal rights and benefit distribution (pp. 797 – 798). Drawing from this, the strategic alliance between Woolworth’s (Safeway) and Caltex is a horizontal one as both companies enjoy 50% of participation and subsequent benefits from the sales. Such a horizontal alliance is beneficial for both companies, as Woolworth’s (Safeway) and Caltex obtain additional promotion through the stores and fuel stations of each other, and can enhance each other sales through discount programs connecting the customers’ purchases in Woolworth’s (Safeway) stores with petrol discounts and vice versa.

Why is Cooperative strategy important to Woolworths when competing in the 21st century competitive landscape?

The importance of the cooperative strategy in the 21^st century competitive landscape cannot be doubted. Generally defined by Johnson (2009) as “a strategy in which firms work together to achieve a shared objective”, cooperative strategy allows the companies adopting it to unite their effort, funds, and resources, both material and human, for being more competitive in the permanently changing and rather liberalized international market (Lin, 2008, p. 766; Naughton, 2006, p. 170). According to Phoocharoon et al. (2001), “cooperative strategies are based on two crucial strategic variable choices of the competitive strategy and the use of various cooperative arrangements” (p. 7). Drawing from this, a cooperative strategy is the set of techniques the companies plan to use to remain competitive combined with the number of tools that would facilitate their joint work.

Naturally, Woolworth’s (Safeway), as one of the leaders in the Australian retail trade market, can considerably benefit from the use of the cooperative strategy in the 21^st century (Woolworth’s, 2009). In the era of globalization and elimination of boundaries between countries and their markets, the cooperative strategy is the tool that allows Woolworth’s (Safeway) to still remain competitive and influential in the Australian market (Naughton, 2006, p. 170). While its major competitors choose to either outsource their production facilities or to reduce production costs, and respectively prices, in some other ways, Woolworth’s (Safeway) obtains the perfect promotional and developmental opportunity from using the cooperative strategy forming the strategic alliance with Caltex (Caltex, 2009; Woolworth’s, 2009). By this, Woolworth’s (Safeway) widens its promotional and sales scopes and can hope to remain competitive using the joint resources of its strategic alliance with Caltex (Woolworth’s, 2009).

Did Woolworth implement a competition response strategy? (In Australia, Coles and Shell were forced into an alliance involving petrol vouchers by the prior Woolworths and Caltex move into petrol offers).

As scholars like Dyer et al. (2001), Kale et al. (2000), Gans (2007), and Johnson (2009) argue, there are four major types of cooperative strategies. They include the forming of the vertical and horizontal strategic alliances, the use of uncertainty reducing, competition reducing and competition response strategies. The latter strategy is the most widely used technique by the business companies in the situations when their major competitors implement certain competitive activities that attack these companies or threaten their market interests (Dyer et al. 2001, p. 41; Kale et al., 2000, p. 230). Interestingly, strategic alliances are viewed by Naughton (2006) and Phoocharoon et al. (2001) as the tools the companies implement while using the competition response strategies (Naughton, 2006, p. 181; Phoocharoon et al., 2001, p. 18).

Thus, in relation the strategic alliance between Woolworth’s (Safeway) and Caltex, this alliance cannot be classified as the competition response strategy used by both companies to catch up with the fast developmental pace of their major competitors in the market of Australia, as far as Coles and Shell Australia were the companies that had to form an alliance forced by the strategic Woolworth’s (Safeway) and Caltex move. In this case, the strategy used by Woolworth’s (Safeway) can be classified in no other way but as the competition reducing strategy as it was aimed at obtaining the advantaged market position as compared to Coles and Shell Australia. Being one of the cooperative strategies, the competition reducing strategy has the attack of the competitors, but not the mutually beneficial cooperation, as its main goal. At the same, Coles and Shell Australia implemented the competition response strategy after the Woolworth’s (Safeway) forming an alliance with Caltex.

What risks are Woolworths likely to experience as the company uses cooperative strategies (in relation to their Joint Venture with Caltex)?

Needless to say, apart from all the positive influences of the cooperative strategy use upon the business development, this strategy displays a number of limitations that might lead to the companies involved in the cooperative strategy and a strategic alliance taking risks while cooperating with each other. As Koka and Prescott (2002) argue, there are four major areas of risks for the companies adopting the cooperative strategies. These areas can be listed as follows:

1. Opportunistic behavioral patterns of one of the parties to the strategic alliance reflected in the different understanding of the contract provisions and use of the benefits of the alliance;
2. Misperception of the potential contributions and overall usefulness of one of the partners to the strategic alliance that might often result in one party acting for the alliance’s benefit, while another one only enjoying the work’s results;
3. Failure to actually participate in the alliance by the company’s funds and resources;
4. Inequality of investments and resource contributions of the parties to the alliance (Koka and Prescott, 2002, pp. 799 – 800).

Basically, these are the risks that Woolworth’s (Safeway) is likely to experience as the result of its use of the cooperative strategy and forming the strategic alliance with Caltex (Dyer et al. 2001, pp. 42 – 43). To deal with those risks, Woolworth’s (Safeway) needs to either develop firm partnership relations with Caltex or provide the regulation of those risks in the alliance contract, according to which any party failing to fulfill its contractual functions should be held liable for the losses of the alliance and the associated losses of another party to this contract.

Reference List

Caltex 2009, What Drives You, Official Web Site. Web.

Dyer, J et al. 2001, ‘How To Make Strategic Alliances Work’, MIT Sloan management review, vol. 42, no. 4, pp. 37-43.

Gans, J 2007, ‘ Submission to ACCC Petrol Pricing Inquiry: Assessing the Impact of ‘Shopper Docket’ Schemes’, CoRE Research Pty Ltd, pp. 1 – 18.

Johnson, R 2009, Cooperative Strategies, Faculty Staff. Web.

Kale, P et al. 2000, ‘Learning and Protection of Proprietary Assets in Strategic Alliances: Building Relational Capital’, Strategic Management Journal, vol. 21, no. 2, pp. 217 – 237.

Koka, B and Prescott, R 2002, ‘Strategic Alliances as Social Capital: A Multidimensional View’, Strategic Management Journal, vol. 23, no. 9, pp. 795-816.

Lin, C 2008. ‘A cooperative strategy for a vehicle routing problem with pickup and delivery time windows’, Computers and Industrial Engineering, vol. 55, no. 4, pp. 766 – 782.

Naughton, D 2006, ‘Cooperative Strategy Training and Oral Interaction: Enhancing Small Group Communication in the Language Classroom’, Modern Language Journal, vol. 90, no. 2, pp. 169 – 184.

Phoocharoon, P et al. 2001, ‘Cooperative Strategy to Strategic Competitiveness through International Joint Ventures between ASEAN and EU Companies’, CAS Discussion paper, no. 33, pp. 1 – 23.

Woolworth’s 2009, The Fresh Food People, Official Web Site. Web.