Frenemies can help generate technological breakthroughs

A WHU study provides new insights into when collaboration with competitors can lead to the creation of breakthrough inventions. Generating technological breakthroughs is an expensive and risky endeavor.

Companies therefore increasingly collaborate with competitors in order to jointly share the costs and risks of research and development activities. In 2018, for instance, BMW, Daimler, Ford, and Volkswagen engaged in the Autostack Industry project to stimulate the technological development of fuel cells in the automotive industry. At the same time, such 'coopetition' can trigger huge competitive risks for the involved companies. In the eighties, for example, Japanese automotive firms managed to use their partnerships with US automotive manufacturers to get in-depth knowledge about the US market. Subsequently, these Japanese firms have used this knowledge to outcompete their US partners in their own market.

When can firms benefit from engaging in collaboration with competitors to generate technological breakthroughs? This research question was addressed by Prof. Dr. Dries Faems, who currently holds the Chair Entrepreneurship, Innovation and Technological Transformation at the WHU - Otto Beisheim School of Management. Together with Yan Yan (Renmin University of China) and John Dong (University of Groningen), he examined the coopetition activities of 323 firms in the global solar photovoltaic industry between 1995 and 2015. The results of this study are forthcoming in a publication in the international journal Long Range Planning.

The results indicate that, to generate technological breakthroughs, partners need to speak the same technological language. In other words, there should be some overlap in their technological activities to make sure that engineers of the different partners can understand each other. However, the results also demonstrate that if the technological knowledge of the partners becomes too similar, the added value of collaboration with competitors becomes limited.

At the same time, the study shows that it is important to work with competitors that are not active in the same market segments. When firms are directly competing with each other in particular market segments, competitive pressures are too high, making it impossible to engage in a productive collaboration where partners can learn from each other. When competitors are not active in the same market segments, competitive pressures are less outspoken, making it easier for companies to use knowledge from their partners to generate breakthrough inventions. Based on the results, the authors of the study emphasize the importance of careful partner selection when engaging in collaborative projects with competitors. Both technological and market overlap with potential competitors should be carefully examined to avoid that a partnership ends up in a competitive bloodbath.