The changing nature of 'coopetition'

January 27, 2021 | By Gautam Aggarwal

This article was originally published on The Financial Times.

In 1989, the Harvard Business Review ran an article entitled: “Collaborate with your Competitors—and Win.” The piece argued that so-called “coopetition” is a low-cost and efficient route for collaborators to gain technology and market access, and enables new research and development opportunities. It can also be done without losing too much IP or competitive ground to one’s fellow partners. 

More than thirty years later, coopetition and its benefits remain relevant, but the how and why companies – particularly technology companies – should pursue this strategy is evolving with the times. 

The primary change is in the end goal: successful coopetition in today’s digital economy is as much about opening new market opportunities, if not more, than building and protecting one’s IP. 

This makes the strongest coopetitive relationships ones in which participating organizations agree on both shared values and objectives, and are far more collaborative and integrated than in decades prior. Successful coopetition also brings overriding benefits to the industry, communities and consumer at large, and serves their best interest. With increased scrutiny on anti-trust or anti-competition practices, all coopetition should comply with relevant laws and regulations, which differ from country to country and are constantly evolving.

How technology has changed why coopetition matters

Three decades ago, owning and improving one’s intellectual property in the technology space was key to staying competitive as IP formed protective walls around business models. They needed to be upheld on every front, and many coopetition strategies fed that effort. 

In today’s technology world, building proprietary IP through innovation and coopetition is still important but knowledge sharing and interconnecting systems with competitors is an equally, if not more, powerful use of this strategy. 

This evolution has been catalysed by the global democratization of technology, which has reduced the previously expensive barriers to innovation. In the payments industry, for example, new fintechs and platform players in Asia such as Alibaba and WeChat have entered and given new shape to the global industry. They’ve done so by creating new and compelling combinations of payments and consumer experiences. However, to globalize their success, they need to look outward to partnerships with traditional players in this space.

Competition alone is not changing the nature of coopetition though. As new tech innovations proliferate, rising nationalistic sentiments are simultaneously dampening the globalization of many digital products and solutions. 

In Asia in particular, governments are grappling with the twin tensions of rapidly digitizing and globalizing economies and the desire to have proprietary national digital infrastructures. This is resulting in a variety of data localization laws, such as those in Indonesia, India and China, that specify certain information gathered from local consumers must remain in data centers within the countries’ borders. 

These two trends – rising competition and rising nationalism – have given birth to digital islands across the region that are protected by closed-loop technology ecosystems and geographic boundaries. They limit the sharing of data outside their company – and country – and, in doing so, curtail their ability to grow beyond their borders.

While the forces creating this environment may have reasonable rationales, the reality is that digital islands are only going to be as successful as Amazon would be if it sold just its own products, or Netflix would be if it decided to stream only its own movies. 

The players that know this – such as WeChat and AliPay in the payments space – are the ones changing the nature of coopetition. The reasons they need to coopete are not to necessarily develop new technology (although that may be part of a collaboration), but to be able to connect their digital islands to others to expand and grow. 

Likewise, established global companies such as Mastercard, are open to coopeting with certain competitors in order to deliver greater value and benefits from digital payments, particularly in countries where a high percentage of the population is underserved or financially excluded. These relationships can unlock new markets previously underserved by payments technology and, in doing so, bring benefits to more consumers at a faster rate. 

Coopetition with these aims can also result in greater interoperability between systems that further benefit consumers and communities, while not preventing partnering companies from maintaining their relevant direct relationship with their customers. Organizations can, and should, still maintain consumer loyalty by offering strong benefits and rewards, as this ensures healthy competition remains between market players at the consumer level.

How to successfully embrace coopetition in today’s digital world

Forming a successful coopetitive relationship in today’s digital world starts with acknowledging that no one tech company (or country) can do it all in their markets. 

Instead, companies best coopete when they sharpen their respective use-case positioning. There should be platform players that provide foundational pieces of infrastructure – social media networks, payments platforms, cybersecurity protections – with such services offered on an arm's-length basis. There should also be those that leverage this infrastructure to enter new markets, create new consumer experiences, or improve on key pieces of technology. Together, these players can and may compete and overlap in some areas (including competing with the platform players) but, in this environment, there will be comparatively more opportunities for coopetition that will ultimately result in better choices for the consumers. 

Governments also have a crucial role in ensuring coopetition thrives and benefits their countries. As nation builders, regulators and infrastructure developers, their digital agendas are critical for setting the course and objectives of commercial collaborations – including ensuring that all their citizens are digitally and financially included in their economies. This role cannot be understated and those playing it would be better-served by focusing on these areas rather than trying to become industry competitors. 

Together, public and private players should embrace four key guiding precepts for all coopetitive relationships to be successful: 

1. Coopete to grow: Use coopetition to foster innovation, fair competition, knowledge-sharing and technology growth that benefits the end user. Avoid using it as a strategy to build walls around one’s company or industry.

2. Put cybersecurity and data privacy first: For innovation to advance, consumers need to trust every player. One act of corporate self-interest at the expense of the end user can undo dozens of responsible actions. Coopetitive partners should agree to follow the highest standards needed to ensure their customers’ trust is maintained.

3. Embrace data decency as an ethical code: Within the shared standards, coopetition partners should drill down to their cultural attitudes and values around the sharing of data lawfully. It is in data exchange that trust and economic value are built between stakeholders; it’s also where much can be lost if not done well. As a result, the best relationships embrace a shared ethic of data decency – one in which data is only ever used to improve the end user’s experience, is well-protected and never puts anyone at risk in any way.

4. Expand each other’s strengths: Coopetitive relationships should strengthen the digital chain that connects technology solutions to consumer and B2B challenges. They should enable each player to bring its best to the table, leverage individual collaborator’s strengths, and partner together across weaknesses – all while working together openly and fairly for consumer’s business. 

For those that embrace coopetition by these guiding principles, they will enjoy new innovations and market opportunities. Governments and companies will sharpen their strengths and improve their market position. Digital islands will be interconnected, and every technology player will have the chance to expand the reach of its solutions across the world. 

Photo of Gautam Aggarwal
Gautam Aggarwal, Chief Technology Officer, Mastercard Asia Pacific, Mastercard