Keep your friends close, and enemies closer.- Sun Tzu, Art of War
The term “Frenemy” refers to someone who doubles up both as a friend as well as a rival – it can refer to an individual, a corporate or even a nation with respect to geopolitics. While it is quite normal to find frenemies at workplace, increasingly this relationship is beginning to take centre stage even while formulating corporate strtaegy. In short, the days of pure rivalry and friendship are over!
Take for instance, the case of Apple and Samsung. Almost half of the components in any Apple product are manufactured by Samsung, yet it is Samsung itself which poses the biggest threat towards the numero uno status of Apple in the smart phone and tablet market. Though Apple has signed a deal with Taiwan Semiconductor Manufacturing Co. (TSMC) this year to manufacture the chips that goes into the iPhones and iPads, Samsung is likely to remain a major supplier to Apple at least till 2015. So whom did the Apple-Samsung relationship benefit? Was it a win-win or a win-lose relation? Would Apple have been able to succeed without the reliability of the Samsung chips? Or would Samsung have been able to produce state of the art products without the technology transfer from Apple? These are questions every strategist should ponder about.
Let us now consider the case of CNPC and ONGC, the two state owned giant oil companies of China and India. While the two companies share a JV for oil exploration in Africa, they share a love-hate relationship when it comes to other parts of the world, especially in South China sea. China vehemently opposes Indian oil explorations by ONGC in South China sea, ironically the Chinese media at the same point of time praises it as one of the better managed Indian firms. How should we categorise this form of relationship? Is it not similar to strategy like “compete where you can”? Recently, Indian telecom rivals Reliance Jio and Bharti Group signed a deal to share infrastructure to cut down cost. Result- the same assets for which they have collaborated will be used to compete with each other.
This brings us to a question of when does this transformation in relationship actually occur from rivalry to "frenemy"? By this I imply, when should a company look to collaborate with a rival or compete with an ally?
In this regard I propose a Quadrant theory to analyse the same. We can consider two major factors that helps in taking this decision:
-Cost of competition ( Benefits of Rivalry)
Cost of competition would involve the costs incurred like price wars, higher advertising budgets. If we consider the benefits, it can involve assuming a dominant position in the market and having a key differentiated product.
-Cost of collaboration ( Benefits of co-operation)
Cost of collaboration would involve activities like technology transfer and reduction in potential market share. Benefits would involve greater chances of survival in a fiercely competitive market and lower miscellaneous and fixed expenses.
Essentially Frenemies will reflect two kinds of behaviour either Pure or Mixed. In case of Pure Frenemy, the partners in the relation will be bitter rivals while at the same point of time it will not impact their areas of cooperation. Examples in this regard will involve the classic case of Apple-Microsoft or Samsung-Apple or CNPC-ONGC. For instance, CNPC and ONGC will compete in Asia while collaborate in Africa as mentioned before. (Quadrant1 in the above diagram)
Reliance Jio -Bharti however will be in the Mixed frenemy category. This is largely because they are competing in a price sensitive market and keeping fixed costs low makes them both competitive, so there is a high probability that depending on how this partnership works out, they might look for greater areas of cooperation. (Quadrant 2)
In case of Quadrant 3, both players in such a scenario will essentially act neither as rivals nor allies but will behave like stand-alone players in a monopoly. For instance, a price change in the product of player 1 will not generate any reaction from player 2. In case of quadrant 4, the players will essentially work as pure rivals in the market as they will find little reason to collaborate. For example, Microsoft and Google with respect to search engine.
However, another major area that players in a market should consider before acting as a frenemy is the impact on their competency. The impact supplying for Apple has had on building brand “Samsung” is for everyone to see. So essentially, rather than considering the short term impact on profitability, companies should look at the long term impact before considering cooperating with their rivals. There is little doubt though, that "Frenemies" are here to stay.
Food for thought: Do you feel Apple and Microsoft can someday work together in order to counter Google ?[/sociallocker]