TYPES AND FORMS OF COOPERATION

Cooperation can be of different types and take different forms. These will depend on the business context and on the demands that are put upon a business at any given time (European Commission 2003).

In the literature, and similar to cooperation conceptualisation, there is also some overlap between the terms used when discussing types and forms of cooperation (Inkpen 2000; Long 2000; Elmuti and Kathawala 2001, Soosay et al. 2008).

However, and although it seems that the terms ‘type and form’ are sometimes used interchangeably, several authors have contributed to their distinction by identifying specific criteria (e.g. Barringer and Harrison 2000; Ul-Haq and Morrison; Fyall and Garrod 2005). The typology and forms of cooperation are distinguished and discussed in the next two sub-sections.

2.3.1. Type of cooperation

The typology of cooperation is generally associated to the direction of the relationship (Fyall and Garrod 2005; Pivcevic 2009). Cooperation can be vertical (Mitchel et al. 2010), horizontal (Oum et al. 2004; Koçak and Edwards 2005) or diagonal (Fyall and Garrod 2005; Novelli et al. 2006). Although this research focuses on horizontal and diagonal cooperation, an explanation of vertical is also provided below.

Vertical cooperation occurs between businesses that are not competing with each other (Xu et al. 2005; Nieto and Santamaria 2007) because they operate at different levels within the distribution channel (Cravens et al. 1993; Chetty and Wilsom 2003; Fyall and Garrod 2005; Soosay et al. 2008). This type of relationship provides, as an example, access to components and services that will be used to produce a final product (Marcela et al. 2002).

Horizontal cooperation, in turn, occurs between two or more unrelated businesses at the same level of the supply chain (Soosay et al. 2008) and with the same type and/or core business activity (Xu et al. 2005; Pivcevic 2009). This type of cooperation happens between businesses that compete with each other (Burgers et al. 1993; Cravens and Shipp 1993; Chetty and Wilson 2003; Commission communication of 14th January 2011 (2011/C 11/01). In Horizontal cooperation because produce and sell similar products or services (Ma 2008) to the same market segments in same geographic areas (Xu et al. 2005). This type of cooperation happens between businesses aiming to conduct business activity, such as product development, promotion or distribution (Perry 2004). In such cooperation, businesses combine complementary activities, skills or assets as a means to save costs, share risks, access to know-how, increase investments, enhance product quality and variety, and to innovate (European Commission 2011).

Diagonal cooperation occurs between businesses operating in different sectors or industries (Fyall and Garrod 2005). For this reason, cooperation at this level is also known as inter-sectoral cooperation (Gray 1989). Here, businesses are not seen as competitors because they aim to complement their business activity and products (Fyall and Garrod 2005) by producing complementary products or services and therefore cooperation provides added value to the product of each business (Weidenfield et al. 2011).

2.3.2. Forms of cooperation

Inter-business relationships, in general and cooperation relationships in particular, can take different forms (Barringer and Harrison 2000; Long 2000), such as joint ventures that consist of the formation of a separate independent business by the venture partners (Barringer and Harrison 2000; Contractor and Lorange 2004;

Soosay et al. 2008).

The different forms of cooperation have been distinguished and classified in the literature according to varied criteria, such as the degree to which the participants

are linked or coupled (Barringer and Harrison 2000), the equity or non-equity status (Chathoth and Olsen 2003; Murray and Kotabe 2005), the level of the formality of the agreements established between the participating businesses (Rosenfeld 1996, Long 2000, Ul-Haq and Morrison 2001; European Commission 2003), and the nature of the issues to be addressed at the different organizational levels (Long 2000). Given the scope of the different criteria of cooperation forms, it is beyond this research to explain in great detail all the criteria and the resulting classifications. The criteria chosen in this research is the level of the formality that can range from very informal forms of cooperation to relationships with very formal ways of cooperation. The criterion based on the formality level (formal and informal cooperation) has been chosen because it is the most common classification identified in the literature with regard to SMEs (European Commission 2003). These forms of cooperation are distinguished in further detail in the next paragraphs.

Informal, or non-formal, agreements involve adaptable arrangements. In these agreements, behavioural norms rather than contractual obligations define the contributions of the involved parties (Smith et al. 1995). Informal cooperation can arise spontaneously when parties perceive they will be in contact with each other for a long time, and they believe that cooperation will be reciprocally beneficial (Smith et al. 1995). Informal cooperation through voluntary contacts and interaction can involve different activities, such as information and knowledge sharing with the purpose of solving common problems or acquiring new skills (Huggins 2001).

Formal agreements, in turn, and although they are established between two or more independent businesses also for their mutual benefit (Ul-Haq and Morison 2001), are characterised by contractual obligations and formal structures of control (Smith et al. 1995), supported by a formal document and/or contract (Long 2000; Ul-Haq and Morison 2001). This form of cooperation involves exchange equity (Elmuti and Kathawala 2001) and consists of “efforts to bring together firms to co-produce, co-market, co-purchase, or cooperate in product or market development” (Huggins 2001, p. 444).

The formality of cooperation can differ depending on the sectors and/or industries the businesses are operating in. According to the European Commission (2003) informal cooperation is somewhat more common in the services sector, transport and communication, as well as the manufacturing sector, whereas high level of formal cooperation occurs in the construction sector.

In addition, formal and informal forms of cooperation can evolve over time.

Cooperation can start in an informal way, with a limited number of partners, especially between very small businesses, because owners/managers are reluctant to enter into formal initiatives/arrangements. However, over time they might enter into more formal initiatives/arrangements when partners trust each other, and have experienced mutual advantages from the cooperation (European commission 2003). On the other hand, formal cooperation arrangements/initiatives can evolve over time into informal types in which rules and regulations are no longer needed (Smith et al. 1995).