DISCUSSION AND IMPLICATIONS

Based on the lens of competitive dynamics, the above results demonstrate that any action of a focal OEM supplier depends on its prediction of possible responses from the brand partner. In addition, the focal OEM supplier will act to create barriers.

While moving toward a brand-owned strategy, the focal OEM supplier can predict that its brand partner could respond by fighting back, forbearing, or ignoring and being unaware. As the predicted responses are different, the focal OEM supplier may initiate various strategic moves such as to decrease the market commonality, to decrease resource similarity, to increase the interdependency, to escalate mutual forbearance, and to increase the brand partner’s response costs. Those actions are expected to create barriers in awareness, motivation, and capability. More importantly, in order to create multiple barriers, the focal OEM supplier will combine its strategic moves including primary and secondary actions. Given various predicted responses from brand partner, the combination of strategic actions are different and dynamic.

If the brand partner is more likely to fight back, the first priority is to avoid being found. Aggressive actions for brand-owned strategy not only increase the exposure risk but also involve in more resource investments. Thus, the OEM supplier will normally move to decrease market commonality such as entering into a relatively small market where the brand partner has never engaged. In addition, the OEM supplier will also move to decrease resource similarity such as launching different products with relatively small scale and delivering such products via different channels.

In contrast, if the brand partner is more likely to forbear, the primary action of an OEM supplier would be to increase interdependency rather than to decrease market commonality and resource similarity. Despite the brand partner has already been aware the brand-owned strategy of the OEM supplier, with multi-market contact, the OEM supplier may simultaneously cooperate and compete with its brand partner. It may move to strengthen the cooperative relationship in the OEM contract. By sharing more benefits and contributing more in the existed cooperation, the OEM supplier could decrease the possibility of brand partner’s response motivation due to mutual forbearance. In the mean time, this could gain more space for the OEM supplier to develop its own brand products.

If the brand partner is more likely to be unaware or ignore, the primary action of an OEM supplier is to act aggressively by speeding up its international market expansion. Once it has been successfully penetrated into the market resulting in being noticed by the brand partner, even the brand partner is motivated to respond, however, the response costs might be too high to fight back. In general, given different predicted responses, the strategic moves of an OEM supplier is composed of primary and secondary actions for the purpose of creating multiple barriers in awareness, motivation, and capability. The priority of these three types of barriers is also different depending on various possible responses. We therefore propose the following three implications to address the competitive dynamics of actions and responses.

Implication 1: When the OEM supplier predicts that its brand partner is more likely to fight back, the primary action is to differentiate itself from the brand partner in product scope, target markets, channels, geographic areas, and organizational structure for the creation of barrier in awareness. The secondary action is to maintain or enlarge competitive advantage in production and to share such advantages for the creation of barrier in motivation, and then to speed up

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internalization and market expansion for the creation of barrier in capability.

The priority of response barrier creation is Awareness-Motivation-Capability (AMC).

Implication 2: When the OEM supplier predicts that its brand partner is more likely to forbear, the primary action is to maintain or enlarge competitive advantage in production and to share such advantages for the creation of barrier in motivation. The secondary action is to differentiate itself from the brand partner in product scope, target markets, channels, geographic areas, and organizational structure for the creation of barrier in awareness, and then to speed up internalization and market expansion for the creation of barrier in capability. The priority of response barrier creation is Motivation-Awareness-Capability (MAC).

Implication 3: When the OEM supplier predicts that its brand partner is more likely to be unaware or ignore, the primary action is to speed up internalization and market expansion for the creation of barrier in capability. The secondary action is to differentiate itself from the brand partner in product scope, target markets, channels, geographic areas, and organizational structure for the creation of barrier in awareness, and then to maintain or enlarge competitive advantage in production and to share such advantages for the creation of barrier in motivation. The priority of response barrier creation is Capability-Awareness-Motivation (CAM).

CONCLUSIONS

This study focused on the strategic transformation from OEM contract supply to brand-owned manufacturing. In such context, maintaining the existing cooperation and simultaneously developing a brand-owned strategy without contradiction seems to be an ideal scenario for an OEM supplier. However, from the brand partner’s view, the sense of being betrayed or being threatened may provoke even vicious retaliation.

Having controlled with the OEM contract, the brand partner is much easier to initiate such retaliation. Therefore for an OEM supplier, the first lesson of coopetition is to convince or to guarantee that the brand-owned strategy cause no harm with its brand partner. It is then possible to keep the OEM contract as the main source of supporting brand development. In the earlier stages of moving toward brand-owned strategy, maintaining cooperation is the main strategy such as sharing competitive advantages and benefits. Until the OEM supplier has made preliminary success in its own brand, it will take more aggressive moves such as to speed up internationalization and market expansion. However, based on cooperation, the OEM supplier choose to avoid head-on competition by differentiating itself from the brand partner in product scope, target markets, channels, geographic areas, and even separating the OEM-contract sector from brand-owned business.

Linking cooperation-based competition with competitive dynamics perspective, this study demonstrates different implications. In the competitive dynamics perspective (Chen, 1996), a series of actions and responses composes the base of inter-firm rivalry.

According to an integrated framework proposed by Chen (1996: p.111), both market commonality and resource similarity influence three drivers of competitive behaviour, awareness-motivation-capability, which further predict the likelihood of actions and responses in the inter-firm rivalry. However, the dynamics of cooperation-based

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competition is different from the traditional view of competitive dynamics. The findings derived from this study indicate an extensive causality in Chen’s framework.

We argue that in cooperation-based competition, the likelihood of predicted responses of a defender (i.e. brand partner) determine the actions of the attacker (i.e. OEM supplier). The attacker’s actions are to create barriers in awareness, motivation, and capability that further change the status quo in both market commonality and resource similarity. The argument addresses that the profile of market commonality and resource similarity is not regarded as a given premise but as a strategic target to reach.

On the path of moving toward brand-owned strategy, the change of profile in market commonality and resource similarity between the OEM supplier and its brand partner is dynamic, depending on how the OEM predicts the possible responses, what it moves to act, and whether the barriers in awareness-motivation-capability work.

Based on cooperation, the competitive actions are initiated to decrease market commonality, to decrease resource similarity, and also to increase interdependency.

This study is exploratory because of its pioneering effort on linking OEM/OBM strategy with coopetition perspective. However, our intention is to conduct in-depth case research to provide new evidence in order to give an insight into what is occurring. By unfolding the phenomenon of coopetition dynamics in the OEM/OBM setting, this research demonstrates the exploratory findings and proposes implications for strategy research practice.

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