Sleeping with the enemy: doing business with a competitor

Business Horizons, Sept-Oct, 1994 by Barbara A. Carlin, Michael J. Dowling, William D. Roering, John Wyman, John Kalinoglou, Greg Clyburn

Imagine having to call one of your fiercest competitors to order parts critically needed for one of your products. This is the situation in which IBM finds itself with Intel. Despite IBM's decision to manufacture its own microprocessor chips, Intel is still the major supplier of chips for IBM-manufactured PCs. However, in addition to supplying IBM (and most of IBM's primary competitors, such as Dell Computer, Compaq, and Packard Bell) with microchips, Intel also manufactures its own PCs, supercomputers, and other types of memory chips, all of which compete on the market with IBM products. IBM is in the position of doing business with its enemy.

How should a company behave in what we call a "multifaceted relationship," when a supplier, customer, or partner is also a competitor? This dilemma is faced not only by IBM and Intel, but by many other corporations. For example:

* Since the breakup of the Bell System, Regional Bell Operating Companies (RBOCs) must do business with AT&T, their largest supplier of equipment, their largest customer in terms of long-distance service, and a major competitor in various telecommunication services.

* The Ford Motor Company holds a minority investment in Mazda, which is also a key supplier of automobile components to Ford. Nevertheless, the companies directly Compete with a number of car and truck lines.

* AT&T entered the credit card industry with its Universal Card in March 1990. This put AT&T in direct competition with American Express, which had developed the Optima credit card in addition to its green and gold charge cards. American Express has long supplied AT&T with travel services, AT&T has supplied American Express with long-distance services, and the two companies are now partners in a joint venture to develop voice communication systems.

* IBM and Apple, fierce rivals, are now partners as well. Under a recent agreement, IBM will approve and market Apple communication products. In return, Apple will base future highend personal computers on IBM's RISC microprocessor. Through a joint venture called Taligent, IBM and Apple are co-developing the next generation operating system to run on both IBM and Apple computers.

Why Are Multifaceted Relationships Important?

Multifaceted relationships are becoming more and more common. Corporations are increasingly recognizing them as an important issue, especially in high-technology and global industries. Jack Welch, chairman of General Electric, calls the problem the modern "Riddle of the Sphinx" and asks, "Who is my customer in the morning, my rival in the afternoon, and my supplier in the evening?" (Bradley 1993).

Dealing with such complexity is not a familiar concept to American business, which has thrived largely on competition, not collaboration, and on managers' assumptions that interactions with others--whether suppliers, customers, or competitors--are zero-sum games or win/lose propositions. Our research and experience with multifaceted relationships tends to suggest otherwise. Managing this complexity rather than uniformly treating competitors always as "the enemy" can bring about mutual benefits.

The dilemma faced by companies involved in these multifaceted relationships is how to behave toward the supplier, customer, or partner who is also a competitor. The traditional buyer/supplier relationship is conducted at arm's length, with the buyer trying to negotiate the best possible price for the supplies it needs. Companies are increasingly achieving greater benefits by developing long-term close relationships with their suppliers and customers.

Is it necessarily in a firm's best interest to engage in such a close relationship when the supplier or customer is also a competitor? It is probably in the supplier's or customer's interest. In addition to being an outlet for products, the firm provides the supplier or customer (and competitor) with valuable competitive information, which in turn can be used to compete against the firm more effectively. Hence the dilemma: What information can a firm safely provide to its suppliers or customers without endangering its competitive position? What types of relationships should a firm form with its suppliers and customers?

These answers depend on why the firm is doing business with a competitor, the exact nature of the business arrangement, and how the firm is organized. This article explores these questions by examining the reasons multifaceted relationships occur, how they can be managed, and their potential risks and rewards.

Why Do Multifaceted Relationships Occur?

Companies today are forming relationships with other companies-even competitors--for a variety of reasons.

Regulation. In some cases, firms must do business with a competitor because it is legally required. The RBOCs are still restricted by court order from entering the long-distance service or the manufacturing business. They must do business with AT&T, the largest long-distance prorider, which is their major customer for local phone access, a supplier of central office equipment, and a competitor in business phone equipment.