Tension management in coopetition between small- and medium-sized manufacturing firms

Tension between cooperation and competition is pertinent in coopetition. Scholars describe coopetition as a paradoxical phenomenon, triggering tension between value creation (cooperation) and value appropriation (competition) (Park et al., 2014). Managing tension is therefore critical to avoid once friendly colleagues reverting to hostile enemies if the balancing act fails. The main problem is how. A separation and an integration principle are in previous research proposed as general options for managing tension in coopetition (Fernandez et al., 2014). Individuals experience tension, and entrepreneurs of small- and medium-sized firms (SMEs) have difficulties to embrace the contradictory logic of interaction (Bengtsson et al., 2016). In other words, it is difficult for individuals to play the roles as partner and competitor at the same time. An integration principle is therefore challenging, which is also the case with a separation principle. In larger firms, it is possible to separate cooperation and competition between different subsidiaries, divisions, business units, projects and key responsible individuals. This is hardly possible in SMEs. To conclude, both an integration and a separation principle seem problematic when focusing on coopetition between SMEs.There is a quest for further empirical research on coopetition in SMEs and on management of tension in coopetition. The purpose of the paper is accordingly to elaborate on the management of, and the nature, sources and dynamics of inherent tension in coopetition between SMEs. With notice of the purpose, an embedded single-case design was chosen for the study. Two manufacturing SMEs in the machinery- and metal business, from the region of Ostrobothnia in Finland were studied. The units of analysis were their past dyadic coopetition with other competitors, their present coopetition with each other and their view of possible dyadic coopetition with other partners in the future. The case can be interpreted as a representative case, as the machinery- and metal business is prominent in the region. Data was collected, for instance trough semi-structured interviews, informal discussions, internal documents and news articles.In the paper, inherent tension refers to tension that is always present, because the partners are competitors. The explanatory variables to inherent tension are product and market overlaps, proximity to the customers, strategic importance, goal congruence and prospect of return. In a relationship, all tension-causing factors are not inherently built in. For example, asymmetrical dependence, power and control issues, relative scale, incompatible personal chemistry and corporate cultures, risk of unintended knowledge leakage etc. may cause tension. However, these may or may not realize due to the structure and development of the relationship, and are not in focus in the paper. Paradoxes can be solved by a functional (Bengtsson & Kock, 2000) or a product – market related separation principle (Galvagno & Garaffo, 2010). Due to the challenge individuals face when trying to embrace the coopetitive paradox in SMEs, a separation principle is important to manage tension. On the other hand, integration of cooperation and competition demands coopetition capability (Bengtsson et al., 2016). Integration may be relevant in situations when separation is not possible or sufficient. Coopetition capability embraces both awareness, perception, understanding and assessment of tension, and development, implementation and utilization of routines to respond to it. Avoidance may be another response to tension, especially if it is perceived as high. Avoidance means that coopetition is either not seen as an option, or the coopetitive set-up has to be altered to lower the tension to a tolerable level. The results of the study show that a high degree of product and market overlap causes high tension. A moderate separation of cooperation and competition may accordingly be relevant. The partners can phase out head-on competition through for instance specialization on different customers and niches and focus on different products. It is possible to delimit cooperation to specific products, for instance complementary products that together contribute to an interesting offering to the customers. Taking into account the problems for entrepreneurs of SMEs to both be a partner and a competitor at the same time, the results show that it is unlikely that SMEs can cooperate in for instance output-functions such as sales when offering the same products to the same customers. The competitive dimension of the relationship becomes overwhelming, and avoidance is a likely response. However, it is possible for SMEs to cooperate with head-on competitors in input-functions, such as cooperation in product development, especially if the partners are able to implement routines to guarantee shared value. According to the results, incongruent goals in coopetition rises tension. Congruence is not a question about similarity. The partners may or may not have similar goals, but they rather have to be compatible so that both partners are able to achieve their individual goals. The “dangerous zone” is when the partners’ goals are incongruent or conflicting and the prospects of return are low. Incongruent goals may be acceptable, if there is a high prospect of return. Likewise, lower prospect of return may be tolerable in situations where there is a strong fit between the partners. The paper put forwards the notion of the dark-side of business-to-business relationships, especially in coopetition between SMEs. Neglecting management issues, for instance management of tension, may lead to the relationship becoming intolerable, resulting in conflicts and deterioration of trust, commitment and cooperation. The paper contributes to coopetition research by increasing our knowledge of management of inherent tension and identifying new perspectives on tension dynamics and level of strengths. The practical implication of the paper is that it introduces a framework to identify and map the sources of inherent tension, enhancing SMEs to monitor their coopetitive relationships. The framework offers a dynamic outlook of how coopetitive relations evolve. The key point is to identify the sources of inherent tension and to manage it. The discussion started with the statement that both separation and integration of cooperation and competition are relevant for managing tension. In reality, a separation principle or avoidance will be more probable in certain situations and an integration principle will be more possible in other. Actually, it is not a question about either separation or integration of cooperation and competition. Instead it is a question where emphasis should be put (see also Le Roy & Czakon, 2016). For example, an integration principle may be enhanced by a moderate separation of the cooperative and competitive activities in coopetition. Successful management of coopetition combines separation with integration.