Abstract
Research on coopetition – the simultaneous occurrence of competition and cooperation among firms – is usually limited to the realm of large firms. While some research has examined the motives and outcomes of coopetition among small- and medium-sized business, little is known about how coopetition is managed among micro-firms. The French wine sector is dominated by micro-firms, among which coopetition is common. Focusing on the Pic Saint Loup area in south-eastern France, this article analyses how micro-firms manage coopetition. While we observe similarities in coopetition with respect to large firms, a distinct micro-firm coopetition mode is identified: (a) contrary to expectations, the management of coopetition is highly formalised in micro-firms; (b) as with large firms, the management of micro-firm coopetition requires a separation between competition and cooperation, but such separation occurs outside the firm – in the form of a collective structure; and (c) in contrast to large firms, small firms exhibit an increase in individual-level dimensions of coopetition with decreasing firm size. We conclude that policy should encourage coopetition among micro-firms provided that it is tailored to micro-firm specificities.
Introduction
The current entrepreneurial economy revolves around small firms (Volery and Mazzarol, 2015) as important engines of economic growth, innovation and employment (Marcotte and Niosi, 2005; Schaper et al., 2005; Thukral et al., 2008) in developed (Jay and Schaper, 2003; LeBrasseur et al., 2006) and developing countries (Latha and Murthy, 2009). The majority of small- and medium-sized enterprises (SMEs) are micro-firms (Schaper et al., 2005) 1 defined as those with fewer than 10 employees (Eurostat, 2011; Institut Nationale de la Statistique et des Etudes Economiques (INSEE), 2016; Organisation for Economic Co-operation and Development (OECD), 2007). Such firms, however, while flexible and adaptable to customers and markets, experience liabilities of smallness making them vulnerable to resource constraints (Hanna and Walsh, 2008). Such constraints impact upon competitiveness creating difficulties in exploiting economies of scale, limiting access to credit, diverse forms of capital and assets (Alvarez and Crespi, 2003; Berrone et al., 2014; Colombo et al., 2012). Cooperation provides a means of addressing such constraints (Miller et al., 2007; Van Gils and Zwart, 2009). The capacity to cooperate has become a necessity in the contemporary environment (Van Gils and Zwart, 2009) in order to obtain complementary competencies (Eikebrokk and Olsen, 2007; Lechner and Leyronas, 2009), technology resources (Lee et al., 2012; Tu et al., 2014), capital and patents necessary for development. The acquisition of external resources through cooperation allows small firms to mitigate the threat of competition (Miller et al., 2007), access national and international sources of new knowledge (Colombo et al., 2012) and obtain economies of scale and scope through internationalisation (Boehe, 2013; Ulubaşoğlu et al., 2009), to achieve innovation and tap into new markets (Lasagni, 2012). The general assumption is that small firm cooperation contributes to competitiveness, growth, profitability and survival (Lechner and Dowling, 2003; Lee et al., 2012).
Cooperation can take several forms, spanning from informal relations, networks and cooperative ventures to highly formalised alliances. 2 A specific form of cooperation is coopetition (Bengtsson and Kock, 2014; Gnyawali et al., 2006), which is simultaneous cooperation and competition to overcome resource scarcity, to strengthen market power and increase competitiveness (Bouncken et al., 2015; Li et al., 2011). It describes ‘paradoxical relationships between two or more actors, regardless of whether they are in horizontal or vertical relationships’ (Bengtsson and Kock, 2014: 180). The literature on coopetition is developing, but most of the literature addresses large firms (Bengtsson et al., 2010; Walley, 2007). In contrast, the literature on small firm coopetition primarily addresses motives and outcomes.
The question of how coopetition is managed in small firms is essential given their struggle to contain risk and guarantee a minimum level of control over gains (De Clercq and Voronov, 2009; Gnyawali and Park, 2009; Le Roy and Czakon, 2016). Nevertheless, beyond the description of positive or negative effects of coopetition, the question of how small firms manage coopetition requires further attention (Bengtsson and Johansson, 2014; Tidström, 2009). Hence, a literature gap exists with regard to coopetition among SMEs (Bouncken et al., 2015), especially within micro-firms.
This article, therefore, examines how micro-firms manage coopetition. Given the specificities of micro-firms, including the central role of the entrepreneur, intuitive strategy development, informality and organisation of work and tasks (Julien, 1993; Nadin and Cassell, 2007; Schaper et al., 2005), it is far from obvious that a simple transfer of SME or large firm coopetition knowledge to the micro-firm context will advance our understanding of micro-firm coopetition. We rely on the literature on the incidence, causes, types and consequences of coopetition among larger firms and adapt the relevant findings to micro-firms. Overall, this approach leads to propositions on the management of coopetition for micro-firms.
We analyse the French wine sector as an example of an industry in which coopetition is a frequently reported micro-firm strategy (Choi et al., 2010; Dana et al., 2013). Our focus is the Languedoc-Roussillon region in south-eastern France, the largest winemaking area of the country in which the micro-firm dominates. Here, we analyse a collective structure created by competing micro-firms (Pic Saint Loup (PSL)). While we find similarities with large firm coopetition, we also identify features specific to the micro-firm context in our in-depth case study. First, contrary to expectations, coopetition management can be highly formalised in micro-firms. Second, as in large firms, the management of micro-firm coopetition requires separation between competition and cooperation, but this occurs outside the firm – in the form of a collective structure in charge of organising coopetition. Third, for micro-firms, much depends on individual-level determinants and on the owner-manager. In contrast to those of larger firms, micro-firm owner-managers perform different functions, inside the firm and outside its boundaries in a collective structure; they alone face the challenge of internalising the ‘coopetition paradox’ and developing a coopetition mindset that is necessary to cope with cooperation and competition simultaneously.
Overview of the literature
The literature on micro-firm coopetition management is scarce. Therefore, we adopted the following literature search strategy to build a basis for this article. First, we reviewed the streams of literature on the antecedents, elements and outcomes of coopetition in large firms, with a particular focus on coopetition management. In so doing, we aimed (a) to identify the features and challenges of coopetition and (b) to understand how these challenges are managed in larger firms. Second, we searched for recent developments about coopetition in small firm, although not necessarily micro-firm, context. In so doing, we aimed (a) to identify the motives/opportunities and the outcomes of small firm coopetition and (b) to search for evidence on the ways small firms encounter and manage the challenges of coopetition. Overall, this approach led us to propositions on the management of coopetition in a micro-firm context.
How do large firms manage coopetition?
The literature on coopetition is growing as interest in this phenomenon increases (Czakon et al., 2014; Gnyawali et al., 2006), although research is usually focused on large firms (Bengtsson et al., 2010; Morris et al., 2007; Walley, 2007). Coopetitive firms seek to gain market power, to improve innovation processes, to organise and secure supply chain relations and to cope with global competition (Bouncken et al., 2015; Li et al., 2011). Ritala (2012) identifies three distinct conditions under which coopetition is successful: high market uncertainty, high network externalities and low competition. The value-creation potential of coopetition is considered superior to that of non-rival inter-firm cooperation or purely collaborative endeavours (Bouncken and Fredrich, 2012; Ritala and Hurmelinna-Laukkanen, 2009); however, the risks involved are also greater because cooperation partners are simultaneously competitors (Gnyawali and Park, 2009; Pellegrin-Boucher et al., 2013; Ritala, 2012). An important risk factor is that a competitor gains controlled, or uncontrolled, access to a firm’s internal resources (Bouncken and Kraus, 2013).
Much has been published about the motives and outcomes of coopetition and about knowledge on the contents, processes and dynamics of coopetition (Bengtsson and Kock, 2014; Yami et al., 2010; see Table 1). The literature suggests that coopetition has both positive and negative effects on firm performance (Ritala, 2012); thus, coopetition is depicted as a ‘double-edged sword’ (Bouncken and Fredrich, 2012), which may swing in the ‘right’ direction depending on contingencies and moderating factors. In addition, coopetition requires balance, as both very high and very low levels of coopetition can be detrimental to firm performance, coopetition dynamics and success (Bengtsson et al., 2010; Bengtsson and Kock, 2014; Park et al., 2014). However, which conditions allow coopetition to be successful, how tensions can be mastered and how firms develop skills and capabilities to organise simultaneous cooperation and competition in the right balance remain open questions and subject to ongoing discussions (Bengtsson and Kock, 2000; Fernandez et al., 2014; Morris et al., 2007). To cope with risks, firms define shared rules or norms (Bresser and Harl, 1986) and seek to combine inter-firm-level cooperation strategies with firm-level competitive strategies (Bresser, 1988).
Synopsis of challenges for large firms in coopetition.
To ensure collective and individual benefits, goals and scope, as well as the expected party’s commitment, coopetition typically requires formalised cooperation contracts, defined processes, explicitly formalised strategies and governance structures (Bengtsson and Kock, 2014; Bouncken et al., 2016; Czakon, 2009; Le Roy and Fernandez, 2015). Different forms of coopetition management exist (Tidström, 2014), such as specific organisational arrangements in or between the involved firms (Bengtsson and Kock, 2014; Le Roy and Fernandez, 2015), external actors acting as brokers in the strategic network (Madhavan et al., 2004) or even a client or an ordering party (Depeyre and Dumez, 2010).
Frequently, large firms use the principle of separation, whereby they divide organisational tasks related to competition and cooperation by placing them on different links of the value chain, at different organisational levels or across functional areas (Luo et al., 2006; Oliver, 2004). Yet, the principle of separation is not sufficient to successfully manage coopetition because it can trigger new tensions (Fernandez et al., 2014). The paradoxical nature of coopetition is a natural source of tensions (Chen, 2008; Raza-Ullah et al., 2014; Tidström, 2009), and their management is critical for successful coopetition (Le Roy and Czakon, 2016). To avoid tensions, employees and managers must understand/accept emotional ambivalence, enabling them to adopt a coopetition mindset (Fernandez et al., 2014; Oshri and Weber, 2006; Raza-Ullah et al., 2014). Chen (2008) describes this mindset as a middle way of thinking similar to that of a yin–yang philosophy. A combination of the principle of separation (firm level) and the development of a coopetition mindset (individual level) is considered beneficial for the management of coopetition in large firms (Fernandez et al., 2014; Le Roy and Fernandez, 2015), and outcomes depend on how coopetition is managed (Bengtsson and Kock, 1999; Fernandez et al., 2014).
Recent developments in the small firm coopetition literature
In the globalised economy, firms of all sizes increasingly share the same competitive space (Etemad et al., 2001), and it becomes increasingly difficult for very small firms to avoid competitive pressures (Dana et al., 1999). Evaluating the literature on cooperation, we seldom see studies on small firm coopetition (Levy et al., 2003); however, some small firms have also developed coopetition strategies to face new challenges or to strengthen their competences (Bengtsson and Johansson, 2014; Czakon, 2009; Gnyawali and Park, 2009; Lechner and Leyronas, 2009). Compared with the literature on large firm coopetition, the focus on the small firm context is scarce, though expanding (Bouncken et al., 2015; Gnyawali and Park, 2009). Below, we present some evidence from recent small firm coopetition research conducted in different industries and countries (see Appendix 1 for a comprehensive overview).
First, we found similar motives and opportunities to those in for small business cooperation. Small firms engage in coopetition to increase their innovation capacity and technological performance (Quintana-García and Benavides-Velasco, 2004; Ritala and Hurmelinna-Laukkanen, 2009), sales performance (Lechner et al., 2016) and financial performance (Morris et al., 2007; Robert et al., 2009). Coopetition is a source of international opportunities (Kock et al., 2010) and subsequent internationalisation (Vanyushyn et al., 2009). It involves information exchange (Bouncken and Kraus, 2013; Levy et al., 2003) and capability acquisition (Dussauge et al., 2000). Facilitating factors that have been identified include mutual benefit, trust, geographical distance, personal resources and commitment (Bouncken and Fredrich, 2012; Lindström and Polsa, 2016; Morris et al., 2007).
A second stream of literature examines the consequences of small firm coopetition; here, we see that the effects of coopetition on small firm performance are diverse, if not contradicting. Some observe positive effects on firm performance in general (Falk, 2017; Morris et al., 2007) and on specific performance dimensions, such as financials (Lechner et al., 2016; Robert et al., 2009), technology (Quintana-García and Benavides-Velasco, 2004) and internationalisation (Kock et al., 2010; Vanyushyn et al., 2009). Others find mixed results. Lechner et al. (2016) argue that larger exchange partners stimulate small firm sales growth but that overdependence on large firms produces negative effects. Bengtsson and Johansson (2014) suggest that small firms could use portfolio capabilities when engaging in coopetition with large firms. However, we also found evidence of negative effects of small firm coopetition (Nakos et al., 2014).
We identified relatively little work on the evolution and dynamics of coopetition relationships. Bonel and Rocco (2007) argue that the initial system of complementarities between firms is under constant exposure to effects of coopetition that are impossible to anticipate. A recent study on coopetition management shows that very small firms organise coopetition mainly by formalising inter-firm relations (Dana et al., 2013). Dana et al. (2008) show how a micro-firm in a small country successfully competed internationally by forming strong networks of relationships. Apart from some isolated studies, knowledge of micro-firm coopetition remains limited. Interest in small firm coopetition is developing, and we find evidence that coopetition can be a relevant strategy for small firms in general and for micro-firms in particular (Morris et al., 2007). Similar to the small business and entrepreneurship literature on inter-firm cooperation, the small firm coopetition literature primarily focuses on motives and outcomes. Yet, beyond the description of positive or negative effects of coopetition, the question of how small firms can effectively manage coopetition to limit its negative effects requires further attention (Bengtsson and Johansson, 2014; Levy et al., 2003; Tidström, 2009).
Development of propositions
We know that small firms differ from large ones in ways other than size (Julien, 1993; Welsh and White, 1981). Many differences between large and small firms are explained by the constraints of the latter (Curran, 2006). A unique quality of micro-firms is an owner-centred culture (Gibb, 2000; Kelliher and Reinl, 2009), which centres on the person in charge of both operations and strategic decision-making (Schaper et al., 2005; Wennekers and Thurik, 1999). The owner-manager is frequently described as a jack-of-all-trades, and (s)he (and her or his employees, if any) is often involved in multi-tasking rather than the labour specialisation that is typical among larger firms (Julien, 1998). This context often translates into rather intuitive strategy development (Liberman-Yaconi et al., 2010; Mintzberg, 1979; Torrès and Julien, 2005). Micro-firm strategy is rarely formalised; it is in the mind of the entrepreneur, often developed in the course of operations, and strategic planning is difficult to separate from everyday problem solving (Schaper et al., 2005). In the small firm coopetition literature, we found only isolated studies arguing that the formalisation of coopetition can also occur in very small firms (Dana et al., 2013). Given the relative absence of strategy formalisation and the high levels of informality, micro-firm coopetition is likely to be managed informally.
Another distinctive feature is the high level of informality within micro-firms; smallness leads to a high number of direct and informal contacts between owner-managers and employees or among employees (Nadin and Cassell, 2007; Torrès and Julien, 2005). Human resource management practices, development and training are mostly informal (Kotey and Folker, 2007; Kotey and Slade, 2005). Regarding external resources, Shaw (2006) describes the nature of networking as informal. Informal industry networks, professional forums, former colleagues and friends are important personal information sources (Hermel and Khayat, 2011); therefore, they are less likely to use advisors such as lawyers, government agencies, industry associations and management consultants (Jay and Schaper, 2003). Informal links within a network are preferred over formal alliances (Wright and Dana, 2003). Jaouen and Gundolf (2009) identify distinctive ways in which cooperation between micro-firms is informally coordinated; the absence of contracts implies that strong ties between cooperating, and sometimes competing, partners are the only coordination mechanism. Overall, this leads us to the formulation of our first proposition:
Proposition 1. Micro-firms develop an informal approach to coopetition strategy and governance.
The attitudes and aspirations of micro-firm owner-managers are closely tied to the business (Jaouen and Lasch, 2015; Schaper et al., 2005; Walker and Brown, 2004). Decision-making relies on personal experience, values and ethics (Liberman-Yaconi et al., 2010), and non-financial criteria and lifestyle dimensions are important to understanding strategy making, management and firm development (Jaouen and Lasch, 2015; LeBrasseur et al., 2006; Marcketti et al., 2006). Large firms use a firm-level separation principle to manage coopetition (Bengtsson and Kock, 2000; Bresser and Harl, 1986); this is often combined with the necessity for employees or managers to accept emotional ambivalence (Chen, 2008; Fernandez et al., 2014; Raza-Ullah et al., 2014). Smallness affects size-related resource constraints (Hanna and Walsh, 2008), which is a difficult-to-apply principle for micro-firms at the firm level, but on an individual level, the separation principle combined with the development of a ‘coopetition mindset’ can be applied to micro-firms, provided that the owner-manager can cope with the challenge of internalising such a paradoxical mindset. This leads to our second proposition:
Proposition 2. Micro-firm owner-managers develop an individual approach to the separation of competition and cooperation.
Such specificities of micro-firms indicate that coopetition may be managed on an individual rather than firm level. On the basis of these propositions, we conducted an in-depth case study of the PSL area in the south-eastern part of France to identify principles of managing micro-firm coopetition.
Methodology
Study and sample
To explore our two propositions regarding micro-firm coopetition management, we draw on a qualitative approach. In the literature, recent coopetition studies have used qualitative approaches (Bouncken et al., 2015), especially case studies (Fernandez et al., 2014; Gnyawali and Park, 2011; Jack et al., 2010; Ritala et al., 2014; Tidström, 2014). Accordingly, we conducted an in-depth study of an example case of coopetition to develop insights about how micro-firms manage coopetition.
The wine industry is a context in which coopetition is increasingly observed (Choi et al., 2010; Hannachi and Coléno, 2012). This traditional sector has a long history of cooperation between winemakers, and today, it is a very dynamic but highly competitive environment (Dana et al., 2013). Our sample comprises winemaking micro-firms located in Languedoc-Roussillon – a region in south-eastern France in which 95.4% of enterprises are micro-firms (Eurostat, 2011; Jaouen and Lasch, 2015). The wine sector is the dominant agro-food industry in this region. As the largest vineyard area in France and among the largest in Europe, the region produces 5% of the world’s wine. Languedoc-Roussillon is also one of the top French regions in terms of quality labels (Direction régionale de l’alimentation, de l’agriculture et de la forêt (DRAAF), 2014). This region’s wine sector is characterised by numerous coopetition relationships among micro-firms, making this historical wine-producing region an interesting environment in which to study micro-firm coopetition. The coopetition context of our study is the collective structure of PSL, which is located in the eastern part of this region close to the Montpellier agglomeration. At the time of this writing, PSL includes 50 winemaking micro-firms. Industry experts regard PSL as a success case of coopetition between micro-firms with exceptional longevity. Here, independent winemaking micro-firms cooperate while remaining in direct competition.
The level of analysis in our study is the company (PSL micro-firms). As with most coopetition studies, we conducted our analysis at the firm level (Bouncken et al., 2015) to understand how coopetition is managed in the collective PSL structure by the micro-firms involved; given the micro-firm nature of our sample, we also provide insights into the dynamics of coopetition management at the individual level, that is, the micro-firm owner-manager.
Data collection
Our historical approach covers 20 years since the emergence of PSL coopetition. We used several data collection techniques, including observation, document analysis and unstructured and semi-structured interviews. We used sequential sampling to identify and select our respondents (Goodman, 1961; Miles and Huberman, 2003). In this way, the first respondents recommended other potential respondents on the basis of their involvement in the PSL coopetition process or their knowledge as outside competitors, suppliers, distributors and so forth. We then conducted interviews in two phases: the preliminary investigation and the in-depth case study (phases 1 and 2, respectively, in the following; see Table 2).
Interview description.
PSL: Pic Saint Loup.
The objective of the preliminary study was to verify whether PSL was suitable for a study on micro-firm coopetition and obtain a variety of contacts inside and outside the PSL structure. The use of a sample with very different interviewees facilitates triangulation and increases the external validity of the results (Cook and Campbell, 1979). As unstructured interviews provide a greater breadth than structured ones (Fontana and Frey, 1994), phase 1 interviews were conducted in a conversational manner. Eisenhardt and Graebner (2007) recommend starting the analysis with key decision-makers or key persons. The first key informant was the PSL president, himself a micro-firm owner-manager, who recommended four PSL owner-managers for the preliminary investigation given their historical involvement in PSL as founding members and their knowledge of early PSL history. Then, 12 other respondents were identified: one person in charge of managing the collective PSL structure, one outside PSL competitor, three regional wine trade organisation managers and seven professional wine experts. In total, the preliminary investigation comprised 16 unstructured interviews.
This preliminary investigation phase provided insight into the history of PSL, and we identified how the coopetition process evolved over time. Overall, this phase allowed us to develop the interview guide for the in-depth case study structured around (a) the two streams of small business and entrepreneurship literature on coopetition that we identified (namely antecedents/motives and outcomes of coopetition; cf. section ‘Recent developments in the small firm coopetition literature’) and (b) the propositions derived from the large firm coopetition literature and micro-firm literature to address the question of how coopetition is managed in micro-firms (section ‘Development of propositions’). A pre-test with the president and manager of PSL allowed us to verify that the respondents understood the questions and the terms used in the guide.
For the in-depth case study (phase 2), we included the five PSL respondents from the preliminary investigation (the four micro-firm owner-managers and the PSL manager). Using sequential sampling, we identified additional PSL micro-firm owner-managers (a total of 21) and respondents outside the PSL collective structure. The interviewees were contacted first by mail and then by phone and interviewed face to face. Interviews lasted approximately 90 minutes and were complemented by on-site visits, observation and dialogue. The interviews were voice-recorded and transcribed. The entire interview corpus comprised 418 pages. On average, we spent half a day with each respondent. The objective of the interviews was to explore our two research propositions and to gain an understanding of PSL micro-firm coopetition management.
Data collection ceased when the last information unit added no new information for the analysis (Cook and Campbell, 1979). After 45 semi-structured in-depth interviews, we achieved data saturation (Glaser and Strauss, 1967) and ended the sample-building process (Table 2 and Appendix 2).
Data analysis
We analysed the data based on a thematic content analysis (Miles and Huberman, 2003) to understand how the PSL micro-firms individually and collectively manage coopetition. The variety of respondents and diversity of terms that were used led us to opt for a more manual analysis. After the interviews were transcribed in Microsoft Word software, our analysis comprised directly extracting verbatim statements, coding the data and classifying the data into categories. The raw discursive primary data were coded interview by interview and structured around the antecedents/motives of coopetition management, modalities of coopetition management (the ‘how’ question) and implications/outcomes of coopetition management. Given that an organised presentation allows the researcher to absorb large volumes of information (Cleveland, 1985) and improves the probability of drawing valid conclusions (Miles and Huberman, 2003), we used several formats, such as interviews summary sheets, vignettes for observation and matrices, throughout the process (Smith and Robbins, 1982).
We performed several levels of coding. At the end of each visit, a first interview synthesis form (Miles and Huberman, 2003), was completed with descriptive firm- and individual-level information (e.g. age of the entrepreneur, gender, number of employees and turnover evolution). It was then transcribed to improve our understanding and define a second level of coding: the level of coopetition management (individual and collective), owner-manager coopetition management (collective and individual internalisation of the coopetition paradox), collaborative role of the PSL manager and so forth. After their extraction, the categories were classified theme by theme in a 118-page category book. The codification process ended when all new data could be immediately classified (Lincoln and Guba, 1985).
The historical approach relied on the memories of respondents. We used triangulation for verification to account for cognitive perceptions (Campbell and Fiske, 1959; Denzin, 1989; Jick, 1979; Patton, 2000). Here, we triangulated the primary data from interviews with archival data that expanded our understanding of the interview findings (Forster, 1994). Archival sources included secondary data on the collective PSL structure (e.g. production decree, legal statutes and press articles) and confidential data from the PSL office (e.g. meetings minutes from committees or general assemblies). Triangulation included presence on the observation sites after the interviews and during collective PSL actions totalling 10 days of direct observation during several PSL promotion events, a professional forum and PSL committee and general assembly meetings. To confirm the validity of the reported events and their chronology, the secondary archival data were analysed to verify the veracity of respondent accounts.
Finally, to conclude triangulation process, verification by and conversations with other outside PSL key informants such as wine experts, professionals and trade organisation managers were organised to obtain additional feedback. By combining the different data sources and collecting information for a period of 20 years, we obtained an in-depth description of the PSL coopetition management process.
Findings
This section is organised as follows: we present the evolution of PSL coopetition (emergence and outcomes), and we then present how coopetition among micro-firms is organised and managed within this collective structure and by the winemakers individually.
PSL: a collective structure created by competitors
Emergence and outcomes of PSL micro-firm coopetition
Geographically, the PSL collective spans 13 municipalities, covering an area whose vines were cultivated by the Romans. In modern times, the creation of the Cru PSL quality label resulted in a gold medal awarded in 1900 at the world’s fair in Paris. In 1946, the winemakers obtained another prestigious national quality label: Vins Délimités de Qualité Supérieure.
During the 1980s, inexpensive PSL wines began facing difficulties in a saturated market. The failure in 1985 to obtain the regional Côteaux du Languedoc quality label further affected PSL winemakers. As one respondent explained, ‘from the 1980s we were in a strong economic crisis’. Another said, ‘being rejected was extremely painful and left a mark’. As a way out of the crisis, some winemakers engaged in coopetition to radically improve quality. PSL was born when family-owned estates and a growing number of independent winemakers joined forces to produce under a collective brand. The member firms simultaneously developed their own brands and sold their wines independently. PSL wines are among the premium wines of the Languedoc-Roussillon region.
Considering its longevity and reputation, PSL exemplifies successful coopetition among micro-firms. The firms cooperate within the collective structure while competing strongly at the firm level. This distinct management of the collective/aggregate and the firm/individual levels has affected performance. According to one respondent, ‘the economic results were undeniable’. All the micro-firms involved in the coopetition strategy experienced strong growth in sales and profitability. 3 The performance of every micro-firm would have, therefore, been lower without the PSL association. According to another respondent, ‘we would not have been able to reach the same economic profits without PSL’.
The organisation of micro-firm coopetition
From the start, coopetition among PSL micro-firms was rapidly organised and structured. The creation of a collective structure proved essential to unite members, provide external recognition and ensure compliance with barriers to entry. Today, PSL works in a participative fashion to defend the interests of its members such as the use of participative principles, legal status as an association, annual general assembly meetings and election of an administrative council. Coopetition is organised and occurs within the scope of this collective structure. One respondent noted that ‘the PSL is a collective organisational structure allowing us to put in harmony and to coordinate the strategies of the various micro-firms in a coherent way’. Another explained, ‘when we use a collective brand, a structure is needed to give orientations, to open space for discussions, and to organise meetings’. Yet another stated, ‘We were practically the first ones [in France] to build a strategic reflection based on an economic analysis’.
Such a formalised structure guarantees wine quality, as well as respect for collective practices as defined by a 1994 decree. By setting high production standards and limiting the zone of production, this decree created several barriers to entry. To be accepted as a new member, the quality of the wine of the applicant must be approved by the PSL tasting commission. Thus, for one respondent, ‘the danger comes from actors with opportunist behaviour who do not have the same purposes and objectives as the collective in the long term’.
The principal activities of PSL promote the collective brand, set the conditions for production and diffuse information to members. These activities are organised around ad hoc commissions (wine tasting, economic, promotion, technical and biological commissions), composed as a function of competencies: ‘we create a commission for the trade shows which is headed by a winemaker who formerly was special event manager’. The economic commission, for example, conducts an annual survey of the turnover evolution of the PSL micro-firms.
Membership fees cover the salary of the collective manager, who is in charge of all collaborative activity, including promoting and protecting the collective brand and ensuring that knowledge is shared among members. Promoting the collective brand is divided into operational actions: external communications and collective participation at trade shows. The collective brand is protected by the PSL quality label (Appellation d’origine protégée, AOP), which was implemented in 2001.
Members share three types of knowledge: (a) strategic information (especially information emanating from the professional organisations in which members are involved), (b) competencies and (c) experience. The exchange of ideas is encouraged, along with knowledge of best practices and reflections about problems. To facilitate such exchanges, the collective structure organises training sessions, courses and wine tastings where members can express their opinions. In this regard, a member stated, ‘PSL allows us to exchange and to gather experience in the collective structure’. Another stated, ‘wine-tastings fuel motivation and help to improve the quality of our wines’. This creates proximity, develops informal interpersonal relationships and leads to the development of joint projects.
In our study, coopetition strategy is formally defined and operationalised by a collective government structure with defined missions and tasks, for example, PSL manager, participative organisational principles, rules of interaction and norms such as the 1994 production decree, to ensure the alignment of individual and collective interests and thus prevent opportunistic behaviour. In sum, we find little support for our first proposition (micro-firms develop an informal approach to coopetition strategy and governance); nevertheless, we find some support in the sense that informal interpersonal interactions exist concerning information and knowledge exchange, but we also find formalised modes of interaction in regard to combining individual competencies to meet collective objectives.
Competition and cooperation operate at two distinct levels
Competition between members of the formalised collective structure creates a challenge, but it seems necessary for maintaining collective momentum: ‘Fortunately, there is competition between us; otherwise, we would not move forward anymore’. At the collective level, the goal to promote the PSL brand leads member firms to cooperate. At the individual level, the objective of members is to showcase their individual brands within the context of a competitive relationship. PSL firms are directly in competition for both distributors and final customers. PSL has been very successful in managing this paradoxical situation by not mixing these two levels of analysis and maintaining strict distinctions. The processes of separation and formalisation of the coopetition process facilitate the integration of new members without upsetting the rules of the game.
Competition occurs in the marketing phase, which is the responsibility of micro-firm owner-managers: ‘The distributors create rivalry among our products’, as a respondent explained. Nevertheless, firms use the collective brand for individual motives, for example, to promote their own brands. PSL does not manage such competition. It does not interfere in the marketing functions of any of its members. The PSL manager is fully dedicated to managing cooperation among members but does not interfere in competition. Everything is arranged such that the coopetition manager is never involved in the competitive process. Moreover, micro-firm owner-managers do not participate in the collective structure other than to manage cooperation. In the PSL administrative council or commissions, micro-firm entrepreneurs do not adopt rival positions affecting competition. The collective structure never interferes in rivalry, and the PSL members regard this as a key success factor for coopetition. One respondent declared, ‘PSL does not worry about marketing issues and thus about competition’. Even during promotional events organised by the collective structure, such as those where consumers can taste member wines, no direct sales activities are involved. Similarly, the PSL does not interact with commercial wine distributors to sell member products. One of the major local distributors summarised the situation by stating, ‘One never sees the PSL association; we never get help, not even a question. There is nothing, no support, not even a poster’.
Managing the paradox of individual and collective interests is the responsibility of each owner-manager. While being personally involved in decision-making to shape the strategies of their respective businesses and implement competitive operations, they are involved in cooperative decision-making at the aggregate PSL level. Owner-managers serve the collective in addition to their own firms: they sit on the administrative council, perform office work or serve on special ad hoc commissions, depending on their competencies. At a minimum, they participate in general assemblies and collective action; however, they directly market their own brands in competition with those of other members and with other collective or individual brands outside the group.
In sum, the separation of competition and cooperation occurs at two levels of analysis: at the aggregate level of the collective structure (cooperation) and at the individual/firm level (competition). In the latter, each micro-firm owner-manager is responsible for internalising paradoxical tensions (coopetition mindset). With respect to our second proposition (micro-firm owner-managers develop an individual approach to the separation of competition and cooperation), we find evidence of separation within the boundaries of the micro-firms at the individual level concentrated in one person, the owner-manager, but most cooperation activities occur outside firm boundaries (collective structure), which is a specific approach to separation followed by the PSL micro-firm owner-managers we studied.
Discussion
In our case study, coopetition was a relevant strategy for PSL micro-firms. We found support for recent findings in the small firm coopetition literature showing the positive effects of coopetition (Bouncken and Kraus, 2013; Falk, 2017; Kock et al., 2010; Robert et al., 2009; Vanyushyn et al., 2009). To obtain positive effects on firm performance, the literature suggests that firms find the ‘right’ balance by avoiding both low and high levels of coopetition (Bengtsson and Kock, 2014; Bengtsson et al., 2010; Park et al., 2014). In our case, PSL micro-firms benefitted from very high levels of coopetition. While the literature finds that coopetition should be avoided in highly competitive environments (Ritala, 2012), the micro-firms in our study do compete in such an environment – the French wine industry.
We identified how coopetition was successfully managed contributing to the ongoing debate in the literature on the effective management of coopetition to limit its negative effects (Bengtsson and Johansson, 2014; Tidström, 2009). Specifically, conventional wisdom on the specificities of small firms (Julien, 1993; Mintzberg, 1979; Torrès and Julien, 2005) suggests they manage coopetition differently from large firms. We found mixed evidence for this assumption, for example, formalisation of coopetition, principle of separation and integration of the coopetition paradox by the entrepreneur. Some principles of large firm coopetition management also applied to the micro-firms in our sample, whereas others were specific, or adapted, to the micro-firm context.
What is similar to large firms? We did not expect to find strong formalisation of coopetition in the micro-firm context. Contrary to our expectations, coopetition in PSL micro-firms appears to be formalised, as it is in large firms. What is specific to micro-firms? Separation between cooperation and competition in our sample is different from that observed in large firms. Micro-firms adopt alternative ways of separating cooperation from competition. Specifically, cooperation is separated from competition and placed outside the firm on the aggregate level in the form of a collective structure. Separation does not occur within the firm; rather, it occurs outside the firm, and this is a specific feature of PSL micro-firm coopetition management. At the individual level, the integration of the paradox of coopetition and the development of a coopetition mindset differs from how coopetition is managed in large firms. In large firms, managers and employees involved in the coopetition process are responsible for developing such a mindset. This mindset is also present in PSL micro-firms, but it takes a new dimension given the central position of the entrepreneur. In our study, large firm knowledge was relevant as a starting point for small business research (Curran, 2006) and useful for application to the micro-firm context. Below, we discuss the micro-firm coopetition management principles identified.
How can coopetition be managed in micro-firms?
Formalisation of micro-firm coopetition
Our first proposition (micro-firms develop an informal approach to coopetition strategy and governance) connects knowledge from large firm coopetition – formalisation as a principle – to knowledge about micro-firms – informality as a specificity. Here, small firms are generally distinguished by the low formalisation of their strategies (Liberman-Yaconi et al., 2010; Schaper et al., 2005) and organisations (Mintzberg, 1979), both intra-firm (Torrès and Julien, 2005) and inter-firm (Wright and Dana, 2003). In our case study, we find that micro-firms manage coopetition on the aggregate level in a similar, formalised way as large firms (Bouncken et al., 2016; Czakon, 2009). The formalisation of a collective government structure was the initial step in the evolution of micro-firm coopetition and enabled the erection of entry barriers, the setting of production standards and legal rules of use and the promotion of the collective brand. We also see how information and knowledge is informally shared among PSL owner-managers. Furthermore, some owner-managers establish committees according to their individual competencies.
The coopetition literature describes similar forms of formalised governance structures, such as external network brokers (Madhavan et al., 2004) or other parties (Depeyre and Dumez, 2010). In our case, the governance structure is not external in nature; rather, it is the result of the collective effort of the micro-firms engaged in coopetition. This finding adds new knowledge to the small business literature and expands our understanding of the principles of interaction between micro-firms. It illustrates that micro-firms do not limit their interactions with other firms to informal inter-organisational links (Jaouen and Gundolf, 2009). In essence, and contrary to our initial suggestion (proposition 1), high levels of formalisation were relevant for successful micro-firm coopetition management.
Separation of cooperation and competition strategies within micro-firms
In our sample, the formalisation of micro-firm coopetition facilitates the separation between cooperation at the collective/aggregate level and competition at the individual/firm level. At the aggregate level (PSL structure), separation is managed by a neutral person in the sense of working for the collective but not interfering at the firm/individual level, who was recruited as the PSL coopetition manager and whose sole objective is managing cooperation at the collective level. The manager’s mission is to oversee and guarantee the interests of all parties to the coopetition process and to enhance collaboration between competing firms (Dana et al., 2013). Two activities of the value chain are conducted at the aggregate level in the spirit of cooperation; they are separated from the individual/firm level (micro-firms in competition): the collective conception of production techniques and the promotion of the PSL brand.
In our case, we see how micro-firms entrust coopetition management to a collective structure (Bengtsson and Kock, 2000). We provide new insight into how cooperation can be set up. In contrast to many trade associations, the PSL is a collective effort of a limited number of micro-firms in competition that proactively decided to formalise their cooperation. The organisation does not act as a contractor or independent third party (Depeyre and Dumez, 2010; Madhavan et al., 2004).
The simultaneous occurrence of competition and cooperation raises questions about how the coopetition paradox is managed in micro-firms at the individual level (proposition 2: micro-firm owner-managers develop an individual approach to the separation of competition and cooperation). In addition to our micro-firm-specific findings on formalisation and separation at the collective level, we identified how the central person in the micro-firm context, the owner-manager, processes the paradox of simultaneously competing and cooperating. At the aggregate level, entrepreneurs are personally involved in the strategy and management of the PSL structure; thus, they are personally implicated in the execution of cooperation. Yet, they also directly manage competition with other members of the PSL and are thus personally implicated in competition.
The small size of the firms does not allow separation as in the case of large firms (Bengtsson and Kock, 2000). In micro-firms, a coopetition mindset is not shared/developed across several people involved; rather, it depends on a single person and his or her ability to integrate the paradox of cooperation and competition. He or she internalises the coopetition paradox and modifies his or her relational behaviour depending on the function executed at a given moment. The coopetition capabilities of micro-firms do not depend on formal intra-organisational design; rather, they depend on the personal coopetition capabilities of the entrepreneur. While large firm executives are involved in only strategic dimensions (Chen, 2008; Luo, 2007) and individuals pilot coopetition projects (Oshri and Weber, 2006), micro-firm owner-managers are directly involved in both strategic and operational dimensions. They face an individual responsibility/challenge of managing the paradox of cooperation and competition.
We could expect that such a paradox would normally lead to discontinuities of competition and cooperation at the individual level. Alternating from cooperation to competition and to competition from cooperation requires a high capacity to change functions. Switching from one dimension to the other (Astley and Fombrun, 1983; Bresser and Harl, 1986) is not observed in the case of PSL; rather, we observe the simultaneous occurrence of cooperation and competition by micro-firm owner-managers as they collaborate in the PSL structure and compete when commercialising their wine. It is not a matter of successive phases of competition and cooperation but rather of a continuum of both relationships.
Along the distinction that operates between the respective natures of individual and collective strategies, PSL owner-managers successfully manage this sequence when they internalise only collaborative functions at the collective level and only competitive functions at the individual/firm level (internalisation of the coopetition paradox; Chen, 2008; Fernandez et al., 2014; Le Roy and Fernandez, 2015; Oshri and Weber, 2006).
Implications
Most new and incumbent firms are micro-firms, but policy and entrepreneurship support still struggle to foster micro-firm growth and their contributions to employment. This situation is of particular relevance given that most micro-firms, remain small and, thus, contribute less to employment growth than desired by policy makers (Morrison et al., 2003). While this issue is recurrent in the European economy, it is particularly true for the French micro-firm environment (Eurostat, 2011; Jaouen and Lasch, 2015) and even more so for the region in which our sample is located (Languedoc-Roussillon). Research and practice acknowledge that micro-firms are different from larger firms (Curran, 2006; Hanna and Walsh, 2008), but knowledge on the specificities of micro-firm remains partial and fragmented (Morris et al., 2007). It is, therefore, doubtful that micro-firms can fully benefit from generic policies to support small businesses.
Coopetition can prove highly successful for micro-firms and is not limited to large firms. From a more general perspective, our work shows how micro-firms design alternatives in the form of coopetition initiatives to overcome their limited individual firm resources and increase their competitiveness and income. We explain how micro-firms establish and manage simultaneous cooperation and coopetition.
In our case, coopetition is a relevant strategic choice for micro-firms in a competitive environment, but our findings reveal that coopetition needs to be managed in a different way from what we know for large firms. While some principles of large firm coopetition management also apply to micro-firms, such as formalisation of strategy and governance, others should be adapted such as separation of competition and cooperation and integration of a coopetition mindset. This need results from the specific features of micro-firms. In micro-firms, operations and decision-making are centralised in one person, the entrepreneur. The propensity to engage in and successfully conduct coopetition depends on the capabilities of a single person, particularly the ability to internalise the paradox of coopetition and develop a coopetition mindset. This is an opportunity for tailored small business policy measures, for example, training for entrepreneurs engaged in or planning to engage in coopetition.
Another element relates to the relative absence of strategy formalisation, regardless of whether it is required in coopetition relationships. Furthermore, clear separation of activities dedicated to cooperation from activities dedicated to competition is needed. To overcome the liability of smallness, namely, the difficulty to implement the separation principle at the individual firm level, the micro-firms in our sample moved cooperation outside the firm to a collective structure. Limited size and resources were thus compensated. A benefit of such a collective cooperation structure is access to more relationships and networks, often limited in micro-firms owing to the limited number of personal ties. Here, entrepreneurship support institutions can provide expertise to help establish and manage such structures.
With respect to policy endeavours to improve the competitiveness and growth of small firms, entrepreneurship support is encouraged to address the conventional belief that growth is a similarly important objective independent of firm size; indeed, the evidence suggests that only a limited number of micro-firms actually favour growth (Jaouen and Lasch, 2015; Morrison et al., 2003; Tregear, 2005). In tailoring support, policy should be aware that individual characteristics and entrepreneurship profiles lead to different propensities for cooperation and competition initiatives.
Much has been published in the coopetition literature in the context of knowledge-intensive, innovation-driven, dynamic and complex industries (Bouncken et al., 2015). Overall, the wine region studied here is an exemplary case of traditional micro-firm industry exposed to competition and marketplace changes, including globalisation. Therefore, we suspect that similar results can be obtained in similar industries and for similar firms. However, more research is needed to confirm this idea.
Conclusion
Micro-enterprises are the silent majority of firms in most countries, but they are not fully understood by researchers or supported by policy makers (Schaper et al., 2005). While much remains to be explored in the micro-firm context, little knowledge exists about micro-firms involved in coopetition or about coopetition among micro-firms (Levy et al., 2003; Morris et al., 2007). In reviewing the literature, we found that the question of how micro-firms manage coopetition, in particular, remains unexplored. This is the gap explored within this article.
As is evident from the literature, coopetition is relatively rare and more prevalent in some industries than others. The French wine industry is a micro-firm environment in which coopetition is frequently observed. Focusing on the PSL area in southern France, we analysed how micro-firms manage coopetition. We found that some principles of coopetition management are quite similar to those identified in large firm contexts (namely, formalisation, separation and integration); however, the ways in which they are implemented in micro-firms are substantially different and more complex to manage for the owner-manager.
Contrary to expectations, micro-firm coopetition appears to be as formalised as in large firms. Micro-firms also apply the separation principle known from large firms, but they choose an alternative means of firm-level separation. Separation does not occur inside micro-firms but rather on the aggregate level; it occurs outside the firm in the form of a highly formalised collective structure in which competing micro-firms cooperate. Another way to manage coopetition in micro-firms is observed at the individual/firm level. As in large firms, the integration of the paradox of coopetition and development of a coopetition mindset is a necessary condition. Doing so requires a new dimension because it depends on a single person, the owner-manager, and his or her ability to cope with the simultaneous execution of cooperation in the collective structure and competition in the firm and the tensions that this paradoxical situation creates.
From a practical and small business policy viewpoint, we provide a better understanding of how micro-firms in search of competitiveness and growth use alternative ways to overcome their limited resources through coopetition. Our study illustrates that (a) coopetition can be a relevant strategy for micro-firm competitiveness and growth; (b) coopetition in micro-firms, despite some similarities, is managed differently from that in larger firm sizes; (c) individual-level dimensions of coopetition increase with decreasing firm size; and (d) policy measures should encourage micro-firm coopetition, provided that they are tailored to micro-firm specificities and are not generic.
Owing to several limitations, our study should be replicated in other locations in which coopetition occurs among winemaking micro-firms or in other industries. Future research could take several directions. One might be to determine the factors that explain whether coopetition will be implemented through a formal collective structure. Under what conditions is informal cooperation more likely, or appropriate, than formalised coopetition? Another relates to the capacity of micro-firm entrepreneurs to internalise the paradox of coopetition. Does this involve a psychological predisposition or entrepreneurial learning? Micro-firm internalisation of the coopetition paradox leads to the internalisation of tensions by the entrepreneur. The questions of identification and evolution of entrepreneur paradoxical tensions over time are of particular importance in micro-firm contexts and call for future research.
Footnotes
Appendix
PSL micro-firm sample description (phase 2: in-depth case study).
| Micro-firm | Employees | Firm age (years) | Age of owner-manager | Gender | Function in PSL structure |
|---|---|---|---|---|---|
| MF1 | 8.5 | 47 | 37 | M | President |
| MF2 | 9 | 31 | 60 | M | Member |
| MF3 | 5 | 21 | 55 | M | Member |
| MF4 | 5 | 42 | 58 | M | Member |
| MF5 | 9 | 32 | 47 | M | Former president |
| MF6 | 2 | 26 | 36 | F | Member |
| MF7 | 2 | 23 | 48 | M | Member |
| MF8 | 9 | 40 | 58 | M | Vice-president |
| MF9 | 2 | 27 | 46 | F | Member |
| MF10 | 3 | 18 | 34 | M | Member |
| MF11 | 2 | 21 | 40 | M | Member |
| MF12 | 3.5 | 28 | 49 | M | Administrator |
| MF13 | 2 | 16 | 53 | M | Member |
| MF14 | 4 | 37 | 58 | M | Member |
| MF15 | 5 | 19 | 37 | M | Administrator |
| MF16 | 9 | 77 | 55 | M | Member |
| MF17 | 8 | 77 | 45 | M | Member |
| MF18 | 8 | 66 | 55 | M | Member |
| MF19 | 1 | 12 | 26 | M | Member |
| MF20 | 1 | 17 | 76 | M | Member |
| MF21 | 2 | 20 | 57 | M | Member |
| MF22 | 2 | 16 | 26 | F | Member |
| MF23 | 1 | 10 | 59 | M | Member |
| MF24 | 1 | 13 | 45 | M | Member |
| MF25 | 1 | 12 | 37 | M | Member |
| Average total sample | 4.3 | 29.9 | 47.9 | M: 88.0%; F: 12.0% | N/A |
PSL: Pic Saint Loup; MF: micro-firm.
Acknowledgements
We would like to thank the two anonymous reviewers for their efforts in improving our work and Roy Thurik for his feedback on earlier drafts of this paper.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Frank Lasch, Julien Granata and Léo-Paul Dana are members of the Entrepreneurship and Innovation chair, which is part of Labex Entrepreneurship (University of Montpellier, France) and is funded by the French government (Labex Entreprendre, ANR-10-Labex-11-01). In addition, Frédéric Le Roy is part of Labex and coordinates one of its research programmes (Cooperative Strategies and Innovation).