By Professor Farok Contractor

Humankind has been cooperative from the dawn of history and units of cooperation have grown from cooperation between individuals, to alliances between firms, and also to cooperation between nations via international business. Before the dawn of history, the gift of language enabled cooperation between individuals for agriculture, and enabled puny humans to cooperatively hunt beasts far larger and fiercer then themselves. The first recorded “factory” was around 25,000 BC in the Abruzzo province of what today is called Italy, where the division of labor and the specialization of workers by skill-set was first seen. This factory produced stone tools which were then distributed over a wider area. It was thus that companies (groups of individuals bound by a organizational hierarchy and division of labor) came into being. Later, around 2000 years ago, Pliny the Elder complained about Rome’s trade deficit against China and India, an interesting echo of the trade deficit that Europe and the US again suffer against China, but it was not until the 20th century that companies started cooperating and forming alliances.

The question then is why do even direct rival companies feel the need to cooperate, for specific tasks, or markets? What strategic reasons or drivers induce cooperation? What are the benefits each firm gains from the alliance?

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