UNC Kenan-Flagler Business School


Collaboration as Competitive Edge


Working with your competition might make you both stronger. 

Markets appreciate consortia, Arvind Malhotra discovered. Malhotra, a professor of strategy and entrepreneurship, has studied collaboration among businesses throughout his career and learned early on that no business can do it all alone and thrive. His most recent research on research and development consortia revealed that even a consortium that includes a company’s competitors benefits all participants, and markets respond positively once a consortium is announced.


Intense competition drives consortia formation. In the 1970s, U.S. companies were trounced by Japanese companies which were backed by government-led consortia. They responded by forming their own consortia. By pooling their knowledge and talent, companies found a strategic tool to make R&D less capital intensive. The stock market, appreciating that wheels did not have to be reinvented by each company when basic research was done soundly and collaboratively, showed its approval by bumping up the stock value of companies in the consortium.

“Markets see collaborative efforts as less risky and having less capital waste,” Malhotra said. “Consortia are efficient and effective models of competition.”

In coming to his conclusion, Malhotra looked at every consortium formed from the late 1970s through the 2000s, and checked to see whether consortium members showed abnormal positive market returns immediately after the collective was announced. His sample of 90 consortia comprised 465 publicly traded U.S. companies.

Although not every company reaped the same benefit, collectively the stock value for the set of companies rose instantly after the announcement. Surprisingly, the gain held true for consortia formed for marketing purposes as well as for fundamental research; and for new consortia as much as for consortia formed in the early part of the sample. Malhotra plans to study consortia consisting of international competitors next.

Forming a successful consortium requires trust among companies. They have to delineate clearly what the mutual benefits will be and the timeline for commercialization, capitalization and disintegration. Jumping the gun on turning from early-stage collaboration to competing to commercialize can result in a severe loss of trust in the long run.

“At a fundamental level, it’s collective learning,” Malhotra said. “Competing on your own, your odds of failure are much higher. A consortium improves the odds for everyone to succeed.”


Arvind Malhotra is a professor of strategy and entrepreneurship and a Sarah Graham Kenan Distinguished Scholar at UNC Kenan-Flagler.