Microfoundations of dynamic coopetition capabilities in firms from a microbrewery cluster

1. Introduction

An emergent perspective in the business environment is coopetition, which describes situations in which there is dynamic trust between collaborators and competitors (Bouncken, Gast, Kraus, & Bogers, 2015). The definition of coopetition is simultaneous cooperation and competition between firms to create value (Gnyawali & Charleton, 2018). This definition considers that firms should be capable of managing coopetition and the tensions involved.

The tensions involved in coopetition have been widely studied in recent years, mainly regarding the paradox between competition and cooperation (e.g. Lundgren-Henriksson & Tidström, 2021). Only recently scholarly research has focused on coopetition capabilities, in an attempt to explain how firms can deal with the tensions and paradoxes arising in the context of coopetition (Bengtsson, Kock, Lundgren-Henriksson, & Näsholm, 2016; Jakobsen, 2020; Lundgren-Henriksson & Tidström, 2021). Microfoundations and dynamic capabilities have not been considered in conjunction with cooperation and competition. In the best of circumstances, these topics have been analyzed separately (e.g. Stadtler & Van Wassenhove, 2016). Eisenhardt, Furr, and Bingham (2010) have defined microfoundations as “underlying individual-level and group-level actions that shape strategy, organization and, more broadly, dynamic capabilities, and lead to the emergence of superior organization-level performance” (2010, p. 1263). In turn, dynamic capability can be defined as “the firm’s ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments” (Teece, Pisano, & Shuen, 1997, p. 516).

We decided to study the beer industry because coopetition is a common strategy among brewery firms (Kraus, Gast, Klimas, & Stephan, 2019). Specifically, we chose the Brazilian craft beer industry because it has been transformed by competition forces, tracing to the significant increase in demand for premium products (Dias & Teles, 2019). From 2017 to 2018, the Brazilian craft beer market grew by almost 30% (Associação Brasileira da Indústria da Cerveja CervBrasil, 2018). While Brazil is the third largest producer of beer of all types in the world (Beverage Industry, 2019), the craft beer market is characterized by concentration: a large portion of the market is held by a small number of firms. These firms are nonetheless small compared to mainstream breweries. The craft breweries have developed cooperation and competition relationships with each other, but this strategy has not been followed by many of the more consolidated players in the domestic beer market (Stefenon, 2012; Lima, Nastri Neto, & De Carvalho, 2013). In recent years, the emergence of new small business competitors has significantly changed the profile of product supply and distribution in the domestic market. We based this study on a cluster of microbreweries located in Porto Alegre. For the purposes of this paper, clusters are defined as “geographic agglomerations of economic activities that operate in the same or interconnected sectors” (Giuliani & Bell, 2005, p. 47).

The study was designed aiming to answer the following research question: How can microfoundations generate dynamic capabilities for coopetition? The purpose of this paper is therefore to present an analysis of the microfoundations that generate dynamic capabilities for coopetition, as they can be critical for organizations to improve the balance between tensions and performance (Raza-Ullah, 2020). Previous studies have connected dynamic capabilities to coopetition. However, the processes and routines that constitute the microfoundations have been disregarded in this approach to a context-dependent strategy such as coopetition. In this paper, managerial and organizational processes are defined as the way things are done in the company, and play the roles of coordination, learning and reconfiguration (Teece et al., 1997). Processes shape the company’s current positions and its possibilities for evolutionary paths and are at the core of dynamic capabilities. Further, we consider organizational routines to be execution of interdependent tasks, performed by actors in a stable manner. In turn, “interdependent tasks pose coordination and cooperation challenges in combining individual inputs to create value and generate performance” (Becker, 2016, p. 2129). In this sense, understanding routines in the coopetitive context helps to delineate the coopetition capability.

Our findings make several contributions to the debate around coopetition and the microfoundations of dynamic capabilities. First, we develop an approach combining the microfoundations of dynamic capabilities (Teece, 2007) to coopetition strategy. Dynamic capabilities are developed from individual processes and routines that are specific to the context analyzed, explaining its operationalization (Silva, 2020). Thus, we present processes and routines that are configured as capabilities of dynamic transformation for developing competitive advantage. Second, instead of analyzing coopetition separately, we developed a theoretical framework that considers the relationship between the microfoundations of dynamic capabilities and coopetition in the light of the paradoxical relationship between competition and cooperation. Coopetition is a paradoxical strategy because cooperation and competition are two contradictory yet interrelated strategies (Gnyawali & Park, 2011). In this sense, the paradox cannot be divided into antecedents, processes and outcome relationships, but must be studied as a dynamic process (Hargrave & Van de Ven, 2017). Consequently, players create value through cooperative processes and dispute this value in the competitive process (Bouncken, Clauß, & Fredrich, 2016; Shen, Gao, Liu, & Chen, 2021). Thus, we believe it is relevant to identify different actors’ movements and the dynamics and potential outcomes of coopetitive strategies.

Next, we present the theoretical background of coopetition regarding microfoundations and dynamic capabilities.

2. Dynamic capabilities for coopetition

Studies of coopetition can be divided into three research areas: antecedents and motives; dynamics, tensions, value creation and value appropriation; and outcomes and evaluation (Peng, Yen, & Bourne, 2018). This study focuses on value creation and value appropriation because we are interested in microfoundations and their influence on coopetitive advantage through dynamic capabilities.

Coopetition is based on competition and cooperation. Consequently, its strengths and weaknesses are paradoxical (Chen, 2008). Firms that can integrate their knowledge and resources and diminish uncertainty, develop coopetitive advantage in their markets (Klein et al., 2020; Monticelli, Silveira, & Silva, 2018; Padula & Dagnino, 2007). Four mechanisms yield coopetition from cooperation and competition: mutual pursuits, resource leverage, safeguarded resources, and relevant commitments (Gnyawali & Charleton, 2018).

It is relevant to study the microfoundations of coopetition because coopetitive partners aim to increase the value of their businesses, surpassing the results they would be able to obtain individually. The issue that is crucial to the success of these relationships is how firms divide up the results that they have obtained through coopetitive strategies.

Despite the process of consolidation that coopetition studies have undergone over the last few years (Bouncken, Fredrich, Ritala, & Kraus, 2018; Zacharia, Plasch, Mohan, & Gerschberger, 2019), few studies have observed the phenomenon through the theoretical lens of dynamic capabilities. Since dynamic capabilities are conceptualized as the ability to integrate, build and reconfigure internal and external competencies to deal in rapidly changing environments, and their primary goal is generating sustainable competitive advantage (Teece et al., 1997). Dynamic capabilities enable a range of different organizational movements, such as entering new markets or expanding existing markets through internal growth, acquisitions and alliances (Helfat et al., 2007).

Coopetition requires organizational dynamism (Ricciardi, Zardini, & Rossignoli, 2016) to establish a competitive advantage. In this field, coopetitors must “interact to create, adapt and combine exchange interfaces to achieve efficiency, renewal and development” (Waluszewski, Snehota, & La Rocca, 2019, p. 234). Routines can boost performance and provide a source of sustained performance because they promote a stable behavior pattern over time (Becker, 2016; Melo & Machado, 2020).

The knowledge generated by the cooperating firms requires dynamic capabilities for detection (Sensing), capture (Seizing) and consequent reconfiguration (Transforming) of products or processes. Aggregation (Barney & Felin, 2013) and cognition are recognized types of microfoundations that can occur at the individual, social process, interaction and structure levels (Felin, Foss, Heimeriks, & Madsen, 2012). Much of the potential for gaining competitive advantage lies in the microfoundations of dynamic capabilities, as explained in the next subsection.

3. Method

We conducted qualitative research using an exploratory-descriptive case study approach (Flick, 2014), with the objective of identifying the microfoundations of dynamic capabilities. The qualitative method was used because it is an appropriate way of describing the process in detail and analyzing the dynamic capabilities identified in coopetition. We used a case study to determine whether – and understand how – a complex and little-explored phenomenon occurs (Yin, 2018). Since the relationship between coopetition and dynamic capabilities can be considered a complex, dynamic and context-dependent strategy, the case study method is well suited to the purpose.

The population of interest in this research comprises 36 microbreweries producing craft beer in the state of Rio Grande do Sul. These breweries participated in a brewery cluster project ran in conjunction with Sebrae (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas [Micro- and Small-Firms Brazilian Support Service], 2015), which is a nonprofit agency in Southern Brazil. The study sample comprised five of these breweries: Babel Brewery, Portoalegrense Brewery, Seasons Brewery, Ferraro Brothers Microbrewery and Malvadeza. Managers of these microbreweries gave permission for their firms’ real names to be used in this paper. They were chosen because of their know-how and their pioneering role in the cluster, and proactive leadership of the association’s coopetitive strategies (see Figure 1).

We used three data collection techniques: interviews, examination of electronic documents and nonparticipatory observation. The first step was to conduct five semi-structured interviews (see Figure 2) with the managers of the chosen microbreweries to understand the existing coopetition relationships and how the project is managed. Three of these interviews were conducted over the phone and two in person at the microbreweries. All were recorded, with the permission of the interviewees and later transcribed. The purpose of using a semi-structured interview was to gain insights and achieve a deeper understanding of the firms chosen to represent the industry regarding the research question, and to avoid missing information if the conversation moved too far from the interview guide (Flick, 2014). This triangulation of methods is a key element in exploratory research and can reach understanding through several different approaches, such as observations, conversations, dialogs and relationships that support multiple views of a single phenomenon (Flick, 2014; Yin, 2018). Initial data collection was carried out in November, 2016. A second round of data collection was carried out from February to April, 2017.

The authors developed an interview script to guide the interviews that covered the two most important categories for this study: coopetition and microfoundations. Subcategories (named subnodes) of each category were also identified using the main theoretical references (Figure 3).

Second step was data collection from secondary sources, such as firms’ websites, news websites and other recent articles that analyze the same context. Third and final step was an exploratory investigation using primary sources and nonparticipatory observation at the 3rd Management Seminar for Craft Microbreweries in Porto Alegre (Brazil). The researchers engaged several different respondents in conversations at this event, discussing the context of their trade association. These observations yielded 20 transcription pages. The nonparticipatory observation was conducted at the trade event attended by microbrewery managers and Sebrae consultants in 2016: collaborative actions, exchange of information and speeches delivered by managers speaking at the event were observed.

The authors used the content analysis technique to infer knowledge (Bardin, 2011). Qualitative data were analyzed in the following three steps: (1) pre-analysis, (2) exploration of the material and (3) treatment of results, inference and interpretation. According to Bardin (2011), the pre-analysis is the stage during which organization takes place. The material was organized through selection of documents, transcription of interviews and notes made in the field diary. The first step was to choose, eliminate and organize the data according to the study design and the two major pre-established categories. Thus, the data were open coded according to the analytical categories.

Written materials (transcripts, documents and diary notes – more than 40 pages) were input to NVivo12 Pro 12® software. NVivo considers categories as nodes and subcategories as sub-nodes. Sub-nodes were created during the process of critical reading of the verbatim transcripts and other text material. These sub-nodes were based on the analytical categories, and each of the sections considered necessary to the analysis were allocated to sub-nodes. Therefore, the connections between data, content, ideas and concepts supported implementation of the first open coding cycle (DeCuir-Gunby, Marshall, & McCulloch, 2011; Saldaña, 2015).

The next step was categorization. One of the assumptions of content analysis is definition of analytical categories, seeking to make the content analyzed objective. The categories constituted the backbone of the interview script and are the two main subjects of the study: coopetition and microfoundations. NVivo qualitative coding software (NVivo Pro 12® system) was used for categorization. We held a meeting with three researchers to identify nodes that could be merged or separated according to the content of the transcripts. The ideas and themes that emerged from the data and content allowed the development of sub-codes recorded in memos on Nvivo Pro 12®: using memos, helped to generate more detailed consultations and analysis for a better understanding of the questions and dimensions proposed in the study. Thus, the dimensions were openly coded and guided by empirical data (DeCuir-Gunby et al., 2011; Saldaña, 2015). The first cycle of open coding using raw data resulted in 10 nodes. After this process, a second round was carried out to synthesize similar nodes, resulting in six sub-nodes. Thus, similar nodes were grouped and combined into the two categories. Within this perspective, “grouping” and “division” of the text can occur at different places, allowing a node to consist of a line, sentence or paragraph as long as the essence is the same (DeCuir-Gunby et al., 2011; Saldaña, 2015). Therefore, the main study nodes were grouped and combined into two categories (coopetition and microfoundations), and other sub-nodes were found after open coded analyses (e.g. collective purchases, sharing distribution expenses, shared production, education of consumers and other beer producers, group interaction and business roundtable with hospitality entrepreneurs).

The last step was treatment of results and interpretation, which refers to the moment of reflective and critical analysis (Bardin, 2011). By using the three data collection techniques (interviews, documents and nonparticipatory observation), it was possible to analyze the data using triangulation, in which a combination of different sources and data collection methods are employed to produce various assessments of the same phenomenon (Yin, 2018). The authors used the literature background to develop this research.

The next section describes the empirical case analyzed in this research.

4. The case of microbreweries in Porto Alegre

The origin of the Porto Alegre brewery cluster can be traced back to the foundation of the Associação de Cervejeiros Artesanais do Rio Grande do Sul [Association of Craft Brewers of Rio Gande do Sul] (Acerva Gaúcha) (2016) – a regional craft brewers’ association. Acerva grew out of a mailing list started in 2004 on a website, which grew into a fraternity and, in 2007, spawned an association of local brewing culture enthusiasts aiming at studying, researching, tasting and producing beer by hand.

In a second phase, this process evolved significantly as leading figures in the association became increasingly socially connected, generating new synergies and leading to the founding, in 2012, of the Rio Grande do Sul microbreweries’ association (Associação Gaúcha de Microcervejarias (AGM), 2016), with the mission of integrating and developing relationships among firms. In a third stage, in 2014, cluster leaders began to be supported by Sebrae to access suppliers and innovate to reduce costs, and to identify market opportunities for small-business entrepreneurs.

The first five microbreweries started working together, forming the cluster:

1. Babel Brewery: Founded in 2013, produces both world-renowned styles and unique exclusive creations.

2. Portoalegrense Brewery: Founded in 2011, uses the owner’s grandfather’s recipes for German beers.

3. Seasons Brewery: Founded in 2010, prepares beers using the most diverse ingredients and processes to add flavor.

4. Malvadeza: Founded in 2007, known for its high-value product with a strong brand identity.

5. Ferraro Brothers: Founded in 2012, has several award-winning labels.

These leading microbreweries initiated the cluster and influenced the first movements to encourage others to join it and gain relevance in all markets.

These microbreweries face competition and conduct their businesses in a market nonexhaustively characterized by:

1. Competition that has emerged in response to the great demand for premium products: the key characteristic of this market is the share concentration by some large companies (Stefenon, 2012). New microbreweries have significantly changed their offer and distribution in the domestic market in recent years, increasing competition. They achieve this through growth of the overall market size, creating new markets and through efficient use of resources, or improvement of competitive positions (Bengtsson et al., 2016).

2. Competition for foreign suppliers: several essential inputs are imported, such as hops, barley and yeast. They are tied to international commodity prices and subject to import duties. For this reason, AmBev (largest beer manufacturer in the world, and controls about 69% of the Brazilian beer market) maintains control over the entire production chain, in contrast with microbreweries, which can be subject to suppliers’ inordinate bargaining power. Thus, coopetition generates different levels of interactions in the chain, depending on the resource asymmetry between competitors (Monticelli, Garrido, & de Vasconcellos, 2018).

3. Substitute products: microbreweries have adopted premium positioning, competing with other premium products from large breweries and with products such as wine, cachaça [typical Brazilian brandy], and other distilled beverages. To achieve this, the microbreweries needed to adjust their prices and expand marketing investment, encouraging consumers to increase beer consumption. In this sense, changes in the environment can weaken companies, which can affect the coopetitive strategy (Padula & Dagnino, 2007).

To minimize the impacts of those market characteristics, the cluster has developed specific processes and routines, which generated the microfoundations of dynamic capabilities. Those capabilities, on their turn, strengthened partnerships because of different integrations among the microbreweries: sharing and exchanging information, and jointly perfecting operational activities. In contrast to traditional clusters, the microbrewery cluster was built on different microfoundations regarding externality gains and customer value capture, yielding collective gains for the microbreweries in purchasing, distribution and production processes. Furthermore, within the craft beer cluster there are also micro-relations among founders, producers and consumers, with direct relationships that are independent of the cluster.

In other words, this case study shows that the network externalities in a cluster can motivate coopetition, as firms integrate for inter-firm and inter-competitor collaborations (Monticelli, Silveira, et al., 2018). Thus, these organizations promoted and disseminated the coopetitive process and routines, increasing access to creation of solutions, learning and collective resources for all members of the microbrewery cluster.

5. Conclusion

The goal of this study was to analyze the microfoundations of dynamic capabilities for coopetition. We identified several processes and routines for sensing, seizing and transforming that have been adopted by the microbreweries and other actors. This study makes two main contributions to the literature. First, we present an approach combining microfoundations with dynamic capabilities and employ it to understand the processes and routines of Brazilian craft beer producers, and how they deal with coopetition strategies in the changing business environment. Second, we developed a framework that considers the relationship among dynamic capabilities, microfoundations and coopetition.

Our results show the relevance of interaction among microbreweries to attaining a common goal and constructing competitive advantage, leveraging overlapping individual interests. Such a strategy must analyze and balance capabilities to deal with the paradox and tension inherent to coopetition (Gnyawali, Madhavan, He, & Bengtsson, 2016). Moreover, analysis of capabilities to manage coopetition tension contributes to the firms choosing the best strategy.

Hitherto, little attention has been paid to this issue in the literature (Bengtsson et al., 2016). Focusing on cooperation or on competition in isolation is no longer sufficient. Moreover, it is necessary to consider other perspectives in conjunction with coopetition because it is a complex strategy that is dependent on the differing tensions faced in each industry, network or group of stakeholders. This complexity has been highlighted by Crick and Crick (2021), who identified a reduction in innovation level when there is a strong strategic network.

The routines and processes used to sense are mainly related to interaction among competitors in the cluster, while also interacting with other stakeholders searching for knowledge and information. Cluster members developed some processes, such as collective purchases and shared distribution expenses and production, to seize the knowledge they needed to progress. Finally, they transformed their cooperation, educating consumers and other beer producers. Consequently, they became capable of being more competitive, obtaining larger market shares. Thus, the dynamic of the cluster confirms that coopetition capability can offer opportunities for increasing the competitiveness and performance of both firm and network (Gnyawali & Park, 2011) because they can take better advantage of the opportunities created through collaboration and shape their business to obtain coopetitive advantage (Monticelli, Silveira, et al., 2018).

This study expands the discussion about the applicability of microfoundations of dynamic capabilities to the construction of competitive advantage. The microfoundations presented by Teece (2007) to support the theory of sensing, seizing and transforming capabilities consider the logic of analyzing the external environment in a broad manner and foreground the importance of interactions among different actors. However, the coopetition perspective that we present in this article further extends understanding of the importance of processes and routines that constitute microfoundations in more complex and interactive contexts. We can therefore conclude that the structure proposed by Teece (2007) is applicable to the coopetition context and can yield positive results for firms’ development and profitability.

One managerial (empirical) result of this study is our description of processes and routines, here identified as the microfoundations of the dynamic capabilities of the cluster of craft microbreweries in Porto Alegre. In this sense, we contribute to other firms and clusters that intend to coopete because coopetition capability can be seen as an accumulated managerial competence in terms of coopetitive interactions. Consequently, the coopetitive capability can deal with conflicts, create value and accrue superior results for individual firms (Gnyawali & Park, 2011).

Despite its contributions, this study is subject to boundary conditions. The main one is its focus on a single industry, the Brazilian craft beer industry. Thus, our results may be limited to this case. Moreover, we collected cross-sectional data, making it difficult to develop a historical analysis of the facts. There is also awareness that interview bias can occur because our research is dependent on the interviewees’ current perceptions. Since the study is cross-sectional in nature, respondents’ answers reflect their perceptions at the current point in time. Prospective research could contrast the respondents’ perception with those of other agents in the market such as trade associations, industrial agencies, government bureaus and supporting organizations. It would thus be possible to evaluate whether the relationship between formal institutions, international performance and coopetition is enduring.

To pave new avenues for research into coopetition, microfoundations and dynamic capabilities, it is necessary to compare another coopetition cluster’s dynamic capabilities and microfoundations. Moreover, we suggest that future research could extend this approach to include the role of institutions and strategy-as-practice. Such an approach could highlight interaction among firms, institutions and strategies. It could also make sense in turbulent environments, since coopetition may be a fuzzy phenomenon because of causal ambiguity and path dependence. Another interesting opportunity to be explored is analyzing the different political practices of private institutions and government, using strategy-as-practice approaches. Finally, we believe it is also relevant to understand the learning processes involved in development of dynamic capabilities through coopetition, because they can be considered accumulated managerial competence.