CSR Pre-Competitive Collaboration Explained

By January 14, 2019Social Investment

For a long time companies have seen their CSR and sustainability as a way to give them a competitive edge, not necessarily caring about the good impact of their product as much as their place in the market. Now, with the consumer base changing and employees pushing for more, companies are starting to really see how they can make a change. But wanting to make a change, of course, doesn’t mean that they will stop caring about their profits or market shares.

What is Pre-Competitive Collaboration

Pre-competitive collaboration is where two (or more) potential competing companies work together towards a common goal. This brings together shareholders from different companies that share the same ‘pain points’ and wish to find a solution.

These organisations tend to join forces in one or two ways.

The first starts with a single organisation already working toward a solution to their own problem. When the competing organisations hear news on this and purposes a collaboration as this is not a unique problem, but one of the industries.

The second way is due to open conversation from the beginning. The shareholders of competing companies discussing the various pain points and deciding together to collaborate on a solution.

Whichever way the pre-competitive collaboration starts, the outcome is for the entire industry. Allowing it to move forward and overcome a hurdle or barrier that was getting in everyone’s way. Even though the idea of a pre-competitive collaboration is for no one to have an advantage, some companies still come out on top. However, this tends to be due to their output of the solution and on smarter strategies. As each company has control how they use/market their solution.

How does Pre-Competitive Collaboration work in CSR?

Corporate social responsibility and pre-competitive collaboration work in a different way, as a companies market share and profits, are not in the fronts of everyone’s mind (this doesn’t mean to say that it’s not being thought of)

For example, companies can collaborate as part of their CSR for disaster relief. After an awful natural disaster, everyone has the same aim – to help those in need. Whether it’s the homeless, the injured or the helpless.

It can also be for product sustainability. Consumers are caring more and more about the products they are buying, with every 1-in-2 people identifying as a belief-driven buyer. This means that they only buy from companies/organisations that match their social and political beliefs (find out more on BDB here). Therefore, an industry coming together to find a way to improve a product or service as to please consumers and not worry about the effect on their market share.

Collaboration Gone Wrong

There are still some issues with pre-competitive collaboration. There seems to be a fine line between collaboration and collusion. An organisation has to be careful that when designing a new product or a changing something that will affect the industry that it does so without misleading or defrauding others within the industry. And that it has the entire industry in mind and not just the interest of a single company.

For example, the EU has given out high fines to Unilever and Procter & Gamble (P&G) for breaching competition law in eight countries due to their pre-competitive collaboration.

These two corporations made a collaboration to create a more powerful washing detergent which would allow for more washes in smaller packaging and that works better on lower temperatures. Their aim to lower the amount of packaging and energy needed for each wash.

Due to the product being condensed into smaller packaging, even though it lasts for the same amount of time, the organisations were worried that people would not purchase them for the same price as the larger boxes (the psychology of ‘more bang for your buck’). They then created the pre-competitive collaboration to release the product at the same time to not lose out on any potential customers.

Even though they successfully lowered the amount of waste and energy, helping for sustainability they also breaching competition law. Joaquim Almunia, the European Union’s vice-president for competition policy, the three companies began to co-ordinate their efforts in 2002. They “sought to ensure that no one could use this initiative to gain a competitive advantage over the others, so they agreed to protect their respective market shares. They also agreed not to decrease prices when decreasing the size of packages, and afterwards, they agreed to a price increase.” (from The Guardian).

We believe that when pre-competitive collaboration works correctly, it can be incredibly powerful. Being able to make big changes more effectively and for an entire industry. That’s why it has made our Top 10 Corporate Responsibility Trends for 2019! To find out our other 9 trends click here and download for free.

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