Business Policy Chapter 9
5 common reasons firms enter strategic alliances
to strengthen competitive position, enter new markets, hedge against uncertainty, access critical complementary assets, learn new capabilities
3 main benefits to a horizontal integration strategy
-Reduction in competitive intensity -Lower costs -Increased Differentiation
3 main reasons firms make acquisitions
to gain access to new markets and distribution channels to gain access to a new capability or competency to preempt rivals
strategic alliances
voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services. contracts can be small with no bearing on competitiveness to billion dollar joint ventures. only considered STRATEGIC if it has the potential to affect a firm's competitive advantage
hostile takeover
when a target firm does not want to be acquired
google engaged in a number of smaller acquisitions of tech ventures. It did this in order to
fill gaps in its competency lineup
Which of the following best illustrates a non-equity alliance?
A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component parts to Pristine Autos Inc
How does taking a real-options perspective by entering strategic alliances help incumbent firms?
It allows the incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.
How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?
It enabled HP to compete head on with Cisco's videoconferencing solution.
Kraft's hostile takeover of Cadbury
Kraft was interested in Cabury's position internationally. the acquisition allowed Kraft greater access to convenience stores, gives it a new distribution channel, and opens up a new market.
desire to overcome competitive disadvantage
this can allow companies to gain a competitive advantage
Disney's acquisitions of Pixar, Marvel, and Lucasfilm
Pixar entered a strategic alliance with Disney for financial and distribution purposes. This helped Disney rejuvenate its product lineup by obtaining rights to newly created pixar characters Later, Disney acquired Marvel, and later the creators of StarWars, Lucasfilm.
Mergers and acquisitions typically destroy rather than create shareholder value, so why do we see so many mergers?
Reasons include: 1. Principal-agent problems 2. the desire to overcome competitive disadvantage 3. Superior acquisition and integration capability
How did Apple's e-book business model affect Amazon?
The bargaining power of suppliers, the content providers, increased from Amazon's perspective.
What does the relational view of competitive advantage propose?
The locus of competitive advantage is often not found within the individual firm but within a strategic partnership.
When should mergers and acquisitions (M&A) be considered the "buy" option for a strategist trying to determine which corporate strategy to implement?
When extreme closeness to the resource partner is necessary to understand and obtain its underlying knowledge
alliance management capability
a firm's ability to effectively manage 3 alliance related tasks concurrently, often across a portfolio of many different alliances these 3 are: -partner selection and alliance formation -alliance design and governance -post formation alliance management
managerial hubris
a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.
joint venture
a standalone organization created and jointly owned by two or more parent companies. ex. Hulu exchange of both tacit and explicit knowledge is typical lest common
While Cisco Systems has been successful in selecting and buying both big and small technology ventures, HP had to write off some of its recent technology acquisitions. Which of the following statements best explains this scenario?
Acquisition and integration capabilities were not equally distributed across firms.
When a firm does not have the resource required for pursuing a growth strategy, and if the resource in question is not easily tradable, the implication for the strategist is most likely to:
consider an outright acquisition
co-opetition
cooperation by competitors to achieve a strategic objective
Under CEO Robert Iger, Disney has followed an acquisition-led growth strategy. Which of the following was a result of this corporate strategy?
Disney compensated more easily for losses from flops.
Firms have 2 critical strategic options to pursue common interests, enhance competitiveness, and increase revenues. What are they?
acquisitions and alliances
advantages/disadvantages of joint ventures
advantages: strong ties, trust, commitment disadvantages: long negotiations, significant investments, undoing a JV can take time and involve high costs, shared knowledge could be misappropriated, rewards must be shared between partners
In Eli Lilly's Office of Alliance Management, the _____ is a senior, corporate-level executive responsible for high-level support and oversight.
alliance champion
In Eli Lilly's Office of Alliance Management, who is responsible for providing the technical expertise and knowledge needed for the specific technical area and the day-to-day management of the alliance?
alliance leader
In Eli Lilly's Office of Alliance Management, who is responsible for providing alliance training and development?
alliance manager
real options perspective
approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time. This approach allows the firm to obtain additional information in pre-determined stages
equity alliances
at least one partner takes over partial ownership in the other partner. less common than non-equity bc they often require larger investments. allow for the share of tacit knowledge tend to produce stronger ties and greater trust between partners than non equity alliances frequently are stepping stones to full integration through a merger or acquisition "try before you buy"
When entering a foreign market, it is advisable for a new venture that has a core competency only in R&D to form a strategic alliance with a local partner because:
building downstream complementary assets can be expensive and time-consuming.
how did the recent horizontal integration in the US airline industry provide benefits to the surviving carriers?
by lowering competitive intensity in the industry overall
how does horizontal integration within an industry affect the surviving firms?
by strengthening the bargaining power of the surviving firm vis-a-vis suppliers and buyers
tacit knowledge
cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task
A drawback of joint ventures is that they are characterized by:
double reporting lines.
How does horizontal integration help firms lower costs?
economies of scale
corporate venture capital (CVC)
equity investments by established firms in entrepreneurial ventures. falls under the broader rubric of equity alliances
Which of the following is an ineffective practice in alliance management?
focusing on developing an alliance management capability in isolation
In a strategic alliance, the firm that learns faster:
has the incentive to reduce its knowledge sharing
which of the following is a disadvantage of horizontal integration corporate strategy
increases the potential for legal repercussions
Which of the following types of strategic alliances is the least common in terms of frequency?
joint ventures
explicit knowledge
knowledge that can be codified (info, facts, instructions, recipies); concerns knowing about a process or product
principal-agent problems
managers are supposed to act in the best interest of the shareholders but sometimes they choose acquisitions bc of a desire for prestige, power, and pay.
non-equity alliance
most common type of alliance Partnership based on contracts between firms. The most frequent forms are supply agreements, distribution agreements, and licensing agreements firms share explicit knowledge these are flexible and easy to initiate and terminate. also can be temporary in nature and sometimes produce weak ties between partners which can result in a lack of trust and commitment
A(n) _____ occurs when firms enter into a partnership based on contractual agreements, which results in vertical strategic alliances, that connect different parts of the industry value chain.
non-equity alliance
alliances can be governed by the following mechanisms - contractual agreements for:
non-equity alliances equity alliances joint ventures
Costs of horizontal integration through M&A
potential integration failure reduced flexibility increased potential for legal repercussions
In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates _____.
real options perspective
A _____ is best described as an approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.
real-options perspective
How horizontal integration through M&A creates value
reduces competitive intensity lowers costs increases differentiation
Disney became the world's leading media company to a large extent by pursuing a corporate strategy of
related-linked diversification
The _____ is a strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.
relational view of competitive advantage
The process of alliance management begins with _____.
selecting the best possible partner
learning races
situations in which both partners in a strategic alliance are motivated to form an alliance for learning but the rate at which the firms learn may vary; the firm that accomplishes its goal more quickly has an incentive to exit the alliance or reduce its knowledge sharing
A drawback involved in using cross-border strategic alliances to enter new foreign markets is that:
some of the firm's proprietary know-how may be appropriated by the foreign partner.
Superior acquisition and integration capability
sometimes acquisitions can lead to a competitive advantage.
rational view of competitive advantage
strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries
Horizontal integration can favorably affect several of Porter's five forces for the surviving firms:
strengthening bargaining power, reducing the threat of entry, and reducing rivalry among existing firms
A consumer electronics company is in the process of evaluating whether it should pursue an internal development strategy or an external growth strategy. To make this decision, the management needs to assess whether the company's internal resources are superior to those of competitors in the targeted area. Which of the following strategic management models would be most useful in this assessment?
the VRIO framework
merger
the joining of two independent companies to form a combined entity. typically are friendly, the target firm WANTS to be acquired.
horizontal integration
the process of merging with competitors, leading to industry consolidation a type of corporate strategy that can improve a firm's strategic position in a single industry
acquisition
the purchase or takeover of one company by another. can be friendly or unfriendly.
which of the following is a result of horizontal integration in terms of porters 5 forces model?
there is a reduction of excess capacity in the market