Chapter 9
Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them?
Many owners, managers, and business analysts believe they are essential to survive in an industry.
________, which captures the cultural fit between different firms, is one key element needed when selecting an alliance partner.
Partner compatibility
The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese market because
the U.S. population was growing slowly and becoming more health conscious
The downside of equity alliances is A. the weaker ties and reduced trust between partners. B. the amount of investment that can be involved. C. that the alliances cannot be abandoned if not promising. D. that they are not useful stepping-stones toward full integration of the partner firms.
the amount of investment that can be involved.
Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion?
the desire to gain a new capability market
In a nonequity alliance, which of the following types of information would firms most likely share?
the documented information about the material composition of a product
What is horizontal integration?
the process of merging with a competitor at the same stage of the value chain
Judging from the Disney-Pixar merger, which of these is an effective way to create shareholder value from a merger?
If the acquired company creates high-quality products or services, don't force it to mirror the management style of the acquiring company
Which of the following statements is true of an equity alliance?
In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible
There are several mechanisms in which strategic alliance can be governed. Which of the following below is no one of those ways?
acquisitions
Which of the following is an ineffective practice in alliance management?
focusing on developing an alliance-management capability in isolation
Several drawbacks exist when it comes to horizontal integration. Which of the following below is not one of the drawbacks?
higher costs
Condax Autos Inc. merged with its competitor NOW Autos Inc. This allowed Condax Autos to use its technological competencies along with NOW Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate?
horizontal
Bill's Hockey Pucks Inc. wishes to pursue international markets like China and Russia. In order to do this, they may wish to consider possible
strategic alliance with another firm already established in those markets.
Dev is a strategist for the firm Stark Industries, which produced high-quality HD movie cameras. This company needs a specific material for a new camera they are developing, which is manufactured in large quantities by a competitor called LENS Inc. However, this material is difficult to trade.
Stark Industries should acquire LENS.
NoRu Inc. is a publicly traded firm that does not wish to be acquired by FRESHPoP Corporation, a much larger publicly traded firm, who is planning an acquisition of NoRu Inc. This is an example of a
hostile takeover
Which of the following accurately describes a common difference between a merger and an acquisition?
A merger tends to be friendly; an acquisition can be friendly or unfriendly.
Iselectrics, a medium-sized medical technology company, has been successful in its research and development but needs improvement in its European sales. Which of these actions would most likely lead to long-term success for Iselectric's European sales?
Acquire a company that has a successful medical technology sales force in Europe so that Iselectrics can gain access to new distribution channels.
Managers who are eager to forge business alliances often forget that the expected benefits of the partnership must represent only a small percentage of its monetary and time-related costs.
False
Companies must evaluate the relevancy of their internal resources. This happens in two ways: they test whether resources are (1) similar to those the firm needs to develop and (2) superior to those of competitors in the targeted area. Which of the following is the best way in which firms assess the second test?
Firms can apply the VRIO framework for the second test.
DalTech Inc., a publicly traded company, designs and manufactures wearable technology. What approach should DalTech take after a long period of horizontal integration in its industry? Assume that the industry is now stable and competitors have not made any major changes in price or marketing recently.
Focus on research and development as a form of nonprice competition.
________ enables firms to increase their organizational boundaries because the number of competitors decreases. This is demonstrated through the ________ model.
Horizontal integration; structure conduct-performance
Can't Believe It's Not Hair Inc. (CBNH) dominates the ladies' wig market and wants to expand into men's toupees. How can CBNH 's managers determine whether the company should develop a toupee division internally, ally with a toupee maker, or acquire a toupee-making firm?
The managers need to determine whether the skills needed to create wigs and toupees are similar and whether CBNH creates better hairpieces than its competitors do.
A software firm is interested in acquiring an app development company that is small but highly profitable. The app developer also has a widely admired management structure and much lower attrition rates than are common in the industry. Which of these problems should the software firm anticipate?
The software firm may overpay for the app developer, poorly serving the software firm's shareholders
Which of the following is a result of horizontal integration in terms of Porter's five forces model?
There is a reduction of excess capacity in the market
Which of the following is true of acquisitions?
They can be friendly or hostile.
Which of the following statements is true of joint ventures?
They enable the exchange of both tacit and explicit knowledge
Which of the following is an advantage of equity alliances when compared to nonequity alliances?
They produce stronger ties between partners
Horizontal integration through M&A can help firms strengthen their competitive position by increasing the differentiation of their product and service offerings.
True
If two large movie theater chains decide to merge, the result is likely a horizontal integration that creates a more favorable industry structure by decreasing competition.
True
Organizations seeking strategic alliances often pursue nonequity alliances because they are the easiest to create and to sever. However, the short duration of these alliances often means there is little trust or commitment on either side.
True
Grace wants to form a voluntary arrangement with another firm in order to gain more flexibility in her supply chain, complementarity to a few of her support activities via her value chain, and strengthen her firm's overall competitive position. Grace is looking for a simple and common type of alliances, like
a nonequity alliance
Delos Autos Inc., a large automobile company, made an initial small investment in a start-up company that was developing a solar-powered car. This gave Delos Autos controlling interests in the start-up company. However, Delos Autos had no obligations to make continued investments in the experiments of the start-up company. It could invest small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Delos Autos would have the right to buy out the start-up company. This approach to strategic alliance is referred to as
a real-options perspective
Which of the following is an example of explicit knowledge?
a research summary
How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?
by lowering competitive intensity in the industry
Horizontal integration through mergers and acquisitions can help firms strengthen their competitive positions by increasing
differentiation
Warephase Airway's decision to acquire Konex Fuels Inc. proved to be ill-fated because the Warephase managers overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers capabilities were restricted to the airline industry. What does this scenario best illustrate?
managerial hubris
Why did Quaker Oats Company's acquisition of Snapple fail?
managerial hubris
Adidas acquired Reebok primarily to
overcome its competitive disadvantage against Nike
What causes the winner's curse?
overpaying for an acquisition
What is the main reason that most mergers and acquisitions negatively affect shareholder value?
promised synergies never take place
sample2
sample2
When does a merger between companies typically occur?
when two firms of comparable size join to form a combined entity
It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because
the horizontal integration activity has the potential to reduce competitive intensity in an industry
In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech start-up 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
the real-options perspective
Which of the following corresponds to the use of tacit knowledge?
Phil assembles a motorcycle from memory
Which of the following statements is true about managing alliance-related tasks?
Alliance-management capability is based on three alliance-related tasks.
Firms tend to share only explicit knowledge in an equity alliance
False
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
Which of the following summarizes the benefit of the strategic alliance between HP and DreamWorks?
Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone.
In general, it is short-sighted to acquire companies as a defensive move to prevent rival organizations from gaining access to certain patents, technology, or customer bases.
False
In recent years strategic alliances have declined because of increasing government regulation.
False
When deciding whether to build, borrow, or buy as a means of growth, firms no longer need to consider the need for physical closeness to their resource partners.
False
Overall, was the Adidas acquisition of Reebok a success?
No. Adidas has slipped from number two in the U.S. market to number three
Geovax Inc., a biotechnology company, was established to develop an effective vaccine against a deadly virus. As such, a large investment firm formed an equity alliance with Geovax that resulted in a significant financial investment that followed a string of smaller investments so be described as long as Geovax continued to make headway towards their vaccine. This "wait and see approach" can best be described as
a real-options perspective
Tyrell Corporation, a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Tyrell Corporation and the software company best referred to as in this scenario?
a strategic alliance
When large, incumbent firms buy start-up companies, the transaction is generally described as a(n)
acquisition
Tom Terry is the CEO of BuildIt.com but wants a physical retail presence. In order to accomplish this, Tom formed a joint venture with a major real estate tycoon who has a significant foothold in the commercial property sector. This venture will require exchanging more than just codified information; as such, Tom should expect to share
both tacit and explicit knowledge
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 local partner because
building downstream complementary assets can be expensive and time-consuming
A candy company called Blackzim Inc. forms an agreement with another candy company called Streethex Inc. Through this agreement, Blackzim owns 30 percent of Streethex. However, Streethex does not own any part of
equity alliance
Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures. It did this in order to
fill gaps in its competency lineup
Johnson is an executive vice president at Conecom Hardware. He researches a proposal by a larger company Openlane Hardware, to combine the two companies. By analyzing past performance, conducting focus groups, and interviewing Openlane employees, Johnson concludes that Openlane has poor profit margins, sells shoddy merchandise, and treats customers poorly. What actions should Johnsona nd Conecom Hardware take?
Turn down the acquisition offer and prepare to resist a hostile takeover.
Rosa is a senior manager at Veridian Dynamics, a motorcycle manufacturer. Veridian Dynamicshas entered an equity alliance with Parker Industries, a moped manufacturer. "Don't worry, Rosa," her counterpart at Parker Industries tells her. "I'm going to send you all our guidelines and documentation for manufacturing catalytic converters, and then you'll be all set." What else should Rosa request from Parker Industries?
personnel exchanges to share tacit knowledge
Victoria's Jewelry Inc. is considering a takeover of its competitor, Ace Diamond LLC. In general, Victoria's should go ahead with the acquisition as long as Ace Diamond is more valuable as continued standalone company than it would be inside Victoria's.
False
A microchip company wants a computer company to produce more powerful tablets and therefore use more of its chips. That same computer company wants the microchip maker to create chips with faster processing power. What approach could these companies take so that both can serve stockholders well?
The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals power.
A company that wants to enter a new geographic market within China or Saudi Arabia should avoid joint ventures with companies that are based in that country. Partnering with a foreign entity props up that entity's business rather than weakening it through competition.
False
Donware Inc. is a leader in producing winter sports equipment, including skis and skates. Recently, the firm decided to expand into the bobsled market and acquired Sleds by Gogozoom LLC This company produced bobsleds, but its sales had slowed. The managers of Donware convinced themselves that they were able to manage the business of Sleds by Gogozoom LLC more effectively even though they had no experience in the bobsled market. However, this move backfired and the sale of Sleds by Gogozoom LLC's bobsleds plummeted. Which of the following terms is often used to describe this scenario?
managerial hubris
Piper Inc. is a large cosmetics company that made an initial small investment in a start-up company, Oscorp, which was developing an organic face lotion. This gave Piper controlling interests in the start-up company. However, Oscorp soon began to have financial difficulties because of principal-agent problems. As a result, Piper did not invest in the next stage of development and pulled out of the company. This approach to strategic alliance is referred to as a
real-options perspective
Better Pill LLC is a small, new pharmaceutical company that is developing a valuable new drug. Which of these strategies would it be wise for Better Pill's owners or managers to take?
seek an alliance with a company or companies that will complete the value chain.
The process of alliance management begins with A. selecting the best possible partner. B. choosing an appropriate governance mechanism. C. designing the alliance. D. creating resource combinations that obey the VRIO criteria.
selecting the best possible partner.
Codehow Inc. is a large firm involved in the highly competitive market of high-tech medical equipment. In this market, smaller firms that focus on research are constantly making new technological developments. Which of the following approaches would best serve the needs of Codehow?
serial acquisitions
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 foreign partner will decline appropriated by the foreign partner.
A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services is best described as a
strategic alliance
American Snacks Inc., a conglomerate, has a strategic alliance with Très Bien Limité, a French snack-maker. However, Très Bien managers are concerned that the different business units of American Snacks will set up partnerships with direct competitors of Très Bien in France. What can owners and managers at American Snacks do to respond to Très Bien's concern?
Arrange for the alliance to be managed at the corporate level.
Which of the following best illustrates a merger between the two companies Scotfind Inc. and Inity Inc.?
Scotfind Inc. and Inity Inc. join together to form a single new company called Scotfinity inc.
In Fasehatice's Office of Alliance Management, the alliance champion is primarily responsible for
making sure that an alliance fits within the firm's existing alliance portfolio and corporate-level strategy.
The main reason behind Alphabet's decision to acquire the Israeli start-up company Waze for $1 billion was probably to
preempt its competitors from buying Waze
Which of the following best explains why Disney showed superior post-merger integration capabilities?
Disney managed its new subsidiaries more like alliances rather than attempting full integration
Which of the following statements is true of explicit knowledge?
Explicit knowledge is shared in non-equity alliance firms
Which of the following examples describes the task of an alliance manager?
Teddy trained the employees of his alliance partner in the skills needed to create a display for an e-notebook.
Jennifer is the CEO of JustFixIt Inc., a firm that merges technology with commercial hardware. She has been struggling with the decision to allocate her resources for the development of a new system or go to the market and search for an already established system. The Board of Directors for JustFixIt Inc. suggested that enter a contractual agreement with a partner. This scenario best illustrates the concept of
build-borrow-or-buy framework
Disney became the world's leading media company to a large extent by pursuing a corporate strategy of
related-linked diversification
Which of the following statements about managing alliance-related tasks is true?
Alliance-management capability is based on three alliance-related tasks.
The managers at Statholdings Mobile Inc. want to diversify the business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Statholding Mobile INc. is most likely a result of
Principal-agent problems
Rantouch is one of the largest tax-preparation firms in the United States. It wants to acquire Doncon , a smaller rival. After the merger, Rantouch will be one of the two largest income-tax preparers in the U.S. market. What should Rantouch include in its acquisition plans?
Rantouch will need to explain to the Federal Trade Commission how the acquisition will not result in an
Which of the following scenarios best illustrates horizontal integration?
Siliss Inc. joins with Cancity Inc., one of its direct competitors
In terms of the build-borrow-or-buy framework, a firm's internal resources are considered to be relevant when they are
Similar to those that need to be developed and superior to those of competitors in the targeted area.
Dana wishes to strengthen her firm's marketing department by partnering with a large marketing firm that can complement her existing value chain. However, she fears potential legal repercussions including potential lawsuits filed by U.S. federal agencies such as the Federal Trade Commission (FTC). Which of the following strategic options should Dana pursue?
Dana should consider forming a strategic alliance with the marketing firm.
Although Disney acquired Pixar through a hostile takeover, the merger has proven extremely profitable for both entities
False
Even if a merger may not increase shareholder value as planned, it is often a wise idea to champion it so that managers will have the greater opportunities of working at an expanding company.
False
How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?
It enabled HP to compete head on with Cisco's videoconferencing solutions
How has Kraft Foods benefited from its hostile takeover of Cadbury PLC?
It has access to convenience stores and a new distribution channel.
Which of the following is a disadvantage of a horizontal integration corporate strategy?
It increases the potential for legal repercussions
Konmatfix Inc. recently acquired Finhigh Pharmaceuticals Inc. It now sells its own products along with the products originally sold by Finhigh Pharmaceuticals. As a result, Konmatfix's sales force will also be marketing the acquired company's products. How will this horizontal integration most likely affect Konmatfix?
It will lower its costs through economies of scale
When Aviato Inc. wanted to sell its cars in the country Yugoslakia, it lacked access to distribution channels and marketing expertise in the country. Thus, Aviato Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner's well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?
accessing critical complementary assets
The Konex Hotel Group purchased Green-Plus Hotels for an estimated value of $120 billion. All the hotels previously owned by Green-Plus Hotels are now managed by the Konex Hotel Group and are known as Konex hotels. What does this scenario best illustrate?
an acquisition
Several notable firms like Eli Lilly, HP, Procter & Gamble, and IBM each wish to become the alliance "partner of choice" for small technology ventures, colleges, and inventors. They each know that ________ is a necessary and critical element for an alliance to be a success.
building interorganizational trust
InGen Pharmaceuticals Inc., Desktop Pharma Inc., and WEN Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with one another. However, the three firms will continue to behave as competitors in markets
co-opetition
Jerry is the proud owner of American BBQ Eateries LLC. They currently operate in the southeast and have recently entered into a nonequity alliance with Big Bills BBQ Grills Inc., with a promise of sharing codified information via a licensing agreement. Which of the following best represents this level of sharing knowledge?
explicit knowledge
Sterling Cooper Footware and NERV Shoes Inc., two competing shoe brands, entered into a strategic alliance to study and acquire each other's competencies. Sterling Cooper Footware entered the strategic alliance to acquire the production system pioneered by NERV Shoes. Similarly, NERV Shoes agreed to the strategic alliance to study the design process of Sterling Cooper Footware. However, Sterling Cooper Footware was more successful and faster than NERV shoes in accomplishing its alliance goal. What does this scenario best illustrate?
learning races
Tom is the CEO of Endless Possibilities Inc. and proudly boasts his firm's slogan, We Guarantee Success! However, Tom's constituents presented him with data on their latest project which suggests that they should not move forward. Tom, undeterred with this data, decides that he will still accept the project because he believes that he can't lose. This is a classic example of
managerial hubris