MSM 6650 Chapter 9
Although the three tasks of alliance management capability often occur at the same time, in general what is the first phase of alliance management?
partner selection and alliance formation
non-equity alliance
partnership based on contracts between firms
How do foreign governments typically influence a firm's use of strategic alliances to enter new markets?
Governments may require that foreign firms have a local joint venture partner in order to conduct business within the country's borders.
How does horizontal integration affect Porter's Five Forces for the surviving firms? (Check all that apply.)
It reduces rivalry among existing firms. It reduces the threat of entry.
Which of the following is true regarding the government and horizontal integration?
Large horizontal integration activity typically needs to be approved by government authorities.
why enter into strat alliances: complimentary assets
Marketing Manufacturing After-sale service
Peter's Pans makes cast-iron cookware. It decides to acquire another similar-sized cast-iron cookware company in the hope that its larger size will enable it to snag some market share away from Iron Maiden, the industry leader. What is Peter's Pans strategy?
Peter's Pans is trying to overcome competitive disadvantage.
Which of the following best exemplifies the relational view of competitive advantage?
The strategic alliance between company A and company B creates more value than either company individually.
Which statements about joint ventures are true?
They are the least common of the three types of strategic alliances. They involve the sharing of both explicit and tacit knowledge
What is a true statement about strategic alliances?
They have a high failure rate.
The starting point of the build-borrow-or-buy framework is management's
identification of a strategic resource gap that will impede future growth.
Some foreign countries require companies to be structured as __ in order to enter that foreign market. The companies gain access to the market, while the country gains advanced technology and know-how.
joint ventures
The most common type of alliance is a(n) ______.
non-equity alliance
examples of post-integration failure
-Daimler-Chrysler -AOL and Time Warner -HP and Autonomy -Bank of America and Merill Lynch
Alliance management capability: Partner Selection and Alliance formation
-Ensure B(x) > C(x), and one of the five reasons of alliance formation present -Ensure partner compatibility which captures aspects of cultural fit between firms -Ensure partner commitment in willingness to share resources for the long term
IBM and Apple: From Big Brother to Alliance Partner
-IBM was a fierce competitor with Apple (80s),then Apple dominated -2014: Apple & IBM form a strategic partnership and both benefit -Apple sold mainly B2C, IBM B2B—so they collaborate on business apps
Food fight: kraft's hostile takeover of cadbury
-In 2010, Kraft bought Cadbury for $20B in hostile takeover -Cadbury focused solely on candy and gum and had mature global distribution system -Kraft then restructured in 2012 and separated grocery foods from snack foods -In 2015, Kraft merged with Heinz and is now the 5th largest food competitor in the world
alliance management capability: alliance design and governance
-Managers design the alliance and choose an appropriate governance mechanism from among the three options: non-equity contractual agreement, equity alliances, or joint venture. -In addition to the formal governance mechanisms, interorganizational trust is a critical dimension of alliance success.
internal resources are relevant if
-They are similar to those the firm needs to develop -They are superior to those of competitors in the targeted area -Resources are relevant if they pass the VRIO Framework
closeness can be achieved through integrated alliances
-equity alliances -joint ventures also enables the borrowing of resources
Are the firm's internal resources high or low in relevance?
-in relation to solving the resource gap -if high, the firm should develop internally
strategic alliances lie in the middle of the make-or-buy continuum and can be governed by the follow mechanisms
-non-equity alliances -equity alliances -joint ventures
Why do firms enter strategic alliances?
-strengthen competitive position -enter new markets -hedge against uncertainty -access critical complementary assets -learn new capabilities
mergers and acquisitions
-the most costly -the most complex -the most difficult to reverse strategic option
Horizontal Integration
-the process of merging with competitors at the same stage of the industry value chain -corporate strategy that can improve a firm's strategic position in a single industry
Given that mergers and acquisitions, on average, destroy rather than create shareholder value, why do we see so many mergers?
1. principal-agent problems (related to managerial hubris) 2. the desire to overcome competitive disadvantage (preemptive) 3. superior acquisition and integration capabilities (companies like Disney)
there are three main benefits to a horizontal integration strategy:
1. reduction in competitive intensity 2. lower costs. 3. increased differentiation
executives must determine the degree to which certain conditions apply, either high or low
1. relevancy How relevant are the firm's existing internal resources to solving the resource gap? 2. tradability How tradable are the targeted resources that may be available externally? 3. closeness How close do you need to be to your external resource partner? 4. integration How well can you integrate the targeted firm, should you determine your need to acquire the resource partner?
Why do firms make acquisitions?
1. to gain access to new markets and distribution channels 2. to gain access to a new capability or competency 3. to preempt rivals
Which of the following are true of alliance management capability? (Select all that apply.)
A firm may need to employ it with several different alliances. It involves partner selection and alliance formation.
alliance management capability
A firm's ability to effectively manage three alliance-related tasks concurrently: (1) partner selection and alliance formation, (2) alliance design and governance, and (3) post-formation alliance management.
build-borrow-or-buy framework
Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).
Which of the following best illustrates horizontal integration?
Denali Electronics Inc. acquires its competitor, Mariana Electronics Inc., to gain access to its core competencies.
True or false: Firms tend to enter strategic alliances when they have no other choice.
False
An unfriendly acquisition of one company of another is known as a
Hostile takeover
Which of the following is true of tacit knowledge?
It can only be acquired through actively participating in the process.
Which of the following is a disadvantage of a joint venture?
Knowledge shared with the new partner could be misappropriated by opportunistic behavior.
why firms enter strat alliances: enter new markets
Product markets Service markets Geographical markets
Which of the following statements is true of the real-options perspective?
The approach allows the incumbent firm to obtain additional information at predetermined stages.
Which of the following statements about equity alliances is true?
They require larger investments than non-equity alliances
Which framework can companies use to assess whether their internal resources are superior to those of competitors in the targeted area?
VRIO framework
Which of the following best illustrates a strategic alliance?
Velociraptor Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines
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
The management at Just Right Autos Inc. and Blue Skies Automobiles Inc. realized that by combining the two entities, the stakeholders of both the companies would benefit. Their core competencies would act as complementary assets to each other. Consequently, Blue Skies Automobiles joined with Just Right Autos to form a combined entity called Just Blue Autos Inc. Which of the following does this scenario best illustrate?
a merger
What three of the following are the primary benefits of horizontal integration? (Check all that apply.)
a reduction in competitive intensity lower costs increased differentiation
joint venture
a standalone organization created and jointly owned by two or more parent companies
What are three advantages of equity alliances? (Check all that apply.)
a window into new technology (option value) possible emergence of trust and commitment stronger ties
There are several benefits of horizontal integration. Which of the following below is not a benefit?
access to new marketing and sales divisions
Which of the following terms refers to when one firm purchases or takes over another firm?
acquisition
hostile takeover
acquisition in which the target company does not wish to be acquired
Anderson Products Inc., a large conglomerate, took over a small startup company that had made some breakthrough innovations in the field of telecommunications. This purchase would help Anderson Products to gain access to the startup company's superior technology and human capital. This transaction is an example of a(n)
acquisition.
The purchase or takeover of one company by another is a(n)
acquisition.
Strategists can grow their firms by growing organically through internal development or externally through alliances and ______.
acquisitions
What are the most expensive, complicated, and difficult to undo options used to grow a firm?
acquisitions mergers
Which term refers to a company's ability to handle the three specific tasks related to an alliance concurrently and effectively?
alliance management capability
Internal development should occur when the firm's resources are _____ to those of competitors in the targeted area.
both similar and superior
A conceptual model that helps strategists choose between seeking internal development, entering into an alliance, or acquiring new resources, capabilities, and competencies is called the "______ framework."
build-borrow-or-buy
A real option gives a firm the right to continue making investments ______.
but does not obligate the firm to do so
How can horizontal integration increase product differentiation?
by filling the empty spaces in a firm's offerings
strategic alliances can help strengthen competitive position:
change industry structure to the firm's favor (influence industry standards) Ex: IBM and Apple entered a strategic alliance -desired to strengthen their competitive position in mobile computing and business productivity apps -put competitive pressure on rivals such as Microsoft
A firm might want to use a strategic alliance to ______.
change the industry structure
The local real estate companies in a city have joined together and arranged a "Property Fair." The sponsors will equally share the expenses of the event. Though many companies compete against each other, they have joined together because the medium will help the companies market themselves through a dedicated forum at an extremely low cost. This arrangement is best referred to as
co-opetition.
Which of the following are advantages of joint ventures? (Check all that apply.)
commitment trust strong ties
When an established firm makes an equity investment in an entrepreneurial venture it is known as a(n) ______ investment.
corporate venture capital
When Pfizer and Wyeth merged, they reduced the size of their combined sales force while also increasing the number of drugs they could promote. This is an example of which source of value creation for M&As?
decreased costs
Do mergers and acquisitions create competitive advantage?
despite their popularity, the answer, surprisingly, is that in most cases they do not
A strategic alliance has the potential to help a firm gain and sustain a competitive advantage when it joins resources and knowledge that are
difficult to imitate.
A partnership in which at least one partner takes partial ownership in the other is a(n) ______.
equity alliance
What are the three mechanisms that alliances can be governed by? (Check all that apply.)
equity alliances non-equity alliances joint ventures
short-term and long-term contracts are a way to borrow resources from another company
ex. licensing and franchising ex. biotech-pharma industry: producers use licensing agreements to transfer knowledge and technology
Knowledge that can be codified is also called ______ knowledge.
explicit
Non-equity alliances tend to share ______, which allows the firms to understand a certain process or product.
explicit knowledge
True or false: In most cases, mergers and acquisitions create competitive advantage.
false
An advantage of using a non-equity alliance to govern a strategic alliance is its ______.
flexibility and ease of initiation
non-equity (supply, licensing, and distribution agreements) most common
governance mechanism: contract frequency: most common type of knowledge exchanged: explicit pros: flexible, fast, easy to initiate and terminate cons: weak tie, lack of trust and commitment example: Microsoft / IBM
joint venture
governance mechanism: creation of new entity by two or more parent firms frequency: least common type of knowledge: both tacit and explicit knowledge exchanged pros: strongest tie, trust and commitment likely to emerge, may be required by institutional setting cons: can entail long negotiations and sig investments, long-term solution, JV managers have double reporting lines ex: Hulu, owned by NBC, Fox, Disney
equity (purchase of an equity stake or corporate venture capital, CVC investment)
governance mechanism: equity investment frequency: less common type of knowledge: explicit; exchange of tacit knowledge possible pros: stronger tie, trust and commitment can emerge, window into new technology (option value) cons: less flexible, slower, can entail significant investments ex: Renault-Nissan
To secure a strong strategic position in fast-growing emerging markets, which of the following corporate strategies did Kraft Foods primarily pursue by acquiring Cadbury?
horizontal integration
When two competitors merge, leading to industry consolidation, they are engaging in ______.
horizontal integration
The process of merging with a competitor at the same stage of the value chain is best described as
horizontal integration.
When a firm wishes to consolidate the industry in which they compete by merging with their competitors, they are engaging in
horizontal integration.
Chao's Coffee is a large chain of coffee shops. It wants to join with Rigoberto Roasters, a large coffee roasting company. Rigoberto Roasters wants to stay independent, but Chao's is able to purchase Rigoberto. This describes a(n) ______.
hostile takeover
A firm must decide whether to build, borrow, or buy to answer the question of ______.
how it will achieve growth
A non-equity alliance is the most common type of strategic alliance because
it is easy to initiate and terminate.
A firm should consider using mergers and acquisitions only when ______.
it is important to be extremely close to the resource partner in order to understand underlying information
A standalone organization that two or more parent companies create and own together is a ___.
joint venture
The three mechanisms to govern alliances are non-equity alliances, equity alliances, and ______.
joint venture
Zoe is a manager at a large company engaged in the acquisition of a smaller company. The smaller company has operated at a loss for the last three years under different managers, but Zoe is convinced that she can turn the company around despite the evidence to the contrary. Zoe is engaging in
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" is the definition of
managerial hubris.
"The process of joining two independent companies with their consent to form a combined entity on a permanent basis" is the definition of a
merger.
A(n) ______ is when two firms agree to join and create a combined entity, and a(n) ______ is when one firm buys or takes over another firm.
merger; acquisition
A partnership that is based on contracts between companies is referred to as a(n) ______.
non-equity alliance
equity alliance
partnership in which at least one partner takes partial ownership in the other
What are the phases of alliance management? (Check all that apply.)
post-formation alliance management alliance design and governance partner selection and alliance formation
In order for an alliance to qualify as ______, it must have the potential to alter a company's competitive advantage.
strategic
A voluntary arrangement between firms to share knowledge, resources, and capabilities to develop products, processes, or services is known as a ______.
strategic alliance
The partners in non-equity alliances can have weak ties because such alliances are often ______ in nature, which can cause lack of trust and commitment.
temporary
principal-agent problem
the agent (e.g. manager), does not act in the best interests of the principal (shareholder)
Which of the following is an example of explicit knowledge?
the findings of a research published in a scientific journal
Mergers
the joining of two independent companies to form a combined entity
Which of the following states that important resources and capabilities are commonly embedded in strategic alliances that cross firm boundaries?
the relational view of competitive advantage
A firm should use an equity alliance, a joint venture, or an outright acquisition in order to gain use of a resource when ______.
the resource is not easily traded
Horizontal integration is a good option if ______.
the target firm will have more value when combined with the acquiring firm
Horizontal integration can reduce ______.
the threat of entry
Which of the following was one of the primary reasons why Adidas acquired Reebok?
to overcome a competitive disadvantage
What are common reasons a firm might pursue a merger? (Check all that apply.)
to overcome competitive disadvantage to address principal-agent problems to gain superior acquisition and integration capability
Why does Facebook acquire startups?
to preempt rivals
Which are the three main reasons firms make acquisitions? (Check all that apply.)
to preempt rivals to gain access to new distribution channels and markets to gain access to a new capability or competency
Which of the following are reasons to pursue horizontal integration as a corporate strategy?
to provide such benefits as complementary products in their offering to lower costs to enhance their economic value creation
Which of the following are reasons why firms enter into strategic alliances? (Check all that apply.)
to strengthen their competitive position to enter new markets to learn new capabilities
True or false: A horizontal integration strategy leads to industry consolidation.
true
True or false: Firms can use strategic alliances to strengthen their competitive advantage when competing in battles to control industry standards.
true
horizontal integration through M/A value/costs
value: reduction in competitive intensity, lower costs, increased differentiation costs: integration failure, reduced flexibility, increased potential for legal percussions
strategic alliances
voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services
When companies get involved in a bidding war and the winner overpays for the acquisition, the acquiring company has fallen victim to the ______.
winner's curse
Eli Lilly, a company known for its alliance management, manages its alliances using a three-person team consisting of which of the following?
- an alliance champion - an alliance manager - an alliance leader
Which of the following are benefits of a horizontal integration? (Check all that apply.)
- reduced competition - increased differentiation
why enter to strategic alliances: Learn new capabilities
-Firms are motivated by the desire to learn from their partners. -Co-opetition (cooperation by competitors to achieve a strategic objective) -Firm that learns more quickly is motivated to exit the alliance "learning races"
Sources of COSTS in a horizontal integration strategy are ______.
reduced flexibility integration failure
Components of Post-Formation Alliance Management?
- Making Relationship-Specific Investments - Establish knowledge-Sharing Routines - Build inter-firm trust
What are some advantages of strategic alliances?
- They help firms achieve goals faster than they would alone - They might give companies a competitive advantage
why enter strat alliance hedge against uncertainty: real-options perspective
-Breaks down a larger investment decision into a set of smaller decisions -Staged sequentially over time and allows firms to obtain information in stages
Disney: Building billion dollar franchises
-Disney is the world's largest media company. -In recent years, Disney has grown through a number of high-profile acquisitions. -Pixar (2006), Marvel (2009), and Lucasfilm (2012), the creator of Star Wars -All this was done with the goal to build billion-dollar franchises.
tradability: the firm creates a contract
-allows for the transfer of ownership -allows for use of the resource
What happens in the third phase of alliance management?
Alliance partners make relation-specific investments.
What is a major problem for between 30% and 70% of all strategic alliances?
At least one partner in the alliance considers the venture to be a failure.
Which bodies regulate mergers and acquisitions?
European Commission Federal Trade Commission
implications for the strategist
Rather than focusing on developing an alliance management capability in isolation, firms should develop a relational capability that allows for the successful management of both strategic alliances and mergers and acquisitions. In sum, to ensure a positive effect on competitive advantage, the management of strategic alliances and M&A needs to be placed at the corporate level.
What are downsides of equity alliances? (Check all that apply.)
The amount of investment involved The time and effort for assembling the partnership
acquisitions
The purchase or takeover of one company by another (friendly/ unfriendly)
Which of the following occurs when a targeted firm is unwillingly acquired?
a hostile takeover
In order to rejuvenate its floundering product lineup, Disney
acquired Pixar.
At which level of the corporation should strategic alliances and mergers and acquisitions be managed?
at the corporate level
In general, if a resource is highly tradable, then it should be ______ using a license or contractual agreement.
borrowed
A firm has a core competency in R&D but little else, so it enters into a strategic alliance with a larger firm to gain distribution channels and marketing expertise. In this case, distribution channels and marketing expertise would be examples of ______.
critical complementary assets
Marketing, manufacturing, and after-sale service are examples of ______.
critical complementary assets
according to the rational view of competitive advantage,
critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries
Firms enter strategic alliances to
have a positive effect on economic value creation.
The acquisition of PeopleSoft enabled Oracle to offer its customers expertise in human resource management systems (PeopleSoft's core competency) in addition to database management systems (Oracle's core competency). This is an example of which source of value creation of M&As?
increased differentiation
effective alliance governance
interactions b/t: interfirm trust relation-specific investments knowledge-sharing routines
Which of the following are the three choices in the build-borrow-or-buy framework? (Check all that apply.)
internal development acquisition of new resources strategic alliances
explicit knowledge
knowledge that can be codified; concerns knowing about a process or product
tacit knowledge
knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task
What are sources of value creation in a horizontal integration strategy? (Check all that apply.)
lower costs reduction in competitive intensity
Gaining new capabilities or competencies is one of the three main reasons why companies
make acquisitions
Equity alliances allow for the sharing of ______, which involves information that cannot be codified for completing tasks.
tacit knowledge
Which type of knowledge cannot be codified and can only be gained through active participation in the task?
tacit knowledge
Why might a firm create a joint venture when entering a new geographic market?
to access local expertise to adhere to local law to access local contacts
What is the main goal of corporate venture capital investments?
to create real options in terms of gaining access to new technologies
Which of the following is one of the reasons that firms make acquisitions?
to gain access to a new capability or competency
Why do incumbent companies enter into strategic alliances with startups?
to hedge against uncertainty