SEVI 3013 Chapter 6
- non-equity alliance - equity alliance - joint venture
-partnership based on contracts between firms - partnership in which at least one partner takes partial ownership in the other - standalone organization created and owned by two or more parent companies
How do mergers and acquisitions differ?
A merger describes the joining of two independent companies, while an acquisition describes the purchase or takeover of a firm.
How does Lyft benefit from its strategic alliances with GM and Waymo?
It allows Lyft to more effectively compete against Uber
How does horizontal integration affect Porter's Five Forces for the surviving firms?
It reduces the threat of entry. It reduces rivalry among existing firms.
Which of the following is a disadvantage of a joint venture?
Knowledge shared with the new partner could be misappropriated by opportunistic behavior.
What are the components of post-formation alliance management?
Make relation-specific investments. Establish knowledge-sharing routines. Build inter-firm trust.
In order to build alliance management capabilities in small companies, it is recommended that firms take the ______ approach
"learning-by-doing"
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.
What are downsides of equity alliances?
The time and effort for assembling the partnership The amount of investment involved
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.
Which of the following statements about equity alliances is true?
They require larger investments than non-equity alliances.
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
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 occurs when a targeted firm is unwillingly acquired?
a hostile takeover
Vasily is a manager at a large snack foods company. Vasily believes his company would benefit from being larger and thinks the shareholders would support such growth. The company is doing relatively well but needs to focus on stabilizing profits and expenditures. Vasily pushes for an acquisition anyway. The reason for this acquisition is
a principal-agent problem
Which approach to strategic decision making takes a larger investment decision and divides it into multiple smaller decisions that happen over time?
a real-options perspective
What three of the following are the primary benefits of horizontal integration?
a reduction in competitive intensity lower costs increased differentiation
What allows firms to manage both strategic alliances and mergers and acquisitions?
a relational capability
Which of the following did Kraft see as an advantage of integration with Cadbury?
access to new markets
Which of the following terms refers to when one firm purchases or takes over another firm?
acquisition
Strategists can grow their firms by growing organically through internal development or externally through alliances and
acquisitions
What are three options used by executives to drive firm growth?
acquisitions alliances organic growth
A firm with alliance management capability is able to effectively manage which of the following tasks?
alliance design and governance partner selection and alliance formation post-formation alliance management
Which term refers to a company's ability to handle the three specific tasks related to an alliance concurrently and effectively?
alliance management capability
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 manager an alliance champion an alliance leader
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
In general, if a resource is highly tradable, then it should be ______ using a license or contractual agreement.
borrowed
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
A firm might want to use a strategic alliance to
change the industry structure
When competitors enter strategic alliances and become collaborators, ______ ensues and can result in learning races
co-opetition
Which of the following terms is used to describe cooperation by competitors?
co-opetition
When an established firm makes an equity investment in an entrepreneurial venture it is known as a(n) ______ investment
corporate venture capital
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
A partnership in which at least one partner takes partial ownership in the other is a(n)
equity alliance
What is a component of post-formation alliance management?
establishing knowledge-sharing routines
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
An advantage of using a non-equity alliance to govern a strategic alliance is its
flexibility and ease of initiation
What must strategic alliances do in order to create the foundation for a competitive advantage?
form unique resource combinations that obey the VRIO criteria
When two competitors merge, leading to industry consolidation, they are engaging in
horizontal integration
n 2010 Kraft Foods bought UK-based Cadbury PLC in a hostile takeover. Kraft felt that a ______ with Cadbury would help Kraft break into emerging countries because of the strong position Cadbury had in India, Egypt, Thailand. and other countries.
horizontal integration
An unfriendly acquisition of one company of another is known as a(n)
hostile takeover
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
Which of the following are benefits of a horizontal integration?
increased differentiation reduced competition
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
When two firms that have formed a strategic alliance to learn vary in the rate at which they learn, a(n) ______ may result
learning race
Gaining new capabilities or competencies is one of the three main reasons companies
make acquisitions
When managers of acquiring companies incorrectly convince themselves that they are able to manage the business of the target company more effectively than its current managers, they are engaging in
managerial hubris
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 three 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
What are the most expensive, complicated, and difficult to undo options used to grow a firm?
mergers acquisitions
What are the two necessary conditions for successful alliance formation?
partner compatibility partner commitment
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
What are the phases of alliance management?
partner selection and alliance formation alliance design and governance post-formation alliance management
What are three advantages of equity alliances?
possible emergence of trust and commitment a window into new technology (option value) stronger ties
When a company makes incremental investments as part of a larger investment and takes the time to analyze the information gained following each incremental investment, the company is taking a
real-options perspective
Sources of costs in a horizontal integration strategy include which of the following?
reduced flexibility integration failure
What are sources of value creation in a horizontal integration strategy?
reduction in competitive intensity lower costs
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
Which of the following are the three choices in the Build-Borrow-Buy framework?
strategic alliances internal development acquisition of new resources
Why does Facebook acquire startups?
strategic preemption
Which type of knowledge cannot be codified and can only be gained through active participation in the task?
tacit knowledge
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
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
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
threat of entry
How can firms build alliance management capability?
through repeated experiences over time
Why might a firm create a joint venture when entering a new geographic market?
to access local contacts to access local expertise to adhere to local law
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 are reasons why firms enter into strategic alliances?
to enter new markets to learn new capabilities to strengthen their competitive position
Which are the three main reasons firms make acquisitions?
to gain access to a new capability or competency to gain access to new distribution channels and markets to preempt rivals
Why do incumbent companies enter into strategic alliances with startups?
to hedge against uncertainty
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 enhance their economic value creation to lower costs
Which of the following are advantages of joint ventures?
trust strong ties commitment
If an alliance between two firms succeeds, it is likely that the firms in the alliance
trust each other
In order to build alliance management capabilities in small companies, it is recommended that firms take the ______ approach.
"learning-by-doing"
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.
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-Buy
hich statements correctly describe the advantages commonly possessed by firms in licensing agreements?
Established firms typically have an innovation advantage. Startups often possess an invention advantage.
Which bodies regulate mergers and acquisitions?
European Commission Federal Trade Commission
True or false: Firms tend to enter strategic alliances when they have no other choice.
False
True or false: In most cases, mergers and acquisitions create competitive advantage.
False
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.
Which of the following is true of tacit knowledge?
It can only be acquired through actively participating in the process.
In what way does the strategic alliance between GM and Lyft allow GM to hedge against uncertainty?
It gives GM access to the market of the future, in which private car ownership model is likely to shift in favor of fleet ownership and management.
Strategy scholars believe that firms should create a dedicated alliance function with which of the following features?
It should be led by a vice president or director of alliance management. It should have its own resources and support staff.
Which of the following is true regarding the government and horizontal integration?
Large horizontal integration activity typically needs to be approved by government authorities.
What are some managerial advantages of building a firm into a large organization?
More job security Increased power Greater prestige
Which statements correctly describe licensing agreements?
Participants focus on their own comparative advantages. They are contractual alliances between firms. Licensing agreement partners frequently exchange codified information.
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.
What are common reasons a firm might pursue a merger?
Principal-agent problems. The desire to overcome competitive disadvantage. Superior acquisition and integration capability.
Which of the following is true of firms' acquisition and integration capabilities?
Some firms can consistently use mergers and acquisitions to increase their competitive advantage.
Which statements correctly describe the advantages commonly possessed by firms in licensing agreements?
Startups often possess an invention advantage. Established firms typically have an innovation advantage.
What are true statements about mergers and acquisitions?
There is an unequal distribution of acquisition and integration capabilities across firms. Some firms are able to successfully complete mergers and acquisitions.
True or false: Because the size of organizations is typically positively correlated with prestige, power, and pay, principal-agent problems might be a reason to pursue M&As.
True
Internal development should occur when the firm's resources are ______ to those of competitors in the targeted area
both similar and superior
How willing the firms in an alliance are to share necessary resources and make sacrifices in the name of long-term rewards is referred to as partner
commitment
How well the firms in an alliance fit together culturally is referred to as partner
compatibility
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
Which of the following forms of agreement do non-equity alliances typically take?
distribution licensing supply
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
What is an important aspect of alliance success?
inter-organizational trust
The most common type of alliance is a(n)
non-equity alliance
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