MGMT 481 Ch 9

Types of Alliances.

*Non-equity alliances* -Based on contracts -E.g. Microsoft-IBM, Genentech-Eli Lilly *Equity alliances* -One firm takes partial ownership in the other -E.g. Renault-Nissan *Joint ventures* -Standalone organization owned by 2 or more firms -E.g. Hulu, Dow Corning

Strategic Alliances

*Strengthen competitive position* -Apple allying with publishers to fight Amazon Kindle *Enter new markets* -Local partner for global growth -Microsoft partners with Yahoo on search *Hedge against uncertainty* -Real options approach -invest in company then buy company later *Access critical complementary assets* -Pixar partners with Disney *Learn new capabilities* -GM & Toyota (NUMMI) -formed in 1984

A. joint venture B. takeover *C. merger* D. cartel (A merger describes the joining of two independent companies to form a combined entity. Mergers tend to be friendly; in mergers, the target firm would like to be acquired.)

A _____ describes the process of joining of two independent companies with their consent to form a combined entity on a permanent basis. A. joint venture B. takeover C. merger D. cartel

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.

*A. it is easy to initiate and terminate.* B. it produces the strongest ties between alliance partners. C. it is based on partial ownership. D. it is least flexible. (The most common type of alliance is a non-equity alliance, which is based on contracts between firms. Because of their contractual nature, non-equity alliances are flexible and easy to initiate and terminate.)

A non-equity alliance is the most common type of strategic alliance because: A. it is easy to initiate and terminate. B. it produces the strongest ties between alliance partners. C. it is based on partial ownership. D. it is least flexible.

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.

*A. acquisition.* B. affiliate leadership. C. joint venture. D. cartel. (This transaction is an example of an acquisition. When large, incumbent firms such as the Tata Group, GE, or Microsoft buy startup companies, the transaction is generally described as an acquisition.)

GreyWing 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 GreyWing Products to gain access to the startup company's superior technology and human capital. This transaction is an example of a(n): A. acquisition. B. affiliate leadership. C. joint venture. D. cartel.

explicit knowledge

Knowledge that can be codified (e.g., information, facts, instructions, recipes); 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.

"Exit" Strategies

M&A -Instagram, Oculus, Zappos, Zipcar... IPO -Groupon, Fitbit, Twitter....

Principal-Agent Problem

Situation in which an agent performing activities on behalf of a principal pursues his or her own interests

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.

horizontal integration

The process of merging with competitors, leading to industry consolidation.

strategic alliances

Voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.

*A. hostile takeover* B. strategic commitment C. cartel arrangement D. joint venture (Acquisitions can be friendly or unfriendly. When a target firm does not want to be acquired, the acquisition is considered a hostile takeover.)

When a target firm does not want to be acquired, the acquisition is considered a _____. A. hostile takeover B. strategic commitment C. cartel arrangement D. joint venture

A. GD Group Inc., a large conglomerate, taking over a startup company against its will B. The electronics subsidiary unit of East Goods Inc. deploying a few of its human resources to the automobile subsidiary of the company *C. Saturn Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines* D. Serene Apparel Inc. taking over one of its fabric suppliers in a less developed nation (Saturn Pharma teaming up with a research company to invent and market breakthrough vaccines best illustrates a strategic alliance. Strategic alliances are voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.)

Which of the following best illustrates a strategic alliance? A. GD Group Inc., a large conglomerate, taking over a startup company against its will B. The electronics subsidiary unit of East Goods Inc. deploying a few of its human resources to the automobile subsidiary of the company C. Saturn Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines D. Serene Apparel Inc. taking over one of its fabric suppliers in a less developed nation

A. Ignited Autos Inc. sets up its own component part manufacturing units to have strong control over production. B. Skin Love Inc. sets up its own retail stores to directly sell its products, rather than selling them through large departmental stores. *C. B9 Electronics Inc. acquires its competitor, Virtue Electronics Inc., to gain access to its core competencies.* D. Polka Couture Inc. outsources its production to contract manufacturers in labor-intensive countries. (B9 Electronics acquiring its competitor, Virtue Electronics, to gain access to its core competencies best illustrates horizontal integration. Horizontal integration is the process of merging with a competitor at the same stage of the value chain.)

Which of the following best illustrates horizontal integration? A. Ignited Autos Inc. sets up its own component part manufacturing units to have strong control over production. B. Skin Love Inc. sets up its own retail stores to directly sell its products, rather than selling them through large departmental stores. C. B9 Electronics Inc. acquires its competitor, Virtue Electronics Inc., to gain access to its core competencies. D. Polka Couture Inc. outsources its production to contract manufacturers in labor-intensive countries.

A. The creative ability of a manager to recognize potential business opportunities *B. The findings of a research published in a scientific journal* C. The decision-making capability that is intrinsic to an employee D. The entrepreneurial skills of a manager (Explicit knowledge is knowledge that can be codified. Patents, user manuals, fact sheets, and scientific publications are all ways to capture explicit knowledge, which concerns the notion of knowing about a certain process or product.)

Which of the following is an example of explicit knowledge? A. The creative ability of a manager to recognize potential business opportunities B. The findings of a research published in a scientific journal C. The decision-making capability that is intrinsic to an employee D. The entrepreneurial skills of a manager

A. To shift the industry structure from oligopoly to perfect competition B. To move up a learning curve C. To standardize their product and service offerings and reduce the levels of differentiation *D. To gain access to a new capability or competency* (Firms make acquisitions for two main reasons: to gain access to a new capability or competency and to preempt rivals.)

Which of the following is one of the reasons that firms make acquisitions? A. To shift the industry structure from oligopoly to perfect competition B. To move up a learning curve C. To standardize their product and service offerings and reduce the levels of differentiation D. To gain access to a new capability or competency

A. The approach obligates the incumbent firm to make continued investments when demanded by its partner. B. The approach fails to provide the incumbent firm a hedge against uncertainty. C. The approach involves making large investments at the end of a project, irrespective of whether the project is successful or not. *D. The approach allows the incumbent firm to obtain additional information at predetermined stages.* (At each stage, after new information is revealed, the firm evaluates whether or not to make further investments.)

Which of the following statements is true of the real-options perspective? A. The approach obligates the incumbent firm to make continued investments when demanded by its partner. B. The approach fails to provide the incumbent firm a hedge against uncertainty. C. The approach involves making large investments at the end of a project, irrespective of whether the project is successful or not. D. The approach allows the incumbent firm to obtain additional information at predetermined stages.

A. Self-actualization B. Managerial myopia C. Self-efficacy *D. Managerial hubris* (Managerial hubris is a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.)

_____ is best described as a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary. A. Self-actualization B. Managerial myopia C. Self-efficacy D. Managerial hubris

A. Backward integration B. Forward integration *C. Horizontal integration* D. Taper integration (Horizontal integration is the process of merging with a competitor at the same stage of the value chain. Horizontal integration is a type of corporate strategy that can improve a firm's strategic position in a single industry.)

_____ is best described as the process of merging with a competitor at the same stage of the value chain. A. Backward integration B. Forward integration C. Horizontal integration D. Taper integration

Partnership based on contracts between firms. The most frequent forms are supply agreements, distribution agreements, and licensing agreements.

non-equity alliance