Ch9

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.

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.

What are the components of post-formation alliance management?

Build inter-firm trust. Establish knowledge-sharing routines. Make relation-specific investments.

Which bodies regulate mergers and acquisitions?

European Commission Federal Trade Commission

True or false: In most cases, mergers and acquisitions create competitive advantage.

False

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 traditional private car ownership no longer exists.

Which of the following are true of alliance management capability?

It involves partner selection and alliance formation. A firm may need to employ it with several different alliances.

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.

What are some advantages of strategic alliances?

They might give companies a competitive advantage. They help firms achieve goals faster than they would alone

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

How well the firms in an alliance fit together culturally is referred to as partner ______.

compatibility

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

Which of the following forms of agreement do non-equity alliances typically take?

licensing distribution supply

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

equity alliance

partnership in which at least one partner takes partial ownership in the other

A firm with alliance management capability is able to effectively manage which of the following tasks?

post-formation alliance management alliance design and governance partner selection and alliance formation

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

A voluntary arrangement between firms to share knowledge, resources, and capabilities to develop products, processes, or services is known as a ______.

strategic alliance

Which type of knowledge cannot be codified and can only be gained through active participation in the task?

tacit knowledge

equity alliances allow for the sharing of ______, which involves information that cannot be codified for completing tasks.

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

If an alliance between two firms succeeds, it is likely that the firms in the alliance _____.

trust each other

How does Lyft benefit from its strategic alliances with GM and Waymo?

It allows Lyft to more effectively compete against Uber.

Which of the following is true regarding the government and horizontal integration?

Large horizontal integration activity typically needs to be approved by government authorities.

When an established firm makes an equity investment in an entrepreneurial venture it is known as a(n) ______ investment.

corporate venture capital

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

An advantage of using a non-equity alliance to govern a strategic alliance is its ______.

flexibility and ease of initiation

One reason why a firm might enter into a strategic alliance is to _____.

hedge against uncertainty

Horizontal integration can ______.

help a firm improve its strategic position in an industry

When two competitors merge, leading to industry consolidation, they are engaging in ______.

horizontal integration

A firm must decide whether to build, borrow, or buy to answer the question of ______.

how it will achieve growth

What three of the following are the primary benefits of horizontal integration?

increased differentiation lower costs a reduction in competitive intensity

What is an important aspect of alliance success?

inter-organizational trust

Gaining new capabilities or competencies is one of the three main reasons companies ______.

make acquisitions

A partnership that is based on contracts between companies is referred to as a(n) ______.

non-equity alliance

What are three options used by executives to drive firm growth?

organic growth acquisitions alliances

What are sources of value creation in a horizontal integration strategy?

reduction in competitive intensity lower costs

What are common reasons a firm might pursue a merger?

To overcome competitive disadvantage To gain superior acquisition and integration capability To address principal-agent problems

True or false: A horizontal integration strategy leads to industry consolidation.

True

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 allows firms to manage both strategic alliances and mergers and acquisitions?

a relational capability

Which term refers to a company's ability to handle the three specific tasks related to an alliance concurrently and effectively?

alliance management capability

At which level of the corporation should strategic alliances and mergers and acquisitions be managed?

at the corporate level

joint venture

standalone organization created and owned by two or more parent companies

Which of the following are the three choices in the build-borrow-or-buy framework?

strategic alliances acquisition of new resources internal development

Horizontal integration can reduce ______.

the threat of entry

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

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 terms refers to when one firm purchases or takes over another firm?

acquisition

A firm might want to use a strategic alliance to ______.

change the industry structure

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

On average, mergers and acquisitions ______ shareholder value.

destroy

What are three advantages of equity alliances?

possible emergence of trust and commitment a window into new technology (option value) stronger ties

Which of the following are reasons why firms enter into strategic alliances?

to enter new markets to strengthen their competitive position to learn new capabilities

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

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

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.

What are the phases of alliance management?

Partner selection and alliance formation Alliance design and governance Post-formation alliance management

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.

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

Which of the following are benefits of a horizontal integration?

increased differentiation reduced competition

Horizontal integration through mergers and acquisitions can create costs. Which of the following are sources of such costs?

increased potential for legal repercussions reduced flexibility

What are some managerial advantages of building a firm into a large organization?

increased power greater prestige more job security

Sources of COSTS in a horizontal integration strategy are

reduced flexibility integration failure