Chapter 9

92. In the franchising strategy, the most important competitive advantage for the franchisee is the franchisor's: a. brand name. b. capital resources. c. access to a consolidated market. d. geographic locations.

a. brand name.

102. Dynamic alliance networks work best in industries: a. characterized by frequent product innovations and short product life cycles. b. that are mature and stable in nature. c. where the coordination of product and global diversity is critical. d. that are characterized by predictable market cycles and demand.

a. characterized by frequent product innovations and short product life cycles.

82. A ____ cooperative strategy helps the firm diversify in terms of products offered, markets served, or both. a. corporate-level b. business-level c. national-level d. industry-level

a. corporate-level

110. Offshore Oil Exploration Partners (OOEP) has entered into a cooperative strategy with Malay Petroleum. The resulting documents are long, formal, and detailed. They specify detailed responsibilities of each partner and include methods of monitoring accounting and technical procedures. OOEP and Malay Petroleum are using the ____ management approach. a. cost minimization b. trust but verify c. opportunity maximization d. pragmatic realism

a. cost minimization

109. The two basic approaches to successfully manage cooperative strategic alliances involve ____ and ____. a. cost minimization; opportunity maximization b. monitoring systems; multiple management approaches c. contractual systems; financial systems d. equity approaches; nonequity approaches

a. cost minimization; opportunity maximization

111. The Microsoft/Nokia alliance that had hundreds of pages to specify each partner's responsibilities would be closest to the _______ approach to managing cooperative ventures. In contrast, the Renault/Nissan alliance (Chapter 9 Mini Case) was based on trust, respect, and transparency and is an example of the ________ approach to managing cooperative ventures. a. cost minimization; opportunity maximization b. opportunity maximization; cost minimization c. cost maximization; opportunity minimization d. bureaucratic; organic

a. cost minimization; opportunity maximization

75. The three main luxury hotels in a major tourist destination keep very close track of their competitors' room pricing, restaurant offerings, tour packages, and special services, such as airport transportation and spa privileges. When one hotel makes adjustments in prices or offerings, the other hotels follow suit. It is possible that these hotels are: a. engaging in tacit collusion. b. following uncertainty reducing strategies. c. monitoring business competitors for opportunistic behaviors. d. following a competitive response strategy.

a. engaging in tacit collusion.

60. A strategic alliance in which the partners own different percentages of the new company they have formed is called a(n): a. equity strategic alliance. b. joint venture. c. nonequity strategic alliance. d. cooperative arrangement.

a. equity strategic alliance.

74. Reduction of competition can be accomplished through all of the following EXCEPT: a. predatory alliances. b. explicit collusion. c. tacit collusion. d. mutual forbearance.

a. predatory alliances.

99. In a cross-border alliance, the local partner is often a useful source of information about: a. sources of capital. b. the strengths of the foreign firm's technology. c. market synergies. d. long-term planning.

a. sources of capital.

86. In the Chapter 9 Mini Case, the cooperation between Fiat and Chrysler to produce a Fiat-designed car in Chrysler's Illinois factory is a(n) _________ alliance because it allows the firms to share resources and capabilities across multiple functions. a. synergistic b. opportunistic c. horizontal d. diversifying

a. synergistic

71. All of the following are business-level cooperative strategic alliances EXCEPT: a. synergistic strategic alliances. b. uncertainty reduction strategic alliances. c. complementary strategic alliances. d. competition response strategic alliances.

a. synergistic strategic alliances.

97. Legitimately, a firm may pursue an international strategic alliance for all of the following reasons EXCEPT: a. to enhance the compensation packages of top managers. b. to leverage core competencies in new markets. c. to operate within government restrictions in the local country. d. to escape limited domestic growth opportunities.

a. to enhance the compensation packages of top managers.

70. The two types of complementary strategic alliances are: a. vertical and horizontal. b. macro and micro. c. outsourcing and insourcing. d. network and complementary.

a. vertical and horizontal.

72. A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and vineyard growing rare strains of fruit. This is a(n) ____ strategy. a. vertical complementary b. horizontal complementary c. uncertainty reduction d. network

a. vertical complementary

103. Which of the following statements is TRUE? a. Most cooperative strategies are successful if the basic agreements are well written and include appropriate monitoring strategies. b. As many as 50 percent of cooperative strategies fail. c. Opportunistic behaviors are usually focused on gaining the use of the partner's manufacturing and financial resources. d. Problems with international cooperative strategies usually concern financial-system differences between the partners.

b. As many as 50 percent of cooperative strategies fail.

56. Which type of strategic alliance is best at passing tacit knowledge between firms? a. primary cooperative strategic alliances b. Joint ventures c. Equity strategic alliances d. Nonequity strategic alliances

b. Joint ventures

76. Mutual forbearance is: a. illegal in the United States. b. a type of competition-reducing strategy. c. a variety of risk-sharing by firms in highly fragmented industries. d. exercised when alliance partners refrain from opportunistic behaviors.

b. a type of competition-reducing strategy.

101. Stable alliance networks will most often: a. be used to enhance a firm's internal operations. b. appear in mature industries where demand is relatively constant and predictable. c. emerge in industries with short product life cycles. d. emerge in declining industries as a way to increase process innovations.

b. appear in mature industries where demand is relatively constant and predictable.

84. ____ strategic alliances have stronger focus on value creation than do ____ alliances. a. competition reducing; complementary b. complementary; competition reducing c. uncertainty reducing; complementary d. collusive; uncertainty reducing

b. complementary; competition reducing

100. In general, cross-border alliances are more ____ and ____ than domestic alliances, especially in emerging markets. a. uncertainty reducing; diversifying b. complex; risky c. highly leveraged; tightly monitored d. flexible; trust-based

b. complex; risky

68. A state-wide alliance of independent hospitals has formed in order to do group purchasing of medical supplies. Group purchasing allows the hospital alliance to negotiate lower prices with suppliers because of the large quantity of materials ordered. This is an example of the advantage of ____ resulting from an alliance. a. explicit collusion b. economies of scale c. opportunistic behavior d. distribution opportunities

b. economies of scale

87. Firms entering into synergistic strategic alliances expect to attain: a. technological complexity. b. economies of scope. c. monopolistic market power. d. learning curve efficiencies.

b. economies of scope.

93. A businessperson in Atlanta who wishes to develop a luxury pet kennel approaches the owner of the highly successful Pet Resort and Day Spa in Houston to see if the owner is interesting in franchising the Pet Resort brand. The Atlanta businessperson's goal is to: a. get venture capital from Pet Resort. b. gain access to Pet Resort's tacit knowledge. c. collude with Pet Resort to diminish competition in the kennel industry in Atlanta. d. join in a vertical complementary alliance with Pet Resort.

b. gain access to Pet Resort's tacit knowledge.

49. Within the Renault Nissan alliance (Chapter 9 Mini Case), both Renault and Nissan have each formed ____________ strategic alliances at the business-unit level with other companies. a. vertical complementary b. horizontal complementary c. synergistic d. diversifying

b. horizontal complementary

50. A cooperative strategy: a. is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. b. is a strategy in which firms work together to achieve a shared objective. c. is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. d. specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets.

b. is a strategy in which firms work together to achieve a shared objective.

57. Moon Flower cosmetics company executives are aware that their Asian customer base is interested in advanced skin care treatments beyond Moon Flower's traditional herbal and organic compounds. Moon Flower and a large American chemical company are in discussions to create a 50-50 partnership in a new firm, which would create skin care treatments based on innovative chemical formulations that would be marketed both in Asia and in the United States. Beyond being a cross-border alliance, this partnership can be called a(n): a. nonequity strategic alliance. b. joint venture. c. horizontal complementary alliance. d. equity strategic alliance.

b. joint venture.

58. Fujitsu Siemens Computers is a legally independent company of which Fujitsu and Siemens each own 50 percent. This collaboration is an example of a ________, which is effective at transferring ________. a. nonequity strategic alliance; explicit knowledge b. joint venture; tacit knowledge c. joint venture; explicit knowledge d. equity strategic alliance; tacit knowledge

b. joint venture; tacit knowledge

78. In the United States, cooperative strategies to reduce competition may result in ____ if they are explicit. a. increased tax liabilities b. litigation c. government takeover of the firms d. dissolution of the firm

b. litigation

85. For the purpose of diversification, a corporate-level cooperative strategy may be preferable to a merger or acquisition for all the following reasons EXCEPT: a. a host nation may forbid a merger or acquisition. b. opportunistic behaviors are less likely. c. cooperative strategies require fewer resources. d. cooperative strategies allow greater flexibility in diversifying the firm's portfolio.

b. opportunistic behaviors are less likely.

88. The Renault Nissan alliance discussed in the Mini Case is an example of a ________ in that the firms seek to create economies of scope by sharing their resources and capabilities to develop manufacturing platforms that can be used to produce cars that will be either a Renault or a Nissan. a. joint venture b. synergistic alliance c. horizontal complementary alliance d. dynamic alliance network

b. synergistic alliance

89. A ____________ is a strategy in which firms share some of their resources and capabilities to create economies of scope and is similar to the business-level horizontal complementary alliance. a. joint venture b. synergistic strategic alliance c. diversifying strategic alliance d. dynamic alliance network

b. synergistic strategic alliance

79. In free-market economies, ____ must decide how rivals can collaborate with their competitors without violating established regulations. a. the invisible hand b. the government c. consumers d. the business community

b. the government

114. To increase the likelihood of success between partners assuming that trust exists, ____ approach(es) should be used to manage cooperative strategies. a. the cost minimization b. the opportunity maximization c. both the cost minimization and opportunity maximization d. None of the these options are correct.

b. the opportunity maximization

63. A nonequity strategic alliance exists when: a. two firms join together to create a new company. b. two or more firms have a contractual relationship to share resources and capabilities. c. two partners in an alliance own unequal shares in the combined entity. d. the partners agree to sell bonds instead of stock in order to finance a new venture.

b. two or more firms have a contractual relationship to share resources and capabilities.

83. Of the various business-level strategic alliances, ____ alliances have the most probability of creating sustainable competitive advantage, and ____ have the lowest. a. horizontal complementary; vertical complementary b. vertical complementary; competition reducing c. competition reducing; horizontal complementary d. uncertainty reducing; competition reducing

b. vertical complementary; competition reducing

59. BPM Corp. is a manufacturer of radar systems for regional-sized jet aircraft. The company has announced plans to enter into a joint venture with J3 Composites, a producer of advanced composite materials. The announced venture will produce a new, combined product consisting of the radar unit and protective composite cover. Which of the following ownership arrangements would be most typical for a joint venture? a. BPM will own more than 50 percent of the venture and a new company will be formed. b. J3 will own more than 50 percent of the venture and a new company will be formed. c. BPM and J3 will both own 50 percent of the venture and a new company will be formed. d. BPM and J3 will both own 50 percent of the venture but no new company will be formed.

c. BPM and J3 will both own 50 percent of the venture and a new company will be formed.

104. Which of the following is NOT a risk for firms engaged in cooperative strategies? a. Misrepresentation of a partner's competencies b. Partner acts opportunistically c. Insufficient variation in firms' core competencies d. Failure of partners to make complementary resources available to the partnership

c. Insufficient variation in firms' core competencies

64. Burgess Corp. manufactures a line of heavy construction equipment. The company has announced a contractual relationship with FS Electronics whereby FS will supply Burgess with advanced GPS navigation and guidance systems. These systems will be an option on all bulldozers, dump trucks, and road graders Burgess produces. What type of alliance is this? a. Joint venture b. Equity strategic alliance c. Nonequity strategic alliance d. Competition reduction alliance

c. Nonequity strategic alliance

69. Firms in a standard-cycle market may form alliances in order to: a. take advantage of opportunities in emerging market countries. b. more quickly distribute new products. c. capture economies of scale. d. share risky R&D investments.

c. capture economies of scale.

96. The collaboration between Volvo Aero (a subsidiary of Sweden's AB Volvo) and U.S.-based Pratt & Whitney to produce a new jet engine would be characterized as a(n): a. collusive tactic. b. merger. c. cross-border strategic alliance. d. international acquisition.

c. cross-border strategic alliance.

62. Japanese telecom NTT DoCoMo Inc. and Chinese Internet search operator Baidu Inc. established an alliance to distribute games and other mobile-phone content. Baidu will own 80 percent of this collaboration with DoCoMo holding the remaining 20 percent. This collaborative arrangement is an example of a(n): a. joint venture. b. network strategy. c. equity strategic alliance. d. nonequity strategic alliance.

c. equity strategic alliance.

54. In a(n) ____, two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. a. equality-based strategic alliance b. non-equity strategic alliance c. joint venture d. equity strategic alliance

c. joint venture

107. DDD Partners, a U.S. business consulting firm is considering a cooperative alliance with an Indian business consulting firm that has a wide practice in the Middle East and Asia. DDD has some European clients, but it sees the Middle East and Asia as growth opportunities. It hopes to learn how to navigate the different cultures and business practices in this part of the world from its alliance with the Indian firm. DDD's greatest risk here is that the Indian firm will: a. insist on excessively close monitoring of DDD's actions. b. gain access to DDD's core competencies and use them to become a future competitor. c. not fully share its intangible resources. d. not make equivalent investments to the alliance as does DDD.

c. not fully share its intangible resources.

66. U.S. Steel and Nucor (the two remaining major players in the U.S. steel industry) have been forming alliances as a means to enter markets in Europe and Asia. The steel industry is an example of a ________ market in which firms typically use alliances to gain market access. a. fast-cycle b. standard-cycle c. slow-cycle d. intermediate-cycle

c. slow-cycle

112. One disadvantage of developing effective monitoring systems to manage a strategic alliance is that: a. firms will have to accept greater risks. b. trust will be eroded. c. spontaneous opportunities are minimized. d. power coalitions will still develop.

c. spontaneous opportunities are minimized.

48. The Renault Nissan alliance (Chapter 9 Mini Case) is an example of a _______ created to gain economies of scope by sharing resources and capabilities. a. diversifying strategic alliance b. vertical complementary alliance c. synergistic strategic alliance d. nonequity-based horizontal complementary alliance

c. synergistic strategic alliance

77. The fact that the prices consumers pay for branded breakfast cereals are above the prices that would exist if there were true competition suggests that the cereal manufacturers are engaging in: a. excessive cooperation. b. joint ventures. c. tacit collusion. d. horizontal strategic alliances.

c. tacit collusion.

90. The primary responsibility of the franchisor, such as McDonald's or Hilton International is to: a. learn about the brand and technology from the franchisee. b. test the franchisee for potential future acquisition. c. transfer to the franchisee knowledge and skills needed to compete at the local level. d. provide feedback to the franchisee regarding how the franchisor could become more effective and efficient.

c. transfer to the franchisee knowledge and skills needed to compete at the local level.

113. In managing cooperative strategies, research indicates that ____ can be a capability that is valuable, rare, imperfectly imitable, and often nonsubstitutable giving these firms a competitive advantage. a. extensive capitalization b. stability c. trustworthiness d. Internet competency

c. trustworthiness

61. Meredith Inc. is a manufacturer of art supplies. The company has announced plans to enter into an equity strategic alliance with JaZz Paper to develop a line of specialty papers for use with a line of specialty paints Meredith manufactures. Which of the following would be the accurate interpretation of this announcement? a. Meredith will own a majority equity stake in the new venture. b. JaZz will own a majority equity stake in the new venture. c. Meredith or JaZz will own an equal equity stake in the new venture. d. Either Meredith or JaZz will own a majority equity stake, but we do not know which one based on the announcement.

d. Either Meredith or JaZz will own a majority equity stake, but we do not know which one based on the announcement.

91. Which of the following statements is FALSE? a. Franchising is most appropriate in fragmented industries. b. Franchising provides corporate growth with less risk than do mergers and acquisitions. c. Successful franchising allows transfer of knowledge and skills from the franchisor to the franchisee. d. Franchising agreements require more trust between firms than do other cooperative strategies.

d. Franchising agreements require more trust between firms than do other cooperative strategies.

80. The risks of being accused of collusion are MOST likely under what type of alliance? a. Equity-based vertical complementary alliance b. Equity-based horizontal complementary alliance c. Nonequity-based vertical complementary alliance d. Nonequity-based horizontal complementary alliance

d. Nonequity-based horizontal complementary alliance

106. Amylin Pharmaceuticals has an alliance with Eli Lilly & Co. to produce diabetes drugs. Lilly, however, recently signed an alliance agreement with another company to also produce diabetes drugs. As a result, Amylin sued Lilly for breach of the alliance agreement. Which of the following risks of cooperative strategies discussed in the chapter is most likely occurring here? a. Having a true perception of the partner's trustworthiness b. Failing to make available to its partners the resources and capabilities that it committed to the cooperative strategy c. The partner misrepresenting competencies it can bring to the partnership d. Opportunistic behavior

d. Opportunistic behavior

81. Why are alliances in the airline industry unstable? a. Unstable industries make for unstable alliances. b. The potential for firms to take opportunistic actions is too widespread. c. The industry is declining and profits are not sufficient to divide among alliance partners. d. The alliances require cooperation among firms that must also compete with one another.

d. The alliances require cooperation among firms that must also compete with one another.

108. In practice, the cost minimization strategy can be more expensive than the opportunity maximization strategy. Which of the following is a way in which the cost minimization strategy is less expensive than the opportunity minimization strategy? a. The loss of unexpected opportunities b. The cost of extensive monitoring mechanisms c. The costs of writing detailed contracts d. The prevention of opportunistic behavior by the partner(s)

d. The prevention of opportunistic behavior by the partner(s)

73. ____ are LEAST likely to involve potential or current competitors. a. Mutual forbearance strategies b. Tacit collusion strategies c. Horizontal complementary strategic alliances d. Vertical complementary strategic alliances

d. Vertical complementary strategic alliances

105. Greentech, Inc., is a bioengineering firm specializing in food crops. It is considering a cooperative alliance with an Asian agribusiness firm, AsiaFoods, to jointly produce improved crops for the Asian market. The risks that Greentech should consider before entering this alliance include all of the following EXCEPT: a. Has AsiaFoods accurately represented its competencies? b. Will AsiaFoods make alliance-specific investments? c. Can Greentech expect opportunistic behavior from AsiaFoods? d. Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

d. Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

51. A strategy in which firms work together to achieve a shared objective is a: a. functional-level strategy. b. business-level strategy. c. corporate-level strategy. d. cooperative strategy.

d. cooperative strategy.

52. When using cooperative strategies, firms most frequently develop strategic alliances that: a. enhance the firm's reputation in the marketplace. b. are long-lived. c. will reduce the firm's political risk. d. create a competitive advantage.

d. create a competitive advantage.

67. A relatively young firm has developed a method of transferring photographic images of surface textures onto any type of hard surface. This potentially has a huge market in the home-decorating field as well as any hard surface that is typically painted, such as car bodies. The type of alliance partner this firm would be searching for would be one with: a. low-cost labor production facilities in another country. b. similar products who could help the firm establish economies of scale. c. access to franchises in new markets. d. excess resources for investing.

d. excess resources for investing.

94. McDonald's, Hilton International, and Subway all heavily rely on the ____ strategy. a. transnational b. network cooperative c. cross-border alliances d. franchising cooperative

d. franchising cooperative

95. FrameCo, a maker of commercial greenhouses, has just extricated itself from a failing cooperative alliance with another firm. The expected synergies never were achieved, and FrameCo lost most of its investment. The top management of FrameCo should: a. avoid future cooperative alliances because they lack the skills needed to manage them successfully. b. enter into future cooperative alliances only if the alliance is closely monitored by a third party to prevent opportunistic behavior by the alliance partner. c. realize that most cooperative alliances fail and that it should ally itself only with an experienced alliance partner in the future. d. internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience.

d. internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience.

53. The use of strategic alliances: a. is unlikely to yield success if partnering firms are headquartered in the same country. b. may be too restrictive to facilitate entry into new markets. c. usually increases the investment necessary to introduce new products. d. is more frequent than other types of cooperative strategies.

d. is more frequent than other types of cooperative strategies.

55. A competitive advantage that is developed through a cooperative strategy is called a collaborative or a(n) ____ advantage. a. economic b. collusive c. alliance d. relational

d. relational

65. Firms participate in strategic alliances for all the following reasons EXCEPT to: a. create value that they could not develop by acting independently. b. enter competitive markets more quickly. c. gain access to resources. d. retain tight control over intangible core competencies.

d. retain tight control over intangible core competencies.

98. In some countries, the only legal way for foreign firms to invest in the country is through: a. acquisitions. b. mergers. c. greenfield ventures. d. strategic alliance with a local firm.

d. strategic alliance with a local firm.

115. The opportunity maximization approach is more difficult to establish in international relationships than in domestic relationships because of differences in all EXCEPT: a. laws. b. culture. c. trade policies. d. technology.

d. technology.