Chapter 9
Which of the following is an ineffective practice in alliance management?
Focusing on developing an alliance-management capability in isolation
Which of the following corresponds to the use of tacit knowledge?
Igor assembles a motorcycle from memory.
Which of the following best illustrates a merger between the two companies HQ Inc. and AV Inc.?
HQ Inc. and AV Inc. join together to form a single new company called HQAV Inc.
Which of the following examples describes the task of an alliance manager?
Hussein trained the employees of his alliance partner in the skills needed to create a display for an e-notebook.
The managers at Speed Automobile Inc. want to diversify the business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Speed Automobile is most likely a result of
Principal-agent problems.
Icarus Airway's decision to acquire Midas Fuels Inc. proved to be ill-fated because the Icarus managers overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers' capabilities were restricted to the airline industry. What does this scenario best illustrate?
Managerial hubris
Which of the following is an advantage of equity alliances when compared to non-equity alliances?
They produce stronger ties between partners.
Why did incumbent pharmaceutical firms enter into hundreds of strategic alliances with biotech start-ups?
To make small-scale investments in ventures poised to disrupt existing market economics
How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?
It enabled HP to compete head on with Cisco's videoconferencing solution.
Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures. It did this in order to
Fill gaps in its competency lineup.
How has Kraft Foods benefited from its hostile takeover of Cadbury PLC?
It has access to convenience stores and a new distribution channel.
If two large movie-theater chains decide to merge, the result is likely a horizontal integration that creates a more favorable industry structure by decreasing competition.
True
Sanibel Autos Inc. merged with its competitor Vroom Autos Inc. This allowed Sanibel Autos to use its technological competencies along with Vroom Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate?
Horizontal
Which of the following is a disadvantage of a horizontal integration corporate strategy?
It increases the potential for legal repercussions.
The main reason behind Alphabet's decision to acquire the Israeli start-up company Waze for $1 billion was probably to
Preempt its competitors from buying Waze.
Organizations seeking strategic alliances often pursue non-equity alliances because they are the easiest to create and to sever. However, the short duration of these alliances often means there is little trust or commitment on either side.
True
Adidas acquired Reebok primarily to
Overcome its competitive disadvantage against Nike.
What causes the winner's curse?
Overpaying for an acquisition
Anthonia is a senior manager at Buxley Corp., a motorcycle manufacturer. Buxley has entered an equity alliance with Supremo, a moped manufacturer. "Don't worry, Anthonia" her counterpart at Supremo tells her. I'm going to send you all our guidelines and documentation for manufacturing catalytic converters, and then you'll be all set." What else should Anthonia request from Supremo?
Personnel exchanges to share tacit knowledge
Which of the following is a common drawback of a non-equity alliance?
Lack of trust between partners
Disney became the world's leading media company to a large extent by pursuing a corporate strategy of
Related-linked diversification.
Which of the following statements is true of an equity alliance?
In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible.
A company that wants to enter a new geographic market within China or Saudi Arabia should avoid joint ventures with companies that are based in that country. Partnering with a foreign entity props up that entity's business rather than weakening it through competition.
False
Which of the following accurately describes a common difference between a merger and an acquisition?
A merger tends to be friendly; an acquisition can be friendly or unfriendly.
Solaris Autos Inc., a large automobile company, made an initial small investment in a start- up company that was developing a solar-powered car. This gave Solaris Autos controlling interests in the start-up company. However, Solaris Autos had no obligations to make continued investments in the experiments of the start-up company. It could invest small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Solaris Autos would have the right to buy out the start-up company. This approach to strategic alliance is referred to as
A real-options perspective.
Although Disney acquired Pixar through a hostile takeover, the merger has proven extremely profitable for both entities.
False
When Turbo Autos Inc. wanted to sell its cars in the country of Sylvanistan, it lacked access to distribution channels and marketing expertise in the country. Thus, Turbo Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner's well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?
Accessing critical complementary assets
In recent years strategic alliances have declined because of increasing government regulation.
False
Juno LLC is a small, new pharmaceutical company that is developing a valuable new drug. Which of these strategies would it be wise for Juno's owner or manager to take?
Seek an alliance with a company or companies that will complete the value chain.
The process of alliance management begins with
Selecting the best possible partner.
What is horizontal integration?
The process of merging with a competitor at the same stage of the value chain
When does a merger between companies typically occur?
When two firms of comparable size join to form a combined entity
How does horizontal integration within an industry affect the surviving firms?
By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers
Which of the following is an example of explicit knowledge?
A research summary
Braintree Inc.m a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Braintree and the software company best referred to as in this scenario?
A strategic alliance
Horizontal integration through mergers and acquisitions can help firms strengthen their competitive positions by increasing
Differentiation.
Which of the following statements about managing alliance-related tasks is true?
Alliance management capability is based on three alliance-related tasks.
Which of the following statements is true about managing alliance-related tasks?
Alliance management capability is based on three alliance-related tasks.
The Palace Hotel Group purchased Orange Roof Hotels for an estimated value of $120 billion. All the hotels previously owned by Orange Roof Hotels are now managed by the Palace Hotel Group and are known as Palace hotels. What does this scenario best illustrate?
An acquisition
American Snacks Inc., a conglomerate, has a strategic alliance with Très Bien Limité, a French snack-maker. However, Très Bien managers are concerned that the different business units of American Snacks will set up partnerships with direct competitors of Très Bien in France. What can owners and managers at American Snacks do to respond to Très Bien's concern?
Arrange for the alliance to be managed at the corporate level.
How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?
By lowering competitive intensity in the industry overall
Which of the following summarizes the benefit of the strategic alliance between HP and DreamWorks?
Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone.
When entering a foreign market, it is advisable for a new venture that has a core competency only in R&D to form a strategic alliance with a local partner because
Building downstream complementary assets can be expensive and time-consuming.
R&M Chatelaine is one of the largest tax-preparation firms in the United States. It wants to acquire The Tax Experts, a smaller rival. After the merger, Chatelaine will be one of the two largest income-tax preparers in the U.S. market. What should Chatelaine include in its acquisition plans?
Chatelaine will need to explain to the Federal Trade Commission how the acquisition will not result in an increase in prices for consumers.
RHC Pharmaceuticals Inc., Lawrence Pharma Inc., and Quincy Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with one another. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?
Co-opetition
Which of the following best explains why Disney showed superior post-merger integration capabilities?
Disney managed its new subsidiaries more like alliances rather than attempting full integration.
A candy company called Hearts Aflame Inc. forms an agreement with another candy company called Dreamcatcher Inc. Through this agreement, Hearts Aflame owns 30 percent of Dreamcatcher. However, Dreamcatcher does not own any part of Hearts Aflame. This type of agreement is called a(n)
Equity alliance.
Which of the following statements is true of explicit knowledge?
Explicit knowledge is shared in non-equity alliance firms.
Winter Wonder Inc. is a leader in producing winter sports equipment, including skis and skates. Recently, the firm decided to expand into the bobsled market and acquired Sleds by Bob Inc. This company produced bobsleds, but its sales had slowed. The managers of Winter Wonder convinced themselves that they were able to manage the business of Sleds by Bob more effectively even though they had no experience in the bobsled market. However, this move backfired and the sale of Sleds by Bob's bobsleds plummeted. Which of the following terms is often used to describe this scenario?
Managerial hubris
Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them?
Many owners, managers, and business analysts believe they are essential to survive in an industry.
Overall, was the Adidas acquisition of Reebok a success?
No. Adidas has slipped from number two in the U.S. market to number three.
Ayesha is a strategist for the firm Optiks Inc., which produces high-quality HD movie cameras. This company needs a specific material for a new camera they are developing, which is manufactured in large quantities by a competitor called Expert Technology Inc. However, this material is difficult to trade. Because of this, which of the following is most likely the best strategy for Ayesha to suggest?
Optiks should acquire Expert Technology.
Medequip Inc. is a large firm involved in the highly competitive market of high-tech medical equipment. In this market, smaller firms that focus on research are constantly making new technological developments. Which of the following approaches would best serve the needs of Medequip?
Serial acquisitions
In terms of the build-borrow-or-buy framework, a firm's internal resources are considered to be relevant when they are
Similar to those that need to be developed and superior to those of competitors in the targeted area.
A drawback involved in using cross-border strategic alliances to enter new foreign market is that
Some of the firm's proprietary know-how many appropriated by foreign partner.
A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services is best described as a
Strategic alliance
The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese market because
The U.S. population was growing slowly and becoming more health conscious.
The downside of equity alliances is
The amount of investment that can be involved.
Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion?
The desire to gain a new capability
In a non-equity alliance, which of the following types of information would firms most likely share?
The documented information about the material composition of a product
It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because
The horizontal integration activity has the potential to reduce competitive intensity in an industry.
Garrett is an executive vice president at Samm Hardware. He researches a proposal by a larger company, Maximum Hardware, to combine the two companies. By analyzing past performance, conducting focus groups, and interviewing Maximum employees, Garrett concludes that Maximum has poor profit margins, sells shoddy merchandise, and treats customers poorly. What actions should Garrett and Samm Hardware take?
Turn down the acquisition offer and prepare to resist a hostile takeover.
Judging from the Disney-Pixar merger, which of these is an effective way to create shareholder value from a merger?
If the acquired company creates high-quality products or services, don't force it to mirror the management style of the acquiring company.
Managers who are eager to forge business alliances often forget that the expected benefits of the partnership must represent only a small percentage of its monetary and time-related costs.
False
When deciding whether to build, borrow, or buy as a means of growth, firms no longer need to consider the need for physical closeness to their resource partners.
False
Which of the following is a result of horizontal integration in terms of Porter's five forces model?
There is a reduction of excess capacity in the market.
Which of the following is true of acquisitions?
They can be friendly or hostile.
Which of the following statements is true of joint ventures?
They enable the exchange of both tacit and explicit knowledge.
In general, it is shortsighted to acquire companies as a defensive move to prevent rival organizations from gaining access to certain patents, technology, or customer bases.
False
Future Clothes Inc., a publicly traded company, designs and manufactures wearable technology. What approach should Future Clothes take after a long period of horizontal integration in its industry? Assume that the industry is now stable and competitors have not made any major changes in price or marketing recently.
Focus on research and development as a form of non-price competition.
Showstopper Inc. dominates the ladies'; wig market and wants to expand into men's toupees. How can Showstopper's managers determine whether the company should develop a toupee division internally, ally with a toupee maker, or acquire a toupee-making firm?
The managers need to determine whether the skills needed to create wigs and toupees are similar and whether Showstopper creates better hairpieces than its competitors do.
In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates
The real-options perspective.
A software firm is interested in acquiring an app development company that is small but highly profitable. The app developer also has a widely admired management structure and much lower attrition rates than are common in the industry. Which of these problems should the software firm anticipate?
The software firm may overpay for the app developer, poorly serving the software firm's shareholders.
A microchip company wants a computer company to produce more powerful tablets and therefore use more of its chips. That same computer company wants the microchip maker to create chips with faster processing power. What approach could these companies take so that both can serve stockholders well?
The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals' power.
Mediflow, a medium-sized medical technology company, has been successful in its research and development but needs improvement in its European sales. Which of these actions would most likely lead to long-term success for Mediflow's European sales?
Acquire a company that has a successful medical technology sales force in Europe so that Mediflow can gain access to new distribution channels.
What is the main reason that most mergers and acquisitions negatively effect shareholder value?
Promised synergies never take place.
Elegance Inc. is a large cosmetics company that made an initial small investment in a start-up company, Peace Planet, which was developing an organic face lotion. This gave Elegance controlling interests in the start-up company. However, Peace Planet soon began to have financial difficulties because of principal-agent problems. As a result, Elegance did not invest in the next stage of development and pulled out of the company. This approach to strategic alliance is referred to as a
Real-options perspective.
When large, incumbent firms buy start-up companies, the transaction is generally described as a(n)
Acquisition.
Even if a merger may not increase shareholder value as planned, it is often a wise idea to champion it so that managers will have the greater opportunities of working at an expanding company.
False
Fabulous Jewelry Inc. is considering a takeover of its competitor, Cranberry Dream Jewelry LLC. In general, Fabulous should go ahead with the acquisition as long as Cranberry is more valuable as a continued standalone company than it would be inside Fabulous.
False
Elemental Pharma Inc. recently acquired Crick Pharmaceuticals Inc. It now sells its own products along with the products originally sold by Crick Pharmaceuticals. As a result, Elemental Pharma's sales force will also be marketing the acquired company's products. How will this horizontal integration most likely affect Elemental Pharma?
It will lower its costs through economies of scale.
Which of the following scenarios best illustrates horizontal integration?
King Autos Inc. joins with Dimitra Motors Inc., one of its direct competitors.
Nirvana Shoes Inc. and StepOut Shoes Inc., two competing shoe brands, entered into a strategic alliance to study and acquire each other's competencies. Nirvana Shoes entered the strategic alliance to acquire the production system pioneered by StepOut Shoes. Similarly, StepOut Shoes agreed to the strategic alliance to study the design process of Nirvana Shoes. However, Nirvana Shoes was more successful and faster than StepOut Shoes in accomplishing its alliance goal. What does this scenario best illustrate?
Learning races
In Eli Lilly's Office of Alliance Management, the alliance champion is primarily responsible for
Making sure that an alliance fits within the firm's existing alliance portfolio and corporate-level strategy.
Why did Quaker Oats Company's acquisition of Snapple fail?
Managerial hubris