Deck 9: Creating and Maintaining Alliances

Question 1

When partners in a strategic alliance share resources or integrate complementary capabilities to build economies of scope, synergy has been created.

Answer 1

True

Question 2

A joint venture is a type of equity alliance.

Answer 2

True

Question 3

Corporate-level strategic alliances often serve the same purpose as acquisitions. But alliances are more costly than acquisitions.

Answer 3

False

Question 4

Which of the following is not a reason for strategic alliances?

A) sharing significant R&D investments
B) outsourcing for low costs and high quality output
C) blocking foreign competitors from domestic markets
D) building economies of scale

Question 5

The main protection against opportunistic behavior by an alliance partner is good contracts.

Question 6

Outsourcing is controversial in the U.S. because it is seen as responsible for exporting jobs to other countries

Question 7

The main incentive for a U.S. company to form a strategic alliance with a South African company is to

A) develop a competitive advantage.
B) achieve immediate profit increases.
C) form an international relationship that might be useful in the future.
D) prevent South African competitors from moving into the U.S. market.

Question 8

For an international alliance to succeed, it must be based on detailed formal contracts with extensive monitoring mechanisms.

Question 9

Opportunism by alliance partners is a greater threat in horizontal alliances than in vertical alliances.

Question 10

Visionary Optical Research has patented a new type of implantable lens for people with serious eye defects. It does not have access to the financial assets or marketing expertise to begin manufacturing and selling the lenses on a large scale.

A) VOR should form a strategic alliance with a firm with complementary resources.
B) VOR should form an R&D joint venture with another firm.
C) VOR should engage in a joint venture with a firm that has access to restricted markets.
D) VOR should outsource the manufacturing of the lenses to a company in a low-wage environment.

Question 11

More strategic alliances succeed than fail.

Question 12

A strategic alliance is a relationship between firms in which the partners agree to cooperate in ways that provide benefits to each firm.

Question 13

As the level of equity investment by the foreign alliance partner increases, the probability of the alliance's failure decreases.

Question 14

____ resources are resources that each partner brings to the partnership that, when combined, allow for new resources or capabilities that neither firm could readily create alone.

A) Complementary
B) Synergistic
C) Intangible
D) Creative

Question 15

It is common for less-developed countries to require foreign companies to ____ in order to manufacture and sell products in the less-developed country.

A) sell 100 percent of its locally produced goods within the host country
B) contract to operate in the host country for long periods of time, such as 20 years
C) invest in more than one company in the host country
D) form a joint venture with a host country firm

Question 16

A cooperative partnership between firms across the value chain is a horizontal strategic alliance.

Question 17

Everything else being equal, a potential alliance partner that is engaged in alliances with a number of other partners is preferable to an alliance partner who is not involved in other alliances.

Question 18

Tariffs placed by a foreign country on the import of U.S. goods are often the motivation for joint ventures between U.S. firms and firms in that country.

Question 19

The main difference between an equity and a nonequity alliance is that

A) equity alliances are restricted to two partners while nonequity alliances may have any number of partners involved.
B) while equity alliances involve ownership, nonequity alliances are contractual relationships without ownership.
C) equity alliances require that each partner own an equal percentage of the new organization that is formed, while nonequity alliances involve unequal proportions of ownership between partners.
D) equity alliances are allowed between U.S. firms, but U.S. firms must make nonequity alliances with international firms.

Question 20

Strategic alliances are typically delayed until the strength and complementarity of the partner's competencies are completely assessed and a trusting relationship has been established.

Question 21

A horizontal strategic alliance is a cooperative partnership between firms

A) outside the value chain.
B) across the value chain.
C) at the same stage of the value chain.
D) at any point within the value chain.

Question 22

The first step in managing alliances is

A) selecting a compatible alliance partner.
B) establishing trust with the alliance partner.
C) establishing performance criteria and process.
D) prioritizing resource allocation.

Question 23

The likelihood of a strategic alliance producing synergy and innovation is increased by

A) the emergence of path dependence between the alliance partners.
B) the equality of the resources that the two organizations contribute.
C) the similarity of the corporate and national cultures of the organization.
D) the extent to which the knowledge stocks of each organization are integrated.

Question 24

Franchise relationships are characterized by

A) franchisee independence to adapt the business to the local market.
B) the ability to spin off the local franchises into independent businesses.
C) the tradeoff of first-mover advantage for lower financial risk for the franchiser.
D) tight control of the franchisee's actions by the franchiser.

Question 25

When an organization forms a strategic alliance with another organization, the alliance should be managed by

A) a third party who will be unbiased toward either organization.
B) a pair of alliance sponsors, one from each organization.
C) the CEO of the organization holding the largest equity stake.
D) an alliance committee formed from the board of directors of each organization.

Question 26

High uncertainty in competitive markets

A) increases the number of alliances because uncertainty leads to synergy.
B) erodes alliances because uncertainty motivates opportunistic behaviors by alliance partners.
C) encourages firms to form alliances to share risks.
D) makes alliances among firms less attractive because the markets' profits are meager.

Question 27

Discuss the similarities and differences of vertical and horizontal alliances. Which is most vulnerable to problems, what are these problems, and what are their causes?

Question 28

____ can enable a firm to have a first-mover advantage in a new international market without some of the risks involved in being a first mover.

A) A greenfield venture
B) Franchising
C) An equity alliance
D) An acquisition

Question 29

The main problem with relying on contracts to reduce opportunistic behavior by alliance partners is that

A) in cross-border alliances, the contracts are often not enforceable due to differences in legal systems.
B) contracts create motivations for rule-evading behavior.
C) contracts are ignored by opportunistic firms because the cost of enforcing the contract is too great for the other partner.
D) it is impossible to specify all opportunistic actions by an alliance partner.

Question 30

Alliances for the purpose of diversification are especially valuable if

A) joint ventures can be spun off to allow the firm to concentrate on its core business.
B) the new products created by the alliance are related to the firm's current products.
C) the alliance results in synergy that creates products entirely new to the alliance partners.
D) the alliance creates path dependence in the partners.

Question 31

The key factor in the success of a vertical strategic alliance is

A) trust between partners.
B) sufficient cash flow.
C) a well-written contract.
D) effective exchange of core competencies.

Question 32

Why do organizations enter into strategic alliances?

Question 33

The main attraction for foreign firms in developing countries to join strategic alliances with U.S. firms is

A) the access to U.S. financial markets.
B) the knowledge resources of the U.S. firm.
C) the ability to market its products in the U.S.
D) the U.S. firm's understanding of U.S. governmental regulations.

Question 34

The most common reason for outsourcing is to reduce costs. Another major reason for outsourcing is to

A) gradually exit the U.S. product market.
B) share significant R&D investments.
C) develop new goods and services.
D) gain access to special skills for higher quality output.

Question 35

Tacit collusion is more likely to be a concern with

A) horizontal alliances.
B) vertical alliances.
C) international alliances of any kind compared with domestic alliances.
D) U.S. alliances with companies in less- developed countries.

Question 36

Along with differences in cultures, the major impediment to the transfer of knowledge or sharing of other resources between companies in an international strategic alliance is

A) language differences.
B) legal restrictions.
C) lack of trust.
D) racial and ethnic prejudices.

Question 37

To compete more fully and offer better value to their customers, Dow and Monsanto are working together to develop and produce new corn seed. Each partner will contribute four genetic traits for each new seed that will overcome some problems with pests and ward off weeds. This is an example of a ____ alliance

A) horizontal
B) vertical
C) network
D) symbiotic

Question 38

The C.E.O. of Stability, Inc., a U.S. company, is considering the wisdom of an alliance with a Malaysian company. She is concerned about the fact that the Malaysian company wants to own a large percentage of the venture. The CEO

A) is correct to be concerned because this indicates a lack of trust by the Malaysian company.
B) should be concerned because the Malaysian company will be less inclined to share its expertise with the U.S. firm if it owns a dominant interest in the venture.
C) the CEO should realize that if the Malaysian company owns a large equity stake in the venture it will have more incentive to make the venture a success.
D) the CEO's concern probably arises from unconscious prejudice, and this indicates that she will be unable to form a trusting relationship with her Malaysian counterparts.

Question 39

Many companies have discovered that outsourcing lowers costs and

A) improves morale.
B) improves quality.
C) increases customer responsiveness.
D) decreases turnover.

Question 40

Firms often form alliances with partners from previous alliances because

A) of the previous investment in due diligence.
B) organizational structures are already in place.
C) contracts are easily renewed.
D) social capital already exists between them.

Question 41

What are the advantages and challenges of franchising as a type of strategic alliance?

Question 42

What are the steps in managing a strategic alliance?