Deck 9: Cooperative Strategy

Question 1

Horizontal business-level strategic alliances have greater probability of creating sustainable competitive advantage than do vertical business-level strategic alliances.

Answer 1

False

Question 2

Cooperative strategies may involve firms who are competitors.

Answer 2

True

Question 3

The use of a cooperative strategy is an alternative to acquisition.

Answer 3

True

Question 4

A cooperative strategy is a strategy in which one or more firms work together to achieve a common purpose.

Question 5

Cooperation in slow-cycle markets is extremely rare because these industries are declining.

Question 6

Firms in slow-cycle markets can use cooperative strategies in the transition to more competitive markets.

Question 7

A cooperative agreement between a hotel chain and a casino operator would be viewed as a horizontal complementary strategic alliance because as separate entities, the two firms would compete for the same customer.

Question 8

Collusion is a form of cooperative strategy.

Question 9

Horizontal complementary strategic alliances are designed so that each partner realizes equal benefits from equal investments in the alliance.

Question 10

Although growing in popularity with small and medium-sized firms because they can gain economies of scale, large companies tend to avoid strategic alliances.

Question 11

Mutual forbearance is a form of explicit collusion between firms in which competitors avoid attacking rivals they meet in multiple markets.

Question 12

Strategic alliances are cooperative strategies between firms that combine their resources and capabilities to create a competitive advantage.

Question 13

Acquisitions are the most common cooperative strategy used in standard-cycle markets.

Question 14

A competitive advantage developed through a cooperative strategy is often called a corresponding advantage.

Question 15

Using business-level strategic alliances to hedge against risk and uncertainty is most common in the slow-cycle markets.

Question 16

Firms in standard-cycle markets seek to gain economies of scale through cooperative alliances.

Question 17

Nonequity strategic alliances exist when two or more firms join together to create an independent firm.

Question 18

Tacit collusion is not explicitly illegal in the United States even though it results in higher prices for consumers.

Question 19

If a large Asian cosmetics firm was to engage in a 50-50 partnership with a large American chemical company to form a new company focused on creating advanced skin care products, this would be considered a joint venture.

Question 20

Nonequity strategic alliances are formed when one partner owns a much larger (or inequitable) share of the joint venture than do the remaining partner(s).

Question 21

The probability of alliance success is increased when partnering firms internalize successful alliance experiences.

Question 22

A stable alliance network is used in industries characterized by frequent product innovations and short product life cycles.

Question 23

In the cost minimization approach to managing competitive strategies, the relationship between the firms is based on trust of the other partner.

Question 24

A major risk of a network cooperative strategy is that firms gain access to their partner's partners thus exposing their proprietary processes to loss or theft.

Question 25

Only about 30% of cooperative strategies succeed.

Question 26

Because of U.S. legal restrictions concerning large foreign acquisitions, American firms can only enter into diversifying alliances with other U.S. firms.

Question 27

Network cooperative strategies among Silicon Valley firms have been successful, in part, because they are geographically close together.

Question 28

The advantages of alliances designed to respond to competition and to reduce uncertainty are more temporary than those developed through complementary, such as vertical and horizontal, strategic alliances.

Question 29

Synergistic strategic alliances focus on economies of scope rather than economies of scale.

Question 30

The cost minimization approach of managing alliances is more expensive to put into place and to use than is the opportunity maximization management approach.

Question 31

A network strategy involves a series of horizontal acquisitions by firms that are committed to dominating a particular industry.

Question 32

High levels of trust allow less formal contracts to govern the relationship between alliance partners.

Question 33

A firm creates a competitive advantage when it develops and manages corporate-level cooperative strategies in a way that is valuable, rare, imperfectly imitable and nonsubstitutable.

Question 34

The primary responsibility of the franchisor is to transfer capital to the franchisee.

Question 35

When a firm is in the early stages of geographic diversification, cross-border alliances may be a good learning step before other forms of international expansion.

Question 36

Close monitoring, formal contracts, and constant vigilance against opportunism increase the probability of alliance success.

Question 37

Franchising is most attractive in concentrated industries.

Question 38

An alliance can be used to test whether the partners would benefit from a future merger.

Question 39

Firms consider entering international alliances because multinational firms outperform firms operating only in their home markets.

Question 40

International strategic alliances are less risky than domestic strategic alliances due to diversification across countries.

Question 41

The main reason that IBM is involved in multiple alliances is to

A) consolidate a fragmented industry and thus gain market power.
B) stay on the cutting edge of technology.
C) capture the intangible resources of competitors in order to gain a competitive advantage against them in the future.
D) avoid government anti-trust regulations which would apply if IBM were to acquire the firms it allies itself with.

Question 42

The global airline industry is one in which

A) national political interests prevent airlines from making international alliances.
B) the fast-cycle nature of the industry mandates heavy use of alliances.
C) most alliances tend to be vertical complementary.
D) alliance versus alliance competition dominates firm versus firm competition.

Question 43

When using business-level and corporate-level cooperative strategies, a firm's primary intent is to 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.

Question 44

Firms participate in strategic alliances for all the following reasons EXCEPT to

A) enter markets more quickly.
B) acquire technology.
C) create values they could not develop acting independently.
D) retain tight control over intangible core competencies.

Question 45

China allows U.S. companies to ally with Chinese firms by purchasing minority ownership positions in the Chinese firms. These relationships are called

A) joint ventures.
B) network strategies.
C) equity strategic alliances.
D) nonequity strategic alliances.

Question 46

A competitive advantage that is developed through a cooperative strategy is called a collaborative or a ____ advantage.

A) economic
B) collusive
C) alliance
D) relational

Question 47

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.

Question 48

Kodak has partnered with competitor Xerox. Kodak supplies the controllers that Xerox uses in its iGen3 digital presses. Which of the following is correct about this relationship?

A) This is a joint venture because the two firms join together to create a new company.
B) This is an equity strategic alliance because the two firms did not join together to create a new company.
C) The firms risk charges of collusion because all relationships between competitors involve explicit collusion.
D) This is a nonequity strategic alliance with Kodak leveraging their unique capabilities.

Question 49

A strategic alliance in which the partners own different percentages of the new company they have formed is called a(an)

A) equity strategic alliance.
B) joint venture.
C) nonequity strategic alliance.
D) cooperative arrangement.

Question 50

Burgess Corp. manufactures a line of heavy construction equipment. The company has announced an alliance 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

Question 51

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.

Question 52

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.

Question 53

IBM has teamed with longtime rival Sun Microsystems to cooperate on server technologies so that Sun's Solaris operating system could run on IBM's servers and eventually on its mainframes. This is an example of a(an)

A) equity-based vertical complementary alliance.
B) equity-based horizontal complementary alliance
C) nonequity-based vertical complementary alliance.
D) nonequity-based horizontal complementary alliance.

Question 54

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

Question 55

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

A) strategy.
B) business level strategy.
C) corporate strategy.
D) cooperative strategy.

Question 56

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 is an accurate interpretation of this announcement?

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.

Question 57

In a(an) ____, the firms involved own equal shares of a newly-created venture.

A) equality-based strategic alliance
B) non-equity strategic alliance
C) joint venture
D) equity strategic alliance

Question 58

Which of the following firms would be most likely to enter an alliance in order to maintain market stability?

A) large home appliance manufacturing
B) electronic consumer goods manufacturing
C) natural gas utility
D) clothing retailing

Question 59

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 which would be marketed both in Asia and in the U.S. Beyond being a cross-border alliance, this partnership can be called a(an)

A) nonequity strategic alliance.
B) joint venture.
C) horizontal complementary alliance.
D) equity strategic alliance.

Question 60

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.

Question 61

The two types of complementary strategic alliances are

A) vertical and horizontal.
B) macro and micro.
C) outsourcing and insourcing.
D) network and complementary.

Question 62

Partners in a horizontal alliance can expect

A) benefits proportional to their investments.
B) similar opportunities as a result of the alliance.
C) common management issues.
D) different outcomes.

Question 63

Reduction of competition can be accomplished through all of the following EXCEPT

A) predatory alliances.
B) explicit collusion.
C) tacit collusion.
D) mutual forbearance.

Question 64

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.

Question 65

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.

Question 66

____ 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

Question 67

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

Question 68

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

Question 69

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.

Question 70

Firms in ____ markets cooperate to pool resources and gain market power.

A) slow-cycle
B) standard-cycle
C) fast-cycle
D) hyper-cycle

Question 71

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.

Question 72

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) There is high rivalry among firms.

Question 73

In the U.S., 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

Question 74

Smith Commercial Lighting, Inc., which sells lighting for factories and businesses, has entered into an alliance with Revelation Lighting, Inc., a retailer of home decor lighting, in order to expand into the trend of using industrial-type lighting in non-traditional style homes. Smith has invested 40% and Revelation has invested 60% into the new operation. This is an example of a(an)

A) joint venture.
B) nonequity alliance.
C) horizontal complementary strategic alliance.
D) vertical complementary strategic alliance.

Question 75

Mutual forbearance is

A) illegal in the U.S.
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.

Question 76

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.

Question 77

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

Question 78

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(an) ____ strategy.

A) vertical complementary
B) horizontal complementary
C) uncertainty reduction
D) network

Question 79

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

Question 80

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.