Deck 8: Strategic Alliances

Question 1

Redwood Inc. has an arm's-length relationship with Blue Ink Corp. Which of the following is likely to be true in this case?

A)Redwood is likely to conduct all functions within the firm.
B)Redwood is likely to choose another firm over Blue Ink for lower costs.
C)Blue Ink is unlikely to have made the deal through a bid.
D)Blue Ink's manufacturing units are likely to have been acquired by Redwood.

Answer 1

B

Question 2

Which of the following statements is true about firms in a joint venture?

A)The firms contribute knowledge, but each performs its roles separately.
B)The contributions made by individual firms are easy to measure.
C)The parent firms share revenues and expenses in a particular ratio.
D)The dependency level between partners is low.

Answer 2

C

Question 3

Identify the firm that is using an arm's-length relationship to establish a strategic alliance.

A)Ochre Inc. manufactures all the components required for production within the firm.
B)Sapphire Inc. acquires the production facility of Brick Corp. to enter a foreign market.
C)Jade Corp. sends out a bid to suppliers for raw materials required for production.
D)Leo Corp. forms a twenty-year contract with a wholesaler to sell its goods.

Answer 3

C

Question 4

Which of the following statements is true about firms that establish strategic alliances?

A)Firms that collaborate at the sales stage are not considered strategic partners.
B)Firms that produce different products cannot enter a strategic alliance.
C)Firms can collaborate to improve their performance at any stage along the value chain.
D)Firms often enter strategic alliances at the cost of losing their relational advantage.

Question 5

John requires 500 shirts of a particular fabric and quality. He partners with Loumang Inc., a fabric manufacturing company, to develop certain customized inputs. Which of the following is being exemplified in this scenario?

A)A licensing agreement
B)A supply agreement
C)A distribution agreement
D)A profit agreement

Question 6

Zeal Inc., a software firm, decides to enter the publishing industry. While it has the financial resources required to enter the new market, it lacks the expertise and technical knowledge required to establish itself in the new industry. So, Zeal Inc. enters into strategic alliance with Chrome Corp., a leading e-publisher. Which of the following is likely to be true in this case?

A)Chrome is likely to lose its relational advantage through this alliance.
B)Zeal and Chrome are likely to cooperate even at the stage of research and development.
C)Zeal's vision is likely to contradict that of Chrome.
D)Chrome is likely to provide its expertise only at the marketing stage.

Question 7

An air conditioner manufacturer, Hues Corp., decides to form a strategic alliance with a firm to source components that make up the highest percentage of total costs. Which of the following suppliers is it most likely to choose as a partner?

A)Jades Inc., which manufactures the packages required for finished products of Hues
B)Black Corp., which prints Hues logo on the air conditioners
C)Fin Inc. which produces the compressors used in Hues air conditioners
D)Den Corp., which produces the designer vents for Hues that come in different colors

Question 8

Sands Inc., a financial firm, partners with another organization that is at a similar stage along the value chain. The parent organizations create a legally independent firm. However, Sands brings more resources to the new firm than the other partner. Which of the following is being exemplified in this case?

A)A contractual alliance
B)An equity alliance
C)A distribution agreement
D)A joint venture

Question 9

Sepia Inc., a fertilizer company, needs permission to test its new products on plantations owned by an agro-based industry. In return, the company is willing to pay a percentage of revenue to the agro-based industry. In this case, which of the following contractual alliances should be adopted by Sepia?

A)A licensing agreement
B)A supply agreement
C)A distribution agreement
D)An input agreement

Question 10

Which of the following statements is true about how an arm's-length relationship is used in strategic alliance?

A)Firms cannot buy inputs from multiple sources using the arm's-length relationship.
B)Firms typically use the arm's-length relationship between internal departments.
C)Firms that use the arm's-length relationship acquire the production facilities of other firms.
D)Firms use the arm's-length relationship to purchase inputs at the lowest price.

Question 11

An organization wants to form a strategic alliance with another firm. The second firm is at the same level along the value chain. It cannot contribute the same level of financial resources, although it can contribute an extensive level of knowledge. In order to accommodate these factors, they decide to start a legally independent firm. Which of the following alliances will be best suited for the organization?

A)A contractual alliance
B)An equity alliance
C)A distribution agreement
D)A joint venture

Question 12

Crimson Corp., a painting unit, collaborates with a car manufacturing company. They sign a contract that specifies the tasks of each party in alliance. Which of the following is being exemplified in this scenario?

A)A nonequity alliance
B)An equity alliance
C)A coordination alliance
D)A vertical alliance

Question 13

Timber Inc. enters an exclusive partnership to ally with Teal Corp. in order to enter a foreign market. Which of the following statements is likely to be true in this case?

A)Timber and Teal are unlikely to receive inputs or activity from each other.
B)Timber is likely to buy an activity from Teal using an arm's-length relationship.
C)Timber is likely to send a bid to Teal along with other suppliers for the lowest price.
D)Timber is likely to acquire an activity or input from Teal to create a new value.

Question 14

Velara Inc., a healthcare company, owns 35% stake in the firm that supplies most of its raw materials. This encourages the supplier to align its incentives with Velara's needs. Which of the following is being exemplified in this case?

A)A licensing agreement
B)An equity alliance
C)A distribution agreement
D)A contractual alliance

Question 15

Which of the following statements is true about strategic alliances?

A)Strategic alliances exclude functions that are bought through bidding.
B)In strategic alliances, the power to make decisions is always evenly distributed amidst the firms.
C)In strategic alliances, companies may choose to cooperate at any stage along the value chain.
D)Strategic alliances usually lead to one of the firms losing their relational advantage.

Question 16

Marcel, the CEO of an automobile company, considers extending his research and development facility by collaborating with a multinational company. He believes that a contractual alliance will be ideal for this collaboration, but other senior members of the management oppose a contractual alliance. Which of the following statements is likely to strengthen Marcel's argument?

A)The relationship between the two firms is likely to be supported by equity investments.
B)The two firms are likely to seek a joint venture through the collaboration.
C)Cooperation between the two firms is not likely to depend on cross-equity holdings.
D)Interdependence between the two firms is not likely to be low.

Question 17

Victor Corp., a high-end mobile manufacturer that targets business people, decides to increase its customer base. It forms a strategic alliance with Gray Inc. to produce new instruments designed to attract students. Gray helps design products that change how Victor is perceived by young customers. Which of the following is the primary objective of this strategic alliance?

A)To source inputs or activities that create more productivity
B)To source inputs or activities that influence the brand
C)To source inputs or activities that reduce the total costs
D)To source inputs or activities that increase productivity of existing products

Question 18

Drew's Cafe Inc. and Cuppa Corp., two local coffee chains, combine resources to enter the global market. They retain their individual ownership; however, they agree to share production facilities and manpower, and they also decide to market their products through combined promotional tools. The arrangement made by the two retail chains to combine resources and collaborate for a common objective refers to a _________.

A)strategic alliance
B)mass-customization strategy
C)standardization venture
D)product-differentiation strategy

Question 19

Borpon Inc. and Biocolog Corp. are well-established biotechnology companies. They enter into a strategic alliance in which they create and own a legally independent company. The new company is created from resources and assets contributed by the parent firms. Revenues, expenses, and profits are equally shared by both firms. Which of the following strategic alliances is adopted by Borpon and Biocolog?

A)A contractual alliance
B)An equity alliance
C)A distribution agreement
D)A joint venture

Question 20

An organization enters into an alliance with a firm that is positioned at a different stage along the value chain. The alliance is formed to combine unique resources and lower transaction costs. In this case, which of the following alliances has been adopted by the organization?

A)A profit alliance
B)A selling alliance
C)A vertical alliance
D)A horizontal alliance

Question 21

Pharmax Inc., a pharmaceutical firm, holds annual surveys for its employees and the alliance partners' employees. After the survey, the management discusses the issues brought up by the employees and their suggestions. Conflicts are avoided by regular interaction, and any dispute that arises is resolved at an early stage. Through these measures, Pharmax seeks to primarily achieve _________.

A)organized alliance-management knowledge
B)increased external visibility
C)intervention and accountability
D)increased profits

Question 22

Green Dye Inc., a manufacturing firm that produces organic products, is approached by Zoe, a leading clothes designer owning her own label. Together, they create a line of clothes using organic dye and fabric made from pure cotton. Which of the following is likely to be the primary value created by this alliance?

A)Combining unique resources along different stages of the value chain
B)Lowering distribution costs at all stages of the value chain
C)Lowering the transaction costs at all stages of the value chain
D)Offering customized retail benefits to increase the sale of the products

Question 23

A graphic design firm and an advertising firm form a contractual alliance. In the first clause, they specify how decisions will be made, how profits will be split, and how disputes will be resolved. In the second clause, they specify how intellectual property will be shared and protected. Which category of issues does the second clause address?

A)Governance issues
B)Operating issues
C)Exit issues
D)Termination issues

Question 24

J.L. Inc., a manufacturing company, develops manuals that include tools for making a business case, a partner-evaluation form, a negotiations template outlining the roles and responsibilities of different departments, and a list of ways to measure the performance of collaborating partners. Through this measure, J.L. primarily seeks to achieve _________.

A)organized alliance-management knowledge
B)increased external visibility
C)low transaction costs
D)increased profits

Question 25

Spade Investments Corp. owns a financial stake in Loisa Inc., a manufacturing company. Spade's resources help the organization increase productivity, which results in increased sales and profits. These profits are shared among the partners in a particular ratio. In this case, the relationship between the two firms is based primarily on _________.

A)personal trust
B)legal contracts
C)shared equity
D)reputation

Question 26

_________ occurs when one partner tries to exploit the alliance-specific investments made by another partner.

A)Hold-up
B)Misrepresentation
C)Bondage
D)Battery

Question 27

A U.S.-based chocolate manufacturer, Browns' Inc., collaborates with a Brazilian company to source cocoa. The cocoa sourced from Brazil along with Browns' unique recipe creates products that are differentiated based on taste and quality. The alliance between the two firms is an example of _________.

A)a joint venture
B)a vertical alliance
C)a horizontal alliance
D)a distribution agreement

Question 28

Stylink Inc. and Plateus Inc. formed an alliance to create and own a legally independent company. However, Stylink tried to exploit the alliance-specific investments made by Plateus. Which of the following is being exemplified in this case?

A)Hold-up
B)Misrepresentation
C)Bondage
D)Battery

Question 29

Two organizations that are positioned at different stages along the value chain form an alliance. The contract includes the conditions under which the contract will be closed and the consequences of closure for each partner. Which of the following clauses specifies the above conditions?

A)Preemption rights clauses
B)Voting rights clauses
C)Termination clauses
D)Noncompete clauses

Question 30

Teal Inc. forms a strategic alliance with White Corp. In their contract, they specify how governance issues, operating issues, and termination issues would be resolved. Which of the following is likely to be covered under the clause that deals with governance issues?

A)What performance is expected by Teal and White from each other
B)How intellectual property will be shared by Teal and White
C)Under which circumstances Teal or White can exit the alliance
D)How profits will be split between Teal and White

Question 31

_________ occurs when one partner in an alliance creates false expectations about the resources it brings to the relationship or fails to deliver what it originally promised.

A)Hold-up
B)Misrepresentation
C)Bondage
D)Profit stealing

Question 32

Two organizations, Purple Inc. and Spring Corp., are positioned at a common stage of the value chain. However, they do not have a supplier-buyer relationship. They form an alliance to benefit from complementary activities. Which of the following is exemplified in this scenario?

A)A horizontal alliance
B)A vertical alliance
C)A joint venture
D)A supply agreement

Question 33

_________ are governance clauses in which joint ventures must specify what percentage of equity is owned by each of the partners.

A)Residual rights clauses
B)Voting rights clauses
C)Equity clauses
D)Dispute clauses

Question 34

Pearltech Inc., an information technology company, decides to establish a business alliance in order to differentiate its products. The manager of research and development, Sanah, is willing to form an alliance only with individuals she has known for a long time or a company within Pearltech's business network. Nate, the operations head, suggests extending the prospects by looking outside their usual network. Which of the following statements strengthens Sanah's argument?

A)Firms within the network could result in inbreeding of ideas.
B)Firms within the network prevent against opportunism.
C)Firms outside the network widen the scope of research solutions.
D)New partners bring in unique skills that add value to the product.

Question 35

_________ are governance clauses in which parties often specify how profits or assets created from alliances are to be split among partners.

A)Residual rights clauses
B)Voting rights clauses
C)Dispute resolution clauses
D)Noncompete clauses

Question 36

An alliance is likely to rely most on relationships between individuals when it is based on _________.

A)legal contracts
B)collateral bonds
C)goodwill trust
D)shared ownership

Question 37

Two firms that produce industrial machinery decide to form a strategic alliance. The objective of this collaboration is to combine their manufacturing facilities to achieve economies of scale during production. Which of the following is the primary value they aim to create through this alliance?

A)Combining unique skills
B)Pooling similar resources
C)Lowering distribution costs
D)Creating product differentiation

Question 38

Plateus Inc., a software company, has a website that gives detailed information about partnering processes for firms that seek collaboration with Plateus. Plateus describes the terms and conditions of different grades of partnership on its website, allowing potential partners to choose which level fits them best. Through this measure, Plateus seeks to primarily achieve _________.

A)organized alliance-management knowledge
B)increased external visibility
C)low transaction costs
D)increased profits

Question 39

An organization forms an alliance contract. It specifies in detail the duties and obligations of each of the partners, how the profits are to be split by the partners, and the process by which disputes will be resolved. Which of the following clauses is likely to cover the duties and obligations of the partners, including warranties and minimum output levels required to satisfy the contract?

A)Residual rights clause
B)Voting rights clause
C)Performance clause
D)Dispute clause

Question 40

The research and development department of a pharmaceutical company is in the process of developing a new drug to cure Parkinson's disease. It requires additional resources to complete the process. To convince another pharmaceutical company to provide the necessary resources, it gives false information about how long the drug has been in the developmental pipeline and the guidelines followed in the production process. Which of the following is being exemplified in this case?

A)Hold-up
B)Misrepresentation
C)Bondage
D)Profit stealing

Question 41

When do firms tend to opt for equity alliances?

A)When it is easy to specify what each party is supposed to do in the relationship
B)When it is easy to specify the rewards that should come from meeting one's obligations in the alliance
C)When an alliance requires less interdependence among the firms involved
D)When an alliance requires the joint creation of new resources and capabilities by the partners

Question 42

In an equity alliance, _________.

A)two or more firms write a contract to govern their equity relationship
B)the collaborating firms often supplement contracts with equity holdings in their alliance partners
C)a supplier may agree to develop certain customized inputs for a customer
D)a distributor or retailer may agree to provide certain customized services in order to help sell a product

Question 43

A contractual alliance is preferred when:

A)firms bring knowledge but each can perform their roles separately.
B)firms bring difficult-to-measure contributions that must be combined.
C)interdependence between partners is low.
D)the contribution of each partner is difficult to measure.

Question 44

A(n)___ is a cooperative arrangement in which two or more firms combine their resources and capabilities to create new value.

Question 45

In the context of an alliance contract, which of the following is true of a performance clause?

A)It specifies the specific duties and obligations of each of the partners, including warranties and minimum execution levels required to satisfy the contract.
B)It specifies product markets or businesses that partners are restricted from entering.
C)It specifies intellectual property or confidential information brought to the alliance by the partners that is not to be used by other partners or shared outside of the alliance without the partner's written consent.
D)It specifies ownership rights to intellectual property (such as patents)created as a result of the alliance.

Question 46

What are the ways in which strategic partners can build trust in alliance relationships?

Question 47

Which of the following is a key function of an effective dedicated alliance function?

A)Becoming more independent
B)Increasing external visibility
C)Refusing internal support to a firm
D)Eliminating management accountability

Question 48

A(n)___ is a type of strategic alliance in which cooperation between firms is managed directly through contracts, without cross-equity holdings, or an independent firm being created.

Question 49

Which of the following inputs qualifies as "strategic" inputs that merit forming an alliance relationship?

A)High value inputs that make up a high percentage of one's total costs
B)Inputs that do not differentiate one's product in the minds of customers
C)Activities that require a lot of unskilled man power
D)Activities that require no coordination in order to achieve the desired quality

Question 50

Identify a true statement about a nonequity alliance.

A)It is an alliance in which two or more firms write a contract to govern their relationship.
B)It is an alliance in which the collaborating firms supplement contracts with equity holdings in their alliance partners.
C)It is an alliance in which collaborating firms create and jointly own a legally independent company.
D)It is an alliance in which one of the collaborating firms invests in product development and the other focuses on sales.

Question 51

With respect to categories of issues, ___ issues deal with how decisions will be made, how profits will be split, and how disputes will be resolved.

Question 52

A(n)___ is a type of contractual alliance in which a retailer may agree to provide certain customized services in order to help sell a product.

Question 53

Which of the following statements best describes a strategic alliance?

A)It is a cooperative arrangement in which two or more firms combine their resources and capabilities to create new value.
B)It is an arrangement where a firm purchases an input from another firm with no obligation to have a long-term relationship with the other firm.
C)It is an unofficial arrangement in which two large firms cooperate unofficially to control production and prices within a certain market segment.
D)It is a cooperative arrangement where a firm which is on the verge of shutting down sells all of its assets to another firm.

Question 54

The most common way to distinguish one type of alliance from another is by the _________.

A)motive behind the alliance
B)mechanism used to govern the alliance
C)products of the firms involved in the alliance
D)measure of profit each firm derives out of the alliance

Question 55

In the context of the alliance lifecycle, which of the following tools are used in alliance management?

A)Relationship evaluation form, yearly status report, termination checklist, termination planning worksheet
B)Decision making template, trust-building worksheet, work planning worksheet, alliance communication infrastructure
C)Partner screening form, technology and patent domain maps, cultural fit evaluation form, due diligence team
D)Needs analysis checklist, make vs. buy vs. ally analysis, list of possible alliance partners with resources to meet needs

Question 56

Identify a way firms create value through alliance.

A)By pooling trade secrets
B)By combining unique resources
C)By increasing the transaction costs
D)By creating new industry-specific resources

Question 57

How can firms protect themselves against misrepresentation?

A)By partnering only with start-ups
B)By partnering only with trustworthy individuals and firms
C)By desisting from forming any kind of alliance with other firms
D)By creating an equity alliance with the partnering company

Question 58

Identify a true statement about a horizontal alliance.

A)It occurs between firms that have a supplier-buyer relationship.
B)It occurs when the output of one of the firms in the relationship is the input of the other.
C)It occurs only between firms that are positioned at different stages along the value chain.
D)It can occur between companies who do not do the same activities but do complementary ones.

Question 59

Firms pool similar resources typically to ________.

A)increase the cost per unit
B)decrease administrative costs
C)create standardized products at a much lower cost
D)share the risks associated with conducting a particular activity

Question 60

Alliances that create value through lower transaction costs are primarily trying to _________.

A)lower the costs between transactions in the value chain
B)expand the available resources of all the partners
C)decrease administrative costs
D)increase production costs

Question 61

What are the four kinds of inputs and activities that might qualify as strategic inputs, which merit forming an alliance relationship? Explain the four inputs with suitable examples.

Question 62

Explain the different ways through which a firm can create value in an alliance. Support your answer with suitable examples.

Question 63

What are the three types of strategic alliances based on governance arrangement? Also, briefly explain how alliances can also be categorized based on the stages of the value chain.

Question 64

What are the different types of nonequity alliances?

Question 65

Companies have three choices-make, buy, or ally-when it comes to conducting any particular activity that needs to be done to offer a product or service to a customer. Explain the three choices and the process involved in each.