Question 1

A drawback involved in using cross-border strategic alliances to enter new foreign markets is that

Accepted Answer

Cross-border strategic alliances have both benefits and risks. While the foreign firm can benefit from local expertise and contacts, it is exposed to the risk that some of its proprietary know-how may be appropriated by the foreign partner.

Question 2

A _____ is best described as a voluntary arrangement between firms that involves the sharing of knowledge,resources,and capabilities with the intent of developing processes,products,or services.

Accepted Answer

Strategic alliances are voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

Question 3

Vibgyor Inc.,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 cell 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 Vibgyor and the software company best referred to as in this scenario?

Accepted Answer

The relationship between Vibgyor and the software company is best referred to as a strategic alliance. Strategic alliances are voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

Question 4

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

Accepted Answer

In terms of strategic alliances, this scenario best indicates the real-options perspective. Taking a wait-and-see approach by entering strategic alliances allows incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.

Question 5

A _____ is best described as an approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.

Accepted Answer

A real-options perspective to strategic decision making breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.

Question 6

The managers at Movo Automobile Inc.want to diversify their 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 Movo Automobile is most likely a result of

Accepted Answer

In this scenario, this acquisition by Movo Automobile is most likely a result of principal-agent problems. Managers, as agents, are supposed to act in the best interest of the principals, the shareholders. However, managers may have incentives to grow their firms through acquisitions-not for anticipated shareholder value appreciation, but to build a larger empire, which is positively correlated with prestige, power, and pay.

Question 7

Why did incumbent pharmaceutical firms enter into hundreds of strategic alliances with biotech start-ups?

Accepted Answer

In dynamic markets, strategic alliances allow firms to limit their exposure to uncertainty in the market. For instance, in the wake of the biotechnology revolution, incumbent pharmaceutical firms such as Pfizer, Novartis, and Roche entered into hundreds of strategic alliances with biotech start-ups. These alliances allowed the big pharma firms to make small-scale investments in many of the new biotechnology ventures that were poised to disrupt existing market economics.

Question 8

Which of the following summarizes the benefit of the strategic alliance between HP and DreamWorks?

Accepted Answer

Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone.

Question 9

The _____ is a strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

Accepted Answer

According to the relational view of competitive advantage, critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

Question 10

Adidas acquired Reebok primarily to

Accepted Answer

To compete more successfully with Nike, the worldwide leader in sports shoes and apparel, Adidas acquired Reebok for $3.8 billion in 2006. This acquisition allowed the now-larger Adidas group to benefit from economies of scale and scope that were unachievable when Adidas and Reebok operated independently.

Question 11

JetStream Airway's decision to acquire Rex Fuels Inc.proved to be ill-fated because its managers had 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 airlines industry.What does this scenario best illustrate?

Accepted Answer

The scenario best illustrates managerial hubris. Managers of the acquiring company convince themselves that they are able to manage the business of the target company more effectively and, therefore, create additional shareholder value. This justification is often used for an unrelated diversification strategy. This can lead to managerial hubris.

Question 12

One of the first new business apps resulting from the alliance of Apple and IBM will help airline pilots determine the right amount of fuel to carry on a particular flight.This task not only requires significant data analytics but also the need to display the information in an easily understandable way so that pilots can digest it quickly when glancing on their iPad in a cockpit prior to departure.Which of the following parts of this example will Apple be responsible for?

Accepted Answer

As mentioned in Strategy Highlight 9.1, Apple's core competency is hardware and software integration to produce a seamless user experience. The display of information in an easy-to-understand way uses these skills.

Question 13

What does the relational view of competitive advantage propose?

Accepted Answer

The locus of competitive advantage is often not found within the individual firm but within a strategic partnership. According to the relational view of competitive advantage, critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

Question 14

Which of the following statements is true of strategic alliances?

Accepted Answer

A strategic alliance has the potential to help a firm gain and sustain a competitive advantage when it joins together resources and knowledge in a combination that obeys the VRIO principles.

Question 15

How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?

Accepted Answer

HP's alliance with DreamWorks Animation SKG enabled HP to compete head on with Cisco's high-end videoconferencing solution, TelePresence.

Question 16

Which of the following is not a reason why firms enter alliances?

Accepted Answer

This logic is reflected in the common reasons why firms enter alliances. They do so to strengthen competitive position, enter new markets, hedge against uncertainty, access critical complementary assets, and learn new capabilities.

Question 17

Dream Slope 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 Sleek Phantom Inc.This company produced bobsleds,but its sales had slowed.The managers of Dream Slope convinced themselves that they were able to manage the business of Sleek Phantom more effectively even though they had no experience in the bobsled market.However,this move backfired and the sale of Sleek Phantom's bobsleds plummeted.Which of the following terms is often used to describe this scenario?

Accepted Answer

The term managerial hubris is often used to describe this type of scenario. Managerial hubris is a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.

Question 18

Terranova 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 Terranova Autos controlling interests in the start-up company.However,Terranova Autos had no obligations to make continued investments in the experiments of the start-up company.It could invest in small amounts depending on the new product's success at each stage of its development.If the product proved to be successful,Terranova Autos would have the right to buy out the start-up company.This approach to strategic alliance is referred to as

Accepted Answer

This approach to strategic alliance is referred to as a real-options perspective. The real-options perspective allows a firm to obtain additional information at predetermined stages. At each stage, after new information is revealed, the firm evaluates whether or not to make further investments. In a sense, a real option, which is the right, but not the obligation, to continue making investments allows the firm to buy time until sufficient information for a go versus no-go decision is revealed.

Question 19

Although long-standing enemies,Apple and IBM formed an alliance partnership.How did this partnership benefit both Apple and IBM?

Accepted Answer

As mentioned in Strategy Highlight 9.1, Apple and IBM plan to create simple-to-use business apps that bring together Apple's core competency of hardware and software integration to produce a seamless consumer experience with IBM's core competency in business services.

Question 20

What causes the winner's curse?

Accepted Answer

Sometimes companies get involved in a bidding war for an acquisition; the winner may end up with the prize but may have overpaid for the acquisition-thus falling victim to the winner's curse.

Quiz 9: Corporate Strategy: Strategic Alliances, Mergers and Acquisitions