Deck 9: Cooperative Strategy

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Strategic alliances have become the cornerstone of many firms' competitive strategy, particularly large global competitors.

Answer 3

True

Question 4

A strategic alliance is a cooperative strategy in which firms combine some of their resources to create a competitive advantage.

Question 5

When two or more firms form a new company in which they each own different percentages, they have entered into an equity strategic alliance.

Question 6

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 7

Firms often pursue international mergers and acquisitions instead of forming a cross-border strategic alliance because of the increased risk associated with the alliances.

Question 8

A cross-border strategic alliance can help foreign partners from an operational perspective because the local partner can share information about factors contributing to competitive success.

Question 9

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 10

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

Question 11

Renault and Nissan Motor Company have formed vertical complementary strategic alliance to create synergy.

Question 12

Firms in slow-cycle markets often use strategic alliances to enter restricted markets or to establish a franchise in a new market.

Question 13

Collusion is a form of cooperative strategy.

Question 14

Tacit collusion tends to be least used as a business-level, competition-reducing strategy in highly concentrated industries such as airlines and breakfast cereals because it results in higher prices for consumers.

Question 15

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

Question 16

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

Question 17

One area in which joint ventures are effective is the transfer of tacit knowledge as illustrated in the joint venture that created Shanghai GM Co.

Question 18

In a vertical complementary alliance, firms share some of their resources and capabilities from the same stage of the value chain to create a competitive advantage.

Question 19

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

Question 20

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 21

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

Question 22

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 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

Even though they take place in almost every industry, the number of cross-border strategic alliances has been steadily decreasing, probably because of their complexity.

Question 25

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 26

Part of the attractiveness of cross-border alliances is that the full range of entry modes is available in virtually all countries in which firms seek to geographically diversify.

Question 27

A cross-border strategic alliance occurs when firms based in the same country combine their resources to create a competitive advantage that can be realized in international markets.

Question 28

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

Question 29

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

Question 30

Of the four business-level cooperative strategies, the competition-reducing strategy has the lowest probability of creating a sustainable advantage.

Question 31

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

Question 32

Franchising is most attractive in concentrated industries.

Question 33

Some cooperative strategies fail when it is discovered that a firm has misrepresented the resources it can bring to the partnership.

Question 34

Only about 50 percent of cooperative strategies succeed.

Question 35

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

Question 36

An alliance can be used as a way to determine whether the partners might benefit from a future merger.

Question 37

Franchising is an alternative to pursuing growth through mergers and acquisitions.

Question 38

Research in the airline industry suggests that tacit collusion reduces service quality and on-time performance.

Question 39

International strategic alliances are less risky than domestic strategic alliances because of diversification across countries.

Question 40

Firms develop a competitive advantage when they are able to develop corporate-level cooperative strategies and manage them in ways that are valuable, rare, imperfectly imitable, and nonsubstitutable.

Question 41

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 MOST 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 42

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 ownership arrangements would be MOST typical for a joint venture?

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 43

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

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

Question 44

One reason to use a strategic alliance in a fast-cycle market is to:

A) maintain market stability.
B) share risky R&D expenses.
C) gain access to complementary resources.
D) overcome trade barriers.

Question 45

A nonequity strategic alliance exists when:

A) two firms join together to create a new company.
B) two or more firms develop a contractual relationship to share some of their resources to create a competitive advantage.
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 46

In a(n) __________, two or more firms create a legally independent company to share some of their resources to create a competitive advantage.

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

Question 47

EllEx Enterprises is entering into a cooperative strategy with YRPA.In order to have the best chance of success, the managers of this strategy should concentrate equally on both tangible and intangible assets.

Question 48

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

Question 49

Japanese telecom NTT DoCoMo Inc.and Chinese Internet search operator Baidu Inc.established an alliance to distribute games and other mobile-phone content.Baidu will own 80 percent of this collaboration with DoCoMo holding the remaining 20 percent.This collaborative arrangement is an example of a(n):

A) joint venture.
B) network strategy.
C) equity strategic alliance.
D) nonequity strategic alliance.

Question 50

A competitive advantage developed through a cooperative strategy often is called a collaborative or __________ advantage.

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

Question 51

When using cooperative strategies, firms most frequently 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 52

The Renault Nissan alliance is an example of a __________ created to gain economies of scope by sharing resources and capabilities.

A) diversifying strategic alliance
B) vertical complementary alliance
C) synergistic strategic alliance
D) nonequity-based horizontal complementary alliance

Question 53

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 54

A major pharmaceutical company formed a nonequity strategic alliance with an outsourcing firm to monitor its drug safety claims.The outsourcing firm did not have the requisite knowledge to identify all possible side effects and categorize their severity.This best illustrates the risk associated with inadequate contracts.

Question 55

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

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

Question 56

What might be a reason that the number of cross-border alliances are continuing to increase?

A) They are relatively easy to manage.
B) They can occur in virtually all industries.
C) They create value in the home market.
D) They are riskier than mergers, but not as risky as acquisitions.

Question 57

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

Question 58

Fujitsu Siemens Computers is a legally independent company of which Fujitsu and Siemens each own 50 percent.This collaboration is an example of a(n) __________, which is effective at transferring __________.

A) nonequity strategic alliance; explicit knowledge
B) joint venture; tacit knowledge
C) joint venture; explicit knowledge
D) equity strategic alliance; tacit knowledge

Question 59

Moon Flower Cosmetics Company's 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 that would be marketed both in Asia and the United States.Beyond being a cross-border alliance, this partnership can be called a(n):

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

Question 60

Which of the following types of strategic alliance is best at passing tacit knowledge between partners?

A) Primary cooperative strategic alliances
B) Joint ventures
C) Equity strategic alliances
D) Nonequity strategic alliances

Question 61

All of the following are business-level cooperative strategic alliances EXCEPT:

A) synergistic strategic alliances.
B) uncertainty-reducing strategic alliances.
C) complementary strategic alliances.
D) competition-response strategic alliances.

Question 62

In free-market economies, __________ must decide how rivals can collaborate with their competitors without violating established regulations.

A) individual businesses
B) the government
C) consumers
D) the business community

Question 63

The risks of being accused of collusion are MOST likely under which of the following types 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 64

__________ 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 65

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 66

Burgess Corp.manufactures a line of heavy construction equipment.The company has announced a contractual relationship 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.Which of the following types of alliance is this?

A) Joint venture
B) Equity strategic alliance
C) Nonequity strategic alliance
D) Competition reduction alliance

Question 67

If a firm pursues a strategic alliance in order to reduce industry overcapacity, that firm most likely operates in what type of market?

A) Slow-cycle
B) Moderate-cycle
C) Standard-cycle
D) Fast-cycle

Question 68

A statewide 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 69

A(n) __________ cooperative strategy helps firms diversify in terms of products offered, markets served, or both.

A) corporate-level
B) business-level
C) national-level
D) industry-level

Question 70

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 71

Mutual forbearance is:

A) illegal in the United States.
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 72

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

A) create value that they could not develop by acting independently.
B) enter competitive markets more quickly.
C) gain access to resources.
D) retain tight control over intangible core competencies.

Question 73

In the United States, 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

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 market containing products with a 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 that could help the firm establish economies of scale.
C) access to franchises in new markets.
D) excess resources for investing.

Question 75

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(n) __________ strategy.

A) vertical complementary
B) horizontal complementary
C) uncertainty-reducing
D) network

Question 76

For which of the following reasons 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) The alliances require cooperation among firms that must also compete with one another.

Question 77

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 78

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 79

The two dominant types of complementary strategic alliances are:

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

Question 80

U.S.Steel and Nucor (the two remaining major players in the U.S.steel industry) have been forming alliances as a means to enter markets in Europe and Asia.The steel industry is an example of a(n) __________ market in which firms typically use alliances to gain market access.

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