Deck 9: Cooperative Strategy

Question 1

Firms in slow-cycle markets can use alliances to enter restricted markets or to establish franchises in new markets.

Answer 1

True

Question 2

According to the chapter Opening Case, IBM used internal means to facilitate its change from solely producing hardware to adding services and software.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

According to the chapter Strategic Focus, large retailers have been squeezing their vendors in order to survive the requirement for heavy sales promotions to sell their apparel products.

Question 5

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

Question 6

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 7

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 8

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

Question 9

Collusion is a form of cooperative strategy.

Question 10

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 11

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

Question 12

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

Question 13

The chapter Strategic Focus explains that the global economic downturn has led to better relationships in complementary alliance as firms have become more dependent on supply chains for cost reduction.

Question 14

A cooperative strategy is a means by which firms work together to achieve a shared objective.

Question 15

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

Question 16

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 17

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 18

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

Question 19

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

Question 20

According to the chapter Opening Case, IBM has specific performance-related objectives (such as developing leading-edge chip technology) that it wants to accomplish as it engages in an array of cooperative arrangements.

Question 21

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

Question 22

Cooperative strategies may involve firms who are competitors.

Question 23

Franchising is most attractive in concentrated industries.

Question 24

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

Question 25

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

Question 26

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

Question 27

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 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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 37

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 38

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

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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 44

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 45

The chapter Strategic Focus about the TNK-BP joint venture illustrates managing a cooperative venture through opportunity maximization.

Question 46

The chapter Strategic Focus about the TNK-BP joint venture between three Russian oil tycoons and British Petroleum illustrates the risk of opportunistic behavior in alliances, especially in emerging markets.

Question 47

In a(an) ____, two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

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

Question 48

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 49

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 50

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

Question 51

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

Question 52

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 53

According to the Opening Case, IBM once teamed with longtime rival Sun Microsystems to produce software in competition with Hewlett-Packard. 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

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 55

When using cooperative strategies, a 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 56

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

Question 57

Only about 50% of cooperative strategies succeed.

Question 58

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 59

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 60

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

A) consolidate a fragmented industry and thus gain market power.
B) leverage its core competencies and grow and improve its performance.
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 61

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 62

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 63

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 64

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 65

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 66

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.

Question 67

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 68

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 69

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 70

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 71

The chapter Strategic Focus showed that relationships __________ between ________alliance partners because of the recent economic downturn.

A) improved; vertical
B) became more strained; horizontal
C) improved; horizontal
D) became more strained; vertical

Question 72

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 73

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 74

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

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

Question 75

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 76

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

A) reduce competition.
B) enhance their competitive capabilities.
C) gain access to resources.
D) retain tight control over intangible core competencies.

Question 77

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 78

____ 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 79

Hewlett-Packard licenses some of its intellectual property through strategic alliances. Which of the following is correct about this relationship?

A) This is a joint venture because in licensing arrangements, a new company is created.
B) This is an equity strategic alliance because licensing does not involve the creation of a new company, but does involve an equity commitment.
C) The firms risk charges of collusion because most licensing relationships between competitors involve explicit collusion.
D) This is a nonequity strategic alliance with Hewlett-Packard leveraging its unique capabilities.

Question 80

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.