Question 1

In the case of cross-border amalgamations of companies, concerns of national domination often mean that mergers are preferred to acquisitions.

Accepted Answer

Cross-border amalgamations can be sensitive issues when it comes to concerns about national domination. In such cases, mergers may be seen as more favorable as they allow for more equal partnerships between the two companies involved, whereas acquisitions may result in one company dominating the other.

Question 2

The main reason that multinational corporations choose t enter emerging markets by means of a joint venture with a local partner is usually the desire t share risk rather than the need to access local knowledge and distribution channels.

Accepted Answer

The statement is false. While sharing risk is often a consideration, accessing local knowledge and distribution channels is typically a primary reason for multinational corporations to enter emerging markets through a joint venture with a local partner. This allows them to better navigate the local business environment and cultural nuances, and more effectively target the local consumer base.

Question 3

An important lesson from the troubled development of Boeing's 787 Dreamliner is that, for developing complex, technically-advanced products, the hub firm needs to have the capability to manage networks of strategic alliances.

Accepted Answer

The statement is true. The development of the Boeing 787 Dreamliner was marred by numerous delays and technical issues, partly due to the reliance on an extensive network of suppliers and partners. Boeing learned that managing these alliances effectively is crucial for the success of complex, technically-advanced products.

Question 4

The "lemons problem" in the market for companies refers to the fact that the sellers of companies have better information about the company than do would-be buyers.

Accepted Answer

The "lemons problem" is a well-known concept in information asymmetry, which states that the seller (in this case, the owner of a company) possesses more information about the company than the buyer. This lack of complete information can lead to a market failure, as buyers may be reluctant to purchase a company due to uncertainty about its true value or potential risks.

Question 5

The forces that gave rise the created the industrial districts of Italy are essentially the same as those that have caused clustering of ﬁlm production companies in Hollywood and electronics and IT companies in Silicon Valley.

Accepted Answer

Both the industrial districts of Italy and the clusters of film production companies in Hollywood and electronics and IT companies in Silicon Valley were formed due to the agglomeration economies, where companies benefit by locating close to each other and sharing resources, knowledge, and labor. Therefore, the forces behind their formation are essentially the same.

Question 6

Cross-border acquisitions tend to have the strongest strategic logic but give rise to the greatest challenges of post-merger integration.

Accepted Answer

Cross-border acquisitions typically provide access to new markets, technologies, and resources, making them attractive from a strategic standpoint. However, due to cultural differences, regulatory issues, and logistical challenges, integrating the operations of the two companies after the merger can be complex and challenging.

Question 7

Mergers and acquisitions go in waves.Because acquirers prefer to pay low prices for acquired companies, these M&A waves tend to be inversely correlated with stock market fluctuations.

Accepted Answer

M&A waves often coincide with periods of economic optimism and rising stock markets, as acquirers are more willing to pay higher prices due to the availability of cheap financing and the expectation of future growth.

Question 8

In most cases, the primary goal of a strategic alliance is to acquire that than simply to access the partner's organizational capabilities.

Accepted Answer

The primary goal of a strategic alliance is typically to access the partner's organizational capabilities, such as technology, expertise, or distribution channels, rather than acquiring the partner outright. However, in some cases, acquisitions may be a potential outcome of a strategic alliance where there is a strong fit and mutual benefit for both parties.

Question 9

Identifying the strategic rationale and likely benefits of mergers and acquisitions is easier in the case of diversifying mergers and acquisitions than for horizontal mergers and acquisitions.

Accepted Answer

Identifying the strategic rationale and likely benefits of horizontal mergers and acquisitions is relatively easier as it involves the combination of firms operating in the same industry or market, leading to economies of scale, increased market power, and enhanced competitiveness. Diversifying mergers and acquisitions involve the combination of firms operating in different industries or markets, making it difficult to identify the strategic benefits and potential synergies.

Question 10

Mergers and acquisitions are attractive to the managers who instigate them because of the speed with which they can effect strategic changes rather than their proven financial benefits.

Accepted Answer

Mergers and acquisitions allow for quick strategic changes such as entering new markets or gaining new capabilities, but the financial benefits may not always be immediately clear or guaranteed.

Question 11

In order to gain a new organizational capability, it is usually cheaper and less risky to acquire a company that already possesses that capability than to develop that capability internally.

Accepted Answer

Acquiring a company can be more expensive and riskier due to the high costs of acquisition, integration challenges, cultural mismatches, and potential for not realizing the expected synergies or value from the acquisition. Developing a capability internally allows for more control and alignment with the company's existing culture and processes, though it may require time and investment in training and development.

Question 12

Internal business ventures rather than external mergers, acquisitions and alliances are the preferred means by which most established ﬁrms achieve major extensions in the scope of their activities.

Accepted Answer

Most established firms often pursue growth and extensions in their scope of activities through external strategies such as mergers, acquisitions, and alliances, as these methods can provide quicker access to new markets, technologies, and resources compared to the slower process of developing internal ventures.

Question 13

Hewlett-Packard's disastrous acquisition of the software and services company, Autonomy, points to the problem that the acquirer has much less information about the company than the seller.An additional problem of the Autonomy acquisition is that acquisitions that are intended to change the acquirer's business model are riskier than acquisitions that seek to leverage the existing business model.

Accepted Answer

The statement is true.

Question 14

Mergers and acquisitions represent paradoxes in the sense that:
A)The stock market remains suspicious of them, despite widespread evidence of their effectives as tools of corporate strategy
B)Companies continue to be enthusiastic in initiating acquisitions despite empirical evidence that, on average, acquisitions destroy shareholder value for acquirers
C)The CEOs who initiate them are lauded by the business media, despite the suspicious that they are vehicles for CEO testosterone-fueled hubris
D)They are often initiated by companies that profess a stakeholder orientation despite the fact that it is investment bankers who are the main beneficiaries, while consumers and employees are the main losers

Accepted Answer

Despite empirical evidence that, on average, acquisitions destroy shareholder value for acquirers, companies continue to be enthusiastic about initiating them. This represents a paradox as it contradicts the evidence that they are not beneficial for shareholders.

Question 15

The main parallel between the merger boom in the US at the end of the 19^th century and the recent merger boom in the chemicals, beer, food, media and communications, and pharmaceutical industries is that both involves horizontal mergers and resulted in the creation of market-dominating companies:

Accepted Answer

Both the merger boom in the late 19th and early 20th centuries and the recent merger boom in various industries involved horizontal mergers that resulted in the formation of dominant companies in the market.

Question 16

Issues of pre-acquisition planning and post-acquisition management should be viewed as separate: activities best led by separate teams.

Accepted Answer

Pre-acquisition planning and post-acquisition management are interconnected processes that should be viewed as part of a continuum, often requiring collaboration and continuity between teams to ensure the success of the acquisition.

Question 17

The key difference between a merger and an acquisition is that, in the case of a merger, the participating companies combine to create a new company.

Accepted Answer

In a merger, the participating companies combine to create a new company, while in an acquisition, one company acquires the other and becomes the sole owner.

Question 18

Mergers, acquisitions, and alliances may be viewed not just as instruments of corporate strategy but as strategies in themselves.

Accepted Answer

The answer of Mergers, acquisitions, and alliances may be viewed...

Question 19

Strategic alliances are only stable if they are reinforced by equity ownership between the partners.

Accepted Answer

Strategic alliances can be stable even without equity ownership. Other factors that can reinforce stability include a well-defined governance structure, shared values and goals, effective communication, and a mutually beneficial partnership. Equity ownership may enhance the commitment and trust between partners, but it is not necessary for stability.

Question 20

In Capron and Mitchell's decision framework for selecting the right growth path, if a firm finds that its resources and capabilities do not fit with its current strategy, then acquisition should be first option considered and internal development the last option.

Accepted Answer

Capron and Mitchell's decision framework suggests that firms should first consider internal development if their resources and capabilities are strong, and look towards acquisitions or alliances if internal resources are lacking or if a faster market entry is needed. The decision is based on the fit between the firm's resources and the growth path, not a predetermined order of options.

Quiz 14: External Growth Strategies: Mergers, Acquisitions, and Alliances