Divina Pharma Inc.and MF Electronics Inc.have together invested and created a new organization,FirstHealth Inc.,to focus on developing diagnostic devices.Through this new firm,both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments.However,the new organization operates independent of Divina Pharma and MF Electronics.Which of the following alternatives to integration does this scenario best illustrate?

Question

Quizplus · Accepted Answer

The scenario best illustrates a joint venture. In a joint venture, which is another special form of strategic alliance, two or more partners create and jointly own a new organization. Since the partners contribute equity to a joint venture, they make a long-term commitment, which in turn facilitates transaction-specific investments.