Question 1

Relational capital refers to the building of interpersonal relationships between the firms' managers in a strategic alliance.

Accepted Answer

Relational capital is defined as the value created from establishing and maintaining relationships between individuals, organizations or entities. In the context of strategic alliances, it refers to the development of trust, understanding, and effective communication between the managers of the partnering firms.

Question 2

Over the decade,between 50 and 90 percent of all FDI inflows have been in the form of mergers and acquisitions.

Accepted Answer

This statement is true as per the data on FDI inflows over the decade.

Question 3

Firms entering a market via a wholly owned subsidiary must bear all the costs and risks associated with the venture.

Accepted Answer

When a firm enters a market via a wholly owned subsidiary, it means that the subsidiary is 100% owned by the parent company. This implies that the parent company is solely responsible for all the costs and risks associated with the venture in the new market.

Question 4

Switching costs:

Accepted Answer

Switching costs refer to the costs that a customer incurs when switching from one product or service to another. These costs can include financial costs, such as cancellation fees or the cost of acquiring a new product, as well as non-financial costs, such as the time and effort required to learn how to use a new product. When switching costs are high, it is difficult for later entrants to win business because customers are less likely to switch from the established product or service. This gives early entrants a competitive advantage and makes it harder for later entrants to gain a foothold in the market.

Question 5

If a firm is trying to enter a market where there are already well-established companies,and where global competitors are also interested in establishing a presence,the firm should choose a greenfield investment.

Accepted Answer

Choosing a greenfield investment (building a new facility from scratch) in a highly competitive market where well-established companies and global competitors exist can be risky and costly. It may be better for the firm to consider other entry strategies such as acquisition or joint venture.

Question 6

To maximize the learning benefits of an alliance,partners should try to learn from each other and then disperse the knowledge within their own organizations.

Accepted Answer

The statement is true. Alliance partners can maximize the learning benefits by exchanging knowledge and then applying it within their own organizations. This can help to improve processes, products, and services, and enhance overall competitiveness.

Question 7

Cross-licensing agreements can be used to formalize arrangements to swap skills and technology in a strategic alliance.

Accepted Answer

Cross-licensing agreements are commonly used in strategic alliances to exchange technology and intellectual property rights. Such agreements allow both parties to access each other's patents and inventions, which can help increase innovation and competitiveness in their respective industries.

Question 8

Brand names are generally well-protected by international laws pertaining to trademarks.

Accepted Answer

Brand names are protected by international laws pertaining to trademarks which prevent others from using them without permission or proper licensing. This helps to ensure that consumers can rely on the quality and reputation associated with a particular brand.

Question 9

Unlike joint ventures,strategic alliances require the firm to bear all the costs and risks of foreign expansion.

Accepted Answer

Strategic alliances involve sharing costs and risks with a partner.

Question 10

Overpayment for assets of an acquired firm is one reason acquisitions fail.

Accepted Answer

Overpayment for assets can lead to a decrease in the acquirer's profits, a decrease in shareholder value or even bankruptcy, which can all contribute to the failure of the acquisition.

Question 11

The main advantage of greenfield investment is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants.

Accepted Answer

Greenfield investment allows the firm to start from scratch and build a subsidiary company according to their specific needs and preferences. This provides a greater level of control and customization compared to acquiring an existing company.

Question 12

Evidence suggests that all acquisitions create rather than destroy value.

Accepted Answer

Not all acquisitions create value; some may destroy value due to overpayment, integration issues, or strategic misalignment.

Question 13

The failure rate for international strategic alliances is very low.

Accepted Answer

The statement is false. The failure rate for international strategic alliances is actually quite high, with some studies estimating that up to 70% of partnerships fail to meet their objectives.

Question 14

Other things being equal,the benefit-cost-risk trade-off is likely to be most favorable in:

Accepted Answer

Politically stable developed and developing nations that have free market systems are likely to have a favorable benefit-cost-risk trade-off because they generally have sound financial systems, well-established regulations, and stable economies, which reduce the likelihood of unexpected shocks and minimize risk for investors. Additionally, free market systems provide opportunities for businesses to grow and innovate, leading to potential benefits for both investors and society as a whole.

Question 15

Acquisitions rarely produce disappointing results.

Accepted Answer

Acquisitions can result in disappointing results, such as overpaying for the acquired company, cultural clashes, and difficulties integrating the two companies.

Question 16

Firms pursuing global standardization or transnational strategies tend to prefer joint-venture arrangements over wholly owned subsidiaries.

Accepted Answer

Firms pursuing global standardization or transnational strategies tend to prefer wholly owned subsidiaries as it gives them more control over operations and ensures consistency in brand image and product quality. Joint-venture arrangements involve sharing control with another company, which may result in a loss of control and standardization.

Question 17

Firms may avoid strategic alliances because their complexity usually delays entry into a foreign market.

Accepted Answer

Strategic alliances are often used as a way to enter foreign markets more quickly and efficiently. While there may be some additional complexities to navigate when forming and managing the alliance, overall it can be a faster and more effective way to expand into new territories.

Question 18

A clear advantage of greenfield investments as compared to acquisitions is the short execution time involved.

Accepted Answer

Greenfield investments involve establishing a new business entity, which may take longer to set up and acquire the necessary resources and permits. Acquisitions involve purchasing an existing entity, which may shorten the execution time by already having an established operation and resources.

Question 19

Acquisitions are less risky than in greenfield ventures in the sense that there is less potential for unpleasant surprises.

Accepted Answer

The answer of Acquisitions are less risky than in greenfield...

Question 20

Which of the following is not an advantage associated with entering a foreign market before other international businesses?

Accepted Answer

Entering a foreign market before other international businesses can provide advantages such as building a strong brand name, riding down the experience curve, and creating switching costs. However, it does not enable a company to avoid pioneering costs, as every new market will require unique investments and efforts to establish a foothold.

Quiz 14: Entry Strategy and Strategic Alliances