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Answer Key
1. True
2. False
3. True
4. False
5. True
6. False
7. True
8. False
9. True
10. True
11. True
12. False
13. True
14. True
15. False
16. True
17. True
18. True
19. True
20. False
21. True
22. False
23. False
24. False
25. False
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26. False
27. True
28. False
29. False
30. True
31. False
32. True
33. True
34. True
35. True
36. True
37. True
38. False
39. False
40. False
41. False
42. True
43. True
44. False
45. False
46. True
47. False
48. d
49. d
50. b
51. b
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52. a
53. d
54. d
55. b
56. c
57. b
58. a
59. b
60. d
61. c
62. a
63. a
64. d
65. c
66. b
67. b
68. d
69. c
70. a
71. a
72. c
73. b
74. d
76. c
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77. d
78. d
79. a
80. d
81. b
82. a
83. a
84. b
85. c
86. b
87. d
88. d
89. c
90. a
91. b
92. c
93. b
94. c
95. c
96. b
97. b
98. b
99. d
100. a
101. b
102. b
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103. a
104. d
105. b
106. a
107. c
108. d
109. a
110. d
111. b
112. d
113. c
114. b
115. c
co-develop or distribute goods or services. The three basic types of strategic alliances are: (1) joint ventures, where a
legally independent company is created by at least two other firms, with each firm usually owning an equal percentage of
the new company; 2) equity strategic alliances, whereby partners own different percentages of equity in the new company
they have formed; and (3) nonequity strategic alliances, which are contractual relationships between firms to share some
of their resources and capabilities. The firms do not establish a separate organization, nor do they take an equity position.
Because of this, nonequity strategic alliances are less formal and demand fewer partner commitments than joint ventures
and equity strategic alliances. Typical forms are licensing agreements, distribution agreements, and supply contracts.
117. A diversifying strategic alliance allows firms to share some of their resources and capabilities to diversify into new
product or market areas. A synergistic strategic alliance allows firms to share some of their resources and capabilities to
create economies of scope. These alliances create synergy across multiple functions or multiple businesses between
partner firms. Franchising is a strategy in which the franchisor uses a contractual relationship to describe and control the
sharing of its resources and capabilities with franchisees. A franchise is a contract between two independent organizations
whereby the franchisor grants the right to the franchisee to sell the franchisor’s product or do business under its trademarks
in a given location for a specified period of time.
118. Through vertical and horizontal complementary alliances, companies combine their resources and capabilities in
ways that create value. Vertical complementary strategic alliances result when firms creating value in different parts of
the value chain combine their assets to create a competitive advantage. Vertical complementary strategies have the
greatest probability of being successful compared with other types of cooperative strategies. But firms using this type of
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the same stage of the value chain combine their assets to create additional value. Usually they are formed to improve long-
term product development and distribution opportunities. Horizontal complementary strategies can be unstable because
they often join highly rivalrous competitors. In addition, even though partners may make similar investments, they rarely
benefit equally from the alliance. The competition response strategy involves alliances formed to react to competitors’
actions. Usually they respond to strategic, rather than tactical, actions because the alliances are difficult to reverse and
expensive to operate. The uncertainty-reducing strategy is used to hedge against risk and uncertainty, such as when
entering new product markets or in emerging economies. Both of these strategies are less effective in the long-run than the
complementary alliances that are focused on creating value.
Competition reducing (collusive) strategies are often illegal. There are two types of collusive competition reducing
strategies: explicit collusion and tacit collusion. Explicit collusion exists when firms directly negotiate production output
and pricing agreements to reduce competition. These are illegal in the United States and in most developed economies.
Tacit collusion exists when several firms in an industry indirectly coordinate their production and pricing decisions by
observing each other’s competitive actions and responses. Both types of collusion result in lower production levels and
higher prices for consumers.
119. A network cooperative strategy is a cooperative strategy wherein several firms form multiple partnerships to achieve
shared objectives. Stable alliance networks (primarily found in mature industries) usually involve exploitation of
economies of scale or scope. In this type of network, the firms try to extend their competitive advantages to other settings
while continuing to profit from operations in their core industries. Dynamic alliance networks (witnessed mainly in
rapidly changing industries) are used to help a firm keep up when technologies shift rapidly by stimulating product
innovation and successful market entries. Dynamic alliance networks explore new ideas and typically generate frequent
product innovations with short product life cycles.
120. The ability to effectively manage competitive strategies can be one of a firm’s core competencies. There are two
basic approaches to managing competitive alliances. Cost minimization leads firms to develop protective formal contracts
and effective monitoring systems to manage alliances. Its focus is to prevent opportunistic behavior by the partner(s).
Opportunity maximization is intended to maximize value creation opportunities. It is less formal and places fewer
constraints on partner behaviors. But, identifying trustworthy partners is the key to this second approach. If (well-
founded) trust is present, monitoring costs are lowered and opportunities will be maximized. Trust is more difficult to
establish between international partners. Ironically, the cost minimization approach is more expensive to implement and to
use than the opportunity maximization approach.
121. Cooperative strategies are not risk-free strategy choices; as many as 70 percent fail. If a contract is not developed
appropriately and fails to avert opportunistic behavior, or if a potential partner firm misrepresents its competencies or fails
to make available promised complementary resources, failure is likely. Furthermore, a firm may make investments that
are specific to the alliance while the partner does not. This puts the investing firm at a disadvantage in terms of return on
investment. The core of many failures is the lack of trustworthiness of the partner(s) who act opportunistically.
122. A cross-border strategic alliance is an international cooperative strategy in which firms headquartered in different
nations combine some of their resources and capabilities to create a competitive advantage. The typical reasons follow: 1)
In general, multinational firms outperform firms operating only on a domestic basis. Firms may be able to leverage core
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markets or to establish franchises in new markets. Slow-cycle markets are rare and diminishing. Cooperative strategies
can help firms in (presently) slow-cycle markets make the transition from this relatively sheltered existence to a more
competitive environment. In standard-cycle markets (which are often large and oriented toward economies of scale), firms
try to gain access to partners with complementary resources and capabilities. Through the alliance, the firms try to
increase economies of scale and market power. In fast-cycle markets (characterized by instability, unpredictability, and
complexity), sustained competitive advantages are rare, so firms must constantly seek new sources of competitive
advantage. In fast-cycle markets, alliances between firms with excess resources and capabilities and firms with promising
capabilities who lack resources help both firms to rapidly enter new markets.
1. The Renault Nissan approach to managing its collaboration involves less reliance on contracts and more reliance on
trust, respect, and transparency (i.e., the opportunity-maximization approach to managing cooperative strategies).
a.
True
b.
False
2. Cooperation in slow-cycle markets is extremely rare because these industries are declining.
a.
True
b.
False
3. Tacit collusion is not explicitly illegal in the United States even though it results in higher prices for consumers.
a.
True
b.
False
4. Mutual forbearance is a form of explicit collusion between firms in which competitors avoid attacking rivals they meet
in multiple markets.
a.
True
b.
False
5. Franchising is an alternative to pursuing growth through mergers and acquisitions.
a.
True
b.
False
6. Although growing in popularity with small and medium-sized firms because they can gain economies of scale, large
companies tend to avoid strategic alliances.
a.
True
b.
False
7. Firms in slow-cycle markets can use alliances to enter restricted markets or to establish franchises in new markets.
a.
True
b.
False
8. 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.
a.
True
b.
False
9. One area in which joint ventures are effective is the transfer of tacit knowledge as illustrated in the Chevron/China
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a.
True
b.
False
10. Collusion is a form of cooperative strategy.
a.
True
b.
False
11. The alliance between BP Plc and OAO Rosneft to extract oil from Russia’s Arctic Ocean was managed using
contracts, i.e., the cost minimization approach.
a.
True
b.
False
12. Franchising is most attractive in concentrated industries.
a.
True
b.
False
13. The cost minimization approach of managing alliances is more expensive to put into place and to use than is the
opportunity maximization management approach.
a.
True
b.
False
14. 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.
a.
True
b.
False
15. 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.
a.
True
b.
False
16. Network cooperative strategies among Silicon Valley firms have been successful, in part, because they are
geographically close together.
a.
True
b.
False
17. Only about 50 percent of cooperative strategies succeed.
a.
True
b.
False
18. Firms consider entering international alliances because multinational firms outperform firms operating only in their
home markets.
a.
True
b.
False
19. An alliance can be used to test whether the partners would benefit from a future merger.
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a.
True
b.
False
20. 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.
a.
True
b.
False
21. High levels of trust allow less formal contracts to govern the relationship between alliance partners and increases the
likelihood of alliance success.
a.
True
b.
False
22. According to the Chapter 9 Mini Case, in addition to their corporate-level alliance, Renault and Nissan have each
formed vertical complementary strategic alliances with other companies.
a.
True
b.
False
23. A stable alliance network is used in industries characterized by frequent product innovations and short product life
cycles.
a.
True
b.
False
24. A network strategy involves a series of horizontal acquisitions by firms that are committed to dominating a particular
industry.
a.
True
b.
False
25. Horizontal complementary strategic alliances are designed so that each partner realizes equal benefits from equal
investments in the alliance.
a.
True
b.
False
26. Because of U.S. legal restrictions concerning large foreign acquisitions, American firms can only enter into
diversifying alliances with other U.S. firms.
a.
True
b.
False
27. Firms in standard-cycle markets seek to gain economies of scale through cooperative alliances.
a.
True
b.
False
28. In the cost minimization approach to managing competitive strategies, the relationship between the firms is based on
trust of the other partner.
a.
True
b.
False
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29. Using business-level strategic alliances to hedge against risk and uncertainty is most common in the slow-cycle
markets.
a.
True
b.
False
30. The probability of alliance success is increased when partnering firms internalize successful alliance experiences.
a.
True
b.
False
31. Nonequity strategic alliances exist when two or more firms join together to create an independent firm.
a.
True
b.
False
32. 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.
a.
True
b.
False
33. 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.
a.
True
b.
False
34. Strategic alliances are cooperative strategies between firms that combine their resources and capabilities to create a
competitive advantage.
a.
True
b.
False
35. 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.
a.
True
b.
False
36. A cooperative strategy is a means by which firms work together to achieve a shared objective.
a.
True
b.
False
37. Strategic alliances have become the cornerstone of many firms’ competitive strategy, particularly large global
competitors.
a.
True
b.
False
38. International strategic alliances are less risky than domestic strategic alliances because of diversification across
countries.
a.
True
b.
False
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39. Acquisitions are the most common cooperative strategy used in standard-cycle markets.
a.
True
b.
False
40. 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).
a.
True
b.
False
41. Horizontal business-level strategic alliances have greater probability of creating sustainable competitive advantage
than do vertical business-level strategic alliances.
a.
True
b.
False
42. Some cooperative strategies fail when it is discovered that a firm has misrepresented the competencies it can bring to
the partnership.
a.
True
b.
False
43. Of the four business-level cooperative strategies, the competition-reducing strategy has the lowest probability of
creating a sustainable advantage.
a.
True
b.
False
44. The primary responsibility of the franchiser is to transfer capital to the franchisee.
a.
True
b.
False
45. Close monitoring, formal contracts, and constant vigilance against opportunism increase the probability of alliance
success.
a.
True
b.
False
46. Research in the airline industry suggests that tacit collusion reduces service quality and on-time performance.
a.
True
b.
False
47. 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.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
48. 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?
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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.
49. ____ 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
50. Stable alliance networks will most often:
a.
be used to enhance a firm’s internal operations.
b.
appear in mature industries where demand is relatively constant and predictable.
c.
emerge in industries with short product life cycles.
d.
emerge in declining industries as a way to increase process innovations.
51. 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
52. In a cross-border alliance, the local partner is often a useful source of information about:
a.
sources of capital.
b.
the strengths of the foreign firm’s technology.
c.
market synergies.
d.
long-term planning.
53. Amylin Pharmaceuticals has an alliance with Eli Lilly & Co. to produce diabetes drugs. Lilly, however, recently
signed an alliance agreement with another company to also produce diabetes drugs. As a result, Amylin sued Lilly for
breach of the alliance agreement. Which of the following risks of cooperative strategies discussed in the chapter is most
likely occurring here?
a.
Having a true perception of the partner’s trustworthiness
b.
Failing to make available to its partners the resources and capabilities that it committed to the cooperative
strategy
c.
The partner misrepresenting competencies it can bring to the partnership
d.
Opportunistic behavior
54. FrameCo, a maker of commercial greenhouses, has just extricated itself from a failing cooperative alliance with
another firm. The expected synergies never were achieved, and FrameCo lost most of its investment. The top management
of FrameCo should:
a.
avoid future cooperative alliances because they lack the skills needed to manage them successfully.
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b.
enter into future cooperative alliances only if the alliance is closely monitored by a third party to prevent
opportunistic behavior by the alliance partner.
c.
realize that most cooperative alliances fail and that it should ally itself only with an experienced alliance
partner in the future.
d.
internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the
experience.
55. A ____________ is a strategy in which firms share some of their resources and capabilities to create economies of
scope and is similar to the business-level horizontal complementary alliance.
a.
joint venture
b.
synergistic strategic alliance
c.
diversifying strategic alliance
d.
dynamic alliance network
56. 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.
57. In general, cross-border alliances are more ____ and ____ than domestic alliances, especially in emerging markets.
a.
uncertainty reducing; diversifying
b.
complex; risky
c.
highly leveraged; tightly monitored
d.
flexible; trust-based
58. Offshore Oil Exploration Partners (OOEP) has entered into a cooperative strategy with Malay Petroleum. The
resulting documents are long, formal, and detailed. They specify detailed responsibilities of each partner and include
methods of monitoring accounting and technical procedures. OOEP and Malay Petroleum are using the ____ management
approach.
a.
cost minimization
b.
trust but verify
c.
opportunity maximization
d.
pragmatic realism
59. ____ strategic alliances have stronger focus on value creation than do ____ alliances.
a.
competition reducing; complementary
b.
complementary; competition reducing
c.
uncertainty reducing; complementary
d.
collusive; uncertainty reducing
60. Firms participate in strategic alliances for all the following reasons EXCEPT to:
a.
create value that they could not develop by acting independently.
b.
enter competitive markets more quickly.
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c.
gain access to resources.
d.
retain tight control over intangible core competencies.
61. The primary responsibility of the franchisor, such as McDonald’s or Hilton International is to:
a.
learn about the brand and technology from the franchisee.
b.
test the franchisee for potential future acquisition.
c.
transfer to the franchisee knowledge and skills needed to compete at the local level.
d.
provide feedback to the franchisee regarding how the franchisor could become more effective and efficient.
62. 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.
63. A ____ cooperative strategy helps the firm diversify in terms of products offered, markets served, or both.
a.
corporate-level
b.
business-level
c.
national-level
d.
industry-level
64. 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.
65. One disadvantage of developing effective monitoring systems to manage a strategic alliance is that:
a.
firms will have to accept greater risks.
b.
trust will be eroded.
c.
spontaneous opportunities are minimized.
d.
power coalitions will still develop.
66. 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
67. 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.
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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.
68. Which of the following statements is FALSE?
a.
Franchising is most appropriate in fragmented industries.
b.
Franchising provides corporate growth with less risk than do mergers and acquisitions.
c.
Successful franchising allows transfer of knowledge and skills from the franchisor to the franchisee.
d.
Franchising agreements require more trust between firms than do other cooperative strategies.
69. The collaboration between Volvo Aero (a subsidiary of Sweden’s AB Volvo) and U.S.-based Pratt & Whitney to
produce a new jet engine would be characterized as a(n):
a.
collusive tactic.
b.
merger.
c.
cross-border strategic alliance.
d.
international acquisition.
70. Legitimately, a firm may pursue an international strategic alliance for all of the following reasons EXCEPT:
a.
to enhance the compensation packages of top managers.
b.
to leverage core competencies in new markets.
c.
to operate within government restrictions in the local country.
d.
to escape limited domestic growth opportunities.
71. 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 reduction
d.
network
72. 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.
73. In free-market economies, ____ must decide how rivals can collaborate with their competitors without violating
established regulations.
a.
the invisible hand
b.
the government
c.
consumers
d.
the business community
74. When using cooperative strategies, firms most frequently develop strategic alliances that:
a.
enhance the firm’s reputation in the marketplace.
b.
are long-lived.