Chapter 14: Building Global Strategies
TRUE/FALSE
1. In 2010, Danisco is a leading Danish sugar manufacturer.
2. Danisco has acquired several other companies in the early 2000s.
3. AAA stands for adaptation, aggregation and acquisition strategies.
4. Economies of scale are a key potential advantage of a global strategy.
5. Acquisitions are more common than mergers.
6. Many firms establish alliances with competitors.
7. Since integration within alliances is usually not as tight as acquisitions, antitrust authorities have a
higher likelihood of approving alliances.
8. Global sourcing enables firms both to lower cost and find special sources available only in few
locations.
9. Centre of excellence are award winning corporate headquarters.
10. Worldwide innovation allows companies to tap in into different locations worldwide.
11. Global key accounts are accounts audited at multiple sites worldwide.
12. Global operations are less risky because they enable international risk diversification.
13. Learning race is a situation in which alliance partners do not want to learn from each other.
14. Around 70% of acquisitions reportedly fail.
15. Global operations are less risky because they have more complex supply chains.
16. Alliances are better than acquisitions in situations that require a high degree of integration.
17. In “The Globalization of Markets,” Ted Levitt argued that consumer tastes worldwide are diverging.
18. AAA stands for adaptation, aggregation and arbitrage.
19. Pankaj Ghemawat advises companies to choose between adaptation, aggregation and arbitrage
strategies.
20. Aggregation strategies focus on realization of synergies between operations in different locations by
integrating them.
21. Adaptation strategies are about adapting to different global contexts.
22. Arbitrage strategies enable the exploitation of national comparative advantages.
23. A key to effective adaptation strategies is to use identify the appropriate adaptation levers.
24. The lower the transportation costs, the better the arbitrage opportunities.
25. If two US-owned companies wish to merge, this is solely the responsibility of the US competition
authorities.
26. Equity, learning and experience, relational capabilities, and organization are four factors that may
influence alliance performance.
27. Regarding motives for acquisitions, synergistic motives add value while hubris and managerial
motives reduce value.
28. Hubris refers to over-confidence in one’s capabilities.
29. One of the drawbacks to acquisitions, compared to mergers, is that a firm gains both the mediocre
areas of the target as well as the strong areas.
30. One strategy for successful managers is to value relational capabilities as much as equity and
asset-heavy capabilities.
31. Engaging in thorough due diligence concerning both strategic and organizational fit is a wise strategy
during the post acquisition phase.
32. Managers may over pay for targets in an acquisition, because of self-interest fueled by managerial
motives.
33. The major concern of investors during mergers and acquisitions is job security.
MULTIPLE CHOICE
1. What is not a source of competitive advantage of a global firm?
a. Global sourcing c. Global knowledge management
b. Global tax accounts d. Global economies of scale
2. Business units developing leading edge technologies for multinational firms are also known as:
a. Subsidiaries of excellence c. Centres of excellence
b. Unit of excellence d. Multinationals of excellence
3. What is an example of a global key account?
a. Suppliers of car components supplying the same components to different plants in different
countries
b. SupplierS of car components supplying different components to different plants in different
countries
c. An accountancy firm auditing the accounts of a firm globally
d. All of these answers
e. None of these answers
4. Aggregation strategies:
a. Aggregate operations at the global level
b. Aggregate operations at a regional level
c. Aggregate different operations at different levels, depending on the specific characteristic of the
operations
d. Aggregate operations using similar technologies
5. A(n) ________ is the transfer of the control of operations and management from one firm to another
with the former becoming a unit of the latter, while a(n) ________ is the combination of operations
and management of two firms to establish a new legal entity.
a. Equity-based alliance…..contractual alliance
b. Contractual alliance.….equity-based alliance
c. Merger…..acquisition
d. Acquisition…..merger
6. Why is adaptation believed to be particularly important in emerging economies?
a. The labour costs are normally lower than in developed countries.
b. Incomes are lower than in developed countries.
c. The variability between consumer groups is very large.
d. All of these answers
e. None of these answers
7. Which of the following best describes a core idea behind the informal institution–based view regarding
alliances and acquisitions?
a. Firms copy one another naturally as a strategy to enhance their legitimacy, so alliances and
acquisitions are a low cost way of gaining this.
b. It is best not to jump on the alliance and acquisition bandwagon.
c. Firms often follow one another, so if competitors begin aggressively seeking targets for alliances
and acquisitions, then it is best to follow suit.
d. Alliances should be made with caution so that firms do not share important secrets.
8. What sort of resources can be the subject of an arbitration strategy?
a. Capital
b. Location bound human resources
c. Recycled paper
d. All of these answers
e. None of these answers
9. Which of the following is not a lever that companies can use to adapt to local markets?
a. Organize innovation processes with effectiveness of variation in mind
b. Focus on activities that require less adaptation across markets
c. Externalize the costs of adaptation by working with local parents
d. Design the basic product in ways that reduce flexibility of the final product to be produced for
different markets
10. Which of the following is one of the strategies of the AAA typology of Pankaj Ghemawat?
a. Aggregation
b. Adaptation
c. Arbitrage
d. All of these answers
e. None of these answers
11. A learning race arises when alliance partners ________ as fast as possible.
a. Try to conform to each other’s culture
b. Create value
c. Imitate each other’s resources
d. Try to acquire each other
12. Who benefits the most from the acquisition premium valued during an acquisition?
a. Both benefit the same
b. The shareholders of the acquiring firm
c. The shareholders of the target firm
d. Neither benefit much
13. Pre-acquisition analysis often focuses on strategic fit, which is the effective matching of ________
strategic capabilities.
a. Competitive c. Complementary
b. Collaborative d. Relational
14. Which is NOT one of the characteristics foreign investors should consider when looking at Chinese
state-owned enterprises (SOEs)?
a. Most western firms launching joint venture and foreign owned enterprises in China now believe
that non-Chinese managers are the most successful choice.
b. Many SOEs keep three sets of books depending on what they want to reveal.
c. SOEs are not concerned with increasing their value since they are owned by the state.
d. Chinese SOEs are rife with organizational slack.
15. A firm can achieve its growth through:
a. Acquisition c. Alliances
b. Market transaction d. All of these answers
16. Nokia, a leading mobile phone manufacturer in Europe:
a. Has a long history as a Finish conglomerate operating in a variety of different industries
b. Has a long tradition of focusing on telecommunication equipment
c. Has been privatized in the 1983
d. Emerged from an entrepreneurial start up established in 1983
17. Which statement on vertical acquisitions is correct?
a. Vertical acquisitions are not subject to EU competition rules.
b. Vertical acquisitions do not enable shareholders of the acquired firm to earn an acquisition
premium.
c. Vertical acquisitions are subject to EU competition rules, although there have been few cases of
formal investigation in recent years.
d. Vertical acquisitions do not create value for shareholders.
18. Which is not a question the EU competition authorities would investigate when being asked to approve
an acquisition?
a. Will the merged firm be profitable?
b. Will the removal of competition enable the merged firm to raise prices?
c. Will the merged firm attain a dominant market share?
d. Will consumers benefit from cost savings or accelerated innovation in the merged firm?
19. Which of the following managerial motives may lead to decisions that do not benefit the firm overall
in the long run?
a. Desire for prestige c. Desire for money
b. Desire for power d. All of these answers
20. Which of the following stakeholders has the most concern over product and service quality during
merger and acquisitions?
a. Top managers c. Investors
b. Customers d. Front-line employees
21. Which of the following stakeholders is most concerned about short-term revenue during mergers and
acquisitions?
a. Front-line employees c. Top managers
b. Investors d. Customers
22. Which of the following stakeholders is most concerned about job security over mergers and
acquisitions?
a. Managers c. Customers
b. Investors d. Suppliers
23. Which is not a measure that competition authorities may impose when a proposed merger threatens to
reduce the competition in an industry?
a. Nationalize the merged company
b. An outright prohibition of the merger
c. Impose a behavior constraint on the merged firm, such as a commitment to give rivals access to
critical infrastructure
d. Request the merged unit to divest a specified business unit
24. The acquisition premium is:
a. The difference between the (prior) market value of the acquired firm, and its independent fair
value assessment
b. The difference between the value of the acquiring firm and the target form
c. The difference between the acquisition price and the (prior) market value of the acquired firm
d. The difference between the value of the acquiring firm before and after the acquisition
25. The compatibility of cultures, systems and structures between two firms is known as:
a. Organizational fit c. Capability fit
b. Strategic fit d. Structural fit
26. The match between complementary strategic capabilities between two firms is known as:
a. Organizational fit c. Capability fit
b. Structural fit d. Strategic fit
27. When a company is announcing that they are doing “due diligence” on another company, this suggests
that:
a. They are studying legal documents in preparation of a legal case against the other company
b. They are studying the resources and capabilities of the firm in view of a possible acquisition
c. They have abandoned the idea of acquiring their business
d. They have abandoned the idea of a legal case against the other company
28. Which of the following is NOT one of the three drivers behind acquisitions?
a. Managerial motives c. Cultural conflict
b. Hubristic d. Synergistic
29. ________ refers to a manager’s overconfidence in his or her abilities.
a. Learning by doing c. Relational capability
b. Hubris d. Strategic fit
30. Which of the following is NOT true?
a. Many acquisitions probably would be better off had firms pursued alliances first.
b. Acquisitions are often one-off deals, swallowing both the excellent capabilities and mediocre units
of target firms.
c. Compared with acquisitions, alliances cost less and allow opportunities to learn from working with
each other before engaging in full-blown acquisition.
d. All of these answers
31. What is the problem behind a majority joint venture (JV) partner always having both the higher equity
and greater management control?
a. Joint ventures only exist when one party brings the equity and the other brings the organization
b. Formal institutions and legal regulations prohibit it.
c. The local minority party may resent the equity/management dominance.
d. All of these answers
32. In a risky environment where acquisitions may be inadvisable because of a high environmental risk
and cost of failure, partial acquisitions are sometimes advisable because:
a. They allow the firm a possible stepping-stone if the risk level decreases in the future
b. They let the firm stay focused on its needs without being burdened by a high-risk investment
c. They are never advisable in high risk environments
d. They help balance the management/equity dilemma
33. Hidden champion is the nickname of:
a. Privately held medium-sized companies with domestic market leadership
b. Privately held medium-sized companies with international market leadership
c. Publicly held large-sized companies with international market leadership
d. Publicly held large-sized companies with domestic market leadership
34. The strategy of converting a company from a domestic conglomerate to a global specialist is known
as:
a. Internationalization c. Aggregation
b. Diversification d. Global focusing
ESSAY
1. Explain how global multinational enterprises may gain advantages over domestic firms.
2. Explain the idea of AAA strategies that may help MNEs attain competitive advantages in global
competition.
3. Explain how institutions affect alliances and acquisitions.
4. Discuss the performance for acquisitions and how shareholders may or may not benefit.
5. Explain the importance of organization in an acquisition.
6. Describe how partners in an alliance can combat opportunism.
7. Compare and contrast acquisitions and alliances.
8. Explain how EU competition policy affects firm’s ability to acquire other firms in the same industry.