110. 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.
111. Dynamic alliance networks work best in industries
a. characterized by frequent product innovations and short product life cycles.
b. that are mature and stable in nature.
c. where the coordination of product and global diversity is critical.
d. that are characterized by predictable market cycles and demand.
112. Which of the following statements is TRUE?
a. Most cooperative strategies are successful if the basic agreements are well written and include appropriate
monitoring strategies.
b. As many as 50 percent of cooperative strategies fail.
c. Opportunistic behaviors are usually focused on gaining the use of the partner’s manufacturing and financial
resources.
d. Problems with international cooperative strategies usually concern financial-system differences between the
partners.
113. Which of the following is NOT a risk for firms engaged in cooperative strategies?
a. misrepresentation of a partner‘s competencies
b. partner acts opportunistically
c. insufficient variation in firms’ core competencies
d. failure of partners to make complementary resources available to the partnership
114. Greentech, Inc., is a bioengineering firm specializing in food crops. It is considering a cooperative alliance with an
Asian agribusiness firm, AsiaFoods, to jointly produce improved crops for the Asian market. The risks that
Greentech should consider before entering this alliance include all of the following EXCEPT:
a. Has AsiaFoods accurately represented its competencies?
b. Will AsiaFoods make alliance-specific investments?
c. Can Greentech expect opportunistic behavior from AsiaFoods?
d. Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?
115. 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 breech 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
116. DDD Partners, a U.S. business consulting firm is considering a cooperative alliance with an Indian business
consulting firm that has a wide practice in the Middle East and Asia. DDD has some European clients, but it sees
the Middle East and Asia as growth opportunities. It hopes to learn how to navigate the different cultures and
business practices in this part of the world from its alliance with the Indian firm. DDD’s greatest risk here is that
the Indian firm will
a. insist on excessively close monitoring of DDD’s actions.
b. gain access to DDD’s core competencies and use them to become a future competitor.
c. not fully share its intangible resources.
d. not make equivalent investments to the alliance as does DDD.
117. In practice, the cost minimization strategy can be more expensive than the opportunity maximization strategy.
Which of the following is a way in which the cost minimization strategy is less expensive than the opportunity
minimization strategy?
a. the loss of unexpected opportunities
b. the cost of extensive monitoring mechanisms
c. the costs of writing detailed contracts
d. the prevention of opportunistic behavior by the partner(s)
118. The two basic approaches to successfully manage cooperative strategic alliances involve and .
a. cost minimization; opportunity maximization
b. monitoring systems; multiple management approaches
c. contractual systems; financial systems
d. equity approaches; nonequity approaches
119. 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
120. The Microsoft/Nokia alliance that had hundreds of pages to specify each partner’s responsibilities would be closest
to the approach to managing cooperative ventures. In contrast, the Renault/Nissan alliance (Chapter 9
Opening Case) was based on trust, respect, and transparency and is an example of the ________ approach to
managing cooperative ventures.
a. cost minimization; opportunity maximization
b. opportunity maximization; cost minimization
c. cost maximization; opportunity minimization
d. bureaucratic; organic
121. 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.
122. In managing cooperative strategies, research indicates that can be a capability that is valuable, rare,
imperfectly imitable, and often nonsubstitutable giving these firms a competitive advantage.
a. extensive capitalization
b. stability
c. trustworthiness
d. Internet competency
123. To increase the likelihood of success between partners assuming that trust exists,
used to manage cooperative strategies.
a. the cost minimization
b. the opportunity maximization
c. both the cost minimization and opportunity maximization
d. None of the these options are correct.
approach(es) should be
124. The opportunity maximization approach is more difficult to establish in international relationships than in domestic
relationships because of differences in all EXCEPT
a. laws.
b. culture.
c. trade policies.
d. technology.
Essay
125. Identify and define the different types of strategic alliances.
126. Explain the rationales for a cooperative strategy under each of the three types of basic market situations (i.e., slow,
standard, and fast cycles).
127. Identify the four types of business-level cooperative strategies and the advantages and disadvantages of each.
128. Identify the three types of corporate-level cooperative strategies.
129. Why are cooperative strategies often used when firms pursue international strategies? What are the advantages
and disadvantages of international cooperative strategies?
130. Identify and define the two different types of network strategies.
131. Identify the competitive risks associated with cooperative strategies.
132. Describe the two strategic management approaches to managing alliances.
Subjective Short Answer
Case Scenario 1: Norning International
Norning International (NI) states that both its past successes and future growth strategies are based on an evolving
network of wholly owned businesses and joint ventures around its core competency in glass making. Through their
alliances and owned divisions they compete in four global business sectors: Specialty Glass and Materials (including
materials for HDTV and LCD displays), Consumer Housewares (including microwavable dishware), Laboratory
Sciences Products and Services (test tubes, testing equipment, and drug trials testing), and Communications (fiber
optics and related technologies). Per the company’s annual report, “binding all four sectors together is the glue of a
commitment to leading edge glass making technologies, shared resources, and dedication to total quality.“ Each
sector is composed of divisions, subsidiaries, and alliances. However, the central role played by alliances is
demonstrated by the fact that the combined revenue of its 30–some alliances is more than double that of NI on its
own. Most of the alliances provide NI with access to particular geographic markets, industries, or channels,
although an increasing number of alliances involve both market access and technological development.
133. (Refer to Case Scenario 1). Why would a company like NI place such emphasis on alliances as a growth vehicle?
134. (Refer to Case Scenario 1). What risks arise from a strategy based on such a “network of alliances”?
135. (Refer to Case Scenario 1). NI appears to be managing a large number of alliances. What criteria should it use to
exit particular alliances?
136. (Refer to Case Scenario 1). Norning International (NI) is following a network cooperative strategy. This strategy
should work best in linking together geographically disperse markets where no one form serves as the leader of the
network.
Case Scenario 2: ERP Inc
ERP, Inc., (ERPI) is a leading provider of enterprise integration software (EIS). EIS essentially allows a firm to
connect and integrate processes across all aspects of its business. To fuel its dramatic growth, ERPI has focused
its organization entirely on product development (software programming for a suite of EIS products) and selling
(making the sale and then moving onto a new target) while outsourcing the installation and consulting aspects to the
world‘s largest accounting firms. This also makes ERPI basically a “product company,” whereas most competitors
like Oracle and PeopleSoft in its market space operate as “solutions companies.” One benefit of this focused
strategy is that ERPI’s product is generally recognized as being 200 percent to 300 percent better than competitors’
software, and thus adopters are thus likely to have a 1- to 2-year advantage. In further contrast to the competition,
ERPI has used its partnerships with the accounting firms to deliver a turn-key solution, and has focused this solution
on a market comprised of the world‘s largest, global manufacturers and consumer product companies. The
accounting firms, in turn, coordinate a comprehensive collection of hardware, operating systems, and
complementary software firms. Installation and related consulting for EIS typically cost between $100 and $200
million, with the ERPI software component accounting for only about 20 percent of the installed cost (the remaining
80 percent is spent on the actual installation, not counting the value of the customer’s time). To incentivize the
accounting firms to help sell its product (since, at least initially, the accounting firms had better reputations and
controlled access to the target customers), ERPI told its partners that it will never enter the installations and
consulting side of the business (aside from installation and consulting that ERPI does as part of its software
support). Dangling such a large carrot in front of the accounting firms provided the continuing benefit of
encouraging their continued support of ERPI with their customers.
137. (Refer to Case Scenario 2). Given that software systems like EIS are very complex, and quality is largely a
function of the related installation and consulting processes, how can ERPI control quality and ultimately protect the
reputation of its product (and its name) when it has ultimately outsourced installation to its partners?
138. (Refer to Case Scenario 2). After managing this network of alliances for several years, what new strategic assets
has ERPI developed?
139. (Refer to Case Scenario 2). Imagine that ERPI has saturated the large-firm market for its products, competitors are
undermining its technological advantage, and ERPI needs to look to new markets for revenue. Its CEO has
suggested that it start selling its software down-market to middle-market companies, and at the same time enter the
consulting and installation side of the business for this target market. What are the risks and opportunities of such a
strategy?
140. (Refer to Case Scenario 2). The approach used to manage the ERPI network of alliances is closest to an
opportunity-maximization approach, which makes it possible which for the partners to explore how their resources
and capabilities can be shared in multiple value-creating ways.
Case Scenario 3: Bunnywac.
Bunnywac is a global producer and seller of batteries for consumer electronics products (radios, flashlights, toys,
etc.), and competes primarily with its larger rivals by providing battery products equal in performance at a lower
price. The worldwide battery industry suffers from issues of overcapacity and commoditization, brand segmentation
and proliferation, the growing strength of global retailers, and the low-cost threat of new entrants from Asia. Thus,
the ability to provide dependable batteries at a very low cost is essential to survival in this industry. Bunnywac has
grown quickly into one of the leading players in the battery industry primary through horizontal acquisitions financed
by a recent successful IPO, and is now counted among the top four companies in North and Latin America. Its
presence in Europe and Latin America is negligible. While its market presence and brand is generally strong and
market share is growing, Bunnywac has entered into an alliance to obtain the core technologies of its batteries.
Bunnywac does not actually own the technology that makes its batteries work. This approach has provided
Bunnywac a cost advantage since it has not had to invest in basic R&D and has very little R&D infrastructure.
This technology is licensed from Mats (which has 200 engineers dedicated to moving the technology forward), one
of Japan‘s largest technology-based holding companies (like Sharp or Canon). Mats also sells batteries under the
Pandemonium brand and commands over 50 percent of the market share of Asian countries. Mats’ market share in
other global markets is negligible and its efforts at growing its branded battery share in the North America, Latin
America, and Europe has been severely frustrated in recent years. While Mats is very large compared to
Bunnywac, the battery technology and battery business are relatively tiny relative to Mats’ other technology-based
businesses. Bunnywac’s decade-long licensing agreement with Mats for the essential battery technology expires in
1 year; there are no obvious substitute providers of this technology.
141. (Refer to Case Scenario 3). What should be Bunnywac’s primary concerns about its lapsing technology contract
with Mats?
142. (Refer to Case Scenario 3). What should Bunnywac’s strategy be with regard to the lapsing technology contract?
143. (Refer to Case Scenario 3). What type of business-level cooperative strategy is primarily exemplified by
Bunnywac’s technology licensing arrangement with Mats?
A. vertical business-level complementary strategic alliance
B. horizontal business–level complementary strategic alliance
C. competition-reducing business–level strategic alliance
D. competition response business-level strategic alliance
144. (Refer to Case Scenario 3).
The cooperative strategy in which Bunnywac licenses technology from Mats is common among technology-based
firms and is an example of an equity alliance.