Strategy – FAQ – 07

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List of FAQs

Q1

A cooperative strategy is a means by which firms work together to achieve a shared objective.

  1. True
  2. False

Q2

Strategic alliances are cooperative strategies between firms that combine their resources and capabilities to create a competitive advantage.

  1. True
  2. False

Q3

Although growing in popularity with small and medium-sized firms because they can gain economies of scale, large companies tend to avoid strategic alliances.

  1. True
  2. False

Q4

Strategic alliances have become the cornerstone of many firms’ competitive strategy, particularly large global competitors.

  1. True
  2. False

Q5

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.

  1. True
  2. False

Q6

Nonequity strategic alliances exist when two or more firms join together to create an independent firm.

  1. True
  2. False

Q7

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).

  1. True
  2. False

Q7

Cooperation in slow-cycle markets is extremely rare because these industries are declining.

  1. True
  2. False

Q8

Firms in slow-cycle markets can use alliances to enter restricted markets or to establish franchises in new markets.

  1. True
  2. False

Q9

Acquisitions are the most common cooperative strategy used in standard-cycle markets.

  1. True
  2. False

Q10

Firms in standard-cycle markets seek to gain economies of scale through cooperative alliances.

  1. True
  2. False

Q11

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.

  1. True
  2. False

Q12

Horizontal complementary strategic alliances are designed so that each partner realizes equal benefits from equal investments in the alliance.

  1. True
  2. False

Q13

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.

  1. True
  2. False

Q14

Using business-level strategic alliances to hedge against risk and uncertainty is most common in the slow-cycle markets.

  1. True
  2. False

Q15

Collusion is a form of cooperative strategy.

  1. True
  2. False

Q15

Tacit collusion is not explicitly illegal in the United States even though it results in higher prices for consumers.

  1. True
  2. False

Q16

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.

  1. True
  2. False

Q17

Research in the airline industry suggests that tacit collusion reduces service quality and on-time performance.

  1. True
  2. False

Q18

Mutual forbearance is a form of explicit collusion between firms in which competitors avoid attacking rivals they meet in multiple markets.

  1. True
  2. False

Q19

Although governments in free-market economies allow rivals to collaborate to improve competitiveness, the challenge is to make sure the alliance does not lead to price fixing.

  1. True
  2. False

Q20

Horizontal business-level strategic alliances have greater probability of creating sustainable competitive advantage than do vertical business-level strategic alliances.

  1. True
  2. False

Q21

Of the four business-level cooperative strategies, the competition-reducing strategy has the lowest probability of creating a sustainable advantage.

  1. True
  2. False

Q22

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.

  1. True
  2. False

Q23

An alliance can be used to test whether the partners would benefit from a future merger.

  1. True
  2. False

Q24

Because of U.S. legal restrictions concerning large foreign acquisitions, American firms can only enter into diversifying alliances with other U.S. firms.

  1. True
  2. False

Q25

Synergistic strategic alliances such as the Renault-Nissan alliance discussed in the Opening Case focus on economies of scope by sharing their resources and capabilities to develop manufacturing platforms that can be used to Renault or Nissan cars.

  1. True
  2. False

Q26

Franchising is most attractive in concentrated industries.

  1. True
  2. False

Q27

Franchising is an alternative to pursuing growth through mergers and acquisitions.

  1. True
  2. False

Q28

The primary responsibility of the franchiser is to transfer capital to the franchisee.

  1. True
  2. False

Q29

The probability of alliance success is increased when partnering firms internalize successful alliance experiences.

  1. True
  2. False

Q30

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.

  1. True
  2. False

Q31

Firms consider entering international alliances because multinational firms outperform firms operating only in their home markets.

  1. True
  2. False

Q32

International strategic alliances are less risky than domestic strategic alliances because of diversification across countries.

  1. True
  2. False

Q33

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.

  1. True
  2. False

Q34

A network strategy involves a series of horizontal acquisitions by firms that are committed to dominating a particular industry.

  1. True
  2. False

Q35

Network cooperative strategies among Silicon Valley firms have been successful, in part, because they are geographically close together.

  1. True
  2. False

Q36

A stable alliance network is used in industries characterized by frequent product innovations and short product life cycles.

  1. True
  2. False

Q37

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.

  1. True
  2. False

Q38

Some cooperative strategies fail when it is discovered that a firm has misrepresented the competencies it can bring to the partnership.

  1. True
  2. False

Q39

Failure of a partner to contribute needed resources and capabilities to a cooperative venture is a particular risk in international ventures especially in emerging economies.

  1. True
  2. False

Q40

The cost minimization approach of managing alliances is more expensive to put into place and to use than is the opportunity maximization management approach.

  1. True
  2. False

Q41

In the cost minimization approach to managing competitive strategies, the relationship between the firms is based on trust of the other partner.

  1. True
  2. False

Q42

Close monitoring, formal contracts, and constant vigilance against opportunism increase the probability of alliance success.

  1. True
  2. False

Q43

High levels of trust allow less formal contracts to govern the relationship between alliance partners and increases the likelihood of alliance success.

  1. True
  2. False

Q44

A cooperative strategy…

  1. is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.
  2. is a strategy in which firms work together to achieve a shared objective.
  3. 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.
  4. specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets.

Q45

A strategy in which firms work together to achieve a shared objective is a…

  1. functional-level strategy
  2. business-level strategy
  3. corporate-level strategy
  4. cooperative strategy

Q46

When using cooperative strategies, firms most frequently develop strategic alliances that…

  1. enhance the firm’s reputation in the marketplace
  2. are long-lived
  3. will reduce the firm’s political risk
  4. create a competitive advantage

Q47

The use of strategic alliances…

  1. is unlikely to yield success if partnering firms are headquartered in the same country
  2. may be too restrictive to facilitate entry into new markets
  3. usually increases the investment necessary to introduce new products
  4. is more frequent than other types of cooperative strategies

Q48

In a(n)______ two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage.

  1. equality-based strategic alliance
  2. non-equity strategic alliance
  3. joint venture
  4. equity strategic alliance

Q49

Which type of strategic alliance is best at passing tacit knowledge between firms?

  1. primary cooperative strategic alliances
  2. joint ventures
  3. equity strategic alliances
  4. nonequity strategic alliances

Q50

Hewlett-Packard licenses some of its intellectual property through strategic alliances. Which of the following is correct about this relationship?

  1. This is a joint venture because in licensing arrangements, a new company is created.
  2. This is an equity strategic alliance because licensing does not involve the creation of a new company, but does involve an equity commitment.
  3. The firms risk charges of collusion because most licensing relationships between competitors involve explicit collusion.
  4. This is a nonequity strategic alliance with Hewlett-Packard leveraging its unique capabilities.

Q51

A strategic alliance in which the partners own different percentages of the new company they have formed is called a(n)…

  1. equity strategic alliance
  2. joint venture
  3. nonequity strategic alliance
  4. cooperative arrangement

Q52

A nonequity strategic alliance exists when…

  1. two firms join together to create a new company.
  2. two or more firms have a contractual relationship to share resources and capabilities.
  3. two partners in an alliance own unequal shares in the combined entity.
  4. the partners agree to sell bonds instead of stock in order to finance a new venture.

Q53

Firms participate in strategic alliances for all the following reasons except to…

  1. create value that they could not develop by acting independently
  2. enter competitive markets more quickly
  3. gain access to resources
  4. retain tight control over intangible core competencies

Q54

The global airline industry is one in which…

  1. national political interests prevent airlines from making international alliances
  2. the fast-cycle nature of the industry mandates heavy use of alliances
  3. most alliances tend to be vertical complementary
  4. alliance versus alliance competition dominates firm versus firm competition

Q55

A relatively young firm has developed a method of transferring photographic images of surface textures onto any type of hard surface. This potentially has a huge market in the home-decorating field as well as any hard surface that is typically painted, such as car bodies. The type of alliance partner this firm would be searching for would be one with…

  1. low-cost labor production facilities in another country
  2. similar products who could help the firm establish economies of scale
  3. access to franchises in new markets
  4. excess resources for investing

Q56

A state-wide alliance of independent hospitals has formed in order to do group purchasing of medical supplies.Group purchasing allows the hospital alliance to negotiate lower prices with suppliers because of the large quantity of materials ordered. This is an example of the ____ advantage of resulting from an alliance.

  1. explicit collusion
  2. economies of scale
  3. opportunistic behavior
  4. distribution opportunities

Q57

Firms in ____ markets cooperate to pool resources and gain market power.

  1. slow-cycle
  2. standard-cycle
  3. fast-cycle
  4. hyper-cycle

Q58

The two types of complementary strategic alliances are…

  1. vertical and horizontal
  2. macro and micro
  3. outsourcing and insourcing
  4. network and complementary

Q59

All of the following are business-level cooperative strategic alliances except…

  1. synergistic strategic alliances
  2. uncertainty reduction strategic alliances
  3. complementary strategic alliances
  4. competition response strategic alliances

Q60

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.

  1. vertical complementary
  2. horizontal complementary
  3. uncertainty reduction
  4. network

Q61

____ are least likely to involve potential or current competitors.

  1. Mutual forbearance strategies
  2. Tacit collusion strategies
  3. Horizontal complementary strategic alliances
  4. Vertical complementary strategic alliances

Q62

Reduction of competition can be accomplished through all of the following except…

  1. predatory alliances
  2. explicit collusion
  3. tacit collusion
  4. mutual forbearance

Q63

Japanese telecom NTT DoCoMo Inc. and Chinese Internet search operator Baidu Inc. established an alliance to distribute games and other mobile-phone content. Baidu will own 80 percent of this collaboration with DoCoMo holding the remaining 20 percent. This collaborative arrangement is an example of a(n)

  1. joint venture
  2. network strategy
  3. equity strategic alliance
  4. nonequity strategic alliance

Q64

The three main luxury hotels in a major tourist destination keep very close track of their competitors’ room pricing, restaurant offerings, tour packages, and special services, such as airport transportation and spa privileges. When one hotel makes adjustments in prices or offerings, the other hotels follow suit. It is possible that these hotels are…

  1. engaging in tacit collusion
  2. following uncertainty reducing strategies
  3. monitoring business competitors for opportunistic behaviors
  4. following a competitive response strategy

Q65

Mutual forbearance is…

  1. illegal in the United States
  2. a type of competition-reducing strategy
  3. a variety of risk-sharing by firms in highly fragmented industries
  4. exercised when alliance partners refrain from opportunistic behavior

Q66

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…

  1. excessive cooperation
  2. joint ventures
  3. tacit collusion
  4. horizontal strategic alliances

Q67

In the United States, cooperative strategies to reduce competition may result in ____ if they are explicit.

  1. increased tax liabilities
  2. litigation
  3. government takeover of the firms
  4. dissolution of the firm


Q68

In free-market economies, ____ must decide how rivals can collaborate with their competitors without violating established regulations.

  1. the invisible hand
  2. the government
  3. consumers
  4. the business community

Q69

The risks of being accused of collusion are most likely under what type of alliance?

  1. equity-based vertical complementary alliance
  2. equity-based horizontal complementary alliance
  3. nonequity-based vertical complementary alliance
  4. nonequity-based horizontal complementary alliance

Q70

Why are alliances in the airline industry unstable?

  1. Unstable industries make for unstable alliances.
  2. The potential for firms to take opportunistic actions is too widespread.
  3. The industry is declining and profits are not sufficient to divide among alliance partners.
  4. The alliances require cooperation among firms that must also compete with one another.

Q71

A ______ cooperative strategy helps the firm diversify in terms of products offered, markets served, or both.

  1. corporate-level
  2. business-level
  3. national-level
  4. industry-level

Q72

Of the various business-level strategic alliances, ________ alliances have the most probability of creating sustainable competitive advantage, and ________ have the lowest.

  1. horizontal complementary; vertical complementary
  2. vertical complementary; competition reducing
  3. competition reducing; horizontal complementary
  4. uncertainty reducing; competition reducing

Q73

______ strategic alliances have stronger focus on value creation than do ______ alliances.

  1. competition reducing; complementary
  2. complementary; competition reducing
  3. uncertainty reducing; complementary
  4. collusive; uncertainty reducing

Q74

For the purpose of diversification, a corporate-level cooperative strategy may be preferable to a merger or acquisition for all the following reasons except…

  1. a host nation may forbid a merger or acquisition.
  2. opportunistic behaviors are less likely.
  3. cooperative strategies require fewer resources.
  4. cooperative strategies allow greater flexibility in diversifying the firm’s portfolio.

Q75

The cooperation between Fiat and Chrysler to produce a Fiat-designed car in Chrysler’s Illinois factory is a(n)_____ alliance because it allows the firms to share resources and capabilities across multiple functions.

  1. synergistic
  2. opportunistic
  3. horizontal
  4. diversifying

Q76

Firms entering into synergistic strategic alliances expect to attain…

  1. technological complexity
  2. economies of scope
  3. monopolistic market power
  4. learning curve efficiencies

Q77

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.

  1. joint venture
  2. synergistic strategic alliance
  3. diversifying strategic alliance
  4. dynamic alliance network

Q78

The primary responsibility of the franchisor, such as McDonald’s or Hilton International is to…

  1. learn about the brand and technology from the franchisee.
  2. test the franchisee for potential future acquisition.
  3. transfer to the franchisee knowledge and skills needed to compete at the local level.
  4. provide feedback to the franchisee regarding how the franchisor could become more effective and efficient.

Q79

Which of the following statements is false?

  1. Franchising is most appropriate in fragmented industries.
  2. Franchising provides corporate growth with less risk than do mergers and acquisitions.
  3. Successful franchising allows transfer of knowledge and skills from the franchisor to the franchisee.
  4. Franchising agreements require more trust between firms than do other cooperative strategies.

Q80

In the franchising strategy, the most important competitive advantage for the franchisee is the franchisor’s…

  1. brand name
  2. capital resources
  3. access to a consolidated market
  4. geographic locations

Q81

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…

  1. avoid future cooperative alliances because they lack the skills needed to manage them successfully
  2. enter into future cooperative alliances only if the alliance is closely monitored by a third party to prevent opportunistic behavior by the alliance partner
  3. realize that most cooperative alliances fail and that it should ally itself only with an experienced alliance partner in the future
  4. internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience

Q82

Legitimately, a firm may pursue an international strategic alliance for all of the following reasons except…

  1. to enhance the compensation packages of top managers
  2. to leverage core competencies in new markets
  3. to operate within government restrictions in the local country
  4. to escape limited domestic growth opportunities

Q83

In some countries, the only legal way for foreign firms to invest in the country is through…

  1. acquisitions
  2. mergers
  3. greenfield ventures
  4. strategic alliance with a local firm

Q84

Stable alliance networks will most often…

  1. be used to enhance a firm’s internal operations
  2. appear in mature industries where demand is relatively constant and predictable
  3. emerge in industries with short product life cycles
  4. emerge in declining industries as a way to increase process innovations

Q85

Dynamic alliance networks work best in industries…

  1. characterized by frequent product innovations and short product life cycles
  2. that are mature and stable in nature
  3. where the coordination of product and global diversity is critical
  4. that are characterized by predictable market cycles and demand

Q86

Which of the following statements is true?

  1. Most cooperative strategies are successful if the basic agreements are well written and include appropriate monitoring strategies.
  2. As many as 50 percent of cooperative strategies fail.
  3. Opportunistic behaviors are usually focused on gaining the use of the partner’s manufacturing and financial resources.
  4. Problems with international cooperative strategies usually concern financial-system differences between the partners.

Q87

Which of the following is not a risk for firms engaged in cooperative strategies?

  1. misrepresentation of a partner’s competencies
  2. partner acts opportunistically
  3. insufficient variation in firms’ core competencies
  4. failure of partners to make complementary resources available to the partnership

Q88

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:

  1. Has AsiaFoods accurately represented its competencies?
  2. Will AsiaFoods make alliance-specific investments?
  3. Can Greentech expect opportunistic behavior from AsiaFoods?
  4. Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

Q89

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

  1. insist on excessively close monitoring of DDD’s actions
  2. gain access to DDD’s core competencies and use them to become a future competitor
  3. not fully share its intangible resources
  4. not make equivalent investments to the alliance as does DDD

Q90

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?

  1. the loss of unexpected opportunities
  2. the cost of extensive monitoring mechanisms
  3. the costs of writing detailed contracts
  4. the prevention of opportunistic behavior by the partner(s)

Q91

The two basic approaches to successfully manage cooperative strategic alliances involve ____ and ____.

  1. cost minimization; opportunity maximization
  2. monitoring systems; multiple management approaches
  3. contractual systems; financial systems
  4. equity approaches; nonequity approaches

Q92

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.

  1. cost minimization
  2. trust but verify
  3. opportunity maximization
  4. pragmatic realism

Q93

One disadvantage of developing effective monitoring systems to manage a strategic alliance is that…

  1. firms will have to accept greater risks
  2. trust will be eroded
  3. spontaneous opportunities are minimized
  4. power coalitions will still develop

Q94

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.

  1. extensive capitalization
  2. stability
  3. trustworthiness
  4. Internet competency

Q95

To increase the likelihood of success between partners assuming that trust exists, ____ approaches should be used to manage cooperative strategies.

  1. the cost minimization
  2. the opportunity maximization
  3. both the cost minimization and opportunity maximization
  4. none of these options are correct