Strategic Alliances Test Bank Chapter 8

Package Title: Chapter 8, Testbank

Course Title: Dyer, SM 2e

Chapter Number: 8

Question type: Multiple Choice

1) Zeal Inc., a software firm, decides to enter the publishing industry. While it has the financial resources required to enter the new market, it lacks the expertise and technical knowledge required to establish itself in the new industry. So, Zeal Inc. enters into strategic alliance with Chrome Corp., a leading e-publisher. Which of the following is likely to be true in this case?

a) Chrome is likely to lose its relational advantage through this alliance.

b) Zeal and Chrome are likely to cooperate even at the stage of research and development.

c) Zeal’s vision is likely to contradict that of Chrome.

d) Chrome is likely to provide its expertise only at the marketing stage.

Difficulty: Hard

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Application

Standard 1 : AACSB || Analytic

2) Which of the following statements is true about strategic alliances?

a) Strategic alliances exclude functions that are bought through bidding.

b) In strategic alliances, the power to make decisions is always evenly distributed amidst the firms.

c) In strategic alliances, companies may choose to cooperate at any stage along the value chain.

d) Strategic alliances usually lead to one of the firms losing their relational advantage.

Difficulty: Medium

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

3) Which of the following statements is true about firms that establish strategic alliances?

a) Firms that collaborate at the sales stage are not considered strategic partners.

b) Firms that produce different products cannot enter a strategic alliance.

c) Firms can collaborate to improve their performance at any stage along the value chain.

d) Firms often enter strategic alliances at the cost of losing their relational advantage.

Difficulty: Medium

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

4) Drew’s Cafe Inc. and Cuppa Corp., two local coffee chains, combine resources to enter the global market. They retain their individual ownership; however, they agree to share production facilities and manpower, and they also decide to market their products through combined promotional tools. The arrangement made by the two retail chains to combine resources and collaborate for a common objective refers to a _________.

a) strategic alliance

b) mass-customization strategy

c) standardization venture

d) product-differentiation strategy

Difficulty: Hard

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Application

Standard 1 : AACSB || Analytic

5) Which of the following statements is true about how an arm’s-length relationship is used in strategic alliance?

a) Firms cannot buy inputs from multiple sources using the arm’s-length relationship.

b) Firms typically use the arm’s-length relationship between internal departments.

c) Firms that use the arm’s-length relationship acquire the production facilities of other firms.

d) Firms use the arm’s-length relationship to purchase inputs at the lowest price.

Difficulty: Medium

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

6) Identify the firm that is using an arm’s-length relationship to establish a strategic alliance.

a) Ochre Inc. manufactures all the components required for production within the firm.

b) Sapphire Inc. acquires the production facility of Brick Corp. to enter a foreign market.

c) Jade Corp. sends out a bid to suppliers for raw materials required for production.

d) Leo Corp. forms a twenty-year contract with a wholesaler to sell its goods.

Difficulty: Hard

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Application

Standard 1 : AACSB || Analytic

7) Timber Inc. enters an exclusive partnership to ally with Teal Corp. in order to enter a foreign market. Which of the following statements is likely to be true in this case?

a) Timber and Teal are unlikely to receive inputs or activity from each other.

b) Timber is likely to buy an activity from Teal using an arm’s-length relationship.

c) Timber is likely to send a bid to Teal along with other suppliers for the lowest price.

d) Timber is likely to acquire an activity or input from Teal to create a new value.

Difficulty: Hard

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Application

Standard 1 : AACSB || Analytic

8) Redwood Inc. has an arm’s-length relationship with Blue Ink Corp. Which of the following is likely to be true in this case?

a) Redwood is likely to conduct all functions within the firm.

b) Redwood is likely to choose another firm over Blue Ink for lower costs.

c) Blue Ink is unlikely to have made the deal through a bid.

d) Blue Ink’s manufacturing units are likely to have been acquired by Redwood.

Difficulty: Hard

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Application

Standard 1 : AACSB || Analytic

9) Victor Corp., a high-end mobile manufacturer that targets business people, decides to increase its customer base. It forms a strategic alliance with Gray Inc. to produce new instruments designed to attract students. Gray helps design products that change how Victor is perceived by young customers. Which of the following is the primary objective of this strategic alliance?

a) To source inputs or activities that create more productivity

b) To source inputs or activities that influence the brand

c) To source inputs or activities that reduce the total costs

d) To source inputs or activities that increase productivity of existing products

Difficulty: Hard

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Application

Standard 1 : AACSB || Analytic

10) An air conditioner manufacturer, Hues Corp., decides to form a strategic alliance with a firm to source components that make up the highest percentage of total costs. Which of the following suppliers is it most likely to choose as a partner?

a) Jades Inc., which manufactures the packages required for finished products of Hues

b) Black Corp., which prints Hues logo on the air conditioners

c) Fin Inc. which produces the compressors used in Hues air conditioners

d) Den Corp., which produces the designer vents for Hues that come in different colors

Difficulty: Hard

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Application

Standard 1 : AACSB || Analytic

11) Crimson Corp., a painting unit, collaborates with a car manufacturing company. They sign a contract that specifies the tasks of each party in alliance. Which of the following is being exemplified in this scenario?

a) A nonequity alliance

b) An equity alliance

c) A coordination alliance

d) A vertical alliance

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

12) Marcel, the CEO of an automobile company, considers extending his research and development facility by collaborating with a multinational company. He believes that a contractual alliance will be ideal for this collaboration, but other senior members of the management oppose a contractual alliance. Which of the following statements is likely to strengthen Marcel’s argument?

a) The relationship between the two firms is likely to be supported by equity investments.

b) The two firms are likely to seek a joint venture through the collaboration.

c) Cooperation between the two firms is not likely to depend on cross-equity holdings.

d) Interdependence between the two firms is not likely to be low.

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Analysis

Standard 1 : AACSB || Reflective Thinking

13) Sepia Inc., a fertilizer company, needs permission to test its new products on plantations owned by an agro-based industry. In return, the company is willing to pay a percentage of revenue to the agro-based industry. In this case, which of the following contractual alliances should be adopted by Sepia?

a) A licensing agreement

b) A supply agreement

c) A distribution agreement

d) An input agreement

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

14) John requires 500 shirts of a particular fabric and quality. He partners with Loumang Inc., a fabric manufacturing company, to develop certain customized inputs. Which of the following is being exemplified in this scenario?

a) A licensing agreement

b) A supply agreement

c) A distribution agreement

d) A profit agreement

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

15) Velara Inc., a healthcare company, owns 35% stake in the firm that supplies most of its raw materials. This encourages the supplier to align its incentives with Velara’s needs. Which of the following is being exemplified in this case?

a) A licensing agreement

b) An equity alliance

c) A distribution agreement

d) A contractual alliance

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

16) Borpon Inc. and Biocolog Corp. are well-established biotechnology companies. They enter into a strategic alliance in which they create and own a legally independent company. The new company is created from resources and assets contributed by the parent firms. Revenues, expenses, and profits are equally shared by both firms. Which of the following strategic alliances is adopted by Borpon and Biocolog?

a) A contractual alliance

b) An equity alliance

c) A distribution agreement

d) A joint venture

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

17) Sands Inc., a financial firm, partners with another organization that is at a similar stage along the value chain. The parent organizations create a legally independent firm. However, Sands brings more resources to the new firm than the other partner. Which of the following is being exemplified in this case?

a) A contractual alliance

b) An equity alliance

c) A distribution agreement

d) A joint venture

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

18) Which of the following statements is true about firms in a joint venture?

a) The firms contribute knowledge but each performs its roles separately.

b) The contributions made by individual firms are easy to measure.

c) The parent firms share revenues and expenses in a particular ratio.

d) The dependency level between partners is low.

Difficulty: Medium

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

19) An organization wants to form a strategic alliance with another firm. The second firm is at the same level along the value chain. It cannot contribute the same level of financial resources, although it can contribute an extensive level of knowledge. In order to accommodate these factors, they decide to start a legally independent firm. Which of the following alliances will be best suited for the organization?

a) A contractual alliance

b) An equity alliance

c) A distribution agreement

d) A joint venture

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

20) An organization enters into an alliance with a firm that is positioned at a different stage along the value chain. The alliance is formed to combine unique resources and lower transaction costs. In this case, which of the following alliances has been adopted by the organization?

a) A profit alliance

b) A selling alliance

c) A vertical alliance

d) A horizontal alliance

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

21) Two organizations, Purple Inc. and Spring Corp., are positioned at a common stage of the value chain. However, they do not have a supplier-buyer relationship. They form an alliance to benefit from complementary activities. Which of the following is exemplified in this scenario?

a) A horizontal alliance

b) A vertical alliance

c) A joint venture

d) A supply agreement

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

22) A U.S.-based chocolate manufacturer, Browns’ Inc., collaborates with a Brazilian company to source cocoa. The cocoa sourced from Brazil along with Browns’ unique recipe creates products that are differentiated based on taste and quality. The alliance between the two firms is an example of _________.

a) a joint venture

b) a vertical alliance

c) a horizontal alliance

d) a distribution agreement

Difficulty: Hard

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Application

Standard 1 : AACSB || Analytic

23) Green Dye Inc., a manufacturing firm that produces organic products, is approached by Zoe, a leading clothes designer owning her own label. Together, they create a line of clothes using organic dye and fabric made from pure cotton. Which of the following is likely to be the primary value created by this alliance?

a) Combining unique resources along different stages of the value chain

b) Lowering distribution costs at all stages of the value chain

c) Lowering the transaction costs at all stages of the value chain

d) Offering customized retail benefits to increase the sale of the products

Difficulty: Hard

Section Reference 1: Ways to Create Value in Alliances

Learning Objective 1: Describe the different ways value is created in alliances.

Bloomcode: Application

Standard 1 : AACSB || Analytic

24) Two firms that produce industrial machinery decide to form a strategic alliance. The objective of this collaboration is to combine their manufacturing facilities to achieve economies of scale during production. Which of the following is the primary value they aim to create through this alliance?

a) Combining unique skills

b) Pooling similar resources

c) Lowering distribution costs

d) Creating product differentiation

Difficulty: Medium

Section Reference 1: Ways to Create Value in Alliances

Learning Objective 1: Describe the different ways value is created in alliances.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

25) _________ occurs when one partner tries to exploit the alliance-specific investments made by another partner.

a) Hold-up

b) Misrepresentation

c) Bondage

d) Battery

Difficulty: Easy

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

26) Stylink Inc. and Plateus Inc. formed an alliance to create and own a legally independent company. However, Stylink tried to exploit the alliance-specific investments made by Plateus. Which of the following is being exemplified in this case?

a) Hold-up

b) Misrepresentation

c) Bondage

d) Battery

Difficulty: Hard

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Application

Standard 1 : AACSB || Analytic

27) _________ occurs when one partner in an alliance creates false expectations about the resources it brings to the relationship or fails to deliver what it originally promised.

a) Hold-up

b) Misrepresentation

c) Bondage

d) Profit stealing

Difficulty: Easy

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

28) The research and development department of a pharmaceutical company is in the process of developing a new drug to cure Parkinson’s disease. It requires additional resources to complete the process. To convince another pharmaceutical company to provide the necessary resources, it gives false information about how long the drug has been in the developmental pipeline and the guidelines followed in the production process. Which of the following is being exemplified in this case?

a) Hold-up

b) Misrepresentation

c) Bondage

d) Profit stealing

Difficulty: Hard

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Application

Standard 1 : AACSB || Analytic

29) Pearltech Inc., an information technology company, decides to establish a business alliance in order to differentiate its products. The manager of research and development, Sanah, is willing to form an alliance only with individuals she has known for a long time or a company within Pearltech’s business network. Nate, the operations head, suggests extending the prospects by looking outside their usual network. Which of the following statements strengthens Sanah’s argument?

a) Firms within the network could result in inbreeding of ideas.

b) Firms within the network prevent against opportunism.

c) Firms outside the network widen the scope of research solutions.

d) New partners bring in unique skills that add value to the product.

Difficulty: Hard

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Analysis

Standard 1 : AACSB || Reflective Thinking

30) An alliance is likely to rely most on relationships between individuals when it is based on _________.

a) legal contracts

b) collateral bonds

c) goodwill trust

d) shared ownership

Difficulty: Easy

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

31) _________ are governance clauses in which parties often specify how profits or assets created from alliances are to be split among partners.

a) Residual rights clauses

b) Voting rights clauses

c) Dispute resolution clauses

d) Noncompete clauses

Difficulty: Easy

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

32) _________ are governance clauses in which joint ventures must specify what percentage of equity is owned by each of the partners.

a) Residual rights clauses

b) Voting rights clauses

c) Equity clauses

d) Dispute clauses

Difficulty: Easy

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

33) An organization forms an alliance contract. It specifies in detail the duties and obligations of each of the partners, how the profits are to be split by the partners, and the process by which disputes will be resolved. Which of the following clauses is likely to cover the duties and obligations of the partners, including warranties and minimum output levels required to satisfy the contract?

a) Residual rights clause

b) Voting rights clause

c) Performance clause

d) Dispute clause

Difficulty: Hard

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Application

Standard 1 : AACSB || Analytic

34) Teal Inc. forms a strategic alliance with White Corp. In their contract, they specify how governance issues, operating issues, and termination issues would be resolved. Which of the following is likely to be covered under the clause that deals with governance issues?

a) What performance is expected by Teal and White from each other

b) How intellectual property will be shared by Teal and White

c) Under which circumstances Teal or White can exit the alliance

d) How profits will be split between Teal and White

Difficulty: Hard

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Application

Standard 1 : AACSB || Analytic

35) A graphic design firm and an advertising firm form a contractual alliance. In the first clause, they specify how decisions will be made, how profits will be split, and how disputes will be resolved. In the second clause, they specify how intellectual property will be shared and protected. Which category of issues does the second clause address?

a) Governance issues

b) Operating issues

c) Exit issues

d) Termination issues

Difficulty: Hard

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Application

Standard 1 : AACSB || Analytic

36) Two organizations that are positioned at different stages along the value chain form an alliance. The contract includes the conditions under which the contract will be closed and the consequences of closure for each partner. Which of the following clauses specifies the above conditions?

a) Preemption rights clauses

b) Voting rights clauses

c) Termination clauses

d) Noncompete clauses

Difficulty: Hard

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Application

Standard 1 : AACSB || Analytic

37) Spade Investments Corp. owns a financial stake in Loisa Inc., a manufacturing company. Spade’s resources help the organization increase productivity, which results in increased sales and profits. These profits are shared among the partners in a particular ratio. In this case, the relationship between the two firms is based primarily on _________.

a) personal trust

b) legal contracts

c) shared equity

d) reputation

Difficulty: Hard

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Application

Standard 1 : AACSB || Analytic

38) J.L. Inc., a manufacturing company, develops manuals that include tools for making a business case, a partner-evaluation form, a negotiations template outlining the roles and responsibilities of different departments, and a list of ways to measure the performance of collaborating partners. Through this measure, J.L. primarily seeks to achieve _________.

a) organized alliance-management knowledge

b) increased external visibility

c) low transaction costs

d) increased profits

Difficulty: Hard

Section Reference 1: Building an Alliance Management Capability

Learning Objective 1: Describe the importance of building an alliance management capability.

Bloomcode: Evaluation

Standard 1 : AACSB || Analytic

39) Plateus Inc., a software company, has a website that gives detailed information about partnering processes for firms that seek collaboration with Plateus. Plateus describes the terms and conditions of different grades of partnership on its website, allowing potential partners to choose which level fits them best. Through this measure, Plateus seeks to primarily achieve _________.

a) organized alliance-management knowledge

b) increased external visibility

c) low transaction costs

d) increased profits

Difficulty: Hard

Section Reference 1: Building an Alliance Management Capability

Learning Objective 1: Describe the importance of building an alliance management capability.

Bloomcode: Evaluation

Standard 1 : AACSB || Analytic

40) Pharmax Inc., a pharmaceutical firm, holds annual surveys for its employees and the alliance partners’ employees. After the survey, the management discusses the issues brought up by the employees and their suggestions. Conflicts are avoided by regular interaction, and any dispute that arises is resolved at an early stage. Through these measures, Pharmax seeks to primarily achieve _________.

a) organized alliance-management knowledge

b) increased external visibility

c) intervention and accountability

d) increased profits

Difficulty: Hard

Section Reference 1: Building an Alliance Management Capability

Learning Objective 1: Describe the importance of building an alliance management capability.

Bloomcode: Evaluation

Standard 1 : AACSB || Analytic

41) Which of the following statements best describes a strategic alliance?

a) It is a cooperative arrangement in which two or more firms combine their resources and capabilities to create new value.

b) It is an arrangement where a firm purchases an input from another firm with no obligation to have a long-term relationship with the other firm.

c) It is an unofficial arrangement in which two large firms cooperate unofficially to control production and prices within a certain market segment.

d) It is a cooperative arrangement where a firm which is on the verge of shutting down sells all of its assets to another firm.

Difficulty: Medium

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

42) The most common way to distinguish one type of alliance from another is by the _________.

a) motive behind the alliance

b) mechanism used to govern the alliance

c) products of the firms involved in the alliance

d) measure of profit each firm derives out of the alliance

Difficulty: Medium

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

43) Which of the following inputs qualifies as “strategic” inputs that merit forming an alliance relationship?

a) High value inputs that make up a high percentage of one’s total costs

b) Inputs that do not differentiate one’s product in the minds of customers

c) Activities that require a lot of unskilled man power

d) Activities that require no coordination in order to achieve the desired quality

Difficulty: Medium

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

44) A contractual alliance is preferred when:

a) firms bring knowledge but each can perform their roles separately.

b) firms bring difficult-to-measure contributions that must be combined.

c) interdependence between partners is low.

d) the contribution of each partner is difficult to measure.

Difficulty: Medium

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

45) Identify a true statement about a nonequity alliance.

a) It is an alliance in which two or more firms write a contract to govern their relationship.

b) It is an alliance in which the collaborating firms supplement contracts with equity holdings in their alliance partners.

c) It is an alliance in which collaborating firms create and jointly own a legally independent company.

d) It is an alliance in which one of the collaborating firms invests in product development and the other focuses on sales.

Difficulty: Medium

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

46) In an equity alliance, _________.

a) two or more firms write a contract to govern their equity relationship

b) the collaborating firms often supplement contracts with equity holdings in their alliance partners

c) a supplier may agree to develop certain customized inputs for a customer

d) a distributor or retailer may agree to provide certain customized services in order to help sell a product

Difficulty: Medium

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

47) When do firms tend to opt for equity alliances?

a) When it is easy to specify what each party is supposed to do in the relationship

b) When it is easy to specify the rewards that should come from meeting one’s obligations in the alliance

c) When an alliance requires less interdependence among the firms involved

d) When an alliance requires the joint creation of new resources and capabilities by the partners

Difficulty: Medium

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

48) Identify a true statement about a horizontal alliance.

a) It occurs between firms that have a supplier-buyer relationship.

b) It occurs when the output of one of the firms in the relationship is the input of the other.

c) It occurs only between firms that are positioned at different stages along the value chain.

d) It can occur between companies who do not do the same activities but do complementary ones.

Difficulty: Medium

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

49) Identify a way firms create value through alliance.

a) By pooling trade secrets

b) By combining unique resources

c) By increasing the transaction costs

d) By creating new industry-specific resources

Difficulty: Medium

Section Reference 1: Ways to Create Value in Alliances

Learning Objective 1: Describe the different ways value is created in alliances.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

50) Firms pool similar resources typically to ________.

a) increase the cost per unit

b) decrease administrative costs

c) create standardized products at a much lower cost

d) share the risks associated with conducting a particular activity

Difficulty: Medium

Section Reference 1: Ways to Create Value in Alliances

Learning Objective 1: Describe the different ways value is created in alliances.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

51) Alliances that create value through lower transaction costs are primarily trying to _________.

a) lower the costs between transactions in the value chain

b) expand the available resources of all the partners

c) decrease administrative costs

d) increase production costs

Difficulty: Medium

Section Reference 1: Ways to Create Value in Alliances

Learning Objective 1: Describe the different ways value is created in alliances.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

52) How can firms protect themselves against misrepresentation?

a) By partnering only with start-ups

b) By partnering only with trustworthy individuals and firms

c) By desisting from forming any kind of alliance with other firms

d) By creating an equity alliance with the partnering company

Difficulty: Medium

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

53) In the context of an alliance contract, which of the following is true of a performance clause?

a) It specifies the specific duties and obligations of each of the partners, including warranties and minimum execution levels required to satisfy the contract.

b) It specifies product markets or businesses that partners are restricted from entering.

c) It specifies intellectual property or confidential information brought to the alliance by the partners that is not to be used by other partners or shared outside of the alliance without the partner’s written consent.

d) It specifies ownership rights to intellectual property (such as patents) created as a result of the alliance.

Difficulty: Medium

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

54) In the context of the alliance lifecycle, which of the following tools are used in alliance management?

a) Relationship evaluation form, yearly status report, termination checklist, termination planning worksheet

b) Decision making template, trust-building worksheet, work planning worksheet, alliance communication infrastructure

c) Partner screening form, technology and patent domain maps, cultural fit evaluation form, due diligence team

d) Needs analysis checklist, make vs. buy vs. ally analysis, list of possible alliance partners with resources to meet needs

Difficulty: Medium

Section Reference 1: Building an Alliance Management Capability

Learning Objective 1: Describe the importance of building an alliance management capability.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

55) Which of the following is a key function of an effective dedicated alliance function?

a) Becoming more independent

b) Increasing external visibility

c) Refusing internal support to a firm

d) Eliminating management accountability

Difficulty: Medium

Section Reference 1: Building an Alliance Management Capability

Learning Objective 1: Describe the importance of building an alliance management capability.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

Question type: Text Entry

56) A(n) ___ is a cooperative arrangement in which two or more firms combine their resources and capabilities to create new value.

Difficulty: Easy

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

57) A(n) ___ is a type of strategic alliance in which cooperation between firms is managed directly through contracts, without cross-equity holdings, or an independent firm being created.

Answer 1: nonequity

Answer 2: contractual alliance

Difficulty: Easy

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

58) A(n) ___ is a type of contractual alliance in which a retailer may agree to provide certain customized services in order to help sell a product.

Difficulty: Easy

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

59) With respect to categories of issues, ___ issues deal with how decisions will be made, how profits will be split, and how disputes will be resolved.

Difficulty: Medium

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

Question type: Essay

60) What are the ways in which strategic partners can build trust in alliance relationships?

Difficulty: Medium

Section Reference 1: The Risks of Alliances

Learning Objective 1: Discuss the two potential dangers of strategic alliances and three ways that firms can protect themselves against these dangers.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

Solution: There are four primary ways that partners build trust in alliance relationships: (1) personal trust, (2) legal contracts, (3) shared equity/financial collateral bonds, or (4) reputation.

61) Companies have three choices—make, buy, or ally—when it comes to conducting any particular activity that needs to be done to offer a product or service to a customer. Explain the three choices and the process involved in each.

Difficulty: Easy

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

Solution: First, firms can make, or conduct the activity themselves within the firm. Second, they can buy, or purchase, the activity or input from another firm, using an arm’s-length relationship, in which the buyer purchases an input with no obligation to have a long-term relationship with the supplier. Companies that send out a bid to numerous suppliers and then buy from the supplier that offers the lowest price have an arm’s-length relationship with those suppliers. The winner of the bid this month may lose next month. Finally, they can ally, or acquire, the activity or input from another firm, using an exclusive partnership relationship with that firm.

62) What are the four kinds of inputs and activities that might qualify as strategic inputs, which merit forming an alliance relationship? Explain the four inputs with suitable examples.

Difficulty: Medium

Section Reference 1: What Is a Strategic Alliance?

Learning Objective 1: Differentiate among strategic alliances, vertical integration, and arm’s-length supplier relationships.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

Solution: Students’ examples may vary. However, the answer must include the following four types of inputs.

i) Inputs that can differentiate a firm’s product in the minds of customers. Automakers are much more likely to want to partner with a supplier that provides important engine or drivetrain components that influence engine performance or reliability than one that provides fasteners. For example, truck manufacturers often partner with Cummins, a respected maker of truck engines and components, in the manufacture of their trucks.

ii) Inputs that influence a firm’s brand or reputation. Volvo, a Swedish manufacturer of cars and trucks, has tried to develop a reputation on the safety of its cars. Consequently, it has worked closely with key suppliers, including Autoliv, a Swedish supplier of seat belts and airbags, to put pioneering safety technology into its vehicles.

iii) High value inputs or activities that make up a high percentage of a firm’s total costs. Companies that make refrigerators are more likely to partner with the supplier who provides the compressor—the component that costs the most and cools the refrigerator—than with the suppliers of plastic trays or fixtures.

iv) Inputs or activities that require significant coordination in order to achieve the desired fit, quality, or performance. Whenever one needs to coordinate closely with another firm to get the desired performance from their input or activity, he or she probably wants a partnership relationship.

63) What are the three types of strategic alliances based on governance arrangement? Also, briefly explain how alliances can also be categorized based on the stages of the value chain.

Difficulty: Medium

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

Solution: The following are the three types of strategic alliance based on governance arrangement.

i) A contractual or nonequity alliance: This is a type of strategic alliance in which two or more firms write a contract to govern their relationship. There is ownership shared between the companies.

ii) An equity alliance: In this type of alliance, the collaborating firms often supplement contracts with equity holdings in their alliance partners.

iii) A joint venture: This is an alliance in which collaborating firms create and jointly own a legally independent company. The new company is created from resources and assets contributed by the parent firms.

In addition to distinguishing alliances by the type of governance arrangement (e.g., nonequity, equity, joint venture), alliances are sometimes categorized as either vertical alliances or horizontal alliances. A vertical alliance is an alliance between firms who are positioned at different stages along the value chain, such as a supplier and a buyer. A horizontal alliance is between two firms that do not have a supplier-buyer relationship and are typically positioned at a common stage of the value chain.

64) What are the different types of nonequity alliances?

Difficulty: Easy

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Knowledge

Standard 1 : AACSB || Analytic

Solution: Different types of nonequity alliances include:

i) Licensing agreement: It is an alliance in which one firm receives a license, or permission to use a resource, such as a brand or a patent, from another firm in return for a percentage of the revenues or profits.

ii) Supply agreement: It is a type of alliance in which a supplier may agree to develop certain customized inputs for a customer.

iii) Distribution agreement: It is the agreement in which a distributor or retailer may agree to provide certain customized services in order to help sell a product.

65) Explain the different ways through which a firm can create value in an alliance. Support your answer with suitable examples.

Difficulty: Medium

Section Reference 1: Types of Alliances

Learning Objective 1: Explain the different types of strategic alliances, how they are governed and the conditions under which each type is preferred.

Bloomcode: Comprehension

Standard 1 : AACSB || Analytic

Solution: Students’ examples may vary. However, the answer must include the following concepts.

i) Combine unique resources: Pixar contributed computer-generated animation (CGA) and story-writing skills that brought to life unique stories in films such as Toy Story, Finding Nemo, Cars, and The Incredibles. Disney contributed worldwide film distribution to the partnership and sold products involving Pixar’s movie characters—such as Woody and Buzz Lightyear—at its Disney stores and theme parks.

ii) Pool similar resources: Intel and Micron wanted to manufacture flash memory—a business that required billions of dollars of investment in plant and equipment. So they decided to create IMFlash, a joint venture designed to produce flash memory products. By splitting the cost of the plant and equipment, the two companies were able to build a much larger plant and, through economies of scale, produce flash memory at a lower cost per unit.

iii) Create new alliance-specific resources: The alliance between Toyota Boshoku and Toyota is an example of building new resources in order to improve efficiency, the ability of the partners to coordinate their joint work. Toyota Boshoku, which supplies automobile seats to Toyota, built its factory next door to Toyota’s assembly factory. Because seats are bulky and costly to ship, building the plant nearby lowered Toyota Boshoku’s costs of inventory and shipping to Toyota. Then, to further reduce shipping costs, Boshoku decided to build a conveyer belt to take seats directly from its factory into Toyota’s. The factory plant and the conveyor belt were both new resources that were created to support Boshoku’s transactions with Toyota. These investments substantially lowered transportation costs, inventory costs, and the costs associated with having face-to-face meetings.

iv) Lower transaction costs: General Motors and its suppliers had higher transaction costs because they did not trust each other; so they spent a lot of time negotiating agreements and writing legal contracts. In contrast, Toyota had developed relationships with its supplier partners that were based on mutual trust. One thing that Toyota did to build trusting relationships with some suppliers was to purchase a minority stock ownership stake in the supplier. Because Toyota owned part of the suppliers’ stock, suppliers felt that Toyota would behave in a trustworthy manner.