Alliances

Question 1

Describe strategic alliances

Answer 1

Cooperative relationships in which firms combine some of their resources and capabilities to pursue specific objectives, usually temporarily.

Question 2

Advantages of Strategic Alliances are

Answer 2

1. Enable diversification, horizontal integration, vertical integration, market entry, learning, and flexibility
2. Allow use of another firm’s reputation and legitimacy
3. Help build industry standards
4. Can be used to assess the benefits of future M&As

Question 3

Type of Cooperative Strategies are

Answer 3

1. Joint Ventures
2. Equity Alliance (partners buy each others’ equity)
3. Nonequity Alliance (contract-based)
4. Franchising: purchase the right to sell a firm’s products and services using its name, etc.
5. Licensing (royalties to use & modify)

Question 4

Advantages of International Alliances

Answer 4

1. Leverage core competencies in international markets
2. Host partner may understand local markets and customers
3. Foreign partner may contribute financial, technological, and managerial resources
4. Host country’s governments sometimes require foreign firms to enter via alliances

Question 5

Disadvantages of International Alliances

Answer 5

1. Coordination challenges are exacerbated
2. Greater exposure to occupational, corporate, and national cultural differences
3. Partners’ opportunism can be difficult to identify and prosecute

Question 6

Define Network Cooperative Strategy

Answer 6

Several firms agree to form multiple partnerships to achieve shared objectives
1. Stable network (relationships are long-term, focus on exploiting firms resources and capabilities)
2. Dynamic network (membership is challenging, focus is on exploring new ideas and developing innovations in both the short-term and the long-term)

Question 7

List challenges of networks

Answer 7

1. Greater complexity because many alliances are involved
2. Potential for free-riding and opportunism

Question 8

List challenges of cooperative strategies

Answer 8

1. Partners sometimes have difficulty cooperating
2. Partners may act opportunistically especially if they are rivals
3. Possible goal incongruence
4. Potential for slow decision making and lost flexibility

Question 9

Why is bargaining power important?

Answer 9

1. Derives from independence, smaller firms are at a disadvantage
2. Weaker bargaining positions reduce value capture and increase exposure to opportunism
3. Having access to alternate resources, contributing them, and learning shape inter-partner dependence