Chapter 9: Corporate Strategy: Strategic Alliances and Mergers and Acquisitions

Question 1

What is the build-borrow-or-buy framework?

Answer 1

conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire resources, capabilities, and competencies (buy).

Question 2

In deciding whether a firm should build, borrow, or buy, it should assess for the following 3 things:

Answer 2

1. ) Relevancy
2. ) Tradability
3. ) Closeness
4. ) Integration

Question 3

How does a firm assess if its internal resources are relevant enough to fill its resource gap?

Answer 3

They ask if their own resources are 1) similar to those the firm needs to develop and 2) superior to those of competitors in a targeted area.

Question 4

A firm’s resources are considered tradable if

Answer 4

the firm is able to source or resource externally through a contract that allows for a transfer of ownership or the use of the resource.

Question 5

What 3 conditions must be met before a firm considers mergers and acquisitions?

Answer 5

low relevancy, low tradability, and a high need for closeness.

Question 6

Define strategic alliances

Answer 6

a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

Question 7

Define relational view of competitive advantage

Answer 7

strategic management framework that proposes that central resources and capabilities frequently are embedded in firm alliances that span firm boundaries.

Question 8

Why do firms enter strategic alliances? (5)

Answer 8

1. ) Strengthen competitive position
2. ) Enter new markers
3. ) Hedge against uncertainty
4. ) Access critical complementary assets
5. ) Learn new capabilities

Question 9

Define real-options perspective

Answer 9

Approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.

Question 10

Define co-opetition

Answer 10

cooperation by competitors to achieve a strategic outcome.

Question 11

Define learning races

Answer 11

Situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which each firm learns may vary.

Question 12

In learning races, the firm that learns the fastest is motivated to…?

Answer 12

exit the alliance or, at a minimum, reduce its knowledge sharing.

Question 13

What 3 mechanisms can be used to govern alliances?

Answer 13

1. ) non-equity alliances
2. ) equity alliances
3. ) Joint ventures

Question 14

Define non-equity alliance

Answer 14

partnership based on contracts between firms (most common)

Question 15

Define explicit knowledge

Answer 15

Knowledge that can be codified; concerns knowing about a process or product.

Question 16

What are the 3 most common types of non-equity alliances?

Answer 16

1. ) supply agreements
2. ) distribution agreements
3. ) licensing agreements

Question 17

Define equity alliance

Answer 17

partnership in which at least one partner takes partial ownership of the other (less common than non-equity)

Question 18

Non-equity alliances use ___ knowledge

Answer 18

explicit

Question 19

equity alliances use ____ knowledge

Answer 19

tacit

Question 20

Define tacit knowledge

Answer 20

knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task.

Question 21

Define corporate venture capital

Answer 21

equity investments by established firms in entrepreneurial ventures; falls under equity alliance.

Question 22

Define joint venture

Answer 22

a standalone organization created and jointly owned by 2 or more parent companies.

Question 23

Define alliance management capability

Answer 23

a firm’s ability to effectively manage 3 alliance-related tasks concurrently: 1) partner selection, 2) alliance design, and 3) post-formation alliance management.

Question 24

Alliances are most successful when they do these 3 things

Answer 24

• make relation-specific objectives
• establish knowledge-sharing routines
• build interfirm trust

Question 25

What is an alliance champion?

Answer 25

senior, corporate-level executive responsible for high-level support and oversight

Question 26

what is an alliance leader?

Answer 26

has the technical expertise and knowledge needed for the specific technical area and is responsible for day-to-day alliance management.

Question 27

What is an alliance manager

Answer 27

serves as an alliance process resource and business integrator, provides alliance training and development, as well as diagnostic tools.

Question 28

Define merger

Answer 28

the joining of 2 independent companies to form a combined entity

Question 29

Define acquisition

Answer 29

The purchase or takeover of one company by another- can be friendly or unfriendly

Question 30

Define hostile takeover

Answer 30

acquisition in which the target company does not wish to be acquired.

Question 31

Define horizontal integration

Answer 31

the process of merging with competitors leading to industry consolidation

Question 32

Benefits of horizontal integration (3)

Answer 32

- reduction in competitive intensity - lower costs - increased differentiation

Question 33

Why do firms acquire other firms? (3)

Answer 33

- to gain access to new markets and distribution channels - to gain access to a new capability or competency - to preempt rivals

Question 34

Despite mergers usually hurting shareholder values, why do firms merge? (3)

Answer 34

- principal-agent problem - the desire to overcome competitive disadvantage - superior integration and integration capability.

Question 35

Define managerial hubris

Answer 35

a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.