Chapter 9 - Test 3 Flashcards
How Firms Achieve Growth
Build, Borrow, and Buy
Main Issues in the Build-Borrow-Buy Framework
- Relevancy
- Tradability
- Closeness
- Integration
Internal resources are relevant if
- They are similar to those the firm needs to develop
- They are superior to those of competitors in the targeted area
Tradability
The firm creates a contract to transfer ownership and allow the use of the resource
Closeness can be achieved through
- Equity alliances
- Joint ventures
- This enables resource borrowing
Conditions for integrating the target firm
- Low relevancy
- Low tradability
- High need for closeness
What are Strategic Alliances?
A voluntary arrangement between firms involves the sharing of Knowledge, Resources, & Capabilities
Why Do Firms Enter Strategic Alliances?
- Strengthen the competitive position
- Enter new markets
- Hedge against uncertainty
Non-Equity Alliances
Partnerships based on contracts
Equity Alliances
One partner takes partial ownership of the other
Joint Ventures
A standalone organization jointly owned by two or more companies
Alliance Management Capability
- Partner Selection and Alliance Formation
- Alliance Design and Governance
- Post-Formation Alliance Management
Five reasons for alliance formation
- Strengthen competitive position
- Enter new markets
- Hedge against uncertainty
- Access critical complementary resources
- Learn new capabilities
Governance mechanisms
- Contractual agreement
- Equity alliances
- Joint venture
Post Formation Alliance Management
Build capability through repeated experiences over
time
How to Make Alliances Work
Interrelations between relation-specific investments, knowledge-sharing routines, and Interfirm Trust
Merger
The joining of two independent companies
Acquisition
Purchase of one company by another
Horizontal integration
The process of merging with a competitor
Why Do Firms Merge, Three main benefits
- Reduction in competitive intensity
- Lower costs
- Increased differentiation
Why Do Firms Acquire Other Firms?
- To access new markets & distribution channels
- To overcome entry barriers
- To access new capabilities or competencies
Why do mergers take place? Three reasons
- Principal-agent problems
- The desire to overcome competitive disadvantage
- Superior acquisition and integration capability
Managers may have personal incentives to acquire
- To build a larger empire
- To receive prestige, power, and higher pay
Managerial hubris
- A form of self-delusion
- May lead to ill-fated business deals
