BUSA Ch 9

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Collusion is a form of cooperative strategy.

T

Increasingly, cooperative strategies have been formed by firms who are competitors.

T

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.

T

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

T

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

F

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

F

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).

F

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

F

Firms in slow-cycle markets can use cooperative strategies in the transition to more competitive markets.

T

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

F

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

T

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

F

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.

F

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

F

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

T

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

F

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

T

Synergistic strategic alliances focus on economies of scope rather than economies of scale.

T

Franchising is most attractive in concentrated industries.

F

The primary responsibility of the franchisor is to transfer capital to the franchisee

F

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

T

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

F

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.

T

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

T

International strategic alliances are less risky than domestic strategic alliances due to diversification across countries.

F

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.

T

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

F

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

T

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.

F

Only about 30% of cooperative strategies succeed.

T

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

F

High levels of trust allows less formal contracts to govern the relationship between alliance partners.

T

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

F

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

T

The code-sharing arrangement between Northwest Airlines and KLM was a cooperative alliance between airlines that involved no investment in a separate entity. This is an example of a(an)
a.
equity-based vertical complementary alliance.
b.
equity-based horizontal complementary alliance
c.
nonequity-based vertical complementary alliance.
d.
nonequity-based horizontal complementary alliance.

D

Fujitsu has had alliances with numerous firms over the years including Siemens, Dell, EDS, Intel, and Microsoft. According to the information in the textbook's scenario, each of these alliances focuses on a different product or service. This is an example of
a.
alliance versus alliance competition.
b.
a stable alliance.
c.
serial alliances.
d.
alliances in a fast-cycle industry.

D

When using business-level and corporate-level cooperative strategies, a firm's primary intent is to develop strategic alliances that
a.
enhance the firm's reputation in the market-place.
b.
are long-lived.
c.
will reduce the firm's political risk.
d.
create a competitive advantage.

D

The use of alliances
a.
is unlikely to yield success if partnering firms are headquartered in the same country.
b.
may be too restrictive to facilitate entry into new markets.
c.
usually increases the investment necessary to introduce new products.
d.
is increasing, especially among large global firms.

D

Which type of strategic alliance is best at passing tacit knowledge between firms?
a.
primary cooperative strategic alliances
b.
joint ventures
c.
equity strategic alliances
d.
nonequity strategic alliances

B

In a(an) ____ the firms involved own equal shares of a newly-created venture.
a.
equality-based strategic alliance
b.
non-equity strategic alliance
c.
joint venture
d.
equity strategic alliance

C

A competitive advantage that is developed through a cooperative strategy is called a collaborative or a ____ advantage.
a.
economic
b.
collusive
c.
alliance
d.
relational

D

Moon Flower cosmetics company executives are aware that their Asian customer base is interested in advanced skin care treatments beyond Moon Flower's traditional herbal and organic compounds. Moon Flower and a large American chemical company are in discussions to create a 50-50 partnership in a new firm which would create skin care treatments based on innovative chemical formulations which would be marketed both in Asia and in the U.S. Beyond being a cross-border alliance, this partnership can be called a(an)
a.
nonequity strategic alliance.
b.
joint venture.
c.
horizontal complementary alliance.
d.
equity strategic alliance.

B

A strategic alliance in which the partners own different percentages of the new company they have formed is called a(an)
a.
equity strategic alliance.
b.
joint venture.
c.
nonequity strategic alliance.
d.
cooperative arrangement.

A

China allows U.S. companies to ally with Chinese firms by purchasing minority ownership positions in the Chinese firms. These relationships are called
a.
joint ventures
b.
network strategies
c.
equity strategic alliances
d.
nonequity strategic alliances

C

A nonequity strategic alliance exists when
a.
two firms join together to create a new company.
b.
two or more firms have a contractual relationship to share resources and capabilities.
c.
two partners in an alliance own unequal shares in the combined entity.
d.
the partners agree to sell bonds instead of stock in order to finance a new venture.

B

Firms participate in strategic alliances for all the following reasons EXCEPT to
a.
enter markets more quickly.
b.
acquire technology.
c.
create values they could not develop acting independently.
d.
retain tight control over intangible core competencies.

D

The global airline industry is one in which
a.
national political interests prevent airlines from making international alliances.
b.
the fast-cycle nature of the industry mandates heavy use of alliances.
c.
most alliances tend to be vertical complemen-tary.
d.
alliance versus alliance competition domi-nates firm versus firm competition.

D

Which of the following firms would be most likely to enter an alliance in order to maintain market stability?
a.
large home appliance manufacturing
b.
electronic consumer goods manufacturing
c.
natural gas utility
d.
clothing retailing

C

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
a.
low-cost labor production facilities in another country.
b.
similar products who could help the firm establish economies of scale.
c.
access to franchises in new markets.
d.
excess resources for investing.

D

Firms in a standard-cycle market may form alliances in order to
a.
take advantage of opportunities in emerging market countries.
b.
more quickly distribute new products.
c.
capture economies of scale.
d.
share risky R&D investments.

C

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.
a.
explicit collusion.
b.
economies of scale.
c.
opportunistic behavior.
d.
distribution opportunities.

B

Firms in ____ markets cooperate to pool resources and gain market power.
a.
slow-cycle
b.
standard-cycle
c.
fast-cycle
d.
hyper-cycle

B

The two types of complementary strategic alliances are
a.
vertical and horizontal.
b.
macro and micro.
c.
outsourcing and insourcing.
d.
network and complementary

A

All of the following are business-level cooperative strategic alliances EXCEPT
a.
synergistic strategic alliances.
b.
uncertainty reduction strategic alliances.
c.
complementary strategic alliances.
d.
competition response strategic alliances.

A

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(an) ____ strategy.
a.
vertical complementary
b.
horizontal complementary
c.
uncertainty reduction
d.
network

A

____ are LEAST likely to involve potential or current competitors.
a.
Mutual forbearance strategies
b.
Tacit collusion strategies
c.
Horizontal complementary strategic alliances
d.
Vertical complementary strategic alliances

D

Smith Commercial Lighting, Inc., which sells lighting for factories and businesses has entered an alliance with Revelation Lighting, Inc., a retailer of home decor lighting in order to expand into the trend of using industrial-type lighting in non-traditional style homes. Smith has invested 40% and Revelation has invested 60% into the new operation. This is an example of a(an)
a.
joint venture.
b.
nonequity alliance.
c.
horizontal complementary strategic alliance.
d.
vertical complementary strategic alliance.

C

Partners in a horizontal alliance can expect
a.
benefits proportional to their investments.
b.
similar opportunities as a result of the alliance.
c.
common management issues.
d.
different outcomes.

D

Reduction of competition can be accomplished through all of the following EXCEPT
a.
predatory alliances.
b.
explicit collusion.
c.
tacit collusion.
d.
mutual forbearance.

A

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
a.
engaging in tacit collusion.
b.
following uncertainty reducing strategies.
c.
monitoring business competitors for opportunistic behaviors.
d.
following a competitive response strategy.

A

Mutual forbearance is
a.
illegal in the U.S.
b.
a type of competition reducing strategy.
c.
a variety of risk-sharing by firms in highly fragmented industries.
d.
exercised when alliance partners refrain from opportunistic behaviors.

B

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
a.
excessive cooperation.
b.
joint ventures.
c.
tacit collusion.
d.
horizontal strategic alliances.

C

In the U.S., cooperative strategies to reduce competition may result in ____ if they are explicit.
a.
increased tax liabilities
b.
litigation
c.
government takeover of the firms
d.
dissolution of the firm

B

In free market economies ____ must decide how rivals can collaborate with their competitors without violating established regulations.
a.
the invisible hand
b.
the government
c.
consumers
d.
the business community

B

Why are alliances in the airline industry unstable?
a.
Unstable industries make for unstable alliances.
b.
The potential for firms to take opportunistic actions is too widespread.
c.
The industry is declining and profits are not sufficient to divide among alliance partners.
d.
There is high rivalry among firms.

D

Of the various business-level strategic alliances, ____ alliances have the most probability of creating sustainable competitive advantage, and ____ have the lowest.
a.
horizontal complementary, vertical comple-mentary
b.
vertical complementary, competition reducing
c.
competition reducing, horizontal complemen-tary
d.
uncertainty reducing, competition reducing

B

____ strategic alliances have stronger focus on creation of value than do ____ strategic alliances.
a.
competition reducing, complementary
b.
complementary, competition reducing
c.
uncertainty reducing, complementary
d.
collusive, uncertainty reducing

B

For the purpose of diversification, a corporate-level cooperative strategy may be preferable to a merger or acquisition for all the following reasons EXCEPT
a.
a host nation may forbid a merger or acquisition.
b.
opportunistic behaviors are less likely.
c.
cooperative strategies require fewer resources.
d.
cooperative strategies allow greater flexibil-ity.

B

CNOOC (China National Offshore Oil Corporation) has been focusing on alliances that are "upstream" from its core business. This type of alliance is classified as a(an) ____ strategic alliance.
a.
synergistic
b.
opportunistic
c.
horizontal
d.
diversifying

D

Firms entering into synergistic strategic alliances expect to attain
a.
technological complexity.
b.
economies of scope.
c.
monopolistic market power.
d.
learning curve efficiencies.

B

____ are sometimes used to consolidate and spin off poor performing businesses and to allow a company to focus on its core businesses, thus lowering the firm's level of diversification.
a.
Joint ventures
b.
Synergistic alliances
c.
Horizontal complementary alliances
d.
Dynamic alliance networks

A

The main goal of franchising for the franchisor, such as Wendy's or Dunkin Donut, is
a.
use of the brand name.
b.
as a test for potential future acquisitions.
c.
growth.
d.
access to technology.

C

Which of the following statement is FALSE?
a.
Franchising is most appropriate in fragmented industries.
b.
Franchising provides corporate growth with less risk than do mergers and acquisitions.
c.
Successful franchising allows transfer of knowledge and skills from the franchisor to the franchisee.
d.
Franchising agreements require more trust between firms than do other cooperative strategies.

D

In the franchising strategy, the most important competitive advantage for the franchisee is the franchisor's
a.
brand name.
b.
capital resources.
c.
access to a consolidated market.
d.
geographic locations.

A

A businessperson in Atlanta who wishes to develop a luxury pet kennel approaches the owner of the highly successful Pet Resort and Day Spa in Houston to see if the owner is interesting in franchising the Pet Resort brand. The Atlanta businessperson's goal is to
a.
get venture capital from Pet Resort.
b.
gain access to Pet Resort's tacit knowledge.
c.
collude with Pet Resort to diminish competi-tion in the kennel industry in Atlanta.
d.
join in a vertical complementary alliance with Pet Resort.

B

McDonald's, Hilton International, and Krispy Kreme all heavily rely on the ____ strategy.
a.
transnational
b.
network cooperative
c.
cross-border alliances
d.
franchising cooperative

D

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

D

If GM and Ferrari were to combine some of their automobile manufacturing operations to make a new line of cars under a new brand name, this would be characterized as a(an)
a.
collusive tactic.
b.
merger.
c.
cross-border strategic alliance.
d.
international acquisition.

C

Legitimately, a firm may pursue an international strategic alliance for all of the following reasons EXCEPT
a.
to enhance the compensation packages of top managers.
b.
to leverage core competencies in new markets.
c.
to operate within government restrictions in the local country.
d.
to escape limited domestic growth opportuni-ties.

A

In some countries, the only legal way for foreign firms to invest in the country is through
a.
silent partner agreements.
b.
franchising.
c.
wholly-owned subsidiaries.
d.
partnership with a local firm.

D

In a cross-border alliance, the local partner is often a useful source of information about
a.
sources of capital.
b.
the strengths of the foreign firm's technology.
c.
market synergies.
d.
long-term planning.

A

In general, cross-border alliances are more ____ and ____ than domestic alliances.
a.
uncertainty reducing, diversifying
b.
complex, risky
c.
highly leveraged, tightly monitored
d.
flexible, trust-based

B

A ____ cooperative strategy helps the firm diversify in terms of products offered, markets served, or both.
a.
corporate-level
b.
business-level
c.
national-level
d.
industry-level

A

The main reason that IBM is involved in multiple alliances is to
a.
consolidate a fragmented industry and thus gain market power.
b.
stay on the cutting edge of technology.
c.
capture the intangible resources of competi-tors in order to gain a competitive advantage against them in the future.
d.
avoid government anti-trust regulations which would apply if IBM were to acquire the firms it allies itself with.

B

Dynamic alliance networks work best in industries
a.
where technological innovations are introduced frequently.
b.
that are mature and stable in nature.
c.
where the coordination of product and global diversity is critical.
d.
that are characterized by predictable market cycles and demand.

A

Stable alliance networks will most often
a.
be used to enhance a firm's internal opera-tions.
b.
appear in mature industries with predictable market cycles.
c.
emerge in industries with short product life cycles.
d.
emerge in declining industries as a way to increase process innovations.

B

Which of the following statements is TRUE?
a.
Most cooperative strategies are successful if the basic agreements are well written and include appropriate monitoring strategies.
b.
The large majority of cooperative strategies fail despite potential synergies.
c.
Opportunistic behaviors are usually focused on gaining the use of the partner's manufactur-ing and financial resources.
d.
Problems with international cooperative strategies usually concern financial-system differences between the partners.

B

Which of the following is NOT a risk for firms engaged in cooperative strategies?
a.
misrepresentation of a partner's competencies
b.
false perception of partner trustworthiness
c.
insufficient variation in firms' core compe-tencies.
d.
failure of partners to make complementary resources available to the partnership

C

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

D

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 Mid-East and Asia. DDD has some European clients, but it sees the Mid-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
a.
insist on excessively close monitoring of DDD's actions.
b.
gain access to DDD's core competencies and use them to become a future competitor.
c.
not fully share its intangible resources.
d.
not make equivalent investments to the alliance as does DDD.

C

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.
a.
cost minimization
b.
trust but verify
c.
opportunity maximization
d.
pragmatic realism

A

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?
a.
the loss of unexpected opportunities
b.
the cost of extensive monitoring mechanisms
c.
the costs of writing detailed contracts
d.
the prevention of opportunistic behavior by the partner(s)

D

The two basic approaches to successfully managing cooperative strategic alliances involve ____ and ____.
a.
cost minimization, opportunity maximization
b.
monitoring systems, multiple management approaches
c.
contractual systems, financial systems
d.
equity approaches, nonequity approaches

A

One disadvantage of developing effective monitoring systems to manage a strategic alliance is that
a.
firms will have to accept greater risks.
b.
trust will be eroded.
c.
spontaneous opportunities are minimized.
d.
power coalitions will still develop.

C

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.
a.
extensive capitalization
b.
stability
c.
trustworthiness
d.
Internet competency

C

The opportunity maximization approach is more difficult to establish in international relationships than in domestic relationships because of differences in all EXCEPT
a.
laws.
b.
culture.
c.
trade policies.
d.
technology.

D

Identify and define the different types of strategic alliances.

Strategic alliances are cooperative strategies between firms whereby resources and capabilities are combined to create a competitive advantage. All strategic alliances require firms to exchange and share resources and capabilities to co-develop or distribute goods or services. The three basic types of strategic alliances are: (1) joint ventures, where a legally independent company is created by at least two other firms, with each firm usually owning an equal percentage of the new company; 2) equity strategic alliances, whereby partners own different percentages of equity in the new company they have formed; and (3) nonequity strategic alliances, which are contractual relationships between firms to share some of their resources and capabilities. The firms do not establish a separate organization, nor do they take an equity position. Because of this, nonequity strategic alliances are less formal and demand fewer partner commitments than joint ventures and equity strategic alliances. Typical forms are licensing agreements, distribution agreements and supply contracts.

Explain the rationales for a cooperative strategy under each of the three types of basic market situations (i.e., slow, standard, and fast cycles).

In slow-cycle markets (markets that are near-monopolies), firms cooperate with others to gain entry into restricted markets or to establish franchises in new markets. Slow-cycle markets are rare and diminishing. Cooperative strategies can help firms in (presently) slow-cycle markets make the transition from this relatively sheltered existence to a more competitive environment. In standard-cycle markets (which are often large and oriented toward economies of scale), firms try to gain access to partners with complementary resources and capabilities. Through the alliance, the firms try to increase economies of scale and market power. In fast-cycle markets (character-ized by instability, unpredictability, and complexity) sustained competitive advantages are rare, so firms must constantly seek new sources of competitive advantage. In fast-cycle markets alliances between firms with excess resources and capabilities and firms with promising capabilities who lack resources help both firms to rapidly enter new markets.

Identify the four types of business-level cooperative strategies and the advantages and disadvantages of each.

Through vertical and horizontal complementary alliances, companies combine their resources and capabilities in ways that create value. Vertical complementary strategic alliances result when firms creating value in different parts of the value chain combine their assets to create a competi-tive advantage. Vertical complementary strategies have the greatest probability of being successful compared with other types of cooperative strategies. But firms using this type of alliance need to be wise in how much technology they share with their partners. Vertical complementary alliances rely heavily on trust between partners to succeed. Horizontal comple-mentary strategic alliances are developed when firms in the same stage of the value chain combine their assets to create additional value. Usually they are formed to improve long-term product development and distribution opportunities. Horizontal complementary strategies can be unstable because they often join highly rivalrous competitors. In addition, even though partners may make similar investments, they rarely benefit equally from the alliance. The competition response strategy involves alliances formed to react to competitors' actions. Usually they respond to strategic, rather than tactical, actions because the alliances are difficult to reverse and expensive to operate. The uncertainty-reducing strategy is used to hedge against risk and uncertainty, such as when entering new product markets or in emerging economies. Both of these strategies are less effective in the long-run than the complementary alliances which are focused on creating value. Competition reducing (collusive) strategies are often illegal. There are two types of collusive competition reducing strategies: explicit collusion and tacit collusion. Explicit collusion exists when firms directly negotiate production output and pricing agreements to reduce competition. These are illegal in the U.S. and in most developed economies. Tacit collusion exists when several firms in an industry indirectly coordinate their production and pricing decisions by observing each other's competitive actions and responses. Both types of collusion result in lower production levels and higher prices for consumers.

Identify the three types of corporate-level cooperative strategies.

A diversifying strategic alliance allows firms to share some of their resources and capabilities to diversify into new product or market areas. A synergistic strategic alliance allows firms to share some of their resources and capabilities to create economies of scope. These alliances create synergy across multiple functions or multiple businesses between partner firms. Franchising is a strategy in which the franchisor uses a contractual relationship to describe and control the sharing of its resources and capabilities with franchisees. A franchise is a contract between two independ-ent organizations whereby the franchisor grants the right to the franchisee to sell the franchisor's product or do business under its trademarks in a given location for a specified period of time.

Why are cooperative strategies often used when firms pursue international strategies? What are the advantages and disadvantages of international cooperative strategies?

A cross-border strategic alliance is an international cooperative strategy in which firms head-quartered in different nations combine some of their resources and capabilities to create a competitive advantage. The typical reasons follow: 1) In general multinational firms outperform firms operating only on a domestic basis. Firms may be able to leverage core competencies developed domestically in other countries. 2) Limited domestic growth opportunities pushes firms into international expansion. 3) Some governments require local ownership in order for foreign firms to invest in businesses in their countries, which requires foreign firms to ally with local firms. 4) Local partners often have significantly more information about factors contributing to competitive success such as local markets, sources of capital, legal procedures, and politics, which makes an alliance useful for a foreign firm. 5) Cross-border alliances can help firms transform themselves or better use their competitive advantages surfacing in the global economy. On the negative side, cross-border alliances are more complex and risky than domestic strategic alliances.

Identify and define the two different types of network strategies.

A network cooperative strategy is a cooperative strategy wherein several firms form multiple partnerships to achieve shared objectives. Stable alliance networks (primarily found in mature industries) usually involve exploitation of economies of scale or scope. In this type of network, the firms try to extend their competitive advantages to other settings while continuing to profit from operations in their core industries. Dynamic alliance networks (witnessed mainly in rapidly changing industries) are used to help a firm keep up when technologies shift rapidly by stimulat-ing product innovation and successful market entries. Dynamic alliance networks explore new ideas and typically generate frequent product innovations with short product life cycles.

Identify the competitive risks associated with cooperative strategies.

Cooperative strategies are not risk free strategy choices; as many as 70% fail. If a contract is not developed appropriately and fails to avert opportunistic behavior, or if a potential partner firm misrepresents its competencies or fails to make available promised complementary resources, failure is likely. Furthermore, a firm may make investments that are specific to the alliance while the partner does not. This puts the investing firm at a disadvantage in terms of return on invest-ment. The core of many failures is the lack of trustworthiness of the partner(s) who act opportu-nistically.

Describe the strategic management approaches to managing alliances.

The ability to effectively manage competitive strategies can be one of a firm's core competencies. There are two basic approaches to managing competitive alliances. Cost minimization leads firms to develop protective formal contracts and effective monitoring systems to manage alliances. Its focus is to prevent opportunistic behavior by the partner(s). Opportunity maximization is intended to maximize value creation opportunities. It is less formal and places fewer constraints on partner behaviors. But, identifying trustworthy partners is the key to this second approach. If (well-founded) trust is present, monitoring costs are lowered and opportunities will be maximized. Trust is more difficult to establish between international partners. Ironically, the cost minimiza-tion approach is more expensive to implement and to use than the opportunity maximization approach.

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