Competing For Advantage 3rd Edition by Hoskisson – Test Bank A+

Description

1. The description of firms’ strategic actions as dynamic in nature suggests that actions taken by one firm cause responses from competitors.

ANS: T PTS: 1 DIF: med REF: p. 173

OBJ: 1 NOT: comprehension

1. In competitive dynamics, actions taken by one firm seldom elicit responses from competitors.

ANS: F PTS: 1 DIF: med REF: p. 173

OBJ: 1 NOT: comprehension

1. Expanding geographic scope in the global economy allows competitive rivalry to ease because of the larger potential customer base.

ANS: F PTS: 1 DIF: med REF: p. 174

OBJ: 1 NOT: comprehension

1. Intensified rivalry within an industry results in decreased average profitability for the firms within it.

ANS: T PTS: 1 DIF: med REF: p. 174

OBJ: 1 NOT: comprehension

1. Google continues to outperform its search engine competitors, despite experiencing intense competitive rivalry, which illustrates the potential for firms with effective business-level strategies.

ANS: T PTS: 1 DIF: hard REF: p. 176

OBJ: 1 NOT: application

1. Competitive dynamics indicates that firms and their strategic actions are not mutually interdependent.

ANS: F PTS: 1 DIF: med REF: p. 176

OBJ: 1 NOT: comprehension

1. Firms are mutually independent only when two or more firms jockey with one another in their pursuit of market position.

ANS: F PTS: 1 DIF: hard REF: p. 176

OBJ: 1 NOT: knowledge

1. Market commonality increases the likelihood of competitive interaction in an industry.

ANS: F PTS: 1 DIF: med REF: p. 177

OBJ: 4 NOT: comprehension

1. The relationship of Burger King and McDonald’s provides an example of multimarket competition where market commonality exists.

ANS: T PTS: 1 DIF: med REF: p. 177

OBJ: 4 NOT: application

1. Multimarket competition refers to situations in which firms compete against each other in several or many product or geographic markets.

ANS: T PTS: 1 DIF: hard REF: p. 173|p. 177

OBJ: 2 NOT: knowledge

1. Two firms that share markets but have little similarity in their resources would not be direct and mutually acknowledged competitors.

ANS: F PTS: 1 DIF: hard REF: p. 178

OBJ: 2 NOT: comprehension

1. Ability refers to an attacking or responding firm’s knowledge of the competitive market characteristics.

ANS: F PTS: 1 DIF: hard REF: p. 180

OBJ: 3 NOT: knowledge

1. Choosing not to respond to the competitive actions of large companies with great resources is a viable long-term option for small companies.

ANS: F PTS: 1 DIF: med REF: p. 180

OBJ: 5 NOT: comprehension

1. First movers can gain a sustained competitive advantage when they reduce their costs through reverse engineering.

ANS: F PTS: 1 DIF: med REF: p. 182

OBJ: 4 NOT: comprehension

1. According to the discussion in the textbook, it is unlikely that firms that are typically late movers have much organizational slack.

ANS: T PTS: 1 DIF: hard REF: p. 183

OBJ: 4 NOT: comprehension

1. Large firms with significant market power who act like small firms (making strategic decisions and implementing them with speed) and are innovative are typically strong competitors and are likely to earn above-average returns.

ANS: T PTS: 1 DIF: med REF: p. 183|p. 184

OBJ: 4 NOT: comprehension

1. Product quality is a universal theme and is a necessary, but not a sufficient condition for competitive success.

ANS: T PTS: 1 DIF: med REF: p. 185

OBJ: 4 NOT: comprehension

1. Quality alone can assure a firm that it will achieve strategic competitiveness or earn above-average returns.

ANS: F PTS: 1 DIF: hard REF: p. 185

OBJ: 5 NOT: comprehension

1. Quality begins at the bottom of the organization where employees must create values for quality that permeate the entire organization.

ANS: F PTS: 1 DIF: med REF: p. 185

OBJ: 4 NOT: comprehension

1. High quality increases costs which damages profitability.

ANS: F PTS: 1 DIF: med REF: p. 185

OBJ: 4 NOT: comprehension

1. A tactical competitive action involves a significant commitment of specific and distinctive organizational resources.

ANS: F PTS: 1 DIF: hard REF: p. 186

OBJ: 5 NOT: knowledge

1. It is much easier for a competitor to implement strategic actions than tactical actions.

ANS: F PTS: 1 DIF: hard REF: p. 186

OBJ: 5 NOT: comprehension

1. Firms with fewer resources are less likely to respond to tactical actions than to strategic actions in order to preserve resources for the most important competitive battles.

ANS: F PTS: 1 DIF: hard REF: p. 186

OBJ: 5 NOT: comprehension

1. The more dependent a firm is on its market, the more aggressively it will defend it from another competitor.

ANS: T PTS: 1 DIF: med REF: p. 187

OBJ: 5 NOT: comprehension

1. Firms in a slow-cycle market are shielded from strong rivalry and imitators.

ANS: T PTS: 1 DIF: med REF: p. 188

OBJ: 6 NOT: comprehension

1. Compared with standard-cycle firms, fast-cycle firms have little loyalty to their products.

ANS: T PTS: 1 DIF: med REF: p. 191|p. 192

OBJ: 6 NOT: comprehension

1. Unlike fast-cycle markets, the struggle for market share in standard-cycle markets is not intense.

ANS: F PTS: 1 DIF: med REF: p. 191|p. 192

OBJ: 6 NOT: comprehension

1. Competitive advantages are not sustainable in fast-cycle markets.

ANS: T PTS: 1 DIF: easy REF: p. 190

OBJ: 6 NOT: knowledge

1. Innovation substantially influences competitive dynamics as it affects the actions and responses of all companies competing in all market types.

ANS: T PTS: 1 DIF: med REF: p. 193

OBJ: 6 NOT: knowledge

1. With 66% of its revenues derived from the North American tire replacement market, Cooper Tire & Rubber Co. has a low degree of market dependence.

ANS: F PTS: 1 DIF: med REF: p. 188

OBJ: 5 NOT: application

MULTIPLE CHOICE

1. Competitive dynamics refers to a series of:

a.	competitive actions taken by only one firm in a market.
b.	competitive actions taken by the market leader.
c.	competitive actions and competitive responses initiated among firms competing within a given market.
d.	competitive actions and competitive responses initiated among firms competing within numerous markets.

ANS: C PTS: 1 DIF: hard REF: p. 173

OBJ: 1 NOT: knowledge

1. Competitive rivalry exists ONLY when:

a.	two or more firms establish their domains and do not challenge each other over those domains.
b.	two or more firms compete against one another in pursuit of an advantageous market position.
c.	two or more firms compete against international firms in pursuit of the world’s dominant market position.
d.	a firm is willing to accept its market position without regard to its competitors’ intentions.

ANS: B PTS: 1 DIF: hard REF: p. 173

OBJ: 1 NOT: knowledge

1. Multimarket competition occurs when firms:

a.	sell different products to the same customer.
b.	have a high level of awareness of their competitors’ strategic intent.
c.	simultaneously enter into an attack strategy.
d.	compete against each other in several geographic or product markets.

ANS: D PTS: 1 DIF: med REF: p. 173

OBJ: 1 NOT: knowledge

1. In the global economy, rivalry is intensifying. Consequently:

a.	dominant cultures are overwhelming those of emerging nations, making cultural diversity an issue mainly among developed nations.
b.	it is becoming more likely that industrialized nations will continue to dominate world markets, overwhelming emerging countries.
c.	strong brand names are especially important in opening new markets.
d.	only companies with cost-leadership strategies have a competitive advantage.

ANS: C PTS: 1 DIF: hard REF: p. 174

OBJ: 1 NOT: comprehension

1. Intensified rivalry within an industry results in ____.

a.	increased hiring across the industry
b.	increased total revenues across the industry
c.	decreased average profitability across the industry
d.	increased entries into the industry

ANS: C PTS: 1 DIF: med REF: p. 174

OBJ: 1 NOT: knowledge

1. A method of reducing competitive rivalry may be to reduce the firm’s market commonality with other firms by doing all EXCEPT which of the following?

a.	competing in a different geographic market
b.	competing in a different product segment
c.	competing in a different market segment
d.	competing in a different labor market

ANS: D PTS: 1 DIF: hard REF: p. 177

OBJ: 1 NOT: comprehension

1. Two companies that share markets, but who have little similarity in their resources are ____.

a.	direct, mutually-acknowledged competitors
b.	neither direct nor mutually-acknowledged competitors
c.	competitors who are probably not engaged in intense rivalry
d.	competitors who have reached mutually-sustainable competitive advantage

ANS: C PTS: 1 DIF: hard REF: p. 178

OBJ: 2 NOT: comprehension

1. ____ relates to the incentives a firm has to attack a rival or to respond if attacked.

a.	Motivation	c.	Responsiveness
b.	Awareness	d.	Ability

ANS: A PTS: 1 DIF: med REF: p. 179

OBJ: 3 NOT: knowledge

1. Both ____ and ____ affect the awareness and motivation of a firm to undertake actions and responses.

a.	first mover advantages, corporate size
b.	market commonality, resource similarity
c.	management capabilities, competitive analysis
d.	speed of management decisions, management actions

ANS: B PTS: 1 DIF: hard REF: p. 179

OBJ: 3 NOT: knowledge

1. The larger the resource imbalance between the firm taking the competitive action and the other firms in the industry, the ____ of these other firms.

a.	more fragmented the response will be
b.	the slower the response will be
c.	the larger the response will be
d.	more tactical the response will be

ANS: B PTS: 1 DIF: med REF: p. 180

OBJ: 5 NOT: comprehension

1. First movers are:

a.	individuals who lead in the establishment of new industries.
b.	firms that are first to exit an industry that begins to enter a decline stage.
c.	firms that take an initial competitive action.
d.	individuals who move frequently as employment opportunities change in a locale.

ANS: C PTS: 1 DIF: med REF: p. 182

OBJ: 4 NOT: knowledge

1. The chief disadvantages of being a first mover is:

a.	the high degree of risk.
b.	the high level of competition in the new marketplace.
c.	an inability to sustain a sustained competitive advantage.
d.	the difficulty of obtaining new customers.

ANS: A PTS: 1 DIF: med REF: p. 182

OBJ: 4 NOT: comprehension

1. A second mover is a (an):

a.	firm that responds to a first mover’s competitive action, often through imitation.
b.	firm that leads a competitive action in an industry.
c.	individual who imitates others in an industry to ensure the progress of his/her career.
d.	individual who moves from a declining industry to a new expanding industry.

ANS: A PTS: 1 DIF: med REF: p. 183

OBJ: 4 NOT: knowledge

1. A benefit of being a second mover is:

a.	an absence of the need to be the largest firm in the industry.
b.	that a firm may be able to respond to first movers’ competitive actions while avoiding the risks and development costs experienced by the first movers.
c.	the absence of any risk.
d.	the ability to lead the industry into new areas of product development and gain customer loyalty from its move.

ANS: B PTS: 1 DIF: hard REF: p. 183

OBJ: 4 NOT: comprehension

1. Late movers are those firms:

a.	that do respond to a competitive action but only after considerable time has elapsed after the first mover’s action and the second mover’s response.
b.	that respond to a first mover’s competitive action often through imitation or a move designed to counter the effects of the action.
c.	that take an initial competitive action (either strategic or tactical).
d.	that stay in a declining industry.

ANS: A PTS: 1 DIF: med REF: p. 183

OBJ: 4 NOT: knowledge

1. All competitive advantages do not accrue to large-sized firms. A major advantage of smaller firms is that ____.

a.	they are more likely to have organizational slack
b.	they can launch competitive actions more quickly
c.	they have more loyal and diverse workforces
d.	they can wait for larger firms to make mistakes in introducing innovative products

ANS: B PTS: 1 DIF: med REF: p. 184

OBJ: 4 NOT: comprehension

1. Which firm’s competitive actions are most likely to elicit response and imitation?

a.	Firms that have a history as a strategic player that takes risky actions
b.	Firms that have a history of complex and unpredictable actions
c.	Firms that are price predators
d.	Firms that are market leaders

ANS: D PTS: 1 DIF: med REF: p. 184

OBJ: 5 NOT: comprehension

1. Quality involves:

a.	either meeting or exceeding customer expectations in the goods and/or services offered.
b.	meeting the standards established by ISO 9000.
c.	an assured way to gain competitive advantage.
d.	an association only with differentiation strategies.

ANS: A PTS: 1 DIF: med REF: p. 184

OBJ: 4 NOT: knowledge

1. Quality is ____ strategic competitiveness.

a.	necessary for	c.	sufficient for
b.	negatively related to	d.	not associated with

ANS: A PTS: 1 DIF: med REF: p. 185

OBJ: 4 NOT: comprehension

1. Which of the following is NOT an accurate statement with respect to quality? Quality is:

a.	a universal theme in the global economy.
b.	a necessary but not sufficient condition for competitive success.
c.	in existence when a firm’s goods or services meet or exceed customers’ expectations.
d.	possible when customers support it.

ANS: D PTS: 1 DIF: hard REF: p. 185

OBJ: 4 NOT: comprehension

1. Because Hyundai Motor Company was instituting a drive for manufacturing quality in 1999, competitors could predict ____.

a.	that Hyundai viewed quality as a sufficient condition for success
b.	that Hyundai was consuming its organizational slack and would encounter financial problems
c.	that Hyundai would not simultaneously launch aggressive competitive actions
d.	that Hyundai was building for a first-mover advantage

ANS: C PTS: 1 DIF: hard REF: p. 185

OBJ: 4 NOT: application

1. A competitive response is a (an):

a.	move taken to counter the effects of an action taken by a competitor.
b.	move taken to initiate a strategic change in an industry.
c.	ineffective action for a firm to pursue.
d.	military concept that does not apply to business.

ANS: A PTS: 1 DIF: med REF: p. 186

OBJ: 5 NOT: knowledge

1. As compared to strategic actions, tactical actions usually have a:

a.	more delayed effect.
b.	greater effect on the overall corporate strategy.
c.	well-timed effect on the firm’s corporate strategy.
d.	more immediate effect.

ANS: D PTS: 1 DIF: med REF: p. 186

OBJ: 4 NOT: knowledge

1. Which of the following would be an example of a strategic action?

a.	Price cuts by Blockbuster Video
b.	Use of product coupons by a local grocer
c.	Entry into the European market by Wal-Mart
d.	Price increases by Continental Airlines

ANS: C PTS: 1 DIF: med REF: p. 186

OBJ: 4 NOT: application

1. Firms with few competitive resources are more likely to:

a.	refuse to respond to competitive actions.
b.	respond to all competitive actions.
c.	respond to tactical actions.
d.	respond to strategic actions.

ANS: C PTS: 1 DIF: med REF: p. 186

OBJ: 5 NOT: comprehension

1. On the whole there are more competitive responses to:

a.	strategic actions than to tactical actions.
b.	tactical actions than to strategic actions.
c.	buyer pressures than to supplier pressures.
d.	the demands of the top management team than to industry structural pressures.

ANS: B PTS: 1 DIF: hard REF: p. 186

OBJ: 5 NOT: knowledge

1. Companies initiate more competitive responses to ____ actions than to ____ actions.

a.	tactical, strategic
b.	strategic, tactical
c.	business-level strategic, corporate-level strategic
d.	business-level strategic, operating-level strategic

ANS: A PTS: 1 DIF: hard REF: p. 186

OBJ: 5 NOT: knowledge

1. Competitors are more likely to respond to competitive actions that are taken by ____.

a.	differentiators	c.	first movers
b.	larger companies	d.	market leaders

ANS: D PTS: 1 DIF: med REF: p. 187

OBJ: 5 NOT: knowledge

1. Walt Disney’s focus on ____ is typical of a slow-cycle market.

a.	innovation	c.	proprietary rights
b.	total quality	d.	economies of scale

ANS: C PTS: 1 DIF: med REF: p. 189

OBJ: 6 NOT: comprehension

1. A company in a ____ is most likely to make heavy use of patents and copyrights.

a.	slow cycle	c.	standard cycle
b.	medium cycle	d.	fast cycle

ANS: A PTS: 1 DIF: med REF: p. 189

OBJ: 6 NOT: comprehension

1. Sustained competitive advantage is most achievable in a ____ market.

a.	slow-cycle	c.	standard-cycle
b.	medium-cycle	d.	fast-cycle

ANS: A PTS: 1 DIF: med REF: p. 188

OBJ: 6 NOT: comprehension

1. Goods or services in slow-cycle markets reflect:

a.	organizations that serve a mass market.
b.	numerous first mover advantages.
c.	an inability to sustain a competitive advantage for long periods of time.
d.	competitive advantages that are shielded from imitation.

ANS: D PTS: 1 DIF: hard REF: p. 188

OBJ: 6 NOT: comprehension

1. Reverse engineering is characteristic of ____.

a.	first movers.	c.	total quality management.
b.	fast-cycle markets.	d.	cost-leadership strategies.

ANS: B PTS: 1 DIF: med REF: p. 190

OBJ: 6 NOT: knowledge

1. Which of the following is an example of an organization considered to be in a standard-cycle market?

a.	Boeing’s airplanes
b.	Procter & Gamble
c.	Caterpillar’s large-scale equipment
d.	McIlhenny’s Tabasco Sauce

ANS: B PTS: 1 DIF: hard REF: p. 192

OBJ: 6 NOT: application

1. Firms will be more loyal to their products in a ____ market than in the other types of markets.

a.	standard cycle	c.	slow cycle
b.	fast cycle	d.	medium cycle

ANS: A PTS: 1 DIF: med REF: p. 192

OBJ: 6 NOT: comprehension

1. In order to compete effectively, standard-cycle firms need ____.

a.	organizational slack	c.	first mover capability
b.	economies of scale	d.	total quality

ANS: B PTS: 1 DIF: med REF: p. 192

OBJ: 6 NOT: knowledge

1. Strategic actions elicit fewer competitive responses than tactical actions for all of the following reasons EXCEPT:

a.	Strategic responses involve a significant commitment of resources.	c.	Strategic responses are easy to implement and reverse.
b.	The time needed for a strategic action to be implemented delays the competitor’s response.	d.	The time needed to assess the effectiveness of strategic actions delays the competitor’s response.

ANS: C PTS: 1 DIF: hard REF: p. 186

OBJ: 5 NOT: comprehension

1. Innovation has a dominant effect on competitive dynamics in ____ markets.

a.	slow-cycle	c.	fast-cycle
b.	standard-cycle	d.	all competitive

ANS: C PTS: 1 DIF: med REF: p. 191

OBJ: 6 NOT: knowledge

ESSAY

1. What is market commonality?

ANS:

In general, competitors agree about the different characteristics of the individual markets that make up an industry. Most industries’ markets are somewhat related in terms of technologies used or core competencies needed to develop a competitive advantage. Market commonality is concerned with the number of markets with which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each.

PTS: 1 REF: p. 176|p. 177 OBJ: 2

1. What is resource similarity?

ANS:

Resource similarity is the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms of both type and amount. Firms with resource similarity are likely to have similar strengths and weaknesses and to use similar strategies. Assessing resource similarity can be difficult, particularly when critical resources are intangible, rather than tangible.

PTS: 1 REF: p. 177|p. 178 OBJ: 2

1. Define awareness, motivation, and ability in reference to competitive behavior.

ANS:

Awareness, motivation and ability are the drives of competitive behavior. Awareness is the extent to which competitors recognize the degree of their mutual interdependence that results from market commonality and resource similarity. Awareness affects the extent to which the firm understands the consequences of its competitive actions and responses. Motivation concerns the firm’s incentive to take action or to respond to a competitor’s attack. If the firm does not believe a competitor’s action will result in losses for it, it will not have motivation to respond. Ability relates to each firm’s resources and the flexibility these resources provide. When a firm faces a competitor with similar resources, careful study of a possible attack is essential because a competitor with similar resources is likely to respond to competitive attack.

PTS: 1 REF: p. 179|p. 180 OBJ: 3

1. What are the advantages and disadvantages of being a first mover, second mover, and late mover?

ANS:

First movers can gain market share and customer loyalty by being the first in the market. First movers also take more risks. However, first movers often are higher performers. Second movers, particularly those that are larger and faster, can also gain a competitive advantage and/or earn at least average returns because they imitate, but avoid much of the risk that first movers experience. In fact, some second movers may gain significant market share and outperform the first movers. They do so when they carefully observe the market’s reaction and are able to improve the product introduced by the first mover and correct its mistakes. Late movers (those that respond a long time after the original action was taken) tend to be lower performers and much less effective.

PTS: 1 REF: p. 182p. 183 OBJ: 4

1. What factors contribute to the likelihood of a response to a competitive action?

ANS:

A firm is more likely to respond when the competitor’s action is tactical, rather than strategic. Strategic actions involve a significant commitment of resources and are difficult to implement and reverse, as well as requiring time to put into place. A firm is also more likely to respond to a competitor’s action when the competitor is the market leader. Successful actions by competitors are likely to be quickly imitated, even if not initiated by a market leader. Finally, competitors with high market dependence are likely to respond strongly to attacks threatening their market position.

PTS: 1 REF: p. 185|p. 188 OBJ: 5

1. Name and describe the two types of competitive actions.

ANS:

This refers to strategic and tactical actions. Strategic actions take more time to implement, require many specific resources, and are difficult to reverse. By implication, tactical actions tend to be quicker to implement, require fewer resources, and can be reversed more easily. Strategic actions tend to receive strategic responses. Tactical actions tend to receive tactical responses. Strategic actions elicit fewer total competitive responses than do tactical actions. Responses to strategic actions will be slower than will responses to tactical actions.

PTS: 1 REF: p. 186 OBJ: 5

1. Define slow-cycle, fast-cycle, and standard cycle markets.

ANS:

In slow-cycle markets the firm’s competitive advantage is shielded from imitation for long periods of time and imitation is costly. Competitive advantages are sustainable in slow-cycle markets. Successful firms in slow-cycle markets have difficult-to-understand and costly-to-imitate advantages resulting from unique historical conditions, causal ambiguity and/or social complexity. In fast-cycle markets imitation happens quickly and somewhat inexpensively. Competitive advantages are not sustainable. Reverse engineering and quick technology diffusion facilitate rapid imitation. In fast-cycle markets, innovation is critical and firms avoid “loyalty” to any product. Firms must focus on rapidly and continuously developing new competitive advantages. In standard-cycle markets, the firm’s competitive advantages are moderately shielded for imitation and imitation is moderately costly. Competitive advantages are partially sustainable if the firm can continuously upgrade the quality of its competitive advantage. Typically, these markets have large firms seeking high market share, striving for customer brand loyalty, and controlling their operations to give customers consistent experiences. Economies of scale are necessary for survival.

PTS: 1 REF: p. 188|p. 193 OBJ: 6

Chapter 7 – Cooperative Strategy

TRUE/FALSE

1. Aerospace companies such as Boeing are likely to use cooperative alliances for access to complementary resources and capabilities.

ANS: T PTS: 1 DIF: med REF: p. 204

OBJ: 1 NOT: application

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

ANS: F PTS: 1 DIF: hard REF: p. 204

OBJ: 3 NOT: knowledge

1. Being (and having) a trustworthy partner increases the probability of alliance success.

ANS: T PTS: 1 DIF: med REF: p. 217

OBJ: 1 NOT: comprehension

1. Although strategic alliances are growing in popularity with small and medium-sized firms, large companies tend to avoid them.

ANS: F PTS: 1 DIF: med REF: p. 201

OBJ: 1 NOT: knowledge

1. Cooperation in slow-cycle markets is extremely rare, especially in emerging markets.

ANS: F PTS: 1 DIF: med REF: p. 202

OBJ: 2 NOT: comprehension

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

ANS: T PTS: 1 DIF: med REF: p. 203

OBJ: 2 NOT: comprehension

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

ANS: F PTS: 1 DIF: med REF: p. 204

OBJ: 2 NOT: comprehension

1. Tacit collusion is illegal in the United States.

ANS: F PTS: 1 DIF: med REF: p. 210

OBJ: 3 NOT: knowledge

1. Horizontal business-level strategic alliances have the greatest probability of creating sustainable competitive advantages.

ANS: F PTS: 1 DIF: med REF: p. 206

OBJ: 3 NOT: knowledge

1. A horizontal complementary strategic alliance is an alliance in which firms share some of their resources and capabilities from the same stage of the value chain to create a competitive advantage.

ANS: T PTS: 1 DIF: med REF: p. 206

OBJ: 3 NOT: comprehension

1. Because of U.S. legal restrictions concerning large acquisitions, American firms are unable to enter into diversifying alliances.

ANS: F PTS: 1 DIF: hard REF: p. 212

OBJ: 4 NOT: comprehension

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

ANS: T PTS: 1 DIF: med REF: p. 211

OBJ: 4 NOT: comprehension

1. Complementary strategic alliances allow firms to expand into new product or market areas without an acquisition.

ANS: F PTS: 1 DIF: med REF: p. 211

OBJ: 4 NOT: knowledge

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

ANS: F PTS: 1 DIF: med REF: p. 212

OBJ: 4 NOT: knowledge

1. Strategic alliances can be used to respond to competitors’ attacks.

ANS: T PTS: 1 DIF: easy REF: p. 209

OBJ: 6 NOT: knowledge

1. The cost minimalization management approach involves the firm’s use of formal contracts with partners.

ANS: T PTS: 1 DIF: med REF: p. 215|p. 217

OBJ: 8 NOT: comprehension

1. International strategic alliances are less risky than domestic strategic alliances.

ANS: F PTS: 1 DIF: med REF: p. 213

OBJ: 5 NOT: comprehension

1. When a firm is in the early stages of geographic diversification, cross-border alliances may be a good learning step before contemplating mergers.

ANS: T PTS: 1 DIF: med REF: p. 213

OBJ: 5 NOT: knowledge

1. Distributed alliance networks are often the organizational structure used to manage international competitive strategies.

ANS: T PTS: 1 DIF: hard REF: p. 213

OBJ: 5 NOT: knowledge

1. The failure rate of cooperative strategies is very low.

ANS: F PTS: 1 DIF: easy REF: p. 216

OBJ: 6 NOT: knowledge

1. A major risk of cooperative strategies is that firms gain access to their partner’s partners.

ANS: F PTS: 1 DIF: hard REF: p. 207|p.215

OBJ: 7 NOT: comprehension

1. A strategic control issue for McDonald’s is the location of franchised restaurants.

ANS: T PTS: 1 DIF: med REF: p. 212

OBJ: 7 NOT: application

1. The Sustainability Consortium involves dozens of firms and was formed to deal with increasing pressure to reduce environmental and social impacts associated with global consumption through collaborations that increase understanding, standardization of best practices, and informed decision making.

ANS: T PTS: 1 DIF: med REF: p. 211

OBJ: 5 NOT: comprehension

1. Stable alliance networks are best suited for firms needing to extend their competitive advantages into new markets.

ANS: T PTS: 1 DIF: med REF: p. 207|p. 208

OBJ: 4 NOT: knowledge

1. Firms that use cooperative strategies successfully gain relational advantages that allow them to outperform rivals.

ANS: T PTS: 1 DIF: easy REF: 200

OBJ: 1 NOT: knowledge

MULTIPLE CHOICE

1. The new trend of building alliances with competitors is referred to as ____.

a.	competitive cooperatives	c.	consortia
b.	keiretse	d.	co-opetition

ANS: D PTS: 1 DIF: med REF: p. 201

OBJ: 1 NOT: knowledge

1. Research on the global aircraft industry demonstrates ____.

a.	the difficulty of coordinating cross-border alliances when each partner is a potential competitor
b.	the fact that research and development costs make it difficult to undertake major projects without alliances
c.	the problems involved with sharing sufficient knowledge and resources to provide synergy without losing unique competitive advantages
d.	the challenges involved in dealing with multiple organizational and national cultures in an alliance

ANS: B PTS: 1 DIF: med REF: p. 206

OBJ: 1 NOT: application

1. 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.

ANS: D PTS: 1 DIF: hard REF: p. 200

OBJ: 1 NOT: comprehension

1. A strategic alliance in which the partners do not own equal equity is called a(n):

a.	equity strategic alliance.	c.	nonequity strategic alliance.
b.	joint venture.	d.	cooperative arrangement.

ANS: A PTS: 1 DIF: med REF: p. 204

OBJ: 3 NOT: knowledge

1. ____ are a common strategy for firms investing in China.

a.	Joint ventures	c.	Cross-border strategic alliances
b.	Franchises	d.	Dynamic alliance networks

ANS: C PTS: 1 DIF: hard REF: p. 213

OBJ: 3 NOT: application

1. 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

ANS: B PTS: 1 DIF: hard REF: p. 204

OBJ: 3 NOT: knowledge

1. In a(n) ____ the firms involved typically own equal shares of a newly-created entity.

a.	equality-based strategic alliance	c.	joint venture
b.	nonequity strategic alliance	d.	equity strategic alliance

ANS: C PTS: 1 DIF: hard REF: p. 204

OBJ: 3 NOT: knowledge

1. A nonequity strategic alliance exists when:

a.	two firms join together to create a new company.
b.	a contract is granted to a company to supply, produce, or distribute a firm’s goods.
c.	two partners in an alliance own equal shares in the combined entity.
d.	the partners agree to sell bonds instead of stock in order to finance a new venture.

ANS: B PTS: 1 DIF: hard REF: p. 204

OBJ: 3 NOT: knowledge

1. Which of the following is NOT a reason for firms to participate in strategic alliances?

a.	To enter markets more quickly
b.	To allow firms to combine their resources and capabilities
c.	To allow firms to create values they could not develop acting independently
d.	To develop oligopolies in a market and eliminate competition

ANS: D PTS: 1 DIF: hard REF: p. 201

OBJ: 1 NOT: comprehension

1. The information technology (IT) industry is a:

a.	mixed-cycle market.	c.	fast-cycle market.
b.	slow-cycle market.	d.	standard-cycle market.

ANS: C PTS: 1 DIF: med REF: p. 203

OBJ: 2 NOT: comprehension

1. ____ are rare and quickly disappearing.

a.	Fast-cycle markets	c.	Slow-cycle markets
b.	Standard-cycle markets	d.	Mixed-cycle markets

ANS: C PTS: 1 DIF: med REF: p. 203

OBJ: 2 NOT: comprehension

1. Firms in ____ markets cooperate to pool resources and gain market power.

a.	slow-cycle	c.	fast-cycle
b.	standard-cycle	d.	trending

ANS: B PTS: 1 DIF: hard REF: p. 204

OBJ: 2 NOT: comprehension

1. Firms in a standard-cycle market may form alliances in order to:

a.	more quickly distribute new products.	c.	capture economies of scale.
b.	take advantage of opportunities in emerging market countries.	d.	share risky R&D investments.

ANS: C PTS: 1 DIF: hard REF: p. 204

OBJ: 2 NOT: comprehension

1. When partnerships are designed to take advantage of market opportunities by combining firm assets to create new value, firms are engaging in:

a.	competition-reducing cooperative strategies.
b.	competitive response alliances.
c.	uncertainty-reducing strategies.
d.	complementary strategic alliances.

ANS: D PTS: 1 DIF: hard REF: p. 205|p. 206

OBJ: 4 NOT: knowledge

1. All of the following are business-level cooperative strategic alliances EXCEPT:

a.	cross-border strategic alliances.
b.	alliance networks.
c.	complementary strategic alliances.
d.	competitive response alliances.

ANS: A PTS: 1 DIF: hard REF: p. 206|p. 209

OBJ: 4 NOT: knowledge

1. Horizontal partnerships often focus on:

a.	decreasing the purchasing power of consumers.
b.	the development of just-in-time inventory systems.
c.	long-term product development and distribution opportunities.
d.	lobbying Congress to deregulate the industry.

ANS: C PTS: 1 DIF: med REF: p. 206

OBJ: 4 NOT: comprehension

1. In general, strategic alliances are primarily formed to respond to ____ rather than ____ actions.

a.	relational, competitive	c.	business-level, corporate-level
b.	well-planned, spontaneous	d.	strategic, tactical

ANS: D PTS: 1 DIF: hard REF: p. 209

OBJ: 5 NOT: comprehension

1. As illustrated by the alliance between legal firms Davies Arnold Cooper and Seguros Lex, many firms form business-level strategic alliances in order to ____.

a.	share resources from different stages of the value chain.	c.	find a common voice for dealing with an important external stakeholder.
b.	reduce competition.	d.	reduce uncertainty.

ANS: D PTS: 1 DIF: hard REF: p. 209

OBJ: 5 NOT: application

1. ____ have stronger focus on creation of value than do ____ alliances.

a.	Competition-reducing strategic alliances, complementary strategic alliances
b.	Complementary strategic alliances, competition-reducing strategic alliances
c.	Uncertainty-reducing strategic alliances, complementary strategic alliances
d.	Collusive strategic alliances, uncertainty-reducing strategic alliances

ANS: B PTS: 1 DIF: med REF: p. 206|p. 209

OBJ: 5 NOT: comprehension

1. Reduction of competition can be accomplished through all of the following EXCEPT:

a.	comparative pricing.	c.	tacit collusion.
b.	explicit collusion.	d.	mutual forbearance.

ANS: A PTS: 1 DIF: med REF: p. 210

OBJ: 5 NOT: comprehension

1. Prices above the competitive level in the branded breakfast cereal market suggest that cereal producers are engaging in ____.

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

ANS: C PTS: 1 DIF: med REF: p. 210

OBJ: 5 NOT: application

1. In free market economies ____ must decide how rivals can collaborate with their competitors without violating established regulations.

a.	associations	c.	consumers
b.	the government	d.	the free market itself

ANS: B PTS: 1 DIF: hard REF: p. 210

OBJ: 5 NOT: comprehension

1. Research on competitors in the personal computer industry reveals ____ in pricing and new product introduction practices.

a.	legal explicit collusion
b.	free market competitive behavior
c.	mutual forbearance
d.	tacit collusion that is illegal in the U.S., but is legal in many developing nations

ANS: C PTS: 1 DIF: med REF: p. 210

OBJ: 5 NOT: comprehension

1. In the U.S., cooperative strategies to reduce competition may result in ____ if they are explicit.

a.	higher production output	c.	higher levels of product quality
b.	litigation	d.	indirect price fixing

ANS: B PTS: 1 DIF: hard REF: p. 210

OBJ: 5 NOT: comprehension

1. As a form of business-level cooperative strategy, ____ alliances are more likely to create a sustainable competitive advantage and earn above-average returns.

a.	complementary	c.	competition-reducing
b.	uncertainty-reducing	d.	franchising

ANS: A PTS: 1 DIF: hard REF: p. 206|p. 209

OBJ: 5 NOT: comprehension

1. Which of the following is NOT a reason for a firm to engage in diversifying alliances?

a.	To expand into new market areas
b.	To enter new product areas
c.	To achieve growth without merging with another firm
d.	To overcome organizational weaknesses

ANS: D PTS: 1 DIF: hard REF: p. 205|p. 212

OBJ: 6 NOT: comprehension

1. A ____ allows firms to expand into new product or market areas without having to make an acquisition.

a.	complementary strategic alliance	c.	merger
b.	competition-reducing coopertive strategy	d.	diversifying strategic alliance

ANS: D PTS: 1 DIF: med REF: p. 211

OBJ: 6 NOT: knowledge

1. Nasdaq OMX formed an alliance with Bolsa Electronica de Chile in order to ____.

a.	address competitive pressures in the U.S.
b.	expand its global exhange services
c.	provide advisory services and technology to the ailing Latin American exhange
d.	transfer knowledge into new world markets

ANS: B PTS: 1 DIF: hard REF: p. 212

OBJ: 6 NOT: application

1. Franchising is a particularly attractive strategy ____.

a.	to compete more effectively within traditional slow-cycle markets
b.	in emerging economies
c.	for large firms with dominant market share
d.	in fragmented industries

ANS: D PTS: 1 DIF: hard REF: p. 212

OBJ: 6 NOT: application

1. In the franchising strategy, the most important competitive advantage for the franchisee is ____.

a.	the franchisor’s capital resources
b.	the franchisor’s brand name
c.	the franchisor’s access to a consolidated market
d.	the franchisor’s geographic locations

ANS: B PTS: 1 DIF: med REF: p. 212

OBJ: 6 NOT: comprehension

1. According to recent statistics, ____ in annual U.S. retail sales is generated through franchised outlets.

a.	$50 million	c.	$ 50 billion
b.	$2.1 billion	d.	$2.1 trillion

ANS: D PTS: 1 DIF: med REF: p. 212

OBJ: 6 NOT: knowledge

1. Which of the following is NOT a true statement about franchising as a corporate strategy?

a.	Franchising is especially efficient if franchisees are allowed to own multiple outlets.
b.	Franchising provides corporate growth with less risk than diversification.
c.	Successful franchising requires close cooperation between franchisee and franchisor.
d.	Franchising agreements are prohibited by law in many industries.

ANS: D PTS: 1 DIF: easy REF: p. 212

NOT: comprehension

1. Compared to business-level strategies, corporate-level cooperative strategies are all of the following EXCEPT:

a.	broader in scope.	c.	more likely to be value-creating.
b.	more costly to implement.	d.	more complex.

ANS: C PTS: 1 DIF: hard REF: p. 205|p. 214

OBJ: 6 NOT: comprehension

1. Ericsson, international producer of telecommunications equipment, is ____ for a cooperative arrangement that promotes open industry standards and provides interoperability testing for its members.

a.	a franchisor
b.	the strategic center firm
c.	coalition leader
d.	an alliance network

ANS: B PTS: 1 DIF: med REF: p. 213|p.214

OBJ: 6 NOT: application

1. A firm may pursue an international strategic alliance for all of the following reasons EXCEPT:

a.	to launch competitive responses against rivals’ competitive actions.
b.	to leverage core competencies in new markets.
c.	to operate within government restrictions in the local country.
d.	to escape limited domestic growth opportunities.

ANS: A PTS: 1 DIF: med REF: p. 213

OBJ: 6 NOT: comprehension

1. If GM and Toyota were to combine some of their automobile manufacturing operations, this would be characterized as a(n):

a.	collusive tactic.	c.	cross-border strategic alliance.
b.	merger.	d.	international acquisition.

ANS: C PTS: 1 DIF: med REF: p. 213

OBJ: 6 NOT: knowledge

1. In some countries, the only legal way for foreign firms to invest in the country is through:

a.	silent partner agreements.	c.	wholly-owned subsidiaries.
b.	franchising.	d.	partnership with a local firm.

ANS: D PTS: 1 DIF: med REF: p. 213

OBJ: 6 NOT: comprehension

1. Some governments, such as those of India and China:

a.	encourage high levels of foreign ownership.
b.	adamantly oppose foreign ownership of a firm.
c.	often put limits on the level of foreign ownership in a local firm.
d.	restrict the entry mode into the domestic market to licensing only.

ANS: C PTS: 1 DIF: med REF: p. 213

OBJ: 6 NOT: application

1. In general, cross-border alliances are more ____ and ____ than domestic alliances.

a.	profitable, investment intensive	c.	contract-driven, focused
b.	complex, risky	d.	common, useful

ANS: B PTS: 1 DIF: med REF: p. 213

OBJ: 7 NOT: comprehension

1. In a cross-border strategic alliance, the local partner is often a useful source of information about:

a.	local capital sources.
b.	the strengths of the foreign firm’s technology.
c.	market synergies.
d.	long-term planning.

ANS: A PTS: 1 DIF: med REF: p. 213

OBJ: 7 NOT: comprehension

1. Firms participate in ____ to facilitate exploitation of economies between firms.

a.	stable alliance networks	c.	dynamic alliance networks
b.	centralized alliance networks	d.	internal alliance networks

ANS: A PTS: 1 DIF: med REF: p. 207|p. 208

OBJ: 4 NOT: comprehension

1. A cooperative strategy in which multiple firms agree to form partnerships to achieve shared objectives is a:

a.	cross-border strategic alliance.	c.	franchise.
b.	network cooperative strategy.	d.	complementary strategic alliance.

ANS: B PTS: 1 DIF: med REF: p. 207

OBJ: 5 NOT: application

1. Dynamic alliance networks work best in industries:

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

ANS: C PTS: 1 DIF: med REF: p. 208

OBJ: 5 NOT: comprehension

1. A dynamic strategic alliance is most useful in ____.

a.	managing a cooperative strategy with the cost minimization approach
b.	industries characterized by rapid product obsolescence
c.	standard-cycle industries
d.	cross-border cooperative strategies

ANS: B PTS: 1 DIF: med REF: p. 208

OBJ: 5 NOT: comprehension

1. Which of the following is NOT a risk for firms engaged in cooperative strategies?

a.	Misrepresentation of a partner’s competencies
b.	Conflicting managerial frames of reference
c.	False perception of partner trustworthiness
d.	Failure of partners to make complementary resources available to the partnership

ANS: B PTS: 1 DIF: hard REF: p. 214 (Figure 7.4)|p. 216

OBJ: 7 NOT: comprehension

1. The opportunity maximization approach is more difficult to establish in international relationships than in domestic relationships because of all of the following EXCEPT:

a.	differences in law and politics.
b.	differences in culture.
c.	differences in technological development levels.
d.	differences in trade policies.

ANS: C PTS: 1 DIF: med REF: p. 217

OBJ: 8 NOT: comprehension

1. In managing cooperative strategies, research indicates that ____ can be a valuable, rare, imperfectly imitable, and often nonsubstitutable capability, providing firms with a distinct competitive advantage.

a.	collaboration skills	c.	trustworthiness
b.	relational advantages	d.	Internet competency

ANS: C PTS: 1 DIF: med REF: p. 217

OBJ: 8 NOT: comprehension

1. All of the following EXCEPT ____ are ways in which a cost minimization approach can be more expensive than an opportunity maximization approach.

a.	the loss of unexpected opportunities
b.	the cost of extensive monitoring mechanisms
c.	the costs of writing detailed contracts
d.	the reluctance of some parties to go beyond the terms of formal contracts

ANS: D PTS: 1 DIF: med REF: p. 217

OBJ: 8 NOT: comprehension

1. The two basic approaches to successfully managing cooperative strategic alliances involve ____ and ____.

a.	monitoring systems, multiple objectives management
b.	cost minimization, opportunity maximization
c.	trust building, financial control reporting
d.	alliance portfolio management, social capital maximization

ANS: B PTS: 1 DIF: hard REF: p. 217

OBJ: 8 NOT: comprehension

1. One disadvantage of developing effective monitoring systems to manage a strategic alliance is that:

a.	firms will have to accept greater risks.
b.	returns will often be decreased.
c.	spontaneous opportunities are minimized.
d.	power coalitions will still develop.

ANS: C PTS: 1 DIF: hard REF: p. 217

OBJ: 8 NOT: comprehension

ESSAY

1. Identify and define the basic types of strategic alliances.

ANS:

Strategic alliances are cooperative strategies between firms whereby resources and capabilities are combined to create a competitive advantage. The basic types of strategic alliances are: (1) joint ventures in which an independent firm is created by at least two other firms, with each firm usually owning an equal percentage of the new company; (2) equity strategic alliances in which partners own different percentages of equity in the new company they have formed; (3) nonequity strategic alliances which is a contractual relationship to share some of the firm’s resources and capabilities; typical forms are licensing agreements, distribution agreements, and supply contracts. Many other forms of cooperative strategy exist. They include formal and informal mechanisms of combining firms with common purposes, such as trade groups, associations, research consortia, cartels, etc.

PTS: 1 REF: p. 204 OBJ: 3

1. Explain the rationale for a cooperative strategy under each of the three basic market contexts (i.e., slow-, standard-, and fast-cycles).

ANS:

In slow-cycle markets (markets that are near-monopolies), firms cooperate with established local partners to gain entry into restricted markets or to establish franchises in new markets. In standard-cycle markets (which are often large and oriented toward economies of scale), firms try to gain market power and to gain access to partners with complementary resources and capabilities. In fast-cycle markets (characterized by instability, unpredictability and complexity), firms attempt to gain rapid market entry through alliances between firms with excess resources and capabilities and those with promising capabilities.

PTS: 1 REF: p. 202|p. 204 OBJ: 2

1. Identify the general types of cooperative strategies used to pursue business-level strategies and the advantages and disadvantages of each.

ANS:

Cooperative strategies are used at the business-level to help improve a firm’s performance in individual product markets. The first general type of business-level cooperative strategy is complementary strategic alliances. Through vertical and horizontal complementary alliances, companies combine their resources and capabilities in ways that create value and differ depending on the value chain stages being combined. Although complementary alliances may require similar levels of investment from the partners, the benefits for each party can be imbalanced.

Network cooperative strategies are a second general form of business-level cooperative strategy. They are particularly effective when formed by geographically clustered firms, and they facilitate the matching of firms that have complementary markets and compatible resources. Through a stable alliance network, firms try to extend their competitive advantages to other settings while continuing to profit from operations in their core, relatively mature industries. Thus, stable networks are built for exploitation of the economies (scale and/or scope) available between firms to reduce a firm’s cost structure. Dynamic alliance networks are used in industries characterized by frequent product introductions and short product life cycles to keep up with the the pace of innovation. Membership in a dynamic alliance network can also help a firm deal with uncertainty in the external environment by keeping firm managers abreast of important technological and other changes. Firms involved in alliance networks gain information and knowledge from multiple sources, which can be used to enhance innovation. Effective social relationships and interactions among partners in a network cooperative strategy and positive financial effects make these strategies important to the success of both suppliers and buyers. However, one of the disadvantages to belonging to an alliance network is that a firm can be locked into its partners, precluding the development of alliances with others. Also, in certain types of networks, such as a Japanese keiretsu, firms in the network are expected to help other firms in the network whenever they need aid. Such expectations can become a burden to the firm rendering assistance, thus reducing its performance.

PTS: 1 REF: p. 205|p. 208 OBJ: 4

1. Identify and define the three types of corporate-level cooperative strategies.

ANS:

(1) A diversifying strategic alliance allows firms to share some of their resources and capabilities to diversify into new product or market areas. (2) Franchising is a strategy in which the franchisor uses a franchise as a contractual relationship to describe and control the sharing of its resources and capabilities with franchisees. The franchise contract between two independent organizations grants rights to the franchisee to sell the franchisor’s product or to do business under its trademarks. (3) A cross-border strategic alliance is an international cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage.

PTS: 1 REF: p. 211|p. 214 OBJ: 6

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

ANS:

A cross-border strategic alliance is an international cooperative strategy in which firms headquartered in different nations combine some of their resources and capabilities to create a competitive advantage. Multinational corporations outperform firms that operate only on the domestic level, so firms choose to leverage the core competencies which underlye their domestic success to expand into international markets. Limited domestic growth opportunities push firms to initiate international expansion. Firms expanding into new markets use cooperative strategies because: (1) some governments require local ownership in order for foreign firms to invest in businesses in their countries; (2) local partners often have significantly more information about factors contributing to competitive success, such as local markets, sources of capital, legal procedures and politics; and (3) cross-border alliances can help firms transform or better use their competitive advantages in the global economy. On the downside, cross-border alliances are more complex and risky than domestic strategic alliances.

PTS: 1 REF: p. 212|p. 214 OBJ: 6

1. Identify and describe the two different types of network strategies.

ANS:

An alliance network is the foundation of a network cooperative strategy where multiple firms agree to form partnerships to achieve shared objectives. Stable alliance networks (primarily found in mature industries) usually involve exploitation of economies of scale. Stable alliance networks are useful for reducing organizational cost structures. Dynamic alliance networks (witnessed mainly in rapidly changing industries) are used to help a firm keep up when technologies shift rapidly by stimulating product innovation and successful market entries. Dynamic alliance networks are useful for exploring new ideas.

PTS: 1 REF: p. 207|p.208 OBJ: 4

1. Identify the competitive risks associated with cooperative strategies.

ANS:

Cooperative strategies are not risk-free strategy choices. 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 returns on their investment.

PTS: 1 REF: p. 214|p. 216 OBJ: 7

1. Describe two approaches that firms can use to effectively implement and manage their cooperative strategies.

ANS:

Based on the goal of minimizing costs, firms may manage their alliances by developing protective formal contracts and effective monitoring systems. This approach can reduce opportunistic behaviors by partners. On the other hand, an opportunity maximization approach pursues unlimited value-creation opportunities. Identifying trustworthy partners is the key to this second approach. When present, monitoring costs are lower and opportunities can be maximized.

PTS: 1 REF: p. 216|p. 217 OBJ: 8

1. Describe the cooperative strategies used to manage the increasing complexity and continually-changing external environments of firms.

ANS:

(1) Competitive response strategies help firms deal with the actions of competitors. These strategic alliances can be used to respond to competitors’ attacks. (2) Firms use uncertainty-reducing strategies to hedge against risk and uncertainty, such as global overcapacity and cost competition. Firms also use uncertainty-reducing strategies to manage the uncertainty associated with developing a new product or technology standards. (3) Competition-reducing strategies are also used to address the external environment, but they are often illegal. Two types of collusive competition-reducing strategy exist: 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 behavior. This tactic results in lower production levels and higher prices.] (4) Finally, firms form coalitions with stakeholders to achieve common objectives in the form of associations and consortia. These cooperative alliances are often established to provide a common voice when dealing with an important external stakeholder, such as the government.