Chap 9 - Alliances

Strategic Management Chapter 9
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The use of strategic alliances to manage

economic exchanges has grown sub- T
stantially over the last several years.
A strategic alliance exists whenever
three or more independent organiza-
tions cooperate in the development, F
manufacture, or sale of products or ser-
vices.
In a nonequity alliance, firms create a
legally independent firm in which they
F
invest and from which they share any
profits that are created.
In an equity alliance, cooperating firms
supplement contracts with equity hold- T
ings and alliance partners.
When a firm cannot realize the cost sav-
ings from economies of scale all by itself,
it may join in a strategic alliance with
other firms so that together both firms T
will have sufficient volume to be able to
gain the cost advantages of economies
of scale.
In general, due to the intangible nature
of knowledge, firms are not able to use F
alliances to learn from their competitors.
When both parties to an alliance are
seeking to learn something from that al- T
liance, a learning race can evolve.
Network industries are characterized by
F
decreasing returns to scale
Firms with high levels of absorptive ca-
pacity will learn at faster rates than firms
with low levels of absorptive capacity, T
even if these two firms are trying to learn
exactly the same things in an alliance.
1 / 15
Learning race dynamics are particular-
ly common in relations among large, F
well-established firms.
In network industries with increasing re-
turns to scale where standards are unim-
portant, strategic alliances can be used F
to create a more favorable competitive
environment.
Explicit collusion exists when firms di-
rectly communicate with each other to
F
coordinate their levels of production or
their prices and is legal in most countries
Tacit collusion exists when firms coordi-
nate their pricing decisions not by direct-
ly communicating with each other but T
by exchanging signals with other firms
about their intent to cooperate.
A learning race exists in a strategic al-
liance when both parties seek to learn T
from each other
Research shows that joint ventures be-
tween firms in the same industry may
have collusive implications and that F
these kinds of joint ventures are relative-
ly common.
Alliances to facilitate entry into new in-
dustries are only valuable when the skills
F
needed in these industries are complex
and difficult to learn
When information asymmetry exists be-
tween firms that currently own assets
and firms that may want to purchase
T
these assets, the selling firm will often
have difficulty obtaining the full econom-
ic value of these assets.
2 / 15
In new and uncertain environments it is
not unusual for firms to develop numer- T
ous strategic alliances.
Research shows that as many as
two-thirds of strategic alliances do not
F
meet the expectations of at least one
alliance partner.
When potential cooperative partners
misrepresent the skills, abilities, and oth-
er resources that they will bring to an T
alliance, this is a form of cheating known
as adverse selection.
In general, the less tangible the re-
sources and capabilities that are to be
brought to a strategic alliance, the less
costly it will be to estimate their value F
before an alliance is created and the
more likely it is that adverse selection will
occur.
Moral hazard occurs when partners in an
alliance possess high-quality resources
and capabilities of significant value in
T
an alliance but fail to make those re-
sources and capabilities available to al-
liance partners.
The existence of moral hazard in a
strategic alliance proves that at least one
F
of the parties is either malicious or dis-
honest
In an alliance a holdup occurs when a
firm that has not made significant trans-
action-specific investments demands re-
T
turns from an alliance that are higher
than what the partners agreed to when
they created the alliance.
3 / 15
Research on international joint ventures
suggests that the existence of transac-
tion-specific investments in their rela- F
tionships makes these agreements rela-
tively immune to holdup problems.
Although holdup is a form of cheating in
strategic alliances, the threat of holdup
T
can also be a motivation for creating an
alliance.
For a strategic alliance to be a source of
sustained competitive advantage it must
be valuable in that it exploits an opportu- T
nity but avoids a threat and it must also
be rare and costly to imitate.
The rarity of strategic alliances depends
solely on the number of competing firms
F
that have already implemented an al-
liance.
In the short-run, firms can gain some ad-
vantages by cheating their alliance part-
T
ners but research suggests that cheating
does not pay in the long run.
Successful strategic alliances are of-
ten based on socially complex relations
among alliance partners but virtually
every firm in a given industry is likely
to have the organizational and relation- F
ship-building skills required for alliance
building making the possibility of direct
duplication of strategic alliances very
high.
In general, firms will prefer a strategic
alliance over "going it alone" when the
level of transaction-specific investment T
required to complete an exchange is
moderate.
4 / 15
Capabilities theory suggests that an al-
liance will be preferred over going it
alone when an exchange partner pos- T
sesses valuable, rare, and costly-to-im-
itate resources and capabilities.
When there is low uncertainty about the
future value of an exchange, an alliance F
will be preferred to going it alone.
Transaction cost economics suggests
that going it alone is not a substitute for
strategic alliances since they are best T
chosen only when other alternatives are
not viable.
An alliance will be preferred to an acqui-
sition when there are legal constraints T
on acquisitions
The primary purpose of organizing a
strategic alliance is to enable partners in
the alliance to gain all the benefits asso-
T
ciated with cooperation while minimizing
the probability that cooperating firms will
cheat on their cooperative agreements.
In general, contracts are sufficient to re-
solve all the problems associated with F
cheating in an alliance.
Sometimes the value of cheating in a
joint venture is sufficiently large that a
firm cheats even though doing so hurts T
the joint venture and forecloses future
opportunities.
In comparison to strategic alliances, joint
ventures increase the threat of cheating F
by partners.
When the probability of cheating in a
F
cooperative relationship is lowest, a joint
5 / 15
venture is usually the preferred form of
cooperation.
In the computer technology-based in-
dustries, over ________ alliances were 2200
created between 2001 and 2005.
A(n) ________ exists whenever two or
more independent organizations coop-
strategic alliance
erate in the development, manufacture,
or sale of products or services.
A ________ is a form of nonequity al-
liance that exists when one firm allows
licensing agreement
another to use its brand name to sell its
products.
In a ________, cooperating firms create
a legally independent firm in which they
joint venture
invest and from which they share any
profits that are created
Strategic alliances can create economic
value through helping firms improve their exploiting economies of scale
current operations by
When both parties to an alliance are
seeking to learn something from that al- learning race
liance, a ________ can evolve.
Network industries are characterized by increasing returns to scale
A firm's ability to learn is known as its absorptive capacity
In one study almost ________ percent
of the managers in entrepreneurial firms
80
felt unfairly exploited by their large-firm
alliance partners.
________ exist(s) when firms directly
communicate with each other to coor-
Explicit collusion
dinate their levels of production and/or
their prices.
________ exist(s) when firms coordi-
nate their production and pricing deci-
6 / 15
sions not by directly communicating with
each other but by exchanging signals
Tacit collusion
with other firms about their intent to co-
operate.
Strategic alliances are particularly valu-
able in facilitating market entry and exit uncertain.
when the value of market entry or exit is
Although joint ventures between firms
in the same industry ________ collu-
sive implications, research has shown may have; relatively rare
that these kinds of joint ventures are
________.
As long as the cost of ________ to enter
a new industry is less than the cost of using an alliance; learning new skills and
________, an alliance can be a valuable capabilities
strategic opportunity
Consistent with a real options perspec-
tive, firms in new and uncertain environ- develop numerous strategic alliances
ments are likely to
Research shows that as many as
________ of all strategic alliances do not
one-third
meet the expectations of at least one
alliance partner.
If TeleCo were to enter into a strategic
alliance with a partner that promised it
could deliver a high quality wireless in-
frastructure when in fact the potential adverse selection
partner had neither the skills nor abili-
ties to provide this infrastructure, TeleCo
could be said to be impacted by
it is difficult or costly to observe the
Adverse selection in a strategic alliance
resources or capabilities that a partner
is likely only when
brings to an alliance.
In general, the ________ tangible the
resources and capabilities that are to
be brought to a strategy alliance, the
7 / 15
________ costly it will be to estimate
their value before an alliance is created,
less; more; more
and the ________ likely it is that adverse
selection will occur.
________ occurs when partners in an
alliance possess high-quality resources
and capabilities of significant value in
Moral hazard
an alliance but fail to make those re-
sources and capabilities available to al-
liance partners.
Often both parties in a failed alliance
moral hazard
accuse each other of
When one firm makes more transac-
tion-specific investments in a strategic
alliance than partner firms make, that
firm may be subject to a form of cheat-
ing called ________ that occurs when a
holdup
firm that has not made significant trans-
action-specific investments demands re-
turns from an alliance that are higher
than what the partners agreed to when
they created the alliance.
Research suggests that ________ are
the type of alliance where existence
joint ventures
of transaction-specific investments often
leads to holdup problems
depends not only on the number of com-
peting firms that have already imple-
mented an alliance but also on whether
The rarity of strategic alliances
or not the benefits that firms obtain from
their alliances are common across com-
peting firms in the industry.
One of the reasons why the benefits relatively few firms may have the comple-
that accrue from a particular strategic mentary resources and abilities needed
alliance may be rare is that to form an alliance
8 / 15
Research indicates that the most com-
mon reason that alliances fail to meet the the partners' inability to trust one another
expectations of partner firms is
To the extent that a strategic alliance
is based on ________ relations, it will socially complex
make the alliances costly to imitate.
Two possible substitutes for strategic al-
going it alone and acquisitions
liances include
Firms ________ when they attempt to
develop all the resources and capabili-
ties they need to exploit market oppor- go it alone
tunities and neutralize market threats by
themselves
the level of transaction-specific invest-
Alliances will be preferred to going it
ments required to complete an exchange
alone when
is moderate
________ theory suggests that under
conditions of high uncertainty, firms may
be unwilling to commit to a particular
course of action by engaging in an ex- Real options
change with a firm and will choose, in-
stead, the strategic flexibility associated
with alliances
Alliances will be preferred to acquisitions there are legal constraints on acquisi-
when tions
An example of a contractual clause that
noncompete clause
deals with operating issues would be a
All of the following are methods firms can
use to reduce the threat of cheating in tacit collusion
strategic alliances except
Even if one firm is clearly cheating in
Which of the following is a limitation of
an alliance, the other firm may not be
the reputational control of cheating in a
sufficiently tied into a network of firms to
strategic alliance?
make this information public
9 / 15
When the probability of cheating in a
cooperative relationship is greatest, a(n)
joint venture
________ is the preferred form of coop-
eration
________ may enable partners to ex-
plore exchange opportunities that they
could not explore if only legal and eco- Trust
nomic organizing mechanisms were in
place.
While it is often the case that there will be
important information asymmetries be-
tween firms in an alliance, these asym-
much greater
metries are likely to be ________ when
alliances partners come from different
countries.
eBay, the online auction company, has
an impressive portfolio of cooperative
agreements. This portfolio includes an
agreement with the U.S. Postal Ser-
vice to facilitate the shipping of goods
purchased through eBay auctions, an
agreement to allow MBNA to use eBay's
name on a credit card, and an agree-
ment in an online auction company in
Korea that is supplemented with an in-
nonequity agreement
vestment by eBay in the Korean part-
ner. In addition, at one time eBay had
formed an independent firm, called eBay
Australia and New Zealand, with an Aus-
tralian company known as ecorp.
eBay's agreement with the U.S. Postal

Service is most accurately classified as
a(n)
10 / 15
vestment by eBay in the Korean part- licensing agreement
eBay's agreement with MBNA is most

accurately characterized as a(n)
Korea that is supplemented with an in- equity alliance
eBay's agreement with the Korean on-

line auction company is best character-
ized as a(n
11 / 15
joint venture
eBay's former agreement with ecorp is

best characterized as a(n)
network
tralian company known as ecorp
If eBay's agreements with their Korean

and Australian partners were intended
to increase the number of buyers and
sellers and thereby increase the value of
eBay's online auction services for every
eBay user, this would imply that the on-
line auction industry is an example of a
________ industry.
12 / 15
ner. In addition, at one time eBay had real options
If eBay entered into the cooperative

agreement with its Australian partner for
the purpose of testing the attractiveness
of the Australian and New Zealand auc-
tion industries prior to making a more
significant investment in these indus-
tries, this would be an example of
adverse selection
13 / 15
If, prior to entering the cooperative
agreement with eBay, eBay's Korean
partner stated that it had the technolog-
ical capabilities to facilitate eBay's Kore-
an auction business when, in fact, the
Korean company did not have these ca-
pabilities, this would be an example of
ner. In addition, at one time eBay had moral hazard
If eBay's Australian partner agreed to

provide marketing and technological
skills to help eBay compete in the Aus-
tralian and New Zealand auction indus-
tries but provided skills that were signif-
icantly lower than promised, this would
be an example of
14 / 15
the Australian partner
eBay's agreement with ________ is the

most likely to be susceptible to holdup
Korea that is supplemented with an in- The level of transaction-specific invest-
vestment by eBay in the Korean part- ments required to enter the Korean on-
ner. In addition, at one time eBay had line auction industry is moderate.
Which of the following reasons helps ex-

plain why eBay may have preferred to
enter into an alliance to enter the Korean
online auction industry rather than going
it alone?
15 / 15

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Chap 9 - Alliances

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Strategic Management Chapter 9

Study online at https://quizlet.com/_6dxgwi

The use of strategic alliances to manage

eBay's agreement with the U.S. Postal

eBay's agreement with MBNA is most

eBay's agreement with the Korean on-

eBay's former agreement with ecorp is

If eBay's agreements with their Korean

If eBay entered into the cooperative

If eBay's Australian partner agreed to

eBay's agreement with ________ is the

Which of the following reasons helps ex-

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