Answers for Quiz 1

1. A strategic alliance is a business arrangement in which two or more firms agree to cooperate for their mutual benefit.  A joint venture, a special type of strategic alliance, involves the creation of a new business entity that is independent of the parent companies.  This separate entity can then be broader in purpose, scope, and duration than other types of strategic alliances.  Joint ventures typically have formal management systems, while other types of strategic alliances may be more informally managed.  Strategic alliances are usually considered less stable than joint ventures because they lack formal organizational structures and have narrow missions.
2. Strategic alliances have grown in popularity in recent years because they are an effective means of competing in the global marketplace.  In fact, in just a decade, the growth rate of alliances quadrupled from 6 percent a year in 1980, to 22 percent a year in 1990.
3. The basic benefits partners are likely to gain from their strategic alliances are ease of market entry, shared risk, shared knowledge and expertise, and synergy and competitive advantage.  Strategic alliances can ease market entry because they allow firms to overcome barriers such as entrenched competition and hostile government regulations and/or reduce the cost of entry.  Strategic alliances can also enable firms to reduce or control exposure to risk.  Firms can gain knowledge and expertise via strategic alliances, as well as synergy and competitive advantage.  In theory, strategic alliances should help firms to achieve more and compete more effectively than if they acted independently.
4. Comprehensive alliances involve collaboration at multiple stages of the process by which goods and services are brought to the market.  Most comprehensive alliances take the form of a joint venture because it is difficult to effectively integrate the differing operating procedures of the parent over a broad range of activities without a formal organizational structure.  Typically, comprehensive alliances involve only two firms and may evolve over time.  Firms involved in such alliances hope to achieve greater synergy through sheer size and total resources.
5. The four common types of functional alliances are production alliances, marketing alliances, financial alliances, and R&D alliances.  Production alliances involve collaboration in product manufacturing and may involve a shared or common facility.  Marketing alliances typically involve a situation whereby one firm with a presence in a particular market assists a new firm in entering that market.  Financial alliances are used by firms to reduce the financial risks associated with a project.  Finally, R&D alliances involve collaboration to develop new products or services and help participants stay abreast of the rapid technological change that is currently affecting high-technology industries.
6. An R&D consortium is a confederation of organizations that bands together to research and develop new products and processes for world markets.  Some examples include ESPRIT, BRITE, and RACE. 
7. At least four factors should be considered in selecting a strategic alliance partner including compatibility, the nature of the potential partner’s products or services, the relative safeness of the alliance, and the learning potential of the alliance.
8. There are three basic ways of jointly managing a strategic alliance: through a shared management agreement in which each partner fully and actively participates in managing the alliance, through an assigned arrangement in which one partner assumes the primary responsibility of managing the alliance, and through a delegated arrangement whereby management of the operation is delegated to the joint venture itself.  
9. There are several circumstances that might warrant a public-private venture.  First, governments may form partnerships with a private firm to obtain assistance in the development of a particular resource.  Second, firms may seek an alliance with a government if the particular country does not permit wholly owned subsidiaries.  Finally, firms operating in centrally planned economies may be forced to seek government partners if they are to have freedom to operate. 
10. The potential pitfalls of strategic alliances include conflict among partners (one of the primary causes of failure), access to information (firms may prefer to keep certain information secret), distribution of earnings (profits must be shared among partners), potential loss of autonomy (control must be shared among partners), and changing circumstances (as circumstances change, the rationale behind the formation of an alliance may no longer exist).
11. A joint venture is a special type of strategic alliance in that a new business entity is created that is legally separate and distinct from its parents.  A primary advantage of a joint venture is that the venture can have a broader purpose, scope, and duration compared to other types of strategic alliances.  Moreover, joint ventures tend to be more stable than non-joint venture strategic alliances.  Joint ventures in which there is shared management or that are managed by one parent may have difficulties because there may be a tendency to try to please management from the founding companies rather than focusing on what is best for the joint venture.   In contrast, non-joint venture strategic alliances are useful because they allow participants to focus on a particular project, yet do so without creating a new entity.  Furthermore, non-joint venture strategic alliances can help firms overcome short-term hurdles.
12. Students will probably approach this question in different ways.  Some students will take the perspective that if they are assigned to work for the joint venture, they will have more exposure to different issues and situations than if they were to continue to work within the large international firm or for a less structured strategic alliance.  Students taking this perspective are likely to argue that being a big fish in a small pond is better for their careers than working as a little fish in a big pond.  Other students are likely to point out that they may be “left out of the loop” if the alliance is structured as a joint venture because they will not be working directly with the parent company on a day-to-day basis as they would if the venture were structured more informally.  Finally, other students will point out that having experience working within the environment of a strategic alliance is good experience regardless of whether it is a joint venture or some other type of strategic alliance.
13. The number of strategic alliances being formed has been skyrocketing.  Firms are turning to strategic alliances because they are an effective way to compete in international markets.  There are several factors that could cause a sharp decline in the number of new strategic alliances, however.  For example, war typically alters trade and investment patterns, and therefore one could surmise that it might also affect the number of alliances being formed.  Similarly, a sudden increase in protectionism might cause a decline in the number of new cross-border alliances being formed.  In addition, antitrust regulation has the potential to affect the number of new strategic alliances being formed.
14. A number of companies today operate within a web of strategic alliances.  The text points out, for example, that IBM has over 40 active strategic alliances.  However, it is important to recognize that strategic alliances require strong commitment on the part of a firm if they are to succeed.  Therefore, it is conceivable that a firm could spread itself too thin by forming too many alliances.  However, the real issue is commitment to alliances rather than sheer numbers. 
15. Students will probably identify a number of products that have been marketed in the United States as a result of a strategic alliance.  Two of the more common products that might be identified are automobiles and computers.
16. One of the primary benefits of a strategic alliance is the opportunity it provides for cross learning.  However, with this benefit comes one of the primary disadvantages of strategic alliances, the risk of giving away proprietary information.  A firm should assess the value of its own information and avoid giving away information that could result in a competitive disadvantage if the strategic alliance is dissolved.   In addition, care should be taken to create a “learning objective” so that the opportunity to learn from a partner is not wasted.
17. There are numerous reasons why a firm might decide to enter a new market on its own rather than using a strategic alliance.  Some of the more common reasons are protection of proprietary information, distribution of earnings, and strategic autonomy.  A firm may want to protect proprietary information and consequently might internalize its expansion effort rather than use a strategic alliance.  A firm might want to capitalize on the full potential of a market rather than share profits with a strategic alliance partner. A firm may want to maintain its strategic autonomy and would therefore enter a new market on its own rather than in conjunction with a partner.  
18. Many of the issues involved with forming strategic alliances apply to both within-border and cross-border agreements.  For example, regardless of whether an alliance is formed within borders or across borders, care should be taken in selecting partners and decisions must be made regarding the form of venture and how it is to be managed.  However, cross-border alliances may be more complex than within-border alliances because of physical and physic distance.  Firms involved in cross-border alliances may have to adapt to new cultures, political systems, and economic systems, and may have fewer face-to-face work opportunities. 
19. The relatively short negotiation period between Nestlé and General Mills may be a result of the fact that both companies had already identified each other as potential partners.  The strong fit between the two companies may have also been a factor in the short negotiation process. Nestlé lacked a strong line of cereal, while General Mills, interested in the European market, needed a partner that could facilitate its entry there.
20. Most students will probably agree that there is no “one-size-fits-all” strategy, and that therefore, all firms should not hasten to adopt Otis Elevator’s strategy of being a first mover without carefully assessing their situations.  This strategy is likely to be most successful when local partners are strong competitors in the host market.  By linking operations with a company that already enjoys brand recognition, has strong ties with local suppliers and distributors, and possesses a firm grasp of the local business landscape, a firm can quickly capitalize on the opportunities in new markets.  However, as Otis has found out, finding partners with these credentials is not always easy.  In addition, many students may suggest that firms approach new alliances with a degree of caution so that they do not “spread themselves too thin.”