Chapter 9 - Study guide containing materials in detail from the course throughout the semester. PDF

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Study guide containing materials in detail from the course throughout the semester....

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Chapter 09 Corporate Strategy: Strategic Alliances, Mergers and Acquisitions

Multiple Choice Questions 1. The success of the Pixar-Disney strategic alliance demonstrated that

A. Disney was in desperate need of Pixar's graphic display systems. B. the two entities' complementary assets matched. C. it was easier for the alliance partners to reduce the value gap created. D. the companies were effectively managing an unrelated diversification strategy. 2. Disney became the world's leading media company to a large extent by pursuing a corporate strategy of

A. related-linked diversification. B. costleadership. C. unrelated diversification. D. hostile takeovers. 3. Which of the following best illustrates a merger between the two companies GD Inc. and VS Inc.?

A. GD Inc. purchases VS Inc. for $80 billion despite VS Inc. being against the purchase. B. GD Inc. and VS Inc. join together to form a third new entity, while they also operate separately. C. GD Inc. outsources a few of its business activities to VS Inc. for competitive advantage. D. GD Inc. and VS Inc. join together to form a single new company called GDVS Inc.

4. When does a merger between companies typically occur?

A. when two firms of comparable size join to form a combined entity B. when large, incumbent firms buy start-up companies C. when a target firm does not want to be acquired D. when two or more firms enter a temporary vertical strategic alliance 5. The Mansion Hotel Group purchased Red Brick Hotels for an estimated value of $120 billion. All the hotels previously owned by Red Brick Hotels are now managed by the Mansion Hotel Group and are known as Mansion hotels. What does this scenario best illustrate?

A. a merger B. a joint venture C. an acquisition D. an equity alliance 6. Which of the following is true of acquisitions?

A. Acquisitions can be friendly or hostile. B. Acquisitions can occur only when the involved entities are of comparable size. C. In acquisitions, two independent companies join to form a separate third entity. D. Acquisitions increase the competitive intensity in an industry. 7. When large, incumbent firms buy start-up companies, the transaction is generally described as a(n)

A. joint venture. B. partnershi p. C. acquisitio n. D. allianc e.

8. Olympia Autos Inc. merged with its competitor Vaca Autos Inc. This allowed Olympia Autos to use its technological competencies along with Vaca Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What does this scenario best illustrate?

A. backward integration B. forward integration C. horizontal integration D. vertical integration 9. Which of the following scenarios best illustrates horizontal integration?

A. Regal Autos Inc. enters into a licensing contract with a distributor in a new international market. B. Regal Autos Inc. acquires a component parts manufacturer who previously supplied to Regal Autos' competitor. C. Regal Autos Inc. sets up its own distribution channel and retail stores. D. Regal Autos Inc. joins with Marcus Motors Inc., one of its direct competitors. 10. How does horizontal integration within an industry affect the surviving firms?

A. by increasing the threat the surviving firms will face from new entrants B. by strengthening the rivalry among existing firms C. by requiring the surviving firms to shift their focus from non-price to price competition D. by strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers 11. Which of the following is a result of horizontal integration in terms of Porter's five forces model?

A. The industry structure becomes less consolidated. B. There is a reduction of excess capacity in the market. C. The industry structure becomes potentially less profitable. D. There is an increase in rivalry among existing firms.

12. How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?

A. by facilitating excess capacity in the industry B. by preventing mergers from taking place C. by lowering competitive intensity in the industry overall D. by increasing the threat of entry in the industry 13. It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because

A. the horizontal integration activity changes the industry structure from oligopolistic to monopolistically competitive. B. the surviving firms will need to be protected against the increasing bargaining power of the suppliers. C. the horizontal integration activity has the potential to reduce competitive intensity in an industry. D. the surviving firms will need protection against the relaxed entry barriers. 14. PureSource Pharma Inc. recently acquired BioChem Pharmaceuticals Inc. It now sells its own products along with the products originally sold by BioChem Pharmaceuticals. As a result, PureSource Pharma's sales force will also be marketing the acquired company's products. How will this horizontal integration most likely affect PureSource Pharma?

A. PureSource Pharma will lower its costs through economies of scale. B. PureSource Pharma will diminish its economic value creation. C. PureSource Pharma will increase its cost of distribution. D. PureSource Pharma will reduce the size of its sales force.

15. Which of the following is a disadvantage of a horizontal integration corporate strategy?

A. It increases competitive intensity within an industry. B. It increases the potential for legal repercussions. C. It increases the costs associated with increasing value. D. It increases the threat of new entrants in an industry. 16. How does Kraft Foods benefit from its hostile takeover of Cadbury PLC in 2010?

A. Its main strategic focus is now on the domestic market. B. It opens a market for it that is growing slowly but has high profit margins. C. It has access to convenience stores and a new distribution channel. D. It automatically gains monopoly in the chocolatemanufacturing industry. 17. The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese market in 2013 because

A. the U.S. population was growing slowly and becoming more health conscious. B. its strategic position in the U.S. market was well protected through high entry barriers. C. this would help the company gain access to large cocoa plantations in China. D. Hershey's main strategic focus was on product and market diversification and not on the domestic market. 18. Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures. It did this in order to

A. imitate the actions of its competitors like Apple and Facebook. B. solve its principal-agent problems. C. fill gaps in its competency lineup. D. expand through unrelated diversification.

19. Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion in 2012?

A. the desire to gain a new capability B. the need to enter a new geographical market C. the need to reduce its level of horizontal integration D. the desire to pursue an unrelated diversification strategy 20. The main reason behind Google's decision to acquire the Israeli start-up company Waze for $1 billion was to

A. preempt its competitors from buying Waze. B. share its capabilities with Waze. C. support start-up companies with venture capital. D. gain access to technology that is alien to it. 21. The managers at Movo Automobile Inc. want to diversify their business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Movo Automobile is most likely a result of

A. time compression diseconomies. B. experience-curve effects. C. principal-agent problems. D. resource ambiguity.

22. JetStream Airway's decision to acquire Rex Fuels Inc. proved to be ill-fated because its managers had overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers' capabilities were restricted to the airlines industry. What does this scenario best illustrate?

A. managerial empathy B. managerial feasibility C. managerial hubris D. managerial capitalism 23. Adidas acquired Reebok primarily to

A. overcome its competitive disadvantage against Nike. B. get access to the superior technology of Reebok. C. overcome its principal-agent problems. D. pursue an unrelated diversification strategy. 24. What causes the winner's curse?

A. buying a firm with principal-agent problems B. overpaying for an acquisition C. buying a firm with a competitive disadvantage D. underpaying for an acquisition

25. Dream Slope Inc. is a leader in producing winter sports equipment, including skis and skates. Recently, the firm decided to expand into the bobsled market and acquired Sleek Phantom Inc. This company produced bobsleds, but its sales had slowed. The managers of Dream Slope convinced themselves that they were able to manage the business of Sleek Phantom more effectively even though they had no experience in the bobsled market. However, this move backfired and the sale of Sleek Phantom's bobsleds plummeted. Which of the following terms is often used to describe this scenario?

A. managerial disadvantage B. managerial hubris C. managerial sympathy D. managerial empathy 26. A _____ is best described as a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

A. proprietors hip B. cooperati ve C. strategic alliance D. leveraged buyout 27. Which of the following statements is true of strategic alliances?

A. They are always focused on joining the same value chain activities. B. They enable firms to achieve goals faster, but at higher costs. C. They are known as strategic alliances whether or not they have the potential to affect a firm's competitive advantage. D. They are most beneficial when they join together resources and knowledge in a combination that obeys the VRIO principles.

28. Vibgyor Inc., a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its cell phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Vibgyor and the software company best referred to as in this scenario?

A. an acquisition B. a strategic alliance C. a leveraged buyout D. a proprietorshi p 29. The _____ is a strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

A. real-options perspective B. stakeholder strategy C. relational view of competitive advantage D. non-differentiation strategy 30. What does the relational view of competitive advantage propose?

A. A strategic alliance has the potential to help a firm gain a competitive advantage when it joins together resources that are common, inexpensive, and easy to imitate. B. The locus of competitive advantage is often not found within the individual firm but within a strategic partnership. C. Strategic alliances fail to provide competitive advantage when they involve joining different parts of a firm's value chain, such as R&D and marketing. D. A firm has a competitive advantage over its rivals when it can provide goods or services similar to the competitors' at a higher price.

31. How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?

A. It helped HP pursue a taper integration strategy. B. It enabled HP to compete head on with Cisco's videoconferencing solution. C. It resulted in depreciation of HP's shareholder value. D. It failed because HP lacked the expertise in selecting and integrating technology acquisitions. 32. Which of the following is not a reason why firms enter alliances?

A. to replace competitive advantage with competitive parity B. to strengthen competitive position C. to enter new markets, either in terms of geography or products and services D. to learn new capabilities 33. Although long-standing enemies, Apple and IBM formed an alliance partnership. How did this partnership benefit both Apple and IBM?

A. Apple's core competency with consumer services and IBM's core competency with business services complemented each other. B. Apple's core competency with business services and IBM's core competency with consumer services complemented each other. C. Apple's core competency with marketing and IBM's core competency with manufacturing complemented each other. D. Apple's core competency with manufacturing and IBM's core competency with marketing complemented each other.

34. One of the first new business apps resulting from the alliance of Apple and IBM will help airline pilots determine the right amount of fuel to carry on a particular flight. This task not only requires significant data analytics but also the need to display the information in an easily understandable way so that pilots can digest it quickly when glancing on their iPad in a cockpit prior to departure. Which of the following parts of this example will Apple be responsible for?

A. the organization and analysis of data analytics B. the display of information in an easy-tounderstand way C. the determination of the amount of fuel to carry on a flight D. the arrangement of the cockpit to facilitate the use of the iPad 35. A drawback involved in using cross-border strategic alliances to enter new foreign markets is that

A. the foreign firm will need to make larger investments when compared to entering the new market on its own. B. some of the firm's proprietary know-how may be appropriated by the foreign partner. C. all potential business risks in the new market will have to be faced alone by the foreign firm. D. the shareholder value of the foreign partner will decline drastically. 36. Which of the following summarizes the benefit of the strategic alliance between HP and DreamWorks?

A. HP and DreamWorks each strengthened their separate markets without impinging on each other's markets. B. Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone. C. HP was able to enter a new market, and DreamWorks was able to strengthen its old market. D. DreamWorks was able to enter a new market, and HP was able to strengthen its old market.

37. Why did incumbent pharmaceutical firms enter into hundreds of strategic alliances with biotech start-ups?

A. to pursue an unrelated-options perspective without disrupting existing market economics B. to make small-scale investments in ventures poised to disrupt existing market economics C. to invest their excess cash flow in the superior technology of the biotech start-ups D. to share their continuously updated research technology with the biotech start-ups 38. A _____ is best described as an approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.

A. cost-leadership approach B. break-even analysis C. market risk framework D. real-options perspective 39. Terranova Autos Inc., a large automobile company, made an initial small investment in a start-up company that was developing a solar-powered car. This gave Terranova Autos controlling interests in the start-up company. However, Terranova Autos had no obligations to make continued investments in the experiments of the start-up company. It could invest in small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Terranova Autos would have the right to buy out the start-up company. This approach to strategic alliance is referred to as

A. a break-even analysis. B. a real-options perspective. C. credible commitment. D. transaction cost economics.

40. In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates

A. the real-options perspective. B. coopetition. C. explicit knowledge. D. the stakeholder strategy. 41. How does taking a real-options perspective by entering strategic alliances help incumbent firms?

A. It helps the incumbent firms gain the confidence of the partnering company by making credible commitments. B. It helps the incumbent firms reduce the value gap they create through their product and service offerings. C. It allows the incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade. D. It reduces the incumbent firms' cost of acquisition by enabling them to make the entire investment decision in the beginning itself. 42. When North Autos Inc. wanted to sell its cars in the country of Balvia, it lacked access to distribution channels and marketing expertise in the country. Thus, North Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner's well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?

A. increasing competitive intensity B. accessing critical complementary assets C. procuring additional capital investments D. reducing differentiation of product and service offerings

43. When entering a foreign market, it is advisable for a new venture that has a core competency only in R&D to form a strategic alliance with a local partner because

A. the local partner can better protect its proprietary know-how. B. building downstream complementary assets can be expensive and timeconsuming. C. the strategic alliance will reduce the differentiation of its product and service offerings. D. the value gap created by the firm can be easily lowered in an alliance. 44. _____ is best described as cooperation by competitors to achieve a strategic objective.

A. Limited liability B. Proprietorsh ip C. Coopetition D. Commerc e 45. _____ are best described as situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary.

A. Learning races B. Learning networks C. Learning effects D. Learning matrices 46. In a strategic alliance, the firm that learns faster

A. has the tendency to lose its competitive advantage. B. has the incentive to reduce its knowledge sharing. C. has the tendency to move up a learning curve. D. has the incentive to invest further in the alliance.

47. FR Pharmaceuticals Inc., BioCure Pharma Inc., and Regime Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with each other. However, the three firms will continue to behave as competitors...