MN3119 chapter 12 solutions PDF

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Chapter 12: Strategic partnerships

Activity 12.1 Internal and external capability building have different advantages and disadvantages, so that a combination of both is often chosen. Advantages of internal asset accumulation 

More controlled (less random element).

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Likely to be complementary with other skills in the firm.

Advantages of external asset accumulation 

Less time intensive.

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Possibility of injecting completely new knowledge into the firm.

Activity 12.2 a) As the two firms want to develop a new technology which is not closely related to their core businesses a joint venture may be the right form for this partnership. By forming a new entity they can reduce coordination costs and coordinating mechanisms can be realised with less friction. b) Since the two firms wants to strengthen their position in a submarket related to their core competencies a joint venture is not the right type of partnership due to the reduced spillover effects between their new and their old activities. In this case a strategic partnership seems to be appropriate. c) Because there are a lot of people and organisations involved in this project transaction costs are very high and a business partnership is the appropriate organisational form.

Sample examination question 1 Strategic partnerships require relation-specific investments. As this is only profitable in a long-term relationship, strategic partnerships built up in the late stages of an industry lifecycle are not very likely. Thus, if firms want to cooperate in the late stage of a business cycle a business partnership may be appropriate. On the other side a loose partnership can also be useful in the early stages of an industry life cycle when firms search for a standard or the dominant design and want to compete against each other when they found the standard. Therefore, when the industry is most stable, it is likely that long-term partnerships will be formed, while in periods of high growth or decline business partnerships are more prevalent.

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Sample examination question 2 First of all, it is hard or even not feasible to replicate the capabilities of the market leader which it has built up over a long period of time. This may lead to a huge investment with ambiguous earnings in the future. Moreover, it can be more profitable for a firm to enter a niche with less competition and in such a niche the capabilities of the market leader are not useful. Finally, it may also be possible to benefit from spillovers or imitating the leader’s capabilities. That is, a follower may be able to achieve a similar level of capabilities without investing in R&D itself (‘reinventing the wheel’).

Sample examination question 3 One benefit of equity ownership is the reduced scope for opportunistic behaviour which is a problem in open-ended partnerships. As result-driven strategic alliances are more temporary than capability-building ones, the latter may benefit more from an equity ownership. In contrast to that, the incentives to work as hard as possible in a capability-building alliance are higher than in a resultdriven one. Thus, equity ownership may help overcome this problem which is more prevalent in the case of a result driven alliance.

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