TestBank IB

International Business, 6e (Griffin/Pustay)
Chapter 13 International Strategic Alliances

1) Which of the following represents a possible form of cooperation between international firms?
A) cross-licensing of proprietary technology
B) sharing of production facilities
C) co-funding of research projects
D) marketing of each other's products
E) all of the above
Answer: E
Diff: 1
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Skill: AACSB: Globalization
Objective: 13.1: Compare joint ventures and other forms of strategic alliances.
2) A ________ is a business arrangement whereby two or more firms choose to cooperate for
their mutual benefit.
A) competitive advantage
B) licensing agreement
C) franchising arrangement
D) strategic alliance
E) none of the above
Answer: D
Diff: 2
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3) A ________ is a special type of strategic alliance in which two or more firms join together to
create a new business entity that is legally separate and distinct from its parents.
A) joint venture
B) licensing agreement
C) franchising arrangement
D) strategic alliance
E) greenfield strategy
Answer: A
Diff: 2
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4) Mast Industries, Courtaulds, and MAS Holdings established Slimline in 1993. This is an
example of a(n) ________.
A) franchising arrangement
B) acquisition strategy
C) joint venture
D) licensing agreement
E) greenfield strategy
Answer: C
Diff: 2
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5) When a firm discovers that it lacks all the necessary internal resources to effectively compete
internationally, it may choose to participate in ________.
A) exporting
B) portfolio investments
C) strategic alliances
D) franchising
E) management contracts
Answer: C
Diff: 3
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6) What is the primary difference between a joint venture and a non-joint venture strategic
alliance?
A) the amount of control awarded to each partner
B) the level of risk
C) whether a third, legally separate business entity is formed
D) the amount of financial investment required
E) the geographic location of the alliance
Answer: C
Diff: 3
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7) Which of the following is not a means of managing a joint venture?
A) with its own set of managers and board of directors
B) in a jointly shared arrangement where each company appoints personnel who then report back
to the parent company
C) one parent can assume primary responsibility
D) with an outside team of managers
Answer: D
Diff: 2
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8) How is Slimline managed?

A) with an independent team of managers who were hired to run it
B) in a jointly shared arrangement where each parent company appointed personnel who then
report back to the parent company
C) one parent company has taken charge
D) with a unique informal network approach
E) with a coordinating committee that gains consensus from the parent companies before
implementing new strategies
Answer: A
Diff: 3
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9) Which of the following can be used to enter or expand international operations for a firm?
A) exporting
B) licensing
C) joint venture
D) acquisition strategy
E) all of the above
Answer: E
Diff: 1
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10) Which of the following is not a benefit of strategic alliances?
A) shared knowledge
B) synergy
C) shared customers
D) ease of market entry
E) shared risk
Answer: C
Diff: 2
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Objective: 13.2: Characterize the benefits of strategic alliances.
11) British Airways and American Airlines code share their flights and market materials
containing both brand names. What type of arrangement is this?
A) nonjoint venture alliance
B) joint venture alliance
C) acquisition strategy
D) turn key project
E) licensing
Answer: A
Diff: 2
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12) When a firm anticipates major obstacles in foreign market entry such as hostile government
regulations, what benefit of strategic alliances do they primarily seek?
A) ease of market entry
B) shared risk
C) shared knowledge
D) synergy
E) all of the above
Answer: A
Diff: 1
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13) Which of the following is a benefit of participating in a strategic alliance?
B) shared risk
C) shared knowledge
D) synergy
E) all of the above
Answer: E
Diff: 1
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14) Which of the following is not a hurdle firms can overcome by participating in a strategic
alliance?
A) avoiding hostile government regulations
B) achieving economies of scale and scope in marketing
C) minimizing import tariffs
D) controlling risk
E) avoiding entrenched competition
Answer: C
Diff: 2
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15) Warner Brothers, a movie distribution subsidiary of Time Warner, recently entered into
several joint ventures with European movie theater chains. What benefit of strategic alliances
was Warner Brothers seeking?
B) shared risk
C) shared knowledge
D) synergy
E) all of the above
Answer: A
Diff: 3
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16) Boeing collaborated in a strategic alliance with Fuji, Mitsubishi, and Kawasaki in the
development and production of the Boeing 777 in order to reduce its financial risk. What benefit
of strategic alliances was Boeing seeking?
B) shared risk
C) shared knowledge
D) synergy
E) all of the above
Answer: B
Diff: 1
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17) Otis Elevator partners with local companies in each of the foreign markets where it does
business to achieve all of the following except to ________.
A) share risk
B) share knowledge
C) gain synergies
D) ease market entry
E) avoid double taxation
Answer: E
Diff: 2
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18) Toyota and GM created a joint venture called NUMMI because Toyota wanted to learn about
how to deal with labor and parts suppliers in the U.S. market while GM wanted to observe
Japanese management practices. What benefit of strategic alliances were Toyota and GM
seeking?
B) shared risk
C) shared knowledge
D) synergy
E) all of the above
Answer: C
Diff: 1
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19) ________ refers to value achieved through the combination of market entry, risk sharing, and
learning potential that is greater than what the firm could have done alone.
A) Shared risk
B) Shared knowledge
C) Synergy
D) Competitive advantage
E) Both C and D
Answer: E
Diff: 2
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20) PepsiCo and Thomas J. Lipton Co. established a joint venture. PepsiCo supplied an extensive
distribution network and Lipton provided manufacturing expertise and brand recognition in teas.
What benefit of strategic alliances were they seeking?
B) shared risk
C) shared knowledge
D) synergy
E) all of the above
Answer: D
Diff: 2
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21) The degree of collaboration in a strategic alliance will depend on the ________ of each
partner firm.
A) history
B) available resources
C) basic goals
D) leadership
E) all of the above
Answer: C
Diff: 3
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Objective: 13.3: Describe the scope of strategic alliances.
22) A ________ occurs when the participating firms agree to perform together multiple stages of
the process by which goods or services are brought to the market.
A) functional alliance
B) joint venture
C) production alliance
D) process alliance
E) comprehensive alliance
Answer: E
Diff: 2
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23) Most comprehensive alliances are organized as ________.

A) nonjoint-venture alliance
B) joint ventures
C) licensing agreements
D) management contracts
E) turnkey projects
Answer: B
Diff: 1
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24) A marketing alliance is a type of ________.
A) business-level alliance
B) operational alliance
C) corporate-level alliance
D) functional alliance
E) advertising alliance
Answer: D
Diff: 1
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25) Chrysler and BMW formed a joint venture to build engines in South America. What type of
alliance did they have?
A) franchise
B) marketing alliance
C) financial alliance
D) licensing agreement
E) production alliance
Answer: E
Diff: 1
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26) General Mills and Nestle created a joint venture which fully integrated all the efforts
necessary to compete against Kellogg in the European cereal market. This is an example of a(n)
________ alliance.
A) functional
B) comprehensive
C) production
D) international
E) marketing
Answer: B
Diff: 2
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27) A comprehensive alliance is formed when ________.

A) the participating firms agree to perform together multiple stages of the process by which
goods or services are brought to the market
B) two or more firms each manufacture products or provide services in a shared or common
facility
C) two or more firms share marketing services or expertise
D) firms form an alliance to reduce the financial risks associated with a project
E) partners agree to undertake joint research to develop new products or services
Answer: A
Diff: 1
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28) Which of the following is not one of the types of functional alliances?
A) production
B) international
C) marketing
D) financial
E) research and development
Answer: B
Diff: 2
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29) A(n) ________ alliance occurs when two or more firms each manufacture or provide services
in a shared or common facility.
A) production
B) international
C) marketing
D) financial
Answer: A
Diff: 2
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30) A production alliance is formed when ________.
facility
Answer: B
Diff: 1
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31) A(n) ________ alliance occurs when partners share expertise or services related to
distribution, pricing, and communications.
A) production
B) international
C) marketing
D) financial
Answer: C
Diff: 2
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32) A(n) ________ alliance is a functional alliance of firms that want to reduce financial risks
associated with a project.
A) production
B) international
C) marketing
D) financial
Answer: D
Diff: 2
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33) BMW and the French automobile manufacturer PSA recently created an alliance to
manufacture new engines together. What type of alliance is this an example of?
A) production
B) international
C) marketing
D) financial
Answer: A
Diff: 2
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34) A marketing alliance is formed when ________.
facility
Answer: C
Diff: 1
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35) The Japanese company Bandai and the U.S. toymaker Mattel entered into a strategic alliance.
Bandai agreed to distribute Mattel products like Barbie dolls in Japan while Mattel agreed to
distribute Power Rangers in Latin America. What type of alliance is this an example of?
A) production
B) international
C) marketing
D) financial
Answer: C
Diff: 2
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36) Boeing collaborated in a strategic alliance with Fuji, Mitsubishi, and Kawasaki in the
development and production of the Boeing 777 in order to reduce its financial risk. What type of
alliance is this an example of?
A) production
B) international
C) marketing
D) financial
Answer: D
Diff: 2
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37) A financial alliance is formed when ________.
facility
Answer: D
Diff: 1
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10
38) Micron Technology, Intel, Samsung, Hyundai, and Siemens have formed an alliance to
develop the next generation of DRAM chips. What type of alliance is this an example of?
A) production
B) international
C) marketing
D) financial
Answer: E
Diff: 2
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39) A ________ is a confederation of organizations that band together to research and develop
new products and processes for world markets.
A) research and development alliance
B) functional alliance
C) research and development consortium
D) joint venture
E) production alliance
Answer: C
Diff: 1
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40) A research and development alliance is formed when ________.
facility
Answer: E
Diff: 1
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41) Research suggests that strategic alliances are more likely to be successful if the skills and
resources of the partners are ________.
A) identical
B) complementary
C) opposites
D) incompatible
E) observable
Answer: B
Diff: 2
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Objective: 13.4: Describe the forms of management used for strategic alliances.
11
42) Which of the following is not one of the four factors a firm should consider prior to selecting
a partner?
A) compatibility
B) potential for competitor to partner
C) nature of potential partner's products
D) relative safeness of the alliance
E) learning potential of the alliance
Answer: B
Diff: 3
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43) An alliance between General Electric Corporation, which is run by financial experts, and
Siemens, which is run by engineers, failed because of ________.
A) a lack of trust between the partners
B) a difference between the firms' products
C) incompatible management styles
D) the relative safeness of the alliance
E) an inability of firms to learn from each other
Answer: C
Diff: 2
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44) Partnerships should be formed between firms whose products ________.
A) compete directly
B) complement one another
C) compete indirectly
D) are in different product categories
Answer: B
Diff: 2
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45) The probability of a successful alliance increases when ________.
A) mutual trust is not present
B) partners are incompatible
C) partner products are in direct competition with each other
D) the deal makes good business sense for both partners
E) there are no learning opportunities
Answer: D
Diff: 2
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46) What form does a joint venture usually take?

A) limited partnership
B) partnership
C) corporation
D) GmbH
E) public-private venture
Answer: C
Diff: 2
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47) Which of the following is a benefit of the corporate form for joint ventures?
A) beneficial tax structure
B) unusual ownership arrangements
C) protection of other assets
D) new identity
E) all of the above
Answer: E
Diff: 1
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48) A ________ is a joint venture that involves a partnership between a privately owned firm and
a government.
B) partnership
C) corporation
D) GmbH
Answer: E
Diff: 2
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49) The government of Abu Dhabi formed a joint venture with Exxon Mobil in 2006. What type
of joint venture is this an example of?
B) partnership
C) corporation
D) GmbH
Answer: E
Diff: 2
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13
50) Strategic alliances may be managed through ________.

A) shared management agreements
B) assigned arrangements
C) delegated arrangements
D) consensual arrangements
E) A, B, and C
Answer: E
Diff: 2
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51) In what type of economy are public-private ventures often necessary?
A) centrally planned
B) capitalist
C) socialist
D) Marxist
Answer: A
Diff: 3
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52) Under a(n) ________, each partner in the joint venture fully and actively participates in
managing the alliance.
A) shared management agreement
B) assigned arrangement
C) delegated arrangement
D) consensual arrangement
E) functional alliance
Answer: A
Diff: 2
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53) Which type of venture is the most difficult to maintain?
A) an assigned arrangement
B) a shared management agreement
C) a delegated arrangement
D) a public private venture
E) a split venture
Answer: B
Diff: 2
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54) Which action below is permissible by the dominant partner in an assigned arrangement?
A) set agendas
B) make decisions
C) break ties among decision makers
D) overrule partner's decisions
E) all of the above
Answer: E
Diff: 1
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55) Under a(n) ________, one partner assumes primary responsibility for the operations of the
alliance.
Answer: B
Diff: 2
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56) GM, with a 67 percent stake in a joint venture with Raba, has assumed management control
over the venture's operations. What management form is this an example of?
Answer: B
Diff: 2
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57) Under the agreement between Coca-Cola and Danone each company supplies three members
of the joint venture's board of directors. What management form is this an example of?
Answer: A
Diff: 2
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58) Under which management form are managers less accountable to managers in the partner
firms?
Answer: C
Diff: 2
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59) Boeing controls the overall operation of its strategic alliance with Fuji, Mitsubishi, and
Kawasaki. This is an example of a(n) ________.
Answer: B
Diff: 2
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60) Which of the following could cause a problem in a strategic alliance?
A) incompatibility
B) information access
C) distribution of earnings
D) all of the above
Answer: D
Diff: 1
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Objective: 13.5: Identify the limitations of strategic alliances.
61) Executives operating a joint venture under a delegated arrangement are in a position to
________.
A) make day-to-day decisions
B) implement strategy
C) plan strategically
D) make financial obligations
E) all of the above
Answer: E
Diff: 1
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16
62) Which of the following is not considered to be one of the primary pitfalls of strategic
alliances?
A) mutual trust
B) loss of autonomy
C) conflicts over disturbing earnings
D) incompatibility of partners
E) changing circumstances
Answer: A
Diff: 2
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63) Of the potential pitfalls of strategic alliances, which one is a primary cause of failure?
A) incompatibility of partners
B) loss of autonomy
C) access to information
D) conflicts over distributing earnings
E) changing circumstances
Answer: A
Diff: 2
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64) Which of the following is likely to create incompatibility between partnering firms?
A) corporate culture
B) national culture
C) goals
D) objectives
E) all of the above
Answer: E
Diff: 2
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65) AT&T and Olivetti announced a strategic alliance. They could not reach an agreement on a
marketing strategy for the alliance. What type of problem is this an example of?
A) incompatibility
D) loss of autonomy
E) all of the above
Answer: A
Diff: 2
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66) When a firm involved in a strategic alliance wants to maintain confidential information about
its operations, which pitfall of strategic alliances is likely to occur?
A) incompatibility
D) loss of autonomy
E) all of the above
Answer: B
Diff: 2
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67) Which type of pitfall occurs when a firm believes it may be compromising its own
competitiveness by providing certain information to a partner?
A) distribution of earnings
B) loss of autonomy
C) incompatibility of partners
D) changing circumstances
E) access to information
Answer: E
Diff: 2
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68) A strategic alliance between Ford and Mazda experienced problems when Mazda refused to
allow Ford officials to visit the Mazda research laboratory. What was the source of this problem?
A) incompatibility
D) loss of autonomy
E) all of the above
Answer: B
Diff: 2
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69) Rubbermaid ended a joint venture in Europe when the partner firm refused to reinvest its
profits into the development of new products. What was the source of this problem?
A) incompatibility
D) loss of autonomy
E) all of the above
Answer: C
Diff: 2
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70) Firms may experience the pitfalls of ________that limits their decision-making power.
A) incompatibility
D) loss of autonomy
E) all of the above
Answer: D
Diff: 2
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71) Deciding how earnings should be split prior to forming an alliance can help firms avoid
which type of pitfall?
A) incompatibility
D) loss of autonomy
E) change in circumstances
Answer: C
Diff: 2
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72) Attempts to introduce new products, change the way the alliance does business, or introduce
other significant organizational changes without previous discussion and agreement by all
members of the alliance represents a(n) ________ by one or more alliance members.
A) incompatibility
D) loss of autonomy
E) all of the above
Answer: D
Diff: 2
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73) ________ affect(s) the viability of strategic alliances when the conditions that first motivated
the arrangement no longer exist.
A) Incompatibility
B) Information access
C) Distribution of earnings
D) Loss of autonomy
E) Changing circumstances
Answer: E
Diff: 1
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74) Of the potential pitfalls facing strategic alliances, over which one do the alliance members
have the least control?
A) incompatibility
D) changing circumstances
E) loss of autonomy
Answer: D
Diff: 2
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75) Which pitfall of alliances exists when the economic circumstances that motivated the alliance
no longer exist?
A) changing circumstances
B) loss of autonomy
D) incompatibility
E) information access
Answer: A
Diff: 2
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76) Joint ventures imply a 50:50 ownership structure.
Answer: FALSE
Diff: 2
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77) Strategic alliances include cooperation between international firms such as cross-licensing of
proprietary technology.
Answer: TRUE
Diff: 1
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78) A joint venture is a type of strategic alliance.
Answer: TRUE
Diff: 1
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79) Joint ventures are generally less stable than nonjoint venture strategic alliances.
Answer: FALSE
Diff: 2
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80) Joint ventures tend to have a longer duration than non-joint venture strategic alliances.
Answer: TRUE
Diff: 3
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81) Countries concerned about the influence of foreign firms on their economies may require
MNCs to work with a local partner if they want to enter the market.
Answer: TRUE
Diff: 2
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82) Firms can avoid hostile government regulations by partnering with local firms.
Answer: TRUE
Diff: 2
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83) Strategic alliances can be used to limit risk.
Answer: TRUE
Diff: 1
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84) Kodak's strategic alliance with its Japanese competitors reduced its risks, but perhaps
negatively affected its profits.
Answer: TRUE
Diff: 1
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85) Functional alliances are legally organized as joint ventures.
Answer: FALSE
Diff: 2
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86) Marketing alliances are relatively uncommon in the international airline industry.
Answer: FALSE
Diff: 2
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87) An alliance in which two or more firms each manufacture products is an R&D alliance.
Answer: FALSE
Diff: 2
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88) Comprehensive alliances are usually organized as nonjoint venture strategic alliances.
Answer: FALSE
Diff: 2
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89) In most cases, R&D consortiums do not involve the government.
Answer: FALSE
Diff: 2
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90) Having a partner with products that are complementary to, but not directly competitive with
its own, increases a firm's chance of a successful alliance.
Answer: TRUE
Diff: 2
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91) Research suggests that strategic alliances are more likely to be successful if the partners
compete but in different geographic markets.
Answer: FALSE
Diff: 3
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92) Mutual trust is an important component of compatibility.
Answer: TRUE
Diff: 1
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93) Because Nestle does not make cereal, the product on which it is collaborating with General
Mills, the joint venture between the two firms is likely to be more successful.
Answer: TRUE
Diff: 2
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94) In a limited partnership, both firms assume full financial responsibility for the venture,
regardless of the amount each has invested.
Answer: FALSE
Diff: 2
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95) Firms may pursue public-private ventures when a country does not allow wholly-owned
foreign operations.
Answer: TRUE
Diff: 3
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96) Public-private ventures are typical in the oil industry.

Answer: TRUE
Diff: 2
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97) Public-private ventures are perhaps most important in market-driven economies.
Answer: FALSE
Diff: 3
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98) Shared management agreements are the most prone to conflict among partners.
Answer: TRUE
Diff: 2
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99) Under a delegated arrangement, partner firms are highly involved in the day-to-day
operations of the venture.
Answer: FALSE
Diff: 2
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100) In a delegated arrangement, joint venture management has little to no autonomy.
Answer: FALSE
Diff: 1
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101) Conflict over the distribution of earnings is the number one cause of failure of strategic
alliances.
Answer: FALSE
Diff: 3
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102) Incompatibility among partners can be anticipated through discussion and analysis prior to
forming a strategic alliance.
Answer: TRUE
Diff: 2
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103) A strategic alliance may be the first step toward a takeover.
Answer: TRUE
Diff: 2
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104) Conflict over distributing earnings can be avoided by negotiating such issues as part of the
original contract agreement.
Answer: TRUE
Diff: 1
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105) Technological advances can render strategic alliances obsolete.
Answer: TRUE
Diff: 2
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106) What is a strategic alliance?
Answer: A strategic alliance is a business arrangement whereby two or more firms choose to
cooperate for mutual benefit.
Diff: 1
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107) What is the relationship between a joint venture and a strategic alliance?
Answer: A joint venture is a type of strategic alliance in which two or more firms join together
to create a new business entity that is legally separate and distinct from its parents.
Diff: 1
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108) Is a joint venture more or less stable than a non-joint venture strategic alliance?
Answer: A non-joint venture strategic alliance tends to be less stable than a joint venture because
the former tend to have narrow missions and a lack of formal organizational structure.
Diff: 3
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109) Is a strategic alliance the only method a firm can use to enter or expand its international
operations?
Answer: No. A firm can also use exporting, licensing, franchising, and foreign direct investment.
Diff: 1
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110) What are the benefits of strategic alliances?
Answer: Benefits of strategic alliances include ease of market entry, shared risk, shared
knowledge, and synergy/competitive advantage.
Diff: 2
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111) Why did Warner Brothers enter into joint ventures with several European movie theater
chains?
Answer: To ease its entry into the European market.
Diff: 2
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112) What influence might governments have on the ease of entry into its market?
Answer: Governments may require that an MNC partner with a local firm.
Diff: 2
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113) Why did Kodak form a strategic alliance with three Japanese competitors to develop a new
film?
Answer: Kodak collaborated with its Japanese competitors in an effort to reduce its risk.
Diff: 2
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114) Why does Otis Elevator always seek local partners when it expands into new markets?
Answer: Otis Elevator always looks for local partners to ease its entry and reduce its risks when
it expands into new markets.
Diff: 2
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115) Toyota wanted an opportunity to learn about U.S. labor practices and GM wanted to learn
about Japanese management practices when they created NUMMI. What benefit were both
partners seeking?
Answer: Shared knowledge and expertise.
Diff: 1
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116) What is a comprehensive alliance?
Answer: A comprehensive alliance occurs when the participating firms agree to perform
together multiple stages of the process by which goods or services are brought to the market.
Diff: 2
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117) What is a functional alliance?
Answer: A functional alliance is one that is narrow in scope and involves only one function of
the business.
Diff: 2
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118) What types of functional alliances exist?

Answer: There are four types of functional alliances: production, financial, marketing, research
and development.
Diff: 2
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119) Are strategic alliances important in the airline industry?
Answer: Strategic alliances are very important in the airline industry. Three mega-alliances
together account for about 69 percent of the world's air revenue passenger miles.
Diff: 3
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Skill: AACSB: Technology
120) What is an R&D consortium?
Answer: An R&D consortium is a confederation of organizations that band together to research
and develop new products and processes for the world market.
Diff: 2
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121) In which type of strategic alliance is government support important?
Answer: Many countries support the efforts of R&D consortia as part of their industrial policies,
so governments are often involved in their formation and continued operation.
Diff: 2
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122) What are the four factors that should be considered prior to selecting a partner?
Answer: Compatibility, the nature of the potential partner's products, the relative safeness of the
alliance, and the learning potential of the alliance.
Diff: 2
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123) How does a partner's product affect the success of a strategic alliance?
Answer: To increase the chances of a successful alliance, experts recommend that firms ally
themselves with a partner whose products are complementary to but not directly competitive
with its own.
Diff: 2
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124) What is a public-private venture?
Answer: It is a form of joint venture that involves a partnership between a privately owned firm
and a government.
Diff: 2
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125) What are the three types of management agreements used for strategic alliances?
Answer: Shared management agreements, assigned arrangements, and delegated arrangements.
Diff: 2
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126) How does a shared management agreement work?
Answer: Under this agreement, each partner fully and actively participates in managing the
alliance. It requires a great deal of coordination and near-perfect agreement among the partners.
Diff: 2
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127) How does an assigned arrangement work?
Answer: Under this agreement, one partner assumes primary responsibility for the operations of
the strategic alliance.
Diff: 2
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128) How does a delegated arrangement work?
Answer: Under a delegated arrangement, the partners agree not to get involved in the ongoing
operations, but delegate control to the executives of the joint venture itself.
Diff: 2
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129) What type of arrangement must partners have to be successful in a shared management
agreement?
Answer: In a shared management agreement, partners must have a high level of coordination
and agreement.
Diff: 2
Page Ref: 381
130) What kinds of things might cause incompatibility among partners in a strategic alliance?
Answer: Corporate culture, national culture, goals, and objectives can all contribute to
incompatibility among partners.
Diff: 2
Page Ref: 382
131) Over which pitfall of strategic alliances do managers have the least ability to control and
prepare through contract negotiations?
Answer: Managers have the least ability to control changing circumstances.
Diff: 3
Page Ref: 384
27
132) Explain the three possible methods for managing a joint venture.
Answer: A joint venture may be managed jointly with shared management by the founding
firms. It may be primarily managed by one parent. Finally, it may be run by an independent team
of managers who are hired by the parent firms.
Diff: 2
Page Ref: 368
133) What benefits may accrue to firms participating in strategic alliances?
Answer: Firms may benefit from ease of market entry, shared risk, shared knowledge and
expertise, and synergy/competitive advantage. Firms may experience entrenched competition,
government regulations, or high costs to entering a foreign market. Strategic alliances can ease
the costs of entry. Firms may also wish to minimize their risks associated with market entry.
Alliances can minimize risks by sharing expenses or by providing non-financial assets such as
brand recognition. Firms may also wish to learn about an expertise held by another firm. Finally,
firms can achieve synergies and competitive advantages that were not possible working alone.
Diff: 2
Page Ref: 369
134) Explain why Boeing established a strategic alliance with several Japanese partners to help
develop its 777 jet.
Answer: Boeing formed a strategic alliance with several Japanese partners to help reduce the
risk involved in developing its 777 aircraft. Developing the new plane required billions of
dollars of R&D up front. Because Boeing could not be sure how well the new aircraft would be
received, the company looked for ways to reduce its financial exposure, and established an
alliance with Fuji, Mitsubishi, and Kawasaki. Boeing is the controlling partner in the alliance.
Diff: 2
Page Ref: 370
Skill: AACSB: Technology
135) What does globalization mean to CEOs of multinational firms, workers in developed
countries, and human rights activists?
Answer: Globalization means different things to different people. For CEOs of multinational
firms, globalization means access to new consumers, opportunities to reduce production costs by
locating factories in low-cost areas, and the threat of new competition. For workers in developed
countries, globalization can imply job insecurity and no raised. For human rights activists,
globalization can imply exploitation of workers and the denial of human rights.
Diff: 2
Page Ref: 365
28
136) Why was it important for General Mills and Nestle to form a comprehensive joint venture
in Europe, rather than a marketing alliance?
Answer: General Mills and Nestle formed a comprehensive joint venture in Europe called
Cereal Partners Worldwide. General Mills provided cereal-making technology, while Nestle
contributed its European distribution network and name recognition. By forming a
comprehensive joint venture, the alliance involved a complete meshing of each firm's relative
strengths and created a business with significant market power. Forming an alliance that only
involved marketing would not have had the same competitive advantages.
Diff: 3
Page Ref: 375
137) Why have strategic alliances become so important to the international airline industry?
Answer: Mega alliances dominate the international airline industry. By linking up with other
firms, airlines can offer customers more flights and more destinations, easier transfers between
alliance members' flights, and the opportunity to use frequent flyer miles earned on one carrier to
fly on another. In addition, alliances provide airlines with the ability to advertise to a larger
audience.
Diff: 2
Page Ref: 377
138) Explain why governments engage in public-private ventures in the oil industry.
Answer: National governments that control access to and ownership of crude oil reserves may
not have the technical expertise to drill for and extract the crude oil. International oil firms have
the knowledge and expertise, but lack the necessary drilling rights. By working together with the
government providing the drilling rights and the firm providing the drilling knowledge and
technical expertise, the oil filed can be developed.
Diff: 2
Page Ref: 380
139) What are the five primary pitfalls of strategic alliances? Describe each one.
Answer: The five pitfalls are incompatibility of partners, access to information, distribution of
earnings, loss of autonomy, and changing circumstances. Incompatibility of partners can lead to
outright conflict. It can stem from corporate culture, national culture, goals and objectives, or any
fundamental decision. Limited access to information is another drawback. Partners must be
willing to share information that they might otherwise keep secret. Because partners share risks,
they must also share rewards. However, the partners must agree on the distribution of joint
earnings, the accounting practices used to calculate earnings or profits, and the way transfer
pricing will be held. Partners also lose autonomy in that they must share control of the alliance.
At the extreme, a strategic alliance may even be the first step toward a takeover. Finally,
circumstances may change making the strategic alliance obsolete.
Diff: 2
Page Ref: 382
29

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International Business, 6e (Griffin/Pustay)

Chapter 13 International Strategic Alliances

8) How is Slimline managed?

23) Most comprehensive alliances are organized as ________.

27) A comprehensive alliance is formed when ________.

46) What form does a joint venture usually take?

50) Strategic alliances may be managed through ________.

96) Public-private ventures are typical in the oil industry.

118) What types of functional alliances exist?

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