Download TEST 4 - CHAPTERS 9, 10, AND 12 (ROTHAERMEL 5TH EDITION)- STUDY GUIDE TEST BANK and more Exams Business Economics in PDF only on Docsity! Your Exam Plug TEST 4 - CHAPTERS 9, 10, AND 12 (ROTHAERMEL 5TH EDITION)- STUDY GUIDE EXAM QUESTIONS AND COMPLETE SOLUTIONS GRADED A+ What three options do corporate executives have at their disposal to drive firm growth? - Answer: 1. Organic Growth (through strategic development) 2. External Growth: through alliances 3. External Growth: through acquisitions What is the build-borrow-buy framework? - Answer: A conceptual model that aids firms in deciding whether to pursue internal development (build). Enter a contractual agreement or strategic framework (borrow), or acquire new resources, capabilities, and competencies (buy). What is the strategic resource gap and why is it the starting point in the build-borrow-buy framework? - Answer: A barrier to entry that could either prevent (or protect) a company from implementing a Build strategy. If the firm's resources are highly relevant to closing the gap, the firm should build. If the resources are not relevant the firm should borrow or buy. Relating to the build-borrow-buy framework, which 4 sequential questions enable an organization to determine the best course of action to close the strategic resource gap - Answer: 1. Relevancy: How relevant are the firm's existing internal resources to solving the resource gap? 2. Tradability: How tradable are the targeted resources that may be available externally? 3. Closeness: How close do you need to be to your external resource partner? 4. Integration: How well can you integrate the targeted firm, should you determine you need to acquire the resource partner? Using which two criteria do strategic leaders evaluate the relevance of internal resources? - Answer: 1. Are they similar to those the firm needs to develop? 2. Are they superior to those of competitors in the targeted area? Under what conditions are the firm's internal resources relevant to pursue internal development? - Answer: If both of the above conditions are met. What does the term tradable imply? - Answer: That a firm is able to source a resource externally through a contract that allows for the transfer of ownership or use of the resource. What is explicit knowledge? - Answer: Knowledge that can be arranged into groups that concern the notion of knowing about a certain process or product. Patents, User Manuals & Scientific Publications are examples. What is a licensing agreement? - Answer: Are contractual alliances in which the participants regularly exchange codified knowledge. What are the pros and cons of a non-equity alliance? - Answer: Non equity alliance which is based on contracts between firms. The most frequent forms of non equity alliances are supply agreements distribution agreements, and licensing agreements. What is an equity alliance? - Answer: At least one partner takes partial ownership in the other partner. Equity alliance are less common than contractual, non-equity alliance because they often require larger investments. What is tacit knowledge? Knowledge that cant be codified. Tactic knowledge concerns knowing how to do a certain task. It can be acquired only through actively participating in the process. What is corporate venture capital (CVC)? - Answer: Investments, which are equity investments by established firms in entrepreneurial ventures. The value CVC investments is estimated to be in the double digit billion dollar range each year. WhWhat are the pros of an organic equity alliance?at are the pros of an organic equity alliance? - Answer: Generally lower risk Less demanding Typically less complex What are the cons of an organic equity alliance? - Answer: Perceived to be slower Demands more patience Often inadequate to fill the 'strategic gap' What are the cons of an acquisition equity alliance? - Answer: Integration can be hard and take longer Is medium to high risk Can be time-consuming and distracting What are the pros of an acquisition equity alliance? - Answer: Fast to do deal Often offers a bigger-value prize Gives control What are the pros of an alliance - Answer: Lower risk than an acquisition Gives competences that you may lack Low investment What are the cons of an alliance - Answer: Less permanent, shorter life-cycle May dilute competence and cover up weaknesses Can be hard to manage, especially with change What is a joint venture? - Answer: A standalone organization created and jointly owned by two or more parent companies. For example Hulu ( a streaming service) is jointly owned by Disney and Comcast. Since partners contribute equity to a joint venture, they are making a long-term commitment. What are the pros of a joint venture? - Answer: • are only bound by a temporary arrangement; • gain access to additional resources as they come together to pursue a mutual and specific goal; • may complete a project which they may not have had the finances or staff to complete on their own; • can share risks and costs; and • can access increasing opportunities for growth, including financial growth. What are the cons of a joint venture? - Answer: dealing with different working arrangements, workplace cultures and management styles between the parties; • either of the parties making poor tactical decisions which may affect the desired outcome of the project • the joint venture parties may have a lack of commitment to the project. What is alliance management capability? - Answer: The firm ability to effectively manage three alliance related tasks concurrently often across a portfolio of many different alliances Partner selection and alliance formation Alliance design and governance Post formation alliance management What is the first step in the process of alliance management? - Answer: Partner selection and alliance formation: when making business case for an alliance, the expected benefits for the alliance must exceed costs. When one or more of the five reasons for alliance formation are present to strengthen competitive position, enter new markets, hedge against uncertainty, access critical complementary resources Why do firms such as Eli Lilly, HP, P&G and IBM compete to obtain trustworthy reputations? - Answer: To obtain trustworthy reputations in order to become the alliance partner of choice for small technologies ventures, universities and individual inventors What is partner compatibility? - Answer: Captures aspects of cultural fit between different firms. Partner commitment concerns the willingness to make available necessary resources and to accept short term sacrifices to ensure long term rewards Partner commitment? Concerns the willingness to make available necessary resources and to accept short term sacrifices to ensure long term rewards. What is a merger? - Answer: The joining of two independent companies to form a combine entity. What is a Acquisition? - Answer: The purchase or takeover of one company by another What is a Hostile takeover? - Answer: when a target firm does not want to be acquired, the acquisition is considered hostile takeover. What is horizontal integration? - Answer: The process of merging with competitors leading to industry consolidation What are the three main benefits of a horizontal integrationstrategy? - Answer: Reduction in competitive intensity, lower cost, increased differentiation Why did Google acquire Waze? - Answer: to gain access to a new capability and to prevent rivals from gaining access. Waze's claim to fame is tis interactive mobile map app. Google is already the leader online maps and wanted to extend this capability to mobile devices. Relating to M&A and Competitive advantage, what is the "winner's curse"? - Answer: example: sometimes companies get involved in a bidding war for an acquisition; the winner may end up with the prize but may have overpaid for the acquisition thus falling victim to the winners curse. On average, do M&As destroy or create shareholder value? - Answer: Destroy. One report by KPMG concluded that more than half of mergers destroy shareholder value while one third made no difference at all. The reasons for failed mergers include tangible accounting and operation failures, but the most complex reasons deal with people, culture and human emotion. These are also the most difficult to correct for. Which three reasons do we see so many mergers? - Answer: o Principal agents' problems What are location economies? - Answer: benefits from locating value chain activities in optimal geographies for specific activity, whenever that may be. What is a polycentric innovation strategy? - Answer: a strategy in which MNEs draw on multiples, equally important innovation hubs throughout the world characteristic of Globalization 3.0 What are three disadvantages of going global? - Answer: 1. Liability of foreignness, 2. loss of reputation, 3. loss of intellectual property What is liability of foreignness - Answer: Additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances. What challenges did Walmart face that resulted in its exit from Germany? - Answer: Walmart faced the liability of foreignness in Germany. Its management fell to provide lower prices compared to its competitors and fell to adapt to Germany cultural differences What is the CAGE distance framework and how does it aid MNEs in deciding where in the world to compete? Be familiar with Exhibit 10.6. - Answer: CAGE distance framework is a decision framework based on the relative distance between home and a foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance. What is national culture? - Answer: The collective mental and emotional "programming of the mind" that differentiates human groups. Which framework provides a useful to proxy cultural distance? Hofstede's work provides a useful tool to proxy cultural distance. o What is cultural distance? - Answer: The cultural disparity between the internationally expanding firm's home country and its targeted host country. Which countries have low cultural distance to the US? - Answer: English speaking countries have low cultural distance to the US: Australia, Canada, Ireland, New Zealand, United Kingdom... How does USMCA (NAFTA) impact the Administrative and Political distance between Canada, Mexico & the US? - Answer: How does USMCA (NAFTA) impact the Administrative and Political distance between Canada, Mexico & the US? How do colony-colonizer relationships impact trade? - Answer: Colony-colonizer relationships have a strong positive effect on bilateral trade between countries. British companies continue to trade heavily with businesses from its former colonies in the commonwealth; Spanish companies trade heavily with Latin American countries; and French businesses trade with the franc zone of West Africa. What is the most important determinant of Economic distance between two countries? - Answer: The wealth per capita income of consumers is the most important determinant of economic distance. Do wealthy countries engage in relatively more cross-border trade than poorer ones? - Answer: Yes, They tend to trade with other rich countries. In addition, poor countries tend to trade more with rich countries then poor countries. Rich countries use this as a form of arbitrage (i.e. the textile industry - a rich country will usually have a poor country do this to benefit from lower cost of labor) What is the globalization hypothesis? - Answer: The assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogeneous. What is local responsiveness? - Answer: The need to tailor product and service offerings to fit local consumer preferences and host dashcountry requirements. • What is the Integration-Responsiveness framework? - Answer: A strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally. o International o Multidomestic o Global-Standardization o Transnational Can creating a control system that encourages desired values foster ethical behavior inemployees? - Answer: Yes What are codes of conduct? - Answer: These codes go above and beyond the law in detailing how the organization expects an employee to behave and to represent the company in business dealings Are law and ethics synonymous? - Answer: No What is business ethics? - Answer: An agreed-upon code of conduct in business, based on societal norms. How do auditors, government regulators, and industry analysists serve as external governance mechanisms? - Answer: Because they consists of activist investors who seek to gain control of an underperforming corporation by buying shares of its stock in the open market. What is a poison pill? - Answer: Defensive provisions to deter hostile takeovers by making the target firm less attractive. What benefits do private companies enjoy that public companies do not? - Answer: Private companies are not required to disclose financial statements. They experience less scrutiny from analysts and can often focus more on long-term viability. What is a leveraged buyout (LBO)? - Answer: A single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company in order to take it private What is a corporate raider? - Answer: Individuals other than competitors i.e private-equity firms and hedge funds that may buy enough shares to exert control over a company. What is the "market for corporate control"? - Answer: An important external corporate governance mechanism. It consists of activist investors who seek to gain control of an underperforming corporation by buying shares of its stock in the open market. What two issues are at the forefront of CEO pay? - Answer: 1. The absolute size of the CEO pay package compared with the pay of the average employee. 2. The relationship between CEO pay and firm performance. Why would a board of directors' grant stock options as part of a manager's compensation package? - Answer: To align incentives between shareholders and management