Exam 2 - CH9 Flashcards
(27 cards)
The build-borrow-or-buy framework aids in determining whether firms should pursue:
- Internal development (build)
- Enter a contract / strategic alliance (borrow)
- Acquire new resources, capabilities, and competencies (buy)
The main issues in build-borrow-or-buy are:
- Relevancy
- Closeness
- Tradability
- Integration
Relevancy describes:
Whether the firm’s internal resources are high or low in relevance in relation to solving the resource gap.
Internal resources are relevant if:
- They are similar to those the firm needs to develop.
- They are superior to those of competitors in the targeted area.
- They pass the VRIO Framework
Closeness can be achieved through….
integrated alliances:
- equity alliances
- joint ventures
Tradability describes when a firm:
creates a contract that allows for transfer of ownership and use of the resource. Short-term and long-term contracts are a way to borrow resources from another company.
What is the most costly, complex, and difficult to reverse form of integration / strategic option?
Mergers and acquisitions
What is a Strategic alliance?
voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities, with the intent of developing processes, products, and/or services
How do strategic alliances affect value chain?
Complement a firm’s value chain, or
Focus on similar value chain activities
What are the reasons for Strategic Alliances?
- Strengthen competitive position
- Enter new markets
- Hedge against uncertainty
- Access critical complementary assets
- Learn new capabilities
What are the alliance types?
- Non-equity
- Equity
- Joint venture
What are the governance mechanisms for each Alliance type?
- Contract for Non-equity
- Equity investment for Equity
- Creation of new entity by two or more parent firms for Joint venture
What is the most common type of Alliance?
Non-equity
What is the least common type of Alliance?
Creation of new entity by two or more parent firms
What are the pros of non-equity alliances?
- flexible
- fast
- easy to initiate and terminate
What are the pros of Equity Alliances?
- Stronger tie
- Trust and commitment can emerge
- Window into new technology
What are the pros of Joint Venture Alliances?
- Strongest tie
- Trust and commitment
- May be required by institutional setting
What are the cons of non-equity alliances?
- Weak tie
- Lack of trust and commitment
What are the cons of Equity Alliances?
- Less flexible
- Slower
- Can entail significant investments
What are the cons of Joint Venture Alliances?
- Can entail long negotiations and significant investments
- Joint ventures can mean two bosses
What is Partner Selection and Alliance Formation about?
- Benefits must exceed costs
- Meets one of the 5 reasons for strategic alliances
- partner compatibility and commitment
What is Design and Governance about?
- Choice of one of the alliance types
- join specialized complementary assets
- inter-organization trust
What is Post-formation Management about?
- Create VRIO resource combinations
- Build capacity through repeated experiences over time
Who do firms merge?
Horizontal integration
