Which of the following statements best describes global expansion through a strategic alliance?
Multiple Choice
In a strategic alliance, a firm enters a new market and forms a new company with shared ownership, profits, and controls.
A strategic alliance is a relationship in which two firms collaborate on a business opportunity but do not invest in each other
In a strategic alliance, two firms enter into a franchise agreement.
In a strategic alliance, a firm in one country sends products to a firm in another country.
In a strategic alliance, a firm signs a trade agreement with a firm in another country.
The Correct Answer and Explanation is :
The correct answer is:
“A strategic alliance is a relationship in which two firms collaborate on a business opportunity but do not invest in each other.”
Explanation:
A strategic alliance refers to a cooperative arrangement between two or more firms that collaborate on specific business opportunities while remaining independent entities. These firms agree to share resources, expertise, or capabilities to achieve mutually beneficial goals, such as entering new markets, developing new products, or leveraging technological advancements. However, unlike joint ventures, a strategic alliance does not involve forming a new company, shared ownership, or equity investment.
Here’s why the other options are incorrect:
- “A firm enters a new market and forms a new company with shared ownership, profits, and controls.”
This describes a joint venture, not a strategic alliance. In a joint venture, two or more firms create a separate legal entity for collaboration. - “Two firms enter into a franchise agreement.”
A franchise agreement involves one firm (the franchisor) allowing another (the franchisee) to use its trademark and business model, typically in exchange for fees. This is not considered a strategic alliance. - “A firm in one country sends products to a firm in another country.”
This describes exporting, which involves selling goods to a foreign market. It does not entail collaboration or shared strategies. - “A firm signs a trade agreement with a firm in another country.”
Trade agreements are generally governmental or institutional agreements, not private collaborative arrangements between firms.
Strategic alliances are popular because they allow firms to achieve objectives such as entering foreign markets, sharing risks, or accessing complementary skills without the higher costs and risks of mergers, acquisitions, or joint ventures. For instance, a technology company might form an alliance with a manufacturing firm to produce innovative devices, leveraging each other’s strengths while avoiding the financial and legal complexities of full ownership or equity-based partnerships.