Which Of The Following Firms Faces The Greater Threat ✓ Solved

11 Which Of The Following Firms Faces The Greater Threat Of Cheating

Which of the following firms faces the greater threat of “cheating” in the alliances described, and why? (a) Firms I and II form a strategic alliance. As part of the alliance, Firm I agrees to build a new plant right next to Firm II’s primary facility. In return, Firm II promises to buy most of the output of this new plant. Who is at risk, Firm I or Firm II? (b) Firms A and B form a strategic alliance. As part of the alliance, Firm A promises to begin selling products it already sells around the world in the home country of Firm B. In return, Firm B promises to provide Firm A with crucial contracts in its home country’s government. These contracts are essential if Firm A is going to be able to sell in Firm B’s home country. Who is at risk, Firm A or Firm B? (c) Firms 1 and Firm 2 form a strategic alliance. As part of the alliance, Firm 1 promises to provide Firm 2 access to some new and untested technology that Firm 2 will use in its products. In return, Firm 2 will share some of the profits from its sales with Firm 1. Who is at risk, Firm 1 or Firm 2? 9.12 For each of the strategic alliances described in the above question, what actions could be taken to reduce the likelihood that partner firms will “cheat” in these alliances?

Sample Paper For Above instruction

Strategic alliances are collaborative agreements between firms that aim to achieve mutual benefits, such as expanding market reach, sharing resources, or developing new technologies. While these alliances offer significant advantages, they also pose risks associated with cheating or opportunistic behavior by the participating parties. Understanding who faces the greater threat of cheating and how to mitigate such risks is crucial for the success of strategic collaborations.

Analysis of Threats of Cheating in the Given Alliances

The first scenario involves Firms I and II where Firm I commits to building a new plant adjacent to Firm II’s primary facility, with Firm II agreeing to purchase most of its output. Here, the risk primarily lies with Firm I, as it invests substantial resources—in terms of capital, effort, and time—in constructing the plant. If Firm II does not purchase the agreed-upon output, Firm I faces the risk of under-rewarding or being exploited, especially if Firm II uses its market power to renegotiate or avoid purchasing.

Similarly, in the second alliance involving Firms A and B, where Firm A agrees to expand sales geographically, and Firm B promises to secure government contracts, the risk is more skewed towards Firm A. Firm A risks losing market expansion efforts if Firm B fails to deliver the promised government contracts. Conversely, Firm B might overpromise or withhold contracts for strategic reasons, but the primary risk of cheating involves Firm A’s market investment without reciprocation.

In the third alliance between Firms 1 and 2, where Firm 1 provides access to untested technology, the main risk of cheating rests with Firm 2. Once Firm 2 utilizes the technology, it might underreport profits or use the technology without sharing the agreed-upon profits, leveraging the technology for its competitive edge. Firm 1's risk stems from the possibility that Firm 2 may not share profits fairly after leveraging the innovation.

Strategies to Reduce the Risk of Cheating

To mitigate cheating in these alliances, firms can adopt several strategic measures. For the first alliance, establishing clear contractual agreements with performance metrics and penalties for non-compliance can act as deterrents against cheating. Regular monitoring and joint audits can also ensure transparency. Building trust through repeated interactions and reputation management encourages honest behavior over time.

In the second alliance, securing formal agreements that specify the criteria and timelines for government contracts, alongside third-party oversight or legal enforcement mechanisms, can reduce the likelihood of cheating. Additionally, aligning incentives, such as profit-sharing structures tied directly to the achievement of contractual milestones, can motivate both parties to honor their commitments.

For the third alliance, confidentiality agreements, patent protections, and shared governance structures can reduce the risk of misuse of technology disclosure and profit misappropriation. Implementing milestone-based payments or royalties based on actual sales can also ensure fair sharing of profits. Trust-building activities and reputation considerations are crucial, especially when dealing with untested technologies.

Conclusion

In conclusion, the threat of cheating varies across different types of alliances based on the nature of commitments and resource investments. Firms that commit significant resources or rely on specialized assets tend to face higher risks. To foster successful collaborations, firms must implement robust contractual safeguards, promote transparency, monitor compliance, and cultivate trust—thus reducing the likelihood of opportunistic behavior and ensuring mutual benefits from strategic alliances.

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