ITPEC IP October 2019 Question 82
When two or more companies work together under an alliance agreement, which of the following is the most appropriate risk that is expected to be reduced?
Explanation
Business investment risk — in an alliance the partners share the cost and the risk of a new business instead of one company bearing it alone.
An alliance (business tie-up) lets independent companies combine technology, production capacity, sales channels or capital for a common purpose. Because each partner contributes only part of the investment, a failure costs each of them less, and the business can start faster than if one company had to build every capability itself.
Answer (a)
Why not others:
- •(b) — working together means sharing technology and business information with the partner, so the risk of information leaking rises rather than falls
- •(c) — joint work puts staff and know-how in contact with another company, which can make losing key people or skills more likely, not less
- •(d) — fraud is controlled by internal control and auditing; bringing in a partner adds transactions to check rather than reducing fraud
Key rule: The main aim of an alliance is to spread investment and gain complementary strengths quickly; its price is less control and more exposure of information to the partner.
Business Strategy Management · AI-written, may contain errors
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