Question

Lana Dubois Inc. is a large skincare company that made an initial small investment in a startup company, Greener Tan, which was developing an organic sunscreen. This gave Lana Dubois controlling interests in the startup company. However, Greener Tan soon began to have financial difficulties because of principal-agent problems. As a result, Lana Dubois did not invest in the next stage of development and pulled out of the company. This approach to strategic alliance is referred to as a

a. partial joint venture.
b. break-even analysis.
c. credible commitment.
d. real-options perspective.

Answer 1

The strategic approach described is a real-options perspective, where Lana Dubois Inc. made an initial investment with the option to continue or withdraw, which they exercised by pulling out due to Greener Tan's financial issues. Therefore correct option is D

Step-by-step explanation:

The approach to strategic alliance described in the situation with Lana Dubois Inc. and Greener Tan is best referred to as a real-options perspective. This perspective allows firms to make initial small investments in a project with the option to either escalate commitment at later stages or abandon the venture based on how the initial project is performing. Lana Dubois Inc. decided not to invest further and pulled out because the principal-agent problem caused financial difficulties for Greener Tan, thereby exercising their option not to proceed. This reflects the characteristic flexibility of the real-options perspective in strategic investments.