Coastal Pharma and Brainwave Technologies have together invested and created a new organization, InnerView, to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Coastal Pharma and Brainwave Technologies. Which of the following alternatives to integration does this scenario best illustrate?

A. A joint venture

B. A franchisee

C. A licensing contract

D. A corporate acquisition

A. A joint venture

Explanation:

A joint venture is a cooperative agreement made by two or more business entities. Some characteristics include:

1. Their objective is to undertake and complete a specific project. For example, in this case the companies are attempting to innovate and reduce risks related to transaction-specific investments.

2. The businesses entered will keep their individual legal statuses. For example, the new organization operates independent of Coastal Pharma and Brainwave Technologies.

I will also explain the other terms for your added knowledge in this area:

Franchisee: A business owner who operates a franchise. They have purchased the rights to use another business's (the franchiser) proprietary knowledge, trademark or brand. The franchiser and franchisee are two parties who make up a franchising agreement.

Licensing contract: This is a contract that is legally binding between two parties: the licensor and licensee. The licensor grants the licensee permission to produce and sell their goods and services, use their patented technology, brand name and trade mark. The licensee in return will have to pay royalties to the licensor and abide by a series of standards.

A corporate acquisition: This is the taking over of one company by another. It can either be friendly (willingly) or hostile (unwillingly). It may occur in exchange for cash, debt, stock or a combination.