4490 Ch. 8
taper integration
Apple and Nike have their own retail outlets and also use other independent retailers, both the brick-and-mortar type and online, to sell their products. This is an example of
product diversification
BM Goods Inc. is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. What diversification strategies does this best illustrate?
the petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market
BestDrive Inc. is a large automobile company. The company's petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. What can be inferred from this scenario?
physical-asset specificity
Caring Ketchup Inc. makes organic ketchup. To promote its products, this firm decided to make bottles in the shape of tomatoes. To accomplish this, Caring Ketchup worked with its bottle manufacture to create a set of unique molds for its bottles. What specialized assets does this example demonstrate?
it is building new core competencies to protect and extend its current market position
Coca-Cola was primarily known for its core competencies in marketing, bottling, and distributing aerated drinks. However, with the success of Gatorade, Coca-Cola developed competencies in the development and marketing of its own sports drink, Powerade. Which of the following is true of Coca-Cola? -it is leveraging existing core competencies to improve current market position -it is building new core competencies to protect and extend its current market position -it is redeploying and recombining existing core competencies to compete in markets of the future -it is targeting the chasm between the early adopter and early majority market segment
a joint venture
Divina Pharma Inc. and MF Electronics Inc. have together invested and created a new organization, FirstHealth Inc., 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 Divina Pharma and MF Electronics. Which of the following alternatives to integration does this scenario best illustrate? -a joint venture -a franchisee -a licensing contract -a corporate acquisition
diversification premium
ESB Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has ESB Group created?
dogs
ElectraSync Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under
related-linked strategy
Evara Inc. started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few, if not all, of the common competencies in products, services, technology, and distribution. What corporate strategy is Evara pursuing in this scenario?
product-market diversification strategy
Fantastica Industries, a U.S.-based large conglomerate, competes in the hospitality, education, telecommunications, entertainment, airlines, and chemical industries. It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries. What diversification strategy is Fantastica Industries pursuing?
by using internal capital markets as a source of value creation
How can a firm pursuing a diversification strategy enhance its overall corporate performance by leveraging financial economies?
building new core competencies to create and compete in markets of the future
In 2007, Salesforce.com recognized an emerging market for platform as a service (PaaS) offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of software. This is an example of _____
hold a small market share in a low-growth market
In the Boston Consulting Group (BCG) growth-share matrix, strategic business units categorized under dogs
divest the strategic business unit
In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should
backward vertical integration
Neon Electronics Inc. sourced touch screens required for its tablet computers, cell phones, and televisions from a manufacturer in China. But the demand for such components was high globally, and the supplier could not meet the quality standards of Neon Electronics. Thus, Neon Electronics decided to set up its own unit to develop and manufacture the required touch screens. What does this scenario best illustrate?
product-market diversification
PepsiCo operates in many countries and sells a wide variety of aerated drinks, other beverages, different types of chips, and Quaker Oats goods to achieve continuous growth. From this data, we can conclude that PepsiCo has been involved in
cash cows
PrimoDisk Inc. holds the highest market share in the low-growth compact disk industry. With the introduction of flash drives, the market for compact disks has reduced. However, PrimoDisk has been able to generate sufficient revenues for the parent company by selling its products in less developed countries. In the Boston Consulting Group (BCG) growth-share matrix, PrimoDisk will be categorized under
while the market share of the company in the beverages industry will be high, the market share in the tabacco industry will be low
Real Goods Inc. is a large conglomerate. The company's beverages strategic business unit (SBU) has been recognized as a cash cow, and its tobacco SBU has been categorized as a dog. What can be inferred from this scenario?
a conglomerate
Red Empire Inc., a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. What best describes this company?
stages 1, 2, and 3
RoboToys, Inc. is involved in the production of robotic toys. This firm produces the raw materials, including metals and oils for plastic; creates the integrated circuits, displays, and batteries; and assembles the toys. Which of the following stages of the industry value chain is RoboToys involved in?
parent-subsidiary relationship
Stellar Products Inc. is a U.S.-based consumer electronics company. It owns smaller firms in Japan and Taiwan where most of its cell phone technology is developed and manufactured before being released worldwide. What alternative to integration does this best illustrate?
question marks
Strategic business units that have a relatively low market share but have the potential to grow are best categorized under _____ in the Boston Consulting Group (BCG) growth-share matrix.
geographic diversification strategy
Symphon Times Inc., a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of the emerging nations. What types of diversification strategies is the firm pursuing?
TL and co. will share fewer common competencies and resources between its various businesses when compared to soar inc.
TL & Co. is following a related-linked diversification strategy, and Soar Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other?
the 3D tv division operates in a high-growth market, whereas the LCD tv division operates in a low-growth market
The 3-D television division of a large consumer electronics company has been recognized as a question mark. The company's LCD television division has been categorized under dogs. Which of the following statements will hold well in this scenario? -the strategic recommendation for the 3D tv division is to harvest it, and the strategic recommendation for the LCD tv division is to invest further in it -the 3D tv division will have a high market share in its industry, whereas the LCD tv division will have a low-market share in its industry -the 3D tv division operates in a high-growth market, whereas the LCD tv division operates in a low-growth market -the LCD tv division will benefit by pursuing a differentiation strategy, and the 3D tv division will benefit by following a cost-leadership strategy
relative market share and speed of market growth
The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in which two dimensions?
redeploying and recombining existing core competencies to compete in future markets
The core competency of MotorCraft Inc. is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that there is a new market opportunity to diversify. Thus, it produces the car engines on a large scale and sells them to other automobile companies. In this scenario, MotorCraft is
by having higher performance in another sector
The managers at AHL Chemicals Inc. decided that their firm needed to diversify because of falling sales and lower performance in one sector. How does diversifying compensate for the lackluster performance in this sector?
stars
The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growth-share matrix, the smartphone division of True Electra will be categorized under _____
question marks
The solar-powered car division of a large automobile company has been experiencing negative cash flows though the market growth for such cars is predicted to be high. If the company invests further resources into this division, it can increase its relative market share in the future. However, if due to technological changes the car cannot create sufficient consumer demand, then the division can prove to be unprofitable. In the Boston Consulting Group (BCG) growth-share matrix, the solar-powered car division will be categorized under
building new core competencies to protect and extend current market position
Vehmo Inc. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car. In this scenario, Vehmo is primarily
taper integration
Virtue Products Inc., a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. This apart, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, what alternative to vertical integration is Virtue Products applying?
restructuring
WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company's key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in
related-constrained diversification
When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using
a dominant-business firm
White Leo Motors (WLM) Inc. generates a major portion of its revenues by manufacturing luxury sports cars. However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. What term best describes WLM?
diversification discount
Win Goods Inc. is a large multinational conglomerate. As a single business unit, the company's stock price is estimated to be $200. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $300. What is Win Goods experiencing in this scenario?
influence costs
____ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from sub optimal allocation of scare resources
specialized assets
____ are best described as unique assets with high opportunity costs that have significantly more value in their intended use than in their next-best use
cash cows
____ are strategic business units that compete in a low-growth market but hold considerable market share
forward vertical integration
____ is best described as changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain
restructuring
____ is best described as the process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully
strategic alliances
_____ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products or services to lead to competitive advantage
vertical integration
_____ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs
strategic outsourcing
_____ is best described as moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain
licensing
______ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property
information asymmetry
______ is best described as a situation in which one party is more informed than another, because of the possession of private infor
diversification
______ is best described as an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.
coordination costs
______, which are incurred when pursuing a related-diversification strategy, are a function of the number, size and types of businesses that are linked to one another
conglomerate
a _____ is best defined as a company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy
industry value chain
a ______ is best used to depict the transformation of raw materials into finished goods and services along distinct vertical stages
hold a high market share in a fast-growing market
a corporation's star SBUs will____
the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality
a drawback of short-term contracting as an alternative to making a component in-house is that _____
unrelated diversification strategy
a firm follows an ______ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses
reduces its level of vertical integration
a firm that engages in strategic outsourcing typically______
ability to coordinate highly complex tasks to allow for specialized division of labor
a primary advantage of organizing economic activity within firms is the _____
related-linked diversification
a strategy of ____ will be most beneficial for a firm to enhance overall corporate performance
product diversification
amazon.com has decided to enter the college bookstore market. the goal of "amazon campus" is to offer co-branded university-specific web sites that offer textbooks and paraphernalia, such as logo sweaters and baseball hats. This development shows amazon's relentless pursuit of____
information asymmetry
chao is in an interview for a sales job that requires no experience. he is trying to portray himself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. the interviewer is aconvinced that chao should be hired as a salesperson in a company. however, in his resume, chao had not mentioned his previous work experience as he was fired from that job b/c he used illegal drugs. what does this scenario best illustrate?
are able to increase value due to economies of scope
companies that pursue related diversification are able to create a diversification premium because they _____
vertical integration
decisions relating to "what stages of the industry value chain to participate in" determine a firm's _____
level of diversification
decisions relating to the range of products and services a firm will offer determine the firm's_____
the stock price of related-diversification firms is valued at greater than the sum of their individual business units
diversification premium is a situation in which ____
industry
each stage of the vertical value chain typically represents a distinct _____ in which a number of different firms are competing
backward vertical integration
firms that use taper integration also use _____ when they rely on outside-market firms for some of their supplies
the firm will have more flexibility in purchasing and comparing prices of goods and services
grace apparel inc. has decided to procure fabrics required for its garments from external suppliers instead of maintaining its own dyeing and weaving facilities. How will this decision affect the firm?
credible commitment
greencure pharma inc. wanted its research partner, an r&d company, to develop a cancer vaccine. however, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. thus, to gain its partner's confidence and to prove its involvement, greencure pharma invested $100M in the project. this investment made by greencure pharma will result in a ______
licensing
hitoro inc. developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time. the tech was leased to revox inc., a computer electronics company, for five years. which of the following alternatives to integration does this best illustrate? -licensing -franchising -crowdsourcing -bootlegging
vertical integration allows firms to inc operational efficiencies through improved coordination of adjacent value chain activities
how do firms benefit from vertical integration?
the conglomerate can overcome institutional weaknesses, such as a lack of capital markets,in emerging economies
how does a conglomerate benefit from following an unrelated diversification strategy?
an equity alliance involves taking ownership in a partner; a joint venture involves two or more people owning a firm
how is an equity alliance different from a joint venture?
invest into the business to hold its current position
if a strategic business unit is recognized as a cash cow, it is advisable to _____
info asymmetry
in the market for used cars, which of the following is a reason behind the crowding out of desirable cars by lemons or inferiors ones? -experience-curve effects -time compression diseconomies -principal-agent problem -info asymmetry
threat of one of the partners pursuing his or her self-interest is high
investments in specialized assets tend to incur high opportunity costs because the_____
principal-agent problem
managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self-interests. what does this best illustrate?
franchising
silver weave inc., an apparel company, operates through a business model in which individuals can buy the rights to set up silver weave stores and sell the company's merchandise in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. the owners of the stores have to stock the collection approved from the company's headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate? -crowdsourcings -credit rationing -franchising -bootstrapping
provide stock options to managers
the most efficient way to overcome the principal-agent problem in a firm is to_____
lowering costs
there are many reasons why firms need to grow. which of the following reasons is strongly influenced by economies of scale? -increasing profits -lowering costs -reducing risk -motivating managers
engaging in strategic outsourcing
today, many companies use peoplesoft and eds to avoid maintaining a human resource management system. by doing this, these firms are ______
sell its products in several different regional, national and international markets
when a firm is said to be pursuing a geographic diversification strategy, it means that the firm will____
information asymmetry
when approaching a bank for a loan, the borrower has better knowledge than the lender about his or her own ability to repay the loan without defaulting. what is this situation referred to as?
it made a credible commitment by taking an equity stake in orocobre
when toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with an austrailian company, orocobre lt. orocobre wanted to establish the bond of trust before making huge investments in specialized equipment required to extract the high-quality lithium. what did toyota do to instill this trust?
parent-subsidiary relationship
which of the following alternatives on the make-or-buy continuum allows for most integration? -short-term contracting -joint ventures -licensing -parent-subsidiary relationship
a firm that manufactures and sells car engines to major automobile companies launches its own line of cars
which of the following best illustrates forward vertical integration? -a firm that manufactures and sells cars engines to major automobile companies launches its own line of cars -a chain of ice cream parlors launches a brand of toys and accessories for children -a multinational coffee chain sources its coffee beans from plantations in brazil and vietname -a designer shoe company that previously purch leather from external suppliers establishes its own leather tannery
a machine solely designed to give a candy its trademarked shape
which of the following best illustrates physical-asset specificity? -a unique training program developed in an organization -a ship container designed to carry more than the average load of iron ore -a generic machine that can be used to churn different mixtures -a machine solely designed to give a candy its trademarked shape
equipment necessary for mining bauxite and aluminum smelting
which of the following best illustrates site specificity? -equip necessary for mining bauxite and aluminum smelting -bottling machinery to manufacture bottles with trademarked shapes -investment made in human capital to master procedures of a specific organization -investment made to train employees to operate computers
the tata group, active in industries such as tea, steel, IT, power and automobiles
which of the following companies will be considered as a conglomerate? -exxonmobil, after it acquired xto energy- a natural gas company -the tata group, active in industries such as tea, steel, IT, power, and automobiles -harley-davidson, with its harley-davidson branded motorcycle clothing and attire -coca-cola, which solely focuses on soft drinks but operates in many countries
related diversification strategy
which of the following corporate strategies did exxonmobil pursue by acquiring xto energy, a natural gas company? -taper integration strategy -differentiation strategy -related diversification strategy -cost-leadership strategy
a firm that buys all the required raw materials from multiple external vendors
which of the following firms is least integrated? -a firm that enters a joint venture with another company to develop a new tech -a firm that owns production subsidiaries across the globe -a firm that makes equity investments in a suppliers company -a firm that buys all the required raw materials from multiple external vendors
a company that pursues unrelated diversification
which of the following firms is most prone to experiencing a diversification discount? -a company that deals in petroleum as well as natural gas -a company that derives its revenues from selling aerated drinks and health drinks -a company that pursues unrelated diversification -a company that pursues related-constrained diversification
it inc the potential of legal repercussions
which of the following is a drawback of vertical integration? -it inc the difficulty of securing critical supplies -it impedes scheduling and planning -it inc the potential of legal repercussions -it impedes investments in special assets
the cost of searching for a contract manufacturer
which of the following is an example of an external transaction cost? -the cost of setting up a production unit -the cost of searching for a contract manufacturer -the cost of recruiting and retaining employees -the cost of maintaining plant and machinery
the cost of maintaining a production unit
which of the following is an example of an internal transaction cost? -the cost of searching for a contract manufacturer -the cost of signing a contract with a supplier -the cost of buying raw materials -the cost of maintaining a production unit
the transaction costs that arise are frequently due to transfer prices
which of the following is true of the parent-subsidiary relationship? -the ability to create a community of knowledge is low -the parent firm has no control and command over the subsidiary -the transaction costs that arise are frequently due to to transfer prices -the parent firm will lack specialization and division of labor
transaction costs are necessary to explain and predict the boundaries of a firm
which of the following is true of transaction costs? -when the costs of pursuing an activity in-house are more than the costs of transacting for that activity in the market, then the concerned firm should vertically integrate -when companies transact in the open market, they incur internal transaction costs -transaction costs exclusively consist of external costs associated with economic exchanges -transaction costs are necessary to explain and predict the boundaries of a firm
motivating managers
which of the following motivations for business growth involves principal-agent problems? -increasing profits -increasing market power -reducing risk -motivating managers
the chief executive officer
which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy? -first-line employees -the creditors -the ceo -the middle manager
internal transaction costs tend to inc with organizational size and complexity
which of the following statements is true of internal transaction costs? -internal transaction costs arise when companies transact in the open market -when the internal costs involved in pursuing an activity in-house are more than the costs of transacting, then the concerned firm should vertically integrate -internal transaction costs tend to inc with organizational size and complexity -it is beneficial to "buy" goods or services rather than "make" when internal transaction costs are low
it exposes in-house suppliers and distributors to market competition to make performance comparisons possible
which of the following statements is true of taper integration? -it is the most integrated alternative to performing an activity within one's own corporate family -it refers to a situation in which firms narrow their focus on downstream value chain activities and ignore the upstream value chain activities -it exposes in-house suppliers and distributors to market competition to make performance comparisons possible -it does not rely on outside-market firms for its supplies
kfc has more financial resources than chick-fil-a since it is a publicly traded stock company
while kfc focuses on international markets, its competitor, chick-fil-a, focuses on the domestic u.s. market. what is the reason behind this strategic difference?
integrate different strategic positions, pursued by different strategic business units
with reference to the strategy highlight 8.2, the tata group's corporate strategy is attempting to ______
