BADM 449 EXAM 2

Which of the following are predictions of the transaction cost theory? (Mark all that apply)

-All else equal, increases in AQRs (or asset specificity) will lead to more integration (make instead of buy) -All else equal, more frequent unprogrammed adaptation (or higher uncertainty) will lead to more integration (make instead of buy) -All else equal, more expensive haggling will lead to more integration (make instead of buy)

A firm is considering building a sugar mill (an industrial plant) next to a sugarcane farm with the purpose of securing sugarcane to produce sugar. Because this the only farm within a radius of 100 miles, the sugar mill anticipates a hold-up problem where the farmer increases prices after the construction of the mill. The sugar mill will cost $300 million with the unique purpose of producing sugar (no alternative use). The farmer can easily switch to orange cultivation if the price of oranges becomes more attractive than the price of sugarcane. According to the transaction cost theory, what is likely to occur in this case: (Mark all that apply)

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[Apple Case Study] Why did Apple struggle historically in personal computers (PCs)?

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[Session 1] True or False. Robust strategies typically incorporate multiple trade-offs. Trade-offs occur when activities are incompatible. For example, an airline can choose to serve meals—adding cost and slowing turnaround time at the gate—or it can choose not to, but it cannot do both without bearing major inefficiencies. Other examples of trade-offs include: • Trade-offs in product features. That is, the product that best meets one set of needs performs poorly in addressing others. Trade-offs in strategic positioning. Pursuing a low-cost strategy is often incompatible with a differentiation strategy. Trade-offs in image or reputation. Being associated with low-quality/low-cost creates barriers to broaden the existing customer base.

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Which of the following are advantages of international expansion? (Mark all that apply)

Access to new markets Access to lower cost inputs Develop new competencies session 16

Raul is the Chief Operating Officer (COO) of Black Mesa Inc., a firm that produces handcrafted kitchen tables for both the residential and commercial markets. Jose believes that his domestic market is saturated and now wishes to go global. Which of the following below would serve as an advantage for Raul if he chooses to pursue international markets? (Mark all that apply)

Advantage #1 (For small firms) Gain Access to a Larger Market Achieve Growth Gain and sustain competitive advantage Advantage #2 (For small firms) Access Low-Cost Input Factors Low labor costs Possible to pursue a low-cost leadership strategy Advantage #3 (For small firms) Develop New Competencies Access: Community of Learning Specific Geographic regions Location economies Locating value chain activities in optimal regions

The CAGE distance framework is used to help firms understand the relative distance between domestic and the foreign country along four dimensions (Cultural, Administrative and Political, Geographic, and Economic). According to the CAGE framework, if distance between two countries increases, __________.

Costs and risk of expansion increases

External transaction costs are costs incurred in undertaking an economic transaction using the market system (e.g., buying an input from a supplier) and include search costs, contract costs and monitoring costs.

TRUE

Firms sometimes invest in basic research to develop "absorptive capacity" and be able to take advantage of ideas from outside the firm.

TRUE

A home market made up of sophisticated customers who hold companies to a high standard of value creation and cost containment contributes to local firms' competitive advantage. Moreover, demanding customers may also clue firms into the latest developments in specific fields and may push firms to move research from basic findings to commercial applications for the marketplace. For example, due to dense urban living conditions, hot and humid summers, and high energy costs, it is not surprising that Japanese customers demand small, quiet, and energy-efficient air conditioners. This is an example of __________.

Historic conditions on the demand side

Which of the following are advantages of locating in an industry/geographic cluster? (Mark all that apply)

Industry Diversification: • Increase in the number of industries (also products / services) • Active in several product markets Geographic Diversification: • Increase in variety of markets / geographic regions • Regional, national, or international markets

The additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances, are best described as a(n) __________.

Liability of foreignness

Which of the following are threats to international expansion? (Mark all that apply)

Liability of foreignness Loss of reputation Loss of intellectual property

Inventors may not profit from an innovation if they do not possess complementary assets (capabilities in manufacturing, marketing, and distribution) required for the successful commercialization of the innovation.

TRUE

Learning curves can lock firms into one technology, making it challenging to transition to a different technology.

TRUE

Rebecca Henderson's supply-side disruption says that firms get disrupted because they have a difficult time changing their "architecture" (things like value proposition, organizational structure, and incentive systems).

TRUE

[Session 3] True or False. When applied to the PC industry, Porter's five forces framework seeks to explain differences in profitability between firms such as Apple, Dell, HP, Lenovo, and Acer.

TRUE

Which of the following is an example of an external transaction cost?

Searching for contractors • Negotiating, monitoring, and enforcing contracts

According to Clayton Christensen's idea of demand-side disruption, incumbent firms get disrupted when __________. (Mark all that apply)

Successful firms get "disrupted" when they ignore a competing product because it is initially lower quality, and customers don't want it.

Firms and markets, as different institutional arrangements for organizing economic activity, have their own distinct advantages and disadvantages. The advantages of a firm include the ability to make command-and-control decisions and coordinate highly complex tasks, while the advantages of the market include high-powered incentives and the ability to choose among multiple exchange partners.

TRUE pg.285 (8.2)

Firms can protect their intellectual property by using defensibility strategies such as _________.

Use first mover advantage, keep something a trade secret, have unique access to certain resources, keep hard-to-figure-out aspects of production secret while patenting easy-to-figure-out components

Netflix eventually triumphed over Blockbuster because Blockbuster had a difficult time to change their business model given its investments in brick-and-mortar stores, its existing workforce, and its original value proposition. This is an example of __________.

architecture/supply side disruption?

Which of the following best illustrates (physical) asset specificity?

assets whose physical and engineering properties are designed to satisfy a particular customer. pg.295

A primary advantage of organizing economic activity within firms is the __________.

command and control coordination transaction septic investments community knowledge

[Haier Case Study] What were the key motives and advantages of Haier's internationalization? (Mark all that apply)

develop new competencies access new markets

Firms operating in industries with accelerated technological changes could avoid the threat of disruption by __________.

disrupt themselves??

[PepsiCo Restaurants Case Study] The acquisition of California Pizza Kitchen could help PepsiCo __________. (Mark all that apply)

diversify reach new customers ???

What are potential benefits of related diversification? (Mark all that apply)

economies of scale economies of scope pool/share resources leverage competencies across business lines

Duke & Duke Autos Inc. has shifted its research and development unit from its home country to Germany. This allows the company to be better informed about the latest developments in the automotive industry by tapping into the highly advanced automotive industry in Germany. In this scenario, Duke & Duke Autos Inc. is reaping the benefits of __________.

human capital endowments

Entrepreneurs must decide how to compete with incumbent firms. Entrepreneurs often have three main alternatives: (i) compete, (ii) cooperate, and (iii) first compete and then cooperate. An entrepreneur is more likely to (ii) cooperate with an incumbent firm if the __________.

incumbent is too strong

Which of the following statements accurately explains the primary reason behind Walmart's failure in Germany (see Textbook, Strategy Highlight 10.2)?

liability of foreignness pg. 362

What are examples of decisions in corporate strategy? (Mark all that apply)

pg. 280 in textbook

The "make" and "buy" choices anchor each end of a continuum from markets to firms. Several alternative hybrid arrangements are available between these two extremes. What are examples of these hybrid arrangements?

short term contracts long term contracts equity alliances joint ventures parent subsidiary relationships pg. 287

According to the transaction cost theory, which airline route is more likely to be contract out to a regional carrier?

smaller flights

Why are patents important for innovation? (Mark all that apply)

temporary monopoly basis for comp adv double edged sword 7-1

Golddex Autos currently sources components such as airbags, upholstery, and brake pads from various suppliers in the industry value chain. The company is currently having problems due to the quality of these inputs and constant delays. In order to reduce the risk of interruptions in the supply of components, Golddex can pursue __________.

vertical integration?

Under the CAGE distance framework, the administrative and political distance between two countries primarily increases with _________.

• Captured in factors such as: • Sharedmonetaryorpoliticalassociations.• Politicalhostilities.• Weak or strong legal and financial institutions. • Political and administrative barriers include:• Tariffs,quotasandrestrictions.

Transaction costs of operating in the market include __________. (Mark all that apply)

• Costs incurred in undertaking an economic transaction • Could be financial, extra time, or inconvenience • Search costs, contract costs, paying a margin to an intermediary

According to the CAGE distance framework, what does cultural distance represent?

• Distance is the main cost and risk of expansion .• CAGE is an acronym for different types of distance: • Cultural: • Disparity between a firm's home and host country, specifically social normsand morals, beliefs, and values. .• Administrative and political .• Geographic. • Economic. • Guides multinational enterprise decisions on which countries to enter.

How does a conglomerate benefit from following an unrelated diversification strategy?

• Internal Capital/Labor Markets • Potential source of value creation, particularly in emerging markets • A way to allocate capital/labor at a lower cost, if more efficient than external markets • Consider coordination and influence costs

What are potential benefits of unrelated diversification? (Mark all that apply)

• Internal Capital/Labor Markets • Potential source of value creation, particularly in emerging markets • A way to allocate capital/labor at a lower cost, if more efficient than external markets • Consider coordination and influence costs

Which of the following is an example of an internal transaction cost?

• Recruiting and retaining employees • Setting up incentives administrative costs