Chapter 8 MGT449
70) 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. A) question marks B) dogs C) stars D) cash cows
A
14) A drawback of short-term contracting as an alternative to making a component in-house is that: A) the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality. B) it is the most-integrated alternative to performing an activity so the principal company has no control over the agent. C) it fails to allow a long planning period that individual market transactions provide. D) the buying firm cannot demand lower prices due to the lack of a competitive bidding process.
A
20) BioGrow 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, BioGrow Pharma invested $100 million in the project. This investment made by BioGrow Pharma will result in a ________. A) parent-subsidiary relationship B) cartel C) credible commitment D) corrective action
C
26) Investments in specialized assets tend to incur high opportunity costs because the: A) assets can be profitably used for multiple purposes. B) firms can avoid backward integration by investing in these assets. C) threat of one of the partners pursuing his or her self-interest is high. D) social costs associated with these assets are high.
C
27) ________ 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. A) Corporate divestiture B) Closed innovation C) Forward vertical integration D) Reverse engineering
C
11) In the market for used cars, which of the following is a reason behind the crowding out of desirable cars by lemons or inferior ones? A) Principal-agent problem B) Information asymmetry C) Time compression diseconomies D) Experience-curve effects
B
61) DiskOne 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, DiskOne 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, DiskOne will be categorized under: A) stars. B) cash cows. C) question marks. D) dogs.
B
69) 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: A) dogs. B) stars. C) cash cows. D) question marks
B
13) 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? A) Experience-curve effect B) Learning-curve effect C) Information asymmetry D) Principal-agent problem
C
19) 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? A) Credit Rationing B) Crowdsourcing C) Franchising D) Bootstrapping
C
60) ________ are strategic business units that compete in a low-growth market but hold considerable market share. A) Stars B) Dogs C) Cash cows D) Question marks
C
Decisions relating to "what stages of the industry value chain to participate in" determine a firm's: A) absorptive capacity. B) level of diversification. C) vertical integration. D) geographic scope.
C
24) Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing. A) functional department B) customer segment C) economy D) industry
D
62) If a strategic business unit is recognized as a cash cow, it is advisable to: A) harvest the business. B) maintain it till turns into a dog. C) divest the business due to its low market share. D) invest into the business to hold its current position.
D
63) A strategy of ________ will be most beneficial for a firm to enhance its overall corporate performance. A) related-linked diversification B) dominant-business level of diversification C) single-business level of diversification D) unrelated level of diversification
A
18) Hitoro Inc. developed a superior touchscreen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Revox Inc., a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate? A) Franchising B) Licensing C) Crowdsourcing D) Bootlegging
B
48) How does a conglomerate benefit from following an unrelated diversification strategy? A) The conglomerate can limit the learning- and experience-curve effects it faces. B) The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies. C) The conglomerate can solely depend on its primary business activity for a major portion of its revenues. D) The conglomerate can share most of its competencies in products, services, technology, or distribution between all its businesses.
B
66) How can a firm pursuing a diversification strategy enhance its overall corporate performance by leveraging financial economies? A) By adding more unrelated businesses into its corporate portfolio B) By investing in businesses under the question mark quadrant of the BCG matrix C) By using internal capital markets as a source of value creation D) By increasing its coordination and influence costs
C
7) A primary advantage of organizing economic activity within firms is the: A) eradication of the principal-agent problem. B) low administrative costs because of reduced bureaucracy. C) ability to coordinate highly complex tasks to allow for specialized division of labor. D) high-powered incentive to work as salaried employees for an existing firm.
C
2) Which of the following statements is true of transaction costs? A) 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. B) Transaction costs exclusively consist of external costs associated with economic exchanges. C) When companies transact in the open market, they incur internal transaction costs. D) Transaction costs are necessary to explain and predict the boundaries of a firm.
D
25) A(n) ________ is best used to depict the transformation of raw materials into finished goods and services along distinct vertical stages. A) encrypt B) chain of command C) scatter chart D) industry value chain
D
28) Neon Electronics Inc. sourced touchscreens 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 touchscreens. What does this scenario best illustrate? A) New product development B) Crowdsourcing C) Conglomerate diversification D) Backward vertical integration
D
3) Which of the following is an example of an external transaction cost? A) The cost of maintaining plant and machinery B) The cost of setting up a production unit C) The cost of recruiting and retaining employees D) The cost of searching for a contract manufacturer
D
33) ________ 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. A) Horizontal integration B) Forward integration C) Reverse engineering D) Strategic outsourcing
D
34) A firm that engages in strategic outsourcing typically: A) reduces its level of external transaction costs. B) increases its level of horizontal integration. C) increases its internal transaction costs. D) reduces its level of vertical integration.
D
36) When a firm is said to be pursuing a geographic diversification strategy, it means that the firm will: A) introduce different products and services in an existing single market. B) operate from multiple headquarters across the globe. C) depend solely on its in-house facilities for all its production purposes. D) sell its products in several different regional, national, and international markets.
D
37) 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 ________. A) lean manufacturing B) process diversification C) strategic outsourcing D) product-market diversification
D
17) ________ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property. A) Licensing B) Lean manufacturing C) Crowdsourcing D) Bootlegging
A
21) When Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with an Australian company, Orocobre Ltd. 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? A) It made a credible commitment by taking an equity stake in Orocobre. B) It acquired Orocobre as part of its backward vertical integration plans. C) It offered Orocobre franchising opportunities to sell hybrid vehicles. D) It offered Orocobre exposure to Toyota's proprietary information.
A
23) ________ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs. A) Vertical integration B) Venture capitalism C) Bootlegging D) Crowdsourcing
A
29) Which of the following best illustrates forward vertical integration? A) A firm that manufactured and sold car engines to major automobile companies launches its own line of cars. B) A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery. C) A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam. D) A chain of ice cream parlors launches a brand of toys and accessories for children.
A
30) HK 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. Which of the following diversification strategies does this best illustrate? A) Product diversification B) Market diversification C) Geographic diversification D) Process diversification
A
31) ________ 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. A) Specialized assets B) Cost drivers C) Liquid assets D) Value drivers
A
35) Today, many companies use PeopleSoft and EDS to avoid maintaining a human resource management system. By doing this, these firms are: A) engaging in strategic outsourcing. B) offshoring their core activities. C) increasing their level of vertical integration. D) engaging in unrelated diversification.
A
38) ________ 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. A) Diversification B) Differentiation C) Open innovation D) Taper integration
A
4) Which of the following is an example of an internal transaction cost? A) The cost of maintaining a production unit B) The cost of buying raw materials C) The cost of searching for a contract manufacturer D) The cost of signing a contract with a supplier
A
53) 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 softwares. This is an example of: A) building new core competencies to create and compete in markets of the future. B) redeploying and recombining existing core competencies to compete in markets of the future. C) building new core competencies to achieve vertical integration. D) leveraging existing core competencies to improve current market position.
A
55) 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: A) restructuring. B) reverse engineering. C) benchmarking. D) crowdsourcing.
A
65) 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. Which of the following can be inferred from this scenario? A) While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low. B) The tobacco SBU should follow a backward integration strategy, and the beverages SBU should pursue a forward integration strategy. C) While the tobacco SBU operates in a low-growth market, the beverages SBU operates in a high-growth market. D) The management of the company should use the cash inflow from the beverages SBU and invest it in the tobacco SBU.
A
67) 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: A) question marks. B) stars. C) underdogs. D) dogs.
A
68) The 3D 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? A) The 3D television division operates in a high-growth market, whereas the LCD television division operates in a low-growth market. B) The strategic recommendation for the 3D television division is to harvest it, and the strategic recommendation for the LCD television division is to invest further in it. C) The 3D television division will have a high market share in its industry, whereas the LCD television division will have a low-market share in its industry. D) The LCD television division will benefit by pursuing a differentiation strategy, and the 3D television division will benefit by following a cost-leadership strategy.
A
22) 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) A corporate acquisition B) A joint venture C) A licensing contract D) A franchisee
B
42) Which of the following corporate strategies did ExxonMobil pursue by acquiring XTO Energy, a natural gas company? A) Cost-leadership strategy B) Related diversification strategy C) Differentiation strategy D) Taper integration strategy
B
45) DS & Co. is following a related-linked diversification strategy, and GreenWing Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other? A) GreenWing Inc. pursues a backward diversification strategy, while DS & Co. pursues a forward diversification strategy. B) DS & Co. will share fewer common competencies and resources between its various businesses when compared to GreenWing Inc. C) GreenWing Inc. generates 70 percent of its revenues from its primary business, while DS & Co. generates only 10 percent of its revenues from its primary business. D) DS & Co. pursues a differentiation strategy, and GreenWing Inc. pursues a cost leadership strategy, to gain a competitive advantage.
B
51) MotorCult 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, MotorCult is primarily: A) unlearning existing core competencies to create and compete in markets of the future. B) building new core competencies to protect and extend current market position. C) leveraging new core competencies to improve current market position. D) redeploying existing core competencies to compete in future markets.
B
52) 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? A) It is targeting the chasm between the early adopter and early majority market segment. B) It is building new core competencies to protect and extend its current market position. C) It is leveraging existing core competencies to improve current market position. D) It is redeploying and recombining existing core competencies to compete in markets of the future.
B
54) ________ 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. A) Rebooting B) Restructuring C) Reverse brainstorming D) Reverse engineering
B
32) How do firms benefit from vertical integration? A) Vertical integration allows firms to reduce organizational complexity and administrative costs. B) Firms that vertically integrate do not have to make transaction-specific investments. C) Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities. D) Firms that vertically integrate will have increased strategic flexibility when faced with technological changes.
C
39) 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. Which of the following types of diversification strategies is the firm pursuing? A) Product diversification strategy B) Product-market diversification strategy C) Geographic diversification strategy D) Process diversification strategy
C
40) Marva 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. Which of the following strategies is Marva Industries pursuing? A) Process diversification strategy B) Niche marketing C) Product-market diversification strategy D) Zone pricing
C
41) 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. Which of the following terms best describes WLM? A) A single-business firm B) A conglomerate C) A dominant-business firm D) A subsidiary
C
43) 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) strategic outsourcing B) offshore outsourcing C) related-constrained diversification D) related-linked diversification
C
44) 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. Which of the following corporate strategies is Evara pursuing in this scenario? A) Related-constrained strategy B) Niche marketing strategy C) Related-linked strategy D) Taper integration strategy
C
56) The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in two dimensions: A) economic value created and costs incurred. B) start-up capital required and stage of industry life cycle. C) relative market share and speed of market growth. D) amount of debt financing and equity financing.
C
57) In the Boston Consulting Group (BCG) growth-share matrix, strategic business units categorized under dogs: A) compete in a low-growth market but hold considerable market share. B) hold a high market share in a fast-growing market. C) hold a small market share in a low-growth market. D) compete in a high-growth market but have low and unstable earnings.
C
6) 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? A) The firm's administrative costs will be low because of necessary bureaucracy. B) The firm will have high-powered incentives, such as hourly wages and salaries. C) The firm will have more flexibility in purchasing and comparing prices of goods and services. D) The firm will be protected against the principal-agent problem.
C
64) A corporation's star SBUs will: A) hold a small market share in a low-growth market. B) experience low and unstable earnings in a fast-growing market. C) hold a high market share in a fast-growing market. D) compete in a low-growth market but hold considerable market share.
C
71) TrueAutos 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. Which of the following can be inferred from this scenario? A) The petrol cars SBU is more important than the hybrid electric cars SBU in terms of future growth for the company. B) The petrol cars SBU will have a relatively low market share in its industry, whereas the hybrid electric cars SBU will have the least market share in its industry. C) The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market. D) The strategic recommendation for the hybrid electric cars SBU will be to harvest it, whereas for the petrol cars SBU, the company should just maintain it.
C
9) The most efficient way to overcome the principal-agent problem in a firm is to: A) increase the level of vertical integration within the firm. B) organize economic activities within the firm. C) provide stock options to managers. D) downsize the existing workforce.
C
10) ________ is best described as a situation in which one party is more informed than another, because of the possession of private information. A) Information piracy B) Information deregulation C) Information governance D) Information asymmetry
D
12) Bill 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 convinced that Bill should be hired as a sales person in the company. However, in his resume, Bill had not mentioned his previous work experience as he was fired from that job on the account of using illegal drugs. Which of the following does this scenario best illustrate? A) Principal-agent problem B) Learning-curve effect C) Experience-curve effect D) Information asymmetry
D
46) A firm follows a(n) ________ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses. A) dominant-business strategy B) related-constrained strategy C) differentiation strategy D) unrelated diversification strategy
D
47) 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. A) single-business firm B) parent company C) subsidiary D) conglomerate
D
5) Which of the following statements is true of internal transaction costs? A) Internal transaction costs arise when companies transact in the open market. B) It is beneficial to "buy" goods or services rather than "make" when internal transaction costs are low. C) 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. D) Internal transaction costs tend to increase with organizational size and complexity.
D
50) 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: A) leveraging existing core competencies to target the chasm between the early adopter and early majority market segment. B) building new core competencies to create and compete in future markets. C) building new core competencies to protect and extend current market position. D) redeploying and recombining existing core competencies to compete in future markets.
D
58) 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: A) question marks. B) cash cows. C) stars. D) dogs.
D
59) 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: A) provide more human resource to the business. B) infuse more capital into the strategic business unit. C) hold the business till it turns into a star. D) divest the strategic business unit.
D
8) 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? A) Principal-agent problem B) Information asymmetries C) Diseconomies of scale D) Experience-curve effect.
A
49) 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. Which of the following terms would best describe this company? A) A dominant-business firm B) A conglomerate C) A flagship brand D) A single-business firm
B
15) Which of the following firms is least integrated? A) A firm that makes equity investments in its supplier's company B) A firm that buys all the required raw materials from multiple external vendors C) A firm that enters a joint venture with another company to develop a new technology D) A firm that owns production subsidiaries across the globe
B
16) ________ 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. A) Corporate acquisitions B) Strategic alliances C) Embargos D) Cartel agreements
B
