Chapter 8 Quiz

________ is best described as the changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain.

Backward vertical integration

A large conglomerate is deciding on the range of new products and services it can offer to its customers to further expand its operations. This decision determines the firm's A. level of diversification. B. vertical integration. C. geographic scope. D. horizontal integration.

A. level of diversification.

When Pluralsight Products planned to start its operations in Amerigo, an emerging nation, it realized that it would have to set up its own distribution channels. This would be a risky and expensive strategic move. The company had an option of hiring a small supply chain management company, Elastic Logistics, to reach its ultimate customers. However, this would require Elastic Logistics to make huge investments, which would be of no use to it if Pluralsight Products decided to exit the market. Thus, to gain Elastic Logistics' confidence, Gilded Products purchased 40 percent of the stock of Elastic Logistics. What does this scenario best illustrate? A. equity alliance B. franchising C. licensing D. venture capitalism

A. equity alliance

An inverted U-shaped relationship between the type of diversification and overall firm performance indicates that A. high and low levels of diversification are generally associated with lower overall performance. B. moderate levels of diversification fail to achieve additional value creation. C. firms that compete in single markets benefit the most from economies of scope. D. levels of vertical integration and overall firm performance share an inverse relationship.

A. high and low levels of diversification are generally associated with lower overall performance.

North Carolina National Bank (NCNB) used its unique core competency of identifying, appraising, and integrating acquisition targets to be rebranded as Bank of America, one of the largest banks in the United States. This is an example of a firm A. leveraging existing core competencies to improve current market position. B. building new core competencies to protect new market position. C. redeploying and recombining existing core competencies to compete in markets of the future. D. building new core competencies to create and compete in markets of the future.

A. leveraging existing core competencies to improve current market position.

Strategic managers who are interested in diversifying their firm should always remember that A. successful diversification should be aligned with and strengthen a firm's business strategy. B. forward vertical integration is more successful than backward vertical integration. C. a single-business diversification strategy generally works best. D. it's always a good idea to limit the size and scope of firms in order to achieve competitive advantage.

A. successful diversification should be aligned with and strengthen a firm's business strategy.

Which of the following is an example of internal transaction costs? A. the costs pertaining to setting up a shop floor B. the costs associated with searching for suitable manufacturer contracts C. the costs associated with negotiating prices with a business consultancy D. the costs linked to outsourcing payroll maintenance

A. the costs pertaining to setting up a shop floor

Corporate-level strategy answers ________ a firm should compete. A. where B. when C. how D. who

A. where

Which of the following best illustrates a dominant-business firm? A. Alpine Income Property Trust is a company whose multiple strategic business units contribute equally to the total corporate revenue. B. 89bio Inc. is a luxury brand that derives 90 percent of its revenues from its apparel line and 10 percent of its revenues from its premium furniture business unit. C. ECMOHO Ltd. is a company whose revenues solely come from selling automobiles. F. Fanged Network Group is a firm that derives 50 percent of its revenues from its steel unit and another 50 percent from its automobile businesses.

B. 89bio Inc. is a luxury brand that derives 90 percent of its revenues from its apparel line and 10 percent of its revenues from its premium furniture business unit.

Which of the following examples would most likely limit a firm's growth? A. A social entrepreneur wants to combine large profits with a socially responsible approach. B. A social entrepreneur makes conservation of the environment the primary goal of his firm. C. An entrepreneur sees retraining managers to eliminate principal-agent problems as a main goal of her firm. D. An entrepreneur views joining a conglomerate as an important opportunity to reduce risks.

B. A social entrepreneur makes conservation of the environment the primary goal of his firm.

Which of the following is an example of related-constrained diversification? A. a consumer electronics company launching its own line of designer apparel and accessories B. an automobile company that manufactures petrol cars expanding into the diesel car industry C. a grocery store leveraging its extra shelf space by stocking kitchen appliances D. a company dealing in home appliances hiring another company to carry out its marketing strategies

B. an automobile company that manufactures petrol cars expanding into the diesel car industry

Highly diversified firms experience a diversification discount in the stock market because they A. cannot leverage financial economies. B. are unable to create additional value. C. cannot influence costs. D. are unable to overcome institutional weaknesses in emerging economies.

B. are unable to create additional value.

The rationale behind related diversification is to A. limit learning-curve and experience-curve effects. B. benefit from economies of scale and scope. C. obtain only 10 percent of the revenues from the primary business activities. D. avoid sharing resources and competencies across different business lines.

B. benefit from economies of scale and scope.

Amazon expanded its single-product business by leveraging spare capacity into cloud computing and by offering its Kindle line of tablet computers and Echo line of digital assistants. This is an example of A. unrelated diversification. B. related-linked diversification. C. taper integration. D. backward vertical integration.

B. related-linked diversification.

The executives of Anaplan Inc., a large conglomerate, are making decisions on the stages of the industry value chain the firm must participate in, the range of products and services it should offer, and the global markets it should compete in. What are the executives primarily determining? A. the firm's economies of scale B. the boundaries of the firm C. the firm's chain of command D. the absorptive capacity of the firm

B. the boundaries of the firm

Which of the following best illustrates human-asset specificity? A. investing in drilling equipment to drill through any commercial metal B. training employees on how to operate a customized furnace C. using standard casting machines in industrial manufacturing D. instructing employees on how to operate a standard MRI scanner

B. training employees on how to operate a customized furnace

Zscaler started as an original equipment manufacturing firm (OEM) for brand-name mobile device companies. Later, it started offering a lineup of innovative and high-performance smartphones by acquiring BuildIt, a San Francisco-based design firm. This strategic move of Zscaler is known as A. crowdsourcing. B. corporate divestiture. C. forward vertical integration. D. radical innovation.

C. forward vertical integration.

Firms often consolidate industries through horizontal mergers and acquisitions to A. solve principal-agent problems. B. lower their stock prices. C. increase their market power. D. motivate managers.

C. increase their market power.

A disadvantage associated with obtaining goods and services externally includes A. high administrative costs due to increased bureaucracy. B. low-powered incentives for an individual to work as an entrepreneur for the firm. C. nontrivial search costs to be borne by the firm. D. creation of economies of scope for the firm.

C. nontrivial search costs to be borne by the firm.

Which of the following best illustrates backward vertical integration? A. an apparel company launching its line of premium wrist watches B. a supplier of plastic bottles launching his or her own brand of sparkling water C. a shoe brand outsourcing its production unit to manufacturers in less developed nations D. a chocolate manufacturing company setting up its own cocoa plantations

D. a chocolate manufacturing company setting up its own cocoa plantations

Lillian, a real estate agent, is selling a moderately priced house in a subdivision. She knows from her uncle that the factory being built half a mile from the subdivision will be manufacturing dog food, using a process that creates a very strong odor that permeates the surrounding neighborhood. A buyer, who is unaware of the type of factory under construction, makes an offer on one of the houses Lillian is selling, and within a short time, the deal goes through. What does this scenario best illustrate? A. network effects B. experience-curve effects C. principal-agent problems D. information asymmetries

D. information asymmetries

LMP Automotive Holdings Inc., a large multinational conglomerate, has hired an external consultant to process and audit its payroll. This allows the company to focus on manufacturing and marketing activities rather than developing and maintaining its own human resource management systems. Which of the following alternatives to vertical integration has LMP Automotive Holdings Inc. adopted? A. crowdsourcing B. forward integration C. backward integration D. strategic outsourcing

D. strategic outsourcing

There are several decisions that strategic managers must make when developing corporate-level strategy. Which of the decisions below are not relevant when considering corporate-level strategy? A. what range of products and services should be offered B. where, globally, the company should compete C. what stages of the industry value chain to participate in D. which strategic position (differentiation or cost leadership) to engage in

D. which strategic position (differentiation or cost leadership) to engage in

When examining the ________ framework, strategic managers are trying to decide on what activities to perform inside the firm and/or outside the firm (external market).

transaction cost economics