Exam 2

When deciding whether to build, borrow, or buy as a means of growth, firms no longer need to consider the need for physical closeness to their resource partners.

False

Both Tom's Car Repair and Fast Engines. incur a cost of $9,000 to manufacture a vehicle. However, the economic value created by Fast Engines. is more than that created by Tom's Car Repair. What does this indicate?

Fast Engines can charge a premium price on its automobiles.

Mohawk is a leader in sustainable and innovative carpeting and floorings, as evidenced by its signature product, the world's first organic cotton carpet. Its product is unique and has appealing customer attributes. If Mohawk's raw material costs increased by 12 percent this year, what would be the likely outcome?

Mohawk would pass a major portion of this increase along as a price increase to its customers.

Which of the following best illustrates a merger between the two companies Scotfind Inc. and Inity Inc.?

Scotfind Inc. and Inity Inc. join together to form a single new company called ScotfindInity Inc.

A conglomerate receives less than 70 percent of its revenues from any single business and features a number of strategic business units that have little to no relationship with each other.

True

When multinational enterprises enter host countries such as Saudi Arabia and Japan, the most logical option is usually to pursue a multidomestic strategy even though that strategy rarely leads to significant cost-reductions.

True

Disney became the world's leading media company to a large extent by pursuing a corporate strategy of

related-linked diversification.

Applying the five forces model to business-level strategy allows managers to assess the benefits and risks of both cost-leadership and differentiation strategies.

True

Delos Inc. sells the same sparkplugs in more than 30 countries. Delos is an example that helps to support the globalization hypothesis.

True

During the period of Globalization 1.0, the mode of entry into foreign markets primarily involved

exporting goods.

A cost-leader is the firm most likely to survive a price war.

True

The cultural distance between Australia and the United States is relatively high because of the physical distance between the two nations.

False

Which of the following is a result of horizontal integration in terms of Porter's five forces model?

There is a reduction of excess capacity in the market.

When examining all the generic strategies, which of the following below is inherently superior in every industry?

There is no single superior business-level strategy.

Todd is a strategist for a furniture manufacturer that has a large presence in the United States and Canada. By checking economic and political reports, he knows that trade and investment barriers are falling among wealthy nations. He also knows that the price of oil has dropped 50 percent in the previous two years. Based on this information, what action should Todd and his company take?

They should seriously consider globalization because of the falling trade and investment barriers.

All of the following are questions that managers should ask before crafting a business-level strategy except

When should we introduce our product/service in the market?

Which of the following is primarily a value driver?

complements

There are some industries that are more competitive in some countries than others. In order to fully understand why this occurs, we need to examine Porter's Diamond framework. Which of the following below is NOT one of the four factors in this framework?

industry-specific forces

Which of the following is a common drawback of a nonequity alliance?

lack of trust between partners

Decisions relating to "what stages of the industry value chain to participate in" determine a firm's

vertical integration.

Which of the following accurately describes a common difference between a merger and an acquisition?

A merger tends to be friendly; an acquisition can be friendly or unfriendly.

Pete's Bikes enjoys a competitive advantage as a cost-leader because high demand for its products has allowed it to operate at the minimum efficient scale. Which of the following scenarios would be most concerning to the managers of Pete's Bikes?

A major winter storm shuts down Pete's production for several days.

Which of the following will most likely harm a multinational enterprise's (MNE's) reputation?

A sweatshop owned by an MNE has an explosion that kills hundreds of workers.

Differentiation and cost-leadership strategies are only effective in manufacturing industries.

False

Susan owns a firm that is considered fully integrated. Which of the following statements below would best describe a firm that is fully integrated?

All of Susan's business activities are conducted within the boundaries of the firm.

Even if a merger may not increase shareholder value as planned, it is often a wise idea to champion it so that managers will have the greater opportunities of working at an expanding company.

False

Firms that consider international expansion will often examine absolute metrics on which countries to pursue investments in but also consider relative distance. To help firms decide where to compete, the ________ was developed to help firms make this decision.

CAGE distance framework

A drawback involved in using cross-border strategic alliances to enter new foreign markets is that

some of the firm's proprietary know-how may be appropriated by the foreign partner.

Which of the following examples uses a focused differentiation strategy?

a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle

Victoria's Jewelry Inc. is considering a takeover of its competitor, Ace Diamond LLC. In general, Victoria's should go ahead with the acquisition as long as Ace Diamond is more valuable as a continued standalone company than it would be inside Victoria's.

False

When a firm operates at the minimum efficient scale, there is still opportunity for it to further reduce its cost per unit through economies of scale.

False

Openlane and Yearin Technologies have together invested and created a new organization, Globex Corporation, 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 Openlane and Yearin Technologies. Which of the following alternatives to integration does this scenario best illustrate?

a joint venture

Bob is the strategic business unit (SBU) CEO in charge of manufacturing cufflinks for men's clothing. While the market he competes in is low growth, Bob's SBU's earnings and cash flow are both ranked at high and stable. When examining Bob's SBU through the Boston Consulting Group (BCG) matrix lens, we can conclude that his SBU would be classified as a

cash cow.

InGen Pharmaceuticals Inc., Desktop Pharma Inc., and WEN Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with one another. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?

co-opetition

Gr8t Food is a chain of "fast casual" restaurants that sells its menu items at higher prices than its competitors. The restaurant has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Gr8t Food adopted in this scenario?

differentiation

Food Tiger Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller retail stores and supermarkets to compete against Food Tiger's low prices. Thus, Food Tiger has a competitive advantage due to its

economies of scale.

Maria wants to pursue an international strategy but is concerned that foreign markets aren't ready for her products and services. You recommend that she engage in ________, which would be contract based and would limit risk and exposure of her investments.

exporting

Bath & Chill is a spa that caters to the needs of a small percentage of highly health-conscious consumers. It offers state-of-the-art treatments in a luxurious setting. Since there are very few spas that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Bath & Chill is following a

focused differentiation strategy.

The fact that both Whole Foods (a high-end grocery store) and Aldi (an inexpensive grocery store) have a competitive advantage in the grocery store industry is an indication that

following a different generic business strategy within the same industry can lead to a competitive advantage for more than one organization.

Jill is the CEO of Note's Etc, a stationary manufacturer. She decides to open up a retail store to sell her products directly to consumers instead of just selling to retailers. In order to do this, Jill will need to engage in ________, which is a corporate level, strategy.

forward vertical integration

The Umbrella Corporation (UC) recently acquired a smaller competitor, Packer and Associates, which specializes in issues not previously covered by UC, such as land use and intellectual property cases. Given the increase in the firm's size and complexity, it is likely that its internal transaction costs will

increase.

Unilever's new-concept center is situated in downtown Shanghai, China, attracting hundreds of eager volunteers to test the firm's latest product innovations on-site while Unilever researchers monitor consumer reactions. In this example, Unilever is trying to reap the benefits of

location economies.

How will an increase in coordinated economic and political integration between countries affect the world economy?

There will be gains in social welfare and living standards across the globe.

A firm that decides to stop purchasing components from suppliers and start producing them in-house is pursuing backward vertical integration.

False

Grace wants to form a voluntary arrangement with another firm in order to gain more flexibility in her supply chain, complementarity to a few of her support activities via her value chain, and strengthen her firm's overall competitive position. Grace is looking for a simple and common type of alliances, like

a nonequity alliance.

The Konex Hotel Group purchased Green-Plus Hotels for an estimated value of $120 billion. All the hotels previously owned by Green-Plus Hotels are now managed by the Konex Hotel Group and are known as Konex hotels. What does this scenario best illustrate?

an acquisition

Golddex Autos currently sources components such as airbags, upholstery, and brake pads from various suppliers in the industry value chain. In order to lower costs and reduce the risk of interruptions in the supply of components, Golddex should pursue

backward integration.

Which of the following has been a key driver for firms to expand globally during the Globalization 3.0 stage?

benefits from lower labor costs in manufacturing and services

When two neighboring democratic countries that are part of a trading bloc follow different religions and social norms, they most likely have high ________ distance.

cultural

Pete E' Gee sell's Big Dog Choppers, a special type of motorcycle. His business generates roughly 80 percent of his revenues from selling these motorcycles and about 20 percent on motorcycle repair and service. Pete E' Gee would be classified as a ________ firm.

dominate business

A candy company called Blackzim Inc. forms an agreement with another candy company called Streethex Inc. Through this agreement, Blackzim owns 30 percent of Streethex. However, Streethex does not own any part of Blackzim. This type of agreement is called a(n)

equity alliance.

Whole Foods focuses on a small market segment, affluent consumers who want to buy high-end, organic groceries. What is the appropriate name for Whole Foods's scope of competition?

focused

Jennifer is the strategic business unit (SBU) CEO in charge of manufacturing stereo speakers for computers and laptops. Her SBU earnings and cash flow are both low and unstable. Which of the following strategies should Jennifer enact if examining her SBU through the Boston Consulting Group (BCG) matrix lens?

harvest and/or divest

Initech Inc. developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Accent Technologies, a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?

licensing

Walmart sells live animals (snakes, eels, toads, etc.) for food preparation in China whereas IKEA sells kimchi refrigerators and metal chopsticks in South Korea. These examples illustrate the need for ________ which often requires the competing firm to tailor their products and services to meet the needs of the market in which they are competing.

local responsiveness

When a firm is facing high pressure for local responsiveness and low pressure for cost-reductions, the firm is likely to adopt a(n) ________ strategy according to the integration-responsiveness framework.

localization

PolyCon Corp., a tool and die maker, is considering where to locate its new factories and offices. According to the CAGE distance model, which of these countries is statistically most attractive to PolyCon?

one that is in the same trading bloc as PolyCon's home country

What causes the winner's curse?

overpaying for an acquisition

The main reason behind Alphabet's decision to acquire the Israeli start-up company Waze for $1 billion was probably to

preempt its competitors from buying Waze.

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?

principal-agent problem

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

product diversification.

Codehow Inc. is a large firm involved in the highly competitive market of high-tech medical equipment. In this market, smaller firms that focus on research are constantly making new technological developments. Which of the following approaches would best serve the needs of Codehow?

serial acquisitions

It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because

the horizontal integration activity has the potential to reduce competitive intensity in an industry.

Value drivers contribute to a firm's competitive advantage only if

the increase in value creation exceeds the increase in costs.

What is horizontal integration?

the process of merging with a competitor at the same stage of the value chain

One of the reasons that big box retailers like Home Depot are able to achieve economies of scale is that

they are able to take advantage of physical properties and maximize their scale efficiencies by stocking more merchandise and handling inventory more efficiently.

Which of the following is true of acquisitions?

They can be friendly or hostile.

The process of closer integration and exchange between different countries and peoples worldwide is

globalization.

Foreign-entry modes such as acquisitions and greenfield projects are usually disadvantageous because they require a high level of capital and resource investment but allow for a low level of control.

False

Sending jobs out of the country to lower costs is known as outsourcing.

False

The term demand conditions refers to how high the volume of demand is for a particular product in a particular country.

False

Corporate strategy is focused solely on determining the geographic locations in which the firm should compete.

False

Power Juice is the owner of a firm that produces sports drinks. Since there are a number of firms in the industry competing on cost, Power Juice has decided to pursue a differentiation strategy. In this case, she should

focus on adding unique features to her product that customers will value.

The goal of a strategic position is to create the largest gap possible between the ________ that a firm creates through its offerings and the ________ required to create these offerings.

value; cost

When examining the core competence-market matrix, the most challenging diversification strategy occurs when firms attempt to combine ________ with ________. If done successfully, the firm could have the potential for "mega-opportunities" that may lead to competitive advantage.

new core competencies, new markets

Since Coca-Cola focuses on selling only soft drinks, a low degree of product diversification, we would conclude that they compete in a(n) ________ market versus their main competitor PepsiCo, that sells a wide variety of products.

single product

Bill's Hockey Pucks Inc. wishes to pursue international markets like China and Russia. In order to do this, they may wish to consider a possible

strategic alliance with another firm already established in those markets.

Rundofase International, a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. Aside from this, 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, which of the following alternatives to vertical integration is Rundofase International applying?

taper integration

Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?

the chief executive officer

Macmillan Toys Inc. is looking to expand internationally and wishes to develop a new product line that is highly localized while keeping their cost structure below that of their rivals. Macmillan Toys Inc. has been successful with implementing a blue ocean strategy in their main strategic business units and as such wishes to pursue a ________ strategy for their international operations.

transnational