MGMT 478 Test 3

Which of the following best illustrates a non-equity alliance?

A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component parts to Pristine Autos Inc

A firm that engages in strategic outsourcing typically A. increases its internal transaction costs. B. reduces its level of vertical integration. C. reduces its level of external transaction costs. D. increases its level of horizontal integration.

B. reduces its level of vertical integration.

Which of the following statements is true of a disruptive innovation?

It invades the market from the bottom up, by first capturing the low end.

co-opetition

cooperation by competitors to achieve a strategic objective

Which of the following is an ineffective practice in alliance management?

focusing on developing an alliance management capability in isolation

In a strategic alliance, the firm that learns faster:

has the incentive to reduce its knowledge sharing

In the Boston Consulting Group (BCG) growth-share matrix, strategic business units categorized under dogs:

hold a small market share in a low-growth market.

which of the following is a disadvantage of horizontal integration corporate strategy

increases the potential for legal repercussions

Large companies have been shifting their knowledge landscape from closed innovation to open innovation because of the:

increasing supply and mobility of skilled workers.

In a successful _____, the trade-offs between differentiation and low cost are reconciled.

integration strategy

Which of the following types of strategic alliances is the least common in terms of frequency?

joint ventures

explicit knowledge

knowledge that can be codified (info, facts, instructions, recipies); concerns knowing about a process or product

There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale? A. increasing profits B. lowering costs C. reducing risk D. motivating managers

lowering costs

principal-agent problems

managers are supposed to act in the best interest of the shareholders but sometimes they choose acquisitions bc of a desire for prestige, power, and pay.

A(n) _____ occurs when firms enter into a partnership based on contractual agreements, which results in vertical strategic alliances, that connect different parts of the industry value chain.

non-equity alliance

Supply, distribution, and licensing contractual agreements between firms, which result in vertical strategic alliances, are all examples of _____.

non-equity alliances

alliances can be governed by the following mechanisms - contractual agreements for:

non-equity alliances equity alliances joint ventures

In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates _____.

real options perspective

learning races

situations in which both partners in a strategic alliance are motivated to form an alliance for learning but the rate at which the firms learn may vary; the firm that accomplishes its goal more quickly has an incentive to exit the alliance or reduce its knowledge sharing

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

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.

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.

unrelated diversification strategy

hostile takeover

when a target firm does not want to be acquired

3 main benefits to a horizontal integration strategy

-Reduction in competitive intensity -Lower costs -Increased Differentiation

Which of the following statements is NOT true of tacit knowledge? A) It is regularly shared between partners in a non-equity alliance. B) It is concerned with knowing how to do a certain task. C) It is acquired only through actively participating in the process. D) It is knowledge that cannot be easily codified.

A) It is regularly shared between partners in a non-equity alliance.

Which of the following best illustrates forward vertical integration? A. A firm that manufactures and sells car engines to major automobile companies launches its own line of cars. B. A chain of ice cream parlors launches a brand of toys and accessories for children. C. A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam. D. A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.

A. A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.

_____, 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. A. Coordination costs B. Fixed costs C. Agency costs D. Network costs

A. Coordination costs

_____ 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. Forward vertical integration B. Corporate divestiture C. Reverse engineering D. Closed innovation

A. Forward vertical integration

Why is following an unrelated diversification strategy especially advantageous in an emerging economy? A. It allows the conglomerate to overcome institutional weaknesses in emerging economies. B. It allows the conglomerate to form a monopoly in emerging economies. C. It allows the conglomerate to use well-defined legal systems in emerging economies. D. It allows the conglomerate to take advantage of strong capital markets in emerging economies.

A. It allows the conglomerate to overcome institutional weaknesses in emerging economies.

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? A. KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company. B. Chick-fil-A has a larger customer base and number of outlets in the U.S. market than its competitor KFC. C. KFC wants to follow a differentiation strategy, and Chick-fil-A wants to pursue a cost-leadership strategy. D. Chick-fil-A is part of a large conglomerate, whereas KFC has more flexibility to pursue a geographic diversification strategy.

A. KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.

_____ 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. Strategic outsourcing B. Reverse engineering C. Forward integration D. Horizontal integration

A. Strategic outsourcing

About 20 years ago, Sturdy Light, Inc., produced a sturdy, lightweight backpack in a market that was rapidly growing. Sturdy Light became a leader in this market. Eventually, the backpack market reached the maturity stage and slowed down. However, by this time, Sturdy Light had developed a strong brand name and continued to steadily lead the market. Which of the following describes this scenario? A. Sturdy Light was a star that developed into a cash cow. B. Sturdy Light was a question mark that developed into a star. C. Sturdy Light was a dog that developed into a question mark. D. Sturdy Light was a cash cow that developed into a star.

A. Sturdy Light was a star that developed into a cash cow.

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. Which of the following can be inferred from this scenario? A. The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market. 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 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. D. The petrol cars SBU is more important than the hybrid electric cars SBU in terms of future growth for the company.

A. The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.

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 joint venture B. a franchisee C. a licensing contract D. a corporate acquisition

A. a joint venture

A primary advantage of organizing economic activity within firms is the A. ability to coordinate highly complex tasks to allow for specialized division of labor. B. low administrative costs because of reduced bureaucracy. C. eradication of the principal-agent problem. D. high-powered incentive to work as salaried employees for an existing firm.

A. ability to coordinate highly complex tasks to allow for specialized division of labor.

Firms that use taper integration also use _____ when they rely on outside-market firms for some of their supplies. A. backward vertical integration B. forward vertical integration C. backward horizontal integration D. forward horizontal integration

A. backward vertical integration

In the early 1990s, Gatorade dominated the market for sports drinks, a segment in which it had been the original innovator. For decades, Coca-Cola had been a leader in marketing, bottling, and distributing soft drinks. However these drinks did not include a sports drink. Soon after Gatorade appeared, Coca-Cola developed and marketed its own sports drink, Powerade. In this example, Coca-Cola A. built new core competencies to protect and extend its current market position. B. built new core competencies to create and compete in markets of the future. C. leveraged core competencies to improve current market position. D. redeployed and recombined core competencies to compete in markets of the future.

A. built new core competencies to protect and extend its current market position.

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? A. by having higher performance in another sector B. by sharing their market power C. by increasing the firm's risk in another sector D. by motivating managers

A. by having higher performance in another sector

How can a firm pursuing a diversification strategy enhance its overall corporate performance by leveraging financial economies? A. by using internal capital markets as a source of value creation B. by adding more unrelated businesses into its corporate portfolio C. by increasing its coordination and influence costs D. by investing in businesses under the question mark quadrant of the BCG matrix

A. by using internal capital markets as a source of value creation

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. conglomerate B. single-business firm C. parent company D. subsidiary

A. conglomerate

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? A. diversification discount B. learning-curve effects C. experience-curve effects D. economies of scale

A. diversification discount

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. increasing their level of vertical integration. C. offshoring their core activities. D. engaging in unrelated diversification.

A. engaging in strategic outsourcing.

Which of the following best illustrates site specificity? A. equipment necessary for mining bauxite and aluminum smelting B. bottling machinery to manufacture bottles with trademarked shapes C. investment made in human capital to master procedures of a specific organization D. investment made to train employees to operate computers

A. equipment necessary for mining bauxite and aluminum smelting

A corporation's star SBUs will A. hold a high market share in a fast-growing market. B. experience low and unstable earnings in a fast-growing market. C. hold a small market share in a low-growth market. D. compete in a low-growth market but hold considerable market share.

A. hold a high market share in a fast-growing market.

Each stage of the vertical value chain typically represents a distinct _____ in which a number of different firms are competing. A. industry B. functional department C. economy D. customer segment

A. industry

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 convinced that Chao should be hired as a salesperson in the company. However, in his resume, Chao had not mentioned his previous work experience as he was fired from that job because he used illegal drugs. Which of the following does this scenario best illustrate? A. information asymmetry B. principal-agent problem C. experience-curve effect D. learning-curve effect

A. information asymmetry

Decisions relating to the range of products and services a firm will offer determine the firm's A. level of diversification. B. geographic scope. C. vertical integration. D. absorptive capacity.

A. level of diversification.

Hitoro 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 Revox Inc., a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate? A. licensing B. franchising C. crowdsourcing D. bootlegging

A. licensing

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. related-constrained diversification. B. related-linked diversification. C. strategic outsourcing. D. offshore outsourcing.

A. related-constrained diversification.

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? A. stages 1, 2, and 3 B. stages 1, 2, and 4 C. stages 2, 3, and 4 D. stages 2, 3, and 5

A. stages 1, 2, and 3

While Cisco Systems has been successful in selecting and buying both big and small technology ventures, HP had to write off some of its recent technology acquisitions. Which of the following statements best explains this scenario?

Acquisition and integration capabilities were not equally distributed across firms.

Which of the following best illustrates a non-equity alliance? A) A collusion between two competitors, RP Pharma Inc. and Vital Pharma Inc., to fix prices B) A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component parts to Pristine Autos Inc. C) An alliance between RedGate Systems Inc. and DB Computers Inc. that results in DB Gate Inc., an independent third company D) An alliance that allows Virtue Insurance Inc. to claim 49 percent ownership in Mercury Finance Inc.

B) A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component parts to Pristine Autos Inc.

Which of the following best illustrates an equity alliance? A) An alliance between GoldWing Systems Inc. and GM Computers Inc. that results in GM Wing Inc., an independent third company B) A partnership in which RedGate Insurance Inc. has a 40 percent ownership claim in TwinTrust Finance Inc. C) A contractual agreement that provides Ocia Pharma Inc. the exclusive rights to distribute the drugs of Marvel Pharma Inc. in the Asian market D) A collusion between two competitors, Torque Steels Inc. and Vizor Metals Inc., to fix prices

B) A partnership in which RedGate Insurance Inc. has a 40 percent ownership claim in TwinTrust Finance Inc.

FlyOne Airway's decision to acquire TrueGear Fuels Inc. proved to be ill-fated because its managers had overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers' capabilities were restricted to the airlines industry. What does this scenario best illustrate? A) Managerial empathy B) Managerial hubris C) Managerial capitalism D) Managerial feasibility

B) Managerial hubris

The managers at Movo Automobile Inc. want to diversify their business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Movo Automobile is most likely a result of: A) experience-curve effects. B) principal-agent problems. C) time compression diseconomies. D) resource ambiguity.

B) principal-agent problems.

The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese market in 2013 because: A) its strategic position in the U.S. market was well protected through high entry barriers. B) the U.S. population was growing slowly and becoming more health conscious. C) this would help the company gain access to large cocoa plantations in China. D) Hershey's main strategic focus was on product and market diversification and not on the domestic market.

B) the U.S. population was growing slowly and becoming more health conscious.

How is an equity alliance different from a joint venture? A. An equity alliance involves ownership that facilitates transaction-specific ventures; a joint venture involves taking ownership by buying stock. B. An equity alliance involves taking ownership in a partner; a joint venture involves two or more people owning a firm. C. An equity alliance involves taking ownership in a partner; a joint venture involves taking ownership by buying stock. D. An equity alliance involves partners contributing equity to a joint venture; a joint venture involves two or more people owning a firm.

B. An equity alliance involves taking ownership in a partner; a joint venture involves two or more people owning a firm.

_____ 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 suboptimal allocation of scarce resources. A. Fixed costs B. Influence costs C. Coordination costs D. Opportunity costs

B. Influence costs

_____ is best described as a situation in which one party is more informed than another, because of the possession of private information. A. Information governance B. Information asymmetry C. Information deregulation D. Information piracy

B. Information asymmetry

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 leveraging existing core competencies to improve current market position. B. It is building new core competencies to protect and extend its current market position. C. It is redeploying and recombining existing core competencies to compete in markets of the future. D. 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.

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 offered Orocobre exposure to Toyota's proprietary information. B. It made a credible commitment by taking an equity stake in Orocobre. C. It acquired Orocobre as part of its backward vertical integration plans. D. It offered Orocobre franchising opportunities to sell hybrid vehicles.

B. It made a credible commitment by taking an equity stake in Orocobre.

_____ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property. A. Lean manufacturing B. Licensing C. Crowdsourcing D. Bootlegging

B. Licensing

_____ 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. Reverse engineering B. Restructuring C. Rebooting D. Reverse brainstorming

B. Restructuring

Which of the following statements accurately brings out the difference between tangible and intangible resources? A. Tangible resources contribute to a company's competitive advantage, whereas intangible resources fail to do the same. B. Tangible assets can be bought on the open market, whereas intangible assets cannot be easily purchased. C. Tangible resources take a longer time to build, whereas intangible assets can be built comparatively easily. D. Tangible assets are difficult to imitate, whereas intangible assets can be easily replicated.

B. Tangible assets can be bought on the open market, whereas intangible assets cannot be easily purchased.

Which of the following companies will be considered as a conglomerate? A. ExxonMobil, after it acquired XTO Energy—a natural gas company B. The Tata Group, active in industries such as tea, steel, IT, power, and automobiles C. Harley-Davidson, with its Harley-Davidson branded motorcycle clothing and attire D. Coca-Cola, which solely focuses on soft drinks but operates in many countries

B. The Tata Group, active in industries such as tea, steel, IT, power, and automobiles

Which quadrant in the core competence-market matrix is the hardest to pursue? A. building new core competencies to protect and extend current market position B. building new core competencies to create and compete in markets of the future C. leveraging core competencies to improve current market position D. redeploying and recombining core competencies to compete in markets of the future

B. building new core competencies to create and compete in markets of the future

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 A. dogs. B. cash cows. C. stars. D. question marks.

B. cash cows.

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 $100 million in the project. This investment made by GreenCure Pharma will result in a A. cartel. B. credible commitment. C. corrective action. D. parent-subsidiary relationship.

B. credible commitment.

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? A. capital liquidity B. diversification premium C. diversification discount D. demand-pull inflation

B. diversification premium

Companies that pursue related diversification are more likely to improve their performance than companies that pursue unrelated diversification because they create a A. diversification discount. B. diversification premium. C. conglomerate discount. D. conglomerate premium.

B. diversification premium.

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. principal-agent problem B. information asymmetry C. experience-curve effect D. learning-curve effect

B. information asymmetry

With reference to the Strategy Highlight 8.2, the Tata Group's corporate strategy is attempting to A. move from unrelated diversification to related-constrained diversification. B. integrate different strategic positions, pursued by different strategic business units. C. pursue a focused differentiation strategy over a focused cost-leadership strategy. D. depend on a single product market to generate most of its revenues.

B. integrate different strategic positions, pursued by different strategic business units.

If a strategic business unit is recognized as a cash cow, it is advisable to A. harvest the business. B. invest into the business to hold its current position. C. divest the business due to its low market share. D. maintain it till it turns into a dog.

B. invest into the business to hold its current position.

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. diseconomies of scale B. principal-agent problem C. experience-curve effects D. information asymmetries

B. principal-agent problem

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. Which of the following diversification strategies does this best illustrate? A. process diversification B. product diversification C. geographic diversification D. market diversification

B. 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 A. geographic diversification. B. product diversification. C. vertical integration. D. horizontal integration.

B. product diversification.

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. provide stock options to managers. C. downsize the existing workforce. D. organize economic activities within the firm.

B. provide stock options to managers

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. dogs. B. question marks. C. stars. D. underdogs.

B. question marks.

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. redeploying and recombining existing core competencies to compete in future markets. C. building new core competencies to create and compete in future markets. D. building new core competencies to protect and extend current market position.

B. redeploying and recombining existing core competencies to compete in future markets.

The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in which two dimensions? A. start-up capital required and stage of industry life cycle B. relative market share and speed of market growth C. economic value created and costs incurred D. amount of debt financing and equity financing

B. relative market share and speed of market growth

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. sell its products in several different regional, national, and international markets. C. operate from multiple headquarters across the globe. D. depend solely on its in-house facilities for all its production purposes.

B. sell its products in several different regional, national, and international markets.

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. question marks. B. stars. C. cash cows. D. dogs.

B. stars.

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, which of the following alternatives to vertical integration is Virtue Products applying? A. concentric integration B. taper integration C. horizontal integration D. conglomerate integration

B. taper integration

Which of the following is an example of an external transaction cost? A. the cost of setting up a production unit B. the cost of searching for a contract manufacturer C. the cost of recruiting and retaining employees D. the cost of maintaining plant and machinery

B. the cost of searching for a contract manufacturer

A drawback of short-term contracting as an alternative to making a component in-house is that A. it is the most-integrated alternative to performing an activity so the principal company has no control over the agent. B. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality. 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.

B. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

Investments in specialized assets tend to incur high opportunity costs because the A. assets can be profitably used for multiple purposes. B. threat of one of the partners pursuing his or her self-interest is high. C. social costs associated with these assets are high. D. firms can avoid backward integration by investing in these assets.

B. threat of one of the partners pursuing his or her self-interest is high.

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. related-constrained strategy B. unrelated diversification strategy C. differentiation strategy D. dominant-business strategy

B. unrelated diversification strategy

Vibgyor Inc., a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its cell phones. They will do this through their existing companies and not create a new entity. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Vibgyor and the software company best referred to as in this scenario? A) A leveraged buyout B) A joint venture C) A strategic alliance D) A proprietorship E) An acquisition

C) A strategic alliance

The Mansion Hotel Group purchased Red Brick Hotels for an estimated value of $120 billion. All the hotels previously owned by Red Brick Hotels are now managed by the Mansion Hotel Group and are known as Mansion hotels. What does this scenario best illustrate? A) An equity alliance B) A joint venture C) An acquisition D) A merger

C) An acquisition

FR Pharmaceuticals Inc., BioCure Pharma Inc., and Regime 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 each other. 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? A) Acquisition B) Buyout C) Co-opetition D) Takeover

C) Co-opetition

NorthStar Inc. and The Royal Group have together established The Royal Star Group of hotels. NorthStar owns 49 percent and The Royal Group has a 51 percent share in The Royal Star Group of hotels. However, the management of The Royal Star Group of hotels is separate from its parent companies. What alliance type does this scenario best illustrate? A) Sole Proprietorship B) Equity alliance C) Joint venture D) Non-equity alliance

C) Joint venture

_____ are strategic business units that compete in a low-growth market but hold considerable market share. A. Dogs B. Question marks C. Cash cows D. Stars

C. Cash cows

_____ 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. Taper integration B. Open innovation C. Diversification D. Differentiation

C. Diversification

Which of the following statements is true of internal transaction costs? A. Internal transaction costs arise when companies transact in the open market. B. 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. C. Internal transaction costs tend to increase with organizational size and complexity. D. It is beneficial to "buy" goods or services rather than "make" when internal transaction costs are low.

C. Internal transaction costs tend to increase with organizational size and complexity.

Which of the following statements is true of taper integration? A. It is the most integrated alternative to performing an activity within one's own corporate family. B. It refers to a situation in which firms narrow their focus on downstream value chain activities and ignore the upstream value chain activities. C. It exposes in-house suppliers and distributors to market competition to make performance comparisons possible. D. It does not rely on outside-market firms for its supplies.

C. It exposes in-house suppliers and distributors to market competition to make performance comparisons possible.

Which of the following is a drawback of vertical integration? A. It increases the difficulty of securing critical supplies. B. It impedes scheduling and planning. C. It increases the potential of legal repercussions. D. It impedes investments in special assets.

C. It increases the potential of legal repercussions.

_____ is when a firm moves activities and jobs outside its home country. A. Conglomerate outsourcing B. Alliance outsourcing C. Off-shore outsourcing D. External outsourcing

C. Off-shore outsourcing

_____ 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. Cost drivers B. Value drivers C. Specialized assets D. Liquid assets

C. Specialized assets

_____ 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. Embargos B. Cartel agreements C. Strategic alliances D. Corporate acquisitions

C. Strategic alliances

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? A. Soar Inc. generates 70 percent of its revenues from its primary business, while TL & Co. generates only 10 percent of its revenues from its primary business. B. Soar Inc. pursues a backward diversification strategy, while TL & Co. pursues a forward diversification strategy. C. TL & Co. will share fewer common competencies and resources between its various businesses when compared to Soar Inc. D. TL & Co. pursues a differentiation strategy, and Soar Inc. pursues a cost-leadership strategy, to gain a competitive advantage.

C. TL & Co. will share fewer common competencies and resources between its various businesses when compared to Soar Inc.

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? A. The strategic recommendation for the 3-D television division is to harvest it, and the strategic recommendation for the LCD television division is to invest further in it. B. The 3-D 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. C. The 3-D television division operates in a high-growth market, whereas the LCD television division operates in a low-growth market. D. The LCD television division will benefit by pursuing a differentiation strategy, and the 3-D television division will benefit by following a cost-leadership strategy.

C. The 3-D television division operates in a high-growth market, whereas the LCD television division operates in a low-growth market.

How does a conglomerate benefit from following an unrelated diversification strategy? A. The conglomerate can solely depend on its primary business activity for a major portion of its revenues. B. The conglomerate can share most of its competencies in products, services, technology, or distribution between all its businesses. C. The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies. D. The conglomerate can limit the learning- and experience-curve effects it faces.

C. The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

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 will be protected against the principal-agent problem. B. The firm's administrative costs will be low because of necessary bureaucracy. C. The firm will have more flexibility in purchasing and comparing prices of goods and services. D. 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.

Which of the following is true of the parent-subsidiary relationship? A. The ability to create a community of knowledge is low. B. The parent firm has no control and command over the subsidiary. C. The transaction costs that arise are frequently due to transfer prices. D. The parent firm will lack specialization and division of labor.

C. The transaction costs that arise are frequently due to transfer prices.

_____ 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. Venture capitalism B. Bootlegging C. Vertical integration D. Crowdsourcing

C. Vertical integration

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 tobacco SBU operates in a low-growth market, the beverages SBU operates in a high-growth market. B. The management of the company should use the cash inflow from the beverages SBU and invest it in the tobacco SBU. C. While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low. D. The tobacco SBU should follow a backward integration strategy, and the beverages SBU should pursue a forward integration strategy.

C. While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low.

Which of the following firms is most prone to experiencing a diversification discount? A. a company that deals in petroleum as well as natural gas B. a company that derives its revenues from selling aerated drinks and health drinks C. a company that pursues unrelated diversification D. a company that pursues related-constrained diversification

C. a company that pursues unrelated diversification

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 conglomerate B. a subsidiary C. a dominant-business firm D. a single-business firm

C. a dominant-business firm

Companies that pursue related diversification are able to create a diversification premium because they A. are able to leverage time compression economies. B. can operate beyond the minimum efficient scale. C. are able to increase value due to economies of scope. D. can reduce the value gap created by its products.

C. are able to increase value due to economies of scope.

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? A. crowdsourcing B. new product development C. backward vertical integration D. conglomerate diversification

C. backward vertical integration

Which of the following would hinder firm performance? A. diversification providing economies of scale B. diversification exploiting economies of scope C. diversification raising costs D. diversification raising value

C. diversification raising costs

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. stars. B. question marks. C. dogs. D. cash cows.

C. dogs.

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. crowdsourcing B. credit rationing C. franchising D. bootstrapping

C. franchising

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. process diversification strategy C. geographic diversification strategy D. product-market diversification strategy

C. geographic diversification strategy

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. industry value chain D. scatter chart

C. industry value chain

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. Which of the following specialized assets does this example demonstrate? A. site specificity B. research specificity C. physical-asset specificity D. human-asset specificity

C. physical-asset specificity

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. Which of the following strategies is Fantastica Industries pursuing? A. zone pricing B. niche marketing C. product-market diversification strategy D. process diversification strategy

C. product-market diversification strategy

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. strategic outsourcing. B. lean manufacturing. C. product-market diversification. D. process diversification.

C. product-market diversification.

Which of the following corporate strategies did ExxonMobil pursue by acquiring XTO Energy, a natural gas company? A. taper integration strategy B. differentiation strategy C. related diversification strategy D. cost-leadership strategy

C. related diversification strategy

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. reverse engineering. B. benchmarking. C. restructuring. D. crowdsourcing.

C. restructuring.

Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy? A. the first-line employees B. the creditors C. the chief executive officer D. the middle manager

C. the chief executive officer

Diversification premium is a situation in which A. customers have to pay premium prices on products manufactured by firms pursuing unrelated diversification due to the lack of economies of scope. B. the overall value creation of highly diversified firms is more than the sum of the value created by individual business units. C. the stock price of related-diversification firms is valued at greater than the sum of their individual business units. D. shareholders are benefitted from the market capitalization of a highly diversified firm because of its economies of scale.

C. the stock price of related-diversification firms is valued at greater than the sum of their individual business units.

Decisions relating to "what stages of the industry value chain to participate in" determine a firm's A. level of diversification. B. geographic scope. C. vertical integration. D. absorptive capacity.

C. vertical integration.

When North Autos Inc. wanted to sell its cars in the country of Balvia, it lacked access to distribution channels and marketing expertise in the country. Thus, North Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner's well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario? A) Reducing differentiation of product and service offerings B) Procuring additional capital investments C) Increasing competitive intensity D) Accessing critical complementary assets

D) Accessing critical complementary assets

Under CEO Robert Iger, Disney has followed an acquisition-led growth strategy. Which of the following was a result of this corporate strategy? A) Disney became a less diversified company. B) Disney's revenue streams from its various activities became less predictable. C) Disney attempted full integration with the subsidiaries it acquired after its merger with Pixar. D) Disney compensated more easily for losses from flops.

D) Disney compensated more easily for losses from flops.

Which of the following scenarios best illustrates horizontal integration? A) Regal Autos Inc. sets up its own distribution channel and retail stores. B) Regal Autos Inc. acquires a component parts manufacturer who previously supplied to Regal Autos' competitor. C) Regal Autos Inc. enters into a licensing contract with a distributor in a new international market. D) Regal Autos Inc. joins with Marcus Motors Inc., one of its direct competitors.

D) Regal Autos Inc. joins with Marcus Motors Inc., one of its direct competitors.

In a non-equity alliance, which of the following types of information would firms most likely share? A) A top-level manager's experience related to making strategic decisions B) The employees' entrepreneurial skills C) A manager's knowledge related to solving non-routine problems D) The documented information about the material composition of a product

D) The documented information about the material composition of a product

Fervana Autos Inc., a large automobile company, made an initial small investment in a startup company that was developing a solar-powered car. This gave Fervana Autos controlling interests in the startup company. However, Fervana Autos had no obligations to make continued investments in the experiments of the startup company. It could invest in small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Fervana Autos would have the right to buyout the startup company. This approach to strategic alliance is referred to as _____. A) transaction cost economics B) credible commitment C) a break-even analysis D) a real-options perspective

D) a real-options perspective

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. When companies transact in the open market, they incur internal transaction costs. C. Transaction costs exclusively consist of external costs associated with economic exchanges. D. Transaction costs are necessary to explain and predict the boundaries of a firm.

D. Transaction costs are necessary to explain and predict the boundaries of a firm

How do firms benefit from vertical integration? A. Vertical integration allows firms to reduce organizational complexity and administrative costs. B. Firms that vertically integrate will have increased strategic flexibility when faced with technological changes. C. Firms that vertically integrate do not have to make transaction-specific investments. D. Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.

D. Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.

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 flagship brand B. a single-business firm C. a dominant-business firm D. a conglomerate

D. a conglomerate

Which of the following firms is least integrated? A. a firm that enters a joint venture with another company to develop a new technology B. a firm that owns production subsidiaries across the globe C. a firm that makes equity investments in its supplier's company D. a firm that buys all the required raw materials from multiple external vendors

D. a firm that buys all the required raw materials from multiple external vendors

Which of the following best illustrates physical-asset specificity? A. a unique training program developed in an organization B. a ship container designed to carry more than the average load of iron ore C. a generic machine that can be used to churn different mixtures D. a machine solely designed to give a candy its trademarked shape

D. a machine solely designed to give a candy its trademarked shape

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 A. leveraging existing core competencies to improve current market position. B. building new core competencies to achieve vertical integration. 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.

D. building new core competencies to create and compete in markets of the future.

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 A. leveraging new core competencies to improve current market position. B. redeploying existing core competencies to compete in future markets. C. unlearning existing core competencies to create and compete in markets of the future. D. building new core competencies to protect and extend current market position.

D. building new core competencies to protect and extend current market position.

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. infuse more capital into the strategic business unit. B. provide more human resources to the business. C. hold the business till it turns into a star. D. divest the strategic business unit.

D. divest the strategic business unit.

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. compete in a high-growth market but have low and unstable earnings. D. hold a small market share in a low-growth market.

D. hold a small market share in a low-growth market.

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. experience-curve effects B. time compression diseconomies C. principal-agent problem D. information asymmetry

D. information asymmetry

Which of the following motivations for business growth involves principal-agent problems? A. increasing profits B. increasing market power C. reducing risk D. motivating managers

D. motivating managers

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. Which of the following alternatives to integration does this best illustrate? A. venture capitalism B. franchising C. joint venture D. parent-subsidiary relationship

D. parent-subsidiary relationship

Which of the following alternatives on the make-or-buy continuum allows for most integration? A. short-term contracting B. joint ventures C. licensing D. parent-subsidiary relationship

D. parent-subsidiary relationship

TimeEnough Inc. entered the low-priced digital watch market several years ago. This firm's earnings have been unsteady, but might be growing. According to the BCG growth matrix, TimeEnough is a A. cash cow. B. star. C. dog. D. question mark.

D. question mark.

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. dogs B. stars C. cash cows D. question marks

D. question marks

In 2009, ExxonMobil bought XTO Energy, a natural gas company, for $31 billion. XTO Energy is known for its core competency to extract natural gas from unconventional places such as shale rock—the type of deposits currently being exploited in the United States. ExxonMobil hopes to leverage its core competency in the exploration and commercialization of oil into natural gas extraction. Based on this example, ExxonMobil is engaging in A. unrelated-linked diversification. B. unrelated-constrained diversification. C. related-linked diversification. D. related-constrained diversification.

D. related-constrained diversification

A strategy of _____ will be most beneficial for a firm to enhance its overall corporate performance. A. unrelated level of diversification B. single-business level of diversification C. dominant-business level of diversification D. related-linked diversification

D. related-linked diversification

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. taper integration strategy B. niche marketing strategy C. related-constrained strategy D. related-linked strategy

D. related-linked strategy

A firm sources intermediate goods and components from in-house suppliers as well as outside suppliers. In a similar fashion, another firm sells its products through company-owned retail outlets and through independent retailers. Both of these examples demonstrate A. strategic outsourcing. B. strategic insourcing. C. backward horizontal integration. D. taper integration.

D. 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 A. monopsony. B. geographic diversification. C. crowdsourcing. D. taper integration.

D. taper integration.

Which of the following is an example of an internal transaction cost? A. the cost of searching for a contract manufacturer B. the cost of signing a contract with a supplier C. the cost of buying raw materials D. the cost of maintaining a production unit

D. the cost of maintaining a production unit

Under CEO Robert Iger, Disney has followed an acquisition-led growth strategy. Which of the following was a result of this corporate strategy?

Disney compensated more easily for losses from flops.

What is the basic tenet of the crossing-the-chasm framework?

Each stage of the industry life cycle is dominated by a different customer group.

In which of the following stages of the industry life cycle is a standard first established?

Growth stage

Each stage of the vertical value chain typically represents a distinct _____ in which a number of different firms are competing.

Industry

_____ is best described as a situation in which one party is more informed than another, because of the possession of private information.

Information asymmetry

_____ is best described as the commercialization of any new product, process, or the modification and recombination of existing ones.

Innovatoin

How does taking a real-options perspective by entering strategic alliances help incumbent firms?

It allows the incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.

How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?

It enabled HP to compete head on with Cisco's videoconferencing solution.

When a standalone organization is created and owned by two or more parent companies together, the strategic alliance is referred to as a(n) _____.

Joint Venture

Kraft's hostile takeover of Cadbury

Kraft was interested in Cabury's position internationally. the acquisition allowed Kraft greater access to convenience stores, gives it a new distribution channel, and opens up a new market.

_____ is best described as the process of manufacturing a large variety of tailor-made products or services at a relatively low unit cost.

Mass customization

An organization that is organized according to strategic business units (SBUs) and also along organizational structures is most likely using a _____ structure.

Matrix

_____ is best described as the output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.

Minimum efficient scale

Disney's acquisitions of Pixar, Marvel, and Lucasfilm

Pixar entered a strategic alliance with Disney for financial and distribution purposes. This helped Disney rejuvenate its product lineup by obtaining rights to newly created pixar characters Later, Disney acquired Marvel, and later the creators of StarWars, Lucasfilm.

In the context of the long tail phenomenon, what does the short head represent?

Products that appeal to the largest segment of the market with homogenous tastes

Mergers and acquisitions typically destroy rather than create shareholder value, so why do we see so many mergers?

Reasons include: 1. Principal-agent problems 2. the desire to overcome competitive disadvantage 3. Superior acquisition and integration capability

_____ 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.

Strategic alliances

Which of the following is more of a value driver than a cost driver?

Superior customer service

How did Apple's e-book business model affect Amazon?

The bargaining power of suppliers, the content providers, increased from Amazon's perspective.

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

The cost of maintaining a production unit

What does the relational view of competitive advantage propose?

The locus of competitive advantage is often not found within the individual firm but within a strategic partnership.

Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage?

The weaker firms are forced out of the industry in this stage.

a result of horizontal integration

There is a reduction of excess capacity in the market.

Which of the following is an advantage of equity alliances when compared to non-equity alliances?

They produce stronger ties between partners.

reasons why firms enter alliances?

To strengthen competitive position To learn new capabilities To enter new markets, either in terms of geography or products and services

When should mergers and acquisitions (M&A) be considered the "buy" option for a strategist trying to determine which corporate strategy to implement?

When extreme closeness to the resource partner is necessary to understand and obtain its underlying knowledge

When does a merger between companies typically occur?

When two firms of comparable size join to form a combined entity

Which of the following statements accurately brings out the difference between economies of scale and learning effects?

While there are no diseconomies to learning, there are diseconomies to scale.

alliance management capability

a firm's ability to effectively manage 3 alliance related tasks concurrently, often across a portfolio of many different alliances these 3 are: -partner selection and alliance formation -alliance design and governance -post formation alliance management

managerial hubris

a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.

joint venture

a standalone organization created and jointly owned by two or more parent companies. ex. Hulu exchange of both tacit and explicit knowledge is typical lest common

A primary advantage of organizing economic activity within firms is the:

ability to coordinate highly complex tasks to allow for specialized division of labor

Firms have 2 critical strategic options to pursue common interests, enhance competitiveness, and increase revenues. What are they?

acquisitions and alliances

advantages/disadvantages of joint ventures

advantages: strong ties, trust, commitment disadvantages: long negotiations, significant investments, undoing a JV can take time and involve high costs, shared knowledge could be misappropriated, rewards must be shared between partners

In Eli Lilly's Office of Alliance Management, the _____ is a senior, corporate-level executive responsible for high-level support and oversight.

alliance champion

In Eli Lilly's Office of Alliance Management, who is responsible for providing the technical expertise and knowledge needed for the specific technical area and the day-to-day management of the alliance?

alliance leader

In Eli Lilly's Office of Alliance Management, who is responsible for providing alliance training and development?

alliance manager

real options perspective

approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time. This approach allows the firm to obtain additional information in pre-determined stages

Companies that pursue related diversification are able to create a diversification premium because they:

are able to increase value due to economies of scope.

equity alliances

at least one partner takes over partial ownership in the other partner. less common than non-equity bc they often require larger investments. allow for the share of tacit knowledge tend to produce stronger ties and greater trust between partners than non equity alliances frequently are stepping stones to full integration through a merger or acquisition "try before you buy"

When entering a foreign market, it is advisable for a new venture that has a core competency only in R&D to form a strategic alliance with a local partner because:

building downstream complementary assets can be expensive and time-consuming.

how did the recent horizontal integration in the US airline industry provide benefits to the surviving carriers?

by lowering competitive intensity in the industry overall

how does horizontal integration within an industry affect the surviving firms?

by strengthening the bargaining power of the surviving firm vis-a-vis suppliers and buyers

tacit knowledge

cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task

When a firm does not have the resource required for pursuing a growth strategy, and if the resource in question is not easily tradable, the implication for the strategist is most likely to:

consider an outright acquisition

When a firm does not have the resource required for pursuing a growth strategy, and if the resource in question is not easily tradable, the implication for the strategist is most likely to:

consider an outright acquisition.

In a focused cost-leadership strategy, a firm:

delivers low-cost products and services to a specific, narrow part of the market.

A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the:

differentiator is able to create a significant difference between perceived value and current market prices.

A drawback of joint ventures is that they are characterized by:

double reporting lines.

A company that uses a differentiation strategy can achieve a competitive advantage as long as its:

economic value created is greater than that of its competitors

How does horizontal integration help firms lower costs?

economies of scale

A cost-leader is protected from the threat of new entrants primarily due to its:

economies of scale.

corporate venture capital (CVC)

equity investments by established firms in entrepreneurial ventures. falls under the broader rubric of equity alliances

google engaged in a number of smaller acquisitions of tech ventures. It did this in order to

fill gaps in its competency lineup

non-equity alliance

most common type of alliance Partnership based on contracts between firms. The most frequent forms are supply agreements, distribution agreements, and licensing agreements firms share explicit knowledge these are flexible and easy to initiate and terminate. also can be temporary in nature and sometimes produce weak ties between partners which can result in a lack of trust and commitment

In a radical innovation, a firm targets:

new markets by using new technologies.

Costs of horizontal integration through M&A

potential integration failure reduced flexibility increased potential for legal repercussions

Generally, as the level of _________ innovation declines, the level of _________ innovation increases.

product; process

A _____ is best described as an approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.

real-options perspective

How horizontal integration through M&A creates value

reduces competitive intensity lowers costs increases differentiation

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

related-linked diversification

The _____ is a strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

relational view of competitive advantage

The process of alliance management begins with _____.

selecting the best possible partner

Superior acquisition and integration capability

sometimes acquisitions can lead to a competitive advantage.

_____ 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.

specialized assets

A _____ is best described as a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

strategic alliance

rational view of competitive advantage

strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries

Horizontal integration can favorably affect several of Porter's five forces for the surviving firms:

strengthening bargaining power, reducing the threat of entry, and reducing rivalry among existing firms

A consumer electronics company is in the process of evaluating whether it should pursue an internal development strategy or an external growth strategy. To make this decision, the management needs to assess whether the company's internal resources are superior to those of competitors in the targeted area. Which of the following strategic management models would be most useful in this assessment?

the VRIO framework

merger

the joining of two independent companies to form a combined entity. typically are friendly, the target firm WANTS to be acquired.

The typical four-step innovation process begins with:

the presentation of an idea as findings derived from basic research.

horizontal integration

the process of merging with competitors, leading to industry consolidation a type of corporate strategy that can improve a firm's strategic position in a single industry

acquisition

the purchase or takeover of one company by another. can be friendly or unfriendly.

which of the following is a result of horizontal integration in terms of porters 5 forces model?

there is a reduction of excess capacity in the market

desire to overcome competitive disadvantage

this can allow companies to gain a competitive advantage

3 main reasons firms make acquisitions

to gain access to new markets and distribution channels to gain access to a new capability or competency to preempt rivals

5 common reasons firms enter strategic alliances

to strengthen competitive position, enter new markets, hedge against uncertainty, access critical complementary assets, learn new capabilities

The productivity frontier function is concave, and it captures the:

trade-off between value creation and production cost

strategic alliances

voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services. contracts can be small with no bearing on competitiveness to billion dollar joint ventures. only considered STRATEGIC if it has the potential to affect a firm's competitive advantage