Quiz 8

Why might a firm want to enter into an equity alliance instead of a short or long term contract

to make credible commitment to get insider information about the partners business to facilitate transaction-specific investments

Which of the following best illustrates human-asset specificity?

training employees on how to operate a customized furnace

A disadvantage associated with obtaining goods and services externally includes

nontrivial search costs to be borne by the firm.

behavior characterized by self-interest with guile

opportunism

What costs refer to the costs that arise from managing the linked businesses in a related-constrained or related-linked diversification scenario

Coordination

What diversification strategy refers to a firm that pursues both product and geographic diversification

product-market

5 stages of the industry value chain involve

1. Raw Materials 2. Components & Intermediate Goods 3. Final Assembly & Manufacturing 4. Marketing & Sales 5. After-Sales Service & Support

Which of the following examples would most likely limit a firm's growth?

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

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

Backward vertical integration

Long-term contracts

Franchising & Licensing

To figure out if a firm's type of diversification is BLANK, one can asks questions about the degree to which the corporation's business units share core competencies

Related or unrelated

The BCG growth-share matrix requires managers to view their SBUs in terms of relative market BLANK and speed of market BLANK

Share, growth

An example of an alternative arrangment located on the continuum between buying and making

Short-term contracting

Which of the following best illustrates a dominant-business firm?

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

The 2 alternatives to vertical integration are which of the following?

Taper integration Strategic Outsourcing

Which of the following best illustrates backward vertical integration?

a chocolate manufacturing company setting up its own cocoa plantations

A non-diversified company focuses on

a single market

Main types of corporate diversification

dominant business single business related diversification unrelated diversification

Partnerships in which at least one partner takes partial ownership in the other partner

equity alliances

HTC started as an original equipment manufacturing firm (OEM) for brand-name mobile device companies. Later, it started offering a lineup of innovative and high-performance smartphones by acquiring One & Co., a San Francisco-based design firm. This strategic move of HTC is known as

forward vertical integration.

Firms often consolidate industries through horizontal mergers and acquisitions to

increase their market power.

Alternatives on the make-or-buy continuum

equity alliances & joint ventures

Which of the following is an example of related-constrained diversification?

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

Highly diversified firms experience a diversification discount in the stock market because they

are unable to create additional value.

The rationale behind related diversification is to

benefit from economies of scale and scope.

advantages of vertical integration

bettering quality reducing costs facilitating scheduling (helps ensure that materials and distribution channels are available when needed)

When Moon Star Products Inc. planned to start its operations in United Cadvia, an emerging nation, it realized that it will have to set up its own distribution channels. This would be a risky and an expensive strategic move. The company had an option of hiring a small supply chain management company, Gold Logistics Inc., to reach its ultimate customers. However, this would require Gold Logistics to make huge investments, which would be of no use to it if Moon Star decided to exit the market. Thus, to gain Gold Logistics's confidence, Moon Star purchased 40 percent of the stock of Gold Logistics. What does this scenario best illustrate?

equity alliance

An inverted U-shaped relationship between the type of diversification and overall firm performance indicates that

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

What are the costs associated with related-diversification strategies

influence costs coordination costs

A financial advisor has heard from a relative of NR Industries Inc.'s CEO that the company is planning to shut down its operations in Europe next year. The financial advisor realizes that this decision may cause a decline in the value of the company's shares and decides to sell them off. A buyer, unaware of the company's future plans, sees this as a potential opportunity and invests in the company. What does this scenario best illustrate?

information asymmetries

A large conglomerate is deciding on the range of new products and services it can offer to its customers to further expand its operations. This decision determines the firm's

level of diversification.

North Carolina National Bank (NCNB) used its unique core competency of identifying, appraising, and integrating acquisition targets to be rebranded as Bank of America, one of the largest banks in the United States. This is an example of a firm

leveraging existing core competencies to improve current market position.

Amazon expanded its single-product business by leveraging spare capacity into cloud computing and by offering its Kindle line of tablet computers. This is an example of

related-linked diversification.

Mega Products Inc., a large multinational conglomerate, has hired an external consultant to process and audit its payroll. This allows the company to focus on manufacturing and marketing activities rather than developing and maintaining its own human resource management systems. Which of the following alternatives to vertical integration has Mega Products adopted?

strategic outsourcing

is a way of orchestrating value activities in which a firm is backwardly or forwardly integrated and relies on outside-market firms for supplies or distribution

taper integration

The executives of BlueWind Products Inc., a large conglomerate, are making decisions on the stages of the industry value chain the firm must participate in, the range of products and services it should offer, and the global markets it should compete in. What are the executives primarily determining?

the boundaries of the firm

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

the costs pertaining to setting up a shop floor