600 - Capstone Final Review

Frederica, the chief financial officer at a moped manufacturer in Canada, wants to build new plants in Canada rather than overseas. Which of these points should she make as she argues her case to the board of directors?

"It will be much more difficult to protect our intellectual property if we build factories overseas."

Which of the following firms most likely has the lowest bargaining power as a buyer?

A cell phone company that requires highly customized software for its phones

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

Which of the following best illustrates forward vertical integration?

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

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.

AccuroDisk Inc. manufactures external hard disks for $32 per unit, and the maximum price customers are willing to pay is $47 per unit. TD Storage Inc. is a competitor of AccuroDisk Inc. that produces external hard disks for $37 per unit, and customers are willing to pay a maximum price of $50 per unit. What does this imply?

AccuroDisk creates a greater economic value than TD Storage

Generally speaking, which of these situations is likely to lead to greater profits?

An industry with fewer but larger competitors

Screaming Eagle, a luxury motorcycle company, sells the same motorcycles and offers the same superior services in both its home country and foreign markets. The market it operates in faces low pressures for both local responsiveness and cost reductions. Which of the following strategies within the integration-responsiveness framework does Screaming Eagle most likely pursue?

An international strategy Screaming Eagle most likely pursues an international strategy. In this strategy, a firm sells the same products or services in both domestic and foreign markets. This strategy is advantageous when the multinational enterprise faces low pressures for both local responsiveness and cost reductions.

Home Value Inc., Max Cart Inc., and Nice Necessities Inc. are three consumer-product retailing companies. Their products consist primarily of day-to-day items that are easy to imitate and sell. All three companies use the same resources and capabilities in the production and distribution of their products. Judging from the market conditions described in this scenario, which of the following statements is true?

Any advantage that one firm has will be short-lived

Which of the following groups is most likely to be considered a firm's internal stakeholder?

Board Members

Organizational and managerial skills that find their expression in a company's structure, routines, and culture are referred to as

Capabilities.

If a company chooses to keep its vision customer-oriented rather than product-oriented, what will be the implication of that decision?

Companies that have customer-oriented visions tend to be more flexible when adapting to changing environments. In contrast, companies that define themselves based on product-oriented statements tend to be less flexible and thus more likely to fail.

Strategic group mapping establishes that

Competitive rivalry is strongest between firms that are within the same strategic group.

iPhone's apps are an example of which competitive force that affects industry performance:

Complements could affect the utility or value created for the customer by the primary product, thus potentially increasing the brand loyalty and switching costs for the customers.

Tangles Costume Jewelry offers slightly lower quality merchandise than competitors at a much lower price. What strategy is Tangles using?

Cost-Leadership: Tangles is applying the cost-leadership strategy. A cost-leadership strategy seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers.

Sirhan is president of a medium-sized bank. What can he do to lessen the chances of employees or board members taking part in insider trading?

Create a strict code of ethics and explain that inside traders will be fired.

Beach Grub is a chain of "fast casual" restaurants that sells its menu items at higher prices than its competitors. Yet, 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 Beach Grub adopted in this scenario?

Differentiation

Incumbent firms can benefit from several important sources of entry barriers. Economies of scale are one such source. Which of the following is an implication of economies of scale for incumbent firms?

Economies of scale are cost advantages that accrue for firms with larger output because they can spread fixed costs over more units, can employ technology more efficiently, can benefit from a more specialized division of labor, and can demand better terms from their suppliers.

In the context of the resource-based model of competitive advantage, if a successful firm exhibits resource immobility it means that the

Firm will have a sustained competitive advantage because of its unique resources that are difficult for others to replicate

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

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

Swan Song 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, Swan Song is following a

Focused Differentiation Strategy.

Wiensch Electronics relied on a large chain of consumer electronics stores to sell its tablet computers, cell phones, and televisions and also to provide customer service and technical support. However, that retailer outsourced its service departments, and customers began to complain that they could not get reliable tech support for Incline products. In response, Wiensch Electronics decided to set up its own tech support department, and it also began to investigate opening its own brand-based retail stores. What does this scenario best illustrate?

Forward vertical integration

When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it

Gains market share from other firms.

Vermilion Inc., a manufacturer of high-technology medical devices, has its product development centers located in the United States and South Korea. The manufacturing units are located in China and the Philippines to benefit from low-labor costs and access to original equipment manufacturers. This allows the company to competitively price its devices. Also, the various phone models sold by the company are uniform in all the foreign markets it operates in. In this scenario, which of the following strategies does Vermilion most likely pursue?

Global strategy

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

Globalization is a process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs. Combined, these factors reduce the costs of doing business around the world, opening the doors to a much larger market than any one home country. Globalization also allows companies to source supplies at lower costs, to learn new competencies, and to further differentiate products.

Andrew is the president of a technology firm that has recently gone public. What action, if any, should Andrew take to build the confidence of his new shareholders?

He should find out whether the majority of his shareholders want long-term steady growth or short-term spikes in the stock price.

How are the critical assumptions of the resource-based model of a firm fundamentally different from the way in which a firm is viewed in the perfectly competitive industry structure?

In perfect competition, all firms have access to the same capabilities, whereas in the resource-based model, resource differences exist between firms in the same industry.

The relative bargaining power of suppliers is most likely low when

Incumbent firms face low switching costs when changing suppliers.

Managers at Durkmunder, a firm in West Feenistan, want to make their company a global leader in business process outsourcing (BPO). What should the Durkmunder managers look for as they decide where to locate their BPO facilities?

India carved out a competitive advantage in business process outsourcing (BPO), not only because of low-cost labor but also because of an abundance of well-educated, English-speaking young people.

EZ Electronics Inc., Neo Digital Inc., and Techno Products Corp. are all companies that manufacture and sell consumer electronics. They procure their component parts from a similar set of suppliers in China and sell the final product to customers with similar needs. Thus, the three companies together are a part of a(n)

Industry.

A firm's _____ is likely to fall by the wayside because of unpredictable events and turn into unrealized strategy.

Intended Strategy

BlackRock is one of the top owners of CVS (6%), Rite Aid (4%), and Walgreens Boot Alliance (4%). The fund is also simultaneously the largest institutional investor in JP Morgan Chase (6%), Citigroup (6%), and U.S. Bank (7%), and the second largest in Bank of America (5%), Wells Fargo (5%), and PNC Bank (7%) (Azar et al., 2016; 2018). Why could that have strategic implications for the publicly traded companies?

Investment portfolios could affect shareholders preferences about companies pursuing competitive advantage, especially if such advantage comes at the expense of their rivals.

Invoro is a market leader in consumer electronics. If Finolo and Ethver, companies that manufacture televisions, develop the same customer knowledge base and create products with the same customer appeal as Invoro, then

Invoro will have a resource that is valuable but no longer rare

Culinary Solutions Inc. manufactures cooking and baking equipment and has its base in the country of Vandevar. It has approximately 300 stores across the country and is already active in three foreign countries. It attempts to establish itself in the country of Balalaika, and uses its low-cost strategy to do so. However, due to the additional costs associated with training, coordinating across geographic distances, and other costs associated with doing business in an unfamiliar cultural and economic environment, Culinary Solutions Inc. incurs huge financial losses in Balalaika. In this scenario, Culinary Solutions Inc.'s failure to establish itself successfully in Balalaika occurs most likely because

It underestimated its liability of foreignness when entering the Balalaika market.

GameGo is a publicly traded manufacturer of home electronics. Based on what you have read, which of these actions would be wisest for GameGo's board of directors to take to be sure that the company's new CEO is as motivated as possible?

Link the CEO's pay to her performance, but avoid high-powered incentives that may cause reckless behavior.

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

Salubre Pharmaceuticals invested $3.4 billion dollars to develop a new drug for individuals with diabetes. After Salubre receives FDA approval of the drug, its marginal cost to produce the drug for market will be

Low

There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?

Lowering Costs **Firms are motivated to grow in order to lower their cost. A larger firm may benefit from economies of scale, thus driving down average costs as their output increases.

An organization's _____ describes what the organization actually does—the products and services it plans to provide, and the markets in which it will compete.

Mission

Thomas is the owner of a landscaping company that caters to a very wealthy clientele. His company has struggled to differentiate itself from the other high-end landscapers in the area, but because he has hired several expensive but highly-qualified team members, Thomas is unable to shift to a cost leadership strategy. Which strategy is most likely to achieve a competitive advantage?

Narrow the scope of competition and focus on unique features such as the use of organic materials.

Sanjaya was recently hired at an up-and-coming firm that has a history of ethics violations. Which action is best for him to take if he wants to determine whether the firm is now acting ethically?

Observe executives at the company, and see whether they model ethical behavior and demand it of others.

Globally, investment funds manage more than $90 trillion (Baker, 2019) with BlackRock, Vanguard and State Street together holding more the 17% of the largest U.S. corporations (Fichter et al., 2017). This is an example of:

Ownership reconcentration

A firm is likely to have a competitive advantage when it

Provides services that consumers will value more than those of its rivals.

Fun Foods Inc. is a snack manufacturer that wants to expand globally. Few people abroad are familiar with Fun Foods snacks. The countries into which the company wants to expand require a high degree of local responsiveness when it comes to food, and the citizens of those countries already spend plenty of money on snacks. Which action should the leaders of Fun Foods take?

Pursue a multidomestic strategy that includes new "local" brands

Phoenix Guitars is interested in pursuing backward integration to take greater ownership of the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results?

Pursue taper integration: Taper integration is a way of orchestrating value activities in which a firm is backwardly integrated, but it also relies on outside-market firms for some of its supplies, and/or is forwardly integrated but also relies on outside-market firms for some if its distribution. By pursuing a taper integration strategy, Phoenix Guitars could take ownership of most of the upstream value chain activities while sourcing pickups from a lower-cost supplier. Firms that pursue taper integration achieve superior performance in both innovation and financial performance when compared with firms that rely more on vertical integration or strategic outsourcing.

Quick Eats is a fast-food restaurant that has recently entered the hospitality industry. Since most of its competitors are pursuing a low-cost position and doing well, Quick Eats also wants to adopt the same strategy. Which of the following will be a likely implication of this decision?

Quick Eats will face low profit potential

Delores recently became a board member of a firm that has a history of reckless actions by senior employees. Which task would be appropriate for Delores to undertake to help safeguard the company's financial health?

Request and review a copy of the firm's risk assessment plan, if such a plan exists.

Sven is a senior vice president at a textile manufacturer that wants to move from being 20 percent globalized to 70 percent globalized in the next 10 years. What are some possible drawbacks that Sven's company must anticipate?

Rising wages may cancel out cost savings of access to low-cost input factors.

Both Bison Autos and Sparrow Inc. incur a cost of $9,000 to manufacture a vehicle. However, the economic value created by Sparrow Inc. is more than that created by Bison Autos. What does this indicate?

Sparrow Inc. can charge a premium price on its automobiles.

Amazon.com's network of distribution centers allow it to drastically reduce its delivery times compared to other online retailers. These distribution centers are examples of Amazon's

Tangible resources

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

The chief executive officer

Gladiator Apparel is the market leader in the sportswear industry. Though most of its resources are common to those of its competitors, a few rare resources have helped the company gain and sustain a competitive advantage. Which of the following assets of Gladiator Apparel is most likely to be considered a rare resource that is contributing to its competitive advantage?

The company's design patents

Smooth Fusion Inc. is a software company that has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of Smooth Fusion Inc. will best enable it to gain and sustain a competitive advantage?

The expertise acquired by the employees in the company

Khader Computers has decided to procure processing chips required for its laptops from external suppliers instead of manufacturing them in their own facilities. How will this decision affect the firm?

The firm will have more flexibility in purchasing and comparing prices of goods and services. Khader Computers will have more flexibility in purchasing and comparing prices of goods and services. The advantages of obtaining goods and services externally include increased flexibility. Transacting in markets enables those who wish to purchase goods to compare prices and services among many different providers.

According to Porter's 5 forces analysis, an industry is considered attractive when:

The forces of suppliers, buyers, new entrants, rivals, and substitutes are weak

Industry's competitive structure, demand conditions, and height of exit barriers affect:

The intensity of rivalry or competition within an industry is affected by the industry's competitive structure, the demand conditions, and how easy it is for rivals to exit the industry.

Which of the following statements will effectively guide a strategist?

The principles of strategic management can be applied universally to all organizations.

Sorenson LLC, a publicly traded company, has ten members on its board. Of the ten members, six members are employees of the company—including the CEO, who also chairs the board. The board has been failing in its responsibilities toward the shareholders, who now want a new board. Assuming that the total number of board members remains constant, how many outside directors should the shareholders appoint to Sorenson's board to achieve board independence?

The stakeholders should appoint at least seven outside directors for optimal functioning of the board. As mentioned in Strategy Highlight 12.1, to achieve board independence, experts in corporate governance recommend that two-thirds of its directors be outsiders.

Which of the following is a firm effect that has an impact on the competitive advantage of a firm?

The value and the cost position of the firm relative to its competitors

Three months ago, Darren became a board member at Runswell, a publicly traded company. Two weeks ago, the board members discovered that Runswell's CEO is facing a lawsuit from a family member who accuses the CEO of theft. Based on what you have read, to what ethical standard should Darren and the other board members hold the CEO?

They must hold her to the highest ethical standards because the leaders of publicly traded companies must withstand intense public scrutiny.

When the laptop market overtook the desktop market, Blue Tech Inc., a leader in desktop technology, was left at a competitive disadvantage. Later, Blue Tech Inc.'s management channeled all of the company's efforts and revenue to develop an efficient laptop from scratch in less than a year. However, the company failed because Blue Tech Inc.'s models were inferior to the third- and fourth-generation models its competitors were selling. In this scenario, Blue Tech Inc.'s failure can be best attributed to

Time compression diseconomies.

Gary owns shares in a company called Archibald Industries Inc. The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing. Gary wants to proactively cut his losses and therefore sells his shares. Anneke, a trading enthusiast, buys shares in Archibald Industries because she believes that the share prices cannot go anywhere but up. Which of the following characteristics of a public stock company does this scenario best exemplify?

Transferability of investor ownership **This scenario best exemplifies transferability of investor ownership. Investors are allowed to trade shares of stock freely in the stock market on exchanges such as the New York Stock Exchange (NYSE) and NASDAQ.

_____ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Vertical integration

Which of the following statements accurately brings out the difference between an organization's vision and mission?

Vision defines what the organization wants to accomplish ultimately, whereas the mission defines the means by which vision is accomplished.

Isabel has been named CEO of a popular sports apparel company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Isabel most likely to make?

What range of products the firm should offer

Which of the following is a stakeholder attribute that managers should consider at every step in a stakeholder impact analysis?

legitimacy

Owners of coffee plantations in the country of Jabatina grow their own coffee beans and supply them to various stores and restaurants all over the country. There are many plantation owners supplying to a huge number of companies, and they are typically unable to differentiate their products from one another. They also do not have the power to fix their own prices in the industry. In addition, these suppliers can only achieve competitive parity and not a competitive advantage. Thus, the coffee bean industry in Jabatina best illustrates a(n)___ structure.

perfectly competitive

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

Which of the following does a firm possess when it can outperform other firms in the same industry or the industry average over a prolonged period of time?

sustainable competitive advantage

Gold Leaf Computers sources the components for its laptops from various suppliers on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Gold Leaf has determined that it would cost $200 per unit to produce all of the necessary components in its in-house manufacturing facility. In this scenario, Gold Leaf should

vertically integrate.