Bus quiz3
The most long-lasting strategic alliances
(1) involve collaboration with suppliers or distribution allies, or (2) conclude that continued collaboration is in their mutual interest, perhaps because new opportunities for learning are emerging.
Companies are often motivated to enter into strategic alliances or cooperative arrangements in order to
- expedite the development of promising new technologies or products. - overcome any deficits in their own technical and manufacturing expertise. - bring together the personnel and expertise needed to create desirable new skill sets and capabilities. - acquire or improve market access.
Being first to initiate a particular move can have a high payoff when
- pioneering helps build up a firm's image and reputation with buyers. - early commitments to new technologies, new-style components, new or emerging distribution channels, and so on can produce an absolute cost advantage over rivals. - first-time customers remain strongly loyal to pioneering firms in making repeat purchases. - moving first constitutes a preemptive strike, making imitation extra hard or unlikely.
Checking a diversified company?s business lineup for the competitive advantage potential of cross-business strategic fits involves searching for and evaluating how much benefit a diversified company can gain from value chain matchups that present opportunities
- to combine the performance of certain activities, thereby reducing costs and capturing economies of scope. - to transfer skills, technology, or intellectual capital from one business to another, thereby leveraging use of existing resources. - to share use of a well-respected brand name. - for sister businesses to collaborate in creating valuable new competitive capabilities (such as enhanced supply chain management capabilities, quicker first-to-market capabilities, or greater product innovation capabilities).
What four factors provide a basis for international business-level strategies?
1) Factors of production 2) Demand conditions 3) Related and supporting industries 4) Firm strategy, structure, and rivalry
What r the three corp-level international strategies?
1) Multi-domestic strategy 2) Global strategy 3)Transnational strategy
What r the 5 international entry modes?
1) exporting 2) licensing 3) strategic alliances 4) acquisitions 5) wholly owned subsidiaries
What are the four primary benefits of an international strategy?
1) increased market size 2) greater returns on major capital investments or on investments in new products and processes 3) greater economies of scale, scope, or learning 4) a competitive advantage through location ( e. g., access to low- cost labor, critical resources, or customers)
What environmental trends are affecting international strategy?
1) liability of foreignness 2) regionalization
What are the emerging motives that cause firms to expand internationally?
1) pressure has increased for a global integration of operations 2) technology b/c the economies of scale necessary 2 reduce costs 2 the lowest level 3) new large-scale, emerging mrkts (China & India) 4) currency fluctuations
What are the traditional motives that cause firms to expand internationally?
1) yield potential new opportunities 2) extend a product's life cycle 3) secure needed resources
Dominant Buiness
70-95% of Revenue comes from a single business Low Level of Diversification
Usually, a company is classified as a single-business firm when revenues generated from its core business area are greater than __________ percent.a. 99b. 95 c. 90 d. 70
95
Usually a company is classified as a single business firm when revenues generated by the dominant business are greater than percent1
95%
Single Business
95% or more of revenue comes from a single business Low Level of Diversification
A construction company is pursuing a focused differentiation strategy, and after reviewing its core competencies, the leaders have decided to specialize in hospital construction. Which of the following is an example of how that strategy is addressing the bargaining power of buyers (customers)? a. The company participates in competitive bidding processes, and despite often submitting a higher bid than competitors, it is awarded the job based on its expertise. b. Seeing the success of the hospital construction company, other construction firms decide to narrow their focus and create business units dedicated to this customer segment. c. The company accepts a lower profit margin rather than raise prices after its supplier of medical regulators raises prices. d. In a year where only a few hospitals are being built, the company's leaders decide to offer discounted pricing to customers to ensure that they have a steady stream of work.
A
A cost leadership strategy is one in which: a. a company uses process innovations, such as advanced production or distribution methods, to operate efficiently. b. a firm produces nonstandardized products that deliver superior value to customers through innovation. c. a firm must consistently upgrade its product features to keep pace with customers' expectations for value. d. customers perceive a company's products to be superior to competitor products.
A
An oil company develops an innovative refining process that reduces the time required to produce gasoline by 25 percent. The company has identified its unique process as a core competency. Which of the following strategies would be most beneficial for the company to pursue and would best be aligned with the firm's internal analysis? a. Cost leadership strategy b. Differentiation strategy c. Focused differentiation strategy d. Integrated cost leadership/differentiation strategy
A
As part of its selection of a business-level strategy, a firm will decide which customers it will serve and what goods or services it will use to satisfy customers' needs. It must determine: a. how it will satisfy those customers' needs using its core competencies to implement value-creating strategies. b. where it will locate its resources and facilities to best serve its targeted customers and obtain the lowest costs of production. c. when it will implement its strategies to best optimize its exposure to customers and achieve a competitive advantage. d. which functional teams and strategic leaders will be responsible for implementation of the business-level strategy.
A
Check My Work Market segmentation is a part of all business-level strategies and is used to determine which customers to serve. This is most critical for which business-level strategies? a. Focused differentiation and focused cost leadership strategies b. Differentiation and focused differentiation strategies c. Broad segment and integrated cost leadership/differentiation strategies d. Cost leadership and focused cost leadership strategies
A
Corporate-level diversification strategy is used to _____ the firm's value by _____ its overall performance. a. increase; improving b. increase; decreasing c. decrease; improving d. maintain; improving
A
Differentiation strategies are successful in addressing the competitive force of the bargaining power of suppliers because: a. the higher margins of the firm can reduce the influence of increases in supplier costs. b. they prevent new companies from entering into the industry through economies of scale. c. the company is operating at such high volumes that it can leverage its buying position to receive lower prices. d. brand loyalty is a byproduct of this strategy, leading customers to choose the company's product over its rivals' products.
A
The ongoing set of competitive actions and competitive responses that occur among firms as they maneuver for an advantageous market position is: a. a competitive rivalry. b. multimarket competition. c. competitive behavior. d. competitive dynamics.
A
Using a corporate-level strategy over a business-level strategy is based on which of the following key issues? a. What product markets and businesses the firm should compete in and how corporate headquarters should manage those businesses b. What product markets the firm can compete in as a standalone business c. What product markets and businesses the firm should compete in and how the firm should manage itself d. What businesses the firm should plan to acquire to increase its competitive advantage
A
What is the distinction between value-neutral reasons and value-creating reasons for a firm to diversify? a. Value-neutral reasons seek to help the firm establish a more competitive position, whereas value-creating reasons seek to improve the firm overall. b. Value-neutral reasons seek to serve the managers of the firm, whereas value-creating reasons seek to help the firm establish a more competitive position. c. Value-neutral reasons seek to improve the firm overall, whereas value-creating reasons seek to help the firm establish a more competitive position. d. Value-neutral reasons seek to help the firm establish a more competitive position, whereas value-creating reasons seek to serve the managers of the firm.
A
Which of the following strategies represents a company that has selected a differentiation strategy? a. A grocery store chain is converting their local neighborhood stores to warehouses. The chain eliminates shopping in the aisles and instead has customers select items online or through an app. The customers can then pick up their items in a drive-through without having to leave their vehicles. b. A tool manufacturer is investing in research and development (R&D) to develop modifications to existing tools so that they can be used more effectively and safely in the oil and gas industry. c. A restaurant entrepreneur announces a new fast-food chain where every item on the menu is just $1. d. A company is developing a tablet device that sells features, such as speed and memory, as add-ons to produce a base model of its device that is below the typical market cost.
A
Samuelsons entered into a joint venture with a Japanese firm to gain entry into parts of the Asian market. Excessive conflict between the two firms is getting in the way of success. If the conflict remains unmanageable, Samuelsons would probably be better off considering what option to meet its goals? a. Licensing b. Exporting c. Acquisition d. A wholly-owned subsidiary
Acquisition
Which of the following does not accurately describe entering a new business via acquisition, internal development, or a joint venture?
Acquisition is generally the most profitable way to enter a new industry, tends to be more suitable for an unrelated diversification strategy than a related diversification strategy, and usually requires less capital than entering an industry via internal start-up.
Which acquisition would be considered the LEAST related?
An upscale "white-tablecloth" restaurant chain acquires a travel agency
Which of the following acquisitions would be considered the LEAST related?a. A candy manufacturer purchases a chemical laboratory specializing in food flavorings. b. A chain of garden centers acquires a landscape architecture firm. c. A hospital acquires a long-term care nursing home. d. An upscale "white-tablecloth" restaurant chain acquires a travel agency.
An upscale "white-tablecloth" restaurant chain acquires a travel agency.
Which of the following is NOT a factor pressuring companies for local responsiveness? a. Differences in employment laws b. Customization due to cultural differences c. Government pressure for firms to use local sources for procurement d. Availability of low labor costs
Availability of low labor costs
A company is working through its strategic management process to develop a long-term strategic plan that will help it to achieve a competitive advantage. The company's leaders have completed the work of developing a mission, a vision, and core values. They have also researched and conducted a thorough SWOT analysis identifying general, industry, and competitor environments, as well as internal resources, capabilities, and core competencies. As they determine the business-level strategy they will pursue for their core business unit, which of the following steps would they take? a. Consider additional business units for the company to explore and invest in, including businesses that could be served by the company's existing core competencies, as well as businesses that would require building new resources. b. Determine if the company will compete by reducing the cost structure or by focusing on generating greater perceived value by its customers—or both—based on conclusions reached in the research and decisions up to this point.
B
A differentiation strategy is one in which a: a. company has core competencies in production and distribution efficiencies to reduce required inputs. b. firm creates products that have features that customers value and are willing to pay a higher price for. c. company divides its customers into clusters of people with similar needs. d. firm concentrates on ways to reduce cost as its primary focus.
B
A single-business diversification strategy and a dominant-business diversification strategy are both examples of what level of diversification? a. Medium level b. Low level c. High level d. Moderate level
B
An integrated cost leadership/differentiation strategy is able to address the competitive forces because: a. all business-level strategies offer strengths to address all of the competitive forces. b. the strategy, when executed effectively, offers the strengths of both the cost leadership strategy and the differentiation strategy. c. it relies on market segmentation to address a specific niche of customers. d. the strategy has no weaknesses and is inherently a better strategy than the other business-level strategy options for a company.
B
Corporate-level strategy is best described as: a. actions a firm takes to gain a competitive advantage by selecting and managing one business competing in a single product market. b. actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets. c. strategies a firm implements to gain competitive advantage by selecting and managing a group of businesses competing in a single product market. d. strategies a firm implements to gain a competitive advantage by selecting and managing a single business competing in several product markets.
B
FedEx and United Postal Service (UPS) compete in many of the same markets and have similar types of truck and airplane fleets, similar levels of financial capital, and other similarities. These tangible and intangible resources between the two firms describe the: a. resource differentiation. b. resource similarity. c. market similarity. d. market differentiation.
B
Glow Makeup is a moderately-diversified firm, as it has three main related businesses, including a skin care business, nail polish business, and facial cosmetic business. Its divisions are composed of different products, but they are all related to cosmetics. As a result, the firm maintains many of the same resources and certain core competencies within each of its operations. Based on this information, Glow Makeup uses what diversification strategy? a. Related linked diversification strategy b. Related constrained diversification strategy c. Dominant-business diversification strategy d. Unrelated diversification strategy
B
If two well-known shoe stores, Famous Footwear and Journey's, compared their resource similarities and market commonalities, they would find that, aside from competing in the same industry and carrying some of the same shoe brands, they target very different markets. In using market commonalities and resource similarities, either Famous Footwear or Journey's can conduct: a. a SWOT analysis. b. a competitor analysis. c. a compare-and-contrast exercise. d. competitive dynamics.
B
In which of the following ways does the availability of tangible and intangible resources affect a firm's ability to create value through diversification? a. A resource is difficult to imitate and has abundance b. A resource has rarity and value c. A resource has abundance and value d. A resource is difficult to substitute and has abundance
B
Often a company's business-level strategy can be easily identified by reviewing its marketing materials. Consider the marketing slogans of the following companies and identify which one is pursuing a business-level strategy of differentiation. a. Days Inn - The Best Value Under the Sun b. HBO - It's not TV, It's HBO c. Payless ShoeSource - Everybody Loves to Payless d. Walmart - Save Money. Live Better.
B
One constant improvement among smartphones of all brands is camera quality. As soon as Samsung, Google, or Apple introduces an updated phone, the others respond with equal or better quality in their next update. These competitive moves can be encompassed as the _____ of that market. a. competitive behavior b. competitive dynamics c. competitive rivalry d. competitor analysis
B
Which of the following represents a risk for companies pursuing a cost leadership strategy? a. Counterfeit versions of a company's products b. Competitors' innovations resulting in their ability to drive costs lower c. Buyers choosing to purchase lower-priced products during a recession d. Pricing that is higher than customers' perceived value of a quality product
B
Which of the following represents a scenario in which Apple and Google participate in multimarket competition with one another? a. Google operates a search engine and Apple offers a television streaming service. b. Both compete in the personal computer, tablet, and smartphone industries. c. Google offers Glass and a self-driving vehicle. d. Each participate in unrelated markets.
B
Which of the following would be a motive for top-level executives to diversify their firm beyond value-creating and value-neutral levels? a. Decreased compensation and reduction of managerial risk b. Increased compensation and reduced managerial risk c. Interest in a promotion to a board position d. Pursuit of a managerial challenge
B
To ensure the quality of its almond butters, Rally's Roasters owns the almond groves in which all of its almonds are grown. Rally's almond butters are sold in supermarkets as well as specialty food stores throughout the country. Rally's makes use of what type of integration? a. Forward b. Backward c. Multiple d. Top-down
Backward
A business-level strategy is: a. the actions a firm takes by selecting and managing a group of different businesses competing in different product markets. b. a set of actions and commitments through which a company sells its goods and services outside of its domestic market. c. an integrated and coordinated set of commitments and actions to gain an advantage by exploiting core competencies. d. a marketing and positioning program designed to explain a business to its customers.
C
A popular TV network, QTV, wishes to gain a competitive advantage by managing several businesses from its headquarters. Among its goals, QTV hopes to acquire its competitor, RTV, in the process. In this instance, QTV is using which type of strategy? a. Business-level strategy b. Global-level strategy c. Corporate-level strategy d. Network-level strategy
C
A retail company feels that it has a mixed identity. Some of the leadership is focused on promoting the company as offering the highest quality, whereas other leaders argue that the company should lower prices to attract customers. The team is working through a strategic management process and determines that it needs better definition for the way it will compete against its rivals within the same industry and product category. This company needs to formulate and implement a(n) _____ strategy. a. value chain b. organizational c. business-level d. human resource
C
A secondhand computer retailer is often mistaken for an IT-help business. As a result, tech-savvy employees of the retailer are often fixing the customers' computer issues when they come into the store. The firm that owns the secondhand computer retailer has decided to diversify and open computer repair shops selling IT services. Diversifying on the basis of employee knowledge is considered a(n) _____ resource. a. rare b. nonsubstitutable c. intangible d. tangible
C
Firms that use an unrelated diversification strategy are referred to as conglomerates. An unrelated diversification strategy means a _____ firm has _____ direct relationship(s) among its businesses. a. moderately-diversified; a direct b. highly-diversified; a direct c. highly-diversified; no d. moderately-diversified; no
C
How does diversification and firm size impact top managers of a firm? a. As a firm diversifies, its size increases, while executive compensation decreases. b. As a firm diversifies, its size decreases, as does executive compensation. c. As a firm diversifies, its size increases, as does executive compensation. d. As a firm diversifies, its size decreases, while executive compensation increases.
C
In a focus strategy, a company: a. focuses on a broad, integrated group of customers. b. produces goods or services with features that are acceptable to customers at the lowest cost. c. selects a more narrow group, or niche, of customers on which to concentrate its efforts. d. produces goods or services that customers perceive as being different in ways that are important to them.
C
Intangible resources are more flexible than tangible physical assets in facilitating: a. value creation. b. product production. c. diversification. d. firm operations.
C
Research indicates that a competitive advantage in logistics is a primary strategy that creates the most value for a cost leadership strategy. Which of the following value-creating activities should be a focus for a company pursuing a cost leadership strategy? a. Marketing b. Human resources c. Supply chain d. Customer service
C
Which of the following is a reason(s) that keeps managers from selfishly diversifying the firm for higher compensation? a. Concerns for their reputation and weak managerial talent market b. Fear that the firm would lose value c. Concerns for their reputation and strong managerial talent market d. To avoid the responsibility of a more highly complex firm
C
Which of the following is an advantage of pursuing diversification by entering into a greenfield venture? a. By taking advantage of tangible resources through a greenfield venture, a business can claim to be environmentally friendly. b. By taking advantage of tangible resources, such as experience and knowledge of a firm, a new business can be established independently with instant ability to create value using those resources. c. By taking advantage of intangible resources, such as experience and knowledge of a firm, a new business can be established independently with instant ability to create value using those resources. d. By taking advantage of tangible resources, such as extra machinery, a new business can establish itself without paying the initial costs of machinery.
C
Why do U.S. companies moving into the international market need to be sensitive to the need for local country or regional responsiveness? a. There is increasing rejection of American culture across much of the world. b. The international consumer has become more sophisticated because of the Internet. c. Consumer needs and desires, industry conditions, political and legal structures, and social norms vary by country. d. International expansion brings an increasing loss of economies of scale.
Consumer needs and desires, industry conditions, political and legal structures, and social norms vary by country.
What term is used to define complex sets of resources and capabilities that link different businesses primarily through managerial and technological knowledge, experience, and expertise? Corporate level core competencies Operational relatedness; sharing activities Tacit information Economic resource transfer
Corporate level core competencies
Leeway Corp. wants to pursue a business-level international strategy to export to developed countries. Which of the following strategies would Leeway most likely select? a. Multidomestic b. Cost leadership c. Global d. Transnational
Cost leadership
A top executive of a tire manufacturer is considering diversifying and expanding operations into China, where labor and materials are cheaper. The firm has already diversified itself to double its original number of locations. All of its newest locations have been implemented by the same executive. So far, the return on investment for each of the newer locations is negative. Why might the executive want to open yet another location? a. The executive predicts that the return on investments will provide positive returns soon. b. The executive is worried about creating jobs, even if there is no value created for the manufacturer. c. The larger the firm gets, the less compensation the executive will receive because no value has been created. d. The larger the firm gets, the more compensation the executive will receive, even if no value has been created yet.
D
A way in which a firm uses related diversification to create value for its customers by extending resources and capabilities across its businesses is called: a. multipoint competition. b. vertical integration. c. market power. d. economies of scope.
D
About six months ago, a mid-sized manufacturer of athletic shoes decided to pursue an integrated cost leadership/differentiation strategy. The company reduced its internal costs by consolidating the number of colors and variations it offers to customers. At the same time, the research and development (R&D) team added a patented sole to all of its shoes. Which of the following represents the best argument for the company to continue pursuing its current business-level strategy? a. "Our women's shoes are selling at higher volumes and at greater margins than our children's and men's shoes. However, women represent 50 percent of the population but only 25 percent of our business." b. "We're getting some complaints from long-standing customers about the fact that they can only get shoes in hot pink or lime green." c. "We're getting a lot of pressure from our suppliers. They're telling us that they're going to increase the raw material cost for our soles. Even comparing against other suppliers, we simply can't get a better price at the volumes that we're purchasing." d. "It's true we've seen our net sales decline, but our gross profit has increased and our volumes are up year-over-year. Our patent for the sole has been approved and the legal department says we're good to go on our advertising claims about the new sole."
D
Cost leadership strategies can be attractive to companies looking to address the competitive forces of rivalry with existing competitors because: a. brand loyalty is a byproduct of this strategy, leading customers to choose the company's product over its rivals' products. b. it is easier to cut costs than it is to generate greater differentiation among products or services. c. rivals are forced to compete using substitute products rather than with their core offering. d. rivals are hesitant to slash their own prices, and often their profitability, to compete with a low-cost leader.
D
External investors allocate capital by taking stakes in businesses with high growth and profitability potential. Which of the following is a disadvantage for external investors? a. Can understand the operational dynamics in large organizations b. Cannot estimate the performance of individual business c. Unlimited access to information d. Limited access to information
D
If a company expanded its portfolio in an effort to diversify and increase compensation and job security for managers, the overall impact of the diversification would: a. increase the firm's value. b. have the firm's best interest in mind. c. neutralize the firm's value. d. decrease the firm's value.
D
Sports Inc. has developed a shoe to compete with Air Jordans. In order to keep up with competitors and minimize competitor market power, the firm decides to sell branded sports equipment as well. By introducing another new business so soon outside of its shoe products, the firm stands to lose value. Sports Inc.'s reason for diversifying itself is to _____ by acquiring a _____. a. decrease another firm's value; different distribution outlet b. decrease another firm's advantage; similar distribution outlet c. increase its value; similar distribution outlet as a competitor d. neutralize another firm's advantage; similar distribution outlet
D
Steeler Manufacturing uses an unrelated diversification strategy throughout its operations. For instance, Steeler has five core businesses, all of which are unrelated. Each of its businesses is large and indicates Steeler's success in implementing an unrelated diversification as a _____ firm. a. low-diversified b. moderately-diversified c. nondiversified d. highly-diversified
D
Turtlecreek owns a high-end grocery chain, a high-end outdoor gear chain, and a sporting goods chain. Its retail businesses are unrelated; however, the firm hopes to gain an advantage over its competitors by associating its perceived luxury brand with each business. By selecting and managing these various businesses, Turtlecreek is implementing a _____ strategy. a. small-business b. firm-level c. business-level d. corporate-level
D
What are the two ways an unrelated diversification strategy can create value through financial economies? a. Efficient external capital allocations and the restructuring of acquired allocations b. Inefficient internal capital allocations and the restructuring of acquired assets c. Efficient external capital allocations and the restructuring of acquired assets d. Efficient internal capital allocations and the restructuring of acquired assets
D
Which of the following represents an example of an external incentive for value-neutral diversification? a. A firm that has opportunities to transfer its capabilities to another profitable business area and spread its investment risk b. A company that is operating inefficiently and has an uncertain forecast c. A company that has a predictable and steady revenue stream and is meeting its customers' needs efficiently d. An organization forced to pursue a new business unit because of changes in tax laws and regulations
D
When companies are faced with multipoint competition, rival firms often are compelled to do what since other firms in their dominant industry have made acquisitions to compete in different market segments? Merge Ceased operations Diversify Lower prices and improve production
Diversify
evenues for United Parcel Service (UPS) come from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non-packaging operations. Which of the following best describes the corporate-level strategy of UPS? a. Single business b. Dominant business c. Related constrained d. Related linked
Dominant business
In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify? a. Economies of scope b. Desire for increased compensation c. Reduced managerial risk d. Low performance
Economies of scope
What term is used to define cost savings the firm creates by successfully sharing resources and capabilities or transferring one or more corporate level core competencies that were developed in one of its businesses to another one of its businesses? Economies of scale Economic readiness Economic core competency transfer Economies of scope
Economies of scope
Which of the following is a value-reducing reason for diversification? a. Enhancing the strategic competitiveness of the entire company b. Expanding the business portfolio in order to diversify managerial employment risk c. Gaining market power relative to competitorsd. Conforming to antitrust regulation
Expanding the business portfolio in order to diversify managerial employment risk
A U.S. manufacturer of pigments for household paint that exports about 40 percent of its production to European markets will find its sales will be harmed by a weak dollar.
F
A firm is considering the pursuit of international opportunities. In considering the pros and cons, the analyst likely pointed out that the firm would gain access to labor, resources, and customers, all of which are benefits related to economies of scale, through international strategies. T/F
F
Although licensing is the least costly method to enter a foreign market, its disadvantages include high costs of transportation and low control over the marketing and distribution of goods.
F
Because of the lack of protection of intellectual property in some foreign countries, licensing arrangements are one of the best ways for a firm to protect its technology from being appropriated by potential competitors.
F
Because there are still several industrial and consumer markets in which only domestic firms compete, many firms do not have to be able to compete internationally.
F
Coca-Cola and PepsiCo are examples of firms that have found it unnecessary to aggressively pursue international strategies because of extensive growth opportunities available in the U.S. market.
F
Establishing a wholly owned subsidiary provides the quickest access to a new market.
F
Even if effectively implemented, the transnational strategy often produces lower performance than does the implementation of either the multidomestic or global strategies.
F
FanFare United is a global firm with operations in 20 countries. The home office of FanFare United determines the strategies that business units are to use in each country or region. FanFare is applying a multidomestic strategy.
F
Having substantial supplies of critical basic natural resources is a necessary condition for a country to support businesses that can successfully compete in international markets.
F
Lampster Corp. is exploring options for entering into international markets. The key stakeholders have expressed a desire for low cost and low risk, and are willing to give up control and to accept low returns. The best type of entry for Lampster would be a strategic alliance.
F
Location advantages are influenced by costs of production, access to natural resources and critical supplies, as well as the needs of customers, but not culture.
F
South Korea's success in international markets is primarily a result of its abundant natural resources.
F
Strategic alliances tend to increase the risk associated with international expansion for the U.S. partner because of the greater dependence on the foreign firm.
F
The chief risks in the international environment are political and cultural.
F
The three corporate-level international strategies are cost leadership, differentiation, and focus.
F
When the country risk is high, firms prefer to enter with a greenfield investment rather than a joint venture.
F
While there are multiple means of entering new international markets, firms should use one method consistently with all of its various products and across its different markets in order to reduce administrative complexity.
F
Japan, which has a lack of undeveloped land, would be an unusual choice of location for a U.S. cattle company to set up local grazing operations. This limiting factor would be identified in what part of Porter's determinants of national advantage? a. Factors of production b. Demand conditions c. Related and supporting industries d. Firm strategy, structure, and rivalry
Factors of production
A firm uses a corporate-level diversification strategy for a variety of reasons all of which have to do with ways to create value.
False
A major advantage of diversification is that overall monitoring costs are reduced, since each separate business comes under the control of corporate headquarters
False
All of Krispy Kreme's revenues come from its one main product, doughnuts. It can be considered a classic example of a firm following a related constrained strategy.
False
Companies creating financial economies through restructuring typically focus on high-technology businesses primarily because these firms are human-resource dependent.
False
Companies in emerging markets frequently use the unrelated diversification strategy because of the absence of a "soft infrastructure" in those markets.
False
Contract manufacturers who manage their customers' entire product line, and offer services ranging from inventory management to delivery and after-sales services are prime examples of vertical integration.
False
Corporate tax laws, rather than tax laws affecting individuals, have had the most impact on the firm's use of free cash flows for investment in acquisitions
False
Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a single market into several product markets and, most commonly, into several businesses.
False
Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value.
False
Firms seeking to create value through corporate relatedness use the related constrained strategy
False
Firms with both operational and corporate relatedness are favorites of investment analysts because the transparency and clarity of their financial statements clearly show the value-creation resulting from the combination of multiple businesses
False
GE (discussed in the Chapter 6 Opening Case) is an example of a firm following the related constrained diversification strategy (i.e., different businesses that are highly related).
False
GE (discussed in the Chapter 6 Opening Case) is an example of a firm that used its corporate strategy to achieve competitive advantage by selecting and managing a group of different businesses competing in different product markets.
False
Google increasing use of a vertical integration strategy is in line with the extensive use of that strategy by many manufacturing firms
False
One advantage of an unrelated diversification strategy in a developed economy is that competitors cannot easily imitate the financial economies, whereas they can easily replicate the value gained through the use of a related diversification strategy.
False
Performance continues to increase as diversification increases from single business to unrelated diversification.
False
Related linked firms share more resources and assets between their businesses than do related constrained firms
False
Successful product diversification is expected to increase the variability in the firm's profitability since the earnings are generated from several different business units.
False
Without strict governance mechanisms, the majority of executives will act in their own self-interest rather than acting as positive stewards of firm resources.
False
What terminology describes the cost savings that are realized through improved allocation of financial resources based on investments inside or outside the firm? Economies of scale Financial economies Economies of scope Market savings
Financial economies
Luxury Linens (LL) manufactures a line of luxury bed linens. LL's products can be purchased only through the company's web site. This ownership of output distribution is known as what type of integration?a. Multipoint b. Horizontal c. Forward d. Backward
Forward
S&E is a financial services firm with a reputation for its management ability. It has recently diversified into several additional service businesses without first acquiring an established brand-name business. This type of diversification strategy is known as what type of venture? a. Vertical b. Synergistic c. Greenfield d. Multipoint
Greenfield
Which pair of industries would NOT be considered as "related and supporting" under Porter's diamond model? a. Japanese cameras and copiers b. Italian leather processing and shoes c. U.S. computers and software d. Highway systems and the supply of debt capital
Highway systems and the supply of debt capital
Which of the following is NOT a limitation directly relating to vertical integration? a. Bureaucratic costs b. The loss of flexibility through investment in specific technologies c. Capacity balance and coordination problems from changes in demand d. Imitation of core technology by potential competitors
Imitation of core technology by potential competitors
Which of the following is NOT a typical disadvantage of licensing? a. Little control over the marketing of products b. Licensees may develop a competitive product after the license expires c. Lower potential returns than the use of exporting or strategic alliances d. Incompatibility of the licensing partners
Incompatibility of the licensing partners
What is the relationship between international diversification and innovation?
International diversification facilitates innovation in a firm
What is the effect of international diversification on a firms returns?
International diversification provides greater economies of scope and learning, which, along with greater innovation, help produce above- average returns.
Which of the following is not a strategic disadvantage of vertical integration?
It greatly reduces the opportunity for capturing maximum scale economies and achieving the lowest possible operating costs.
Which of the following is NOT a disadvantage of international acquisitions? a. They are very expensive and often require debt financing. b. The acquiring firm has to deal with the regulatory requirements of a host country. c. Merging the acquired and acquiring firm is difficult. d. It is the slowest way to enter a new market.
It is the slowest way to enter a new market.
Unrelated
Less than 70% of revenue comes from the dominant business, and there are no common links between businesses Very high diversification
Related Linked
Less than 70% of revenue comes from the dominant business, and there are only limited links between businesses Moderate to High Diversification
__________ is the set of costs associated with various issues firms face when entering foreign markets, including unfamiliar operating environments; economic, administrative, and cultural differences; and the challenges of coordination over distances. a. Transnational risk b. Regionalization c. Liability of foreignness d. International risk
Liability of foreignness
__________ exists when a firm is able to sell products above the existing competitive level or to reduce the cost of its primary and support activities below the competitive level, or both. Vertical integration Competitive rivalry Market power Competitive dynamics
Market power
Which one of the following statements about merger and acquisition strategies is true?
Mergers and acquisitions do not always produce the hoped-for outcomes. Cost savings may prove smaller than expected. Gains in competitive capabilities may take substantially longer to realize or may never materialize. Efforts to mesh the corporate cultures can stall due to formidable resistance from organization members.
Which of the following is NOT a disadvantage associated with exporting? a. Potential loss of proprietary technologies b. High transportation costs c. Loss of control over distribution activities d. Tariffs imposed by local governments
Potential loss of proprietary technologies
Progressive Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare, and only two brick plants in the United States make this type of brick. Progressive Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick. Which of the following statements is true? a. Progressive Steel has less flexibility now than if it were not vertically integrated. b. This is an example of a capacity balance problem. c. This is a result of conflicts of interest between the managers of the brick plant and the executives of Progressive Steel. d. The market power of Progressive Steel has been reducing vertical integration.
Progressive Steel has less flexibility now than if it were not vertically integrated.
Which of the following reasons for diversification is MOST likely to increase the firm's value? a. Increasing managerial compensation b. Reducing costs through business restructuring c. Taking advantage of changes in tax laws d. Conforming to antitrust regulation
Reducing costs through business restructuring
Which of the following is TRUE?
Related constrained firms share more tangible resources and activities between businesses than do related linked firms.
Which of the following statements is true? a. Conglomerates no longer exist in the U.S. business scene, but are common in emerging markets. b. Unrelated diversified firms seek to create value through economies of scope. c. The sharing of intangible resources, such as know-how, between firms is a type of operational sharing in related diversifications. d. Related constrained firms share more tangible resources and activities between businesses than do related linked firms.
Related constrained firms share more tangible resources and activities between businesses than do related linked firms.
Bunyan Heavy Equipment, a U.S. firm, is investigating expanding into Russia using a greenfield venture. The committee researching this project has delivered a negative report. The main concern of the committee is probably: a. loss of intellectual property due to Russian piracy. b. the fluctuation in the value of the ruble. c. the numerous and conflicting legal authorities in Russia. d. Russia's recent actions to gain state control of private firms' assets.
Russia's recent actions to gain state control of private firms' assets.
Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the United States make this type of brick. Specialty Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick.
Specialty Steel has less flexibility now than if it were not vertically integrated
Which of the following is NOT a governance mechanism that may limit managerial tendencies to over diversify? a. Market for corporate control b. Board of directors c. Surveillance technologies d. Executive compensation practices
Surveillance technologies
A company that chooses a truly global corporate-level strategy assumes that the liability of foreignness will be minimal.
T
A firm based in a country with a national competitive advantage is not guaranteed success as it implements its chosen international business-level strategy. Instead, the actual strategic choices managers make may be the most compelling reasons for success or failure.
T
A major advantage of multidomestic strategies is the ability to customize products and services for the specific market, although this sacrifices economies of scale.
T
A major incentive for the use of international strategy by French-based Carrefour S.A. is the potential for large demand for goods and services from emerging markets such as China and India. T/F
T
A transnational strategy is difficult to use because of its conflicting goals.
T
Acquisitions, greenfield ventures, and sometimes joint ventures are appropriate when firms want to establish a strong presence in an international market.
T
After a firm decides to compete internationally, it must select its strategy and choose a mode of entry into international markets. T/F
T
An increase in the value of the U.S. dollar is an example of an economic risk in that it can reduce the value of U.S. multinational firms' international assets and earnings in other countries.
T
Both the size and the nature of a country's domestic demand for a particular industry's good or service are important in Porter's determinants of national advantage.
T
By choosing a region where markets are more similar, the firm may be able to better understand those markets and cater to their needs, but also achieve economies through sharing of resources.
T
Cultural elements may affect location advantages in that business transactions are easier for a firm to complete when there is a strong cultural match with the institutions with which the firm is involved while implanting its international strategy.
T
EagleCrest Industries, a U.S. based company, is facing a limitation in the amount of minerals needed to manufacture its products that can be mined in North America. It would likely benefit from an international strategy that would enable it to secure needed resources.
T
Evidence suggests that, in general, using an international cost leadership strategy when exporting to developed countries has the most positive effect on firm performance, while using an international differentiation strategy with larger scale when exporting to emerging economies leads to the greatest amount of success.
T
Exporting and licensing are the most appropriate ways for smaller firms to first enter international markets.
T
Exporting, licensing, and the strategic alliance entry modes are all appropriate for initial entrance into a new market.
T
Fluctuation in the value of different currencies is a major economic risk associated with international diversification.
T
Four types of distances are associated with the liability of foreignness: cultural, administrative, geographic, and economic.
T
Grassley-Partition Ltd. (GPL) is embarking on an international strategy. The firm wants to be able to take advantage of the economies of scale offered by global efficiency and, at the same time, be responsive to the individual markets into which it enters. GPL needs to pursue a transnational strategy.
T
In place of what historically were relatively stable and predictable domestic markets, firms across the globe find that they are now competing in relatively unstable and unpredictable global markets. T/F
T
In some industries, technology drives globalization because the economies of scale necessary to reduce costs cannot be met by competing in domestic markets alone. T/F
T
International associations such as the European Union, the Organization of American States, and the North American Free Trade Agreement encourage regionalization strategies rather than globalization.
T
International diversification is a strategy through which a firm expands the sale of its goods or services across the borders of global regions and countries into a potentially large number of geographic locations of markets. Instead of entering one or just a few markets, the international diversification means that the firm enters multiple markets.
T
Italy has become the leader in the shoe industry because of related and supporting industries such as a well- established leather-processing industry that provides the leather needed to construct shoes and related products.
T
Michael Porter's determinants of national advantage describe factors associated with the firm's domestic environment that contribute to its dominance in a particular global industry.
T
Multinational firms have many opportunities to learn from their experiences in international markets, but they must have a strong R&D system to absorb the knowledge.
T
Rendell Corp. has just entered international markets. While it has begun to see some benefits, it is also challenged by the high cost of transportation and the expense of tariffs. Rendell most likely used exporting as its mode of entry.
T
Research suggests that the performance of the global strategy is enhanced if it deploys in areas where regional integration among countries is occurring.
T
Rivals Airbus SAS and Boeing have multiple manufacturing facilities and outsource some activities to firms located throughout the world, partly for the purpose of developing economies of scale as a source of being able to create value for customers.
T
RoserOpp Corp. has begun to increase its commitment to international diversification. Stakeholders should expect an initial decrease in returns, followed by a quick increase as RoserOpp learns how to manage its increased geographic diversification.
T
The "regionalization" environmental trend means that firms can focus on a region (customization) but also have some standardization or sharing within the region.
T
The amount of diversification in a firm's international operations that can be managed varies from company to company and is affected by managers' abilities to deal with ambiguity and complexity.
T
The firm using a global strategy seeks to develop economies of scale as it produces the same, or virtually the same, products for distribution to customers throughout the world who are assumed to have similar needs.
T
The global strategy offers greater opportunities to take innovations developed at the corporate level, or in one market, and apply them in other markets.
T
The greenfield venture option is useful when control of proprietary technology is important in an international expansion.
T
The growing number of global competitors heightens the requirements to keep costs down and there is the desire for more specialized products to meet customer needs. These two pressures make transnational strategies increasingly necessary.
T
The stabilization of returns through international diversification helps reduce a firm's overall risk.
T
The three basic benefits of international strategies are increased market size, economies of scale and learning, and location advantages.
T
When a firm initially pursues an international business-level strategy, the resources and capabilities established in the home country frequently allow the firm to pursue the strategy into markets located in other countries.
T
Equator, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis to Ireland. Which of the following is the major threat to Equator's plan to transfer competencies from itself to the Irish firm? a. The St. Louis manager may quit Equator in order to remain in St. Louis. b. American pharmaceutical manufacturing techniques may not transfer to Ireland. c. Irish managers will refuse to take direction from a foreign executive. d. Transferring U.S. managers overseas is not usually cost-effective.
The St. Louis manager may quit Equator in order to remain in St. Louis.
Xanadu, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis to Ireland. What is the major threat to Xanadu's plan to transfer competencies from itself to the Irish firm?
The St. Louis manager may quit Xanadu in order to remain in St. Louis.
Skaredykat Inc. is considering initial expansion beyond its home market. The firm has decided not to enter markets that differ greatly from its home market, instead expanding within the twelve-nation region that includes its home country. Which of the following statements is true? a. The firm is not engaging in international trade. b. The firm is using a regional approach to international expansion. c. The firm will not be able understand the cultures, legal, and social norms of this market. d. Skaredykat is too afraid to implement an international strategy.
The firm is using a regional approach to international expansion.
Which of the following is an advantage associated with greenfield ventures? a. Governmental support and subsidies in the host country b. The lower cost of this type of venture c. The level of control over the firm's operations d. The lower level of risks involved
The level of control over the firm's operations
Which of the following makes high-technology firms and service-based firms risky as restructuring candidates? a. They are dependent on human resources. b. They have few intangible assets. c. Both types of firm rely on financial economies. d. The demand for their products is highly sensitive to economic downturns.
They are dependent on human resources.
What is the similarity between high-technology firms and service-based firms that makes them risky as restructuring candidates?
They are human-resource dependent
Dragonfly, publisher of children's books, has purchased White Rabbit, another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different because Dragonfly produces children's literature, whereas White Rabbit focuses on child-level nonfiction scientific and nature topics. Which of the following statements is probably true about this acquisition? a. This is a horizontal acquisition .b. This is an example of virtual integration. c. Dragonfly is beginning to build a conglomerate. d. Economies of scope are unlikely to result from this acquisition.
This is a horizontal acquisition
Dragonfly Publishers of children's books has purchased White Rabbit, another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different, since Dragonfly produces children's literature, whereas White Rabbit focuses on child-level scientific and nature topics. Which of the following statements is probably TRUE about this acquisition?
This is a horizontal acquisition`
Which of the following firms would MOST likely be a successful candidate for acquisition and restructuring? a. Medical practice b. Management consulting firm that has a tradition of long-term, client-consultant relationships c. Tire manufacturer established in 1910 d. Start-up communications technology firm
Tire manufacturer established in 1910
Which of the following is NOT an incentive for firms to become multinational? a. To gain access to consumers in emerging markets b. To gain easier access to raw materials c. To avoid high domestic taxation on corporate income d. Opportunities to integrate operations on a global scale
To avoid high domestic taxation on corporate income
A company that tries to balance both operational and corporate relatedness and fails risks incurring diseconomies of scope
True
An effective corporate strategy creates aggregate returns across all businesses that exceed what those returns would be without the strategy and contributes to the firm's strategic competitiveness and ability to earn above- average returns
True
Antitrust regulation, tax laws, and low performance are all value-neutral reasons why firms engage in diversification.
True
Compared to diversification that is grounded in intangible resources, diversification based on financial resources only is more visible to competitors and thus more imitable and less likely to create value on a long-term basis.
True
Compared with related constrained firms, related linked firms share fewer resources and assets between their businesses, concentrating instead on transferring knowledge and core competencies between the businesses
True
Different incentives to diversify sometimes exist, and the quality of a firm's resources may permit only diversification that is value neutral rather than value creating.
True
Diversification strategies can be used with both value-creating and value-neutral objectives
True
Equator, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to move one of its key managers from its plant in St. Louis to Ireland. This can be considered a method of transferring corporate-level core competencies
True
Firms that sold off related units in which resource sharing was a possible source of economies of scope have been found to produce lower returns than those that sold off businesses unrelated to the firm's core businesses
True
Firms using a related diversification strategy may gain market power when successfully using their related constrained or related linked strategy
True
Firms using the related constrained strategy share activities in order to create value.
True
GE (discussed in the Chapter 6 Opening Case) is an example of a firm that has used internal capital market allocation as a means of creating value even though it competes using a related linked rather than an unrelated diversification strategy.
True
Golden parachutes protect managers from the negative consequences of over-diversifying a firm.
True
If managers diversify a firm in a way that does not produce value, the firm risks capital market intervention
True
In spite of the challenges associated with it, a number of firms continue to use the unrelated diversification strategy, especially in Europe and in emerging markets
True
In the Chapter 6 Opening Case, GE achieved growth and diversification through mergers and acquisitions
True
Knowing that their firms could be acquired if they are not managed successfully encourages executives to use value-creating diversification strategies.
True
Low firm performance is associated with increased diversification
True
Many manufacturing firms are de-integrating and moving to independent supplier networks
True
Procter & Gamble (P&G) has a paper towel and baby diaper business that both use paper products. This is an example of value created through the sharing of activities.
True
Research evidence shows that increased firm size and greater levels of diversification are correlated with increased executive compensation
True
The "conglomerate discount" occurs in large, highly diversified businesses and results from analysts not knowing how to value the vast array of large businesses with complex financial reports
True
United Technologies, Textron, Samsung, and Hutchison Whampoa Limited are examples of diversified firms that have no relationships between their businesses. These firms all use the strategy of unrelated diversification
True
Vertical integration allows the firm to gain market power as the firm develops the ability to save on its operations, avoid market costs, improve product quality, and possibly protect its technology from rivals
True
When firms share activities across units, they are often able to achieve increased value.
True
When implementing a restructuring strategy, a company would do best by focusing on mature, low-technology businesses rather than high-technology or service businesses.
True
Which of the following questions should companies ask before seeking a first-mover advantage?
Two answers are correct: Is new infrastructure needed before market demand can surge? and How rapid is technological change, and will follow-on rivals find it easy to derail us with next-generation products of their own?
Architects of mergers and acquisition strategies typically set sights on which of the following objectives?
Two answers are correct: creating a more cost-efficient operation, expanding a company's geographic coverage, and extending a company's business into new product categories, and gaining quick access to new technologies or other resources and competitive capabilities, and leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities
During a financial downturn, a firm may consider diversification as a value-neutral defensive strategy to protect itself against what? a. Loss of market power b. Managerial employment risk c. Inefficient internal capital allocation d. Uncertain future cash flows
Uncertain future cash flows
One of the following diversification methods creates maximum value through financial economies, which is it? Related constrained Operational and corporate relatedness Unrelated Related linked
Unrelated
Which of the following types of diversification is MOST likely to create value through financial economies? a. Related constrained b. Operational and corporate relatedness c. Unrelated d. Related linked
Unrelated
|Backward integration is also known as what when a company produces its own inputs? Multipoint integration Horizontal integration Market power Vertical integration
Vertical integration
A company pursuing vertical integration can gain market power over its competitors through all of the following EXCEPT a. improved adjustment to technological changes. b. savings on operations costs. c. improved product quality. d. avoidance of market costs.
a
A fundamental reason for a country's development of advanced and specialized factors of production is often its a. lack of basic resources. b. monetary wealth. c. small workforce. d. protective tariffs.
a
A global corporate-level strategy differs from a multidomestic corporate-level strategy in that in a global strategy, ______. a. competitive strategy is dictated by the home office. b. competitive strategy is decentralized and controlled by individual strategic business units. c. products are customized to meet the individual needs of each country. d. the firm sells in multiple countries
a
A large domestic market can provide the country's industries a chance at dominating the world market because a. they have been able to develop economies of scale at home. b. they have access to abundant and inexpensive factors of production. c. the related and supporting industries will have been developed. d. the nation's culture and educational system will be adapted to producing the labor force needed for the industry.
a
A noted professional art academy has founded an "artists and friends" travel company specializing in tours for artists to scenic locales, using its faculty as traveling teachers. In addition, the art academy has purchased a framing company to both make frames for academy art works, but also to sell museum-quality framing services to the public. The art academy is engaging in diversification based on ______ relatedness. a. operational b. corporate c. intellectual d. constrained
a
All of the following complicate the implementation of an international diversification strategy EXCEPT a. widespread multilingualism. b. increased costs of coordination between business units. c. cultural diversity. d. logistical costs
a
Although a(n) ______ firm, GE (discussed in the Chapter 6 Opening Case) has done an exceptional job of ______ its four major strategic business units. a. related linked; allocating capital across b. related constrained; restructuring c. unrelated; sharing activities across d. unrelated; transferring core competencies across
a
An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops a. through reduced disclosure to outside parties. b. by the ability to not report losses to investors. c. by the ability to increase pay to managers without shareholders being aware. d. through the ability to reinvest cash in dividends to shareholders.
a
An office management firm has developed a system for efficiently organizing small medical and dental practices both through proprietary software and through unique training programs for staff. It has recently acquired a firm specializing in providing management services for veterinary practices. The office management firm is hoping to a. achieve economies of scope. b. implement vertical integration. c. achieve financial economies through an unrelated acquisition. d. acquire specialized talent from the veterinary management company.
a
Arkadelphia Polymers, Inc., earns 60 percent of its revenue from exports to Europe and Asia. The CEO of the company would be a. concerned if the value of the dollar strengthened. b. pleased if the value of the dollar strengthened. c. unconcerned about the fluctuation in the value of the dollar because the company is widely diversified geographically. d. likely to consider moving to international strategic alliances or acquisitions if the value of the dollar fell and remained low
a
Backward integration occurs when a company a. produces its own inputs. b. owns its own source of distribution of outputs. c. is concentrated in a single industry. d. is divesting unrelated businesses.
a
Dragonfly Publishers of children's books has purchased White Rabbit, another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different, since Dragonfly produces children's literature, whereas White Rabbit focuses on child-level scientific and nature topics. Which of the following statements is probably TRUE about this acquisition? a. This is a horizontal acquisition. b. This is an example of virtual integration. c. Dragonfly is beginning to build a conglomerate. d. Economies of scope are unlikely to result from this acquisition.
a
Firms able to standardize the processes used to produce, sell, distribute, and service their products across country borders enhance their ability to a. learn how to continuously reduce costs while increase the value of their products. b. increase investment in research and development. c. access to a low-cost labor force in the host market. d. mitigate cultural differences
a
Firms with core competencies that can be exploited across international markets are able to a. achieve synergies and produce high-quality goods at lower costs. b. enter new markets more quickly. c. enhance their market image and brand loyalty among local consumers. d. meet local government requirements more quickly than their international competitors
a
Free cash flows are a. liquid financial assets for which investments in current businesses are no longer economically viable. b. liquid financial assets that for tax purposes must be reinvested in the firm if not distributed as dividends to shareholders. c. the profits resulting after a restructured firm has been sold. d. dividends that have been distributed to shareholders that are taxed as capital gains.
a
In China, Starbucks is standardizing its operations while simultaneously decentralizing some decision-making responsibility to local levels to meet customers tastes. Starbucks is following the _______ international corporate-level strategy. a. transnational b. global c. differentiation d. multidomestic
a
In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify? a. economies of scope b. desire for increased compensation c. reduced managerial risk d. low performance
a
International corporate-level strategy focuses on a. the scope of operations through both product and geographic diversification. b. competition within each country. c. economies of scale. d. sophistication of monitoring and controlling systems.
a
Internationally diversified firms a. earn greater returns on their innovations through larger or more numerous markets. b. are more likely to produce below-average returns for investors in the long run. c. may need to decrease international activities when domestic profits are poor. d. are generally unable to achieve high levels of synergy because of differences in cultures
a
Japan, due to a lack of undeveloped land, would be an unusual choice of location for a U.S. cattle company to set up local grazing operations. This limiting factor would be identified in what part of Porter's determinants of national advantage? a. factors of production b. demand conditions c. related and supporting industries d. firm strategy, structure, and rivalry
a
One of the primary reasons for failure of cross-border strategic alliances is a. the incompatibility of the partners. b. conflict between legal and business systems. c. security concerns and terrorism. d. high debt financing
a
Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G most likely uses the ______ diversification strategy to create a. related constrained; operational relatedness. b. related linked; corporate relatedness. c. related constrained; corporate relatedness. d. related linked; operational relatedness.
a
Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the United States make this type of brick. Specialty Steel has decided to buy one of these brick plants. This is an example of a. backward integration. b. forward integration. c. horizontal integration. d. virtual integration
a
Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the United States make this type of brick. Specialty Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick. a. Specialty Steel has less flexibility now than if it were not vertically integrated. b. This is an example of a capacity balance problem. c. This is a result of conflicts of interest between the managers of the brick plant and the executives of Specialty Steel. d. The market power of Specialty Steel has been de-integrated.
a
Successful unrelated diversification through restructuring is typically accomplished by a. focusing on mature, low-technology businesses. b. a "random walk" of good luck in picking firms to buy. c. seeking out high technology firms in high-growth industries. d. a top management team that is not constrained by pre-established ideas of how the firm's portfolio should be developed.
a
Terrorism creates an economic risk for firms, which a. reduces the amount of investment foreign companies will make in a country perceived to be terror-prone. b. is created by governmental bans on doing business with terrorist regimes. c. is offset by the above-average returns for firms that have learned how to operate in such an environment. d. is absorbed by firms that are highly geographically diversified and that operate in both secure and insecure locations
a
The Publicis Groupe uses the digital technology from its digital business to enhance the advertising products in its advertising group. This sharing of activities is characteristic of the ______ diversification strategy. a. related constrained b. related linked c. unrelated d. dominant
a
The lowest level of diversification is the ______ level. a. single-business b. dominant business c. related constrained d. unrelated
a
The term "conglomerates" refers to firms using the ______ diversification strategy. a. unrelated b. related constrained c. related linked d. global
a
The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be a. discounted by investors. b. inflated by investors. c. completely ignored by investors. d. highly valued by investors.
a
U.S. cola companies entered the global market because of a. limited growth opportunities in their domestic market. b. lower labor costs in the emerging markets. c. economies of scale that offset research and development costs. d. an increase in the return on investment from their U.S. bottling plants.
a
What is the similarity between high-technology firms and service-based firms that makes them risky as restructuring candidates? a. They are human-resource dependent. b. They have few tangible assets. c. Both types of firm rely on financial economies. d. The demand for their products is highly sensitive to economic downturns.
a
When a firm simultaneously practices operational relatedness and corporate relatedness, a. it is difficult for investors to observe the value created by the firm. b. the firm is likely to be overvalued by investors. c. the firm will suffer from diseconomies of scope that outweigh cost savings generated. d. the firm is seeking to create value through financial economies.
a
Which of the following is NOT a disadvantage associated with exporting? a. potential loss of proprietary technologies b. high transportation costs c. loss of control over distribution activities d. tariffs imposed by local governments
a
Wm. Wrigley Jr. Company once made only chewing gum. When Wrigley bought Life Savers (a line of candy mints) and Altoids (a line of breath mints) from Kraft, chewing gum then constituted less than 95 percent of revenues. Thus, Wrigley a. was moving away from its traditional single-business strategy toward a dominant strategy. b. was moving away from its traditional dominant strategy toward a related linked strategy. c. became a conglomerate since Life Savers and Altoids are unrelated businesses. d. probably planned to restructure these companies and sell them off.
a
Xanadu, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis to Ireland. What is the major threat to Xanadu's plan to transfer competencies from itself to the Irish firm? a. The St. Louis manager may quit Xanadu in order to remain in St. Louis. b. American pharmaceutical manufacturing techniques may not transfer to Ireland. c. Irish managers will refuse to take direction from a foreign executive. d. The cost of transferring U.S. managers overseas is usually not cost-effective.
a
Which of the following is the best example of related diversification?
a producer of snow skis and ski boots acquiring a maker of ski apparel and accessories (outerwear, goggles, gloves and mittens, helmets and toboggans)
Which of the following firms would be the most likely to be a successful candidate for acquisition and restructuring?
a tire manufacturer established in 1910
Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the U.S. make this type of brick. Specialty Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick. a. Specialty Steel has less flexibility now than if it were not vertically integrated. b. This is an example of a capacity balance problem. c. This is a result of conflicts of interest between the managers of the brick plant and the executives of Specialty Steel. d. The market power of Specialty Steel has been de-integrated.
a. Specialty Steel has less flexibility now than if it were not vertically integrated.
Xanadu, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis to Ireland. What is the major threat to Xanadu's plan to transfer competencies from itself to the Irish firm? a. The St. Louis manager may quit Xanadu in order to remain in St. Louis. b. American pharmaceutical manufacturing techniques may not transfer to Ireland. c. Irish managers will refuse to take direction from a foreign executive. d. The cost of transferring U.S. managers overseas is usually not cost-effective.
a. The St. Louis manager may quit Xanadu in order to remain in St. Louis.
What is the similarity between high-technology firms and service-based firms that makes them risky as restructuring candidates? a. They are human-resource dependent. b. They have few tangible assets. c. Both types of firm rely on financial economies. d. The demand for their products is highly sensitive to economic downturns.
a. They are human-resource dependent.
Dragonfly Publishers of children's books has purchased White Rabbit, another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different, since Dragonfly produces children's literature, whereas White Rabbit focuses on child-level scientific and nature topics. Which of the following statements is probably TRUE about this acquisition? a. This is a horizontal acquisition. b. This is an example of virtual integration. c. Dragonfly is beginning to build a conglomerate. d. Economies of scope are unlikely to result from this acquisition.
a. This is a horizontal acquisition.
An office management firm has developed a system for efficiently organizing small medical and dental practices both through proprietary software and through unique training programs for staff. It has recently acquired a firm specializing in providing management services for veterinary practices. The office management firm is hoping to a. achieve economies of scope. b. implement vertical integration. c. achieve financial economies through an unrelated acquisition. d. acquire specialized talent from the veterinary management company.
a. achieve economies of scope.
Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the U.S. make this type of brick. Specialty Steel has decided to buy one of these brick plants. This is an example of a. backward integration. b. forward integration. c. horizontal integration. d. virtual integration.
a. backward integration.
The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be a. discounted by investors. b. inflated by investors. c. completely ignored by investors. d. highly valued by investors.
a. discounted by investors.
In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify? a. economies of scope b. desire for increased compensation c. reduced managerial risk d. low performance
a. economies of scope
Successful unrelated diversification through restructuring is typically accomplished by a. focusing on mature, low-technology businesses. b. a "random walk" of good luck in picking firms to buy. c. seeking out high technology firms in high growth industries. d. a top management team that is not constrained by pre-established ideas of how the firm's portfolio should be developed.
a. focusing on mature, low-technology businesses.
A company pursuing vertical integration can gain market power over its competitors through all of the following EXCEPT a. improved adjustment to technological changes. b. savings on operations costs. c. improved product quality. d. avoidance of market costs.
a. improved adjustment to technological changes
When a firm simultaneously practices operational relatedness and corporate relatedness, a. it is difficult for investors to observe the value created by the firm. b. the firm is likely to be overvalued by investors. c. the firm will suffer from diseconomies of scope which outweigh cost savings generated. d. the firm is seeking to create value through financial economies.
a. it is difficult for investors to observe the value created by the firm.
Free cash flows are a. liquid financial assets for which investments in current businesses are no longer economically viable. b. liquid financial assets that for tax purposes must be reinvested in the firm if not distributed as dividends to shareholders. c. the profits resulting after a restructured firm has been sold. d. dividends that have been distributed to shareholders that are taxed as capital gains.
a. liquid financial assets for which investments in current businesses are no longer economically viable.
A noted professional art academy has founded an "artists and friends" travel company specializing in tours for artists to scenic locales, using its faculty as traveling teachers. In addition, the art academy has purchased a framing company to both make frames for academy art works, but also to sell museum-quality framing services to the public. The art academy is engaging in diversification based on ____ relatedness. a. operational b. corporate c. intellectual d. constrained
a. operational
Backward integration occurs when a company a. produces its own inputs. b. owns its own source of distribution of outputs. c. is concentrated in a single industry. d. is divesting unrelated businesses.
a. produces its own inputs.
The Publicis Groupe (Chapter 6 Strategic Focus) uses the digital technology from its digital business to enhance the advertising products in its advertising group. This sharing of activities is characteristic of the _____________ diversification strategy. a. related constrained b. related linked c. unrelated d. dominant
a. related constrained
Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G most likely uses the _______________diversification strategy to create ____________. a. related constrained; operational relatedness. b. related linked; corporate relatedness. c. related constrained; corporate relatedness d. related linked; operational relatedness
a. related constrained; operational relatedness.
Although a ________________ firm, GE (discussed in the Chapter 6 Opening Case) has done an exceptional job of _____________________ its four major strategic business units. a. related linked; allocate capital across b. related constrained; restructuring c. unrelated; share activities across d. unrelated; transfer core competencies across
a. related linked; allocate capital across
The lowest level of diversification is the ____ level. a. single business b. dominant business c. related constrained d. unrelated
a. single business
An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops a. through reduced disclosure to outside parties. b. by the ability to not report losses to investors. c. by the ability to increase pay to managers without shareholders being aware. d. through the ability to reinvest cash in dividends to shareholders.
a. through reduced disclosure to outside parties.
The term "conglomerates" refers to firms using the ____ diversification strategy. a. unrelated b. related constrained c. related linked d. global
a. unrelated
Wm. Wrigley Jr. Company once made only chewing gum. When Wrigley bought Life Savers (a line of candy mints) and Altoids (a line of breadth mints) from Kraft, chewing gum then constituted less than 95 percent of revenues. Thus, Wrigley a. was moving away from its traditional single-business strategy toward a dominant strategy. b. was moving away from its traditional dominant strategy toward a related linked strategy. c. became a conglomerate since Life Savers and Altoids are unrelated businesses. d. probably planned to restructure these companies and sell them off.
a. was moving away from its traditional single-business strategy toward a dominant strategy.
An office management firm has developed a system for efficiently organizing small medical and dental practices both through proprietary software and through unique training programs for staff. It has recently acquired a firm specializing in providing management services for veterinary practices. The office management firm is hoping to
achieve economies of scope
An office management firm has developed a system for efficiently organizing small medical and dental practices both through proprietary software and through unique training programs for staff. It has recently acquired a firm specializing in providing management services for veterinary practices. The office management firm is hoping to: a. achieve economies of scope. b. implement vertical integration. c. achieve financial economies through an unrelated acquisition. d. acquire specialized talent from the veterinary management company.
achieve economies of scope.
Firms with core competencies that can be exploited across international markets are able to: a. achieve synergies and produce high-quality goods at lower costs. b. enter new markets more quickly. c. enhance their market image and brand loyalty among local consumers. d. meet local government requirements more quickly than their international competitors.
achieve synergies and produce high-quality goods at lower costs.
The strategic appeal of related diversification is that it
allows a firm to reap the competitive advantage benefits of skills transfer, lower costs (due to economies of scope), cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities.
A licensing agreement: a. results in two firms agreeing to share the risks and the resources of a new venture. b. is the best way to protect proprietary technology from future competitors. c. allows a foreign firm to purchase the right to manufacture and sell a firm's products within a host country. d. can be greatly impacted by currency exchange rate fluctuations.
allows a foreign firm to purchase the right to manufacture and sell a firm's products within a host country.
The Zolloffe Co. is exploring options for entering into international markets. Time is of the essence. The key stakeholders have expressed that the primary concern is that Zolloffe gain access to new markets as quickly as possible in order to spur corporate growth. What type of entry would be best for Zolloffe? a. Exporting b. A strategic alliance c. An acquisition d. Licensing
an acquisition
Cross-business strategic fits can exist
anywhere along the values chains of related businesses.
According to researchers, horizontal acquisitions ______________: tend to have disappointing financial results in the long run. are being replaced by virtual acquisitions. result in lower levels of performance than unrelated acquisitions. are able to use activity sharing to successfully create economies of scope.
are able to use activity sharing to successfully create economies of scope.
Research has shown that horizontal acquisitions
are able to use activity sharing to successfully create economies of scope.
Research has shown that horizontal acquisitions: a. tend to have disappointing financial results in the long run. b. are being replaced by virtual acquisitions. c. result in lower levels of performance than unrelated acquisitions. d. are able to use activity sharing to successfully create economies of scope.
are able to use activity sharing to successfully create economies of scope.
Strategic alliances
are formal agreements between two or more companies to work cooperatively toward some common objective.
Moving into international markets is a particularly attractive strategy to firms whose domestic markets: a. demand a differentiation strategy for success. b. are limited in opportunities for growth. c. have developed unfriendly business attitudes toward the industry. d. have too much regulation.
are limited in opportunities for growth.
Certain regulatory changes (such as antitrust regulation and tax laws) create incentives or disincentives for diversification that
are value-neutral
Certain regulatory changes (such as antitrust regulation and tax laws) create incentives or disincentives for diversification that: a. create value .b. reduce value. c. are value-neutral. d. are managerial motives to diversify.
are value-neutral.
The basic purpose of calculating competitive strength scores for each of a diversified company's business units is to
assess how strongly positioned each business unit is in its industry and the extent to which it already is or can become a strong market contender.
The location advantages associated with locating facilities in other countries can include all of the following EXCEPT: a. low-cost labor. b. access to critical supplies. c. access to customers. d. avoidance of host country governmental regulations.
avoidance of host country governmental regulations.
A U.S. manufacturer of adaptive devices for persons with disabilities is considering expanding internationally. It is a fairly small company, but it is looking for growth opportunities. This company should primarily consider the option of a. licensing. b. exporting. c. a strategic alliance. d. a greenfield venture
b
A firm that earns less than 70 percent of revenue from its dominant business and has direct connections between its businesses is engaging in ______ diversification. a. unrelated b. related constrained c. related linked d. dominant business
b
A global corporate-level strategy emphasizes a. differentiated products. b. economies of scale. c. sensitivity to local product preferences. d. decentralizing control and limited monitoring
b
A multidomestic corporate-level strategy has ______ need for global integration and ______ need for local market responsiveness. a. low; low b. low; high c. high; low d. high; high
b
Acquisitions to increase market power require that the firm have a(n) ______ diversification strategy. a. unrelated b. related c. dominant-business d. single-business
b
All of the following are international corporate-level strategies EXCEPT the ______ strategy. a. multidomestic b. universal c. global d. transnational
b
An international diversification strategy is one in which a firm a. expands into nearby markets. b. expands into a potentially large number of geographic locations and markets. c. expands into one or a few markets. d. acquires a firm in a foreign country.
b
As noted in the Chapter 6 Opening Case, GE is now a major player in the "clean energy" industry such as wind turbines and solar power. A major reason GE moved in this direction was A) to narrow the focus of its portfolio around energy-related industries. B) to overcome and correct its record in environmental issues. C) to further diversify its portfolio away from services. D) the clean energy industry was guaranteed to be profitable for the next several years.
b
As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to a. increase the firm's level of retained resources. b. diversify into less risky environments. c. reduce the level of diversity in its investments. d. pursue unproven product lines.
b
Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations a. pay dividends annually. b. keep free cash flows for investment in acquisitions. c. distribute capital gains regularly. d. increase managerial salaries.
b
Compared with diversification based on intangible resources, diversification based on financial resources is a. less imitable and less likely to create value on a long-term basis. b. more imitable and less likely to create value on a long-term basis. c. less imitable and more likely to create value on a long-term basis. d. more imitable and more likely to create value on a long-term basis.
b
Corporate-level strategy is concerned with ______ and how to manage these businesses. a. whether the firm should invest in global or domestic businesses b. what product markets and businesses the firm should be in c. whether the portfolio of businesses should generate immediate above-average returns or should be troubled businesses which will create above-average returns only after restructuring d. whether to integrate backward or forward.
b
During the 1990s top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they a. plan to take poison pills. b. have golden parachutes. c. have silver handcuffs. d. have ironclad contracts.
b
Firms that have selected a related diversification corporate-level strategy seek to exploit a. control shared among business-unit managers. b. economies of scope between business units. c. the favorable demand of buyers. d. market power.
b
GE (Chapter 6 Opening Case) was diversified and manages businesses that have only a few links between them. This corporate-level strategy is best described as ______ diversification. a. related constrained b. related linked c. unrelated d. conglomerate
b
In France, fine dressmaking and tailoring have been a tradition predating Queen Marie Antoinette. Cloth manufacturers, design schools, craft apprenticeship programs, modeling agencies, and so forth, all exist to supply the clothing industry. This is an example of the ______ in Porter's model. a. strategy, structure, and rivalry among firms b. related and supporting industries c. demand conditions d. factors of production
b
Increasingly, customers worldwide are demanding emphasis on local requirements and companies are needing efficiency as global competition increases. This has triggered an increase in the number of firms using the ________ strategy. a. multidomestic b. transnational c. universal d. global
b
International strategy refers to a(n) ________ a. action plan pursued by American companies to compete against foreign companies operating in the United States. b. strategy through which the firm sells products in markets outside the firm's domestic market. c. political and economic action plan developed by businesses and governments to cope with global competition. d. strategy American firms use to dominate international markets.
b
Large diversified businesses often face what is known as the "conglomerate discount." This discount means that investors a. understand that the financial efficiencies of this strategy automatically make these stocks worth more than their current market valuation. b. believe that the value of conglomerates is less than the value of the sum of their parts. c. increase the expected future earnings of conglomerates. d. have found that over time, conglomerates earn more than the component companies would have earned independently
b
Most firms enter international markets sequentially, introducing their ______ first. a. most innovative products b. largest and strongest lines of business c. most generic products, which will be more likely to generate universal product demand, d. products customized to the region
b
Moving into international markets is a particularly attractive strategy to firms whose domestic markets a. demand a differentiation strategy for success. b. are limited in opportunities for growth. c. have developed unfriendly business attitudes toward the industry. d. have too much regulation
b
One method of facilitating the transfer of competencies between firms is to a. virtually integrate the two firms. b. transfer key people into new management positions. c. share support activities, such as purchasing practices. d. restructure the weaker firm to mirror the structure of the more successful firm.
b
Operational relatedness is created by ______ of a. sharing; core competencies. b. sharing; activities. c. transferring; core competencies. d. transferring; activities.
b
PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a ______ business. a. de-integrated b. vertically integrated c. totally integrated d. horizontally integrated
b
Revenues for United Parcel Service (UPS) come from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non-packaging operations. Which best describes the corporate level strategy of UPS? a. single business b. dominant business c. related constrained d. related linked
b
Skaredykat Inc. is considering initial expansion beyond its home market. The firm has decided not to enter markets that differ greatly from its home market, instead expanding within the twelve-nation region that includes its home country. a. The firm is not engaging in international trade. b. The firm is using a regional approach to international expansion. c. The firm will not be able understand the cultures, legal, and social norms of this market. d. Skaredykat is a scaredy-cat
b
The Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in a. unrelated diversification. b. related diversification projects. c. corporate restructuring. d. multipoint competition
b
The Publicis Groupe has three major groups of business (advertising, media, and digital) that share resources and capabilities. Publicis Groupe is using a diversification strategy. a. related linked b. related constrained c. unrelated d. dominant
b
The curvilinear relationship of corporate performance and diversification indicates that a. dominant-business corporate strategies tend to be higher performing than related constrained or unrelated business strategies. b. the highest performing business strategy is related constrained diversification. c. the less related the businesses acquired, the higher performing the organization. d. none of the strategies consistently outperforms the others.
b
The drawbacks to transferring competencies by moving key people into new management positions include all EXCEPT a. the people involved may not want to move. b. managerial competencies are not easily transferable to different organizational cultures. c. managers with these skills are expensive. d. top-level managers may resist having these key people transferred.
b
The increased pressures for global integration of operations have been driven mostly by ______. a. new low-cost entrants. b. increasing demand for similar products. c. increased levels of joint ventures. d. the rise of governmental regulation.
b
The main difference between the related constrained level of diversification and the related linked level of diversification is a. the percentage of total organizational profitability that comes from the dominant business. b. the level of resources and activities shared among the businesses. c. whether the diversification is vertical or horizontal. d. whether the diversification is value-creating or value-neutral.
b
The more sharing of resources and activities among businesses, the more diversification. a. linked b. constrained c. integrated d. intense
b
The positive results associated with increasing international diversification have been shown to a. continue as the level of international diversification increases. b. level off and become negative as diversification increases past some point. c. become negative quickly. d. be centered in only one or two industries
b
Usually a company is classified as a single business firm when revenues generated by the dominant business are greater than ____ percent. a. 99 b. 95 c. 90 d. 70
b
Walt Disney Company has successfully used related diversification to create value by a. sharing activities. b. sharing activities and transferring core competencies. c. transferring core competencies. d. efficient internal capital allocation and restructuring.
b
When a firm INITIALLY becomes internationally diversified, its returns a. remain stable. b. decrease. c. become more variable. d. increase
b
Which of the following is a value-reducing reason for diversification? a. enhancing the strategic competitiveness of the entire company b. expanding the business portfolio in order to diversify managerial employment risk c. gaining market power relative to competitors d. conforming to antitrust regulation
b
Which of the following reasons for diversification is most likely to increase the firm's value? a. increasing managerial compensation b. reducing costs through business restructuring c. taking advantage of changes in tax laws d. conforming to antitrust regulation
b
Which of the following resources are more likely to create value in the diversification process? a. plant and equipment b. tacit knowledge c. excess capacity d. financial resources
b
Usually a company is classified as a single business firm when revenues generated by the dominant business are greater than ____ percent. a. 99 b. 95 c. 90 d. 70
b. 95
Revenues for United Parcel Service (UPS) come from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non-packaging operations. Which best describes the corporate level strategy of UPS? a. Single business b. Dominant business c. Related constrained d. Related linked
b. Dominant business
Which of the following resources are more likely to create value in the diversification process? a. Plant and equipment. b. Tacit knowledge. c. Excess capacity. d. Financial resources.
b. Tacit knowledge.
Large diversified businesses often face what is known as the "conglomerate discount." This discount means that investors a. understand that the financial efficiencies of this strategy automatically make these stocks worth more than their current market valuation. b. believe that the value of conglomerates is less than the value of the sum of their parts. c. increase the expected future earnings of conglomerates. d. have found that over time, conglomerates earn more than the component companies would have earned independently.
b. believe that the value of conglomerates is less than the value of the sum of their parts.
The more sharing of resources and activities among businesses, the more ____ is the relatedness of the diversification. a. linked b. constrained c. integrated d. intense
b. constrained
As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to a. increase the firm's level of retained resources. b. diversify into less risky environments. c. reduce the level of diversity in its investments. d. pursue unproven product lines.
b. diversify into less risky environments
Firms that have selected a related diversification corporate-level strategy seek to exploit a. control shared among business-unit managers. b. economies of scope between business units. c. the favorable demand of buyers. d. market power.
b. economies of scope between business units.
Which of the following is a value-reducing reason for diversification? a. enhancing the strategic competitiveness of the entire company b. expanding the business portfolio in order to diversify managerial employment risk c. gaining market power relative to competitors d. conforming to antitrust regulation
b. expanding the business portfolio in order to diversify managerial employment risk
During the 1990s top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they a. plan to take poison pills. b. have golden parachutes. c. have silver handcuffs. d. have ironclad contracts.
b. have golden parachutes.
Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations a. pay dividends annually. b. keep free cash flows for investment in acquisitions. c. distribute capital gains regularly. d. increase managerial salaries.
b. keep free cash flows for investment in acquisitions.
The drawbacks to transferring competencies by moving key people into new management positions include all EXCEPT a. the people involved may not want to move. b. managerial competencies are not easily transferable to different organizational cultures. c. managers with these skills are expensive. d. top-level managers may resist having these key people transferred.
b. managerial competencies are not easily transferable to different organizational cultures.
Compared with diversification based on intangible resources, diversification based on financial resources is a. less imitable and less likely to create value on a long-term basis. b. more imitable and less likely to create value on a long-term basis. c. less imitable and more likely to create value on a long-term basis. d. more imitable and more likely to create value on a long-term basis.
b. more imitable and less likely to create value on a long-term basis.
Which of the following reasons for diversification is most likely to increase the firm's value? a. increasing managerial compensation b. reducing costs through business restructuring c. taking advantage of changes in tax laws d. conforming to antitrust regulation
b. reducing costs through business restructuring
Acquisitions to increase market power require that the firm have a ____ diversification strategy. a. unrelated b. related c. dominant business d. single business
b. related
A firm that earns less than 70% of revenue from its dominant business and has direct connections between its businesses is engaging in ____ diversification. a. unrelated b. related constrained c. related linked d. dominant business
b. related constrained
The Publicis Groupe (Chapter 6 Strategic Focus) has three major groups of business (advertising, media, and digital) which share resources and capabilities. Publicis Groupe is using a _____________ diversification strategy. a. related linked b. related constrained c. unrelated d. dominant
b. related constrained
The Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in a. unrelated diversification. b. related diversification projects. c. corporate restructuring. d. multipoint competition
b. related diversification projects
GE (Chapter 6 Opening Case) was diversified and manages businesses that have only a few links between them. This corporate-level strategy is best described as ________diversification. a. related constrained b. related linked c. unrelated d. conglomerate
b. related linked
Walt Disney Company has successfully used related diversification to create value by ________________. a. sharing activities b. sharing activities and transferring core competencies c. transferring core competencies d. efficient internal capital allocation and restructuring
b. sharing activities and transferring core competencies
Operational relatedness is created by ___________of___________. a. sharing; core competencies b. sharing; activities c. transferring; core competencies d. transferring; activities
b. sharing; activities
The curvilinear relationship of corporate performance and diversification indicates that a. dominant-business corporate strategies tend to be higher performing than related constrained or unrelated business strategies. b. the highest performing business strategy is related constrained diversification. c. the less related the businesses acquired, the higher performing the organization. d. none of the strategies consistently outperforms the others.
b. the highest performing business strategy is related constrained diversification.
The main difference between the related constrained level of diversification and the related linked level of diversification is a. the percentage of total organizational profitability that comes from the dominant business. b. the level of resources and activities shared among the businesses. c. whether the diversification is vertical or horizontal. d. whether the diversification is value-creating or value-neutral.
b. the level of resources and activities shared among the businesses.
As noted in the Chapter 6 Opening Case, GE is now a major player in the "clean energy" industry such as wind turbines and solar power. A major reason GE moved in this direction was_____________________________. a. to narrow the focus of its portfolio around energy-relted industries. b. to overcome and correct its record in environmental issues. c. to further diversify its portfolio away from services. d. the clean energy industry was guaranteed to be profitable for the next severl years.
b. to overcome and correct its record in environmental issues.
One method of facilitating the transfer of competencies between firms is to a. virtually integrate the two firms. b. transfer key people into new management positions. c. share support activities, such as purchasing practices. d. restructure the weaker firm to mirror the structure of the more successful firm.
b. transfer key people into new management positions.
PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a ____ business. a. de-integrated b. vertically integrated c. totally integrated d. horizontally integrated
b. vertically integrated
Corporate-level strategy is concerned with ____ and how to manage these businesses. a. whether the firm should invest in global or domestic businesses b. what product markets and businesses the firm should be in c. whether the portfolio of businesses should generate immediate above-average returns or should be troubled businesses which will create above-average returns only after restructuring d. whether to integrate backward or forward.
b. what product markets and businesses the firm should be in
Advanced Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare, and only two brick plants in the United States make this type of brick. Advanced Steel has decided to buy one of these brick plants. This is an example of: a. backward integration. b. forward integration. c. horizontal integration. d. virtual integration.
backward integration
Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the United States make this type of brick. Specialty Steel has decided to buy one of these brick plants. This is an example of
backward integration
Which of the following is not an advantage of outsourcing the performance of certain value chain activities to outsiders?
being able to reduce distribution costs by eliminating the use of wholesale distributors and retail dealers and, instead, selling direct to end-users at the company's website
Large diversified businesses often face what is known as the "conglomerate discount." This discount means that investors
believe that the value of conglomerates is less than the value of the sum of their parts
Which of the following is not one of the principal offensive strategy options?
blocking the avenues open to challengers
The ultimate test of the value of a corporate-level strategy is whether the
businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership.
The ultimate test of the value of a corporate-level strategy is whether the: a. corporation earns a great deal of money. b. top management team is satisfied with the corporation's performance. c. businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership. businesses in the portfolio increase the firm's financial returns.
businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership.
A firm may narrow its focus to a specific region of the world a. because that market is most different from its domestic market and so represents an unexploited "greenfield opportunity" for its products. b. in order to obtain greater economies of scale. c. so that it can better understand the cultures, legal and social norms, and other factors that are important for effective competition in those markets. d. to take advantage of limited protections of intellectual property so that it can manufacture innovative products without restrictions
c
A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT a. corporate headquarters can allocate capital according to more specific criteria than is possible with external market allocations. b. corporate headquarters has more complete information about the subsidiary businesses than the external capital market. c. the firm can acquire other firms with innovative products instead of allocating capital to research and development. d. corporate headquarters can more effectively discipline underperforming management teams through resource allocation than can the external market.
c
A licensing agreement a. results in two firms agreeing to share the risks and the resources of a new venture. b. is best way to protect proprietary technology from future competitors. c. allows a foreign firm to purchase the rights to manufacture and sell a firm's products within a host country. d. can be greatly impacted by currency exchange rate fluctuations
c
A multidomestic corporate-level strategy is one in which a. a corporation chooses not to compete internationally but where there are a number of international competitors in the firm's local marketplace. b. the firm produces a standardized product, but markets it differently in each country in which it competes. c. the firm customizes the product for each country in which it competes. d. the firm competes in a number of countries, but it is centrally coordinated by the home office.
c
A transnational corporate-level strategy seeks to achieve a. customization for the local market. b. economies of scale and centralized strategic control. c. global efficiency and local responsiveness. d. standardization of products across countries
c
All of the following are correct about what managers should know about firms based in a country with a national competitive advantage EXCEPT a. success is not guaranteed as the firm implements its chosen international business-level strategy. b. the actual strategic choices made are most compelling reasons for success or failure. c. success is guaranteed as the firm implements its chosen international business-level strategy. d. the determinants of national competitive advantage provide a foundation for a firm's competitive advantages
c
Among the value-neutral incentives to diversify, some come from the firm's external environment while others are internal to the firm. External incentives to diversify include a. the fact that other firms in an industry are diversifying. b. pressure from stockholders who are demanding that the firm diversify. c. changes in antitrust regulations and tax laws. d. a firm's low performance.
c
Associations such as the European Union, Organization of American States, and the North American Free Trade Association, encourage _________. a. global strategies. b. domestication. c. regional strategies. d. nationalization.
c
Certain regulatory changes (such as antitrust regulation and tax laws) create incentives or disincentives for diversification that a. create value. b. reduce value. c. are value-neutral. d. are managerial motives to diversify.
c
Disney suffered lawsuits in France at Disneyland Paris as a result of the lack of fit between its transferred personnel policies and the French employees charged to enact them. This is an example of ______. a. the effects of regionalization. b. the risks of a multidomestic strategy. c. the liability of foreignness. d. the effect of demand conditions
c
GE (Chapter 6 Opening Case) is unusual in that it a. is widely diversified but competes only in manufacturing industries. b. has had an unblemished environmental record. c. is one of the few large diversified large firms that have been successful over time. d. restricted its investments to only developed economies.
c
If conflict in a strategic alliance or joint venture is not manageable, a(n) ______ may be a better option. a. licensing strategy b. exporting strategy c. acquisition d. new wholly owned subsidiary
c
If intellectual property rights in an emerging economy are not well-protected, the number of firms in the industry is rapidly growing, and the need for global integration is high, ______ is the preferred entry mode. a. exporting b. strategic alliance c. a joint venture or wholly owned subsidiary d. licensing
c
In addition to the four basic dimensions of Porter's "diamond" model, ______ may also contribute to the success or failure of firms. a. national work ethic b. educational requirements c. government policy d. national pride
c
Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because a. a successful acquisition will increase the CEO's power over the board of directors. b. making an acquisition is an easier route to increased firm value than is improving the firm's core competencies. c. higher CEO pay is related to larger organization size. d. CEOs nearing retirement seek to create empires to continue their legacy.
c
Multipoint competition occurs when a. firms have multiple retail outlets. b. firms have multiple products in their primary industry. c. diversified firms compete against each other in several markets. d. firms have diversified portfolios of companies.
c
Of the value-neutral incentives to diversify, all of the following are internal firm incentives EXCEPT a. overall firm risk reduction. b. uncertain future cash flows. c. stricter interpretation of antitrust laws. d. low performance
c
Raymond Vernon states that the classic rationale for international diversification is to ______. a. pre-emptively dominate world markets before foreign companies can establish dominance. b. avoid domestic governmental regulation. c. extend the product's life cycle. d. avoid international governmental regulation.
c
The Mars acquisition of the Wrigley assets was part of its related constrained diversification and added market share to the Mars/Wrigley integrated firm. It allowed Mars to gain ______ because it could sell its products above the market level or reduce its costs below the market level. a. multipoint competition b. virtual integration c. market power d. vertical integration
c
The ______ diversification strategy creates value in two ways. First, since the core competence has already been developed in one business, the firm does not have to allocate resources to develop it. Second, since the resource is intangible, competitors cannot easily imitate it. a. related constrained b. unrelated c. related linked d. dominant business
c
The basic types of operational economies through which firms seek value from economies of scope are a. synergies between internal and external capital markets. b. the leveraging of individual tangible resources. c. the sharing of value chain activities and support functions. d. joint ventures and outsourcing.
c
The choices that a firm has for entering the international market include all of the following EXCEPT a. exporting. b. licensing. c. leasing. d. acquisition.
c
The decision of what entry mode to use is primarily based on all of the following factors EXCEPT a. the industry's competitive conditions. b. the country's situation and government policies. c. the worldwide economic situation. d. the firm's unique set of resources, capabilities, and core competencies
c
The four aspects of Porter's model of international competitive advantage include all of the following EXCEPT a. factors of production. b. demand conditions. c. political and economic institutions. d. related and supporting industries.
c
The more "constrained" the relatedness of diversification, a. the fewer the linkages between the businesses within the portfolio owned by the firm. b. the wider the variation in the portfolio of businesses owned by the firm. c. the more links there are among the businesses owned by an organization. d. the lower the proportion of total organizational revenue derived from the dominant business.
c
The ultimate test of the value of a corporate-level strategy is whether the a. corporation earns a great deal of money. b. top management team is satisfied with the corporation's performance. c. businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership. d. businesses in the portfolio increase the firm's financial returns.
c
U.S. companies moving into the international market need to be sensitive to the need for local country or regional responsiveness because of a. increasing rejection of American culture across much of the world. b. the sophistication of the international consumer because of the Internet. c. consumer needs, political and legal structures, and social norms vary by country. d. the increasing loss of economies of scale
c
Under industry structural analysis (Chapter 2), ____ rivalry is viewed as detrimental to profitability. Under the ______ model of national advantage (Chapter 8), rivalry is viewed as _______ as it results in competition and surviving firms are able to compete against global rivals. a. low; low; beneficial b. low; low; detrimental c. high; high; beneficial d. high; high; detrimental
c
Virgin Group successfully transfers its marketing core competence across airlines, cosmetics, music, drinks, mobile phones, health clubs, and a number of other businesses. Virgin follows a(n) ______ diversification corporate strategy. a. dominant-business b. related constrained c. related linked d. unrelated
c
When diversification results in two companies, such as UPS and FedEx, simultaneously competing in the same product areas or geographic markets, this is called ______ competition. a. multiple b. multiportal c. multipoint d. multiplicit
c
Which of the following firms would be the most likely to be a successful candidate for acquisition and restructuring? a. a medical practice b. a management consulting firm that has a tradition of long term client-consultant relationships c. a tire manufacturer established in 1910 d. a start-up communications technology firm
c
Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify? a. the market for corporate control b. the Board of Directors c. surveillance technologies d. executive compensation practices
c
Which of the following is NOT an incentive for firms to become multinational? a. to gain access to consumers in emerging markets b. to gain easier access to raw materials c. to avoid high domestic taxation on corporate income d. opportunities to integrate operations on a global scale
c
Which of the following is an advantage associated with greenfield ventures? a. governmental support and subsidies in the host country b. the lower cost of this type of venture c. the level of control over the firm's operations d. the lower level of risks involved
c
Which type of diversification is most likely to create value through financial economies? a. related constrained b. operational and corporate relatedness c. unrelated d. related linked
c
Working in multiple international markets can provide firms with ______ perhaps even in terms of ______. a. location advantages; larger markets. b. research and development activities; larger markets. c. new learning opportunities; research and development activities. d. economies of scale and learning; larger markets.
c
________ is the set of costs associated with unfamiliar operating environments; economic, administrative and cultural differences; and the challenges of coordination over distances. a. Transnational risk b. Regionalization c. Liability of foreignness d. International risk
c
To overcome the conglomerate discount, many conglomerates have sought to establish ____________ for the parent company. a. a lobbying group b. organizational slack c. a brand d. a strong CEO
c. a brand
Which of the following firms would be the most likely to be a successful candidate for acquisition and restructuring? a. a medical practice b. a management consulting firm that has a tradition of long term client-consultant relationships c. a tire manufacturer established in 1910 d. a start-up communications technology firm
c. a tire manufacturer established in 1910
Certain regulatory changes (such as antitrust regulation and tax laws) create incentives or disincentives for diversification that _________________. a. create value b. reduce value c. are value-neutral d. are managerial motives to diversify
c. are value-neutral
The ultimate test of the value of a corporate-level strategy is whether the a. corporation earns a great deal of money. b. top management team is satisfied with the corporation's performance. c. businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership. d. businesses in the portfolio increase the firm's financial returns.
c. businesses in the portfolio are worth more under the management of the company in question than they
Among the value-neutral incentives to diversify, some come from the firm's external environment while others are internal to the firm. External incentives to diversify include a. the fact that other firms in an industry are diversifying. b. pressure from stockholders who are demanding that the firm diversify. c. changes in antitrust regulations and tax laws. d. a firm's low performance.
c. changes in antitrust regulations and tax laws.
Multipoint competition occurs when a. firms have multiple retail outlets. b. firms have multiple products in their primary industry. c. diversified firms compete against each other in several markets. d. firms have diversified portfolios of companies.
c. diversified firms compete against each other in several markets.
Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because a. a successful acquisition will increase the CEO's power over the board of directors. b. making an acquisition is an easier route to increased firm value than is improving the firm's core competencies. c. higher CEO pay is related to larger organization size. d. CEOs nearing retirement seek to create empires to continue their legacy.
c. higher CEO pay is related to larger organization size.
GE (Chapter 6 Opening Case) is unusual in that it __________________ _______________. a. is widely diversified but competes only in manufacturing industries. b. has had an unblemished environmental record. c. is one of the few large diversified large firms that have been successful over time. d. restricted its investments to only developed economies.
c. is one of the few large diversified large firms that have been successful over time.
The Mars acquisition of the Wrigley assets was part of its related constrained diversification and added market share to the Mars/Wrigley integrated firm. It allowed Mars to gain _______because it could sell its products above the market level or reduce its costs below the market level. a. multipoint competition b. virtual integration c. market power d. vertical integration.
c. market power
The Chapter 6 Strategic Focus shows that Google has gained substantial ________ as a result of its ______________ diversification strategy. a. efficient capital market allocation; unrelated b. financial economies; related c. market power; related d. vertical integration; unrelated
c. market power; related
When diversification results in two companies, such as UPS and FedEx, simultaneously competing in the same product areas or geographic markets, this is called ____ competition. a. multiple b. multiportal c. multipoint d. multiplicit
c. multipoint
The _________________diversification strategy creates value in two ways. First, since the core competence has already been developed in one business, the firm does not have to allocate resources to develop it. Second, since the resource is intangible, competitors cannot easily imitate it. a. related constrained b. unrelated c. related linked d. dominant business
c. related linked
Virgin Group successfully transfers its marketing core competence across airlines, cosmetics, music, drinks, mobile phones, health clubs and a number of other businesses. Virgin follows a ____ diversification corporate strategy. a. dominant business b. related constrained c. related linked d. unrelated
c. related linked
Of the value-neutral incentives to diversify, all of the following are internal firm incentives EXCEPT a. overall firm risk reduction. b. uncertain future cash flows. c. stricter interpretation of antitrust laws. d. low performance.
c. stricter interpretation of antitrust laws.
Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify? a. the market for corporate control b. the Board of Directors c. surveillance technologies d. executive compensation practices
c. surveillance technologies
A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT a. corporate headquarters can allocate capital according to more specific criteria than is possible with external market allocations. b. corporate headquarters has more complete information about the subsidiary businesses than the external capital market. c. the firm can acquire other firms with innovative products instead of allocating capital to research and development. d. corporate headquarters can more effectively discipline underperforming management teams through resource allocation than can the external market.
c. the firm can acquire other firms with innovative products instead of allocating capital to research and development.
The more "constrained" the relatedness of diversification, a. the fewer the linkages between the businesses within the portfolio owned by the firm. b. the wider the variation in the portfolio of businesses owned by the firm. c. the more links there are among the businesses owned by an organization. d. the lower the proportion of total organizational revenue derived from the dominant-business.
c. the more links there are among the businesses owned by an organization
The basic types of operational economies through which firms seek value from economies of scope are a. synergies between internal and external capital markets. b. the leveraging of individual tangible resources. c. the sharing of value chain activities and support functions. d. joint ventures and outsourcing.
c. the sharing of value chain activities and support functions.
Which type of diversification is most likely to create value through financial economies? a. related constrained b. operational and corporate relatedness c. unrelated d. related linked.
c. unrelated
Among the value-neutral incentives to diversify, some come from the firm's external environment while others are internal to the firm. External incentives to diversify include
changes in antitrust regulations and tax laws
Among the value-neutral incentives to diversify, some come from the firm's external environment while others are internal to the firm. External incentives to diversify include: a. uncertain future cash flows. b. pressure from stockholders who are demanding that the firm diversify. c. changes in antitrust regulations and tax laws. d. a firm's low performance.
changes in antitrust regulations and tax laws.
Which one of the following is not part of the task of critiquing a diversified company's strategy, assessing its business makeup, and deciding how to improve overall company performance?
checking whether each business a company has diversified into can pass the profitability test, the capital gains test, the growth rate test, and the resources test
A global corporate-level strategy differs from a multidomestic corporate-level strategy in that in a global strategy: a. competitive strategy is dictated by the home office. b. competitive strategy is decentralized and controlled by individual strategic business units. c. products are customized to meet the individual needs of each country. d. the firm sells in multiple countries.
competitive strategy is dictated by the home office.
The risk for firms that follow the unrelated diversification strategy in developed economies is that: a. external investors tend to dump the stocks of conglomerates during economic downturns. b. conglomerates are typically owned by one powerful entrepreneur and do not survive his/her retirement or death. c. government regulations, especially in Europe, have periodically forced the dissolution of conglomerates. d. competitors can imitate financial economies more easily than they can replicate the value gained from the economies of scope developed through operational relatedness and corporate relatedness.
competitors can imitate financial economies more easily than they can replicate the value gained from the economies of scope developed through operational relatedness and corporate relatedness.
The risk for firms that follow the unrelated diversification strategy in developed economies is that
competitors can imitate financial economies more easily than they imitate economies of scope
Corporate Level Core Competencies
complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience, and expertise
Arkadelphia Polymers, Inc., earns 60 percent of its revenue from exports to Europe and Asia. The CEO of the company would be: a. concerned if the value of the dollar strengthened. b. pleased if the value of the dollar strengthened. c. unconcerned about the fluctuation in the value of the dollar because the company is widely diversified geographically. d. likely to consider moving to international strategic alliances or acquisitions if the value of the dollar fell and remained low.
concerned if the value of the dollar strengthened.
Large diversified businesses often face a , which results from analysts not knowing how to value a vast array of large businesses with complex financial reports.
conglomerate discount
The more links among businesses, the more __________ is the level of diversification. a. linked b. constrained c. integrated d. intense
constrained
The more sharing of resources and activities among businesses, the more __________ is the relatedness of the diversification
constrained
A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT: a. corporate headquarters can allocate capital according to more specific criteria than is possible with external market allocations. b. corporate headquarters has more complete information about the subsidiary businesses than the external capital market. c. corporate can direct the acquisition of other firms with innovative products instead of allocating capital to research and development. d. corporate headquarters can more effectively discipline underperforming management teams through resource allocation than can the external market.
corporate can direct the acquisition of other firms with innovative products instead of allocating capital to research and development.
?A nation's competitiveness depends on the capacity of its industries to ______ and thereby maintain its competitive advantage. a. diversify internationally b. have access to critical resources c. protect its proprietary capabilities d. innovate
d
A global corporate-level strategy assumes a. efficiency and customization can be achieved simultaneously. b. a rise in income levels across the world. c. increasing levels of cultural differences among nations. d. more standardization of products across country markets
d
A global strategy a. is easy to manage because of common operating decisions across borders. b. achieves efficient operations without sharing resources across country boundaries. c. increases risk because decision making is centralized at the home office. d. lacks responsiveness to local markets
d
All of the following are reasons why firms use international strategic alliances EXCEPT a. sharing of risks and resources. b. alliances facilitate the development of new capabilities. c. learning new competencies particularly those related to technology. d. strategic alliances are easy to manage
d
Bunyan Heavy Equipment, a U.S. firm, is investigating expanding into Russia using a greenfield venture. The committee researching this project has delivered a negative report. The MAIN concern of the committee is probably a. loss of intellectual property due to Russian piracy. b. the fluctuation in the value of the ruble. c. the numerous and conflicting legal authorities in Russia. d. Russia's recent actions to gain state control of private firms' assets
d
Effectively implementing the ______ international corporate-level strategy often produces higher performance than does implementing either the _______ or _________ strategies. a. multidomestic; global; transnational b. global; multidomestic; transnational c. cost leadership; differentation; focus d. transnational; multidomestic; global
d
Factors of production in Porter's model of international competitive advantage include all of the following EXCEPT a. labor. b. capital. c. infrastructure. d. technology
d
Firms seek to create value from economies of scope through all of the following EXCEPT a. activity sharing. b. skill transfers. c. transfers of corporate core competencies. d. de-integration
d
Firms use corporate-level diversification strategies for all the following reasons EXCEPT a. value-creating. b. value-neutral. c. value-reducing. d. value-diversifying
d
Hutchison Whampoa Limited (HWL) has businesses in ports and related services, telecommunications, property and hotels, retail and manufacturing, and energy and infrastructure. HWL makes no efforts to share activities or transfer core competencies among the businesses. HWL is following a strategy of ______ diversification. a. dominant business b. related constrained c. related linked d. unrelated
d
In Porter's model, a specialized factor of production would include a. abundant natural resources. b. a large workforce. c. an extensive highway transportation system. d. workers with advanced engineering skills
d
In Porter's model, if a country has both ______ and ______ production factors, it is likely to serve an industry well by spawning strong home-country competitors that can also be successful global competitors. a. basic; advanced b. advanced; generalized c. basic; generalized d. advanced; specialized
d
Large diversified businesses often face a ______, which results from analysts not knowing how to value a vast array of large businesses with complex financial reports. a. threat of regulation by the Securities and Exchange Commission b. high CEO turnover c. threat of takeover d. conglomerate discount
d
Managerial motives to seek diversification include a desire to a. improve their marketability to other firms. b. effectively use corporate resources. c. provide higher returns to corporate stakeholders. d. increase their compensation.
d
Research has shown that horizontal acquisitions a. tend to have disappointing financial results in the long run. b. are being replaced by virtual acquisitions. c. result in lower levels of performance than unrelated acquisitions. d. are able to use activity sharing to successfully create economies of scope.
d
Research suggests that ______ has decreased while ______ has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century. a. forward vertical integration; backward vertical integration b. backward vertical integration; forward vertical integration c. related diversification; unrelated diversification d. unrelated diversification; related diversification
d
Synergy exists when a. cost savings are realized through improved allocations of financial resources based on investments inside or outside the firm. b. two units create value by utilizing market power in their respective industries. c. firms utilize constrained related diversification to build an attractive portfolio of businesses. d. the value created by business units working together exceeds the value the units create when working independently
d
The benefits of expanding into international markets include each of the following opportunities EXCEPT a. increasing the size of the firm's potential markets. b. economies of scale and learning. c. location advantages. d. favorable tax concessions and economic incentives by home-country governments.
d
The downside of synergy in a diversified firm is a. increasing independence of businesses. b. the reduction of activity sharing. c. excessive focus on risky innovation. d. the loss of flexibility
d
The location advantages associated with locating facilities in other countries can include all of the following EXCEPT a. low-cost labor. b. access to critical supplies. c. access to customers. d. evasion of host country governmental regulations
d
The means of entry into international markets that offers the greatest control is a. licensing. b. acquisitions. c. joint ventures. d. greenfield ventures
d
The problems associated with exporting include a. merging corporate cultures. b. a partner's incompatibility. c. difficulty in negotiating relationships. d. high transportation costs and the expense of tariffs
d
The purchasing of firms in the same industry is called a. unrelated diversification. b. vertical integration. c. networking the organization. d. horizontal acquisition.
d
The risk for firms that follow the unrelated diversification strategy in developed economies is that a. external investors tend to dump the stocks of conglomerates during economic downturns. b. conglomerates are typically owned by one powerful entrepreneur and do not survive his/her retirement or death. c. government regulations, especially in Europe, have periodically forced the dissolution of conglomerates. d. competitors can imitate financial economies more easily than they imitate economies of scope.
d
The transnational strategy is becoming increasingly necessary to compete in international markets for all the following reasons EXCEPT a. the growing number of competitors heightens the requirements to keep costs down. b. the desire for specialized products to meet consumers' needs. c. differences in culture and institutional environments also require firms to adapt their products and approaches to local environments. d. it is easy to use.
d
The two important environmental trends that influence a firm's choice and use of international corporate-level strategies are _________ and _________. a. culture; geographic scope. b. cost; quality. c. regionalization; globalization. d. liability of foreignness; regionalization.
d
Which acquisition would be considered the LEAST related? a. A candy manufacturer purchases a chemical laboratory specializing in food flavorings. b. A chain of garden centers acquires a landscape architecture firm. c. A hospital acquires a long-term care nursing home. d. An upscale "white-tablecloth" restaurant chain acquires a travel agency.
d
Which of the following is NOT a disadvantage of international acquisitions? a. They are very expensive and often require debt financing. b. The acquiring firm has to deal with the regulatory requirements of a host country. c. Merging the acquired and acquiring firm is difficult. d. It is the slowest way to enter a new market
d
Which of the following is NOT a factor pressuring companies for local responsiveness? a. differences in employment laws b. customization due to cultural differences c. government pressure for firms to use local sources for procurement d. availability of low labor costs
d
Which of the following is NOT a limitation directly relating to vertical integration? a. bureaucratic costs b. the loss of flexibility through investment in specific technologies c. capacity balance and coordination problems from changes in demand d. imitation of core technology by potential competitors
d
Which of the following is NOT a typical disadvantage of licensing? a. little control over the marketing of the products b. licensees may develop a competitive product after the license expires c. lower potential returns than the use of exporting or strategic alliances d. incompatibility of the licensing partners
d
Which of the following is TRUE? a. Conglomerates no longer exist in the U.S. business scene, but are common in emerging markets. b. Unrelated diversified firms seek to create value through economies of scope. c. The sharing of intangible resources, such as know-how, between firms is a type of operational sharing in related diversifications. d. Related constrained firms share more tangible resources and activities between businesses than do related linked firms.
d
Which pair of industries would NOT be considered as "related and supporting" under Porter's diamond model? a. Japanese cameras and copiers b. Italian leather-processing and shoes c. U.S. computers and software d. highway systems and the supply of debt capital
d
Which of the following is TRUE? a. Conglomerates no longer exist in the U.S. business scene, but are common in emerging markets. b. Unrelated diversified firms seek to create value through economies of scope. c. The sharing of intangible resources, such as know-how, between firms is a type of operational sharing in related diversifications. d. Related constrained firms share more tangible resources and activities between businesses than do related linked firms.
d. Related constrained firms share more tangible resources and activities between businesses than do related linked firms.
Which acquisition would be considered the LEAST related? a. a candy manufacturer purchases a chemical laboratory specializing in food flavorings b. a chain of garden centers acquires a landscape architecture firm c. a hospital acquires a long-term care nursing home d. an upscale "white-tablecloth" restaurant chain acquires a travel agency
d. an upscale "white-tablecloth" restaurant chain acquires a travel agency
Research has shown that horizontal acquisitions a. tend to have disappointing financial results in the long run. b. are being replaced by virtual acquisitions. c. result in lower levels of performance than unrelated acquisitions. d. are able to use activity sharing to successfully create economies of scope.
d. are able to use activity sharing to successfully create economies of scope
The risk for firms that follow the unrelated diversification strategy in developed economies is that a. external investors tend to dump the stocks of conglomerates during economic downturns. b. conglomerates are typically owned by one powerful entrepreneur and do not survive his/her retirement or death. c. government regulations, especially in Europe, have periodically forced the dissolution of conglomerates. d. competitors can imitate financial economies more easily than they imitate economies of scope.
d. competitors can imitate financial economies more easily than they imitate economies of scope.
Large diversified businesses often face a _______________which results from analysts not knowing how to value a vast array of large businesses with complex financial reports. a. threat of regulation by the Securities and Exchange Commission b. high CEO turnover c. threat of takeover d. conglomerate discount
d. conglomerate discount
Firms seek to create value from economies of scope through all of the following EXCEPT a. activity sharing. b. skill transfers. c. transfers of corporate core competencies. d. de-integration.
d. de-integration.
The purchasing of firms in the same industry is called: a. unrelated diversification. b. vertical integration. c. networking the organization. d. horizontal acquisition.
d. horizontal acquisition.
Which of the following is NOT a limitation directly relating to vertical integration? a. bureaucratic costs b. the loss of flexibility through investment in specific technologies c. capacity balance and coordination problems from changes in demand d. imitation of core technology by potential competitors
d. imitation of core technology by potential competitors
Managerial motives to seek diversification include a desire to a. improve their marketability to other firms. b. effectively use corporate resources. c. provide higher returns to corporate stakeholders. d. increase their compensation.
d. increase their compensation.
Some of Google's new services (Chapter 6 Strategic Focus) arising from diversification create _________ with prominent competitors (e.g., Microsoft, Facebook). a. vertical integration b. horizontal integration c. financial economies d. multipoint competition
d. multipoint competition
The downside of synergy in a diversified firm is a. increasing independence of businesses. b. the reduction of activity sharing. c. excessive focus on risky innovation. d. the loss of flexibility.
d. the loss of flexibility.
Synergy exists when a. cost savings are realized through improved allocations of financial resources based on investments inside or outside the firm. b. two units create value by utilizing market power in their respective industries. c. firms utilize constrained related diversification to build an attractive portfolio of businesses. d. the value created by business units working together exceeds the value the units create when working independently.
d. the value created by business units working together exceeds the value the units create when working independently.
Hutchison Whampoa Limited (HWL) has businesses in ports and related services, telecommunications, property and hotels, retail and manufacturing, and energy and infrastructure. HWL makes no efforts to share activities or transfer core competencies among the businesses. HWL is following a strategy of__________diversification. a. dominant business b. related constrained c. related linked d. unrelated
d. unrelated
Research suggests that _______________has decreased while ___________has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century. a. forward vertical integration; backward vertical integration b. backward vertical integration; forward vertical integration c. related diversification; unrelated diversification d. unrelated diversification; related diversification
d. unrelated diversification; related diversification
Firms use corporate-level diversification strategies for all the following reasons EXCEPT a. value-creating b. value-neutral c. value-reducing d. value-diversifying
d. value-diversifying
Firms seek to create value from economies of scope through all of the following EXCEPT
de-integration
Firms seek to create value from economies of scope through all of the following EXCEPT: a. activity sharing. b. skill transfers. c. transfers of corporate core competencies. d. de-integration.
de-integration.
Value can be created from economies of scope through all of the following except which one? activity sharing. skill transfers. transfers of corporate core competencies. de-integration.
de-integration.
When a firm becomes internationally diversified, the initial impact on returns is that they: a. remain stable. b. decrease. c. become more variable. d. increase.
decrease.
Checking a diversified company's business lineup for resource fit does not involve which one of the following "tests"?
determining whether the company has enough cash hog businesses to supply capital to its cash cow businesses
It becomes particularly urgent for a company to consider diversification when there are
diminishing market opportunities and stagnating sales in its principal business.
Which of the following is not a typical reason that many alliances do not live up to expectations?
disagreement over how to divide the added market share and profits gained from joint collaboration
The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be
discounted by investors
The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be: a. discounted by investors .b. inflated by investors. c. completely ignored by investors. d. highly valued by investors.
discounted by investors
Multipoint competition occurs when
diversified firms compete against each other in several markets.
Multipoint competition occurs when: a. firms have multiple retail outlets. b. firms have multiple products in their primary industry. c. diversified firms compete against each other in several markets. d. firms have diversified portfolios of companies.
diversified firms compete against each other in several markets.
When does multipoint competition occur? firms have multiple retail outlets. firms have multiple products in their primary industry. diversified firms compete against each other in several markets. firms have diversified portfolios of companies.
diversified firms compete against each other in several markets.
As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to
diversify into less risky environments
Revenues for United Parcel Service (UPS) come from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non-packaging operations. Which best describes the corporate level strategy of UPS?
dominant business
In Porter's model, if a country has both __________ and __________ production factors, it is likely to serve an industry well by spawning strong home-country competitors that can also be successful global competitors. a. basic; advanced b. advanced; generalized c. basic; generalized d. advanced; specialized
dvanced; specialized
Internationally diversified firms: a. earn greater returns on their innovations through larger or more numerous markets. b. are more likely to produce below-average returns for investors in the long run. c. may need to decrease international activities when domestic profits are poor. d. are generally unable to achieve high levels of synergy because of differences in cultures.
earn greater returns on their innovations through larger or more numerous markets.
A global corporate-level strategy emphasizes: a. differentiated products. b. economies of scale. c. sensitivity to local product preferences. d. decentralizing control and limited monitoring.
economies of scale.
In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?
economies of scope
Firms that have selected a related diversification corporate-level strategy seek to exploit
economies of scope between business units
Firms that have selected a related diversification corporate-level strategy seek to exploit: a. control shared among business-unit managers. b. economies of scope between business units .c. the favorable demand of buyers. d. market power.
economies of scope between business units
The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves
evaluating whether the diversification move will produce a 1 + 1 = 3 outcome such that the company's different businesses perform better together than apart and the whole ends up being greater than the sum of the parts.
Which of the following is a value-reducing reason for diversification?
expanding the business portfolio in order to diversify managerial employment risk
An international diversification strategy is one in which a firm: a. expands into nearby markets. b. expands into a potentially large number of geographic locations or markets. c. expands into one or a few markets. d. acquires a firm in a foreign country.
expands into a potentially large number of geographic locations or markets.
A U.S. manufacturer of adaptive devices for persons with disabilities is considering expanding internationally. It is a fairly small company, but it is looking for growth opportunities. This company should primarily consider the option of: a. licensing. b. exporting. c. a strategic alliance. d. a greenfield venture.
exporting.
Raymond Vernon states that the classic rationale for international diversification is to: a. preemptively dominate world markets before foreign companies can establish dominance. b. avoid domestic governmental regulation. c. extend the product's life cycle. d. discover product innovations.
extend the product's life cycle.
The benefits of expanding into international markets include all of the following opportunities EXCEPT: a. increasing the size of the firm's potential markets. b. economies of scale and learning. c. location advantages. d. favorable tax concessions and economic incentives by home-country governments.
favorable tax concessions and economic incentives by home-country governments.
Successful unrelated diversification through restructuring is typically accomplished by
focusing on mature, low-technology businesses
Restructuring which uses unrelated diversification is typically accomplished by which of the following? focusing on mature, low-technology businesses. a "random walk" of good luck in picking firms to buy. seeking out high technology firms in high-growth industries. a top management team that is not constrained by preestablished ideas of how the firm's portfolio should be developed.
focusing on mature, low-technology businesses.
Successful unrelated diversification through restructuring is typically accomplished by: a. focusing on mature, low-technology businesses. b. a "random walk" of good luck in picking firms to buy. c. seeking out high technology firms in high-growth industries. d. a top management team that is not constrained by preestablished ideas of how the firm's portfolio should be developed.
focusing on mature, low-technology businesses.
Spotnick Enterprises is exploring options for entering into international markets. The key stakeholders have expressed that the primary concern is that Spotnick maintain the maximum amount of control possible in order to protect its proprietary technology. What type of entry would be best for Spotnick? a. An acquisition b. Exporting c. Licensing d. A greenfield venture
greenfield venture
Experience indicates that strategic alliances
have a high "divorce rate."
During the 1990s, top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they: a. plan to take poison pills. b. have golden parachutes. c. have silver handcuffs. d. have ironclad contracts.
have golden parachutes.
The problems associated with exporting include: a. merging corporate cultures. b. a partner's incompatibility. c. difficulty in negotiating relationships. d. high transportation costs and the expense of tariffs.
high transportation costs and the expense of tariffs.
Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because
higher CEO pay is related to larger organization size
Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because: a. a successful acquisition will increase the CEO's power over the board of directors. b. making an acquisition is an easier route to increased firm value than is improving the firm's core competencies. c. higher CEO pay is related to larger organization size. d. CEOs nearing retirement seek to create empires to continue their legacy.
higher CEO pay is related to larger organization size.
The purchasing of firms in the same industry is called
horizontal acquisition
Which of the following relates to the purchase of companies in the same industry? unrelated diversification. vertical integration. networking the organization. horizontal acquisition.
horizontal acquisition.
Which of the following is NOT a limitation directly relating to vertical integration?
imitation of core technology by potential competitors
A company pursuing vertical integration can gain market power over its competitors through all of the following EXCEPT
improved adjustment to technological changes
A company pursuing vertical integration can gain market power over its competitors through all of the following EXCEPT: a. improved adjustment to technological changes. b. savings on operations costs. c. improved product quality. d. avoidance of market costs.
improved adjustment to technological changes.
Managerial motives to seek diversification beyond value-creating and value-neutral levels include a desire to: a. improve marketability to other firms. b. effectively use corporate resources. c. provide higher returns to corporate stakeholders. d. increase compensation.
increase compensation.
Managerial motives to seek diversification include a desire to
increase their compensation
The increased pressures for global integration of operations have been driven mostly by: a. new low-cost entrants. b. increasing demand for similar products. c. increased levels of joint ventures. d. the rise of governmental regulation.
increasing demand for similar products.
Corporate restructuring strategies
involve making radical changes in a diversified company's business lineup, divesting some businesses and acquiring new ones so as to put a new face on the company?s business lineup.
A blue ocean strategy
involves abandoning efforts to beat out competitors in existing markets and, instead, inventing a new industry or distinctive market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand.
The Nine-Cell Industry Attractiveness-Competitive Strength Matrix
involves assigning quantitative measures of industry attractiveness and competitive strength to plot each business's location on the matrix; the thesis underlying the matrix is that there are good reasons to concentrate the company's resources on those businesses having relatively strong competitive positions in industries with relatively high attractiveness and to invest minimally or even divest those businesses with relatively weak competitive positions in industries with relatively low attractiveness.
GE (Chapter 6 Opening Case) is unusual in that it
is one of the few large diversified large firms that have been successful over time.
When a firm simultaneously practices operational relatedness and corporate relatedness: a. it is difficult for investors to identify the value created by the firm. b. the firm is likely to be overvalued by investors. c. the firm will suffer from diseconomies of scope that outweigh the cost savings generated. d. the firm is seeking to create value through financial economies.
it is difficult for investors to identify the value created by the firm.
When a firm simultaneously practices operational relatedness and corporate relatedness
it is difficult for investors to observe the value created by the firm.
The transnational strategy is becoming increasingly necessary to compete in international markets for all of the following reasons EXCEPT: a. the growing number of competitors heightens the requirements to keep costs down. b. the desire for specialized products to meet consumers' needs. c. differences in culture and institutional environments require firms to adapt their products and approaches to local environments. d. it is easy to use because of its unifying goals.
it is easy to use because of its unifying goals.
How does international diversification affect innovation?
it provides a larger market to gain more and faster returns from investments in innovation
Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations
keep free cash flows for investment in acquisitions
Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations: a. pay dividends annually. b. keep free cash flows for investment in acquisitions. c. distribute capital gains regularly. d. increase managerial salaries.
keep free cash flows for investment in acquisitions.
A fundamental reason for a country's development of advanced and specialized factors of production is often its: a. lack of basic resources. b. monetary wealth. c. small workforce. d. protective tariffs.
lack of basic resources.
A global strategy: a. is easy to manage because of common operating decisions across borders. b. achieves efficient operations without sharing resources across country boundaries. c. increases risk because decision making is centralized at the home office. d. lacks responsiveness to local markets.
lacks responsiveness to local markets.
Most firms enter international markets sequentially, introducing their __________ first. a. most innovative products b. largest and strongest lines of business c. most generic products, which will be more likely to generate universal product demand, d. products customized to the region
largest and strongest lines of business
Firms able to continually improve the processes used to produce, sell, distribute, and service their products across country borders enhance their ability to: a. learn how to continuously reduce costs while increasing the value of their products. b. increase investment in research and development. c. access a low-cost labor force in the host market. d. mitigate cultural differences.
learn how to continuously reduce costs while increasing the value of their products.
The choices that a firm has for entering the international market include all of the following EXCEPT: a. exporting. b. licensing. c. leasing. d. acquisition.
leasing.
Related Constrained
less than 70% of revenue comes from the dominant business, and all businesses share product, technological, and distribution linkages Moderate to High Diversification
The positive results associated with increasing international diversification have been shown to: a. continue as the level of international diversification increases. b. level off and become negative as diversification increases past some point. c. become negative quickly. d. be centered in only one or two industries.
level off and become negative as diversification increases past some point.
Disney suffered lawsuits in France, at Disneyland Paris, because of the lack of fit between its transferred personnel policies and the French employees charged to enact them. This is an example of the: a. effects of regionalization. b. risks of a multidomestic strategy. c. liability of foreignness. d. effect of demand conditions.
liability of foreignness.
The two important environmental trends that influence a firm's choice and use of international corporate-level strategies are __________ and __________. a. culture; geographic scope b. cost; quality c. regionalization; globalization d. liability of foreignness; regionalization
liability of foreignness; regionalization
U.S. soft drink companies entered the global market because of: a. limited growth opportunities in their domestic market. b. lower labor costs in the emerging markets. c. economies of scale that offset research and development costs. d. an increase in the return on investment from their U.S. bottling plants.
limited growth opportunities in their domestic market.
Free cash flows are
liquid financial assets for which investments in current businesses are no longer economically viable
Free cash flows are: a.liquid financial assets for which investments in current businesses are no longer economically viable. b. liquid financial assets that for tax purposes must be reinvested in the firm if not distributed as dividends to shareholders. c. the profits resulting after a restructured firm has been sold. d. dividends distributed to shareholders that are taxed as capital gains.
liquid financial assets for which investments in current businesses are no longer economically viable.
How does the textbook define free cash flows? liquid financial assets for which investments in current businesses are no longer economically viable. liquid financial assets that for tax purposes must be reinvested in the firm if not distributed as dividends to shareholders. the profits resulting after a restructured firm has been sold. dividends distributed to shareholders that are taxed as capital gains.
liquid financial assets for which investments in current businesses are no longer economically viable.
The downside of synergy in a diversified firm is
loss of flexibility
The drawbacks to transferring competencies by moving key people into new management positions include all EXCEPT
managerial competencies are not easily transferable to different organizational cultures
The drawbacks to transferring competencies by moving key people into new management positions include all of the following EXCEPT: a. the people involved may not want to move. b. managerial competencies are not easily transferable to different organizational cultures. c. managers with these skills are expensive. d. top-level managers may resist having these key people transferred.
managerial competencies are not easily transferable to different organizational cultures.
The Mars acquisition of the Wrigley assets was part of its related constrained diversification and added market share to the Mars/Wrigley integrated firm. It allowed Mars to gain __________ because it could sell its products above the market level or reduce its costs below the market level. a. multipoint competition b. virtual integration c. market power d. vertical integration
market power
Compared with diversification based on intangible resources, diversification based on financial resources is
more imitable and less likely to create value on a long-term basis
Compared with diversification based on intangible resources, diversification based on financial resources is: a. less imitable and less likely to create value on a long-term basis. b. more imitable and less likely to create value on a long-term basis. c. less imitable and more likely to create value on a long-term basis. d. more imitable and more likely to create value on a long-term basis.
more imitable and less likely to create value on a long-term basis.
The more "constrained" the relatedness of diversification the: a. fewer the linkages between the businesses within the portfolio owned by the firm. b. wider the variation in the portfolio of businesses owned by the firm. c. more links there are among the businesses owned by an organization. d. lower the proportion of total organizational revenue derived from the dominant business.
more links there are among the businesses owned by an organization.
A global corporate-level strategy assumes: a. efficiency and customization can be achieved simultaneously. b. a rise in income levels across the world. c. increasing levels of cultural differences among nations. d. more standardization of products across country markets.
more standardization of products across country markets.
When diversification results in two companies, such as UPS and FedEx, simultaneously competing in the same product areas or geographic markets, this is called competition.
multipoint
Operating in multiple international markets can provide firms with __________ perhaps even in terms of __________. a. location advantages; larger markets b. research and development activities; larger markets c. new learning opportunities; research and development activities d. economies of scale and learning; larger markets
new learning opportunities; research and development activities
Which of the following is not a potential advantage of backward vertical integration?
offers enhanced R&D capability, better opportunity to establish a core competence in supply chain management, more flexibility in incorporating state-of-the-art parts and components, and better overall product quality
As the threat of corporate failure increases due to relatedness between a firm's business units, the firm may decide to: a. increase its level of retained resources. b. operate in environments that are more certain. c. promote additional technological change. d. pursue unproven product lines.
operate in environments that are more certain.
A noted professional art academy has founded an "artists and friends" travel company specializing in tours for artists to scenic locales, using its faculty as traveling teachers. In addition, the art academy has purchased a framing company to both make frames for academy art works, but also to sell museum-quality framing services to the public. The art academy is engaging in diversification based on relatedness.
operational
A noted professional art academy has founded an "artists and friends" travel company specializing in tours for artists to scenic locales, using its faculty as traveling teachers. In addition, the art academy has purchased a framing company to make frames for academy art works, and to sell museum-quality framing services to the public. The art academy is engaging in diversification based on __________ relatedness. a. operational b. corporate c. intellectual d. constrained
operational
Which one of the following is not a good type of rival for an offensive-minded company to target?
other offensive-minded companies with a sizable war chest of cash and marketable securities
The four determinants in Porter's model of international competitive advantage include all of the following EXCEPT: a. factors of production. b. demand conditions. c. political and economic institutions. d. related and supporting industries.
political and economic institutions.
Backward integration occurs when a company
produces its own inputs
Backward integration occurs when a company _____________. produces its own inputs. owns its own source of distribution of outputs. is concentrated in a single industry. is divesting unrelated businesses.
produces its own inputs.
Backward integration occurs when a company: a. produces its own inputs. b. owns its own source of distribution of outputs. c. is concentrated in a single industry. d. is divesting unrelated businesses.
produces its own inputs.
Terrorism creates an economic risk for firms, which: a. reduces the amount of investment foreign companies will make in a country perceived to be terror prone. b. is created by governmental bans on doing business with terrorist regimes. c. is offset by the above-average returns for firms that have learned how to operate in such an environment. d. is absorbed by firms that are highly geographically diversified and that operate in both secure and insecure locations.
reduces the amount of investment foreign companies will make in a country perceived to be terror prone.
Which of the following reasons for diversification is most likely to increase the firm's value?
reducing costs through business restructuring
Associations such as the European Union, Organization of American States, and the North American Free Trade Agreement encourage: a. global strategies. b. domestication. c. regional strategies. d. nationalization.
regional strategies.
Acquisitions to increase market power require that the firm have a(n) __________ diversification strategy. a. unrelated b. related c. dominant-business d. single-business
related
Acquisitions to increase market power require that the firm have a(n) diversification strategy
related
In France, fine dressmaking and tailoring have been a tradition predating Queen Marie Antoinette. Cloth manufacturers, design schools, craft apprenticeship programs, modeling agencies, and so forth, all exist to supply the clothing industry. This is an example of the __________ in Porter's model. a. firm strategy, structure, and rivalry b. related and supporting industries c. demand conditions d. factors of production
related and supporting industries
A firm that earns less than 70 percent of revenue from its dominant business and has direct connections between its businesses is engaging in __________ diversification. a. unrelated b. related constrained c. related linked d. dominant business
related constrained
A firm that earns less than 70 percent of revenue from its dominant business and has direct connections between its businesses is engaging in diversification
related constrained
The Publicis Groupe has three major groups of business (advertising, media, and digital) that share resources and activities. The Publicis Groupe is using a(n) __________ diversification strategy. a. related linked b. related constrained c. unrelated d. dominant
related constrained
The Publicis Groupe has three major groups of business (advertising, media, and digital) that share resources and capabilities. Publicis Groupe is using a diversification strategy.
related constrained
The Publicis Groupe uses the digital technology from its digital business to enhance the advertising products in its advertising group. This sharing of activities is characteristic of the __________ diversification strategy .a. related constrained b. related linked c. unrelated d. dominant
related constrained
The Publicis Groupe uses the digital technology from its digital business to enhance the advertising products in its advertising group. This sharing of activities is characteristic of the diversification strategy
related constrained
Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G MOST likely uses the __________ diversification strategy to create __________. a. related constrained; operational relatedness b. related linked; corporate relatedness c. related constrained; corporate relatedness d. related linked; operational relatedness
related constrained; operational relatedness
Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G most likely uses the diversification strategy to create
related constrained; operational relatedness
The Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in
related diversification projects
Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in: a. unrelated diversification. b. related diversification projects. c. corporate restructuring. d. multipoint competition.
related diversification projects.
GE (Chapter 6 Opening Case) was diversified and manages businesses that have only a few links between them. This corporate-level strategy is best described as diversification
related linked
The diversification strategy creates value in two ways. First, since the core competence has already been developed in one business, the firm does not have to allocate resources to develop it. Second, since the resource is intangible, competitors cannot easily imitate it.
related linked
The __________diversification strategy creates value in two ways. First, because the core competency has already been developed in one business, the firm does not have to allocate resources to develop it. Second, because the resource is intangible, competitors cannot easily imitate it. related constrained unrelated related linked dominant business
related linked
The __________diversification strategy creates value in two ways. First, because the core competency has already been developed in one business, the firm does not have to allocate resources to develop it. Second, because the resource is intangible, competitors cannot easily imitate it. a. related constrained b. unrelated c. related linked d. dominant business
related linked
Virgin Group Ltd. successfully transfers its marketing core competence across airlines, cosmetics, music, drinks, mobile phones, health clubs, and a number of other businesses. Virgin follows a(n) __________ diversification corporate strategy. a. dominant-business b. related constrained c. related linked d. unrelated
related linked
Virgin Group successfully transfers its marketing core competence across airlines, cosmetics, music, drinks, mobile phones, health clubs, and a number of other businesses. Virgin follows a(n) diversification corporate strategy
related linked
Among the purposes of defensive strategies are to
restrict a competitive attack by a challenger, weaken the impact of any attack that occurs, and influence challengers to aim their offensive efforts at other rivals.
Ties among a firm's businesses create links between outcomes. This is a: a. benefit of transferring corporate-level core competencies. b. risk associated with transferring corporate-level core competencies. c. benefit of activity sharing d. risk associated with activity sharing.
risk associated with activity sharing.
Calculating quantitative attractiveness ratings for the industries a company has diversified into involves
selecting a set of industry attractiveness measures, weighting the importance of each measure (with the sum of the weights adding to 1.0), rating each industry on each attractiveness measure, multiplying the industry ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each industry to obtain an overall industry attractiveness score, and using the overall industry attractiveness scores to evaluate the attractiveness of all the industries, both individually and as a group.
Walt Disney Company has successfully used related diversification to create value by
sharing activities and transferring core competencies
The Walt Disney Company has successfully used related diversification to create value by: a. diversifying managerial employment risk. b. sharing activities and transferring core competencies. c. reducing risk and securing future cash flow. d. allocating internal capital efficiently and restructuring.
sharing activities and transferring core competencies.
Operational relatedness is created by __________ of __________. a. sharing; core competencies b. sharing; activities c. transferring; core competencies d. transferring; activities
sharing; activities
Operational relatedness is created by of
sharing; activities
____________ of ____________ creates operational relatedness. sharing; core competencies sharing; activities transferring; core competencies transferring; activities
sharing; activities
Once a firm has diversified and established itself in several different businesses, then its main strategic alternatives include all but which one of the following?
shifting from a multiple-country to a global strategy
Ranking a diversified company's businesses in terms of priority for resource allocation and new capital investment
should be done principally on the basis of which businesses offer the best prospects (given their industry attractiveness and competitive strength) and have solid and appealing strategic fits and resource fits.
The lowest level of diversification is the __________ level. a. single-businessb. dominant-businessc. related constrained d. unrelated
single-business
The lowest level of diversification is the level
single-business
What is the lowest level of diversification? single-business dominant-business related constrained unrelated
single-business
A firm may narrow its focus to a specific region of the world: a. because that market is most different from its domestic market and so represents an unexploited "greenfield opportunity" for its products. b. in order to obtain greater economies of scale. c. so that it can better understand the cultures, legal and social norms, and other factors that are important for effective competition in those markets. d. to take advantage of limited protections of intellectual property so that it can manufacture innovative products without restrictions.
so that it can better understand the cultures, legal and social norms, and other factors that are important for effective competition in those markets.
Which one of the following is not one of the elements of crafting corporate strategy for a diversified company?
standardizing the resource fit across the group of businesses the company has diversified into
Economies of scope
stem from cost-saving strategic fits along the value chains of related businesses.
All of the following are reasons why firms use international strategic alliances EXCEPT: a. sharing of risks and resources. b. alliances facilitate the development of new capabilities. c. learning new competencies particularly those related to technology. d. strategic alliances are easy to manage.
strategic alliances are easy to manage.
International strategy refers to a(n) A. action plan pursued by American companies to compete against foreign companies operating in the United States. b. strategy through which the firm sells its goods or services outside its domestic market. c. political and economic action plan developed by businesses and governments to cope with global competition. d. strategy American firms use to dominate international markets.
strategy through which the firm sells its goods or services outside its domestic market.
Of the value-neutral incentives to diversify, all of the following are internal firm incentives EXCEPT
stricter interpretation of antitrust laws
All of the following are correct about what managers should know about firms based in a country with a national competitive advantage EXCEPT: a. continuous adjustments are needed based on the nature of competition encountered. b. the actual strategic choices made are most compelling reasons for success or failure. c. success is guaranteed as the firm implements its chosen international business-level strategy. d. the determinants of national competitive advantage provide a foundation for a firm's competitive advantages.
success is guaranteed as the firm implements its chosen international business-level strategy.
Factors of production in Porter's model of international competitive advantage include all of the following EXCEPT: a. labor. b. capital. c. infrastructure. d. supporting industries.
supporting industries.
A hit-and-run or guerrilla warfare type of offensive strategy involves
surprising moves by small challengers that have neither the resources nor the market visibility to mount a full-fledged attack on industry leaders.
Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify?
surveillance technologies
Which of the following resources are more likely to create value in the diversification process?
tacit knowledge
Which of the following resources is more likely to create value in the diversification process? a. Plant and equipment b. Tacit knowledge c. Excess capacity d. Financial resources
tacit knowledge
The defining characteristic of unrelated diversification (as opposed to related diversification) is
that the value chains of different businesses are so dissimilar that no competitively valuable cross-business relationships are present (in other words, the value chains of a company?s businesses offer no opportunities to benefit from skills or technology transfer across businesses, economies of scope, cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities).
To judge whether a particular diversification move has good potential for building added shareholder value, the move should pass the following tests:
the attractiveness test, the cost-of-entry test, and the better-off test.
A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT
the firm can acquire other firms with innovative products instead of allocating capital to research and development
A multidomestic corporate-level strategy is one in which: a. a corporation chooses not to compete internationally but where there are a number of international competitors in the firm's local marketplace. b. the firm produces a standardized product, but markets it differently in each country in which it competes. c. the firm customizes the product for each country in which it competes. d. the firm competes in a number of countries, but it is centrally coordinated by the home office.
the firm customizes the product for each country in which it competes.
The curvilinear relationship of corporate performance and diversification indicates that
the highest performing business strategy is related constrained diversification
The curvilinear relationship of corporate performance and diversification indicates that: a. dominant-business corporate strategies tend to be higher performing than related constrained or unrelated business strategies. b. the highest performing business strategy is related constrained diversification. c. the less related the businesses acquired, the higher performing the organization. c. none of the strategies consistently outperforms the others.
the highest performing business strategy is related constrained diversification.
One of the primary reasons for failure of cross-border strategic alliances is: a. the incompatibility of the partners. b. conflict between legal and business systems. c. security concerns and terrorism. d. high debt financing.
the incompatibility of the partners.
The main difference between the related constrained level of diversification and the related linked level of diversification is
the level of resources and activities shared among the businesses
The main difference between the related constrained level of diversification and the related linked level of diversification is: a. the percentage of total organizational profitability that comes from the dominant business. b. the level of resources and activities shared among the businesses. c. whether the diversification is vertical or horizontal. d. whether the diversification is value-creating or value-neutral.
the level of resources and activities shared among the businesses.
The more "constrained" the relatedness of diversification,
the more links there are among the businesses owned by an organization.
The defining characteristic of related diversification (as opposed to unrelated diversification) is
the presence of cross-business value chain relationships and strategic fits.
International corporate-level strategy focuses on: a. the scope of a firm's operations through geographic diversification. b. competition within each country. c. economies of scale. d. sophistication of monitoring and controlling systems.
the scope of a firm's operations through geographic diversification.
The basic types of operational economies through which firms seek value from economies of scope are
the sharing of value chain activities and support functions
The basic types of operational economies through which firms seek value from economies of scope are: a. synergies between internal and external capital markets .b. the leveraging of individual tangible resources. c. the sharing of value-chain activities and support functions. d. joint ventures and outsourcing.
the sharing of value-chain activities and support functions.
Synergy exists when: a. cost savings are realized through improved allocations of financial resources based on investments inside or outside the firm. b. two units create value by utilizing market power in their respective industries. c. firms utilize constrained related diversification to build an attractive portfolio of businesses. d. the value created by business units working together exceeds the value that those same units create when working independently.
the value created by business units working together exceeds the value that those same units create when working independently.
What is synergy? cost savings are realized through improved allocations of financial resources based on investments inside or outside the firm. two units create value by utilizing market power in their respective industries. firms utilize constrained related diversification to build an attractive portfolio of businesses. the value created by business units working together exceeds the value that those same units create when working independently.
the value created by business units working together exceeds the value that those same units create when working independently.
Synergy exists when
the value created by business units working together exceeds the value the units create when working independently.
An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops
through reduced disclosure to outside parties
An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops: a. through reduced disclosure to outside parties. b. by the ability to not report losses to investors. c. by the ability to increase pay to managers without shareholders being aware. d. through the ability to reinvest cash in dividends to shareholders.
through reduced disclosure to outside parties.
Which of the following is typically the strategic impetus for forward vertical integration?
to gain better access to end users and better market visibility
One method of facilitating the transfer of competencies between firms is to
transfer key people into new management positions
In China, Starbucks is standardizing its operations while simultaneously decentralizing some decision-making responsibility to local levels to meet customers' tastes. Starbucks is following the __________ international corporate-level strategy. a. transnational b. global c. differentiation d. multidomestic
transnational
Increasingly, customers worldwide are demanding emphasis on local requirements and companies require efficiency as global competition increases. This has triggered an increase in the number of firms using the __________ strategy. a. multidomestic b. transnational c. universal d. global
transnational
Effectively implementing the __________ international corporate-level strategy often produces higher performance than does implementing either the __________ or __________ strategies. a. multidomestic; global; transnational b. global; multidomestic; transnational c. cost leadership; differentiation; focus d. transnational; multidomestic; global
transnational; multidomestic; global
All of the following are international corporate-level strategies EXCEPT the __________ strategy. a. multidomestic b. universal c. global d. transnational
universal
Hutchison Whampoa Limited (HWL) has businesses in ports and related services, telecommunications, property and hotels, retail and manufacturing, and energy and infrastructure. HWL makes no efforts to share activities or transfer core competencies among the businesses. HWL is following a strategy of __________ diversification. a. dominant business b. related constrained c. related linked d. unrelated
unrelated
Hutchison Whampoa Limited (HWL) has businesses in ports and related services, telecommunications, property and hotels, retail and manufacturing, and energy and infrastructure. HWL makes no efforts to share activities or transfer core competencies among the businesses. HWL is following a strategy of diversification
unrelated
The term "conglomerates" refers to firms using the __________ diversification strategy. a. unrelated b. related constrained c. related linkedd. global
unrelated
The term "conglomerates" refers to firms using the diversification strategy.
unrelated
Which type of diversification is most likely to create value through financial economies?
unrelated
Research suggests that has decreased while has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century.
unrelated diversification; related diversification
Research suggests that __________ has decreased while __________ has increased, possibly due to the restructuring that continued in the 1990s through the early twenty-first century. a. forward vertical integration; backward vertical integration b. backward vertical integration; forward vertical integration c. related diversification; unrelated diversification d. unrelated diversification; related diversification
unrelated diversification; related diversification
Firms use corporate-level diversification strategies for all the following reasons EXCEPT
value diversifying
Firms use corporate-level diversification strategies for all the following reasons EXCEPT: a. value-creating. b. value-neutral. c. value-reducing. d. value-diversifying.
value-diversifying.
PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a __________ business
vertically integrated
PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a business that is: a. reducing vertical integration. b. vertically integrated. c. totally integrated. d. horizontally integrated.
vertically integrated.
Wm. Wrigley Jr. Company once made only chewing gum. When Wrigley bought Life Savers (a line of candy mints) and Altoids (a line of breath mints) from Kraft, chewing gum then constituted less than 95 percent of revenues. Thus, Wrigley
was moving away from its traditional single-business strategy toward a dominant strategy.
Wm. Wrigley Jr. Company once made only chewing gum. When Wrigley bought Life Savers (a line of candy mints) and Altoids (a line of breath mints) from Kraft, chewing gum then constituted less than 95 percent of revenues. Thus, Wrigley: a. was moving away from its traditional single-business strategy toward a dominant strategy. b. was moving away from its traditional dominant strategy toward a related linked strategy. c. became a conglomerate since Life Savers and Altoids are unrelated businesses. d. probably planned to restructure these companies and sell them off.
was moving away from its traditional single-business strategy toward a dominant strategy.
Corporate-level strategy is concerned with __________ and how to manage these businesses. whether the firm should invest in global or domestic businesses what product markets and businesses the firm should be in whether the portfolio of businesses should generate immediate above-average returns or should be troubled businesses that will create above-average returns only after restructuring whether to integrate backward or forward
what product markets and businesses the firm should be in
Corporate-level strategy is concerned with __________ and how to manage these businesses. a.whether the firm should invest in global or domestic businesses b.what product markets and businesses the firm should be in c.whether the portfolio of businesses should generate immediate above-average returns or should be troubled businesses that will create above-average returns only after restructuring d.whether to integrate backward or forward
what product markets and businesses the firm should be in
Corporate-level strategy is concerned with and how to manage these businesses
what product markets and businesses the firm should be in
In which of the following situations is being first to initiate a particular move not likely to result in a positive payoff?
when potential buyers are skeptical about the benefits of a new technology or product being pioneered by a first mover
Which one of the following is not a strategic choice that a company must make to complement and supplement its choice of one of the five generic competitive strategies?
whether to employ a low-cost strategy, a differentiation strategy, or a hybrid strategy
All of the following complicate the implementation of an international diversification strategy EXCEPT: a. widespread multilingualism. b. increased costs of coordination between business units. c. cultural diversity. d. logistical costs.
widespread multilingualism.
The decision of what entry mode to use is primarily based on all of the following factors EXCEPT the: a. industry's competitive conditions. b. country's situation and government policies. c. worldwide economic situation. d. firm's unique set of resources, capabilities, and core competencies.
worldwide economic situation.
