Capstone Exam 2

Discuss benefits and risks of cost leadership strategy. Name at least two benefit and two risks. Explain.

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Discuss benefits and risks of differentiation strategy. Name at least two benefit and two risks. Explain.

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Explain differences between a business strategy and a business model. Provide an example.

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When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000â 12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?

11,000 units

What are transaction costs? Give an example for each type.

All internal and external costs associated with an economic exchange, whether within a firm or in markets. External transaction costs include costs for searching with whom to contract, and negotiating, monitoring, and enforcing the contract. For tech companies like Apple finding reliable suppliers with a high quality but low enough price is of high importance. Internal transaction costs are caused by organizing economic exchanges within a hierarchy (administrative costs). That can include transportation costs form one department to another or additional costs put on top of the original production e.g. by creating a manual in house or adding additional features or complementary parts to a product

Milk Benefits Inc., a company popular for its dairy products, successfully follows a multidomestic strategy. Andrew Products Inc., a large conglomerate, pursues a transnational strategy. Which of the following statements is most likely true of this scenario?

Both Milk Benefits Inc. and Andrew Products Inc. will have to duplicate key business functions in multiple host countries.

Future Clothes Inc., a publicly traded company, designs and manufactures wearable technology. What approach should Future Clothes take after a long period of horizontal integration in its industry? Assume that the industry is now stable and competitors have not made any major changes in price or marketing recently.

Focus on research and development as a form of non-price competition.

What is globalization? Describe it in your own words. Give an example of a global company.

Globalization is the process of closer integrations and exchanges between different peoples, firms and countries worldwide. This was made possible by falling barriers of technology, trade and investment. The drivers were advances in telecommunication and reduction in transportation and travel costs. GE is a global firm operating in 130 countries worldwide (https://www.ge.com/directory).

Unicorn Toys faces stiff competition from Playtime Inc., a rival firm with which Unicorn Toys has achieved differentiation parity. Both firms have invested in state-of-the art production facilities and have similar learning curves of 85 percent. Assuming neither firm can reduce the cost of its input factors, how can Unicorn Toys achieve a competitive advantage as a cost leader?

Have a cumulative output that is greater than Playtime Inc.'s.

Which of the following examples describes the task of an alliance manager?

Hussein trained the employees of his alliance partner in the skills needed to create a display for an e-notebook.

Potomac Industries is a manufacturer of high-definition televisions. The industry has gone through a period of rapid growth and expansion, and has started to experience a decline in the rate of growth. Several smaller firms have been bought out by larger competitors, and competition for market share is intensifying. Which of the following strategies is most likely to give Potomac a competitive advantage?

Implement process innovations that lower per-unit costs.

Although JetBlue used a blue ocean strategy to achieve an initial competitive advantage, it failed to maintain this advantage. Which of the following provides the best reason for this development?

It failed to refine its strategic position over time.

Which of the following is an accurate statement about learning effects?

Learning effects occur over time as output accumulates.

Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them?

Many owners, managers, and business analysts believe they are essential to survive in an industry.

Name three reasons why a firm would enter a strategic alliance. Name two potential risks a fallout might lead to.

Potential Reasons: Strengthen competitive position Enter a new market Hedge against uncertainty Access critical complementary assets Learn new capabilities Examples of Risks: An alliance partner might become a future competitor using your knowledge against you Loss of buyer power over a supplier that became an alliance partner leading to higher costs Binding capital

Skylark Sodas has been a market leader in the soft drink industry for several decades. However, its market research shows that consumer tastes have begun to shift to sugar-free flavored seltzer waters, a product that Skylark is capable of producing with minimal changes to its facilities and production processes. Based on your knowledge of the core competence-market matrix, which diversification strategy should Skylark pursue?

Redeploy and recombine existing core competencies to compete in markets of the future.

Shortly describe the four steps of an innovation process. Why does it end with imitation?

The four steps of an innovation process are Idea, Invention, Innovation, & imitation. If innovation was successfully launched competitors will try to imitate it. This starts the process again to sustain the achieved competitive advantage.

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

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

How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?

by lowering competitive intensity in the industry overall

Revolution Watches, a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of developing nations. Which of the following types of diversification strategies is the firm pursuing?

geographic diversification strategy

When a firm combines experience based learning and process innovation, the firm

jumps to a steeper learning curve.

WellMade Manufacturing is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate?

product diversification

A blue ocean strategy differs from a low-cost strategy in that

the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.

A firm follows a(n) ________ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.

unrelated diversification strategy

When does a merger between companies typically occur?

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

Why is following an unrelated diversification strategy especially advantageous in an emerging economy?

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

Which of the following foreign entry modes primarily involves producing goods in one country to sell in another?

exporting