Ch. 8 MGT491

Which of the following best illustrates forward vertical integration?

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

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

The cost of searching for a contract manufacturer

ElectraSync Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low-growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under:

dogs

Today, many companies use PeopleSoft and EDS to avoid maintaining a human resource management system. By doing this, these firms are:

engaging in strategic outsourcing.

TrueAutos Inc. is a large automobile company. The company's petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?

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

The parent-subsidiary relationship describes the most-integrated alternative to performing an activity within one's own corporate family. The corporate parent owns the subsidiary and can direct it via command and control. Transaction costs that arise are frequently due to political turf battles, which may include the capital budgeting process and transfer prices, among other areas.

taper intergration

How can a firm pursuing a diversification strategy enhance its overall corporate performance by leveraging financial economies?

By using internal capital markets as a source of value creation

Companies that pursue related diversification are more likely to improve their performance than companies that pursue unrelated diversification. Elaborate. FILL IN

Companies that pursue related diversification are more likely to improve their performance. They create a diversification premium. At the most basic level, a corporate diversification strategy enhances firm performance when its value creation is greater than the costs it incurs. In contrast, firms that pursue unrelated diversification are often unable to create additional value. They experience a diversification discount in the stock market.

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

Georgraphic diversification strategy

What are the three types of specialized assets? FILL IN

Specialized assets can come in several forms: • Site specificity: Assets are required to be co-located, such as the equipment necessary for mining bauxite and aluminum smelting. • Physical-asset specificity: Assets whose physical and engineering properties are designed to satisfy a particular customer, such as bottling machinery for Coca-Cola and PepsiCo. Since the bottles have different and often trademarked shapes, they require unique molds. • Human-asset specificity: Investments made in human capital to acquire unique knowledge and skills, such as mastering the routines and procedures of a specific organization, which are not transferable to a different employer.

Red Empire Inc., a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company?

a conglomerate

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

are able to increase value due to economies of scope.

In 2007, Salesforce.com recognized an emerging market for "platform as a service (PaaS)" offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of softwares. This is an example of:

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

The core competency of MotorCraft Inc. is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that there is a new market opportunity to diversify. Thus, it produces the car engines on a large scale and sells them to other automobile companies. In this scenario, MotorCraft is:

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

Which of the following firms is most prone to experiencing a diversification discount?

A company that pursues unrelated diversification

Elaborate on corporate strategy.

Corporate strategy comprises the decisions that senior management makes and the goal-directed actions it takes in the quest for competitive advantage in several industries and markets simultaneously. It provides answers to the key question of where to compete. Corporate strategy determines the boundaries of the firm along three dimensions: industry value chain, products and services, and geography (regional, national, or global markets).

Elaborate on corporate strategy. FILL IN

Corporate strategy comprises the decisions that senior management makes and the goal-directed actions it takes in the quest for competitive advantage in several industries and markets simultaneously. It provides answers to the key question of where to compete. Corporate strategy determines the boundaries of the firm along three dimensions: industry value chain, products and services, and geography (regional, national, or global markets).

Win Goods Inc. is a large multinational conglomerate. As a single business unit, the company's stock price is estimated to be $200. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $300. What is Win Goods experiencing in this scenario?

Diversification discount

When do companies experience diversification discount and diversification premium? FILL IN

Firms that pursue unrelated diversification are often unable to create additional value. They experience a diversification discount in the stock market: The stock price of such highly diversified firms is valued at less than the sum of their individual business units. In contrast, companies that pursue related diversification are more likely to improve their performance. They create a diversification premium: the stock price of related-diversification firms is valued at greater than the sum of their individual business units.

_____ is best described as changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain.

Forward vertical integration

Marva Industries, a U.S.-based large conglomerate, competes in the hospitality, education, telecommunications, entertainment, airlines, and chemical industries. It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries. Which of the following strategies is Marva Industries pursuing?

Product-market diversification strategy

What are the advantages and disadvantages of organizing economic activity within firms? FILL IN

The advantages of organizing economic activity within firms include the ability to make command-and-control decisions along clear hierarchical lines of authority; coordination of highly complex tasks to allow for specialized division of labor; transaction-specific investments, such as specialized robotics equipment that is highly valuable within the firm, but of little or no use in the external market; and creation of a community of knowledge. The disadvantages of organizing economic activity within firms include administrative costs because of necessary bureaucracy; low-powered incentives, such as hourly wages and salaries; and the principal-agent problem.

Elaborate on the parent-subsidiary relationship. FILL IN

The parent-subsidiary relationship describes the most-integrated alternative to performing an activity within one's own corporate family. The corporate parent owns the subsidiary and can direct it via command and control. Transaction costs that arise are frequently due to political turf battles, which may include the capital budgeting process and transfer prices, among other areas.