Chapters 9 & 8 - Combined

The ______ is a corporate planning tool in which the corporation is viewed as a portfolio of business units, which are represented graphically along relative market share (horizontal axes) and speed of market (vertical axes).

Boston Consulting Group (BCG) growth-share matrix **SBUs are plotted into four categories, each of which warrants a different investment strategy **pp. 280

The BCG growth-share matrix requires managers to view their SBUs in terms of relative market______ and speed of the market______.

Boston consulting Group Relative market share (horizontal axis) and speed of market growtj

Which of the following types of diversification tend to have the lowest performances?

Both Unrelated Diversification and Single Business Diversification

New Core Competence, New Market

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

New Core-Competence, Existing Market

Building new core competencies to protect and extend current market position

Three Mechanisms that Alliances can be Governed by

- Non-Equity Alliances - Equity Alliances - Joint Ventures

Three Options used by Executives to drive firm growth

- Organic Growth Through Alliances - External Growth Through Alliances - External Growth through Acquisitions

Two Necessary Conditions for Successful Alliance Formation

- Partner Compatibility - Partner Commitment

Primary reasons a firm might pursue a merger

- Principal-agent problems - Desire to overcome competitive disadvantage - Superior acquisition and integration capability

Three Choices in the Build-Burrow-or-Buy Framework

- Pursue Internal Development - Enter a Strategic Alliance - Acquire New Resources, Capabilities, and Competencies

Three of the Following are the Primary Benefits of Horizontal Integration

- Reduction in Competitive Intensity - Lower Costs - Increased Differentiation

One reason why a firm might enter into a strategic alliance is to

- Strengthen Competitive Position - Enter New Markets - Hedge against uncertainty - Access critical complementary assets - Learn new capabilities

Horizontal Integration Affect on Porter's Five Focus for the surviving firms

- Strengthening bargaining power vis-a-vis suppliers and buyers - Reducing the threat of entry - Reducing rivalry among existing firms

Forms of Agreement do Non-Equity Alliances Typically Take

- Supply Agreements - Distribution Agreements - Licensing Agreements

Questions that managers must answer when pursuing value innovation

- Which product factors to eliminate - Which product factors to reduce below the industry standards - Which product factors to raise above the industry standard - Which new product factors to create

Three of the following are Advantages of Equity Alliances

- Window into new technology - Possible emergence of trust and commitment - Stronger ties

Taper integration allows firms to

- gain knowledge from external sources - be more flexible when responding to market changes such as fluctuations in demand.

What the types of general diversification strategies?

- geographic - product market - product

What are some managerial advantages of building a firm into a large organization?

- greater prestige - more job security - increased power

Advantages of organizing economic activity at the market level include which of the following?

- increased flexibility - high powered incentives

Which of the following are advantages of organizing economic activity OUTSIDE of a firm?

- lower administrative costs - high powered incentives

Stages four and five of the industry value chain involve

- marketing - sales - after-sales service and support

The four quadrants of the core competence-market matrix are which of the following?

- new competencies with new markets - existing competencies with new markets - new competencies with existing markets - existing competencies with existing markets

Which types of diversification tend to have the lowest performance?

- single business - unrelated diversification

What are the reasons for which firms enter into strategic alliances?

- strengthen competitive position - enter new markets - hedge against uncertainty - access critical complementary assets - learn new capabilities

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

- taper integration - strategic outsourcing

Why do firms make acquisitions?

- to gain access to new markets and distribution channels - to gain access to new capability or competency - to preempt rivals

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

- to get insider information about the partner's business - to facilitate transaction-specific investments - to make a credible committment

Corporate strategy needs to be dynamic over time in order

- to respond to the ever-changing external environment - to diversify to capture growth opportunities - to keep and maintain a competitive advantage

Long-term contracts typically last __. -6 to 12 months -1 to 2 months -1 year or more -indefinitely

-1 year or more

Partner selection and alliance formation

-Benefits must exceed costs -Partner compatibility (cultural fit)and commitment (willingness to accept short term sacrifices to ensure long term rewards)

The four underlying strategic management concepts that determine he scope of a firm are which of the following?

-Core competences -Economics of scale -Economics of scope -Transaction costs

Examples of companies that were "born global"

-Google -Amazon -facebook -that enables them to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world

Global collaboration networks freely locate business functions anywhere int he world based on an optimal mix of which factors?

-Pestel factors -capabilities -costs

Which framework can companies use to assess whether their internal resources are superior to those of competitors in the target area? -PESTEL framework -VRIO framework -Porter's five forces -Vertical integration framework

-VRIO framework

In the Boston Consulting Group growth-share matrix, each of the four categories in the matrix represents __. -a kind of taper integration strategy -points on the make-or-buy continuum -a different investment strategy -individual economies of scope

-a different investment strategy

Product diversification strategy Geographic diversification strategy Product-market diversification strategy

-a firm that is active in several different product markets -a firm that is active in several different countries -a company that pursues both a product and a geographic diversification strategy.

The luxury car division of Tata Group, with the purchase of Jaguar and Land Rover, is pursuing which of the following on the business level? -a focused cost leadership strategy -a broad differentiation strategy -a focused differentiation strategy -a broad cost leadership strategy

-a focused differentiation strategy

The luxury car division of Tata Group, with the purchase of Jaguar and Land Rover, is pursuing which of the following on the business level? -a focused differentiation strategy -a broad cost leadership strategy -a focused cost leadership strategy -a broad differentiation strategy

-a focused differentiation strategy

Olivia's, an olive oil company, grows and harvests olives, makes olive oil, and distributes its olive oil to its retail shop. Olivia's is an example of __. -a fully vertically integrated company -a horizontally disintegrated company -a vertically disintegrated company -parent-subsidiary relationship

-a fully vertically integrated company

In order to assess whether __ is working, managers can ask if the individual businesses are worth more under the firm's management or if they are worth more under individual management. -diversification -taper integration -franchising -vertical integration

-diversification

What are the risks of vertical integration? (Check all that apply.) -reduced flexibility -consolidation -securing critical distribution channels -reduced quality -planned emergence -increased costs

-reduced flexibility -reduced quality -increased costs

What are sources of value creation in a horizontal integration strategy?

-reduction in competitive intensity -lower costs -increased differentiation

A firm follows a(n) __ diversification strategy when it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity. -unrelated -single -related -dominant

-related

What are the main types of corporate diversification? (Check all that apply.) -related diversification -single business -horizontal diversification -double business -unrelated diversification -dominant business

-related diversification -single business -unrelated diversification -dominant business

Corporate strategy needs to be dynamic over time in order to __ (Check all that apply). -respond to the ever-changing external environment -avoid paying for coordination and influence costs -diversify to capture growth opportunities -keep and maintain a competitive advantage

-respond to the ever-changing external environment -diversify to capture growth opportunities -keep and maintain a competitive advantage

During the first stage of globalization, which of the following business functions typically took place abroad?

-sales -distribution

What factors help define administrative and political distance?

-shared monetary associations -political hostilities -the strength of financial institutions

Which type of alternative on the make-or-buy continuum involves competitive bidding by external companies hoping to acquire a temporary arrangement with a firm? -parent-subsidiary relationships -franchising -short-term contracts -joint ventures

-short-term contracts

Why did Coca-Cola enter into a strategic alliance with Monster? -so that is could gain private information to determine whether an acquisition might be beneficial -so that it could own every stage of its industry value chain -so that it could use Monster's trademark and business processes -so that it could have full control of Monster regardless of the risk

-so that is could gain private information to determine whether an acquisition might be beneficial

which of the following comprise culture?

-social mores -social norms -beliefs -values

Which of the following is true of firms' acquisition and integration capabilities? -most firms are able to create shareholder value through mergers and acquisitions -some firms can consistently use mergers and acquisitions to increase their competitive advantage -few firms are unable to create significant shareholder value through mergers and acquisitions

-some firms can consistently use mergers and acquisitions to increase their competitive advantage

Long-term contracts (such as licensing and franchising), equity alliances, and joint ventures are examples of which of the following? -taper integration -transaction cost economics -offshoring -strategic alliances

-strategic alliances

Which of the following are the three choices in the build-borrow-or-buy framework?

-strategic alliances -internal developement -acquisition of new resources

A state university hires an outside firm to develop and maintain human resource system. This is called __. -offshoring -taper integration -vertical market failure -strategic outsourcing

-strategic outsourcing

Why do firms acquire other firms?

-to access new markets and distribution channels -to access new capabilities or competencies -to preempt rivals

What is the main goal of corporate venture capital investments? -to reduce product costs -to increase market share -to make financial gains by selling more products in fewer markets -to create real options in terms of gaining access to new technologies

-to create real options in terms of gaining access to new technologies

At the final stage of the industry life cycle (decline), managers generally have four strategic options:

1) exit 2) harvest 3) maintain 4) consolidate

Steps in the innovation process are as follows:

1) idea (abstract concepts or research findings) 2) invention 3) innovation 4) imitation (copying a successful innovation)

What is a Joint Venture?

A structure where two firms come together to form a new company in a market

Dominant Business diversification

Firm obtains between 70-95 percent of its revenues from a single business, but it pursues at least one other business activity that accounts for the remainder of revenue. The dominant business shares competencies in products, services, technology, or distribution.

Alliance Management Capability

Firm's ability to effectively manage three alliance-related tasks concurrently, often across a portfolio of many different alliances

Antitrust regulations

First in the 60's and 70's, they discouraged mergers that created increased market power. Became relaxed in 80s, leading to larger horizontal mergers. Now, more concerns seems to be emerging and mergers are more closely scrutinized.

Less Vertically Disintegrated

Focus on only one of a limited few stages of the industry value chain.

Tata Group, owns Land Rover and Jaguar, is pursuing

Focused Differentiation Strategy

Licensing is

Form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property such as a patent

What must strategic alliances do in order to create the foundation for a competitive advantage?

Form unique resource combinations that obey the VRIO criteria.

2) Silver Weave Inc., an apparel company, operates through a business model in which individuals can buy the rights to set up Silver Weave stores and sell the company's merchandise in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to stock the collection approved from the company's headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate?

Franchising

Long-term contracts include which of the following forms?

Franchising Licensing

Related Linked Diversification Strategy Example

GE: Aviation (13%), Capital (31%), Energy Mng (5%), Health Care (12%), Home/Business Solutions (5%), Oil/Gas (10%), Power/Water (19%), and Transportation (4%). Connected with HR and Finance.

Which of the following factors does NOT help define administrative and political distance?

Geographic Space between Borders

in order to implement a transnational strategy, MNEs typically adopt a global______ structure.

Global matrix structure: combines economies of scale along specific product divisions with economies of learning attainable in specific product divisions

How do foreign governments influence why firms may use strategic alliances to ensure new markets?

Governments may require that foreign firms have a local joint venture partner in order to conduct business with the country's borders.

How do foreign governments typically influence a firm's use of strategic alliance to enter new markets?

Governments may require that foreign firms have a local joint venture partner in order to conduct business within the country's borders

How do foreign governments typically influence a firm's use of strategic alliances to enter new markets?

Governments may require that foreign firms have a local joint venture partner in order to conduct business within the country's borders.

Approach to Strategic Decision making takes a larger investment decision and divides it into multiple decisions that happen over time

Real-Options Perspective

Which of the following is true of firms acquisition and intergration capabilities.

Some firms can consistently use mergers and acquisitions to increase their competitive advantages.

Internal Capital Markets

Source of value creation in a diversification strategy if the conglomerate's headquarters does a more efficient job at allocating capital through its budgeting process that what could be achieved in external capital markets.

___ assets are unique assets that have significantly more value int heir intended use than in next-best use

Specialized

Which has significantly more value in their intended use than in their next-best use

Specialized Assets

______ are unique assets with high opportunity cost.

Specialized assets

horizontal integration through mergers and acquisitions can create costs. which of the following are sources of such costs?

increased potential for legal repercussions reduced flexibility

as the standard of living rises in emerging economies, MNEs are hoping that_______

increased purchasing power will enable workers to purchase the product they used to make for exports only

With a multidomestic strategy, products are manufactured on a local level. This has the potential of _______________.

increasing the risk of intellectual property appropriation

_______ is an innovation that squarely builds on an established knowledge base and steadily improves an existing product or service.

incremental innovation

______ is a way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside-market firms for some of its supplies and/or is forwardly integrated but also relies on outside-market firms for some of its distribution.

taper integration **this is an alternative to vertical integration **pp. 271

The two alternatives to vertical integration are which of the following? (Select all that apply.)

taper integration strategic outsourcing

non-equity alliance

partnership based on contracts between firms (most frequent form are supply agreements, distribution agreements, and licensing agreements)

A ______ is a form of intellectual property that gives the investor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea.

patent

_____________ refers to the assets whose physical and engineering properties are designed to satisfy a particular customer.

physical-asset specificity

Virtual Integration

technological coordination across company boundaries to achieve new levels of efficiency and productivity, as well as extraordinary returns to investors.

Which of the following states that important resources and capabilities are commonly embedded in strategic alliances that cross firm boundaries?

teh relational view of competitive advantage

global strategy

that enables them to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world.

A voluntary arrangement between firms to share knowledge, resources, and capabilities to develop products, processes, or services is known as a(n) _______________.

strategic alliance

A(n) ______ is a voluntary arrangement between firms that involves sharing of resources and capabilities with the intent of developing processes, products, or services.

strategic alliance

A(n) _________ is a voluntary arrangement between firms that involve sharing of resources and capabilities with the intent of developing processes, products, or services.

strategic alliance

A(n) ______________ is a voluntary arrangement between firms that involves sharing of resources and capabilities with the intent of developing processes, products, or services.

strategic alliance

Long-term contracts (such as licensing and franchising), equity alliances, and joint ventures are examples of which of the following?

strategic alliances

Long-term contracts are classified as ______.

strategic alliances

_______ are voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

strategic alliances **pp. 262

_______ is the pursuit of innovation using tools and concepts from strategic management.

strategic entrepreneurship

______ is moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.

strategic outsourcing

____________ refers to moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.

strategic outsourcing

The two alternatives to vertical integration are ______

strategic outsourcing taper integration

two alternatives to vertical integration

strategic outsourcing and taper integration

An effective innovation ______ is critical in formulating a business strategy that provides the firm with a competitive advantage.

strategy

How can horizontal integration favorably affect Porter's five forces for the surviving firms?

strengthening bargaining, power vis-a-vis supplies and buyers, reducing the threat of entry, and reducing rivalry among existing firms

Pros of joint ventures

strong ties, trust, and commitment btwn partners

non-equity alliances

supply agreements, distribution agreements, licensing agreements

Equity alliances allow for the sharing of ______, which involves information that cannot be codified for completing tasks.

tacit knowledge

Which type of knowledge cannot be codified and can only be gained through active participation in the task?

tacit knowledge

______ is knowledge that cannot be codified.

tacit knowledge **concerns knowing how to do a certain task and can be acquired only through active participation in that task

Equity alliances allow for the sharing of _____________. which involves knowing how to do a certain tasks.

tactic knowledge

equity alliances allow for the sharing of ________, which involves information that cannot be codified for competing tasks

tactic knowledge

In many fast-moving markets, strategic alliances allow firms to

take a wait-and-see approach to hedge against uncertainty

A benefit of ___________ is that in-house suppliers and distributors are subjected to market competition, which allows the firm to assess performance in comparison to others.

taper integration

A benefit of______ is that in-house suppliers and distributer are subjected to market which allows the firm to assess performance in comparison to others

taper integration

Shaniquas shirts uses both in house and outside suppliers and also sells its shirts through its own retail stores and through independent retailers. Shaniquas shirts uses:

taper integration

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

taper integration

Value-Creating Diversification

Economy of scope (related diversification), Market Power, and Financial economies (unrelated diversification).

Partnership in which at least one partner takes partial ownership in the other is an

Equity Alliance

True or false: In most cases, mergers and acquisitions create competitive advantage.

False

Bandwagon Effects

Firms copying moves of industry rivals.

firms that pursue a _________ strategy minimize the amount of resources devoted to product support in order to maximize cash flow

HARVEST

Horizontal Integration can

Help a firm improve its strategic position in an industry

When two competitors merge, leading to industry consolidation, they are engaging in ________________.

Horizontal integration

Which of the following is true of tacit knowledge?

It can only be acquired through actively participating in the process.

In what way does the strategic alliance between GM and Lyft allow GM to hedge against uncertainty?

It gives GM access to the market of the future, in which traditional private car ownership no longer exists.

Which of the following are characteristics of a joint venture?

It is a long-term commitment by two or more partners.

Which of the following are advantages of joint ventures? (Check all that apply.)

commitment trust strong ties

When an established firm makes an equity investment in an entrepreneurial venture it is known as a(n) ______ investment.

corporate venture capital

Core Competence-Market Matrix

Once managers have a clear understanding of their firm's core competencies, they have four options to formulate corporate strategy: 1. Leverage existing core competencies to improve current market position. 2. Build new core competencies to product and extend current market position. 3. Redeploy and recombine existing core competencies to compete in markets of the future. 4. Build new core competencies to create and compete in markets of the future.

In Taper Integration Systems, a firm has

Partial reliance on outside markets

Which of the following are the most important determinants of economic distance?

Per Capita Income

Purpose of the Core Competence-Market Matrix

Provides guidance regarding how to diversify in order to grow the company

A firm with alliance management capability is able to effectively manage all of the following tasks EXCEPT?

Purchase of the Alliance Partner

Which approach to strategic decision making takes a larger investment decision and divides it into multiple smaller decisions that happen over time?

Real-options perspective

Existing Core Competencies, New Market

Redeploying and recombining core competencies to compete in markets of the future

Benefits of a horizontal Integration

Reduction in competitive intensity Lower Costs Increased Differentiation

Strategic Outsourcing

Refers to moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain

Moderate to High levels of Diversification

Related constrained and Related linked

Which of the following are alternatives on the make-or-buy continuum?

Short-term Contracts Long-term Contracts Equity Alliances Joint Ventures Parent-Subsidiary Relationships

Which type of alternative on the make-or-buy continuum involves competitive bidding by external companies hoping to acquire a temporary arrangement with a firm?

Short-term contracts

Forms of specialized assets include

Site Specificity - Assets 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 Human-Asset Specificity - Investments made in human capital to acquire unique knowledge and skills

The forms of specialized assets

Site specificity -physical-asset specificity -Human-asset specificity

Principal-Agent Problem

Situation in which an agent performing activities on behalf of a principal pursues his or her own interests

Why did Coca-Cola enter into a strategic alliance with Monster?

So it could gain private information

A state university hires an outside firm to develop and maintain their HR system. This is called _____

Strategic outsourcing

_________is best described as moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.

Strategic outsourcing

The lemons problem suggests that information asymmetries cause...

Superior goods to be replaced by inferior ones. -situations in which one party is more informed than another, bc of the possession of private info

Disadvantage of a Short-Term Contract as an Alternative on the Make-or-Buy continuum is that

Supplying firms responding to the request for proposal have no incentive to make any transaction-specific investments due to the short duration of the contract

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

Taper integration

The two alternatives to vertical integration are what?

Taper integration and strategic outsourcing

Two alternatives to vertical integration are

Tapper Integration - Way of orchestrating value activities in which a firm is backwardly integrated, but it also relies on outside-market firms for some of its supplies, and/or is forwardly integrated but also relies on outside-market firms for some of its distribution Strategic Outsourcing - Involves moving one or more internal value chain a firm's boundaries to other firms in the industry value chain

Scope of the Firm

The boundaries of the firm along Three Dimensions: Industry value chain, Products and services, and Geography.

Vertical Integration (Along the Industry Value Chain)

The firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs. The degree of vertical integration tends to correspond to the number of industry value-chain stages in which it directly participates.

To gain distribution channels and marketing expertise that would be an example of

critical complementary assets

parent-subsidiary relationship

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.

Restructuring

The process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully.

Which of the following best exemplifies the relational view of competitive advantage?

The strategic alliance between company A and company B creates more value than either company individually.

What is a true statement about strategic alliances?

They have a high failure rate.

Which of the following statements about equity alliances is true?

They require larger investments than non-equity alliances.

Why do incumbent companies enter into strategic alliances with startups?

To hedge against uncertainty

Very High Levels of Diversification

Unrelated diversificaton

Which framework can companies use to assess whether their internal resources are superior to those of competitiors in the targeted area?

VRIO framework

Short Term Contracting (Alternatives on the Make-or-Buy Continuum)

When engaging in short-term contracting, a firm sends out Requests for Proposals (RFPs) to several companies which initiates competitive bidding for contracts to be awarded with a short duration, generally less than one year [contractual agreement].

Related-Constrained Diversification

When executives consider business opportunities only where they can leverage existing competencies and resources (Ex: Johnson and Johnson)

When companies get involved in a bidding ware and the winner overpays for the acquisition, the acquiring company has fallen victim to the

Winner's curse

Single Business Strategy Example

Wrigley: operates in few product markets and acquired confectionary assets of Kraft Foods Inc.

When an established firm amkes an equity investment in an entrepreneurial venture it is known as______ investment

a Corporate venture capital CVC

The luxury car division of Tat Group, with the purchase of Jaguar and Land Rover, is pursuing which of the following?

a Focused differentiation strategy

When an establishment makes an equity investment in an entrepreneurial venture it is known as __________ investment.

a corporate venture capital

Firms that pursue an unrelated diversification strategy and are unable to create additional value tend to experience ________

a diversification discount

alliance management capability

a firm's ability to effectively manage three alliance-related tasks concurrently: partner selection and alliance formation, alliance design and governance, and post-formation alliance management; firm may need to employ it with several different alliances

managerial hubris

a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary

managerial hubris

a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence tot he contrary

An live company, grows and harvests olives, makes olive oil, and distributes its olive oil to its retail shops, this is an example of:

a fully vertically integrated company

Olivia's, and all of oil company, grows and harvests all of us, makes all of oil, and distributes it is all of oil to its retail shop. Olivia's is an example of _______________.

a fully vertically integrated company

conglomerate

a group of diverse companies under common ownership and run as a single organization

Which of the following occurs when a targeted firm is unwillingly acquired?

a hostile takeover

Kava Botanicals, a boutique retailer that sells high-end makeup and accessories, is owned by two makeup manufacturers, Kava Botanicals is an example of which strategic alliance?

a joint venture

Kava Botanicals, a boutique retailer that sells high-end makeup and accessories, is owned by two makeup manufacturers. Kava Botanicals is an example of which type of strategic alliance? -a long-term contract -a joint venture -an equity venture -a short-term contract

a joint venture

principal-agent problem

a problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him

Which approach to strategic decision making takes a larger investment decision and divides it into multiple smaller decisions that happen over time?

a real options perspective

Which approach to strategic decision making takes a larger investment decision and divides it into multiple smaller decisions that happen over time?

a real-options perspective

What three of the following are the primary benefits of horizontal integration? (Check all that apply.)

a reduction in competitive intensity lower costs increased differentiation

Firms would be best served by developing ________ that allows for management of both strategic alliances and mergers and acquisitions.

a relational capability

non-diversified company focuses on

a single market

What are three advantages of equity alliances? (Check all that apply.)

a window into new technology (option value) possible emergence of trust and commitment stronger ties

Three of the following advantages of equity alliances

a window to new technology (option value) stronger ties possible emergence of trust and commitment

The two basic approaches to successfully manage cooperative strategic alliances involve ____ and ____. a. cost minimization, opportunity maximization b. monitoring systems, multiple management approaches c. contractual systems, financial systems d. equity approaches, nonequity approaches

a. cost minimization, opportunity maximization

The cooperation between Fiat and Chrysler to produce a Fiat-designed car in Chrysler's Illinois factory is a(n) _________ alliance because it allows the firms to share resources and capabilities across multiple functions. a. synergistic b. opportunistic c. horizontal d. diversifying

a. synergistic

All of the following are business-level cooperative strategic alliances EXCEPT a. synergistic strategic alliances. b. uncertainty reduction strategic alliances. c. complementary strategic alliances. d. competition response strategic alliances.

a. synergistic strategic alliances.

Legitimately, a firm may pursue an international strategic alliance for all of the following reasons EXCEPT a. to enhance the compensation packages of top managers. b. to leverage core competencies in new markets. c. to operate within government restrictions in the local country. d. to escape limited domestic growth opportunities.

a. to enhance the compensation packages of top managers.

______ is a firm's ability to understand external technology developments, evaluate them, and integrate them into current products or create new ones.

absorptive capacity

Parent-subsidiary relationship

describes the most integrated alternative to performing an activity within one's own corporate family

On average, mergers and acquisitions ______ shareholder value.

destroy

On average, mergers and acquisitions ___________ shareholder value.

destroy

on average mergers and acquisitions _________ shareholder value

destroy

on average, mergers and acquisitions _____ shareholder value

destroy

Diversification

An increase in the variety of products or markets in which to compete

Benefits of horizontal integration

Benefits: - Reduction in competitive intensity - Lower costs - Increased differentiation Drawbacks: - Integration failure - Reduced flexibility - Increased potential for legal repercussions

Which of the following is NOT a risk of vertical integration?

Consolidation

Single-Business Firm (Type of Corporate Diversification)

Derives 95 percent or more of its revenues from one business (Ex: Google)

________ assets are unique assets that have significantly more value in their intended use than in next-best use.

Specialized

7) The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growth-share matrix, the smart phone division of True Electra will be categorized under

Stars

Which of the following is an alternative to vertical integration?

Strategic Outsourcing

The Lemons problem suggests that information asymmetries can cause

Superior goods to be replaced by inferior ones

real options perspective

approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time

When firms from wealthy countries trade with firms from poor countries, they benefit from economic________

arbitrage

an innovation that targets a new market with existing technologies is called a ____________

architechtural innovation

Search Costs

are perhaps the major drawback of transacting in markets a firm faces search costs when it must scour the market to find reliable suppliers from among the many firms competing to offer similar products and services.

Economics of scope

are the savings that comes from producing two or more outputs or providing different services at less cot than producing each individually, though using the same resources and technology

At which level of the corporation should strategic alliances and mergers and acquisitions be managed?

at the corporate level

Knowledge that can be codified is also called ______ knowledge.

explicit

which of the following are benefits of a horizontal integration?

increased differentiation reduced competition

Transaction-specific investments

is an advantage of a firm in organizing economic activity

how does horizontal integration affect porter's five forces for the surviving firms?

it reduces the threat of entry it reduces rivalry among existing firms

which is true regarding the governmental and horizontal integration ?

large horizontal integration activity typically needs to be approved by gov authorities

Related diversification:

lead to superior performance

Zoe is convinces she can turn the company around despite the evidence to the contrary. Zoe is engaging in

managerial hubris

stages four and five of the industry value chain involve:

marketing, sales, after sales service and support

non-equity alliance

partnership based on contracts between firms

_______ is when new or recombined knowledge is embodied in new products.

product innovation

The first stage of the industry value chain is typically

raw materials

Which type of diversification is most likely to lead to superior performance?

related diversification

What is a major disadvantage of organizing economic activity within firms

the principal-agent problem

Which of the following states that important resources and capabilities are commonly embedded in strategic alliances that cross firm boundaries?

the relational view of competitive advantage

hostile takeover

when a target firm does not want to be acquired

Main Types of Diversification

- Single Business - Dominant Business - Related Diversification - Unrelated Diversification: The Conglomerate

How does horizontal integration affect Porter's Five Forces for the surviving firms?

- strengthens bargaining powers vis-a-vis suppliers - reduces the threat of entry - reduces rivalry among existing firms

Which of the following are the three options used be executives to drive firm growth? (Check all that apply.) -downsizing -organic growth -alliances -acquisitions

-organic growth -alliances -acquisitions

barriers to learning

1. tacit knowledge 2. causal ambiguity

Backward Integration

A firm produces its own inputs

External incentives of Value-Neutral diversification

Antitrust regulations and Tax laws

Which of the following dimensions is NOT considered in the CAGE distance framework?

Architectural Distance

Spex is a leading manufacturer of eyeglasses. Spex is based in the United States but opens a facility in a Japanese city known for cutting-edge eyeglass innovations. Spex is counting on which of the following?

Benefiting from location economies.

What is related diversification?

Creating value through sharing and transferring of resources and skills

Diversification

growing into new business areas either related or unrelated to the current business.

Benefits of mergers and acquisitions are often _____ to achieve.

hard **anticipated synergies often do not materialize

A disadvantage of using a short-term contract for the supplying firm is that they

have little reason to perform transaction-specific investments

principal-agent problem

is a major disadvantage of organizing economic activity within firms, as opposed to within markets

Strategic alliance

is a voluntary arrangement between firms that involve sharing of resources and capabilities with the intent of developing processes, products, or services

Short-term contracting

is an example of an alternative arrangement located on the continuum between buying and making

a manager flying first class on all business trips is an example of _______________

principal agent problem

Why do firms merge?

principal agent problems, the desire to overcome competitive disadvantage, and to gain superior acquisition and integration capability

______ is the process of creating new ways to produce existing products or deliver existing services.

process innovation

What are some disadvantages of strategic alliances?

profits HAVE to be shared, and there is a merging of cultures

During the decline stage of the industry life cycle, some firms choose to consolidate, meaning that they...........

purchase rival firms in order to acheive near monopolistic control of the industry

A firm follows a _____ diversification strategy when it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

related-diversification

A _______ is a kind of related diversification strategy in which executives pursue various business opportunities that share only a limited number of linkages.

related-linked diversification strategy

______ describes the process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully.

restructuring

70. What does a competitive strength score above 5 tell us about a diversified company's position in the market? A. that its business units are all fairly strong market contenders in their respective industries B. that its business units are all fairly weak market contenders in their respective industries C. that the company will not likely perform well D. that a company's competitive strength score does not relate to the market position of that business E. that the company will likely fail

that its business units are all fairly strong market contenders in their respective industries If a diversified company's business units all have competitive-strength scores above 5, it is fair to conclude that its business units are all fairly strong market contenders in their respective industries.

The extent which members of a society feel anxious when faced with an unknown situation known as

uncertainty avoidance

Unrelated diversification

when less than 70 percent of its revenues comes from a single business and there are few, if any linkages among its business. -A company that combines two or more strategic business units one overarching corporation and follows this is called a conglomerate. -can be advantageous in emerging economies

Long-term contracts include which of the following forms?

Licensing

_____ are the agents that introduce change into the competitive system.

entrepreneurs

Sources of COSTS in a horizontal integration strategy are ______.

integration failure reduced flexibility

Related Diversification

similar to existing business

What are the main types of business diversification?

- dominant business - unrelated diversification - related diversification - single business

The four underlying strategic management concepts that determine the scope of a firm are which of the following?

- economies of scale - economies of scope - core competencies - transaction costs

Alternatives in the make-or-buy continuum include which of the following?

- equity alliances - joint ventures

Advantages of vertical integration include which of the following?

- facilitating scheduling - bettering quality - reducing costs

What are the types of vertical integration along the industry value chain?

- forward - backward

The forms of specialized assets include which of the following?

- physical-asset specificity - human-assist specificity - site specificity

Which of the following are the types of general diversification strategies?

- product-market - geographic - product

What are the risks of vertical integration?

- reduced quality - reduced flexibility - increased costs

What are sources of value creation in a horizontal integration strategy?

- reduction in competitive intensity - lower costs - increased differentiation

The Boston Consulting Group growth-share matrix locates a firm's individual SBUs in which dimensions?

- relative market share - speed of market growth

A firm with alliance management capability is able to effectively manage which tasks?

- partner selection and alliance formation - alliance design and governance - post-formation alliance management

Which bodies regulate mergers and acquisitions?

European Commission Federal Trade Commission

which bodies regulate mergers and acquisitions?

European commission federal trade commission

Uncertain cash flow

Diversification may be a defensive strategy if the product line matures or is threatened, or a firm is small and is in a mature or maturing industry.

In most cases, mergers and acquisitions

Do not create competitive advantage

Types of Vertical integration

Forward integration, backward integration

One way to overcome the principal-agent problem is to

Give stock options to managers, thus making them owners

What is a related-linked diversification strategy?

One in which executives pursue various business opportunities that share only a limited number of linkages.

In order for a firm to lower costs, it must ______.

grow

When two competitors merge, leading to industry consolidation, they are engaging in ______.

horizontal integration

When two competitors merge, leading to industry consolidation, they are engaging in _______________.

horizontal integration

______ is the process of merging with competitors, leading to industry consolidation.

horizontal integration

when two competitors merge, leading to industry consolidation, they are engaging in ____

horizontal integration

A ______ is an acquisition in which the target company does not wish to be acquired.

hostile takeover

When Pfizer and Wyeth merged, they reduced the size of their combined sales.

lower costs

A ______ is the joining of two independent companies to form a combined entity.

merger

Market Development

moving into different geographic markets.

Sources of COSTS in a horizontal integration strategy are ______.

reduced flexibility integration failure

Horizontal integration is a good option if _______________.

The target firm will have more value when combined with the acquiring firm.

Which of the following statements about economic distance is true?

Wealthy companies benefit from trade when their competitive advantage is based on economies of experience, scale, and scope.

Multinational enterprise (MNE)

a company that deploys resources and capabilties int he procurement, production, and distribution of goods and services in at least two countries. - to make investments in value chain activities abroad, MNEs engage in Foreign direct investment(FDI)

Which term refers to a company's ability to handle the three specific tasks related to an alliance concurrently and effectively?

alliance management capability

________ assets are unique assets that have significantly more value in their intended use than in next-best use

specialized

_______assets are unique assets that have significantly more value in their intended use than in next-best use

specialized

Long term contracts are classified as ________

strategic alliances

advantages of joint ventures

strong ties, trust, and commitment

The partners in non-equity alliances can have weak ties because such alliances are often ______ in nature, which can cause lack of trust and commitment.

temporary

What is the main goal of corporate venture capital investments?

to create real options in terms of gaining access to new technologies

main goal of corporate venture capital investments

to create real options in terms of gaining access to new technologies

what is the main goal of corporate venture capital investments?

to create real options in terms of gaining access to new technologies

Diversification allows a firm...

to create value by productively using excess resources.

which of the following are reasons to pursue horizontal integration as a corporate strategy?

to enhance their economic value creation to lower costs to provide such benefits as complementary products in their offering

True or false: Firms can use strategic alliances to strengthen their competitive advantage when competing in battles to control industry standards.

true

a conglomerate fits which type of corporate diversification mode?

unrelated diversification

What are the main types of corporate diversification? (Check all that apply.)

unrelated diversification related diversification dominant business diversification single business diversification

which types of diversification tend to have the lowest performances?

unrelated diversification single business

An ______ is a corporate strategy in which a firm derives less than 70 percent of its revenues from a single business and there are few, if any, linkages among its businesses.

unrelated diversification strategy

Foreign direct investments are investments in....

value chain activities abroad

Transaction costs include __ costs associated with an economic exchange. -only the internal -only the external -the legal -the internal and external

-the internal and external

The most integrated alternative to vertical integration is __. -the parent-subsidiary relationship -long-term contracting -the joint venture -the equity alliance

-the parent-subsidiary relationship

What is a major problem for between 30% and 70% of all strategic alliances?

At least one partner in the alliance considers the venture to be a failure.

Forward Integration

Changes in an industry value chain that involve moving ownership activities close to the end (customer) point of the value chain. Allows companies to more effectively plan for and respond to changes in demand.

Backward Integration

Changes in an industry value chain that involve moving ownership activities upstream to the originating (inputs) point of the value chain.

Term is used to describe cooperation by competitors

Co-Opetition

Dominant-Business Firm (Type of Corporate Diversification)

Derives 70-95 percent of its revenues form a single business, but it pursues at least one other business activity (Ex: Microsoft)

Low performance

Firms plagued by this often take higher risks (diversification is risky)

Taper integration

It is a way of orchestrating value activities in which a firm is backwardly integrated, but it also relies on outside-market firms for some of its supplies, and/or is forwardly integrated but also relies on outside-market firms for some if its distribution ex.Both Apple and Nike, for example, use taper integration: They own retail outlets but also use other retailers, both the brick-and-mortar type and online. Benefits: -allows a firm to retain and fine-tune its competencies in upstream and downstream value chain activities -enhances a firms flexibility -firms can combine nternal and external knowledge, for a path of innovation

How does horizontal integration affect Porter's Five Forces for the surviving firms? (Check all that apply.)

It reduces rivalry among existing firms. It reduces the threat of entry.

Vertical Intergration

Occurs when one corporation oens a business units that make inputs for other business units in the same corporation

What is an advantage of a wholly owned affiliate?

Parent company receives all off the profits and has complete control

Most integrated Alternative to Vertical Integration is

Parent-Subsidiary Relationship

Wheels on the Go! is a company that manufactures tires for semitrucks. The company is entirely owned by North American Haulers, a large company in the semitruck industry. The two companies have formed a(n) _______________.

Parent-Subsidiary Relationship

Peter's Pans makes cast-iron cookware. It decides to acquire another similar-sized cast-iron cookware company in the hope that its larger size will enable it to snag some market share away from Iron Maiden, the industry leader. Which of the following reasons best describes Peter's Pans strategy?

Peter's Pans is trying to overcome competitive disadvantage

Peter's Pans makes cast-iron cookware. It decides to acquire another similar-sized cast-iron cookware company in the hope that its larger size will enable it to snag some market share away from Iron Maiden, the industry leader. What is Peter's Pans strategy?

Peter's Pans is trying to overcome competitive disadvantage.

What is a major disadvantage of organizing economic activity within firms?

Principal-agent problem

Because the size of organizations is typically correlated with prestige, power, and pay

Principal-agent problems might be a reason to pursue Managers as agents

When a multi-business firm pools and shares resources and leverages competencies across different business lines, it is following a

Related diversification strategy

_______ assets are unique assets that have significantly more value in their intended use than in next-best use

Specialized - have a high opportunity cost *site *physical-asset *human-asset

Which of the following states that important resources and capabilities are commonly embedded in strategic alliances that cross firm boundaries?

The relational view of competitive advantage.

Which of the following is NOT a dimension along which corporate strategy is assessed

The size of the company in comparison to its main competitors

a disadvantage of a short term contract as an alternative on the make or buy continuum is:

The supplying firm has little reason to perform

Horizontal Integration can reduce

The threat of entry

Which statements about joint ventures are true?

They are the least common of the three types of strategic alliances. They involve the sharing of both explicit and tacit knowledge

True or false: According to the make-or-buy continuum, strategic alliances are more integrated than short-term contracts.

True

Joint Venture

Two or more partners create and jointly own a new organization

Strategists can grow their firms by growing organically through internal development or externally through alliances and ______.

acquisitions

in general is a resource is highly trade-able then it should be ________ using a license or contractual agreement.

borrowed

in general, if a resource is highly tradable, then it should be ____________ using a license or contractual agreement.

borrowed

The ______ is a conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual agreement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).

build-borrow-or-buy- framework **pp. 297

A real option gives a firm the right to continue making investments ______.

but does not obligate the firm to do so

a real option gives a firm the right to continue making investments _____

but does not obligate the firm to do so

In this case, (value-reducing) diversification adds benefits to top-level managers...

but not shareholders.

"Which national markets should the firm compete in?" is an example of a _______________-level strategic question.

corporate

A firm has a core competency in R&D but little else, so it enters into a strategic alliance with a larger firm to gain distribution channels and marketing expertise. In this case, distribution channels and marketing expertise would be examples of ______.

critical complementary assets

Marketing, manufacturing, and after-sale service are examples of ______.

critical complementary assets

An advantage of using a non-equity alliance to govern a strategic alliance is its ___________.

flexibility and ease of initiaition

An advantage of using a non-equity alliance to govern a strategic alliance is its ______.

flexibility and ease of initiation

Vertical integration along the industry value chain can be described as

forward and backward vertical integration

Horizontal integration can

help a firm improve its strategic position in an industry

What does the incomplete nature of contracts mean for post-formation alliance management?

it means that trust is critical to success

Some foreign countries require companies to be structured as __ in order to enter that foreign market. The companies gain access to the market, while the country gains advanced technology and know-how.

joint ventures

What are sources of value creation in a horizontal integration strategy? (Check all that apply.)

lower costs reduction in competitive intensity

Gaining new capabilities or competencies is one of the three main reasons companies ______.

make acquisitions

What level of diversification leads to the highest level of performance

moderate

_______ level of diversification leads to the highest level of performance

moderate

A partnership that is based on contracts between companies is referred to as a(n) _____________.

non-equity alliance

a partnership that is based on contracts between companies is referred to as a(n)

non-equity alliance

equity alliance

partnership in which at least one partner takes partial ownership in the other (less common and require larger investments)

When a company makes incremental investments as part of a larger investment and takes the time to analyze the information gained following each incremental investment, the company is taking a ______.

real-options perspective

Risks of vertical integration

reduced flexibility, increased costs, reduced quality

what are the risks of vertical integration?

reduced quality reduced flexibility increased costs increased potential for legal reprecussion

Advantages of vertical integration include which of the following

reducing costs, facilitating scheduling, better quality

Diversification

refers to tan increase in the variety of product and services a firm offers or markets and the geographic regions in which it competes

Offshoring

refers tot he act of outsourcing some of the firms activities outside of the home country to another nation

Which of the following have significantly more value in their intended use than in their next-best use?

specialized assets

_______ are unique assets with high opportunity costs - they have significantly more value in their intended use than in their next-best use

specialized assets **three types - site specificity, physical asset specificity, and human asset specificity

A ______ is an agreed-upon solution about a common set of engineering features and design choices.

standard

Why do incumbent companies enter into strategic alliances with startups?

to hedge against uncertainty

why do incumbent companies enter into strategic alliances with startups?

to hedge against uncertainty

A corporate-level strategy is expected...

to help the firm earn above-average returns by creating value.

Which of the following are among the reasons firms need to grow? (Check all that apply.)

to increase profits to motivate management

relational view of competitive advantage

strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries

A state university hires an outside firm to develop and maintain their human resource system. This is called

strategic outsourcing

Why does Facebook acquire startups?

to preempt rivals

why does facebook acquire startups?

to preempt rivals

which are the three main reasons firms make acquisitions?

to preempt rivals to gain access to a new capability or competency to gain access to new distribution channels and markets

3 main reasons why firms make acquisitions

to preempt rivals to gain access to new capability competency to gain access to new distribution channels and markets

Which are the three main reasons firms make acquisitions? (Check all that apply.)

to preempt rivals to gain access to new distribution channels and markets to gain access to a new capability or competency

What is the purpose of the core competence-market matrix

to provide guidance reguarding how to diversify in order to grow the company

Which of the following are reasons to pursue horizontal integration as a corporate strategy?

to provide such benefits as complementary products in their offering to lower costs to enhance their economic value creation

A firm should use an equity alliance, a joint venture, or an outright acquisition in order to gain use of a resource when ___________.

the resource is not easily traded

Which of the following describes economies of scope?

the savings from producing two or more outputs at less cost than producing each output individually

Horizontal integration can reduce ______.

the threat of entry

strategic alliances

voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

what is an important aspect of alliance success?

inter-organizational trust

Forward integration

Occurs when a firm owns or controls the customers or distribution channels for its main products

______ is a stand-alone organization created and jointly owned by two or more parent companies.

joint venture

the three mechanisms to govern alliances are non-equity alliances, equity alliances, and ____

joint venture

a partnership that is based on contracts between companies is called a

non equity alliance

A ______ is a partnership based on contracts between firms.

non-equity alliance

A partnership that is based on contracts between companies is referred to as a(n) ______.

non-equity alliance

equity alliance

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

the three options used by executives to drive firm growth?

-alliances -organic growth -acquisitions

In the Boston Consulting Group matrix, __ hold the small market share in a low-growth market. -question marks -stars -dogs -cash cows

-dogs

One possible source of COSTS in a horizontal integration strategy is __. -reduction is competitive intensity -reduced potential for legal repercussions -integration failure -lower costs

-integration failure

Which of the following is an option for formulating strategy via core competencies?

-leverage existing core competencies to improve current market position

what makes globalization possible?

-reduced investment barriers -reductions in transportation costs -advances in telecommunications

A

9. Hitoro Inc. developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Revox Inc., a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate? A. licensing B. franchising C. crowdsourcing D. bootlegging

Single Business

95% or more of revenue comes from a single business.

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

A company that pursues unrelated diversification.

Which approach to strategic decision-making takes a larger investment decision and divides it into multiple smaller decisions that happen over time?

A real-options perspective.

What is an alliance?

A structure where partners come together by contract to engage jointly in activities in a market

a global strategy is needed in order to.....

Achieve a competitive advantage against other companies

When one firm buys or takes over another firm

Acquisition

Related-Constrained Diversification:

Executives engage in such a new business opportunity only when they can leverage their existing competencies and resources, the business activities are limited- constrained- by the fact that they need to be related through common resources, capabilities and competencies ExxonMobil's strategic move into natural gas is an example of related diversification. In 2009, ExxonMobil bought XTO Energy, a natural gas company, for $31 billion.54 XTO Energy is known for its core competency to extract natural gas from unconventional places such as shale rock—the type of deposits currently being exploited in the United States. ExxonMobil hopes to leverage its core competency in the exploration and commercialization of oil into natural gas extraction.

Market Power

Exists when a firm is able to sell its products above existing competitive level, to reduce costs of primary/support activities below the competitive level, or both.

Value-Neutral diversification

External incentives and Internal incentives

Corporate-level strategies

Market Development, Product Development, Horizontal Integration, Vertical Integration

Which of the following forms of agreement do non-equity alliances typically NOT take?

Marketing

When two firms agree to join and create a combined entity

Merger

Strategic Outsourcing

Moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain. Reduces the level of vertical integration.

Forward Vertical Integration

Moving ownership of activities closer to the end customer

Backward Vertical Integration

Moving ownership of activities upstream to the originating inputs of the value chain

Which of the following are NOT part of culture?

National Boundaries

Which of the following is NOT one of the four quadrants of the core competence-market matrix?

New Competencies with Related Markets

Match the type of alliance with its definition.

Non-equity alliance - partnership based on contracts Equity alliance- partnership in which at least on partner takes partial ownership in the other Joint venture- standalone organization created and owned by two or more parent companies

Influence Costs

Occur due to political maneuvering by mangers to influence capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources.

Dominant Business Diversification Strategy

UPS: 60% revenue from its US package delivery . 22% from its international package business. 18% from firm's non-package business.

5) How do firms benefit from vertical integration?

Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.

Related diversification to obtain market power strategy may include...

Vertical integration and Virtual integration

Firms that pursue an unrelated diversification strategy and are unable to create additional value tend to experience which of the following?

a diversification discount

Horizontal Integration

acquisition of competitors; horizontal movement at the same point in the value chain

Vasily is a manager at a large snack foods company. Vasily believes his company would benefit from being larger and thinks the shareholders would support such growth. The company is doing relatively well but needs to focus on stabilizing profits and expenditures. Vasily pushes for an acquisition anyway. The reason for this acquisition is ______.

a principal-agent problem

Firms would be best served by developing __________ that allows for management of both strategic alliances and mergers and acquisitions.

a relational capability

What allows firms to manage both strategic alliances and mergers and acquisitions?

a relational capability

what allows firms to manage both strategic alliances and mergers and acquisitions?

a relational capability

A non-diversified company focuses on which of the following?

a single market

Dynamic alliance networks work best in industries a. characterized by frequent product innovations and short product life cycles. b. that are mature and stable in nature. c. where the coordination of product and global diversity is critical. d. that are characterized by predictable market cycles and demand.

a. characterized by frequent product innovations and short product life cycles.

A ____ cooperative strategy helps the firm diversify in terms of products offered, markets served, or both. a. corporate-level b. business-level c. national-level d. industry-level

a. corporate-level

Offshore Oil Exploration Partners (OOEP) has entered into a cooperative strategy with Malay Petroleum. The resulting documents are long, formal, and detailed. They specify detailed responsibilities of each partner and include methods of monitoring accounting and technical procedures. OOEP and Malay Petroleum are using the ____ management approach. a. cost minimization b. trust but verify c. opportunity maximization d. pragmatic realism

a. cost minimization

The Microsoft/Nokia alliance (Chapter 9 Strategic Focus) which had hundreds of pages to specify each partner's responsibilities would be closest to the _______ approach to managing cooperative ventures. In contrast, the Renault/Nissan alliance (Chapter 9 Strategic Focus) was based on trust, respect and transparency and is an example of the ________ approach to managing cooperative ventures. a. cost minimization; opportunity maximization b. opportunity maximization; cost minimization c. cost maximization; opportunity minimization d. bureaucratic; organic

a. cost minimization; opportunity maximization

______ is a new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets.

architectural innovation

Mutual forbearance is a. illegal in the U.S. b. a type of competition reducing strategy. c. a variety of risk-sharing by firms in highly fragmented industries. d. exercised when alliance partners refrain from opportunistic behaviors.

b. a type of competition reducing strategy.

For the purpose of diversification, a corporate-level cooperative strategy may be preferable to a merger or acquisition for all the following reasons EXCEPT a. a host nation may forbid a merger or acquisition. b. opportunistic behaviors are less likely. c. cooperative strategies require fewer resources. d. cooperative strategies allow greater flexibility in diversifying the firm's portfolio .

b. opportunistic behaviors are less likely.

Firms in ____ markets cooperate to pool resources and gain market power. a. slow-cycle b. standard-cycle c. fast-cycle d. hyper-cycle

b. standard-cycle

In free market economies, ____ must decide how rivals can collaborate with their competitors without violating established regulations. a. the invisible hand b. the government c. consumers d. the business community

b. the government

67. Relative market share is A. calculated by dividing a company's percentage share of total industry sales volume by the percentage share held by its largest rival. B. calculated by adjusting a company's revenue share up or down by a factor proportional to whether their quality/customer service factors are above/below industry averages. C. calculated by dividing a company's market share (based on dollar volume) by the industry-average market share. D. particularly useful in identifying cash cows, which have big relative market shares (above 1.0), and cash hogs, which have low relative market shares (below 0.5). E. calculated by subtracting the industry-average market share (based on revenue) from the company's market share to highlight relative share above/below the industry average. This amount is a better indicator of a business's competitive strength than is just looking at the firm's market share percentage.

calculated by dividing a company's percentage share of total industry sales volume by the percentage share held by its largest rival. A business unit's relative market share is defined as the ratio of its market share to the market share held by the largest rival firm in the industry, with market share measured in unit volume, not dollars.

______ is cooperation by competitors to achieve a strategic objective.

co-opetition

how willing the firms in an alliance are to share necessary resources and make sacrifices in the name of long-term rewards is referred to as partner ___

commitment

Corporate-level strategy is...

company-wide

How well the firms in an alliance fit together culturally is referred to as partner ____________.

compatibility

how well firms in an alliance fit together culturally is referred to as partner

compatibility

Product Development

developing new products and/or significantly improving on existing products.

In the Boston Consulting Group matrix, ______ hold the small market share in a low-growth market.

dogs

In the Boston Consulting Group matrix, ____________ hold the small market share in a low-growth market.

dogs

In the Boston Consulting Group matrix, _______________ hold the small market share in a-growth market.

dogs

IKEA used the value innovation framework of

eliminate-reduce-raise-create to successfully implement a blue ocean strategy

2. Diversification into a new industry cannot be considered a success unless it results in A. easing the means of entry. B. boosting performance of the existing business. C. lowered cost of entry. D. enhanced industry attractiveness. E. enhanced shareholder value.

enhanced shareholder value. Crafting a diversified company's overall corporate strategy is aimed at creating enhanced shareholder value, that is, value that shareholders could not capture on their own by spreading their investments across the stocks of companies in different industries.

A partnership in which at least one partner takes partial ownership in the other is

equity alliance

How do forign governments typically influence a firms use of strategic alliances to enter new markets?

governents may require that foreign firms have a local joint venture partner in order to conduct business within the countrys borders.

The global off-shoring market is expected to ________ in the future.

grow quickly

Horizontal integration can ______.

help a firm improve its strategic position in an industry

Specialized assets have ______.

high opportunity cost

Specialized assets have _______________.

high opportunity cost

When two cometitiors merge, leading to industry consolidation, they are engaging in ____________.

horizontal integration

32. Businesses with strategic fit with respect to their supply chain activities perform better together because of all of the following EXCEPT the A. potential for skills transfer in procuring materials. B. sharing of resources and capabilities in logistics. C. benefits of added collaboration with common supply chain partners. D. added leverage gained with shippers when securing volume discounts on incoming parts and components. E. increased allocation and allotment of support activities and specialized resources and capabilities.

increased allocation and allotment of support activities and specialized resources and capabilities. Businesses with strategic fit with respect to their supply chain activities can perform better together because of the potential for transferring skills in procuring materials, sharing resources and capabilities in logistics, collaborating with common supply chain partners, and/or increasing leverage with shippers in securing volume discounts on incoming parts and components.

The acquisition of PeopleSoft enable Oracle to offer its customers expertise in human resource management systems (peopesoft core competency) in addition to database management systems (Oracle's core competency). This is an example of which source of value creation of M&As?

increased differentiation

Risks of vertical integration are increased costs, reduced quality, reduced flexibility and

increased potential for legal repercussions

The risks of vertical integration are increased costs, reduced quality, reduced flexibility, and which of the following?

increased potential for legal repercussions

88. The strategic options to improve a diversified company's overall performance do NOT include which of the following categories of actions? A. broadening the company's business scope by making new acquisitions in new industries B. increasing dividend payments to shareholders and/or repurchasing shares of the company's stock C. restructuring the company's business lineup with a combination of divestitures and acquisitions to put a whole new face on the company's business makeup D. pursuing multinational diversification and striving to globalize the operations of several of the company's business units E. divesting weak-performing businesses and retrenching to a narrower base of business operations

increasing dividend payments to shareholders and/or repurchasing shares of the company's stock

The most common type of innovation is

incremental innovation

79. What is it called when a diversified company can add value by shifting capital from business units generating free cash flow to those needing additional capital to expand and realize their growth potential? A. internal capital market B. cash cow benefits C. economic value added D. shareholder value added E. derived valuation

internal capital market

Which of the following are the three choices in the build-borrow-or-buy framework? (Check all that apply.)

internal development acquisition of new resources strategic alliances

Which of the following are the three choices in the build-borrow-or-buy framework? (Check all that apply.)

internal development strategic alliances acquisition of new resources

which of the following is true of tacit knowledge?

is can only be acquired through actively participating in the process

In general, related diversification leads to high levels of performance because ____________

it accesses numerous areas of value creation, such as economies of scale and scope

A standalone organization that tow or more paretn companies creat and own together is a __________

joint venture

A standalone organization that two or more parent companies create and own together is a ___.

joint venture

which of the following is a disadvantage of a joint venture?

knowledge shared with the new partner could be misappropriated by opportunistic behavior

______ is a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.

licensing

which of the following forms of agreement do non-equity alliances typically take? (check all that apply)

licensing supply distribution

______ and ___ are two types of long-term contracts

licensing and franchising

In global economy, according to Porter, competitive advantages increasingly exist in _______ knowledge, relationships, and motivation.

local

MNEs pursuing a multi domestic strategy hope that___

local consumers will perceive them to be a domestic company

When managers of acquiring companies incorrectly convince themselves that they are able to manage the business of the target company more effectively than its current managers, they are engaging in ______.

managerial hubris

The _______ is a conceptual model that categorizes innovations along the market (existing/new) and technology (existing/new) dimensions.

markets-and-technology framework ***pp. 232

Successful innovation affords firms a temporary _____.

monopoly **with corresponding monopoly pricing power

What are some managerial advantages of building a firm into a large organization ?

more job security increased power greater prestige

Despite a growing belief in the death-of-distance hypothesis, there remains evidence that certain countries remain leaders in specific industries and maintain a kind of ________ competitive advantage.

national

Gunther is transferred from the United States to Hong Kong for work. He notices that his colleagues at the new office, most of whom are Hong Kong natives, behave and communicate in a similar manner that is a striking contrast to what Gunther is accustomed to. Gunther is observing his colleagues' _______________.

national culture

Four quadrants of the core competencies-market matrix are which of the following

new and existing markets

Match the type of alliance (on the left) with its definition (on the right).

non-equity alliance-> partnership based on contracts between firms Equity alliance-> partnership in which at least one partner takes partial ownership in the other joint venture-> standalone organization created and owned by two or more parent companies

match the type of alliance with its definition

non-equity alliance: partnership based on contracts between firms equity alliance: partnership in which at least one partner takes partial ownership in the other joint venture: standalone organization created and owned by two or more parent companies

What are the three mechanisms that alliances can be governed by? (Check all that apply.)

non-equity alliances equity alliances joint ventures

Alliances can be governed by the following mechanisims:

non-equity alliances, equity alliance, and joint ventures

Casual ambiguity

not always clear how a firm does so well

The most integrated alternative to vertical integration is

parent-subsidiary relationship

In the taper integration system, a firm has ________ reliance on outside markets.

partial

In the taper integration system, a firm has________ reliance on outside markets

partial

what are the two necessary conditions for successful alliance formation?

partner commitment partner compatibility

23. The big dilemma an acquisition-minded firm faces is whether to A. focus on building brand awareness or establishing supplier relationships. B. pay a premium price for a successful company or buy a struggling company at a bargain price. C. strive for scale economies or to acquire technical know-how to customize production. D. focus on building brand awareness or striving for scale economies. E. focus on acquiring technical know-how or outsourcing production.

pay a premium price for a successful company or buy a struggling company at a bargain price. Acquisition offers an effective way to hurdle such entry barriers as acquiring technological know-how, establishing supplier relationships, achieving scale economies, building brand awareness, and securing adequate distribution. The big dilemma an acquisition-minded firm faces is whether to pay a premium price for a successful company or to buy a struggling company at a bargain price.

Pros of equity alliances

product stronger ties and greater trusts between partners, offer a window into a new technology, stepping stone to full integration

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

product-market

A __________ diversification strategy refers to a firm that pursues both product and geographic diversification`

product-market

A firm is related through its diversification when its businesses share links across...

products (goods/services), technologies, and distribution channels.

A firm follows a(n) ________ diversification strategy when it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

related

10. The decision to pursue diversification requires management to resolve which industries to enter and whether to enter, and includes such decisions as the following, EXCEPT A. selecting the appropriate value chain operating practices to improve the financial outlook. B. starting a business from the ground up. C. acquiring a company already established in the target industry. D. forming a joint venture or partnership with another company. E. structuring a strategic alliance with another company to take advantage of the opportunity.

selecting the appropriate value chain operating practices to improve the financial outlook. The decision to pursue business diversification requires that management decide which new industries to enter and whether to enter by starting a new business from the ground up, acquiring a company already in the target industry, or forming a joint venture or strategic alliance with another company.

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

share ; growth

38. When discussing "economies of scope," it involves understanding that they A. stem from the cost-saving efficiencies of operating over a wider geographic area. B. have to do with the cost-saving efficiencies of distributing a firm's product through many different distribution channels simultaneously. C. stem from cost-saving strategic fits along the value chains of related businesses. D. refer to the cost savings that flow from operating across all or most of an industry's value chain activities. E. arise from the cost-saving efficiencies of having a wide product line and offering customers a big selection of models and styles to choose from.

stem from cost-saving strategic fits along the value chains of related businesses. Economies of scope stem directly from strategic fit along the value chains of related businesses, which in turn enables the businesses to share resources or to transfer them from business to business at low cost.

In order for an alliance to qualify as ______, it must have the potential to alter a company's competitive advantage.

strategic

A voluntary arrangement between firms to share knowledge, resources, and capabilities to develop products, processes, or services is known as a

strategic alliance

A voluntary arrangement between firms to share knowledge, resources, and capabilities to develop products, processes, or services is known as a ______.

strategic alliance

Long-term contracts (licensing and franchising), equity alliances, and joint ventures are examples of

strategic alliances

46. With an unrelated diversification strategy, the types of companies that make particularly attractive acquisition targets are A. struggling companies with good turnaround potential, undervalued companies that can be acquired at a bargain price, and companies that have bright growth prospects but are short on investment capital. B. companies offering the biggest potential to reduce labor costs. C. cash cow businesses with excellent financial fit. D. companies that are market leaders in their respective industries. E. companies that employ the same basic type of competitive strategy as the parent corporation's existing businesses.

struggling companies with good turnaround potential, undervalued companies that can be acquired at a bargain price, and companies that have bright growth prospects but are short on investment capital. Struggling companies with good turnaround potential, undervalued companies that can be acquired at a bargain price, and companies with bright growth prospects but short on investment capital are all attractive acquisition targets for a company with an unrelated diversification strategy.

Which of the following forms of agreement do non-equity alliances typically take? (Check all that apply.)

supply distribution licensing

72. One of the most significant contributions to strategy making in diversified companies that the nine-cell industry attractiveness competitive strength matrix provides is A. identifying which businesses have strategies that should be continued, which businesses have strategies that need fine-tuning, and which businesses have strategies that need a major overhaul. B. that businesses having the greatest competitive strength and that are positioned in the most attractive industries should have the highest priority for corporate resource allocation and that competitively weak businesses in relatively unattractive industries should have the lowest priority and perhaps even be considered for divestiture. C. pinpointing which strategies are most appropriate for businesses positioned in the four corners of the matrix (although the matrix reveals little about the best strategies for businesses positioned in the remainder of the matrix). D. its ability to pinpoint what kind of competitive advantage or disadvantage each business has. E. pinpointing which businesses to keep and which ones to divest.

that businesses having the greatest competitive strength and that are positioned in the most attractive industries should have the highest priority for corporate resource allocation and that competitively weak businesses in relatively unattractive industries should have the lowest priority and perhaps even be considered for divestiture.

downsides of equity alliances

the amount of investment involved can be great assembling the partnership may be slow and inflexible

Transaction costs include ______ costs associated with an economic exchange

the internal and external

Transaction costs include ______ costs associated with an economic exchange.

the internal and external

Transaction costs include _______________ costs associated with an economic exchange.

the internal and external

Transaction costs include______ costs associated with an economic exchange

the internal and external

63. When calculating the weighted industry attractiveness scores, we find the more intensely competitive an industry is A. the lower the attractiveness weighting for that industry. B. the higher the attractiveness weighting for that industry. C. suggests the resources are beyond the parent company's reach. D. suggests the industry attractiveness measures have been incorrectly weighted. E. the more likely the company's profit and revenues will be intensive.

the lower the attractiveness weighting for that industry. Industries where competitive pressures are relatively weak are more attractive than industries where competitive pressures are strong. Therefore, the more intensely competitive an industry is, the lower the attractiveness rating for that industry.

The more links among businesses,

the more "constrained" is the relatedness of diversification.

What is a major disadvantage of organizing economic activity within firms?

the principal-agent problem

What is the major disadvantage of organizing economic activity within firms?

the principal-agent problem

A firm should use an equity alliance, a joint venture, or an outright acquisition in order to gain use of a resource when ______.

the resource is not easily traded

How can firms build alliance management capability?

through repeated experience over time

How can firms build alliance management capability

through repeated experiences over time

How can firms build alliance management capability?

through repeated experiences over time

Why might a firm create a joint venture when entering a new geographic market?

to access local expertise to adhere to local law to access local contacts

Why do some firms choose alternatives to vertical integration?

to avoid the risks associated with vertical integration

Which of the following are reasons why firms enter into strategic alliances? (Check all that apply.)

to strengthen their competitive position to enter new markets to learn new capabilities

A _______ is valuable proprietary information that is not in the public domain and where the firm makes every effort to maintain its secrecy.

trade secret

______ is a theoretical framework in strategic management that explains and predicts the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive advantage.

transaction cost economics

94. In which of the following instances is retrenching to a narrower diversification base NOT likely to be an attractive or advisable strategy for a diversified company? A. when a diversified company has struggled to make certain businesses attractively profitable B. when a diversified company has too many cash cows C. when one or more businesses are cash hogs with questionable long-term potential D. when businesses in once-attractive industries have badly deteriorated E. when a diversified company has businesses that have little or no strategic or resource fits with the "core" businesses that management wishes to concentrate on

when a diversified company has too many cash cows

Corporate venture capital

when an established firm makes an equity investment in an entreprenuerial venture

Strategic outsourcing

which involves moving one or more internal value chain activities outside the firm's boundaries to other firms int he industry value chain- reduces vertical integration

Which of the following forms of agreement do non-equity alliances typically take?

-distribution -supply -licensing

how long do long-term contracts typically last

1 or more years

How long do long-term contracts typically last?

1 year or more

Long-Term Contracts typically last

1 year or more

Boston Consulting Group Growth-Share Matrix

Locates a firm's individual SBU (Strategic Business Unit) in Speed of Market Growth and Relative Market Share

Internal incentives of Value-Neutral diversification

Low performance and Uncertain future cash flows.

Gaining new capabilities or competencies is on of three main reasons companies

Make acquisitions

Gaining new capabilities or competencies is one of the three main reasons companies ______________.

Make acquisitions

Diversification Premium

Situation in which the stock price of related-diversification firms is valued at greater than the sum of their individual business units.

Alternatives in the make-or-buy continuum include which of the following

equity alliances and join ventures

corporate venture capital (CVC)

equity investments by established firms in entrepreneurial ventures; CVC falls under the broader rubric of equity alliances

what is a component of post-formation alliance management?

establishing knowledge-sharing routines

The persons responsible for forming corporate-level strategy are the

executives

The persons responsible for forming corporate-level strategy are the _______________.

executives

In the ______ quadrant of the core competence--market matrix, the focus is on leveraging current core competencies to improve current market position.

existing competence--existing market

In the _______ quadrant of the core comp-market matrix, the focus is on leveraging core competencies to improve current market position

existing competence-exisiting market

In the ______ quadrant of the core competence--market matrix, a firm combines existing core competencies with existing markets.

existing core competence--existing market

14. Diversification becomes a relevant strategic option for a company EXCEPT when it A. spots opportunities to expand into industries whose technologies and products complement its present business. B. leverages existing resources and capabilities by expanding into industries where these same resource strengths are key success factors and valuable competitive assets. C. has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such businesses. D. can open up new avenues for reducing costs by diversifying into closely related businesses. E. expands into additional businesses that unlock possibilities for a comprehensive cost enhancement strategy.

expands into additional businesses that unlock possibilities for a comprehensive cost enhancement strategy. Expanding into additional businesses that unlock possibilities for a comprehensive cost enhancement strategy is not a relevant strategic option for a company for diversification.

Knowledge that can be codified is also called ___________ knowledge

explicit

Non-equity alliances tend to share ______, which allows the firms to understand a certain process or product.

explicit knowledge

Non-equity alliances tend to share ________, which allows the firms to understand a certain process or product.

explicit knowledge

_______ is knowledge that can be codified.

explicit knowledge **concerns knowing about a process or product

Knowledge that can be codified is called_____

explicit knowledge Patents, user manuals, fact sheets, and scientific publications are all ways to capture explicit knowledge, which concerns the notion of knowing about a certain process or product.

______ are the costs of searching for a. firm or an individual with whom to contract, and then negotiating, monitoring, and enforcing the contract.

external transaction costs

In most cases, mergers and acquisitions create competitive advantage.

false

True or false: In most cases, mergers and acquisitions create competitive advantage.

false

_______ are competitive benefits that accrue to the successful innovator.

first-mover advantages

29. Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities A. to prevent the transfer of expertise or technology or capabilities from one business to another. B. to independently preserve common brand names from cross-business usage. C. to increase costs by combining the performance of the related value chain activities of different businesses. D. for cross-business collaboration to build valuable new resource strengths and competitive capabilities. E. to maintain business value chain activities separate and apart from one business to another to protect company independence.

for cross-business collaboration to build valuable new resource strengths and competitive capabilities. A related diversification strategy involves building the company around businesses where there is good strategic fit across corresponding value chain activities. Strategic fit exists whenever one or more activities constituting the value chains of different businesses are sufficiently similar to present opportunities for cross-business sharing or transferring of the resources and capabilities that enable these activities.

The acquisition of PeopleSoft enabled Oracle to offer its customers expertise in human resource management systems (PeopleSoft's core competency) in addition to database management systems (Oracle's core competency). This is an example of which source of value creation of M&As?

increased differentiation

The acquisition of PeopleSoft enabled Oracle to offer its customers expertise in human resource management systems in addition to database management systems. This is an example of which source of value creation of M&As?

increased differentiation

what three of the following are the primary benefits of horizontal integration?

increased differentiation a reduction in competitive intensity lower costs

joint ventures

standalone organization created and owned by two or more parent companies

One notable advantage of a multidomestic strategy is _______________.

lower exchange-rate exposure

One way to overcome the principal-agent problem is to

make managers owners through stock options

One way to overcome the principal-agent problem is to ______.

make managers owners through stock options

one way to overcome the principal-agent problem is to _______

make managers owners through stock options

franchise

standalone organization that 2 or more parent companies create and jointly own

national culture, according to Geert Hofstede, can be defined as different groups' distinctive

"programming of the mind"

Advantages of Strategic Alliances

- Achieve goals faster and at lower costs that along - Join complementary parts of a firm's value chain (R&D and marketing) - Allow firms to circumvent potential legal repercussions including potential lawsuits filed by US federal agencies

A company known for its Alliance Management, Manages its alliances using three-person team consisting of

- Alliance Champion - Alliance Leader - Alliance Manager

What are the four quadrants of the core competence-market matrix

- Existing competencies with new markets - Existing competencies with existing markets - New competencies with new markets - New competencies with existing markets

Advantages of Strategic Alliances

- Help Firms achieve goals faster than they would alone - Might give companies a competitive advantage

Why firms need to grow

- Increase Profits - Motivate Management - Lower Costs - Increase Market Power - Reduce Risk

Which of the following are the three choices in the build-borrow-or-buy framework?

- Internal development (build) - Enter contractual arrangement or strategic alliance (borrow) - Acquire new resources, capabilities and competencies (buy)

True about Alliance Management Capability

- Involves partner selection and alliance formation - A firm may need to employ it with several different alliances

Types of Strategic Alliances

- Joint Venture - Equity Alliances - Long-Term Contracts

Which of the following is an example of the principal-agent problem if the principal's goal is to create shareholder value? -a manager controls and limits his business expenses -a manager received generous stock options -a manager files first class on all business trips -a manager makes decisions based on what is best for the company

-a manager files first class on all business trips

How do mergers and acquisitions differ? -a merger describes the joining of two independent companies, while an acquisition describes the purchase or takeover of a firm -a merger is when two firms join together; an acquisition is when more than two firms join together -a merger describes the domestic takeover of a firm, while an acquisition describes the intentional takeover of a firm -a merger is when two firms are forced to join together; an acquisition is when two firms join willingly

-a merger describes the joining of two independent companies, while an acquisition describes the purchase or takeover of a firm

Which three of the following are advantages of equity alliances?

-a window into new technology -stronger ties -possible emergence of trust and commitment

Which of the following did Kraft see as an advantage of integration with Cadbury? -increased product-line gaps -access to new markets -elimination of the need for a governing board -decreased market share

-access to new markets

Three choices in the build-borrow-buy framework

-acquisition of new resources -internal development -strategic alliances

Which of the following terms refers to a company's ability to handle three tasks related to an alliance concurrently and effectively? -partner alliance design -formative specification -alliance governance -alliance management capability

-alliance management capability

Which of the following are the three options used by executives to drive firm growth?

-alliances -organic growth acquistions

Eli Lilly, a company known for its alliance management, manages its allainces using a three-person team consisiting of which of the following?

-an alliance leader -an alliance manager -an alliance champion

Eli Lilly, a company known for its alliance management, managers its alliances using a three-person team consisting of which of the following?

-an alliance manager -an alliance champion -an alliance leader

Downsides of equity alliances?

-assembling the partnership may be slow and inflexible -the amount of investment involved can be great

What is a major problem for between 30% and 70% of all strategic alliances? -one partner effectively steals the product of the venture, cutting the other out of the profits -at least one partner in the alliance considers the venture to be a failure -the government forces the alliance to shut down due to monopoly concerns -one partner buys the other partner out at a major discount

-at least one partner in the alliance considers the venture to be a failure

Transnational strategy

-attempt to combine the benefits of a localization strategy (high local responsiveness) and of lgobal standardization strategy (lowest-cost position attainable)- -blue ocean strategy, that differentiations at low costs

Taper integration allows firms to

-be more flexible when responding to market changes such as fluctuations in demands -gain knowledge from external sources

Which of the following should partners do in order to make a strategic alliance work?

-build inter firm trust -make relation specific investments -establish knowledge sharing routines

Which of the following should partners do in order to make a strategic alliance work? (Check all that apply.) -create communities of practice -build inter-firm trust -establish knowledge-sharing routines -make relation-specific investments -develop perceptual and virtual teams

-build inter-firm trust -establish knowledge-sharing routines -make relation-specific investments

A conceptual model that helps strategists choose between seeking internal development, entering into an alliance, or acquiring new resources, capabilities, and competencies is the "__ framework." -organic growth -internal-versus-external growth -build-borrow-or-buy -capability development

-build-borrow-or-buy

To get the benefits of vertical integration without the accompanying risks, companies can __ (Check all that apply). -choose strategic outsourcing -use taper integration -control every element of the industry value chain -opt to become fully vertically integrated

-choose strategic outsourcing -use taper integration

Transaction cost economics help managers do which of the following? -understand which new products to commercialize -choose which activities to carry out within the firm -avoid paying transaction costs -make sure that the firm can fulfill its taxpayer responsibilities

-choose which activities to carry out within the firm

Which of the following terms is used to describe cooperation by competitors? -comperation -co-opetition -real co-option -co-quisition

-co-opetition

How willing the firms in an alliance are to share necessary resources and make sacrifices in the name of long-term rewards is referred to as partner __. -compatibility -capability -design -commitment

-commitment

Which type of cost in a related-diversification strategy is a function of the number, size, and types of businesses that are linked? -influence -geographic -resource allocation -coordination

-coordination

When a business answers the question of where to compete, it is determining __. -business strategy -differentiation -corporate strategy -a marketing plan

-corporate strategy

A firm has a core competency in R&D but little else, so it enters into a strategic alliance with a larger firm to gain distribution channels and marketing expertise. In this case, distribution channels and marketing expertise would be examples of __. -potential legal repercussions -real options -increased differentiation -critical complementary assets

-critical complementary assets

Which of the following dimensions are considered in the cage distance framework?

-cultural -administrative and political -geographic -economic

Zipster is a local manufacturer of athletic shoes. Zipster has decided it wants to expand to global markets and to offer a larger selection of items. It plans to offer not just athletic shoes but also luggage and car accessories. Zipster is engaging in __. -fully vertical integration -backward integration -diversification -equity alliances

-diversification

TWN, a large multinational corporation, chose to spin off one of its SBUs that was unrelated to TWN's core business in order to avoid the __. When they announced the spin-off, the stock price of TWN went up by 5%. -diversification discount -diversification premium -influence costs -economies of scale

-diversification discount

What are three mechanisms that alliances can be governed by?

-equity alliances -joint ventures -non-equity alliances

Which of the following are types of strategic alliances? (Check all that apply.) -equity alliances -parent-subsidiary relationship -long-term contracts -joint ventures -mergers

-equity alliances -long-term contracts -joint ventures

In the __ quadrant of the core competence-market matrix, the focus is on leveraging core competencies to improve current market position. -new competence-new market -existing competence-existing market -new competence-existing market -existing competence-new market

-existing competence-existing market

Non-equity alliances tend to share __, which allows the firms to understand a certain process or product. -explicit knowledge -all personnel -vertically integrated resources -tacit knowledge

-explicit knowledge

The oldest form of internationalization is _____, which involves producing good in one country to sell in another country

-exporting

Advantages of vertical integration include which of the following? (Check all that apply.) -facilitating scheduling -an FTC challenge due to monopoly concerns -bettering quality -reducing costs -diversifying partnerships with other firms

-facilitating scheduling -bettering quality -reducing costs

What are the factors in Michael Porter's model of national competitiveness?

-factor conditions -demand conditions -competitive intensity in focal industry -related and supporting industries/complementors

Diversification: Single business

-firm derives(obtains) more than 95% of its revenues from one business. The remainder of less than 5 % of revenue is not yet significant to the success of the firm ex. For example, although Google is active in many different businesses, it obtains more than 95 percent of its revenues ($70 billion in 2014) from online advertising

An advantage of using a non-equity alliance to govern a strategic alliance is its __. -use of tacit knowledge -ability to distract new entrants to the industry -long-term planning period -flexibility and east of initiation

-flexibility and east of initiation

Which of the following are types of vertical integration along the industry value chain? (Check all that apply.) -forward -scheduled -simultaneous -backward

-forward -backward

Kanya loves Benicio's Burritos and wants to open a branch in his hometown. Benicio's Burritos grants Kanye the right to use its trademark and name, and Kanye agrees to follow Benicio's Burritos guidelines. This is an example of __. -equity alliance -short-term contracts -franchising -licensing

-franchising

Three reasons why firms make acquisitions?

-gain access to new distribution and markets -gain access to a new capability or competency -to preempt rivals

Taper integration allows firms to

-gain knowledge from external sources -be more flexible when responding to market changes such as fluctuations in demand

Taper integration allows firms to __ (Check all that apply). -gain knowledge from external sources -be more flexible when responding to market changes such as fluctuations in demand -avoid market competition -be fully vertically integrated without relying on outside suppliers or outside distributors

-gain knowledge from external sources -be more flexible when responding to market changes such as fluctuations in demand

How do foreign governments typically influence a firm's use of strategic alliances to enter new markets? -governments may require that foreign firms have a local joint venture partner in order to conduct business within the country's borders -governments typically do not allow a foreign firm to enter if a domestic company already provides the same products or services -governments may require the Securities and Exchange Commission and the Internal Revenue Service to review transactions -governments may require financial and commercial transparency from political officials

-governments may require that foreign firms have a local joint venture partner in order to conduct business within the country's borders

What are some managerial advantages of building a firm into a large organization?

-greater prestige -increased power -more job security

some managerial advantages of building a firm into a large organization?

-greater prestige -more job security -increased power

One reason why a firm might enter into a strategic alliance is to __. -hedge against uncertainty -exit markets -increase the number of entrants in the market -weaken competitive position

-hedge against uncertainty

Specialized assets have __. -low value in intended use -low opportunity cost -high value in next-best use -high opportunity cost

-high opportunity cost

Which of the following are advantages of organizing economic activity outside of a firm?

-high powered incentives -lower administrative costs

Advantages of organizing economic activity at the market level include which of the following? (Check all that apply.) -high-powered incentives -administrative costs -increased flexibility -low-powered incentives

-high-powered incentives -increased flexibility

When two competitors merge, leading to industry consolidation, they are engaging in __. -horizontal integration -vertical integration -forward diversification -backward integration

-horizontal integration

Chao's Coffee is a large chain of coffee shops. It wants to join with Rigoberto Roasters, a large coffee roasting company. Rigoberto Roasters wants to stay independent, but Chao's is able to purchase Rigoberto. This describes a(n) __. -merger -horizontal integration -equity alliance -hostile takeover

-hostile takeover

The acquisition of PeopleSoft enabled Oracle to offer its customers expertise in human resource management systems (PeopleSoft's core competency) in addition to database management systems (Oracle's core competency). This is an example of which source of value created of M&As? -integration failure -increase differentiation -lower costs -managerial hubris

-increase differentiation

What three of the following are the primary benefits of horizontal integration? (Check all that apply.) -increased differentiation -lower costs -increased activity in all levels of the value chain -a reduction in competitive intensity

-increased differentiation -lower costs -a reduction in competitive intensity

Which of the following are benefits of a horizontal integration? (Check all that apply.) -increased differentiation -reduced competition -increased rivalry -integration failure

-increased differentiation -reduced competition `

What are some managerial advantages of building a firm into a large organization? (Check all that apply.) -increased power -easier integration -greater prestige -more job security

-increased power -greater prestige -more job security

Risks of vertical

-increasing costs -reducing quality -reducing flexibility -increasing the potential for legal repercussions

The __ depicts the transformation of raw materials into finished goods and services along distinct vertical stages, each of which represents a distinct industry in which a number of different firms are competing. -industry value chain -competing industry assessment -integrated materials model -joint integral framework

-industry value chain

Which of the following are extremely important aspects of alliance success?

-inter organizational trust

Which of the following are extremely important aspects of alliance success?

-inter-organization trust -partner compatibility

What is the shape of the relationship between the level of diversification and performance? -U-shaped -exponential curve -inverted U -straight line representing a positive, linear relationship

-inverted U

In general, related diversification leads to high levels of performance because __. -it is unable to overcome coordination and influence costs -it allows the firm to focus on creating only one product or service -it accesses numerous areas of value creation, such as economies of scale and scope -it focuses on creating as many products or services as possible

-it accesses numerous areas of value creation, such as economies of scale and scope

Which of the following is true of tacit knowledge? -it can only be acquired through actively participating in the process -it cannot be acquired -it is exchanged only during non-equity alliances -it is nonspecific knowledge

-it can only be acquired through actively participating in the process

Which of the following are true of alliance management capability? (Select all that apply.) -it ensures that the alliance will be successful -it involves partner selection and alliance formation -a firm may need to employ it with several different alliances -it has little effect on a firm's competitive advantage

-it involves partner selection and alliance formation -a firm may need to employ it with several different alliances

Which of the following are true of alliance management capability?

-it involves partner selection and alliance formation. -A firm may need to employ it with several different alliances.

Which of the following are true of alliance management capability?

-it involves partner selection and formation -a firm may need to employ it with several different alliances

A firm should consider using mergers and acquisitions only when __. -the resource in question is highly tradable -external partners are unlikely to provide additional value to the resource -the firm in question may need to reverse the process and break off the relationship -it is important to be extremely close to the resource partner in order to understand underlying information

-it is important to be extremely close to the resource partner in order to understand underlying information

What does the incomplete nature of contracts mean for post-formation alliance management? -it means that the alliance design was faulty -it means that they should have obtained better lawyers -it means that the firms lack the power to enforce the contract -it means that trust is critical to success

-it means that trust is critical to success

How does horizontal integration affect Porters Five Forces for surviving firms?

-it reduces the threat of entry -it reduces rivalry among existing firms -it strengthens bargaining power vis-a-vis suppliers

Strategy scholars believe that firms should create a dedicated alliance function with which of the following features? (Check all that apply.) -it should focus on facilitating mergers -it should be led by a vice president or director -it should have its own resources and support staff -it should be employed only with new alliances

-it should be led by a vice president or director -it should have its own resources and support staff

Corporate strategy needs to be dynamic over time in order to:

-keep and maintain a competitive advantage -diversify to capture growth opportunities -respond to the ever-changing external environment

Which of the following is a disadvantage of a joint venture? -knowledge shared with the new partner could be misappropriated by opportunistic behavior -strong ties, trust, and commitment develop between the partners -the government is typically overbearing in terms of support and guidance -control over partner selection and alliance formation is essentially nonexistent

-knowledge shared with the new partner could be misappropriated by opportunistic behavior

Which of the following characteristics help make an MNE's international strategy successful?

-large brand names -large domestic markets -strong reputation

Which of the following is true regarding the government and horizontal integration? -horizontal integration must always be approved by governmental authorities -governments pay a great deal of attention to vertical integration but very little to horizontal integration -large horizontal integration activity typically needs to be approved by government authorities -governments typically help facilitate horizontal integration because it helps the economy

-large horizontal integration activity typically needs to be approved by government authorities

Which of the following is an option for formulating strategy via core competencies? -combine core competencies with rivals in new markets -leverage existing core competencies to improve current market position -build new core competencies to entice shareholders to invest in the company -pursue a strategic alliance to become less vertically integrated

-leverage existing core competencies to improve current market position

Which of the following are advantages of organizing economic activity OUTSIDE of a firm? (Check all that apply.) -lower administrative costs -command-and-control decision making -high-powered incentives -the creation of a community of knowledge

-lower administrative costs -high-powered incentives

What three of the following are the primary benefits of horizontal integration?

-lower costs -a reduction in competitive intensity -increased differentiation

What are sources of value creation in a horizontal integration strategy?

-lower costs -reduction in competitive intensity

one notable advantage of a mutlidomestic strategy is the

-lower exchange rate exposure

Advantages of vertical integration include?

-lowering costs -improving quality -facilitating scheduling and planning -facilitating investments in specialized assets -securing critical supplies and distribution channels

What should partners do in order to make a strategic alliance work?

-make relation-specific investments -build inter-firm trust -establish knowledge-sharing routines

When managers of acquiring companies incorrectly convince themselves that they are able to manage the business of the target company more effectively than its current managers, they are engaging in __. -managerial hubris -integration capability problems -horizontal integration -the superhero delusion

-managerial hubris

Stages four and five of the industry value chain involve __ (Check all that apply). -manufacturing -marketing -sales -final assembly -after-sales service and support

-marketing -sales -after-sales service and support

Stages four and five of the industry value chain involve

-marketing and sales -after-sales service and support

four quadrants of the integration responsiveness framework?

-multi domestic -global standardization -international -transnational

A partnership that is based on contracts between companies is referred to as a(n) __. -non-equity alliance -diversification -wholly owned subsidiary -allowance alliance

-non-equity alliance

What is a related-linked diversification strategy? -one in which a firm derives more than 70% of its revenues from a single business and there are few, if any, linkages among its businesses -one in which executives pursue only businesses where they can apply the resources and core competencies already available in the primary business -one in which executives purse various businesses opportunities that share only a limited number of linkages -one in which a firm's low- and mid-level workers convince executives to give them a change to decide corporate strategy

-one in which executives purse various businesses opportunities that share only a limited number of linkages

What are extremely important aspects of alliance success?

-partner compatibility -inter-organizational trust

What are the two necessary conditions for successful alliance formation?

-partner compatibility -partner commitment

What are the phases of alliance management? (Check all that apply.) -partner selection and alliance formation -tacit and explicit knowledge collaboration -alliance design and governance -post-formation alliance management -strategic network manipulation

-partner selection and alliance formation -alliance design and governance -post-formation alliance management

What are the phases of alliance management?

-partner selection and alliance formation -post formation alliance management -alliance design and governance

The forms of specialized assets include which of the following? (Check all that apply.) -relational specificity -operation specificity -physical-asset specificity -geographical specificity -human-asset specificity -site specificity

-physical-asset specificity -human-asset specificity -site specificity

Which three of the following are advantages of equity alliances? (Check all that apply.) -an institutional setting requirement -easy initiation and termination -possible emergence of trust and commitment -stronger ties -a window into new technology (option value)

-possible emergence of trust and commitment -stronger ties -a window into new technology (option value)

the primary reasons of why a firm might pursue a merger?

-principal agent problem -the desire to overcome competitive disadvantage -superior acquisition and integration capability

Which of the following are the types of general diversification strategies? (Check all that apply.) -product-market -horizontal -vertical -market -product -geographic

-product-market -product -geographic

When a company makes incremental investments as part of a larger investment and takes the time to analyze the information gained following each incremental investment, the company is taking a __. -co-opetition perspective -real-options perspective -non-equity approach -tradable position

-real-options perspective

Horizontal integration through mergers and acquisitions create value but can also create costs. Which of the following are sources of such costs? (Check all that apply.) -reduced flexibility -reduction in competitive intensity -increased potential for legal repercussions -increased differentiation

-reduced flexibility -increased potential for legal repercussions

Why do firms enter strategic alliances

-strengthen competitive position (used to set industry standard or change industry structure in their favor) -enter new markets (some counties require foreign firms have a local joint venture partner) -hedge against uncertainty (allows small investments in markets that may disrupt the existing market) -access critical complementary assets (combine complementary skills and resources to complete the value chain) -learn new capabilities (partner with someone to learn from them and become co-competititors)

Which of the following are advantages of joint ventures?

-strong ties -commitment -trust

Which of the three are advantages of equity alliances?

-strong ties -possible emergence of trust and commitment -a window into new technology (option value)

Which of the following are advantages of joint ventures? (Check all that apply.) -strong ties -parental control -trust -commitment -managerial efficiency

-strong ties -trust -commitment

The lemons problem suggests that information asymmetries can cause __. -an equal distribution of interior and superior goods -superior goods to be replaced by interior ones -all goods to be average -interior goods to be replaced by superior ones

-superior goods to be replaced by interior ones

Which of the following forms of agreement do non-equity alliances take?

-supply -licensing -distribution

A multinational enterprise would likely be motivated to pursue a global standardization strategy in order to ....

-take advantage of economies of scale -take advantage of location economies

__ is a way of orchestrating value activities in which a firm is backwardly or forwardly integrated and relies on outside-market firms for supplies or distribution. -strategic outsourcing -taper integration -vertical integration -horizontal integration

-taper integration

Which of the following are among the primary considerations when determining the mode in which a firm enters a foreign market?

-the desired level of control over foreign operations -the degree of investment

All other things equal, the greater the cultural distance:

-the greater the liability of foreignness

Which of the following risks do companies face when expanding internationally?

-the liability of foreignness -loss of intellectual property -loss of reputation

The degree of vertical integration corresponds to __. -the number of industry value chain stages in which a firm directly participates -the firm's level of integration among the alternative industry types -the firm's level of integration with the host country's infrastructure -the number of parent-subsidiary relationships a firm is involved in

-the number of industry value chain stages in which a firm directly participates

To help classify scheme that identifies four main types of diversification by looking at:

-the percentage of revenue from the dominant or primary business -the relationship of the core competencies across the business units.

Which of the following states that important resources and capabilities are commonly embedded in strategic alliances that cross firm boundaries? -Porter's five forces model -the principal-agent problems framework -the managerial hubris framework -the relational view of competitive advantage

-the relational view of competitive advantage

A firm should use an equity alliance, a joint venture, or an outright acquisition in order to gain use of a resource when __. -the resource is not easily traded -the owner of the firm does not wish to sell the resource -the tradability of the resource is high

-the resource is not easily traded

Which of the following is not a dimension along which corporate strategy is assessed? -the size of the company in comparison to its main competitors -the stages of the industry value chain in which the business participates -the range of products and services the business offers -where (geographically) to compete

-the size of the company in comparison to its main competitors

Horizontal integration can reduce __. -bargaining power with suppliers -the threat of entry -industry consolidation -non-price competition

-the threat of entry

Which of the following statements about joint ventures are true? (Check all that apply.) -they are primarily used in short-term commitments -they involve the sharing of both explicit and tacit knowledge -only one partner contributes equity -they are the least common of the three types of strategic alliances

-they involve the sharing of both explicit and tacit knowledge -they are the least common of the three types of strategic alliances

Which of the following statements about joint ventures are true?

-they involve the sharing of both explicit and tactic knowledge -They are the least common of the three types of strategic alliances.

Which of the following are some advantages of strategic alliances

-they might give companies a competitive advantage - they help firms achieve goals faster than they would alone

Which of the following are some advantages of strategic alliance? (Select all that apply.) -they might give companies a competitive advantage -they help firms achieve goals faster than they would alone -they have few risks associated with them -they give one firm complete control of the resource value chain

-they might give companies a competitive advantage -they help firms achieve goals faster than they would alone

Which of the following are some advantages of strategic alliances?

-they might give companies a competitive advantage -they help firms achieve goals faster than they would alone.

Which of the following statements about equity alliances is true? -they require larger investments than non-equity alliances -they result in weak ties between the partners -they are more common than contractual, non-equity alliances -they are based on full ownership

-they require larger investments than non-equity alliances

How can firms build alliance management capability? -through regular use of established knowledge-sharing routines -through repeated experiences over time -by being perfect the first time an alliance is pursued -by teaming up with an inexperienced partner

-through repeated experiences over time

Why might a firm want to enter into an equity alliance instead of a short- or long-term contract? (Check all that apply). -to allow the partner to use the firm's trademark and business processes -to facilitate transaction-specific investments -to make a credible commitment -to get insider information about the partner's business

-to facilitate transaction-specific investments -to make a credible commitment -to get insider information about the partner's business

Which of the following are reasons firms expand internationally?

-to gain a low-cost input factors -to develop new competencies -to gain access to a larger market

Which are the three main reasons firms make acquisitions? (Check all that apply.) -to gain access to new capability or competency -to reduce flexibility -to gain access to new distribution channels and markets -to increase potential for legal repercussions -to preempt rivals

-to gain access to new capability or competency -to gain access to new distribution channels and markets -to preempt rivals

Which of the following are the primary reasons a firm might pursue a merger?

-to gain superior acquisition and integration capablitiy -to overcome competitive disadvantage -to address pricipal-agent problems

Why do incumbent companies enter into strategic alliances with startups? -to spend as much free cash flow as possible -to hedge against uncertainty -to address principal-agent problems -to conceal managerial hubris

-to hedge against uncertainty

Which of the following are among reasons firms need to grow? (Check all that apply.) -to increase costs -to increase profits -to decrease market power -to motivate management

-to increase profits -to motivate management

Why firms enter into strategic alliances?

-to learn new capabilities -to enter new markets -to strengthen their competitive position

Which of the following are the primary reasons a firm might pursue a merger? (Check all that apply.) -to overcome competitive disadvantage -to gain superior acquisition and integration capability -to address principal-agent problems -to increase strategic alliance in secondary markets -to correct a negative inverted U-shaped relationship with scope

-to overcome competitive disadvantage -to gain superior acquisition and integration capability -to address principal-agent problems

Why does Facebook acquire startups? -to secure a monopoly -to preempt rivals -to find tax shelters -to put the startups out of business

-to preempt rivals

Why does facebook acquire startups?

-to preempt rivals

Which are the three main reasons firms make acquisitions?

-to preemt rivals -to gain access to new capability or competency -to gain access to new distribution channels and markets

Which of the following is NOT a reason to pursue horizontal integration as a corporate strategy? -to provide additional benefits, such as complementary products, in their product offering -to lower costs and enhance economic value creation -to reduce competitive intensity -to reduce flexibility

-to reduce flexibility

Which of the following help shrink the administrative and political distance between countries?

-trade agreements -shared currency -a history of colonization1

Which of the following is the term for the costs associated with an economic exchange? -economies of scope -diseconomies costs -transaction costs -PESTEL costs -core competencies -economies of scale

-transaction costs

__ is an advantage of a firm in organizing economic activity. -low-powered incentives -administrative costs -transaction-specific investments -the principal-agent problem

-transaction-specific investments

Google's choice to hire programmers in-house suggests that they decided that the __ costs associated with this strategy are __ than the costs associated with contracting in the open market. -transaction; higher -administrative; higher -opportunism; lower -transaction; lower

-transaction; lower

Which of the following helped motivate globalization after the end of ww2?

-unfilled needs during the war years -the need to reconstruct economies damaged by war

The Tata Group has SBUs operating in a variety of industries, from automobiles to hospitality. The Tata Group is an example of which type of diversification? -single business -dominant business -unrelated -related

-unrelated

Which types of diversification tend to have the lowest performance?

-unrelated diversification -single business

Amazon's explosive success is largely due to which of the following? (Check all that apply.) -information asymmetry -vertical integration -single business focus -diversification

-vertical integration -diversification

When a firm is more efficient in organizing economic activity than markets are, the firm should __. -vertically integrate -merge with another firm -pursue a cost-leadership strategy -horizontally integrate

-vertically integrate

45. A diversified company has a parenting advantage when it A. is more able than other companies to boost the combined performance of its individual businesses through its high-level guidance, general oversight, and other corporate-level contributions. B. is more able than other companies to create positive collaboration within its portfolio for different specialty groups and geographic locations. C. results in supporting short-term economic shareholder value. D. manages a set of fundamentally similar business operations inside fundamentally similar industries and environments. E. avoids acquiring undervalued companies and thus reduces risks.

. is more able than other companies to boost the combined performance of its individual businesses through its high-level guidance, general oversight, and other corporate-level contributions. Corporate parenting refers to the role that a diversified corporation plays in nurturing its component businesses through the provision of top management expertise, disciplined control, financial resources, and other types of general resources and capabilities such as long-term planning systems, business development skills, management development processes, incentive systems, umbrella brands, and an internal capital market capability to allow judicious cross-business allocation of financial resources.

How long do long-term contracts typically last

1 or more year

Executives must determine their corporate strategy by answering three questions:

1) in what stages of the industry value chain should the company participate (vertical integration)? 2) what range of products and services should the company offer (diversification)? 3) where should the company compete. geographically (geographic scope)?

Some ways to develop innovation include:

1) induce it through structures and systems 2) allows for autonomous behavior (more freedom) 3) champion it through supporting new projects 4) cooperative strategies

An innovation must have the following characteristics in order to help firms gain and sustain competitive advantage:

1) novel 2) useful 3) successfully implemented

For diversification to enhance firm performance, it must do at least one of the following:

1) provide economies of scale - which reduces costs 2) exploit economies of scope - which increases value 3) reduce costs and increase value

Commons reason to merge include:

1) reduction in competitive intensity 2) lower costs 3) increased differentiation 4) access new markets & distribution channels 5) access new capabilities or competencies 6) preempt rivals 7) principal-agent problems 8) desire to overcome competitive disadvantage 9) superior acquisition and integration capability

The four main types of business diversification are:

1) single business 2) dominant business 3) related diversification (related constrained v. related linked) 4) unrelated diversification

Commons reasons firms enter strategic alliances include:

1) strengthen competitive position 2) enter new markets 3) hedge against uncertainty 4) access critical complementary assets 5) learn new capabilities

The different customer segments of the crossing-the-chasm framework include:

1) technology enthusiasts (2.5) 2) early adopters (13.5) *THE CHASM* 3) early majority (34) 4) late majority (34) 5). laggards (16)

By formulating corporate strategy, executives make important choices along three dimensions that determine the boundaries of the firm:

1) the degree of vertical integration (in what stages of the industry value chain to participate) 2) type of diversification (what range of products and services to offer) 3) geographic scope (where to compete)

Transaction cost economics helps managers decide:

1) which activities to perform in-house 2) which services and products to obtain from the external market

B

1. Amazon.com has decided to enter the college bookstore market. The goal of "Amazon Campus" is to offer co-branded university-specific web sites that offer textbooks and paraphernalia, such as logo sweaters and baseball hats. This development shows Amazon's relentless pursuit of A. geographic diversification. B. product diversification. C. vertical integration. D. horizontal integration.

What are the reasons firms need to grow?

1. Increase profits 2. Lower costs 3. Increase market power 4. Reduce risk 5. Motivate management

What are the two forms of managerial hubris?

1. Managers of the acquiring company convince themselves that they are able to manage the business of the target company more effectively and, therefore, create additional shareholder value. This justification is often used for an unrelated diversification strategy. 2. Although most top-level managers are aware that the majority of acquisitions destroy rather than create shareholder value, they see themselves as the exceptions to the rule.

For diversification to enhance firm performance, it must do at least one of the following

1. Provide economies of scale, and thus reduce costs. 2. Exploit economies of scope and thus increase value. 3. Reduce costs and increase value.

Executives can enhance performing using a diversification strategy by

1. Restructuring 2. Using internal capital markets

What are the main types of business diversification?

1. Single business 2. Dominant business 3. Related diversification 4. Unrelated diversification: the conglomerate

What are the 3 dimensions along which executives formulate corporate strategy?

1. degree of vertical integration 2. the type of diversification 3. the geographic scope

C

10. Silver Weave Inc., an apparel company, operates through a business model in which individuals can buy the rights to set up Silver Weave stores and sell the company's merchandise in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to stock the collection approved from the company's headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate? A. crowdsourcing B. credit rationing C. franchising D. bootstrapping

B

11. When Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with an Australian company, Orocobre Ltd. Orocobre wanted to establish the bond of trust before making huge investments in specialized equipment required to extract the high-quality lithium. What did Toyota do to instill this trust? A. It offered Orocobre exposure to Toyota's proprietary information. B. It made a credible commitment by taking an equity stake in Orocobre. C. It acquired Orocobre as part of its backward vertical integration plans. D. It offered Orocobre franchising opportunities to sell hybrid vehicles.

A

12. Divina Pharma Inc. and MF Electronics Inc. have together invested and created a new organization, FirstHealth Inc., to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Divina Pharma and MF Electronics. Which of the following alternatives to integration does this scenario best illustrate? A. a joint venture B. a franchisee C. a licensing contract D. a corporate acquisition

D

13. Stellar Products Inc. is a U.S.-based consumer electronics company. It owns smaller firms in Japan and Taiwan where most of its cell phone technology is developed and manufactured before being released worldwide. Which of the following alternatives to integration does this best illustrate? A. venture capitalism B. franchising C. joint venture D. parent-subsidiary relationship

A

14. Which of the following best illustrates forward vertical integration? A. A firm that manufactures and sells car engines to major automobile companies launches its own line of cars. B. A chain of ice cream parlors launches a brand of toys and accessories for children. C. A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam. D. A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.

D

15. How do firms benefit from vertical integration? A. Vertical integration allows firms to reduce organizational complexity and administrative costs. B. Firms that vertically integrate will have increased strategic flexibility when faced with technological changes. C. Firms that vertically integrate do not have to make transaction-specific investments. D. Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.

C

16. Neon Electronics Inc. sourced touch screens required for its tablet computers, cell phones, and televisions from a manufacturer in China. But the demand for such components was high globally, and the supplier could not meet the quality standards of Neon Electronics. Thus, Neon Electronics decided to set up its own unit to develop and manufacture the required touch screens. What does this scenario best illustrate? A. crowdsourcing B. new product development C. backward vertical integration D. conglomerate diversification

B

17. Investments in specialized assets tend to incur high opportunity costs because the A. assets can be profitably used for multiple purposes. B. threat of one of the partners pursuing his or her self-interest is high. C. social costs associated with these assets are high. D. firms can avoid backward integration by investing in these assets.

B

18. Virtue Products Inc., a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. This apart, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Virtue Products applying? A. concentric integration B. taper integration C. horizontal integration D. conglomerate integration

C

19. Which of the following statements is true of taper integration? A. It is the most integrated alternative to performing an activity within one's own corporate family. B. It refers to a situation in which firms narrow their focus on downstream value chain activities and ignore the upstream value chain activities. C. It exposes in-house suppliers and distributors to market competition to make performance comparisons possible. D. It does not rely on outside-market firms for its supplies.

C

2. Decisions relating to "what stages of the industry value chain to participate in" determine a firm's A. level of diversification. B. geographic scope. C. vertical integration. D. absorptive capacity.

B

20. A firm that engages in strategic outsourcing typically A. increases its internal transaction costs. B. reduces its level of vertical integration. C. reduces its level of external transaction costs. D. increases its level of horizontal integration.

C

21. PepsiCo operates in many countries and sells a wide variety of aerated drinks, other beverages, different types of chips, and Quaker Oats goods to achieve continuous growth. From this data, we can conclude that PepsiCo has been involved in A. strategic outsourcing. B. lean manufacturing. C. product-market diversification. D. process diversification.

A

22. While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference? A. KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company. B. Chick-fil-A has a larger customer base and number of outlets in the U.S. market than its competitor KFC. C. KFC wants to follow a differentiation strategy, and Chick-fil-A wants to pursue a cost-leadership strategy. D. Chick-fil-A is part of a large conglomerate, whereas KFC has more flexibility to pursue a geographic diversification strategy.

C

23. Which of the following corporate strategies did ExxonMobil pursue by acquiring XTO Energy, a natural gas company? A. taper integration strategy B. differentiation strategy C. related diversification strategy D. cost-leadership strategy

D

24. 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. a flagship brand B. a single-business firm C. a dominant-business firm D. a conglomerate

A

25. 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? A. diversification discount B. learning-curve effects C. experience-curve effects D. economies of scale

B

26. ESB Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has ESB Group created? A. capital liquidity B. diversification premium C. diversification discount D. demand-pull inflation

C

27. Companies that pursue related diversification are able to create a diversification premium because they A. are able to leverage time compression economies. B. can operate beyond the minimum efficient scale. C. are able to increase value due to economies of scope. D. can reduce the value gap created by its products.

C

28. WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company's key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in A. reverse engineering. B. benchmarking. C. restructuring. D. crowdsourcing.

D

29. In the Boston Consulting Group (BCG) growth-share matrix, strategic business units categorized under dogs A. compete in a low-growth market but hold considerable market share. B. hold a high market share in a fast-growing market. C. compete in a high-growth market but have low and unstable earnings. D. hold a small market share in a low-growth market.

D

3. Which of the following statements is true of transaction costs? A. When the costs of pursuing an activity in-house are more than the costs of transacting for that activity in the market, then the concerned firm should vertically integrate. B. When companies transact in the open market, they incur internal transaction costs. C. Transaction costs exclusively consist of external costs associated with economic exchanges. D. Transaction costs are necessary to explain and predict the boundaries of a firm.

D

30. In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should A. infuse more capital into the strategic business unit. B. provide more human resources to the business. C. hold the business till it turns into a star. D. divest the strategic business unit.

B

31. PrimoDisk Inc. holds the highest market share in the low-growth compact disk industry. With the introduction of flash drives, the market for compact disks has reduced. However, PrimoDisk has been able to generate sufficient revenues for the parent company by selling its products in less developed countries. In the Boston Consulting Group (BCG) growth- share matrix, PrimoDisk will be categorized under A. dogs. B. cash cows. C. stars. D. question marks.

C

32. Real Goods Inc. is a large conglomerate. The company's beverages strategic business unit (SBU) has been recognized as a cash cow, and its tobacco SBU has been categorized as a dog. Which of the following can be inferred from this scenario? A. While the tobacco SBU operates in a low-growth market, the beverages SBU operates in a high-growth market. B. The management of the company should use the cash inflow from the beverages SBU and invest it in the tobacco SBU. C. While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low. D. The tobacco SBU should follow a backward integration strategy, and the beverages SBU should pursue a forward integration strategy.

A

33. BestDrive 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? A. The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market. B. The petrol cars SBU will have a relatively low market share in its industry, whereas the hybrid electric cars SBU will have the least market share in its industry. C. The strategic recommendation for the hybrid electric cars SBU will be to harvest it, whereas for the petrol cars SBU, the company should just maintain it. D. The petrol cars SBU is more important than the hybrid electric cars SBU in terms of future growth for the company.

B

34. The solar-powered car division of a large automobile company has been experiencing negative cash flows though the market growth for such cars is predicted to be high. If the company invests further resources into this division, it can increase its relative market share in the future. However, if due to technological changes the car cannot create sufficient consumer demand, then the division can prove to be unprofitable. In the Boston Consulting Group (BCG) growth-share matrix, the solar-powered car division will be categorized under A. dogs. B. question marks. C. stars. D. underdogs.

A

35. How can a firm pursuing a diversification strategy enhance its overall corporate performance by leveraging financial economies? A. by using internal capital markets as a source of value creation B. by adding more unrelated businesses into its corporate portfolio C. by increasing its coordination and influence costs D. by investing in businesses under the question mark quadrant of the BCG matrix

D

36. A strategy of ____ will be most beneficial for a firm to enhance its overall corporate performance. A. unrelated level of diversification B. single-business level of diversification C. dominant-business level of diversification D. related-linked diversification

B

37. How is an equity alliance different from a joint venture? A. An equity alliance involves ownership that facilitates transaction-specific ventures; a joint venture involves taking ownership by buying stock. B. An equity alliance involves taking ownership in a partner; a joint venture involves two or more people owning a firm. C. An equity alliance involves taking ownership in a partner; a joint venture involves taking ownership by buying stock. D. An equity alliance involves partners contributing equity to a joint venture; a joint venture involves two or more people owning a firm.

A

38. RoboToys, Inc. is involved in the production of robotic toys. This firm produces the raw materials, including metals and oils for plastic; creates the integrated circuits, displays, and batteries; and assembles the toys. Which of the following stages of the industry value chain is RoboToys involved in? A. stages 1, 2, and 3 B. stages 1, 2, and 4 C. stages 2, 3, and 4 D. stages 2, 3, and 5

A

39. About 20 years ago, Sturdy Light, Inc., produced a sturdy, lightweight backpack in a market that was rapidly growing. Sturdy Light became a leader in this market. Eventually, the backpack market reached the maturity stage and slowed down. However, by this time, Sturdy Light had developed a strong brand name and continued to steadily lead the market. Which of the following describes this scenario? A. Sturdy Light was a star that developed into a cash cow. B. Sturdy Light was a question mark that developed into a star. C. Sturdy Light was a dog that developed into a question mark. D. Sturdy Light was a cash cow that developed into a star.

C

4. Which of the following statements is true of internal transaction costs? A. Internal transaction costs arise when companies transact in the open market. B. When the internal costs involved in pursuing an activity in-house are more than the costs of transacting, then the concerned firm should vertically integrate. C. Internal transaction costs tend to increase with organizational size and complexity. D. It is beneficial to "buy" goods or services rather than "make" when internal transaction costs are low

C

40. 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? A. product diversification strategy B. process diversification strategy C. geographic diversification strategy D. product-market diversification strategy

core business

41. This is Amazon's ___ ____? (regarding the chapter): - integrates different types of technologies (hardware, software, microprocessors, the Internet, logistics, and so on) to provide not only the largest selection of retail goods online, but also an array of services and mobile devices Rothaermel, Frank. Strategic Management: Concepts (Page 231). McGraw-Hill Higher Education. Kindle Edition.

increases

42. What happens to your company's net income and EPS if you purchase back your stock, other things equal?

A

5. A primary advantage of organizing economic activity within firms is the A. ability to coordinate highly complex tasks to allow for specialized division of labor. B. low administrative costs because of reduced bureaucracy. C. eradication of the principal-agent problem. D. high-powered incentive to work as salaried employees for an existing firm.

B

6. The most efficient way to overcome the principal-agent problem in a firm is to A. increase the level of vertical integration within the firm. B. provide stock options to managers. C. downsize the existing workforce. D. organize economic activities within the firm

D

7. In the market for used cars, which of the following is a reason behind the crowding out of desirable cars by lemons or inferior ones? A. experience-curve effects B. time compression diseconomies C. principal-agent problem D. information asymmetry

D

8. Which of the following firms is least integrated? A. a firm that enters a joint venture with another company to develop a new technology B. a firm that owns production subsidiaries across the globe C. a firm that makes equity investments in its supplier's company D. a firm that buys all the required raw materials from multiple external vendors In the make-or-buy-continuum, the "make" and "buy" choices anchor each end of a continuum from markets to firms.

Boston Consulting Group (GCG)

A corporate planning tool in which the corporation is viewed as a portfolio of business units, which are represented graphically along relative market share (horizontal axis) and speed of market growth (vertical axis). SBUs are plotted into four categories (dog, cash cow, star, and question make) each of which warrants a different investment strategy.

SIngle-product strategy

A firm focuses on one specific product, typically in one market

Related diversification

A firm follows this when it obtains less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business linked to the primary business activity. -the rationale behind this is to benefit from economies of scale and scope. -Theses multi-business firms an pool and share resources as well as leverage competencies across different business lines.

Which of the following are true of alliance management capability? (Select all that apply.)

A firm may need to employ it with several different alliances. It involves partner selection and alliance formation.

Forward Integration

A firm operates its own distribution system for delivering its outputs.

1) Which of the following firms is least integrated?

A firm that buys all the required raw materials from multiple external vendors.

What is a wholly owned subsidiary?

A fully operational, independent entity that a firm sets up in a foreign country to conduct business in that market - even though its in a different country, it is 100% owned by the parent company

Coordination Costs

A function of the number, size, and types of businesses that are linked to one another.

A country may require a company to form ___________ and provide knowledge and advanced technology in exchange for access to the market.

A joint venture

Credible Commitment

A long-term strategic decision that is both difficult and costly to reverse.

Which of the following is an example of the principal-agent problem if the principal's goal is to create shareholder value?

A manager flies first class on all business trips.

How do mergers and acquisitions differ?

A merger describes the joining of two independent companies, while an acquisition describes the purchase or takeover of a firm.

Equity Alliance (Strategic Alliances)

A partnership in which at least one partner takes partial ownership in the other partner; A partner purchases an ownership share by buying stock (making an equity investment).

Transaction Cost Economics

A theoretical framework in strategic management to explain and predict the scope of the firm which is central to formulating a corporate level strategy that is more likely to lead to competitive advantage. Insights gained from this help mangers decide what activities to do in-house versus what services & products to obtain from the external market.

Taper Integration (Alternatives to Vertical Integration)

A way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside market firms for some of its supplies, and/or is forwardly integrated but also relies on outside market firms for some of its distribution. Ex: Apple and Nike both use Taper Integration - they both own retail outlets but also use other retailers, both brick and mortar and online. Benefits: 1. Exposes in-house suppliers and distributors to market competition. 2. Enhances a firm's flexibility. 3. Firms can combine internal and external knowledge, possibly paving the path for innovation.

What is a major problem between 30% and 70% of all strategic alliances?

At least one partner in the alliance considers the venture to be a failure.

Fully Vertically Integrated

All activities are conducted within the boundaries of the firm.

Transaction Costs

All costs associated with economic exchange, whether within a firm or in markets. Enables managers to answer the question of whether it is cost-effective for their firm to grow its scope by taking on greater ownership of the production of needed inputs or of the channels by which it distributes its outputs. When costs of pursuing an activity in-house are less than the costs of transacting for that activity in the market, then the firm should vertically integrate by owning production of the needed inputs or channels for the distribution of outputs.

Administrative Costs

All costs pertaining to organizing an economic exchange within a hierarchy, including recruiting and retaining employees, paying salaries and benefits, and setting up a business. Tend to increase with organization size and complexity.

Beneficial Effect of a Differentiation Strategy on the Power of Suppliers in an Industry is

Protection against increase in input prices, which can be passed on to customers

Dominant Business

Between 70% and 95% of revenues comes from a single business.

84. Which of the following is the BEST guideline for deciding what the priorities should be for allocating resources to the various businesses of a diversified company? A. Businesses with high industry attractiveness ratings should be given top priority and those with low industry attractiveness ratings should be given low priority. B. Business subsidiaries with the brightest profit and growth prospects, attractive positions on the nine-cell matrix, and solid strategic and resource fits generally should head the list for corporate resource support. C. The positions of each business in the nine-cell attractiveness-strength matrix should govern resource allocation. D. Businesses with the most strategic and resource fits should be given top priority and those with the fewest strategic and resource fits should be given low priority. E. Businesses with high competitive strength ratings should be given top priority and those with low competitive strength ratings should be given low priority.

Business subsidiaries with the brightest profit and growth prospects, attractive positions on the nine-cell matrix, and solid strategic and resource fits generally should head the list for corporate resource support.

build-borrow-or-buy framework

Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).

Unrelated Diversification

Conglomerate fits which type of corporate diversification model

Related Constrained Diversification Strategy

Campbell's Soup: meatballs, meal kits, pace foods, Pepperidge Farm, Prego Pasta (Sauces/Broth), and Beverages (V8, Tomato Juice).

What happened in the 1950s

Celler-Kefauver act - made it harder for companies to buy their competitors out or to buy anything related to their company

What are some advantages of strategic alliances?

Companies avoid trade barriers, only bear part of the costs, and partners can learn from each other

Which type of cost in a related-diversification strategy is a function of the number, size, and type of businesses that are linked?

Coordination

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

Coordination

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

Coordination

Which of the following is a cost associated with a related-diversification strategy?

Coordination Costs

Four underlying strategic management concepts that determine the scope of a firm

Core Competencies - Unique strengths embedded deep within a firm Economies of Scale - When a firm's average cost per unit decreases as its output increases Economies of Scope - Savings that come from producing two (or more) outputs or providing different services at less cost than producing each individually, through using the same resources and technology Transaction Costs - All costs associated with an economic exchange

__ strategy involves the decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously.

Corporate

When an established firm makes an equity investment in an entrepreneurial venture it is known as

Corporate Venture Capital Investment

Unrelated Diversification Strategy

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and there are few, if any, linkages among its businesses. This arrangement helps firms gain and sustain competitive advantage because it allows the conglomerate to overcome institutional weaknesses in emerging economies.

Related Diversification Strategy

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity but obtains revenues from lines of business that are linked to the primary business activity.

Geographic Diversifications Strategy (General Diversification Strategies)

Corporate strategy in which a firm is active in several different countries.

Product-Market Diversification Strategy (General Diversification Strategies)

Corporate strategy in which a firm is active in several different product markets and several countries.

Product Diversification Strategy (General Diversification Strategies)

Corporate strategy in which a firm is active in several product markets.

Financial Economies

Cost savings realized through improved allocations of financial resources based on investments inside or outside firm.

Economy of scope

Cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its businesses.

What is synergy?

Created when a firm generates sustainable cost savings by combining duplicate activities

Diversification Discount

Situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units.

Industry Value Chain

Depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing. Two intersecting value-chains: The industry value chain running vertically from upstream to downstream and the firm-level value chain funning horizontally.

Parent Subsidiary Relationship (Alternatives on the Make-or-Buy Continuum)

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.

In order to assess whether ______ is working, managers can ask if the individual business are worth more under the firm's management or if they are worth more under individual management.

Diversification

______ refers to an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.

Diversification

________is best described as an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.

Diversification

A_____ is a situation in which the stock price of a highly diversified firms is valued as less than the sum of the individual business units.

Diversification discount

In the boston Consulting Group Matrix, _____ hold the small market share in a low-growth market.

Dog high market growth and low market share: question mark -earnings: low, unstable, or growing -Cash flow: negative -strategy: increase market share or harvest/divest

Restructuring of acquired assets

Firm A buys firm B and restructures assets so it can operate more profitably, then A sells B for a profit in the external market.

______are partners in which at least one partner takes partial ownership in the other partner

Equity Alliance -a partner purchases an ownership share by buying stock or asset (in private companies), and thus making an equity investment. -This is tends too signal greater commitment to the partnership

Which of the following are alternatives on the make-or-buy continuum?

Equity Alliances

Best option if a company wants to show commitment to a partner firm without acquiring that firm

Equity alliance

_______________ are partnerships in which at least one partner takes partial ownership in the other partner.

Equity alliances

The persons responsible for forming corporate-level strategy are the

Executives

T or F. According to studies, companies with taper integration tend to have inferior financial performance and lower levels of innovation than ones with more vertical integration.

FALSE

T or F, the benefits of local responsiveness always outweighs the costs

False

T or F, though low-skilled laborers make much less in developing countries, no such difference in wages exists for high-skilled workers.

False

T/F: In most cases, mergers and acquisitions create competitive advantage.

False

True or False: In most cases, mergers and acquisitions create competitive advantage.

False

True or false: Firms tend to enter strategic alliances when they have no other choice.

False

Tax Laws

High rates or dividends cause a corporate shift from dividends to buying and building companies in high-performance industries.

In 2010 Kraft Foods bought UK-based Cadbury PLC in a hostile takeover. Kraft felt that a _________ with Cadbury would help Kraft break into emerging countries because of the strong postition Cadbury had in India, Egypt Thailand and other countries.

Horizontal integration

Occurs when a Targeted Firm is Unwillingly Acquired

Hostile Takeover

An unfriendly acquisition of one company of another is known as a ____________.

Hostile takeover

Forms of specialized assets include which of the following

Human-assets, physial asset, site specificity

Related-linked diversification strategy

If executives consider new business activities that share only a limited number of linkages ex/ one in which executives pursue various business opportunities that share only limited number of linkages.

Related-Linked Diversifications

If executives consider new business activities that share only a limited number of linkages (Ex: GE)

Related-linked diversification:

If executives consider new business activities that share only a limited number of linkages.

__________ and ________ are the two types of long-term contracts.

Licensing ; franchising

Key Issues of Corporate Strategy

In what product markets and businesses should the firm compete? How should corporate headquarters manage those businesses?

Vertical integration (Market Power)

Includes Backward and Forward integration.

Which of the following is an advantage of organizing economic activity at the market level?

Increased Flexibility

4) Each stage of the vertical value chain typically represents a distinct _________in which a number of different firms are competing.

Industry

The _______________ depicts the transformation of raw materials into finished goods and services along distinct vertical stages, each of which represents a distinct industry in which a number of different firms are competing.

Industry Value Chain

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

Influence

_______________ is a situation in which one party has more knowledge than another due to the possession of private knowledge.

Information asymmetry

Dream Donuts is a very successful business and the United Kingdom. It is contemplating global expansion. Which of the following strategies is Dream Donuts most likely to pursue at the beginning stages of expansion?

International

What is the shape of the relationship between the level of diversification and performance?

Inverted U

How does lyft benefit from its stategic alliances with GM and Waymo?

It allows Lyft to more effectively compete against Uber, its more powerful competitor.

How does Lyft benefit from its strategic alliances with GM and Waymo?

It allows Lyft to more effectively compete against Uber.

Whic of the following is true of tactic knowledge?

It can only be acquired through actively participating in the process

Which of the following is a disadvantage of the multidomestic strategy?

It is inefficient.

28. Which of the following is NOT one of the appeals of related diversification? A. It can offer opportunities for transferring expertise, technology, and other capabilities from one business to another. B. It can offer opportunities for reducing costs on advertising by leveraging use of a competitively powerful brand name. C. It is particularly well-suited for the use of first-mover strategies and capturing valuable financial fits. D. It may present opportunities for cross-business collaboration to create valuable new competencies and capabilities. E. It can facilitate sharing of other resources (besides brands) that support corresponding value chain activities across businesses.

It is particularly well-suited for the use of first-mover strategies and capturing valuable financial fits. Related diversification is based on value chain matchups with respect to key value chain activities—those that play a central role in each business's strategy and that link to its industry's key success factors. Such matchups facilitate the sharing or transfer of the resources and capabilities that enable the performance of these activities and underlie each business's quest for competitive advantage. By facilitating the sharing or transferring of such important competitive assets, related diversification can elevate each business's prospects for competitive success.

_______ and ______ are the two tpes of long-term contracts

Licensing and Franchising

Some foreign countries require companies to be structured as

Joint Ventures

Kava Botanicals, a boutique retailer that sells high-end makeup and accessories, is owned by two makeup manufacturers. Kava Botanicals is an example of which type of strategic alliance?

Joint venture

a standalone organization that two or more parent companies create and own together is a ____

Joint venture

kava Bot, a boutique retailer that sells high-end makeup and accessories, is owned by two makeup manufacturers. Which strategic alliance is this?

Joint venture

Which of the following is a disadvantage of a joint venture?

Knowledge shared with the new partner could be misappropriated by opportunistic behavior.

Which of the following conditions does NOT suggest a multidomestic strategy might be the appropriate strategy for MNEs?

Lack a differentiation between domestic and foreign markets.

Addition to having the lowest cost, a low-cost leader is likely to have

Large Market Share

What is true regarding the government and horizontal integration?

Large horizontal integration activity typically needs to be approved by government authorities

Which of the following is true regarding the government and horizontal integration?

Large horizontal integration activity typically needs to be approved by government authorities.

Which of the following is true regarding the government and horizontal intergration?

Large horizontal intergration activity typically needs to be approved by government authorities.

In order to build alliance management capabilities in small companies, it is recommended that firms take the

Learning-by-Doing

Related constrained

Less than 70% of revenue comes from the dominant business, and all businesses share product, technological, and distribution linkages.

Unrelated

Less than 70% of revenue comes from the dominant business, and there are no common links between businesses.

Related linked (mixed related and unrelated)

Less than 70% of revenue comes from the dominant business, and there are only limited links between businesses.

Existing Core Competence, Existing Market

Leveraging core competencies to improve current market position

Long Term Contracts (Strategic Alliances)

Licensing - A form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property. Franchising - A form of long-term contract in which a franchisor grants a franchisee the right to use the franchisors trademark and business processes to offer goods and service that carry the franchisor's brand name; the franchisee in turn pays an up-front buy-in lump sum and percentage of the revenues.

Backwards integration

Occurs when a firm owns or controls the inputs it uses

Why diversify?

Opportunity for growth, potential to manage or minimize risk, potential for personal gain, opportunity to leverage core assets or skills between different businesses

Joint Venture

Organizational form in which two or more partners create and jointly own a new organization.

6) Which of the following alternatives on the Make-or-buy continuum allows for most integration?

Parent-subsidiary relationship

Which the following is a necessary condition for successful alliance formation?

Partner Compatibility

___________ refers to the assets whos physical and engineering properties are designed to satisfy a particular customer

Physical-asset specificity

What are the Porter Five Forces

Power of suppliers, threat of new entrances, ...... (NOT COMPLETE)

A firm follows a(n) _____ diversification strategy when it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity

Related diversification

Managerial motives to diversify

Risk reduction (employment risk) and desire for increased compensation.

Unrelated diversification strategy example

Samsung: Adv. tech, skyscraper and plant construction, fashion, medicine, hotels, etc.

34. What is the difference between economies of scale and economies of scope? A. Scale refers to the magnitude or size of the operation, while scope refers to the reach of defined savings within the value chain. B. Scale refers to the extent of change, while scope refers to the possibilities of change. C. Scale is about dimensions, while scope is about the capacity available for production capabilities. D. Scale refers to cost savings that accrue directly from larger-sized operations, while scope stems directly from strategic fit along the value chains of related businesses. E. Scale and scope mean the same thing and the only difference is the extent of cost savings accrued from unrelated businesses in each.

Scale refers to cost savings that accrue directly from larger-sized operations, while scope stems directly from strategic fit along the value chains of related businesses. Economies of scale are cost savings that accrue directly from a larger-sized operation—for example, unit costs may be lower in a large plant than in a small plant. Economies of scope, however, stem directly from strategic fit along the value chains of related businesses, which in turn enables the businesses to share resources or to transfer them from business to business at low cost.

Low levels of Diversification

Single Business and Dominant Business

Types of diversification that tend to have the lowest performance

Single Business and Unrelated Diversification

Levels of Diversification

Single Business, Dominant Business, Related Constrained, Related linked (mixed related/unrelated), and Unrelated

Which of the following is one of the forms of specialized assets?

Site Specificity

Diversification Discount

Situation in which the stock price of a highly diversified firm is valued as less than the sum of their individual business units

Relational View of Competitive Advantage

States that important resources are commonly embedded in strategic alliances that cross firm boundaries

A voluntary arragement between firms to share knowledge, resources, and capabilitites to develop products, processes. or services is known as a ____________.

Strategic alliance

Long-term contracts, equity alliances, and joint ventures are examples of which of the following?

Strategic alliances

35. Which of the following statements about cross-business strategic fit in a diversified enterprise is NOT accurate? A. Strategic fit between two businesses exists when the management know-how accumulated in one business is transferable to the other. B. Strategic fit exists when two businesses present opportunities to economize on marketing, selling, and distribution costs. C. Competitively valuable cross-business strategic fits are what enable related diversification to produce a synergistic performance outcome. D. Strategic fit is primarily a by-product of unrelated diversification and exists when the value chain activities of unrelated businesses possess economies of scope and good financial fit. E. Strategic fit exists when a company can transfer its brand-name reputation to the products of a newly acquired business and add to the competitive power of the new business.

Strategic fit is primarily a by-product of unrelated diversification and exists when the value chain activities of unrelated businesses possess economies of scope and good financial fit. Related diversification is an opportunity to convert cross-business strategic fit into a competitive advantage via (1) transferring skills or knowledge, (2) combining related value chain activities to achieve lower costs, (3) leveraging the use of a well-respected brand name, (4) sharing other valuable resources, and (5) using cross-business collaboration and knowledge sharing to create new resources and capabilities and drive innovation.

the ties between partner in non equity alliances can be weak because these alliances are often ______ in nature, which can cause a lack of trust and commitment.

Temporary

What is a major disadvantage of organizing economic activity within firms?

The Principal-Agent Problem

What are downsides of equity alliances? (Check all that apply.)

The amount of investment involved The time and effort for assembling the partnership

Corporate Level Strategy

The decisions that senior management makes and the actions it takes in the quest for competitive advantage in several industries and markets simultaneously; Addresses WHERE to compete. Must align with and strengthen a firm's business level strategy. Concerns the scope of the firm.

7. In terms of strategy making, what is the difference between a one-business company and a diversified company? A. The first uses a business-level strategy, while the second uses a set of business strategies and a corporate strategy. B. The first uses a business-level strategy, while the second uses a corporate-wide strategy. C. The first uses an operating strategy, while the second uses a business-line strategy. D. The first uses a functional strategy, while the second uses a business-line strategy. E. The first uses a single-line strategy, while the second uses a multi-line strategy.

The first uses a business-level strategy, while the second uses a set of business strategies and a corporate strategy. In a one-business company, managers have to come up with a plan for competing successfully in only a single industry environment—labeled as business strategy (or business-level strategy). But in a diversified company, the strategy-making challenge involves developing a set of business strategies, one for each industry arena in which the diversified company operates and a companywide (or corporate) strategy for improving the performance of the company's overall business lineup.

Which statements about joint ventures are true?

They involve the sharing of both explicit and tacit knowledge. They are the least common of the three types of strategic alliances.

Which of the following is a reason a firm would NOT want to enter into an equity alliance instead of a short- or long-term contract?

To allow the partner to use the firm's trademark and business processes.

Which of the following is NOT a primary reason a firm might pursue a merger?

To correct a negative inverted U-shaped relationship with scope.

Three Dimensions of Corporate Strategy

To determine boundaries, executives must decide: In what stages of the industry value chain (the transformation of raw materials into finished goods and services along distinct vertical stages) to participate. This decision determines the firm's vertical integration. What range of products and services the firm should offer. This decision determines the firm's horizontal integration or diversification. Where in the world to compete. This decision determines the firm's global strategy.

Which of the following are among the reasons firms need to grow?

To motivate management.

What is the purpose of the core competence-market matrix?

To provide guidance regarding how to diversify in order to grow the company.

Which of the following is NOT a main reason firms make acquisitions?

To reduce flexibility.

______ costs are all of the costs associated with an economic exchange.

Transaction

Firms can use strategic alliances to strengthen their competitive advantage when competing in battles to control industry standards.

True

T or F. Related diversification is more likely to generate incremental value than unrelated diversification.

True

T or F: Multinational enterprise are the driving force behind globalization

True

T/F: Because the size of organizations is typically positively correlated with prestige, power, and pay, principal-agent problems might be a reason to pursue M&As.

True

T/F: Firms can use strategic alliances to strengthen their competitive advantage when competing in battles to control industry standards

True

T/F: Related diversification is more likely to generate incremental value than unrelated diversification.

True

True or False: Because the size of organizations is typically positively correlated with prestige, power, and pay, principal-agent problems might be a reason to pursue M&As.

True

True or False: Firms can use strategic alliances to strengthen their competitive advantage when competing in battles to control industry standards.

True

Reasons for Diversification

Value-Creating Diversification, Value-Neutral Diversification, and Value-Reducing Diversification.

3) Decisions relating to "what stages of the industry value chain to participate in" determine a firm's

Vertical integration.

Strategic Alliances (Alternatives on the Make-or-Buy Continuum)

Voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services together.

Which of the following is a fundamental corporate-level strategic decision

What products and services should the firm offer

Which of the following is a fundamental corporate-level strategic decision?

What products and services should the firm offer?

Efficient internal capital market allocation

When capital distributions generate gains from internal capital market allocations that exceed the gains that would accrue to shareholders from capital being allocated by the external capital market.

What is a strategic alliance?

When companies combine key resources, costs, risks, technology, and people - most common form is joint ventures

98. Conditions that may make corporate restructuring strategies appealing include all of the following EXCEPT A. ongoing declines in the market shares of one or more major business units that are falling prey to more market-savvy competitors. B. a business lineup that consists of too many slow-growth, declining, low-margin, or competitively weak businesses. C. an excessive debt burden with interest costs that eat deeply into profitability. D. ill-chosen acquisitions that haven't lived up to expectations. E. a business lineup that consists of too many cash cow businesses.

a business lineup that consists of too many cash cow businesses.

55. Which of the following is a diversified business with one major "core" business and a collection of small related or unrelated businesses? A. a broadly diversified enterprise B. a narrowly diversified enterprise C. a multi-business enterprise D. a high compensation/low risk enterprise E. a dominant business enterprise

a dominant business enterprise A dominant-business enterprise has one major "core" business that accounts for 50 to 80 percent of total revenues and a collection of small related or unrelated businesses that account for the remainder.

taper integration

a firm internally produces less than half of its own requirements and buys the rest from outside suppliers

The luxury car division of Tata Group, with the purchase of Jaguar and Land Rover, is pursuing which of the following on the business level?

a focused differentiation strategy

Olivias, an olive oil company grows and harvests olives, makes olive oil, and distributes its oil to its retail shop. Olivias is an example of _______

a fully vertically integrated company

related linked diversification strategy

a kind of related diversification strategy in which executives pursue various businesses opportunities that share only a limited number of linkages

Which of the following is an example of the principal-agent problem even when the principal's goal is to create shareholder value?

a manager flying first class on all business trips

how do mergers and acquisitions differ?

a merger describes the joining of two independent companies, while an acquisition describes the purchase or takeover of a firm

Architectural Innovation

a new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets

92. When a corporate parent creates an independent company and divests it by distributing to its stockholders new shares in the business, it is called A. a spinoff. B. a wholly-owned subsidiary. C. a functional divesture. D. fully-diluted stock. E. a restructure.

a spinoff.

Joint venture

a standalone organization created and jointly owned by two or more parent companies. includes exchange of both explicit and tacit knowledge, frequently used to enter foreign markets, most common of alliances

Global standardizations strategy

ammpet to reap significant economies of scale and lcoation economies by pursuing a global divison of labor based on wherever best-of-class capabilities reside at the lowest costs -cost leadership, products are standardized and price becomes their competitive weapon.

Cons of equity alliances

amount of investment that can be involved, possible lack of flexibility and speed (time and effort) in putting together and reaping benefits from the partnership

91. Retrenching to a narrower diversification base is A. usually the most attractive long-run strategy for a broadly diversified company confronted with recession, high interest rates, mounting competitive pressures in several of its businesses, and sluggish growth. B. a strategy that allows a diversified firm's energies to be concentrated on building strong positions in a smaller number of businesses rather the stretching its resources and managerial attention too thinly across many businesses. C. an attractive strategy option for revamping a diverse business lineup that lacks strong cross-business financial fit. D. sometimes an attractive option for deepening a diversified company's technological expertise and supporting a faster rate of product innovation. E. a strategy best reserved for companies in poor financial shape.

a strategy that allows a diversified firm's energies to be concentrated on building strong positions in a smaller number of businesses rather the stretching its resources and managerial attention too thinly across many businesses.

In the franchising strategy, the most important competitive advantage for the franchisee is the franchisor's a. brand name. b. capital resources. c. access to a consolidated market. d. geographic locations.

a. brand name.

The three main luxury hotels in a major tourist destination keep very close track of their competitors' room pricing, restaurant offerings, tour packages, and special services, such as airport transportation and spa privileges. When one hotel makes adjustments in prices or offerings, the other hotels follow suit. It is possible that these hotels are a. engaging in tacit collusion. b. following uncertainty reducing strategies. c. monitoring business competitors for opportunistic behaviors. d. following a competitive response strategy.

a. engaging in tacit collusion.

A strategic alliance in which the partners own different percentages of the new company they have formed is called a(an) a. equity strategic alliance. b. joint venture. c. nonequity strategic alliance. d. cooperative arrangement.

a. equity strategic alliance.

Reduction of competition can be accomplished through all of the following EXCEPT a. predatory alliances. b. explicit collusion. c. tacit collusion. d. mutual forbearance.

a. predatory alliances.

In a cross-border alliance, the local partner is often a useful source of information about a. sources of capital. b. the strengths of the foreign firm's technology. c. market synergies. d. long-term planning.

a. sources of capital.

The two types of complementary strategic alliances are a. vertical and horizontal. b. macro and micro. c. outsourcing and insourcing. d. network and complementary.

a. vertical and horizontal.

A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and vineyard growing rare strains of fruit. This is a(an) ____ strategy. a. vertical complementary b. horizontal complementary c. uncertainty reduction d. network

a. vertical complementary

18. A company can best accomplish diversification into new industries by A. outsourcing most of the value chain activities that have to be performed in the target business/industry. B. acquiring a company already operating in the target industry, creating a new business from scratch, or forming a joint venture with one or more companies to enter the target industry. C. integrating forward or backward into the target industry. D. shifting from a strategic group comprised mostly of single-business companies to a strategic group comprised of diversified companies. E. employing an offensive strategy with new product innovation as its centerpiece.

acquiring a company already operating in the target industry, creating a new business from scratch, or forming a joint venture with one or more companies to enter the target industry. A company can achieve diversification by acquiring an existing company, starting up a new business from scratch, or forming a joint venture with one or more companies to enter new businesses. In every case, however, the decision to diversify must start with a strong economic justification for doing so.

Which of the following terms refers to when one firm purchases or takes over another firm?

acquisition

which of the following terms refers to when one firm purchases or takes over another firm?

acquisition

_______ is the purchase or takeover of one company by another.

acquisition **can be friendly or unfriendly

What are three options used by executives to drive firm growth? (Check all that apply.)

acquisitions alliances organic growth

What are the most expensive, complicated, and difficult to undo options used to grow a firm?

acquisitions mergers

Stages four and five of the industry value chain involves

after-sales service and support, sales, and marketing

fully vertically integrated

all activities are conducted within the boundaries of the firm

Transaction Costs

all costs associated with an economic exchange. -enables managers to answer the question of whether it is cost-effective for their firm to expand its boundaries through vertical integration or diversification

In a fully vertically integrated organization,

all stages of the industry value chain are conducted within the firm

What are the phases of alliance management? (Check all that apply.)

alliance design and governance post-formation alliance management partner selection and alliance formation

_______ is a firm's ability to effectively manage three alliance-related tasks concurrently.

alliance management capability **(1) partner selection and alliance formation, (2) alliance design and governance, (3) post-formation alliance management **pp. 307

41. The basic premise of unrelated diversification is that A. the least risky way to diversify is to seek out businesses that are leaders in their respective industry. B. the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale. C. the best way to build shareholder value is to acquire businesses with strong cross-business financial fit. D. any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity. E. the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.

any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity. With a strategy of unrelated diversification, an acquisition is deemed to have potential if it passes the industry-attractiveness and cost of entry tests and if it has good prospects for attractive financial performance.

Coordination costs influence costs

are a function of the number, size, and types of businesses that are linked -refers to the costs that arise from managing the linked business in a realted-constrained or related-linked diversification scenario occur due to political maneuvering by managers to influence capital and resources allocation and resulting inefficiencies stemming from suboptimal allocation of scarce resources

75. Checking a diversified company's business portfolio for the competitive advantage potential of cross-business strategic fits does NOT involve ascertaining the extent to which sister business units A. have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs. B. have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another. C. have opportunities to share use of a well-respected brand name. D. have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources. E. are cash cows and which ones are cash hogs.

are cash cows and which ones are cash hogs. Relative market share, the ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors' costs, and the ability to benefit from strategic fits with other business units are some factors used in quantifying the competitive strengths of a diversified company's business subsidiaries.

37. Economies of scope A. are cost reductions that flow from operating in multiple related businesses. B. arise only from strategic fit relationships in the production portions of the value chains of sister businesses. C. are more associated with unrelated diversification than related diversification. D. are present whenever diversification satisfies the attractiveness test and the cost of entry test. E. arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses.

are cost reductions that flow from operating in multiple related businesses. Economies of scope stem directly from strategic fit along the value chains of related businesses, which in turn enables the businesses to share resources or to transfer them from business to business at low cost.

Core Competences

are unique strengths embedded deep within a firm. They allow firms to differentiate its products and services from their rivals, creating higher value for the customer or offering products and services of comparable value at lower cost. Activities that draw on what the firm knows how to do well (e.g., Google's core competency in developing proprietary search algorithms) should be done in-house, while non-core activities such as payroll and facility maintenance can be outsourced

76. Which of the following is NOT a part of checking a diversified company's business units for cross-business competitive advantage potential? A. ascertaining the extent to which business units have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs B. ascertaining the extent to which business units have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another C. ascertaining the extent to which business units are making maximum use of the parent company's competitive advantages D. ascertaining the extent to which business units have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources E. ascertaining the extent to which business units present opportunities to share use of a well-respected brand name

ascertaining the extent to which business units are making maximum use of the parent company's competitive advantages

what is a major problem for between 30% and 70% of all strategic alliances?

at least one partner in the alliance considers the venture to be a failure

Multidomestic strategy

attempt to maximize local responsiveness, hoping that local consumers will perceive their product as local ones -common in consumer products and food industries

15. The three tests for judging whether a particular diversification move can create value for shareholders are the A. attractiveness test, the profitability test, and the shareholder value test. B. strategic fit test, the competitive advantage test, and the return-on-investment test. C. resource fit test, the profitability test, and the shareholder value test. D. attractiveness test, the cost of entry test, and the better-off test. E. shareholder value test, the cost of entry test, and the profitability test.

attractiveness test, the cost of entry test, and the better-off test. To build shareholder value, any business diversification strategy should pass the three Tests of Corporate Advantage: the industry attractiveness test, the cost of entry test, and the better-off test.

16. To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use A. profit test, the competitive strength test, the industry attractiveness test, and the capital gains test. B. better-off test, the competitive advantage test, the profit expectations test, and the shareholder value test. C. barrier-to-entry test, the competitive advantage test, the growth test, and the stock price effect test. D. strategic fit test, the industry attractiveness test, the growth test, the dividend effect test, and the capital gains test. E. attractiveness test, the cost of entry test, and the better-off test.

attractiveness test, the cost of entry test, and the better-off test. To build shareholder value, any business diversification strategy should pass the three Tests of Corporate Advantage: the industry attractiveness test, the cost of entry test, and the better-off test.

A firm might want to use a strategic alliance to ______.

change the industry structure

Which of the following statements is TRUE? a. Most cooperative strategies are successful if the basic agreements are well written and include appropriate monitoring strategies. b. As many as 50% of cooperative strategies fail. c. Opportunistic behaviors are usually focused on gaining the use of the partner's manufacturing and financial resources. d. Problems with international cooperative strategies usually concern financial-system differences between the partners.

b. As many as 50% of cooperative strategies fail.

Stable alliance networks will most often a. be used to enhance a firm's internal operations. b. appear in mature industries where demand is relatively constant and predictable. c. emerge in industries with short product life cycles. d. emerge in declining industries as a way to increase process innovations.

b. appear in mature industries where demand is relatively constant and predictable.

____ strategic alliances have stronger focus on value creation than do ____ alliances. a. competition reducing, complementary b. complementary, competition reducing c. uncertainty reducing, complementary d. collusive, uncertainty reducing

b. complementary, competition reducing

In general, cross-border alliances are more ____ and ____ than domestic alliances, especially in emerging markets. a. uncertainty reducing, diversifying b. complex, risky c. highly leveraged, tightly monitored d. flexible, trust-based

b. complex, risky

A state-wide alliance of independent hospitals has formed in order to do group purchasing of medical supplies. Group purchasing allows the hospital alliance to negotiate lower prices with suppliers because of the large quantity of materials ordered. This is an example of the advantage of ____ resulting from an alliance. a. explicit collusion b. economies of scale c. opportunistic behavior d. distribution opportunities

b. economies of scale

Firms entering into synergistic strategic alliances expect to attain a. technological complexity. b. economies of scope. c. monopolistic market power. d. learning curve efficiencies.

b. economies of scope.

A businessperson in Atlanta who wishes to develop a luxury pet kennel approaches the owner of the highly successful Pet Resort and Day Spa in Houston to see if the owner is interesting in franchising the Pet Resort brand. The Atlanta businessperson's goal is to a. get venture capital from Pet Resort. b. gain access to Pet Resort's tacit knowledge. c. collude with Pet Resort to diminish competition in the kennel industry in Atlanta. d. join in a vertical complementary alliance with Pet Resort.

b. gain access to Pet Resort's tacit knowledge.

A cooperative strategy a. is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. b. is a strategy in which firms work together to achieve a shared objective. c. is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. d. specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets.

b. is a strategy in which firms work together to achieve a shared objective.

Moon Flower cosmetics company executives are aware that their Asian customer base is interested in advanced skin care treatments beyond Moon Flower's traditional herbal and organic compounds. Moon Flower and a large American chemical company are in discussions to create a 50-50 partnership in a new firm which would create skin care treatments based on innovative chemical formulations which would be marketed both in Asia and in the U.S. Beyond being a cross-border alliance, this partnership can be called a(an) a. nonequity strategic alliance. b. joint venture. c. horizontal complementary alliance. d. equity strategic alliance.

b. joint venture.

Fujitsu Siemens Computers is a legally independent company of which Fujitsu and Siemens each own 50%. (Chapter 9 Strategic Focus). This collaboration is an example of a ________ which is effective at transferring ___________. a. nonequity strategic alliance; explicit knowledge b. joint venture; tacit knowledge c. joint venture; explicit knowledge d. equity strategic alliance; tacit knowledge

b. joint venture; tacit knowledge

Which type of strategic alliance is best at passing tacit knowledge between firms? a. primary cooperative strategic alliances b. joint ventures c. equity strategic alliances d. nonequity strategic alliances

b. joint ventures

In the U.S., cooperative strategies to reduce competition may result in ____ if they are explicit. a. increased tax liabilities b. litigation c. government takeover of the firms d. dissolution of the firm

b. litigation

The Renault Nissan alliance discussed in the Opening Case is an example of a ________ in that the firms seek to create economies of scope by sharing their resources and capabilities to develop manufacturing platforms that can be used to produce cars that will be either a Renault or a Nissan. a. joint venture. b. synergistic alliance. c. horizontal complementary alliance. d. dynamic alliance network.

b. synergistic alliance.

A ____________ is a strategy in which firms share some of their resources and capabilities to create economies of scope and is similar to the business-level horizontal complementary alliance. a. joint venture b. synergistic strategic alliance c. diversifying strategic alliance d. dynamic alliance network

b. synergistic strategic alliance

To increase the likelihood of success between partners assuming that trust exists, ____ approach(es) should be used to manage cooperative strategies. a. the cost minimization b. the opportunity maximization c. both the cost minimization and opportunity maximization d. none of the these

b. the opportunity maximization

A nonequity strategic alliance exists when a. two firms join together to create a new company . b. two or more firms have a contractual relationship to share resources and capabilities. c. two partners in an alliance own unequal shares in the combined entity. d. the partners agree to sell bonds instead of stock in order to finance a new venture.

b. two or more firms have a contractual relationship to share resources and capabilities.

Transaction cost economics help managers do which of the following?

choose which activities to do within the firm

an ________ is the best option if a company wants to show strong commitment to a partner without acquiring that firm

equity alliance

Of the various business-level strategic alliances, ____ alliances have the most probability of creating sustainable competitive advantage, and ____ have the lowest. a. horizontal complementary, vertical complementary b. vertical complementary, competition reducing c. competition reducing, horizontal complementary d. uncertainty reducing, competition reducing

b. vertical complementary, competition reducing

When a manufacturer of computer starts to produce computer components, the manufacturer engages in _______ vertical integration

backward

When a manufacturer of computers starts to produce its own computer components, the manufacturer engages in ______ vertical integration.

backward

When a manufacturer of computers starts to produce its own computer components, the manufacturer engages in __________ vertical integration.

backward

Which of the following are types of vertical integration along the industry value chain? (Check all that apply.)

backward forward

When a manufacturer of computers starts to product its own computer components, the manufacturer engages in ____ vertical integration

backward vertical integration

______ refers to changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain.

backward vertical integration

during the shakeout stage of the industry life cycle, does process innovation become more or less important?

becomes more important

Vertical Integration

becoming your own supplier or distributor through acquisition; vertical movement up or down the value chain.

advantages of vertical integration include:

bettering quality reducing costs facilitating scheduling

In general, if a resource is highly tradable, then it should be ______ using a license or contractual agreement.

borrowed

In general, if a resource is highly tradable, then it should be _________ using a license or contractual agreement.

borrowed

73. The nine-cell attractiveness-strength matrix provides clear, strong logic for considering using A. only industry attractiveness in allocating resources and investment capital to its different businesses. B. only business strength in allocating resources and investment capital to the different businesses. C. both industry attractiveness and business strength in allocating resources and investment capital to its different businesses. D. both industry attractiveness and product strength in allocating resources and investment capital to its different businesses. E. both resource fit and product strength in allocating resources and investment capital to its different businesses.

both industry attractiveness and business strength in allocating resources and investment capital to its different businesses.

Internal development should occur when the firm's resources are _____ to those of competitors in the targeted area.

both similar and superior

what are some managerial advantages to pursuing a

build a larger empire which is positively correlated with prestige power and pay, more corporate perks, more job security

what are the components of post-formation alliance management?

build inter-firm trust establish knowledge-sharing routines make relation-specific investments

A conceptual model that helps strategists choose between seeking internal development, entering into an alliance, or acquiring new resources, capabilities, and competencies is called the "______ framework."

build-borrow-or-buy

4. Diversifying into new businesses can be considered a success only if it A. results in increased profit margins and bigger total profits. B. builds shareholder value. C. helps a company escape the rigors of competition in its present business. D. leads to the development of a greater variety of distinctive competencies and competitive capabilities. E. helps the company overcome the barriers to entering additional foreign markets.

builds shareholder value. Diversification cannot be considered a success unless it results in added shareholder value—value that shareholders cannot capture on their own by spreading their investments across the stocks of companies in different industries.

99. Which of the following is NOT a good candidate for divestiture in a corporate restructuring effort? A. business units that lack strategic fit with the businesses to be retained B. weak performers C. businesses in unattractive industries D. businesses that are cash hogs or that lack other types of resource fit E. businesses compatible with the company's revised diversification strategy

businesses compatible with the company's revised diversification strategy

How can horizontal integration increase product differentiation?

by filling the empty spaces in a firm's offerings

How can horizontal integration increase product differentiation?

by filling the empty spaces in a firms offerings

BPM Corp. is a manufacturer of radar systems for regional-sized jet aircraft. The company has announced plans to enter into a joint venture with J3 Composites, a producer of advanced composite materials. The announced venture will produce a new, combined product consisting of the radar unit and protective composite cover. Which of the following ownership arrangements would be most typical for a joint venture? a. BPM will own more than 50 percent of the venture and a new company will be formed. b. J3 will own more than 50 percent of the venture and a new company will be formed. c. BPM and J3 will both own 50 percent of the venture and a new company will be formed. d. BPM and J3 will both own 50 percent of the venture but no new company will be formed.

c. BPM and J3 will both own 50 percent of the venture and a new company will be formed.

Burgess Corp. manufactures a line of heavy construction equipment. The company has announced a contractual relationship with FS Electronics whereby FS will supply Burgess with advanced GPS navigation and guidance systems. These systems will be an option on all bulldozers, dump trucks, and road graders Burgess produces. What type of alliance is this? a. Joint venture b. Equity strategic alliance c. Nonequity strategic alliance d. Competition reduction alliance

c. Nonequity strategic alliance

Firms in a standard-cycle market may form alliances in order to a. take advantage of opportunities in emerging market countries. b. more quickly distribute new products. c. capture economies of scale. d. share risky R&D investments.

c. capture economies of scale.

The collaboration between Volvo Aero (a subsidiary of Sweden's AB Volvo) and U.S.-based Pratt & Whitney to produce a new jet engine would be characterized as a(an) a. collusive tactic. b. merger. c. cross-border strategic alliance. d. international acquisition.

c. cross-border strategic alliance.

Japanese telecom NTT DoCoMo Inc. and Chinese Internet search operator Baidu Inc. established an alliance to distribute games and other mobile-phone content. Baidu will own 80% of this collaboration with DoCoMo holding the remaining 20%. This collaborative arrangement is an example of a(n) a. joint venture. b. network strategy. c. equity strategic alliance. d. nonequity strategic alliance.

c. equity strategic alliance.

Smith Commercial Lighting, Inc., which sells lighting for factories and businesses, has entered into an alliance with Revelation Lighting, Inc., a retailer of home decor lighting, in order to expand into the trend of using industrial-type lighting in non-traditional style homes. Smith has invested 40% and Revelation has invested 60% into the new operation. This is an example of a(an) a. joint venture. b. nonequity alliance. c. horizontal complementary strategic alliance. d. vertical complementary strategic alliance.

c. horizontal complementary strategic alliance.

Which of the following is NOT a risk for firms engaged in cooperative strategies? a. misrepresentation of a partner's competencies b. partner acts opportunistically c. insufficient variation in firms' core competencies d. failure of partners to make complementary resources available to the partnership

c. insufficient variation in firms' core competencies

In a(an) ____, two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. a. equality-based strategic alliance b. non-equity strategic alliance c. joint venture d. equity strategic alliance

c. joint venture

DDD Partners, a U.S. business consulting firm is considering a cooperative alliance with an Indian business consulting firm that has a wide practice in the Middle East and Asia. DDD has some European clients, but it sees the Middle East and Asia as growth opportunities. It hopes to learn how to navigate the different cultures and business practices in this part of the world from its alliance with the Indian firm. DDD's greatest risk here is that the Indian firm will a. insist on excessively close monitoring of DDD's actions. b. gain access to DDD's core competencies and use them to become a future competitor. c. not fully share its intangible resources. d. not make equivalent investments to the alliance as does DDD.

c. not fully share its intangible resources.

U.S. Steel and Nucor (the two remaining major players in the U.S. steel industry) have been forming alliances as a means to enter markets in Europe and Asia. The steel industry is an example of a ________ market in which firms typically use alliances to gain market access. a. fast-cycle b. standard-cycle c. slow-cycle d. intermediate-cycle

c. slow-cycle

One disadvantage of developing effective monitoring systems to manage a strategic alliance is that a. firms will have to accept greater risks. b. trust will be eroded. c. spontaneous opportunities are minimized. d. power coalitions will still develop.

c. spontaneous opportunities are minimized.

The fact that the prices consumers pay for branded breakfast cereals are above the prices that would exist if there were true competition suggests that the cereal manufacturers are engaging in a. excessive cooperation. b. joint ventures. c. tacit collusion. d. horizontal strategic alliances.

c. tacit collusion.

The primary responsibility of the franchisor, such as McDonald's or Hilton International is to a. learn about the brand and technology from the franchisee. b. test the franchisee for potential future acquisition. c. transfer to the franchisee knowledge and skills needed to compete at the local level. d. provide feedback to the franchisee regarding how the franchisor could become more effective and efficient.

c. transfer to the franchisee knowledge and skills needed to compete at the local level.

In managing cooperative strategies, research indicates that ____ can be a capability that is valuable, rare, imperfectly imitable, and often nonsubstitutable giving these firms a competitive advantage. a. extensive capitalization b. stability c. trustworthiness d. Internet competency

c. trustworthiness

Cons of joint ventures

can entail long negotiations and significant investments, undoing the JV can take time and include considerable cost, knowledge shared with new partner could be misappropriated by opportunistic behavior, any reward must be shared

42. With a strategy of unrelated diversification, an acquisition is deemed to have potential if it A. can achieve at least existing profit margins into the near future. B. has the opportunity to generate positive buzz in the industry, even if it may not be able to contribute to the parent firm's bottom line. C. can pass the industry attractiveness test and the cost of entry test, and if it has good prospects for profit growth. D. can pass at least the industry attractiveness test if not the cost of entry test. E. can add economic value for managers.

can pass the industry attractiveness test and the cost of entry test, and if it has good prospects for profit growth. With a strategy of unrelated diversification, an acquisition is deemed to have potential if it passes the industry-attractiveness and cost of entry tests and if it has good prospects for attractive financial performance.

Tacit knowledge

cannot be codified and can only be gained through active participation in the task -knowing how to do a certain task

the introductory stage of the industry life cycle is a _______ intensive process

capital

9. Which of the following is NOT one of the elements of crafting corporate strategy for a diversified company? A. picking new industries to enter and deciding on the means of entry B. choosing the appropriate value chain for each business the company has entered C. pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage D. establishing investment priorities and steering corporate resources into the most attractive business units E. initiating actions to boost the combined performance of the businesses the firm has entered

choosing the appropriate value chain for each business the company has entered Choosing the appropriate value chain for each business the company has entered is not one of the elements of crafting corporate strategy for a diversified company.

Which of the following terms is used to describe cooperations by competititors?

co-opetition

39. An economy of scope is BEST illustrated by being able to eliminate or reduce costs by A. combining related value-chain activities of different businesses into a single operation. B. performing all of the value chain activities of related sister businesses at the same location. C. extending the firm's scope of operations over a wider geographic area. D. expanding the size of a company's manufacturing plants. E. having more value chain activities performed in-house rather than outsourcing them.

combining related value-chain activities of different businesses into a single operation. Economies of scope stem directly from strategic fit along the value chains of related businesses, which in turn enables the businesses to share resources or to transfer them from business to business at low cost.

3. Diversification ought to be considered when a A. company is under pressure to create a more attractive and cost-efficient value chain. B. company begins to encounter diminishing growth prospects in its mainstay business. C. company's profits are being squeezed and it needs to increase its net profit margins and return on investment. D. company lacks sustainable competitive advantage in its present business. E. company has run out of ways to achieve a distinctive competence in its present business.

company is under pressure to create a more attractive and cost-efficient value chain. Diversifying into new industries always merits strong consideration whenever a single-business company encounters diminishing market opportunities and stagnating sales in its principal business.

Cash Cows (BCG Matrix)

compete in a low growth market but have high market share

Business-level strategy is...

competitive for each one of its businesses

Firms can achieve increased competitive advantage as a result of _______________, which are firms that product a good or service that increases the perceived value of a focal firm's offering when the two are combined

complementors

A ______ is a company that combines two or more strategic business units under one overarching corporation.

conglomerate **follows an unrelated diversification strategy

Both casual ambiguity & tacit knowledge

contribute to alliances

co-opetition

cooperation by competitors to achieve a strategic objective

Costs associated with related-diversification strategies

coordination and influence

What are the costs associated with related diversification strategies?

coordination costs influence costs

The _______ is a framework to guide corporate diversification strategy by analyzing possible combinations of existing/new competencies and existing/new markets.

core competence-market matrix **pp. 277

Describe the strengths that allow a firm to distinguish itself from the competition

core competencies

Which of the following terms describes the strengths that allow a firm to distinguish itself from the competition?

core competencies

"where in the world should the firm compete?" is a ____________-level strategic question

corporate

When Walmart posted a list of banned suppliers on its website, this was an example of _______________.

corporate social responsibility

When a business answers the question of where to compete, it is determining ___.

corporate strategy

______ is the decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously.

corporate strategy

________ refers to equity investments by established firms in entrepreneurial ventures.

corporate venture capital (CVC) **falls under the broader rubric of equity alliances

21. What is the name of the process for developing new businesses as an outgrowth of a company's established business operations? A. corporate venturing B. value chain integration C. resource capability process D. diversification activity capabilities E. business launch

corporate venturing Corporate venturing (or new venture development) is the process of developing new businesses as an outgrowth of a company's established business operations. It is also referred to as corporate entrepreneurship or intrapreneurship since it requires entrepreneurial like qualities within a larger enterprise.

A diversified company forms two types of strategies:

corporate-level and business-level

at a basic level, the concept of "liability of foreignness' refers to the additional...

costs of doing business in an unfamiliar cultural and economic environment

Spin off an SBU which is unrelated to a core business in order to avoid the _______. When they announced the spin off, the stock price went up by 5%

diversification discount.

89. Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed, which one of the following is NOT one of the main strategy options that a company can pursue? A. multinational diversification B. restructure the company's business lineup with a combination of divestitures and new acquisitions C. craft new initiatives designed to build/enhance the reputation and image of the company D. divest some businesses and retrench to a narrower diversification base E. broaden the diversification base

craft new initiatives designed to build/enhance the reputation and image of the company

______ is a long-term strategic decision that is both difficult and costly to reverse.

credible committment

A firm has a core competancy in R&D but little else, so it enters into a strategic alliance with a larger firm to gain distribution channels and marketing expertise. In this case, distribution channels and marketing expertise would be examples of ____________.

critical complementary assets

The ______ is a conceptual model that shows how each stage of the industry life cycle is dominated by a different customer group.

crossing-the-chasm framework

Meredith Inc. is a manufacturer of art supplies. The company has announced plans to enter into an equity strategic alliance with JaZz Paper to develop a line of specialty papers for use with a line of specialty paints Meredith manufactures. Which of the following would be the accurate interpretation of this announcement? a. Meredith will own a majority equity stake in the new venture. b. JaZz will own a majority equity stake in the new venture . c. Meredith or JaZz will own an equal equity stake in the new venture. d. Either Meredith or JaZz will own a majority equity stake, but we do not know which one based on the announcement.

d. Either Meredith or JaZz will own a majority equity stake, but we do not know which one based on the announcement.

Which of the following statements is FALSE? a. Franchising is most appropriate in fragmented industries. b. Franchising provides corporate growth with less risk than do mergers and acquisitions. c. Successful franchising allows transfer of knowledge and skills from the franchisor to the franchisee. d. Franchising agreements require more trust between firms than do other cooperative strategies.

d. Franchising agreements require more trust between firms than do other cooperative strategies.

Amylin Pharmaceuticals has an alliance with Eli Lilly & Co. to produce diabetes drugs. Lilly, however, recently signed an alliance agreement with another company to also produce diabetes drugs. As a result, Amylin sued Lilly for breech of the alliance agreement. Which of the following risks of cooperative strategies discussed in the chapter is most likely occurring here? a. Having a true perception of the partner's trustworthiness. b. Failing to make available to its partners the resources and capabilities that it committed to the cooperative strategy. c. The partner misrepresenting competencies it can bring to the partnership. d. Opportunistic behavior.

d. Opportunistic behavior.

Why are alliances in the airline industry unstable? a. Unstable industries make for unstable alliances. b. The potential for firms to take opportunistic actions is too widespread. c. The industry is declining and profits are not sufficient to divide among alliance partners. d. The alliances require cooperation among firms that must also compete with one another.

d. The alliances require cooperation among firms that must also compete with one another.

Hewlett-Packard licenses some of its intellectual property through strategic alliances. Which of the following is correct about this relationship? a. This is a joint venture because in licensing arrangements, a new company is created. b. This is an equity strategic alliance because licensing does not involve the creation of a new company, but does involve an equity commitment. c. The firms risk charges of collusion because most licensing relationships between competitors involve explicit collusion. d. This is a nonequity strategic alliance with Hewlett-Packard leveraging its unique capabilities.

d. This is a nonequity strategic alliance with Hewlett-Packard leveraging its unique capabilities.

____ are LEAST likely to involve potential or current competitors. a. Mutual forbearance strategies b. Tacit collusion strategies c. Horizontal complementary strategic alliances d. Vertical complementary strategic alliances

d. Vertical complementary strategic alliances

Greentech, Inc., is a bioengineering firm specializing in food crops. It is considering a cooperative alliance with an Asian agribusiness firm, AsiaFoods, to jointly produce improved crops for the Asian market. The risks that Greentech should consider before entering this alliance include all of the following EXCEPT: a. Has AsiaFoods accurately represented its competencies? b. Will AsiaFoods make alliance-specific investments? c. Can Greentech expect opportunistic behavior from AsiaFoods? d. Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

d. Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

The global airline industry is one in which a. national political interests prevent airlines from making international alliances. b. the fast-cycle nature of the industry mandates heavy use of alliances. c. most alliances tend to be vertical complementary. d. alliance versus alliance competition dominates firm versus firm competition.

d. alliance versus alliance competition dominates firm versus firm competition.

A strategy in which firms work together to achieve a shared objective is a a. functional-level strategy. b. business-level strategy. c. corporate-level strategy. d. cooperative strategy.

d. cooperative strategy.

When using cooperative strategies, a firms most frequently develop strategic alliances that a. enhance the firm's reputation in the marketplace. b. are long-lived. c. will reduce the firm's political risk. d. create a competitive advantage.

d. create a competitive advantage.

A relatively young firm has developed a method of transferring photographic images of surface textures onto any type of hard surface. This potentially has a huge market in the home-decorating field as well as any hard surface that is typically painted, such as car bodies. The type of alliance partner this firm would be searching for would be one with a. low-cost labor production facilities in another country . b. similar products who could help the firm establish economies of scale. c. access to franchises in new markets . d. excess resources for investing.

d. excess resources for investing.

The alliance between Nokia and Microsoft (Chapter 9 Strategic Focus) calls for Nokia to transition its smartphone portfolio to Microsoft's Windows phone platform. This is an example of using an alliance in a ____________ to speed up development of new products and services. a. slow-cycle market b. medium-cycle market c. standard-cycle market d. fast-cycle market

d. fast-cycle market

McDonald's, Hilton International, and Subway all heavily rely on the ____ strategy. a. transnational b. network cooperative c. cross-border alliances d. franchising cooperative

d. franchising cooperative

FrameCo, a maker of commercial greenhouses, has just extricated itself from a failing cooperative alliance with another firm. The expected synergies never were achieved, and FrameCo lost most of its investment. The top management of FrameCo should a. avoid future cooperative alliances because they lack the skills needed to manage them successfully. b. enter into future cooperative alliances only if the alliance is closely monitored by a third party to prevent opportunistic behavior by the alliance partner. c. realize that most cooperative alliances fail and that it should ally itself only with an experienced alliance partner in the future. d. internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience.

d. internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience.

The use of strategic alliances a. is unlikely to yield success if partnering firms are headquartered in the same country. b. may be too restrictive to facilitate entry into new markets. c. usually increases the investment necessary to introduce new products. d. is more frequent than other types of cooperative strategies.

d. is more frequent than other types of cooperative strategies.

The risks of being accused of collusion are MOST likely under what type of alliance? a. equity-based vertical complementary alliance. b. equity-based horizontal complementary alliance c. nonequity-based vertical complementary alliance. d. nonequity-based horizontal complementary alliance.

d. nonequity-based horizontal complementary alliance.

A competitive advantage that is developed through a cooperative strategy is called a collaborative or a ____ advantage. a. economic b. collusive c. alliance d. relational

d. relational

Firms participate in strategic alliances for all the following reasons EXCEPT to a. create value that they could not develop by acting independently. b. enter competitive markets more quickly. c. gain access to resources. d. retain tight control over intangible core competencies.

d. retain tight control over intangible core competencies.

In some countries, the only legal way for foreign firms to invest in the country is through a. acquisitions. b. mergers. c. greenfield ventures. d. strategic alliance with a local firm.

d. strategic alliance with a local firm.

The opportunity maximization approach is more difficult to establish in international relationships than in domestic relationships because of differences in all EXCEPT a. laws. b. culture. c. trade policies. d. technology.

d. technology.

In practice, the cost minimization strategy can be more expensive than the opportunity maximization strategy. Which of the following is a way in which the cost minimization strategy is less expensive than the opportunity minimization strategy? a. the loss of unexpected opportunities b. the cost of extensive monitoring mechanisms c. the costs of writing detailed contracts d. the prevention of opportunistic behavior by the partner(s)

d. the prevention of opportunistic behavior by the partner(s)

64. What hurdles are present in calculating industry attractiveness scores? A. deciding on the appropriate weights for the attractiveness measures B. different analysts use different weights for the different attractiveness measures C. gaining sufficient command of the industry to assign more accurate and objective ratings D. deciding the impact of strategic fits to unrelated and related diversification E. deciding whether a business is related or unrelated

deciding whether a business is related or unrelated Each attractiveness measure is assigned a weight reflecting its relative importance in determining an industry's attractiveness, since not all attractiveness measures are equally important. Because of a degree of subjectivity involved in the measurement, it is not easy to accurately calculate industry attractiveness scores.

When Pfizer and Wyeth merged, they reduced the size of their combined sales force while also increasing the number of drugs they could promote. This is an example of which source of value creation for M&As?

decreased costs

85. The options for allocating a diversified company's financial resources include all of the following EXCEPT A. making acquisitions to establish positions in new businesses or to complement existing businesses. B. investing in ways to strengthen or grow existing businesses. C. funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses. D. paying off existing debt and building cash reserves. E. decreasing dividend payments and/or selling shares of stock.

decreasing dividend payments and/or selling shares of stock.

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.

Corporate-level strategy's value

determined by the degree to which the businesses in the portfolio are worth more under the management of the company than they would be under any other ownership.

A _______ is a situation in which the stock price of related-diversification firms is valued at greater than the sum of their individual business units.

diversification premium

________ are partnerships in which at least one partner takes partial ownership in the other partner

equity alliances

Which of the following are alternatives on the make-or-buy continuum? (Check all that apply.)

equity alliances joint ventures

What are the three mechanisms that alliances can be governed by? (Check all that apply.)

equity alliances non-equity alliances joint ventures

83. Which of the following is NOT part of the task of checking a diversified company's business lineup for adequate resource fit? A. determining whether the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses B. determining whether recently acquired businesses are acting to strengthen a company's resource base and competitive capabilities or whether they are causing its competitive and managerial resources to be stretched too thinly across its businesses C. determining whether opportunity exists for achieving 1 + 1 = 2 outcomes D. determining whether the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating E. determining whether the corporate parent has or can develop sufficient resource strengths and competitive capabilities to be successful in each of the businesses it has diversified into

determining whether opportunity exists for achieving 1 + 1 = 2 outcomes

57. Which one of the following is NOT an important aspect of evaluating the merits of a diversified company's strategy? A. assessing the competitive strength of each business the company has diversified into B. determining which business units are cash cows and which ones are cash hogs, and then evaluating how soon the company's cash hogs can be transformed into cash cows C. evaluating the strategic fits and resource fits among the various sister businesses D. assessing the attractiveness of the industries the company has diversified into, both individually and as a group E. ranking the performance prospects of the businesses from best to worst and deciding what priority to give each of the company's business units in allocating resources

determining which business units are cash cows and which ones are cash hogs, and then evaluating how soon the company's cash hogs can be transformed into cash cows Evaluating industry attractiveness, evaluating business unit competitive strength, determining the competitive value of strategic fit in diversified companies, checking for resource fit, ranking business units and assigning a priority for resource allocation, and crafting new strategic moves to improve overall corporate performance are all important aspects for a diversified company's strategy.

Unrelated Diversification

different from existing business

5. It becomes particularly urgent for a company to consider diversification when there are A. opportunities to leverage existing competencies and capabilities by expanding into businesses where these same resources are key success factors and valuable competitive assets. B. diminishing market opportunities and stagnating sales in its principal business. C. opportunities to lower costs by entering closely related businesses. D. opportunities to transfer a powerful and well-respected brand name to the products of other businesses and thereby increase the sales and profits of these newly entered businesses. E. needs to avoid putting all of its "eggs" in one industry basket.

diminishing market opportunities and stagnating sales in its principal business. Diversifying into new industries always merits strong consideration whenever a single-business company encounters diminishing market opportunities and stagnating sales in its principal business.

______ is an innovation that leverages new technologies to attack existing markets from the bottom up.

disruptive innovation

In order to assess whether ________ is working, managers can ask if the individual businesses are worth more under the firm's management or if they are worth more under individual management.

diversification

In order to assess whether______is working, managers can ask if the individual businesses are worth more under the firm's management or if they are worth more under individual management

diversification

Zipster is a local manufacturer of athletic shoes. Zipster has decided it wants to expand to global markets and to offer a larger selection of items. It plans to offer not just athletic shoes but also luggage and car accessories. Zipster is engaging in ______.

diversification

Zipster is a local manufacturer of athletic shoes. Zipster has decided it wants to expand to global markets and to offer a larger selection of items. It plans to offer not just athletic shoes but also luggage and car accessories. Zipster is engaging in _______________.

diversification

______ is an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.

diversification

_______ refers to an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes

diversification

Amazon's explosive success is largely due to which of the following? (Check all that apply.)

diversification vertical integration

A ______ is a situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units.

diversification discount

A(n) ______ is a situation in which the stock price of a highly diversified firms is valued as less than the sum of their individual business units.

diversification discount

A(n) _______________ is a situation in which the stock price of highly diversified firms are valued as less than the sum of their individual business units.

diversification discount

A(n) ________________ is a situation in which the stock price of highly diversified firms is valued as less than the sum of their individual business units.

diversification discount

TWN, a large multinational corporation, chose to spin off one of its SBUs that was unrelated to TWN's core business in order to avoid the ______. When they announced the spin-off, the stock price of TWN went up by 5%.

diversification discount

TWN, a large multinational corporation, chose to spin off one of its SBUs which was unrelated to TWNs core business in order to avoid the ______ ___________. WHen they announced the spin off, the stock price of TWN went up by 5%.

diversification discount

The stock price of such highly diversified firms is valued at less than the sum of their individual business units.65 For the last decade or so, GE experienced a diversification discount, as its capital unit contributed 50 percent of profits on one-third of the conglomerate's revenues

diversification discount

6. To create value for shareholders via diversification, a company must A. get into new businesses that are profitable. B. diversify into industries that are growing rapidly. C. spread its business risk across various industries by only acquiring firms that are strong competitors in their respective industries. D. diversify into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses. E. diversify into businesses that have either key success factors or value chains that are similar to its present businesses.

diversify into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses. Diversification cannot be considered a success unless it results in added shareholder value—value that shareholders cannot capture on their own by spreading their investments across the stocks of companies in different industries.

30. One strategic fit based approach to related diversification would be to A. diversify into new industries that present opportunities to transfer specialized expertise, technological know-how, or other valuable resources and capabilities from one business's value chain to another's. B. diversify into foreign markets where the firm has unrelated businesses. C. acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups. D. acquire companies in forward distribution channels (wholesalers and/or retailers). E. expand into foreign markets where the firm currently does no business.

diversify into new industries that present opportunities to transfer specialized expertise, technological know-how, or other valuable resources and capabilities from one business's value chain to another's. Transferring specialized expertise, technological know-how, or other competitively valuable strategic assets from one business's value chain to another's is a sound diversification strategy with a good strategic fit.

96. Strategies to restructure a diversified company's business lineup involve A. revamping the value chains of each of a diversified company's businesses. B. focusing on restoring the profitability of its money-losing businesses and thereby improving the company's overall profitability. C. revamping the strategies of its different businesses, especially those that are performing poorly. D. divesting low-performing businesses that do not fit and acquiring new ones where opportunities are more promising to put a new face on the company's business makeup. E. broadening the scope of diversification to include a larger number of smaller and more diverse businesses.

divesting low-performing businesses that do not fit and acquiring new ones where opportunities are more promising to put a new face on the company's business makeup.

Topic: Diversification 8. The task of crafting a company's overall corporate strategy for a diversified company encompasses all of the following EXCEPT A. picking the new industries to enter and deciding on the means of entry. B. initiating actions to boost the combined performance of the corporation's collection of businesses. C. pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage. D. establishing investment priorities and steering corporate resources into the most attractive business units. E. divesting well-performing businesses.

divesting well-performing businesses. Strategic options for improving the corporation's overall performance include retrenching to a narrower scope of diversification by divesting poorly performing businesses, not well-performing businesses.

54. Which of the following is a diversified business with one major "core" business and a collection of small related or unrelated businesses? A. broadly diversified enterprise B. narrowly diversified enterprise C. multibusiness enterprise D. high-compensation/low-risk enterprise E. dominant business enterprise

dominant business enterprise Some diversified companies are really dominant-business enterprises. That is, one major "core" business accounts for 50 to 80 percent of total revenues and a collection of small related or unrelated businesses accounts for the remainder.

Main types of business diversification

dominant business, related diversification, singles business, unrelated diversification

4 underlying strategic-management concepts that determine the scope of a firm

economies of scale, core competenices, economies of scopr, transaction costs

43. Corporate parenting refers to all of the following EXCEPT A. the role that a diversified corporation plays in nurturing its component businesses through the provision of top management expertise, disciplined control, financial resources, and capabilities. B. the help subsidiaries receive in performing better when they utilize astute high-level guidance from corporate executives. C. the corporation's ability to provide generalized support resources so as to create value by lowering companywide overhead costs by eliminating duplication of efforts. D. efforts to capitalize on the umbrella brands and enhance value proposition across businesses. E. efforts to judiciously segregate funds for each business in such a way that keeps the money safe and discourages shifting funds across business units.

efforts to judiciously segregate funds for each business in such a way that keeps the money safe and discourages shifting funds across business units. Corporate parenting refers to the role that a diversified corporation plays in nurturing its component businesses through the provision of top management expertise, disciplined control, financial resources, and other types of general resources and capabilities such as long-term planning systems, business development skills, management development processes, incentive systems, umbrella brands, and an internal capital market capability to allow judicious cross-business allocation of financial resources.

______ is the process by which people undertake economic risk to innovate - to create new products, processes, and sometimes new organizations.

entrepreneurship

A partnership in which at least one partner takes partial ownership in the other is a(n) ______.

equity alliance

A partnership in which at least one partner takes partial ownership in the other is a(n) _______________.

equity alliance

_______ is a partnership in which at least one partner takes partial ownership in the other.

equity alliance

11. To take advantage of cross-business value chain relationships and strategic fit and turn them into a competitive advantage requires that companies determine whether there are opportunities to strengthen the business, which includes such tasks as all of the following, EXCEPT A. the transferring of valuable resources and capabilities from one business to another. B. combining related value chain activities of different businesses to achieve lower costs. C. forcing cultural independence, operating diversity, and sophisticated analytical responsibility on the businesses to ensure compatibility with the corporate overhead identity. D. sharing the use of powerful and well-respected brand names across multiple businesses. E. encouraging knowledge-sharing and collaborative activity among the businesses.

forcing cultural independence, operating diversity, and sophisticated analytical responsibility on the businesses to ensure compatibility with the corporate overhead identity. Forcing cultural independence, operating diversity, and sophisticated analytical responsibility on the businesses are not tasks for leveraging cross-business value chain relationships into competitive advantage.

What must strategic alliances do i order to create the foundation for a competitive advantage?

form unique resources combinations that obey the VRIO criteria

If a company moves ownership of activities closer to the end customer, such as providing after-sales support, it is engaging in ______ vertical integration.

forward

______ refers to 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

______ is a long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name.

franchising

A firm that is active in several different countries is pursuing a _______ diversification strategy.

geographic

A ______ is a corporate strategy in which a firm is active in several different countries.

geographic diversification strategy

Multinational enteprises that manufacture commodity products that focus on cost leadership tend to use a____________ strategy

global-standardization

53. Which of the following is NOT an erroneous rationale for unrelated diversification? A. risk reduction by spreading the company's investments over a set of diverse industries B. expectations for rapid or continuous growth C. stabilize earnings, i.e. market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses D. managerial motives including the prospects for higher compensation E. growth by acquisition of an undervalued company at a bargain price can deliver enhanced shareholder value

growth by acquisition of an undervalued company at a bargain price can deliver enhanced shareholder value Management sometimes undertakes a strategy of unrelated diversification for the wrong reasons: (1) risk reduction by spreading the company's investments over a set of diverse industries; (2) expectations for rapid or continuous growth; (3) earnings stabilization, i.e. market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses; (4) managerial motives including the prospects for higher compensation—diversification for this reason alone is far more likely to reduce shareholder value than to increase it. The premise of acquisition-minded corporations is that growth by acquisition can deliver enhanced shareholder value through upward-trending corporate revenues and earnings and a stock price that on average rises enough year after year to amply reward and please shareholders. Three types of acquisition candidates are usually of particular interest: (1) businesses that have bright growth prospects but are short on investment capital, (2) undervalued companies that can be acquired at a bargain price, and (3) struggling companies whose operations can be turned around with the aid of the parent company's financial resources and managerial know-how.

26. Unrelated businesses A. sell products from the different businesses to much the same types of buyers and retail outlets. B. have dissimilar value chains and resource requirements with no competitively important cross-business commonalities at the value chain level. C. perform better than just the sum of the individual businesses. D. will always have several key suppliers in common. E. employ production methods that create economies of scale.

have dissimilar value chains and resource requirements with no competitively important cross-business commonalities at the value chain level. Unrelated businesses have dissimilar value chains and resource requirements, with no competitively important cross-business commonalities at the value chain level.

A disadvantage of using short-term contract for the supplying firm is that they...

have little reason to perform transaction-specific investments

One Reason why a firm might enter into a strategic alliance is to ___________.

hedge against uncertainty

One reason why a firm might enter into a strategic alliance is to ______.

hedge against uncertainty

In 2010 Kraft Foods bought UK-based Cadbury PLC in a hostile takeover. Kraft felt that a __________ with Cadbury would help Kraft break into emerging countries because of the strong position Cadbury had in India, Egypt, Thailand and other countries.

horizontal integration

Chao's Coffee is a large chain of coffee shops. It wants to join with Rigoberto Roasters, a large coffee roasting company. Rigoberto Roasters wants to stay independent, but Chao's is able to purchase Rigoberto. This describes a(n) ______.

hostile takeover

A firm must decide whether to build, borrow, or buy to answer the question of ______.

how it will achieve growth

78. The businesses in a diversified company's lineup exhibit good resource fit when A. the resource requirements of each business exactly match the resources the company has available. B. individual businesses have matching resource requirements at points along their value chain and add to a company's overall resource strengths and when solid parenting capabilities exist without spreading itself too thin. C. each business generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent. D. each business unit produces sufficient cash flows over and above what is needed to build and maintain the business, thereby providing the parent company with enough cash to pay shareholders a generous and steadily increasing dividend. E. there are enough cash cow businesses to support the capital requirements of the cash hog businesses.

individual businesses have matching resource requirements at points along their value chain and add to a company's overall resource strengths and when solid parenting capabilities exist without spreading itself too thin.

each stage of the vertical value chain represents a distinct _________ in which a number of different firms are competing

industry

The ________ includes the five different stages - introduction, growth, shakeout, maturity, and decline - that occur in the evolution of an industry over time.

industry life cycle

The ______ depicts the transformation of raw materials into finished goods and services along distinct vertical stages, each of which represents a distinct industry in which a number of different firms are competing.

industry value chain

Transformation of raw materials into finished goods and services along distinct stages, each of which represents a distinct industry in which a number of different firms are competing

industry value chain

An ______ is a depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing.

industry value chain **pp. 265

A ______ is a situation in which one party is more informed than another because of the possession of private information.

information asymmetry

_______ is a situation in which one party has more knowledge than another due to the possession of private knowledge

information asymmetry

_______ is a situation in which one party has more knowledge than another due to the possession of private knowledge.

information asymmetry

Amazon's continued focus on ______ is a key to its ongoing success.

innovation

______ is the commercialization of any new product or process, or the modification and recombination of existing ones.

innovation

Dominant positions can quickly change due to _____.

innovation ***can be a powerful strategic weapon to gain and sustain competitive advantage

An _______ is a firm's embeddedness in a complex network of suppliers, buyers, and complementors, which requires interdependent strategic decision making.

innovation ecosystem

Though natural resources can be a boon to a country's economy, more important than resources are a country's ___________ frameworks

institutional

______ are costs pertaining to organizing an economic exchange within a hierarchy.

internal transaction costs **also called administrative costs

When innovating within existing companies, change agents are often called ______ - those pursuing _______ entrepreneurship.

intrapreneurs; corporate

An ______ is the transformation of an idea into a new product or process - or the modification and recombination of existing ones.

invention

86. Which of the following is NOT a reasonable option for deploying a diversified company's financial resources? A. making acquisitions to establish positions in new businesses or to complement existing businesses B. investing financial resources in cash cow businesses until they show enough strength to generate positive cash flows C. funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses D. paying down existing debt, increasing dividends, or repurchasing shares of the company's stock E. investing in ways to strengthen or grow existing businesses

investing financial resources in cash cow businesses until they show enough strength to generate positive cash flows

97. Corporate restructuring strategies A. involve making major changes in a diversified company's business lineup, divesting some businesses and/or acquiring others, so as to put a whole new face on the company's business lineup. B. entail reducing the scope of diversification to a smaller number of businesses. C. entail selling off marginal businesses to free up resources for redeployment to the remaining businesses. D. focus on crafting initiatives to restore a diversified company's money-losing businesses to profitability. E. focus on broadening the scope of diversification to include a larger number of businesses and boosting the company's growth and profitability.

involve making major changes in a diversified company's business lineup, divesting some businesses and/or acquiring others, so as to put a whole new face on the company's business lineup.

Licensing

is a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property such as a patent

what are the components of post formation alliance management

make relation specific investments, establish knowledge sharing routines, and build interfirm trust

To have competitive advantage, partnerships need combinations that obey the VRIO criteria if the alliance partners:

make relation-specific investments, establish knowledge-sharing routines, and build interfirm trust

44. An umbrella brand A. is a generalized resource that can be leveraged in unrelated diversification. B. is a brand name that can steer a narrow assortment of business types. C. represents a public disclosure spotlighting the corporate image. D. represents an overall corporate marker covering its overriding image of sustainability and responsibility. E. is a specialized resource designed to influence profit growth.

is a generalized resource that can be leveraged in unrelated diversification. An umbrella brand is a corporate brand name that can be applied to a wide assortment of business types. As such, it is a type of general resource that can be leveraged in unrelated diversification.

International strategy

is essentially a strategy in which a company sells the same products or services in both domestic and foreign markets -this strategy is often used successfully by MNEs with relatively large domestic markets with strong reputations and brand names

Horizontal integration

is the process of merging with a competitor at the same stage of the industry value chain -large horizontal integration activity typically needs to be approved by government authorities

71. The nine-cell industry attractiveness competitive strength matrix A. is useful for helping decide which businesses should have high, average, and low priorities in deploying corporate resources. B. indicates which businesses are cash hogs and which are cash cows. C. pinpoints what strategies are most appropriate for businesses positioned in the three top cells of the matrix, but is less clear about the best strategies for businesses positioned in the bottom six cells. D. identifies which sister businesses have the greatest strategic fit. E. identifies which sister businesses have the highest level of resource fit.

is useful for helping decide which businesses should have high, average, and low priorities in deploying corporate resources. The nine-cell attractiveness-strength matrix provides clear, strong logic for why a diversified company needs to consider both industry attractiveness and business strength in allocating resources and investment capital to its different businesses. A good case can be made for concentrating resources in those businesses that enjoy higher degrees of attractiveness and competitive strength, being very selective in making investments in businesses with intermediate positions on the grid, and withdrawing resources from businesses that are lower in attractiveness and strength unless they offer exceptional profit or cash flow potential.

In general, related diversification leads to high levels of performance because ____________.

it accesses numerous areas of value creation, such as economies of scale and scope

80. A diversified company's business units exhibit good financial resource fit when A. each business is sufficiently profitable to generate an attractive return on invested capital. B. the resource requirements of each business exactly match the company's available resources. C. it has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall strengths. D. each business unit produces large internal cash flows over and above what is needed to build and maintain the business. E. each business is sufficiently profitable to generate an attractive return on invested capital.

it has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall strengths.

which of the following are true of alliance management capability?

it involves partner selection and alliance formation a firm may need to employ it with several different alliances

A firm should consider using mergers and acquisitions only when ______.

it is important to be extremely close to the resource partner in order to understand underlying information

a firm should consider using mergers and acquisitions only when _________

it is important to be extremely close to the resource partner in order to understand underlying information

A firm should consider using mergers and acquisitions only when __________

it is important to be extremely close to the resource partner in order to understand underlying information.

A firm should consider using mergers and acquisitions only when

it is important to be extremely close tot he resource partner in order to understand underlying information

how does horizontal integration affect Porter's five Forces for the surviving fimrs

it reduces the threat of entry -it reduces rivalry among existing firms -it strengthens bargaining power for suppliers

77. A diversified company's business units exhibit good resource fit when A. each business is a cash cow. B. its businesses add to a company's overall resource strengths and have matching resource requirements and/or when the parent has adequate corporate resources to support its business needs and add value. C. each business is sufficiently profitable to generate an attractive return on invested capital. D. each business unit produces large internal cash flows over and above what is needed to build and maintain the business. E. the resource requirements of each business exactly match the company's available resources.

its businesses add to a company's overall resource strengths and have matching resource requirements and/or when the parent has adequate corporate resources to support its business needs and add value.

A ______ is a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.

managerial hubris

Zoe is a manager at a large company engaged in the acquisition of a smaller company. The smaller company has operated at a loss for the last three years under three different managers, but Zoe is convinced that she can turn the company around despite the evidence to the contrary. Zoe is engaging in ______.

managerial hubris

65. For a diversified company to be a strong performer A. a substantial portion of its revenues and expenses must come from business units with relatively low attractiveness scores. B. its principal business must be in industries with a good outlook for growth and above-average profitability. C. its business units in high attractiveness score industries should be candidates for divesture. D. its business units must operate within the favorable aspects of their industry environment. E. its business units must have a popular image, even if the performance of their products does not greatly satisfy buyer expectations.

its principal business must be in industries with a good outlook for growth and above-average profitability. Above-average profitability on a consistent basis is a signal of competitive advantage, and therefore its principal business must be in industries with a good outlook for growth and above-average profitability.

90. A company that is already diversified may choose to broaden its business scope by building positions in new related or unrelated businesses because of all of the following EXCEPT A. it has resources or capabilities that are eminently transferable to other related or complementary businesses. B. the company's growth is sluggish and it wants the sales and profit boost that a new business can provide. C. management wants to lessen the company's vulnerability to seasonal or recessionary influences or to threats from emerging new technologies, legislative regulations, and new product innovations that alter buyer preferences and resource requirements. D. it wants to make new acquisitions to strengthen or complement some of its present businesses, market positioning, and competitive capabilities. E. its top management wants to increase its compensation.

its top management wants to increase its compensation.

A standalone organization that two or more parent companies create and own together is a ___________.

joint venture

A(n) ________ is a standalone organization created and jointly owned by two or more parent companies.

joint venture

The three mechanisms to govern alliances are non-equity alliances, equity alliances, and ______.

joint venture

Corporate strategy needs to be dynamic over time in order to ______. (Check all that apply.)

keep and maintain a competitive advantage respond to the ever-changing external environment diversify to capture growth opportunities

explicit knowledge

knowledge that can be codifies; concerns knowing a process or product (patents, user manuals, fact sheets, and scientific publications)

tacit knowledge

knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task

in order to build alliance management capabilities in small companies, it is recommended that firms take the ___ approach

learning by doing

When two firms form a strategic alliance to learn, but the rate at which they learn may vary, it is known as a

learning race

______ refers to situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary.

learning races

dedicated alliance function

led by a vice president or director of alliance management and endowed with its own resources and support staff. task of coordinating all alliance-related activity in the entire org, take a corporate level perspective,create processes and structures to teach and leverage that experience and related knowledge throughout the rest of the org

48. For an unrelated diversification strategy to produce financial results above that of stand-alone entities, executives must do all of the following EXCEPT A. diversify into businesses that can produce consistently good earnings and returns on investment and thereby satisfy the attractiveness test. B. negotiate favorable acquisition prices (to satisfy the cost of entry test). C. do a superior job of corporate parenting via high-level managerial oversight and resource sharing, financial resource allocation and portfolio management, or restructuring underperforming businesses (to satisfy the better-off test). D. satisfy the attractiveness test, the cost of entry test, and the better-off test. E. leverage the cross-business strategic fit advantage effectively.

leverage the cross-business strategic fit advantage effectively. Given the absence of cross-business strategic fit with which to create competitive advantages, an unrelated diversification strategy ultimately hinges on the ability of the parent company to improve its businesses (and make the combination better off) via other means.

MNEs pursuing a multidomestic strategy hope that _______________.

local consumers will perceive them to be a domestic company

The benefits to be accrued from locating value chain activities in the world's optimal geographies for a specific activity are known as_________ economies.

location

Which of the following are types of strategic alliances? (Check all that apply.)

long-term contracts joint ventures equity alliances

Alternatives in the make or buy continuum include which of the following

long-term contracts: licensing or franchising equity alliances joint ventures

What is a disadvantage of wholly owned affiliates?

losses for parent company can be enormous

When Pfizer and Wyeth merged, they reduced the size of their combined sales force while also increaseing the number of drugs they could promote. This is an example of which source of value creation for M&As?

lower costs

When Pfizer and Wyeth merged, they reduced the size of their combined sales force while also increasing the number of drugs they could promote. This is an example of which source of value creation for M&As?

lower costs

Zoe is a manager at a large company engaged in the acquisition of a smaller company. The smaller company has operated at a loss for the last three years under three different managers, but Zoe is convinced that she can turn the company around despite the evidence to the contrary. Zoe is engaging in ____________.

managerial hubris

When managers of acquiring companies incorrectly convince themselves that they are able to manage the business of the target company more effectively than its current managers, they are engaging in ____________.

managerial huburis

A ___________ is when tow firms agree to join and create a combined intitiy, and a _________ is when on firm buys or takes over another firm.

merger; acquisition

A(n) ______ is when two firms agree to join and create a combined entity, and a(n) ______ is when one firm buys or takes over another firm.

merger; acquisition

_______ are the positive effects (externally) that one user of a product. or services has on the value of that product for other users.

network effects **pp. 220

The most common type of alliance is a(n) ______.

non-equity alliance

Economics of scale

occurs when a firm's average cost per unit decreases as its output increase. -Large firm: given its size, it is able to spread its fixed cost over the millions of gallons of beer it brews each year,and significant buyer power, which leads to low cost

40. A big advantage of related diversification is that it A. offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present competitively valuable cross-business relationships. B. is less capital intensive and usually more profitable than unrelated diversification. C. involves diversifying into industries having the same kinds of key success factors. D. is less risky than either vertical integration or unrelated diversification due to lower capital requirements. E. passes the industry attractiveness test and thus offers the best route to 2 + 2 = 4 benefits.

offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present competitively valuable cross-business relationships. The competitive advantage potential that flows from the capture of strategic fit benefits is what enables a company pursuing related diversification to achieve 1 + 1 = 3 financial performance and the hoped-for gains in shareholder value.

___________ refers to the act of of outsourcing some of the firm's activities outside of the home country to another nation.

offshoring

Tacit knowledge can _______________

only be acquired through actively participating in the process

_______ is a framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones.

open innovation **the sharing goes both ways - some external ideas and investors are in-sourced, while others. are spun out

Which of the following behaviors is characterized by self-interest with guile?

opportunism

Corporate executives have three options at their disposal to drive firm growth:

organic growth through internal development, external growth through alliances, or external growth through acquisitions

31. Which of the prime examples of strategic fit opportunities below are NOT related business activities? A. transferring specialized expertise, technological know-how, or other valuable resources and capabilities from one business's value chain to another's B. cost sharing between businesses by combining their related value chain activities into a single operation C. overhauling and streamlining the operations of the business by refocusing value chain activities toward businesses that can provide a superior job of parenting D. exploiting common use of a well-known brand name E. sharing other resources (besides brands) that support corresponding value chain activities across businesses

overhauling and streamlining the operations of the business by refocusing value chain activities toward businesses that can provide a superior job of parenting Transferring specialized expertise, technological know-how, or other valuable resources and capabilities from one business's value chain to another's, cost sharing between businesses by combining their related value chain activities into a single operation, exploiting common use of a well-known brand name, and sharing other resources (besides brands) that support corresponding value chain activities across businesses are all good examples of strategic fit opportunities.

Two necessary conditions for successful alliance formation?

partner compatibility and commitment

Although the three tasks of alliance management capability often occur at the same time, in general what is the first phase of alliance management?

partner selection and alliance formation

although the three tasks of alliance management capability often occur at the same time, in general what is the first phase of alliance management?

partner selection and alliance formation

A firm with alliance management capability is able to effectively manage which of the following tasks? (Check all that apply.)

partner selection and alliance formation alliance design and governance post-formation alliance management

what are the phases of alliance management?

partner selection and alliance formation alliance design and governance post-formation alliance management

a firm with alliance management capability is able to effectively manage which of the following tasks?

partner selection and alliance formation alliance design and governance post-formation alliance management

52. The one factor that company executives need not worry about when their company is managing many diverse, unrelated firms is to A. stay abreast of what's happening in each industry and subsidiary. B. pick business-unit heads having the requisite combination of managerial skills and know-how to motivate people. C. understand the true value of strategic investment proposals by business-unit managers. D. know what to do if a business unit stumbles. E. "manage by the numbers"—that is, keep a close track on the financial and operating results of each subsidiary.

pick business-unit heads having the requisite combination of managerial skills and know-how to motivate people. The greater the number of businesses a company is operating in and the more diverse those businesses are, the more difficult it is for corporate managers to: (1) stay abreast of what's happening in each industry and each subsidiary; (2) pick business-unit heads having the requisite combination of managerial skills and know-how to drive gains in performance; (3) tell the difference between those strategic proposals of business-unit managers that are prudent and those that are risky or unlikely to succeed; (4) know what to do if a business unit stumbles and its results suddenly head downhill; and (5) "manage by the numbers"—that is, keep a close track on the financial and operating results of each subsidiary and assume that the heads of the various subsidiaries have most everything under control so long as the latest key financial and operating measures look good.

What are the phases of alliance management? (Check all that apply.)

post-formation alliance management alliance design and governance partner selection and alliance formation

An acquisition premium is the amount by which the price offered for an existing business exceeds the A. fair market value of similar companies in the same geographic locale. B. preacquisition market value of the target company. C. comparable value of similar companies within the same market. D. amount paid as a down payment to be held in escrow until closing. E. difference between the amount that was offered and the amount that is escrowed.

preacquisition market value of the target company. An acquisition premium, or control premium, is the amount by which the price offered exceeds the preacquisition market value of the target company.

A ______ is a situation in which an agent performing activities on behalf of a principal pursues his or her own interests.

principal-agent problem

17. The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves assessing whether the move will A. make the company better off because it will produce a greater number of core competencies. B. make the company better off by improving its balance sheet strength and credit rating. C. make the company better off by spreading shareholder risks across a greater number of businesses and industries. D. produce a synergistic 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. E. help each business earn exactly what they were earning before coming under the same corporate umbrella.

produce a synergistic 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. Diversification does not result in added long-term value for shareholders unless it produces a 1 plus 1 equal to 3 effect, whereby the businesses perform better together as part of the same firm than they could have performed as independent companies.

A ______ is a corporate strategy in which a firm is active in several different product markets.

product diversification strategy

A ______ is a corporate strategy in which a firm is active in several different product markets, and several different countries.

product-market diversification strategy

Types of general diversification stratgies

product-market, geographic, product

Types of general diversification strategies

product: a firm that is active in several different product markets Geographic; a firm that is active in several different countries Product-market: a company that pursues both a product and a geographic strategy

61. The chief purpose of calculating quantitative industry attractiveness scores for each industry a company has diversified into is to A. determine which industry is the biggest and fastest growing. B. get in position to rank the industries from most competitive to least competitive. C. provide a basis for drawing analysis-based conclusions about the attractiveness of the industries a company has diversified into, both individually and as a group, and further to provide an indication of which industries offer the best and worst long-term prospects. D. ascertain which industries have the easiest-to-achieve key success factors. E. rank the attractiveness of the various industry value chains from best to worst.

provide a basis for drawing analysis-based conclusions about the attractiveness of the industries a company has diversified into, both individually and as a group, and further to provide an indication of which industries offer the best and worst long-term prospects. Calculating quantitative industry attractiveness scores for each industry helps in ranking the performance prospects of the businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its various businesses.

87. Corporate strategy options for already diversified companies include all of the following EXCEPT A. broadening the company's business scope by making new acquisitions in new industries. B. divesting weak-performing businesses and retrenching to a narrower base of business operations. C. restructuring the company's business lineup with a combination of divestitures and new acquisitions to put a whole new face on the company's business makeup. D. pursuing growth opportunities within the existing business lineup. E. pursuing certain acquisitions even if they have done badly or haven't quite lived up to expectations.

pursuing certain acquisitions even if they have done badly or haven't quite lived up to expectations.

Diversification discount

situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units

leading races

situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary

81. Management's ranking of business units and establishing a priority for resource allocation should A. always make the company's business units with strong resource strengths and competitive capabilities the central focus of funding initiatives. B. put business units with the brightest profit and growth prospects and solid strategic and resource fits at the top of the investment priority list. C. utilize activity-based costing and benchmarking to determine the funding needs of each business unit. D. first consider the strength of funding proposals presented by managers of each division or business unit. E. give priority for funding to cash hog businesses.

put business units with the brightest profit and growth prospects and solid strategic and resource fits at the top of the investment priority list.

because it targeted a new market and used new technologies, the first mass produced automobile is considered a ___________ innovation

radical

______ is an innovation that draws on novel methods or materials, is derived from an entirely different knowledge base, or from a recombination of the existing knowledge bases with a new stream of knowledge.

radical innovation

69. The value of determining the relative competitive strength of each business a company has diversified into is to have a quantitative basis for A. identifying which businesses have large/small competitive advantages or competitive disadvantages vis-à-vis the rivals in their respective industries. B. rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth. C. comparing resource strengths and weaknesses, business by business. D. rating them from strongest to weakest in contending for market leadership in their respective industries. E. rating them from strongest to weakest in terms of contributing to the corporate parent's profitability.

rating them from strongest to weakest in contending for market leadership in their respective industries.

_______ is an approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.

real-options perspective

Which of the following are benefits of a horizontal integration? (Check all that apply.)

reduced competition increased differentiation

In a global-standardization strategy, the main competitive element is______.

reduced cost

Three benefits to a horizontal integration strategy:

reduction in competitive intensity, lower costs, increased differentiation, enhance economic value creation, provide such benefits as complementary products in their offering

13. Initiating actions to boost the combined performance of the corporation's collection of businesses includes all of the following strategic options, EXCEPT A. sticking closely with the existing business lineup and pursuing available opportunities. B. broadening the scope of diversification by entering additional industries. C. divesting some businesses and retrenching to a narrower collection of businesses. D. restructuring the entire company by adding and removing businesses to improve overall performance. E. refocusing the existing businesses on new substitute product-line opportunities outside the existing industry framework.

refocusing the existing businesses on new substitute product-line opportunities outside the existing industry framework. Initiating actions to boost the combined performance of the corporation's collection of businesses does not include the option of refocusing the existing businesses on new substitute product-line opportunities outside the existing industry framework.

A firm follows a(n) _______________ diversification strategy when it drives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

related

A ______ is a corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

related diversification strategy

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

related or unrelated

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

related or unrelated

To figure out if a firm's type of diversification is

related or unrelated, one can ask questions about the degree to which the corporation's business units share core competencies

A _______ is a kind of related diversification strategy in which executives pursue only businesses where they can apply the resources and core competencies already available in the primary business.

related-constrained diversification strategy

Why did Coke enter into a strategic alliance with Monster?

so that it could gain private info to determine whether an acquisition might be beneficial

Why did coca-cola enter into a strategic alliance with monster?

so that it could gain private info to determine whether an acquisition might be beneficial

Why did Coca-Cola enter into a strategic alliance with Monster?

so that it could gain private information to determine whether an acquisition might be beneficial

Why did Coke enter a strategic alliance with Monster

so that they could gain private info to determine whether an acquisition might be smart

________ is the pursuit of social goals while creating a profitable business.

social entrepreneurship

Which of the following is true of firms acquisition and integration capabilities?

some firms can consistently use mergers and acquisitions to increase their competition advantage

66. Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as A. vulnerability to seasonal and cyclical downturns, vulnerability to driving forces, and vulnerability to fluctuating interest rates and exchange rates. B. relative market share, the ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and the ability to benefit from strategic fits with sister businesses. C. the appeal of its strategy, the relative number of competitive capabilities, the number of products in each business's product line, which businesses have the highest/lowest market shares, and which businesses earn the highest/lowest profits before taxes. D. the ability to hurdle barriers to entry, value chain attractiveness, and business risk. E. cost reduction potential, customer satisfaction potential, and comparisons of annual cash flows from operations.

relative market share, the ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and the ability to benefit from strategic fits with sister businesses. Relative market share, the ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors' costs, and the ability to benefit from strategic fits with other business units are some factors used in quantifying the competitive strengths of a diversified company's business subsidiaries.

93. Moves to improve a diversified company's overall performance do NOT include A. retrenching to a narrower base of business operations. B. broadening the company's business scope by making new acquisitions in new industries. C. restructuring the company's business lineup and putting a whole new face on the company's business makeup. D. sticking closely to the existing business lineup and pursuing the growth opportunities presented by these businesses. E. retaining weak-performing businesses in order to sustain a wide base of business operations.

retaining weak-performing businesses in order to sustain a wide base of business operations.

______ is an innovation that was developed for emerging economies before being introduced in developed economies.

reverse innovation **also known as frugal innovation

_______ are perhaps the major drawback of transacting in markets.

search costs

68. Calculating quantitative competitive strength ratings for each of a diversified company's business units involves A. determining each industry's key success factors, rating the ability of each business to be successful on each industry KSF, and adding the individual ratings to obtain overall measures of each business's ability to compete successfully. B. identifying the competitive forces facing each business, rating the strength of these competitive forces industry by industry, and then ranking each business's ability to be profitable, given the strength of the competition it faces. C. selecting a set of competitive strength measures, weighting the importance of each measure, rating each business on each strength measure, multiplying the strength ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each business unit to obtain an overall competitive strength score, and using the overall competitive strength scores to evaluate the competitive strength of all the businesses, both individually and as a group. D. determining which businesses possess good strategic fit with other businesses, identifying the portion of the value chain where this fit occurs, and evaluating the strength of the competitive advantage attached to each of the strategic fits to get an overall measure of competitive advantage potential. Businesses with the highest/lowest competitive advantage potential have the most/least competitive strength. E. rating the caliber of each businesses strategic and resource fit, weighting the importance of each type of strategic/resource fit, calculating weighted strategic/resource fit scores, and adding the weighted ratings for each business to obtain an overall strength score for each business unit that indicates whether the company has adequate strategic/resource fits to be a strong market contender in each of the industries where it competes.

selecting a set of competitive strength measures, weighting the importance of each measure, rating each business on each strength measure, multiplying the strength ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each business unit to obtain an overall competitive strength score, and using the overall competitive strength scores to evaluate the competitive strength of all the businesses, both individually and as a group.

60. Calculating quantitative attractiveness ratings for the industries a company has diversified into involves A. determining each industry's key success factors, calculating the ability of the company to be successful on each industry KSF, and obtaining overall measures of the firm's ability to compete successfully in each of its industries based on the combined KSF ratings. B. determining each industry's competitive advantage factors, calculating the ability of the company to be successful on each competitive advantage factor, and obtaining overall measures of the firm's ability to achieve sustainable competitive advantage in each of its industries based on the combined competitive advantage factor ratings. C. selecting a set of industry attractiveness measures, weighting the importance of each measure, 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 interpret the attractiveness of all the industries, both individually and as a group. D. rating the attractiveness of each industry's strategic and resource fits, summing the attractiveness scores, and determining whether the overall scores for the industries as a group are appealing or not. E. identifying each industry's average profitability, rating the difficulty of achieving average profitability in each industry, and deciding whether the company's prospects for above-average profitability are attractive or unattractive, industry by industry.

selecting a set of industry attractiveness measures, weighting the importance of each measure, 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 interpret the attractiveness of all the industries, both individually and as a group. Calculating quantitative competitive strength ratings for each of a diversified company's business units involves selecting a set of competitive strength measures, weighting the importance of each measure, rating each business on each strength measure, and multiplying the strength ratings by the assigned weight to obtain a weighted rating. The sum of the weighted ratings across all the strength measures provides a quantitative measure of a business unit's overall market strength and competitive standing.

Growth share matrix requires managers to view their SBU's in terms of relative market _______ and speed of market ________

share and growth

_______ is an example of an alternative arrangement located on the continuum between "buying" and "making."

short-term contracting

Which types of diversification tend to have the lowest performances

single business and unrelated diversification

1. Diversification into new industries deserves strong consideration when a A. single-business company can achieve profitable growth opportunities in its present industry. B. single-business company needs to develop a corporate-wide strategy. C. single-business company needs to develop a multi-line strategy. D. single-business company encounters diminishing market opportunities and stagnating sales in its principal business. E. multiple-business company encounters enhanced market opportunities and increasing sales in its principal business.

single-business company encounters diminishing market opportunities and stagnating sales in its principal business. As long as a single-business company can achieve profitable growth opportunities in its present industry, there is no urgency to pursue diversification. However, a company's opportunities for growth can become limited if the industry becomes competitively unattractive. Thus, diversifying into new industries always merits strong consideration whenever a single-business company encounters diminishing market opportunities and stagnating sales in its principal business.

33. Which of the following is NOT a contributing reason for businesses with strategic fit in R&D or technology activities to perform better together? A. the ability to continue using existing processes B. cost savings in research and development areas C. shorter times in getting new products to market D. increased sales in both the parent company and the diversified businesses E. a greater number of innovative products or processes

the ability to continue using existing processes Businesses with strategic fit in R&D or technology development perform better together than apart because of potential cost savings in R&D, shorter times in getting new products to market, and more innovative products or processes. Moreover, technological advances in one business can lead to increased sales for both. Technological innovations have been the key driver behind the success of several diversified businesses, while businesses using outdated processes or technologies tend to lag behind or even fail.

"Unrelated" refers to...

the absence of direct links between businesses.

what are downsides of equity alliances?

the amount of investment involved the time and effort for assembling the partnership

A real-options perspective

the approach to strategic decision making that takes a larger investment decision and divides it into multiple smaller decisions that happens over time

82. The tests of whether a diversified company's businesses exhibit resource fit do NOT include whether A. the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses. B. a business adequately contributes to achieving the corporate parent's performance targets. C. the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating. D. the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money. E. the corporate parent has or can develop sufficient resource strengths and competitive capabilities to be successful in each of the businesses it has diversified into.

the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money.

What are the three dimensions along which executives formulate corporate strategy?

the degree of vertical integration the geographic scope the type of diversification

47. The two biggest drawbacks or disadvantages of unrelated diversification are A. the difficulties of passing the cost of entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense. B. the difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business. C. the demanding managerial requirements and the limited competitive advantage potential due to lack of cross-business strategic fit benefits. D. ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses it has diversified into. E. the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company's different businesses.

the demanding managerial requirements and the limited competitive advantage potential due to lack of cross-business strategic fit benefits. Besides demanding managerial requirements, unrelated diversification offers only a limited potential for competitive advantage beyond what each individual business can generate on its own. Unlike a related diversification strategy, unrelated diversification provides no cross-business strategic fit benefits that allow each business to perform its key value chain activities in a more efficient and effective manner.

51. Two important negatives of unrelated diversification are A. underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does NOT know all that much about. B. insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses it has diversified into. C. volatile sales and profits and making the mistake of diversifying into too many cash cow businesses. D. the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides. E. overinvesting in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.

the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides. Unrelated diversification strategies have two important negatives that undercut the pluses: very demanding managerial requirements and limited competitive advantage potential due to the absence of cross-business strategic fit.

49. The two biggest drawbacks or disadvantages of unrelated diversification are A. underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does not know all that much about. B. insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses it has diversified into. C. volatile sales and profits and making the mistake of diversifying into too many cash cow businesses. D. the difficulties of competently managing many different businesses and being without the added source of competitive advantage that cross-business strategic fit provides. E. over-investing in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.

the difficulties of competently managing many different businesses and being without the added source of competitive advantage that cross-business strategic fit provides. Besides demanding managerial requirements, unrelated diversification offers only a limited potential for competitive advantage beyond what each individual business can generate on its own. Unlike a related diversification strategy, unrelated diversification provides no cross-business strategic fit benefits that allow each business to perform its key value chain activities in a more efficient and effective manner.

What are common reasons a firm might pursue a merger? (Check all that apply.)

to overcome competitive disadvantage to address principal agent problems to gain superior acquisition and integration capability

59. Which of the following is NOT generally something that ought to be considered in evaluating the attractiveness of a multibusiness (diversified) company's business makeup? A. market size and projected growth rate, industry profitability, and the intensity of competition B. industry uncertainty and business risk C. the frequency with which strategic alliances and collaborative partnerships are used in each industry, and the extent to which firms in the industry utilize outsourcing D. resource requirements, and whether an industry has significant social, political, regulatory, and environmental problems E. the presence of cross-industry strategic fits and matching resource requirements to the parent company

the frequency with which strategic alliances and collaborative partnerships are used in each industry, and the extent to which firms in the industry utilize outsourcing Market size and projected growth rate, the intensity of competition, emerging opportunities and threats, the presence of cross-industry strategic fit, resource requirements, social, political, regulatory, and environmental factors, and industry profitability are some measures for gauging industry attractiveness.

Merger

the joining of two independent companies to form a combines entity; friendly

When a company has difficulty coordinating operations across geographic distance and between distinct cultural environments, it experiences _______________.

the liability of foreignness

When a company has difficulty coordinating operations across geographic distance and between distinct culture environments, its experiences....

the liability of foreignness

influence costs

the loss of efficiency that arises from deliberate information distortions for personal gain within an organization

The degree of vertical integration corresponds to

the number of industry value chain stages in which a firm directly participates

The degree of vertical integration corresponds to ______.

the number of industry value chain stages in which a firm directly participates

36. What makes related diversification an attractive strategy? A. the ability to broaden the company's product line B. the opportunity to convert cross-business strategic fit into competitive advantage over business rivals whose operations don't offer comparable strategic fit benefits C. the potential for improving the stability of the company's financial performance D. the ability to serve a broader spectrum of buyer needs E. the added capability it provides in overcoming the barriers to entering foreign markets

the opportunity to convert cross-business strategic fit into competitive advantage over business rivals whose operations don't offer comparable strategic fit benefits What makes related diversification an attractive strategy is the opportunity to convert cross-business strategic fit into a competitive advantage over business rivals whose operations do not offer comparable strategic-fit benefits.

The most integrated alternative to vertical integration is ______________.

the parent-subsidiary relationship

24. The transaction costs of completing a business agreement or deal of some sort, over and above the price of the deal, can include all of the following EXCEPT A. the costs of searching for an attractive target. B. the costs of evaluating its worth. C. bargaining costs. D. the costs of completing the transaction. E. the premium cost.

the premium cost. Transaction costs are the costs of completing a business agreement or deal, over and above the price of the deal. They can include the costs of searching for an attractive target, the costs of evaluating its worth, bargaining costs, and the costs of completing the transaction, but not the premium cost. This is because the price of the deal includes the acquisition premium cost over the share price of the target company.

horizontal integration

the process of merging with a competitor at the same stage of the industry value chain; can improve a firm;s strategic position; firms should do this is the target firm is more valuable inside the acquiring firm than as a continued standalone company

acquisition

the purchase or takeover of one company by another. friendly or unfriendly

12. Establishing investment priorities and steering corporate resources into the most attractive business units typically requires the company to decide on all of the following options, EXCEPT A. the pursuit of rapid growth strategies in its most promising businesses. B. initiating profit improvement or turnaround strategies in weak-performing businesses with potential. C. the divestiture of unattractive businesses. D. the pursuit of debt reduction opportunities that can lower the debt/equity ratio while maintaining asset levels. E. the divestiture of businesses that do not fit into the company's longer term plans.

the pursuit of debt reduction opportunities that can lower the debt/equity ratio while maintaining asset levels. The pursuit of debt reduction opportunities that can lower the debt/equity ratio while maintaining asset levels is not one of the rapid growth strategies for a company.

A disadvantage of a short term contract as an alternative on the make-or-buy continuum is that ________________.

the supplying firm has little reason to perform transaction-specific investments

A disadvantage of a short-term contract as an alternative on the make-or-buy continuum is that ______.

the supplying firm has little reason to perform transaction-specific investments

Horizontal integration is a good option if ______.

the target firm will have more value when combined with the acquiring firm

horizontal integration is a good option if

the target firm will have more value when combined with the acquiring firm

Horizontal integration can reduce _______________.

the threat of entry

horizontal integration can reduce

the threat of entry

When the costs of pursuing an activity in-house are less than the costs of transacting for that activity in the market, then the firm should ______.

vertically integrate **by owning production of the needed inputs or the channels for the distribution of outputs

58. As a rule, the key indicators of industry attractiveness, for all the industries represented in a diversified company's business portfolio, should NOT be measured on such attractiveness factors as A. market size and projected growth rate. B. emerging opportunities and threats, and the intensity of competition. C. resource requirements and the presence of cross-industry strategic fits. D. seasonal and cyclical factors, industry profitability, and whether an industry has significant social, political, regulatory, and environmental problems. E. the utility of the products for consumers from all age-groups.

the utility of the products for consumers from all age-groups. Market size and projected growth rate, the intensity of competition, emerging opportunities and threats, the presence of cross-industry strategic fit, resource requirements, social, political, regulatory, and environmental factors, and industry profitability are some measures for gauging industry attractiveness.

62. A weighted industry attractiveness assessment is generally analytically superior to an unweighted assessment because A. a weighted ranking identifies which industries offer the best/worst long-term profit prospects. B. an unweighted ranking doesn't discriminate between strong and weak industry driving forces and industry competitive forces. C. it does a more accurate job of singling out which industry key success factors are the most important. D. an unweighted ranking doesn't help identify which industries have the easiest and hardest value chains to execute. E. the various measures of attractiveness are not likely to be equally important in determining overall attractiveness.

the various measures of attractiveness are not likely to be equally important in determining overall attractiveness. Each attractiveness measure is assigned a weight reflecting its relative importance in determining an industry's attractiveness, since not all attractiveness measures are equally important.

25. The essential requirement for different businesses to be "related" is that A. their value chains exhibit competitively valuable cross-business commonalities. B. the products of the different businesses are bought by many of the same types of buyers. C. the products of the different businesses are sold in the same types of retail stores. D. the businesses have several key suppliers in common. E. the production methods they employ both entail economies of scale.

their value chains exhibit competitively valuable cross-business commonalities. Businesses are said to be related when their value chains exhibit competitively important cross-business commonalities.

Financial economies are more easily duplicated by competitors...

then are gains from operation and corporate relatedness.

what is a true statement about strategic alliances?

they have a high failure rate

which of the following statements about equity alliances are true?

they require larger investments than non-equity alliances

56. There is ample room for companies to customize their diversification strategies and be defined as being either narrowly or broadly diversified, and when combination related-unrelated diversification strategy options are adopted, they have particular appeal to A. those companies with a mix of valuable competitive assets, covering the spectrum from generalized to specialized resources and capabilities. B. those large multibusiness firms, sometimes called conglomerates, because they have a unique capability designed to stabilize earnings. C. companies with a portfolio of product choices for buyer-related behavior. D. corporate managers who take on risks without performing due diligence. E. corporate managers who want to play the corporate parent role without fiduciary responsibility.

those companies with a mix of valuable competitive assets, covering the spectrum from generalized to specialized resources and capabilities. Combination related-unrelated diversification strategies have particular appeal for companies with a mix of valuable competitive assets, covering the spectrum from general to specialized resources and capabilities.

Diversification

to answer questions about thenumber of markets to compete in and where to compete geographically relate to the broad topic of diversification. -a firm that engages in diversification increases the variety of products and services it offers or markets and the geographic regions in which it competes. -A non-diversified company focuses on a single market.

How do firms build alliance management capability?

to build capability through repeated experiences over time

74. Checking the competitive advantage potential of cross-business strategic fits in a diversified company involves evaluating the extent to which sister businesses present opportunities A. to combine the performance of certain cross-business activities and thereby reduce costs. B. to transfer skills, technology, or intellectual capital from one business to another. C. for the company's different businesses to share use of a well-respected brand name. D. for sister businesses to collaborate in creating valuable new competitive capabilities. E. to create a positive image in the industry irrespective of the financial performance of its businesses.

to create a positive image in the industry irrespective of the financial performance of its businesses. Relative market share, the ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors' costs, and the ability to benefit from strategic fits with other business units are some factors used in quantifying the competitive strengths of a diversified company's business subsidiaries.

What is the main gloa of corporate venture capital investments?

to create real options in terms of gaining access to new technologies

What is the main goal of corporate venture capital investments

to create real options in terms of gaining access to new technologies

Which of the following are reasons why firms enter into strategic alliances? (Check all that apply.)

to learn new capabilities to enter new markets to strengthen their competitive position

What are common reasons a firm might pursue a merger? (Check all that apply.)

to overcome competitive disadvantage to address principal-agent problems to gain superior acquisition and integration capability

50. Which of the following rationales for pursuing unrelated diversification is likely to increase shareholder value? A. to reduce risk by way of spreading the company's investments over a set of truly diverse industries B. to enable a company to achieve rapid or continuous growth C. to chance that market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses D. to provide benefits to managers such as high compensation and reduced unemployment risk E. to restructure an underperforming business

to restructure an underperforming business Risk reduction, rapid growth, stabilization of earnings, and managerial motives are misguided reasons for pursuing unrelated diversification to increase shareholder value.

______ is a theoretical framework that helps explain and predict the boundaries of the firm.

transaction cost economics

_________ is a theoretical framework that helps explain and predict the boundaries of the firm

transaction cost economics

_______ is a theoretical framework that helps explain and predict the boundaries of the firm

transaction cost economies

Which of the following is the term for the costs associated with an economic exchange?

transaction costs

______ include all internal and external costs associated with an economic exchange, whether within a firm or in markets.

transaction costs

Which of the following are the four underlying strategic management concepts that determine the scope of a firm? (Check all that apply.)

transaction costs core competencies economies of scope economies of scale

Unlike short-term contracts, long-term contracts encourage firms to make _____________ investments.

transaction specific

unlike short-term contracts, long-term contracts encourage firms to make _______ investments

transaction specific

______ is an advantage of a firm in organizing economic acitvity.

transaction-specific investments

Google's choice to hire programmers in-house suggest that they decided that the ___ costs associated with the strategy are_______ than the costs associated with contracting in the open market

transaction; lower

Google's choice to hire programmers in-house suggests that they decided that the _______________ costs associated with this strategy are _______________ than the costs associated with contracting in the open market.

transaction; lower

A(n) _______________ strategy focuses on integration at the business level by attempting to reconcile product differentiations at low cost.

transnational

Companies facing high pressure for both local and responsiveness and cost reduction should follow a _____ strategy

transnational

Equity alliances require larger investments than non-equity alliances

true

T or F, MNEs employs 19% of the US workforce

true

True or false: A horizontal integration strategy leads to industry consolidation.

true

True or false: Because the size of organizations is typically positively correlated with prestige, power, and pay, principal-agent problems might be a reason to pursue M&As.

true

True or false: It can be riskier to own parts of the supply chain than to rely on external supply chains.

true

true or false: a horizontal integration strategy leads to industry consolidation

true

which of the following are advantages of joint venture?

trust strong ties commitment

if an alliance between two firms succeeds, it is likely that the firms in the alliance

trust eachother

Joint Venture

two or more partners create and jointly own a new organization -since the partners contribute equity to a joint venture they make a long-term commitment, which in turn facilitates transaction-specified investments

The extent to which members of a society feel anxious when faced with an unknown situation is known as _______________.

uncertainty avoidance

Operating in a variety of industries from cars to hospitality. What kind of diversification is this

unrelated

A conglomerate fits which type of corporate diversification model?

unrelated diversification

Radical Innovation

uses new technologies to invade an existing market from the bottom up

______ refers to the firms' ownership of its production of needed inputs or of the channels by which it distributes its outputs.

vertical integration

_______ is the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.

vertical integration

___________ refers to the firms' ownership of its production of needed inputs or of the channels by which is distributes its outputs

vertical integration

What happens when the markets along the industry value chain are too risky and alternatives too costly in time or money?

vertical market failure

_______ is when the markets along the industry value chain are too risky, and alternatives are too costly in time or money.

vertical market failure

When a firm is more efficient in organizing economic activity than markets, they should do which of the following?

vertically integrate

19. Apple's $3 billion acquisition of Beats Electronics and Beats Music in 2014 was an attractive strategy option for entering promising new industries in headphones and streaming music services because it A. was an effective way to hurdle entry barriers, is usually quicker than trying to launch a brand-new startup operation, and allows the acquirer to move directly to the task of building a strong position in the target industry. B. was less expensive than launching a new startup operation, thus passing the cost of entry test. C. offered a challenging opportunity to train new resources and revive a sagging business even if does not offer great prospects for growth, profitability, or return on investment. D. was more likely to result in passing the shareholder value test, the profitability test, and the better-off test. E. offered the prospect of gaining an immediate competitive advantage in the new industry and thus helps ensure that the diversification move will pass the competitive advantage test for building shareholder value.

was an effective way to hurdle entry barriers, is usually quicker than trying to launch a brand-new startup operation, and allows the acquirer to move directly to the task of building a strong position in the target industry. Acquisition of an existing business offers an effective way to hurdle such entry barriers as acquiring technological know-how, establishing supplier relationships, achieving scale economies, building brand awareness, and securing adequate distribution. However, the industry to be entered through diversification must be structurally attractive, have resource requirements that match those of the parent company, and offer good prospects for growth, profitability, and return on investment.

95. When should a business NOT be divested? A. when the business is worth more to another company than to the parent company B. when the business is a cash cow C. when the business provides valuable strategic or resource fits for another company D. when shareholders would be better served if the company sells the business for a generous premium E. when the business lacks the cross-boundary presence of shared values and cultural compatibility

when the business is a cash cow

22. Which of the following is NOT a factor that makes it appealing to diversify into a new industry by forming an internal startup subsidiary to enter and compete in the target industry? A. when internal entry is cheaper than entry via acquisition B. when a company possesses the skills and resources to overcome entry barriers and there is ample time to launch the business and compete effectively C. when adding new production capacity will not adversely impact the supply demand balance in the industry by creating oversupply conditions D. when the industry is growing rapidly and the target industry is comprised of several relatively large and well-established firms E. when incumbent firms are likely to be slow or ineffective in combating a new entrant's efforts to crack the market

when the industry is growing rapidly and the target industry is comprised of several relatively large and well-established firms If the target industry is already comprised of several relatively large and well-established firms, it will not be appealing for a company to form an internal startup and enter and compete in the same industry.

When companies get involved in a bidding war and the winner overpays for the acquisition, the acquiring company has fallen victim to the ______.

winner's curse

______ are markets where the market leader captures almost all of the market share and is able to extract a significant amount of the value created.

winner-take-all markets

27. A related diversification strategy involves building the company around businesses A. with strategic fit with respect to key value chain activities and competitive assets. B. that are highly independent, proficient, and efficient operating firms. C. with strategic fit across separate value chain activities that drive each business. D. that can also include unrelated businesses with dissimilar resource requirements. E. that have dissimilar value chain activities with no cross-business commonalities.

with strategic fit with respect to key value chain activities and competitive assets. A related diversification strategy involves building the company around businesses where there is good strategic fit across corresponding value chain activities. Strategic fit exists whenever one or more activities constituting the value chains of different businesses are sufficiently similar to present opportunities for cross-business sharing or transferring of the resources and capabilities that enable these activities.

Reasons to enter into alliances

1. Strengthen competitive position 2. Enter new markets 3. Hedge against uncertainty 4. Access critical complementary assets 5. Learn new capabilities

3 options used by executives to drive firm growth

acquisitons alliances organic growth

acquisition

the purchase or takeover of one company to another

Which three of the following are the primary benefits of horizontal integration?

- Lower costs - Increased differentiation - A reduction in competitive intensity

Horizontal integration can favorably affect several of Porter's five forces for the surviving firms:

- Strengthening bargaining power with suppliers and buyers - Reducing the threat of entry - Reducing rivalry among existing firms

A major problem for 30%-70% of all strategic alliances

At least one partner considers the venture to be a failure

Firms would be best served by developing _______________ that allows for management of both strategic alliances and mergers and acquisitions.

A relational capability

Which of the following are three options used by executives to drive firm growth?

Acquisitions Alliances Organic growth

Which of the following terms refers to when one firm purchases or takes over another firm?

Acqusition

How can horizontal integration increase product differentiation?

By filling the empty spaces in a firm's offerings

A firm might want to use a strategic alliance to _____________.

Change the industry structure

As part of the 2014 strategic alliance deal between apple and IBM, IBM offers experience in business services/data analytics, Apple offers hardware and software that improves user experience. This represents the companies what?

Core competencies

What must strategic alliances do in order to create the foundation for a competitive advantage?

Form unique resource combinations that obey the VRIO criteria

Horizontal integration can __________.

Help a firm improve its strategic position in an industry

Which of the following occurs when a targeted firm is unwillingly acquired?

Hostile takeover

Strategy Scholars believe that firms should create a dedicated alliance function with which of the following features?

IT should be led by a VP or director IT should have its own resources and support staff

The acquisition of PeopleSoft enabled Oracle to offer its customers expertise in human resource management systems (PeopleSoft's core competency) in addition to database management systems (Oracle's core competency). This is an example of which source of value creation of M&As?

Increased differentiation

Which of the following is true regarding the government and horizontal integration?

Large horizontal integration activity typically needs to be approved by government authorities

why might a firm create a joint venture when entering a new geographic market?

To access local contacts to adhere to local law to access local expertise

Which framework can companies use to assess whether their internal resources are superior to those of competitors in the targeted area?

VIRO framework

Which framework can companies use to assess whether their internal resources are superior to those of competitors in the targeted area?

VRIO framework

True of alliance management capability?

a firm may need to employ it with several different alliances it involves partner selection and alliance formation

difference between mergers and acquisitions

a merger describes the joining of two independent companies an acquisition describes the purchace of takeover of a firm

absorptive capacity

ability to learn in a domain resulting from prior knowledge

A firm with alliance management capability is able to effectively manage which of the following tasks?

alliance design and governace partner selection and alliance formation post-formation alliance management

how can strategists grow organically ?

alliances and acquisitons

relational capability

allows for management of both strat alliances and m&a's

Eli Lilly, a company known for its alliance management, manages its alliance using a three person team consisting of which of the following ?

an alliance manager an alliance champion an alliance leader

internal development should occur when the firm's resources are ____ to those of competitors in the targeted area

both similar and superior

A real option gives the firm the right to continue making investments

but does not obligate the firm to do so

horizontal integration increase product differentiation

by filling the empty spaces in a firm's offerings

when an established firm makes an equity investment in an entrepreneurial venture it is known as a(n) ______ investment

corporate venture capital

Agreeing to ____________ Pixar helped Disney at a time when the company's performance was lackluster.

enter a strategic alliance with

a partnership in which at least one partner takes partial ownership in the other is a(n)____

equity alliance

Three mechanisms alliances can be governed by?

equity alliances joint ventures non-equity alliances

What should partners do in order to make a strategic alliance work?

establish knowledge sharing routines build inter-firm trust make relation specific investments

an advantage of using a non-equity alliance to govern strategic alliance is its ______

flexibility and ease of initiation

strategic alliances must

form unique resources combinations that obey VRIO criteria

advantages of strat alliances

give companies competitive advantage help firms achieve goals faster than alone

how do foreign governments typically influence a firm's use of strategic alliances to enter new markets?

governments may require that foreign firms have a local joint venture partner in order to conduct business within the country's borders

One reason a firm might enter into a strategic alliance is to

hedge against uncertainty

One possible source of costs in a horizontal integration strategy is

integration failure

how does lyft benefit from its strategic alliance with GM and Waymo?

it allows lyft to more effectively compete against Uber

A firm should consider using mergers and acquisitions only when ___________________.

it is important to be extremely close to the resource partner in order to understand underlying information

How does horizontal integration affect Porter's five forces for the surviving firms?

it reduces rivalry among existing firms it reduces the threat of entry it strengthens bargaining power vis-a-vis suppliers

Which of the following is a disadvantage of joint venture?

knowledge shared with the new partner could be misappropriated by oppurtunistic behavoir

When two firms form a strategic alliance to learn, but the rate at which they learn may vary, is known as

learning race

What are sources of value creation in a horizontal integration strategy?

lower costs reduction in competitive intensity

gaining new cps/competencies is 1 of the 3 main reasons why companies

make acquisitions

When managers of acquiring companies incorrectly convince themselves that they are able to manage the business of the target company more effectively than its current its current managers, and create ADDITIONAL shareholder value, they are engaging in

managerial hubris

the most common type of alliance is a(n)____

non-equity alliance

A hostile takeover

occurs when the targeted firm is unwillingly acquired

paradox

one firm attempts to learn and internalize, firm risks core knowledge will transfer or spill over

what are three advantages of equity alliances?

possible emergence of trust and commitment a window into new technology (option value) stronger ties

which approach to strategic decision making takes a larger investment decision and divides it into multiple smaller decisions that happen over time?

real option perspective

when a company makes incremental investments as part of a larger investment and takes the time to analyze the information gained following each incremental investment, the company is taking a ____

real-options perspective

the relational view of competitive advantage

states that important resources and capabilities are commonly embedded in strat alliances that cross firm boundaries

Which of the following forms of agreement do non-equity alliances typically take?

supply licensing distribution

cannot be codified / only gained through active participation in the task

tacit knowledge

which type of knowledge cannot be codified and can only be gained through active participation in the task?

tacit knowledge

the partners in non-equity alliances can have weak ties because such alliances are often ____ in nature, which can cause lack of trust and commitment

temporary

A firm should use an equity alliance, a joint venture, or an outright acquisition in order to gain use of a resource when _____________.

the resource is not easily traded

a firm should use an equity alliance, joint venture, or an outright acquisition in order to gain use of a resource when

the resource is not easily traded

select all that apply what are some advantages of strategic alliances?

they help firms achieve goals faster than they would alone they might give companies a competitive advantage

Primary reasons why a firm might pursue a merger

to overcome competitive disadvantage principal-agent problems superior acquistion & integration capability

When companies get involved in a bidding war and the winner overpays for the acquisition, the acquiring company has fallen victim to the

winners curse