MGT 495 Final

Primary Value Chain Activities

-supply chain management -operations -distribution -marketing and sales -after sales service

Board Accountability

-the board's ability to represent the shareholders and maintain independence -composed of inside and outside members

Market for Corporate Control

-whether the company has policies that protect from takeover. -is there a majority shareholder? -is there a poison pill plan or other protection against takeover?

Corporate Behavior

-whether the company is acting with integrity and ethical behavior. -no child labor, diversity based discrimination

Risks of Vertical Integration

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

Dog

-low/unstable earnings -neutral or negative cash flow -divest Low market share and low market growth

Question Mark

-low/unstable earnings and growing -negative cash flow -analyze to see whether to grow into star or degenerate to dog Low market share and high market growth

Joint Venture

-new company created by combining some of the resources of the two "parents" -standalone organization jointly owned

Value Drivers

-product features -customer service -complements

Support Value Chain Activities

-research and development -information systems -human resources -accounting and finance -firm infrastructure (processes, policies, and procedures)

Governance Metrics

-Board Accountability -Financial Disclosure and internal controls -Shareholder rights -Remuneration -Market for corporate control -Corporate behavior

Restructuring Strategies

-Downsizing -Downscoping -Leverage Buyout

Shareholder Rights

-Whether the shareholders are being represented and have a say in business decisions (no shareholder with 50+% stake -voting rights of shareholders and whether they are able to make proposals and initiate meetings

Remuneration

-compensation of executives -stock options available to shareholders and the board

Non Equity Alliance

-contractual agreements support long term relationship -partnerships based on contracts

Blue Ocean vs. Red Ocean

-create uncontested market space -make competition irrelevant -create and capture new demand -break the value-cost trade off -align the whole system of a firm's activities in pursuit of differentiation and low cost

Equity Alliance

-equity investment from one partner to the other, no new firm created -one partner takes partial ownership of the other

Star

-high/stable earnings and growing -neutral cash flow -invest for growth High market share and high market growth

Cash Cow

-high/stable earnings and growth -high/stable cash flow -milk profits High market share and low market growth

Financial Disclosure and Internal Controls

-how well a company conforms with accounting practices -be aware of the independence and composition of the audit committee and any interactions with the independent auditor

_____ is best described as the difference between a buyer's willingness to pay for a product or service and a firm's total cost to produce it A) economic value created B) break even point C) consumer surplus D) cost of capital

A) economic value created

During the period of Globalization 1.0, the mode of entry into foreign markets primarily involved A) exporting goods. B) making foreign direct investments. C) making foreign institutional investments. D) licensing production and distribution.

A) exporting goods.

Maddox Bauxite Extraction Inc. has decided to enter into a foreign market by setting up its own production facilities and distribution channels from scratch. This will give it strong control over all its business activities. Which of these foreign entry modes will Maddox most likely choose? A) greenfield operation B) export C) joint venture D) acquisition

A) greenfield operation

Which of the following lists the stages of the industry life cycle in the correct order? A) introduction, growth, shakeout, maturity, and decline B) introduction, shakeout, growth, maturity, and decline C) introduction, growth, maturity, shakeout, and decline D) introduction, shakeout, maturity, growth, and decline

A) introduction, growth, shakeout, maturity, and decline

The process of alliance management begins with A) selecting the best possible partner B) choosing an appropriate governance mechanism C) designing the alliance D) creating resource combinations that obey the VRIO criteria

A) selecting the best possible partner

Return on risk capital primarily includes A) stock price appreciation plus dividends received over a specific period. B) consumer surplus plus firm profit. C) account receivables plus account payables. D) economic value created by a firm plus reservation price.

A) stock price appreciation plus dividends received over a specific period.

In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates A) the real options perspective B) co-opetition C) explicit knowledge D) the stakeholder strategy

A) the real options perspective

Which of the following is true of acquisitions? A) they can be friendly or hostile B) they can occur only when the involved entities are of comparable size C) in acquisitions, two independent companies join to form a separate third entity D) acquisitions increase the competitive intensity in an industry

A) they can be friendly or hostile

When a firm operates at an output level of 9,000 units, the per unit cost is $5. When the production is between 10,000-12,000 units, the per unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale? A) 9,000 B) 11,000 C) 13,000 D) 15,000

B) 11,000

Sorenson LLC, a publicly traded company, has ten members on its board. Of the ten members, six members are employees of the company--including the CEO, who also chairs the board. The board has been failing in its responsibilities toward the shareholders, who now want a new board. Assuming that the total number of board members remains constant, how many outside directors should the shareholders appoint to Sorenson's board to achieve board independence? A) 5 B) 7 C) 3 D) 1

B) 7

There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale? A) Increasing market share B) Lowering costs C) Reducing risk D) Motivating managers

B) Lowering costs

What is the main reason that most mergers and acquisitions negatively effect shareholder value? A) The entire market becomes an oligopoly or a monopoly B) Promised synergies never take place C) Market conditions change too quickly D) Companies that resist acquisitions are subject to the "winner's curse"

B) Promised synergies never take place

Beach Grub is a chain of "fast casual" restaurants that sells its menu items at higher prices than its competitors. Yet, the restaurant has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Beach Grub adopted in this scenario? A) cost leadership B) differentiation C) market penetration D) product diversification

B) differentiation

A candy company called Hearts Aflame Inc. forms an agreement with another candy company called Dreamcatcher Inc. Through this agreement, Hearts Aflame owns 30 percent of Dreamcatcher. However, Dreamcatcher does not own any part of Hearts Aflame. This type of agreement is called a(n) A) non-equity alliance. B) equity alliance. C) joint venture. D) capital venture.

B) equity alliance.

Cloudlink is a file hosting service that allows users to store up to 5GB of data with no restrictions or charges. However, users have to pay a fee for advanced features on the cloud storage system and additional storage space. Which of the following business models does this best illustrate? A) subscription based B) freemium C) pay as you go D) razor-razor blade

B) freemium

The informational advantage that agents possess over principals is often based on the fact that A) the info is extremely secure and protected from exposure to anyone outside the company B) insiders are the first to learn about important developments before the info is released to the public C) agents are legally permitted to freely trade the info in exchange for benefits, unlike principals D) public stock companies are characterized by information symmetry

B) insiders are the first to learn about important developments before the info is released to the public

A firm is said to be pursuing a polycentric innovation strategy when A) its research facility is situated in the headquarters and all other business activities are located around the world. B) it draws from multiple, equally important research facilities located throughout the world. C) it restricts its innovation to Western economies and production to developing markets. D) its knowledge flow takes a one-way path—from its headquarters to the subsidiaries.

B) it draws from multiple, equally important research facilities located throughout the world.

Downshift Autos Inc. has shifted its research and development unit from its home country to Germany. This allows the company to be better informed about the latest developments in the automotive industry by tapping into the highly advanced automotive industry in Germany. In this scenario, Downshift Autos Inc. is reaping the benefits of A) economies of scope B) location advantages C) resource immobility D) resource ambiguity

B) location advantages

A trend observed during the Globalization 3.0 stage involves A) countries around the globe becoming more self-sufficient and independent. B) multinational companies organizing as global-collaboration networks. C) privately-owned firms getting nationalized. D) world's market economies becoming less integrated.

B) multinational companies organizing as global-collaboration networks.

Fun Foods Inc. is a snack manufacturer that wants to expand globally. Few people abroad are familiar with Fun Foods snacks. the countries into which the company wants to expand require a high degree of local responsiveness when it comes to food, and the citizens of those countries already spend plenty of money on snacks. Which action should the leaders of Fun Foods take? A) achieve economies of scale by using the global standardization appoach B) pursue a multidomestic strategy that includes new "local" brands C) keep costs low with undifferentiated product in the international strategy D) appease pressures for cost reductions by following the transnational approach

B) pursue a multidomestic strategy that includes new "local" brands

Polygon sells its e-book readers at the cost price of $15 each. However, the company makes its profits when users have to download or buy books online. Which of the following business models is Polygon implementing? A) subscription based B) razor-razor blade C) pay as you go D) direct sales

B) razor-razor blade

A drawback involved in using cross-border strategic alliances to enter new foreign markets is that A) the foreign firm will need to make larger investments when compared to entering the new market on its own. B) some of the firm's proprietary know-how may be appropriated by the foreign partner. C) all potential business risks in the new market will have to be faced alone by the foreign firm. D) the shareholder value of the foreign partner will decline drastically.

B) some of the firm's proprietary know-how may be appropriated by the foreign partner.

Under the CAGE distance framework, the administrative and political distance between two countries primarily increases with A) differences in climates and time zones. B) the absence of a trading bloc. C) physical remoteness. D) the lack of connective ethnic and social networks.

B) the absence of a trading bloc.

The downside of equity alliances is A) the weaker ties and reduced trust between partners. B) the amount of investment that can be involved. C) that the alliances cannot be abandoned if not promising. D) that they are not useful stepping-stones toward full integration of the partner firms.

B) the amount of investment that can be involved.

Which of the following is an example of an external transaction cost? A) the cost of setting up a production unit B) the cost of searching for a contract manufacturer C) the cost of recruiting and retaining employees D) the cost of maintaining plant and machinery

B) the cost of searching for a contract manufacturer

A defining characteristic of the subscription based business model is that the A) user pays for only the services he or she consumes B) user pays for access to a product or service whether he or she uses it during the payment term or not C) basic features of a product or service are provided free of charge, but the user must pay for premium services such as advanced features or add ons D) initial product is often sold at a loss or given away for free in order to drive demand for complementary goods

B) user pays for access to a product or service whether he or she uses it during the payment term or not

Gold Leaf Computers sources the components for its laptops from various suppliers on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Gold Leaf has determined that it would cost $200 per unit to produce all of the necessary components in its in house manufacturing facility. In this scenario, Gold Leaf should A) continue to outsource production B) vertically integrate C) exit the laptop industry D) diversify its activities

B) vertically integrate

Blue Ocean Strategy

Business level strategy that combines differentiation and cost leadership activities using value innovation to reconcile inherent trade-offs

Firms that use taper integration also use _____ when they rely on outside-market firms for some of their supplies. A) backward vertical integration B) forward vertical integration C) backward horizontal integration D) forward horizontal integration

C) backward horizontal integration

Skylark Sodas has been a market leader in the soft drink industry for several decades. However, its market research shows that consumer tastes have begun to shift to sugar free flavored seltzer waters, a product that Skylark is capable of producing with minimal changes to its facilities and production processes. Based on your knowledge of the core competence-market matrix, which diversification strategy should Skylark pursue? A) Leverage existing core competencies to improve current market position B) Build new core competencies to protect and extend current market position C) Redeploy and recombine existing core competencies to compete in a markets of the future D) Build new core competencies to create and compete in markets of the future

C) Redeploy and recombine existing core competencies to compete in a markets of the future

Assume that the market for print book publishing has entered the maturity stage. Which of the following would be most likely exist during this stage? A) a few start up publishers B) many small to midsized publishers C) a few large publishers D) one large publisher

C) a few large publishers

Braintree Inc., a manufacturer of smartphones, has entered into a 15 year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. There was no exchange of capital or change in ownership associated with their partnership. What is the relationship between Braintree and the software company best referred to as in this scenario? A) a proprietorship B) an equity strategic alliance C) an alliance based on contracts D) a joint venture

C) an alliance based on contracts

How did Canada, Mexico, and the United States reduce the administrative and political distance between them? A) by adopting similar national cultures B) by lowering the disparities between their per capita incomes C) by establishing the North American Free Trade Agreement (NAFTA) D) by reducing their linguistic differences

C) by establishing the North American Free Trade Agreement (NAFTA)

Which of the following is a feature of the shakeout phase of the industry life cycle? A) there is rapid industry growth during this stage B) market demand in this stage primarily consists of first time adopters C) competitive intensity within the industry increases D) the mode of competition shifts from price to non price in this stage

C) competitive intensity within the industry increases

In a focused cost leadership strategy, a firm A) caters to the segment of the market that is least cost sensitive B) provides high priced products for many different segments of the mass market C) delivers low cost products and services to a specific, narrow part of the market D) focuses on reducing the economic value created to drive down costs

C) delivers low cost products and services to a specific, narrow part of the market

Bernard is a board member at Lopez Electronics Inc. He is also a senior executive of the firm. The board is chaired by Ernest Jones, the CEO of Stanley Motors. According to this scenario, Bernard A) can use information from board meetings to trade stocks of Lopez Electronics B) cannot serve on the board of any other organization C) is an inside director of Lopez Electronics D) is more likely than Ernest to take care of stockholder interests

C) is an inside director of Lopez Electronics

Economies of scale are cost advantages that accrue for firms with A) high fixed costs B) low employee turnover C) larger output D) high capital risks

C) larger output

When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a larger number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate? A) monopoly B) oligopoly C) perfect competition D) monopolistic competition

C) perfect competition

Best Burger is a major fast food chain. Its managers are motivated to grow the firm in order to increase their market power and change the industry structure in their favor. Which of the following strategies is most associated with their motive for growth? A) employing celebrity spokespeople B) implementing automated burger making machinery C) purchasing competitors D) increasing executive salaries

C) purchasing competitors

A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services is best described as A) proprietorship B) cooperative C) strategic alliance D) leveraged buyout

C) strategic alliance

In a non-equity alliance, which of the following types of information would firms most likely share? A) a manager's knowledge related to solving non routine problems B) a top level manager's experience related to making strategic positions C) the documented information about the material composition of a product D) the employees' entrepreneurial skills

C) the documented information about the material composition of a product

Which of the following is an advantage of equity alliances when compared to non equity alliances? A) they are more flexible and easy to initiate and terminate B) they require smaller capital investments C) the produce stronger ties between partners D) they are based on contracts rather than ownership

C) the produce stronger ties between partners

Which of the following best explains why a board of directors may grant stock options as part of a compensation package? A) to reduce the transferability of stocks between stockholders B) to change the liability of shareholders from limited to unlimited C) to align incentives between shareholders and management D) to bring about separation of CEO/chair duality

C) to align incentives between shareholders and management

Gary owns shares in a company called Archibald Industries Inc. The company's financial performance has been declining over the past few months, an the value of its stock has been decreasing. Gary wants to proactively cut his losses and therefore sells his shares. Anneke, a trading enthusiast, buys shares in Archibald Industries because she believes that the share prices cannot go anywhere but up. Which of the following characteristics of a public stock company does this scenario best exemplify? A) separation of legal ownership and management control B) legal personality C) transfer ability of investor ownership D) limited liability for investors

C) transfer ability of investor ownership

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.

C. Vertical Integration

Which of the following scenarios best illustrates bundling? A) Clean Brush Inc. sells its electronic toothbrushes for a low cost, but charges a high price for replacement brushes B) Cumulus Media Inc. sells its cloud computing network by having customers pay for the service as they use it C) Sharp Cable Inc. sells its basic TV channels for free but charges high prices for any channels that customers add on late D) Fresh Seeds Inc. sells seed packages, in which a person can buy a package of three types of seeds at a discounted price compared to buying the seeds individually

D) Fresh Seeds Inc. sells seed packages, in which a person can buy a package of three types of seeds at a discounted price compared to buying the seeds individually

Which of the following scenarios best illustrates horizontal integration? A) King Autos Inc. enters into a licensing contract with a distributor in a new international market B) King Autos Inc. acquires a component parts manufacturer who previously supplied to King Autos' competitor C) King Autos Inc. sets up its own distribution channel and retail stores D) King Autos Inc. joins with Dimitra Motors Inc., one of its direct competitors

D) King Autos Inc. joins with Dimitra Motors Inc., one of its direct competitors

This is an example of (Braintree) A) a vertical alliance B) a horizontal alliance with a competitor C) a disruptive alliance D) a complementary alliance

D) a complementary alliance

Because keeping cost low is critical to IKEA's value innovation, it switched from a(n) A) transnational strategy to a multi domestic strategy. B) transnational strategy to a global-standardization strategy. C) international strategy to a multi domestic strategy. D) international strategy to a global-standardization strategy.

D) international strategy to a global-standardization strategy.

Toyota's global success in the 1990s and early 2000s was based to a large extent on a network of world-class suppliers in Japan. This tightly knit network allowed for fast two-way knowledge sharing—this in turn improved Toyota's quality and lowered its cost, which it leveraged into a successful blue ocean strategy at the business level. This example shows the effectiveness of A) factor conditions. B) competitive intensity in a focal industry. C) demand conditions. D) related and supporting industries/complementors.

D) related and supporting industries/complementors.

Which of the following is a firm effect that has an impact on the competitive advantage of a firm? A) the exit barriers within the industry in which the firm operates B) the number of companies operating in the industry in which the firm operates C) the intensity of rivalry among existing companies in the firm's chosen industry D) the value and the cost position of the firm relative to its competitors

D) the value and the cost position of the firm relative to its competitors

Pros and Cons of Non Equity Alliances

Pros: flexible, fast, easy to initiate and terminate Cons: weak tie, lack of trust and commitment (most common)

Pros and Cons of Equity Alliances

Pros: stronger tie, trust and commitment can emerge, window into new technology Cons: less flexible, slower, can entail significant investments (moderately common)

Pros and Cons of Joint Ventures

Pros: strongest tie, trust and commitment likely to emerge, may be required by institutional setting Cons: can entail long negotiations and significant investments, long term solution, JV managers have double reporting lines

VRIO Model

Valuable? Rare? Imitation costly? Organized to capture value? (yes to all is sustainable competitive advantage)

Liability of Foreigness

additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances

Loss of Intellectual Property

company's intellectual property is exploited by partners or other companies in foreign markets

Costly to Imitate if...

competitors can't develop the resource for a reasonable price

Organized to Capture Value through...

effective organizational structure and coordinating systems

Valuable if...

helps exploit an opportunity or offset a threat

Value Chain

internal activities a firm engages in when transforming inputs into outputs

Rare if...

only one or a few firms possess it

Loss of Reputation

possible effect on reputation due to unlawful or unethical business practices

Downscoping

reducing the level of diversification in the Parent Co's portfolio by selling, spinning off, or liquidating SBUs

Downsizing

reductions in staff, management delayering, outsourcing of labor intensive activities to reduce cost

Leverage Buyouts

sale of complete corporation to a private equity firm that uses high levels of debt to make the acquisitions (usually results in downscaling and downscoping to pay own debt)