Strategic Management Exam 2

c. exporting

A U.S. manufacturer of adaptive devices for persons with disabilities is considering expanding internationally. It is a fairly small company, but it is looking for growth opportunities. This company should primarily consider the option of: a. a greenfield venture. b. a strategic alliance. c. exporting. d. licensing.

c. synergistic strategic alliance

A __________ is a strategy in which firms share some of their resources to create economies of scope and is similar to the business-level horizontal complementary strategic alliance a. diversifying strategic alliance b. dynamic alliance network c. synergistic strategic alliance d. . joint venture

B) related constrained

A firm that earns less than 70 percent of revenue from its dominant business and has direct connections between its businesses is engaging in __________ diversification. A) related linked B) related constrained C) unrelated D) dominant business

a. economies of scale.

A global corporate-level strategy emphasizes: a. economies of scale. b. sensitivity to local product preferences. c. differentiated products. d. decentralizing control and limited monitoring.

a. the firm customizes the product for each country in which it competes.

A multidomestic corporate-level strategy is one in which: a. the firm customizes the product for each country in which it competes. b. a corporation chooses not to compete internationally but where there are a number of international competitors in the firm's local marketplace. c. the firm competes in a number of countries, but it is centrally coordinated by the home office. d. the firm produces a standardized product, but markets it differently in each country in which it competes.

b. two or more firms develop a contractual relationship to share some of their resources to create a competitive advantage.

A nonequity strategic alliance exists when: a. two partners in an alliance own unequal shares in the combined entity. b. two or more firms develop a contractual relationship to share some of their resources to create a competitive advantage. c. two firms join together to create a new company. d. the partners agree to sell bonds instead of stock in order to finance a new venture. two partners in an alliance own unequal shares in the combined entity.

C) achieve greater market power.

A primary reason for a firm to pursue an acquisition is to: A) exit a hyper-competitive market. B) achieve greater financial returns in the short run. C) achieve greater market power. D) avoid increased government regulation.

d. economies of scale

A statewide 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. opportunistic behavior c. distribution opportunities d. economies of scale

D) selling of assets

After a leveraged buyout, __________ typically occur(s). A) due diligence B) private synergy C) further rounds of acquisitions D) selling of assets

a. success is guaranteed as the firm implements its chosen international business-level strategy.

All of the following are correct about what managers should know about firms based in a country with a national competitive advantage EXCEPT: a. success is guaranteed as the firm implements its chosen international business-level strategy. b. the actual strategic choices made are most compelling reasons for success or failure. c. the determinants of national competitive advantage provide a foundation for a firm's competitive advantages. d. success is not guaranteed as the firm implements its chosen international business-level strategy.

C) positioning the firm for a tactical competitive move.

All of the following are rationales for acquisitions EXCEPT: A) overcoming significant barriers to entry. B) achieving greater market power. C) positioning the firm for a tactical competitive move. D) increasing speed of market entry.

A) changes in antitrust regulations and tax laws.

Among the value-neutral incentives to diversify, some come from the firm's external environment while others are internal to the firm. External incentives to diversify include: A) changes in antitrust regulations and tax laws. B) pressure from stockholders who are demanding that the firm diversify. C) a firm's low performance. D) the fact that other firms in an industry are diversifying.

d. Opportunistic behavior

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 breach of the alliance agreement. Which of the following risks of cooperative strategies is MOST likely occurring here? a. Failing to make available to its partners the resources and capabilities that it committed to the cooperative strategy b. The partner misrepresenting competencies it can bring to the partnership c. Having a true perception of the partner's trustworthiness d. Opportunistic behavior

b. expands into a potentially large number of geographic locations or markets.

An international diversification strategy is one in which a firm: a. acquires a firm in a foreign country. b. expands into a potentially large number of geographic locations or markets. c. expands into one or a few markets. d. expands into nearby markets.

B) downscoping firm because of reduced debt costs and the emphasis on strategic controls derived from focusing on the firm's core businesses.

An investor is analyzing two firms in the same industry. She is looking for long-term performance from her investment. Both firms are basically identical except one firm is involved in substantial downsizing, and the other firm is undertaking aggressive downscoping. The investor should invest in the: A) downsizing firm because it is eliminating employees who are essentially "dead weight" and are dragging down the firm's profitability. B) downscoping firm because of reduced debt costs and the emphasis on strategic controls derived from focusing on the firm's core businesses. C) downsizing firm because it will be making decisions based on tactical strategies. D) downscoping firm because the higher debt load will discipline managers to act in shareholders' best interests.

A) achieve economies of scope

An office management firm has developed a system for efficiently organizing small medical and dental practices both through proprietary software and through unique training programs for staff. It has recently acquired a firm specializing in providing management services for veterinary practices. The office management firm is hoping to: A) achieve economies of scope. B) acquire specialized talent from the veterinary management company. C) achieve financial economies through an unrelated acquisition. D) implement vertical integration.

d. Russia's recent actions to gain state control of private firms' assets.

Bunyan Heavy Equipment, a U.S. firm, is investigating expanding into Russia using a greenfield venture. The committee researching this project has delivered a negative report. The main concern of the committee is probably: a. the fluctuation in the value of the ruble. b. the numerous and conflicting legal authorities in Russia c. loss of intellectual property due to Russian piracy. d. Russia's recent actions to gain state control of private firms' assets.

D) what product markets and businesses the firm should be in

Corporate-level strategy is concerned with __________ and how to manage these businesses. A) whether to integrate backward or forward B) whether the portfolio of businesses should generate immediate above-average returns or C) should be troubled businesses that will create above average returns only after restructuring whether the firm should invest in global or domestic businesses D) what product markets and businesses the firm should be in

d. not fully share its intangible resources.

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. not make equivalent investments to the alliance as does DDD. b. insist on excessively close monitoring of DDD's actions. c. gain access to DDD's core competencies and use them to become a future competitor. d. not fully share its intangible resources.

B) have golden parachutes.

During the 1990s, top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they: A) have silver handcuffs. B) have golden parachutes. C) have ironclad contracts. D) plan to take poison pills.

A) innovation

Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for: A) innovation. B) risk analysis. C) market discipline. D) international diversification.

d. economies of scope.

Firms entering into synergistic strategic alliances expect to attain: a. technological complexity. b. monopolistic market power. c. learning curve efficiencies. d. economies of scope.

b. capture economies of scale.

Firms in a standard-cycle market may form alliances in order to: a. take advantage of opportunities in emerging market countries. b. capture economies of scale. c. share risky R&D investments. d. more quickly distribute new products.

B) de-integration.

Firms seek to create value from economies of scope through all of the following EXCEPT: A) skill transfers. B) de-integration. C) activity sharing. D) transfers of corporate core competencies.

C) are likely to undergo regulatory review by various governmental entities.

Horizontal, vertical, and related acquisitions to build market power: A) are rarely permitted to occur across international borders. B) concentrate on capturing value at more than one stage in the value chain. C) are likely to undergo regulatory review by various governmental entities. D)typically involve a firm purchasing one of its suppliers or distributors.

d. transnational

In China, Starbucks is standardizing its operations while simultaneously decentralizing some decision-making responsibility to local levels to meet customers' tastes. Starbucks is following the __________ international corporatelevel strategy. a. multidomestic b. differentiation c. global d. transnational

c. related and supporting industries

In France, fine dressmaking and tailoring have been a tradition predating Queen Marie Antoinette. Cloth manufacturers, design schools, craft apprenticeship programs, modeling agencies, and so forth, all exist to supply the clothing industry. This is an example of the __________ in Porter's model. a. demand conditions b. firm strategy, structure, and rivalry c. related and supporting industries d. factors of production

d. the government

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

a. transnational

Increasingly, customers worldwide are demanding emphasis on local requirements and companies require efficiency as global competition increases. This has triggered an increase in the number of firms using the __________ strategy. a. transnational b. multidomestic c. universal d. global

d. strategy through which the firm sells its goods or services outside its domestic market.

International strategy refers to a(n): a. strategy American firms use to dominate international markets. b. action plan pursued by American companies to compete against foreign companies operating in the United States. c. political and economic action plan developed by businesses and governments to cope with global competition. d. strategy through which the firm sells its goods or services outside its domestic market.

b. Factors of production

Japan, due to a lack of undeveloped land, would be an unusual choice of location for a U.S. cattle company to set up local grazing operations. This limiting factor would be identified in what part of Porter's determinants of national advantage? a. Related and supporting industries b. Factors of production c. Firm strategy, structure, and rivalry d. Demand conditions

a. equity 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 percent of this collaboration with DoCoMo holding the remaining 20 percent. This collaborative arrangement is an example of a(n): a. equity strategic alliance. b. network strategy. c. nonequity strategic alliance. d. joint venture.

C) size of a firm and its resources and capabilities.

Market power is derived primarily from the: A) depth of a firm's strategy. B) quality of a firm's top management team. C) size of a firm and its resources and capabilities. D) core competencies of the firm.

b. franchising cooperative

McDonald's, Hilton International, and Subway all heavily rely on the __________ strategy. a. cross-border alliances b. franchising cooperative c. network cooperative d. transnational

d. Either Meredith or JaZz will own a majority equity stake, but we do not know which one based on the announcement.

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 MOST accurate interpretation of this announcement? a. JaZz will own a majority equity stake in the new venture. b. Meredith 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.

a. joint-venture.

Moon Flower Cosmetics Company's 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 that would be marketed both in Asia and the United States. Beyond being a cross-border alliance, this partnership can be called a(n): a. joint venture. b. nonequity strategic alliance. c. equity strategic alliance. d. horizontal complementary alliance.

b. are limited in opportunities for growth.

Moving into international markets is a particularly attractive strategy to firms whose domestic markets: a. have too much regulation. b. are limited in opportunities for growth. c. demand a differentiation strategy for success. d. have developed unfriendly business attitudes toward the industry.

a. vertical complementary: competition-reducing

Of the various business-level strategic alliances, __________ alliances have the most probability of creating sustainable competitive advantage, and __________ have the lowest. a. vertical complementary: competition-reducing b. horizontal complementary: vertical complementary c. uncertainty-reducing: competition-reducing d. competition-reducing: horizontal complementary

A) transfer key people into new management positions.

One method of facilitating the transfer of corporate-level core competencies between firms is to: A) transfer key people into new management positions. B) virtually integrate the two firms. C) restructure the weaker firm to mirror the structure of the more successful firm. D) share support activities, such as purchasing practices.

A) related constrained: operational relatedness

Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G MOST likely uses the __________ diversification strategy to create __________. A) related constrained: operational relatedness B) related constrained: corporate relatedness C) related linked: corporate relatedness D) related linked: operational relatedness

B) Dominant business.

Revenues for United Parcel Service (UPS) come from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non-packaging operations. Which of the following best describes the corporate-level strategy of UPS? A) Related constrained B) Dominant business C) Related linked D) Single business

A) businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership.

The ultimate test of the value of a corporate-level strategy is whether the: A) businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership. B)corporation earns a great deal of money. C) businesses in the portfolio increase the firm's financial returns. D) top management team is satisfied with the corporation's performance.

C) acquisition of a highly related firm in the technical translation market.

SpeakEasy, a U.S. software company that specializes in voice-recognition software, wishes to rapidly enter the growing technical translation software market. This market is dominated by firms making highly differentiated products. To enter this market, SpeakEasy would be best served if it considers a(n): A) strategy of internally developing the technical translation products needed to compete in this market. B) cross-border merger, preferably with an Indian or Chinese company. C) acquisition of a highly related firm in the technical translation market. D) vertical acquisition of a firm that uses technical translation products.

B) Specialty Steel has less flexibility now than if it were not vertically integrated.

Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare, and only two brick plants in the United States make this type of brick. Specialty Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick. Which of the following statements is true? A) This is an example of a capacity balance problem. B) Specialty Steel has less flexibility now than if it were not vertically integrated. C)This is a result of conflicts of interest between the managers of the brick plant and the executives of Specialty Steel. D) The market power of Specialty Steel has been reducing vertical integration.

C) focusing on mature, low-technology businesses.

Successful unrelated diversification through restructuring is typically accomplished by: A) a top management team that is not constrained by pre-established ideas of how the firm's portfolio should be developed. B) a "random walk" of good luck in picking firms to buy. C) focusing on mature, low-technology businesses. D) seeking out high technology firms in high-growth industries.

D) related constrained

The Publicis Groupe uses the digital technology from its digital business to enhance the advertising products in its advertising group. This sharing of activities is characteristic of the __________ diversification strategy. A) unrelated B) dominant C) related linked D) related constrained

a. synergistic strategic alliance

The Renault Nissan alliance is an example of a __________ created to gain economies of scope by sharing resources and capabilities. a. synergistic strategic alliance b. nonequity-based horizontal complementary alliance c. vertical complementary alliance d. diversifying strategic alliance

b. leasing.

The choices that a firm has for entering the international market include all of the following EXCEPT: a. licensing. b. leasing. c. exporting. d. acquisition.

A) more likely

The presence of barriers to entry in a particular market will generally make acquisitions __________ as an entry strategy. A) more likely B) illegal C) less likely D) prohibitive

c. it is easy to use.

The transnational strategy is becoming increasingly necessary to compete in international markets for all of the following reasons EXCEPT: a. the desire for specialized products to meet consumers' needs. b. differences in culture and institutional environments also require firms to adapt their products and approaches to local environments. c. it is easy to use. d. the growing number of competitors heightens the requirements to keep costs down.

D) discounted by investors.

The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be: A) highly valued by investors. B) inflated by investors. C) completely ignored by investors. D) discounted by investors.

D) Bureaucratic

Thomas is an upper-middle-level manager for a firm that has been actively involved in acquisitions over the last 10 years. The firm has grown much larger as a result. Thomas has been dismayed to find that recently the managerial culture of the firm has been turning more and more to __________ controls. A) tactical B) strategic C) organic D) bureaucratic

d. the opportunity-maximization

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. both the cost-minimization and opportunity-maximization c. None of these is correct. d. the opportunity-maximization

False

True or False? A related acquisition involves two firms in the same industry.

False

True or False? Acquisitions are the most common cooperative strategy used in standard-cycle markets.

False

True or False? Coca-Cola and PepsiCo are examples of firms that have found it unnecessary to aggressively pursue international strategies because of extensive growth opportunities available in the U.S. market.

False

True or False? Corporate tax laws, rather than tax laws affecting individuals, have had the most impact on the firm's use of free cash flows for investment in acquisitions.

False

True or False? Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a single market into several product markets and, most commonly, into several businesses.

False

True or False? Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value.

True

True or False? Exporting, licensing, and the strategic alliance entry modes are all appropriate for early market development.

True

True or False? Firms develop a competitive advantage when they are able to develop corporate-level cooperative strategies and manage them in ways that are valuable, rare, imperfectly imitable, and non-substitutable.

False

True or False? Franchising is most attractive in concentrated industries.

False

True or False? In a vertical complementary alliance, firms share some of their resources and capabilities from the same stage of the value chain to create a competitive advantage.

True

True or False? International diversification is a strategy through which a firm expands the sale of its goods or services across the borders of global regions and countries into a potentially large number of geographic locations of markets. Instead of entering one or just a few markets, the international diversification means that the firm enters multiple markets.

True

True or False? One of the attributes of a successful acquisition is that the acquiring firm conducts effective due diligence to select target firms and evaluate the target firm's health.

True

True or False? Private synergies are unique to the acquired and acquiring firms and could not be developed by combining either firm's assets with another company.

True

True or False? The reasons why a firm would overpay for a company that it acquires include inadequate due diligence.

True

True or False? When a firm initially pursues an international business-level strategy, the resources and capabilities established in the home country frequently allow the firm to pursue the strategy into markets located in other countries.

True

True or False? When firms share activities across units, they are often able to achieve increased value.

C) restructure.

Typically, in a failed acquisition, the organization will: A) go into bankruptcy. B) focus on building private synergy. C) restructure. D) increase integration.

C) Multipoint.

When diversification results in two companies, such as UPS and FedEx, simultaneously competing in the same product areas or geographic markets, this is called competition. A) multiportal B) multiple C) multipoint D) multiplicit

d. It is the slowest way to enter a new market.

Which of the following is NOT a disadvantage of international acquisitions? a. They are very expensive and often require debt financing. b. Merging the acquired and acquiring firm is difficult. c. The acquiring firm has to deal with the regulatory requirements of a host country. d. It is the slowest way to enter a new market.

C) Managers emphasize strategic controls rather than financial controls.

Which of the following is NOT a result of overdiversification? A) Firms use acquisition as a substitute for innovation. B) Managers become short-term in their orientation. C) Managers emphasize strategic controls rather than financial controls. D) Executives do not have a rich understanding of all of the firm's business units.

b. Incompatibility of the licensing partners

Which of the following is NOT a typical disadvantage of licensing? a. Lower potential returns than the use of exporting or strategic alliances b. Incompatibility of the licensing partners c. Licensees may develop a competitive product after the license expires d. Little control over the marketing of products

D) Expanding the business portfolio in order to diversify managerial employment risk

Which of the following is a value-reducing reason for diversification? A) Enhancing the strategic competitiveness of the entire company B) Gaining market power relative to competitors C) Conforming to antitrust regulation D) Expanding the business portfolio in order to diversify managerial employment risk.

B) Private synergy is easy for competitors to understand and imitate.

Which of the following statements is false? A) Private synergy results when the combination of two firms yields competencies and capabilities that could not be achieved by combining with any other firm. B) Private synergy is easy for competitors to understand and imitate. C) Private synergy is more likely when the two firms in an acquisition have complementary assets. D) Synergy resulting from an acquisition generates gains in shareholder wealth beyond what they could achieve through diversification of their own portfolios.

c. Joint ventures

Which of the following types of strategic alliance is best at passing tacit knowledge between partners? a. Equity strategic alliances b. Primary cooperative strategic alliances c. Joint ventures d. Nonequity strategic alliances

A) inefficient operations.

Whole-firm LBOs tend to result in all the following negative outcomes EXCEPT: A) inefficient operations. B) large debt and increased financial risk. C) risk-averse management. D) failure to invest in R&D.

D) Downsizing

__________ is often used when the acquiring firm paid too high a premium to acquire the target firm. A) Management buyout B) Leveraged buyout C) Downscoping D) Downsizing

B) Friendly acquisitions

__________ typically result(s) in the acquiring firm being able to prevent valuable human resources in the acquired firm from leaving. A) Private synergy B) Friendly acquisitions C) Financial slack D) High compensation