Bus 496 Exam 2 practice quiz

Forward vertical integration

Forward integration occurs when a company decides to take control of the post-production process.

Corporate strategy is concerned with "Where" a firm competes [in which industries it competes] True or False

TRUE

The greater the unpredictability of market demand, the greater flexibility advantages of outsourcing. True or False

True

Mergers and acquisitions are frequent. Diversifying into another industry this way. a. Tends to be particularly unsuccessful b. Tends to be better than strategic alliance c. Is advisable, because it is a relatively low-cost entry method d. Is preferred by shareholders, hence the frequency of this method.

[a] Tends to be particularly unsuccessful.

Which of these choices is NOT an example of a vertical relationship? a. A franchise agreement b. an exclusive single-supplier agreement c. a long-term agreement with competitors to fix the market price for a commodity product d. a joint development group between a supplier and customer

c. a long-term agreement with competitors to fix market price for a commodity product is not an example of a vertical relationship.

Firms seek to create value from economies of scope through all of the following EXCEPT a. activity sharing. b. skill transfers. c. transfers of corporate core competencies. d. de-integration.

d. de-integration

The purchasing of firms in the same industry is called a. unrelated diversification b. vertical integration c. networking in the organization d. horizontal acquisition

d. horizontal acquisition

Backward vertical integration

Backward integration is a form of vertical integration in which a company expands its role to fulfill tasks formerly completed by businesses up the supply chain. In other words, backward integration is when a company buys another company that supplies the products or services needed for production.

Firms can increase their speed to market for new products by pursuing an internal product development strategy rather than an acquisition strategy. True or False

False

High transaction-specific investment between two industrial process stages is more likely to lead to vertical integration of these processes. True or False

False

If the transaction costs associated with buying in a product or service from the market costs more than the firm providing this internally, then the firm will outsource. True or False

False

Low powered incentive is an example of costs of "buy", i.e. market sourcing True or False

False

Where there is volatile, uncertain demand for a resource, it is more likely that this resource will be internally produced [make decision] True or False

False

Backward vertical integration gives a company far more power over the supplier. This is a type of high-powered incentive. True or False

False.

In the BCG matrix, "Cash Cow" is characterized by high market share and high industry growth. True or False

False. A cash cow is a company or business unit in a mature slow-growth industry. ... For example, the iPhone is Apple's (AAPL) cash cow.

high-powered incentives

High-powered incentives are those provided by market transactions, in which efficiency gains from a particular transaction flow directly to the parties transacting. In hierarchies (organizations),

An "economy of scope" is where a firm can spread the fixed cost of a common resource or a shared service across multiple products or activities. True or False

True

Business Strategy is concerned with "How" a firm competes in a specific industry. True or False

True

In diversification decision, the better-off-test means "either the new unit must gain competitive advantage from its link with the corporation, or vice versa". True or False

True

Outsourcing is a form of de-integration or dis-aggregation True or False

True

Procter & Gamble has a paper towel and baby diaper business that both use paper products. This is an example of value created through the sharing of activities. True or False

True

The fewer number of supplier firms, the greater are the market transaction costs. Thus, vertical integration is preferred over outsourcing. True or False

True

The greater the information asymmetries between local firm and suppliers, the more likely is opportunistic behavior and the greater the advantages of vertical integration. True or False

True

The reasons why a firm would overpay for a company that it acquires include inadequate due diligence

True

The usual justification for a diversification strategy is a combination of growth, spreading risk and creating value. True or False

True

Vertical integration of the supplier firm is more likely when there is a high level of transaction specific investment. True or False

True

"Brand extension" is also a way to achieve an 'economy of scope', by using a good reputation built around one product to help sell a different product or service. True or False

True.

Transaction Cost Econmics

provides theoretical background regarding why firms do outsourcing [buy] or in-house production[make]

Acquisitions can become a substitute for innovation in some firms and trigger future rounds of acquisitions. True or False

true