GEB4891 Ch8 Learnsmart

______ are unique assets with high opportunity cost.

Specialized assets

______ costs are all of the costs associated with an economic exchange.

Transaction

______ is a theoretical framework that helps explain and predict the boundaries of the firm.

Transaction cost economics

True or false: It can be riskier to own parts of the supply chain than to rely on external supply chains.

True

______ refers to the firms' ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Vertical integration

Which of the following is a fundamental corporate-level strategic decision?

What products and services should the firm offer?

In the Boston Consulting Group growth-share matrix, each of the four categories in the matrix represents ______.

a different investment 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

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 joint venture

What is licensing?

a long-term contract that enables firms to commercialize intellectual property

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

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

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

executives

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

existing core competence--existing market

Companies that transact in the open market incur ______.

external transaction costs

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

Kanye 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 ______.

franchising

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

grow

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

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

______ are perhaps the major drawback of transacting in markets.

Search costs

Which of the following are characteristics of a joint venture?

- It facilitates transaction-specific investments. - It is a long-term commitment by two or more partners.

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

- The type of diversification - The degree of vertical integration - The geographic scope

Taper integration allows firms to ______. (Check all that apply.)

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

Advantages of vertical integration include which of the following? (Check all that apply.)

- bettering quality - facilitating scheduling - reducing costs

To get the benefits of vertical integration without the accompanying risks, companies can ______. (Check all that apply.)

- choose strategic outsourcing - use taper integration

Amazon's explosive success is largely due to which of the following? (Check all that apply.)

- diversification - vertical integration

______ 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

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

Equity alliances

True or false: 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

True or false: The industry value chain is also called the horizontal value chain.

False

______ is a situation in which one party has more knowledge than another due to the possession of private knowledge.

Information asymmetry

What is the shape of the relationship between the level of diversification and performance?

Inverted U

______ refers to the act of outsourcing some of the firm's activities outside of the home country to another nation.

Offshoring

In a fully vertically integrated organization, ______.

all stages of the industry value chain are conducted within the firm

What type of arrangement did Coca-Cola form with Monster in 2014?

an equity alliance

When a manufacturer of computers starts to produce its own computer components, the manufacturer engages in ______ vertical integration.

backward

Transaction cost economics help managers do which of the following?

choose which activities to carry out within the firm

According to the Boston Consulting Group matrix, cash cows are SBUs that do which of the following?

compete in a low-growth market but have high market share

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

coordination

Which of the following terms describes the strengths that allow a firm to distinguish itself from the competition?

core competencies

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

strategic outsourcing

The lemons problem suggests that information asymmetries can cause ______.

superior goods to be replaced by inferior ones

Shaniqua's Shirts uses both in-house and outside suppliers and also sells its shirts through its own retail stores and through independent retailers. Shaniqua's Shirts uses ______.

taper integration

The degree of vertical integration corresponds to ______.

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

The most integrated alternative to vertical integration is ______.

the parent-subsidiary relationship

Which of the following describes economies of scope?

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

Why do some firms choose alternatives to vertical integration?

to avoid the risks associated with vertical integration

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 a reason why a firm needs to grow?

to reduce risk

Which of the following is the term for the costs associated with an economic exchange?

transaction costs

Unlike short-term contracts, long-term contracts encourage firms to make ______ investments.

transaction-specific

What is an advantage of a firm in organizing economic activity?

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; lower

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

Which of the following is the best option if a company wants to show strong commitment to a partner firm without acquiring that firm?

equity alliance

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

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

Which of the following are types of strategic alliances? (Check all that apply.)

- equity alliances - long-term contracts - joint ventures

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

dogs

Specialized assets have ______.

high opportunity cost

What are the four quadrants of the core competence-market matrix? (Check all that apply.)

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

Advantages of organizing economic activity at the market level include which of the following? (Check all that apply.)

- high-powered incentives - increased flexibility

What are the costs associated with related-diversification strategies? (Check all that apply.)

- influence costs - coordination costs

Which of the following are alternatives on the make-or-buy continuum? (Check all that apply.)

- joint ventures - equity alliances

Stages four and five of the industry value chain involve ______. (Check all that apply.)

- marketing - sales - after-sales service and support

Which of the following are the types of general diversification strategies? (Check all that apply.)

- product - product-market - geographic

What is a related-linked diversification strategy?

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

What is the opportunity cost of investmenting in specialized assets that is characterized by self-interest seeking with guile?

opportunism

What are the risks of vertical integration? (Check all that apply.)

- reduced quality - increased costs - reduced flexibility

The Boston Consulting Group growth-share matrix locates a firm's individual SBUs in which of the following dimensions? (Check all that apply.)

- relative market share - speed of market growth

Corporate strategy needs to be dynamic over time in order to ______. (Check all that apply.)

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

Which types of diversification tend to have the lowest performances? (Check all that apply.)

- single business - unrelated diversification

Long-term contracts typically last ______.

1 year or more

Disadvantages of organizing economic activity in the open market include all of the following except ______.

increased flexibility

The risks of vertical integration are increased costs, reduced quality, reduced flexibility, and ______.

increased potential for legal repercussions

Each stage of the vertical value chain represents a distinct ______ in which a number of different firms are competing.

industry

Amazon's continued focus on ______ is a key to its ongoing success.

innovation

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

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

leverage existing core competencies to improve current market position

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

make managers owners through stock options

What level of diversification leads to the highest levels of performance?

moderate

The forms of specialized assets include which of the following? (Check all that apply.)

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

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

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

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

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

product-market

The first stage of the industry value chain is typically which of the following?

raw materials

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

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

related diversification

When engaging in short-term contracting, a firm sends out ____ _____ _____ to potential companies, which initiate competitive bidding for contracts to be awarded with a short duration.

requests for proposals (RFPs)

A conglomerate fits which type of corporate diversification model?

unrelated diversification

An advantage of ______ is that it helps ensure that materials and distribution channels are available when needed.

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

When a firm is more efficient in organizing economic activity than markets are, the firm should ______.

vertically integrate

What are advantages of organizing economic activity inside of a firm? (Check all that apply.)

- the creation of a community of knowledge - transaction-specific investments - command-and-control decisions

Why might a firm want to enter into an equity alliance instead of a short- or long-term contract? (Check all that apply.)

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

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

corporate

When a business answers the question of where to compete, it is determining ___.

corporate strategy

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

When a multi-business firm pools and shares resources and leverages competencies across different business lines, it is following a(n) ______.

related diversification strategy

Which diversification strategy involves executives pursuing various business opportunities that share only a small number of similarities?

related-linked

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

some

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

strategic alliances