MGMT 478 Exam 2

1) ________, which captures the cultural fit between different firms, is one key element needed when selecting an alliance partner. A) Partner compatibility B) Partner commitment C) Joint ventures D) Partner competency

A) Partner compatibility

1) Projecta is a publicly traded company and a highly diversified firm. But Projecta's most recent stock price is valued less than the sum of all its individual business units. Projecta is most likely experiencing a A) diversification discount. B) diversification premium. C) two for one split. D) shareholder rights plan.

A) diversification discount.

1) There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale? A) increasing profits B) lowering costs C) reducing risk D) motivating managers

B) lowering costs

1) What is the name of the situation that can arise when strategic leaders pursue their own interests in conflict with the firm's goals? A) opportunism B) principal-agent problem C) risk assessment D) enforcement of contracts

B) principal-agent problem

1) Janelle hires Vanessa to perform a critical task in her organization. However, Vanessa has misrepresented her knowledge, skills, and abilities, and Janelle has no way of knowing whether Vanessa can indeed perform well. This is an example of A) agency theory. B) disparate treatment. C) adverse selection. D) ineffective corporate governance.

C) adverse selection.

1) ________ is best described as a situation in which one party possesses private information and is therefore better informed than another party. A) Information governance B) Information asymmetry C) Information deregulation D) Information piracy

B) Information asymmetry

1) A value curve indicates a lack of effectiveness in a firm's strategic profile when it A) stays level. B) zig zags. C) trends downward. D) trends upward.

B) zig zags.

1) Under the________ framework, the question "How do we create value?" is relevant when trying to improve innovation and organizational learning. A) triple-bottom-line B) economic value creation C) balanced scorecard D) operational effectiveness

C) balanced scorecard

1) Ari is a firm believer in Milton Friedman's view of a firm's social obligations. With which of the following statements is Ari most likely to agree? A) Businesses can use their resources to create profit as long as they do so within the rules of the game. B) Firms must go beyond their economic responsibility and act in socially responsible ways. C) Firms should define value creation broadly in terms of environmental impact. D) Businesses should engage in open and free competition without deception or fraud, only as long as their competitors do so.

A) Businesses can use their resources to create profit as long as they do so within the rules of the game.

1) Why is following an unrelated diversification strategy especially advantageous in an emerging economy? A) It allows the conglomerate to overcome institutional weaknesses in emerging economies. B) It allows the conglomerate to form a monopoly in emerging economies. C) It allows the conglomerate to use well-defined legal systems in emerging economies. D) It allows the conglomerate to take advantage of strong capital markets in emerging economies.

A) It allows the conglomerate to overcome institutional weaknesses in emerging economies.

1) Which of the following is an advantage of a triple-bottom-line approach? A) The approach takes an integrative and holistic view in assessing a company's performance. B) The approach does not rely on an external view of a firm to assess its performance. C) The approach is more of a quantitative performance metric rather than a mere conceptual framework. D) The framework can help managers assess a firm's competitive advantage without taking into account the firm's performance along noneconomic dimensions.

A) The approach takes an integrative and holistic view in assessing a company's performance.

1) Which of the following is true of acquisitions? A) They can be friendly or hostile. B) They occur only when the involved entities are of comparable size. C) An acquisition occurs when 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.

1) Openlane and Yearin Technologies have together invested and created a new organization, Globex Corporation, 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 Openlane and Yearin Technologies. 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

A) a joint venture

1) Grace wants to form a voluntary arrangement with another firm in order to gain more flexibility in her supply chain, complement to a few of her support activities via her value chain, and strengthen her firm's overall competitive position. Grace is looking for a simple and common type of strategic alliance such as A) a non-equity alliance. B) an equity alliance. C) a joint venture. D) a merger.

A) a non-equity alliance.

1) University Home Goods is a home furnishings company that caters to college students and other highly price-conscious customers. Through its simple designs, acceptable quality levels, and minimal customer service, the company has been able to sell its merchandise at the lowest prices in the industry. Which of the following generic business strategies is University Home Goods applying? A) cost-leadership B) differentiation C) niche marketing D) product diversification

A) cost-leadership

1) Under the________ framework, producer surplus is important in the quest for competitive advantage because this is the profit that a firm captures when producing and selling a good or service. A) economic value creation B) accounting profitability C) shareholder value creation D) PESTEL

A) economic value creation

1) Maria wants to pursue an international strategy but is concerned that foreign markets aren't ready for her products and services. You recommend that she engage in________, which would be contract based and would limit risk and exposure of her investments. A) exporting B) licensing C) equity alliance D) greenfield operations

A) exporting

1) Trader Joe's successfully used a blue ocean strategy by offering lower-cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe's was able to A) gain a market share and make up the loss in margin through increased sales. B) create higher value creation and thus generate greater profit margins. C) gain a market share and make up the loss in margin through increased pricing. D) create higher value creation and thus generate greater sales.

A) gain a market share and make up the loss in margin through increased sales.

1) Teresa wants to take her firm internationally but is concerned with the________, which refers to the possibility of higher costs of doing business in an unfamiliar cultural and economic environment. A) geopolitical climate B) foreign direct investment C) liability of foreignness D) transactional strategy

A) geopolitical climate

1) Vinny, the CEO of Rainholm Industries, is looking to employ a________ strategy, which would take advantage of economies of scale and location economies. He wishes to pursue and establish a global division of labor based on wherever best-of-class capabilities reside at the lowest possible cost for Rainholm Industries. A) global-standardization B) multidomestic C) international D) transnational

A) global-standardization

1) NoRu Inc. is a publicly traded firm that does not wish to be acquired by FRESHPoP Corporation, a much larger publicly traded firm, who is planning an acquisition of NoRu Inc. This is an example of a A) hostile takeover. B) friendly takeover. C) joint venture. D) strategic alliance.

A) hostile takeover.

1) Josie wants to invest in the stock market but is afraid of losing more money than what she invests. Josie need not worry because of A) limited liability for investors. B) transferability of investor ownership. C) legal personality. D) separation of legal ownership and management control.

A) limited liability for investors.

1) Which of the following factors are the most important determinants of economic distance? A) the wealth and per capita income of consumers B) the ethnicity and religion of consumers C) the presence and influence of legal institutions in a country D) the topography and climate of a country

A) the wealth and per capita income of consumers

1) A defining characteristic of the pay-as-you-go business model is that the A) users pay for only the services they consume. B) users pay for access to a product or service whether they use it during the payment term or not. C) initial product is often sold at a loss in order to drive demand for complementary goods. D) the basic features of a service are provided free of charge, but the user must pay for premium services.

A) users pay for only the services they consume.

1) The goal of a strategic position is to create the largest gap possible between the________ that a firm creates through its offerings and the________ required to create these offerings. A) value; cost B) marketing; innovation process C) market share; defensive strategy D) gap; ROIC

A) value; cost

1) When does a merger between companies typically occur? A) when two firms of comparable size join to form a combined entity B) when large, incumbent firms buy startup companies C) when a target firm does not want to be acquired D) when two or more firms enter a temporary vertical strategic alliance

A) when two firms of comparable size join to form a combined entity

1) 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 entities 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 entities owning a firm.

B) An equity alliance involves taking ownership in a partner; a joint venture involves two or more entities owning a firm.

1) ________ are the board members who are part of the company's senior management team appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance. A) Outside directors B) Inside directors C) Stockholders D) Philanthropists

B) Inside directors

1) Which of the following is an advantage of the balanced scorecard? A) It is a tool for both strategic formulation and strategic implementation. B) It allows managers to translate a firm's vision into measurable operational goals. C) The balanced scorecard is independent of the skills of the managers responsible for its implementation. D) Its implementation is a one-time effort and does not require continuous tracking of metrics or updating of strategic objectives.

B) It allows managers to translate a firm's vision into measurable operational goals.

1) Which of the following statements is true of shareholders in a public stock company? A) They directly supervise and coordinate the manufacture of products and delivery of services. B) They are granted a charter of incorporation by the state and legally own company stock. C) They are the centerpiece of corporate governance. D) They are appointed by a board of directors to oversee the company's management.

B) They are granted a charter of incorporation by the state and legally own company stock.

1) Several notable firms, including Eli Lilly, HP, Procter & Gamble, and IBM, each wish to become the alliance "partner of choice" for small technology ventures, colleges, and inventors. They each know that________ is a necessary and critical element for an alliance to be a success. A) sharing explicit knowledge B) building interorganizational trust C) a hostile takeover D) partner implementation

B) building interorganizational trust

1) Skin Science Inc. produces a line of skincare products that it sells at higher prices than its competitors. The company has a large and loyal customer base due to its unique formulations, high-quality ingredients, and superior customer service. Which of the following generic business strategies has Skin Science adopted in this scenario? A) cost-leadership B) differentiation C) market penetration D) product diversification

B) differentiation

1) Jermaine's Choppers sells Chandler Dogies, a special type of motorcycle. The business generates roughly 80 percent of its revenues from selling these motorcycles and about 20 percent on motorcycle repair and service. Jermaine's Choppers would be classified as a________ firm. A) single business B) dominant business C) related diversification D) unrelated diversification

B) dominant business

1) Open Window, a brand well known for producing vinyl and aluminum window blinds, introduced a new range of faux-wood shutters and vertical blinds a few years ago. Because most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is Open Window applying? A) mass customization B) economies of scope C) learning-curve effect D) network effect

B) economies of scope

1) Dontechi 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

1) Tom is the CEO of Endless Possibilities Inc. and proudly boasts his firm's slogan, We Guarantee Success! However, Tom's constituents presented him with data on their latest project that suggests they should not move forward. Tom, undeterred with this data, decides that he will still accept the project because he believes that he can't lose. This is a classic example of A) CEO dedication. B) managerial hubris. C) strategic intent. D) cost benefit analysis.

B) managerial hubris.

1) When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in A) collective bargaining. B) strategic tradeoffs. C) arbitration. D) mediation.

B) strategic tradeoffs.

1) Lupita is the CEO of JustFixIt Inc., a firm that merges technology with commercial hardware. She has been struggling with the decision to allocate her resources for the development of a new system or go to the market and search for an already established system. The board of directors for JustFixIt Inc. suggested that the firm enter a contractual agreement with a partner. This scenario best illustrates the concept of A) buy-sell-or-trade framework. B) the Build-Borrow-Buy framework. C) the horizontal and vertical integration frameworks. D) the strategic alliance framework.

B) the Build-Borrow-Buy framework.

1) 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

1) Which of the following is the source of the principal-agent problem in publicly traded companies? A) the law of legal personality B) the separation of ownership and control C) limited liability for investors D) transferability of investor ownership

B) the separation of ownership and control

1) A drawback of short-term contracting as an alternative to making a component in-house is that A) it is the most-integrated alternative to performing an activity so the principal company has no control over the agent. B) the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality. C) it fails to allow a long planning period that individual market transactions provide. D) the buying firm cannot demand lower prices due to the lack of a competitive bidding process.a

B) the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

1) One of the reasons that big box retailers like Home Depot are able to achieve economies of scale is that A) they have both broad and narrow economies of scope. B) they maximize their scale efficiencies by stocking more inventory and handling it more efficiently. C) they are able to take advantage of market size and spread investment losses over many locations. D) they have been able to protect themselves from the threat of buyer power by increasing input prices.

B) they maximize their scale efficiencies by stocking more inventory and handling it more efficiently.

1) Massive Dynamic 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. Massive Dynamic 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, Massive Dynamic should A) continue to outsource production. B) vertically integrate. C) exit the laptop industry. D) diversify its activities.

B) vertically integrate.

1) A wearable technology company has priced one of its wristwatches at $210. Most of its competitors sell similar watches at $180. Selling at any price less than $150 would result in a loss for the company. However, the absolute maximum a customer is willing to pay for it is $170. In this scenario, what is the reservation price of the wristwatch? A) $150 B) $180 C) $170 D) $210

C) $170

1) General Electric's board has only one inside director, John Flannery, GE's CEO, who also acts as chairperson of the board. This is known as duality. Which of the following statements represents the best argument for this duality in GE? A) A CEO is likely to be more responsible because they are setting their own performance targets. B) The CEO might be able to influence the board through setting the meeting agendas. C) The CEO possesses invaluable inside information that can help them lead the board effectively. D) Any CEO will suggest board appointees who will function as strategic allies.

C) The CEO possesses invaluable inside information that can help them lead the board effectively.

1) Siobhan's firm focuses only on design, marketing, and retailing, and it outsources all its other value chain activities. This firm has A) a high degree of vertical integration. B) fully integrated all aspects of its value chain. C) a low degree of vertical integration. D) achieved economies of scale.

C) a low degree of vertical integration.

1) Which of the following best describes a strategic alliance? A) a conceptual model that aids strategic leaders in deciding whether to pursue internal development, enter a contractual arrangement or strategic alliance, or acquire new resources, capabilities, and competencies B) 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 C) a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services D) cooperation by competitors to achieve a strategic objective

C) a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

1) Gregarious Simulation Systems Inc. wants to globally expand its market. It intends to ensure that its mode of foreign entry allows it to have strong control over its operations and protect its intellectual property, although that may mean investing a significant amount of capital and other resources. In this scenario, which of the following foreign-entry modes would best suit Gregarious Simulation Systems? A) exporting B) franchise agreement C) acquisition D) licensing

C) acquisition

1) Khalil is interested in building the centerpiece of his firm's corporate governance, and so hires a________ that is made up of individuals from both inside and outside the firm. A) strategy consultant B) C-level suite team C) board of directors D) shareholders

C) board of directors

1) The translation of strategy into action primarily takes place in a firm's A) mission statement. B) executive summary. C) business model. D) code of conduct.

C) business model.

1) The concept of a(n)________ attempts to capture both learning effects and process improvements at firms. A) managerial grid B) growth matrix C) experience curve D) diminishing utility curve

C) experience curve

1) Industry analysts, auditors, and government regulators are examples of A) inside board members. B) outside board members. C) external governance mechanisms. D) internal governance mechanisms.

C) external governance mechanisms.

1) In the CSV framework, value creation is A) determined using a balanced scorecard. B) an afterthought to citizenship and philanthropy. C) focused on both economic benefits and societal benefits. D) secondary to maintaining a competitive advantage.

C) focused on both economic benefits and societal benefits.

1) Hector, owner of Hector's Trucking, wants to figure out if his business should diversify its range of services to gain an advantage over competitors. Business consultants have advised Hector to focus on the key question of where to compete. He would therefore be considering which of the following? A) his functional strategy B) his transaction costs strategy C) his corporate strategy D) his external transaction costs strategy

C) his corporate strategy

1) When a firm is facing high pressure for local responsiveness and low pressure for cost reductions, the firm is likely to adopt a(n)________ strategy, according to the cost-responsiveness framework. A) transnational B) global-standardization C) multidomestic D) international

C) multidomestic

1) Many financial service firms, IT firms, and health-care companies are among the most active when it comes to________, which occurs when value chain activities are taken care of outside the home country of the firm. A) strategic outsourcing B) procurement C) offshore outsourcing D) diversification

C) offshore outsourcing

1) Exporting is best described as A) building new, fully owned plants and facilities from scratch. B) purchasing an existing facility to launch a new production activity. C) producing goods in one country to sell in another. D) bringing goods or services into a country from abroad for sale.

C) producing goods in one country to sell in another.

1) One of the risks of pursuing a blue ocean strategy is that a firm can find itself A) losing sight of its mission and vision. B) competing with only a differentiation strategy. C) stuck in the middle without a clear strategic position. D) ineffective when competing on an international scale.

C) stuck in the middle without a clear strategic position.

1) The broad question that business-level strategy answers is________ the firm will compete. A) when B) where C) who D) how

C) who

1) 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—which 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.

1) Sanjay, owner of WashTubs, a washing machine company, is looking for an alternative to vertical integration. He decides to manufacture some of his own machine parts while keeping a few key suppliers in his industry value chain. This is known as A) a balanced scorecard. B) forward vertical integration. C) strategic offshoring. D) taper integration.

D) taper integration.

1) European aircraft maker Airbus invested $600 million in Mobile, Alabama, to build jetliners. Which of the following statements best explains why it used this strategy? A) to take advantage of the high labor costs in the southern United States B) to take advantage of the high cost of living in the southern United States C) to take advantage of the low impact of globalization in the United States D) to take advantage of lower taxes in the southern United States

D) to take advantage of lower taxes in the southern United States

1) Joaquin owns shares in a company called Maxapro Inc. The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing. Joaquin wants to proactively cut his losses and therefore sells his shares. Miriam, a trading enthusiast, buys shares in Maxapro Inc. 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) limited liability for investors D) transferability of investor ownership

D) transferability of investor ownership

1) Unilever's new-concept center is situated in downtown Shanghai, China, attracting hundreds of eager volunteers to test the firm's latest product innovations on-site while Unilever researchers monitor consumer reactions. In this example, Unilever is trying to reap the benefits of A) location economies. B) economies of scope. C) learning races. D) network effects.

A) location economies.

1) Michael Porter developed the diamond framework to explain why some nations outperform others in specific industries. This is referred to as A) national competitive advantage. B) death-of-distance hypothesis. C) local responsiveness. D) international competitive advantage.

A) national competitive advantage.

1) Customer service and________ are two of the value drivers that managers can utilize when trying to improve a firm's differentiation strategic position. A) product uniqueness B) experience curve C) cost of input factors D) economies of scale

A) product uniqueness

1) Fresher Corp. produces electric bathroom fragrance diffusers and sells the electric device at a market rate price. However, they lock their clients into a two-year agreement to purchase the perfume refills solely from them on a monthly basis. Which of the following business models does this best illustrate? A) subscription-based B) peer-to-peer C) crowdsourcing D) freemium

A) subscription-based

1) In Michael Porter's diamond framework,________ conditions describe a country's endowments in terms of natural, human, and other resources. A) market B) factor C) demand D) supply

B) factor

1) Firms that consider international expansion will often examine absolute metrics on which countries to pursue investments in but also consider relative distance. To help firms decide where to compete,________ was developed to help firms make this decision. A) the MNE decision-making model B) the polycentric strategic framework C) the CAGE distance framework D) Porter's diamond framework

C) the CAGE distance framework

1) Multinational enterprises (MNEs) such as Harley-Davidson, Rolex, and Starbucks are said to be following an international strategy because A) they pursue a cost-leadership strategy in their respective industries. B) they are highly responsive to the local needs and preferences of customers in the host countries. C) they offer the same products or services in all their stores throughout the world. D) they attempt to combine benefits of localization and standardization strategies simultaneously.

C) they offer the same products or services in all their stores throughout the world.

1) What does it mean for a firm to have an 80 percent learning curve? A) Every time the cumulative output increases by 80 percent, the cost per unit will decline by 20 percent. B) Every time the cumulative output is doubled, the cost per unit will decline by 80 percent. C) Every time the cumulative output goes up by 20 percent, the cost per unit will decline by 80 percent. D) Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

D) Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.

1) Evaluate the following statement: Strategic leaders should always try to pursue a blue ocean strategy because it is the most complex, coveted, and most desirable strategy that exists. A) I agree; firms should always pursue a blue ocean strategy because the benefits outweigh the cost. B) I agree; firms should pursue a blue ocean strategy because it's harder for competitors to replicate. C) I disagree; firms should never pursue a blue ocean strategy because it's much too complex. D) I disagree; firms should only pursue this strategy if they are able to reconcile the tradeoffs of each generic strategy.

D) I disagree; firms should only pursue this strategy if they are able to reconcile the tradeoffs of each generic strategy.

1) The name for an agreed-upon code of conduct in business, based on societal norms, is A) fiduciary responsibilities. B) poison pills. C) strategic business points. D) business ethics.

D) business ethics.

1) When two neighboring democratic countries that are part of a trading bloc follow different religions and social norms, they most likely have high________ distance. A) political B) geographic C) administrative D) cultural

D) cultural

1) The professional social media website LinkedIn allows its users to create their profiles for free, but it charges a premium price for additional services. This is an example of a________ business model. A) subscription-based B) peer-to-peer C) crowdsourcing D) freemium

D) freemium

1) Which term describes the process of merging with a competitor at the same stage of industry value chain? A) hostile takeover B) merger C) acquisition D) horizontal integration

D) horizontal integration