Mgmt 493 Chapter 9

All of the following are benefits of horizontal integration except:

A. Higher cost structure

A company pursuing a strategy of vertical integration may expand its operations

A. backward into an industry that produces inputs for the company's products. C. laterally into an industry that competes with the company's products

Companies invest in specialized assets becuase these assets allow them to...

A.Lower their cost structure & C.better differentiate their products

Adam's boss tells him that their company is pursuing a strategy of horizontal integration, which means that the company will

B. buy one of its rivals

Horizontal integration in an industry tends to

B. reduce rivalry among firms

The price that one division of a company charges another division for its products, which are the inputs the other division requires to manufacture its own products refers to

C. Transferring pricing

Antitrust authorities

C. are concerned with companies' abuse of their market power to raise prices for consumers above the level that would exist in more competitive situations.

Vertical integration can be disadvantageous when

C. industry technology is changing rapidly.

When there is a minimal need for close long-term cooperation between a company and its suppliers, which of the following strategies is the most appropriate?

Competitive bidding

GM typically solicits bids from global suppliers to produce a particular component and awards a 1-year contract to the supplier that submits the lowest bid. At the end of the year, a contract is once again put out for competitive bid, and once again the lowest cost supplier is most likely to win the bid. GM is using which of the following?

Compettive bidding

When a company decides to expand into new industries, it must....

Construct its business models at two levels

Which of the following problems is (are) associated with a strategy of vertical integration?

D. All of these

Which of the following is not a benefit of vertical integration?

D. Increasing the cost structure

When Hewlett Packard and Compaq merged, the combined firm was larger and therefore could negotiate lower prices from suppliers. This benefit of horizontal integration is called

E. Market Power

Vertical integration is based on a company entering industries that add ____ to its core products.

E. Value

T or F Transfer pricing refers when a company is taken advantage of by another company it does business with after it has made an investement in expensive specialized assets to better meet the needs of the other company.

False

T or F A company seeking to form a long-term strategic alliance needs to enter the agreement with total trust in its partner to live up to its end of the agreement

False

T or F A strategic alliance is a substitute for horizontal integration

False

T or F Horizontal integration almost always increases rivalry in an industry.

False

T or F Horizontal integration can lead to low cost advantages but rarely to differentiation advantages

False

T or F Oracle Corp., based in Reno, Nevada, has become the world's largest maker of database software largely through a strategy of acquisition.

False

T or F Tina's Technologies is expanding its operations backward into an industry that produces inputs for the company's products. Tina's Technologies is utilizing horizontal integration.

False

T or F When a company outsources its NON-CORE activities to specialists, it looses its capabilities to differentiate its final products.

False

T or F Even though companies may invest in specialized assets to build competitive advantage, it is seldom necessary that suppliers do so.

False

T or F Unfortunately, horizontal integration can not be accomplished by acquisitions or mergers.

False

When Citibank offers home mortgages and credit cards to its checking account customers, it is using horizontal integration strategy.

False

The final part of the strategy formulation process is.....

Formulation of corporate-level stratgy

When an intermediate manufacturer moves into final assembly, it is pursuing

Forward Integration

In 1999, Glaxo Wellcome and SmithKline Beecham came together to create a single firm known as GlaxoSmithKline. This is an example of a(n)

Merger

Companies can maintain market discipline over suppliers by.....

Parallel sourcing

Rachel is a new mom who was shopping for products to use on her baby. She noticed that the company Johnson & Johnson often packaged together baby shampoo, baby lotion, and other similar products such as bottles and baby wipes. Johnson & Johnson is utilizing which of the following?

Product bundling

Another name for long-term cooperative relationships between two or more companies who agree to commit resources to develop new products is

Strategic Alliance

Competitive bidding makes suppliers reluctant to make investments that tie them closely to their trading partners.

True

Horizontal integration can help lower costs when it allows a company to reduce the duplication of resources.

True

One outcome of horizontal integration is industry consolidation, leading to more bargaining power over buyers and suppliers.

True

Product bundling occurs when a firm offers a range of products that are sold together at a single price.

True

T or F Vertical integration can strengthen a company's differentiation advantage.

True

T or F When a company stays inside one industry, the problems of sustaining a successful business model and strategies over time can be difficult because of changing conditions in the environment.

True

T or F At the time of the merger of Hewlett Packard and Compaq, Dell Computer's competitive advantage over Hewlett Packard was based on Dell's cost-leadership business model.

True

T or F Companies that outsource most or all of their value creation activities are often referred to as virtual corporations.

True

T or F Strategic outsourcing is the decision to allow one or more of a company's value chain activities or functions to be performed by independent companies.

True

T or F An advantage of horizontal integration is that by staying in one industry, a firm can focus its resources and capabilities on competing successfully in just one area.

True

T or F Managers use corporate-level strategy to identify which industries a company should compete in to maximize long-run profitability.

True

Vertical integration is undertaken to support the competitive position of a company's core business.

True

A strategy of vertical integration may be a risky strategy for a company to pursue when demand is

Unpredictable

Which of the following strategies facilitates the implementation of a just-in-time inventory system?

Verticle Integration

When is vertical integration hazardous?

a. When the Technology involved in different stages of production is changing rapidly

Under a competitive bidding strategy, independent component suppliers compete with each other to be the company that will be chosen to supply

a. a particular part for a particular manufacturer.

Credible commitments

a. are believable promises or pledges to support the development of a long-term relationship between companies.

When technology in an industry is changing rapidly, a company pursuing a strategy of vertical integration may find itself

a. locked into an old, inefficient technology.

John's surfboard shop has a long-term relationship with two surfboard makers. John is using

a. parallel sourcing.

Ownership of retail outlets may be important for a manufacturer if

b. after-sales service is required for complex products.

To build trust in a cooperative relationship, both firms can

b. make mutual investments in specialized assets.

A hospital supply company invests in training for a team of sales associates to learn the details of each hospital chain's operations. In return, the hospital chain invests in a computer system that supports supply ordering. The supply company and the hospital chain are working to ensure the success of their long-term relationship by

b. making a credible commitment.

Which of the following is a benefit that firms should expect to gain from the use of horizontal integration?

b.Better realization of economies of scale

Outsourcing occurs when a firm

d. hires another firm to perform value creation activities.

Outsourcing

d. moves some value chain activities outside the firm.

Horizontal integration may be thought of as

d.staying inside the industry in which the company currently operates.

In which of the following is a firm most likely to lose direct control over value creation activities?

e. Outsourcing

Google bought Clever Sense, a mobile app company. This is an example of a(n)

e. acquisition.

Long Term Contracts

e. are a low-cost alternative to vertical integration when it is possible to build cooperative relationships with suppliers.

Strategic alliances are

e. long-term agreements between two or more companies to jointly develop products that benefit all companies involved in the alliance.

Many industries have experienced increased consolidation over the last decade due to an increase in

horizontal integration