SM quiz 8

Evaluating industry attractiveness involves

1. considering the presence of cross-industry strategic fit. 2. calculating industry attractiveness scores for each industry into which the company has diversified. 3. considering whether each industry the company has diversified into represents a good business for the company to be in. 4. considering social, political, regulatory, and environmental factors within the industry.

Which of the following makes acquisition an attractive approach to diversifying into another industry?

It is quicker than trying to launch a new operation, offers an effective way to hurdle entry barriers, and allows the acquirer to move directly to the task of building a strong position in the target industry.

Entering a new business via a joint venture can be useful in which of the following situations?

When the opportunity is too complex, uneconomical, or risky for one company to pursue alone, a company needs a local partner to enter a foreign company, and/or a company lacks important resources or competencies that can be supplied by a partner.

The procedure for evaluating a diversified company's strategy involves all of the following steps except

applying the industry attractiveness test, the cost-of-entry test, and the better-off test.

Relative market share as a measure of competitive strength is calculated by

dividing the business's percentage share of total industry sales volume by the percentage share held by its five largest rivals.

Checking the competitive advantage potential of cross-business strategic fit involves

evaluating how much benefit a diversified company can gain from cross-business value chain matchups and resource sharing

A "cash cow" business __________

generates substantial cash surpluses over what is needed to adequately fund its operations

Corporate restructuring strategies

involve making radical changes in a diversified company's business lineup, divesting some businesses and acquiring new ones so as to put a new face on the company's business lineup.

Retrenching to a narrower diversification base

is directed at improving long-term performance by building stronger positions in a smaller number of core businesses.

To produce added long-term shareholder value, a move to diversify into a new business must pass three tests

the better-off test, the cost-of-entry test, and the industry attractiveness test.

Checking a diversified firm's business portfolio for the competitive advantage potential of cross-business strategic fit entails consideration of

the extent to which there are competitively valuable relationships between the value chains of sister business units and what opportunities they present to reduce costs, share use of a potent brand name, or transfer skills or technology or intellectual capital from one business to another

Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when

there is ample time to launch the new business from the ground up.

The drawbacks of an unrelated diversification strategy include:

very demanding managerial requirements and limited competitive advantage potential

Which of the following best describes economies of scope?

Economies of scope are cost reductions that flow from operating in multiple related businesses.

Which of the following are key indicators of industry attractiveness?

Emerging opportunities and threats, the presence of cross-industry strategic fit, and seasonal and cyclical factors

What is the benefit of calculating quantitative attractiveness ratings for the industries a diversified company has invested in?

Calculating attractiveness ratings is a systematic and reasonably reliable method for ranking a diversified company's industries from most to least attractive

Which of the following statements is true regarding unrelated diversification?

Companies pursuing unrelated diversification strategies are often called conglomerates.

Which of the following is a prime benefit of a strategy keyed to related diversification?

Related diversification offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present competitively valuable cross-business relationships.

Which of the following is not a strategic option for a company that is already diversified?

Repurchasing shares of the company's common stock and building cash reserves by investing in short-term securities

The financial options for allocating a diversified company's financial resources include

repurchasing shares of the company's common stock