Ch 8. Corporate Strategy: c

What must executives decide for corporate strategy

1. what stage of industry value chain 2. what range of products to offer 3. where to coompetet

23) A primary advantage of organizing economic activity within firms is the A) ability to coordinate highly complex tasks to allow for specialized division of labor. B) low administrative costs because of reduced bureaucracy. C) eradication of the principal-agent problem. D) high-powered incentive to work as salaried employees for an existing firm.

A.

38) Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing. A) industry B) functional department C) economy D) customer segment

A.

81) A strategy of ________ will be most beneficial for a firm to enhance its overall corporate performance. A) unrelated level of diversification B) single-business level of diversification C) dominant-business level of diversification D) related-linked diversification

D. REASON IS THAT SOURCES OOF VALUE CREATIOON : inbetween

Managers have exactly two choices when determining the boundaries of the firm: produce goods and services in-house ("make") or purchase them externally ("buy").

False

corporate strategy is focused solely on determine the geographic locations in which the firm

false

83) ________, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another. A) Coordination costs B) Fixed costs C) Agency costs D) Network costs

A.

70) Win Goods Inc. is a large multinational conglomerate. As a single business unit, the company's stock price is estimated to be $200. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $300. What is Win Goods experiencing in this scenario? A) diversification discount B) learning-curve effects C) experience-curve effects D) economies of scale

A. Diversification discount is a situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units.

46) Firms that use taper integration also use ________ when they rely on outside-market firms for some of their supplies. A) backward vertical integration B) forward vertical integration C) backward horizontal integration D) forward horizontal integration

A. Taper integration is a way of orchestrating value activities in which a firm is backwardly integrated, but it also relies on outside-market firms for some of its supplies.

51) WellMade Manufacturing is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate? A) process diversification B) product diversification C) geographic diversification D) market diversification

B.

11) Amazon.com has decided to enter the college bookstore market. The goal of "Amazon Campus" is to offer co-branded university-specific web sites that offer textbooks and paraphernalia, such as logo sweaters and baseball hats. This development shows Amazon's relentless pursuit of A) geographic diversification. B) product diversification. C) vertical integration. D) horizontal integration.

B.

35) 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.

59) A firm follows a(n) ________ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses. A) related-constrained strategy B) unrelated diversification strategy C) differentiation strategy D) dominant-business strategy

B.

18) Which of the following motivations for business growth involves principal-agent problems? A) increasing profits B) increasing market power C) reducing risk D) motivating managers

D.

54) Royal Motor Corp. generates a major portion of its revenues by manufacturing luxury sports cars. However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes Royal Motor Corp.? A) a conglomerate B) a subsidiary C) a dominant-business firm D) a single-business firm

C.

42) Which of the following best illustrates physical-asset specificity? A) a unique training program developed in an organization B) a ship container designed to carry more than the average load of iron ore C) a generic machine that can be used to churn different mixtures D) a machine solely designed to give a candy its trademarked shape

D.

However, that retailer outsourced its service departments, and customers began to complain that they could not get reliable tech support for Incline products. In response, Incline Electronics decided to set up its own tech support department, and it also began to investigate opening its own brand-based retail stores. What does this scenario best illustrate?

C. forward vertical integration

66) Ancho Corp. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car, which uses both gas and electricity. In this scenario, Ancho is primarily A) leveraging new core competencies to improve current market position. B) redeploying existing core competencies to compete in future markets. C) unlearning existing core competencies to create and compete in markets of the future. D) building new core competencies to protect and extend current market position.

D.

A conglomerate receives less than 70 percent of its revenues from any single business and features a number of strategic business units that have little to no relationship with each other.

True A firm follows an unrelated diversification strategy when less than 70 percent of its revenues comes from a single business and there are few, if any, linkages among its businesses. A company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy is called a

48) Fortress International, a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. Aside from this, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Fortress International applying? A) concentric integration B) taper integration C) horizontal integration D) conglomerate integration

B.

82) ________ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources. A) Fixed costs B) Influence costs C) Coordination costs D) Opportunity costs

B. influence costs are allocation and political maneuvering

47) Phoenix Guitars is interested in pursuing backward integration to take greater ownership of the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results? A) Invest in vertical integration despite the cost of producing pickups. B) Abandon the idea of vertical integration entirely. C) Pursue taper integration. D) Introduce a budget line of guitars to diversify the firm's offerings.

C.

58) TL & Co. is following a related-linked diversification strategy, and Soar Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other? A) Soar Inc. generates 70 percent of its revenues from its primary business, while TL & Co. generates only 10 percent of its revenues from its primary business. B) Soar Inc. pursues a backward diversification strategy, while TL & Co. pursues a forward diversification strategy. C) TL & Co. will share fewer common competencies and resources between its various businesses when compared to Soar Inc. D) TL & Co. pursues a differentiation strategy, and Soar Inc. pursues a cost-leadership strategy, to gain a competitive advantage.

C.

77) Real Goods Inc. is a large conglomerate. The company's beverages strategic business unit (SBU) has been recognized as a cash cow, and its tobacco SBU has been categorized as a dog. Which of the following can be inferred from this scenario? A) While the tobacco SBU operates in a low-growth market, the beverages SBU operates in a high-growth market. B) The management of the company should use the cash inflow from the beverages SBU and invest it in the tobacco SBU. C) While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low. D) The tobacco SBU should follow a backward integration strategy, and the beverages SBU should pursue a forward integration strategy.

C.

`64) Skylark Sodas has been a market leader in the soft drink industry for several decades. However, its market research shows that consumer tastes have begun to shift to sugar-free flavored seltzer waters, a product that Skylark is capable of producing with minimal changes to its facilities and production processes. Based on your knowledge of the core competence-market matrix, which diversification strategy should Skylark pursue? A) Leverage existing core competencies to improve current market position. B) Build new core competencies to protect and extend current market position. C) Redeploy and recombine existing core competencies to compete in markets of the future. D) Build new core competencies to create and compete in markets of the future.

C.

53) Groundswell Industries, a U.S.-based large conglomerate, competes in the hospitality, education, telecommunications, entertainment, airlines, and chemical industries. It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries. Which of the following strategies is Groundswell Industries pursuing? A) zone pricing B) niche marketing C) product-market diversification strategy D) process diversification strategy

C. A company that pursues both a product and a geographic diversification strategy simultaneously follows a product-market diversification strategy.

45) True Tomato Inc. makes organic ketchup. To promote its products, this firm decided to make bottles in the shape of tomatoes. To accomplish this, True Tomato worked with its bottle manufacture to create a set of unique molds for its bottles. Which of the following specialized assets does this example demonstrate? A) site specificity B) research specificity C) physical-asset specificity D) human-asset specificity

C. physical and engineering properties are designed to satisfy a particular customer, such as bottling machinery.

61) How does a conglomerate benefit from following an unrelated diversification strategy? A) The conglomerate can solely depend on its primary business activity for a major portion of its revenues. B) The conglomerate can share most of its competencies in products, services, technology, or distribution between all its businesses. C) The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies. D) The conglomerate can limit the learning- and experience-curve effects it faces.

C. unrelated diversification helps firm gains and sustain competitive advantage - allows conglomerate to overcome weaknesses in emerging economies

43) Which of the following best illustrates site specificity? A) equipment necessary for mining bauxite and aluminum smelting B) bottling machinery to manufacture bottles with trademarked shapes C) investment made in human capital to master procedures of a specific organization D) investment made to train employees to operate computers Answer: A

Site specificity, a form of specialized assets, refers to assets that are required to be co-located, such as the equipment necessary for mining bauxite and aluminum smelting. A.

Firms are more capable than markets at coordinating highly complex tasks, while markets are more capable of providing high-powered incentives for entrepreneurship.

True

Not all firms are motivated by a need to grow

true =

50) While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference? A) KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company. B) Chick-fil-A has a larger customer base and number of outlets in the U.S. market than its competitor KFC. C) KFC wants to follow a differentiation strategy, and Chick-fil-A wants to pursue a cost-leadership strategy. D) Chick-fil-A is part of a large conglomerate, whereas KFC has more flexibility to pursue a geographic diversification strategy.

A.

55) When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using A) related-constrained diversification. B) related-linked diversification. C) strategic outsourcing. D) offshore outsourcing.

A. The choices of alternative business activities are limited—constrained—by the fact that they need to be related through common resources, capabilities, and competencies.

71) Greenway Industries is a major multinational conglomerate. Its business units compete in a range of industries, including home appliances, pharmaceuticals, commercial real estate, and plastics manufacturing. Although its largest business unit, which produces kitchen appliances, is among the most profitable in the industry, it generates only 35 percent of the company's revenues. Which of the following is most likely true of Greenway's stock price? A) It is valued at less than the sum of its individual business units. B) It is valued at greater than the sum of individual business units. C) It is valued at the exact sum of individual business units. D) It is consistently lower than the industry average.

A>

65) The core competency of GoGo Motors is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that the growing demand for "green" vehicles has created a new market opportunity. Thus, it uses its existing technology to develop an engine that improves the fuel efficiency of recreational motorhomes. In this scenario, GoGo Motors is A) leveraging existing core competencies to target the chasm between the early adopter and early majority market segment. B) redeploying and recombining existing core competencies to compete in future markets. C) building new core competencies to create and compete in future markets. D) building new core competencies to protect and extend current market position.

B

56) Beagle Autos is known for its affordable and reliable brand of consumer vehicles. Because its shareholders expect to see an improved rate of growth in the coming years, Beagle's executives have decided to diversify the company's range of products so that at least 40 percent of the firm's revenue is generated by new business units. However, the company's resources, capabilities, and competencies are limited to producing other forms of motorized vehicles, such as motorcycles and all-terrain vehicles (ATVs). Which type of corporate diversification strategy should Beagle pursue? A) dominant business B) related-constrained C) related-linked D) unrelated

B.

62) With reference to the Strategy Highlight 8.2, the Tata Group's corporate strategy is attempting to A) move from unrelated diversification to related-constrained diversification. B) integrate different strategic positions, pursued by different strategic business units. C) pursue a focused differentiation strategy over a focused cost-leadership strategy. D) depend on a single product market to generate most of its revenues.

B.

67) Coca-Cola was primarily known for its core competencies in marketing, bottling, and distributing aerated drinks. However, with the success of Gatorade, Coca-Cola developed competencies in the development and marketing of its own sports drink, Powerade. Which of the following is true of Coca-Cola? A) It is leveraging existing core competencies to improve current market position. B) It is building new core competencies to protect and extend its current market position. C) It is redeploying and recombining existing core competencies to compete in markets of the future. D) It is targeting the chasm between the early adopter and early majority market segment.

B.

72) ESB Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has ESB Group created? A) capital liquidity B) diversification premium C) diversification discount D) demand-pull inflation

B.

74) The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in which two dimensions? A) start-up capital required and stage of industry life cycle B) relative market share and speed of market growth C) economic value created and costs incurred D) amount of debt financing and equity financing

B.

12) Decisions relating to "what stages of the industry value chain to participate in" determine a firm's A) level of diversification. B) geographic scope. C) vertical integration. D) competitive strategy.

C. the transformation of raw materials into finished goods and services along distinct vertical stages. This decision determines the firm's vertical integration.

57) Nocturnal Products started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Nocturnal pursuing in this scenario? A) taper integration strategy B) niche marketing strategy C) related-constrained strategy D) related-linked strategy

D. If executives consider new business activities that share only a limited number of linkages, the firm is using related-linked diversification.

75) In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should A) infuse more capital into the strategic business unit. B) provide more human resources to the business. C) hold the business till it turns into a star. D) divest the strategic business unit.

D. This implies stopping to invest in the business and squeezing out as much cash flow as possible before shutting it down or selling it.

60) Argus Inc. is a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company? A) a flagship brand B) a single-business firm C) a dominant-business firm D) a conglomerate

D. a company that combines two or more strategic business units under one overarching corp

A firm that decides to stop purchasing components from suppliers and start producing them in-house is pursuing backward vertical integration.

Tru

36) Bulldog Holdings is a U.S.-based consumer electronics company. It owns smaller firms in Japan and Taiwan where most of its cell phone technology is developed and manufactured before being released worldwide. Which of the following alternatives to integration does this best illustrate? A) venture capitalism B) franchising C) joint venture D) parent-subsidiary relationship

he parent-subsidiary relationship describes the most-integrated alternative to performing an activity within one's own corporate family. The corporate parent owns the subsidiary and can direct it via command and control. Difficulty: 2 Medium