Chapter 8
_____, 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.
Coordination costs
Which of the following statements is true of taper integration?
It exposes in-house suppliers and distributors to market competition to make performance comparisons possible.
_____ is best described as moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain
Strategic outsourcing
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?
TL & Co. will share fewer common competencies and resources between its various businesses when compared to Soar Inc.
Which of the following is true of the parent-subsidiary relationship?
The transaction costs that arise are frequently due to transfer prices.
How do firms benefit from vertical integration?
Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities
White Leo Motors (WLM) Inc. 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 WLM?
a dominant-business firm
Firms that use taper integration also use _____ when they rely on outside-market firms for some of their supplies.
backward vertical integration
GreenCure Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner's confidence and to prove its involvement, GreenCure Pharma invested $100 million in the project. This investment made by GreenCure Pharma will result in a
credible commitment.
Which of the following would hinder firm performance?
diversification raising costs
Today, many companies use PeopleSoft and EDS to avoid maintaining a human resource management system. By doing this, these firms are
engaging in strategic outsourcing
Stellar Products Inc. 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?
parent-subsidiary relationship
Which of the following alternatives on the make-or-buy continuum allows for most integration?
parent-subsidiary relationship
Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self-interests. What does this best illustrate?
principal-agent problem
The core competency of MotorCraft Inc. is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that there is a new market opportunity to diversify. Thus, it produces the car engines on a large scale and sells them to other automobile companies. In this scenario, MotorCraft is
redeploying and recombining existing core competencies to compete in future markets.
A firm that engages in strategic outsourcing typically
reduces its level of vertical integration
In 2009, ExxonMobil bought XTO Energy, a natural gas company, for $31 billion. XTO Energy is known for its core competency to extract natural gas from unconventional places such as shale rock—the type of deposits currently being exploited in the United States. ExxonMobil hopes to leverage its core competency in the exploration and commercialization of oil into natural gas extraction. Based on this example, ExxonMobil is engaging in
related-constrained diversification.
A firm sources intermediate goods and components from in-house suppliers as well as outside suppliers. In a similar fashion, another firm sells its products through company-owned retail outlets and through independent retailers. Both of these examples demonstrate
taper integration.
Diversification premium is a situation in which
the stock price of related-diversification firms is valued at greater than the sum of their individual business units.
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.
unrelated diversification strategy
In 2007, Salesforce.com recognized an emerging market for platform as a service (PaaS) offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of software. This is an example of
building new core competencies to create and compete in markets of the future
The managers at AHL Chemicals Inc. decided that their firm needed to diversify because of falling sales and lower performance in one sector. How does diversifying compensate for the lackluster performance in this sector?
by having higher performance in another sector
the stock price of related-diversification firms is valued at greater than the sum of their individual business units.
by using internal capital markets as a source of value creation
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
related-constrained diversification.
Evara Inc. 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, if not all, of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Evara pursuing in this scenario?
related-linked strategy
