Chapter 8: Corporate Strategy: Vertical Integration and Diversification

What are the four quadrants of the core competence-market matrix? (Check all that apply.) -existing competencies with simultaneous markets -new competencies with new markets -new competencies with existing markets -existing competencies with existing markets -existing competencies with new markets -new competencies with related markets

-new competencies with new markets -new competencies with existing markets -existing competencies with existing markets -existing competencies with new markets

Long-term contracts (such as licensing and franchising), equity alliances, and joint ventures are examples of which of the following? -taper integration -transaction cost economics -offshoring -strategic alliances

-strategic alliances

What is a major disadvantage of organizing economic activity within firms? -search costs -the principal-agent problem -enforcement of contracts -transaction-specific investments

-the principal-agent problem

What are the main types of corporate diversification? (Check all that apply.) -unrelated diversification -horizontal diversification -double business diversification -single business diversification -dominant business diversification -related diversification

-unrelated diversification -single business diversification -dominant business diversification -related diversification

_______ strategy involves the decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously. -Corporate -Transformational -Administrative -Transactional

-Corporate

______ refers to an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes. -Strategic outsourcing -Vertical integration -Taper integration -Diversification

-Diversification

A non-diversified company focuses on which of the following? -a single market -vertically integrated firms -specialized asset firms -several different industries

-a single market

To get the benefits of vertical integration without the accompanying risks, companies can ______. (Check all that apply.) -choose strategic outsourcing -control every element of the industry value chain -opt to become fully vertically integrated -use taper integration

-choose strategic outsourcing -use taper integration

The persons responsible for forming corporate-level strategy are the ___. -middle managers -shareholders -consultants -executives

-executives

Which of the following are among the reasons firms need to grow? (Check all that apply.) -to increase costs -to increase profits -to motivate management -to decrease market power

-to increase profits -to motivate management

______ are unique assets with high opportunity cost. -Equity alliances -Horizontally integrated assets -Specialized assets -Diversified strategies

-Specialized assets

It can be riskier to own parts of the supply chain than to rely on external supply chains. -True -False

-True

Which of the following statements about the make-or-buy continuum is true? -The "make" and "buy" choices anchor each end of the continuum. -The "buy" choice reflects full integration. -Short-term contracts are the most costly option in the continuum. -"Make" and "buy" are the only two choices in the continuum.

-The "make" and "buy" choices anchor each end of the continuum.

In the ______ quadrant of the core competence--market matrix, a firm combines existing core competencies with existing markets. -existing core competence--new market -new core competence--existing market -new core competence--new market -existing core competence--existing market

-existing core competence--existing market

What are the three dimensions along which executives formulate corporate strategy? -The degree of vertical integration -The type of diversification -The size of the top management team -The geographic scope

-The degree of vertical integration -The type of diversification -The geographic scope

______ refers to the firms' ownership of its production of needed inputs or of the channels by which it distributes its outputs. -Industry value chain -Subsidiary relationship -Vertical integration -Horizontal integration

-Vertical integration

Firms that pursue an unrelated diversification strategy and are unable to create additional value tend to experience which of the following? -a diversification discount -vertical market failure -the principal-agent problem -a diversification premium

-a diversification discount

Which of the following terms describes the strengths that allow a firm to distinguish itself from the competition? -core competencies -Porter's five forces -economies of scope -PESTEL strengths -transaction costs -economies of scale

-core competencies

Zipster is a local manufacturer of athletic shoes. Zipster has decided it wants to expand to global markets and to offer a larger selection of items. It plans to offer not just athletic shoes but also luggage and car accessories. Zipster is engaging in ______. -diversification -backward integration -fully vertical integration -equity alliances

-diversification

TWN, a large multinational corporation, chose to spin off one of its SBUs that was unrelated to TWN's core business in order to avoid the ______. When they announced the spin-off, the stock price of TWN went up by 5%. -economies of scale -influence costs -diversification discount -diversification premium

-diversification discount

Amazon's continued focus on ______ is a key to its ongoing success. -shareholder profits -employee perks -specific target markets -innovation

-innovation

Companies that transact in the open market incur ______. -dividends -external transaction costs -internal transaction costs -staffing costs

-external transaction costs

In order for a firm to lower costs, it must ______. -increase risks -grow -lower profits -lower its expectations

-grow

Corporate strategy needs to be dynamic over time in order to ______. (Check all that apply.) -diversify to capture growth opportunities -keep and maintain a competitive advantage -respond to the ever-changing external environment -avoid paying for coordination and influence costs

-diversify to capture growth opportunities -keep and maintain a competitive advantage -respond to the ever-changing external environment

If a company moves ownership of activities closer to the end customer, such as providing after-sales support, it is engaging in ______ vertical integration. -backward -full -forward -scaled

-forward

Which of the following are types of vertical integration along the industry value chain? (Check all that apply.) -scheduled -forward -simultaneous -backward

-forward -backward

Specialized assets have ______. -low opportunity cost -high opportunity cost -high value in next-best use -low value in intended use

-high opportunity cost

One way to overcome the principal-agent problem is to ______. -make managers owners through stock options -establish coordination and flexibility -offer managers communities of knowledge -specify information symmetries

-make managers owners through stock options

Transaction costs include ______ costs associated with an economic exchange. -only the internal -the internal and external -the legal -only the external

-the internal and external

The degree of vertical integration corresponds to ______. -the firm's level of integration among the alternative industry types -the number of industry value chain stages in which a firm directly participates -the firm's level of integration with the host country's infrastructure -the number of parent-subsidiary relationships a firm is involved in

-the number of industry value chain stages in which a firm directly participates

Which of the following describes economies of scope? -costs associated with economic exchange -the average cost per unit decreasing as output increases -the savings from producing two or more outputs at less cost than producing each output individually -the unique strengths embedded deep within a firm

-the savings from producing two or more outputs at less cost than producing each output individually

Why do some firms choose alternatives to vertical integration? -to avoid the risks associated with vertical integration -to avoid strict financial regulations -to avoid the risks associated with diversification -to control every stage in the industry value chain

-to avoid the risks associated with vertical integration

A conglomerate fits which type of corporate diversification model? -single business -dominant business -unrelated diversification -related diversification

-unrelated diversification

Amazon's explosive success is largely due to which of the following? (Check all that apply.) -information asymmetry -vertical integration -single business focus -diversification

-vertical integration -diversification

What happens when the markets along the industry value chain are too risky and alternatives too costly in time or money? -vertical market failure -unrelated diversification failure -related diversification failure -horizontal market failure

-vertical market failure