Chapter 8

Which quadrant in the core competence-market matrix is the hardest to pursue?

building new core competencies to create an compete in markets of the future

Soylent Corporation is a major nutritional supplement chain. Its managers are motivated to grow the firm in order to increase their market power and change the industry structure in their favor. Which of the following strategies is most associated with their motive for growth?

purchasing competitors

lackzim Inc. entered the low-priced digital watch market several years ago. This firm's earnings have been unsteady but might be growing. According to the BCG growth matrix, Blackzim is a

question mark

Janet wants to restructure the portfolio of all her firm's strategic business units. Janet will more than likely employ the ________ tool

Boston Consulting Group (BCG) matrix

Corporate strategy is focused solely on determining the geographic locations in which the firm should compete

False

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

Sending jobs out of the country to lower costs is known as outsourcing.

False

The internal and external costs associated with an economic exchange are known as interaction costs

False

Using the Boston Consulting Group growth-share matrix, the managers of Fasehatice International determined that their business unit devoted to personal health monitoring devices was a star. Based on this finding, which of the following strategies is likely to product the best results?

Increase investment in the personal health monitoring unit to encourage future growth.

While KFC focuses on international markets, its What is the reason behindcompetitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference?

KFC has more financial resources than Chick-fil-A since it is publicly traded stock company.

Salesforce is one of the leading providers of platform as a service (PaaS) tools and services. They developed a new competency in delivering software development that allows its customers to better customize their future needs. Viewing this through the lens of the Core Competence-Market Matrix, Which of the following four options below does salesforce best exemplify?

Salesforce built new core competencies to create and compete in markets of the future

How does a conglomerate benefit from following an unrelated diversification strategy?

The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

________ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Vertical integration

A strategy of related-constrained or related-linked diversification is less likely to enhance corporate performance than either a single or dominant level of diversification or an unrelated level of diversification.

False

Which of the following best illustrates forward vertical integration?

A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.

Finjob Inc. is following a related-linked diversification strategy, and Rangreen Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other?

Finjob Inc. will share fewer common competencies and resources between its various businesses when compared to Rangreen Inc.

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

True

Which of the following best illustrates physical-asset specificity?

a machine solely designed to give a candy its trademarked shape

A primary advantage of organizing economic activity within firms is the

ability to coordinate highly complex tasks to allow for specialized division of labor

Golddex Autos currently sources components such as airbags, upholstery, and brake pads from various suppliers in the industry value chain. In order to lower costs and reduce the risk of interruption in the supply of components, Golddex should pursue

backward integration

The managers at Acme Corporation decided that their firm needed to diversify because of overall falling sales and lower performance in one sector. How does diversifying compensate for the declining performance in this sector?

by having higher performance in another sector

John owns John's Trucking Corporation and is trying to determine if his firm should engage in vertical integration and diversify the range of services his business sells. Before John goes through with these decisions, he'll need to consider what is his

corporate level strategy

Vehement Capital Partners 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, Vehement Capital Partners invested $100 million in the project. This investment made by Vehement Capital Partners will result in a

credible commitment

Ontomedia 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 Ontomedia experiencing in this scenario?

diversification discount

Which of the following best illustrates site specificity?

equipment necessary for mining bauxite and aluminum smelting

Condax Electronics relied on a large chain of consumer electronics stores to sell its tablet computers, cell phones, and televisions and also to provide customer service and technical support. However, that retailer outsourced its service departments, and customers began to complain that they could not get reliable tech support for Condax products. In response, Condax 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?

forward

Jill is the CEO of Note's Etc, a stationary manufacturer. She decides to open up a retail store to sell her products directly to consumers instead of just selling to retailers. In order to do this, Jill will need to engage in ___, which is a corporate level, strategy,

forward vertical integration

Hot Potatoes, a fast food restaurant, operates through a business model in which individuals can buy the rights to set up Hot Potatoes stores and sell the company's food in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to offer a menu approved by the company's headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate?

franchising

Rangreen Watches, a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of developing nations. Which of the following types of diversification strategies is the firm pursuing?

geographic diversification strategy

Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing.

industry

Initech Inc. developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Accent Technologies, a consumer electronics

licensing

There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?

lowering costs

Which of the following motivations for business growth involves principal-agent problems?

motivating managers

When examining the core competence-market matrix, the most challenging diversification strategy occurs when firms attempt to combine ________ with ________. If done successfully, the firm could have the potential for "mega-opportunities "that may lead to competitive advantage

new core competencies, new markets

Many financial service firms, IT firms, and health care companies are among the most active when it comes to________, which occurs when value chain activities are taken care of outside the home country of the firm.

offshore outsourcing

Goodsilron 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

VineRipe Tomato Inc. makes organic ketchup. To promote its products, this firm decided to make bottles in the shape of tomatoes. To accomplish this, VineRipe 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?

physical-asset specificity

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

Anheuser-Busch InBev sold Busch Entertainment, its theme park unit that owns SeaWorld and Busch Gardens, to a group of private investors for roughly $3 billion. This strategic move allowed InBev to focus more fully on its core business of brewing and distributing beer across the world. This is an example of

restructuring

Since Coca-Cola focuses on selling only soft drinks, a low degree of product diversification, we would conclude that they compete in a(n) ________ market versus their main competitor PepsiCo, that sells a wide variety of products.

single product

Which of the following is an example of an internal transaction cost?

the cost of maintaining a production unit

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

Decisions relating to "what stages of the industry value chain to participate in" determine a firm''s

vertical integration

Firms that pursue extremely high or extremely low levels of diversification perform better than those that pursue moderate levels of diversification.

False

Why is following an unrelated diversification strategy especially advantageous in

It allows the conglomerate to overcome institutional weaknesses in emerging economies.

Not all firms are motivated by a need to grow.

True

How is an equity alliance different from a joint venture?

An equity alliance involves taking ownership in a a partner; a joint venture involves two or more entities owning a firm

Hooli Computers has decided to procure processing chips required for its laptops from external suppliers instead of manufacturing them in their own facilities. How will this decision affect the firm?

The firm will have more flexibility in purchasing and comparing prices of goods and services

Pete E' Gee sell's Big Dog Choppers, a special type of motorcycle. His business generates roughly 80 percent of his revenues from selling these motorcycles and about 20 percent on motorcycle repair and service. Pete E' Gee would be classified as a ___ firm.

dominate business

Massive Dynamic Computers sources the components for its laptops from various suppliers on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Massive Dynamic has determined that it would cost $200 per unit to produce all of the necessary components in its in-house manufacturing facility. In this scenario, Massive Dynamic should

vertically integrate

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

True

Mary has been named CEO of an office furniture manufacturing company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Mary most likely to make?

what range of products the firm should offer

A drawback of short-term contracting as an alternative to making a component in-house is that

the supplying firm has no incentive to make any transaction specific investments to increase performance or quality.

Which of the following is a drawback of vertical integration?

It increases the potential of legal reprecussions

Susan owns a firm that is considered fully integrated. Which of the following statements below would best describe a firm that is fully integrated?

All of Susan's business activities are conducted within the boundaries of the firm

________, 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

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?

It is building new core competencies to protect and extend its current market position.

Ganjaflex 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 Ganjaflex's stock price?

It is valued at less than the sum of its individual business units.

Doncon 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?

Pursue taper integration

Hatfan Inc. is a large automobile company. The company's petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?

The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in high-growth market.

One of the key lessons when differentiating between strategies is that "business level strategy" attempts to define how a firm will compete while "corporate level strategy" is defined by where they compete.

True

The most challenging diversification strategy is likely to be one that combines new core competencies with new and emerging markets

True

Inity 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?

While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low

About 20 years ago, Xx-zobam, Inc., produced a sturdy, lightweight backpack in a market that was rapidly growing. Sturdy Light became a leader in this market. Eventually, the backpack market reached the maturity stage developed a strong brand name and continued to steadily lead the market. Which of the following describes this scenario?

Xx-zobam was a star that developed into a cash cow.

Funholding Inc. is a large multinational company owned by two partners, is active in thepetroleum, 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 conglomerate

Sonron Auto Corporation generates 85 percent of its annual revenues by manufacturing luxury cars. The company derives 15 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 desdribes Sonron Auto Corporation?

a dominant-business firm

Openlane and Yearin Technologies have together invested and created a new organization, Globex Corporation, to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Openlane and Yearin Technologies. Which of the following alternatives to integration does this scenario best illustrate?

a joint venture

Billy is the CEO of Billy's Kicks, a soccer ball retailer. He decides to purchase the synthetic rubber manufacturing _firm so he can create his own soccer balls and sell them, nationally, in his retail stores. In order to do this, Billy will need to engage in ___, which is a corporate strategy.

backward vertical integration

Firms that use taper integration also use ________ when they rely on outside-market firms for some of their supplies.

backward vertical integration

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.

Bob is the strategic business unit (SBU) CEO in charge of manufacturing cufflinks for men's clothing. While the market he competes in is low growth, Bob's SBU's earnings and cash flow are both ranked at high and stable. When examining Bob's SBU through the Boston Consulting Group (BCG) matrix lens, we can conclude that his SBU would be classified as a

cash cow

The Tata Group, Warren Buffet's Berkshire Hathaway and the Japanese Yamaha group have several strategic business units under one corporate umbrella and are pursuing an unrelated diversification strategy. We would refer to these businesses as

conglomerates

XYZ Inc. is a publicly traded company and a highly diversified firm. However, XYZ's most recent stock price is valued less than the sum of all its individual business units. We would conclude that XYZ is currently experiencing a

diversification discount

Betatech 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 Betatech Group created?

diversification premium

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

divest the strategic business unit

Konmatfix Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under

dogs

Because Facebook receives almost all of its revenues from online advertising, we would conclude that Facebook would be characterized as a(n) ________ firm, which has the lowest level of corporate diversification

dominate business

Jennifer is the strategic business unit (SBU) CEO in charge of manufacturing stereo speakers for computers and laptops. Her SBU earnings and cash flow are both low and unstable. Which of the following strategies should Jennifer enact if examining her SBU through the Boston Consulting Group (BCG) matrix lens?

harvest and/or divest

Danke Inc. is a diversified firm that creates more value than the cost that it incurs. As a result, they are experiencing a diversification premium in their stock price. Danke Inc. is able to accomplish all of the following except

increase their costs but maintain their current stock price

________ 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.

influence costs

Nina is in an interview for a sales job that requires no experience. She is trying to portray herself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Rebecca should be hired as a salesperson in the company. However, in her resume, Rebecca had not mentioned her previous work

information asymmetry

________ is best described as a situation in which one party is more informed than another, because of the possession of private information.

information asymmetry

Decisions relating to the range of products and services a firm will offer determine the firm's

level of diversification

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

product diversification

J-Texon 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?

product diversification

PepsiCo operates in many countries and sells a wide variety of aerated drinks, other beverages, different types of chips, and Quaker Oats goods to achieve continuous growth. From this data, we can conclude that PepsiCo has been involved in

product-market diversification

Singletechno 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?

product-market diversification strategy

Plexzap 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 Plexzap 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 Plexzap pursue?

redeploy and recombine existing core competencies to compete in markets of the future.

The core competency of Newex 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, Newex Motors is

redeploying and recombining existing core competencies to compete in future markets

Plexzap 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 Plexzap pursuing in this scenario?

related-linked strategy

The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in which dimensions?

relative market share and speed of market growth

________ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.

strategic alliances

Betasoloin 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

building new core competencies to protect and extend current market position.

The Umbrella Corporation (UC) recently acquired a smaller competitor, Packer and Associates, which specializes in issues not previously covered by UC, such as land use and intellectual property cases. Given the increase in the firm's size and complexity, it is likely that its internal transaction costs will

increase

Silis 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, Silis' 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?

related-constrained

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

A strategy of ________ will be most beneficial for a firm to enhance its overall corporate performance

related-linked diversification

Hottechi Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company's key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, Hottechi is involved in

restructuring

he smartphone division of the large consumer electronics company, Streethex Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growth-share matrix, the smartphone division of Streethex will be categorized under

stars

Todd Wilkinson, the founder of 123.com, looked outside his firm for the right talent in order to develop his firm's website. The search led him and his team to a different country where they were able to procure the right talent to get the job done. This example best illustrates the concept of

strategic outsourcing

Mark owns Drones 'R' Us, Inc. and is looking for an alternative to vertical integration. He decides to manufacture some of his own parts while keeping a few key suppliers in his industry value chain as well. This is known as

taper integration

Rundofase 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

taper integration

Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?

the chief executive officer

Which of the following is an example of an external transaction cost?

the cost of searching for a contract manufacturer