management ch6 ch 9

Which of the following best illustrates forward vertical integration?

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

Burger King offers exactly the same menu and the same Whoopers in all the foreign countries where it operates. Based on this information, which of the following strategies is the fast food chain pursuing?

global

A big advantage of related diversification is that it

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.

In the case of the car industry, what part of the industry value chain does a car dealer participate in?

sales and after sales

Company ABC operates in the athletic footwear industry. It has a unique strategic position as a focused differentiator in all the geographic markets where it operates. Based on this information, Company ABC is most likely to be pursuing a multidomestic strategy.

true

How has vertical integration and integration of its ecosystem aided the organization in building competitive advantage?

Owning the distribution and servicing of the vehicles improves the customer experience. Closer relationships between engineering and manufacturing give Tesla greater control over product design. In-house manufacturing of key components and new parts that require frequent updates has enabled the company to learn quickly and launch new versions faster. By building supercharge stations, Tesla is using the strategy to build the ecosystem that is necessary to support further adoption of its vehicles. All of these choices are correct. Explanation All of the choices are correct. By controlling the backward and forward value chain activities, Tesla has achieved greater competitive advantage over its rivals.

What are the cross-business strategic fit opportunities for L'Oréal?

Transferring skills and combining related value chain activities to achieve lower costs. Explanation The company's overall strategy is to differentiate its beauty products by emphasizing high-quality cosmetics delivered via retail distribution networks. This is a good example of two strategic fit opportunities: transferring skills and combining the related value chain activities to achieve lower costs, especially in the development, production, and distribution functions.

The Kroger Company, one of the largest supermarket chains in the US, operates several manufacturing and food processing facilities that produce its private label products. This is an example of backward vertical integration.

true

__________ refers to the extent to which a firm engages in the various value chain activities, from initial activities all the way to after-sales activities.

vertical scope Explanation: Vertical scope is the extent to which the firm engages in the various activities that make up the industry's entire value chain system, from initial activities such as raw-material production all the way to retailing and after-sale service activities.

The underlying thesis of ethical relativism DOES NOT imply that

when there are cross-country or cross-cultural differences in ethical standards, it is appropriate for ethical standards in a company's home market to take precedence over what the local ethical standards may be.

Tailoring a company's business model to accommodate the unique local circumstances of developing countries is best exemplified by

Dell's entry into China by deviating from its traditional Internet-based orders to accommodate orders over phone and fax. Explanation When Dell entered China, it discovered that individuals and businesses were not accustomed to placing orders through the Internet. To adapt, Dell modified its direct sales model to rely more heavily on phone and fax orders while waiting for a greater acceptance of online ordering. Further, because numerous Chinese government departments and state-owned enterprises insisted that hardware vendors make their bids through distributors and systems integrators (as opposed to dealing directly with Dell salespeople as did large enterprises in other countries), Dell opted to use third parties in marketing its products to this buyer segment. But Dell was careful not to abandon the parts of its business model that gave it a competitive edge over rivals.

Marriott, the hotel chain, purchased Starwood Hotels for $13 billion. All the brands previously owned by Starwood Hotels such as Sheraton and Westin are now managed by Marriott. This illustrates a(n) __________.

acquisition

A major drawback of ethical relativism is that

adoption of ethical relativism can be dangerous and might lead to the conclusion that if a country's culture is accepting of bribery, environmental degradation, and exposing workers to dangerous conditions, then so much the worse for honest people, environmental protection, and safe working conditions. Explanation Relying on the principle of ethical relativism to determine what is right or wrong poses major problems for multinational companies trying to decide which ethical standards to enforce companywide. It is a slippery slope to resolve such ethical diversity without any kind of higher-order moral compass. It becomes problematic in countries where kickbacks are customary, where child labor is allowed, or where hazardous working conditions are accepted.

Economies of scope

are cost reductions that flow from strategic fit along the value chains of related businesses. Explanation Economies of scope stem directly from strategic fit along the value chains of related businesses, which in turn enables the businesses to share resources or to transfer them from business to business at low cost

Merger and acquisition strategies

are often driven by such strategic objectives as to expand a company's geographic coverage or extend its business into new product categories. Explanation One of the best and quickest ways to expand a company's geographic coverage is to acquire rivals with operations in the desired locations.

According to the school of ethical universalism, the most important concepts of what is right and what is wrong

are universal and transcend culture, society, and religion. Explanation According to the school of ethical universalism, the most fundamental conceptions of right and wrong are universal and transcend culture, society, and religion.

Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through _____.

backward integration

The multidomestic strategy of "think local, act local"

becomes more appealing when country-to-country differences in buyer tastes, cultural traditions, and market conditions vary significantly. Explanation A think-local, act-local approach to strategy making is most appropriate when the need for local responsiveness is high due to significant cross-country differences in demographic, cultural, and market conditions and when the potential for efficiency gains from standardization is limited.

A greenfield venture strategy involves

creating a subsidiary business by setting up all aspects of the operation from the ground up. Explanation A subsidiary business that is established by setting up the entire operation from the ground up is called a greenfield venture.

The most important strategic issue for companies to resolve when competing in international markets is

determining whether to standardize or customize the company's offerings. Explanation Companies operating in an international marketplace must wrestle with whether and how much to customize their offerings in each country market to match local buyers' tastes and preferences or whether to pursue a strategy of offering a mostly standardized product worldwide. The tension between the market pressures to localize a company's product offerings country by country and the competitive pressures to lower costs is one of the big strategic issues that participants in foreign markets must resolve.

Cost reductions stemming from strategic fit along the value chains of related businesses can result in

economies of scope. Explanation Economies of scope stem directly from strategic fit along the value chains of related businesses, which in turn enables the businesses to share resources or to transfer them from business to business at low cost.

Assessing 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. Explanation Related diversification is based on value chain matchups with respect to key value chain activities—those that play a central role in each business's strategy and that link to its industry's key success factors. Such matchups facilitate the sharing or transfer of the resources and capabilities that enable the performance of these activities and underlie each business's quest for competitive advantage.

Vertical integration does not involve

expanding a firm's range of product and service segments within its product or service market. Explanation A firm can pursue vertical integration by starting its own operations in other stages of the vertical activity chain or by acquiring a company already performing the activities it wants to bring in-house. Vertical integration strategies can aim at full integration (participating in all stages of the vertical chain) or partial integration (building positions in selected stages of the vertical chain).

Disney's expansion from short films to animated films to live action films to television is an example of

expansion into new markets by leveraging a core capability. Explanation Disney used its core storytelling capability and well-known characters to move from one related market to another.

Walt Disney Productions were founded in 1923 to make animated films. The company created Buena Vista Distribution in 1953, ending a 16-year-old distribution agreement with RKO. By distributing its own films, Walt Disney Productions eliminated distribution fees that amounted to one-third of a film's revenues. This illustrates backward vertical integration.

false

XYZ is a company operating in the athletic footwear industry. It is a focused differentiator in North America, whereas it is a low-cost provider in Asia-Pacific and a best-cost provider in Latin America. Based on this information, XYZ is most likely to be pursuing a global strategy.

false

Lucar Steels Inc. has decided to enter into a foreign market by setting up its own production facilities and distribution channels from scratch. The foreign entry mode most likely opted by Lucar Steels Inc. is ____________.

green field venture

Which of the following is most likely to involve establishment of a new operation in a foreign country?

greenield venture

GD Inc. and VS Inc. join together to form a third new entity, while they also operate separately. This illustrates a(n) ________.

joint venture

Disney's ability to leverage its characters across its network of theme parks, media networks, and movies, and consumer products is an example of a corporate

parenting advantage. Explanation Disney's ability to create more value than a competitor would with the same business is a corporate parenting advantage. Disney can create much more value from the Marvel acquisition than almost any other firm due to the ability to leverage those characters across its network of theme parks, media networks and movies, and consumer products.

Horizontal scope refers to the

range of product and service segments that a firm can serve within its focal market. Explanation Horizontal scope is the range of product and service segments that the firm serves within its product or service market.

The major benefit of a related diversification strategy is

that it offers potential 1 + 1 = 3 or "synergy" benefits because of valuable cross-business relationships among the value chains of the corporation's different businesses. Explanation Diversification does not result in added long-term value for shareholders unless it produces a 1 + 1 = 3 effect, whereby the businesses perform better together as part of the same firm than they could have performed as independent companies.

The school of ethical universalism holds that

the most fundamental conceptions of right and wrong are universal and apply to members of all societies, all companies, and all businesspeople.

The global strategy that emphasizes a "think-global, act-global" strategic theme focuses on

the same basic competitive approach (low-cost, differentiation, best-cost, focused) in all countries where the firm does business. Explanation Companies employing a global strategy sell the same products under the same brand names everywhere, utilize much the same distribution channels in all countries, and compete based on the same capabilities and marketing approaches worldwide. Although the company's strategy or product offering may be adapted in minor ways to accommodate specific situations in a few host countries, the company's fundamental competitive approach (low cost, differentiation, best cost, or focused) remains very much intact worldwide and local managers stick close to the global strategy.

Integrated social contracts theory states that

universal ethical principles or norms are based on the collective views of multiple cultures, and societies combine to form a "social contract" that all individuals, groups, organizations, and businesses in all situations have a duty to observe. Explanation According to integrated social contracts theory, universal ethical principles based on the collective views of multiple societies form a "social contract" that all individuals and organizations have a duty to observe in all situations. Within the boundaries of this social contract, local cultures or groups can specify what additional actions may or may not be ethically permissible.

Walmart's strategy of acquiring Jet.com accomplished every outcome except

unseating Amazon as the industry leader in e-commerce. Explanation Merger and acquisition strategies typically set sights on achieving any of five objectives: (1) creating a more cost-efficient operation out of the combined companies; (2) expanding a company's geographic coverage; (3) extending the company's business into new product categories; (4) gaining quick access to new technologies or other resources and capabilities; and (5) leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

The basic tenet of the school of ethical relativism states that

what constitutes ethical or unethical behavior on the part of local businesspeople is properly governed by local ethical standards rather than the standards that prevail in other locations. Explanation The school of ethical relativism holds that differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to multiple sets of standards concerning what is ethically right or wrong. These differing standards mean that whether business-related actions are right or wrong depends on the prevailing local ethical standards rather than the standards that prevail in other locations.

When is outsourcing most beneficial?

when internal control over a value chain activity is deemed essential Explanation Outsourcing is most beneficial when an activity can be performed better or more cheaply by outside specialists and improves organizational flexibility. The biggest danger of outsourcing is that a company will farm out the wrong types of activities and thereby hollow out its own capabilities. Another risk of outsourcing comes from the lack of direct control. It may be difficult to monitor, control, and coordinate the activities of outside parties via contracts and arm's-length transactions alone. Vertical integration can result in less flexibility in accommodating shifting buyer preferences. Also, it may be difficult to monitor, control, and coordinate the activities of outside parties via contracts and arm's-length transactions alone. Unanticipated problems may arise that cause delays or cost overruns and become hard to resolve amicably.

Unrelated diversification requires that company managers spend much time and effort screening acquisition candidates using all of the following criteria except Multiple Choice

whether the business has a cross-business strategic fit. Explanation With an unrelated diversification strategy, company managers spend much time and effort screening acquisition candidates and evaluating the pros and cons of keeping or divesting existing businesses, using such criteria as: whether the business can meet corporate targets for profitability and return on investment, whether the business is in an industry with attractive growth potential, or whether the business is big enough to contribute significantly to the parent firm's bottom line.

Which statement points out the main difference between the global and the transnational strategy?

A transnational strategy gives local managers more room to make strategy changes to better satisfy local buyers and to better match local market conditions. Explanation Companies implement a transnational strategy with mass-customization techniques that enable them to address local preferences in an efficient, semistandardized manner.

Horizontal Acquisition Read the overview below and complete the activities that follow. Horizontal mergers and acquisitions, which involve combining the operations of firms within the same product or service market, provide an effective means for firms to rapidly increase the scale and horizontal scope of their core business. The goal of this exercise is for you to understand the strategic benefits and risks of expanding a company's horizontal scope of operations. Before completing this exercise, be sure to review Ch. 6, "Strengthening a Company's Competitive Position;" specifically, the section entitled "Horizontal Merger and Acquisition Strategies" and Illustration Capsule 6.3, "Walmart's Expansion into E-Commerce via Horizontal Acquisition." In 2016, Walmart expanded its presence into e-commerce via a horizontal acquisition of Jet.com. This acquisition was driven by which strategic objective?

Expanding its geographic coverage or extending its business into new product categories. Explanation Merger and acquisition strategies typically set sights on achieving any of five objectives: (1) creating a more cost-efficient operation out of the combined companies; (2) expanding a company's geographic coverage; (3) extending the company's business into new product categories; (4) gaining quick access to new technologies or other resources and capabilities; and (5) leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

Véronique is the CEO of a wind power energy company headquartered in Toulouse, France. Identify which company model she should emulate to craft a multidomestic strategy.

Headquartered in Liverpool, England, Castrol produces over 3,000 different formulas of oil lubricants to meet the requirements of different climates, vehicle types and uses, and equipment applications that characterize different country markets. Explanation In a multidomestic strategy, the need for local responsiveness is high. Therefore, the benefits from global integration and standardization are low. A multidomestic strategy is one in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level.

Which of the following is an example of a multidomestic strategy?

Heinz ketchup in India does not have garlic and onion. Explanation A multidomestic strategy is one in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level.

A prime example of a competitively valuable strategic fit is

Kimberly-Clark, a multinational in the personal care industry that produces mostly paper-based consumer products under five related lines of business. Explanation Prime examples of strategic fit include transferring specialized expertise, technological know-how, or other competitively valuable strategic assets from one business's value chain to another's; sharing costs between businesses by combining their related value chain activities into a single operation; exploiting the common use of a well-known brand name; sharing other resources (other than brands) that support corresponding value chain activities across businesses; and engaging in cross-business collaboration and knowledge sharing to create new competitively valuable resources and capabilities. For example, see Illustration Capsule 8.1. Kimberly-Clark is a Texas-based multinational in the personal care industry, producing mostly paper-based consumer products. Its products include iconic brands such as Kleenex, Huggies, Pull-Ups, Cottonelle, Scott, Viva, Kotex, and Depend. The company has organized its products into five related lines of business: Adult Care; Baby and Child Care; Family Care; Feminine Care; and K-C Professional. Its products are recognized and trusted around the world—distributed across more than 175 countries. The other examples listed are conglomerates that have been building shareholder value via unrelated diversification, which ultimately hinges on the ability of the parent company to improve its businesses (and make the combination better off) via other means, given the absence of cross-business strategic fit with which to create competitive advantages.

What are the cross-business strategic fit opportunities for Johnson & Johnson?

Leveraging the use of a well-respected brand and combining value chain activities to achieve lower costs. Explanation The company's overall strategy is to supply a broad range of personal hygiene and medical products to a wide range of customers. This is a good example of two strategic fit opportunities: leveraging the use of a well-respected brand name and combining the related value chain activities to achieve lower costs, especially in the product development and distribution functions.

Which of the following scenarios does NOT illustrate a vertical integration?

Regal Autos Inc. enters into a licensing contract with a distributor in a new international market.

Assurance of Learning: Vertical Integration Strategies at Tesla Read the overview below and complete the activities that follow. Illustration Capsule 6.4 describes how Tesla, an automobile company, uses a vertical integration strategy from component manufacturing all the way through vehicle sales and servicing. Most of the company's $11.8 billion in 2017 revenue came from electric vehicle sales and leasing, with the remainder coming from servicing those vehicles and selling residential battery packs and solar energy systems. Decisions concerning the scope of a company's operations—which activities a firm will perform internally and which it will not—can also affect the strength of a company's market position. The scope of the firm refers to the range of its activities, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses. Companies can expand their scope horizontally (more broadly within their focal market) or vertically (up or down the chain of value-adding activities that start with raw-material production and end with sales and service to the end consumer). Horizontal mergers and acquisitions (combinations of market rivals) provide a means for a company to expand its horizontal scope. Vertical integration expands a firm's vertical scope. Vertical integration, forward or backward, makes strategic sense only if it strengthens a company's position via either cost reduction or creation of a differentiation-based advantage. Otherwise, the drawbacks of vertical integration (increased investment, greater business risk, increased vulnerability to technological changes, less flexibility in making product changes, and the potential for channel conflict) are likely to outweigh any advantages. The goal of this exercise is for you to understand the advantages and disadvantages of extending the company's scope of operations via vertical integration. Before completing this exercise, be sure to review Chapter 6, "Strengthening a Company's Competitive Position;" specifically, the section entitled "Vertical Integration Strategies," and Illustration Capsule 6.4, "Tesla's Vertical Integration Strategy." What value chain segments has Tesla chosen to enter and perform internally?

Tesla has chosen vertical integration both backward and forward in the value chain to achieve multiple strategic goals. From component manufacturing like batteries, all the way through owning the distribution and servicing network. Explanation Tesla has chosen vertical integration both backward and forward in the value chain to achieve multiple strategic goals. It has vertically integrated the manufacture and distribution of its electric vehicles and is investing in a strategy to build the ecosystem that is necessary to support further adaptation of its vehicles.

Has vertical integration strengthened Tesla's market position?

Tesla's vertical integration strategy has enabled it to quickly roll out innovative new products and launch the network that is required for widespread vehicle adaption. Explanation Tesla's vertical integration strategy has enabled it to quickly roll out innovative new products and launch the network that is required for widespread vehicle adaption. As a result, investors have rewarded Tesla for this bold strategy by valuing it at almost $80 billion at the start of 2020, higher than the other major American automakers.

What is the cross-business strategic fit opportunity that exists with Bloomin' Brands?

Transferring skills and combining relative value chain activities to achieve economies of scale. Explanation The company's overall strategy is to differentiate its restaurants by emphasizing consistently high-quality food and service, generous portions at moderate prices, and a casual atmosphere. This is a good example of two strategic fit opportunities: transferring skills and combining the related value chain activities to achieve lower costs, especially in the administrative functions.

Corporate strategy helps managers understand which strategy question?

Where should the firm compete? Explanation Implied within this question are the ideas of: Should the firm expand into new markets by offering new products and services? Should the firm expand into new geographies? Should the firm expand vertically by bringing into its own operations, things being done by suppliers or customers?

The core concept of corporate social responsibility (CSR) can best be expressed as

a company's duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in local communities and in society at large. Explanation Corporate social responsibility (CSR) refers to a company's duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates, and in society at large.

A company's corporate social responsibility strategy commonly does not include actions to

maximize returns for shareholders. Explanation Corporate social responsibility (CSR) refers to a company's duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates, and in society at large.

GD Inc. and VS Inc. join together to form a single new company called GDVS Inc. This illustrates a(n) __________.

merger

Which of the following strategies focuses on customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets?

multidomestic

Walmart's horizontal acquisition strategy of Jet.com

offered considerable cost-saving opportunities and was beneficial in helping the company expand into a new industry. Explanation Merger and acquisition strategies typically set sights on achieving any of five objectives: (1) creating a more cost-efficient operation out of the combined companies; (2) expanding a company's geographic coverage; (3) extending the company's business into new product categories; (4) gaining quick access to new technologies or other resources and capabilities; and (5) leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.