MGMT 475 Final Part 2
65) How is a cost-leader protected from threats from powerful suppliers?
A) It is more able to absorb price increases through accepting lower profit margins.
46) ________ is best described as the output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale.
A) Minimum efficient scale
24) Which of the following scenarios would be characteristic of an entrepreneur?
A) Rachel implemented a new and more efficient way to produce pottery.
68) In a successful ________ strategy, the trade-offs between differentiation and low cost are reconciled.
A) blue ocean
A ________ primarily details the goal-directed actions managers take in their quest for competitive advantage when competing in a single product market.
A) business-level strategy
Bargain Styles Inc. is an apparel company that caters to the highly price-conscious customers. Through its simple apparel designs, acceptable quality levels, and minimal customer service, the company has been able to sell its merchandise at the lowest prices in the industry. Which of the following generic business strategies is Bargain Styles applying?
A) cost-leadership
Tangles Costume Jewelry offers slightly lower quality merchandise than competitors at a much lower price. What strategy is Tangles using?
A) cost-leadership
63) A differentiator is least likely to be threatened by increases in input prices due to powerful suppliers when the
A) differentiator is able to create a significant difference between perceived value and current market prices.
22) As the inventor of hypertension medication, OneSure Pharmaceuticals (OSP) Inc. was able to reap the benefits of economies of scale due to a large consumer demand for the drug. Even when competitors later developed similar drugs after the expiry of OSP's patents, regular users did not want to switch because they were concerned about possible side effects. Which of the following benefits does this scenario best illustrate?
A) first-mover advantages
Nendry is the owner of a firm that produces sports drinks. Since there are a number of firms in the industry competing on cost, Nendry has decided to pursue a differentiation strategy. In this case, she should
A) focus on adding unique features to her product that customers will value.
85) Trader Joe's successfully used a blue ocean strategy by offering lower cost food than Whole Foods for the same market of patrons. By doing this, Trader Joe's was able to
A) gain a market share and make up the loss in margin through increased sales.
80) The strategy canvas for movie theaters includes factors such as prices, comfort, customer service, concessions variety, and hours of operation. Which of the following value curves is most likely to represent a theater that successfully positions itself as a differentiator?
A) high price, high comfort, high customer service, high concessions variety, low hours of operation
21) Lillypad Toys is a manufacturer of educational toys for children. Six months ago, the company's research and development division came up with an idea for a unique touchscreen device that can be used to introduce children to a number of foreign languages. Three months ago, the company produced a working prototype, and last month the company successfully launched its new device on the commercial market. What should Lillypad's managers prepare for next?
A) increased competition from imitators
28) Which of the following lists the stages of the industry life cycle in the correct order?
A) introduction, growth, shakeout, maturity, and decline
41) Heartbeat Industries has recently introduced a new production method that will make the production of their medical devices more cost-effective. Which of the following will most likely be the result of this innovation?
A) jumps to a steeper learning curve
59) When a firm combines experience based learning and process innovation, the firm
A) jumps to a steeper learning curve.
29) A new product often has a high price when it is launched because of a
A) large investment in designing a product while producing small quantities.
53) Meadows Mowers initially spent nine man-hours to assemble a lawnmower. But as the production doubled, the number of hours spent on assembling a mower reduced by 20 percent. This increase in productivity reduced the company's cost per unit. What is this phenomenon referred to as?
A) learning-curve effect
43) Both BioThink Inc. and GD Pharma Inc. have discovered similar vaccines to prevent cancer. While GD Pharma's vaccine sells at $100 per unit, BioThink sells its vaccine at $90 per unit. This price differentiation has mainly been attributed to the companies' capital decisions. While BioThink used its retained earnings to develop the vaccine, GD Pharma borrowed funds from banks to develop the vaccine. Thus, GD Pharma pays a higher interest on its capital, which makes it necessary to price its vaccine higher. Thus, the key driver for BioThink's competitive advantage is
A) low-cost input factors.
27) The strategic objective of a first mover during the introduction stage of the industry life cycle is to
A) pursue a harvest strategy.
77) When a blue ocean strategy goes bad, a firm has neither a clear differentiation nor a clear cost-leadership profile. This situation is referred to as
A) stuck in the middle.
35) Value drivers contribute to a firm's competitive advantage only if
A) the increase in value creation exceeds the increase in costs.
78) A blue ocean strategy differs from a low-cost strategy in that
A) the intent of a blue ocean strategy is not to be the absolute lowest-cost provider because a blue ocean must also increase perceived value.
13) What is an invention?
A) the transformation of an idea into a new product or process
39) What must a cost-leadership strategy accomplish to be successful?
B) It must reduce the firm's cost below that of its competitors while offering adequate value.
73) Which of the following best explains why a blue ocean strategy is difficult to implement?
B) It requires the reconciliation of fundamentally different strategic positions—differentiation and low cost.
42) Which of the following is an accurate statement about learning effects?
B) Learning effects occur over time as output accumulates.
11) Which of the following accurately describes how Netflix used innovation to gain a competitive advantage?
B) Netflix applied big data analytics to its user preferences to provide highly personalized viewing recommendations.
26) Dominic is the founder of an innovative "impromptu catering" business that provides elegant, healthy party food and decorations on less than 24 hours' notice. The company has grown by over 150 percent in the past year. Dominic credits some of the company's success to studying the strategies of prominent social entrepreneurs, such as Wikipedia's Jimmy Wales. What can Dominic do to exemplify the social entrepreneurship model?
B) Provide free weekly catered meals for the homeless.
Beach Grub is a chain of "fast casual" restaurants that sells its menu items at higher prices than its competitors. Yet, the restaurant has a large customer base due to its wide product portfolio and superior customer service. Which of the following generic business strategies has Beach Grub adopted in this scenario?
B) differentiation
51) When Simple Semiconductors was operating at the minimum efficient scale of 10,000-12,000 units per month, the firm's cost per unit was $45. However, when the output level was increased beyond 12,000 units, the cost per unit increased to $47. This increase was attributed to the wear-and-tear of the machinery, and complexities of managing and coordinating. What is this phenomenon known as?
B) diseconomies of scale
75) Heirloom Furniture is a brand reputed for its wide variants of sofas that introduced a new range of mattresses and bed frames a few years ago. Since most of its products could be produced using the same resources and technology, the company's cost structure lowered, while its product portfolio widened. In this scenario, which of the following value and cost drivers is Heirloom applying?
B) economies of scope
71) Backyard BBQ is a chain of casual restaurants that promises affordable barbecue using top-quality local ingredients. However, the company has struggled to achieve a competitive advantage because of its high overhead costs. Which of the following scenarios is most likely to result in a competitive advantage?
B) eliminating brick-and-mortar locations and offering delivery from a central kitchen
When a differentiator charges a similar price as its competitors in the same strategic group but offers more perceived value, it
B) gains market share from other firms.
35) In which of the following stages of the industry life cycle is a standard first established?
B) growth stage
33) The leading producer of cell phone backup batteries, Jumpstart, has achieved great success because they produce high-quality battery backups that are not too expensive. Even so, another company that produces lower-quality batteries at the same price has also achieved some success, but not as much as Jumpstart. Also, in general, the price of backup batteries has declined because of economies of scale and learning. In addition, Jumpstart has added complementary assets, such as a carrying case. Considering all of these factors, the backup battery industry is most likely in the
B) growth stage.
31) In the decline stage, which of the following strategies involves a reduction of investments in product support?
B) harvest strategy
57) Combining economies of learning with the existing production technology allows a firm to
B) move down a given learning curve.
14) When ReGen Pharmaceuticals released a new drug to treat insomnia, its chemical composition was disclosed at the back of the drug's cover. However, any attempts by competitors to copy the chemical composition would result in infringement of ReGen Pharmaceuticals intellectual property rights. Thus, the drug is protected by a
B) patent.
When a firm makes choices between a cost or value position to achieve competitive advantage, it is primarily involved in
B) strategic trade-offs.
12) The typical four-step innovation process begins with
B) the presentation of an idea as findings derived from basic research.
Red Sapphire is a wristwatch company known for its luxury watches and that follows a differentiation strategy. In this scenario, Red Sapphire should ideally compare its strategic position with a
B) watch maker that sells high-end, premium watches.
Both Bison Autos and Sparrow Inc. incur a cost of $9,000 to manufacture a vehicle. However, the economic value created by Sparrow Inc. is more than that created by Bison Autos. What does this indicate?
C) Sparrow Inc. can charge a premium price on its automobiles.
64) Starfish Sodas has successfully achieved a competitive advantage in the soft drink industry as a differentiator. Which of the following scenarios would undermine Starfish's position?
C) Starfish's customers start to consider soda a commodity.
44) In order to achieve a competitive advantage, the Coastal Haven Hotels, a chain of luxury beach resorts, wants to increase its market share. Which of the following strategies is most likely to do so?
C) Take advantage of economies of scale and scope by opening a chain of lower-priced economy hotels that leverage the Costal Haven brand image.
Airbase is a consumer electronics company known for its affordable mobile devices that follows a cost-leadership strategy. In this scenario, Airbase should ideally compare its strategic position with
C) a consumer electronics company popular among price-conscious customers.
32) Assume that the market for print book publishing has entered the maturity stage. Which of the following would most likely exist during this stage?
C) a few large publishers
In a focused cost-leadership strategy, a firm
C) delivers low-cost products and services to a specific, narrow part of the market.
50) DiscountHaven Inc. is a large chain of hypermarkets. It has cost benefits due to its extensive operation. The company's marketing and sales, logistics, administrative, and other such related costs get divided between a large number of product units stocked in its stores. This makes it difficult for smaller retail stores and supermarkets to compete against DiscountHaven's low prices. Thus, DiscountHaven has a competitive advantage due to its
C) economies of scale.
58) The concept of a(n) ________ attempts to capture both learning effects and process improvements at firms.
C) experience curve
Whole Foods differentiates itself from competitors by offering top-quality foods obtained through sustainable agriculture. This business strategy implies that Whole Foods focuses on
C) increasing the perceived value created for customers, which allows it to charge a premium price.
A firm's business strategy can lead to a competitive advantage if it allows the firm to
C) perform different activities than its rivals
Fleet Foot Shoes has been successful at differentiating itself from competitors by claiming a premium price for its athletic footwear based on superior design and high-quality materials. In this scenario, which of the following is the key value driver?
C) product features
66) Due to its large sales volume and low cost structure, Quick Serve Mini-Marts enjoys a cost leadership position. Which of the following scenarios might threaten Quick Serve's competitive advantage?
D) A new competitor is perceived to provide similar value, but in addition offers innovative self-checkout.
72) How did Marriott use economies of scope to achieve greater economic value than its competitors?
D) Marriott lowered its cost structure by sharing its production assets over several types of hotels, which increased the diversity of its hotel line and thus its differentiated appeal.
19) Which of the following is a competitive benefit experienced by the first mover firm in an industry?
D) The first mover will be able to reduce costs through economies of scale.
Which of the following examples uses a focused differentiation strategy?
D) a cosmetics brand that offers superior skin lotion for sensitive skin priced at 100 dollars per bottle
When wireless service providers offer free or discounted mobile phones for subscriptions to their wireless voice and data service, the perceived value of the service offering increases. In this case, the value driver would be
D) availability of complements.
70) In the multiplex industry, Vibrant Movies Inc. is an upscale multiplex that focuses on superior customer experience. The firm charges premium prices for its movie tickets and services. Global Cine Inc., in contrast, charges the lowest price in the industry with its no-frills approach. In between these two segments is True Movies Inc., which offers a customer experience comparable to that of Vibrant Movies at a price almost as low as that of Global Cine. What strategy is True Movies pursuing in this scenario?
D) blue ocean strategy
Swan Song is a spa that caters to the needs of a small percentage of highly health-conscious consumers. It offers state-of-the-art treatments in a luxurious setting. Since there are very few spas that offer the same unique services, customers are willing to pay a premium price for its products and services. In this scenario, Swan Song is following a
D) focused differentiation strategy.
20) The four-step innovation process ends with
D) imitation.
76) Which of the following drivers simultaneously increases value while lowering cost?
D) innovation
62) Which of the following sources of differential appeal is least effective in helping a firm sustain its advantage?
D) observable product features
Which of the following is a firm effect that has an impact on the competitive advantage of a firm?
D) the value and the cost position of the firm relative to its competitors
Product features, customer service, and complements are all examples of important
D) value drivers.
84) The pursuit of both differentiation and low cost at the same time in a way that creates a leap in value for both the firm and consumers is called
D) value innovation.
61) According to the five forces model, which of the following is viewed as a major risk to a business pursuing a cost-leadership strategy?
B) innovation that allows competitors to emerge with more economical replacements
79) A value curve indicates a lack of effectiveness in a firm's strategic profile when it
B) zigzags.
56) Unicorn Toys faces stiff competition from Playtime Inc., a rival firm with which Unicorn Toys has achieved differentiation parity. Both firms have invested in state-of-the art production facilities and have similar learning curves of 85 percent. Assuming neither firm can reduce the cost of its input factors, how can Unicorn Toys achieve a competitive advantage as a cost leader?
C) Have a cumulative output that is greater than Playtime Inc.'s.
81) Which of the following describes an airline that is most likely stuck in the middle?
C) Just Right Airline offers high-quality beverages and meals, plush airport lounges, only a few connections via hubs domestically, poor customer service, and low prices.
Body Sync Inc. is a chain of gyms. It offers a fitness package that allows its members to use the gym facilities for 12 months by paying only for 10 months. Included in the package are two health checkups and a gym kit. These add-ons by themselves are not very valuable, but as a package they can enhance the perceived value of the service offerings. In this case, Body Sync's primary value driver is
C) availability of complements.
17) A. G. Lafley at Procter & Gamble (P&G) had implemented an open-innovation model, which had greatly benefitted the company. In the light of this information, we can conclude that A. G. Lafley is a(n)
C) intrapreneur.
83) To initiate a strategic move that allows a firm to open up new and uncontested market space through value innovation, managers must address four key questions when formulating a blue ocean business strategy. These questions focus on
C) lowering cost and increasing perceived customer benefits.
69) The primary goal of a firm pursuing a blue ocean strategy should be to
C) offer a differentiated product or service at a low cost.
30) CordKing Electronics has entered a stage in which the demand for their innovative fax machines has declined. Now most customers are buying replacement parts or buying their second fax machine from the firm. What stage in the industry life cycle does this scenario describe?
C) shakeout stage
23) Edna Gomez is the founder of the restaurant chain Good and Green. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and all packaging is manufactured from recycled material. Also, her company sources ingredients from farms within 100 miles from her locations. Edna's belief is that her restaurants should be able to support the community at large. Which of the following terms best describes Edna Gomez?
C) social entrepreneur
How does availability of complements act as a value driver?
D) Complements add value to a product when they are consumed in tandem with it.
40) How is differentiation parity different from cost parity?
D) Differentiation parity deals with value not cost.
54) What does it mean for a firm to have an 80 percent learning curve?
D) Every time the cumulative output is doubled, the cost per unit will decline by 20 percent.
60) Petra's Programming competes on cost with WonderWeb in the web design industry. Both firms operate on a 90 percent learning curve, and neither firm is capable of increasing its cumulative output any further. How might Petra's Programming achieve a cost leadership position while maintaining customer satisfaction?
D) by incorporating new programming techniques to take advantage of experience curve effects
18) How has Apple been able to sustain its competitive advantage in the smartphone industry?
D) by regularly introducing incremental improvements in its products
25) Which of the following is an example of social entrepreneurship? The committee approved the new formula for an all-purpose cleaner because it
D) cleaned as well as other cleaners and used organic ingredients.
67) A differentiation strategy works best when a
D) firm has intangible resources, is able to pass on increases in supplier cost to the customer, and its differentiation appeal creates customer loyalty.
Quick Clean Chemicals outsources its production to contract manufacturers located in underdeveloped nations where unskilled labor is available in plenty for very low wages. This has helped the company become a price leader in the chemicals industry. Which of the following is the key driver behind Quick Clean's strategic position?
D) low-cost input factors
53) Which of the following entry modes was used extensively in Globalization 1.0 stage?
exports
23) Which of the following is most likely an accurate statement?
A) The multinational enterprise Starship benefited from advances in communications technology.
30) In a non-equity alliance, which of the following types of information would firms most likely share?
C) the documented information about the material composition of a product
83) In Michael Porter's diamond framework, ________ conditions describe a country's endowments in terms of natural, human, and other resources.
factor
32) Mondo Tacos, a fast food restaurant, operates through a business model in which individuals can buy the rights to set up Mondo Taco 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
62) While the personal computer industry is flooded and growing with laptops and tablets, Malik recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does Ivan best represent?
laggards
Which of the following is primarily a value driver?
complements
66) Horizontal integration through mergers and acquisitions can help firms strengthen their competitive positions by increasing
differentiation
36) While Fun Frames incurs a cost of $12 for a pair of eyeglasses, Highwire, its competitor, manufactures a pair of glasses at $10. Both the companies are able to sell their glasses for a maximum of $30 per pair. Which of the following statements is true in this scenario?
A) Fun Frames and Highwire have achieved differentiation parity.
15) In the United States, the time period for the right to exclude others from the use of a patented technology is ________ from the filing date of a patent application.
A) 20 years
40) Which of the following best illustrates forward vertical integration?
A) A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.
14) Which of the following descriptions best exemplifies adverse selection?
A) A manager cannot ascertain the contributions of individual team members in team production.
39) Which of the following real-world scenarios best exemplifies information asymmetry in a public stock company?
A) Based on a tip-off by a Goldman Sachs employee, the Galleon Group sold its holdings in Goldman Sachs' stocks prior to the announcement of missed earnings estimates.
23) Arnold is a firm believer in Milton Friedman's view of a firm's social obligations. With which of the following statements is Arnold most likely to agree?
A) Businesses can use their resources to create profit as long as they do so within the rules of the game.
72) Which of the following is true of business ethics?
A) Certain notions such as fairness, honesty, and reciprocity are universal norms.
74) Which of the following provides an example of a firm in a red ocean?
A) Chique Apparel offered clothing at a low price but failed to differentiate its product as being exclusive.
45) ________ is best described as decreases in cost per unit as output increases.
A) Economies of scale
53) Which of the following is true of acquisitions?
A) They can be friendly or hostile.
52) Which of the following countries has a high geographic distance but a low cultural distance from the United States?
Australia
48) When a firm operates at an output level of 9,000 units, the per-unit cost is $5. When the production is between 10,000-12,000 units, the per-unit cost is $4. At a production level of 13,000 units, the production cost is again $5 per unit. At 14,000 units and above, the production cost increases further. At what output level does the firm experience economies of scale?
B) 11,000 units
47) When a firm manufactures 2,000-3,000 units of a product, it incurs an average cost of $10 per unit. When it manufactures 3,000-4,000 units of the same product, the average cost per unit reduces to $7. However, manufacturing beyond 4,000 units will raise the average cost per unit to $9. Which of the following is the firm's minimum efficient scale?
B) 3,000-4,000 units
55) At a certain output level, the per-unit cost incurred by a firm to manufacture a product was $70. Once the cumulative output doubled, the cost per unit reduced to $63. All other factors remaining constant, the firm has been able to achieve a(n)
B) 90 percent learning curve.
61) How does a conglomerate benefit from following an unrelated diversification strategy?
C) The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
49) Gilroy Crackers enjoys a competitive advantage as a cost leader because high demand for its products has allowed it to operate at the minimum efficient scale. Which of the following scenarios would be most concerning to the managers of Gilroy Crackers?
C) A major winter storm shuts down Gilroy's production for several days.
37) AccuroDisk Inc. manufactures external hard disks for $32 per unit, and the maximum price customers are willing to pay is $47 per unit. TD Storage Inc. is a competitor of AccuroDisk Inc. that produces external hard disks for $37 per unit, and customers are willing to pay a maximum price of $50 per unit. What does this imply?
C) AccuroDisk creates a greater economic value than TD Storage.
72) Mediflow, a medium-sized medical technology company, has been successful in its research and development but needs improvement in its European sales. Which of these actions would most likely lead to long-term success for Mediflow's European sales?
C) Acquire a company that has a successful medical technology sales force in Europe so that Mediflow can gain access to new distribution channels.
63) It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because
C) the horizontal integration activity has the potential to reduce competitive intensity in an industry.
Which of the following best describes a strategic trade-off?
C) the tension between value creation and the pressure to keep costs in check
64) Multinational enterprises (MNEs) like Harley-Davidson, Rolex, and Starbucks are said to be following an international strategy because
C) they offer the same products or services in all their stores throughout the world.
66) Which of the following best explains why a board of directors may grant stock options as part of a compensation package?
C) to align incentives between shareholders and management
34) Frederica, the chief financial officer at a moped manufacturer in Canada, wants to build new plants in Canada rather than overseas. Which of these points should she make as she argues her case to the board of directors?
D) "It will be much more difficult to protect our intellectual property if we build factories overseas."
57) Vassar Systems Inc. wants to globally expand its market. It intends to ensure that its mode of foreign entry allows it to have strong control over its operations and protect its intellectual property, though that may mean investing a significant amount of capital and other resources. In this scenario, which of the following foreign entry modes would best suit Vassar Systems?
acquisition
76) ElectraSync 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
58) Which of the following foreign entry modes primarily involves producing goods in one country to sell in another?
exporting
16) As a research scholar, Denise had built a helicam as part of her project. The helicam could capture aerial images. Realizing the potential use of this product in movie production and military and rescue operations, she started a new venture where she could customize these helicams to fit the specific needs of the buyers and sell them. Denise can be best described as a(n)
entrepreneur
55) Which of the following modes of entering a foreign market allows for the lowest level of control?
exporting
31) Hiku 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 Broadway Technologies, a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?
licensing
58) Sanibel Autos Inc. merged with its competitor Vroom Autos Inc. This allowed Sanibel Autos to use its technological competencies along with Vroom Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate?
horizontal
38) Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing.
industry
73) WJ Group 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, WJ Group is involved in
restructuring
78) The smartphone division of the large consumer electronics company, True Electra 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 True Electra will be categorized under
stars
25) Which of the following will most likely harm a multinational enterprise's (MNE's) reputation?
D) A sweatshop owned by an MNE has an explosion that kills hundreds of workers.
38) Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle?
A) There is more strategic variety in the growth stage when compared to the introduction stage.
76) Which of the following is true of the codes of conduct of an organization?
A) They detail how the organization expects an employee to behave and to represent the company in business dealings.
37) Which of the following statements is true of joint ventures?
A) They enable the exchange of both tacit and explicit knowledge.
29) Unilever's new-concept center is situated in downtown Shanghai, China, attracting hundreds of eager volunteers to test the firm's latest product innovations on-site while Unilever researchers monitor consumer reactions. In this example, Unilever is trying to reap the benefits of
A) location economies.
75) Which of the following businesses is most likely to disrupt an existing industry?
A) Closer Connex developed an earphone that receives emails and text messages and converts them to voice messages. The first models had poor reception, but they rapidly improved over time.
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
28) Why does Michael Porter recommend expanding the customer base of an organization in terms of the shared value creation framework?
A) Doing so could yield significant business opportunities that could improve the standard of living of the poor.
77) Atangadi is a strategist who wants to decide on the appropriate strategy to help his firm "go global." Which of the following should he consider while choosing his strategy?
A) He must be aware of the fact that despite globalization and the emergence of the internet, firm geographic location has actually maintained its importance.
44) Potomac Industries is a manufacturer of high-definition televisions. The industry has gone through a period of rapid growth and expansion, and has started to experience a decline in the rate of growth. Several smaller firms have been bought out by larger competitors, and competition for market share is intensifying. Which of the following strategies is most likely to give Potomac a competitive advantage?
A) Implement process innovations that lower per-unit costs.
80) Using the Boston Consulting Group growth-share matrix, the managers of Xylicon 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 produce the best results?
A) Increase investment in the personal health monitoring unit to encourage future growth.
63) Why is following an unrelated diversification strategy especially advantageous in an emerging economy?
A) It allows the conglomerate to overcome institutional weaknesses in emerging economies.
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.
50) Myriad Inc., a well-established and reputed multinational enterprise (MNE), is headquartered in a highly developed economy. It wants to start its operations in New Denistan, considered one of the less-developed nations in the world. How will this strategic move most likely affect Myriad Inc.?
A) It will benefit from economic arbitrage.
65) Elemental Pharma Inc. recently acquired Crick Pharmaceuticals Inc. It now sells its own products along with the products originally sold by Crick Pharmaceuticals. As a result, Elemental Pharma's sales force will also be marketing the acquired company's products. How will this horizontal integration most likely affect Elemental Pharma?
A) It will lower its costs through economies of scale.
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.
66) Makes Scents Inc., a company that manufactures and sells premium perfumes, is pursuing an international strategy. PriceSmasher Inc., a supermarket chain, follows a multidomestic strategy. Which of the following statements is most likely true of this scenario?
A) Makes Scents Inc. will sell the same products in both domestic and foreign markets, whereas PriceSmasher Inc. will customize its product offerings to suit local requirements.
77) Overall, was the Adidas acquisition of Reebok a success?
A) No. Adidas has slipped from number two in the U.S. market to number three.
78) Sanjaya was recently hired at an up-and-coming firm that has a history of ethics violations. Which action is best for him to take if he wants to determine whether the firm is now acting ethically?
A) Observe executives at the company, and see whether they model ethical behavior and demand it of others.
13) Ayesha is a strategist for the firm Optiks Inc., which produces high-quality HD movie cameras. This company needs a specific material for a new camera they are developing, which is manufactured in large quantities by a competitor called Expert Technology Inc. However, this material is difficult to trade. Because of this, which of the following is most likely the best strategy for Ayesha to suggest?
A) Optiks should acquire Expert Technology.
79) Heaven Freezes Over (HFO) is a company that makes frozen lunch and dinner entrées. Based on what you know about companies like Nestlé, what action should HFO take as it strives to become multinational?
A) Pursue a multidomestic strategy, customizing product offerings to suit local preferences.
54) Delores recently became a board member of a firm that has a history of reckless actions by senior employees. Which task would be appropriate for Delores to undertake to help safeguard the company's financial health?
A) Request and review a copy of the firm's risk assessment plan, if such a plan exists.
84) About 20 years ago, Sturdy Light, 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 and slowed down. However, by this time, Sturdy Light had developed a strong brand name and continued to steadily lead the market. Which of the following describes this scenario?
A) Sturdy Light was a star that developed into a cash cow.
75) A bank, CQC, offers a customer a personal loan. In which of the following circumstances will this decision most likely be considered unethical?
A) The bank knows that the customer will be unable to pay the loan if the interest rate rises.
36) Which of the following is a feature of the growth stage of the industry life cycle?
A) The consumer demand increases.
47) Which of the conditions prevail when an industry is at the end of its life cycle?
A) The level of process innovation reaches its maximum as firms attempt to lower cost.
67) Which of the following is a common result of a hostile takeover of a company?
A) The new owner sells the company in pieces.
70) Which of the following scenarios best exemplifies a leveraged buyout of a microchip manufacturer, Rigoletto Inc.?
A) The owner of another company buys all the outstanding shares of Rigoletto in order to take it private.
79) BestDrive 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?
A) The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.
51) Garrett is an executive vice president at Samm Hardware. He researches a proposal by a larger company, Maximum Hardware, to combine the two companies. By analyzing past performance, conducting focus groups, and interviewing Maximum employees, Garrett concludes that Maximum has poor profit margins, sells shoddy merchandise, and treats customers poorly. What actions should Garrett and Samm Hardware take?
A) Turn down the acquisition offer and prepare to resist a hostile takeover.
53) Which of the following is true of the board of directors in a public stock company?
A) Votes at shareholder meetings determine whose representatives are appointed to the board of directors.
38) Ben is a manager at Unique Accessories Inc. and is friends with the company's CEO. This privilege gives Ben the information that Unique Accessories is in the midst of talks to take over a leading rival. Ben buys stocks of Unique Accessories with the expectation that its stocks will appreciate. But the deal falls through, and the stocks of Unique Accessories depreciate in the following months. Are Ben's actions unethical? Why or why not?
A) Yes. It is unethical to trade stocks based on insider information, irrespective of the final outcome.
34) Coastal Pharma and Brainwave Technologies have together invested and created a new organization, InnerView, 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 Coastal Pharma and Brainwave Technologies. Which of the following alternatives to integration does this scenario best illustrate?
A) a joint venture
65) Blush Bashful Cosmetics Inc. operates in 20 countries around the globe. The company clearly understands that the skin and hair type of customers varies from one country to another. Consequently, its products are customized to suit local needs and preferences of customers, even though the costs incurred while producing these products are exceptionally high. This strategy helps the company behave as a local firm in a foreign market. In this scenario, which of the following strategies does Blush Bashful most likely implement?
A) a multidomestic strategy
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.
84) GoodGear is a mobile platform that matches independent fashion designers with consumers who want a personalized wardrobe. Which of the following initiatives would best allow GoodGear to fine-tune its offerings to better meet the needs of its consumers?
A) allowing users to provide feedback to producers on the style and fit of clothing
80) Canon was able to redesign the copying machine so that it didn't need professional service—reliability was built directly into the machine, and the user could replace parts, such as the cartridge. What Xerox had not envisioned was the possibility that the components of the copying machine could be put together in an altogether different way that was more user-friendly. This example describes
A) architectural innovation.
41) Radial 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 interruptions in the supply of components, Radial should pursue
A) backward integration.
46) Firms that use taper integration also use ________ when they rely on outside-market firms for some of their supplies.
A) backward vertical integration
27) Which of the following has been a key driver for firms to expand globally during the Globalization 3.0 stage?
A) benefits from lower labor costs in manufacturing and services
16) The managers at Camphor Plastics decided that their firm needed to diversify because of overall falling sales and lower performance in one sector. How does diversifying compensate for the lackluster performance in this sector?
A) by having higher performance in another sector
41) According to the agency theory,
A) conflicts that arise in corporations should be addressed in the legal realm.
71) A(n) ________ leverages new technologies to attack existing markets.
A) disruptive innovation
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
43) Which of the following best illustrates site specificity?
A) equipment necessary for mining bauxite and aluminum smelting
15) During the period of Globalization 1.0, the mode of entry into foreign markets primarily involved
A) exporting goods.
22) What is the result of managers' pursuit of strategies that define value creation too narrowly in public stock companies?
B) It reduces the trust of shareholders in the organization as a vehicle for value creation.
59) Maddox Bauxite Extraction Inc. has decided to enter into a foreign market by setting up its own production facilities and distribution channels from scratch. This will give it strong control over all its business activities. Which of these foreign entry modes will Maddox most likely choose?
A) greenfield operation
49) Although Mountaintop Electronics still sells its DVD players, a product in its decline stage, the investments made by the company on improving or marketing the product are very low. The company has allocated the least amount of human and financial capital to this department. Which of the following strategies has Mountaintop Electronics adopted in this scenario?
A) harvest strategy
26) Emirates, Etihad Airlines, and Qatar Airways are a threat to U.S. legacy carriers because they offer
A) higher quality for lower costs for international routes.
76) A factor favoring the success of disruptive innovation is that
A) incumbent firms are slow to change.
27) 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 Nina should be hired as a salesperson in the company. However, in her resume, Nina had not mentioned her previous work experience as she was fired from that job because of her frequent absenteeism. Which of the following does this scenario best illustrate?
A) information asymmetry
49) Adverse selection in a public stock company occurs when
A) information asymmetry increases the likelihood of selecting inferior alternatives.
34) Marika received a tip from a close friend who is an executive manager of a publicly traded company called MicroGreen Inc. The manager received some inside information about how to trade MicroGreen stock to get a huge profit. He shared this information with Marika. This scenario is an example of
A) information asymmetry.
43) The root cause of the principal-agent problem between senior executives and lower-level employees can be explained by the
A) informational advantage of the lower-level employees.
75) Bejukistan Laboratories Inc. has a national competitive advantage in the pharmaceutical industry. This means that the country
A) is a world leader in the pharmaceutical industry.
54) Worldwide Minerals Inc. wants to expand into the international market. It does not want to spend a very large amount of money for this process. However, Worldwide Minerals wants to maintain some control in the foreign market. Which of the following would be the best entry mode for this firm?
A) joint ventures
38) Which of the following is a common drawback of a non-equity alliance?
A) lack of trust between partners
84) A mortgage-loan officer persuades unsuspecting consumers to sign up for exotic mortgages, such as "option ARMs." These mortgages offer borrowers the choice to pay less than the required interest, which is then added to the principal while the interest rate can adjust upward. Because of this setup, many borrowers are unable to repay the mortgage once the interest rates go up. Which of the following phrases best describes this scenario?
A) legal but not ethical
13) Decisions relating to the range of products and services a firm will offer determine the firm's
A) level of diversification.
46) In Eli Lilly's Office of Alliance Management, the alliance champion is primarily responsible for
A) making sure that an alliance fits within the firm's existing alliance portfolio and corporate-level strategy.
74) Ethics is
A) not synonymous with law.
55) Shareholders of public companies need to appoint a board of directors to represent their interests because
A) of the separation of ownership and control.
78) Adidas acquired Reebok primarily to
A) overcome its competitive disadvantage against Nike.
35) Anthonia is a senior manager at Buxley Corp., a motorcycle manufacturer. Buxley has entered an equity alliance with Supremo, a moped manufacturer. "Don't worry, Anthonia," her counterpart at Supremo tells her. "I'm going to send you all our guidelines and documentation for manufacturing catalytic converters, and then you'll be all set." What else should Anthonia request from Supremo?
A) personnel exchanges to share tacit knowledge
74) The main reason behind Alphabet's decision to acquire the Israeli start-up company Waze for $1 billion was probably to
A) preempt its competitors from buying Waze.
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.
12) Disney became the world's leading media company to a large extent by pursuing a corporate strategy of
A) related-linked diversification.
42) The process of alliance management begins with
A) selecting the best possible partner.
14) In terms of the build-borrow-or-buy framework, a firm's internal resources are considered to be relevant when they are
A) similar to those that need to be developed and superior to those of competitors in the targeted area.
70) The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese market because
A) the U.S. population was growing slowly and becoming more health conscious.
73) Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion?
A) the desire to gain a new capability
53) Which of the following customer segments as described in the chasm framework make up the mass market?
A) the early and late majority together
25) Which of the following could be used as an example of why a stakeholder strategy approach to business has shortcomings?
A) the nonsustainable debt levels incurred by sovereign governments to fund social programs
24) In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates
A) the real-options perspective.
47) Which of the following factors is the most important determinant of economic distance?
A) the wealth and per capita income of consumers
42) In a public stock company, senior executives, such as the CEO, face agency problems when
A) they delegate authority of strategic business units to general managers.
50) When does a merger between companies typically occur?
A) when two firms of comparable size join to form a combined entity
43) Which of the following statements about managing alliance-related tasks is true?
B) Alliance management capability is based on three alliance-related tasks.
48) Which of the following statements is true about managing alliance-related tasks?
B) Alliance management capability is based on three alliance-related tasks.
35) How is an equity alliance different from a joint venture?
B) An equity alliance involves taking ownership in a partner; a joint venture involves two or more entities owning a firm.
34) In the context of industrial growth, which of the following statements is true of standards?
B) As the size of a market expands, a standard signals the market's agreement on a common set of engineering features and design choices.
21) Which of the following summarizes the benefit of the strategic alliance between HP and DreamWorks?
B) Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone.
52) On which of the following tenets is the crossing-the-chasm framework, suggested by Geoffrey Moore, based?
B) Each stage of the industry life cycle is dominated by a different customer group.
82) Which of the following is an implication for the strategist in the context of corporate governance and a company's success?
B) Effective corporate governance and solid business ethics are critical to gaining and sustaining competitive advantage.
56) Future Clothes Inc., a publicly traded company, designs and manufactures wearable technology. What approach should Future Clothes take after a long period of horizontal integration in its industry? Assume that the industry is now stable and competitors have not made any major changes in price or marketing recently.
B) Focus on research and development as a form of non-price competition.
52) Andrew is the president of a technology firm that has recently gone public. What action, if any, should Andrew take to build the confidence of his new shareholders?
B) He should find out whether the majority of his shareholders want long-term steady growth or short-term spikes in the stock price.
60) Ira can be categorized under the late majority customer segment. Which of the following behaviors is he most likely to exhibit?
B) He will prefer to buy from well-established brands rather than unknown new ventures.
82) Judging from the Disney-Pixar merger, which of these is an effective way to create shareholder value from a merger?
B) If the acquired company creates high-quality products or services, don't force it to mirror the management style of the acquiring company.
32) Which of the following statements is true of an equity alliance?
B) In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible.
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.
B) Influence costs
26) ________ is best described as a situation in which one party is more informed than another, because of the possession of private information.
B) Information asymmetry
19) How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?
B) It enabled HP to compete head on with Cisco's videoconferencing solution.
82) Although JetBlue used a blue ocean strategy to achieve an initial competitive advantage, it failed to maintain this advantage. Which of the following provides the best reason for this development?
B) It failed to refine its strategic position over time.
67) Which of the following is a disadvantage of a horizontal integration corporate strategy?
B) It increases the potential for legal repercussions.
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?
B) It is building new core competencies to protect and extend its current market position.
36) Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them?
B) Many owners, managers, and business analysts believe they are essential to survive in an industry.
82) Which of the following scenarios best exemplifies a platform business?
B) Myra operates an industrial test kitchen in which local growers bring their produce to local chefs, who use the kitchen to try new recipes and determine which produce to buy.
85) What is the main reason that most mergers and acquisitions negatively effect shareholder value?
B) Promised synergies never take place.
62) Fun Foods Inc. is a snack manufacturer that wants to expand globally. Few people abroad are familiar with Fun Foods snacks. The countries into which the company wants to expand require a high degree of local responsiveness when it comes to food, and the citizens of those countries already spend plenty of money on snacks. Which action should the leaders of Fun Foods take?
B) Pursue a multidomestic strategy that includes new "local" brands.
19) Sven is a senior vice president at a textile manufacturer that wants to move from being 20 percent globalized to 70 percent globalized in the next 10 years. What are some possible drawbacks that Sven's company must anticipate?
B) Rising wages may cancel out cost savings of access to low-cost input factors.
40) Barrett is the ethics officer at Exton Corp., a publicly traded company. She wants to make sure that on-the-job consumption at Exton stays within legal and ethical bounds. Which action should she and the Exton board of directors take?
B) Set strict limits on what executives can spend on office redecoration or work-related celebrations.
70) Janessa Inc., a reputed brand for fine art supplies, is implementing an international strategy. Slalom Corp., a maker of mini computer tablets, is pursuing a global-standardization strategy. Which of the following statements most likely holds true in this scenario?
B) Slalom Corp. focuses more on cost-reductions when compared to Janessa Inc.
63) Which of the following is a drawback of using the industry life cycle as a framework to guide strategic choice?
B) The framework does not explain everything about changes in industries.
42) In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply?
B) The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.
11) Showstopper Inc. dominates the ladies' wig market and wants to expand into men's toupees. How can Showstopper's managers determine whether the company should develop a toupee division internally, ally with a toupee maker, or acquire a toupee-making firm?
B) The managers need to determine whether the skills needed to create wigs and toupees are similar and whether Showstopper creates better hairpieces than its competitors do.
45) Which of the following is a feature of the maturity stage of the industry life cycle?
B) The market reaches its maximum size.
80) A software firm is interested in acquiring an app development company that is small but highly profitable. The app developer also has a widely admired management structure and much lower attrition rates than are common in the industry. Which of these problems should the software firm anticipate?
B) The software firm may overpay for the app developer, poorly serving the software firm's shareholders.
61) Which of the following is a result of horizontal integration in terms of Porter's five forces model?
B) There is a reduction of excess capacity in the market.
21) How will an increase in coordinated economic and political integration between countries affect the world economy?
B) There will be gains in social welfare and living standards across the globe.
13) Which of the following statements is true of shareholders in a public stock company?
B) They are granted a charter of incorporation by the state and legally own company stock.
20) According to Michael Porter, which of the following is a problem with many publicly traded companies?
B) They have defined value creation too narrowly in terms of financial performance.
79) Three months ago, Darren became a board member at Runswell, a publicly traded company. Two weeks ago, the board members discovered that Runswell's CEO is facing a lawsuit from a family member who accuses the CEO of theft. Based on what you have read, to what ethical standard should Darren and the other board members hold the CEO?
B) They must hold her to the highest ethical standards because the leaders of publicly traded companies must withstand intense public scrutiny.
11) How did Uber conflict with Carnegie Mellon University's National Robotics Engineering Center (NREC)?
B) Uber poached entire NREC research teams with signing bonuses, twice the salaries, and stock options, thereby threatening the future of NREC.
24) Which of the following describes a firm in the Globalization 1.0 stage?
D) Asha Inc. had a base office in New York and distributed some of its products overseas.
55) Which of the following statements accurately brings out the difference between technology enthusiasts and early adopters?
B) Unlike technology enthusiasts, early adopters' demand is fueled more by intuition and vision rather than technology concerns.
37) While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?
B) While the industry for cell phones with holographic keyboards will focus more on product innovation, the tablet industry will focus more on process innovation.
46) For which of the following companies will geographic distance be the most relevant factor in deciding whether to trade with a target country?
B) a firm that extracts and exports iron ore
84) Fierce domestic competition in New Schuyler makes a tough environment for any motorcycle company. Success requires top-notch engineering of chassis and engines, as well as keeping costs and fuel consumption in check. As a result, New Schuyler's motorcycles have a competitive advantage in the global market. According to Porter's diamond framework, this scenario shows the influence of competitive intensity in
B) a focal industry.
23) Solaris Autos Inc., a large automobile company, made an initial small investment in a start-up company that was developing a solar-powered car. This gave Solaris Autos controlling interests in the start-up company. However, Solaris Autos had no obligations to make continued investments in the experiments of the start-up company. It could invest small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Solaris Autos would have the right to buy out the start-up company. This approach to strategic alliance is referred to as
B) a real-options perspective.
17) Braintree Inc., a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Braintree and the software company best referred to as in this scenario?
B) a strategic alliance
25) When Turbo Autos Inc. wanted to sell its cars in the country of Sylvanistan, it lacked access to distribution channels and marketing expertise in the country. Thus, Turbo Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner's well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?
B) accessing critical complementary assets
61) Sky Pioneers Inc. manufactures airplane parts. It wants to globalize and is willing to spend a considerable amount to protect its intellectual property. Which of these business ventures makes the most sense for Sky Pioneers?
B) acquiring an airplane-parts manufacturer in another country
46) Nate is a recent graduate who states that he has interned at a major accounting firm so that his value as a candidate for employment increases. A start-up recruits Nate based on his stated credentials without verifying them. Two days into the job, Nate's team lead realizes that Nate does not know much of what he claimed to know during the interview. This scenario best exemplifies
B) adverse selection.
48) At Agile Ltd., a cross-functional team is formed to work on a project for a new client. The team consists of Charles and four other members. At most of the team's presentations to senior management, Charles takes the lead and discusses project specifics with the management, while others chip in with additional information. At the completion of the project, Charles is recommended for promotion, while the other team members receive little recognition for their hard work. The reality is that Charles did very little actual work but spent some time compiling the project report based on different documents submitted by the others. This scenario at Agile Ltd. is a typical consequence of
B) adverse selection.
26) When entering a foreign market, it is advisable for a new venture that has a core competency only in R&D to form a strategic alliance with a local partner because
B) building downstream complementary assets can be expensive and time-consuming.
69) Which quadrant in the core competence-market matrix is the hardest to pursue?
B) building new core competencies to create and compete in markets of the future
80) One way to foster ethical behavior in employees is to
B) create a control system that encourages desired values.
33) HealthTech 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, HealthTech invested $100 million in the project. This investment made by HealthTech will result in a
B) credible commitment.
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?
B) diversification premium
41) A candy company called Hearts Aflame Inc. forms an agreement with another candy company called Dreamcatcher Inc. Through this agreement, Hearts Aflame owns 30 percent of Dreamcatcher. However, Dreamcatcher does not own any part of Hearts Aflame. This type of agreement is called a(n)
B) equity alliance.
60) Which of the following types of organizations comparatively requires the lowest levels of investment and control?
B) franchising
20) The process of closer integration and exchange between different countries and peoples worldwide is
B) globalization.
77) Intel's Celeron chip and Atom chip are initiatives to
B) guard the company against disruptive innovation by protecting the low end of the market.
19) Starling Inc. is a public stock company that provides natural gas for businesses. Although this company generates a large profit, management's focus on reducing costs caused the maintenance budget to be trimmed. Its pipelines have at times leaked, which created significant environmental problems. As a result, the company's value creation has suffered. This scenario supports Michael Porter's warning that public companies
B) have defined value creation too narrowly in terms of financial performance, thereby contributing to black swan events.
24) According to the perspective of shareholder capitalism, shareholders in public stock companies
B) have the most legitimate claim on profits.
22) The Martinez Legal Firm (MLF) recently acquired a smaller competitor, Miller and Associates, which specializes in issues not previously covered by MLF, 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
B) increase.
41) A greater cultural distance between two trading countries
B) increases the liability of foreignness.
64) Foot Friendly is a manufacturer of athletic shoes. It has released an improved version of its premier running shoe in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate?
B) incremental innovation
58) The board of directors of a public stock company consists of
B) individuals who formally represent the firm's shareholders and oversee the work of executives.
62) With reference to the Strategy Highlight 8.2, the Tata Group's corporate strategy is attempting to
B) integrate different strategic positions, pursued by different strategic business units.
78) General Electric (GE) disrupted itself in the healthcare industry by
B) introducing inexpensive and smaller diagnostic devices in developing countries.
31) A firm is said to be pursuing a polycentric innovation strategy when
B) it draws from multiple, equally important research facilities located throughout the world.
33) Culinary Solutions Inc. manufactures cooking and baking equipment and has its base in the country of Vandevar. It has approximately 300 stores across the country and is already active in three foreign countries. It attempts to establish itself in the country of Balalaika, and uses its low-cost strategy to do so. However, due to the additional costs associated with training, coordinating across geographic distances, and other costs associated with doing business in an unfamiliar cultural and economic environment, Culinary Solutions Inc. incurs huge financial losses in Balalaika. In this scenario, Culinary Solutions Inc.'s failure to establish itself successfully in Balalaika occurs most likely because
B) it underestimated its liability of foreignness when entering the Balalaika market.
18) Jaronda founded Diamond Communications Inc. in 1993. Ten years later, the company went public. Despite Jaronda's death in 2005, the company reported a 75 percent increase in revenue in 2006. Which of the following characteristics of a publicly traded company does this scenario best exemplify?
B) legal personality
78) WackyPop Inc. produces an inexpensive microwave popcorn that is well tailored for the tastes of U.S. consumers. However, it has failed to satisfy the consumer preferences of its host country, Japan. Which of the following categories has WackyPop performed poorly in?
B) local responsiveness
30) Downshift Autos Inc. has shifted its research and development unit from its home country to Germany. This allows the company to be better informed about the latest developments in the automotive industry by tapping into the highly advanced automotive industry in Germany. In this scenario, Downshift Autos Inc. is reaping the benefits of
B) location economies.
17) There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?
B) lowering costs
81) Winter Wonder Inc. is a leader in producing winter sports equipment, including skis and skates. Recently, the firm decided to expand into the bobsled market and acquired Sleds by Bob Inc. This company produced bobsleds, but its sales had slowed. The managers of Winter Wonder convinced themselves that they were able to manage the business of Sleds by Bob more effectively even though they had no experience in the bobsled market. However, this move backfired and the sale of Sleds by Bob's bobsleds plummeted. Which of the following terms is often used to describe this scenario?
B) managerial hubris
84) Why did Quaker Oats Company's acquisition of Snapple fail?
B) managerial hubris
18) A trend observed during the Globalization 3.0 stage involves
B) multinational companies organizing as global-collaboration networks.
37) Badlands Corp., a tool and die maker, is considering where to locate its new factories and offices. According to the CAGE distance model, which of these countries is statistically most attractive to Badlands?
B) one that is in the same trading bloc as Badlands' home country
79) What causes the winner's curse?
B) overpaying for an acquisition
25) 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?
B) principal-agent problem
33) CPA Inc. is a publicly traded company. The stockholders of this company delegate the authority to make decisions for the company to a CEO named Joaquin. The stockholders expect Joaquin to make decisions that will benefit the company. However, Joaquin begins to find ways to maximize his total compensation, which hinders CPA's performance. This scenario reflects
B) principal-agent problems.
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?
B) product diversification
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
B) product diversification.
67) Incumbent firms favor incremental innovation over radical innovation because
B) radical innovation will disturb the existing power distribution within the firms.
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
B) redeploying and recombining existing core competencies to compete in future markets.
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?
B) related-constrained
74) The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in which two dimensions?
B) relative market share and speed of market growth
56) Megan is a graduate student pursuing a course in business. Presented with the case of a company's unethical behavior, Megan wonders if the company's board of directors should ask the CEO to step down. Having a strong belief in Michael Porter's idea of value creation, Megan is most likely to conclude that company's board of directors
B) should ask the CEO to step down because it has a greater obligation toward society.
32) Which of the following statements accurately explains the primary reason behind Walmart's failure in Germany?
B) significant differences between its U.S. personnel policies and Germany's culture
20) A drawback involved in using cross-border strategic alliances to enter new foreign markets is that
B) some of the firm's proprietary know-how may be appropriated by the foreign partner.
39) The key objective for firms during the growth phase is to
B) stake out a strong strategic position not easily imitated by rivals.
60) Bellhaven Inc. has a board of directors that consists of seven members. Which of the following is most likely an accurate statement about Bellhaven's board of directors?
D) Bellhaven's board of directors has a minority number of inside directors and it evaluates the firm's strategic initiatives.
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?
B) taper integration
36) Under the CAGE distance framework, the administrative and political distance between two countries primarily increases with
B) the absence of a trading bloc.
34) The downside of equity alliances is
B) the amount of investment that can be involved.
20) Which of the following is an example of an external transaction cost?
B) the cost of searching for a contract manufacturer
57) What is horizontal integration?
B) the process of merging with a competitor at the same stage of the value chain
32) Which of the following is the source of the principal-agent problem in publicly traded companies?
B) the separation of ownership and control
29) A drawback of short-term contracting as an alternative to making a component in-house is that
B) the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.
22) Why did incumbent pharmaceutical firms enter into hundreds of strategic alliances with biotech start-ups?
B) to make small-scale investments in ventures poised to disrupt existing market economics
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.
B) unrelated diversification strategy
28) Gold Leaf 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. Gold Leaf 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, Gold Leaf should
B) vertically integrate.
17) Eyenima Inc. is a public stock company. Which of the following best exemplifies the legal personality of the company?
D) Bjorn Eyenima, the company's founder, died a few years ago, yet the company is doing well.
60) How does horizontal integration within an industry affect the surviving firms?
D) By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers
Thomas is the owner of a landscaping company that caters to a very wealthy clientele. His company has struggled to differentiate itself from the other high-end landscapers in the area, but because he has hired several expensive but highly-qualified team members, Thomas is unable to shift to a cost leadership strategy. Which strategy is most likely to achieve a competitive advantage?
C) Narrow the scope of competition and focus on unique features such as the use of organic materials.
44) American Snacks Inc., a conglomerate, has a strategic alliance with Très Bien Limité, a French snack-maker. However, Très Bien managers are concerned that the different business units of American Snacks will set up partnerships with direct competitors of Très Bien in France. What can owners and managers at American Snacks do to respond to Très Bien's concern?
C) Arrange for the alliance to be managed at the corporate level.
17) Which of the following is an observable feature in the Globalization 3.0 stage?
C) Based on an optimal mix of costs, skills, and PESTEL factors, companies now freely locate business functions anywhere in the world.
74) Milk Benefits Inc., a company popular for its dairy products, successfully follows a multidomestic strategy. Andrew Products Inc., a large conglomerate, pursues a transnational strategy. Which of the following statements is most likely true of this scenario?
C) Both Milk Benefits Inc. and Andrew Products Inc. will have to duplicate key business functions in multiple host countries.
64) R&M Chatelaine is one of the largest tax-preparation firms in the United States. It wants to acquire The Tax Experts, a smaller rival. After the merger, Chatelaine will be one of the two largest income-tax preparers in the U.S. market. What should Chatelaine include in its acquisition plans?
C) Chatelaine will need to explain to the Federal Trade Commission how the acquisition will not result in an increase in prices for consumers.
40) Which of the following is a feature of the shakeout phase of the industry life cycle?
C) Competitive intensity within the industry increases.
83) Which of the following best explains why Disney showed superior post-merger integration capabilities?
C) Disney managed its new subsidiaries more like alliances rather than attempting full integration.
31) Which of the following statements is true of explicit knowledge?
C) Explicit knowledge is shared in non-equity alliance firms.
83) Elvira is the CEO of a firm. She has an opportunity to increase the competitive advantage of her company but is not sure if accepting the opportunity is ethical. Which of the following questions would help her decide if accepting the opportunity is ethical?
C) How would the media report her decision to accept the opportunity if it were to become public?
40) Which of the following corresponds to the use of tacit knowledge?
C) Igor assembles a motorcycle from memory.
79) Which of the following most accurately describes a difference between incremental innovation and radical innovation?
C) Incremental innovation builds on an established knowledge base; radical innovation uses an entirely different knowledge base.
69) How has Kraft Foods benefited from its hostile takeover of Cadbury PLC?
C) It has access to convenience stores and a new distribution channel.
44) Which of the following is a drawback of vertical integration?
C) It increases the potential of legal repercussions.
77) Which of the following best supports the fact that Goldman Sachs was unethical in the Abacus deal?
C) It knew that Paulson & Co. had bundled high-risk mortgages into the collateralized debt obligation.
73) Which of the following is a drawback of pursuing a transnational strategy?
C) It requires a global matrix structure, which is difficult to implement.
65) GameGo is a publicly traded manufacturer of home electronics. Based on what you have read, which of these actions would be wisest for GameGo's board of directors to take to be sure that the company's new CEO is as motivated as possible?
C) Link the CEO's pay to her performance, but avoid high-powered incentives that may cause reckless behavior.
30) Which of the following could most likely have prevented the accounting scandals of the early 2000s and the global financial crisis?
C) practicing effective corporate governance
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?
C) Pursue taper integration.
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?
C) Redeploy and recombine existing core competencies to compete in markets of the future.
18) Juno LLC is a small, new pharmaceutical company that is developing a valuable new drug. Which of these strategies would it be wise for Juno's owners or managers to take?
C) Seek an alliance with a company or companies that will complete the value chain.
15) Ignacio Inc. is a public stock company. Which of the following statements about the company best illustrates the fact that its investors have limited liability?
C) Shareholders of Ignacio are responsible to the company only to the capital they have invested.
30) ________ 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.
C) Strategic alliances
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?
C) TL & Co. will share fewer common competencies and resources between its various businesses when compared to Soar Inc.
64) General Electric's board has only one inside director, John Flannery, GE's CEO, who also acts as chairman of the board. This is known as duality. Which of the following statements represents the best argument for this duality in GE?
C) The CEO possesses invaluable inside information that can help him or her chair the board effectively.
24) Banana 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?
C) The firm will have more flexibility in purchasing and comparing prices of goods and services.
73) What helps notions such as fairness, honesty, and reciprocity to be codified into law?
C) The notions are universal norms.
16) A microchip company wants a computer company to produce more powerful tablets and therefore use more of its chips. That same computer company wants the microchip maker to create chips with faster processing power. What approach could these companies take so that both can serve stockholders well?
C) The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals' power.
33) Which of the following is an advantage of equity alliances when compared to non-equity alliances?
C) They produce stronger ties between partners.
56) Which of the following is the most likely advantage of using foreign acquisitions or greenfield plants as a foreign entry mode?
C) They reduce a firm's exposure to loss of reputation.
56) Which of the following statements is true of the early majority section of consumers?
C) They weigh the benefits and costs carefully when adopting a new product.
69) Save On Everything Inc., a supermarket chain, is implementing a multidomestic strategy. Solar Future Inc., a company that manufactures solar panels for commercial and domestic purposes, is pursuing a global-standardization strategy. How will the two companies most likely differ from each other?
C) Unlike Solar Future Inc., Save On Everything Inc. will be able to pursue a differentiation strategy at the business level.
68) Why is it easier for new entrants to get involved in radical innovations when compared to incumbent firms?
C) Unlike incumbent firms, new entrants do not have formal organizational structures and processes.
42) New Zoya is a country of English-speaking people and has a very profitable economy. Which of the following countries is most likely to be the closest to New Zoya in terms of cultural distance?
C) Valyria, where people speak English and have a low standard of living
37) ________ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.
C) Vertical integration
48) Which of the following statements is true with regard to international trade between countries?
C) Wealthy countries engage in relatively more cross-border trade than poorer ones.
46) While the domestic airline industry is in the maturity stage of the industry life cycle, the internet-enabled appliance industry is in its growth stage. Which of the following can be inferred from the given data?
C) While the domestic airline industry is mostly free from excess capacity, the internet-enabled appliance industry will have new entrants.
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?
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.
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.?
C) a dominant-business firm
54) When large, incumbent firms buy start-up companies, the transaction is generally described as a(n)
C) acquisition.
52) The Palace Hotel Group purchased Orange Roof Hotels for an estimated value of $120 billion. All the hotels previously owned by Orange Roof Hotels are now managed by the Palace Hotel Group and are known as Palace hotels. What does this scenario best illustrate?
C) an acquisition
69) When firms innovate by leveraging existing technologies into new markets, they are said to be involved in
C) architectural innovations.
49) Which of the following statements best explains why Walmart is finding it difficult to replicate its existing business model in India?
C) because of the large economic distance between the United States and India
43) How did Canada, Mexico, and the United States reduce the administrative and political distance between them?
C) by establishing the North American Free Trade Agreement (NAFTA)
62) How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?
C) by lowering competitive intensity in the industry overall
27) RHC Pharmaceuticals Inc., Lawrence Pharma Inc., and Quincy Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with one another. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?
C) co-opetition
50) When the market for standalone Global Positioning System (GPS) devices declined with the arrival of GPS-enabled mobile phones, Magnet Inc., a manufacturer of GPS devices, bought out most of its rivals that were planning to exit. This allowed the company to get rid of all the excess capacity and acquire a monopolistic market power in the declining industry. Which of the following strategies has Magnet adopted in this scenario?
C) consolidation strategy
51) When a firm pursues a maintain strategy, it
C) continues to support marketing efforts even if the demand for the product is declining.
68) Because of poor management, the stock price of Orange Dolphin Inc. falls and many investors sell their shares. Soon Orange Dolphin becomes the target of a hostile takeover, during which Hans buys enough shares to exert control over the firm. In this scenario, Hans performs the role of a(n)
C) corporate raider.
48) The demand for flip phones has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of flip phones are mainly categorized under laggards. Which of the following stages of the industry life cycle is the flip phone industry in currently?
C) decline stage
73) When Japanese carmakers entered the existing U.S. automobile market by first offering small fuel-efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in
C) disruptive innovation.
54) The customers entering the market in the growth stage are primarily
C) early adopters.
57) It is important for a firm to win over the early majority section of the market to ensure the commercial success of an innovation because they
C) enter into the market in large numbers, creating a herding effect.
71) Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures. It did this in order to
C) fill gaps in its competency lineup.
81) A strategy of ________ will be most beneficial for a firm to enhance its overall corporate performance.
D) related-linked diversification
39) Incline 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 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
41) To be successful and to survive the shakeout stage of the industry life cycle, a firm should
C) gain economies of scale.
52) Revolution 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?
C) geographic diversification strategy
67) Vermilion Inc., a manufacturer of high-technology medical devices, has its product development centers located in the United States and South Korea. The manufacturing units are located in China and the Philippines to benefit from low-labor costs and access to original equipment manufacturers. This allows the company to competitively price its devices. Also, the various phone models sold by the company are uniform in all the foreign markets it operates in. In this scenario, which of the following strategies does Vermilion most likely pursue?
C) global-standardization strategy
59) What do we call the board members who are part of a company's senior management team appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance?
C) inside directors
37) The informational advantage that agents possess over principals is often based on the fact that
C) insiders are the first to learn about important developments before the information is released to the public.
61) Bernard is a board member at Lopez Electronics Inc. He is also a senior executive of the firm. The board is chaired by Ernest Jones, the CEO of Stanley Motors. According to this scenario, Bernard
C) is an inside director of Lopez Electronics.
28) Nirvana Shoes Inc. and StepOut Shoes Inc., two competing shoe brands, entered into a strategic alliance to study and acquire each other's competencies. Nirvana Shoes entered the strategic alliance to acquire the production system pioneered by StepOut Shoes. Similarly, StepOut Shoes agreed to the strategic alliance to study the design process of Nirvana Shoes. However, Nirvana Shoes was more successful and faster than StepOut Shoes in accomplishing its alliance goal. What does this scenario best illustrate?
C) learning races
76) Icarus Airway's decision to acquire Midas Fuels Inc. proved to be ill-fated because the Icarus managers overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers' capabilities were restricted to the airline industry. What does this scenario best illustrate?
C) managerial hubris
47) A company scientist at a biotechnology company decides to work on his own research project, hoping to eventually start his own firm, rather than on the project he was assigned. However, the company's stockholders are unaware of this situation. This is an example of a(n) ________ in the context of a principal-agent problem.
C) moral hazard
82) Michael Porter's diamond framework explains
C) national competitive advantage.
65) In a radical innovation, a firm targets
C) new markets by using new technologies.
44) A payroll company in the nation of Antono is seeking to expand beyond its borders while limiting administrative and political distance in the new country. Which potential site is the best one for this type of expansion?
C) one that used to have a colonizer or colonized relationship with Antono
66) A firm's resistance to changes in the status quo is referred to as
C) organizational inertia.
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?
C) physical-asset specificity
51) Calabash Inc. is located in the nation of West Fenwick near the nation of East Fenwick. Calabash is considering expanding into East Fenwick. Both countries have similar consumer incomes and knowledge bases and share a common language. Also, the transportation networks between the countries are strong. Even so, the two nations have a long-standing dispute concerning the control of an area of land along their common border. Currently, West Fenwick rules this land. Which of the following would most likely prevent Calabash from expanding into East Fenwick?
C) political distance
75) The managers at Speed Automobile Inc. want to diversify the business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Speed Automobile is most likely a result of
C) principal-agent problems.
52) A firm experiences diseconomies of scale when it
C) produces at an output level beyond the minimum efficient scale.
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?
C) product-market diversification strategy
49) 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
C) product-market diversification.
19) Best Burger is a major fast food 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?
C) purchasing competitors
21) Which of the following characteristics of a public stock company deals with principals and agents?
C) separation of legal ownership and management control
15) A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services is best described as a
C) strategic alliance.
81) The MBA oath first developed at Harvard Business School and now signed by students at over 300 business schools is modeled after
C) the Hippocratic oath in medicine.
69) Which of the following is a major issue at the forefront of CEO compensation in recent years?
C) the absolute size of the CEO pay package compared with the pay of the average employee
14) Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?
C) the chief executive officer
12) Decisions relating to "what stages of the industry value chain to participate in" determine a firm's
C) vertical integration.
58) When does a firm fall into the large competitive chasm between early adopters and early majority?
C) when it fails to successfully launch a mass-market version of its product
63) Sorenson LLC, a publicly traded company, has ten members on its board. Of the ten members, six members are employees of the company—including the CEO, who also chairs the board. The board has been failing in its responsibilities toward the shareholders, who now want a new board. Assuming that the total number of board members remains constant, how many outside directors should the shareholders appoint to Sorenson's board to achieve board independence?
D) 7
55) Which of the following accurately describes a common difference between a merger and an acquisition?
D) A merger tends to be friendly; an acquisition can be friendly or unfriendly.
45) Stella accepts a job as vice president for human resources at a technology startup. She discovers that the startup believes that teamwork is so important that it plans to award all raises and bonuses by splitting them equally within a team rather than presenting them to individual employees. What action should Stella take regarding this plan?
D) Cancel the plan because under it, opportunistic employees will do little or no work.
36) Sirhan is president of a medium-sized bank. What can he do to lessen the chances of employees or board members taking part in insider trading?
D) Create a strict code of ethics and explain that inside traders will be fired.
26) Which of the following perspectives best supports the shared value creation framework?
D) Externalities such as pollution, wasted energy, and costly accidents actually create internal costs.
50) Gino is the CEO of a financial services firm. What action should Gino take to be sure the firm avoids moral hazards?
D) Gino should define undue risk-taking, institute strict auditing of loans, and make it clear that the company will fire employees who lend recklessly.
49) Which of the following best illustrates a merger between the two companies HQ Inc. and AV Inc.?
D) HQ Inc. and AV Inc. join together to form a single new company called HQAV Inc.
45) Which of the following examples describes the task of an alliance manager?
D) Hussein trained the employees of his alliance partner in the skills needed to create a display for an e-notebook.
59) Which of the following scenarios best illustrates horizontal integration?
D) King Autos Inc. joins with Dimitra Motors Inc., one of its direct competitors.
16) Which of the following is a feature of the Globalization 2.0 stage?
D) Multinational enterprises (MNEs) began to create smaller, self-contained replicas of themselves in a few key countries.
85) Which of the following businesses is most susceptible to negative network effects?
D) Pics Match is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos.
12) Angie owns and runs Archana, a private start-up company with a current value of $1.3 billion. Archana is interested in going public to fund future growth. Which action should Angie take before Archana's initial public offering?
D) She should investigate Archana's existing or potential problems with ethics or the law, if such problems exist.
27) Which of the following statements best supports the view that GE's Ecomagination strategy is in line with the shared value creation framework?
D) The Ecomagination strategy allows GE to produce "green" products while increasing revenue and competitive advantage.
22) How has China been affected by its one-child-per-family policy and appreciation of its currency?
D) The country's advantage in low-cost manufacturing is now reduced.
43) Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage?
D) The weaker firms are forced out of the industry in this stage.
71) What are poison pills?
D) They are defensive provisions that kick in should a buyer reach a certain level of share ownership.
12) Amber is a strategist for a furniture manufacturer that has a large presence in the United States and Canada. By checking economic and political reports, she knows that trade and investment barriers are falling among wealthy nations. She also knows that the price of oil has dropped 50 percent in the previous two years. Based on this information, what action should Amber and her company take?
D) They should seriously consider globalization because of the falling trade and investment barriers.
83) Which of the following business models in the landscaping industry is likely to scale most efficiently?
D) a company that allows users of its website to schedule appointments with landscapers who specialize in the exact service required
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?
D) a conglomerate
68) To keep track of the latest developments in computing, Lenovo's research centers are located in China, the United States, and Japan. Also, to benefit from low-cost labor and reduced shipping costs, the company's manufacturing facilities are in Mexico, India, and China. Lenovo's products are the same for its domestic and foreign markets. Which strategy does Lenovo follow?
D) a global-standardization strategy
42) Which of the following best illustrates physical-asset specificity?
D) a machine solely designed to give a candy its trademarked shape
39) Which of the following is an example of explicit knowledge?
D) a research summary
71) Devonshire Ventures is a large snack-food conglomerate that operates in more than 50 countries and employs more than 80,000 people across the world. It operates through multiple regional product divisions, which tend to function as autonomous profit-and-loss centers. This allows the company to reap significant economies of scale. Though each division acts as an autonomous firm with its individual regional leaders, frequent sharing of knowledge between the divisions allows for global learning. These factors help the company reconcile product and service differentiations at low cost. Which of the following strategies does Devonshire most likely use?
D) a transnational strategy
28) Managers at Durkmunder, a firm in West Feenistan, want to make their company a global leader in business process outsourcing (BPO). What should the Durkmunder managers look for as they decide where to locate their BPO facilities?
D) an abundance of well-educated English speakers
63) Screaming Eagle, a luxury motorcycle company, sells the same motorcycles and offers the same superior services in both its home country and foreign markets. The market it operates in faces low pressures for both local responsiveness and cost reductions. Which of the following strategies within the integration-responsiveness framework does Screaming Eagle most likely pursue?
D) an international strategy
70) DigitalHealth Electronics Inc. is a company that builds diagnostic devices. It was the first company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate?
D) architectural innovation
81) The transnational strategy is similar to a(n) ________ strategy because they both focus on product differentiation and low costs.
D) blue ocean
68) 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
D) building new core competencies to create and compete in markets of the future.
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
D) building new core competencies to protect and extend current market position.
85) The name for an agreed-upon code of conduct in business, based on societal norms, is
D) business ethics.
44) David and Fred are customer care employees at JPN Care. In between calls, David and Fred spend time on Facebook and YouTube. The relaxed guidelines at JPN allow them to do that. However, sometimes, they knowingly avoid answering calls or keep customers on hold, while they check their social networking accounts. Such behavior
D) can be stopped by implementing performance incentives and strict control mechanisms.
39) When two neighboring, democratic countries that are part of a trading bloc follow different religions and social norms, they most likely have high ________ distance.
D) cultural
72) As a start-up company, DigiWrist entered the low end of the highly competitive smartwatch industry with its low-cost smartwatches. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartwatches in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?
D) disruptive innovation
74) Streaming video services replacing brick-and-mortar video rental stores would be an example of a(n)
D) disruptive innovation.
81) Sunshine Technologies introduced a tablet that could run completely on solar energy and was less expensive than competitors' tablets. On the downside, it required more frequent charging than the competition's tablets. However, the technology of the Sunshine tablet improved rapidly, thereby improving its recharge frequency. This example describes
D) disruptive innovation.
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
D) divest the strategic business unit.
59) At the time when Ellen decided to purchase a tablet computer, the product had just become accessible to the mass market. She did not purchase the tablet until after she was convinced that the benefits it would offer her would far exceed its price. Also, she waited for her friends to try the product and popular gadget television shows to endorse it. Which of the following customer segments does Ellen best represent?
D) early majority
61) Marble Inc. is a new firm that entered the smartwatch industry during the growth stage of the industry life cycle. It managed to become one of the top-three smartwatch manufacturers during the shakeout stage due to its low-cost structure. What features should Marble emphasize in its product marketing to ensure it successfully crosses the chasm into the maturity stage?
D) ease of use
47) Which of the following is an ineffective practice in alliance management?
D) focusing on developing an alliance-management capability in isolation
57) Landon is a senior manager for the firm Anderssen Inc. Because of his experience, he has been appointed to the board of EEC Inc., even though he doesn't work for this firm. He also serves on the boards of several other companies. Landon is a(n) ________ for Anderssen and a(n) ________ for EEC.
D) inside director; outside director
11) Because keeping cost low is critical to IKEA's value innovation, it switched from a(n)
D) international strategy to a global-standardization strategy.
62) Angelica is the CEO of Sandhaven Ltd., a publicly traded company. The shareholders want Angelica on the board of directors despite her recent appointment as the CEO. This decision of the shareholders is most likely because Angelica is
D) likely to provide the board with valuable inside information.
38) Carpatia and Novenica are neighboring countries with strong economic disparities. However, both the countries share a common national language and the same political ideologies. The relationship between these two countries will most likely affect the trade of
D) luxury items manufactured in Carpatia.
51) Rajat Gupta's role in providing inside information to Galleon Group for the benefit of Galleon Group's stockholders and himself is an example of
D) moral hazard.
18) Which of the following motivations for business growth involves principal-agent problems?
D) motivating managers
13) Esther is the CEO of a line of accessories and cosmetics, Starring Me! Inc., which has retail stores and production units in five countries. In this scenario, Starring Me! Inc. is most likely a
D) multinational enterprise.
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?
D) parent-subsidiary relationship
35) Which of the following is part of Geert Hofstede's cultural dimensions?
D) power distance
35) Yelena, the CEO of Andron Inc., reports to the board of directors appointed by the shareholders of Andron. Based on shareholder suggestions, the board ties Yelena's compensation to the performance of Andron. Due to this pressure, Yelena begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. The reasons why the board ties Yelena's compensation to firm performance is to overcome
D) principal-agent problem.
85) TimeEnough 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, TimeEnough is a
D) question mark.
29) Elegance Inc. is a large cosmetics company that made an initial small investment in a start-up company, Peace Planet, which was developing an organic face lotion. This gave Elegance controlling interests in the start-up company. However, Peace Planet soon began to have financial difficulties because of principal-agent problems. As a result, Elegance did not invest in the next stage of development and pulled out of the company. This approach to strategic alliance is referred to as a
D) real-options perspective.
40) Planet Resource Inc. is a global internet company that offers country-specific variations of its sites, keeping in mind the linguistic and religious differences between the countries it serves. Planet Resource is most likely doing this to
D) reduce its cultural distance from the other countries.
85) Toyota's global success in the 1990s and early 2000s was based to a large extent on a network of world-class suppliers in Japan. This tightly knit network allowed for fast two-way knowledge sharing—this in turn improved Toyota's quality and lowered its cost, which it leveraged into a successful blue ocean strategy at the business level. This example shows the effectiveness of
D) related and supporting industries/complementors.
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?
D) related-linked strategy
68) Medequip Inc. is a large firm involved in the highly competitive market of high-tech medical equipment. In this market, smaller firms that focus on research are constantly making new technological developments. Which of the following approaches would best serve the needs of Medequip?
D) serial acquisitions
21) Which of the following is an example of an internal transaction cost?
D) the cost of maintaining a production unit
31) In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems?
D) the expectation that the agent will act in the principal's best interest
29) Grameen Bank in Bangladesh was founded to provide microcredit to impoverished farmers who wanted to start their own entrepreneurial ventures that would help themselves climb out of poverty. This best exemplifies Michael Porter's suggestion that
D) the largest but poorest socioeconomic group can yield significant business opportunities.
45) The administrative and political distance between two trading countries decreases when
D) there is a well-functioning capital market in the host country.
14) European aircraft maker Airbus invested $600 million in Mobile, Alabama, to build jetliners. Which of the following statements best explains why it used this strategy?
D) to take advantage of lower taxes in the southern United States
16) Gary owns shares in a company called Archibald Industries Inc. The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing. Gary wants to proactively cut his losses and therefore sells his shares. Anneke, a trading enthusiast, buys shares in Archibald Industries because she believes that the share prices cannot go anywhere but up. Which of the following characteristics of a public stock company does this scenario best exemplify?
D) transferability of investor ownership
80) The German multimedia conglomerate Bertelsmann operates in more than 60 countries throughout the world and owns many regional leaders in their specific product categories, including Random House Publishing in the United States. Bertelsmann operates its more than 500 regional media divisions as more or less autonomous profit-and-loss centers, but it attempts to share best practices across units. Global learning and human resource strategies for executives are coordinated at the network level. Bertelsmann is following a(n)
D) transnational strategy.
15) Anita has been named CEO of a popular sports apparel company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Anita most likely to make?
D) what range of products the firm should offer
