CBA 469 Ch. 8 Quiz

What happens when the markets along the industry value chain are too risky and alternatives too costly in time or money?

vertical market failure

When a firm is more efficient in organizing economic activity than markets are, the firm should ______.

vertically integrate

A conglomerate fits which type of corporate diversification model?

unrelated diversification

_____ are unique assets with high opportunity cost.

Specialized assets

_____ is a way of orchestrating value activities in which a firm is backwardly or forwardly integrated and relies on outside-market firms for supplies or distribution.

Taper integration

A firm follows a(n) _____ diversification strategy when it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

related

When a multi-business firm pools and shares resources and leverages competencies across different business lines, it is following a(n) _____.

related diversification strategy

A(n) _____ is a voluntary arrangement between firms that involves sharing of resources and capabilities with the intent of developing processes.

strategic alliance

The lemons problem suggests that information asymmetries can cause ________.

superior goods to be replaced by inferior ones

What is a major disadvantage of organizing economic activity within firms?

the principal-agent problem

Which of the following describes economies of scope?

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

A disadvantage of a short-term contract as an alternative on the make-or-buy continuum is that __________.

the supplying firm has little reason to perform transaction-specific investments

Why do some firms choose alternatives to vertical integration?

to avoid the risks associated with vertical integration

Unlike short-term contracts, long-term contracts encourage firms to make ________ investments.

transaction-specific

Google's choice to hire programmers in-house suggests that they decided that the _______________ costs associated with this strategy are _______________ than the costs associated with contracting in the open market.

transaction; lower

True or False: According to the make-or-buy continuum, strategic alliances are more integrated than short-term contracts.

true

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

true

What is the opportunity cost of investmenting in specialized assets that is characterized by self-interest seeking with guile?

opportunism

Which of the following are types of vertical integration along the industry value chain?

- backward - forward

What are the four quadrants of the core competence-market matrix?

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

Long-term contracts include which of the following forms?

- franchising - licensing

Which of the following are characteristics of a joint venture?

- it is a long-term commitment by two or more partners - it facilitates transaction-specific investments

Long-term contracts typically last __________.

1 year or more

The _____ is a corporate planning tool in which the corporation is viewed as a portfolio of business units.

Boston Consulting Group (BCG) growth-share matrix

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

Corporate

_____ are partnerships in which at least one partner takes partial ownership in the other partner.

Equity alliances

________ is a situation in which one party has more knowledge than another due to the possession of private knowledge.

Information asymmetry

_____ refers to the assets whose physical and engineering properties are designed to satisfy a particular customer.

Physical-asset specificity

_____ refers to the firms' ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Vertical integration

In the Boston Consulting Group growth-share matrix, each of the four categories in the matrix represents _________.

a different investment strategy

Kava Botanicals, a boutique retailer that sells high-end makeup and accessories, is owned by two makeup manufacturers. Kava Botanicals is an example of which type of strategic alliance?

a joint venture

A non-diversified company focuses on which of the following?

a single market

When a manufacturer of computers starts to produce its own computer components, the manufacturer engages in ________ vertical integration.

backward

Which of the following terms describes the strengths that allow a firm to distinguish itself from the competition?

core competencies

When a business answers the question of where to compete, it is determining _____.

corporate strategy

When a business answers the question of where to compete, it is determining _______.

corporate strategy

In the Boston Consulting Group matrix, _________ hold the small market share in a low-growth market.

dogs

Which of the following is the best option if a company wants to show strong commitment to a partner firm without acquiring that firm?

equity alliance

The persons responsible for forming corporate-level strategy are the _______.

executives

In the _____ quadrant of the core competence--market matrix, the focus is on leveraging current core competencies to improve current market position.

existing competence--existing market

Companies that transact in the open market incur ________.

external transaction costs

Kanye loves Benicio's Burritos and wants to open a branch in his hometown, Benicio's Burritos grants Kanye the right to use its trademark and name, and Kayne agrees to follow Benicio's Burritos guidelines. This is an example of ______ .

franchising

Specialized assets have _____.

high opportunity cost

Amazon's continued focus on ______ is a key to its ongoing success.

innovation

What is the shape of the relationship between the level of diversification and performance?

inverted U

One way to overcome the principal-agent problem is to ________.

make managers owners through stock options

One way to overcome the principal-agent problem is to __________.

make managers owners through stock options

What level of diversification leads to the highest level of performance?

moderate

What is a related-linked diversification strategy?

one in which executives pursue various businesses opportunities that share only a limited number of linkages

To figure out if a firm's type of diversification is ______, one can ask questions about the degree to which the corporation's business units share core competencies.

related or unrelated

Which diversification strategy involves executives pursuing various business opportunities that share only a small number of similarities?

related-linked

Which type of alternative on the make-or-buy continuum involves competitive bidding by external companies hoping to acquire a temporary arrangement with a firm?

short-term contracts

In the taper integration system, a firm has _____ reliance on outside markets.

some

Which of the following statements about the make-or-buy continuum is true?

the "make" and "buy" choices anchor each end of the continuum

Transaction costs include _______ costs associated with an economic exchange.

the internal and external

The degree of vertical integration corresponds to _________.

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

In order for a firm to lower costs, it must _______.

grow

Zipster is a local manufacturer of athletic shoes. Zipster has decided it wants to expand to global markets and to offer a larger selection of items. It plans to offer not just athletic shoes but also luggage and car accessories. Zipster is engaging in _______________.

diversification

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

diversification discount

What are the three dimensions along which executives formulate corporate strategy?

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

Which of the following are among the reasons firms need to grow?

- to increase profits - to motivate management

_______ costs are all of the costs associated with an economic exchange.

Transaction

According to the Boston Consulting Group matrix, cash cows are SBUs that do which of the following?

compete in a low-growth market but have high market share

In order to assess whether ______ is working, managers can ask if the individual businesses are worth more under the firm's management or if they are worth more under individual management.

diversification

A(n) _________ is a situation in which the stock price of a highly diversified firms is valued as less than the sum of their individual business units.

diversification discount

A(n) ______ is a standalone organization created and jointly owned by two or more parent companies.

joint venture

Which of the following are alternatives on the make-or-buy continuum?

- joint ventures - equity alliances

Amazon's explosive success is largely due to which of the following?

vertical integration

The two alternatives to vertical integration are which of the following?

- strategic outsourcing - taper integration

True or False: Related diversification is more likely to generate incremental value than unrelated diversification.

true

Corporate strategy needs to be dynamic over time in order to ______.

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