Quiz 8
Why might a firm want to enter into an equity alliance instead of a short or long term contract
to make credible commitment to get insider information about the partners business to facilitate transaction-specific investments
Which of the following best illustrates human-asset specificity?
training employees on how to operate a customized furnace
A disadvantage associated with obtaining goods and services externally includes
nontrivial search costs to be borne by the firm.
behavior characterized by self-interest with guile
opportunism
What costs refer to the costs that arise from managing the linked businesses in a related-constrained or related-linked diversification scenario
Coordination
What diversification strategy refers to a firm that pursues both product and geographic diversification
product-market
5 stages of the industry value chain involve
1. Raw Materials 2. Components & Intermediate Goods 3. Final Assembly & Manufacturing 4. Marketing & Sales 5. After-Sales Service & Support
Which of the following examples would most likely limit a firm's growth?
A social entrepreneur makes conservation of the environment the primary goal of his firm.
_______ is best described as the changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain.
Backward vertical integration
Long-term contracts
Franchising & Licensing
To figure out if a firm's type of diversification is BLANK, one can asks questions about the degree to which the corporation's business units share core competencies
Related or unrelated
The BCG growth-share matrix requires managers to view their SBUs in terms of relative market BLANK and speed of market BLANK
Share, growth
An example of an alternative arrangment located on the continuum between buying and making
Short-term contracting
Which of the following best illustrates a dominant-business firm?
Siova Inc. is a luxury brand that derives 90 percent of its revenues from its apparel line and 10 percent of its revenues from its premium furniture business unit.
The 2 alternatives to vertical integration are which of the following?
Taper integration Strategic Outsourcing
Which of the following best illustrates backward vertical integration?
a chocolate manufacturing company setting up its own cocoa plantations
A non-diversified company focuses on
a single market
Main types of corporate diversification
dominant business single business related diversification unrelated diversification
Partnerships in which at least one partner takes partial ownership in the other partner
equity alliances
HTC started as an original equipment manufacturing firm (OEM) for brand-name mobile device companies. Later, it started offering a lineup of innovative and high-performance smartphones by acquiring One & Co., a San Francisco-based design firm. This strategic move of HTC is known as
forward vertical integration.
Firms often consolidate industries through horizontal mergers and acquisitions to
increase their market power.
Alternatives on the make-or-buy continuum
equity alliances & joint ventures
Which of the following is an example of related-constrained diversification?
an automobile company that manufactures petrol cars expanding into the diesel car industry
Highly diversified firms experience a diversification discount in the stock market because they
are unable to create additional value.
The rationale behind related diversification is to
benefit from economies of scale and scope.
advantages of vertical integration
bettering quality reducing costs facilitating scheduling (helps ensure that materials and distribution channels are available when needed)
When Moon Star Products Inc. planned to start its operations in United Cadvia, an emerging nation, it realized that it will have to set up its own distribution channels. This would be a risky and an expensive strategic move. The company had an option of hiring a small supply chain management company, Gold Logistics Inc., to reach its ultimate customers. However, this would require Gold Logistics to make huge investments, which would be of no use to it if Moon Star decided to exit the market. Thus, to gain Gold Logistics's confidence, Moon Star purchased 40 percent of the stock of Gold Logistics. What does this scenario best illustrate?
equity alliance
An inverted U-shaped relationship between the type of diversification and overall firm performance indicates that
high and low levels of diversification are generally associated with lower overall performance.
What are the costs associated with related-diversification strategies
influence costs coordination costs
A financial advisor has heard from a relative of NR Industries Inc.'s CEO that the company is planning to shut down its operations in Europe next year. The financial advisor realizes that this decision may cause a decline in the value of the company's shares and decides to sell them off. A buyer, unaware of the company's future plans, sees this as a potential opportunity and invests in the company. What does this scenario best illustrate?
information asymmetries
A large conglomerate is deciding on the range of new products and services it can offer to its customers to further expand its operations. This decision determines the firm's
level of diversification.
North Carolina National Bank (NCNB) used its unique core competency of identifying, appraising, and integrating acquisition targets to be rebranded as Bank of America, one of the largest banks in the United States. This is an example of a firm
leveraging existing core competencies to improve current market position.
Amazon expanded its single-product business by leveraging spare capacity into cloud computing and by offering its Kindle line of tablet computers. This is an example of
related-linked diversification.
Mega Products Inc., a large multinational conglomerate, has hired an external consultant to process and audit its payroll. This allows the company to focus on manufacturing and marketing activities rather than developing and maintaining its own human resource management systems. Which of the following alternatives to vertical integration has Mega Products adopted?
strategic outsourcing
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
The executives of BlueWind Products Inc., a large conglomerate, are making decisions on the stages of the industry value chain the firm must participate in, the range of products and services it should offer, and the global markets it should compete in. What are the executives primarily determining?
the boundaries of the firm
Which of the following is an example of internal transaction costs?
the costs pertaining to setting up a shop floor