T/F and Multiple Choice (Final MGMT 466)

Which firm has been one of the few large, widely diversified firms that has been successful in adding 50,000 new different products ? [slides example]

3M -> invested $2 billion in R&D to be successful

Digipics is an assembler of digital cameras. As an assembler, Digipics' operations are limited to purchasing all of the components necessary to assemble the cameras and then selling these cameras to wholesalers who, in turn, sell them through online stores and in retail electronics stores. If Digipics were to begin manufacturing lenses for the cameras they assembled, this wouldbe an example of: A) backward vertical integration B) a strategic alliance C) forward vertical integration D) opportunism

A

Following a leveraged buyout: a. assets are typically sold off. b. further rounds of acquisitions are conducted. c. the firm begins due diligence. d. private synergies are created.

A

If an electronics manufacturer were to acquire a chain of retail electronic stores to sell its products, this would be an example of a ________ merger. A) vertical B) horizontal C) market extension D) product extension

A

Research indicates the trend in diversification is toward: a. greater use of related diversification. b. decreased reliance on restructuring. c. increased use of unrelated diversification. d. an overall increase in firms using a dominant-business strategy.

A

The more ________ the ________ the probability that an acquisition will be successful. a. related the acquired and acquiring firms are; greater b. diverse the resulting portfolio of competencies are; higher c. disparate the corporate cultures are; higher d. involved investment banking firms are in the due diligence process; better

A

The shareholders of acquired firms often: a. earn above-average returns. b. earn below-average returns. c. earn close to zero as a result of the acquisition. d. are not affected by the acquisition.

A

When Apple, Inc. opened retail stores to sell its computers and iPods, this was an example of: A) forward vertical integration B) backward vertical integration C) forward horizontal integration D) backward horizontal integration

A

Which pair of firms has the LEAST resource similarity? a. Small, family-owned Italian restaurant; Olive Garden b. Target; Wal-Mart c. HP; Dell d. FedEx; UPS

A

Without effective ________, the acquiring firm is likely to overpay for an acquisition. a. due diligence b. binding arbitration c. investment banking d. managerial compensation

A

_______ is the lowest level of diversification under a corporate level strategy. a. Single business b. Dominant-business c. Related constrained d. Unrelated diversification

A

________ integration occurs when a company ________. a. Backward, produces its own inputs b. Monopoly, owns its own source of distribution of outputs c. Indo-centric, is concentrated in a single industry d. Unrelated, is divesting unrelated businesses

A

A central issue addressed by corporate-level strategy is: a. deciding whether a firm should invest in global or domestic businesses. b. determining the product markets and businesses with which a firm should be involved. c. deciding whether a portfolio of businesses should generate immediate above-average returns or focus on troubled businesses, which will create above-average returns only after restructuring. d. deciding whether to integrate backward or forward.

B

If a diversified firm had three businesses and these companies shared a common marketing and service operation, as well as common technology and development, this would be an example of which type of economy of scope? A) Core competencies B) Shared activities C) Risk reduction D) Multipoint competition

B

In a(n) ________, one firm buys a controlling, or 100%, interest in another firm. a. merger b. acquisition c. takeover d. restructuring

B

Of the following reasons for diversification, which one is MOST likely to increase the firm's value? a. Increasing managerial compensation. b. Reducing costs through business restructuring. c. Taking advantage of changes in tax laws. d. Conforming to antitrust regulation.

B

The corporate level strategy of a firm that earns less than 70% of revenue from its dominant business and has direct connections between its businesses is called: a. unrelated diversification. b. related constrained diversification. c. related linked diversification. d. dominant-business diversification.

B

The drawbacks to transferring competencies by moving key people into new management positions include all EXCEPT: a. the people involved may not want to move. b. managerial competencies are not easily transferable to different organizational cultures. c. managers with these skills are expensive. d. top-level managers may resist having these key people transferred.

B

The rationale for making an acquisition includes each of the following EXCEPT: a. increasing market power. b. decreasing diversification. c. increasing financial performance. d. shifting a core business into a different market.

B

Which of the following economies of scope do not have the potential for generating positive returns for a firm's equity holders since the economies of scope can be realized by outside equity holders at a low cost by investing in a diversified portfolio of stock? A) Shared activities B) Diversification to maximize the size of a firm C) Internal capital allocation D) Exploiting market power

B

Which of the following is NOT included in the three main restructuring strategies? a. downsizing b. realigning c. downscoping d. leveraged buyouts

B

Since both P&G and Gillette are consumer products firms, this acquisition is best described as a A) vertical merger. B) horizontal merger. C) market extension merger. D) conglomerate merger.

B -> it helped to reshape its competitive scope

Competitive advantage . . . a. can be permanent if the firm has successfully implemented the strategic management process b. entails reducing investors' risk to near zero c. can be identified only if it has been unsuccessfully challenged by competitors d. exists when competing firms are unable to find investors

C

If Digipics were to agree to spend a significant amount of money to establish a new assembly line for a large client, PicPro, that has unique needs that would make this assembly line largely useless for any other customer, the funds Digipics spent in establishing this line would be an example of: A) forward vertical integration B) backward vertical integration C) a transaction-specific investment D) opportunism

C

If Digipics were to begin selling the cameras it assembled directly to customers through a website operated by the company, this would be an example of: A) backward vertical integration B) a strategic alliance C) forward vertical integration D) opportunism

C

In a diversified firm, corporate-level strategy is concerned with: a. operating each individual business under the corporate umbrella. b. determining how each functional department of the firm will operate. c. determining in which businesses to compete and how resources will be allocated between businesses. d. coordinating the vision and mission of each subsidiary firm.

C

In order for corporate diversification to be economically valuable A) there must be some valuable economy of scope among the multiple businesses in whicha firm is operating and it must be more costly for managers in a firm to realize theseeconomies of scope than for outside equity holders on their own. B) there must not be any valuable economy of scope among the multiple businesses inwhich a firm is operating and it must be less costly for managers in a firm to realize theseeconomies of scope than for outside equity holders on their own. C) there must be some valuable economy of scope among the multiple businesses in whicha firm is operating and it must be less costly for managers in a firm to realize theseeconomies of scope than for outside equity holders on their own. D) there must not be any valuable economy of scope among the multiple businesses inwhich a firm is operating and it must be more costly for managers in a firm to realize theseeconomies of scope than for outside equity holders on their own

C

Substitutes for exploiting economies of scope in diversification include A) growing and developing independent businesses within a diversified firm and vertical integration. B) vertical integration and strategic alliances. C) growing and developing independent businesses within a diversified firm and strategic alliances. D) strategic alliances and multipoint competition

C

The value of a corporate-level strategy is ultimately shown by whether the: a. corporation earns a great deal of money. b. top management team is satisfied with the corporation's performance. c. businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership. d. businesses in the portfolio increase the firm's financial returns.

C

When Sears and Kmart, two retail firms of relatively equal size in the United States, agreed to combine their assets, this was an example of a(n) A) joint venture. B) acquisition. C) merger. D) equity agreement.

C

A firm has acquired its supplier. This is an example of a(n): a. equity alliance. b. unrelated acquisition. c. hostile takeover. d. vertical acquisition.

D

A firm that diversifies by exploiting its resources and capability advantages in its original business will have ________ costs than (as) firms that begin a new business without these resource and capability advantages, or ________ revenues than (as) firms lacking these advantages. A) higher; lower B) the same; higher C) lower; the same D) lower; higher

D

Firms are increasingly moving away from ________ integration. a. viral b. virtual c. virtuous d. vertical

D

Green Frog is an environmentally friendly firm in the cosmetics industry. If Green Frog were considering expanding beyond the cosmetics industry into pharmaceuticals in order to gain competitive advantages by operating in multiple markets and industries, this would be an example of which type of strategy? A) Business level strategy B) Functional level strategy C) Marketing strategy D) Corporate level strategy

D

If Dell computers were to open its own factory to manufacture the LCD televisions it sells at its online store, this would be an example of: A) forward vertical integration. B) product differentiation. C) forward horizontal integration. D) backward vertical integration.

D

If eBay were to acquire a smaller online auction company, this would be an example of a ________ merger. A) conglomerate B) vertical C) market extension D) horizontal

D

Individual investors are reliant on upon the corporation's managers to A) diversify the stockholder's investments in order to reduce risk. B) achieve risk reduction at a lower cost than stockholders could obtain on their own. C) maximize short-term returns in the form of dividends. D) add value to their investments in a way that the stockholders could not accomplish on their own.

D

Multi-market competition occurs when two or more diversified firms: a. sell different products to the same customer. b. have a high level of awareness of their competitors' strategic intent. c. simultaneously enter into an attack strategy. d. simultaneously compete against each other in the same product areas geographic markets.

D

The risk for firms that follow the unrelated diversification strategy in developed economies is that: a. external investors tend to dump the stocks of conglomerates during economic downturns. b. conglomerates are typically owned by one powerful entrepreneur and do not survive his/her retirement or death. c. government regulations, especially in Europe, have periodically forced the dissolution of conglomerates. d. competitors can imitate financial economies more easily than they imitate economies of scope.

D

When a merger occurs: a. one firm breaks into two firms. b. one firm buys controlling interest in another firm. c. two firms combine to create a third separate entity. d. two firms agree to integrate their operations on a relatively coequal basis.

D

Which of the following is NOT an attribute of a successful acquisition? a. The acquiring firm has financial slack. b. Both firms have complementary assets and/or resources. c. Innovation and R&D investments will be continued. d. Marketing investments to advertise and build the image of the acquired firm are made quickly.

D

Corporate

Diversification

T/F A publishing company that acquires a chain of bookstores to sell its books is an example of related diversification

False

T/F Firms can directly acquire the assets and competencies of other firms through joint ventures.

False

T/F Restructuring necessitates the corporate office to find either firms in industries on the threshold of significant, positive change or poorly performing firms with unrealized potential.

False

T/F Shared activities and risk reduction are usually difficult-to-duplicate bases for corporate diversification, but tax advantages and employee compensation are usually relatively easy to duplicate

False

T/F The acquisition of strategically unrelated targets will generate substantial economic profits for both the bidding and the target firms.

False

T/F The existence of strategic relatedness between bidding and target firms is sufficient for theequity holders of bidding firms to earn economic profits from their acquisition strategies.

False

T/F The primary potential benefits of firms diversifying into unrelated businesses are horizontal relationships, i.e., businesses sharing tangible and intangible resources.

False

T/F When a company, threatened by takeover, offers its stock at a reduced price to a third party it is called greenmail.

False

T/F Operational economies of scope include shared activities and risk reduction

False -> 2 operational economies of scope include: sharing activities (operational relatedness) and transferring corporate-level core competencies (corporate relatedness)

T/F A sustained competitive advantage is virtually permanent

False -> Can be identified only if it has been unsuccessfully challenged by competitors

T/F If Wal-Mart were to purchase a factory to make socks and it planned to sell these socks in its stores, this would be an example of forward vertical integration

False -> backward vertical integration

T/F Shared activities and risk reduction are usually difficult-to-duplicate bases for corporate diversification, but tax advantages and employee compensation are usually relatively easy to duplicate.

False -> shared activities are NOT easy to duplicate; risk reduction, tax ADVs, and employee compensation are easy to duplicate

T/F From a CEO's perspective, coordinating functional specialists to implement a vertical integration strategy rarely involves conflict resolution

False ->diversification can actually destroy some of the firm's value

T/F Corporate level strategies are actions firms take to gain competitive advantages in a single market or industry.

False -> actions in different product markets

Backward Vert Integration: A firm engages in backward vertical integration when it incorporates more stages of the value chain within its boundaries and those stages bring it closer to gaining access to raw materials.

Forward Vert Integration: A firm engages in forward vertical integration when itincorporates more stages of the value chain within its boundaries and those stagesbring a firm closer to the end of the value chain, i.e., closer to interacting directly with final customers

Which firm has been one of the few large, widely diversified firms that has been successful over time with its corporate-level strategy? [book example]

GE

Vertical

Integration

T/F A firm has implemented a strategy of limited corporate diversification when all or most of its business activities fall within a single industry and geographic market

True

T/F A firm has implemented a strategy of limited corporate diversification when all or most of its business activities fall within a single industry and geographic market.

True

T/F A firm implements a corporate diversification strategy when it operates in multiple industries or markets simultaneously.

True

T/F A firm may be able to gain an advantage from vertically integrating when it resolves some uncertainty it faces sooner than its competition.

True

T/F A firm's vertical integration strategy is rare when few competing firms are able to create value by vertically integrating in the same way.

True

T/F Both shared activities and internal capital allocation are examples of economies of scope that have the potential for generating positive returns for a firm's equity holders.

True

T/F Core competencies are complex sets of resources and capabilities that link differentbusinesses in a diversified firm through managerial and technical know-how, experience, and wisdom.

True

T/F Economies of scope exist in a firm when the value of the products or services it sells increase as a function of the number of businesses in which the firm operates

True

T/F Family-owned and controlled businesses are commonly less diversified

True

T/F Firms should pursue merger and acquisition strategies only to obtain valuable economies ofscope that outside investors find too costly to create on their own

True

T/F Firms that pursue a strategy of related corporate diversification have some type of linkages among most of the different businesses they pursue.

True

T/F For an internal capital market to create value for a diversified firm, it must offer someefficiency advantages over an external capital market.

True

T/F If all the businesses in which a firm operates share a significant number of inputs, production technologies, distribution channels, similar customers, and so forth, this corporate diversification strategy is called related-constrained diversification

True

T/F If the different businesses that a single firm pursues are linked on only a couple of dimensions, or if different sets of businesses are linked along very different dimensions, that corporate diversification strategy is called related-linked diversification

True

T/F To be economically valuable, links between bidding and target firms must meet the samecriteria as diversification strategies.

True

T/F Two ways a firm can create value through diversification strategies is through operational relatedness (business side) and corporate relatedness (core competencies)

True

T/F When the assets of two similar-sized firms are combined, this is known as a merger.

True

T/F When two or more firms simultaneously compete in the same product area or geographical markets it is known as Multi-Point Competition

True

T/F While mergers typically begin as a transaction between equals, that is, between firms of equal size and profitability, they often evolve after a merger such that one firm is more dominant in the management of the merged firm than the other

True

Corporate level strategies are . . .

actions firms take to gain competitive advantages by managing a group of different businesses competing in different markets

A horizontal acquisition is when a company acquires a company competing in the ______ _______ as itself

same industry

Mergers &&

&& Acquisitions

Which 4 economies of scope are costly to duplicate?

1. Core competencies 2. Internal capital allocation 3. Multipoint competition 4. Exploiting market power

Two economies of scope that don't have potential for generating positive returns are

1. Diversification for size alone 2. Diversification to reduce risk

Which economies of scope are less costly to duplicate?

1. Shared activities 2. Risk reduction 3. Tax advantages 4. Employee compensation

A firm that possesses core competencies that can be exploited across international markets is able to: a. achieve synergies and produce high quality goods at lower costs. b. enter new markets more quickly. c. enhance their market image and brand loyalty among local consumers. d. meet local government requirements more quickly than their international competitors.

A

Google promotes creativity and innovation and has a flat organization structure with few managers where team members rotate as project leaders. The company is considered a relaxed and fun place to work with free snacks, meals, and video games available for break times. Together, these attributes help to describe their: a. organization's culture. b. attitude for entrepreneurship. c. continuous improvement processes. d. investment in human capital.

A

The implementation of an international diversification strategy is complicated by each of the following EXCEPT: a. widespread multilingualism. b. increased costs of coordination between business units. c. cultural diversity. d. logistical costs.

A

________ is the process whereby individuals or groups identify and pursue opportunities without being immediately constrained by the ________ they currently control. a. Entrepreneurship, resources b. Entrepreneurship, capabilities c. Entrepreneurship, core competencies d. Entrepreneurship, entrepreneurians

A

________ is(are) critical in order for a firm to gain access to complementary resources from partners in a cooperative alliance. a. Social capital b. Shared values c. An entrepreneurial mind-set d. Compatible organizational cultures

A

A product-diversified Liberian firm has been approached by several large Canadian firms looking for prospective partners. From the perspective of the Liberian firm, the best partner would be: a. a Canadian firm planning its first venture into international diversification. b. an internationally-diversified Canadian-headquartered firm that is not product-diversified. c. a Canadian firm that uses a differentiation strategy. d. a Liberian firm because of cultural differences.

B

An international strategy consists of: a. action plans pursued by American companies to compete against foreign companies operating in the United States. b. a strategy whereby a firm sells products in markets outside its domestic market. c. the political and economic action plan developed by businesses and governments to cope with global competition. d. the strategy American firms use to dominate international markets.

B

Entry into international markets is an attractive strategy to firms whose domestic markets: a. demand a differentiation strategy for success. b. provide limited opportunities for growth. c. have developed unfriendly business attitudes toward the industry. d. have too much regulation.

B

Firms commonly enter international markets sequentially, first introducing their: a. products customized according to region. b. largest and strongest lines of business. c. oldest products. d. most generic products, which will be more likely to generate universal product demand.

B

The entrepreneurial mind-set consists of all the following characteristics EXCEPT: a. valuing uncertainty in the marketplace. b. being objective about projects. c. a willingness to take risks. d. having a sense of optimism.

B

The sale of Boeing's commercial aircraft and Microsoft's operating systems in many countries enable these companies to benefit from A) higher prices in their domestic markets. B) economies of scale. C) optimizing the location for many activities in their value chain. D) reducing their exposure to currency risks.

B

________, as a form of internal innovation is a ________ process. a. Isomorphic strategic behavior, bottom-up b. Induced strategic behavior, top-down c. Inclined strategic behavior, vertical d. Intransient strategic behavior, critical

B

A nation's level of entrepreneurial activity is ________ a nation's level of ________. a. negatively related to, social development b. independent of, community c. positively related to, economic development d. weakly related to, national identity

C

Innovation is: a. the identification of an opportunity for a new product or process. b. the development of a new product or process. c. the creation of a commercial product. d. the process of identification, development, and creation of a new product or service.

C

Internal corporate venturing involves each of the following EXCEPT: a. autonomous strategic behavior. b. induced strategic behavior. c. strategic networks positioning. d. product champions.

C

The ________ approach for international expansion is most likely to succeed when there is high uncertainty, cooperation is needed, and strategic flexibility is important. a. exporting b. licensing strategies c. strategic alliances d. acquisitions

C

The competition for resources among different operational functions within a firm often leads to: a. the erosion of human capital. b. heightened inter-organizational dialogue. c. organizational politics. d. empowerment of labor within the organization.

C

The motives for a firm to become multinational include all of the following EXCEPT: a. taking advantage of potential opportunities to expand the market for the firm's products. b. securing needed resources. c. avoiding high domestic taxation on corporate income. d. increasing universal product demand.

C

The transnational corporate-level strategy seeks to: a. achieve a high level of customization for the local market. b. yield significant economies of scale and centralized strategic control. c. balance both global efficiency and local responsiveness. d. standardize products across countries.

C

Which of the following describes the most standard order of entry into foreign markets? A) franchising, licensing, exporting, joint venture, and wholly owned subsidiary B) licensing, exporting, franchising, joint venture, and wholly owned subsidiary C) exporting, licensing, franchising, joint venture, and wholly owned subsidiary D) exporting, franchising, licensing, joint venture, and wholly owned subsidiary

C

High pressure for lower costs combined with high pressure for local adaptation would imply what type of international strategy: A) global B) multidomestic C) differentiation D) transnational

D

Switzerland, due to a lack of undeveloped land, would be an unusual choice of location for a U.S. cattle company to set up grazing operations. Under Porter's determinants of national advantage, this would be identified as a limitation in what area? a. firm strategy, structure and rivalry b. dependent conditions c. relativity industries d. factors of production

D

The number of patents held by an organization is a rough guide to: a. the firm's strategic value and current stock price. b. the appeal of a firm for a private equity buyer. c. the amount of venture capital a firm will be able to attract. d. the level of innovation in a firm.

D

___________ involve the creation of a third-party legal entity, whereas __________ do not. A) Licensing agreements, joint ventures B) Franchising agreements; strategic alliances C) Strategic alliances; joint ventures D) Joint ventures; strategic alliances

D

T/F Reliance on written contracts to delimit responsibilities and enforce compliance is imperative for strategic alliances to be effective.

False

T/F Diversification economies of scope are achieved by the ability of firms to dictate prices by exerting market power.

False -> achieved by the ability to share activities and core competencies

Ch. 9

International Strategy

Which type of economies of scope includes shared activities and core competencies?

Operational economies of scope

Ch. 13

Strategic Entrepreneurship

Corporate Level

Strategy

T/F Exploiting market power is an example of a costly-to-duplicate economies of scope

True

T/F Firms should not vertically integrate into business activities where they do not possess the resources necessary to gain competitive advantages

True

T/F If there is any hope that mergers and acquisitions will be a source of superior performance for bidding firms, it must be because of some sort of strategic relatedness between bidding and target firms.

True

T/F In a product extension merger, a firm acquires complementary products through merger and acquisition activities.

True

T/F In all acquisitions bidding, firms will be willing to pay a price for a target up to the value that the firm adds to the bidder once it is acquired

True

T/F One of the main reasons why bidding firms do not obtain competitive advantages from acquiring strategically related target firms is that several other bidding firms value the target firm the same way.

True

T/F Shared activities can increase the revenues in diversified firms' businesses, and failure to exploit shared activities across businesses can lead to out-of-control costs

True

T/F Shared activities can increase the revenues in diversified firms' businesses, and failure toexploit shared activities across businesses can lead to out-of-control costs

True

T/F Sharing activities among business units can have a positive effect on a given business' differentiation

True

T/F To be economically valuable, links between bidding and target firms must meet the same criteria as diversification strategies.

True

T/F If bidding and target firms are strategically related, then the economic value of these two firms combined is greater than their economic value as separate entities.

True [synergy]

Horizontal Integration is when firms acquire _________

competitors

When a firm's corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures, it is called___________.

parenting

Shared activities are quite common between both ________ and ________ diversified firms.

related constrained & related linked

On average, _____________ firms will outperform unrelated diversification firms

related diversification

Firms such as Disney that own and operate businesses that share a limited number of inputs, production technologies or distribution channels are said to be pursuing a ________ corporate diversification strategy.

related linked

A vertical acquisition is when a firm acquires a ________ or ________ of one or more of its goods or services

supplier or distributor

Vertical Integration is when firms buy ________ or _______

suppliers or distributors

Some suggest that only a FEW corporate-level strategies actually create ______

value