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GE (Chapter 6 Opening Case) is unusual in that it

C is one of the few large diversified large firms that have been successful over time.

Xanadu, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis to Ireland. What is the major threat to transfer competencies from itself to the Irish firm?

a. The St. Louis manager may quit Xanadu in order to remain in St. Louis.

What is the similarity between high-technology firms and service-based firms that makes them risky as restructuring candidates?

a. They are human-resource dependent.

Dragonfly Publishers of children's books has purchased White Rabbit, another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different, since Dragonfly produces children's literature, whereas White Rabbit focuses on child-level scientific and nature topics. Which of the following statements is probably TRUE about this acquisition?

a. This is a horizontal acquisition.

An office management firm has developed a system for efficiently organizing small medical and dental practices both through proprietary software and through unique training programs for staff. It has recently acquired a firm specializing in providing management services for veterinary practices. The office management firm is hoping to

a. achieve economies of scope.

Successful unrelated diversification through restructuring is typically accomplished by

a. focusing on mature, low-technology businesses.

Free cash flows are

a. liquid financial assets for which investments in current businesses are no longer economically viable.

A noted professional art academy has founded an "artists and friends" travel company specializing in tours for artists to scenic locales, using its faculty as traveling teachers. In addition, the art academy has purchased a framing company to both make frames for academy art works, but also to sell museum-quality framing services to the public. The art academy is engaging in diversification based on relatedness.

a. operational

Backward integration occurs when a company

a. produces its own inputs.

The Publicis Groupe uses the digital technology from its digital business to enhance the advertising products in its advertising group. This sharing of activities is characteristic of the diversification strategy.

a. related constrained

Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G most likely uses the

a. related constrained; operational relatedness.

The lowest level of diversification is the level.

a. single-business

The term "conglomerates" refers to firms using the diversification strategy.

a. unrelated

Wm. Wrigley Jr. Company once made only chewing gum. When Wrigley bought Life Savers (a line of candy mints) and Altoids (a line of breath mints) from Kraft, chewing gum then constituted less than 95 percent of revenues. Thus, Wrigley

a. was moving away from its traditional single-business strategy toward a dominant strategy.

Usually a company is classified as a single business firm when revenues generated by the dominant business are greater than percent.

b. 95

Large diversified businesses often face what is known as the "conglomerate discount." This discount means that investors

b. believe that the value of conglomerates is less than the value of the sum of their parts.

The more sharing of resources and activities among businesses, the more diversification.

b. constrained

Revenues for United Parcel Service (UPS) come from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non-packaging operations. Which best describes the corporate level strategy of UPS?

b. dominant business

Firms that have selected a related diversification corporate-level strategy seek to exploit

b. economies of scope between business units.

Which of the following is a value-reducing reason for diversification?

b. expanding the business portfolio in order to diversify managerial employment risk

The drawbacks to transferring competencies by moving key people into new management positions include all EXCEPT

b. managerial competencies are not easily transferable to different organizational cultures.

Which of the following reasons for diversification is most likely to increase the firm's value?

b. reducing costs through business restructuring

Acquisitions to increase market power require that the firm have a(n) diversification strategy.

b. related

A firm that earns less than 70 percent of revenue from its dominant business and has direct connections between its businesses is engaging in diversification.

b. related constrained

The Publicis Groupe has three major groups of business (advertising, media, and digital) that share resources and capabilities. Publicis Groupe is using a diversification strategy.

b. related constrained

GE (Chapter 6 Opening Case) was diversified and manages businesses that have only a few links between them. This corporate-level strategy is best described as diversification.

b. related linked

Operational relatedness is created by of

b. sharing; activities.

The main difference between the related constrained level of diversification and the related linked level of diversification is

b. the level of resources and activities shared among the businesses.

As noted in the Chapter 6 Opening Case, GE is now a major player in the "clean energy" industry such as wind turbines and solar power. A major reason GE moved in this direction was

b. to overcome and correct its record in environmental issues.

One method of facilitating the transfer of competencies between firms is

b. transfer key people into new management positions.

Corporate-level strategy is concerned with and how to manage these businesses.

b. what product markets and businesses the firm should be in

Which of the following firms would be the most likely to be a successful candidate for acquisition and restructuring?

c. a tire manufacturer established in 1910

The ultimate test of the value of a corporate-level strategy is whether the

c. businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership.

Multipoint competition occurs when

c. diversified firms compete against each other in several markets.

The Mars acquisition of the Wrigley assets was part of its related constrained diversification and added market share to the Mars/Wrigley integrated firm. It allowed Mars to gain the market level or reduce its costs below the market level.

c. market power

When diversification results in two companies, such as UPS and FedEx, simultaneously competing in the same product areas or geographic markets, this is called competition.

c. multipoint

The diversification strategy creates value in two ways. First, since the core competence has already been developed in one business, the firm does not have to allocate resources to develop it. Second, since the resource is intangible, competitors cannot easily imitate it.

c. related linked

Virgin Group successfully transfers its marketing core competence across airlines, cosmetics, music, drinks, mobile phones, health clubs, and a number of other businesses. Virgin follows a(n) diversification corporate strategy.

c. related linked

The more "constrained" the relatedness of diversification,

c. the more links there are among the businesses owned by an organization.

The basic types of operational economies through which firms seek value from economies of scope are

c. the sharing of value chain activities and support functions

Which acquisition would be considered the LEAST related?

d. An upscale "white-tablecloth" restaurant chain acquires a travel agency.

Which of the following is TRUE?

d. Related constrained firms share more tangible resources and activities between businesses than do related linked firms.

Research has shown that horizontal acquisitions

d. are able to use activity sharing to successfully create economies of scope.

The risk for firms that follow the unrelated diversification strategy in developed economies is that

d. competitors can imitate financial economies more easily than they imitate economies of scope.

Large diversified businesses often face a , which results from analysts not knowing how to value a vast array of large businesses with complex financial reports.

d. conglomerate discount

Firms seek to create value from economies of scope through all of the following EXCEPT

d. de-integration.

The purchasing of firms in the same industry is called

d. horizontal acquisition.

Hutchison Whampoa Limited (HWL) has businesses in ports and related services, telecommunications, property and hotels, retail and manufacturing, and energy and infrastructure. HWL makes no efforts to share activities or transfer core competencies among the businesses. HWL is following a strategy of diversification.

d. unrelated

Firms use corporate-level diversification strategies for all the following reasons EXCEPT

d. value-diversifying.