Business Strat & Policy Exam 3 Self-Test Questions

Which of the following statements is true about managing alliance-related tasks?

Alliance-management capability is based on three alliance-related tasks.

How is an equity alliance different from a joint venture?

An equity alliance involves taking ownership in a partner; a joint venture involves two or more entities owning a firm.

Finjob Inc. is following a related-linked diversification strategy, and Rangreen Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other?

Finjob Inc. will share fewer common competencies and resources between its various businesses when compared to Rangreen Inc.

Which of the following has been a key driver for firms to expand globally during the Globalization 3.0 stage?

benefits from lower labor costs in manufacturing and services

Which of the following best illustrates forward vertical integration?

A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.

Which of the following will most likely harm a multinational enterprise's (MNE's) reputation?

A sweatshop owned by an MNE has an explosion that kills hundreds of workers.

Which of the following statements about managing alliance-related tasks is true?

Alliance-management capability is based on three alliance-related tasks.

Iselectrics, 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 Iselectrics's European sales?

Acquire a company that has a successful medical technology sales force in Europe so that Iselectricscan gain access to new distribution channels.

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?

Arrange for the alliance to be managed at the corporate level.

________, 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.

Coordination costs

Companies must evaluate the relevancy of their internal resources. This happens in two ways: they test whether resources are (1) similar to those the firm needs to develop and (2) superior to those of competitors in the targeted area. Which of the following is the best way in which firms assess the second test?

Firms can apply the VRIO framework for the second test.

DalTech Inc., a publicly traded company, designs and manufactures wearable technology. What approach should DalTech 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.

Focus on research and development as a form of nonprice competition.

________ enables firms to increase their organizational boundaries because the number of competitors decreases. This is demonstrated through the ________ model.

Horizontal integration; structure-conduct-performance

Using the Boston Consulting Group growth-share matrix, the managers of Fasehatice 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?

Increase investment in the personal health monitoring unit to encourage future growth.

________ 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.

Influence costs

________ is best described as a situation in which one party is more informed than another, because of the possession of private information.

Information asymmetry

Which of the following is a drawback of pursuing a transnational strategy?

It requires a global matrix structure, which is difficult to implement.

Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them?

Many owners, managers, and business analysts believe they are essential to survive in an industry.

What is the main reason that most mergers and acquisitions negatively affect shareholder value?

Promised synergies never take place.

Dev is a strategist for the firm Stark Industries, 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 LENS Inc. However, this material is difficult to trade. Because of this, which of the following is most likely the best strategy for Dev to suggest?

Stark Industries should acquire LENS.

How does a conglomerate benefit from following an unrelated diversification strategy?

The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

Hooli 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?

The firm will have more flexibility in purchasing and comparing prices of goods and services.

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?

The software firm may overpay for the app developer, poorly serving the software firm's shareholders.

Which of the following best illustrates physical-asset specificity?

a machine solely designed to give a candy its trademarked shape

When large, incumbent firms buy start-up companies, the transaction is generally described as a(n)

acquisition.

A strategy of ________ will be most beneficial for a firm to enhance its overall corporate performance.

related-linked diversification

Why is following an unrelated diversification strategy especially advantageous in an emerging economy?

It allows the conglomerate to overcome institutional weaknesses in emerging economies.

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?

The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals' power.

When Aviato Inc. wanted to sell its cars in the country of Yugoslakia, it lacked access to distribution channels and marketing expertise in the country. Thus, Aviato 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?

accessing critical complementary assets

Sterling Cooper Footware and NERV Shoes Inc., two competing shoe brands, entered into a strategic alliance to study and acquire each other's competencies. Sterling Cooper Footware entered the strategic alliance to acquire the production system pioneered by NERV Shoes. Similarly, NERV Shoes agreed to the strategic alliance to study the design process of Sterling Cooper Footware. However, Sterling Cooper Footware was more successful and faster than NERV Shoes in accomplishing its alliance goal. What does this scenario best illustrate?

learning races

When a firm is facing high pressure for local responsiveness and low pressure for cost-reductions, the firm is likely to adopt a(n) ________ strategy according to the integration-responsiveness framework.

localization

Aldorria and Estoccia 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

luxury items manufactured in Aldorria.

Tom is the CEO of Endless Possibilities Inc. and proudly boasts his firm's slogan, We Guarantee Success! However, Tom's constituents presented him with data on their latest project which suggests that they should not move forward. Tom, undeterred with this data, decides that he will still accept the project because he believes that he can't lose. This is a classic example of

managerial hubris.

When examining the core competence-market matrix, the most challenging diversification strategy occurs when firms attempt to combine ________ with ________. If done successfully, the firm could have the potential for "mega-opportunities" that may lead to competitive advantage.

new core competencies, new markets

Macmillan Toys Inc. is located in the nation of Ruffino near the nation of East Fenwick. Macmillan Toys is considering expanding into Rusalka. 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, Ruffino rules this land. Which of the following would most likely prevent Macmillan Toys from expanding into Rusalka?

political distance

The managers at Statholdings Mobile 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 Statholdings Mobile Inc. is most likely a result of

principal-agent problems.

Mary has been named CEO of an office furniture manufacturing company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Mary most likely to make?

what range of products the firm should offer

When does a merger between companies typically occur?

when two firms of comparable size join to form a combined entity

Which quadrant in the core competence-market matrix is the hardest to pursue?

building new core competencies to create and compete in markets of the future

Fang and Bone Inc. is a snack manufacturer that wants to expand globally. Few people abroad are familiar with Fang and Bone 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 Fang and Bone take?

Pursue a multidomestic strategy that includes new "local" brands.

Doncon 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?

Pursue taper integration.

________ 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.

Strategic alliances

Can't Believe It's Not Hair Inc. (CBNH) dominates the ladies' wig market and wants to expand into men's toupees. How can CBNH 's managers determine whether the company should develop a toupee division internally, ally with a toupee maker, or acquire a toupee-making firm?

The managers need to determine whether the skills needed to create wigs and toupees are similar and whether CBNH creates better hairpieces than its competitors do.

________ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Vertical integration

Yubaba Inc., a company that manufactures and sells premium perfumes, is pursuing an international strategy. Axe Inc., a supermarket chain, follows a multidomestic strategy. Which of the following statements is most likely true of this scenario?

Yubaba Inc. will sell the same products in both domestic and foreign markets, whereas Axe Inc. will customize its product offerings to suit local requirements.

Golddex 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, Golddex should pursue

backward integration.

Billy is the CEO of Billy's Kicks, a soccer ball retailer. He decides to purchase the synthetic rubber manufacturing firm so he can create his own soccer balls and sell them, nationally, in his retail stores. In order to do this, Billy will need to engage in ________, which is a corporate level strategy.

backward vertical integration

Firms that use taper integration also use ________ when they rely on outside-market firms for some of their supplies.

backward vertical integration

The transnational strategy is similar to a(n) ________ strategy because they both focus on product differentiation and low costs.

blue ocean

Betasoloin 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, Betasoloin is primarily

building new core competencies to protect and extend current market position.

InGen Pharmaceuticals Inc., Desktop Pharma Inc., and WEN 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?

co-opetition

John owns John's Trucking Corporation and is trying to determine if his firm should engage in vertical integration and diversify the range of services his business sells. Before John goes through with these decisions, he'll need to consider what is his

corporate level strategy.

When two neighboring democratic countries that are part of a trading bloc follow different religions and social norms, they most likely have high ________ distance.

cultural

Horizontal integration through mergers and acquisitions can help firms strengthen their competitive positions by increasing

differentiation.

Which of the following best illustrates site specificity?

equipment necessary for mining bauxite and aluminum smelting

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

divest the strategic business unit.

Condax 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 Condax products. In response, Condax 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?

forward vertical integration

Which of the following types of organizations comparatively requires the lowest levels of investment and control?

franchising

Jennifer is the strategic business unit (SBU) CEO in charge of manufacturing stereo speakers for computers and laptops. Her SBU earnings and cash flow are both low and unstable. Which of the following strategies should Jennifer enact if examining her SBU through the Boston Consulting Group (BCG) matrix lens?

harvest and/or divest

A greater cultural distance between two trading countries

increases the liability of foreignness.

Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing.

industry

A firm is said to be pursuing a polycentric innovation strategy when

it draws from multiple, equally important research facilities located throughout the world.

Cyberdyne Systems Corp. manufactures cooking and baking equipment and has its base in the country of Handled. 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, Cyberdyne Systems Corp. incurs huge financial losses in Balalaika. In this scenario, Cyberdyne Systems Corp.'s failure to establish itself successfully in Balalaika occurs most likely because

it underestimated its liability of foreignness when entering the Balalaika market.

Which of the following is a common drawback of a nonequity alliance?

lack of trust between partners

Decisions relating to the range of products and services a firm will offer determine the firm's

level of diversification.

There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?

lowering costs

Many financial service firms, IT firms, and health care companies are among the most active when it comes to________, which occurs when value chain activities are taken care of outside the home country of the firm. Multiple Choice

offshore outsourcing

What causes the winner's curse?

overpaying for an acquisition

Rosa is a senior manager at Veridian Dynamics, a motorcycle manufacturer. Veridian Dynamicshas entered an equity alliance with Parker Industries, a moped manufacturer. "Don't worry, Rosa," her counterpart at Parker Industries 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 Rosa request from Parker Industries?

personnel exchanges to share tacit knowledge

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

product diversification.

The core competency of Newex 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, Newex Motors is

redeploying and recombining existing core competencies to compete in future markets.

Silis 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, Silis' 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?

related-constrained

Plexzap 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 Plexzap pursuing in this scenario?

related-linked strategy

The process of alliance management begins with

selecting the best possible partner.

Under the CAGE distance framework, the administrative and political distance between two countries primarily increases with

the absence of a trading bloc.

Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion?

the desire to gain a new capability

What is horizontal integration?

the process of merging with a competitor at the same stage of the value chain

A drawback of short-term contracting as an alternative to making a component in-house is that

the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

Which of the following factors is the most important determinant of economic distance?

the wealth and per capita income of consumers

Multinational enterprises (MNEs) like Harley-Davidson, Rolex, and Starbucks are said to be following an international strategy because

they offer the same products or services in all their stores throughout the world.

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.

unrelated diversification strategy

Decisions relating to "what stages of the industry value chain to participate in" determine a firm's

vertical integration.

Massive Dynamic 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. Massive Dynamic 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, Massive Dynamic should

vertically integrate.

Firms that consider international expansion will often examine absolute metrics on which countries to pursue investments in but also consider relative distance. To help firms decide where to compete, the ________ was developed to help firms make this decision.

CAGE distance framework

Rantouch is one of the largest tax-preparation firms in the United States. It wants to acquire Doncon , a smaller rival. After the merger, Rantouch will be one of the two largest income-tax preparers in the U.S. market. What should Rantouch include in its acquisition plans?

Rantouch will need to explain to the Federal Trade Commission how the acquisition will not result in an increase in prices for consumers.

Raul is the Chief Operating Officer (COO) of Black Mesa Inc., a firm that produces handcrafted kitchen tables for both the residential and commercial markets. Jose believes that his domestic market is saturated and now wishes to go global. Which of the following below would serve as an advantage for Raul if he chose to pursue international markets?

Raul could gain access to cheaper raw materials in a foreign country, thus lowering the cost of his input factors.

Plexzap 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 Plexzap 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 Plexzap pursue?

Redeploy and recombine existing core competencies to compete in markets of the future.

Which of the following statements is true with regard to international trade between countries?

Wealthy countries engage in relatively more cross-border trade than poorer ones.

Which of the following foreign-entry modes primarily involves producing goods in one country to sell in another?

exporting

Which of the following entry modes was used extensively in Globalization 1.0 stage?

exports