MGMT 493 Exam 2 Ole Miss

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Customer Manipulation

-Fake Shortages: limited quantities and time availability -Price Framing: initial anchor price and false comparison -Negotiation Tactics: stall, ask boss, etc.

price discrimination

-charging separate prices for different customers -examples: 1. auto purchase 2. self-selection: a. airline tickets b. movie tickets c. amusement park lines (front of lines) d. coupons

manipulation and coercion advertising

-does not treat the person as an end, only as a tool -powerful persuasion to put pressure on the consumer

economic, legal, ethical, philanthropic

-economic: need to make a profit -legal: you have to act a certain way under certain conditions -ethical: beyond the law -philanthropic: donate and go beyond the scope of your business out of the goodness of your heart

information disclosure

-helping stakeholder vs. cost -watchdog vs. loss of competitiveness 1. right to know vs. trying to make firm successful 2. EEs right to know vs. firm's ability to succeed 3. cost of informing 4. risks of informing

acceptable modes of whistle blowing

-identification of immoral problem -notification to superior at the firm -if not successfully resolved, go up the firm hierarchy -next step: if still not resolved and you have documented proof and you believe changes will occur by blowing the whistle externally, then you should do it

employee safety

-job safety is similar to consumer safety -OSHA (occupational safety and health admin.) a. establish rules and enforce them -assessing risk importance; characteristics: a. acceptable vs. dreaded b. degree of performance c. quality of life d. source - someone designing something that hurts me is more harmful that something natural e. self vs. others - drunk driving f. relation to status quo - wanting the newest thing g. freedom of exposure - choosing something vs being forced

potentially unethical acts of bidding

-revealing secret bids to obtain higher bids or get a favored supplier -bidding false low price and adding costs later -collusion among competitors (one bids fairly high and the rest bid very high) -targeting one supplier by being too detailed and specific with request

CSR Strategies

1. obstructionist - fight social demands, but meet economic responsibility 2. defensive - do the minimum and nothing above (economic and legal) 3. accommodative - meet economic, legal, and ethical responsibilities 4. proactive - lead social initiatives and meet economic, legal, and ethical duties

governance role of corporate bonds

1. oversee the CEO 2. board committees to help govern: audit committee and compensation committee

possible valid goals for whistleblowing

1. prevent, alleviate, or rectify harm to yourself or others -safety of employers, customers, society, etc. -financial harm 2. maintain loyalty to the firm (vs. loyalty to boss or coworkers) -stop theft (money, equipment, time) -stop unwarranted risk (to brand name, reputation, etc.)

ethical issues for accountants

1. requests to alter statements or use non-GAAP methods -Examples: a. end-of-year expenses b. when to account for sale c. when and how much to write down an obsolete asset d. not adequately checking/auditing other's work e. projecting future liabilities can vary widely 2. accountant/auditor problems a. hired by firm b. does not guarantee the statements

consumer marketing

1. truth-in-lending: accurate and complete info concerning loans/credit -interest rate and variability -late fees -other penalties 2. unit-pricing: cost per ounce, piece, etc. (provides direct comparability) 3. labeling/dating: ingredients in order and date of expiration or sell date

franchising

A contractual relationship developed between two parties in which one party provides operation know-how, resources, brand image, and other capabilities and in return, the other party provides financial resources and local knowledge An alternative to pursuing growth through mergers and acquisitions parties have complementary resources

A company pursuing vertical integration can gain market power over its competitors through all of the following EXCEPT:

A. Improved adjustment to technological changes

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

The lowest level of diversification is the __________ level.

A. Single-business

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

A. Unrelated

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

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.

market commonality

A1 extended into marinades in 2001, and Lawry's has recently tried to enter the steak market as well, meaning the _____________________ between the two is getting higher

Usually, a company is classified as a single-business firm when revenues generated from its core business area are greater than __________ percent.

B. 95

The more links among businesses, the more __________ is the level of 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 of the following best describes the corporate-level strategy of UPS?

B. Dominant Business

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

B. Reducing costs through business restructuring

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 activities. The Publicis Groupe is using a(n) __________ diversification strategy.

B. Related constrained

PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a business that is:

B. Vertically integrated

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.

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

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

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.

The more "constrained" the relatedness of diversification the:

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

rivalry

Coke and Pepsi are one example of a ______________

efficient internal capital market allocation

Corporate office distributes capital to business divisions to create value for overall company. Corporate office gains access to more accurate information about those businesses' actual and prospective performance. They can allocate their resources more efficiently

parent firms

Corporate-level Cooperative Strategies are used specifically between _________________

adverse selection

not all facts made available before contract signed

moral hazard

not meeting the intent of the contract (afterwards) while avoiding consequences -management also responsible to workers -firm also responsible to suppliers, customers, competitors, public

sarbanes-oxely

now requires CEO and CFO to sign off on F/S -ignorance is no excuse -CFO just following orders of CEO is not acceptable

cooperative

one type of management structure used to implement diversification strategies Pushes or motivates their business unit to work together, collaborate, and create synergy Contribution-based High level of information sharing *Operational synergy* Related Diversification Fit

competitive

one type of management structure used to implement diversification strategies Pushes their business unit to compete with each other Performance-based Low level of information sharing *Financial synergy* Unrelated Diversification Fit

ethical issues

other peoples money: -incentive for managers to increase risk -moral hazard - too big to fail a. increase economies of scale at low risk to CEO b. principal/agent problem

competition

provides a choice of products at fair prices 1. monopoly: competition is eliminated 2. collusion: competition is bypassed 3. other potentially immoral competitive activities: a. stealing competitor info b. sabotage or other related crimes c. lying d. bribes

Corporate relatedness

provides resources that are difficult for competitors to understand and imitate Don't overlap, but they can transfer their core competencies

deceptive advertising

providing misleading info that the provider knows to be false -does not treat the person as an end, only as a tool -some also say the provider's failure to clarify for the consumer is unethical

diversification, risk, speed, entry barriers

reasons for mergers & acquisitions: increased market power increased __________________ cost of new product development lower _______ than developing new products increase _________ to market overcoming ______________________ reshaping firm's competitive scope learning and developing new capabilities

small firms

seen as nimble and flexible competitors rely on speed and surprise to defend competitive advantages flexible more likely to launch competitive actions and be quicker in doing so

actor

the firm taking an action or response

downsizing (rightsizing)

to increase efficiency and avoid losses, bankruptcy, etc. -can help to save other's jobs -increases efficiency of the firm and society -severance packages can help soften the transition -easy out

leveraged buyout (LBO)

type of restructuring in which a company borrows money from the external capital market and uses that money to acquire another company purpose: restructuring convenience (if they want to intentionally become a private company to reduce investor pressure) other purpose: corporate raiding

downsizing

type of restructuring in which a company cuts off their employees or shuts down their facility or units cost saving Simple and short-term oriented decision ex: Nokia

downscoping

type of restructuring where a company either 1) sells their poorer business units to other companies (*divestiture*) or 2) makes their business unit become an independent company (*spin-off*) purpose is to refocus on core business units ex: Intell spin-off McAfee

operational synergy

type of synergy that can be achieved through *economies of scope* and *transferring core competencies* uses Related Diversification creates value in 2 ways: operational relatedness and corporate relatedness

financial synergy

type of synergy that can be achieved through *efficient internal capital market allocation* and *business restructuring* uses Unrelated Diversification

collusive synergy

type of synergy that can be achieved through *market power* and blocking competitors through *multipoint competition* uses Related Diversification

user responsibility

using products in a way that wasn't intended; ex: throwing a pencil and it stabbing someone

potentially unethical acts of pricing

usually a fair process -can take advantage of uninformed customers -can take advantage of customers in particular situations -can take advantage of emergency situations

cost minimization management approach

what does this scenario describe? Ex: until the next year, the partner should provide certain resourcing capabilities, if they dont, they have to pay a certain amount and their contract will be broken, really makes a detained contract and tight monitoring management

corporate raiders

what is this scenario describing? Often times companies will use the external capital resources and target undervalued companies, acquire them, turn them around, better their value, then sell it to the other company and make a profit

Explicit collusion

when firms directly negotiate production output and pricing agreements to reduce competition illegal

Tacit collusion

when firms indirectly coordinate their production and pricing decisions by observing other firm's actions and responses legal

reckless negligence

when the manufacturer knows of a defect and does not correct it or inform the public of it

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

A firm uses a corporate-level diversification strategy for a variety of reasons, all of which have to do with ways to create value.

False

A global strategy is an international strategy through which the firm offers standardized products across country markets, with competitive strategy being dictated by offices within the host markets served

False

A major advantage of diversification is that overall monitoring costs are reduced because each separate business comes under the control of corporate headquarters.

False

A multidomestic strategy is an international strategy in which a firm's home office determines the strategies business units are to use in each region.

False

All of Krispy Kreme's revenues come from its one main product, doughnuts. It can be considered a classic example of a firm following a related constrained strategy.

False

Although licensing is the least costly method to enter a foreign market, its disadvantages include high costs of transportation and low control over the marketing and distribution of goods.

False

Because of the lack of protection of intellectual property in some foreign countries, licensing arrangements are one of the best ways for a firm to protect its technology from being appropriated by potential competitors

False

Because there are still several industrial and consumer markets in which only domestic firms compete, many firms do not have to be able to compete internationally.

False

Coca Cola and PepsiCo are examples of firms that have found it unnecessary to aggressively pursue international strategies because of extensive growth opportunities available in the U.S. market.

False

Companies creating financial economies through restructuring typically focus on high-technology businesses primarily because these firms are dependent on human resources.

False

Contract manufacturers who manage their customers' entire product lines and offer services ranging from inventory management to delivery and after-sales services are prime examples of vertical integration.

False

Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value.

False

Establishing a wholly-owned subsidiary provides the quickest access to a new market

False

Even if effectively implemented, the transnational strategy often produces lower performance than does the implementation of either the multidomestic or global strategies.

False

Firms using a low-level diversification strategy typically struggle to use their resources efficiently and are disadvantaged by the inability to gain economies of scale.

False

Having substantial supplies of critical basic natural resources is a necessary condition for a country to support businesses that can successfully compete in international markets

False

If the tax code were to be changed so that individual tax rates for dividends were taxed at a higher rate and long- term capital gains were taxed at a lower rate, shareholders would most likely encourage to limit investments into diversification that would significantly increase share value and, instead, increase dividend rates.

False

Location advantages are influenced by costs of production, access to natural resources and critical supplies, as well as the needs of customers, but not culture.

False

McIlhenny Company has focused on its family's hot sauce products for seven generations. Its recent partnership with other firms in order to put the Tabasco taste in a variety of food products reflects a new strategy of high-level diversification.

False

One advantage of an unrelated diversification strategy in a developed economy is that competitors cannot easily imitate the financial economies, whereas they can easily replicate the value gained through the use of a related diversification strategy.

False

Research suggests that wholly owned subsidiaries and expatriate staff are inappropriate for service industries because those industries require close contact with customers, high levels of professional skills, specialized know- how, and customization.

False

Revenues for United Parcel Service (UPS) are derived 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. The best description of the corporate-level strategy of UPS is unrelated diversification.

False

South Korea's success in international markets is primarily a result of its abundant natural resources

False

Strategic alliances tend to increase the risk associated with international expansion for the U.S. partner because of the greater dependence on the foreign firm

False

Successful diversification is expected to increase variability in the firm's profitability as earnings are generated from different business units.

False

The "liability of foreignness" will have a greater negative impact on a firm using a multidomestic strategy than on a firm using a global strategy.

False

The chief risks in the international environment are political and cultural.

False

The three corporate-level international strategies are cost leadership, differentiation, and focus.

False

The use of poison pills increases the chance that a poorly performing firm will be taken over.

False

When the country risk is high, firms prefer to enter with a greenfield investment rather than a joint venture

False

While there are multiple means of entering new international markets, firms should use one method consistently with all of its various products and across its different markets in order to reduce administrative complexity

False

Without strict governance mechanisms, the majority of executives will act in their own self-interest rather than acting as positive stewards of firm resources.

False

high

If Market commonality & resource similarity are both ________ between two firms, they *will* see each other as rivals

low

If market commonality & resource similarity are both _____ between two firms, they *may not* see each other as rivals

oligopoly

In the A.1. and Lawry's case, there is an _________________ market structure.

A.1.

In the A.1. and Lawry's case, who is the *actor* responding to an attack?

ABC

In the Disney case, the strategic issue was that they failed to create synergy between ______ and their other business units

high

In the Rover case, For suppliers who deal with *specialized components*, they have _______ bargaining power

oligopoly

In the Rover case, the industry structure can be described as an ______________

opportunistically

One Competitive Risk of Cooperative Strategies: Partners may act _______________________, meaning they may not have the core competency but pretend they do, and take advantage of the strategic alliance

acquisition

One firm buys a controlling, or 100% interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio. EX: Disney and ABC, Disney is the parent

A company that chooses a truly global corporate-level strategy assumes that the liability of foreignness will be minimal.

True

A company that tries to balance both operational and corporate relatedness and fails risks incurring diseconomies of scope.

True

A firm based in a country with a national competitive advantage is not guaranteed success as it implements its chosen international business-level strategy. Instead, the actual strategic choices managers make may be the most compelling reasons for success or failure.

True

A major advantage of multidomestic strategies is the ability to customize for the specific market, although this sacrifices economies of scale.

True

A major incentive for the use of international strategy by French-based Carrefour Group is the potential for large demand for goods and services from emerging markets such as China and India.

True

A multidomestic strategy is an international strategy in which strategic and operating decisions are decentralized to the strategic business units in individual or regions

True

A reason that firms use international strategies is to secure needed resources, especially minerals and energy

True

A significant benefit of an internal capital market is that corporate headquarters has access to detailed and accurate information regarding the performance of the company's portfolio and can thus make better capital allocation decisions.

True

A transnational strategy is an international strategy in which the firm seeks to achieve both global efficiency and local responsiveness.

True

A transnational strategy is difficult to use because of its conflicting goals

True

Acquisitions, greenfield ventures, and sometimes joint ventures are appropriate when firms want to establish a strong presence in an international market.

True

After a firm decides to compete internationally, it must select its strategy and choose a mode of entry into international markets.

True

Although leaders in Russia have tried to reassure potential investors about their property rights, political risks in the form of weak laws and commonplace government corruption make firms leery of investing in Russia.

True

An effective corporate strategy creates, across all of a firm's businesses, aggregate returns that exceed what those returns would be without the strategy and contributes to the firm's strategic competitiveness and its ability to earn above-average returns.

True

An increase in the value of the U.S. dollar is an example of an economic risk in that it can reduce the value of U.S. multinational firms' international assets and earnings in other countries

True

An unrelated diversification strategy can create value through two types of financial economies: (1) efficient internal capital allocations and (2) purchasing other firms, restructuring their assets, and selling them.

True

Antitrust regulation, tax laws, and low performance are all value-neutral reasons why firms engage in diversification.

True

As an indication of the importance of economies of scale, Ford Motor Company runs a single global business developing cars and trucks that can be built and sold through the world

True

Both the size and the nature of a country's domestic demand for a particular industry's good or service are important in Porter's determinants of national advantage

True

By choosing a region where markets are more similar, the firm may be able to better understand those markets and cater to their needs, but also achieve economies through sharing of resources.

True

Capricorn, a U.S. manufacturer of cleansers, has acquired a firm in the same industry in Ireland. It plans to move one of its key managers from its plant in St. Louis to Ireland. This can be considered a method of transferring corporate-level core competencies.

True

Companies in emerging markets frequently use the unrelated diversification strategy because of the absence of a "soft infrastructure" in those markets.

True

Compared to diversification that is grounded in intangible resources, diversification based on financial resources only is more visible to competitors and thus more imitable and less likely to create value on a long-term basis.

True

Compared with related constrained firms, related linked firms share fewer resources and assets between their businesses, concentrating instead on transferring knowledge and core competencies between the businesses.

True

Cultural differences affect location advantages in that business transactions are less difficult for a firm to complete when there is a strong match among the cultures with which the firm is involved.

True

Different incentives to diversify sometimes exist, and the quality of a firm's resources may permit only diversification that is value neutral rather than value creating.

True

Disney is an example of a company that was successful because its corporate strategy added value across its set of businesses above what the individual businesses could create individually.

True

Diversification strategies can be used with both value-creating and value-neutral objectives.

True

Economies of scope are cost savings a firm creates by successfully sharing resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses.

True

Evidence suggests that, in general, using an international cost leadership strategy when exporting to developed countries has the most positive effect on firm performance while using an international differentiation strategy with larger scale when exporting to emerging economies leads to the greatest amounts of success.

True

Export, licensing, and the strategic alliance entry modes are also appropriate when firms want to establish a strong presence in an international market.

True

Firms that focus on one or few businesses and markets can earn positive returns because they are able to develop capabilities useful for those markets.

True

Firms that sold off related units in which resource sharing was a possible source of economies of scope have been found to produce lower returns than those that sold off businesses unrelated to the firm's core business.

True

Firms using a related diversification strategy may gain market power when successfully using their related constrained or related linked strategy.

True

Firms using the related constrained diversification strategy share activities in order to create value.

True

Fluctuation in the value of different currencies is a major economic risk associated with international diversification

True

Four types of distances are associated with the liability of foreignness: cultural, administrative, geographic, and economic.

True

GE is an example of a firm that has used internal capital market allocation as a means of creating value even though it competes using a related linked strategy rather than an unrelated diversification strategy.

True

Golden parachutes protect managers from the negative consequences of over diversifying a firm.

True

Google's diversification could lead the firm toward a related linked strategy and give the firm advantages in multipoint competition with competitors such as Facebook and Microsoft.

True

If the businesses in the corporate portfolio are not worth more under the management of the corporation than they would be under any other ownership, then the corporate-level strategy has failed.

True

In a money-making effort, a small private university has decided to institute consulting services using its business faculty as consultants whose services would be sold to clients. This university is attempting to use its faculty to gain economies of scope.

True

In an internal capital market, capital allocation can be adjusted according to more specific criteria than is possible with external market allocation of capital.

True

In large diversified firms, corporate headquarters distributes capital to its businesses to create value for the overall corporation.

True

In place of relatively stable and predictable domestic markets, firms across the globe find that they are competing in relatively unstable and unpredictable global markets.

True

In some industries, technology drives globalization because the economies of scale necessary to reduce costs cannot be met by competing in domestic markets alone

True

In spite of the challenges associated with it, a number of corporations continue to use the unrelated diversification strategy, especially in emerging markets.

True

International associations such as the European Union, the Organization of American States, and the North American Free Trade Association encourage regionalization of competition rather than globalization.

True

International diversification can help to reduce a firm's overall risk through the stabilization of returns

True

International diversification is a strategy through which a firm expands the sale of its goods and services across borders of global regions and countries into a potentially large number of geographic locations of markets. Instead of entering one or a few markets, international diversification means that the firm enters multiple markets.

True

It can be difficult for investors to identify the value created by a firm as it shares activities and transfers core competencies.

True

Italy has become the leader in the shoe industry because of related and supporting industries such as a well- established leather-processing industry that provides the leather needed to construct shoes and related products.

True

Knowing that their firms could be acquired if they are not managed successfully encourages executives to use value- creating diversification strategies.

True

Many manufacturing firms are reducing vertical integration and moving to independent supplier networks.

True

Market power exists when a firm is able to sell its products above the existing competitive level or reduce the costs of its primary and support activities below the competitive level, or both.

True

Market power is gained as the firm develops the ability to save on its operations, avoid sourcing and market costs, improve product quality, possibly protect its technology from imitation by rivals, and potentially exploit underlying capabilities in the marketplace.

True

Michael Porter's Determinants of National Advantage describe factors associated with the firm's domestic environment that contribute to its dominance in a particular global industry

True

Multinational firms have many opportunities to learn from their experiences in international markets, but they must have a strong R&D system to absorb the knowledge

True

One reason why firms pursue international opportunities is to extend the product's life cycle

True

The "liability of foreignness" means that many firms need to focus more on local adaptation or risk problems such as the Walt Disney Company faced opening its theme park in France

True

The "regionalization" environmental trend means that firms can focus on a region (customization) but also have some standardization or sharing within the region.

True

The amount of diversification in a firm's international operations that can be managed varies from company to company and is affected by manager's abilities to deal with ambiguity and complexity.

True

The global strategy offers greater opportunities to take innovations developed at the corporate level or in one market and apply them to other markets.

True

The greenfield venture option is useful when control of proprietary technology is important in an international expansion.

True

The growing number of global competitors heightens the requirements to keep costs down and there is the desire for more specialized products to meet customer needs. These two pressures make transnational strategies increasingly necessary.

True

The high cost of transportation, expense of tariffs, and loss of control are three disadvantages of exporting

True

Two ways that external parties can try to make changes to a firm are by forcing the firm into bankruptcy or changing the top management team.

True

United Technologies Corporation, Textron, and Samsung are examples of diversified firms that have no relationships between their businesses. These firms all use the strategy of unrelated diversification.

True

Vertical integration exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration).

True

When a firm initially pursues an international business-level strategy, the resources and capabilities established in the home country frequently allow the firm to pursue the strategy into markets located in other countries.

True

quality

___________ exists when the firm's goods or services meet or exceed customers' expectations

core competencies

_________________ of A.1. brand equity (long history, consumer loyalty, high price) strong distribution channels (in 90% of steakhouses)

restructuring

____________________ creates financial economies

related constrained

_________________________ Diversification relatively outperforms Single Dominant and Unrelated business strategies

. Antitrust regulation, tax laws, and low performance are all value-neutral reasons why firms engage in diversification. (A) True (B) False

22. Research suggests that government ownership of emerging economy firms leads to overpayment in cross-border acquisitions and that overpayment reduces value for minority shareholders (nongovernment shareholders). (A) True (B) False

38. Fast-cycle markets are characterized by "generational products," which start out with a substantial technological advance in the performance of a product category followed by incremental technological advances as new generations of products are introduced. (A) True (B) False

7. Market commonality is concerned with the number of markets with which the firm and a competitor are jointly involved and the degree of importance of the individual markets to each. (A) True (B) False

A cooperative strategy is a means by which firms work together to achieve a shared objective. (A) True (B) False

A firm can predict that a competitor whose products suffer from poor quality is likely to be less aggressive in its competitive actions until those quality problems are corrected. (A) True (B) False

A firm creates a competitive advantage when it develops and manages corporate-level cooperative strategies in a way that is valuable, rare, imperfectly imitable, and nonsubstitutable. (A) True (B) False

A firm is likely to respond to an attack by a competitor in all of the following situations EXCEPT when: (A) the attack is by a price predator. (B) the attack makes the firm's market position less defensible. (C) the attack damages the firm's ability to use its capabilities. (D) the attack improves the competitor's market position.

A horizontal acquisition involves two firms in the same industry. (A) True (B) False

A major problem with buying other companies in order to gain access to their product lines is that the acquiring firm may lose its own ability to innovate. (A) True (B) False

A manager in your company is proposing the acquisition of Taylor Company, which has developed a new, innovative product instead of a strategy of developing new products in-house. All of the following arguments are correct EXCEPT: (A) the acquisition of Taylor should be primarily for defensive rather than strategic reasons. (B) research suggests that acquisition strategies are a common means of avoiding risky internal ventures. (C) the outcomes of acquisitions can be estimated more easily and accurately than the outcomes for an internal product development process. (D) acquisitions could become a substitute for innovation within your firm.

A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and vineyard growing rare strains of fruit. This is a(n) ____ strategy. (A) vertical complementary (B) horizontal complementary (C) uncertainty reduction (D) network

A merger is a strategy through which two firms agree to integrate their operations on a relatively coequal basis. (A) True (B) False

A significant benefit of an internal capital market is limiting competitors' access to information about the performance of the individual businesses within the corporation. (A) True (B) False

A strategic alliance in which the partners own different percentages of the new company they have formed is called a(n): (A) equity strategic alliance. (B) joint venture. (C) nonequity strategic alliance. (D) cooperative arrangement.

A strategy's success is determined not only by the firm's initial competitive actions but also by how well it anticipates competitors' responses to them and by how well the firm anticipates and responds to its competitors initial actions. (A) True (B) False

Acquisitions can become a substitute for innovation in some firms and trigger future rounds of acquisitions. (A) True (B) False

After a leveraged buyout, ____ typically occur(s). (A) selling of assets (B) further rounds of acquisitions (C) due diligence (D) private synergy

All of the following are business-level cooperative strategic alliances EXCEPT: (A) synergistic strategic alliances. (B) uncertainty reduction strategic alliances. (C) complementary strategic alliances. (D) competition response strategic alliances.

An acquisition occurs when one firm buys a controlling or 100 percent interest in another firm and the acquired firm becomes a subsidiary business. (A) True (B) False

An alliance can be used to test whether the partners would benefit from a future merger. (A) True (B) False

An effective corporate strategy creates aggregate returns across all businesses that exceed what those returns would be without the strategy and contributes to the firm's strategic competitiveness and ability to earn above-average returns. (A) True (B) False

An organization with high profitability, such as Walmart, will be able to develop high organizational slack. (A) True (B) False

An unrelated diversification strategy can create value through two types of financial economies: (1) efficient internal capital allocations, and (2) purchasing other firms, restructuring their assets, and selling them. (A) True (B) False

Awareness tends to be greatest when firms have highly similar resources and compete in multiple markets. (A) True (B) False

Carl has just graduated with a management degree. He has a good understanding of his personal strengths and weaknesses and knows he would fit best in a stable organizational environment. In his job search, Carl should target firms in slow-cycle markets. (A) True (B) False

Coca Cola and PepsiCo compete across a number of products (e.g., soft drinks, bottled water) and geographic markets (U.S. and foreign markets) indicating that both companies have market commonality. (A) True (B) False

Collusion is a form of cooperative strategy. (A) True (B) False

Companies in emerging markets frequently use the unrelated diversification strategy because of the absence of a "soft infrastructure" in those markets. (A) True (B) False

Competitive rivalry has the most effect on a firm's ____ strategies than the firm's other strategies. (A) business-level (B) corporate-level (C) acquisition (D) international

Competitive rivalry is the set of competitive actions and responses that occur among firms as they maneuver for an advantageous market position. (A) True (B) False

Disney is an example of a firm in a slow-cycle market because its animated characters are shielded from imitation by copyrights and trademarks. (A) True (B) False

Diversification strategies can be used with both value-creating and value-neutral objectives. (A) True (B) False

Downscoping makes management of the firm more effective because it allows the top management team to better understand the remaining businesses. (A) True (B) False

Downsizing may be necessary because acquisitions often create a situation in which the newly formed firm has duplicate organizational functions such as sales, manufacturing, distribution, human resources, and management. (A) True (B) False

Dynamic alliance networks work best in industries: (A) characterized by frequent product innovations and short product life cycles. (B) that are mature and stable in nature. (C) where the coordination of product and global diversity is critical. (D) that are characterized by predictable market cycles and demand.

Economies of scope are cost savings resulting from a firm successfully leveraging, either through sharing or transferring, some of its capabilities and competencies developed in one business to another business. (A) True (B) False

Equator, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to move one of its key managers from its plant in St. Louis to Ireland. This can be considered a method of transferring corporate-level core competencies. (A) True (B) False

Failing to ____________ appropriately will result in too many employees doing the same work and prevent the new firm from realizing the cost synergies it anticipated. (A) downsize (B) spin-off (C) downscope (D) buyout

Financial economies are cost savings realized through improved allocations of financial resources based on investments inside or outside the firm. (A) True (B) False

Firms are more likely to enter a market through acquisition when high product loyalty is present in the industry. (A) True (B) False

Firms consider entering international alliances because multinational firms outperform firms operating only in their home markets. (A) True (B) False

Firms in slow-cycle markets can use alliances to enter restricted markets or to establish franchises in new markets. (A) True (B) False

Firms in standard-cycle markets seek to gain economies of scale through cooperative alliances. (A) True (B) False

Firms operating in the same market, offering similar products and targeting similar customers are competitors. (A) True (B) False

Firms that are typically late movers usually have little organizational slack. (A) True (B) False

Firms using a related diversification strategy may gain market power when successfully using their related constrained or related linked strategy. (A) True (B) False

Firms using the related constrained strategy share activities in order to create value. (A) True (B) False

Firms with high market commonality and highly similar resources are direct and mutually acknowledged competitors. (A) True (B) False

Franchising is an alternative to pursuing growth through mergers and acquisitions. (A) True (B) False

Goods or services in standard-cycle markets reflect: (A) organizations that serve a mass market. (B) numerous first mover advantages. (C) an inability to sustain a competitive advantage except for brief periods of time. (D) competitive advantages that are shielded from imitatio

Google's diversification could lead the firm toward a related linked strategy and give the firm advantages in multipoint competition with competitors such as Facebook and Microsoft. (A) True (B) False

High levels of trust allow less formal contracts to govern the relationship between alliance partners and increases the likelihood of alliance success. (A) True (B) False

Horizontal, vertical, and related acquisitions to build market power: (A) are likely to undergo regulatory review and analysis by financial markets. (B) are rarely permitted to occur across international borders. (C) typically involve a firm purchasing one of its suppliers or distributors. (D) concentrate on capturing value at more than one stage in the value chain.

If a large Asian cosmetics firm was to engage in a 50-50 partnership with a large American chemical company to form a new company focused on creating advanced skin care products, this would be considered a joint venture. (A) True (B) False

If the businesses in the corporate portfolio are not worth more under the management of the corporation than they would be under any other ownership, then the corporate-level strategy has failed. (A) True (B) False

In a cross-border alliance, the local partner is often a useful source of information about: (A) sources of capital. (B) the strengths of the foreign firm's technology. (C) market synergies. (D) long-term planning.

In a diversified firm, capital allocation can be adjusted according to more specific criteria than is possible with external market allocation of capital. (A) True (B) False

In general, strategic actions elicit fewer competitive responses than do tactical actions. (A) True (B) False

In spite of the challenges associated with it, a number of firms continue to use the unrelated diversification strategy, especially in Europe and in emerging markets. (A) True (B) False

In the Chapter 9 Mini Case, the cooperation between Fiat and Chrysler to produce a Fiat- designed car in Chrysler's Illinois factory is a(n) _________ alliance because it allows the firms to share resources and capabilities across multiple functions. (A) synergistic (B) opportunistic (C) horizontal (D) diversifying

Internal product development is often viewed as: (A) carrying a high risk of failure. (B) the only reliable method of generating new products for the firm. (C) a quicker method of product launch than acquisition of another firm. (D) critical to the success of biotech and pharmaceutical firms.

It can be difficult for investors to actually observe the value created by a firm as it shares activities and transfers core competencies. (A) True (B) False

It is more likely that locally owned, one-location cafes in a small town will respond more rapidly to tactical actions by each other than they will to strategic actions by the Burger King franchise that has recently moved to their town. (A) True (B) False

Junk bonds are a financing option through which risky acquisitions are financed with debt that provides a large potential return to bondholders. (A) True (B) False

Large firms with significant slack resources (i.e., are able to launch a greater number of competitive actions) but who remain flexible and act like small firms (i.e., are able to launch a variety of actions) will be more successful against rivals. (A) True (B) False

Late movers are those firms that: (A) respond to a competitive action a significant amount of time after the first mover's action and the second mover's response. (B) respond to a first mover's competitive action often through imitation or a move designed to counter the effects of the action. (C) take an initial competitive action (either strategic or tactical). (D) typically achieve higher-than-average returns because they can imitate the most efficient actor

Legitimately, a firm may pursue an international strategic alliance for all of the following reasons EXCEPT: (A) to enhance the compensation packages of top managers. (B) to leverage core competencies in new markets. (C) to operate within government restrictions in the local country. (D) to escape limited domestic growth opportunities.

Low firm performance is associated with increased diversification. (A) True (B) False

Many manufacturing firms are reducing vertical integration and moving to independent supplier networks. (A) True (B) False

Market power exists when a firm is able to sell its products above the existing competitive level or decrease the costs of its primary and support activities below the competitive level, or both. (A) True (B) False

Mighty Mike's, a manufacturer of power tools for the home hobbyist, has seen its main competitor, MyTools, introduce a line of power tools that are smaller sized, lighter weight, and suitable for women and older hobbyists who have weaker hands than the typical male workshop hobbyist. Mighty Mike is waiting to see whether MyTools' new line is a success. Mighty Mike could be classified as a second mover. (A) True (B) False

Moon-in-June, a designer and manufacturer of wedding dresses, has decided to purchase a retail chain specializing in bridal wear. This purchase will be useful in gaining more market power for Moon-in-June. (A) True (B) False

Most acquisitions that are designed to achieve greater market power entail buying a competitor, a supplier, a distributor, or a business in a highly related industry. (A) True (B) False

Network cooperative strategies among Silicon Valley firms have been successful, in part, because they are geographically close together. (A) True (B) False

Of the four business-level cooperative strategies, the competition-reducing strategy has the lowest probability of creating a sustainable advantage. (A) True (B) False

Offshore Oil Exploration Partners (OOEP) has entered into a cooperative strategy with Malay Petroleum. The resulting documents are long, formal, and detailed. They specify detailed responsibilities of each partner and include methods of monitoring accounting and technical procedures. OOEP and Malay Petroleum are using the ____ management approach. (A) cost minimization (B) trust but verify (C) opportunity maximization (D) pragmatic realism

One area in which joint ventures are effective is the transfer of tacit knowledge as illustrated in the Chevron/China National Petroleum joint venture. (A) True (B) False

One of the most effective ways to test the feasibility of a future merger or acquisition is for the firms to first engage in a strategic alliance. (A) True (B) False

One of the potential problems associated with acquisitions is that the additional costs required to manage the larger firm will exceed the benefits of economies of scale and additional market power. (A) True (B) False

Only about 50 percent of cooperative strategies succeed. (A) True (B) False

Patent laws and regulatory requirements such as required FDA (Food and Drug Administration) approval to launch new products shield pharmaceutical companies' positions in this slow-cycle market. (A) True (B) False

Private synergies are unique to the acquired and acquiring firms and could not be developed by combining either firm's assets with another company. (A) True (B) False

Procter & Gamble (P&G) has a paper towel and baby diaper business that both use paper products. This is an example of value created through the sharing of activities. (A) True (B) False

Quality is: (A) meeting or exceeding customer expectations in the goods and/or services offered. (B) only a major factor in the production of luxury goods, such as BMW cars. (C) an assured way to gain competitive advantage. (D) a viable trade-off with product cost in gaining a competitive advantage.

Reduction of competition can be accomplished through all of the following EXCEPT: (A) predatory alliances. (B) explicit collusion. (C) tacit collusion. (D) mutual forbearance.

Research has shown that maintaining a low or moderate level of firm debt is critical to the success of an acquisition, even when substantial leverage was used to finance the acquisition itself. (A) True (B) False

Research has shown that the more ____, the greater is the probability that an acquisition will be successful. (A) related the acquired and acquiring firms are (B) diverse the resulting portfolio of competencies (C) disparate the corporate cultures (D) involved investment banking firms are in the due diligence process

Research in the airline industry suggests that tacit collusion reduces service quality and on-time performance. (A) True (B) False

Research shows that about ____ percent of mergers and acquisitions are successful. (A) 20 (B) 40 (C) 60 (D) 80

Research shows that in times of high or increasing stock prices, due diligence is relaxed and firms often overpay for acquisitions and the long-run performance of the newly formed form suffers. (A) True (B) False

Research suggests that a firm with greater multimarket contact is less likely to initiate an attack, but more likely to respond aggressively when attacked. (A) True (B) False

Research suggests that emerging economy firms pay a higher premium than other firms when making cross-border acquisitions. (A) True (B) False

Research suggests that horizontal acquisitions result in higher performance when the firms have similar strategies, assets, and capabilities. (A) True (B) False

Researchers have found that 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.

Restructuring refers to changes in the composition of a firm's set of businesses or its financial structure. (A) True (B) False

Restructuring strategies are commonly used to correct or deal with the results of ineffective mergers and acquisitions. (A) True (B) False

Sales of watches among teenagers and twenty-somethings are declining rapidly as this age group uses cellphones, iPods, and other devices to tell time. A company that specializes in selling inexpensive watches to this age group may wish to consider ____ in order to develop new products other than watches. (A) unrelated diversification (B) backward integration (C) forward integration (D) horizontal acquisitions

Some cooperative strategies fail when it is discovered that a firm has misrepresented the competencies it can bring to the partnership. (A) True (B) False

Strategic alliances are cooperative strategies between firms that combine their resources and capabilities to create a competitive advantage. (A) True (B) False

Strategic alliances have become the cornerstone of many firms' competitive strategy, particularly large global competitors. (A) True (B) False

Sustained competitive advantage is most achievable in a ____ market. (A) slow-cycle (B) medium-cycle (C) standard-cycle (D) fast-cycle

Synergy is created by the efficiencies derived from economies of scale and economies of scope and by sharing resources across the businesses in the merged firm. (A) True (B) False

Tacit collusion is not explicitly illegal in the United States even though it results in higher prices for consumers. (A) True (B) False

The "conglomerate discount" occurs in large, highly diversified businesses and results from analysts not knowing how to value the vast array of large businesses with complex financial reports. (A) True (B) False

The Microsoft/Nokia alliance that had hundreds of pages to specify each partner's responsibilities would be closest to the _______ approach to managing cooperative ventures. In contrast, the Renault/Nissan alliance (Chapter 9 Mini Case) was based on trust, respect, and transparency and is an example of the ________ approach to managing cooperative ventures. (A) cost minimization; opportunity maximization (B) opportunity maximization; cost minimization (C) cost maximization; opportunity minimization (D) bureaucratic; organic

The Renault Nissan approach to managing its collaboration involves less reliance on contracts and more reliance on trust, respect, and transparency (i.e., the opportunity-maximization approach to managing cooperative strategies). (A) True (B) False

The acquisition of Sun Microsystems (a computer hardware producer) by Oracle Corporation (a software firm) is an example of a(n): (A) vertical acquisition. (B) unrelated acquisition. (C) horizontal acquisition. (D) merger of equals.

The advantages of alliances designed to respond to competition and to reduce uncertainty are more temporary than those developed through complementary alliances, such as vertical and horizontal strategic alliances. (A) True (B) False

The alliance between BP Plc and OAO Rosneft to extract oil from Russia's Arctic Ocean was managed using contracts, i.e., the cost minimization approach. (A) True (B) False

The chief disadvantage of being a first mover is the: (A) high degree of risk. (B) high level of competition in the new marketplace. (C) inability to earn above-average returns unless the production process is very efficient. (D) difficulty of obtaining new customers.

The competitive actions and responses in __________ markets are designed to seek large market shares, to gain customer loyalty through brand names, and to carefully control the firm's operations in order to consistently provide the same positive experience for customers. (A) standard-cycle (B) fast-cycle (C) slow-cycle (D) intermediate-cycle

The cost minimization approach of managing alliances is more expensive to put into place and to use than is the opportunity maximization management approach. (A) True (B) False

The factors that lead to poor long-term performance by acquisitions include all of the following EXCEPT firms: (A) with insufficient diversification. (B) having too much debt. (C) being unable to achieve synergy. (D) growing too large.

The quickest and easiest way for a firm to diversify its portfolio of businesses is to make acquisitions. (A) True (B) False

The satellite dish at Faye's weekend home has malfunctioned. When she calls to have the dish repaired, the service representative tells her that the dish is obsolete and that parts for it are no longer made. Faye must replace the old dish with a new dish. This is an example of lack of firm loyalty to a product in a fast-cycle market. (A) True (B) False

The three main luxury hotels in a major tourist destination keep very close track of their competitors' room pricing, restaurant offerings, tour packages, and special services, such as airport transportation and spa privileges. When one hotel makes adjustments in prices or offerings, the other hotels follow suit. It is possible that these hotels are: (A) engaging in tacit collusion. (B) following uncertainty reducing strategies. (C) monitoring business competitors for opportunistic behaviors. (D) following a competitive response strategy.

The two basic approaches to successfully manage cooperative strategic alliances involve ____ and ____. (A) cost minimization; opportunity maximization (B) monitoring systems; multiple management approaches (C) contractual systems; financial systems (D) equity approaches; nonequity approaches

The two types of complementary strategic alliances are: (A) vertical and horizontal. (B) macro and micro. (C) outsourcing and insourcing. (D) network and complementary.

Thomas is an upper-middle level manager for a firm that has been actively involved in acquisitions over the last 10 years. The firm has grown much larger as a result. Thomas has been dismayed to find that recently the managerial culture of the firm has been turning more and more to ____ controls. (A) bureaucratic (B) strategic (C) tactical (D) organic

To be a first mover, the firm must have readily available resources to invest in R&D as well as to rapidly and successfully produce and market a stream of innovative products. (A) True (B) False

Top manager participation in and overseeing the activities required for making acquisitions can divert managerial attention from other matters that are necessary for long-term competitive success. (A) True (B) False

Traditionally, leveraged buyouts were used as a restructuring strategy to correct managerial mistakes or because the firm's managers were making decisions that primarily served their own interests rather than those of the shareholders. (A) True (B) False

Transaction costs resulting from an acquisition refer to the direct and indirect costs resulting from the use of acquisition strategies to create synergies. (A) True (B) False

Two firms, such as Fed Ex and UPS that have similar resources and common markets would be direct and mutually acknowledged competitors. (A) True (B) False

Typical returns on acquisitions for acquiring firms are close to zero. (A) True (B) False

Typically, in a failed acquisition, the organization will: (A) restructure. (B) go into bankruptcy. (C) focus on building private synergy. (D) increase integration.

United Technologies, Textron, Samsung, and Hutchison Whampoa Limited are examples of diversified firms that have no relationships between their businesses. These firms all use the strategy of unrelated diversification. (A) True (B) False

Vertical integration allows the firm to gain market power as the firm develops the ability to save on its operations, avoid market costs, improve product quality, and possibly protect its technology from rivals. (A) True (B) False

Vertical integration exists when a company produces its own inputs (forward integration) or owns its source of output distribution (backward integration). (A) True (B) False

When a firm becomes highly diversified through acquisitions, managers often focus on financial controls rather than strategic controls. (A) True (B) False

When a firm is in the early stages of geographic diversification, cross-border alliances may be a good learning step before other forms of international expansion. (A) True (B) False

When firms share activities across units, they are often able to achieve increased value. (A) True (B) False

When implementing a restructuring strategy, a company would do best by focusing on mature, low-technology businesses rather than high-technology or service businesses. (A) True (B) False

When the actual results of an acquisition strategy fall short of the projected results, firms consider using restructuring strategies. (A) True (B) False

Which of the following is NOT one of the three main restructuring strategies? (A) Realigning (B) Downsizing (C) Downscoping (D) Leveraged buyouts

Which of the following is TRUE of Walmart? (A) Walmart has an unusual amount of flexibility for a large firm. (B) Walmart's success is largely due to the fact it has little market commonality with other industry firms. (C) Decision-making responsibility is centered at its Arkansas headquarters, which allows the firm to respond quickly to competitive attacks. (D) Walmart's advantage lies in its ability to "think big."

Which pair of firms has the LEAST resource similarity? (A) Small, family-owned Italian restaurant; Olive Garden (B) Target; Walmart (C) HP; Dell (D) FedEx; UPS

Without effective due diligence the: (A) acquiring firm is likely to overpay for an acquisition. (B) firm may miss its opportunity to buy a well-matched company. (C) acquisition may deteriorate into a hostile takeover, reducing the value creating potential of the action. (D) firm may be unable to act quickly and decisively in purchasing the target firm.

____ and ____ describe the situation in which organizations are direct competitors and are fully aware of the competition. (A) High market commonality; high resource similarity (B) High market commonality; low resource similarity (C) Low market commonality; high resource similarity (D) Low market commonality; low resource similarity

____ relates to the gains or losses a firm will experience if it attacks a rival or responds to an attack by a rival. (A) Motivation (B) Awareness (C) Responsiveness (D) Ability

importance of stakeholders vs shareholders

a common viewpoint currently is that managers' responsibility are to obtain the best long-run performance for the firm while fulfilling the obligations to stakeholders -shareholders have been the most important but that is decreasing -ownership is definitely an important right but so is an employee's stake in the firm -the community where the firm is located also has interest in the firm

diversifying strategic alliance

a corporate-level cooperative strategy in which: companies try to find good partners to diversify into different markets or industries with Allows a firm to expand into new product or market areas without completing a merger or an acquisition Tries to create synergy, but with less risk and greater levels of flexibility than merger and acquisition

synergistic strategic alliance

a corporate-level cooperative strategy in which: joint economies of scope is created between two or more firms Creates synergy across multiple functions or multiple businesses between partner firms When a company or partners have some redundancy in operations or value chain activities, they can reduce it and improve operational efficiency, will create synergy

Forward integration

a firm operates its own distribution system for delivering its outputs. EX: Amazon prime air, expanded business into distribution

Backward integration

a firm produces its own inputs EX: Starbucks acquired coffee bean farms, coffee beans are important input for Starbucks

vertical complementary strategic alliance

a type of alliance created between two firms in *different stages of the value chain* where the alliance creates value for both firms. Ex: Company A has core competencies in Distribution Channel, Company B has core competencies in Supply Chain, therefore they have complementary resources

horizontal complementary strategic alliance

a type of alliance created between two firms who are in the *same stage of the value chain* (competitors), which requires a great deal of *trust* Ex: Company A has core competencies in design, Company B has core competencies in efficient operation, so even though they are competitors they try to learn from each other

competition reducing alliances

a type of alliance created to avoid destructive or excessive competition

Related Linked

a type of diversification strategy in which: Less than 70% of revenue comes from the *dominant business* *limited links* between businesses A-B-C

Unrelated Diversification

a type of diversification strategy in which: Less than 70% of revenue comes from the dominant business no common links between businesses ex: GE, GE Bank, GE Aviation A B C

Related Constrained

a type of diversification strategy in which: Less than 70%* of revenue comes from a *single business* *all business units are linked* through product, technological and distribution operations, which *limits their autonomy* A-B-C-A

Dominant Business

a type of diversification strategy in which: between 70% and 95% of revenue comes from a single business small amount of revenue coming from a side business ex: Wrigley's revenue mostly comes from gum products, but a small amount comes from candy products A-b

Single Business

a type of diversification strategy in which: more than 95% of revenue comes from a single business ex: Company literally just operates in one market or product A

equity strategic alliance

a type of strategic alliance in which: Two or more firms *share equity stakes in each other* % of equity exchange depends on agreement

joint venture

a type of strategic alliance in which: Two or more firms create a *legally independent company* by sharing some of their resources and capabilities. ex: Hulu founded by 3 companies who created it together

non-equity strategic alliance

a type of strategic alliance in which: Two or more firms develop a contractual relationship to share some of their unique resources and capabilities. They don't make a legally independent company, they dont exchange equity stake, they simply just create a contract, or some sort of licensing ex: Spotify Uber partnership

In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?

a. Economies of scope

Progressive Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare, and only two brick plants in the United States make this type of brick. Progressive Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick. Which of the following statements is true?

a. Progressive Steel has less flexibility now than if it were not vertically integrated.

Equator, 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. Which of the following is the major threat to Equator's plan to transfer competencies from itself to the Irish firm?

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

Which of the following makes high-technology firms and service-based firms risky as restructuring candidates?

a. They are dependent on human resources.

Dragonfly, publisher 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 because Dragonfly produces children's literature, whereas White Rabbit focuses on child-level nonfiction scientific and nature topics. Which of the following statements is probably true about this acquisition?

a. This is a horizontal acquisition.

Advanced Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare, and only two brick plants in the United States make this type of brick. Advanced Steel has decided to buy one of these brick plants. This is an example of:

a. backward integration.

The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be:

a. discounted by investors.

Successful unrelated diversification through restructuring is typically accomplished by:

a. focusing on mature, low-technology businesses.

When a firm simultaneously practices operational relatedness and corporate relatedness:

a. it is difficult for investors to identify the value created by the firm.

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 make frames for academy art works, and 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.

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 __________ diversification strategy to create __________.

a. related constrained; operational relatedness

An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops:

a. through reduced disclosure to outside parties.

notifying the wrongdoer

advantages: -moral -gives them one last chance to fix it -maintain relationships and limit damage to yourself and others disadvantages: -time for them to prevent you from whistle blowing -time for them to hide the problem -more damage can be done with a delay -may increase your risk/damage

cost minimization management approach

an approach that prioritizes *Detailed contracts and management* formal contracts between partners specific way strategy is monitored specific way partner behavior is controlled Set goals that minimize costs and to prevent opportunistic behavior by partners

opportunity maximization approach

an approach that prioritizes *Developing trusting relationships* Maintains less formal contracts and fewer constraints Maximize partnership's value-creation opportunities Learn from each other Explore additional marketplace possibilities Goal is for them to build trust as time goes by

hostile takeovers

an unwanted purchase of a company -Advantages: a. efficiency forced on the firm b. clears out deadwood or immoral execs c. may lead to synergy -Disadvantages: a. efficiencies are sought by layoffs and plant closings b. efficiencies usually are far less than predicted c. new owners may not understand the business/industry and ruin the firm

market commonality

aspect of competitor analysis Number of markets with which a firm and a competitor are jointly involved Degree of importance of the individual markets to each competitor ex: Airline companies routing maps have a low _______________________

resource similarity

aspect of competitor analysis similar types and amounts of resources, strategies, and capabilities

22. Mutual forbearance is a form of explicit collusion between firms in which competitors avoid attacking rivals they meet in multiple markets. (A) True (B) False

4. "Competitive dynamics" indicates that firms and their strategic actions are independent. (A) True (B) False

A ____________ is a strategy in which firms share some of their resources and capabilities to create economies of scope and is similar to the business-level horizontal complementary alliance. (A) joint venture (B) synergistic strategic alliance (C) diversifying strategic alliance (D) dynamic alliance network

A businessperson in Atlanta who wishes to develop a luxury pet kennel approaches the owner of the highly successful Pet Resort and Day Spa in Houston to see if the owner is interesting in franchising the Pet Resort brand. The Atlanta businessperson's goal is to: (A) get venture capital from Pet Resort. (B) gain access to Pet Resort's tacit knowledge. (C) collude with Pet Resort to diminish competition in the kennel industry in Atlanta. (D) join in a vertical complementary alliance with Pet Resort.

A cooperative agreement between a hotel chain and a casino operator would be viewed as a horizontal complementary strategic alliance because as separate entities, the two firms would compete for the same customer. (A) True (B) False

A cooperative strategy: (A) is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. (B) is a strategy in which firms work together to achieve a shared objective. (C) is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. (D) specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets.

A firm uses a corporate-level diversification strategy for a variety of reasons, all of which have to do with ways to create value. (A) True (B) False

A firm with a reputation as a price predator (an actor that frequently reduces prices to gain or maintain market share) generates few responses to its pricing tactical actions. (A) True (B) False

A major advantage of diversification is that overall monitoring costs are reduced because each separate business comes under the control of corporate headquarters. (A) True (B) False

A major risk of a network cooperative strategy is that firms gain access to their partner's partners thus exposing their proprietary processes to loss or theft. (A) True (B) False

A merger is defined as a strategy in which one firm purchases controlling interest in another firm. (A) True (B) False

A network strategy involves a series of horizontal acquisitions by firms that are committed to dominating a particular industry. (A) True (B) False

A nonequity strategic alliance exists when: (A) two firms join together to create a new company. (B) two or more firms have a contractual relationship to share resources and capabilities. (C) two partners in an alliance own unequal shares in the combined entity. (D) the partners agree to sell bonds instead of stock in order to finance a new venture

A primary reason for a firm to pursue an acquisition is to: (A) avoid increased government regulation. (B) achieve greater market power. (C) exit a hyper-competitive market. (D) achieve greater financial returns in the short run.

A second mover: (A) is typically ineffective in its response to the first mover. (B) attempts to provide a product with greater customer value than the first mover's product. (C) usually incurs higher expenses than the first mover since it must engage in reverse engineering. (D) typically has a higher survival rate than first movers which typically take greater risks.

A stable alliance network is used in industries characterized by frequent product innovations and short product life cycles. (A) True (B) False

A state-wide alliance of independent hospitals has formed in order to do group purchasing of medical supplies. Group purchasing allows the hospital alliance to negotiate lower prices with suppliers because of the large quantity of materials ordered. This is an example of the advantage of ____ resulting from an alliance. (A) explicit collusion (B) economies of scale (C) opportunistic behavior (D) distribution opportunities

A tactical competitive action involves a significant commitment of specific and distinctive organizational resources. (A) True (B) False

A(n) ____ occurs when one firm buys a controlling, or 100 percent interest, in another firm. (A) merger (B) acquisition (C) spin-off (D) restructuring

According to the Chapter 9 Mini Case, in addition to their corporate-level alliance, Renault and Nissan have each formed vertical complementary strategic alliances with other companies. (A) True (B) False

Acquisitions are the most common cooperative strategy used in standard-cycle markets. (A) True (B) False

All competitive advantages do not accrue to large-sized firms. A major advantage of smaller firms is that they: (A) are more likely to have organizational slack. (B) can launch competitive actions more quickly. (C) have more loyal and diverse workforces. (D) can wait for larger firms to make mistakes in introducing innovative products.

All of Krispy Kreme's revenues come from its one main product, doughnuts. It can be considered a classic example of a firm following a related constrained strategy. (A) True (B) False

Although growing in popularity with small and medium-sized firms because they can gain economies of scale, large companies tend to avoid strategic alliances. (A) True (B) False

An advantage of using horizontal, vertical, or related acquisitions is that they are not subject to regulatory review. (A) True (B) False

An investor is analyzing two firms in the same industry. She is looking for long-term performance from her investment. Both firms are basically identical except one firm is involved in substantial downsizing and the other firm is undertaking aggressive downscoping. The investor should invest in the: (A) downscoping firm because the higher debt load will discipline managers to act in shareholders' best interests. (B) downscoping firm because of reduced debt costs and the emphasis on strategic controls derived from focusing on the firm's core businesses. (C) downsizing firm because it will be making decisions based on tactical strategies. (D) downsizing firm because it is eliminating employees who are essentially "dead weight" and are dragging down the firm's profitability.

Bayou Belle Water sells water drawn only from a single artesian well in Southern Louisiana. It has a loyal following in its region. Because Bayou Belle markets the water, just as Coca-Cola, Nestle, and PepsiCo do, Bayou Belle has high resource similarity with these international firms. (A) True (B) False

Because Coca-Cola, Nestle, and PepsiCo all sell a product (bottled water) that is essentially the same and all three giant companies are engaged in battles for market share using incremental changes in their products and seeking loyalty to brand names, it is most likely that the bottled water market is a(n): (A) slow-cycle market (B) standard-cycle market. (C) fast-cycle market. (D) intermediate-cycle market.

Because of U.S. legal restrictions concerning large foreign acquisitions, American firms can only enter into diversifying alliances with other U.S. firms. (A) True (B) False

Boeing's decision to commit the resources required to build the super-efficient 787 midsized jetliner is an example of a tactical action. (A) True (B) False

Both ____ and ____ affect the awareness and motivation of a firm to undertake actions and responses. (A) first-mover advantages; corporate size (B) market commonality; resource similarity (C) management capabilities; competitive analysis (D) speed of management decisions; management actions

Claude holds a large number of shares of Bayou Beauty, a regional brewing company that is considered a likely takeover target by a major international brewer. It would probably be in Claude's financial interest if Bayou Beauty's owners: (A) resisted selling at any price. (B) sold the company to the larger brewer. (C) designed a poison pill to discourage a takeover. (D) looked for smaller brewers to acquire instead of selling to the larger brewer.

Close monitoring, formal contracts, and constant vigilance against opportunism increase the probability of alliance success. (A) True (B) False

Companies creating financial economies through restructuring typically focus on high- technology businesses primarily because these firms are dependent on human-resources. (A) True (B) False

Companies in fast-cycle markets need to profit quickly from an innovative product for all of the following reasons EXCEPT: (A) the technology used is not proprietary. (B) the prices of component parts tend to rise rapidly. (C) product prices fall quickly in fast-cycle markets. (D) counterattacks from rivals come quickly.

Compared to internal product development, acquisitions allow: (A) immediate access to innovations in mature product markets. (B) more accurate prediction of return on investment. (C) slower market entry. (D) more effective use of company core competencies.

Compared with downsizing, ____ has (have) a more positive effect on firm performance. (A) reconfiguring (B) downscoping (C) leveraged buyouts (D) acquisitions

Competition between candy makers (e.g., Hershey, Mars, Cadbury, Nestle, and Godiva) where firms package design (including package downsizing) and ease of availability is characteristic of a(n): (A) slow-cycle market (B) standard-cycle market. (C) fast-cycle market. (D) intermediate-cycle market.

Competitive rivalry is the contest to be the first mover in an international market. (A) True (B) False

Consumer goods producers are innovating in terms of healthy products. This type of incremental innovation is typical of: (A) fast-cycle markets. (B) standard-cycle markets. (C) incremental-cycle markets. (D) slow-cycle markets.

Contract manufacturers who manage their customers' entire product line, and offer services ranging from inventory management to delivery and after-sales services are prime examples of vertical integration. (A) True (B) False

Cooperation in slow-cycle markets is extremely rare because these industries are declining. (A) True (B) False

Corporate tax laws, rather than tax laws affecting individuals, have had the most impact on the firm's use of free cash flows for investment in acquisitions. (A) True (B) False

Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a single market into several product markets and, most commonly, into several businesses. (A) True (B) False

Currently, the rationale for making an acquisition includes each of the following EXCEPT: (A) to increase market power. (B) to decrease taxes paid by shareholders. (C) to overcome entry barriers. (D) to increase diversification.

Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value. (A) True (B) False

Downscoping represents a reduction in the number of a firm's employees and sometimes in the number of its operating units, but it may or may not represent a change in the composition of businesses in the corporation's portfolio. (A) True (B) False

Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for: (A) market discipline. (B) innovation. (C) risk analysis. (D) international diversification.

Even if the effects of a competitor's strategic action on the focal firm are significant (e.g., loss of market share), little response is likely from that firm. (A) True (B) False

Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the acquiring firm. (A) True (B) False

Extensive market commonality guarantees intense competition in an industry. (A) True (B) False

Firms are likely to imitate the actions of a competitor that is noted for risky, complex, and unpredictable behavior because this is a way to imitate unobservable core competencies. (A) True (B) False

Firms can increase their speed to market for new products by pursuing an internal product development strategy rather than an acquisition strategy. (A) True (B) False

Firms entering into synergistic strategic alliances expect to attain: (A) technological complexity. (B) economies of scope. (C) monopolistic market power. (D) learning curve efficiencies.

Firms seeking to create value through corporate relatedness use the related constrained strategy. (A) True (B) False

Firms with both operational and corporate relatedness are favorites of investment analysts because the transparency and clarity of their financial statements clearly show the value-creation resulting from the combination of multiple businesses. (A) True (B) False

First movers can gain a sustained competitive advantage when they reduce their costs through reverse engineering. (A) True (B) False

For the purpose of diversification, a corporate-level cooperative strategy may be preferable to a merger or acquisition for all the following reasons EXCEPT: (A) a host nation may forbid a merger or acquisition. (B) opportunistic behaviors are less likely. (C) cooperative strategies require fewer resources. (D) cooperative strategies allow greater flexibility in diversifying the firm's portfolio.

Franchising is most attractive in concentrated industries. (A) True (B) False

Fujitsu Siemens Computers is a legally independent company of which Fujitsu and Siemens each own 50 percent. This collaboration is an example of a ________, which is effective at transferring ________. (A) nonequity strategic alliance; explicit knowledge (B) joint venture; tacit knowledge (C) joint venture; explicit knowledge (D) equity strategic alliance; tacit knowledge

Horizontal acquisitions and related acquisitions tend to contribute less to a firm's competitiveness than do unrelated acquisitions. (A) True (B) False

Horizontal business-level strategic alliances have greater probability of creating sustainable competitive advantage than do vertical business-level strategic alliances. (A) True (B) False

Horizontal complementary strategic alliances are designed so that each partner realizes equal benefits from equal investments in the alliance. (A) True (B) False

Hostile acquisitions provide greater financial returns to the acquiring company as it is easier for managers to integrate the firms. (A) True (B) False

In a merger: (A) one firm buys controlling interest in another firm. (B) two firms agree to integrate their operations on a relatively coequal basis. (C) two firms combine to create a third separate entity. (D) one firm breaks into two firms.

In a vertical complementary alliance, firms share some of their resources and capabilities from the same stage of the value chain to create a competitive advantage. (A) True (B) False

In free-market economies, ____ must decide how rivals can collaborate with their competitors without violating established regulations. (A) the invisible hand (B) the government (C) consumers (D) the business community

In general, compared with firms which compete in only one market, among firms which face one another in multiple markets there is: (A) similar competitive rivalry. (B) less competitive rivalry. (C) more competitive rivalry. (D) no competitive rivalry.

In general, cross-border alliances are more ____ and ____ than domestic alliances, especially in emerging markets. (A) uncertainty reducing; diversifying (B) complex; risky (C) highly leveraged; tightly monitored (D) flexible; trust-based

In the Chapter 6 Opening Case, Disney achieved growth and diversification through mergers and acquisitions. (A) True (B) False

In the United States, cooperative strategies to reduce competition may result in ____ if they are explicit. (A) increased tax liabilities (B) litigation (C) government takeover of the firms (D) dissolution of the firm

In the cost minimization approach to managing competitive strategies, the relationship between the firms is based on trust of the other partner. (A) True (B) False

In the current global landscape, firms from North America and Europe use the acquisition strategy more frequently than firms from other nations. (A) True (B) False

International strategic alliances are less risky than domestic strategic alliances because of diversification across countries. (A) True (B) False

It is relatively common for a firm to develop new products internally to diversify its product lines. (A) True (B) False

Junk bonds are now used more frequently to finance acquisitions primarily because of the belief that debt disciplines managers. (A) True (B) False

Large or extraordinary debt is defined as overpaying for an acquired firm. (A) True (B) False

Market power is derived primarily from the: (A) core competencies of the firm. (B) size of a firm and its resources and capabilities. (C) quality of a firm's top management team. (D) depth of a firm's strategy.

Moon Flower cosmetics company executives are aware that their Asian customer base is interested in advanced skin care treatments beyond Moon Flower's traditional herbal and organic compounds. Moon Flower and a large American chemical company are in discussions to create a 50- 50 partnership in a new firm, which would create skin care treatments based on innovative chemical formulations that would be marketed both in Asia and in the United States. Beyond being a cross- border alliance, this partnership can be called a(n): (A) nonequity strategic alliance. (B) joint venture. (C) horizontal complementary alliance. (D) equity strategic alliance.

Mutual forbearance is: (A) illegal in the United States. (B) a type of competition-reducing strategy. (C) a variety of risk-sharing by firms in highly fragmented industries. (D) exercised when alliance partners refrain from opportunistic behaviors.

Nonequity strategic alliances are formed when one partner owns a much larger (or inequitable) share of the joint venture than do the remaining partner(s). (A) True (B) False

Nonequity strategic alliances exist when two or more firms join together to create an independent firm. (A) True (B) False

Of the various business-level strategic alliances, ____ alliances have the most probability of creating sustainable competitive advantage, and ____ have the lowest. (A) horizontal complementary; vertical complementary (B) vertical complementary; competition reducing (C) competition reducing; horizontal complementary (D) uncertainty reducing; competition reducing

On the whole there are more competitive responses to: (A) strategic actions than to tactical actions. (B) tactical actions than to strategic actions. (C) buyer pressures than to supplier pressures. (D) the demands of the top management team than to industry structural pressures.

Performance continues to increase as diversification increases from single business to unrelated diversification. (A) True (B) False

Quality affects competitive rivalry because a competitor whose products suffer from poor quality likely will _____________ until ___________. (A) initiate more competitive actions; the firm returns to profitability (B) initiate fewer competitive actions; the quality problems are corrected (C) initiate more competitive actions; the quality problems are corrected (D) advertise more; customers believe the quality had improved

Quality begins in marketing an organization where employees must create a perceived value of quality. (A) True (B) False

Related linked firms share more resources and assets between their businesses than do related constrained firms. (A) True (B) False

Research has shown that the more different the acquired firm is in terms of competencies and resources than the acquiring firm, the more likely the acquisition is to be successful. (A) True (B) False

Research suggests that a firm with greater multimarket contact is _______ likely to initiate and attack, and _____ likely to respond aggressively when attacked. (A) more; more (B) less; more (C) less; less (D) more; less

Research suggests that horizontal acquisitions of firms with dissimilar characteristics result in higher performance levels. (A) True (B) False

Revenues for United Parcel Service (UPS) are derived 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. The best description of the corporate level strategy of UPS is unrelated diversification. (A) True (B) False

Reverse engineering is characteristic of: (A) first movers. (B) fast-cycle markets. (C) market leaders. (D) price predators.

Since the 1950s, U.S. government policy regarding antitrust concerns has remained constant. (A) True (B) False

SpeakEasy, a U.S. software company that specializes in voice-recognition software, wishes to rapidly enter the growing technical translation software market. This market is dominated by firms making highly differentiated products. To enter this market, SpeakEasy would be best served if it considers a(an): (A) vertical acquisition of a firm that uses technical translation products. (B) acquisition of a highly related firm in the technical translation market. (C) cross-border merger, preferably with an Indian or Chinese company. (D) strategy of internally developing the technical translation products needed to compete in this market.

Stable alliance networks will most often: (A) be used to enhance a firm's internal operations. (B) appear in mature industries where demand is relatively constant and predictable. (C) emerge in industries with short product life cycles. (D) emerge in declining industries as a way to increase process innovations.

Successful product diversification is expected to increase the variability in the firm's profitability because the earnings are generated from several different business units. (A) True (B) False

Tacit collusion tends to be least used as a business-level, competition-reducing strategy in highly concentrated industries such as airlines and breakfast cereals even though it results in higher prices for consumers. (A) True (B) False

The current Chinese cross-border strategy is to focus on buying global brands, sales networks, and goodwill in branded products. (A) True (B) False

The fastest and easiest way for a firm to diversity its portfolio of businesses is through acquisition because: (A) of barriers to entry in many industries. (B) it is difficult and time intensive for companies to develop products that differ from their current product line. (C) innovation in both the acquired and the acquiring firm is enhanced by the exchange of competencies resulting from acquisition. (D) unrelated acquisitions are usually uncomplicated because the acquired firm is allowed to continue to function independently as it did before acquisition.

The intent of the owners in a whole-firm leveraged buyout may be to increase the efficiency of the bought-out firm and resell it in 5-8 years. This tends to make the managers of the bought-out firm high-risk takers, since they will probably not survive the resale and thus have little to lose. (A) True (B) False

The larger the resources of a firm taking a competitive action compared with the resources of the other firms in the industry, the ____ the response will be of these other firms. (A) more fragmented (B) slower (C) larger (D) more tactical

The lower the barriers to entry, the more likely firms will use acquisition as a means to enter a market. (A) True (B) False

The outcome of downsizing, downscoping, and leveraged buyouts is higher performance. (A) True (B) False

The post-acquisition integration phase is less important for acquisition success than characteristics of the deal itself. (A) True (B) False

The presence of barriers to entry in a particular market will generally make acquisitions ____ as an entry strategy. (A) less likely (B) more likely (C) prohibitive (D) illegal

The primary responsibility of the franchiser is to transfer capital to the franchisee. (A) True (B) False

The relatively strong U.S. dollar has increased the interest of firms from other nations to acquire U.S. companies. (A) True (B) False

The term "leverage" in leveraged buyouts refers to the: (A) firm's increased concentration on the firm's core competencies. (B) amount of new debt incurred in buying the firm. (C) fact that the employees are purchasing the firm for which they work. (D) process of removing the firm's stock from public trading.

The use of high levels of debt in acquisitions has contributed to: (A) the increase in above-average returns earned by acquiring firms. (B) an increased risk of bankruptcy for acquiring firms. (C) the confidence of the stock market in firms issuing junk bonds. (D) an increase in investments that have long-term payoffs.

To increase the likelihood of success between partners assuming that trust exists, ____ approach(es) should be used to manage cooperative strategies. (A) the cost minimization (B) the opportunity maximization (C) both the cost minimization and opportunity maximization (D) None of the these options are correct.

Top managers typically become overly focused on acquisitions because only they can perform most of the tasks involved, such as performing due diligence on the target firm. (A) True (B) False

Two firms, such as a small local, family-owned Italian restaurant and Olive Garden share few markets and have little similarity in resources, but are nonetheless direct and mutually acknowledged competitors. (A) True (B) False

Under the framework of competitive action and response, "ability" refers to an attacking or responding firm's knowledge of the competitive market characteristics. (A) True (B) False

United Technologies Corp. (UTC) uses acquisitions of firms such as Otis Elevator Company (elevators, escalators, and moving walkways) and Carrier Corporation (heating and air conditioning systems) as the foundation for implementing its related diversification strategy. (A) True (B) False

Unlike fast-cycle markets, the struggle for market share in standard-cycle markets is moderate. (A) True (B) False

Unrelated diversified firms become overdiversified with a smaller number of business units than do firms using a related diversification strategy. (A) True (B) False

Using business-level strategic alliances to hedge against risk and uncertainty is most common in the slow-cycle markets. (A) True (B) False

Walmart has recently opened a store in Alsatia, Missouri. Several local small retailers have decided that choosing not to respond to Walmart's competitive actions is a viable long-term option, because although the companies have high market commonality they have little resource similarity. These small retailers are correct in their decision. (A) True (B) False

Walmart initially used a focused cost-leadership strategy to compete only in small communities by using sophisticated logistics systems and efficient purchasing practices to gain a competitive advantage. The response of local competitors was _______ because they ______. (A) rapid; were nimble and flexible (B) slow; lacked the ability to marshal resources (C) rapid; perceived gains from responding to Walmart's attack (D) rapid; had the resources and flexibility compete against Walmart

Walmart's aggressive pricing strategy is a strategic action that plays a major role in how it competes. (A) True (B) False

When a firm is overly dependent on one or more products or markets, and the intensity of rivalry in that market is intense, the firm may wish to ____ by making an acquisition. (A) increase new product speed to market (B) broaden its competitive scope (C) increase its economies of scale (D) overcome entry barriers

Which company below committed significant resources to enter the information services market and, given its success, was imitated by other competitors? (A) Compaq (B) IBM (C) HP (D) Dell

Which of the following is NOT a result of over-diversification? (A) Executives do not have a rich understanding of all of the firm's business units. (B) Managers emphasize strategic controls rather than financial controls. (C) Firms use acquisition as a substitute for innovation. (D) Managers become short-term in their orientation.

Which of the following statements is TRUE? (A) Most cooperative strategies are successful if the basic agreements are well written and include appropriate monitoring strategies. (B) As many as 50 percent of cooperative strategies fail. (C) Opportunistic behaviors are usually focused on gaining the use of the partner's manufacturing and financial resources. (D) Problems with international cooperative strategies usually concern financial-system differences between the partners.

Which type of strategic alliance is best at passing tacit knowledge between firms? (A) primary cooperative strategic alliances (B) Joint ventures (C) Equity strategic alliances (D) Nonequity strategic alliances

Wilberforce Press is a small book publishing firm in Iowa that has been owned by the same family since 1895. It is being purchased by Ozarka Publishing, another family-run business in Nebraska, which has been a specialty publisher for 77 years. Each company is known for its unique culture passed down from its founders. Executives and employees in both firms have "grown up" with their companies. Because both these companies have a long, stable history in highly related industries, this acquisition has a high probability of success. (A) True (B) False

Within the Renault Nissan alliance (Chapter 9 Mini Case), both Renault and Nissan have each formed ____________ strategic alliances at the business-unit level with other companies. (A) vertical complementary (B) horizontal complementary (C) synergistic (D) diversifying

Without quality, the firm's products: (A) can compete effectively on the basis of low price. (B) lack credibility among customers. (C) must be exported to developing countries, because they are not competitive in the United States or developed countries. (D) are associated with predatory competition.

____ markets are often described as volatile and innovative. (A) Slow-cycle (B) Fast-cycle (C) Standard-cycle (D) Sheltered

____ strategic alliances have stronger focus on value creation than do ____ alliances. (A) competition reducing; complementary (B) complementary; competition reducing (C) uncertainty reducing; complementary (D) collusive; uncertainty reducing

he Renault Nissan alliance discussed in the Mini Case is an example of a ________ in that the firms seek to create economies of scope by sharing their resources and capabilities to develop manufacturing platforms that can be used to produce cars that will be either a Renault or a Nissan. (A) joint venture (B) synergistic alliance (C) horizontal complementary alliance (D) dynamic alliance network

he need for quality products and services is so high that quality alone can assure a firm that it will achieve strategic competitiveness and earn above-average returns. (A) True (B) False

To ensure the quality of its almond butters, Rally's Roasters owns the almond groves in which all of its almonds are grown. Rally's almond butters are sold in supermarkets as well as specialty food stores throughout the country. Rally's makes use of what type of integration?

b. Backward

Which of the following resources is more likely to create value in the diversification process?

b. Tacit knowledge

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

b. economies of scope between business units.

During the 1990s, top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they:

b. have golden parachutes.

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

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

Compared with diversification based on intangible resources, diversification based on financial resources is:

b. more imitable and less likely to create value on a long-term basis.

As the threat of corporate failure increases due to relatedness between a firm's business units, the firm may decide to:

b. operate in environments that are more certain.

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

b. related

Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in:

b. related diversification projects.

The Walt Disney Company has successfully used related diversification to create value by:

b. sharing activities and transferring core competencies.

Operational relatedness is created by __________ of __________.

b. sharing; activities

The curvilinear relationship of corporate performance and diversification indicates that:

b. the highest performing business strategy is related constrained diversification.

A competitive action can be one of two types, either ____ or ____. (A) aggressive; defensive (B) quality-based; cost-based (C) strategic; tactical (D) market-based; resource-based

A friendly acquisition: (A) raises the price that has to be paid for a firm. (B) enhances the complementarity of the two firms' assets. (C) facilitates the integration of the acquired and acquiring firms. (D) allows joint ventures to be developed.

A leveraged buyout refers to: (A) a firm restructuring itself by selling off unrelated units of the company's portfolio. (B) a firm pursuing its core competencies by seeking to build a top management team that comes from a similar background. (C) a restructuring action whereby a party buys all of the assets of a business, financed largely with debt, and takes the firm private. (D) an action where the management of the firm and/or an external party buys all of the assets of a business financed largely with equity.

All of the following statements are correct EXCEPT: (A) immediately after the announcement of a planned acquisition, the stock price of the majority of acquiring firms declines. (B) shareholders of acquired firms often earn above-average returns from an acquisition. (C) the majority of acquisitions increase long-term value for the acquiring firm. (D) shareholders of acquiring firms typically earn returns from the transaction that are close to zero.

Bubble-Up, Inc., is a small manufacturer of educational toys for children under age 10. It has co- existed with three other competitors in the educational toy industry for over 20 years, each of them maintaining a stable market share. There is a wide-spread rumor that Mega-Toy, Inc., the market leader in the broad children's toy market, has decided to target educational toys. Which one of these statements is most likely TRUE? (A) The owners of Bubble-Up are unconcerned about Mega-Toy's entry to the market because of the resource dissimilarity between the firms. (B) Bubble-Up's greater organizational slack will allow it to aggressively attack Mega-Toy. (C) Bubble-Up's smaller size may make it more flexible in introducing innovations than Mega-Toy. (D) Competitive rivalry will not increase for Bubble-Up because Mega-Toy is not dependent on the educational toy market.

Burgess Corp. manufactures a line of heavy construction equipment. The company has announced a contractual relationship with FS Electronics whereby FS will supply Burgess with advanced GPS navigation and guidance systems. These systems will be an option on all bulldozers, dump trucks, and road graders Burgess produces. What type of alliance is this? (A) Joint venture (B) Equity strategic alliance (C) Nonequity strategic alliance (D) Competition reduction alliance

Caterpillar's payment of a 32 percent premium for the acquisition of Bucyrus in 2011 and subsequent need to issue more stock illustrates the acquisition problem of: (A) integration difficulties. (B) inability to achieve synergy. (C) large or extraordinary debt. (D) managers overly focused on acquisitions.

Competitive dynamics refers to the: (A) circumstances in which competitors are aware of the degree of their mutual interdependence resulting from market commonality and resource similarity. (B) set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position. (C) total set of actions and responses taken by all firms competing within a market. (D) ongoing set of competitive actions and competitive responses between competitors as they maneuver for advantageous market position.

DDD Partners, a U.S. business consulting firm is considering a cooperative alliance with an Indian business consulting firm that has a wide practice in the Middle East and Asia. DDD has some European clients, but it sees the Middle East and Asia as growth opportunities. It hopes to learn how to navigate the different cultures and business practices in this part of the world from its alliance with the Indian firm. DDD's greatest risk here is that the Indian firm will: (A) insist on excessively close monitoring of DDD's actions. (B) gain access to DDD's core competencies and use them to become a future competitor. (C) not fully share its intangible resources. (D) not make equivalent investments to the alliance as does DDD.

Due diligence includes all of the following activities EXCEPT assessing: (A) differences in firm cultures. (B) tax consequences of the acquisition. (C) the level of private synergy between the two firms. (D) financing for intended transaction.

Firms in a standard-cycle market may form alliances in order to: (A) take advantage of opportunities in emerging market countries. (B) more quickly distribute new products. (C) capture economies of scale. (D) share risky R&D investments.

Firms with ______ market commonality and _____ resource similarity are direct and mutually acknowledged competitors. (A) low; high (B) low; low (C) high; high (D) high; low

Firms with few competitive resources are more likely to: (A) not respond to competitive actions. (B) respond quickly to competitive actions. (C) delay responding to competitive actions. (D) respond to strategic actions, but not to tactical actions.

First movers are: (A) entrepreneurs who lead in the establishment of new industries. (B) firms that are first to exit a declining industry. (C) firms that take an initial competitive action. (D) individuals who move frequently as employment opportunities change in a locale.

Hilliard Pharmaceuticals and Ahrens Vitamins, Inc., have high market commonality, both geographically and in the market segments in which they compete. Hilliard, the number two firm in the industry, has undertaken a major strategic attack upon Ahrens, the market leader. Which of the following statements is most likely to be TRUE? (A) Ahrens will not respond aggressively since this is a strategic move and not a tactical action. (B) As the market leader, Ahrens has little to fear from an attack by Hilliard and will not expend organizational slack on a major response. (C) Ahrens will respond aggressively because of the high multimarket contact between Hilliard and Ahrens. (D) Ahrens will respond after a long delay as the nutrition supplement industry is a slow-cycle

In a(n) ____, two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. (A) equality-based strategic alliance (B) non-equity strategic alliance (C) joint venture (D) equity strategic alliance

In managing cooperative strategies, research indicates that ____ can be a capability that is valuable, rare, imperfectly imitable, and often nonsubstitutable giving these firms a competitive advantage. (A) extensive capitalization (B) stability (C) trustworthiness (D) Internet competency

Intensified rivalry within an industry results in: (A) increased hiring across the industry. (B) increased total revenues across the industry. (C) decreased average profitability across the industry. (D) increased entries into the industry

Japanese telecom NTT DoCoMo Inc. and Chinese Internet search operator Baidu Inc. established an alliance to distribute games and other mobile-phone content. Baidu will own 80 percent of this collaboration with DoCoMo holding the remaining 20 percent. This collaborative arrangement is an example of a(n): (A) joint venture. (B) network strategy. (C) equity strategic alliance. (D) nonequity strategic alliance.

Lawsuits over patent and copyright infringements are more common and intense in: (A) fast-cycle markets because the market is innovation-driven. (B) standard-cycle markets because the firm's brand name is such an important competitive advantage. (C) slow-cycle markets, because of the ability to shelter the company from imitation of its competitive advantage. (D) standard-cycle markets because innovation is rare, and so gives the innovating firm a significant competitive advantage.

Lobelia's Nursery and Garden Resource Center has long provided high-quality, typical types of seasonal bedding plants to customers in the Mobile, Alabama, metropolitan area. It has traditionally competed with the other plant nurseries within a 50-mile radius of Mobile. Recently, Lobelia has opened a branch in Fairfax, Virginia. Lobelia's research shows that most Fairfax nurseries have only one location. Lobelia can expect the local Fairfax nurseries to (A) be unmotivated to respond because their market position is not threatened by a new competitor from out-of-town. (B) respond with fierce attacks because of resource dissimilarity. (C) respond aggressively because of high market dependence. (D) take no competitive response because of the lack of mutual interdependence among the nurseries.

Magma, Inc., acquired Vulcan, Inc., 3 years ago. Effective integration of the two companies' culture was never achieved, and the two firms' assets were not complementary. It is very likely that Magma will: (A) go public through an IPO. (B) review the due diligence information collected before the acquisition. (C) restructure. (D) review its tactical-level strategies.

Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately _______ percent of innovations are imitated within 4 years after patents are obtained. (A) 5 (B) 10 (C) 60 (D) 20

One disadvantage of developing effective monitoring systems to manage a strategic alliance is that: (A) firms will have to accept greater risks. (B) trust will be eroded. (C) spontaneous opportunities are minimized. (D) power coalitions will still develop.

Private synergy: (A) occurs in most related acquisitions and allows firms to see increased returns. (B) is frequently achieved in conglomerates. (C) is not easy for competitors to understand and imitate. (D) is assessed by managers during the due diligence process.

The CEO of the Wholesome Food retail grocery chain, which specializes in organic and natural produce and meat, has stated, "The key to success is to find your niche and focus on it, regardless of what anyone else does." The CEO: (A) realizes that he must understand competitors in order to predict their competitive actions and responses. (B) understands that he is the market leader in his niche and thus has a sustainable competitive advantage. (C) believes he has placed his firm in a slow-cycle industry where concerns about protecting unique competencies dominate concerns about market share. (D) realizes his firm has such lower resources than other competitors that his chain is "competitively invisible" to them.

The Renault Nissan alliance (Chapter 9 Mini Case) is an example of a _______ created to gain economies of scope by sharing resources and capabilities. (A) diversifying strategic alliance (B) vertical complementary alliance (C) synergistic strategic alliance (D) nonequity-based horizontal complementary alliance

The ____ phase is probably the single most important determinant of shareholder value creation in mergers and acquisitions. (A) pre-acquisition negotiations (B) pre-acquisition due diligence (C) post-acquisition integration (D) post-acquisition restructuring

The collaboration between Volvo Aero (a subsidiary of Sweden's AB Volvo) and U.S.-based Pratt & Whitney to produce a new jet engine would be characterized as a(n): (A) collusive tactic. (B) merger. (C) cross-border strategic alliance. (D) international acquisition.

The expenses incurred by firms trying to create synergy through acquisition are called ____ costs. (A) differentiation (B) diversification (C) transaction (D) interaction

The fact that the prices consumers pay for branded breakfast cereals are above the prices that would exist if there were true competition suggests that the cereal manufacturers are engaging in: (A) excessive cooperation. (B) joint ventures. (C) tacit collusion. (D) horizontal strategic alliances.

The primary responsibility of the franchisor, such as McDonald's or Hilton International is to: (A) learn about the brand and technology from the franchisee. (B) test the franchisee for potential future acquisition. (C) transfer to the franchisee knowledge and skills needed to compete at the local level. (D) provide feedback to the franchisee regarding how the franchisor could become more effective and efficient.

There are few true mergers because: (A) few firms have complementary resources. (B) integration problems are more severe than in outright acquisitions. (C) one firm usually dominates in terms of market share, size, or value of assets. (D) of managerial resistance. True mergers result in significant managerial-level layoffs.

U.S. Steel and Nucor (the two remaining major players in the U.S. steel industry) have been forming alliances as a means to enter markets in Europe and Asia. The steel industry is an example of a ________ market in which firms typically use alliances to gain market access. (A) fast-cycle (B) standard-cycle (C) slow-cycle (D) intermediate-cycle

Walt Disney's focus on ____ is typical of a slow-cycle market. (A) innovation (B) total quality (C) proprietary rights (D) economies of scale

When the target firm does not solicit the acquiring firm's bid, it is referred to as a(n): (A) stealth raid. (B) adversarial acquisition. (C) takeover or unfriendly acquisition. (D) leveraged buyout.

Which industry can be LEAST described as a slow-cycle market? (A) Freight railroads (B) Pharmaceuticals (C) Cell phone provider (D) Private ownership of highways and bridges

Which of the following is NOT a risk for firms engaged in cooperative strategies? (A) Misrepresentation of a partner's competencies (B) Partner acts opportunistically (C) Insufficient variation in firms' core competencies (D) Failure of partners to make complementary resources available to the partnership

Which of the following is an example of a strategic action? (A) A "two movies for the price of one" campaign by Redbox (B) Use of product coupons by a local grocer (C) Entry into the European market by Home Depot (D) Fare increases by Southwest Airlines

Which of the following is an example of a tactical action? (A) Walmart's launch of Sam's Club stores (B) Continental Airlines exit from a hub airport in Denver (C) Netflix beginning to offer music in addition to movies (D) Dell's launch of a new line of high performance, custom-made PCs

Which of the following statements is FALSE? (A) First movers tend to take higher risks than second and later movers. (B) First movers tend to have significantly higher revenues than second movers. (C) First movers have lower survival rates than second and late movers. (D) First movers tend to have more organizational slack than later movers.

Which of the following statements is FALSE? (A) Synergy resulting from an acquisition generates gains in shareholder wealth beyond what they could achieve through diversification of their own portfolios. (B) Private synergy results when the combination of two firms yields competencies and capabilities that could not be achieved by combining with any other firm. (C) Private synergy is easy for competitors to understand and imitate. (D) Private synergy is more likely when the two firms in an acquisition have complementary assets

____ typically result(s) in the acquiring firm being able to prevent valuable human resources in the acquired firm from leaving. (A) Financial slack (B) Private synergy (C) Friendly acquisitions (D) High compensation

___________ may be necessary because acquisitions create a situation in which the newly formed form has duplicate organizational functions such as sales, manufacturing, distribution, and human resource management. (A) Management buyout (B) Leveraged buyout (C) Downsizing (D) Downscoping

Luxury Linens (LL) manufactures a line of luxury bed linens. LL's products can be purchased only through the company's web site. This ownership of output distribution is known as what type of integration?

c. Forward

S&E is a financial services firm with a reputation for its management ability. It has recently diversified into several additional service businesses without first acquiring an established brand-name business. This type of diversification strategy is known as what type of venture?

c. Greenfield

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over diversify?

c. Surveillance technologies

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

c. Tire manufacturer established in 1910

Which of the following types of diversification is MOST likely to create value through financial economies?

c. Unrelated

Certain regulatory changes (such as antitrust regulation and tax laws) create incentives or disincentives for diversification that:

c. are value-neutral.

Among the value-neutral incentives to diversify, some come from the firm's external environment while others are internal to the firm. External incentives to diversify include:

c. changes in antitrust regulations and tax laws.

A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT:

c. corporate can direct the acquisition of other firms with innovative products instead of allocating capital to research and development.

Multipoint competition occurs when:

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

Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because:

c. higher CEO pay is related to larger organization size.

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 __________ because it could sell its products above the market level or reduce its costs below the market level.

c. market power

Virgin Group Ltd. 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

IMA Statement of Ethical Professional Practice

competence: knowledge + skill + attitude confidentiality: not discussing client/company info integrity: doing the right thing, always credibility: facts

. ____ are unsecured obligations that are not tied to specific assets for collateral. (A) Bearer bonds (B) No-load stocks (C) Penny stocks (D) Junk bonds

103. One problem with becoming too large is that large firms: (A) tend to have less market power. (B) have less potential for economies of scale. (C) become attractive takeover targets. (D) usually increase bureaucratic controls.

69. When a firm acquires its supplier, it is engaging in a(n): (A) merger. (B) unrelated acquisition. (C) hostile takeover. (D) vertical acquisition.

A company in a ____ industry is LEAST likely to make heavy use of patents and copyrights. (A) slow-cycle (B) medium-cycle (C) standard-cycle (D) fast-cycle

A competitive advantage that is developed through a cooperative strategy is called a collaborative or a(n) ____ advantage. (A) economic (B) collusive (C) alliance (D) relational

A firm that is LEAST likely to launch competitive actions is one that has: (A) organizational slack. (B) advanced research and development. (C) recently improved the quality of its products. (D) large size.

A relatively young firm has developed a method of transferring photographic images of surface textures onto any type of hard surface. This potentially has a huge market in the home-decorating field as well as any hard surface that is typically painted, such as car bodies. The type of alliance partner this firm would be searching for would be one with: (A) low-cost labor production facilities in another country. (B) similar products who could help the firm establish economies of scale. (C) access to franchises in new markets. (D) excess resources for investing.

A strategy in which firms work together to achieve a shared objective is a: (A) functional-level strategy. (B) business-level strategy. (C) corporate-level strategy. (D) cooperative strategy.

Acquisitions can become a time sink for top level managers for all the following reasons EXCEPT: (A) the integration process after acquisition requires managerial attention. (B) they must prepare for acquisition negotiations. (C) managers are involved in the search for viable acquisition candidates. (D) only top managers can perform the required due diligence.

Akamai Technologies is a dominant player in the content delivery network (CDN) market. Akamai is not very diversified (i.e., is dependent on the CDN market). If rival CDN providers such as Limelight Networks and Level 3 Communications lower their basic CDN service prices, what would be Akamai's likely response? (A) Raise its prices (B) Do nothing since it is the market leader (C) Exit the industry (D) Lower its prices

Ambrose is a scientist working for a pharmaceutical company. His company was acquired by a rival pharmaceutical company, and now it is involved in downsizing and downscoping. Ambrose is concerned about his job security, since he is actively involved in amateur sports in his community and does not wish to disrupt his current lifestyle. Ambrose's job will be most likely to be secure if: (A) Ambrose's research is in a non-core activity. (B) the acquisition has been financed by junk bonds. (C) Ambrose is in a position to take a poison pill. (D) Ambrose is a key employee in the firm's primary business.

Amylin Pharmaceuticals has an alliance with Eli Lilly & Co. to produce diabetes drugs. Lilly, however, recently signed an alliance agreement with another company to also produce diabetes drugs. As a result, Amylin sued Lilly for breach of the alliance agreement. Which of the following risks of cooperative strategies discussed in the chapter is most likely occurring here? (A) Having a true perception of the partner's trustworthiness (B) Failing to make available to its partners the resources and capabilities that it committed to the cooperative strategy (C) The partner misrepresenting competencies it can bring to the partnership (D) Opportunistic behavior

An organization's loyalty to its own product is a competitive disadvantage in a(n) ____ market. (A) slow-cycle (B) standard cycle (C) intermediate cycle (D) fast-cycle

Baby Doe's, a designer and manufacturer of children's clothing, has decided to purchase a retail chain specializing in children's clothing. This purchase is a(n): (A) merger. (B) unrelated acquisition. (C) horizontal acquisition. (D) vertical acquisition.

Competitors are more likely to respond to competitive actions that are taken by: (A) differentiators. (B) larger companies. (C) first movers. (D) market leaders.

Cross-border acquisitions are critical to U.S. firms competing internationally: (A) if they are to develop differentiated products for markets served. (B) when market share growth is the focus. (C) where consolidated operations are beneficial. (D) if they wish to overcome entry barriers to international markets.

Cross-border acquisitions are primarily made to: (A) reshape the firm's competitive scope. (B) reduce the cost of new product development. (C) take advantage of higher education levels of labor in developed countries. (D) overcome barriers to entry in another country.

Each of the following is a rationale for acquisitions EXCEPT: (A) achieving greater market power. (B) overcoming significant barriers to entry. (C) increasing speed of market entry. (D) positioning the firm for a tactical competitive move.

Firms participate in strategic alliances for all the following reasons EXCEPT to: (A) create value that they could not develop by acting independently. (B) enter competitive markets more quickly. (C) gain access to resources. (D) retain tight control over intangible core competencies.

FrameCo, a maker of commercial greenhouses, has just extricated itself from a failing cooperative alliance with another firm. The expected synergies never were achieved, and FrameCo lost most of its investment. The top management of FrameCo should: (A) avoid future cooperative alliances because they lack the skills needed to manage them successfully. (B) enter into future cooperative alliances only if the alliance is closely monitored by a third party to prevent opportunistic behavior by the alliance partner. (C) realize that most cooperative alliances fail and that it should ally itself only with an experienced alliance partner in the future. (D) internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience.

Greentech, Inc., is a bioengineering firm specializing in food crops. It is considering a cooperative alliance with an Asian agribusiness firm, AsiaFoods, to jointly produce improved crops for the Asian market. The risks that Greentech should consider before entering this alliance include all of the following EXCEPT: (A) Has AsiaFoods accurately represented its competencies? (B) Will AsiaFoods make alliance-specific investments? (C) Can Greentech expect opportunistic behavior from AsiaFoods? (D) Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

In general, firms are more aware of competitors who have similar resources and who: (A) have low market dependence. (B) are late movers. (C) have low market commonality. (D) compete against the firm in multiple markets.

In order to compete effectively, standard-cycle firms need all of the following EXCEPT: (A) large market share. (B) customer loyalty through brand name. (C) careful control of operations to preserve consistency for customers. (D) rapid and continuous product introductions.

In practice, the cost minimization strategy can be more expensive than the opportunity maximization strategy. Which of the following is a way in which the cost minimization strategy is less expensive than the opportunity minimization strategy? (A) The loss of unexpected opportunities (B) The cost of extensive monitoring mechanisms (C) The costs of writing detailed contracts (D) The prevention of opportunistic behavior by the partner(s)

In some countries, the only legal way for foreign firms to invest in the country is through: (A) acquisitions. (B) mergers. (C) greenfield ventures. (D) strategic alliance with a local firm.

Manny Inc. recently completed the purchase of its primary supplier. Manny intends to begin expanding the market to which the suppliers' products are sold. This purchase is a(n): (A) merger. (B) unrelated acquisition. (C) horizontal acquisition. (D) vertical acquisition.

McDonald's, Hilton International, and Subway all heavily rely on the ____ strategy. (A) transnational (B) network cooperative (C) cross-border alliances (D) franchising cooperative

Meredith Inc. is a manufacturer of art supplies. The company has announced plans to enter into an equity strategic alliance with JaZz Paper to develop a line of specialty papers for use with a line of specialty paints Meredith manufactures. Which of the following would be the accurate interpretation of this announcement? (A) Meredith will own a majority equity stake in the new venture. (B) JaZz will own a majority equity stake in the new venture. (C) Meredith or JaZz will own an equal equity stake in the new venture. (D) Either Meredith or JaZz will own a majority equity stake, but we do not know which one based on the announcement.

Multimarket competition occurs when 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) compete against each other in several geographic or product markets.

Pappelbon Enterprises recently acquired a chain of convenience stores offering both fuel and food. Pappelbon is now surprised and dismayed to find that the gas pumps have been poorly maintained and will need to be replaced at considerable expense. Each of the following statements accurately reflect this EXCEPT: (A) Pappelbon did not fully evaluate the target. (B) Pappelbon overpaid. (C) Pappelbon's due diligence was not fully effective. (D) Pappelbon's management was overly focused on acquisitions.

Problems associated with acquisitions include all of the following EXCEPT: (A) managers overly focused on acquisitions. (B) integration difficulties. (C) large or extraordinary debt. (D) excessive time spent on the due diligence process.

Rapid-Built Homes specializes in low-cost prefabricated, modular homes that can be erected in a matter of days anywhere in the country. Rapid-Built focuses on entire subdivisions of homes developed by real estate speculators. ModernModular Homes (ModMod) specializes in modular homes designed by architects, which can be built anywhere in the country. The buyers usually build the home themselves from kits on their own lots. ModMod sells fewer than 100 house kits per year. ModMod is run by two professors of architecture as a sideline business. According to the "Framework of Competitive Analysis," we can say that Rapid-Built and ModMod (A) are direct mutually acknowledged competitors. (B) have high resource similarity. (C) have high market commonality. (D) are probably not engaged in intense competitive rivalry.

The ability of Disney to maintain its competitive advantage through proprietary rights to its characters would be severely weakened if: (A) theme parks with alternative cartoon characters were built in large numbers. (B) numerous lawsuits against copyright thieves tainted the reputation of the company. (C) Disney attempted to move beyond its traditional industry. (D) Disney's cartoon characters became widely perceived as old-fashioned and unappealing. Answer : (D)

The announcement that P&G was acquiring premium dog and cat food manufacturer Iams was a _________ acquisition and is intended to ________. (A) vertical; increase diversification (B) horizontal; increase market power (C) vertical; overcome entry barriers (D) related; increase speed to market

The opportunity maximization approach is more difficult to establish in international relationships than in domestic relationships because of differences in all EXCEPT: (A) laws. (B) culture. (C) trade policies. (D) technology.

The risks of being accused of collusion are MOST likely under what type of alliance? (A) Equity-based vertical complementary alliance (B) Equity-based horizontal complementary alliance (C) Nonequity-based vertical complementary alliance (D) Nonequity-based horizontal complementary alliance

The use of strategic alliances: (A) is unlikely to yield success if partnering firms are headquartered in the same country. (B) may be too restrictive to facilitate entry into new markets. (C) usually increases the investment necessary to introduce new products. (D) is more frequent than other types of cooperative strategies.

Traditionally, the music industry signed multi-year contracts with artists and sold copyright protected music through established distribution channels. A shift to the digital format and the rise of Internet technology has resulted in the sharing of music over peer-to-peer networks, a practice the industry called "piracy." In recent years, the music industry has seen a rapid decline in the number of CDs sold. At the same time, the ownership of the distribution rights of musical content under copyright laws remains clear. Attempts at innovation by individual record labels to offer music as direct downloads to consumer are quickly copied by other labels. Based on these factors, the best assessment is that the music industry has shifted from a ____ to a ____ cycle market. (A) slow; fast (B) slow; standard (C) standard; slow (D) standard; fast

When using cooperative strategies, firms most frequently develop strategic alliances that: (A) enhance the firm's reputation in the marketplace. (B) are long-lived. (C) will reduce the firm's political risk. (D) create a competitive advantage.

Which of the following is NOT an attribute of a successful acquisition? (A) The acquiring firm has a large amount of financial slack. (B) The acquired and acquiring firms have complementary assets and/or resources. (C) Innovation and R&D investments continue as part of the firm's strategy. (D) Investments in advertising and image building are made quickly.

Which of the following is TRUE of Southwest Airlines? (A) Southwest has an unusually low amount of flexibility for a large firm. (B) Southwest's success is largely due to the fact it has little market commonality with other airlines. (C) Decision-making responsibility is centered at its Dallas headquarters, which allows the firm to respond quickly to competitive attacks. (D) Southwest's advantage lies in its ability to "think small."

Which of the following is the most strategic action by Walmart? (A) Aggressive pricing to ensure they are a price leader (B) Aggressively pricing toys and electronics during the holiday season (C) Aggressively pricing school-related items in the back-to-school season (D) Entering a new foreign market

Which of the following statements is FALSE? (A) Franchising is most appropriate in fragmented industries. (B) Franchising provides corporate growth with less risk than do mergers and acquisitions. (C) Successful franchising allows transfer of knowledge and skills from the franchisor to the franchisee. (D) Franchising agreements require more trust between firms than do other cooperative strategies.

Which organization has the highest market dependence? (A) a chain of rapid-service oil change shops (B) a manufacturer of chemicals for the international pharmaceutical industry (C) a regional department store having 26 locations in the Northwest (D) a company that specializes in making replacement tiles for the space shuttle

Whole-firm LBOs tend to result in all the following negative outcomes EXCEPT: (A) large debt and increased financial risk. (B) failure to invest in R&D. (C) risk-averse management. (D) inefficient operations.

Why are alliances in the airline industry unstable? (A) Unstable industries make for unstable alliances. (B) The potential for firms to take opportunistic actions is too widespread. (C) The industry is declining and profits are not sufficient to divide among alliance partners. (D) The alliances require cooperation among firms that must also compete with one another.

____ are LEAST likely to involve potential or current competitors. (A) Mutual forbearance strategies (B) Tacit collusion strategies (C) Horizontal complementary strategic alliances (D) Vertical complementary strategic alliances

_________ refers to a divestiture, spin-off, or some other means of eliminating businesses that are unrelated to a firm's core business. (A) Downsizing (B) Hostile takeovers (C) Shakeouts (D) Downscoping

___________ is often used when the acquiring firm paid too high a premium to acquire the target firm. (A) Management buyout (B) Leveraged buyout (C) Downscoping (D) Downsizing

Which of the following is NOT a limitation directly relating to vertical integration?

d. Imitation of core technology by potential competitors

Which of the following statements is true?

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

During a financial downturn, a firm may consider diversification as a value-neutral defensive strategy to protect itself against what?

d. Uncertain future cash flows

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 can replicate the value gained from the economies of scope developed through operational relatedness and corporate relatedness.

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

d. de-integration.

Managerial motives to seek diversification beyond value-creating and value-neutral levels include a desire to:

d. increase compensation.

Ties among a firm's businesses create links between outcomes. This is a:

d. risk associated with activity sharing.

Synergy exists when:

d. the value created by business units working together exceeds the value that those same units create when working independently.

Research suggests that __________ has decreased while __________ has increased, possibly due to the restructuring that continued in the 1990s through the early twenty-first century.

d. unrelated diversification; related diversification

pricing

fair market will force suppliers to price their products at fair value -overpricing is usually minimized with fair competition

large firms

likely to initiate more competitive actions as well as strategic actions during a given time period commonly have the slack resources required to launch a larger number of total competitive actions

False

value reducing

For a CEO whose salary is based on their number of employees, they might decide to diversify to make more money even if the diversification is ________________________

prevention of advertising

Free Speech Issue (rights vs. utilitarianism) -Could limit competition

differentiation

Gillette uses a _____________________ strategy by focusing on specialized quality in their razors

agency theory

-principal wants someone to do things for you and in your best interest, not yours -agent may have info that you don't -stockholders are always the principal and workers are always the agents a. Stockholders to BOD to Mangt to workers

became competitive

After Gillette pushed Duracell to develop a new battery product, the battery market __________________________

takeover

An acquisition in which the target firm did not solicit the acquiring firm's bid for outright ownership can be hostile or agreed upon

temporary, actions, responses

Competitive advantage is ______________ because firm performance depends on __________ and responses between competitors. Whether a firm's actions in markets are effective or not, depends on rivals' ______________

high market dependence

Competitors with _____________________________________ are likely to respond strongly to attacks threatening their market position.

rivalry

The relationship between A.1. and Lawry's can be described as a ________________

Procter & Gamble (P&G) has a paper towel and baby diaper business that both use paper products. This is an example of value created through the sharing of activities.

True

Research has shown that, as international diversification increases, firms' returns decrease initially but then increase quickly as firms learn to manage international expansion.

True

Research shows that increased firm size and greater levels of diversification are correlated with increased executive compensation.

True

Research suggests that the performance of the global strategy is enhanced if it deploys in areas where regional integration across countries is occurring.

True

Rivals Airbus and Boeing have multiple manufacturing facilities and outsource activities partly for the purpose of developing economies of scale as a source of being able to create value for customers.

True

Some of the costs incurred by firms pursuing international diversification may derive from higher coordination expenses, trade barriers, and lack of familiarity with local cultures.

True

Synergy exists when the value created by business units working together exceeds the value that those same units create working independently.

True

The flat-panel television market where prices have come down and competition has become more stable is best characterized as: (A) standard-cycle. (B) fast-cycle. (C) slow-cycle. (D) competitive rivalry.

The more dependent a firm is on its market, the more aggressively it will defend it from another competitor. (A) True (B) False

The probability of alliance success is increased when partnering firms internalize successful alliance experiences. (A) True (B) False

The reasons why a firm would overpay for a company that it acquires include inadequate due diligence. (A) True (B) False

The recent financial crisis made it difficult for firms to complete "megadeals" and the slowdown in merger and acquisition has continued in 2011. (A) True (B) False

whistle blowing

employees notifying someone of an immoral act that has occurred, is occurring, or will occur -external: report the act to someone outside the firm -internal: report the act to someone inside the firm

synergy

exists when the value created by businesses working together exceeds the value created by them working independently.

Gillette

in the Gillette and Duracell case, who is the parent company?

substitute

in the Rover case, there is a significant ___________________ threat because of the many types of transportation out there

golden parachutes

money provided to TMT if firm is taken over -helps TMT to make best choice for firm so they won't be harmed (so execs wont be afraid to work there) -waste of firm's money: should be part of execs contract to work there

negligence

unintentional danger created through adequate or insufficient product design

The firm using a global strategy seeks to develop economies of scale as it produces the same or virtually the same products for distribution to customers throughout the world who are assumed to have similar needs.

True

The three basic benefits of international strategies are 1) increased market size; 2) increased economies of scale and learning; and 3) development of competitive advantages through location

True

To create economies of scope, tangible resources often must be shared. Less tangible resources can also be shared.

True

merger

Two firms agree to integrate their operation on a relatively *co-equal basis* ex: Exxon and Mobil now ExxonMobil

Multipoint competition

Two or more diversified firms simultaneously compete in the same product areas or geographic markets. They tend to reduce their competition and have a more collusive relationship

capital investments, technology

We don't see many new entrants in the Automobile industry because it requires significant ______________________ and barriers concerning regulation and __________________________

A ____ cooperative strategy helps the firm diversify in terms of products offered, markets served, or both. (A) corporate-level (B) business-level (C) national-level (D) industry-level

A company that tries to balance both operational and corporate relatedness and fails, risks incurring diseconomies of scope. (A) True (B) False

Different incentives to diversify sometimes exist, and the quality of a firm's resources may permit only diversification that is value neutral rather than value creating. (A) True (B) False

Disney (discussed in the Chapter 6 Opening Case) is an example of a company that was successful because its corporate strategy added value across its set of businesses above what the individual businesses could create individually. (A) True (B) False

During the recent financial crisis, M&A activity ______, whereas in 2011, M&A activity ______. (A) declined; increased (B) declined; declined (C) increased; increased (D) increased; declined

In the final analysis, firms use merger and acquisition strategies to improve their ability to create value for all stakeholders, including stockholders. (A) True (B) False

In the franchising strategy, the most important competitive advantage for the franchisee is the franchisor's: (A) brand name. (B) capital resources. (C) access to a consolidated market. (D) geographic locations.

paternalism advertising

-limitations on ads by unethical products -creation of false needs may be considered damaging to society

cost/benefit analysis of whistle blowing

-when are you obligated to blow the whistle -when is it optional to blow the whistle -when should you consider to not blow the whistle factors to consider: -size of issue -degree of loyalty to various parties a. who is being hurt/helped b. who do you owe loyalty to and why -intent vs. income -society's moral position -accuracy of your and others' perceptions of these factors

arguments against CSR

1. Free market works best 2. Businesses are not qualified to do philanthropic 3. Too much power already 4. Global competitiveness may put domestic firms at a disadvantage

product/service safety

1. engineered safety: a. how much safety is attainable b. how much safety is demanded c. does the current product meet the safety demanded 2. informed users: a. understanding of the nature and source of risk b. how can the user best deal with the risk c. what alternatives are there to using product/service 3. should government participate? a. legal mandates b. information disbursement c. testing and approval

Arguments for CSR

1. firms have money centralized to do good 2. society provides opportunity for them 3. self interest, reputation, etc.

corporate takeovers and restructuring

1. Hostile Takeovers 2. Greenmail 3. Golden Parachutes 4. Leveraged Buyouts 5. Downsizing 6. Ethical Investing

insider trading and other insider actions

1. Private knowledge can help a select few a. will lower investors' trust and faith in the system

environmental harm

1. cost-benefit analysis -hard to compare competing types of pollution -the people benefiting are usually different from those being harmed 2. private property rights vs. utilitarianism -having freedom but how it affects others 3. technology -increased damage vs. increased cure 4. pollution -firms/people not paying for use of air, land, water 5. who should we blame? -manufacturers: could spend more money to improve emissions -users: could only buy fuel efficient/low pollution cars -government for not having stricter laws

moral responsibility within the firm

1. do no harm 2. act consistent with the free enterprise system (no monopoly) 3. transact fairly 4. fulfill your contracts

first mover

A firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position first in market, develop new product category ex: Apple developed the first generation of smartphones

Strategic Action (or Response)

A market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse. takes a long time, you must invest a lot to get it all started ex: new product introduction

Tactical Action (or Response)

A market-based move that is taken to fine-tune a strategy Usually involves fewer resources Is relatively easy to implement and reverse ex: price cut

strategic alliance

A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage.

competition

A property of market structure whose form is determined by market forces not subject to the conscious control of individual firms Emphasizing the *structure of markets*

Cooperative Strategy

A strategy in which firms work together to achieve a shared objective or common goal

restructuring

A strategy through which a firm changes its set of businesses or financial structure. 3 types: downsizing downscoping leveraged buyout

aggressive reputation

Apple has a very __________________________, meaning if anyone attacks them in the market, they harshly respond

technology

At time of article, when they made a strategic alliance with Honda, Rover's ______________ was their main struggle

european

At time of case, Honda mainly focused on the Asian and US markets, but they decided to try expanding to the _______________ market

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

B. Expanding the business portfolio in order to diversify managerial employment risk

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 of the following acquisitions would be considered the LEAST related?

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

rivalry

Direct competition [between two firms] when they are directly identifiable to each other Emphasizing the *conduct of individual firms*

equity, copyrights, culture

Disney's core competencies include: Brand __________, character _______________, and family _______________

cost leadership

Duracell uses a ______________________ strategy

ownership and marketing efforts

Espousing certain views that make your investments worth more

legislation, tax laws

Even though Value Neutral diversification does not create much value for a company, they might decide to implement it due to __________________ and _____________.

A U.S. manufacturer of pigments for household paint that exports about 40 percent of its production to European markets will find its sales will be harmed by a weak dollar.

False

Activity sharing limits risk because the ties among a firm's businesses create links between outcomes.

False

In the 1960s and 1970s, capital gains were taxed more heavily than were dividends.

False

Related linked firms share more resources and assets between their businesses than do related constrained firms.

False

greenmail

Firm repurchases shares at high price bought by a potential takeover pursuer

poor performance

Firms plagued by _________________________________ often take higher risks (diversification is risky).

innovation, aggressive, advanced

First movers allocate funds for: product ______________ and development _______________ advertising ______________ research and development

synergy creation

If you can prove that a Business Portfolio is more profitable than the businesses operating separately, this is called ____________________

In Gillette's industry, is there a *supplier threat*?

substitute

In Gillette's industry, the ______________ threat is minimum

very low

In relation to Disney, the bargaining power of both suppliers and buyers is:

low, low

In the A.1. and Lawry's case, the sweeteners, vinegar, salt, etc. *Suppliers* have a ______ bargaining power because the main player's *switching costs* are relatively ______

competition response alliances

Occurs when firms join forces to respond to a strategic action of another competitor Companies might help each other fight against a common enemy/ common competitor

competitive dynamics

Ongoing actions and responses taking place *among all firms competing within a market* for advantageous positions About market structure and industry characteristics of all firms

competitive rivalry

Ongoing actions and responses taking place *between an individual firm and its competitors* for advantageous market position About two companies directly in competition

strategic alliance

Since M&A success rate is 50%, firms might want to start with a _______________________ first to figure out if a future merger between the partners would benefit both parties.

ethical investing

Social betterment through investment influence -easier than passing more laws -priority of moral and ethical behavior: no perfect match of firm and investor

corporate-level strategy

Specifies actions taken by the firm to gain a competitive advantage by *selecting and managing a group of different businesses* competing in different product markets.

strategic

Strategic actions receive __________ responses

leveraged buyouts

TMT takes firm private, usually borrows a lot of money -incentive to purchase at stock at a low price -allows TMT to avoid scrutiny in the short run and thus increase long-term planning

buyer, competition

The main threats in Gillette's market is __________ power and ________________ in the industry

substitutes

The marinade market is the home market to Lawry's, but both steak sauces and marinades *use very similar resources and input ingredients*, so it makes them ___________________ and it sometimes evolves more competition over time

match the price

The most successful tactical response is usually to _______________________

creating, neutral, reducing

There are 3 different reasons for diversification strategy: Value __________ Value __________, and Value _____________

Export, licensing, and the strategic alliance entry modes are all appropriate for early market development

True

Exporting and licensing are the most appropriate ways for smaller firms to first enter international markets

True

allocation of moral responsibility in advertising

What is the role of government?

attack rivals

When do firms initiate competitive actions? when companies ______________________

entrepreneurial, traditional

When it came to design, Rover prioritized a more _________________________ mindset whereas Honda prioritized a more ___________________ mindset

A related acquisition involves two firms in the same industry. (A) True (B) False

Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations:

b. keep free cash flows for investment in acquisitions.

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

c. related linked

integration, debt, large

challenges for mergers & acquisitions: _______________ difficulties inadequate target evaluation extraordinary ______ too much diversification inability to achieve synergy managers overly focused on acquisitions too ________

Carroll's Pyramid of Corporate Social Responsibility

economic, legal, ethical, philanthropic

Operational relatedness

eliminates resource duplication in the need to allocate resources for a second unit to develop a competence that already exists in another unit. they can eliminate resource duplication to improve their operational efficiency

competitor analysis

how you go about identifying who your *direct rival* is

prisoner's dilemma

idea that comes from game theory interdependence between two player's actions and responses depending on each player's decision, there will be different outcomes 1 person's expected outcomes actually depends on other people's decisions

Portfolio theory

idea that you should obtain unrelates businesses for your business portfolio to protect yourself from the risks of the market "dont put all your eggs in one basket"

finance and banking

international issues: 1. variety in rules - different countries have different rules a. secrecy b. what is a crime differs c. different accounting and other rules 2. international debt a. poor countries can't pay off debt and interest is too burdensome b. low morals in some countries; siphon off money to officials & use money for war c. causes fluctuations in economy that can be damaging to its people

domestic issue

international public offering (IPOs) is stock issued to public for the first time

bidding

suppliers bid for customer's business -usually a fair process

tactical

tactical actions receive ________________ responses

market dependence

the extent to which a firm's revenues or profits are derived from a particular market.

strict liability

the firm is liable for its actions regardless of its knowledge of the defect/danger 1. firms usually have money to compensate 2. gives incentives to the firm to do more to prevent potential problems 3. the firm usually has most knowledge about how to fix the problem

reputation

the positive or negative attribute ascribed by one rival to another based on past competitive behavior.

MGMT 493 Exam 2 Ole Miss

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