Both top executives and owners of the firm wish to diversify the firm to reduce risk.
a. True
b. False
Economies of scale and huge advertising budgets are just as effective in the new
competitive landscape as they were in the past, but they must be reinforced by strategic
flexibility.
a. True
b. False
CaseScenario3:ThePetFoodIndustry.
The pet food industry is composed primarily of six market segments: dry dog food, dry
cat food, moist dog food, moist cat food, canned dog food, and canned cat food. Five
large firms dominate the market and each has some market share in all segments, and
the leading share in at least one segment. The largest firm participates solely in the pet
food industry, while the next four firms are actually subsidiaries of some of the world’s
largest food and consumer products companies. Top management of these larger firms
have made public statements that suggest they each see themselves as future leaders of
the pet food industry. All five have acquired comparable skills in terms of
manufacturing and marketing. Two small firms also participate in the industry, but these
players are relatively weak and compete in just two of the six segments; the pet food
industry is the only industry in which they operate. Inputs to the industry are basic
commodities and there is no real threat of substitute products except across segments
and price points. The industry is growing slowly, barely keeping up with the rate of
inflation. Barriers to entry are enormous when pet food companies can gain scale
economies in production coupled with aggressive marketing, though even then these
coordinated actions may only yield average industry profitability. Any firm can increase
its market share only to the extent that another firm’s share is decreased.
The pet food industry provides an example of
A. market commonality.
B. resource similarity.
C. multimarket competition.
D. market commonality, resource similarity, and multimarket competition.
Applications developed for iPhones make the phone more valuable to iPhone users.
App developers are to
a. True
b. False
The board of directors of CamCell, Inc., wishes to design a CEO compensation plan
that will align the personal interests of the CEO with the interests of the shareholders in
long-term firm performance. The board wishes the CEO to take more short-term risks in
order to achieve potentially higher long-term returns. Consequently, the board has
decided on an incentive plan that involves payout based on the firm’s performance five
years in the future. CamCell is presently searching for a new CEO. Which of the
following statements is true?
a. This plan will be very attractive in luring candidates for the CEO position.
b. CamCell may have to over-compensate its CEO in order to offset the personal risk a
CEO would undertake under this plan.
c. Institutional investors disapprove of long-term executive incentive plans and they
may sell their blocks of stock in CamCell.
d. This type of plan is likely to cause the CEO to underinvest in R&D in order to boost
CamCell’s long-term profitability.
CaseScenario1:BlastFurnace,Inc.,(BFI)
Blast Furnace, Inc., (BFI) provides customized development of automated rich-media
applications, and scalable solutions that allow media and entertainment companies, as
well as enterprises and government organizations, to deploy, manage, and distribute
video content on IP-based networks. The company was founded in 1997 and went
public in 2004; its stock trades on the NASDAQ under the ticker BLST. While
providing solutions to a variety of firms and industries in North America, BFI has
experienced its fastest growth with the security products that it designs and sells to the
U.S. government and U.S. government agencies. This growth is based on its propriety
VUE software, which is a complete identification solution for capturing, analyzing, and
managing multi-biometric information. Proprietary analysis algorithms aggregate and
cross-compare multiple biometrics to increase accuracy and lessen dependence on
single identification techniques. Additionally, specialized encoding techniques reduce
file size and increase analysis and response times. VUE supports a wide range of
applications ranging from ID issuance and verification to gated entry screening for
border patrol, airports, government buildings, and corporations. Essentially, VUE is
able to sift through massive amounts of digitized multimedia files to create a unified ID
dossier of an individual and then identify those individuals rapidly anywhere in the
data. Such a capability is of great interest to security organizations, particularly since
the World Trade Center bombing, because it allows the user to identify suspects within
minutes on a real-time basis anywhere digitized media is being created (like that created
by the hidden and visible surveillance cameras in airline terminals, banks, ATMs, and
other public locations). Once a suspect is entered into the system, the software is
capable of scanning all data sources automatically and without stop. For two years, BFI
has had this market to itself but now two new entrants, a Belgian start-up and the
subsidiary of a Finnish telecom firm, are staking out positions in large non-U.S. markets
like Europe and Asia. BFI’s management fears that if it limits its efforts to North
America, then these aggressive
competitors may eventually develop strongholds in other markets from which they can
launch successful attacks on
BFI’s home turf.If BFI engages in international diversification, it can expect that its
returns decrease initially but then increase quickly as it learns how to manage under
conditions of greater geographic diversity.
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
The acquisition of Sun Microsystems (a computer hardware producer) by Oracle (a
software firm) is an example of a horizontal acquisition.
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
CaseScenario3:Bunnywac.
Bunnywac is a global producer and seller of batteries for consumer electronics products
(radios, flashlights, toys, etc.), and competes primarily with its larger rivals by
providing battery products equal in performance at a lower price. The worldwide
battery industry suffers from issues of overcapacity and commoditization, brand
segmentation and proliferation, the growing strength of global retailers, and the
low-cost threat of new entrants from Asia. Thus, the ability to provide dependable
batteries at a very low cost is essential to survival in this industry. Bunnywac has grown
quickly into one of the leading players in the battery industry primary through
horizontal acquisitions financed by a recent successful IPO, and is now counted among
the top four companies in North and Latin America. Its presence in Europe and Latin
America is negligible. While its market presence and brand is generally strong and
market share is growing, Bunnywac has entered into an alliance to obtain the core
technologies of its batteries. Bunnywac does not actually own the technology that
makes its batteries work. This approach has provided Bunnywac a cost advantage since
it has not had to invest in basic R&D and has very little R&D infrastructure.
This technology is licensed from Mats (which has 200 engineers dedicated to moving
the technology forward), one of Japan’s largest technology-based holding companies
(like Sharp or Canon). Mats also sells batteries under the Pandemonium brand and
commands over 50 percent of the market share of Asian countries. Mats’ market share
in other global markets is negligible and its efforts at growing its branded battery share
in the North America, Latin America, and Europe has been severely frustrated in recent
years. While Mats is very large compared to Bunnywac, the battery technology and
battery business are relatively tiny relative to Mats’ other technology-based businesses.
Bunnywac’s decade-long licensing agreement with Mats for the essential battery
technology expires in 1 year; there are no obvious substitute providers of this
technology.
What should Bunnywac’s strategy be with regard to the lapsing technology contract?