Chapter 05: Business– and Functional-Level Strategy
TRUE/FALSE
1. The business-level strategy is how a firm will compete in a particular product-market.
2. Porter’s Five Forces model is based on labor and demographic economics.
3. Individuals or firms who actually purchase the output of the industry are the buyers.
4. Direct outputs can include widely recognized items, such as raw materials, fixed assets, and financial
support.
5. The reaction of the existing firms in an industry can affect the ability of others to enter.
6. For an economist, products that perform a similar function but are not considered to be in the same
product category are referred to as substitute products.
7. Threat of substitute products is typically the force that has the greatest impact in the Five Forces
model.
8. Low-cost strategies can be used for products, but not for services.
9. The breadth of products a firm will offer, such as the range of customers and/or distributors sold to,
and the geographic region the firm will cover is known as competitive scope.
10. With a focused strategy, a firm will try to serve a particular type of customer, a particular distribution
channel, and a geographic region, often with only one product.
11. Business-level strategy is always difficult to change when a firm faces a difficult competitive setting.
12. If maintaining a low-cost position in the market is difficult, firms may seek a more differentiated
position that will enable them to charge a premium price for their product.
13. Firms with high market share are the only ones that are most profitable.
14. A firm that allows each market to adapt to the local conditions and pursue the strategy they choose
best in that local market is using a multi-domestic strategy.
15. With a global strategy, a business has operations in multiple countries with a different business-level
strategy in each country.
16. A global positioning strategy is common with many consumer products firms, particularly those in
food and beverage, which must customize their products to local tastes.
17. Typically, a firm pursuing a transnational strategy will determine how much flexibility is to be allowed
in a given nation.
18. Functional strategies need not flow from the business-level strategy.
19. Accounting is not only concerned with maintaining information about the financial status of the firm,
but also with providing data on how the firm is meeting its strategic objectives.
20. If a low-tax entity can charge a low transfer price on a product shipped to a high-tax environment, then
the company can reduce its overall taxes.
21. A finance strategy should not only provide financing, but should also help a firm identify those key
areas that can be done more efficiently or cheaply.
22. A low-cost firm will try to avoid numerous production variations and seek to minimize customization,
as both of these add cost to the product that they may not be able to pass along to customers.
23. In a turnkey operation, one part of the company is responsible for setting up the plant and equipment.
24. The concept of value chain focuses mostly on inputs to a firm and where that firm ships its output.
25. The keiretsu are the vertically and horizontally integrated business groups that dominate the Japanese
economy.
MULTIPLE CHOICE
1. Porter’s Five Forces model is based on:
a.
industrial organization economics.
b.
labor and demographic economics.
c.
business administration and business economics.
d.
environmental and ecological economics.
2. All of the following are the characteristics that determine if the power of the buyers is high EXCEPT:
a.
concentration of buyers.
b.
a large number of buyers purchasing about half or more of the industry’s output.
c.
impact of goods from the industry on buyers’ output.
d.
ability to switch among different suppliers in the industry.
3. What is the concern with labor?
a.
Whether the employees are good workers.
b.
If the workers are important to the process.
c.
Whether the workers are powerful enough to demand a premium for their services.
d.
If the workers are willing to work for a wage below the union wage.
4. Which of the following is NOT an example of substitute products?
a.
Orange juice for Coke
b.
Motorcycle for auto
c.
Bicycle for car
d.
Pencil for eraser
5. Which of the following is typically the force that has the greatest impact in the Five Forces model?
a.
Rivalry
b.
New entrants
c.
Substitute products
d.
Bargaining power of suppliers
6. _____ keep firms in an industry and thus can exert downward pressure on profits.
a.
Barriers to entry
b.
Exit barriers
c.
Mobility barriers
d.
Survival barriers
7. Products that sell well with another product are called:
a.
rivalrous goods.
b.
substitute products.
c.
complementors.
d.
nonrival goods.
8. A _____ occurs when a business sells a product at or near the lowest price in the firm’s chosen market
segment or segments.
a.
differentiation strategy
b.
focused strategy
c.
best-cost strategy
d.
low-cost strategy
9. Which of the following provides some aspect of the product that differs from that of the firm’s
competitors, such that customers will pay a premium for the product?
a.
A differentiation strategy
b.
A low-cost strategy
c.
A focused strategy
d.
A best-cost strategy
10. Firms with a focused strategy:
a.
cannot be adopted with a low-cost strategy.
b.
focus on a narrow segment of the market.
c.
cannot be adopted with a differentiation strategy.
d.
try to serve a geographic region, often with many products.
11. If a firm chooses to compete in the same manner in all countries, it is called a:
a.
transnational strategy.
b.
hybrid strategy.
c.
global strategy.
d.
multi-domestic strategy.
12. A firm that allows each market to adapt to the local conditions and pursue the strategy they choose
best in that local market is using a:
a.
global strategy.
b.
transnational strategy.
c.
hybrid strategy.
d.
multi-domestic strategy.
13. Which of the following statements about a global strategy is false?
a.
A different business-level strategy is followed in each country.
b.
A business has operations in multiple countries.
c.
There is a uniform decision by the corporation about how to address given problems.
d.
A local manager is not given much flexibility to address the specific needs of the local
market.
14. What is the benefit of using a global strategy?
a.
Greater ability to match the needs of each market.
b.
Ensures obtaining the maximum benefits from economies of scale.
c.
Greater ability to hire locals to do key advertising and related activities.
d.
Allows each market to adapt to the local conditions.
15. _____ occur when a firm enjoys declining unit costs as production increases over a relevant range of
time.
a.
Economies of scope
b.
Network externalities
c.
Economies of scale
d.
Returns to scale
16. What is the benefit of using a multi-domestic strategy?
a.
Helps to ensure the maintenance of a quality image of the firm.
b.
Ensures obtaining the maximum benefits from economies of scale.
c.
Ensures the maintenance of quality of the firm’s products.
d.
Greater ability to hire locals to do key advertising and related activities.
17. Typically, a firm pursuing a(n) _____ strategy will determine how much flexibility is to be allowed in
a given nation.
a.
transnational
b.
regional
c.
national
d.
international
18. _____ strategies are those strategies that direct what occurs in the individual operative areas
a.
Operational strategies
b.
Functional strategies
c.
Competitive strategies
d.
Business-level strategies
19. The European Union has ruled that the 7,000-plus companies listed in its member countries should
use:
a.
GAAP.
b.
HGB.
c.
IFRS.
d.
SOX.
20. Which of the following accounting standards is used in the U.S.?
a.
SOX
b.
IFRS
c.
HGB
d.
GAAP
21. Which of the following refers to the pricing of goods and services within a multi-divisional
organization?
a.
Transfer pricing
b.
Skimming pricing
c.
Predatory pricing
d.
Penetration pricing
22. In terms of balance sheet used by the IFRS, which of the following is true?
a.
Entities may present either a classified or non-classified balance sheet.
b.
Does not prescribe to a particular format.
c.
Items on the face of the balance sheet are generally presented in decreasing order of
liquidity.
d.
Public companies must follow SEC guidelines regarding minimum-disclosure
requirements.
23. Which of the following statements about the U.S. GAAP is true?
a.
In terms of cash flow statement– cash includes overdrafts and cash equivalents with
short-term maturities.
b.
In terms of income statement, certain items must be presented on the face of the income
statement.
c.
In terms of exceptional items, individually significant items should be presented on the
face of the income statement.
d.
In terms of cash flow statement, format and method- there are standard headings but
limited flexibility of contents.
24. One part of the company is responsible for setting up the plant and equipment while another operates
the plant in a:
a.
Greenfield operation.
b.
licensing operation.
c.
wholly owned subsidiary.
d.
turnkey operation.
25. Vertically and horizontally integrated business groups that dominate the Japanese economy are called:
a.
keiretsu.
b.
chaebol.
c.
kaizen.
d.
kanban.
ESSAY
1. What are the characteristics that determine if the power of the buyers is high?
ANS:
2. What are the structural characteristics of an industry that frequently affect access to that industry?
ANS:
3. Compare and contrast a low-cost strategy and a differentiation strategy.
4. Explain what Michael Porter called being “stuck in the middle.”
5. What is a global strategy and what are its benefits?
ANS:
6. Explain transfer pricing in detail.
ANS:
7. Write a note on quality management developed in part by Dr. Deming.