Mergers and acquisitions designed to create vertical integration should be managed
through the M-form structure.
Answer:
When less than 90 percent of a firm’s revenues are generated in a single product market
and when a firm’s business share few, if any, common attributes, then that firm is
pursuing a strategy of unrelated corporate diversification.
Answer:
The major opportunity facing firms in fragmented industries is the implementation of
strategies that begin to consolidate the industry into a smaller number of firms.
Answer:
In the VRIO framework, the R represents resources.
Answer:
Firms whose mission statement is central to all they do are known as missionary firms.
Answer:
A sustained competitive advantage is virtually permanent.
Answer:
In a diversified firm, market prices are set by a firm’s corporate management to
accomplish corporate objectives while transfer prices are determined by the market
forces of supply and demand.
Answer:
Product differentiation helps reduce the threat of new entry by forcing potential entrants
to an industry to absorb not only the standard costs of beginning business but also the
additional costs associated with overcoming incumbent firms’ product-differentiation
advantages.
Answer:
Only accounting measures of performance can be used in accurately measuring the
performance of divisions within a diversified firm.
Answer:
By adjusting for a division’s earnings and accounting for the cost of investing in a
division, economic value added is a much more accurate estimate of a division’s
economic performance than are traditional accounting measures of performance.
Answer:
Learning from international operations is automatic.
Answer:
A flexibility-based approach to vertical integration suggests that when the
decision-making setting regarding a business activity is highly uncertain, firms should
form a strategic alliance to enter this activity instead of vertically integrating.
Answer:
Strategy researchers have found that in mergers and acquisitions, the more strategically
related bidding and target firms are, the more economic value these mergers and
acquisitions create.
Answer:
At some level, international strategies have existed since before the beginning of
recorded time.
Answer:
Core competencies are an example of costly-to-duplicate economies of scope.
Answer:
Many firms have resources and capabilities that are used to neutralize threats and the
use of these resources enables the firms to increase their net revenues.
Answer:
The acquisition of strategically unrelated targets will generate substantial economic
profits for both the bidding and the target firms.
Answer:
According to the Federal Trade Commission, a firm engages in a horizontal merger
when it acquires former suppliers or customers.
Answer:
The threat of entry in an industry depends on the cost of entry, and the cost of entry, in
turn, depends upon the existence and “height” of barriers to entry.
Answer:
There is complete consensus among strategic managers and academic researchers about
what a “strategy” is.
Answer:
Unlearning requires a firm to modify or abandon traditional ways of engaging in
business.
Answer:
Despite the popularity of conglomerate mergers in the 1960s, most mergers and
acquisitions among strategically related firms are divested shortly after they are
completed.
Answer:
In a product extension merger, a firm acquires complementary products through merger
and acquisition activities.
Answer:
All firms that use the multidivisional structure use the same criteria for defining the
boundaries of profit-and-loss centers.
Answer:
Traditionally, the compensation of corporate managers in a diversified firm has been
only loosely connected to the firm’s economic performance.
Answer:
The residual claimants’ view of equity holders argues that the interests of equity holders
come before all other stakeholders of the firm in receiving payment.
Answer:
Culture is largely the same across the world.
Answer:
Firms can maintain traditional arm’s-length market relationship between themselves and
their nondomestic customers and still implement international strategies.
Answer:
By conducting an external analysis, a firm identifies the critical threats and
opportunities in the industry’s competitive environment.
Answer:
When international firms engage in countertrade, they receive payment for the products
or services they sell into a country in the form of hard currency.
Answer:
In this example, composite wood furniture would be an example of a(n)
A) substitute.
B) rival.
C) new entrant.
D) complementor.
Answer:
More recent work in the area of strategic management regarding assertions about being
stuck in the middle
A) supports the argument that firms that attempt to simultaneously pursue cost
leadership and product differentiation will find themselves at a competitive
disadvantage.
B) contradicts the argument and finds that firms that successfully pursue cost leadership
and product differentiation simultaneously can often expect to gain a sustained
competitive advantage.
C) partially contradicts the argument and finds that firms that successfully
simultaneously pursue cost leadership and product differentiation can only expect to
gain a temporary competitive advantage.
D) partially contradicts the argument and finds that only firms in certain select
industries can successfully simultaneously pursue cost leadership and product
differentiation and gain a temporary competitive advantage.
Answer:
eBay, the online auction company, has an impressive portfolio of cooperative
agreements. This portfolio includes an agreement with the U.S. Postal Service to
facilitate the shipping of goods purchased through eBay auctions, an agreement to allow
MBNA to use eBay’s name on a credit card, and an agreement in an online auction
company in Korea that is supplemented with an investment by eBay in the Korean
partner. In addition, at one time eBay had formed an independent firm, called eBay
Australia and New Zealand, with an Australian company known as ecorp.
If eBay’s Australian partner agreed to provide marketing and technological skills to help
eBay compete in the Australian and New Zealand auction industries but provided skills
that were significantly lower than promised, this would be an example of
A) holdup.
B) moral hazard.
C) adverse selection.
D) tacit collusion.
Answer:
The divided loyalties that divisional staff managers have between corporate staff
managers and functional managers are potentially the most problematic in ________
staff functions.
A) marketing
B) accounting
C) logistics
D) production
Answer:
When a firm simultaneously implements both a product diversification strategy and a
geographic market diversification strategy it is said to be implementing a(n)
A) mixed-market diversification strategy.
B) unrelated-diversification strategy.
C) product-differentiation strategy.
D) product-market diversification strategy.
Answer:
Countervailing duties are an example of
A) quotas.
B) nontariff barriers acquisition.
C) tariffs.
D) countertrade.
Answer:
Firms ________ when they attempt to develop all the resources and capabilities they
need to exploit market opportunities and neutralize market threats by themselves.
A) engage in tacit collusion
B) form joint ventures
C) go it alone
D) engage in explicit collusion
Answer:
An important limitation of comparing a firm’s performance to its cost of capital occurs
when a firm is
A) privately held.
B) an IPO.
C) an entrepreneurial venture.
D) experiencing below normal economic performance.
Answer:
If Digipics were to begin manufacturing lenses for the cameras they assembled, this
would be an example of
A) backward vertical integration.
B) a strategic alliance.
C) forward vertical integration.
D) opportunism.
Answer:
In a declining industry
A) product-differentiation efforts are focused on product refinement as a basis of
product differentiation.
B) firms that are first movers can gain product-differentiation advantages based on
perceived technological leadership.
C) highly differentiated firms may be able to gain product-differentiation advantages by
preempting strategically valuable assets.
D) highly differentiated firms may be able to discover a viable market niche that will
enable them to survive despite the overall decline in the market.
Answer:
If Brenda Thompson, Tom Mix’s supervisor, wanted to use a budgeting process to help
evaluate Tom’s performance but wanted to ensure that using a budget did not encourage
Tom to focus on short-term behaviors at the expense of long-term results, she should
A) develop the budget herself using realistic goals based on the economic reality facing
Tom’s function and use both quantitative and qualitative evaluations of the performance
of Tom’s function and then give the budget to Tom to follow.
B) work with Tom in an open and participative process to develop the budget based on
the most optimistic scenario possible and use both quantitative and qualitative
evaluations of the performance of Tom’s function.
C) develop the budget herself based on the most pessimistic scenario possible and use
both quantitative and qualitative evaluations of the performance of Tom’s function and
then give the budget to Tom to follow.
D) work with Tom in an open and participative process to develop the budget based on
the economic reality facing Tom’s function and use both quantitative and qualitative
evaluations of the performance of Tom’s function.
Answer:
A firm that chooses a ________ focuses on gaining advantages by reducing its cost
below all of its competitors.
A) diversification strategy
B) product-differentiation business strategy
C) corporate strategy
D) cost-leadership business strategy
Answer:
P&G is a leading consumer goods company in the United States that has grown its
business through a combination of international growth, alliances, acquisitions and
mergers. In 2003, P&G acquired the beauty care company Wella to acquire products
that would complement its current product. In 2004, P&G acquired AG-Hutchison Ltd
to establish a stronger presence in the Chinese consumer goods products market. In
2005, P&G acquired Gillette, another consumer goods company, in a deal worth
approximately $57 billion dollars.
If P&G wanted to increase the probability that it would be able to earn superior
economic performance from its acquisition of Gillette, P&G should
A) share information about Gillette with other potential bidders.
B) share information about strategic fit potential between P&G and Gillette with
Gillette.
C) wait to submit its bid for Gillette until there are multiple interested bidders.
D) close the acquisition deal as quickly as possible.
Answer:
The realized strategy of most firms tends to be
A) almost exclusively a reflection of their intended strategy.
B) almost exclusively a reflection of their emergent strategy.
C) a combination of both intended and emergent strategies.
D) reflective of neither the firms’ intended nor emergent strategy.
Answer:
Ultimately the ________ of a product differentiation strategy depends on the ability of
individual firms to be creative in finding new ways to differentiate their products.
A) sustained competitive advantage
B) rarity
C) imitation
D) innovation
Answer:
Agrestal Cosmetics, Inc. is a leading U.S. manufacturer of natural, herb-based cosmetic
products. It started out purely as a domestic company but in 1983 established operations
in India primarily to gain access to that country’s abundant supply of hibiscus, a plant
that provided important raw materials to the company’s products. In 2009, Agrestal did
business in 29 countries around the world. It has factories in Malaysia and Taiwan to
use the low labor cost in those countries in making its labor-intensive products. In the
late 1990s, it had to close it operations in a foreign country when, due to a change in the
country’s leadership, all foreign companies had to cease doing business there. During
the Brazilian financial crisis, Agrestal adopted the practice of using revenues generated
in Brazil to buy orange concentrate locally and sell that concentrate in the United
States. Agrestal’s corporate finance department aggressively uses hedging in all the
countries where it operates. In a few select countries, Agrestal licenses its brand names
and know-how to local licensees. Currently, Agrestal is organized whereby all strategic
and operational decisions are made at its Princeton, New Jersey headquarters.
When Agrestal (along with other companies) was asked to leave a foreign country in
the 1990s, it was a victim of
A) corporate risk.
B) cultural risk.
C) political risk.
D) financial risk.
Answer:
When a firm has not sold shares on the public stock market, it is known as
A) closely held.
B) privately held.
C) publicly traded.
D) a small cap stock.
Answer:
When one firm acquires a(n) ________ of another firm, it has acquired enough of that
firm’s assets so that the acquiring firm is able to make all the management and strategic
decisions in the target firm.
A) market stake
B) equity share
C) controlling share
D) equity stake
Answer:
To ensure that the owners of target firms appropriate whatever value is created by a
merger or acquisition, managers in these target firms should
A) create a thinly traded market for their firm.
B) seek information from bidders.
C) close the acquisition deal quickly.
D) limit the number of bidders involved in the bidding competition.
Answer:
A firm’s ________ is defined as its theory about how to gain competitive advantages.
A) objective
B) mission
C) vision
D) strategy
Answer:
eBay, the online auction company, has an impressive portfolio of cooperative
agreements. This portfolio includes an agreement with the U.S. Postal Service to
facilitate the shipping of goods purchased through eBay auctions, an agreement to allow
MBNA to use eBay’s name on a credit card, and an agreement in an online auction
company in Korea that is supplemented with an investment by eBay in the Korean
partner. In addition, at one time eBay had formed an independent firm, called eBay
Australia and New Zealand, with an Australian company known as ecorp.
eBay’s agreement with the Korean online auction company is best characterized as a(n)
A) licensing agreement.
B) joint venture.
C) equity alliance.
D) distribution agreement.
Answer:
The price of each of a firm’s shares multiplied by the number of shares outstanding
represents the firm’s
A) total equity base.
B) current market value.
C) total market share.
D) current market share.
Answer:
If a division of a multidivisional firm has adjusted accounting earnings of $10 million, a
weighted average cost of capital of 10% and a total capital employed by the division of
$50 million, the division has an EVA of
A) $25 million.
B) $5 million.
C) $15 million.
D) $20 million.
Answer:
Sematech is a producer of computer chips. To gain an advantage over other computer
chip makers, Sematech focuses on reducing its costs below all of its competitors and
has aligned its value chain accordingly. Recently, several of Sematech’s competitors
have begun to reduce the company’s competitive advantage. In response to this threat,
Sematech has decided to add production capacity in an effort to lower costs. If
Sematech were to choose to narrow its product line in an effort to reduce costs, this
would be an example of
A) technological software.
B) a policy choice.
C) a competitive advantage.
D) a learning-curve effect.
Answer:
Supervision of the board of directors in its monitoring role is the responsibility of
A) the CEO.
B) the chairman of the board.
C) the chief operating officer.
D) the president.
Answer:
The ability of companies that produce complex software packages to tailor these
packages to the specific needs of their customers is an example of product
differentiation through
A) complexity.
B) consumer marketing.
C) product customization.
D) timing.
Answer:
In a ________ structure, corporate staff functions are generally limited to the collection
of accounting and other performance information from divisions/country companies
and to reporting this aggregate information to appropriate government officials and to
the financial markets.
A) transnational
B) decentralized federation
C) centralized hub
D) coordinated federation
Answer:
If the potential responses of competing firms are likely to be very detrimental to the
costs advantages of cost leaders, firms pursuing a cost-leadership competitive strategy
should
A) drop their prices below competitors’ prices to increase overall economic
performance through increased volumes of profitable sales.
B) raise their prices above competitors, increasing overall economic performance
through higher margins.
C) focus on a specific niche market to avoid direct competition with aggressive
competitors.
D) set their prices equal to competitors’ prices, sacrificing some market share for
increased profit margins.
Answer:
Which of the following bases of product differentiation is by far the most popular way
for firms to try to differentiate their products but is identified as almost always being
easy to duplicate?
A) product mix
B) product features
C) customization
D) distribution channels
Answer:
The major substitute for vertical integration is
A) vertical disintegration.
B) strategic alliances.
C) a product-differentiation strategy.
D) a low-cost strategy.
Answer:
SpandoCorp is a diversified firm that makes industrial, military and consumer products
from Spandex. SpandoCorp manages each of the businesses that it operates in as a
separate division and treats each as a true profit-and-loss center. In this organization,
Grace McKenna is responsible for deciding which set of businesses SpandoCorp will
operate in and for encouraging behavior that is consistent with this strategy, Wells
Tucker provides information to McKenna about the internal and external environments
that she uses in her decision making, and Kelly Rae is one of the individuals who is
responsible for evaluating the firm’s decision making to ensure that it is consistent with
the interests of equity holders.
If SpandoCorp wanted to measure the performance of its divisions with a method that
would minimize any potential short-term bias, it should use a(n)
A) hurdle rate based measure of divisional performance.
B) divisional budget based measure of performance.
C) economic value added measure of divisional performance.
D) measure of performance based on the average level of profitability of firms in a
division’s industry.
Answer: