Productive inputs are any supplies used by a firm in conducting its business activities.
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Firms selling differentiated products face a horizontal demand curve.
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If a resource or capability is valuable and rare but not costly to imitate, exploiting this
resource will generate a sustainable competitive advantage for a firm.
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Firms with highly differentiated products may have loyal customers, or customers who
are unable to purchase similar products or services from other firms and are therefore
more likely to accept increased prices due to a firm passing on increased costs by a
powerful supplier.
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Organizational resources include the training, experience, judgment, intelligence,
relationships and insight of individual managers and workers in a firm, while human
resources are an attribute of collections of individuals.
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Within the VRIO framework, valuable resources and capabilities are also known as
strengths.
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If products or services are perceived as being different in a way that is valued by
customers, even if there is no physical differentiation, then product differentiation
exists.
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Product differentiation effectively reduces rivalry to zero.
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Core competencies are complex sets of resources and capabilities that link different
businesses in a diversified firm through managerial and technical know-how,
experience, and wisdom.
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Knowing how a firm is differentiating its products means that competitors will be able
to duplicate a firm’s product-differentiation strategy at a lower cost.
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In general, firms that are attempting to implement a cost-leadership strategy will choose
to produce relatively simple standardized products that sell for relatively low prices
compared to the products and prices of firms pursuing other business or corporate
strategies.
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Proprietary technology often is more important as a barrier to entry than is managerial
know-how.
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The objective of divestment is to extract a firm from a declining industry.
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For a firm to gain a controlling share in an acquisition, it must purchase more than 51%
of the acquired firm’s assets.
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International strategies are typically limited to just huge multinational companies.
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If Wal-Mart were to purchase a factory to make socks and it planned to sell these socks
in its stores, this would be an example of forward vertical integration.
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The threat of buyers is greater if the products or services that are being sold to buyers
are standard and not differentiated than if the products sold to buyers are highly
differentiated.
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The only two economies of scope that do not have the potential for generating positive
returns for a firm’s equity holders are diversification in order to maximize the size of a
firm and diversification to reduce risk.
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If you were to purchase a new Apple iPod and were unable to use your previously
downloaded library of digital music with your new iPod, this would be an example of a
customer-switching cost you would incur to use Apple’s product.
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Efforts to move down the learning curve quickly by acquiring market share are likely to
obtain a cost advantage over rivals.
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The downside risks associated with investing in a strategic alliance are unknown but
fixed.
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An alliance will be preferred to an acquisition when there are legal constraints on
acquisitions.
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Product innovation is an effort to refine and improve a firm’s current processes.
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International strategies are actually a special case of business strategies.
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According to the S-C-P model, attributes of the industry structure within which a firm
operates define the range of options and constraints facing a firm.
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A fragmented industry is an industry that has experienced an absolute decline in unit
sales over a sustained period of time.
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Capability explanations of vertical integration acknowledge the importance of
firm-specific investments in creating value for a firm.
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Managerial risk aversion is not as important in diversified firms where risk is
distributed.
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Shared activities that can provide the basis for operational economies of scope are quite
common among related-constrained and related-linked diversified firms, as well as
firms following an unrelated diversification strategy.
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Inputs whose quantity of supply is fixed and whose demand does not respond to price
increases are said to be elastic in supply.
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When both parties to an alliance are seeking to learn something from that alliance, a
learning race can evolve.
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A transaction-specific investment is any investment in an exchange that has
significantly more value in the current exchange than it does in alternative exchanges.
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In 1970, institutions owned 62 percent of the equity traded in the United States; by
1990, institutions owned 48 percent of this equity and by 2002, they owned only 32
percent of this equity.
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As the volume of production in a firm increases, the average cost per unit decreases
until some optimal volume of production is reached, after which the average costs per
unit of production begin to rise because of diseconomies of scale.
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Monopolistically competitive industries consist of only a single firm.
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A firm has implemented a strategy of limited corporate diversification when all or most
of its business activities fall within a single industry and geographic market.
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In the multidivisional structure, each business that the firm engages in is managed
through a division.
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Once developed, a firm’s reputation can last a long time, even if the basis for that
reputation no longer exists.
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The existence of moral hazard in a strategic alliance proves that at least one of the
parties is either malicious or dishonest.
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Shared activities are quite common between both ________ and ________ diversified
firms.
A) single-business; dominant-business
B) related-constrained; single-business
C) related-linked; dominant-business
D) related-constrained; related-linked
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The major opportunity facing firms in fragmented industries is
A) refining their current products and emphasizing an increase in service quality.
B) developing new products and technologies.
C) creating a first-mover advantage through technological leadership.
D) the implementation of strategies that began to consolidate the industry into a smaller
number of firms.
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Entrepreneurs must rely on capital generated from their ongoing operations or
________ and debt capital provided by banks.
A) initial public offering
B) retained earnings
C) venture capital firms
D) operating budgets
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________ implies that for a given business activity, some firms may be more skilled in
accomplishing this activity than other firms.
A) Resource mobility
B) Resource homogeneity
C) Resource immobility
D) Resource heterogeneity
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Cross-functional product development teams are suitable for a firm pursuing a
________ strategy.
A) cost-leadership
B) confrontation
C) product-differentiation
D) stuck-in-the-middle
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Firms for whom the price of the products or services they sell is determined by market
conditions and not by the individual decision of the firms are known as
A) profit takers.
B) price makers.
C) price takers.
D) profit makers.
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Resources and capabilities, such as interpersonal relations among managers and a firm’s
culture, that may be costly to imitate because they are beyond the ability of firms to
systematically manage and influence are referred to as
A) socially complex.
B) causally ambiguous.
C) path dependent.
D) the result of unique historical conditions.
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Actions firms take to gain competitive advantages by operating in multiple markets or
industries simultaneously are known as
A) corporate level strategies.
B) diversification strategies.
C) business level strategies.
D) strategic alliance strategies.
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Improvements in the ________ infrastructure of business are one of the important
contributors to the growth in the number of firms pursuing international strategies.
A) pecuniary
B) cultural
C) technological
D) corporate
Answer:
Some observers predict that by ________ an additional 3.3 million jobs in the United
States will be outsourced, many to operations overseas.
A) 2014
B) 2015
C) 2016
D) 2017
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To the extent that other firms may have competitive advantages in business activities
that a firm is considering to enter through vertical integration, vertically integrating into
these activities could put the firm at a
A) competitive advantage.
B) temporary dynamic disadvantage.
C) sustainable competitive advantage.
D) competitive disadvantage.
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The Lockheed Corporation Skunk Works is an example of a(n)
A) cross-divisional or cross-functional team.
B) M-form structure.
C) U-form structure.
D) multidivisional structure.
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________ are advantages that come to firms that make important strategic and
technological decisions early in the development of an industry.
A) Visionary advantages
B) First-mover advantages
C) Comparative advantages
D) Missionary advantages
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In a ________ merger, firms acquire complementary products through their merger and
acquisition activities.
A) vertical
B) market extension
C) product extension
D) horizontal
Answer:
In developing a compensation policy used to implement a product-differentiation
strategy, firms will
A) hold individuals responsible for experiments that fail.
B) punish individuals for taking risks when their projects are not successful.
C) simultaneously use multiple dimensions to examine employee performance.
D) provide appropriate incentives for managers and employees to reduce costs.
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A thinly traded market is a market where
A) there are only a small number of buyers and sellers,where information about
opportunities in this market is not widely know, and where interests besides purely
maximizing the value of a firm can be important.
B) many firms are implementing acquisition strategies.
C) information about opportunities in this market is widely known.
D) the only important interest is to maximize the value of a firm.
Answer:
Which of the following is likely to be a rare source of cost advantage?
A) technological software
B) if the efficient size of a firm or plant is significantly smaller than the total size of an
industry
C) cost disadvantages based on diseconomies of scale
D) technological hardware
Answer:
An example of a contractual clause that deals with operating issues would be a
A) noncompete clause.
B) minority protection clause.
C) put options clause.
D) termination clause.
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Even if direct duplication of a firm’s international strategies is ________, ________
might still exist that limit the ability of that strategy to generate sustained competitive
advantages.
A) costly; substitutes
B) inexpensive; substitutes
C) costly; fragmentation
D) inexpensive; fragmentation
Answer:
When diversified firms use the revenues from profitable businesses to subsidize the
operations of another business and then set the prices of the subsidized firm’s products
at a level that is below the subsidized business’s cost to produce these items, this is
known as ________ pricing.
A) dynamic
B) monopoly
C) predatory
D) beneficial
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.
What Agrestal did in Brazil was an example of
A) hedging.
B) countertrade.
C) diversification.
D) strategizing.
Answer:
Which of the following is not one of the six distinct activities in McKinsey and
Company’s value chain model?
A) technology development
B) product design
C) manufacturing
D) inbound logistics
Answer:
Consistent with a real options perspective, firms in new and uncertain environments are
likely to
A) avoid using strategic alliances.
B) develop numerous strategic alliances.
C) develop few strategic alliances.
D) engage in vertical integration.
Answer:
________ exist(s) when firms coordinate their production and pricing decisions not by
directly communicating with each other but by exchanging signals with other firms
about their intent to cooperate.
A) Economies of scale
B) Explicit collusion
C) A learning race
D) Tacit collusion
Answer:
In 2005, what percentage of the equity traded in the United States was owned by
institutional investors?
A) 20%
B) 38%
C) 59%
D) 69%
Answer:
BidBuy has a ________ advantage.
A) visionary
B) global
C) first-mover
D) comparative
Answer:
A firm’s ________ is really no more than a socially complex relationship between a
firm and its customers and can serve as a basis for product differentiation.
A) location
B) reputation
C) consumer marketing
D) architectural competence
Answer:
According to Coach’s website, the company has built a distinctive style and prestigious
image over the past 40 years to develop a reputation as “America’s preeminent designer,
producer, and marketer of fine accessories and gifts for women and men including
handbags, business cases, luggage and travel accessories, wallets, outerwear, eyewear,
gloves, scarves and fine jewelry.” Coach employs a multi-channel distribution channel
to reach its customers, including company-owned stores and boutiques in the stores of
prominent specialty retailers both within the United States and abroad, and the company
operates an online store. Consumers who purchase coach products are generally willing
to pay the premium price due to the superior quality of Coach’s products as well as the
perceived prestige of owning a Coach product. Coach stresses these features in its
advertising campaigns and regularly allows movies and television shows to favorably
feature Coach products in appropriate scenes. Over the last five years. Coach has
partnered with automobile manufacturers such as Lexus to produce automobiles with
Coach interiors. In an effort to expand its international reach, Coach intends to increase
its international distribution and is expanding into Japan through Coach Japan, Inc., a
joint venture with a local company that will allow Coach to control international
distribution and to maintain a consistent brand strategy domestically and abroad.
Which of the following bases of product differentiation does Coach appear to be
employing?
A) product features, product complexity, and consumer marketing
B) location, linkages between functions, and reputation
C) reputation, consumer marketing, and product features
D) distribution channels, service and support, and links with other firms
Answer:
A firm is likely to be among the first in its industry to vertically disintegrate an
exchange when
A) the firm concludes that the level of specific investment required to manage an
economic exchange is high.
B) the firm believes that the exchange is costly to imitate.
C) the level of uncertainty about the value of an exchange has increased.
D) the firm believes that the exchange is rare.
Answer:
In 2011, the total value of announced merger and acquisition activities in the United
States was
A) $2 trillion.
B) $1 trillion.
C) $3 trillion.
D) $5 trillion.
Answer:
The VRIO assumption that some of the resource and capability differences among firms
may be long lasting because it may be very costly for firms without certain resources
and capabilities to develop or acquire them is known as
A) resource mobility.
B) resource homogeneity.
C) resource immobility.
D) resource heterogeneity.
Answer:
A firm that diversifies by exploiting its resources and capability advantages in its
original business will have ________ costs than (as) firms that begin a new business
without these resource and capability advantages, or ________ revenues than (as) firms
lacking these advantages.
A) higher; lower
B) the same; higher
C) lower; the same
D) lower; higher
Answer:
The number of steps in a firm’s value chain that it accomplishes within its boundaries
describes the firm’s level of
A) product differentiation.
B) diversification.
C) vertical integration.
D) competitive dynamics.
Answer: