The strategic management process is a sequential set of analyses and choices that can
increase the likelihood that a firm will choose a good strategy that generates
competitive advantages.
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A decision-making setting is uncertain when the future value of an exchange cannot be
known when investments in that exchange are being made.
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A board of directors typically consists of 15 to 30 individuals drawn from a firm’s top
management group and from individuals outside the firm.
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Cost advantages based on diseconomies of scale are likely to be rare.
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Capabilities theory suggests that an alliance will be preferred over going it alone when
an exchange partner possesses valuable, rare, and costly-to-imitate resources and
capabilities.
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A firm’s accounting performance is a measure of its competitive advantage calculated
using information from a firm’s published profit and loss and balance sheet statements.
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Growth is the third stage in the product life cycle.
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Successful strategic alliances are often based on socially complex relations among
alliance partners but virtually every firm in a given industry is likely to have the
organizational and relationship-building skills required for alliance building making the
possibility of direct duplication of strategic alliances very high.
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In some international markets, adequate distribution networks exist but are tied up by
new entrants to these markets.
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The S-C-P model assumes that any competitive advantages a firm has in an industry
must benefit society.
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Activity ratios are ratios with some measure of profit in the numerator and some
measure of firm size or assets in the denominator.
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The threat of opportunism is the least when a party to an exchange has made
transaction-specific investments.
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Given the relatively low margins of firms pursuing a cost-leadership strategy, firms
pursuing this strategy are especially vulnerable to buyers having their revenues reduced
to a point where they are unable to earn normal or above-normal performance.
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The use of budgets in a vertically integrated U-form organization can lead functional
managers to overemphasize short-term behavior that is easy to measure and
underemphasize longer-term behavior that is more difficult to measure.
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Physical technology-based cost advantages apply only in manufacturing firms.
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A firm that diversifies by exploiting its resources and capability advantages in its
original business will have higher costs than firms that begin new business without
these revenues and capability advantages or lower revenues than firms lacking these
advantages, or both.
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Mission statements that are very inwardly focused and are defined only with reference
to the personal values and priorities of its founders and top managers can hurt a firm’s
performance.
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A firm’s vertical integration strategy can only be rare when it is the only firm that is able
to vertically integrate efficiently.
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Research suggests that, in general, vertically integrating is more flexible than not
vertically integrating.
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The increased use of international strategies by both large and small firms suggests that
the economic opportunities associated with operating in multiple geographic markets
can be substantial.
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One estimate suggests that countertrade accounts for between 10 and 20 percent of
world trade.
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When a firm operates in multiple geographic markets simultaneously it is said to be
implementing a product diversification strategy.
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The second step in the strategic management process is the definition of a firm’s
mission.
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The cumulative abnormal return for a merger or acquisition can be positive or negative
depending on whether the stock in question performs better or worse than what was
expected without an acquisition.
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For Southwest Airlines, competitive advantage falls into two big categories: financial
decisions made by Southwest and Southwest’s approach to managing people.
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It is usually possible to know for sure that a firm is choosing the right strategy.
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Firms that pursue a strategy of related corporate diversification have some type of
linkages among most of the different businesses they pursue.
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The cost of equity is equal to the interest a firm must pay its debt holders in order to
induce those debt holders to lend money to the firm.
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Attempts to create differences in the relative perceived value of a firm’s products or
services are rarely made by altering the objective properties of those products or
services.
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Business strategy is a firm’s theory of how to gain competitive advantage by operating
in several businesses simultaneously.
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A hedonic price is that part of a products’ or services’ actual price that is not attributable
to a particular attribute of that product or service.
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Firms should pursue merger and acquisition strategies only to obtain valuable
economies of scope that outside investors find too costly to create on their own.
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Accounts receivable turnover is an example of which type of ratio?
A) profitability
B) activity
C) liquidity
D) leverage
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The best example of a firm following a cost-leadership business strategy is
A) Mercedes Benz.
B) Macy’s.
C) Ryanair.
D) Rolls Royce.
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In ________ budgeting, corporate executives create a list of all capital allocation
requests from divisions in a firm, rank them from “most important” to “least important”
and then fund all the projects a firm can afford, given the amount of capital that is
available and no project receives funding simply because it was funded in the past.
A) cost-plus
B) activity-based
C) zero-based
D) revenue-based
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Firms that possess and exploit costly-to-imitate, rare and valuable resources in choosing
and implementing their strategies may enjoy a period of
A) temporary competitive advantage.
B) competitive disadvantage.
C) competitive parity.
D) sustained competitive advantage.
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In general, as a source of capital a diversified firm has ________ information about a
business that it owns compared to external sources of capital.
A) more and better
B) the same
C) less and inferior
D) more but biased
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The only economy of scope that an unrelated firm can try to realize is
A) core competencies.
B) tax advantages.
C) multipoint competition.
D) risk reduction.
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Variable levies are an example of
A) quotas.
B) tariffs.
C) nontariff barriers.
D) countertrade.
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________ may enable partners to explore exchange opportunities that they could not
explore if only legal and economic organizing mechanisms were in place.
A) Trust
B) Joint ventures
C) Reputational effects
D) Equity investments
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A(n) ________ is any investment in an exchange that has significantly more value in
the current exchange than it does in alternative exchanges.
A) opportunity-specific investment
B) transaction-specific investment
C) competition-specific investment
D) opportunistic investment
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Resources that are valuable but not rare can be categorized as
A) organizational weaknesses.
B) distinctive competencies.
C) organizational strengths.
D) complementary resources and capabilities.
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Substitutes for exploiting economies of scope in diversification include
A) growing and developing independent businesses within a diversified firm and
vertical integration.
B) vertical integration and strategic alliances.
C) growing and developing independent businesses within a diversified firm and
strategic alliances.
D) strategic alliances and multipoint competition.
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Research indicates that the most common reason that alliances fail to meet the
expectations of partner firms is
A) the lack of financial resources.
B) the necessity of transaction-specific investments.
C) the lack of transaction-specific investments.
D) the partners’ inability to trust one another.
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Green Frog is an environmentally friendly firm in the cosmetics industry that has
decided to undertake a strategic planning project. It wants to ensure that it performs the
process correctly and so intends to start the process with the first step of the strategic
planning process, which is
A) defining its mission.
B) setting objectives.
C) measuring performance.
D) defining its business level strategy.
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In an agency relationship, the party that delegates decision-making authority to another
individual is known as the
A) stakeholder.
B) principal.
C) agent.
D) stockholder.
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________ are ratios with some measure of profit in the numerator and some measure of
firms’ size or assets in the denominator.
A) Liquidity ratios
B) Leverage ratios
C) Activity ratios
D) Profitability ratios
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Which of the following statements is accurate?
A) A cost-leadership competitive strategy increases the threat of new entrants by
lowering cost-based barriers to entry.
B) Firms with a low-cost position can reduce the threat of rivalry in an industry.
C) Cost leaders are especially vulnerable to substitute products.
D) Cost leaders are especially vulnerable to the threat of suppliers.
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A board of directors typically consists of
A) 10 to 15 individuals drawn from a firm’s top management group and from
individuals outside the firm.
B) 10 to 15 individuals drawn exclusively from a firm’s top management group.
C) 10 to 15 individuals drawn exclusively from individuals outside the firm.
D) 10 to 15 individuals drawn from all stakeholder groups associated with the firm.
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When Sears and Kmart, two retail firms of relatively equal size in the United States,
agreed to combine their assets, this was an example of a(n)
A) joint venture.
B) acquisition.
C) merger.
D) equity agreement.
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________ focus(es) on the relationship between the volume of production at a given
point in time and average unit costs, the ________ focus(es) on the relationship
between the cumulative volume of production and average unit costs.
A) Economies of scale; learning curve
B) Competitive advantage; economies of scale
C) Learning curve; economies of scale
D) Economies of scale; competitive advantage
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________ costs exist when customers make investments in order to use a firm’s
particular products or services.
A) First-mover-switching
B) Technological leadership-switching
C) Customer-switching
D) Process-switching
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Strategic alliances can create economic value through helping firms improve their
current operations by
A) facilitating the development of technology standards.
B) facilitating tacit collusion.
C) exploiting economies of scale.
D) managing uncertainty.
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When managers committed to an incorrect course of action increase their commitment
to this action even as its limitations become manifest, this is known as
A) de-escalation of commitment.
B) diseconomies of scale.
C) escalation of commitment.
D) economies of scale.
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A ________ strategy exploits all the advantages of both international integration and
local responsiveness.
A) corporate
B) multinational
C) transnational
D) global
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According to Chamberlin, firms selling differentiated products and facing a downward
sloping demand curve are in an industry described as
A) perfect competition.
B) monopolistic competition.
C) oligopolistic competition.
D) semi-structured competition.
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The U in U-form structure stands for
A) “uniform.”
B) “unitary.”
C) “unilateral.”
D) “unambiguous.”
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In one study almost ________ percent of the managers in entrepreneurial firms felt
unfairly exploited by their large-firm alliance partners.
A) 80
B) 20
C) 50
D) 10
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Which type of competition is characterized by a small number of firms, homogeneous
products and costly entry and exit?
A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly
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The range of formal and informal mechanisms to ensure that managers are behaving in
ways consistent with a firm’s strategies are referred to as
A) formal reporting structures.
B) organizational charts.
C) compensation policies.
D) management control systems.
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Which one of the following is an example of the hierarchical governance option for
firms pursuing international strategies?
A) mergers
B) exporting
C) licensing
D) joint ventures
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Wealthy individuals who provide capital to entrepreneurs to help them grow their
businesses are known as
A) business angels.
B) venture capitalists.
C) stockholders.
D) CEOs.
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