An emerging industry is an industry in which a large number of small or medium-sized
firms operate and no small set of firms has a dominant market share or creates dominant
technologies.
Answer:
The five forces framework is based on the S-C-P model and identifies the five most
common threats facing firms from their local competitive environment and the
conditions under which these threats are more or less likely to be present.
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If institutional investors are biopic, they should influence firms to invest in relatively
less R&D.
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Visionary firms earn substantially higher returns than average firms because they
acknowledge that profit maximizing is their primary reason for existence.
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Managerial hubris is the well-founded belief held by managers in bidding firms that
they can manage the assets of a target firm more efficiently than the target firm’s current
management.
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A cost-leadership competitive strategy helps reduce the threat of entry by creating
cost-based barriers to entry.
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The number of firms that have used merger and acquisition strategies to become
diversified over the past few years is minimal after the credit crunch crisis in 2008.
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Currency fluctuations can significantly affect the value of a firm’s domestic
investments.
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Product differentiation can lead to high market share and low costs.
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More vertically integrated firms accomplish fewer stages of the value chain within their
boundaries than less vertically integrated firms.
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The M-form structure is designed to create checks and balances for managers that
increase the probability that a diversified firm will be managed in ways consistent with
the interests of its equity holders.
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One reason a firm may not respond to another firm’s competitive advantage is because
it does not have the resources or capabilities to do so.
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A firm’s mission defines both what it wants to be in the long run and what it wants to
avoid in the meantime.
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Distribution problems are typically limited to developing economies.
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Firms should avoid vertically integrating in those businesses where they possess
valuable, rare, and costly-to-imitate resources and capabilities.
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In an alliance a holdup occurs when a firm that has not made significant
transaction-specific investments demands returns from an alliance that are higher than
what the partners agreed to when they created the alliance.
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A firm’s stakeholders include all of those groups or individuals who have an interest in
how a firm performs.
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Transaction-specific investments make parties to an exchange vulnerable to
opportunism, and vertical integration solves this vulnerability problem.
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Research on international joint ventures suggests that the existence of
transaction-specific investments in their relationships makes these agreements relatively
immune to holdup problems.
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Multipoint competition exists when two or more diversified firms simultaneously
compete in multiple markets, and multipoint competition can serve to facilitate a
particular type of tacit collusion called mutual forbearance.
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Chryslers’ introduction of the “cab forward” design was an attempt at differentiation
through product features.
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The concept of product differentiation generally assumes that the number of firms that
have been able to differentiate their products in a particular way is, at some point in
time, less than the number of firms needed to generate perfect competition dynamics.
Answer:
In order for corporate diversification to be economically valuable there must either be
some valuable economy of scope among the multiple businesses in which a firm is
operating or it must be less costly for managers in a firm to realize these economies of
scope than for an outside equity holder on his or her own.
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Research has shown that separating the roles of CEO and board chair is positively
correlated with firm performance when firms operated in high-growth and very
complex environments.
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Shared activities can increase the expenses for a diversified firm’s business.
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In a perfectly competitive industry, a large number of firms have products and services
that are similar to each other and it is not very costly for firms to enter into or exit these
markets.
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The market for corporate control is the market that is created when multiple firms
actively seek to acquire one or several firms.
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The value chain model developed by McKinsey and Company divides value-creating
activities into two large categories: primary activities and secondary activities.
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The most common organization structure for implementing a corporate diversification
strategy is the U-form.
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Diversification per se is usually not a rare firm strategy regardless of how rare the
particular economies of scope associated with that diversification are.
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Shared activities and risk reduction are usually difficult-to-duplicate bases for corporate
diversification, but tax advantages and employee compensation are usually relatively
easy to duplicate.
Answer:
In a multidivisional structure, each business that the firm engages in is managed
through a
A) product line.
B) division.
C) geographic unit.
D) function.
Answer:
Which of the following bases of product differentiation is almost always easy to
duplicate?
A) product features
B) product mix
C) product customization
D) consumer marketing
Answer:
All of the following are methods firms can use to reduce the threat of cheating in
strategic alliances except
A) contracts.
B) equity investments.
C) joint ventures.
D) tacit collusion.
Answer:
At the beginning of 2001, Peach Computers competed exclusively in the computer
industry and generated approximately 96% of its revenue from the sales of computers
and computer-related software and approximately 4% of its revenues were generated
from sales of other peripherals. Further, of these revenues, 60% was from sales in the
U.S., 30% was from sales in Europe, 7% was from sales in Asia and 3% was from other
areas. In October 2001, Peach entered the personal electronics industry by introducing a
new MP3 player known as the PeachPit. In developing and selling the PeachPit, Peach
Computers was able to use many of the same R&D facilities, suppliers, production
facilities, and distribution and sales outlets as the computers and software Peach
Computers traditionally sold. By 2003, the PeachPit MP3 Player, accessories for the
unit, and sales of songs on Peach Computers’ NectarTunes website accounted for 35%
of Peach Computers’ revenues.
If Peach Computers were looking to getting into the business of making telephones, its
diversification would be called
A) related-linked.
B) related-constrained.
C) related-corporate.
D) unrelated.
Answer:
Embargoes are an example of
A) quotas.
B) tariffs.
C) nontariff barriers.
D) subsidies.
Answer:
If Digipics were to agree to spend a significant amount of money to establish a new
assembly line for a large client, PicPro, that has unique needs that would make this
assembly line largely useless for any other customer, the funds Digipics spent in
establishing this line would be an example of
A) forward vertical integration.
B) backward vertical integration.
C) a transaction-specific investment.
D) opportunism.
Answer:
The products or services provided by a firm’s substitutes meet ________ customer
needs in ________ ways as the product provided by the firm itself.
A) different; the same
B) approximately the same; the same
C) different; different
D) approximately the same; different
Answer:
TerraLoc competes in the market for global positioning devices and services. The
company manufactures its own GPS units, which are smaller than those of any other
competitor and include a proprietary battery that lasts 200% longer than any other
competitor’s battery and that TerraLoc manufacturers on-site. TerraLoc also has
developed proprietary software that is much faster and more precise than that of any
competitor. When developing the proprietary battery, TerraLoc decided to manufacturer
the battery in-house to reduce the possibility that the company it outsourced the battery
manufacturing to might reverse engineer the battery and sell a similar product to
competitors. This possibility was especially troubling given that the company expected
a significant increase in demand due to the improved battery life. Additionally,
TerraLoc sells its products and services through its own direct sales force to ensure that
its representatives highlight the longer battery life of TerraLoc’s units.
If TerraLoc were to use a U-form organizational structure and the CEO decided to use
budgets as a management control but wanted to make sure that the managers did not
become too focused on the short term, the CEO should do all of the following except
A) use an open process in developing budgets.
B) determine budgets for her managers and allow them to focus only on meeting the
budgets.
C) use both quantitative and qualitative evaluations of managers’ performance.
D) make sure that the process used in developing budgets reflects the economic reality
facing the firm’s managers.
Answer:
Industries in which a large number of small or medium-sized firms operate and no small
set of firms has dominant market share or creates dominant technologies are called
________ industries.
A) fragmented
B) mature
C) emerging
D) declining
Answer:
Which of the following economies of scope is costly-to-duplicate?
A) employee compensation
B) core competencies
C) shared activities
D) risk reduction
Answer:
Acquisitions are an example of the ________ governance option for firms pursuing
international strategies.
A) market
B) hierarchical
C) corporate
D) intermediate market
Answer:
Which of the following statements regarding outside members of boards of directors is
accurate?
A) Outside directors, as compared to insiders, tend to focus less on monitoring a firm’s
economic performance than on other measures of firm performance and are more likely
than insider members to dismiss CEOs following poor performance.
B) Outside directors, as compared to insiders, tend to focus less on monitoring a firm’s
economic performance than on other measures of firm performance and are less likely
than insider members to dismiss CEOs following poor performance.
C) Outside directors, as compared to insiders, tend to focus more on monitoring a firm’s
economic performance than on other measures of firm performance and are less likely
than insider members to dismiss CEOs following poor performance.
D) Outside directors, as compared to insiders, tend to focus more on monitoring a firm’s
economic performance than on other measures of firm performance and are more likely
than insider members to dismiss CEOs following poor performance.
Answer:
An industry in which a large number of small or medium-sized firms operate and no
small set of firms has dominant market share or creates dominant technologies is known
as a(n) ________ industry.
A) fragmented
B) consolidated
C) mature
D) emerging
Answer:
When the value of the products or services a firm sells increases as a function of the
number of business that the firm operates in, ________ are said to exist.
A) economies of scope
B) vertical economies
C) economies of scale
D) diseconomies of scope
Answer:
________ make a wide variety of raw materials, labor and other critical assets available
to firms.
A) Buyers
B) Rivals
C) Suppliers
D) Substitutes
Answer:
Firms that seek to maximize international integration in their operations will typically
opt for ________ structures.
A) transnational
B) decentralized federation
C) coordinated federation
D) centralized hub
Answer:
If there is a conflict between the resources a firm controls and that firm’s organization,
________ should be changed.
A) the resources
B) both
C) nothing
D) the organization
Answer:
________ theory suggests that under conditions of high uncertainty, firms may be
unwilling to commit to a particular course of action by engaging in an exchange with a
firm and will choose, instead, the strategic flexibility associated with alliances.
A) Capabilities
B) Real options
C) Transaction cost economics
D) Resource-based
Answer:
Green Frog is an environmentally friendly firm in the cosmetics industry. If Green Frog
undertook an analysis to help it understand which of its resources and capabilities are
likely to be sources of competitive advantage and which are less likely to sources of
such advantages it would be performing a(n)
A) internal analysis.
B) external analysis.
C) WACC analysis.
D) economic analysis.
Answer:
The threat of buyers in this industry is best described as
A) high because there are many suppliers, none of which represents a significant
portion of the hardwood furniture industry’s sales.
B) low because of the slow industry growth and the commodity nature of the suppliers.
C) low because there are many suppliers, none of which represents a significant portion
of the hardwood furniture industry’s sales.
D) high because of the slow industry growth and the commodity nature of the suppliers.
Answer:
A firm with a ________ ratio between value added and sales has brought ________ of
the value-creating activities associated with its business inside its boundaries, consistent
with a high level of vertical integration.
A) low; many
B) high; many
C) medium; many
D) medium; few
Answer:
The most promising opportunity for a firm in a declining industry is to
A) establish itself as a first mover in the post-shakeout industry.
B) become a market leader in the pre-shakeout industry.
C) become a fast follower in the pre-shakeout industry.
D) merge with another firm.
Answer:
TerraLoc competes in the market for global positioning devices and services. The
company manufactures its own GPS units, which are smaller than those of any other
competitor and include a proprietary battery that lasts 200% longer than any other
competitor’s battery and that TerraLoc manufacturers on-site. TerraLoc also has
developed proprietary software that is much faster and more precise than that of any
competitor. When developing the proprietary battery, TerraLoc decided to manufacturer
the battery in-house to reduce the possibility that the company it outsourced the battery
manufacturing to might reverse engineer the battery and sell a similar product to
competitors. This possibility was especially troubling given that the company expected
a significant increase in demand due to the improved battery life. Additionally,
TerraLoc sells its products and services through its own direct sales force to ensure that
its representatives highlight the longer battery life of TerraLoc’s units.
TerraLoc’s decision to manufacture the battery in-house is most consistent with which
explanation of vertical integration?
A) Flexibility-based explanations
B) Firm capability-based explanations
C) Alliance-based explanations
D) Opportunism-based explanations
Answer:
Green Frog is an environmentally friendly firm in the cosmetics industry. If Green Frog
were considering expanding beyond the cosmetics industry into pharmaceuticals in
order to gain competitive advantages by operating in multiple markets and industries,
this would be an example of which type of strategy?
A) business level strategy
B) cost leadership strategy
C) product differentiation strategy
D) corporate level strategy
Answer:
Research shows that as many as ________ of all strategic alliances do not meet the
expectations of at least one alliance partner.
A) one-third
B) five-eighths
C) one-half
D) two-thirds
Answer:
________ helps a firm understand which of its resources and capabilities are likely to
be sources of competitive advantage.
A) Competitive analysis
B) Internal analysis
C) Strategic choice
D) External analysis
Answer:
The most significant challenge in integrating bidding and target firms has to do with
A) accounting differences.
B) cultural differences.
C) operational differences.
D) logistic differences.
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’s bid for Gillette was invited by Gillette’s management, this would be an
example of a
A) hostile acquisition.
B) joint venture.
C) friendly acquisition.
D) merger.
Answer:
Firms such as General Electric that generate less than 70% of their revenues from a
single product market and whose businesses share few, if any, common attributes are
said to be pursuing ________ corporate diversification.
A) limited
B) related-linked
C) related-constrained
D) unrelated
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’s board of directors wanted to ensure that changes in the CEO’s
compensation would be closely linked to changes in the firm’s performance, it should
A) use a compensation package that includes only a salary for the CEO.
B) use a compensation package that includes a salary and a cash bonus for the CEO.
C) use a compensation package the includes a salary, a cash bonus and stock options
that represent only a relatively small percentage of the CEO’s total compensation
package.
D) use a compensation package that includes a salary and stock options that represent a
relatively substantial percentage of the CEO’s total compensation package.
Answer:
If Delta Airlines were to significantly change its fare structure and flight schedule to
enhance its competitive position in response to aggressive price cutting by Southwest
Airlines, this would be an example of
A) explicit collusion.
B) tacit collusion.
C) competitive dynamics.
D) a harvest strategy.
Answer:
The Bates Company has been producing tools for over fifty years. In that time the
company has been acknowledged as a producer of high quality tools at a reasonable
price. Bates’ competitive prices can be attributed to three factors. First, the company
recognized early in its development that tools made from specific blends of various
types of metal were less costly to produce and had superior performance compared to
traditional metals. Accordingly, Bates made investments in developing tools made for
specialty metals long before other competitors and has made a series of investments
over its operating history that have put it far ahead of its competitors in terms of
product development. Industry analysts believe that based on these investments it
would be difficult and extremely costly, if it were even possible, for rivals to catch up
with Bates. Second, in recognizing the importance of certain metals, Bates was able to
sign long-term contracts with suppliers of the metals that have provided Bates with a
lasting cost advantage. Finally, Bates maintains its cost advantages by using a thorough
budgeting and reporting system that allows it to closely control costs, and these systems
are supported by a frugal company culture and financial incentives that reward
employees for finding ways to save money throughout the company. It would be costly
for competitors to duplicate Bates due to
A) path dependence and causal ambiguity.
B) causal ambiguity and unique historical conditions.
C) path dependence and unique historical conditions.
D) causal ambiguity and patents.
Answer:
The U-form structure used to implement a product-differentiation strategy
A) rarely uses temporary cross-divisional and cross-functional teams to manage the
development and implementation of new, innovative, and highly differentiated
products.
B) has simple reporting relationships.
C) often uses temporary cross-divisional and cross-functional teams to manage the
development and implementation of new, innovative, and highly differentiated
products.
D) has a small corporate staff.
Answer:
If a resource or capability is valuable and rare but not costly to imitate, exploiting this
resource will generate a(n)
A) sustained competitive advantage.
B) perfectly competitive environment.
C) temporary competitive advantage.
D) environment characterized by competitive parity.
Answer:
Identify and discuss the two economies of scope that do not have the potential for
generating positive returns for a firm’s outside equity investors.
Answer:
If there are five bidders (each of which has a current market value of $50,000 )
interested in a target firm that has no strategic relatedness with any of the bidding firms
and has a current market value of $25,000, identify the economic profits that will be
earned by both the bidding firm’s equity holders and the target firm’s equity holders and
discuss this case.
Answer:
What is countertrade? How is it useful in international business?
Answer:
Define a strategic alliance and identify and differentiate between three broad categories
of strategic alliances.
Answer:
Describe three major challenges that firms integrating acquisitions are likely to face.
Answer:
Discuss the role of transfer pricing systems in an M-form organization, identify
difficulties with setting optimal prices, and identify four alternative transfer pricing
schemes.
Answer:
Within the flexibility-based approach to vertical integration when should firms engage
in strategic alliances instead of vertical integration, and what are the advantages of
alliances under these conditions?
Answer:
Identify two potential substitutes for corporate diversification and discuss how each can
provide benefits similar to corporate diversification.
Answer:
Describe five tools that firms can use to reduce the threat of cheating in strategic
alliances.
Answer:
Identify the four broad categories that a firm’s resources and capabilities can be
classified into.
Answer:
Discuss the role of the budgeting process as a control mechanism in vertically
integrated U-form organizations, the potential unintended negative consequence
budgets can have, and three things CEOs can do to counter this potential consequence.
Answer:
Differentiate between business strategies and corporate strategies and define the nature
of a cost-leadership strategy.
Answer:
What is meant by political risk? What types of political risks do firms face?
Answer:
What are the responsibilities of the CEO in a functional organization?
Answer:
Discuss to what extent acquisitions can be a substitute for alliances and identify four
conditions under which alliances will be preferred to acquisitions.
Answer:
Describe the transnational strategy.
Answer:
Identify and define the three elements of the S-C-P model.
Answer:
Discuss the differences between mergers and acquisitions and differentiate between
friendly and unfriendly acquisitions.
Answer: