Exam for Strategic Management Part IX

86. The risks of vertical integration include all of the following except A. costs and expenses associated with increased overhead and capital expenditures. B. lack of control over valuable assets. C. problems associated with unbalanced capacities along the value chain. D. additional administrative costs associated with managing a more complex set of activities. The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities. 87. Unbalanced capacities that limit cost savings, difficulties in combining specializations, and reduced flexibility are disadvantages associated with A. strategic alliances. B. vertical integration. C. horizontal integration. D. divestiture. The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities. 88. A firm should consider vertical integration when A. the competitive situation is highly volatile. B. customer needs are evolving. C. the suppliers of raw materials to the firm are unable to maintain quality standards. D. the suppliers of the firm willingly cooperate with the firm. A firm should consider vertical integration if the company is not satisfied with the quality of the value that its present suppliers and distributors are providing. 89. Transaction costs include all of the following costs except A. agency costs. B. negotiating costs. C. search costs. D. monitoring costs. Transaction costs are the sum of search costs, negotiation costs, contracting costs, monitoring costs, and enforcement costs. These transaction costs can be avoided by internalizing the activity, in other words, by producing the input in-house. 90. Vertical integration is attractive when A. internal administrative costs are higher than transaction costs. B. transaction costs and internal administrative costs are equal. C. transaction costs are higher than internal administrative costs. D. search costs are higher than monitoring costs. If transaction costs are higher than administrative costs, that is, those costs incurred when coordinating the activities elsewhere in the value chain, vertical integration becomes an attractive strategy. 91. Creating value within business units can happen when the corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures. This is known as A. parenting. B. restructuring. C. leveraging core competencies. D. increasing market power. Parent companies create value through management expertise. They improve plans and budgets and provide especially competent central functions such as legal, financial, human resource management, and procurement. They also help subsidiaries make wise choices in their own acquisitions, divestitures, and new internal development decisions. 92. Creating value within business units can happen when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. This action is known as A. restructuring. B. leveraging core competencies. C. parenting. D. sharing activities. In restructuring, the corporate office tries to find poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. The parent intervenes, often selling off parts of the business; changing the management; reducing payroll and unnecessary sources of expenses; changing strategies; and infusing the company with new technologies, processes, or reward systems. 93. According to the text, corporate restructuring includes A. capital restructuring, asset restructuring, and technology restructuring. B. capital restructuring, asset restructuring, and management restructuring. C. management restructuring, financial restructuring, and procurement restructuring. D. global diversification, capital restructuring, and asset restructuring. Restructuring can involve changes in assets, capital structure, or management. 94. Portfolio management matrices are applied to what level of strategy? A. departmental level B. business level C. corporate level D. international level Corporate-level strategy addresses two related issues: what businesses should a corporation compete in and how can these businesses be managed so they create synergy. Portfolio management matrices can be used to improve understanding of the competitive position of a portfolio (or family) of businesses, to suggest strategic alternatives, and to identify priorities for the allocation of resources. 95. When using a BCG matrix, a business that currently holds a large market share in a rapidly growing market and has minimal or negative cash flow would be known as a A. Star. B. Dog. C. Cash Cow. D. Question Mark. Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Stars are SBUs competing in high-growth industries with relatively high market shares. These firms have long-term growth potential and should continue to receive substantial investment funding. 96. In the BCG Matrix, a business that has a low market share in an industry characterized by high market growth is termed a A. Star. B. Cash Cow. C. Question Mark. D. Dog. Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Question Marks are SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competitive positions. 97. Portfolio management frameworks, such as the BCG matrix, share which of the following characteristics? A. Businesses are plotted on a 3-dimensional grid. B. Grid dimensions are based on external environments and internal capabilities-market positions. C. Position in the matrix suggests a need for sharing synergies. D. They are most helpful in helping businesses develop types of competitive advantage. Portfolio models are overly simplistic, consisting of only two dimensions (growth and market share). They view each business as separate, ignoring potential synergies across businesses. 98. A Cash Cow, in the BCG framework, refers to a business that has A. high market growth and relatively high market share. B. relatively low market share and low market growth. C. relatively low market share and high market growth. D. low market growth and relatively high market share. Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Cash Cows are SBUs with high market shares in low-growth industries. These units have limited long-run potential but represent a source of current cash flows to fund investments in Stars and Question Marks. 99. In managing the corporate portfolio, the BCG matrix would suggest that A. Dogs should be invested in to increase market share and become Cash Cows. B. Stars are in low growth markets and can provide excess cash to fund other opportunities. C. Cash Cows require substantial cash outlays to maintain market share. D. Question Marks can represent future Stars if their market share is increased. Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Question Marks are SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competitive positions, potentially making them Stars. 100. In the BCG Growth Share Matrix, the suggested strategy for Stars is to A. milk them to finance other businesses. B. invest large sums to gain a good market share. C. maintain position and after the market growth slows use the business to provide cash flow. D. not invest in them and to shift cash flow to other businesses. Stars are SBUs competing in high-growth industries with relatively high market shares. These firms have long-term growth potential and should continue to receive substantial investment funding. When growth slows, they may become Cash Cows themselves. 101. The primary means by which a firm can diversify are __________, _________, and ________. A. mergers and acquisitions; differentiation; overall cost leadership B. mergers and acquisitions; joint ventures and strategic alliances; internal development C. joint ventures and strategic alliances; integration of value chain activities; acquiring human capital D. mergers and acquisitions; internal development; differentiation There are three basic means of diversification: First, through acquisitions or mergers, corporations can directly acquire company assets and competencies. Second, corporations may agree to pool the resources of other companies with their resource base, commonly known as a joint venture or strategic alliance. Third, corporations may diversify into new products, markets, and technologies through internal development. 102. The downsides or limitations of mergers and acquisitions include all of the following except: A. It is a slow means to enter new markets and acquire skills and competences. B. Difficulties exist in integrating the activities and resources of the acquired firm into ongoing operations. C. There can be many cultural issues that can doom an otherwise promising acquisition. D. Premiums that are frequently paid to acquire a business are expensive. There are several limitations of mergers and acquisitions including that takeover premiums paid for acquisitions are typically very high, competing firms often can imitate any advantages or copy synergies that result from the merger or acquisition, manager egos sometimes get in the way of sound business decisions, and cultural issues may doom the intended benefits from M and A endeavors. 103. Divesting of businesses can accomplish many different objectives, except A. enabling managers to focus their efforts more directly on the core businesses of the firm. B. providing the firm with more resources to spend on more attractive alternatives. C. raising cash to help fund existing businesses. D. dispersing manager focus. Divesting a business can accomplish many different objectives including: enabling managers to focus their efforts more directly on the core businesses of the firm, providing the firm with more resources to spend on more attractive alternatives, and raising cash to help fund existing businesses. 104. IBM, Memorial Sloan Kettering, and Cedars-Sinai have a _________ whereby IBM receives expert medical knowledge that it uses to leverage its technological skills to develop new medical insights. A. joint diversification B. divestment C. strategic alliance D. global integration Strategic alliances may be used to build jointly on the technological expertise of two or more companies. This may enable then to develop products technologically beyond the capability of the companies acting independently. 105. Cooperative relationships such as __________ have potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies. A. franchises B. mergers C. acquisitions D. joint ventures and strategic alliances Strategic alliances and joint ventures have many potential advantages. Among these are entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies. 106. Which of the following is not part of a good guideline list for managing strategic alliances? A. establishing a clear understanding between partners B. not shortchanging your partner C. relying primarily on a contract to make the joint venture work D. working hard to ensure a collaborative relationship between partners Strategic alliances and joint ventures should ensure the strengths contributed by the partners are unique; thus synergies created can be more easily sustained over the longer term. The goal is to develop synergies between partner contributions, resulting in a win-win situation. Moreover, the partners must be compatible and willing to trust each other. These partnerships may be undertaken with or without a contract. 107. Which of the following statements regarding internal development as a means of diversification is false? A. Many companies use internal development to extend their product or service offers. B. An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services. C. The firm is able to capture wealth created without having to share the wealth with alliance partners. D. Firms can often develop products or services at a lower cost, if they rely on their own resources instead of external funding. Potential disadvantages to internal development include that it may be time consuming and that firms may forfeit the benefits of speed that growth through mergers can provide. This may be important to high-tech or a knowledge-based organization in fast-paced environments in which being an early mover is critical. 108. Internal development may be time consuming and, therefore, firms may forfeit the benefits of speed that growth through __________ and __________ can provide. A. strategic alliances; joint ventures B. strategic alliances; mergers C. mergers; acquisitions D. mergers; joint ventures There are potential disadvantages to internal development. It may be time consuming; firms may forfeit the benefits of speed that growth through mergers or acquisitions can provide. This may be important among high-tech or a knowledge-based organization in fast-paced environments, where being an early mover is critical. 109. Firms that choose to diversify through internal development must develop _________ that allow them to move __________ from initial opportunity recognition to market introduction. A. strategies; slowly B. capabilities; quickly C. capabilities; slowly D. strategies; quickly Firms that choose to diversify through internal development must develop capabilities that allow them to move quickly from initial opportunity recognition to market introduction. 110. Lionsgate (a Canadian-American entertainment company) and Alibaba (a Chinese ecommerce company) created _________ to open the Chinese market for the Lionsgate streaming shows and movies. Alibaba profits by getting access to content to increase demand for its own set-top media boxes. A. a joint venture B. a merger C. an acquisition D. a strategic alliance A strategic alliance is a cooperative relationship between two (or more) firms. Alliances may be either informal or formal. Such cooperative relationships have many potential advantages, including entering new markets and diffusing new technologies. 111. According to Michael Porter, there is a tremendous allure to _________. It is the big play, the dramatic gesture. With one stroke of the pen you can add billions to size, get a front-page story, and create excitement in markets. A. strategic alliances and joint ventures B. internal development C. mergers and acquisitions D. differentiation strategies There is an excitement and associated recognition of making a major acquisition. Michael Porter of Harvard University noted that there is a tremendous allure to mergers and acquisitions. It is the big play, the dramatic gesture. With one stroke of the pen you can add billions to size, get a front-page story, and create excitement in markets. 112. The antitakeover tactic, _______, is when a firm offers to buy shares of their stock from a company (or individual) planning to acquire their firm at a higher price than the unfriendly company paid for it. A. golden parachute B. poison pill C. greenmail D. scorched earth Greenmail is an effort by the target firm to prevent an impending takeover. When a hostile firm buys a large block of outstanding target company stock and the target company management feels that a tender offer is impending, they offer to buy the stock back from the hostile company at a higher price than the unfriendly company paid for it. 113. An antitakeover tactic in which existing shareholders have the option to buy additional shares of stock at a discount to the current market price is called ______. A. greenmail B. a golden parachute C. a poison pill D. scorched earth Poison pills are an antitakeover tactic used by a company to give shareholders certain rights in the event of a takeover by another firm. They are also known as shareholder rights plans. 114. The term golden parachute refers to A. B. C. D. a clause requiring that huge dividend payments be made upon takeover. pay given to executives fired because of a takeover. financial inducements offered by a threatened firm to stop a hostile suitor from acquiring it. managers of a firm in a hostile takeover approaching a third party about making the acquisition. A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package. 115. Antitakeover tactics include all of the following except A. greenmail. B. poison pills. C. golden parachutes. D. golden handcuffs. Antitakeover tactics are common, including greenmail, golden parachutes, and poison pills. Ch Ch7 7 Multiple Choice Questions 71. Which of the following is not a risk normally associated with Bottom of the Pyramid strategies? A. A low-end version of a brand may detract from the overall brand attractiveness. B. The new low-cost products they develop may cannibalize the sales of their core products. C. Entrenched competitors can impact the ability of the new firm to enter the market successfully. D. New products may be perceived as exploiting the privileged customer with substandard products. In many developing economies, distributions of income remain much wider than they do in the developed world, leaving many impoverished even as the economies grow. The challenge for multinational firms is to tailor their products and services to meet the needs of the bottom of the pyramid. Global corporations are increasingly changing their product offerings to meet the needs of the nearly 5 billion poor people in the world who inhabit developing countries. 73. The rise of _________ capitalism around the world creates tremendous business opportunities for multinational corporations. A. social B. multinational C. market D. democratic The rise of globalization (meaning the rise of market capitalism around the world) has undeniably created tremendous business opportunities for multinational corporations. For example, while smartphone sales declined in Western Europe in the third quarter of 2014, they grew at a 50 percent rate in Eastern Europe, the Middle East, and Africa. 75. According to Exhibit 7.1 in the textbook, the country experiencing the lowest rate of growth in GDP from 2001-2011 was A. the United States. B. China. C. India. D. Japan. As shown in Exhibit 7.1, the growth experienced by developed economies in the first decade of the 2000s was anemic, while the growth in developing economies was robust. This has resulted in a dramatic shift in the structure of the global economy. Over half of the output of the world now comes from emerging markets. This is leading to a convergence of living standards across the globe and is changing the face of business. One example of this is the shift in the global automobile market. China supplanted the United States as the largest market for automobiles in 2009. 76. Globalization opens the doors for companies to attract new customers. One of the challenges is to determine how to meet the needs of these customers who have A. different income levels. B. low income levels. C. high income levels. D. steady income levels. One of the challenges with globalization is determining how to meet the needs of customers at very different income levels. In many developing economies, distributions of income remain much wider than they do in the developed world, leaving many impoverished even as the economies grow. The challenge for multinational firms is to tailor their products and services to meet the needs of the bottom of the pyramid. 77. The trade among nations has increased dramatically in recent years, and it is estimated that by 2015 the trade ________ nations will exceed the trade _______ nations. A. within; across B. across; within C. with; outside of D. above; within The trade among nations has increased dramatically in recent years, and it is estimated that by 2015 the trade across nations will exceed the trade within nations. 78. When the GE wind energy business tapped into world-wide talent, it was able to expand using a(n) _________________ strategy. A. focus B. diversification C. unrelated D. generic The importance of international expansion as a viable diversification strategy can be illustrated by GEs wind energy business that benefits by tapping into talent around the world. The firm has built research centers in China, Germany, India, and the U.S. CEO Jeffrey Immelt says that this solution was created in order to access the best brains everywhere in the world. All four centers have played a key role in GEs development of huge 92-ton turbines. 79. Statistics indicate that over half of the world output now comes from emerging markets. This is leading to a(n) ___________ of living standards across the globe and is changing the face of business. A. divergence B. convergence C. expansion D. contraction Over half of the world output now comes from emerging markets. This is leading to a convergence of living standards across the globe and is changing the face of business. 80. According to the textbook, globalization involves international exchange. Included in this exchange is trade in goods and services as well as the exchange of __________, __________, and _________ across countries. A. habits; values; ideas B. traditions; legal systems; history C. money; ideas; information D. statistics; personnel; purchasing power Globalization is a term that has two meanings: (1) the increase in international exchange, including trade in goods and services as well as exchange of money, ideas, and information; (2) the growing similarity of laws, rules, norms, values, and ideas across countries. 81. In the Porter Diamond of National Advantage framework, which of the following factors does not affect nation competitiveness? A. The position of the nation in factors of production necessary to compete in a given industry. B. The presence or absence in the nation of internationally competitive supplier industries. C. The conditions in the nation governing the nature of foreign rivalry. D. The nature of home-market demand of the products or services of the industry. Porter concluded that there are four broad attributes of nations that individually, and as a system, constitute what is termed the Diamond of National Advantage. In effect, these attributes jointly determine the playing field that each nation establishes and operates for its industries. These factors are: factor endowments, demand condition, related and supporting industries, and firm strategy, structure, and rivalry. 82. Rivalry is intense in nations with conditions of __________ consumer demand, __________ supplier bases, and __________ new entrant potential from related industries. A. weak; weak; high B. strong; strong; low C. weak; weak; low D. strong; strong; high Rivalry is particularly intense in nations with conditions of strong consumer demand, strong supplier bases, and high new entrant potential from related industries. This competitive rivalry increases the efficiency with which firms develop, market, and distribute products and services within the home country. 83. According to Michael Porter, firms that have experienced intense domestic competition are A. unlikely to have the time or resources to compete abroad. B. more likely to demand protection from their governments. C. most likely to design strategies aimed primarily at the domestic market. D. more likely to design strategies that will allow them to successfully compete abroad. Competitive rivalry increases the efficiency with which firms develop, market, and distribute products and services within the home country. This intense rivalry forces firms to look outside their national boundaries for new markets, setting up the conditions necessary for global competitiveness. 84. Which of the factors below has not made the software services industry in India extremely competitive on a global scale? A. large pool of skilled workers B. large, growing market and sophisticated customers C. tax and antitrust legislation that protects the dominant players in the industry D. large network of public and private educational institutions In India, the Diamond of National Advantage framework for software shows a large pool of skilled workers, a large network of public and private educational institutions, a large, growing market, and sophisticated customers. 85. In reviewing the Indian Software industry and the diamond of national advantage, which of the following is a growing detractor to the national competitive advantage in this industry? A. large pool of skilled workers B. eroding cost advantage of Indian firms C. rapidly improving communications infrastructure D. large, growing market and sophisticated customers It is interesting to note that the cost advantage of Indian firms has eroded. For example, TCS engineer compensation soared 13 percent in 2010. Further, IBM and Accenture are aggressively building up their Indian operations, hiring tens of thousands of sought-after Indians by paying them more, thereby lowering their costs while raising those of TCS. 86. In reviewing the Indian Software industry and the diamond of national advantage, which of the following is a growing detractor to the national competitive advantage in this industry? A. English-language capability B. growing market and sophisticated, customers C. duty-free access to imported computers and software D. rise of competing low-labor-cost countries It is interesting to note that the cost advantage of Indian firms has eroded. For example, TCS engineer compensation soared 13 percent in 2010. Further, IBM and Accenture are aggressively building up their Indian operations, hiring tens of thousands of sought-after Indians by paying them more, thereby lowering their costs while raising those of TCS. Finally, many low-labor-cost countries, such as China, the Philippines, and Vietnam, are emerging as threats to the Indian competitors. 87. In reviewing the Indian Software industry and the diamond of national advantage, which of the following is a relatively weak set of factors in the national competitive advantage in this industry? A. U.S. demand conditions B. Factor endowments C. Domestic rivalry D. Domestic demand conditions Although the Indian success cannot be explained in terms of its home-market demand (according to the Porter model), the nature of the industry enables software to be transferred among different locations simultaneously by way of communications links. Thus, competitiveness of markets outside India can be enhanced without a physical presence in those markets. 88. Countries with demanding consumers, like environmentally-concerned Denmark, drive __________ to meet the demand. A. worldwide innovation B. in-country innovation C. foreign manufacturing D. global exchange Consumers who demand highly specific, sophisticated products and services force firms to create innovative, advanced products and services to meet the demand. This consumer pressure presents challenges to a country's industries. But in response to these challenges, improvements to existing goods and services often result, creating conditions necessary for competitive advantage over firms in other countries. 89. Related industries create the probability that new companies will enter the market. This ________ competition and forces existing firms to improve ___________. A. decreases, innovation B. decreases, efficiency C. increases, efficiency D. increases, sales Related industries create the probability that new companies will enter the market, increasing competition and forcing existing firms to become more competitive through efforts such as cost control, product innovation, and novel approaches to distribution. Combined, these give the home country's industries a source of competitive advantage. 90. Which of these points on the Porter diamond of national advantage is the strongest indicator of global competitive success? A. foreign rivalry B. domestic rivalry C. global rivalry D. international rivalry Among all the points on the Porter diamond of national advantage, domestic rivalry is perhaps the strongest indicator of global competitive success. Firms that have experienced intense domestic competition are more likely to have designed strategies and structures that allow them to successfully compete in world markets. 91. Which of the following is not a motivation for a company to pursue international expansion? A. It wishes to increase the size of the potential markets for its products and services. B. It wishes to take advantage of arbitrage opportunities in order to increase profit. C. It wishes to optimize value-chain activities to enhance performance, reduce costs, and reduce risk. D. It wishes to increase foreign market penetration by developing products for the home market. There are many motivations for a company to pursue international expansion. The most obvious one is to increase the size of potential markets for its products and services. A second reason is that the company can take advantage of arbitrage opportunities. A third reason is that a company wishes to enhance the growth rate of a product that is in its maturity state in the home country. A fourth reason is that the company wishes to benefit from optimizing the physical location for every activity in its value chain. A fifth reason is that possibilities exist for reverse innovation, whereby a company develops new products for emerging markets that have adequate functionality at a low cost and then often are introduced to the home country after successfully penetrating the emerging market. 92. If a company is considering optimizing the physical location for every activity in the value chain, which of the following is not a possible strategic advantage for that decision? A. Performance enhancement B. Cost reduction C. Political risk reduction D. Life-cycle enhancement Optimizing the location for every activity in the value chain can yield one or more of three strategic advantages: performance enhancement, cost reduction, and risk reduction.