CH12 Flashcards
Tyco International’s decision to split into three separate companies was motivated by: [See p.297]
a. The scandal involving its former CEO
b. The belief that Tyco’s businesses could achieve greater flexibility and growth as independent companies than as subsidiaries of Tyco
c. The belief that the synergies among Tyco’s businesses were outweighed by the costs of Tyco’s corporate HQ
d. The recognition that Tyco was subject to a “conglomerate discount.”
b
Diversification decisions by firms involve the following key issues:[See p.298]
a. The attractiveness of the industry to be entered and the potential for competitive advantage
b. The potential for the diversification to increase growth and reduce risk
c. The opportunities for exploiting economies of scope in resources and capabilities
d. The benefits of synergy relative to the costs or coordination
a
The general trend of the past four decades has been for companies to divest their “noncore” businesses. Exceptions to this trend include:[See p.300]
a. Large e-commerce companies such as Amazon, Alphabet, Alibaba, and Tencent
b. Large business groups in emerging market countries
c. Both (a) and (b)
d. Neither (a) nor (b)—the refocussing trend is general across sectors and across countries.
c
Porter’s “three essential tests” help to determine:[See pp.302-303]
a. The likely impact of diversification upon risk
b. The potential for diversification to create shareholder value through boosting profitability
c. The impact of diversification on stakeholders
d. How the financial markets would react to a diversification
b
Which of the following is not an example of an economy of scope from diversification? [See pp.303-304]
a. Samsung Group applying its Samsung brand name across a wide range of products
b. Royal Dutch Shell engaging in forest development in order to offset some of the carbon dioxide produced by its petroleum business
c. Amazon using its server capacity to enter cloud computing and web hosting
d. Fuji Film applying its thin-film, coatings, and polymer technologies not only to photographic film, but also to cosmetics.
b
Demand-side economies of scope are economies that accrue to customers from buying bundles of different products. Examples of economies of scope include:[See pp.304-305]
a. Discount stores that offer a wide range of products
b. Suppliers of electronic systems that comprise hardware, an operating system and applications
c. Both (a) and (b)
d. Neither (a) nor (b
c
The continuing prominence of large, highly diversified business groups in many emerging market countries (e.g. Tata Group in India) is mainly the result of: [See p.308]
a. The political connections of a few leading business leaders
b. High transaction costs in capital and labor markets in these countries which favor the deployment of resources within large diversified corporations
c. Barriers to direct investment which protect these companies from overseas competition
d. The failure of emerging market business leaders to appreciate the benefits of refocusing
b
The British fashion company, Burberry, is considering diversifying into the hotel business. Its optimal strategy is to:[See pp.305-306]
a. Set up its own luxury hotel chain—that way it can appropriate all the profits from the venture
b. License its brand to an existing hotel operator—that way it can avoid the costs and risks of having to invest in all the resources and capabilities required by the hotel business
c. Stay away from hotels all together since this business is unrelated to Burberry’s core fashion business
d. Establish a separate start-up company, Burberry Hotels, in which Burberry Group retains a minority equity holding
b
The internal labor market provides a large, diverse firm with the chance to make savings, by:[See p.307]
a. Developing senior managers with wide experience
b. Relying less on external recruitment consultants
c. Having first-hand knowledge of a large pool of internal recruits for transfer between businesses
d. All of the above
d
The main difference between two businesses being strategically related rather than operationally related is: [See pp.309-310]
a. Strategic relatedness involves the application of common general management systems and capabilities to the two businesses; operational relatedness involves the sharing of resources
b. Strategic related is about corporate-level synergies; operational relatedness involves business-level synergies
c. Operational relatedness requires a multidivisional structure; for strategic relatedness, a holding company structure sufficed
d. Operational relatedness requires that the different products share production plants and distributionsystems; strategic relatedness does not
a
To determine whether a firm’s diversification is related or unrelated, we need to consider:[See pp.309-311]
a. Whether the businesses are within the same two-digit class of the Standard Industrial Classification
b. Whether the two businesses have either common customers or utilize a common technology
c. Whether the two businesses share some of the same resources and capabilities
d. Whether the two businesses are in the same stages of their industry life cycles.
c
