chapter 6 Flashcards
Which of the following diversification strategies involves a complete combination into one new company?
A) Acquisition
B) Strategic Alliance
C) Merger
D) Joint Venture
c
What is the primary justification for diversification initiatives in business?
A) Increased market share
B) Creation of value for shareholders
C) Expansion into international markets
D) Improvement of operational efficiency
B
In which of the following strategies does one company buy and control another company?
A) Merger
B) Acquisition
C) Strategic Alliance
D) Joint Venture
B
Which diversification strategy involves independent companies working together without forming a new entity?
A) Merger
B) Acquisition
C) Strategic Alliance
D) Joint Venture
C
What is the primary characteristic of a joint venture?
A) One company buys another
B) Companies create a new company together
C) Companies combine to form a new single entity
D) Independent companies operate separately
B
All diversification moves, including those involving mergers and acquisitions, erode
performance.
F. Not all diversification moves, including those involving mergers and acquisitions, erode
performance.
Diversification initiatives must be justified by the creation of value for shareholders.
T
Diversification initiatives include all of the following except
A. mergers and
acquisitions.
B. strategic
alliances.
C. shareholder
development.
D. joint
ventures.
C
What is one of the key questions for a corporation considering diversification?
A) How much profit should each business generate?
B) What businesses should a corporation compete in?
C) How should a corporation reduce operational costs?
D) How can the corporation increase its brand awareness?
B
Another key question for a corporation considering diversification is:
A) How can the corporation expand internationally?
B) How many businesses should a corporation have?
C) How can a corporation increase its market share?
D) What is the best pricing strategy for each business?
B
How should businesses be managed in a diversified corporation?
A) Independently without collaboration
B) In a way that creates more value than if they were freestanding units
C) By reducing competition between them
D) By focusing only on cost-cutting measures
B
What must diversification initiatives achieve in order to be successful?
A) A reduction in employee turnover
B) Increased market share in every industry
C) Creation of value for shareholders
D) Cost minimization across all businesses
C
What does the term “synergy” originate from?
A) Latin for “profit sharing”
B) Greek for “working together”
C) English for “collaboration”
D) Italian for “business expansion”
B
What do synergies enable businesses to do in the context of diversification?
A) Create more competition
B) Create and claim more value as part of the same corporate entity
C) Limit their operational costs
D) Operate independently without collaborating
B
In a diversified corporation, the value of a stand-alone business is:
A) Always greater than its value as part of a corporate entity
B) Greater when it operates alone rather than within a corporation
C) Greater as part of the corporate entity than as a stand-alone business
D) Irrelevant to the corporation’s value
C
How does the value of a corporate entity change when it includes a stand-alone business?
A) It decreases because it adds unnecessary complexity
B) It stays the same as without the stand-alone business
C) It is greater with the stand-alone business than without it
D) It becomes harder to manage
c
Proctor and Gamble is a large multinational organization that has many business sharing
distribution resources. Diversification strategies take advantage of the __________ that exist in
their organization.
A. costs
B. employees
C. synergies
D. discontinuities
C
Which type of synergy benefits from horizontal relationships, where companies share intangible and tangible resources?
A) Related Businesses
B) Unrelated Businesses
C) Vertical Integration
D) Market Diversification
A
Procter & Gamble leveraging shared distribution resources is an example of which type of synergy?
A) Horizontal synergy
B) Related Businesses synergy
C) Unrelated Businesses synergy
D) Vertical synergy
B
Which of the following is NOT a benefit of related businesses synergy?
A) Shared distribution resources
B) Shared intangible and tangible resources
C) Expertise and support from the corporate office
D) Leveraging common capabilities in the same industry
C
What is a key characteristic of unrelated businesses synergy?
A) Companies operate in similar or closely related industries
B) Companies benefit from hierarchical relationships and corporate office support
C) Companies share tangible resources like distribution channels
D) Companies have no central office to provide resources
B
In unrelated businesses, companies can still benefit from the corporate office by leveraging which support activities?
A) Distribution channels and marketing strategies
B) R&D and product design
C) Information systems and HR practices
D) Direct customer relationships and brand management
c
Which type of synergy involves companies diversifying into industries that are completely different from their core business?
A) Related Businesses synergy
B) Vertical integration
C) Unrelated Businesses synergy
D) Market Penetration strategy
c
What is economies of scope about?
A) Cost savings from increasing the scale of production in a single industry
B) Cost savings from leveraging core competencies or sharing activities among businesses
C) Cost savings from reducing the number of employees
D) Cost savings from outsourcing production to third parties
B
Which of the following is NOT an example of economies of scope?
A) 3M leveraging its adhesives technology across multiple industries
B) Polaris sharing manufacturing operations among snowmobiles, motorcycles, and off-road vehicles
C) A company using the same distribution network to sell different products
D) A company introducing new, unrelated products in different markets without leveraging existing resources
D
3M leverages its competencies in adhesives technologies to many industries, including
automotive, construction, and telecommunications. This is an example of using
A. related diversification to acquire economies of scope by leveraging pooled
negotiating power.
B. related diversification to acquire economies of scope by leveraging core
competencies.
C. unrelated diversification to financial synergies through portfolio
management.
D. unrelated diversification to parenting, restructuring, and financial synergies through
restructuring and parenting.
B
Which of the following is an example of a company leveraging its core competencies to achieve economies of scale?
A) 3M using its expertise in adhesives across multiple industries
B) A company reducing its number of employees
C) A business entering a completely unrelated market
D) A company reducing the number of products it sells
A
What is the benefit of sharing activities in the context of economies of scale?
A) It helps companies enter unrelated markets without additional costs
B) It allows companies to centralize manufacturing and R&D, reducing costs across divisions
C) It leads to higher per-unit costs due to more complex operations
D) It reduces the need for customer feedback and market research
b
Polaris achieves economies of scale by:
A) Expanding into unrelated product lines
B) Using separate manufacturing facilities for each type of vehicle
C) Sharing manufacturing operations and centralized R&D across snowmobiles, motorcycles, and other vehicles
D) Limiting its production to a single vehicle typ
c
Which of the following best describes the relationship between core competencies and economies of scale?
A) Core competencies increase per-unit costs as production scales up
B) Core competencies allow companies to leverage expertise across multiple products, leading to cost savings
C) Core competencies are irrelevant to economies of scale
D) Core competencies reduce the overall production volume of a company
b
Polaris, a manufacturer of snowmobiles, motorcycles, watercraft, and off-road vehicles, shares
manufacturing operations across its businesses. It also has a corporate research and
development facility and staff departments that support all of the Polaris operating divisions.
This is an example of using
A. related diversification to acquire market value by leveraging core
competencies.
B. related diversification to acquire economies of scope by
sharing.
C. unrelated diversification to acquire financial synergies through portfolio
management.
D. related diversification to acquire parenting, restructuring, and financial synergies through
corporate restructuring and parenting.
b
What is pooled negotiating power?
A) The ability to increase a company’s bargaining power by pooling resources or purchasing across multiple business units
B) The ability to negotiate higher prices from suppliers by limiting the number of suppliers
C) The ability to vertically integrate and control the supply chain
D) The ability to consolidate multiple product lines into a single offering
A
How does ConAgra use pooled negotiating power?
A) By outsourcing all its packaging to third-party suppliers
B) By centralizing the purchasing of packaging materials for all its food divisions
C) By acquiring small suppliers to increase its bargaining power
D) By selling packaging materials to its competitors
B
Which of the following is an example of pooled negotiating power?
A) A company controlling its raw material production and distribution
B) A company negotiating lower prices with suppliers by purchasing packaging materials for multiple business units
C) A company entering a completely unrelated market for diversification
D) A company acquiring suppliers to increase control over the production process
B
In the example of Shaw Industries, vertical integration enhances market power by:
A) Reducing the need for suppliers in its manufacturing process
B) Entering new, unrelated markets
C) Increasing its reliance on third-party suppliers for raw materials
D) Creating new product lines for diversification
A.
What does vertical integration allow Shaw Industries to control?
A) The distribution of its carpet products across new markets
B) The supply of raw materials, such as polypropylene fiber, for carpet manufacturing
C) The marketing of its products through online platforms
D) The branding and advertising of competing carpet brands
B
Which of the following is a benefit of vertical integration?
A) It allows a company to increase its bargaining power over suppliers by controlling the production of critical materials
B) It reduces the company’s influence over its competitors
C) It limits the company’s control over its supply chain
D) It encourages companies to outsource production to third-party vendors
A
When firms diversify into unrelated businesses, the primary potential benefits are horizontal
relationships, i.e., businesses sharing tangible and intangible resources.
F
When firms diversify into related businesses, the primary potential benefits come from
horizontal relationships, which are businesses sharing intangible and tangible resources.
T
Economies of scope are cost savings from leveraging core competencies or sharing unrelated
activities among businesses in a corporation.
F. sharing related activities
ConAgra uses the related diversification vertical integration initiative to enhance market power.
They do this to increase their power over suppliers by centrally purchasing huge quantities of
packaging materials for all of its food divisions.
F. ConAgra uses pooled negotiating power to enhance market power.
ConAgra, a diversified food producer, increases its power over suppliers by centrally
purchasing huge quantities of packaging materials for all of its food divisions. This is an
example of using
A. related diversification to acquire economies of scope by leveraging pooled
negotiating power.
B. related diversification to acquire market power by leveraging pooled negotiating
power.
C. unrelated diversification to acquire financial synergies through portfolio
management.
D. unrelated diversification to acquire parenting, restructuring, and financial synergies through
restructuring and parenting
b
Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by
producing much of its own polypropylene fiber, a key input to its manufacturing process. This is
an example of using the related diversification vertical integration initiative to enhance their
market power.
T
Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by
producing much of its own polypropylene fiber, a key input to its manufacturing process. This is
an example of using
A. related diversification to acquire market power by pooling negotiating
power.
B. related diversification to acquire economies of scope by leveraging core
competencies.
C. related diversification to acquire economies of scope by integrating vertically in order to
acquire market power.
D. related diversification to acquire market power by integrating
vertically.
D
Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by
producing much of its own polypropylene fiber, a key input into its manufacturing process. This
is an example of
A. vertical
integration.
B. sharing
activities.
C. pooled negotiating
power.
D. leveraging core
competencies.
A
What is the primary strategy behind unrelated diversification?
A) Expanding into similar industries to leverage existing resources
B) Acquiring companies in completely unrelated industries and managing them under a single corporate umbrella
C) Focusing on increasing product variety within the same industry
D) Centralizing operations and merging related business units
B
How does Cooper Industries add value through parenting in its unrelated diversification strategy?
A) By combining similar products across divisions
B) By optimizing business operations through activities like auditing and centralizing negotiations
C) By entering new markets with minimal corporate involvement
D) By acquiring businesses with a similar core competency
B
Which of the following activities is part of Cooper Industries’ approach to parenting and restructuring in its unrelated diversification?
A) Merging businesses with overlapping product lines
B) Providing centralized support such as human resources and budgeting systems
C) Reducing the number of business units to focus on core operations
D) Focusing on marketing and branding in unrelated industries
B
What is the role of parenting in the context of unrelated diversification?
A) It involves creating new business units in related industries
B) It refers to the corporate office adding value through management practices, such as human resources and budgeting
C) It focuses on entering new international markets without support from the central office
D) It involves decreasing the number of employees in each business unit
B
Which of the following is an example of corporate restructuring in unrelated diversification?
A) Cooper Industries auditing and improving manufacturing operations across various business units
B) A company increasing its market share in a single product line
C) A company acquiring competitors in the same industry to increase market dominance
D) A company improving its brand recognition by consolidating product lines
A
Cooper Industries has followed a successful strategy of related diversification. There are few
similarities in the products it makes or the industries in which it competes.
F. unrelated diversification
At Cooper Industries, there are few similarities in the products it makes or the industries in
which it completes. The corporate office adds value through such activities as superb human
resource practices and budgeting systems. This is an example of using
A. related diversification to acquire economies of scope by leveraging pooled
negotiating power.
B. related diversification to acquire market power by leveraging core
competencies.
C. unrelated diversification to acquire financial synergies through portfolio
management.
D. unrelated diversification to acquire parenting, restructuring, and financial synergies through
corporate restructuring and parenting.
D
What is the primary purpose of portfolio management in the context of unrelated diversification?
A) To merge business units with similar products or services
B) To improve resource allocation and the evaluation of business units
C) To reduce the number of business units in a portfolio
D) To enter new markets with related product lines
B
Novartis, formerly Ciba-Geigy, uses portfolio management to improve many key activities,
including resource allocation and reward and evaluation systems. This is an example of using
unrelated diversification corporate restructuring and parenting initiatives to create value.
F. portfolio management
Benefits derived from horizontal and hierarchical relationships are mutually exclusive.
F. are not mutually exclusive
What does it mean when we say that the benefits of horizontal (related) and hierarchical (unrelated) relationships are not mutually exclusive?
A) The benefits of related and unrelated diversification are completely separate
B) The benefits of related and unrelated diversification can overlap and complement each other
C) Related and unrelated diversification must be pursued independently for success
D) Only unrelated diversification offers significant benefits for the corporate office
b
Which of the following is an example of a company benefiting from horizontal (related) relationships?
A) A company leveraging information technology expertise at the corporate office to support diverse business units
B) A company adopting “best practices” from sister businesses in completely unrelated industries
C) A company using core competencies across different but related product lines
D) A company merging with a competitor in the same industry
a
How can unrelated diversifiers benefit from hierarchical relationships?
A) By focusing on unrelated product lines within a single business unit
B) By adopting “best practices” from sister businesses, even if the products or technologies differ
C) By consolidating operations across similar business units
D) By relying solely on their expertise in a specific industry
b
Related diversification enables a firm to benefit from horizontal relationships across different
businesses in the diversified corporation by leveraging core competencies and sharing
activities.
T
Economies of scope in a related diversification strategy result from the leveraging of core
competencies and the sharing of activities among businesses in the corporation such as
production.
T
What is the primary role of core competencies in an organization?
A) To centralize all business operations under a single product line
B) To serve as the “glue” that binds existing businesses together and fuels growth for new ventures
C) To reduce the complexity of the company’s operations
D) To focus exclusively on improving the end products and services
b
How do core competencies help organizations fuel growth for new business ventures?
A) By limiting the product offerings and focusing only on existing markets
B) By leveraging collective learning to coordinate skills, integrate technologies, and market diverse products and services
C) By adopting a cost-cutting approach across all business units
D) By reducing the company’s reliance on research and development (R&D)
b
Which of the following is NOT considered a core competency of an organization?
A) The ability to efficiently coordinate diverse production skills
B) The expertise to integrate multiple streams of technologies
C) The capability to market diverse products and services
D) The ability to focus on a single product line in a single market
d
Why should managers look beyond end products when assessing competitors’ strengths?
A) To identify the underlying core competencies that drive success
B) To reduce the variety of products offered by competitors
C) To focus on achieving economies of scale
D) To eliminate the need for diversification strategies
a
What do core competencies reflect in an organization?
A) The ability to reduce costs across all business units
B) The collective learning within an organization, including skills like technology coordination and design
C) The specialization of a company in one specific product or service
D) The ability to expand operations into multiple unrelated industries
b
how does Casio leverage its core competencies?
A) By focusing on high-cost products in niche markets
B) By using miniaturization, microprocessor design, and precision casing to produce a range of small electronic products like digital watches, calculators, and cameras
C) By concentrating only on large electronics such as televisions and home appliances
D) By outsourcing all of its production processes to external contractors
b
Casio, a giant electronic products producer, synthesizes it abilities in miniaturization,
microprocessor design, material science, and ultrathin precision castings to produce digital
watches. It uses the same skills to produce card calculators, digital cameras, and other small
electronics. These collective skills are known as
A. core
competencies.
B. strategic
resources.
C. shared
activities.
D. economies of
scope.
A
For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet which of the following three criteria?
A) Innovation, cost leadership, and market expansion
B) Enhancement of competitive advantage, similarity in value chain, and difficulty to imitate
C) Resource allocation, brand recognition, and market share
D) Financial profitability, market dominance, and strategic focus
b
Which of the following is NOT one of the criteria for a core competence to create value and synergy?
A) Must create superior customer value
B) Must be based on a shared skill in the value chain across businesses
C) Must be easily imitated by competitors to maintain a competitive edge
D) Must enhance competitive advantage by creating superior customer value
c
Which of the following is an example of a company creating superior customer value based on its core competence?
A) Gillette’s innovation in shaving systems, such as the Fusion and Mach 3, based on its core competency in research and development
B) Ford’s mass production of basic cars to reduce production costs
C) Apple’s entry into the energy sector through solar panel technologies
D) McDonald’s expansion of fast food chains to new geographical markets
a
What makes Gillette’s shaving systems (e.g., Fusion, Mach 3) superior and allows them to command higher prices from customers?
A) The low cost of producing these products
B) The technological differentiation based on Gillette’s deep understanding of shaving phenomena and the ability to integrate these technologies into innovative products
C) The use of aggressive marketing campaigns featuring celebrity endorsements
D) The ability to replicate competitor shaving systems with minimal improvements
b
Gillette developed the Fusion and Mach 3 shaving systems that created superior customer
value as a result of the company core competency in research and development.
t
Core competencies do not create value in a business.
f
Core competencies can be viewed as the glue that binds existing businesses together or as the engine that fuels new business growth. This is because core competencies reflect:
A) The ability to reduce costs across all business units
B) The collective learning in an organization, such as coordinating diverse production skills, integrating technologies, and marketing diverse products
C) The financial investment required to expand into new markets
D) The brand loyalty that makes a company competitive in multiple sectors
b
For a core competency to create value and provide a viable basis for synergy among the
businesses in a corporation, it must at least create superior customer value and it must be
difficult to imitate
t
One of the criteria for a core competence is that the different businesses in the corporation
must be similar in at least one important way related to the core competence.
t
It is not necessary for a core competence to be difficult to imitate or to be non-substitutable.
f
Which of the following is an example of a core competence being used across dissimilar businesses within the same corporation?
A) IBM using its core competency in computing technology to provide healthcare services by analyzing medical data through Watson
B) Apple using its core competencies in hardware design to create a smartphone app
C) Ford using its manufacturing expertise to produce gas-powered cars
D) Nike using its core competencies in marketing to sell running shoes
A
In the context of core competencies, why is it not essential for the products or services to be similar when diversifying into new businesses?
A) Because the businesses can still share at least one skill or element in the value chain, such as marketing or technology, that leads to competitive advantage
B) Because diversification always results in completely different skills across businesses
C) Because diversification is only successful when businesses have similar products and markets
D) Because businesses in unrelated industries always face the same cost structures
a
Sharing core competencies is one of the primary potential advantages of diversification. In
order for diversification to be most successful, it is important that the
A. products use similar distribution
channels.
B. similarity required for sharing core competencies must be in the
value chain.
C. target market is the same, even if the products are very
different.
D. methods of production are the
same.
b
or a core competence to be a viable basis for the corporation strengthening a new business
unit, there are three requirements. Which one of the following is not one of these
requirements?
A. The competence must help the business gain strength relative to its
competition.
B. The new business must be similar to existing businesses to benefit from a core
competence.
C. The new business must have an established large
market share.
D. The collection of competencies should be unique, so that they cannot be easily
imitated.
c
What is the primary concept behind sharing activities within a corporation?
A) Transferring financial resources from one unit to another
B) Leveraging core competencies by transferring accumulated skills across business units to create synergies
C) Focusing on cost-cutting measures without regard to value creation
D) Creating entirely independent business units to operate without shared resources
b
Which of the following best describes a value-creating activity in the context of shared activities across business units?
A) Cost-cutting activities such as reducing the number of employees in each unit
B) Common production facilities, distribution channels, or sales forces that increase the overall value of products or services
C) Maintaining independent production systems for each business unit
D) Reducing marketing budgets by consolidating advertising campaigns
b
When companies share non-manufacturing facilities, they can achieve synergy. Which of the following would be an example of sharing non-manufacturing facilities?
A) Sharing a common distribution network to deliver products across different geographic regions
B) Sharing a factory floor to manufacture similar products in one location
C) Sharing a single customer service team to address inquiries for products in completely unrelated industries
D) Developing completely independent sales forces for each business unit
a
Which of the following is an example of sharing activities that enhances synergy across business units?
A) Consolidating production and purchasing activities for different but related products in a single factory
B) Focusing on developing new products for entirely unrelated industries without leveraging shared resources
C) Maintaining separate sales teams for every business unit, even if they target similar customers
D) Outsourcing all manufacturing processes to third-party suppliers for each unit independently
a
When management uses common production facilities or purchasing procedures to distribute
different but related products, they are
A. building on core
competencies.
B. achieving process
gains.
C. using portfolio
analysis.
D. sharing
activities.
D
What are hard synergies in the context of sharing activities?
A) Revenue enhancements through new products and marketing strategies
B) Cost savings that are more easily quantifiable, such as eliminating redundant jobs or facilities
C) Market share growth due to improved branding and customer loyalty
D) Technological advancements achieved by combining research efforts across business units
b
What are the primary payoffs from sharing activities across business units?
A) Cost savings and revenue enhancements
B) Cost-cutting and independence of business units
C) Product differentiation and diversification
D) Market expansion and technological innovations
a
Sharing activities across business units can provide two primary benefits: cost savings and revenue enhancements.
T
What is the primary reason corporations share activities across business units?
A) To increase product diversity without sharing resources
B) To achieve synergies through cost savings and revenue enhancements
C) To compete directly with other unrelated businesses
D) To eliminate business units that are performing well
b
Which of the following is an example of a value-creating activity that can be shared across business units?
A) Common manufacturing facilities, distribution channels, and sales forces
B) Developing entirely independent business strategies for each unit
C) Outsourcing all activities to third-party contractors
D) Maintaining separate supply chains for each product line
A
What is a potential cost associated with sharing activities across business units?
A) Reduced coordination requirements
B) Increased costs of production for each business unit
C) Increased coordination requirements and the need to compromise on design or performance
D) Improved sales performance across all units
c
Which of the following could be an effectiveness concern when sharing activities across business units?
A) Reduced customer satisfaction due to the inconsistency in product quality
B) Loss of competitive advantage if compromises erode the unit’s performance
C) Increased market share due to streamlined operations
D) Better coordination among different departments within each unit
b
Why might coordination costs increase when sharing activities across business units?
A) Because each business unit operates independently and has its own objectives
B) Because shared resources may require more management and adjustment to align different product lines
C) Because sharing resources leads to higher profits across all units
D) Because business units will need fewer employees for each department
b
Which of the following is an example of revenue enhancement from Starbucks’ acquisition strategy?
A) Starbucks acquired Teavana to start a new product line in tea and expand its offerings
B) Starbucks acquired La Boulange to sell bakery products in its retail cafes, increasing market exposure for both Starbucks and the bakery
C) Starbucks acquired a competitor to reduce market competition
D) Starbucks sold off its retail cafes to reduce overhead costs
b
Starbucks acquired the baker chain, La Boulange, with the intention of selling the bakery
products at its coffee cafes. The increased market exposure for La Boulange is an example of
a revenue enhancing benefit that can arise from the differentiation strategy.
t
What is a key reason that an acquiring firm and its target company may achieve higher sales growth together than either could on its own?
A) The acquisition allows the two companies to reduce competition by eliminating market rivals
B) By combining resources and strengths, the companies can expand market reach and offer complementary products, resulting in higher sales growth
C) The companies will lower prices significantly, increasing customer volume and sales
D) The target company will lose market share, but the acquiring firm will benefit from complete market control
b
How can sharing activities improve differentiation strategies among business units?
A) By focusing on cost-cutting and reducing production complexity
B) By combining activities such as order processing to introduce new features and services that enhance customer value
C) By increasing competitive prices at the expense of product features
D) By keeping operations entirely separate, preventing any overlap of resources
b
What is an example of how shared activities can enhance differentiation in the financial services sector?
A) Banks sharing security systems to improve operational efficiency
B) Financial service providers offering bundled products (checking, investment accounts, insurance) through a single point of contact, creating added value for customers
C) Banks cutting down on marketing expenses by sharing ad campaigns
D) Banks merging to eliminate competition and drive higher market share
b
Which of the following best describes the potential downside of sharing activities in differentiation strategies?
A) It may lead to higher costs by overcomplicating production
B) It can dilute the perceived differentiation of a brand, especially if customers find shared features with less premium products
C) It creates inefficiency, which increases customer dissatisfaction
D) It helps maintain brand exclusivity by introducing new features
b
What was the impact on Jaguar’s brand perception when it shared design and production with the Ford Mondeo?
A) Customers viewed Jaguar as more exclusive and prestigious due to the shared production facilities
B) Customers viewed Jaguar as less exclusive, diminishing the perceived luxury and uniqueness of the brand
C) The shared production led to significantly lower costs, improving Jaguar’s pricing strategy
D) Customers appreciated the improved quality due to more standardized production processes
b
What is the primary goal of related diversification in terms of market power?
A) To reduce costs by consolidating operations
B) To increase market power by leveraging relationships with suppliers and customers
C) To expand into unrelated industries and diversify the risk
D) To eliminate competition by acquiring competitors
b
What are the regulatory constraints that might limit market power in related diversification?
A) Governments often regulate mergers and acquisitions to prevent companies from gaining excessive market share and creating monopolies
B) Regulatory bodies encourage mergers to foster market competition
C) Regulatory bodies reward market power with favorable conditions
D) Government regulations prevent companies from diversifying into new product lines
A
What is the primary benefit of affiliation in pooled negotiating power?
A) Reduced product differentiation across business units
B) Increased bargaining power when businesses work together or under a strong parent company
C) Lower operating costs due to the integration of unrelated businesses
D) Greater independence for individual businesses in negotiations
b
How does being part of a strong parent company like Nestlé impact a food manufacturer’s bargaining power?
A) The manufacturer has to lower prices to maintain sales
B) The manufacturer loses control over negotiations with suppliers
C) The manufacturer gains greater clout, allowing for better bargaining with suppliers and customers
D) The manufacturer faces greater competition from larger companies
c
What must managers consider when evaluating the relationship between different business units within the same parent company?
A) How the business units compete with one another for market share
B) How the combination of businesses affects relationships with customers, suppliers, and competitors
C) The business units’ ability to expand into unrelated markets
D) How the parent company can minimize the strength of subsidiaries
b
What is the primary goal of vertical integration for a firm?
A) To expand into completely unrelated industries
B) To reduce costs by becoming its own supplier or distributor
C) To enter new markets and increase product differentiation
D) To outsource critical processes to third-party suppliers
b
Which of the following is an example of backward integration?
A) A car manufacturer opening its own retail dealerships for direct consumer access
B) A clothing manufacturer opening its own stores to sell directly to customers
C) A car manufacturer producing its own parts or engines
D) A dairy company expanding into grocery store chains
c. raw materials
What does forward integration involve in the context of a car manufacturer?
A) Controlling the production of car parts
B) Acquiring raw materials for car production
C) Opening its own car dealerships to sell directly to consumers
D) Expanding into unrelated markets like technology or insurance
c
What was the reason for Nutriva, the Canadian dairy firm, employing backward integration?
A) To expand into foreign markets
B) To ensure quality inputs and maintain its differentiated market position
C) To reduce the costs of its retail operations
D) To shift focus away from dairy products and diversify into technology
b
Which of the following is a key benefit of vertical integration?
A) Increased dependence on external suppliers
B) Reduced control over intellectual property
C) Reduced reliance on external suppliers and distribution channels
D) Increased transaction costs due to more intermediaries
c
How does vertical integration help in securing a consistent supply of raw materials?
A) By relying on external suppliers for flexible sourcing
B) By reducing competition from rivals in unrelated industries
C) By controlling its supply chain, ensuring a reliable and consistent supply
D) By reducing the need for raw materials altogether
c
Which of the following best describes how vertical integration can protect valuable assets?
A) By giving the company access to new distribution networks
B) By preventing competitors from accessing intellectual property, technologies, or proprietary processes
C) By increasing reliance on external technologies
D) By improving the company’s marketing channels
b
What is one advantage of vertical integration in terms of new technologies?
A) Firms gain exclusive rights to external technologies
B) Firms can develop and control new technologies internally, enhancing product differentiation and efficiency
C) Vertical integration prevents any technological advancements from occurring
D) Vertical integration leads to increased reliance on third-party innovators
b
How does vertical integration affect a firm’s procurement and administrative procedures?
A) It increases complexity by adding more intermediaries
B) It simplifies decision-making and reduces transaction costs by lowering the number of suppliers and intermediaries
C) It requires more external resources for administrative tasks
D) It decentralizes procurement and complicates management procedures
Answer: B) It simplifies decision-making and reduces transaction costs by lowering the number of suppliers and intermediaries
b
Which of the following is a cost-related risk associated with vertical integration?
A) Reduced capital expenditures
B) Increased demand volatility
C) Increased overhead and capital expenditures
D) Decreased administrative costs
c
What is the primary advantage of vertical integration in terms of market positioning?
A) Vertical integration makes a firm more dependent on its suppliers
B) It leads to a weakened competitive advantage due to increased reliance on external parties
C) It enhances the firm’s competitive advantage by controlling key processes and resources
D) It reduces quality control and makes product differentiation harder
c
Which of the following is a risk of vertical integration related to flexibility?
A) Vertical integration increases flexibility by allowing firms to quickly adapt to changes
B) Committing to large fixed investments in integrated operations can limit a firm’s ability to quickly pivot
C) Vertical integration leads to better market flexibility through outsourcing
D) Integration makes it easier to capitalize on market opportunities
b
What is a problem related to unbalanced capacities in vertical integration?
A) Firms may need to reduce production in certain areas
B) In-house suppliers may produce more than needed, leading to inefficiencies
C) Suppliers may not scale up operations to meet demand
D) The firm may experience too little capacity to meet market needs
b
Which of the following is an administrative cost-related risk of vertical integration?
A) It simplifies decision-making and reduces the number of management layers.
B) The complexity of operations leads to higher administrative costs and challenges in coordination.
C) It reduces the need for management oversight in different divisions.
D) It eliminates unnecessary administrative functions entirely.
b
What risk is associated with demand fluctuations when a company vertically integrates its operations?
A) A firm’s in-house operations may have high flexibility to adjust to demand changes
B) Fixed costs increase, and firms may struggle to maintain efficiency when demand is inconsistent
C) Vertical integration makes the company less reliant on fluctuating demand
D) Demand fluctuations have no impact on vertically integrated firms
b
Which of the following can be a financial consequence of vertical integration if the expected benefits do not materialize?
A) Increased profitability from streamlined operations
B) Higher administrative costs and decreased profitability
C) Reduced dependence on external suppliers
D) Better coordination and lower management expenses
b
Why is complexity of execution a risk in vertical integration?
A) Because vertical integration leads to a more straightforward supply chain
B) Because integration strategies require specialized competencies that the firm may not possess
C) Because it simplifies the firm’s operations and decision-making
D) Because vertical integration always results in immediate profitability
b
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.
b
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.
b
When deciding on vertical integration, which factor should a company evaluate regarding its current suppliers and distributors?
A) Whether current suppliers are charging higher prices
B) Whether suppliers and distributors meet the company’s quality expectations
C) Whether suppliers are willing to expand their product lines
D) Whether the company has existing contracts with suppliers
b
Why should a company consider demand stability when making vertical integration decisions?
A) Companies with volatile demand benefit from outsourcing to mitigate risk
B) Companies with stable demand can automatically integrate their suppliers
C) Vertical integration guarantees stable demand for all products
D) Volatile demand makes it easier to assess market opportunities
a
What should a company assess to determine whether it is ready for vertical integration?
A) Whether it has the necessary skills to execute the integration effectively
B) Whether it has sufficient external suppliers to rely on
C) Whether it has already achieved full market control
D) Whether it has a larger workforce to manage the integration
a
What could be a negative impact on stakeholders when a company pursues vertical integration?
A) Improved customer relationships and supplier cooperation
B) Increased profits for customers and employees
C) Competitor conflicts between acquired firms and current stakeholders
D) Enhanced product differentiation leading to increased market share
c
Which of the following would be a reason not to pursue vertical integration in a volatile market?
A) The market has stable demand, which supports integration.
B) The company is focused on customer needs that are evolving.
C) The firm has strong cooperation with suppliers.
D) The competitive situation is not volatile and supply chain relationships are reliable
b
Which of the following is a reason a company might not pursue vertical integration?
A) The company operates in a highly volatile competitive environment
B) The firm has a stable customer base and well-managed suppliers
C) The firm seeks to expand its product portfolio
D) The company has no existing competitors in the market
a
Which of the following is an example of a profit opportunity that could arise from vertical integration or acquisitions?
A) Best Buy outsourcing installation services to third-party contractors
B) Best Buy acquiring Geek Squad to capture profits from installation and service
C) A company reducing its employee wages to increase profitability
D) A company focusing only on cost-cutting without expanding its services
b. Profit Opportunities: Identify outsourced activities that could yield future profits. Best Buy acquired Geek Squad to tap into installation and service profits.
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.
c
What are transaction costs in the context of buying goods or services from external suppliers?
A) The cost of producing goods internally
B) The money spent on advertising products
C) The costs associated with finding, negotiating, contracting, and monitoring suppliers
D) The cost of raw materials used in productio
c
Which of the following is NOT considered a transaction cost?
A) Search costs
B) Negotiation costs
C) Contracting costs
D) Fixed costs of production
d
Transaction costs include all of the following costs except
A. agency
costs.
B. negotiating
costs.
C. search
costs.
D. monitoring
costs.
A
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.
c
