Final Flashcards
Transaction cost of market include information costs and costs of decision making, but usually exclude the costs incurred by monitoring and controlling.
T/F?
False because transactions cost should include all costs - ex, any, post
Porter’s “three essential tests” help to determine:
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. The potential for diversification to create shareholder value through boosting profitability.
When a firm is diversifying through acquiring a form in another industry, the critical issue is whether the synergies that can be realized will offset the acquisition premium paid.
T/F?
True
One of the advantages of a company providing its own facilities maintenance services is that a wholly owned and directly managed maintenance unit is subject to “high powered” incentives.
T/F?
False
Bounded rationality describes individual’s limitation to foresee all possible contingencies that might arise during a contract period.
T/F?
True
In fashion clothing, one reason why mass market distributors such as H&M, outsource their production is reduced new product cycle time (the time between the initial design of a product and its delivery to a retail store).
T/F?
FALSE.
Zara doesn’t outsource and if they outsource they have to coordinate with outsourcing company and can’t respond to trend so quickly
Agency costs are due to:
A. Shirking by employees and the admin effect to deter it
B. The difficulty of measuring and rewarding individual unit’s performance
C. The difficulty of internally replication the incentives faced by market forms
D. All of the above
E. None of the above
D. All of the above
The main cause of downsizing, refocusing and outsourcing during the latter part of the 20th century was:
A. Developments in IT- especially the advent of the internet
B. A more turbulent business environment
C. both (a) and (b)
D. Neither (a) and (b)
C. both (a) and (b)
Keiretsu and similar business networks, based on relational, semi-formal contacts such as the relationships between vehicle manufacturers and their component suppliers - are superior to either pure market contracts or vertical integration because:
A. They give manufacturers immense bargaining power over their suppliers
B. They offer similar benefits of high-powered incentives and flexibility that market contracts
C. They offer similar coordination benefits as vertical integration
D. They combine the coordination benefits of vertical integration with the incentive and flexibility benefits of market contracts.
D. They combine the coordination benefits of vertical integration with the incentive and flexibility benefits of market contracts.
According to Ronald Coase, in general, firms should make rather buy.
T/F?
False
The benefits of using the market can be attributes to economies of scale rather than to the quality and efficiency advantages achieved by market firms.
T/F?
False
According to Michael Porter, industry attractiveness is a sufficient justification for diversification.
T/F?
False
Vertical boundaries of a firm determine what?
Vertical boundaries of the firm determine which tasks (of the vertical chain) are to be performed INSIDE the firm and which to be OUT-SOURCED.
The choice between using the market or using the organization is a MAKE or BUY decision
When thinking about the shifting roles of firms in the economy…
In the 20th century, what occurred?
During the 20th century: Expanding Size and Scope of Corporations
Administrative efficiency increased by:
*New techniques of strategic, financial, operational and human resource management
*New organizational forms
*Technology
When thinking about the shifting roles of firms in the economy in the mid 1970s, what occurred?
Around the mid-1970s: Reverse trend of Restructuring,Refocusing and Downsizing among Large Corporations
Market efficiency due to:
* Environment Uncertainty – Turbulent business environment reduces the efficiency of large, hierarchical firms
* Digital technologies and internet increase efficiency of markets
What does the vertical chain start & end with?
What is an important part of a business strategy?
The vertical chain
* begins with the acquisition of raw materials and,
* ends with the sale of finished goods/services
Organizing the vertical chain is an important part of business strategy
Explain Upstream & Downstream.
Upstream : Early steps in the production process are upstream (Timber for furniture)
Downstream : Later steps are downstream (finished goods in showrooms) i.e., sales
Define Market firms.
Outside specialists who can perform vertical chain tasks
- Market firms are often recognized leaders in their field (Example: UPS)
Explain Transaction Cost Theory (TCT).
Oliver Williamson – TCT’s founder and best-known representative
TCT is the optimum organizational structure to achieve economic efficiency by minimizing the costs of exchange.
The theory suggests that each type of transaction produces coordination costs of monitoring, controlling, and managing transactions.
What are the benefits of vertical integration?
- Avoids transactions costs of market contracts in situations where there are:
– small numbers of firms
– transaction-specific investments
– opportunism and strategic misrepresentation
– taxes and regulations on market transactions - Superior coordination
