Final Exam

Question 1

84. Explain how the keys to sustaining a broad differentiation strategy differ from the keys to sustaining a best-cost producer strategy?

Answer 1

Broad differentiation strategy- seeking to differentiate the company’s product offering from rivals with product attributes that will appeal to a broad spectrum of people
- Stress constant innovation to stay ahead of imitative competitors
- Concentrate on a few key differentiating features
Best-cost provider – giving customers more value for the money by offering upscale products attributes at a lower cost than rivals
- Unique expertise in simultaneously managing costs down while incorporating upscale features and attributes
These differ because Best cost provider is focused on upscale features and upgrading those features compared to compeitors while the Broad differentiation strategy is focused on innovation finding differentiating features rather than making features better

Question 2

85. What are the keys to sustaining a focused low cost strategy?

Answer 2

Stay committed to serving the niche at the lowest overall cost
- It is important to not blur the firm’s image by entering other market segments or adding other products to widen market appeal

Question 3

61.Identify”and”briefly”discuss”two”“best”targets”“for”offensive”attacks”by”companies.

Answer 3

• Market Leaders that are vulnerable
• Attack when not a true leader in terms of serving the market
• Sings of vulnerability are: Unhappy buyers, inferior product line, weak competitive strategy, old technology, outdated plants and equip
• Struggling enterprises that are on the verge of going under
• Challenge in a manor that they use up financial resources to compete
• Attack rival where they make most profits
• Successful attack could force rival to exit market

Question 4

A) Strategic Alliance

Answer 4

• Is a formal agreement between two or more separate firms in which they agree to work cooperatively toward common objectives.

Question 5

B) Vertical Integration Strategy

Answer 5

• one that performs value chain activates along several portions or stages of an industry’s overall value chain
• a vertical integration strategy can expand the firm’s range of activities backwards into sources of supply and/or forward towards end user products

Question 6

C) Outsourcing Strategy

Answer 6

● Involves farming out value chain activities to outside vendors.
Outsource when
● Can be performed better or more cheaply by outside specialists.
● Is not crucial to achieving sustainable competitive advantage and does not hollow out the firm’s core competencies.
● Improves organizational flexibility and speed time to market.
● Reduces risks due to new technology and/or buyer preferences.
● Assembles diverse kinds of expertise speedily and efficiently.
● Allows a firm to concentrate on its core business, leverage key resources, and do even better what it does best.

Question 7

D) A first mover advantage

Answer 7

• Being to first to initiate a strategic move that can lead to a competitive advantage
• Moving first does not guarantee success
• 6 situtations when to use first mover advantages
• When pioneering helps build a firm’s reputation with buyers and creates brand loyalty
• When a first mover’s customers will thereafter face significant switching costs
• When property rights protections thwart rapid imitation of the initial move
• When an early lead enables the first mover to move down the learning curve ahead of rivals
• When a first mover can set the technical standard for the industry
• Basically, use this strategy when that first move can put the company ahead of other companies

Question 8

E) A first mover disadvantage (Late mover advantage)

Answer 8

♦ When pioneering is more costly than imitating and offers negligible experience or learning-curve benefits.
♦ When the products of an innovator are somewhat primitive and do not live up to buyer expectations.
♦ When rapid market evolution allows fast followers to leapfrog a first mover’s products with more attractive next-version products.
♦ When market uncertainties make it difficult to ascertain what will eventually succeed.

Question 9

63. Under what sorts of circumstances are mergers with or acquisitions of other companies a better solution than entering into partnership’s or alliances with these companies? How do mergers and/or acquisitions contribute to enhancing a company’s position?

Answer 9

Mergers and or acquisitions contribute to enhancing a company’s position by
♦ Increasing the firm’s scale of operations and market share.
♦ Expanding a firm’s geographic coverage.
♦ Extending the firm’s business into new product categories.
♦ Gaining quick access to new technologies or complementary resources and capabilities.
♦ Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

Question 10

74. Identify and briefly discuss three factors a company must consider in order to capture the benefits of engaging in strategic alliances

Answer 10

1) Picking a good partner
2) Being sensitive to cultural differences
3) Ensuring both parties live up to their commitments

Question 11

86. Briefly identify the special features of competing in foreign markets

Answer 11

1) Nature of the product
2) Level of Risk
3) Level of control

Question 12

88. Explain why a company desirous of competing in foreign markets needs to pay carful attention to where it locates it’s value chain activities.

Answer 12

Companies are locating different value chain activates in different parts of the world to exploit location based advantages 
Differences in
-	wage rages
-	worker productivity 
-	energy costs 
-	environmental regulations
-	tax rates 
-	inflation rates

Question 13

A) Multidomestic strategy

Answer 13

• Varies product offerings and competitive approaches from country to country
• good choice for companies that compete primarily in industries characterized by multidomestic competiton
• adapting to international needs
• think local, act local

Question 14

B) Global strategy

Answer 14

• Employs the same basic competitive approach in all countries where the firm operates.
• Think global, act global
• Strategy and product or service remains the same
• Especially beneficial when high volumes significantly lower costs due to economies of scale or added experience

Question 15

C) Export strategy

Answer 15

• using domestic plants as a production base for exporting goods to foreign markets
• conservative way to test the international waters
• minimal capital needed to begin exporting
• vulnerable when
  o manufacturing costs in home country are high
  o high shipping costs
  o adverse shifts occur in currency exchange rates

Question 16

D) Licensing strategy

Answer 16

• License foreign firms to produce and distribute the company’s products abroad
• Good when a company does not have the capability or resources to enter foreign markets
• Advantage of avoiding the risks of committing resources to country markets that are unfamiliar, politically volatile, economically unstable or risky
• Good for manufactures and owners of proprietary technology

Question 17

E) Franchising strategy

Answer 17

• Better suited for international expansion efforts of service and retailing enterprises
• Franchisee bears most of the costs and risks of establishing foreign locations

Question 18

A global strategy embraces the theme think global act global where as a multidomestic strategy relies more on a think global act local mentality. true or false? Explain.

Answer 18

False, multidomestic strategy relies on think local, act local. The multidomestic strategy involves adopting a companies product, marketing strategy and pretty much every aspect to the international market that, that company is entering.
Global strategy involves virtually changing nothing of the product so it is a globally the same product.

Question 19

Identify and briefly describe the strategic options for tailoring a company’s strategy to compete in emerging country markets.

Answer 19

1. Prepare to compete on the basis of low price
   - Price is a very important factor in developing markets
2. Be prepared to modify aspects of the company’s business model or strategy to accommodate local circumstances (but not to such an extent that the company loses the advantage of global scale and branding
   - dell for example discovered that customers were not accustomed to placing orders on the internet so they modified their direct sales model to rely more on heavily on phone and fax orders
3. Try to change the local market to better match the way the company does business elsewhere
   - when Suzuki entered India, it triggered a quality revolution among Indian parts manufacturers
4. Stay away from developing markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances

Question 20

Identify and briefly discuss each of the three tests for determining whether diversification into a new business is likely to build shareholder value.

Answer 20

1. The industry attractiveness test
   - the industry must be attractive enough to yield consistently good returns on investment
   - hard to enter an industry when profit projections are low
2. The cost of entry test
   - the cost of entering the target industry must not be so high as to erode the potential for good profitability
   - if there is high entry barriers than it can be difficult for a company to enter the industry
3. The better off test
   - diversifying into a new business must offer potential for the company’s existing businesses and the new business to perform better together under a single corporate umbrella than they would perform operating as independent stand alone businesses

Question 21

The Attractiveness Test:

Answer 21

● Are the industry’s returns on investment as good or better than present business(es)?

Question 22

The Cost of Entry Test:

Answer 22

● Is the cost of overcoming entry barriers so great that profitability is too long delayed?

Question 23

The Better-Off Test:

Answer 23

● How much synergy will be gained by diversifying into the industry?

Question 24

C) Related diversification

Answer 24

• related diversification is based on value chain matchups with respect to key value chain activates
• posses competitively valuable cross-business value chain and resource matchups
• Allows a company to easily expand into a country

Question 25

D) Unrelated diversification

Answer 25

• building shareholder value by Unrelated diversification is ultimately affected by the ability of the parent company to improve its business via other means
• activities involve, nurturing, guiding, grooming, and governing constituent businesses,
• this can allow a corporate parent to expand into a new market

Question 26

E) Strategic Fit

Answer 26

• when value chains of different business present opportunities for cross business resource transfer, lower costs through combining the performance of related value chain activities or resource sharing
• very useful when building stronger competitive capabilities

Question 27

F) Economies of Scope

Answer 27

• Are cost reductions that flow from cross-business resource sharing in the activities of the multiple businesses of a firm.

Question 28

G) Divestiture

Answer 28

For a business, divestiture is the removal of assets from the books. Businesses divest by the selling of ownership stakes, the closure of subsidiaries, the bankruptcy of divisions, and so on.

In personal finance, investors selling shares of a business can be said to be divesting their interests in the company being sold.

Question 29

H) Corporate restructuring

Answer 29

• overhauling and streamlining the activities of a business- combining plants with excess capacity, selling off underutilized assets, reducing unnecessary expenses and otherwise improving the productivity and profitability of the company
• Takes place usually when a diversified company acquires a new business that is performing below its capable levels

Question 30

What is meant by the term strategic fit? What are the advantages of pursuing strategic fit in choosing which industries to diversify into?

Answer 30

Strategic fit exists whenever one or more activates constituting the value chains offer business opportunities for cross-business sharing or transferring of the resources and capabilities that enable these activities
Perusing strategic fit can lead to
- Transferring specialized expertise, technological know-how or other competitively valuable capabilities from one business’s value chain to another’s
- Combining the related value chain activities of separate business into a single operation to achieve lower costs
- Exploiting well known brand names
- Sharing other resources that support corresponding value chain activates, suppliers or a dealer network (types of relationships) etc
- Engaging in cross-business collaboration and knowledge sharing to create new competitively valuable resources and capabilities

Question 31

What does the industry attractiveness test involve in evaluating a diversified company’s business lineup? Why is it relevant?

Answer 31

It is important to evaluate the lineup because you need to figure out which businesses are most attractive and least attractive. Once you figure that out you can divest the unattractive businesses and invest in a new profitable industry.
Involves
-	social political, regulatory and environmental factors
-	Seasonal and cyclical factors 
-	Industry uncertainty and business risk
-	Market size and projected growth rate
-	Industry profitability 
-	The intensity of competition 
-	Emerging opportunities and threats

Question 32

119. What is the relevance of quantitatively measuring the competitive strength of each business in a diversified company’s business portfolio and determining which business units are strongest and weakest?

Answer 32

It reveals the chance for industry success, provides a basis for ranking and sizes up the competitive strength of all business units as a group.

Question 33

124. Shareholder interests are generally best served by concentrating corporate resources on businesses that can contend for market leadership. True or false? Explain your answer.

Answer 33

True, a diversified company’s prospects for good overall performance are enhanced by concentrating corporate resources and strategic attention on those business units having the greatest competitive strength and positioned in highly attractive industries.

Question 34

59. What are the strengths and weaknesses of the thesis that ethical standards are (or should be) universal?

Answer 34

Strength’s- where local cultural beliefs, traditions or religious convictions do not take precedent a multinational company can develop a code of ethics that apply evenly in its worldwide operations.

Weaknesses- where local cultural beliefs, traditions or religious convictions do take precedent a multinational company cannot develop a code of ethics that apply evenly in its worldwide operations, instead they have to adhere to local customs and traditions of what is ethically right and wrong.

Question 35

66. Identify and briefly describe any three of the four approaches to managing a company’s ethical conduct.

Answer 35

Unconcerned or Nonissue Approach-
• Notions of right and wrong in business matters are defined by government via prevailing laws and regulations —
after that, anything goes
• If the law permits “unethical behavior,”
why stand on ethical principles

Damage Control Approach-
 Favored at companies whose managers are intentionally amoral but who fear scandal
 May adopt a code of ethics as window-dressing

Compliance Approach-
 Ethics code violators are disciplined, sending a clear signal that complying with ethical standards must be taken seriously

Ethical Culture Approach-
• Ethics is basic to the culture
• Everyone expected to walk the talk
• Behaving ethicality must be a deeply held corporate value and become a way of life.

Question 36

67. What is the case for why business strategies should be ethical?

Answer 36

Because an ethical strategy can be both good business and serve the self-interest of shareholders.

Question 37

68. Identify the three types of business costs of ethical failures; provide examples for each type of cost.

Answer 37

Visible costs- government fines and penalties, cost to shareholders in terms of lower share price.

Internal administrative costs- legal and investigative costs incurred by the company, costs of taking corrective action

Intangible or less visible costs- customer defections, loss of reputation, high employee turnover

Question 38

70. Explain how environmental sustainability strategies go about improving a company’s “Triple-­‐P” performance people, planet, and profit. Why is it important for strategy-­‐makers to find points of intersection between society and the company’s ability to execute value chain activities or better serve customer need?

Answer 38

3-p’s-A company’s concerted actions to meet current needs of all stakeholders to
•	Protect the environment,
•	Provide for the longevity
of natural resources,
•	Maintain ecological support
systems for future generations, and
•	Guard against ultimate endangerment
of the planet.

It is important because it:
• Increased reputation and buyer patronage
• Reduced risk of reputation-damaging incidents
• Lower turnover costs and enhanced employee recruiting and workforce retention
• Increased opportunities for revenue enhancement due innovation in support of sustainability and CSR
• Support for the long-term interests of shareholders