Final: IB Strategy

Question 1

What is a Strategy?

Answer 1

Strategy refers to actions that managers take to attain the goals of the firm.

Question 2

What is the goal of a firm?

Answer 2

To maximize the value of the firm for owners and

shareholders.

Question 3

What is profitability?

Answer 3

The rate of return a firm makes on its invested capital.

Divide net profits by total invested capital.

Question 4

What is profit growth?

Answer 4

Measures percentage increase in net profits over time.

Question 5

What are the determinants of enterprise value?

Answer 5

Profitability and Profit Growth

Question 6

How is value creation measured?

Answer 6

Measured by the difference between a firm’s costs of

production and the quality/value that consumers perceive in its products.

Question 7

What are Porter’s two strategies for value creation?

Answer 7

Low Cost and Differentiation

Question 8

According to Porter, to maximize profitability, a firm must:

Answer 8

1. Pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice.
2. Configure its internal operations, such as manufacturing, marketing, logistics, information systems, human resources, and so on, so that they support that position.
3. Make sure that the firm has the right organizational structure in place to execute its strategy.

Question 9

What are the value chain creation activities?

Answer 9

• Production.
• Marketing and sales.
• Materials management.
• R&D.
• Human resources.
• Information systems.
• Infrastructure.

Question 10

What are supporting activities in a value chain?

Answer 10

• Information systems
• Logistsics
• Human resources

Question 11

What are the primary activities in a value chain?

Answer 11

• R&D
• Production
• Marketing and Sales
• Customer Service

Question 12

What is the definition of primary activities in a value chain?

Answer 12

Anything that directly adds value to a product or service.

Question 13

What is the definition of supporting activities in a value chain?

Answer 13

Provide inputs that allow the primary activities to occur.

Question 14

International firms are able to:

Answer 14

• Expand the potential size of the market for domestic products.
• Realize location economies.
• Realize greater cost economies from experience effects.
• Earn a greater return on investment.

Question 15

What are core competencies?

Answer 15

Skills within the firm that competitors cannot easily match or imitate.

Question 16

What is an Experience Curve?

Answer 16

Systematic reductions in production costs that have been observed to occur over the life of a product.

Question 17

What are learning effects?

Answer 17

Cost savings that come from learning by doing.

Question 18

What is economics of scale?

Answer 18

Reductions in unit cost from producing large volumes of a product.

Question 19

What is strategic significance?

Answer 19

Moving down the experience curve allows a firm to reduce its cost of creating value and increase its profitability.

Question 20

What are the four international strategies for value creation when entering a new market?

Answer 20

• Global standardization.
• Localization strategy.
• Transnational strategy.
• International strategy.

Question 21

What is the Global Standardization Strategy?

Answer 21

• Looks to reap the cost reductions that come from
economies of scale, learning effects, location economies.
• Production, marketing, R&D, and supply chain activities are concentrated in a few favorable locations.
• Avoids customization.

Question 22

What is the goal of the Global Standardization Strategy?

Answer 22

The goal is to pursue a low-cost strategy on a global scale.

Question 23

When is it most appropriate to use the Global Standardization Strategy?

Answer 23

Makes the most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.

Question 24

What is the Localization Strategy?

Answer 24

Customizes the firm’s goods or services so they are a

good match to tastes and preferences in different national markets.

Question 25

When is it most appropriate to use the Localization Strategy?

Answer 25

• There are substantial differences across nations with regard to consumer tastes and preferences.
• Cost pressures are not too intense.

Question 26

What is the Transnational Strategy?

Answer 26

Achieve low costs, differentiate product offerings to

account for local differences, foster the multidirectional flow of skills between subsidiaries.

Question 27

When is it most appropriate to use the Transnational Strategy?

Answer 27

Makes most sense when demands for local

responsiveness is high but cost pressures are moderate or low.

Question 28

What is the International Strategy?

Answer 28

Taking products developed for domestic market and
selling them internationally with minimal local
customization.

Question 29

When is it most appropriate to use the International Strategy?

Answer 29

For firms with low-cost pressures and low pressures for local responsiveness.