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Strategy Formulation > Topic 2 > Flashcards

Topic 2 Flashcards

1
Q

These are strategies aimed at combining resources to maximize profits and reduce costs. Included in this type of strategies are forward integration, backward integration and horizontal integration.

A

Integration Strategies

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2
Q

This pertains to gaining ownership or increased control of a firm’s distributors or retailer.

A

Forward integration

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3
Q

This strategy is aimed at ______ ______ by eliminating ________ ______ ______ Under this scheme, the company that integrates forward may reach the customers faster by putting up its own distribution networks.

A

reducing costs

external distribution outlets

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4
Q

An example of a company which pursued this strategy would be San Miguel Corporation which set up stand- alone Monterey Meat Shops to sell these products.

A

Forward Integration

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5
Q

This strategy may be used when:
° Present distributors are expensive, unreliable, or incapable of meeting firm’s needs
° Availability of quality distributors is limited
°When firm competes in an industry that is expected to grow markedly
°Advantages of stable production are high
° Present distributor have high profit margins

A

Forward Integration

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6
Q

gaining ownership or increased control of a firm’s suppliers.

A

Backward integration

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7
Q

An example of a company which used this strategy is Del Monte Philippines which put up its own pineapple farms in Bukidnon to grow its own pineapples for its canning business. With the pineapple farm, Del Monte was able to control the quality of its inputs as well as guarantee the supply of the right quantity of inputs at lower prices.

A

Backward Integration

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8
Q

This strategy is effective when:
• Present suppliers are expensive, unreliable, or incapable of meeting needs
•Number of suppliers is small and number of competitors large
•High growth in industry sector
•Firm has both capital and human resources to manage new business
•Advantages of stable prices are important
•Present supplies have high profit margins

A

Backward Integration

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9
Q

This strategy is seeking ownership orcontrol over competitors. This is sought after by companies desiring to reduce competition by buying out competitors.

A

Horizontal Integration

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10
Q

It is common in the banking business in the Philippines with the increase in capital requirements imposed by the Bangko Sentral ng Pilipinas. Examples of these banks are Chinabank and BDO, and Far East Bank and BPI.

A

Backward Integration

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11
Q

•Firm can gain monopolistic characteristics without being challenged by the government

•Firm competes in a growing industry

•Increased economies of scale provide major competitive advantages

•Faltering/losing due to lack of managerial expertise or need for particular resources

A

Horizontal Integration

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12
Q

These strategies aim at increasing or deepening involvement in a chosen market to generate maximum returns from it.

A

Intensive Strategies

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13
Q

Options include product development, market development, and market penetration.

A

Intensive Strategies

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14
Q

This development is seeking increased sales by improving present
products or services or developing new ones to existing market. Many growing companies usually manifest growth with additional products brought forth to the market.

A

Product development

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15
Q

_______ ________ is usually done when a company sees opportunities to maximize sales in a particular market segment. Happy Skin, a Filipino cosmetic brand, recently introduced additional lip products such as the Lip Mallow with several color variants to cater to different moods of the Filipina. These lip tints add to the wide array of make up products offered to the same market, that is, women.

A

Product Development

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16
Q

Guidelines for pursuing product development are as follows:
Products in maturity stage of life cycle

Competes in industry characterized by rapid technological developments

Major competitors offer better-quality products at comparable prices

Compete in high-growth industry

Strong research and development capabilities

A

Product Development

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17
Q

This pertains to introducing present product to new geographic area. The term “market” here refers to a geographical market or location.

A

Market Development

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18
Q

Market Development

The term “market” here refers to a geographical market or location. Market development is accomplished by bringing a company’s products to a different location either in a different region, country or continent, but characteristics of the customers are essentially the same.

The statement above describes Market development, is it true or false?

A

True

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19
Q

Market Development
This strategy is among the ______. ________ Companies popular for their market development activities include Starbucks, Jollibee, McDonalds and Coca-Cola.

A

gorwth strategies

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20
Q

Consider these guidelines when pursuing market development:
• New channels of distribution that are reliable, inexpensive, and good quality

•Firm is very successful at what it does

•Untapped or unsaturated markets

•Capital and human resources necessary to manage expanded operations

•Excess production capacity
Basic industry rapidly becoming global

A

Market Development

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21
Q

This pertains to seeking increase in market share for present products in
present market through greater marketing efforts.

A

Market penetration

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22
Q

This strategy is usually accomplished by increasing promotional activities, advertising efforts and public relations. With the use of this strategy, users are encouraged to increase ______ _______ , _______ _______ and______ ______

A

usage rate, usage frequency and usage volume.

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23
Q

When companies provide freebies to established brands, customers usually tend to ____ _____ from these companies. Just recently, to push car units to the market, Toyota offers discounts and easier financing terms to buyers. Likewise, Mac, the popular make up brand in the US, gives free full sized lipstick for customers who will purchase selected products during the celebration of their National Lipstick Day.

A

buy more

24
Q

Guidelines for pursuing market penetration are as follows:

Current markets not saturated

Usage rate of present customers can be increased significantly

Market shares of competitors declining while total industry sales increasing

Increased economies of scale provide major competitive advantages

A

Market Penetration

25
Q

This means to expand a company’s operations. Diversification strategies focus on expanding either into related or unrelated markets to pursue growth.

A

Diversification Strategy

26
Q

concentric diversification, conglomerate diversification and horizontal diversification.
These are examples of

A

Diversification Strategies

27
Q

It refers to adding new but related products or services. This is sometimes referred to as Related Diversification because the company adds businesses or products that are related to its current businesses.

A

Concentric Diversification

28
Q

Concentric diversified firms choose this strategy when they have core competencies in a particular business.
True or False

A

True

29
Q

A ______ _________is a resource or capability that is considered to be an advantage of a company over others. It is something a company is extremely good at, so that it may be used by the company in exploring other related businesses.

A

core competency

30
Q

Concentric diversification is used when:

Company competes in no- or slow-growth industry

Adding new & related products increases sales of current products

New & related products may be offered at competitive prices

Current products are in decline stage of the product life cycle

Company has strong management team

A
31
Q

This refers to adding new unrelated products or services. Many of the diversified firms now are into this type of expansion. Sometimes called UNRELATED DIVERSIFICATION, this strategy is accomplished by putting up or acquiring businesses that are not related to a company’s core competencies.

A

Conglomerate diversification

32
Q

However, many of these companies are tied together by their financial resources.

A

Conglomerate Diversification

33
Q

Conglomerate diversificationis pursued under any of the following conditions:

Declining annual sales and profits

Capital and managerial talent to compete successfully in a new industry

Financial synergy between the acquired and acquiring firms

Exiting markets for present products are saturated

A

Conglomerate Diversification

34
Q

This pertains to adding new unrelated products or services for present customers. This is pursued when existing customers can maximize their benefit from the additional products, such as when new products or services complement the existing products or services. A hotel that offers spa services in addition to lodging services is an example of horizontal diversification.

A

Horizontal diversification

35
Q

A hotel that offers spa services in addition to lodging services is an example of horizontal diversification.
True or False

A

True

36
Q

Conditions considered when pursuing horizontal diversification are as follows:

Revenues from current products/services would increase significantly by adding the new unrelated products

Highly competitive and/or no-growth industry w/low margins and returns

Present distribution channels can be used to market new products to current customers

New products have counter cyclical sales patterns compared to existing products

A

Horizontal diversification

37
Q

These strategies are sought after when the company finds it DIFFICULT TO COPE with reduction in sales and market share. Thus, a company develops these strategies to defend against competitors, keep or retain position in the market or protect against losses.

A

Defensive Strategies

38
Q

Among the strategies classified as defensive are joint venture, retrenchment, divestiture, and liquidation.

A

Defensive Strategies

39
Q

two or more sponsoring firms forming a separate organization for cooperative purposes.

A

Joint Venture

40
Q

A joint venture may be formed between two companies of equal size or two companies with different sizes and capacities.
True or False?

A

True

41
Q

Sometimes, a new company joins a strong and established company to take advantage of the expertise and technology of the latter.

A

Joint Venture

42
Q

The following are considerations for adopting a joint venture:

A privately owned organization forms one with a public organization.

A domestic organization works with a foeign company.

The distinct competencies of the firms complement each other especially well.

Some project is potentially profitable but requires much risk.

Two or more smaller firms wish to compete against a larger firm.

There is a need to introduce a new technology quickly.

A
43
Q

regrouping through cost and asset reduction to reverse declining sales and profit.

A

Retrenchment

44
Q

This strategy is sometimes called REORGANIZATION OR DOWNSIZING. It is not synonymous to laying off people but often results to layoffs because assets are sold or repurposed.

A

Retrenchment

45
Q

With the global problems related to oil, retrenchment is a popular strategy for most _____ _____.

A

oil companies

46
Q

Retrenchment is effective under the following conditions:

Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies

Firm is one of the weaker competitors

Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance.

When an organization’s strategic managers have failed

Very quick growth to large organization where a major internal reorganization is needed.

A

Retrenchment

47
Q

selling a division or part of an organization. This strategy is done to add liquidity to a corporation. By selling a part of the organization to another company, funds may be generated to support losses in the remaining businesses.

A

Divestiture

48
Q

Divestiture is done only when ____ ____ __ _______ ______ as options.

A

Joint venture and retrenchment failed

49
Q

It may be accomplished by selling significant _____ in a company or by selling a whole ______ or subsidiary.

A

Shares
division

50
Q

An example of a company selling its shares is PLDT who divested its shares in Meralco Corporation. An example of a company selling a whole division is San Miguel Corporation which sold back Coca Cola to its mother company.

A

Divestiture example

51
Q

This strategy works best:

When firm has pursued retrenchment but failed to attain needed improvements

When a division needs more resources than the firm can provide

When a division is responsible for the firm’s overall poor performance

When a division is a misfit with the organization

When a large amount of cash is needed and cannot be obtained from other sources.

A

Divestiture

52
Q

selling all of a company’s assets, in parts, for their tangible worth. Obviously, this strategy may be considered the last resort of companies.

A

Liquidation

53
Q

It is done only when all other defensive strategies did not work for the company.

A

Liquidation

54
Q

This strategy is done:

When both retrenchment and divestiture have been pursued unsuccessfully

If the only alternative is bankruptcy, liquidation is an orderly alternative

When stockholders can minimize their losses by selling the firm’s assets

A

Liquidation

55
Q

A company in the process of strategy formulation may consider any one or a combination of these strategies based on the relative combination of factors resulting from the environmental scanning performed.

True or False

A

True

56
Q

Strengths and weaknesses may be combined with opportunities and threats to identify appropriate strategies that may be employed.

True or False

A

True

Strategy Formulation (3 decks)

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