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MGMT425 Chapter 8

General Electric’s CEO, Jeffrey Immelt, decided to refocus GE’s portfolio of businesses and leverage the firm’s core competency in industrial engineering while pursuing future-growth industries. The two industries that CEO Immelt had identified as major future-growth industries were the:

A. education and entertainment sectors.

B. clean-technology sector and health care sector.

C. capital finance and information technology sectors.

D. consumer electronics sector and hospitality sector.

B. clean-technology sector and health care sector.
Decisions relating to “what stages of the industry value chain to participate in” determine a firm’s:

A. level of diversification.

B. geographic scope.

C. vertical integration.

D. absorptive capacity.

C. vertical integration.
Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?

A. The first-line employees

B. The creditors

C. The chief executive officer

D. The middle manager

C. The chief executive officer
Which of the following statements is true of transaction costs?

A. When the costs of pursuing an activity in-house are more than the costs of transacting for that activity in the market, then the concerned firm should vertically integrate.

B. When companies transact in the open market, they incur internal transaction costs.

C. Transaction costs exclusively consist of external costs associated with economic exchanges.

D. Transaction costs are necessary to explain and predict the boundaries of a firm.

D. Transaction costs are necessary to explain and predict the boundaries of a firm.
Which of the following is an example of an external transaction cost?

A. The cost of setting up a production unit

B. The cost of searching for a contract manufacturer

C. The cost of recruiting and retaining employees

D. The cost of maintaining plant and machinery

B. The cost of searching for a contract manufacturer
Which of the following is an example of an internal transaction cost?

A. The cost of searching for a contract manufacturer

B. The cost of signing a contract with a supplier

C. The cost of buying raw materials

D. The cost of maintaining a production unit

D. The cost of maintaining a production unit
Which of the following statements is true of internal transaction costs?

A. Internal transaction costs arise when companies transact in the open market.

B. When the internal costs involved in pursuing an activity in-house are more than the costs of transacting, then the concerned firm should vertically integrate.

C. Internal transaction costs tend to increase with organizational size and complexity.

D. It is beneficial to “buy” goods or services rather than “make” when internal transaction costs are low.

C. Internal transaction costs tend to increase with organizational size and complexity.
A primary advantage of organizing economic activity within firms is the:

A. ability to coordinate highly complex tasks to allow for specialized division of labor.

B. low administrative costs because of reduced bureaucracy.

C. eradication of the principal-agent problem.

D. high-powered incentive to work as salaried employees for an existing firm.

A. ability to coordinate highly complex tasks to allow for specialized division of labor.
Grace Apparel Inc. has decided to procure fabrics required for its garments from external suppliers instead of maintaining its own dyeing and weaving facilities. How will this decision affect the firm?

A. The firm will be protected against the principal-agent problem.

B. The firm’s administrative costs will be low because of necessary bureaucracy.

C. The firm will have more flexibility in purchasing and comparing prices of goods and services.

D. The firm will have high-powered incentives, such as hourly wages and salaries.

C. The firm will have more flexibility in purchasing and comparing prices of goods and services.
Managers in a firm hired to improve the firm’s profitability and ultimately the shareholders’ value will add to the overall costs if they pursue their own self interests. What does this best illustrate?

A. Diseconomies of scale

B. Principal-agent problem

C. Experience-curve effects

D. Information asymmetries

B. Principal-agent problem
The most efficient way to overcome the principal-agent problem in a firm is to:

A. increase the level of vertical integration within the firm.

B. provide stock options to managers.

C. downsize the existing workforce.

D. organize economic activities within the firm.

B. provide stock options to managers.
_____ is best described as a situation in which one party is more informed than another, because of the possession of private information.

A. Information governance

B. Information asymmetry

C. Information deregulation

D. Information piracy

B. Information asymmetry
In the market for used cars, which of the following is a reason behind the crowding out of desirable cars by lemons or inferior ones?

A. Experience-curve effects

B. Time compression diseconomies

C. Principal-agent problem

D. Information asymmetry

D. Information asymmetry
Bill is in an interview for a sales job that requires no experience. He is trying to portray himself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Bill should be hired as a sales person in the company. However, in his resume, Bill had not mentioned his previous work experience as he was fired from that job on the account of using illegal drugs. Which of the following does this scenario best illustrate?

A. Information asymmetry

B. Principal-agent problem

C. Experience-curve effect

D. Learning-curve effect

A. Information asymmetry
When approaching a bank for a loan, the borrower has better knowledge than the lender about his or her own ability to repay the loan without defaulting. What is this situation referred to as?

A. Principal-agent problem

B. Information asymmetry

C. Experience-curve effect

D. Learning-curve effect

B. Information asymmetry
A drawback of short-term contracting as an alternative to making a component in-house is that:

A. it is the most-integrated alternative to performing an activity so the principal company has no control over the agent.

B. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

C. it fails to allow a long planning period that individual market transactions provide.

D. the buying firm cannot demand lower prices due to the lack of a competitive bidding process.

B. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.
Which of the following firms is least integrated?

A. A firm that enters a joint venture with another company to develop a new technology

B. A firm that owns production subsidiaries across the globe

C. A firm that makes equity investments in its supplier’s company

D. A firm that buys all the required raw materials from multiple external vendors

D. A firm that buys all the required raw materials from multiple external vendors
_____ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.

A. Embargos

B. Cartel agreements

C. Strategic alliances

D. Corporate acquisitions

C. Strategic alliances
_____ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.

A. Lean manufacturing

B. Licensing

C. Crowdsourcing

D. Bootlegging

B. Licensing
Hitoro Inc. developed a superior touchscreen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Revox Inc., a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?

A. Licensing

B. Franchising

C. Crowdsourcing

D. Bootlegging

A. Licensing
Silver Weave Inc., an apparel company, operates through a business model in which individuals can buy the rights to set up Silver Weave stores and sell the company’s merchandise in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to stock the collection approved from the company’s headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate?

A. Crowdsourcing

B. Credit Rationing

C. Franchising

D. Bootstrapping

C. Franchising
BioGrow Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner’s confidence and to prove its involvement, BioGrow Pharma invested $100 million in the project. This investment made by BioGrow Pharma will result in a _____.

A. cartel

B. credible commitment

C. corrective action

D. parent-subsidiary relationship

B. credible commitment
When Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with an Australian company, Orocobre Ltd. Orocobre wanted to establish the bond of trust before making huge investments in specialized equipment required to extract the high-quality lithium. What did Toyota do to instill this trust?

A. It offered Orocobre exposure to Toyota’s proprietary information.

B. It made a credible commitment by taking an equity stake in Orocobre.

C. It acquired Orocobre as part of its backward vertical integration plans.

D. It offered Orocobre franchising opportunities to sell hybrid vehicles.

B. It made a credible commitment by taking an equity stake in Orocobre.
Divina Pharma Inc. and MF Electronics Inc. have together invested and created a new organization, FirstHealth Inc., to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Divina Pharma and MF Electronics. Which of the following alternatives to integration does this scenario best illustrate?

A. A joint venture

B. A franchisee

C. A licensing contract

D. A corporate acquisition

A. A joint venture
Which of the following alternatives on the make-or-buy continuum allows for most integration?

A. Short-term contracting

B. Joint ventures

C. Licensing

D. Parent-subsidiary relationship

D. Parent-subsidiary relationship
Galaxi Products Inc. is a U.S.-based consumer electronics company. It owns smaller firms in Japan and Taiwan where most of its cell phone technology is developed and manufactured before being released worldwide. Which of the following alternatives to integration does this best illustrate?

A. Venture capitalism

B. Franchising

C. Joint venture

D. Parent-subsidiary relationship

D. Parent-subsidiary relationship
Which of the following is true of the parent-subsidiary relationship?

A. The ability to create a community of knowledge is low.

B. The parent firm has no control and command over the subsidiary.

C. The transaction costs that arise are frequently due to transfer prices.

D. The parent firm will lack specialization and division of labor.

C. The transaction costs that arise are frequently due to transfer prices.
_____ is best described as a firm’s ownership of its production of needed inputs or of the channels by which it distributes its outputs.

A. Venture capitalism

B. Bootlegging

C. Vertical integration

D. Crowdsourcing

C. Vertical integration
A(n) _____ is best used to depict the transformation of raw materials into finished goods and services along distinct vertical stages.

A. encrypt

B. chain of command

C. industry value chain

D. scatter chart

C. industry value chain
Each stage of the vertical value chain typically represents a distinct _____ in which a number of different firms are competing.

A. industry

B. functional department

C. economy

D. customer segment

A. industry
_____ is best described as changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain.

A. Forward vertical integration

B. Corporate divestiture

C. Reverse engineering

D. Closed innovation

A. Forward vertical integration
Neon Electronics Inc. sourced touchscreens required for its tablet computers, cell phones, and televisions from a manufacturer in China. But the demand for such components was high globally, and the supplier could not meet the quality standards of Neon Electronics. Thus, Neon Electronics decided to set up its own unit to develop and manufacture the required touchscreens. What does this scenario best illustrate?

A. Crowdsourcing

B. New product development

C. Backward vertical integration

D. Conglomerate diversification

C. Backward vertical integration
Which of the following best illustrates forward vertical integration?

A. A firm that manufactured and sold car engines to major automobile companies launches its own line of cars.

B. A chain of ice cream parlors launches a brand of toys and accessories for children.

C. A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam.

D. A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.

A. A firm that manufactured and sold car engines to major automobile companies launches its own line of cars.
How do firms benefit from vertical integration?

A. Vertical integration allows firms to reduce organizational complexity and administrative costs.

B. Firms that vertically integrate will have increased strategic flexibility when faced with technological changes.

C. Firms that vertically integrate do not have to make transaction-specific investments.

D. Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.

D. Vertical integration allows firms to increase operational efficiencies through improved coordination of adjacent value chain activities.
_____ are best described as unique assets with high opportunity costs that have significantly more value in their intended use than in their next-best use.

A. Cost drivers

B. Value drivers

C. Specialized assets

D. Liquid assets

C. Specialized assets
Which of the following best illustrates physical-asset specificity?

A. A unique training program developed in an organization

B. A ship container designed to carry more than the average load of iron ore

C. A generic machine that can be used to churn different mixtures

D. A machine solely designed to give a candy its trademarked shape

D. A machine solely designed to give a candy its trademarked shape
Which of the following best illustrates site specificity?

A. Equipment necessary for mining bauxite and aluminum smelting

B. Bottling machinery to manufacture bottles with trademarked shapes

C. Investment made in human capital to master procedures of a specific organization

D. Investment made to train employees to operate computers

A. Equipment necessary for mining bauxite and aluminum smelting
Investments in specialized assets tend to incur high opportunity costs because the:

A. assets can be profitably used for multiple purposes.

B. threat of one of the partners pursuing his or her self-interest is high.

C. social costs associated with these assets are high.

D. firms can avoid backward integration by investing in these assets.

B. threat of one of the partners pursuing his or her self-interest is high.
Virtue Products Inc., a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. This apart, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Virtue Products applying?

A. Concentric integration

B. Taper integration

C. Horizontal integration

D. Conglomerate integration

B. Taper integration
Apple and Nike have their own retail outlets and also use other independent retailers, both the brick-and-mortar type and online, to sell their products. This is an example of _____.

A. monopsony

B. geographic diversification

C. crowdsourcing

D. taper integration

D. taper integration
Which of the following statements is true of taper integration?

A. It is the most-integrated alternative to performing an activity within one’s own corporate family.

B. It refers to a situation in which firms narrow their focus on downstream value chain activities and ignore the upstream value chain activities.

C. It exposes in-house suppliers and distributors to market competition to make performance comparisons possible.

D. It does not rely on outside-market firms for its supplies.

C. It exposes in-house suppliers and distributors to market competition to make performance comparisons possible
_____ is best described as moving one or more internal value chain activities outside the firm’s boundaries to other firms in the industry value chain.

A. Strategic outsourcing

B. Reverse engineering

C. Forward integration

D. Horizontal integration

A. Strategic outsourcing
A firm that engages in strategic outsourcing typically:

A. increases its internal transaction costs.

B. reduces its level of vertical integration.

C. reduces its level of external transaction costs.

D. increases its level of horizontal integration.

B. reduces its level of vertical integration.
Today, many companies use PeopleSoft and EDS to avoid maintaining a human resource management system. By doing this, these firms are:

A. engaging in strategic outsourcing.

B. increasing their level of vertical integration.

C. offshoring their core activities.

D. engaging in unrelated diversification.

A. engaging in strategic outsourcing.
PepsiCo operates in many countries and sells a wide variety of aerated drinks, other beverages, different types of chips, and Quaker Oats goods to achieve continuous growth. From this data, we can conclude that PepsiCo has been involved in _____.

A. strategic outsourcing

B. lean manufacturing

C. product-market diversification

D. process diversification

C. product-market diversification
While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference?

A. KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.

B. Chick-fil-A has a larger customer base and number of outlets in the U.S. market than its competitor KFC.

C. KFC wants to follow a differentiation strategy, and Chick-fil-A wants to pursue a cost-leadership strategy.

D. Chick-fil-A is part of a large conglomerate, whereas KFC has more flexibility to pursue a geographic diversification strategy.

A. KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.
_____ is best described as an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.

A. Taper integration

B. Open innovation

C. Diversification

D. Differentiation

C. Diversification
When a firm is said to be pursuing a geographic diversification strategy, it means that the firm will:

A. introduce different products and services in an existing single market.

B. sell its products in several different regional, national, and international markets.

C. operate from multiple headquarters across the globe.

D. depend solely on its in-house facilities for all its production purposes.

B. sell its products in several different regional, national, and international markets.
HK Goods Inc. is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate?

A. Process diversification

B. Product diversification

C. Geographic diversification

D. Market diversification

B. Product diversification
Symphon Times Inc., a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of the emerging nations. Which of the following types of diversification strategies is the firm pursuing?

A. Product diversification strategy

B. Process diversification strategy

C. Geographic diversification strategy

D. Product-market diversification strategy

C. Geographic diversification strategy
Marva Industries, a U.S.-based large conglomerate, competes in the hospitality, education, telecommunications, entertainment, airlines, and chemical industries. It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries. Which of the following strategies is Marva Industries pursuing?

A. Zone pricing

B. Niche marketing

C. Product-market diversification strategy

D. Process diversification strategy

C. Product-market diversification strategy
White Leo Motors (WLM) Inc. generates a major portion of its revenues by manufacturing luxury sports cars. However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes WLM?

A. A conglomerate

B. A subsidiary

C. A dominant-business firm

D. A single-business firm

C. A dominant-business firm
Which of the following corporate strategies did ExxonMobil pursue by acquiring XTO Energy, a natural gas company?

A. Taper integration strategy

B. Differentiation strategy

C. Related diversification strategy

D. Cost-leadership strategy

C. Related diversification strategy
When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using _____.

A. related-constrained diversification

B. related-linked diversification

C. strategic outsourcing

D. offshore outsourcing

A. related-constrained diversification
Evara Inc. started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few, if not all, of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Evara pursuing in this scenario?

A. Taper integration strategy

B. Niche marketing strategy

C. Related-constrained strategy

D. Related-linked strategy

D. Related-linked strategy
DS & Co. is following a related-linked diversification strategy, and GreenWing Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other?

A. GreenWing Inc. generates 70 percent of its revenues from its primary business, while DS & Co. generates only 10 percent of its revenues from its primary business.

B. GreenWing Inc. pursues a backward diversification strategy, while DS & Co. pursues a forward diversification strategy.

C. DS & Co. will share fewer common competencies and resources between its various businesses when compared to GreenWing Inc.

D. DS & Co. pursues a differentiation strategy, and GreenWing Inc. pursues a cost leadership strategy, to gain a competitive advantage.

C. DS & Co. will share fewer common competencies and resources between its various businesses when compared to GreenWing Inc.
A firm follows a(n) _____ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.

A. related-constrained strategy

B. unrelated diversification strategy

C. differentiation strategy

D. dominant-business strategy

B. unrelated diversification strategy
A _____ is best defined as a company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy.

A. conglomerate

B. single-business firm

C. parent company

D. subsidiary

A. conglomerate
Red Empire Inc., a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company?

A. A flagship brand

B. A single-business firm

C. A dominant-business firm

D. A conglomerate

D. A conglomerate
How does a conglomerate benefit from following an unrelated diversification strategy?

A. The conglomerate can solely depend on its primary business activity for a major portion of its revenues.

B. The conglomerate can share most of its competencies in products, services, technology, or distribution between all its businesses.

C. The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.

D. The conglomerate can limit the learning- and experience-curve effects it faces.

C. The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
Which of the following companies will be considered as a conglomerate?

A. ExxonMobil, after it acquired XTO Energy—a natural gas company

B. The Tata Group, active in industries such as tea, steel, IT, power, and automobiles

C. Harley-Davidson, with its Harley-Davidson branded motorcycle clothing and attire

D. Coca-Cola, which solely focuses on soft drinks but operates in many countries

B. The Tata Group, active in industries such as tea, steel, IT, power, and automobiles
With reference to the Strategy Highlight 8.2, the Tata Group’s corporate strategy is attempting to:

A. move from unrelated diversification to related-constrained diversification.

B. integrate different strategic positions, pursued by different strategic business units.

C. pursue a focused differentiation strategy over a focused cost-leadership strategy.

D. depend on a single product market to generate most of its revenues.

B. integrate different strategic positions, pursued by different strategic business units.
The core competency of MotorCraft Inc. is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that there is a new market opportunity to diversify. Thus, it produces the car engines on a large scale and sells them to other automobile companies. In this scenario, MotorCraft is:

A. leveraging existing core competencies to target the chasm between the early adopter and early majority market segment.

B. redeploying and recombining existing core competencies to compete in future markets.

C. building new core competencies to create and compete in future markets.

D. building new core competencies to protect and extend current market position.

B. redeploying and recombining existing core competencies to compete in future markets.
MotorCult Inc. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car. In this scenario, MotorCult is primarily:

A. leveraging new core competencies to improve current market position.

B. redeploying existing core competencies to compete in future markets.

C. unlearning existing core competencies to create and compete in markets of the future.

D. building new core competencies to protect and extend current market position.

D. building new core competencies to protect and extend current market position.
Coca-Cola was primarily known for its core competencies in marketing, bottling, and distributing aerated drinks. However, with the success of Gatorade, Coca-Cola developed competencies in the development and marketing of its own sports drink, Powerade. Which of the following is true of Coca-Cola?

A. It is leveraging existing core competencies to improve current market position.

B. It is building new core competencies to protect and extend its current market position.

C. It is redeploying and recombining existing core competencies to compete in markets of the future.

D. It is targeting the chasm between the early adopter and early majority market segment.

B. It is building new core competencies to protect and extend its current market position.
In 2007, Salesforce.com recognized an emerging market for “platform as a service (PaaS)” offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of softwares. This is an example of:

A. leveraging existing core competencies to improve current market position.

B. building new core competencies to achieve vertical integration.

C. redeploying and recombining existing core competencies to compete in markets of the future.

D. building new core competencies to create and compete in markets of the future.

D. building new core competencies to create and compete in markets of the future.
Diversification premium is a situation in which:

A. customers have to pay premium prices on products manufactured by firms pursuing unrelated diversification due to the lack of economies of scope.

B. the overall value creation of highly diversified firms is more than the sum of the value created by individual business units.

C. the stock price of related-diversification firms is valued at greater than the sum of their individual business units.

D. shareholders are benefitted from the market capitalization of a highly diversified firm because of its economies of scale.

C. the stock price of related-diversification firms is valued at greater than the sum of their individual business units.
Which of the following firms is most prone to experiencing a diversification discount?

A. A company that deals in petroleum as well as natural gas

B. A company that derives its revenues from selling aerated drinks and health drinks

C. A company that pursues unrelated diversification

D. A company that pursues related-constrained diversification

C. A company that pursues unrelated diversification
Win Goods Inc. is a large multinational conglomerate. As a single business unit, the company’s stock price is estimated to be $200. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $300. What is Win Goods experiencing in this scenario?

A. Diversification discount

B. Learning-curve effects

C. Experience-curve effects

D. Economies of scale

A. Diversification discount
GFR Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has GFR Group created?

A. Capital liquidity

B. Diversification premium

C. Diversification discount

D. Demand-pull inflation

B. Diversification premium
Companies that pursue related diversification are able to create a diversification premium because they:

A. are able to leverage time compression economies.

B. can operate beyond the minimum efficient scale.

C. are able to increase value due to economies of scope.

D. can reduce the value gap created by its products.

C. are able to increase value due to economies of scope.
_____ is best described as the process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully.

A. Reverse engineering

B. Restructuring

C. Rebooting

D. Reverse brainstorming

B. Restructuring
WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company’s key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in:

A. reverse engineering.

B. benchmarking.

C. restructuring.

D. crowdsourcing.

C. restructuring.
The Boston Consulting Group (BCG) growth-share matrix locates a firm’s individual strategic business units (SBUs) in two dimensions:

A. start-up capital required and stage of industry life cycle.

B. relative market share and speed of market growth.

C. economic value created and costs incurred.

D. amount of debt financing and equity financing.

B. relative market share and speed of market growth.
In the Boston Consulting Group (BCG) growth-share matrix, strategic business units categorized under dogs:

A. compete in a low-growth market but hold considerable market share.

B. hold a high market share in a fast-growing market.

C. compete in a high-growth market but have low and unstable earnings.

D. hold a small market share in a low-growth market.

D. hold a small market share in a low-growth market.
In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should:

A. infuse more capital into the strategic business unit.

B. provide more human resource to the business.

C. hold the business till it turns into a star.

D. divest the strategic business unit.

D. divest the strategic business unit.
ElectraSync Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low-growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under:

A. stars.

B. question marks.

C. dogs.

D. cash cows.

C. dogs
_____ are strategic business units that compete in a low-growth market but hold considerable market share.

A. Dogs

B. Question marks

C. Cash cows

D. Stars

C. Cash cows
DiskOne Inc. holds the highest market share in the low-growth compact disk industry. With the introduction of flash drives, the market for compact disks has reduced. However, DiskOne has been able to generate sufficient revenues for the parent company by selling its products in less developed countries. In the Boston Consulting Group (BCG) growth-share matrix, DiskOne will be categorized under:

A. dogs.

B. cash cows.

C. stars.

D. question marks.

B. cash cows.
If a strategic business unit is recognized as a cash cow, it is advisable to:

A. harvest the business.

B. invest into the business to hold its current position.

C. divest the business due to its low market share.

D. maintain it till turns into a dog.

B. invest into the business to hold its current position.
Real Goods Inc. is a large conglomerate. The company’s beverages strategic business unit (SBU) has been recognized as a cash cow, and its tobacco SBU has been categorized as a dog. Which of the following can be inferred from this scenario?

A. While the tobacco SBU operates in a low-growth market, the beverages SBU operates in a high-growth market.

B. The management of the company should use the cash inflow from the beverages SBU and invest it in the tobacco SBU.

C. While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low.

D. The tobacco SBU should follow a backward integration strategy, and the beverages SBU should pursue a forward integration strategy.

C. While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low.
A corporation’s star SBUs will:

A. hold a high market share in a fast-growing market.

B. experience low and unstable earnings in a fast-growing market.

C. hold a small market share in a low-growth market.

D. compete in a low-growth market but hold considerable market share.

A. hold a high market share in a fast-growing market.
The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growth-share matrix, the smartphone division of True Electra will be categorized under:

A. question marks.

B. stars.

C. cash cows.

D. dogs.

B. stars.
TrueAutos Inc. is a large automobile company. The company’s petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?

A. The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.

B. The petrol cars SBU will have a relatively low market share in its industry, whereas the hybrid electric cars SBU will have the least market share in its industry.

C. The strategic recommendation for the hybrid electric cars SBU will be to harvest it, whereas for the petrol cars SBU, the company should just maintain it.

D. The petrol cars SBU is more important than the hybrid electric cars SBU in terms of future growth for the company.

A. The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.
Strategic business units that have a relatively low market share but have the potential to grow are best categorized under _____ in the Boston Consulting Group (BCG) growth-share matrix.

A. dogs

B. stars

C. cash cows

D. question marks

D. question marks
The solar-powered car division of a large automobile company has been experiencing negative cash flows though the market growth for such cars is predicted to be high. If the company invests further resources into this division, it can increase its relative market share in the future. However, if due to technological changes the car cannot create sufficient consumer demand, then the division can prove to be unprofitable. In the Boston Consulting Group (BCG) growth-share matrix, the solar-powered car division will be categorized under:

A. dogs.

B. question marks.

C. stars.

D. underdogs.

B. question marks.
The 3D television division of a large consumer electronics company has been recognized as a question mark. The company’s LCD television division has been categorized under dogs. Which of the following statements will hold well in this scenario?

A. The strategic recommendation for the 3D television division is to harvest it, and the strategic recommendation for the LCD television division is to invest further in it.

B. The 3D television division will have a high market share in its industry, whereas the LCD television division will have a low-market share in its industry.

C. The 3D television division operates in a high-growth market, whereas the LCD television division operates in a low-growth market.

D. The LCD television division will benefit by pursuing a differentiation strategy, and the 3D television division will benefit by following a cost-leadership strategy.

C. The 3D television division operates in a high-growth market, whereas the LCD television division operates in a low-growth market.
How can a firm pursuing a diversification strategy enhance its overall corporate performance by leveraging financial economies?

A. By using internal capital markets as a source of value creation

B. By adding more unrelated businesses into its corporate portfolio

C. By increasing its coordination and influence costs

D. By investing in businesses under the question mark quadrant of the BCG matrix

A. By using internal capital markets as a source of value creation
A strategy of _____ will be most beneficial for a firm to enhance its overall corporate performance.

A. unrelated level of diversification

B. single-business level of diversification

C. dominant-business level of diversification

D. related-linked diversification

D. related-linked diversification
_____ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources.

A. Fixed costs

B. Influence costs

C. Coordination costs

D. Opportunity costs

B. Influence costs
_____, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another.

A. Coordination costs

B. Fixed costs

C. Agency costs

D. Network costs

A. Coordination costs

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