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Quiz 8

A large conglomerate is deciding on the range of new products and services it can offer to its customers to further expand its operations. This decision determines the firm’s
level of diversification.
The executives of BlueWind Products Inc., a large conglomerate, are making decisions on the stages of the industry value chain the firm must participate in, the range of products and services it should offer, and the global markets it should compete in. What are the executives primarily determining?
the boundaries of the firm
Firms often consolidate industries through horizontal mergers and acquisitions to
increase their market power.
Which of the following is an example of internal transaction costs?
the costs pertaining to setting up a shop floor
Which of the following examples would most likely limit a firm’s growth?
A social entrepreneur makes conservation of the environment the primary goal of his firm.
A disadvantage associated with obtaining goods and services externally includes
nontrivial search costs to be borne by the firm.
A financial advisor has heard from a relative of NR Industries Inc.’s CEO that the company is planning to shut down its operations in Europe next year. The financial advisor realizes that this decision may cause a decline in the value of the company’s shares and decides to sell them off. A buyer, unaware of the company’s future plans, sees this as a potential opportunity and invests in the company. What does this scenario best illustrate?
information asymmetries
When Moon Star Products Inc. planned to start its operations in United Cadvia, an emerging nation, it realized that it will have to set up its own distribution channels. This would be a risky and an expensive strategic move. The company had an option of hiring a small supply chain management company, Gold Logistics Inc., to reach its ultimate customers. However, this would require Gold Logistics to make huge investments, which would be of no use to it if Moon Star decided to exit the market. Thus, to gain Gold Logistics’s confidence, Moon Star purchased 40 percent of the stock of Gold Logistics. What does this scenario best illustrate?
equity alliance
_______ is best described as the changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain.
Backward vertical integration
Which of the following best illustrates backward vertical integration?
a chocolate manufacturing company setting up its own cocoa plantations
HTC started as an original equipment manufacturing firm (OEM) for brand-name mobile device companies. Later, it started offering a lineup of innovative and high-performance smartphones by acquiring One & Co., a San Francisco-based design firm. This strategic move of HTC is known as
forward vertical integration.
Which of the following best illustrates human-asset specificity?
training employees on how to operate a customized furnace
Mega Products Inc., a large multinational conglomerate, has hired an external consultant to process and audit its payroll. This allows the company to focus on manufacturing and marketing activities rather than developing and maintaining its own human resource management systems. Which of the following alternatives to vertical integration has Mega Products adopted?
strategic outsourcing
The rationale behind related diversification is to
benefit from economies of scale and scope.
Amazon expanded its single-product business by leveraging spare capacity into cloud computing and by offering its Kindle line of tablet computers. This is an example of
related-linked diversification.
Which of the following is an example of related-constrained diversification?
an automobile company that manufactures petrol cars expanding into the diesel car industry
Which of the following best illustrates a dominant-business firm?
Siova Inc. is a luxury brand that derives 90 percent of its revenues from its apparel line and 10 percent of its revenues from its premium furniture business unit.
North Carolina National Bank (NCNB) used its unique core competency of identifying, appraising, and integrating acquisition targets to be rebranded as Bank of America, one of the largest banks in the United States. This is an example of a firm
leveraging existing core competencies to improve current market position.
An inverted U-shaped relationship between the type of diversification and overall firm performance indicates that
high and low levels of diversification are generally associated with lower overall performance.
Highly diversified firms experience a diversification discount in the stock market because they
are unable to create additional value.

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