Test 2 Policy 6-10

Managers wishing to diversify the firm must remember that
C. Successful diversification must be aligned with and strengthen a firm's business strategy.
When it comes to accessing capital and value creation, a diversified firm should always choose its internal capital market over external capital markets.
Internal capital markets can be a source of value creation in a diversification strategy only if the firm does a more efficient job of allocating capital than what would be achieved in external capital markets.
A liquidity event is all of the following EXCEPT
C. An opportunity for the firm to offer low-powered incentives to employees.
Applying the five forces model to business-level strategy allows managers to assess the benefits and risks of both cost-leadership and differentiation strategies
Interface is a leader in sustainable and innovative carpeting, as evidenced by its Cool Carpet product, the world's first carbon-neutral floor covering. Its product is unique and has appealing customer attributes. If Interface raw material costs increased by 12% this year, what would be the likely outcome?
C. Interface would pass a major portion of this increase along as a price increase to its customers.
_________ occurs when a network exhibits local clusters, each with a high degree centrality.
A small-world phenomenon
Hypercompetition has made it more difficult for a firm to sustain a competitive advantage.
A(n) ________ occurs during the time when existing technologies reach their limitations and several new technologies enter the fray.
B. Swarm of technology
International strategy refers to:
Leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets.
AstraZeneca, a Swiss pharmaceutical firm, relocated its research facility to the Boston biotech cluster. This is because they want to ___________.
Develop new competencies
Learning races describe situations in which both partners are motivated to form an alliance for learning, but the firm that learns faster and thus accomplishes its goal more quickly has an incentive to exit the alliance or reduce its knowledge sharing.
When a firm is active in several different product markets, it is pursuing a(n) ____________ diversification strategy.
Firms use _____ to lower costs through economies of scale, and thus enhance their economic value creation and, in turn, their performance
Horizontal integration
Individualism focuses on _______________________.
Personal achievement and fame
All of the following are tools typically used to achieve cost-leadership EXCEPT:
C. Offering products that have superior value.
To maximize profitability, the best global strategy to use is _____________.
Dependent on products offered and strategic intent
Dow Corning is owned jointly by Dow Chemical and Corning. Dow and Corning have entered into a __________, which is a special form of strategic alliance whereby two or more partners create and jointly own a new organization
C. Joint venture
Harley Davidson offers similar products in many different global markets by using a(n) ____________.
A. International strategy
Advantages to organizing economic activity within the firm ("make") include all of the following EXCEPT:
B. The principal-agent problem.
Which of the following is NOT related to strategic networks?
C. It has the ability to effectively manage three alliance-related tasks.
The X-ray is an example of a(n) ___________ innovation.
A. Radical
GE disrupted itself by:
B. Using the needs of developing countries to replace older and more expensive products with newer and more adaptive ones.
When pursuing an integration strategy, managers use levers to help them simultaneously increase perceived value and lower costs. Which of the following is NOT one of these levers?
B. Complements
Which of the following is most notably benefitting from the "long tail"?
Global strategy is a firm's strategy to gain ________ when competing against foreign companies around the world.
A. Competitive advantage
A low-cost labor pool is considered an important factor in international expansion for many MNEs.
Three factors affect MNEs' decision to go global: (1) larger markets; (2) low-cost input factors, and (3) new competencies.
GM's entry into China was gained by using an joint ventures..
A firm's overall corporate strategy is most concerned with determining levels of vertical integration as well as levels of diversification.
An alternative perspective to the transaction cost economics framework concerning the make-or-buy decision is the _____________ view of the firm, which focuses the firm less on transaction costs and more on its capabilities and knowledge and what it does well.
Resource Based
Between 2007 and 2009, Microsoft spent close to $25 billion on R&D, the majority of which went to its new Windows 7 operating system. These costs were fixed. However, after Windows 7 hit the market, the marginal costs were basically zero. Since Microsoft expects to sell several hundred million copies of Windows 7, it can be said that:
B. Microsoft has a competitive advantage because it will be able to drive down per-unit costs of Windows 7 with each additional copy it sells.
Achieving economies of scale is an important cost driver for certain low-cost leaders. However, there is a saying that "sometimes bigger is worse" because at some point costs increase as output increases. This is referred to as:
B. Diseconomies of scale
When a firm is able to successfully employ an integration strategy, it will create a competitive advantage by:
D. Beating rivals on product attributes while offering a better price.
Successfully implementing an integration strategy is particularly important in globalized industries.
One disadvantage noted in the text of an international strategy is _______________.
The expropriation of intellectual property by foreign competitors
___________ and ____________ are the two focused generic business strategies.
A. Focused differentiation; focused low-cost
Due to hypercompetition, a firm must engage in incremental innovation to remain competitive and gain advantage(s). However, the duration of these advantages:
D. All of these
Adidas acquired Reebok because _____.
Adidas and Reebok wanted to overcome its competitive disadvantage
As noted in ChapterCase 7, the success of Wikipedia is attributed to all of the following EXCEPT
C. Ignoring the "long tail."
Due to the dynamic nature of business competition, a firm's strategic position should remain fixed over time.
Due to the dynamics of competitive positioning, firms must constantly refine and improve their strategic position over time. The goal is to not fall behind the productivity frontier.
Define a joint venture and describe its typical pros and cons.
A joint venture is a standalone organization created and jointly owned by two or more parent companies. The advantages of joint ventures are the strong ties, trust, and commitment that can result between the partners. Yet, joint ventures can entail long negotiations and significant investments.
The use of new materials with a new knowledge base to target new markets is a:
C. Radical innovation
Acquisitions, alliances, and networks help firms pursue common interests, enhance competitiveness, and increase revenues.
Although there are "first-mover advantages" when it comes to bringing a new innovation to the market, there are also disadvantages. Which of the following is NOT one of these disadvantages?
A. The firm builds a reputation as an innovator.
An integration strategy differs from a low-cost strategy in that:
A. The intent of an integration strategy is not to be the absolute lowest-cost provider because of the added costs of increased value in its products/service.
The commercialization of new ideas and inventions often does all of the following EXCEPT:
B. Protects older industries.
Under the five forces model, a differentiation strategy works best when
D. The firm has intangible resources, supplier cost increases can be passed on to the customer, and the differentiation appeal creates customer loyalty.
Which of the following corporate diversification strategies most closely describes Disney?
C. Related-linked
When competing on the basis of low-cost leadership, a primary objective is to:
D. Lower overall costs.
The main intention of a firm engaging in architectural innovation is to:
C. Utilize existing technology to reconfigure products and create new markets.
The Boston Consulting Group (BCG) growth-share matrix is a tool used by firms to determine the costs and quality of its offerings.
The BCG growth-share matrix is a tool to guide corporate portfolio planning.
Digital photography replacing film photography is an example of which type of innovation?
A. Disruptive
A drawback for a firm engaging in a short-term contract is:
B. The supplying firm has no incentive to make additional transaction-specific investments to increase performance or quality.
A company that uses a cost-leadership strategy achieves a competitive advantage as long as:
C. The economic value that the firm creates is greater than that of the competition.
The Wright Brothers creating the airplane is a(n) ______________; Boeing commercializing the airplane is a(n) _____________.
B. Invention; innovation
Looking through the lens of the structure-conduct-performance (SCP) model, _____ changes in the underlying industry structure favor the surviving firms.
A. Horizontal integration
When a firm uses many links (common resources and competencies) among its businesses, it is engaging in a(n) _________ diversification strategy.
A. Related-constrained
Under the "long tail" phenomenon, the short head represents:
D. The largest segment of the market.
The Indian Tata Group and the Asian software company TCS are firms that make less than 70 percent of revenues from a single business unit and have few, if any, linkages among their businesses. These firms are clearly following an unrelated diversification strategy.
When Anheuser-Busch InBev sold Busch Entertainment (including SeaWorld and Busch Gardens), it was doing all of the following EXCEPT:
A. Weakening its position.
Which of the following is NOT considered as the benefit of horizontal integration?
improvement of supply chain coordination
A(n) _____ is a social structure composed of multiple organizations and the links among the nodes.
Strategic network
Which of the following is the most salient problem with GE losing its AAA bond rating?
B. The higher cost of money
Strategic alliance partners often exchange personnel to make the acquisition of tacit knowledge possible, because tacit knowledge can ONLY be acquired through actively participating in the process.
A company that uses a differentiation strategy achieves a competitive advantage as long as:
B. The economic value that the firm creates is greater than that of the competition.
_____ serves as an alliance process resource and business integrator between the two alliance partners.
An alliance manager
Experience curves attempt to capture both _______________ and learning effects.
B. Economies of scale
Please specify four sources of value creation in horizontal integration and choose one of the benefits of horizontal integration to provide an example.
(1) Reduction in competitive intensity, (2) lower costs, (3) increased differentiation, and (4) access to new markets and distribution channels are the main benefits to a horizontal integration strategy. In the U.S. airline industry, the mergers between Delta and Northwest Airlines, United Airlines and Continental, and Southwest and AirTran reduced the competitive intensity, providing benefits to the surviving firms.

Feedback: Horizontal integration has four main benefits to the acquiring firm. The airline example is from the text.
Walmart's failure in Germany was caused by higher labor costs than the competition.
Which of the following is NOT an example of a firm benefiting from economies of scope?
B. Anheuser-Busch spreading its fixed costs over millions of gallons of beer produced each year
Understanding the productivity frontier is useful because of all of the following EXCEPT:
D. It reflects which global markets will be the most productive to pursue in the future.
Corporate diversification strategy leads to superior performance only if the individual businesses are worth more under the company's management than if managed individually
When a firm faces high pressure for local responsiveness and high pressure for cost reduction, it is likely to adopt a(n) _____________.
Transnational strategy
Strategy Highlight 6.1 discusses Toyota's recall challenges with its Lexus brand. All of the following are true EXCEPT:
D. Since the Lexus recall of the 1990s, Toyota leveraged firm experience effects and has successfully maintained quality leadership in the automobile industry with no major challenges.
Under the five forces model, a risk to a firm with a differentiation strategy is:
When the focus of competition switches to price rather than features and new acceptable levels of quality have emerged due to innovation.
The degree of CORE COMPETENCIES increased in a firm when adopting Globalization 2.0 is ________.
Low, because firms still have limited knowledge flow back to headquarters.
In ChapterCase 8, CEO Jeffrey Immelt restructured GE's portfolio partly because its future performance potential was too reliant on the GE Capital division.
Which of the following is NOT one of the pros in a Joint Venture?
It's flexible.
If a firm wants to have more ownership of the activities closer to product inputs or design, then it should
A. Backward vertically integrate.
Political maneuvering by managers to influence resource and capital allocation can result in firm inefficiencies in a related-diversified firm. These costs are called:
B.influences cost
Do information asymmetries favor a "make" or "buy" alternative as more likely to be successful? Briefly explain your answer.
Situations where one party knows more than the other should lead to higher success rates for "make" projects internal to the firm. In the extreme, such asymmetries lead to only lemons being available for sale in the market and other projects being developed internal to the firm.

Feedback: The firm should increase its "make" and reduce its "buy" in situations of high information asymmetries.
The most common type of alliance is a(n) ______, which is based on contracts between firms
A. Non-equity alliance
China is a popular target for MNEs, but it is NOT because of ___________.
Their information censorship policy
When Procter & Gamble releases a new type of detergent, an innovation has occurred.
Each release of a new type of detergent by P&G is an innovation.
During the growth phase of an industry life cycle, demand is strong and:
A. Both inefficient and efficient firms thrive.
The alliance manager has the technical expertise and knowledge needed for the specific technical area and is responsible for the day-to-day management of alliance.
The alliance leader has the technical expertise, knowledge, and responsibility for daily management.
____________ refer(s) to the additional costs of doing business in an unfamiliar cultural and economic environment.
D. Liabilities of foreignness
A firm that is "stuck in the middle" has a competitive advantage.
When a firm ends up stuck in the middle, it is at a competitive disadvantage.
___________ is a form of long-term contracting that is generally used in the manufacturing sector and which enables a firm to commercialize intellectual property like patents.
A. Licensing
Radical innovation can occur when an existing firm recombines its existing knowledge base with a new stream of knowledge for new markets.
Apple formed strategic alliances to challenge Amazon because it wanted to access critical complementary assets.
When a firm has been able to perform best practices combined with a positive value-cost relationship, it has reached the:
B. Productivity frontier.
When it would cost the firm less to pursue an activity in-house than obtaining that activity from a supplier in the external market, then the firm should:
C Vertically Intergrate
The location advantages associated with locating facilities in other countries can include all of the following EXCEPT:
The evasion of host country regulations.
Value drivers that managers can use include input factors, economies of scale, and learning-curve effects.
The most salient value drivers that managers have at their disposal are product features, customer service, customization, and complements
Which of the following is NOT included in the phase of post-formation alliance management?
A. Identify partner compatibility
Large firms frequently have dedicated ______ units, such as Johnson & Johnson Development Corporation.
A. Corporate venture capital
Achieving differentiation parity along with lower costs is important to a low-cost leader because:
B. Creating the same value as the competition, combined with lower costs, gives the firm a competitive advantage.
A key component to formulating corporate-level strategy is the "make" or "buy" decisions.
Describe two dimensions that help explain the distinctions of mergers and acquisitions.
In mergers, the target firm usually would like to partner and it tends to be friendly. Acquisition can be friendly or unfriendly. If the target firm doesn't want to be acquired, the acquisition is considered a hostile takeover. Size is also another dimension. The combining of two companies of comparable size is often described as a merger. By contrast, as large firms buy up startup companies, the transaction is considered an acquisition.

Feedback: Friendliness and firm size are two dimensions to differentiate mergers from acquisitions.
In order for a firm to formulate an effective business-level strategy, it is important to remember that competitive advantage is determined by:
C. The characteristics of both the industry and the firm.
A company is considered to be a single-business firm when at least _________ percent of revenues are generated by the dominant business.
Firms with core competencies that can be exploited across international markets are able to ______________________________.
Achieve synergies and produce high quality goods at lower costs
A firm's structure, culture, and routines are very important when pursuing an integration strategy because organizations have to control costs and allow for creativity that can lead to differentiation. Therefore, managers should try to build an organization that is _________.
C. Ambidextrous
It is impossible to predict when a new innovation will actually lead to updated technological standards.
Richard Foster has developed a predictive framework which can be useful for a firm to utilize when it comes to determining when discontinuities may occur
Biotech firm Genentech licensed its newly developed drug Humulin to the pharmaceutical firm Eli Lilly for manufacturing and distribution. This is an example of a horizontal strategic alliance.
false This is an example of a vertical strategic alliance.
_______ are contractual alliances in which the participants regularly exchange codified knowledge
Licensing agreements
The two alternatives to vertical integration that provide similar benefits while reducing the risks to the firm are _________ and ____________.
B. Taper integration; strategic outsourcing
A U.S. manufacturer of adaptive devices for persons with disabilities is considering expanding internationally. It is a fairly small company, but it is looking for growth opportunities. This company should primarily consider the option of
What is the difference between taper integration and strategic outsourcing?
Taper integration is when an input (or output) is jointly provided by a source internal to the focal firm and is also provided by an outside firm. Strategic outsourcing is moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.

Feedback: Both are alternatives to vertical integration.
Which of the following is NOT a strategic advantage of forward integration?
B. Ability to secure critical supplies
Which of the following is NOT one of the pros of a non-equity alliance?
B. Trust and commitment.
_________ and __________ are two of the value drivers that managers can utilize when trying to improve a firm's differentiation strategic position.
C. Customer service; complements
After Jeff Bezos read about how the Internet was growing by 2,000 percent a month, he set out to use the Internet as a new distribution channel and created Amazon, which is now the world's largest online retailer. This is clearly an example of:
B. An entrepreneur who transformed invention into an innovation.
___________ firms are often unable to achieve additional value creation.
A. Unrelated diversified
Walmart's failure in Germany was caused by lack of cultural understanding of Germany.
Entrepreneurial opportunities exist because of all of the following EXCEPT
C. The firm does not believe in risk-taking.
When management modifies strategic objectives based on which stage an industry is in they are responding to a(n):
A. Industry life cycle.
When a firm successfully commercializes a new product or service, it is able to extract temporary ______________ but must continue to innovate to sustain competitive advantage(s
A. Monopoly profits
_____________ such as paying salaries and setting up a shop floor are internal transaction costs.
Administration costs
The combining of two firms of comparable size is often described as a(n) _____.
D. Merger
Define strategic alliance and give at least two reasons why firms enter alliances.
A strategic alliance is a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage. The common reasons why firms enter into alliances are to strengthen competitive position, to enter new markets, to hedge against uncertainty, to access critical complementary assets, and to learn new capabilities.

Feedback: This question covers Learning Objective 9-4.
Firms within emerging economies may want to form strategic alliances with firms from developed countries because __________.
It gains access to the foreign firm's sophisticated technology
Under the core competence-market matrix, the most difficult diversification strategy is combining __________ with ________, because core competencies must be built. However, this creates the potential for "mega opportunities" and significant future growth opportunities for a firm that achieves this.
C. New core competencies; new markets
Apple orchestrated a web of strategic alliances with publishing houses to challenge Amazon's early lead in the delivery of e-content. This was due to which of the following reasons listed?
D. To strengthen competitive advantage
A firm must find the balance between local responsiveness and cost factors
A non-equity alliance has a major drawback which is that it has _____.
B. A lack of trust and commitment
Equity alliances allow for the sharing of ______ that cannot be codified.
A. Tacit knowledge
Essentially, a successful integration strategy:
D. All of these.
If a firm is highly visible and prominent in the cluster and has access to many channels of information, it has a high _____.
Degree of centrality
According to Porter, the enduring competitive advantages in a global economy lie increasingly in local things, such as _________.
Knowledge, relationship, and motivation
Hulu, owned by NBC, Fox, and ABC is an example of a(n) _______.
Joint venture
One of the benefits gained by a firm entering the international market is competitive advantage through location.
A type of specific asset that has physical and engineering properties that were specifically created to satisfy a particular customer (for example, the bottles for PepsiCo) are which form of asset specificity?
B. Physical-asset
What is vertical integration? Provide one example of a firm using vertical integration.
Vertical integration is the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs. HTC is an example of a firm that has expanded both backward and forward in the vertical value chain of the smartphone industry.

Feedback: Backward vertical integration pushes toward raw materials or other inputs needed for the firm. Forward integration involves moving ownership of activities closer to the end (customer) point of the value chain.
If a firm wants to have more ownership of activities closer to the end product or customer, it should:
B. Forward vertically integrate.
Inventing is the same thing as innovating.
Innovation is the commercialization of new ideas and inventions.
A(n) ____________ is the dominant design established during the growth stage of an industry life cycle once the market comes to agreement about the prevailing set of engineering features and design choices.
D. Standard
As evidenced by the European Union determining that GSM should be the industry standard for cell phones, dominant designs can be driven by top-down decisions made by:
B. Government bodies.
In highly masculine cultures, general values are more toward each of the following EXCEPT
D. Cooperation
When a firm like GE has few if any linkages among its businesses, it is pursuing a(n) ________ diversification strategy.
D. Unrelated
_____ is the process of acquiring and merging with competitors, leading to industry consolidation.
D. Horizontal integration
Reverse innovation occurs when a rival reengineers one of the firm's product offerings.
In reverse innovation, a firm develops products specifically for emerging markets and later introduces these innovations into developed markets.
Regional clusters cause higher unemployment rates because of high labor mobility.
High labor mobility promotes the co-evolution of clustering firms.
From Porter's National Competitive Advantage framework, ____________ describe(s) a country's endowments in terms of natural, human, and other resources.
Factor conditions
There are three dimensions for corporate-level strategy. List one of the three and give an example of a corporate strategy change using this dimension.
Students can provide a variety of answers but a vertical integration example could be HTC, as shown in Exhibit 8.5. Horizontal integration could be Amazon leveraging its IT systems to offer a broad array of products and services. Geographic integration could be the 2008 purchase of St. Louis-based Anheuser-Busch by the Dutch firm InBev.

Feedback: Answers should be an example of a firm moving along one of the axes in Exhibit 8.1.
As noted in ChapterCase 7, Microsoft destroyed about half the value created by Encyclopedia Britannica by introducing the Encarta CD in 1993. In turn, the online Wikipedia destroyed Encarta's business, which was shut down in 2009. This is an example of how discontinuities can impact the sustainability of a firm.
When pursuing a cost-leadership strategy, the focus of competition is on cost parity, while offering acceptable value.
The goal of a cost-leadership strategy is to reduce the firm's cost below that of the competition, yielding a cost advantage.
When new technologies emerge, old ones:
B. May improve due to the competitive pressure.
As noted in Strategy Highlight 8.1, when Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with the Argentinean firm Orocobre before the company would invest several hundred million dollars in specialized equipment to supply the lithium to Toyota. What did Toyota do to instill this trust?
B. It made a credible commitment by taking an equity stake in Orocobre.
Globalization 1.0 in Strategy Highlight 10.1 is similar to which one of the following strategies?
A. International strategy
_____ drivers are as important to a differentiation strategy as ________ drivers are to a cost-leadership strategy
Value; Cost
Management of a firm must decide what range of products and services the firm should offer. This determines the firm's horizontal integration, or:
During the time of a(n) ____________, an existing industry is transformed due to revolutionary technology, becoming the new standard.
D. Paradigm shift
______ focuses on the relationship between genders and its relation to an individual's role at work and society.
B. Masculinity-femininity
Generic business-level strategies that a firm can adopt include all of the following EXCEPT
C. Market differentiation strategy.
When a firm steadily improves its offerings by building on its knowledge base, it is engaging in:
B. Incremental innovation.
After long periods of competition and innovation, a(n) ____________ is required to "restart" an industry.
B. Radical innovation
One of the dimensions of corporate strategy is how to compete effectively in the global marketplace.
Transnational strategy promotes innovation because of:
A. Effective global learning.
The four best strategic choices available to management during the decline stage of an industry include all of the following EXCEPT:
C. Persist by increasing investments in the product.
When pursing a differentiation strategy, the focus of competition is to add unique features in order to create a level of value creation that competitors cannot easily imitate.
A core competency which is capital-intensive but critical for a firm creating and launching a new innovation is:
B. Research and Development (R&D).
As shown in the Chapter 6 opening case, Whole Foods Market had to seek new strategic initiatives such as enhancing its differentiated appeal and improving its cost structure because it was losing its competitive advantage.
___________ deal(s) with inequality among people in terms of physical and intellectual capabilities.
Power distance