BUSA 4980 FINAL QUESTIONS WITH VERIFIED
ANSWERS
Define corporate-level strategy - Answers - strategies firms use to diversify their
operations from a business operating in a single market into several product markets &
industries
Why do firms tend to diversify? - Answers - incentives and value creating opportunities
incentives - Answers - diminishing market opportunities, spread across various
industries, exploit valuable tangible/in tangible resources
value creation - Answers - obtain economies of scope by sharing activities to reduce
costs or by transferring core competencies to other businesses, gain market power
through vertical integration or multipoint competition, achieve financial economies
through efficient capital allocation or business restructuring
3 criteria for testing the merit of diversification - Answers - *Industry attractiveness*:
must be attractive for a good ROI
*Cost of entry*: must not be high to erode returns
*Better off*: business must perform better than independent
related diversification - Answers - (ex: coca cola investing into making coffee since
they're in the beverage industry)
•Benefits → Define economies of scope and market power
•Operational versus corporate relatedness
•Avenues of market power
unrelated diversification - Answers - (ex: bank trying to go into car manufacturing)
•What are financial economies? → Internal capital market allocation and asset
restructuring
•General managerial problems of unrelated diversification
Which form of diversification tends to add more value? - Answers - related
Define mergers and acquisitions (M&A) - Answers - combining the operations of 2
companies to achieve economies, strengthen competitiveness, and create new
opportunities
Why do firms use M&A as a strategic vehicle? - Answers - Increased market power,
overcome entry barriers, bi-pass new product development, increased diversification,
reshape competitive scope, develop new capabilities
, What are the five distinct varieties of M&A? - Answers - Overcapacity, geography,
product/ market, R&D deal, convergence
Problems in achieving success with M&A - Answers - *Due diligence*: inadequate
evaluations of target, large or extraordinary debt
*post-acquisition integration*: integration difficulties, inability to achieve synergy
*managerial policies*: too much diversification, mangers overly focused on acquisitions,
resulting firm is too large
3 restructuring options - Answers - 1. *Downsizing*: reduction in employees and/or units
2. *Downscoping*: divestiture, spin-off, or some means of eliminating unrelated or
underperforming businesses
3. *leveraged buyouts*: restructuring strategy whereby a party buys all of a firm's assets
in order to "take it private"
Outline the characteristics of successful acquisitions? - Answers - friendly process,
employee retention, financial slack, emphasis on R&D
-programmatic approach: creates most value for large corps
What is international strategy? - Answers - Firm sells its goods or services outside its
domestic market
What incentives exist for firms to internationalize their operations? - Answers - Gain
access to new customers, achieve lower costs and enhance firm's competitiveness,
capitalize on core competencies, spread business risk across a wider geographic base
benefits of international risk - Answers - *increased market size*: firms expand size of
potential market, *scale & learning economies*: likely to obtain optimal economies of
scale, *location advantages*: locate value chain activities to provide access to low-cost
inputs or enhance productivity
risks of international risk - Answers - *political risk*: instability in national governments
*economic risks*: risks with institutional instability and property rights
*implementation complexity*: implementation of international strategy
central challenges of international strategy - Answers - -aggregation vs adaptation
-arbitrage
aggregation versus adaptation - Answers - Strike the right balance between economies
of scale and responsiveness to local conditions
aggregation - Answers - deliver economies of scale by creating regional and/or global
operations
ANSWERS
Define corporate-level strategy - Answers - strategies firms use to diversify their
operations from a business operating in a single market into several product markets &
industries
Why do firms tend to diversify? - Answers - incentives and value creating opportunities
incentives - Answers - diminishing market opportunities, spread across various
industries, exploit valuable tangible/in tangible resources
value creation - Answers - obtain economies of scope by sharing activities to reduce
costs or by transferring core competencies to other businesses, gain market power
through vertical integration or multipoint competition, achieve financial economies
through efficient capital allocation or business restructuring
3 criteria for testing the merit of diversification - Answers - *Industry attractiveness*:
must be attractive for a good ROI
*Cost of entry*: must not be high to erode returns
*Better off*: business must perform better than independent
related diversification - Answers - (ex: coca cola investing into making coffee since
they're in the beverage industry)
•Benefits → Define economies of scope and market power
•Operational versus corporate relatedness
•Avenues of market power
unrelated diversification - Answers - (ex: bank trying to go into car manufacturing)
•What are financial economies? → Internal capital market allocation and asset
restructuring
•General managerial problems of unrelated diversification
Which form of diversification tends to add more value? - Answers - related
Define mergers and acquisitions (M&A) - Answers - combining the operations of 2
companies to achieve economies, strengthen competitiveness, and create new
opportunities
Why do firms use M&A as a strategic vehicle? - Answers - Increased market power,
overcome entry barriers, bi-pass new product development, increased diversification,
reshape competitive scope, develop new capabilities
, What are the five distinct varieties of M&A? - Answers - Overcapacity, geography,
product/ market, R&D deal, convergence
Problems in achieving success with M&A - Answers - *Due diligence*: inadequate
evaluations of target, large or extraordinary debt
*post-acquisition integration*: integration difficulties, inability to achieve synergy
*managerial policies*: too much diversification, mangers overly focused on acquisitions,
resulting firm is too large
3 restructuring options - Answers - 1. *Downsizing*: reduction in employees and/or units
2. *Downscoping*: divestiture, spin-off, or some means of eliminating unrelated or
underperforming businesses
3. *leveraged buyouts*: restructuring strategy whereby a party buys all of a firm's assets
in order to "take it private"
Outline the characteristics of successful acquisitions? - Answers - friendly process,
employee retention, financial slack, emphasis on R&D
-programmatic approach: creates most value for large corps
What is international strategy? - Answers - Firm sells its goods or services outside its
domestic market
What incentives exist for firms to internationalize their operations? - Answers - Gain
access to new customers, achieve lower costs and enhance firm's competitiveness,
capitalize on core competencies, spread business risk across a wider geographic base
benefits of international risk - Answers - *increased market size*: firms expand size of
potential market, *scale & learning economies*: likely to obtain optimal economies of
scale, *location advantages*: locate value chain activities to provide access to low-cost
inputs or enhance productivity
risks of international risk - Answers - *political risk*: instability in national governments
*economic risks*: risks with institutional instability and property rights
*implementation complexity*: implementation of international strategy
central challenges of international strategy - Answers - -aggregation vs adaptation
-arbitrage
aggregation versus adaptation - Answers - Strike the right balance between economies
of scale and responsiveness to local conditions
aggregation - Answers - deliver economies of scale by creating regional and/or global
operations
