BA 7080 Final Exam | Questions with 100% Correct Answers

BA 7080 Final Exam | Questions with 100% Correct Answers The opening quotation concerning Bath Fitter illustrates the following benefits of vertical integration: A. None of the above B. Economies of scale C. Avoiding the transactions costs involved monitoring and enforcing contracts with external suppliers. D. Technical economies from the physical integration of processes The opening quotation from Tom Peters states that as "yesterday's highly integrated giants" de-integrate, their vertical relationships are taking the form of: A. Long-term contracts B. All of the above C. Alliances and partnerships D. Market contracts Corporate strategy decisions are concerned with: A. Establishing competitive advantage B. Diversification and vertical integration C. The geographical boundaries of the firm D. The scope of the firm's activities The corporate scope of Walt Disney Company may be described as follows: A. A broad vertical and geographical scope but narrow product scope B. A broad product, geographical and vertical scope. C. A broad product and vertical scope, but a narrow geographical scope D. A broad product and geographical scope, but narrow vertical scope The capitalist economy comprises two forms of economic organization, the market mechanism operated by prices and the administrative mechanism of firms. A. The notion of the capitalist economy as governed by market processes is a myth. In reality the global capitalist economy is controlled by large corporations. B. The market mechanism is referred to as the "invisible hand" while the administrative mechanism of firms is referred to as the "visible hand". C. The market mechanism is referred to as the "visible hand" while the administrative mechanism of firms is referred to as the "invisible hand". D. The simultaneous operation of both "hands" means that the capitalist system is often referred to as an "ambidextrous organization". The vertical scope of a firm relates to: A. The proportion of the firm's inputs that are produced in-house. B. The number of hierarchical layers of the firm's management structure. C. The extent to which a firm owns adjacent stages of the industry value chain. D. The size of the firm's value added. The growth in the scope of business enterprises for most of the 19th and 20th centuries can be attributed to a drop in administrative costs of firms relative to the transaction costs of market. This resulted from: A. Innovation in information and communications technology and in management B. Globalization C. The growing transaction costs of markets as a result of taxes, regulation, and litigation The main cause of downsizing, refocusing, and outsourcing during the latter part of the 20th century was: A. The size of the firm B. All of the above C. None of the above D. A greater turbulence in the environment and also developments in IT—especially the advent of the internet Vertical integration by industrial firms during the major part of the 20th century was motivated primarily by firms' desire for: A. Reducing costs B. Increasing speed C. Securing scare inputs D. Reducing risk and improving coordination Which of the following factors is not conducive to vertical integration between two adjacent stages of production? A. Similarity of the optimum scale of production between the two stages B. Different organizational capabilities are required at each stage C. Stability in the technologies used at each stage D. Few companies at each of the two stages Which of the following factors has not contributed to the trend towards outsourcing in recent decades? A. Increasing turbulence of the business environment B. Increasing emphases on the need for competitive advantage based upon superior capabilities C. Increasing emphasis of the need for speed D. The advent of the internet Vertical integration is: A. A firm establishing close relationships with its suppliers and its buyers B. A firm's acquisition of a supplier or one of its buyers C. A firm's control over its input sources and the distribution of its output D. A firm's ownership of vertically related activities When a winery opens a tasting room through which it sells its wine to visitors, this represents: A. Partial integration B. Backward integration C. Forward integration D. Diversification The reason that the producers of wood pulp have often forward integrated into the production of paper is: A. To insulate the firm from fluctuations in the price of wood pulp. B. To increase value added by moving closer to the final customer. C. To exploit technical economies of co-locating pulp and paper making plants while avoiding transaction costs caused by transaction-specific investments. D. To be able to respond quicker to demand fluctuations because of superior coordination. Which of the following factors is not an explanation for the lack of vertical integration between steel producers and shipbuilders? A. The world's biggest shipbuilding countries (South Korea, Japan, and China) are also among the leading steel producing countries B. Steel is a commodity product available in standardized grades C. Steel production and shipbuilding are strategically very different industries D. The market for steel has many suppliers and buyers, good information flows, and little need for transaction-specific investments In order for a manufacturer of consumer goods to maximize responsiveness to changes in consumer demand for its products: A. It depends upon the type of flexibility that is desired. B. It is best to outsource the production of components and materials. C. It is best to be backward integrated into the production of components and materials. D. It is best to be partially backward integrated. Starbucks owns and operates most of its retail outlets; McDonalds franchises most of its retail outlets. An advantage of franchising over vertical integration is: A. Franchising is always more profitable than vertical integration because the franchisor does not bear the costs of owning the retail outlets and paying their staff. B. Franchising subjects the operators of retail outlets being subject to "high-powered" incentives. C. Franchising permits more effective quality control of the retail outlet. D. Franchising permits superior coordination of retail activities with upstream activities. Vendor partnerships based on relational contacts—such as the relationships between Toyota and its major component suppliers—are more successful than either pure market contracts or vertical integration because: A. They offer similar benefits of high-powered incentives and flexibility that market contracts. B. They give the buyer immense bargaining power over its suppliers. C. They combine the coordination benefits of vertical integration with the incentive and flexibility benefits of market contracts. D. They offer similar coordination benefits as vertical integration. The main lesson to be drawn from the delays to the launch of Boeing's 787 Dreamliner is that, when developing complex products that embody diverse new technologies: A. The principal firm must possess well-developed integration capabilities. B. A competitor such as Airbus Industries which began as an alliance among a number of separate companies will always have an advantage. C. It is best to do it in-house without heavy reliance on external suppliers. D. Extensive outsourcing is inevitable as no single company has sufficient technological capabilities in-house. Vertical integration by Zara, the main division and brand of the Spanish clothing firm Inditex, illustrates: A. The potential of vertical integration to offer flexibility in responding to seasonal fluctuations in demand. B. The potential for vertical integration to offer flexibility in responding to rapid changes in customer product preferences. C. The potential for vertical integration to overcome problems arising from the need for transaction-specific investments by garment manufacturers. D. The potential for vertical integration to exploit technical economies from co-locating adjacent processes. Diversification decisions by firms involve the following key issues: A. The benefits of synergy relative to the costs or coordination. B. The potential for the diversification to increase growth and reduce risk. C. The opportunities for exploiting economies of scope in resources and capabilities. D. The attractiveness of the industry to be entered and the potential for competitive advantage. The key drivers of diversification during the period 1950-80 were: A. Shareholder value maximization. B. The desire to escape mature sectors and enter new, technology-based industries. C. The quest to exploit economies of scope. D. The quest for growth and risk reduction. The emergence of "conglomerates"—widely diversified companies—during the 1960s and 1970s was a result of: A. Loose monetary policies that increased the availability of corporate finance. B. The desire of companies to escape low growth industries. C. The willingness of some CEOs to ignore shareholder interests and order to build large corporate empires. D. The belief that the tools of strategic and financial management could be applied to any type of business. Diversification whose sole impact is to reduce the variability of profits does not create value for shareholders because: A. Shareholders are interested in return more than in risk. B. The most important risks (such as a global financial crisis or the collapse of the Euro) are systemic in nature, against which diversification offers little protection. C. The risk which is relevant to stock market valuations is perceived risk--this bears little relationship to profit variability. D. If investors can spread risk by diversifying their portfolios, diversification adds no additional value in terms of risk spreading. Porter's "three essential tests" help to determine: A. The impact of diversification on stakeholders. B. The potential for diversification to create shareholder value. C. The likely impact of diversification upon risk. D. How the financial markets would react to a diversification. When diversification combines two businesses in different industrial sectors, the key determinant of whether the diversification creates value is whether the diversification: A. Enhances the competitive advantage of either or both of the two businesses. B. Changes the debt/equity ratio of the combined company. C. Is between culturally-compatible businesses. D. Causes management to lose its focus on its core business. The continuing prominence of large, highly diversified business groups in many emerging market countries (e.g. Tata Group in India) is mainly the result of: A. Barriers to direct investment which protect these companies from overseas competition B. The failure of emerging market business leaders to appreciate the benefits of refocusing C. High transaction costs in capital and labor markets in these countries which favor the deployment of resources within large diversified corporations D. The political connections of a few leading business leaders When a company in industry A acquires a company in industry B, Porter's "better-off" test is satisfied when: A. There are shared resources and capabilities between the two businesses B. The competitive advantage of either or both businesses is increased C. The competitive advantage of the business B is increased D. The competitive advantage of business A is increased The key difference between economies of scale and economies of scope: A. There is no practical difference. B. Scale economies are relevant to business strategy; economies of scope to corporate strategy. C. Economies of scale relate to expanding the output of a single product; economies of scope relate to expansion across multiple products. D. Economies of scale relate to manufacturing activities; economies of scope relate to a wide range of functions. Which of the following is not an example of an economy of scope from diversification? A. Fuji Film applying its thin-film, coatings, and polymer technologies not only to photographic film, but also to cosmetics. B. Samsung Group applying its Samsung brand name across a wide range of products. C. Amazon using its server capacity to enter cloud computing and web hosting. D. Royal Dutch Shell engaging in forest development in order to offset some of the carbon dioxide produced by its petroleum business. The British fashion company, Burberry, is considering diversifying into the hotel business. Its optimal strategy is to: A. Establish a separate start-up company, Burberry Hotels, in which Burberry Group retains a minority equity holding B. Stay away from hotels all together since this business is unrelated to Burberry's core fashion business C. License its brand to an existing hotel operator—that way it can avoid the costs and risks of having to invest in all the resources and capabilities required by the hotel business D. Set up its own luxury hotel chain—that way it can appropriate all the profits from the venture Despite the heterogeneity of the goods and services supplied by General Electric (e.g. locomotives and consumer credit), we can consider GE's diversification to be into strategically related industries because: A. It operates a balanced portfolio of cash generating and cash using businesses. B. It is continually looking for opportunities to generate additional revenues from cross-selling and product bundling. C. Most products are supplied under the GE brand. D. It applies similar general management capabilities across all its businesses. Where do general management capabilities generally reside within the diversified firm? A. All of the above B. At the corporate level C. At the operational entity level D. At the divisional level An alternative approach to Porter's "three essential tests" in evaluating the value-adding potential of diversification is: A. Porter's value chain analysis. B. Goold, Campbell and Alexander's "corporate parenting" framework. C. The Ansoff matrix. D. The Boston Consulting Group growth-share matrix. The failure of empirical research to find unambiguous evidence that related diversification outperforms unrelated evidence points to: A. The fact that firm performance is the outcome of many factors of which diversification strategy is only one. B. Reverse causation: it may be that poorly performing firms are more likely to take the risk of unrelated diversification. C. All of the above D. Difficulties in determining whether diversification is related or unrelated. What does the expression "conglomerate discount" mean? A. The stock market tends to value diversified companies at less than their break-up value. B. The willingness of stock exchanges to offer discounted listing fees in order to attract highly diversified firms. C. The ability of a widely diversified firm to exploit economies of scope to reduce its overall costs. D. The lower rates of return that highly diversified companies offer to their shareholders. The statement: "Economies of scope in shared resources do not provide a sufficient justification for diversification" is: A. Incorrect: economies of scope are sufficient grounds for diversification on their own. B. Incorrect: the benefits from economies of scope need to exceed the administrative costs of the corporate HQ. C. Correct: Cost savings form shared resources are of little value unless there are also organizational capabilities that can be transferred between the businesses. D. Correct: to justify diversification economies of scope need to be supported by transactions costs in the market for the particular resources. Which is a more efficient mechanism for allocating capital among different businesses: the internal capital allocation of diversified firms or the external capital market? A. The internal capital allocation process of diversified firms. B. It depends on the effectiveness of the specific firm's capital allocation process and the efficiency of the capital market in the country where the firm is located. C. It depends on the effectiveness of the specific firm's capital allocation process. D. The external capital market. The internal labor market provides a large, diverse firm with the chance to make savings, by: A. Relying less on external recruitment consultants B. Developing senior managers with wide experience C. All of the above D. Having first-hand knowledge of a large pool of internal recruits for transfer between businesses Several decades of empirical evidence indicates that the relationship between diversification and performance: A. Is mainly positive B. Is neither consistent nor systematic C. Varies between countries D. Is negative unless it is diversification between closely related industries