Deck 10: Corporate Strategy and Diversification

Question 1

Why are U.S. companies often the first to develop new products that are later made into commercial successes by other companies?

Answer 1

No Answer

Question 2

Which of the following can explain why firms fail to realize hoped-for synergies from their diversification activities?

A) Managers have a poor understanding of how diversification activities will "fit" or be coordinated with existing businesses.
B) Managers try to complete an
C) acquisition quickly before other buyers develop an interest in the acquisition target and begin a "bidding war."
D) After making an acquisition, managers fail to integrate the new business into their firm's existing portfolio of businesses.
E) All of these
F) None of these

Answer 2

E

Question 3

______________ refers to using the same resource to do different things either to take better advantage of existing resources, to achieve lower unit costs, or both.

A) Economic profit benefits
B) Economies of scale
C) Economies of scope
D) Economies of synergy
E) Strategic business utilities

Answer 3

C

Question 4

_____________ exist when unit costs decline with increases in production, as fixed costs are spread over a larger volume of output.

A) Economic profit benefits
B) Economies of scale
C) Economies of scope
D) Economies of synergy
E) Strategic business utilities

Question 5

_______________ is the simplest route to global markets.

A) Exporting
B) Franchising
C) Joint ventures
D) Licensing
E) Strategic alliances

Question 6

Firms that engage in extensive ______________ diversification are referred to as conglomerates.

A) Backward
B) Forward
C) Horizontal
D) Unrelated
E) Vertical

Question 7

_______________________diversification refers to a strategy that involves adding businesses or product/services lines that are unrelated to the existing core business.

A) Backward
B) Forward
C) Horizontal
D) Unrelated
E) Vertical

Question 8

_________________ diversification refers to a strategy of adding related or similar product/service lines to the existing core business, either through acquisition of competitors or through the internal development of new products or services.

A) Backward
B) Forward
C) Horizontal
D) Unrelated
E) Vertical

Question 9

________________ integration refers to a strategy of moving closer to the consumer or end user by acquiring or establishing retail outlets for the distribution, sale, or after-sale service of the firm's products or services.

A) Backward
B) Forward
C) Horizontal
D) Unrelated
E) Vertical

Question 10

________________ integration refers to a strategy of moving closer to the sources of raw materials by acquiring resource supplier or by manufacturing the components needed for the production of a final product.

A) Backward
B) Forward
C) Horizontal
D) Unrelated
E) Vertical

Question 11

What percentage of the variation in business unit performance is accounted for by business strategy?

A) 0.0008
B) 0.161
C) 0.22
D) 0.452
E) 0.83

Question 12

Why do firms diversify rather than stay focused on a single business?

Question 13

Why must most firms rely on financial synergies when pursuing unrelated diversification?

Question 14

Give three reasons why a firm might engage in unrelated diversification.

Question 15

Discuss what is meant by the statement that "It's actually easier to manage diversification in unrelated markets."

Question 16

Discuss what is meant by the statement that "You don't drive growth from

Question 17

Why did the wave of consolidation that swept over the banking industry produce so few totally new products or services as a result of these combinations?

Question 18

Why have many firms reversed their outsourcing strategies and become more vertically integrated?

Question 19

List four advantages of vertical integration.

Question 20

List two reasons why managers of firms with surplus cash flows pursue diversification strategies?

Question 21

__________________ integration refers to a strategy of acquiring control over additional links in the value chain of producing and delivering products or services.

A) Backward
B) Forward
C) Horizontal
D) Unrelated
E) Vertical

Question 22

Firms seek to diversify to attain which of the following objectives?

A) To grow
B) To more fully utilize existing resources and capabilities
C) To make use of surplus cash flows
D) B and C
E) All of these

Question 23

________________ is the incremental gains in value that should be derived from a particular corporate or diversification strategy.

A) Complementary performance
B) Economic benefit
C) Synergy
D) Performance diversity
E) None of these

Question 24

A vertically integrated firm will likely have higher fixed overhead costs than a less integrated competitor.

Question 25

Merger and acquisition strategies are pursued to increase competition and decrease market power.

Question 26

Highly concentrated industries allow only a few large firms to reap profits at the expense of consumers.

Question 27

Large firms in highly concentrated industries tend to be less innovative than firms in more competitive industries.

Question 28

The businesses in a diversified firm's portfolio of business units should individually perform at a higher level than the businesses would perform as standalone businesses.

Question 29

The aim of corporate strategy and diversification is to achieve a complementary performance across the businesses in a firm's portfolio of business units.

Question 30

A corporate theme provides diversified firms with a unifying definition.

Question 31

Corporate strategy influences how large and how diversified firms will be.

Question 32

Corporate strategy focuses on how a firm or business should compete in a given competitive environment.

Question 33

Vertically integrated firms are not hampered by problems with demand uncertainty.

Question 34

A diversified firm will have higher profitability than its less integrated competitors only if its lower direct costs (or higher sales) can compensate for its higher fixed overhead costs.

Question 35

Studies have found no obvious differences between high- and low-performing diversified firms along several important strategic dimensions.

Question 36

Generally, academics, consultants, and the financial community have taken a decidedly positive view of diversification.

Question 37

The efficient markets hypothesis states that stock markets take into consideration all available information in assessing the value of firms.

Question 38

Economies of scope refers to using the same resource or resources to do more of the same thing.

Question 39

The aim of diversification is to create value or wealth in excess of what firms would enjoy without diversification.

Question 40

Geographical expansion lacks suitability as a rationale for related diversification.

Question 41

The major objective of bank mergers and acquisitions is to realize economies of scale by consolidating "back office" operations, such as data and check processing.

Question 42

Vertical integration can eliminate the problem of internal transfer pricing haggling between an integrated firm's divisions.

Question 43

Vertical integration avoids the transactions costs associated with dealing with suppliers or retailers.

Question 44

Business strategy focuses on the appropriate scale or scope of the enterprise.