Deck 7: Strategy Formulation: Corporate Strategy

Question 1

Forming a joint venture between a foreign corporation and a domestic company is the most popular strategy used to enter a new country.

Answer 1

True

Question 2

Corporate strategy deals primarily with the choice of direction for the firm as a whole and the management of its business or product portfolio.

Answer 2

True

Question 3

Concentric diversification is growth into unrelated businesses.

Answer 3

False

Question 4

An example of forward quasi-integration would be a large pharmaceutical firm that acquires part interest in a drugstore chain in order to guarantee that its drugs have access to the distribution channel.

Question 5

BP and Royal Dutch Shell are examples of fully integrated firms because they internally make 100% of their key supplies and completely control their distributors.

Question 6

A long-term contract is considered vertical integration.

Question 7

Corporate parenting is the coordination of cash flow among units.

Question 8

Exporting grants rights to another company to open a retail store using the franchiser's name and operating system.

Question 9

A relatively quick way to move into an international area is through greenfield development.

Question 10

The most widely pursued corporate directional strategies are those designed to achieve growth.

Question 11

A merger is a transaction involving two or more corporations in which stock is exchanged, but from which only one corporation survives.

Question 12

Vertical integration is the degree to which a firm operates vertically in multiple locations on an industry's value chain from extracting raw materials to manufacturing to retailing.

Question 13

The two basic growth strategies are concentration and strategic alliances.

Question 14

Turnkey operations are typically contracts for the construction of operating facilities in exchange for a fee.

Question 15

With taper integration, a firm internally makes 100% of its key supplies and completely controls its distributors.

Question 16

Vertical integration is going backward on an industry's value chain.

Question 17

Horizontal growth can be achieved by expanding the firm's products into other geographic locations and/or by increasing the range of products and services offered to current markets.

Question 18

Management contracts are common when a host government expropriates part or all of a foreign-owned company's holdings in its country.

Question 19

Backward integration is often more profitable than forward integration.

Question 20

Synergy is the concept that two businesses operating within a company will generate more profits together than they could separately by common use of technology, customers, distribution, managerial skills, or product similarity.

Question 21

Which one of the following directional strategies is most frequently used in corporations?

A) stability
B) consolidation
C) growth
D) retrenchment
E) expansion

Question 22

Which of the following is NOT a reason why the growth strategy is so desirable?

A) There are more opportunities for advancement and promotion.
B) A corporation that experiences successful growth is thought of positively by the marketplace and potential investors.
C) A large and growth-oriented corporation has more clout and influence.
D) A growing firm can cover up mistakes and inefficiencies because of the increase in cash flow revenue.
E) A large and growing firm attracts more acquisition offers.

Question 23

Corporate parenting views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.

Question 24

One limitation of portfolio analysis is that it provides an illusion of scientific rigor.

Question 25

In multipoint competition, large multi-business corporations compete against other large multi-business firms in a number of markets.

Question 26

Conglomerate diversification is diversifying into an industry unrelated to its current one.

Question 27

The stability strategies are really a lack of any strategy.

Question 28

Which external growth strategy was demonstrated when Procter & Gamble completely absorbed Gillette?

A) mergers
B) strategic alliances
C) diversification
D) concentration
E) acquisitions

Question 29

Stability strategies can be very useful in the short run, but they can be dangerous if followed for too long.

Question 30

If a new business is very similar to that of the acquiring firm, it adds little new to the corporation and only marginally improves performance.

Question 31

Which kind of corporate strategy deals with the firm's overall orientation toward growth?

A) portfolio strategy
B) directional strategy
C) parenting strategy
D) cooperative strategy
E) functional strategy

Question 32

According to the BCG Growth Share Matrix, dogs should be either sold off or managed carefully for the small amounts of cash they can generate.

Question 33

Which kind of corporate strategy deals with the manner in which the firm coordinates activities and builds corporate synergies through resource sharing and development?

A) portfolio strategy
B) directional strategy
C) parenting strategy
D) cooperative strategy
E) functional strategy

Question 34

A limitation of the BCG Growth Share Matrix is the questionable link between market share and profitability.

Question 35

Which of the following strategies was being used when Allied Corporation and Signal Companies formed Allied Signal?

A) mergers
B) strategic alliances
C) diversification
D) acquisitions
E) concentration

Question 36

Which external growth strategy involves two or more corporations joining in a stock exchange and from which only one corporation survives?

A) mergers
B) strategic alliances
C) diversification
D) acquisitions
E) concentration

Question 37

According to the BCG Growth Share Matrix, cash cows are market share leaders typically at the growth stage of their product life cycle and are usually able to generate enough cash to maintain their high share of the market.

Question 38

Which strategy specifies the firm's overall direction in terms of its general orientation toward growth, the industries or markets in which it competes, and the manner in which it coordinates activities and transfers resources among business units?

A) corporate
B) functional
C) divisional
D) organizational
E) business

Question 39

The GE Business Screen is based on long-term industry attractiveness and business strength/competitive position.

Question 40

When Sony's CEO, Howard Stringer, eliminated 10,000 jobs and closed 11 plants, he was addressing the contraction phase of the turnaround strategy.

Question 41

One benefit of a U.S. company entering a joint venture with an international firm is that it

A) reduces the risks of expropriation by host country officials.
B) enhances the policy of the host country's takeover of the firm.
C) promotes skepticism among other countries not involved in the merger.
D) encourages competitors to work with the company.
E) increases revenues by 20%.

Question 42

The most logical growth strategy for a corporation with current product lines with real growth potential in a growing industry is

A) concentration.
B) conglomerate integration.
C) concentric diversification.
D) stability.
E) retrenchment.

Question 43

The ability for Nike to manufacture its own shoes and then build stores for distribution is an example of

A) forward integration.
B) horizontal integration.
C) backward integration.
D) transferred integration.
E) mass integration.

Question 44

Growth through diversification out of an industry into an unrelated industry is called

A) concentration.
B) horizontal growth.
C) concentric diversification.
D) vertical growth.
E) conglomerate diversification.

Question 45

When a firm internally makes 100% of its key supplies and completely controls its distributors, this is known as

A) full integration.
B) taper integration.
C) mass integration.
D) economical integration.
E) strategic integration.

Question 46

Ford Motor Company's use of company resources to build its River Rouge Plant outside of Detroit so that iron ore could enter into one end of the plant and a finished automobile could exit out of the other end is called

A) vertical growth.
B) tapered integration.
C) horizontal integration.
D) external vertical integration.
E) quasi-integration.

Question 47

An attempt to explain that vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market becomes too great has been proposed by

A) population theory.
B) institution theory.
C) freakonomics.
D) transaction cost economics.
E) transaction growth theory.

Question 48

In many cases, ________ integration is more profitable than ________ integration.

A) forward; backward
B) vertical; backward
C) backward; vertical
D) backward; forward
E) mass; forward

Question 49

The purchase of the supplier Carroll's Foods for its hog-growing facilities by Smithfield Foods, the world's largest pork processor, is an example of

A) forward integration.
B) horizontal integration.
C) backward integration.
D) transferred integration.
E) mass integration.

Question 50

A firm's expansion into other geographic locations and/or increasing the range of products and services offered to current markets is called

A) forward vertical growth.
B) diversification.
C) backward vertical growth.
D) captive company strategy.
E) horizontal growth.

Question 51

Which strategy did Delta choose when it acquired Northwest Airlines to obtain access to Northwest's Asian markets?

A) a retrenchment strategy using horizontal integration through internal means
B) a horizontal integration strategy
C) a stability strategy using concentric diversification
D) a growth strategy using vertical integration through external means
E) a retrenchment strategy using a concentration method

Question 52

An MNC uses which international strategy for entering a foreign market by associating itself with a firm in the host country or a government agency in that country to combine resources and expertise needed for the development of a new product or technologies?

A) licensing
B) joint ventures
C) production sharing
D) exporting
E) acquisitions

Question 53

Adding a related or complementary product to a corporation's business units is called

A) concentration.
B) horizontal growth.
C) concentric diversification.
D) vertical growth.
E) conglomerate diversification.

Question 54

Which strategy might be the most likely when management realizes that the current industry is unattractive and that the firm lacks outstanding skills that it could easily transfer to related products or services in other industries?

A) concentration
B) horizontal growth
C) concentric diversification
D) vertical growth
E) conglomerate diversification

Question 55

With conglomerate diversification, the focus is on

A) product-market synergy.
B) sound investment and value-oriented management.
C) employee satisfaction.
D) similar product offerings.
E) market demand.

Question 56

A disadvantage of vertical integration is that it

A) creates exit barriers.
B) improves coordination of activities.
C) decreases demand for the firm's products and services.
D) creates entry barriers.
E) avoids time consuming tasks.

Question 57

When Bristol-Myers Squibb purchased 17% of ImClone's common stock to gain access to a new drug, it was using which type of integration?

A) full integration
B) long-term contracts
C) backwards integration
D) taper integration
E) quasi integration

Question 58

As defined by the text, synergy is the concept

A) that involves adding different products or divisions to the corporation.
B) that supports divestiture of one corporation by another.
C) that two firms can generate more profits together than separately.
D) that a corporation can enter one or more businesses that are necessary to manufacture its own product.
E) that two functional areas of a corporation can coordinate their work as a team.

Question 59

The purpose of vertical growth is to

A) take over a function previously supplied by a former employer.
B) take over a function previously provided by a supplier or by a distributor.
C) acquire a company of similar objective.
D) sell a company encumbered with debt.
E) expand to countries with strong trade alliances.

Question 60

An MNC uses which international strategy for entering a foreign market by simply shipping goods produced in the company's home country to other countries for marketing to minimize risk and to experiment with a specific product?

A) licensing
B) joint ventures
C) exporting
D) production sharing
E) acquisitions

Question 61

In the Boston Consulting Group's Growth Share Matrix, the relative competitive position of a product or division is defined as

A) its market share.
B) its gross sales divided by its market share.
C) its market share multiplied by that of its nearest competitor.
D) its market share divided by that of the smallest other competitor.
E) its market share divided by that of the largest other competitor.

Question 62

In international dealings, turnkey operations are

A) a way in which an MNC may contract with a foreign government or local firm to trade raw materials for certain resources belonging to the MNC.
B) a way in which an MNC can take total control of operations by either starting a business from scratch or acquiring a firm already established in the host country.
C) when a corporation chooses to build a facility from scratch allowing it the freedom to design the plant, choose suppliers, and hire a workforce.
D) when an MNC has a large amount of management talent available and chooses to use its personnel to assist a firm in a host country for a specified fee and period of time.
E) contracting for construction of operating facilities in exchange for a fee.

Question 63

The stability strategy is appropriate for all of the following circumstances EXCEPT

A) useful in the short-run but can be dangerous if followed too long.
B) most appropriate for reasonably successful corporations in a reasonably predictable environment.
C) when a firm is continuing its current activities without a significant change in direction.
D) appropriate when the industry is in decline.
E) popular with small business owners who have found a niche and are happy with their success.

Question 64

The controversy surrounding external versus internal growth finds

A) external growth appears to be superior financially to internal growth.
B) internal growth appears to be superior financially to external growth.
C) there appears to be no financial advantage to either.
D) acquisitions have a lower survival rate than new internally generated business ventures.
E) strategic alliances are superior to both.

Question 65

Which strategy did Circuit City use in 2008 when it converted its retail stores to cash?

A) liquidation
B) bankruptcy
C) diversification
D) divestment
E) consolidation

Question 66

Research comparing concentric with conglomerate diversification concludes that

A) conglomerate diversification is always less profitable than concentric diversification.
B) concentric diversification is always less profitable than conglomerate diversification.
C) the relationship between relatedness and performance follows an inverted U-shaped curve.
D) neither concentric nor conglomerate diversification are ever profitable.
E) for optimum effectiveness both conglomerate and concentric diversification should be utilized in tandem.

Question 67

Management contracts are used in international dealings

A) as a way in which an MNC may contract with a foreign government or local firm to trade raw materials for certain resources belonging to the MNC.
B) as a way in which an MNC can take total control of operations by either starting a business from scratch or acquiring a firm already established in the host country.
C) when a corporation chooses to build a facility from scratch allowing it the freedom to design the plant, choose suppliers, and hire a workforce.
D) when an MNC has a large amount of management talent available and chooses to use its personnel to assist a firm in a host country for a specified fee and period of time.
E) when an MNC typically contracts for construction of operating facilities in exchange for a fee.

Question 68

Which strategy involves giving up management of the firm to the courts in return for some settlement of the corporation's obligations?

A) liquidation
B) bankruptcy
C) diversification
D) divestment
E) consolidation

Question 69

According to the BCG Growth Share Matrix, market leaders that typically are at the peak of their product life cycle and are usually able to generate enough cash to maintain their high share of the market are called

A) cash cows.
B) lost leaders.
C) dogs.
D) question marks.
E) stars.

Question 70

Which strategy is most appropriate for a company in an industry in which the future is expected to continue as an extension of the present?

A) horizontal integration strategy
B) no change strategy
C) retrenchment strategy
D) pause/proceed with caution strategy
E) profit strategy

Question 71

One of the most popular aids to developing corporate strategy in multi-business corporations that views business units in terms of the cash they generate is called

A) PIMS.
B) segmentation analysis.
C) portfolio analysis.
D) industry analysis.
E) diversification study.

Question 72

The Growth Share Matrix of the Boston Consulting Group suggests that the excess cash being generated by cash cows should be used to fund

A) dogs.
B) question marks.
C) stars.
D) white knights.
E) fish.

Question 73

Which strategy is most appropriate as a temporary strategy to enable a corporation to consolidate its resources after prolonged rapid growth in an industry now facing an uncertain future?

A) horizontal integration strategy
B) no change strategy
C) retrenchment strategy
D) pause/proceed with caution strategy
E) profit strategy

Question 74

Which one of the following is NOT a characteristic of a firm that has chosen a captive company strategy?

A) It is most appropriate for a company with a strong competitive position in a growing industry.
B) The firm reduces its functional activities to reduce costs.
C) The firm gains a certainty of sales and production in return for becoming heavily dependent upon another firm for at least 75% of its sales.
D) One of its customers makes up a large percentage of the company's sales and wants the company to keep operating as its supplier.
E) Management desperately seeks an "angel" to guarantee the company's continued existence.

Question 75

In international dealings, greenfield development is

A) a way in which an MNC may contract with a foreign government or local firm to trade raw materials for certain resources belonging to the MNC.
B) a way in which an MNC can take total control of operations by acquiring a firm already established in the host country.
C) when a corporation chooses to build a facility from scratch allowing it the freedom to design the plant, choose suppliers, and hire its workforce.
D) when an MNC has a large amount of management talent available and chooses to use its personnel to assist a firm in a host country for a specified fee and period of time.
E) contracting for construction of operating facilities in exchange for a fee.

Question 76

An MNC uses which international strategy for entering a foreign market by purchasing another company already operating in the area developing synergistic benefits gained from acquiring strong complementary product lines and a good distribution network?

A) licensing
B) joint ventures
C) production sharing
D) exporting
E) acquisitions

Question 77

The strategy which takes place in two basic phases of contraction and consolidation is

A) merger.
B) liquidation.
C) integration.
D) divestment.
E) turnaround.

Question 78

An MNC uses which international strategy for entering a foreign market by combining the higher labor skills and technology available in the developed countries with the lower cost labor available in the developing countries?

A) licensing
B) joint ventures
C) production sharing
D) exporting
E) acquisitions

Question 79

In which strategy does management hope that another company will have the necessary resources and determination to return the company to profitability?

A) sell out
B) captive company
C) liquidation
D) bankruptcy
E) profit

Question 80

Which of the following describes a turnaround strategy?

A) a form of divestment and is appropriate when corporate problems can be traced to the poor performance of an SBU or product line
B) occurs when the corporation reduces the scope of some of its functional activities and becomes "captive" to another firm
C) emphasizes improving operational efficiency and is appropriate when a corporation's problems are pervasive, but not yet critical
D) occurs when a corporation liquidates all its assets
E) involves adding different products or divisions to the corporation