Question 1

In 1999, two pharmaceutical companies that held an equal market share decided to pool their operations to create a new firm that was known by a different name. This is an example of a(n):
A) merger.
B) acquisition.
C) procurement.
D) takeover.
E) dissolution.

Accepted Answer

A merger occurs when two companies combine to create a new company, often with a new name. This scenario describes two companies with equal market share deciding to pool their operations into a new firm, which fits the definition of a merger. A is the correct answer. An acquisition is when one company buys another, usually resulting in the acquired company becoming a subsidiary of the acquiring company. Procurement involves acquiring goods or services from an external source. A takeover is when one company takes control of another without the consent of its management. Dissolution is the process of winding up a company's business and ending its existence.

Question 2

Strategic alliances cannot serve as a substitute for vertical integration because they only create relatively weak, short-term partnerships that allow only one company to obtain the benefits that would have resulted from vertical integration.

Accepted Answer

Strategic alliances can indeed serve as substitutes for vertical integration in many cases. They can form strong, long-term partnerships that allow all involved companies to share the benefits, such as cost reductions, access to new markets, and shared expertise, that might otherwise come from vertical integration. These alliances can vary greatly in strength and duration, depending on the agreement between the companies.

Question 3

When a company outsources its noncore activities to specialists, it loses its capabilities to differentiate its final products.

Accepted Answer

When a company outsources noncore activities to specialists, it can focus on its core competencies and differentiate its final products by leveraging the expertise of the outsourced specialists.

Question 4

Rachel, a new mom, is shopping for baby products. She notices that one of the manufacturers, Lucy's, is offering a wide range of products such as baby shampoo, baby lotion, and baby wipes packaged together at a better price as one combined product. Which of the following concepts is the company utilizing to meet customers' needs?
A) Product bundling
B) Cross-selling
C) Hostage taking
D) Strategic outsourcing
E) Parallel sourcing

Accepted Answer

Product bundling is the concept of packaging two or more products together and offering them at a better price as a combined product. In this scenario, Lucy's is offering baby products such as shampoo, lotion, and wipes as one package at a better price, which is an example of product bundling. Cross-selling is the concept of offering complementary products to customers based on their purchase history, which is not the case in this scenario. Hostage taking, strategic outsourcing, and parallel sourcing are not relevant concepts in this context.

Question 5

The final part of the strategy-formulation process is choosing:
A) business-level strategies.
B) functional-level strategies.
C) corporate-level strategies.
D) functional-level goals.
E) business-level goals.

Accepted Answer

The final part of the strategy-formulation process is corporate-level strategies. This is where the overall direction and scope of the organization are decided, which includes the selection of the markets and industries that the business will operate in, as well as the way it will compete in those markets. Business-level and functional-level strategies come after this step, as they are specific actions that support the chosen corporate-level strategy. Therefore, selecting a corporate-level strategy is the most important choice in the strategy-formulation process.

Question 6

A leading software company merged with its competitor to form a new company. Which of the following is likely to be the result of this merger?
A) Decreased cost per unit output
B) Decreased bargaining power over suppliers and customers
C) Increased industry rivalry
D) Decreased profitability
E) Decreased product differentiation

Accepted Answer

By merging with a competitor, the combined company can enjoy economies of scale, reduce duplicated costs, and share resources efficiently, leading to decreased cost per unit output.

Question 7

Strategic outsourcing is the decision to allow one or more of a company's value-chain activities or functions to be performed by independent companies.

Accepted Answer

Strategic outsourcing involves outsourcing certain activities or functions to independent companies in order to improve efficiency and reduce costs. This can include outsourcing manufacturing, IT, customer service, marketing, and other areas of the value chain.

Question 8

All of the following are benefits of horizontal integration EXCEPT:
A) reduced risk of coming into conflict with the FTC.
B) increased product differentiation.
C) reduced industry rivalry.
D) increased bargaining power over suppliers.
E) reduced cost structure.

Accepted Answer

Horizontal integration refers to a strategy where a company merges or acquires another company in the same industry in order to achieve economies of scale, increase market shares, and reduce competition. The other options listed are all benefits of horizontal integration, but reduced risk of coming into conflict with the FTC (Federal Trade Commission) is not a benefit as horizontal integration can still raise antitrust concerns and potentially result in FTC scrutiny.

Question 9

Which of the following is NOT a cause for the intervention of antitrust authorities?
A) Companies abuse their market power by acquiring new firms that allow for the increase of prices above a level that would occur in a competitive market.
B) The merger between two companies allows for several customer options and substantial competition within the industry.
C) An acquisition that creates too much consolidation and increases the potential for future abuse of market power.
D) A company cuts prices when a new competitor enters the industry to force the competitor out of business.
E) Dominant companies use their market power to crush potential competitors.

Accepted Answer

The answer of Which of the following is NOT a...

Question 10

Which of the following is NOT an advantage of the corporate-level strategies followed by companies like McDonalds and Wal-Mart?
A) Their strategies allow all managerial, financial, technological, and functional resources to focus on competing successfully in one area.
B) Their strategies keep them from making the mistake of entering new industries in which existing resources and capabilities create little value.
C) Their strategies prepare them to deal with a whole new set of competitive forces and help create ways to address unanticipated threats.
D) Their strategies allow them to compete effectively in fast-growing, changing industries in which demands on a company's resources and capabilities are likely to be substantial.
E) Their strategies allow them to capture the substantial long-term profits from establishing a competitive advantage.

Accepted Answer

The statement "Their strategies prepare them to deal with a whole new set of competitive forces and help create ways to address unanticipated threats" is an advantage of corporate-level strategies. Therefore, option C is NOT an advantage.

Question 11

In a strategic alliance, one company in the agreement benefits more than the other.

Accepted Answer

A strategic alliance is a mutually beneficial agreement between two or more companies. The partners in a strategic alliance work together to achieve common goals such as increased market share, improved products or services or reduced operational costs. While one partner may benefit more than the other in some aspects, the ultimate objective of a strategic alliance is to create value for all partners involved.

Question 12

Product bundling and cross-selling are ways to establish which of the following?
A) Lowered cost structure
B) Increased product differentiation
C) Leveraged broad competitive advantage
D) Increased bargaining power
E) Reduced industry rivalry

Accepted Answer

Product bundling and cross-selling enhance product differentiation by offering unique combinations or additional products that add value to the customer, making the offerings stand out from competitors.

Question 13

One negative effect of competitive bidding is that suppliers don't want to invest in expensive, long-term specialized assets as they will be reluctant to agree upon scheduling that will increase a supplier's costs and reduce its profitability.

Accepted Answer

This is because in a competitive bidding situation, the supplier who offers the lowest price is usually chosen. Therefore, suppliers may not want to invest in expensive assets if they have concerns about their return on investment due to the pressure to reduce costs in the bidding process.

Question 14

Which of the following is a benefit that firms should expect to gain from the use of horizontal integration?
A) Reduced risk of coming into conflict with the FTC
B) Better realization of economies of scale
C) Greater control over the entire supply chain
D) Reduced risk of holdup
E) Reduced need for investment in core activities

Accepted Answer

Horizontal integration allows firms to combine their resources and operations with other firms in the same industry, leading to increased economies of scale. This means that firms can produce more output with the same amount of inputs, leading to lower costs and potentially higher profits. While the other options may also be benefits of horizontal integration to some extent, B is the most directly linked to the concept.

Question 15

In a backward vertical integration into upstream industries, which of the following describes the next step in the value chain after final assembly?
A) Raw materials
B) Retail
C) Component parts manufacturing
D) Customer
E) Final assembly is the final step in the value chain.

Accepted Answer

Backward vertical integration involves acquiring or establishing firms that are upstream in the value chain. Final assembly is typically the downstream end of the value chain. Therefore, the next step would be manufacturing the component parts needed for final assembly.

Question 16

Sharing the expenses of investment in production assets or inventory, or making long-term supply or purchase guarantees are examples of vertical integration.

Accepted Answer

These examples describe forms of strategic partnerships or alliances, not vertical integration. Vertical integration involves a company expanding its operations into different stages of production within its own industry, either upstream (towards raw materials) or downstream (towards end consumers), rather than sharing expenses or making guarantees with other companies.

Question 17

The difference between full integration and taper integration is that taper integration includes outside suppliers and independent distributors during the in-house manufacturing function.

Accepted Answer

Taper integration involves the inclusion of outside suppliers and independent distributors during the manufacturing process, while full integration involves the merger of all functions within the company including manufacturing, marketing, and distribution.

Question 18

Adam's boss tells him that their company is pursuing the strategy of horizontal integration. Which of the following is true of this scenario?
A) The company will acquire one of its suppliers.
B) The company will buy or merge with one of its rivals.
C) The company will begin to distribute its own products.
D) The company will change the organizational structure to make it increasingly flat.
E) The company will merge with another company that belongs to a different industry.

Accepted Answer

Horizontal integration refers to a strategy in which a company expands its business activities into the same or similar industry by acquiring or merging with one of its rivals. This allows the company to increase its market share and gain economies of scale. Therefore, the most appropriate choice is B.

Question 19

When a company decides to expand into new industries, it must:
A) develop a "multibusiness model" that justifies its entry into different businesses.
B) halt marketing activities in the current industry to avoid being associated with one specific industry.
C) select a new CEO and reappoint the board of directors.
D) create one common business model for all the industries rather than each business unit.
E) avoid talking about ways of increasing profitability in the business model.

Accepted Answer

When a company decides to expand into new industries, it must develop a "multibusiness model" that justifies its entry into different businesses. This model helps the company identify and capitalize on synergies between the different industries, as well as potential risks and challenges. Halting marketing activities in the current industry or reappointing the board of directors are not necessary steps for expanding into new industries, while creating one common business model for all the industries could ignore important differences between them. Avoiding talking about ways of increasing profitability would be counterproductive as profitability is a key motivation for expanding into new industries.

Question 20

Horizontal integration may be thought of as:
A) moving into a new unrelated industry.
B) giving control to suppliers.
C) gaining control of distributors.
D) staying inside the industry in which the company currently operates.
E) combining functional units within the company.

Accepted Answer

Horizontal integration involves expanding within the same industry, often by acquiring or merging with competitors, to increase market share or reduce competition.

Quiz 9: Corporate-Level Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing

In 1999, two pharmaceutical companies that held an equal market share decided to pool their operations to create a new firm that was known by a different name. This is an example of a(n) :

Strategic alliances cannot serve as a substitute for vertical integration because they only create relatively weak, short-term partnerships that allow only one company to obtain the benefits that would have resulted from vertical integration.

When a company outsources its noncore activities to specialists, it loses its capabilities to differentiate its final products.

The final part of the strategy-formulation process is choosing:

A leading software company merged with its competitor to form a new company. Which of the following is likely to be the result of this merger?

Strategic outsourcing is the decision to allow one or more of a company's value-chain activities or functions to be performed by independent companies.

All of the following are benefits of horizontal integration EXCEPT:

Which of the following is NOT a cause for the intervention of antitrust authorities?

Which of the following is NOT an advantage of the corporate-level strategies followed by companies like McDonalds and Wal-Mart?

In a strategic alliance, one company in the agreement benefits more than the other.

Product bundling and cross-selling are ways to establish which of the following?

One negative effect of competitive bidding is that suppliers don't want to invest in expensive, long-term specialized assets as they will be reluctant to agree upon scheduling that will increase a supplier's costs and reduce its profitability.

Which of the following is a benefit that firms should expect to gain from the use of horizontal integration?

In a backward vertical integration into upstream industries, which of the following describes the next step in the value chain after final assembly?

Sharing the expenses of investment in production assets or inventory, or making long-term supply or purchase guarantees are examples of vertical integration.

The difference between full integration and taper integration is that taper integration includes outside suppliers and independent distributors during the in-house manufacturing function.

Adam's boss tells him that their company is pursuing the strategy of horizontal integration. Which of the following is true of this scenario?

When a company decides to expand into new industries, it must:

Horizontal integration may be thought of as: