Question 1

Acquisitions to increase market power require that the firm have a ____ diversification strategy.

Accepted Answer

Acquisitions to increase market power require a related diversification strategy, meaning the firm expands into businesses that are related to its existing operations. This allows the firm to leverage synergies between the acquired businesses and its existing operations to generate cost savings and increase market power. Unrelated diversification (option A) involves expanding into businesses that are not related to the firm’s existing operations and may not provide the same synergy benefits. Dominant business (option C) refers to a situation where the firm derives more than 50% of its revenue from a single business, which is not relevant to this question. Single business (option D) refers to a situation where the firm operates in a single industry or market.

Question 2

PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a ____ business.

Accepted Answer

PorkPride Foods is an example of a vertically integrated business because it owns both hog raising operations and produces meat products, allowing it to control the entire supply chain from farming to processing. De-integrated businesses would separate different stages of production into separate companies, totally integrated businesses would have complete control over every aspect of the production process including retail sales, and horizontally integrated businesses would merge with or acquire other businesses in the same industry to expand their market share.

Question 3

The Chapter 6 Strategic Focus shows that Google has gained substantial ________ as a result of its ______________ diversification strategy.

Accepted Answer

The Chapter 6 Strategic Focus states that Google has gain substantial market power as a result of its related diversification strategy. This can be seen in the way Google has expanded from just a search engine company to a conglomerate with various product offerings such as Google Drive, Google Maps, and Google Home.

Question 4

Which of the following is NOT a limitation directly relating to vertical integration?

Accepted Answer

This limitation is not directly related to vertical integration, but rather to the potential for competitors to imitate a company's core technology. The other three limitations listed are all directly related to vertical integration.

Question 5

Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the U.S. make this type of brick. Specialty Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick.

Accepted Answer

Specialty Steel's ownership of the brick plant limits their options and makes them dependent on their own brick production. They cannot switch to the new technology without significant investment in their own plant, which reduces their flexibility.

Question 6

Xanadu, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis to Ireland. What is the major threat to Xanadu's plan to transfer competencies from itself to the Irish firm?

Accepted Answer

The answer of Xanadu, a U.S. manufacturer of pharmaceuticals, has...

Question 7

An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops

Accepted Answer

The ability to efficiently allocate capital through an internal market may help the firm protect its competitive advantages by reducing the need to disclose information to outside parties, such as competitors or investors.

Question 8

The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be

Accepted Answer

The answer of The value of the assets of a...

Question 9

When diversification results in two companies, such as UPS and FedEx, simultaneously competing in the same product areas or geographic markets, this is called ____ competition.

Accepted Answer

When diversification results in two companies simultaneously competing in the same product areas or geographic markets, it is referred to as multipoint competition. Multiple competition refers to a situation where a company faces competition from multiple competitors, while multiportal and multiplicit are not commonly used terms in business strategy.

Question 10

When a firm simultaneously practices operational relatedness and corporate relatedness,

Accepted Answer

When a firm simultaneously practices operational relatedness and corporate relatedness, it can be difficult for investors to observe the value created by the firm because the effects are not easily distinguishable. This can lead to undervaluation or overvaluation of the firm. However, it does not necessarily lead to diseconomies of scope or seeking to create value through financial economies.

Question 11

Some of Google's new services (Chapter 6 Strategic Focus) arising from diversification create _________ with prominent competitors (e.g., Microsoft, Facebook).

Accepted Answer

Multipoint competition refers to when firms compete against each other in multiple markets, and Google's new services are creating this type of competition with prominent competitors such as Microsoft and Facebook.

Question 12

Backward integration occurs when a company

Accepted Answer

Backward integration occurs when a company produces its own inputs, meaning that the company is acquiring or building its own sources of raw materials or other necessary components for production.

Question 13

Walt Disney Company has successfully used related diversification to create value by ________________.

Accepted Answer

Walt Disney Company has used related diversification to create value by sharing activities and transferring core competencies. This can be seen through the company's ability to leverage its strong brand and entertainment expertise across multiple businesses including theme parks, movies, television, and consumer products. By sharing activities such as marketing and distribution, and transferring core competencies such as storytelling and creativity, the company is able to achieve economies of scale, reduce costs, and increase revenue.

Question 14

A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT

Accepted Answer

This statement does not necessarily apply to the advantages of unrelated diversification. While the firm may indeed acquire innovative products through acquisitions rather than allocating capital to R&D, this does not necessarily mean that such acquisitions are a better use of capital than investing in internal R&D. The other three statements all describe advantages of unrelated diversification in which the firm can make better capital allocations than the external market.

Question 15

Although a ________________ firm, GE (discussed in the Chapter 6 Opening Case) has done an exceptional job of _____________________ its four major strategic business units.

Accepted Answer

GE is a related linked firm because its four major strategic units (aviation, healthcare, power, and renewable energy) are related but operate independently. GE allocates capital across these units to ensure they are each receiving the necessary financial resources to succeed.

Question 16

Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the U.S. make this type of brick. Specialty Steel has decided to buy one of these brick plants. This is an example of

Accepted Answer

Backward integration occurs when a company acquires or merges with a supplier or producer of its raw materials, as Specialty Steel is doing by buying a brick plant that supplies the necessary bricks for its kilns.

Question 17

A company pursuing vertical integration can gain market power over its competitors through all of the following EXCEPT

Accepted Answer

The answer of A company pursuing vertical integration can gain...

Question 18

Virgin Group successfully transfers its marketing core competence across airlines, cosmetics, music, drinks, mobile phones, health clubs and a number of other businesses. Virgin follows a ____ diversification corporate strategy.

Accepted Answer

Virgin Group follows a related linked diversification strategy as it transfers its core competencies across different industries that are not directly related but share some commonalities, allowing them to leverage their brand and marketing expertise.

Question 19

Which type of diversification is most likely to create value through financial economies?

Accepted Answer

Unrelated diversification involves entering into industries or markets that are not related to the current business. This strategy can create value through financial economies such as tax savings, cost reduction, and economies of scale. By contrast, related diversification strategies (such as related constrained and related linked) typically involve entering into industries or markets that are related to the core business, and may not offer as many financial economies.

Question 20

The Mars acquisition of the Wrigley assets was part of its related constrained diversification and added market share to the Mars/Wrigley integrated firm. It allowed Mars to gain _______because it could sell its products above the market level or reduce its costs below the market level.

Accepted Answer

The acquisition of Wrigley assets allowed Mars to gain market power, which is the ability of a firm to influence price and output in a market. This can be achieved by selling products above the market level or reducing costs below the market level, which gives the firm a competitive advantage over rivals.

Quiz 6: Corporate-Level Strategy