Question 1

Firms that pursue a strategy of related corporate diversification have some type of linkages among most of the different businesses they pursue.

Accepted Answer

Related corporate diversification refers to the diversification of a firm into businesses that have some type of connection or similarity among them. This may be achieved through shared technologies, common customers, or complementary products or services. Therefore, firms pursuing a related corporate diversification strategy usually have linkages among their different businesses.

Question 2

When a firm operates in multiple industries simultaneously it is said to be implementing a geographic market diversification strategy.

Accepted Answer

Geographic market diversification refers to operating in multiple geographic locations or regions, not necessarily multiple industries.

Question 3

A firm that diversifies by exploiting its resources and capability advantages in its original business will have higher costs than firms that begin new business without these revenues and capability advantages or lower revenues than firms lacking these advantages, or both.

Accepted Answer

A firm that diversifies by leveraging its existing resources and capabilities is likely to have lower costs and potentially higher revenues compared to firms that lack these advantages, as it can capitalize on its established strengths and efficiencies.

Question 4

Firms that may appear to be unrelated diversified firms, but that are, in fact, related diversified firms without any shared activities are referred to as seemingly related firms.

Accepted Answer

Seemingly related diversified firms do not have any related activities or common linkages between their businesses, while related diversified firms do have such linkages. Therefore, seemingly related firms are actually unrelated.

Question 5

One of the limits of activity sharing is that sharing activities may limit the ability of a particular business to meet its specific customers' needs.

Accepted Answer

Sharing activities may lead to a standardization of processes and services that may not necessarily cater to the specific needs of certain customers.

Question 6

A firm has implemented a strategy of limited corporate diversification when all or most of its business activities fall within a single industry and geographic market.

Accepted Answer

Limited corporate diversification refers to a strategy where a firm operates within a single industry and geographic market, or in closely related industries within a single geographic market. Therefore, the statement is true.

Question 7

If the different businesses that a single firm pursues are linked on only a couple of dimensions, or if different sets of businesses are linked along very different dimensions, that corporate diversification strategy is called related-linked diversification.

Accepted Answer

Related-linked diversification is a type of corporate diversification strategy in which different businesses pursued by a single firm are linked on only a couple of dimensions or if different sets of businesses are linked along very different dimensions. This means that these businesses have some relatedness, but not to the degree of being fully integrated or having significant synergies between them.

Question 8

Core competencies are complex sets of resources and capabilities that link different businesses in a diversified firm through managerial and technical know-how, experience, and wisdom.

Accepted Answer

This is the correct definition of core competencies.

Question 9

Shared activities can increase the revenues in diversified firms' businesses, and failure to exploit shared activities across businesses can lead to out-of-control costs.

Accepted Answer

Shared activities such as marketing, research and development, and distribution can lead to cost savings and increased revenue in diversified firms' businesses. Failure to exploit these shared activities can result in duplicated efforts, inefficiencies, and increased costs. Therefore, it is crucial for diversified firms to leverage their shared activities to achieve economies of scale and scope.

Question 10

Shared activities that can provide the basis for operational economies of scope are quite common among related-constrained and related-linked diversified firms, as well as firms following an unrelated diversification strategy.

Accepted Answer

Shared activities are more common in related-constrained and related-linked diversified firms, as they leverage operational synergies, whereas unrelated diversification typically lacks such shared operational activities.

Question 11

A dominant-business firm is pursuing a related diversification strategy and has between 70 and 95 percent of firm revenues from a single business.

Accepted Answer

A dominant-business firm derives between 70 and 95 percent of its revenues from a single business, but this does not necessarily mean it is pursuing a related diversification strategy. Related diversification involves expanding into businesses that are related to the firm's existing operations.

Question 12

Currently, most scholars believe that when a firm implements a corporate diversification strategy it destroys about 25% of its market value.

Accepted Answer

Most scholars do not universally agree that corporate diversification destroys market value; the impact varies based on factors like industry, execution, and market conditions.

Question 13

A firm implements a corporate diversification strategy when it operates in multiple industries or markets simultaneously.

Accepted Answer

A corporate diversification strategy involves operating in multiple industries or markets simultaneously, so the statement is true.

Question 14

In order for corporate diversification to be economically valuable there must either be some valuable economy of scope among the multiple businesses in which a firm is operating or it must be less costly for managers in a firm to realize these economies of scope than for an outside equity holder on his or her own.

Accepted Answer

The answer of In order for corporate diversification to be...

Question 15

If all the businesses in which a firm operates share a significant number of inputs, production technologies, distribution channels, similar customers, and so forth, this corporate diversification strategy is called related-constrained diversification.

Accepted Answer

Related-constrained diversification refers to the situation where the businesses in which a firm operates share several commonalities such as inputs, production technologies, distribution channels, customers, and so on. This strategy is also called related-linked or related-vertical diversification.

Question 16

When a firm operates in multiple geographic markets simultaneously it is said to be implementing a product diversification strategy.

Accepted Answer

A product diversification strategy involves expanding the range of products or services offered, not the geographic markets in which a firm operates. Operating in multiple geographic markets is known as a geographic diversification strategy.

Question 17

When less than 90 percent of a firm's revenues are generated in a single product market and when a firm's business share few, if any, common attributes, then that firm is pursuing a strategy of unrelated corporate diversification.

Accepted Answer

The answer of When less than 90 percent of a...

Question 18

Economies of scope exist in a firm when the value of the products or services it sells increase as a function of the number of businesses in which the firm operates.

Accepted Answer

Economies of scope occur when a company can produce goods or services at a lower cost by leveraging shared resources or jointly using their capabilities between various businesses. As a result, the value of the products or services sold can increase as the firm operates in multiple businesses simultaneously.

Question 19

Shared activities can increase the expenses for a diversified firm's business.

Accepted Answer

The answer of Shared activities can increase the expenses for...

Question 20

Over the last decade, more and more diversified firms have been abandoning efforts at managing each business's activities independently in favor of increased activity sharing.

Accepted Answer

The answer of Over the last decade, more and more...

Quiz 7: Corporate Diversification