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Strategic Management > Chapter 7 - Test 3 > Flashcards

Chapter 7 - Test 3 Flashcards

1
Q

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

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2
Q

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

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3
Q

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

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4
Q

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.

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5
Q

The analysis of limited corporate diversification is logically equivalent to the analysis of business-level strategies.

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6
Q

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

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7
Q

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.

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8
Q

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.

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9
Q

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.

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10
Q

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.

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11
Q

In order for corporate diversification to be economically viable 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.

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12
Q

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

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13
Q

Operational economies of scope include shared activities and risk reduction.

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14
Q

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.

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15
Q

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.

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16
Q

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.

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17
Q

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.

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18
Q

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.

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19
Q

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.

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20
Q

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.

A

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21
Q

A firm’s dominant logic is a common way of thinking about strategy across different businesses

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22
Q

For an internal capital market to create value for a diversified firm, it must offer some efficiency advantages over an external capital market.

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23
Q

The businesses within a diversified firm always gain cost-of-capital advantages by being part of a diversified firm’s portfolio.

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24
Q

Multipoint competition exists when two or more diversified firms simultaneously compete in multiple markets, and multipoint competition can serve to facilitate a particular type of tacit collusion called mutual forbearance.

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25
Q

Predatory pricing is a type of cross-subsidization in which a firm uses revenues from other businesses to set its prices in a particular business so that the prices are substantially more than the subsidized business’s costs.

A

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26
Q

Both shared activities and internal capital allocation are examples of economies of scope that have the potential for generating positive returns for a firm’s equity holders.

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27
Q

Overall, related diversification is less likely to be consistent with the interests of a firm’s equity holders than is unrelated diversification.

A

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28
Q

The only two economies of scope that do not have the potential for generating positive returns for a firm’s equity holders are diversification in order to maximize the size of a firm and diversification to reduce risk.

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29
Q

Diversification per se is usually not a rare firm strategy regardless of how rare the particular economies of scope associated with that diversification are.

A

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30
Q

A firm’s stakeholders include all of those groups or individuals who have an interest in how a firm performs.

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31
Q

Core competencies and multipoint competition are usually costly-to-duplicate bases for corporate diversification.

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32
Q

Shared activities and risk reduction are usually difficult-to-duplicate bases for corporate diversification, but tax advantages and employee compensation are usually relatively easy to duplicate.

A

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33
Q

Strategic alliances are generally viewed as a poor substitute for diversification since the economies of scope in diversification can be found in strategic alliances.

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34
Q

One substitute for diversification that exists is that instead of obtaining cost or revenue advantages from exploiting economies of scope across businesses in a diversified firm, a firm may decide to simply grow and develop each of its businesses separately.

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35
Q

Core competencies are an example of a costly-to-duplicate economies of scope.

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36
Q

Exploiting market power is an example of a costly-to-duplicate economies of scope.

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37
Q

Employee compensation is an example of a costly-to-duplicate economies of scope.

A

f

38
Q

Internal capital allocation is an example of a less costly-to-duplicate economies of scope.

A

f

39
Q

Shared activities, risk reduction, tax advantages, and employee compensation as bases for corporate diversification are usually relatively easy to duplicate.

A

t

40
Q

Multipoint competition requires loose coordination between the different businesses in which a firm operates.

A

f

41
Q 
A firm implements a \_\_\_\_\_\_\_\_ when it operates in multiple industries or markets simultaneously.
A) vertical integration strategy
B) corporate diversification strategy
C) business diversification strategy
D) product-differentiation strategy
A

b

42
Q

When a firm operates in multiple industries simultaneously, it is said to be implementing a
A) product diversification strategy.
B) product-differentiation strategy.
C) geographic market diversification strategy.
D) geographic market differentiation strategy.

A

a

43
Q

When a firm operates in multiple geographic markets simultaneously it is said to be implementing a(n)
A) international diversification strategy.
B) product-differentiation strategy.
C) geographic market diversification strategy.
D) geographic market differentiation strategy

A

c

44
Q

When a firm implements both a product diversification strategy and a geographic market diversification strategy it is said to be implementing a(n)
A) mixed-market diversification strategy.
B) unrelated-diversification strategy.
C) product-differentiation strategy.
D) product-market diversification strategy.

A

d

45
Q 
A firm has implemented a strategy of \_\_\_\_\_\_\_\_ when all or most of its activities fall within a single industry and geographic market.
A) limited corporate diversification
B) related diversification
C) unrelated diversification
D) related-linked diversification
A

a

46
Q 
In which type of limited corporate diversification do firms have greater than 95% of their total sales in a single product market?
A) Dominant-business firms
B) Single-business firms
C) Related-constrained firms
D) Related-linked firms
A

b

47
Q 
Firms pursuing \_\_\_\_\_\_\_\_ have between 70% and 95% of their sales in a single product market.
A) dominant-business diversification
B) single-business diversification
C) related-constrained diversification
D) related-linked diversification
A

a

48
Q 
The analysis of firms pursuing a strategy of \_\_\_\_\_\_\_\_ is logically equivalent to the analysis of business-level strategies.
A) unrelated diversification
B) related-linked diversification
C) related-constrained diversification
D) limited corporate diversification
A

d

49
Q 
Firms such as PepsiCo that operate a number of businesses around the world that share a number of inputs, production technologies, or distribution channels but none of whose businesses account for more than 70% of a firm's revenues are said to be implementing a
A) related-constrained diversification.
B) related-linked diversification.
C) dominant-business diversification.
D) single-business diversification.
A

a

50
Q 
Firms such as Disney that own and operate businesses that share a limited number of inputs, production technologies or distribution channels are said to be pursuing a \_\_\_\_\_\_\_\_ corporate diversification strategy.
A) related-constrained
B) related-linked
C) dominant-business
D) single-business
A

b

51
Q 
Firms such as General Electric that generate less than 70% of their revenues from a single product market and whose businesses share few, if any, common attributes are said to be pursuing \_\_\_\_\_\_\_\_ corporate diversification.
A) limited
B) related-linked
C) related-constrained
D) unrelated
A

d

52
Q

In order for corporate diversification to be economically valuable
A) there must be some valuable economy of scope among the multiple businesses in which a firm is operating and it must be more costly for managers in a firm to realize these economies of scope than for outside equity holders on their own.
B) there must not be any valuable economy of scope among the multiple businesses in which a firm is operating and it must be less costly for managers in a firm to realize these economies of scope than for outside equity holders on their own.
C) there must be some valuable economy of scope among the multiple businesses in which a firm is operating and it must be less costly for managers in a firm to realize these economies of scope than for outside equity holders on their own.
D) there must not be any valuable economy of scope among the multiple businesses in which a firm is operating and it must be more costly for managers in a firm to realize these economies of scope than for outside equity holders on their own.

A

c

53
Q 
When the value of the products or services a firm sells increases as a function of the number of business that the firm operates in, \_\_\_\_\_\_\_\_ are said to exist.
A) economies of scope
B) vertical economies
C) economies of scale
D) diseconomies of scope
A

a

54
Q

Which of the following statements regarding economies of scope is accurate?
A) Only firms pursuing single-business diversification can exploit economies of scope.
B) Only firms pursuing related-constrained diversification can exploit economies of scope.
C) Only firms not pursuing diversification can exploit economies of scope.
D) Only diversified firms can exploit economies of scope.

A

d

55
Q

Currently, most scholars believe that exploiting economies of scope through corporate diversification, on average,
A) destroyed about 25% of a firm’s market value.
B) had no impact on a firm’s market value.
C) destroyed about 55% of a firm’s market value.
D) increased a firm’s market value.

A

d

56
Q

Which type of economies of scope includes shared activities and core competencies?
A) Operational economies of scope
B) Financial economies of scope
C) Anticompetitive economies of scope
D) Employee and stakeholder incentives for diversification

A

a

57
Q 
If a diversified firm had three businesses and these companies shared a common marketing and service operation, as well as common technology and development, this would be an example of which type of economy of scope?
A) Core competencies
B) Shared activities
C) Risk reduction
D) Multipoint competition
A

b

58
Q 
Shared activities are quite common between both \_\_\_\_\_\_\_\_ and \_\_\_\_\_\_\_\_ diversified firms.
A) single-business; dominant-business
B) related-constrained; single-business
C) related-linked; dominant-business
D) related-constrained; related-linked
A

d

59
Q

Limits of activity sharing include
A) substantial organizational issues that are often associated with a diversified firm’s learning how to manage cross-business relationships and in which failure can lead to excess bureaucracy, inefficiency, and organizational gridlock.
B) a significant reduction in an organization’s innovation and flexibility.
C) substantial organizational issues related to adequately compensating personnel across businesses and setting transfer prices.
D) a significant reduction in an organization’s ability to meet the needs of any of its customers.

A

a

60
Q 
\_\_\_\_\_\_\_\_ are complex sets of resources and capabilities that link different businesses in a diversified firm through managerial and technical know-how, experience and wisdom.
A) Managerial competencies
B) Core competencies
C) Competitive advantages
D) Core advantages
A

b

61
Q 
A firm that diversifies by exploiting its resources and capability advantages in its original business will have \_\_\_\_\_\_\_\_ costs than (as) firms that begin a new business without these resource and capability advantages, or \_\_\_\_\_\_\_\_ revenues than (as) firms lacking these advantages.
A) higher; lower
B) the same; higher
C) lower; the same
D) lower; higher
A

d

62
Q 
If all of a firm's businesses share the same core competencies, then that firm has implemented a strategy of \_\_\_\_\_\_\_\_ diversification.
A) single-business
B) related-linked
C) related-constrained
D) dominant-business
A

c

63
Q 
Diversified firms that are exploiting core competencies as an economy of scope but are not doing so with any shared activities are sometimes called \_\_\_\_\_\_\_\_ diversified firms.
A) seemingly related
B) unrelated
C) semi-related
D) link-related
A

a

64
Q 
A common way of thinking about strategy across different businesses within a firm is known as the firm's
A) core competency.
B) competitive advantage.
C) economy of scope.
D) dominant logic.
A

d

65
Q 
In general, as a source of capital a diversified firm has \_\_\_\_\_\_\_\_ information about a business that it owns compared to external sources of capital.
A) more and better
B) the same
C) less and inferior
D) more but biased
A

a

66
Q 
Compared to two very risky businesses that have cash flows that are not highly correlated over time and that are operating separately, the risk of a diversified firm operating in those same two businesses simultaneously is
A) somewhat higher.
B) lower.
C) the same.
D) substantially higher.
A

b

67
Q 
\_\_\_\_\_\_\_\_ exists when two or more diversified firms simultaneously compete in multiple markets.
A) Multipoint competition
B) Dynamic competition
C) Multipoint cooperation
D) Dynamic cooperation
A

a

68
Q

For multipoint competition to lead to mutual forbearance,
A) the threat of retaliation must be substantial and the firms pursuing this strategy must have strong linkages among their diversified businesses.
B) the threat of retaliation must be low and the firms pursuing this strategy must have strong linkages among their diversified businesses.
C) the threat of retaliation must be low and the firms pursuing this strategy must have weak linkages among their diversified businesses.
D) the threat of retaliation must be substantial and the firms pursuing this strategy must have weak linkages among their diversified businesses.

A

a

69
Q 
When diversified firms use the revenues from profitable businesses to subsidize the operations of another business and then set the prices of the subsidized firm's products at a level that is below the subsidized business's cost to produce these items, this is known as \_\_\_\_\_\_\_\_ pricing.
A) dynamic
B) monopoly
C) predatory
D) beneficial
A

c

70
Q

Research over the years has demonstrated conclusively that the primary determinant of the compensation of top managers in a firm is
A) not the size of the firm, usually measured in sales, but the economic performance of the firm.
B) both the economic performance of the firm as well as the size of the firm, usually measured in sales.
C) not the economic performance of the firm but the size of the firm, usually measured in sales.
D) neither the economic performance of the firm nor the size of the firm.

A

c

71
Q

Which of the following economies of scope do not have the potential for generating positive returns for a firm’s equity holders since the economies of scope can be realized by outside equity holders at a low cost by investing in a diversified portfolio of stock?
A) Shared activities
B) Diversification to maximize the size of a firm
C) Internal capital allocation
D) Exploiting market power

A

b

72
Q 
The only economy of scope that an unrelated firm can try to realize is
A) core competencies.
B) tax advantages.
C) multipoint competition.
D) risk reduction.
A

d

73
Q 
Which of the following economies of scope is costly to duplicate?
A) Shared activities
B) Internal capital allocation
C) Risk reduction
D) Task advantages
A

b

74
Q 
Which of the following economies of scope is less costly to duplicate?
A) Employee compensation
B) Core competencies
C) Multipoint competition
D) Exploiting market power
A

a

75
Q

Substitutes for exploiting economies of scope in diversification include
A) growing and developing independent businesses within a diversified firm and vertical integration.
B) vertical integration and strategic alliances.
C) growing and developing independent businesses within a diversified firm and strategic alliances.
D) strategic alliances and multipoint competition.

A

c

76
Q

Which of the following statements regarding the rarity of diversification is accurate?
A) If only a few competing firms have exploited a particular economy of scope, that economy of scope can be rare.
B) A particular economy of scope can only be rare if no other firms are exploiting that economy of scope.
C) A particular economy of scope can be rare even if many other firms are exploiting that economy of scope.
D) If only a few competing firms have exploited a particular economy of scope, that economy of scope can be rare but only if the firm is pursuing unrelated diversification.

A

a

77
Q 
Which of the following is a less costly-to-duplicate economies of scope?
A) Core competencies
B) Internal capital allocation
C) Employee compensation
D) Exploiting market power
A

c

78
Q 
Which of the following is an example of a costly-to-duplicate economies of scope?
A) Employee compensation
B) Core competencies
C) Shared activities
D) Risk reduction
A

b

79
Q 
\_\_\_\_\_\_\_\_ is an example of a less costly-to-duplicate economies of scope.
A) Tax advantages
B) Core competencies
C) Internal capital allocation
D) Multipoint competition
A

a

80
Q 
\_\_\_\_\_\_\_\_ are substitutes for exploiting economies of scope in diversification.
A) Tax havens
B) Tax shelters
C) Tax freedom
D) Strategic alliances
A

d

81
Q 
In 2001, Peach Computers' diversification strategy was best characterized as
A) related-linked diversification.
B) dominant-business diversification.
C) single-business diversification.
D) related-constrained diversification.
A

c

82
Q 
By 2003, Peach Computers' diversification strategy was best characterized as
A) unrelated diversification.
B) related-constrained diversification.
C) related-linked diversification.
D) dominant-business diversification.
A

b

83
Q 
Which type of economies of scope is Peach Computers experiencing between its units?
A) Shared activities
B) Core competencies
C) Multipoint competition
D) Tax advantages
A

a

84
Q

One of the limits of the economies of scope that Peach Computers is leveraging in its diversification strategy is
A) they may limit the ability of a particular business to meet specific customers’ needs.
B) they are significantly affected by the way a diversified firm is organized.
C) they are not tangible and may be reflected only in the shared knowledge, experience and wisdom across businesses.
D) the level and type of diversification that a firm pursues can affect the efficiency of this allocation process.

A

a

85
Q 
If one of the reasons that Peach Computers entered into the electronics industry was to offset weakness in the computer industry because when the computer industry was weak the electronics industry was strong, and vice-a-versa, Peach Computers would be pursuing which economy of scope?
A) Core competencies
B) Multipoint competition
C) Tax advantages
D) Risk reduction
A

d

86
Q 
If, when Peach Computers introduced its PeachPit in 2001, the company used its profits in the computer industry to subsidize its operations in the electronics industry and used this subsidy to sell the PeachPit for a price that was less than the cost of producing and selling the MP3 players, this would be an example of
A) mutual forbearance.
B) escalation of commitment.
C) predatory pricing.
D) multipoint competition
A

c

87
Q 
Peach Computers' equity holders, its employees, suppliers and customers along with all of those groups and individuals who have an interest in how Peach Computers performs are referred to as
A) focal groups.
B) stakeholders.
C) supporters.
D) stockholders.
A

b

88
Q 
If no other firm in the computer industry were using a diversification strategy similar to Peach Computers', this diversification strategy could be said to be
A) rare and costly to duplicate.
B) rare and less costly to duplicate.
C) common but costly to duplicate.
D) common and less costly to duplicate.
A

a

89
Q 
In 2001, if Peach Computers did not want to employ a diversification strategy to enter the personal electronics industry, it could use which substitute for diversification?
A) Backward vertical integration
B) Product differentiation
C) Strategic alliances
D) Forward vertical integration
A

c

90
Q 
If Peach Computers were looking to getting into the business of making telephones, its diversification would be called
A) related-linked.
B) related-constrained.
C) related-corporate.
D) unrelated.
A

d

Strategic Management (5 decks)

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