Comp strat Ch 9

Question 1

What is horizontal integration?

Answer 1

Acquiring or merging with industry competitors.

This is to get the compeittivoe advantage from being a very large company with big scope of operations

Question 2

What’s the difference between an acquisition and a merger?

Answer 2

An acquisition is when a company uses capital resources to purchase another company, whereas a merger is an agreement to pool resources and operations to better compete together.

Question 3

What are 5 benefits to horizontal integration?

Answer 3

1. Lower cost structure
2. Increased product differentiation
3. Broad competitive advantage
4. Reduces rivalry within industry
5. Increases bargaining power over suppliers and buyers

Question 4

How does product bundling increase product differentiation in a horizontal integration?

Answer 4

It lets you offer bundles of products from lines in your merged companies

Question 5

How does cross selling increase product differentiation in a horizontal integration?

Answer 5

You can cross sell to established customers different products as a total solution from your merged companies that will saitsify all a customesr specific needs

Question 6

What is vertical integration?

Answer 6

So this is when you expand forward vertical integration which is when you sell your product such as bean farmers opening a cafe

Backwards vertical integration is when you produce inputs for company products, so cafe becoming farmers now

Question 7

What 3 things allows a company to increase diffeernetaiont, lower costs, etc when vertically integrating?

Answer 7

1. When it facilitates investments in efficiency enhancing specialized assets
2. Protects product quality
3. Results in improved scheduling

Question 8

What is it called when a company is taken advantage of by another company it does busines swith after it has made an investment in expensive speicalized assets to better neet the needs of the other company?

Answer 8

Holdup

Question 9

What is a tapered integration?

Answer 9

So this is tactic to avoid holdup, by doing a bit of vertical integration AND market transactions.

So if your making some of your inputs, then it makes it harder for a company to holdup you and screw you over because you aren’t totally reliant on them and can better judge quality and cost of their product

Question 10

What are the 3 problems with vertical integration?

Answer 10

1. Increasing cost structure
2. Disadvantages arise when technolog is changing fast
3. Also arise when demand is unpredictable

Question 11

What is vertical disintegration?

Answer 11

Well like it sounds, when a company exits industries either forward or backward in industry value chain to its core industry to increase profitbaility

Question 12

What is transfer pricing?

Answer 12

So if you are vertically integrated to make parts for say a car, then maybe the car assembler needs to buy them from the part maker department within the same company. This is called transfer pricing

Question 13

What’s Quasi integration?

Answer 13

This is when you use some long-term relationships or investment into some of the activities normally performed by suppliers or buyers, in place of full owernersip of operations that are backwardd or forward in the supply chain

Question 14

What are strategic alliances?

Answer 14

Long-term agreements between two or more companies to jointly develop new products or processes that benefit all companies that are a part of the agreement

Question 15

What is hostage taking?

Answer 15

This is when you both exchange something of value such as secret recipes or something to ensure each will keep their side of the bargain

Question 16

What is Credible Commitment?

Answer 16

This is when you have a believable promise or pledge to support the development of a long-term relationship between companies

Question 17

What is maintaining market discipline?

Answer 17

This is when you need to make sure that your suppliers and whatnot stay up to a standard

Question 18

What is parallel sourcing policy?

Answer 18

To help with maintaining market discipline, you can make a policy which ensure long-term contracts with at least two suppliers for the same component to prevent any problems of opportunism

Question 19

What is a virtual corporation?

Answer 19

This is when companies outsource so much of their day to day work, that they literally only actually do the central value creation functions that lead to a competitive advnatage

Question 20

What are the 3 benefits to outsourcing?

Answer 20

1. Lower cost structure
2. Increase product differentiation
3. Focus on distinctive competencies that are vital to long-term competitive advantage and profitability

Question 21

What are the risks to outsourcing?

Answer 21

1. holdup
2. increased competition
3. loss of information and forfeited learning opportunities

Question 22

What should a corporate level strategy focus on doing?

Answer 22

A corporate strategy should really focus on enabling a company to perform one or more of its value creation functions at a lower cost or in a way that allows for differentiation and a premium price

Question 23

What are the two major drawbacks with horizontal integration?

Answer 23

1. numerous pitfalls with mergers and acquisitions

2. Fact that the scraggy can bring a company into direct conflict with antitrust authorities

Question 24

What is the principle goal of corporate level strategy?

Answer 24

Sustain comp advantage and profitability in present business and new businesses which it chooses to enter

Question 25

What is difference between corporate level strategy and business level strategy?

Answer 25

Corporate is focused on the entire organization. So look at Disney, the overall company has parks, Espn, etc all very different and each as own business level strategy. Corporate is disneys overall strategy that encompasses all these business. Units

Question 26

What are 4 key corporate strategy questions?

Answer 26

What businesses should they compete in? How should they enter, consolidate, or exit the business be when? What activities should they perform to create value? How should they be managed?

Question 27

What is corporate scope?

Answer 27

So this says what markets the company has a presence in. So the scope increase when you go into new markets

Question 28

What is the better off test?

Answer 28

When the scope of a company brings it into a new market. Will that market be better off with improved comp advantage of other business units

Question 29

What is the ownership test?

Answer 29

If you own the businesses, does this give more of a competitive advantage than alternative arrangement such as a long term contract

Question 30

How does horizontal Integration increase value proposition?

Answer 30

Increase capabilities and attribute of products by using your new companies skills as giving more offerings and broader range of products. Such as dell cross selling and bundling when partner with emc

Question 31

For McCain, producing vegetables and transportation are example ple of what?

Answer 31

Producing vegetables are backyard integration to turn into food, and transportation is forward integration to ship that food out.

Question 32

What are the transaction costs that you can save by vertically integrating ?

Answer 32

Search costs Negotiating costs Enforcement costs Monitoring costs Costs of writing the contract Investment in specialized assets

Question 33

Why is investment in specialized assets a transaction cost?

Answer 33

The service you're getting and product will need to be additionally specialized in order for it to work for your company. Might have to install new equipment for Ashley to agree to get a new shipper for example, and the drivers would need to be Ashley ambassadors and whatnot. The new company would need to invest in specialized assets, and this would cost the company, and actually that new company might not even do it. So vertical integration fixes this because the firm can make the investments in assets to ensure service and product that is up to their standards and unique needs. Going with another company when they need to invest in specialized assets also really opens you up to a holdup