Exam 1: Chapter 6- Corporate Level Strategy

Question 1

Corporate advantage

Answer 1

occurs when a firm maximizes its resources to build a competitive advantage across its business units

Question 2

Diversification

Answer 2

A strategy in which a firm engages in several different businesses that may or may not be related in an attempt to create more value than if the businesses existed as stand-alone entities

Question 3

Single-product strategy

Answer 3

a strategy in which a firm focuses on one specific product, typically in one market

Question 4

Related diversification

Answer 4

a firm that own more than one business that uses a similar set of tangible and intangible resources

Question 5

Unrelated diversification

Answer 5

a firm that manages several businesses with no reasonable connection

Question 6

Horizontal diversification

Answer 6

another name for related diversification where a firm pursues businesses that share a similar set of tangible and intangible resources

Question 7

Economies of scope

Answer 7

exist when the costs of operating two or more businesses or producing two or more products with the same corporate structure is less than the costs of operating the businesses independently or producing each product separately

Question 8

Managers diversify their organizations for several reasons

Answer 8

1) the opportunity to leverage core assests or skills between different businesses
2) the opportunity for growth
3) the potential to manage or minimize risk
4) the potential for personal gain

Question 9

synergy

Answer 9

created when a firm generates sustainable cost savings by combining duplicate activities or deploying underutilized assets across multiple businesses

Question 10

Related diversification expanded

Answer 10

often involves firms that pursue economies of scope through the sharing of resources or capabilities

Question 11

Market Power

Answer 11

achieved when a firm attempts to increase the price at which it sells products to levels above the normal price seen in the market

Question 12

Transferring skills leads to competitive advantage if the similarities among businesses meet the following three conditions:

Answer 12

1) The activities involved in the business are similar enough that sharing expertise is meaningful
2) the transfer of skills involves activities important to competitive advantage
3) the skills transferred represent a significant source of competitive advantage for receiving unit

Question 13

Financial economies

Answer 13

cost saving that a firm achieves through the distribution of capital among business units

Question 14

The Diversification Test

Answer 14

• Attractiveness Test
• Cost of Entry Test
• Better-Off Test

Question 15

International Scope Test

Answer 15

Considers two familiar components:

• “Better off Test”
• “Ownership Test”

Question 16

Better Off Test

Answer 16

Will a global presence improve a firm’s competitive advantage over and above what it could achieve on its own?

Question 17

Ownership Test

Answer 17

Does owning a global business unit provide the best alternative to sustaining or achieving a competitive advantage?

Question 18

Factor Cost Differences

Answer 18

cost savings achieved by access to raw materials or other factors such as low-cost labor

Question 19

Vertical Integration

Answer 19

occurs when one corporation owns business units that make inputs for other business units in the same corporation

Question 20

Backward integration

Answer 20

occurs when a firm owns or controls the inputs it uses

Question 21

Forward Integration

Answer 21

occurs when a firm owns or controls the customer or distribution channels for its main products

Question 22

Administrative costs

Answer 22

the costs of coordinating activities between business units

Question 23

Transaction costs

Answer 23

costs to obtain products or services from a contractor or supplier as well as the costs associated with writing and administering the contracts for these products and services

Question 24

Alternatives to Vertical Intergration

Answer 24

Spot Contracts

Outsourcing

Question 25

Spot Contracts

Answer 25

contracts that allow a buyer to purchase a commodity at a specific price

Question 26

Outsourcing

Answer 26

Contracting with a firm outside the corporation to perform certain tasks or functions that the corporation used to do on its own