Topic 2

Question 1

These are strategies aimed at combining resources to maximize profits and reduce costs. Included in this type of strategies are forward integration, backward integration and horizontal integration.

Answer 1

Integration Strategies

Question 2

This pertains to gaining ownership or increased control of a firm’s distributors or retailer.

Answer 2

Forward integration

Question 3

This strategy is aimed at ______ ______ by eliminating ________ ______ ______ Under this scheme, the company that integrates forward may reach the customers faster by putting up its own distribution networks.

Answer 3

reducing costs

external distribution outlets

Question 4

An example of a company which pursued this strategy would be San Miguel Corporation which set up stand- alone Monterey Meat Shops to sell these products.

Answer 4

Forward Integration

Question 5

This strategy may be used when:
° Present distributors are expensive, unreliable, or incapable of meeting firm’s needs
° Availability of quality distributors is limited
°When firm competes in an industry that is expected to grow markedly
°Advantages of stable production are high
° Present distributor have high profit margins

Answer 5

Forward Integration

Question 6

gaining ownership or increased control of a firm’s suppliers.

Answer 6

Backward integration

Question 7

An example of a company which used this strategy is Del Monte Philippines which put up its own pineapple farms in Bukidnon to grow its own pineapples for its canning business. With the pineapple farm, Del Monte was able to control the quality of its inputs as well as guarantee the supply of the right quantity of inputs at lower prices.

Answer 7

Backward Integration

Question 8

This strategy is effective when:
• Present suppliers are expensive, unreliable, or incapable of meeting needs
•Number of suppliers is small and number of competitors large
•High growth in industry sector
•Firm has both capital and human resources to manage new business
•Advantages of stable prices are important
•Present supplies have high profit margins

Answer 8

Backward Integration

Question 9

This strategy is seeking ownership orcontrol over competitors. This is sought after by companies desiring to reduce competition by buying out competitors.

Answer 9

Horizontal Integration

Question 10

It is common in the banking business in the Philippines with the increase in capital requirements imposed by the Bangko Sentral ng Pilipinas. Examples of these banks are Chinabank and BDO, and Far East Bank and BPI.

Answer 10

Backward Integration

Question 11

•Firm can gain monopolistic characteristics without being challenged by the government

•Firm competes in a growing industry

•Increased economies of scale provide major competitive advantages

•Faltering/losing due to lack of managerial expertise or need for particular resources

Answer 11

Horizontal Integration

Question 12

These strategies aim at increasing or deepening involvement in a chosen market to generate maximum returns from it.

Answer 12

Intensive Strategies

Question 13

Options include product development, market development, and market penetration.

Answer 13

Intensive Strategies

Question 14

This development is seeking increased sales by improving present
products or services or developing new ones to existing market. Many growing companies usually manifest growth with additional products brought forth to the market.

Answer 14

Product development

Question 15

_______ ________ is usually done when a company sees opportunities to maximize sales in a particular market segment. Happy Skin, a Filipino cosmetic brand, recently introduced additional lip products such as the Lip Mallow with several color variants to cater to different moods of the Filipina. These lip tints add to the wide array of make up products offered to the same market, that is, women.

Answer 15

Product Development

Question 16

Guidelines for pursuing product development are as follows:
Products in maturity stage of life cycle

Competes in industry characterized by rapid technological developments

Major competitors offer better-quality products at comparable prices

Compete in high-growth industry

Strong research and development capabilities

Answer 16

Product Development

Question 17

This pertains to introducing present product to new geographic area. The term “market” here refers to a geographical market or location.

Answer 17

Market Development

Question 18

Market Development

The term “market” here refers to a geographical market or location. Market development is accomplished by bringing a company’s products to a different location either in a different region, country or continent, but characteristics of the customers are essentially the same.

The statement above describes Market development, is it true or false?

Answer 18

True

Question 19

Market Development
This strategy is among the ______. ________ Companies popular for their market development activities include Starbucks, Jollibee, McDonalds and Coca-Cola.

Answer 19

gorwth strategies

Question 20

Consider these guidelines when pursuing market development:
• New channels of distribution that are reliable, inexpensive, and good quality

•Firm is very successful at what it does

•Untapped or unsaturated markets

•Capital and human resources necessary to manage expanded operations

•Excess production capacity
Basic industry rapidly becoming global

Answer 20

Market Development

Question 21

This pertains to seeking increase in market share for present products in
present market through greater marketing efforts.

Answer 21

Market penetration

Question 22

This strategy is usually accomplished by increasing promotional activities, advertising efforts and public relations. With the use of this strategy, users are encouraged to increase ______ _______ , _______ _______ and______ ______

Answer 22

usage rate, usage frequency and usage volume.

Question 23

When companies provide freebies to established brands, customers usually tend to ____ _____ from these companies. Just recently, to push car units to the market, Toyota offers discounts and easier financing terms to buyers. Likewise, Mac, the popular make up brand in the US, gives free full sized lipstick for customers who will purchase selected products during the celebration of their National Lipstick Day.

Answer 23

buy more

Question 24

Guidelines for pursuing market penetration are as follows:

Current markets not saturated

Usage rate of present customers can be increased significantly

Market shares of competitors declining while total industry sales increasing

Increased economies of scale provide major competitive advantages

Answer 24

Market Penetration

Question 25

This means to expand a company's operations. Diversification strategies focus on expanding either into related or unrelated markets to pursue growth.

Answer 25

Diversification Strategy

Question 26

concentric diversification, conglomerate diversification and horizontal diversification. These are examples of

Answer 26

Diversification Strategies

Question 27

It refers to adding new but related products or services. This is sometimes referred to as Related Diversification because the company adds businesses or products that are related to its current businesses.

Answer 27

Concentric Diversification

Question 28

Concentric diversified firms choose this strategy when they have core competencies in a particular business. True or False

Answer 28

True

Question 29

A ______ _________is a resource or capability that is considered to be an advantage of a company over others. It is something a company is extremely good at, so that it may be used by the company in exploring other related businesses.

Answer 29

core competency

Question 30

Concentric diversification is used when: Company competes in no- or slow-growth industry Adding new & related products increases sales of current products New & related products may be offered at competitive prices Current products are in decline stage of the product life cycle Company has strong management team

Question 31

This refers to adding new unrelated products or services. Many of the diversified firms now are into this type of expansion. Sometimes called UNRELATED DIVERSIFICATION, this strategy is accomplished by putting up or acquiring businesses that are not related to a company's core competencies.

Answer 31

Conglomerate diversification

Question 32

However, many of these companies are tied together by their financial resources.

Answer 32

Conglomerate Diversification

Question 33

Conglomerate diversificationis pursued under any of the following conditions: Declining annual sales and profits Capital and managerial talent to compete successfully in a new industry Financial synergy between the acquired and acquiring firms Exiting markets for present products are saturated

Answer 33

Conglomerate Diversification

Question 34

This pertains to adding new unrelated products or services for present customers. This is pursued when existing customers can maximize their benefit from the additional products, such as when new products or services complement the existing products or services. A hotel that offers spa services in addition to lodging services is an example of horizontal diversification.

Answer 34

Horizontal diversification

Question 35

A hotel that offers spa services in addition to lodging services is an example of horizontal diversification. True or False

Answer 35

True

Question 36

Conditions considered when pursuing horizontal diversification are as follows: Revenues from current products/services would increase significantly by adding the new unrelated products Highly competitive and/or no-growth industry w/low margins and returns Present distribution channels can be used to market new products to current customers New products have counter cyclical sales patterns compared to existing products

Answer 36

Horizontal diversification

Question 37

These strategies are sought after when the company finds it DIFFICULT TO COPE with reduction in sales and market share. Thus, a company develops these strategies to defend against competitors, keep or retain position in the market or protect against losses.

Answer 37

Defensive Strategies

Question 38

Among the strategies classified as defensive are joint venture, retrenchment, divestiture, and liquidation.

Answer 38

Defensive Strategies

Question 39

two or more sponsoring firms forming a separate organization for cooperative purposes.

Answer 39

Joint Venture

Question 40

A joint venture may be formed between two companies of equal size or two companies with different sizes and capacities. True or False?

Answer 40

True

Question 41

Sometimes, a new company joins a strong and established company to take advantage of the expertise and technology of the latter.

Answer 41

Joint Venture

Question 42

The following are considerations for adopting a joint venture: A privately owned organization forms one with a public organization. A domestic organization works with a foeign company. The distinct competencies of the firms complement each other especially well. Some project is potentially profitable but requires much risk. Two or more smaller firms wish to compete against a larger firm. There is a need to introduce a new technology quickly.

Question 43

regrouping through cost and asset reduction to reverse declining sales and profit.

Answer 43

Retrenchment

Question 44

This strategy is sometimes called REORGANIZATION OR DOWNSIZING. It is not synonymous to laying off people but often results to layoffs because assets are sold or repurposed.

Answer 44

Retrenchment

Question 45

With the global problems related to oil, retrenchment is a popular strategy for most _____ _____.

Answer 45

oil companies

Question 46

Retrenchment is effective under the following conditions: Firm has failed to meet its objectives and goals consistently over time but has distinctive competencies Firm is one of the weaker competitors Inefficiency, low profitability, poor employee morale, and pressure from stockholders to improve performance. When an organization’s strategic managers have failed Very quick growth to large organization where a major internal reorganization is needed.

Answer 46

Retrenchment

Question 47

selling a division or part of an organization. This strategy is done to add liquidity to a corporation. By selling a part of the organization to another company, funds may be generated to support losses in the remaining businesses.

Answer 47

Divestiture

Question 48

Divestiture is done only when ____ ____ __ _______ ______ as options.

Answer 48

Joint venture and retrenchment failed

Question 49

It may be accomplished by selling significant _____ in a company or by selling a whole ______ or subsidiary.

Answer 49

Shares division

Question 50

An example of a company selling its shares is PLDT who divested its shares in Meralco Corporation. An example of a company selling a whole division is San Miguel Corporation which sold back Coca Cola to its mother company.

Answer 50

Divestiture example

Question 51

This strategy works best: When firm has pursued retrenchment but failed to attain needed improvements When a division needs more resources than the firm can provide When a division is responsible for the firm’s overall poor performance When a division is a misfit with the organization When a large amount of cash is needed and cannot be obtained from other sources.

Answer 51

Divestiture

Question 52

selling all of a company’s assets, in parts, for their tangible worth. Obviously, this strategy may be considered the last resort of companies.

Answer 52

Liquidation

Question 53

It is done only when all other defensive strategies did not work for the company.

Answer 53

Liquidation

Question 54

This strategy is done: When both retrenchment and divestiture have been pursued unsuccessfully If the only alternative is bankruptcy, liquidation is an orderly alternative When stockholders can minimize their losses by selling the firm’s assets

Answer 54

Liquidation

Question 55

A company in the process of strategy formulation may consider any one or a combination of these strategies based on the relative combination of factors resulting from the environmental scanning performed. True or False

Answer 55

True

Question 56

Strengths and weaknesses may be combined with opportunities and threats to identify appropriate strategies that may be employed. True or False

Answer 56

True