Crafting And Executing Strategy The Quest Concepts and Cases 20th Edition – Test Bank A+

$35.00
Crafting And Executing Strategy The Quest Concepts and Cases 20th Edition – Test Bank A+

Crafting And Executing Strategy The Quest Concepts and Cases 20th Edition – Test Bank A+

$35.00
Crafting And Executing Strategy The Quest Concepts and Cases 20th Edition – Test Bank A+

Sometimes it makes sense for a company to go on the offensive to improve its market position and business performance. The best offensives tend to incorporate the following EXCEPT:

A.focusing relentlessly on building a competitive advantage.

B.applying resources where rivals are least able to defend themselves.

C.using a strategic offense to allow the company to leverage its weaknesses to strengthen operating vulnerabilities.

D.employing the elements of surprise as opposed to doing what rivals expect and are prepared for.

E.displaying a strong bias for swift, decisive, and overwhelming actions to overpower rivals.

2.Once a company has decided to employ a particular generic competitive strategy, then it must make the following additional strategic choices, EXCEPT whether to:

A.focus on building competitive advantages.

B.employ the element of surprise as opposed to doing what rivals expect and are prepared for.

C.display a strong bias for swift, decisive, and overwhelming actions to overpower rivals.

D.create and deploy company resources to cause rivals to defend themselves.

E.pay special attention to buyer segments that a rival is already serving.

3.Which of the following is NOT a strategic choice that a company must make to complement and supplement its choice of one of the five generic competitive strategies?

A.Whether to focus on building competitive advantages

B.Whether to employ the element of surprise as opposed to doing what rivals expect and are prepared for

C.Whether to employ a market share leadership strategy

D.Whether to display a strong bias for swift, decisive, and overwhelming actions to overpower

E.Whether to create and deploy company resources to cause rivals to defend themselves

4.Strategic offensives should, as a general rule, be based on:

A.exploiting a company’s strongest competitive assets—its most valuable resources and capabilities.

B.instigating and executing the chosen strategy efficiently and effectively.

C.scoping and scaling an organization’s internal and external situation.

D.molding an organization’s character and identity.

E.satisfying the buyer’s needs that the company seeks to meet.

5.The principal offensive strategy options include all of the following EXCEPT:

A.using a cost advantage to attack competitors on the basis of lower price or better product value.

B.using hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent or distracted rivals.

C.launching a preemptive strike to secure an advantageous position that rivals are prevented or discouraged from duplicating.

D.pursuing continuous product innovation to draw sales and market share away from less innovative rivals.

E.initiating a market threat and counterattack simultaneously to effect a distraction.

6.Which of the following is NOT a principal offensive strategy option?

A.Leapfrogging competitors by being first to market with next-generation products

B.Using hit-and-run or guerrilla warfare tactics to grab sales and market share

C.Launching a preemptive strike to secure an advantageous position that rivals are prevented or discouraged from duplicating

D.Pursuing continuous product innovation to draw sales and market share away from rivals

E.Being the final competitor to market a next-generation product so as to guarantee the product is operationally sound

7.An offensive to yield good results can be short if:

A.buyers respond immediately (to a dramatic cost-based price cut or imaginative ad campaign).

B.competition creates an appealing new product.

C.the technology needs debugging.

D.new production capacity needs to be installed.

E.consumer acceptance of an innovative product takes time.

8.Which of the following rivals make the best targets for an offensive attack?

A.Firms with weaknesses in areas where the challenger is strong

B.Companies that are financially strong and possess favorable competitive market positioning

C.Large national firms with vast capabilities and intermittent trivial resource deficiencies

D.Strong and financially secure market leaders

E.Small local and regional firms with unrestrained capabilities

9.Challenging a struggling rival can do all of the following EXCEPT:

A.sap the rival’s financial strength and competitive position.

B.weaken the rival’s resolve.

C.accelerate the rival’s exit from the market.

D.threaten the rival’s overall survival in the market.

E.strengthen the rival’s loyal following.

10.A blue-ocean strategy:

A.is an offensive strike employed by a market leader that is directed at pilfering customers away from unsuspecting rivals to boost profitability.

B.involves an unexpected (out-of- the-blue) preemptive strike to secure an advantageous position in a fast-growing market segment.

C.works best when a company is the industry’s low-cost leader.

D.involves abandoning efforts to beat out competitors in existing markets and instead invent a new industry or new market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand.

E.involves the use of highly creative, never-used-before strategic moves to attack the competitive weaknesses of rivals.

11.Which of the following is NOT an example of a company that uses blue-ocean market strategy?

A.eBay’s online auction industry

B.NetJets’ fractional jet ownership

C.Drybar’s hair blowouts

D.Cirque de Soleil’s live entertainment

E.Walmart’s logistics and distribution

12.All firms are subject to offensive challenges from rivals. Which of the following is NOT among the intent of the best defensive move?

A.Lower the risk of being attacked

B.Weaken the impact of any attack that occurs

C.Pressure challengers to aim their efforts at other rivals

D.Help protect a competitive advantage

E.Harm the firm’s competitive position

13.Which of the following is NOT a purpose of a defensive strategy?

A.To increase the risk of having to defend an attack

B.To weaken the impact of any attack that occurs

C.To pressure challengers to aim their efforts at other rivals

D.To help protect a competitive advantage

E.To decrease the risk of being attacked

14.Which of the following ways are employed by defending companies to fend off a competitive attack?

A.Remain steadfast to current product features and models to ensure resources are not diverted toward unproductive efforts.

B.Exclude volume discounts or better financing terms from the strategic response in order to maintain current profitability levels.

C.Gain product line exclusivity to force competitors to use other distributors.

D.Trimming the length of warranties to save money.

E.Stay away from competitor’s clients since their loyalty will not allow them to switch.

15.What is the goal of signaling a challenger that strong retaliation is likely in the event of an attack?

A.To alleviate their fears by committing to reduce the costs of value chain activities

B.To cause the challenger to begin the attack instead of waiting

C.To dissuade challengers from attacking or diverting them into using less threatening options

D.To create collaborative relationships with challengers

E.To insulate other firms from adverse impacts resulting from the challenge

16.Which of the following signals would NOT warn challengers that strong retaliation is likely?

A.Publicly announcing management’s commitment to maintain market share

B.Publicly committing to a company policy of matching competitors’ terms or pricing

C.Maintaining a war chest of cash and marketable securities

D.Making a strong counter-response to the moves of weak competitors

E.Announcing strong quarterly earnings potential to financial analysts

17.Being first to initiate a particular strategic move can have a high payoff in all of the following EXCEPT when:

A.pioneering helps build up a firm’s image and reputation and creates strong brand loyalty.

B.buyers remain strongly loyal to pioneering firms because of incentives and switching costs barriers.

C.there is a steep learning curve and when learning can be kept proprietary.

D.moving first can constitute a preemptive strike, making imitation extra hard or unlikely.

E.market uncertainties make it difficult to ascertain what will eventually succeed.

18.In which of the following instances is being a first-mover NOT particularly advantageous?

A.When moving first with a preemptive strike makes imitation difficult or unlikely

B.When first-time buyers remain strongly loyal to pioneering firms in making repeat purchases

C.When early commitments to new technologies, types of components, or emerging distribution channels produce an absolute cost advantage over rivals

D.When markets are slow to accept the innovative product offering of a first-mover, and fast followers possess sufficient resources and marketing muscle to overtake a first mover

E.When being a pioneer helps build a firm’s image and reputation with buyers

19.First-mover disadvantages (or late-mover advantages) rarely ever arise when:

A.the costs of pioneering are much higher than being a follower and only negligible learning/experience curve benefits accrue to the pioneer.

B.rapid market evolution gives fast followers an opening to leapfrog the pioneer with next-generation products of their own.

C.the pioneer’s products are somewhat primitive and do not live up to buyer expectations, allowing clever followers to win disenchanted buyers with better-performing products.

D.the marketplace is skeptical about the benefits of a new technology or product being pioneered by a first-mover.

E.the market response is strong and the pioneer gains a monopoly position that enables it to recover its investment.

20.In which of the following cases are late-mover advantages (or first-mover disadvantages) NOT likely to arise?

A.When the costs of pioneering are much higher than being a follower and only negligible learning/experience benefits accrue to the pioneer

B.When the marketplace is skeptical about the benefits of a new technology or product being pioneered by a first-mover

C.When the pioneer’s products are somewhat primitive and are easily bested by late movers

D.When opportunities exist for a blue-ocean strategy to invent a new industry or distinctive market segment that creates altogether new demand

E.When technological change is rapid and fast-following rivals find it easy to leapfrog the pioneer with next-generation products of their own

21.Because when to make a strategic move can be just as important as what move to make, a company’s best option with respect to timing is:

A.to be the first mover.

B.to be a fast follower.

C.to be a late mover (because it is cheaper and easier to imitate the successful moves of the leaders and moving late allows a company to avoid the mistakes and costs associated with trying to be a pioneer—first-mover disadvantages usually overwhelm first-mover advantages).

D.to be the last-mover—playing catch-up is usually fairly easy and almost always is much cheaper than any other option.

E.to carefully weigh the first-mover advantages against the first-mover disadvantages and act accordingly.

22.The race among rivals for industry leadership is more likely to be a marathon rather than a sprint when:

A.new industry or market segments are yet to be developed and create altogether new consumer demand.

B.fast followers find it easy to leapfrog the pioneer with even better next-generation products of their own.

C.the market depends on the development of complementary products or services that are currently not available, buyers have high switching costs, and influential rivals are in position to derail the efforts of a first-mover.

D.entry barriers are high, substitute products or services are readily available, and buyers are prone to negotiate aggressively for better terms and lower prices.

E.there are nearly always big advantages to being a slow mover rather than an early mover, especially in regards to avoiding the “mistakes” of first or early movers.

23.For every emerging opportunity there exists:

A.a market penetration curve, and this typically has an inflection point where the business model falls into place.

B.an opportunity to achieve first-mover status, which depends on analyzing the competitive status curve where all the potential rivals are encoded.

C.an emerging pitfall that is a counterpoint to the intended growth.

D.a normal curve scenario which signifies the average growth curve will be opportunistic.

E.an intense competition that constrains the company’s prospects for rapid growth and superior profitability.

24.Any company that seeks competitive advantage by being a first-mover must ask several hard questions prior to executing its strategy. Which question would it NOT ask?

A.Does market takeoff depend on the new development of complementary products?

B.Is a new infrastructure required before buyer demand can surge?

C.Will buyers encounter high switching costs to move?

D.Are there influential competitors in a position to delay or derail the efforts?

E.Did the company pour too many resources into getting ahead of the market opportunity?

25.What does the scope of the firm refer to?

A.The range of activities the firm performs externally and its social responsibility activities

B.To gain competitive advantage based on where it locates its various value chain activities

C.The firm’s capability to employ vertical integration strategies

D.The range of activities the firm performs internally and the breadth of its product offerings, the extent of its geographic market, and its mix of businesses

E.To prevent foreign competition from affecting the market

26.The range of product and service segments that the firm serves within its market is known as the firm’s:

A.horizontal scope.

B.vertical integration.

C.vertical scope.

D.product outsourcing.

E.joint venture partnership.

27.The extent to which a firm’s internal activities encompass one, some, many, or all of the activities that make up an industry’s entire value chain system is known as:

A.horizontal scale.

B.vertical scope.

C.outsourcing scope.

D.cooperative scaled scope.

E.focal scope.

28.The difference between a merger and an acquisition is that:

A.a merger involves one company purchasing the assets of another company with cash, whereas an acquisition involves a company acquiring another company by buying all of the shares of its common stock.

B.a merger is the combining of two or more companies into a single corporate entity, whereas an acquisition involves one company (the acquirer) purchasing and absorbing the operations of another company (the acquired).

C.in a merger, the companies retain their original names, whereas in an acquisition the name of the company being acquired is changed to be the name of the acquiring company.

D.a merger is a combination of three or more companies, whereas an acquisition is a pooling of interests of just two companies.

E.a merger involves two or more companies deciding to adopt the same strategy, whereas an acquisition involves one company taking over the strategy-making function of another company.

29.The difference between a merger and an acquisition relates to:

A.strategy and competitive advantage.

B.the presence of available resources and competitive capabilities.

C.whether the end result is related to horizontal or vertical scope.

D.creating a more cost-efficient operation out of the combined companies.

E.the details of ownership, management control, and the financial arrangements.

30.Which of the following is NOT a typical strategic objective or benefit that drives mergers and acquisitions?

A.To gain quick access to new technologies or other resources and capabilities

B.To create a more cost-efficient operation out of the combined companies

C.To expand a company’s geographic coverage

D.To facilitate a company’s shift from a broad differentiation strategy to a focused differentiation strategy

E.To extend a company’s business into new product categories

31.Mergers and acquisitions are often driven by such strategic objectives as:

A.expanding a company’s geographic coverage or extending its business into new product categories.

B.reducing the number of industry key success factors.

C.reducing the number of strategic groups in the industry.

D.facilitating a company’s shift from a low-cost leadership strategy to a focused low-cost strategy.

E.lengthening a company’s value chain and thereby putting it in a better position to deliver superior value to buyers.

32.Merger and acquisition strategies:

A.are nearly always superior alternatives to forming alliances or partnerships with these same companies.

B.may offer considerable cost-saving opportunities and can also be beneficial in helping a company try to invent a new industry.

C.are a particularly effective way of pursuing a blue-ocean strategy and an outsourcing strategy.

D.seldom are superior alternatives to forming alliances with these same companies because of the financial drain of using the company’s cash resources to accomplish the merger or acquisition.

E.are one of the best ways for helping a company strongly differentiate its product offering and use a differentiation strategy to strengthen its market position.

33.Which of the following is NOT among the intended outcomes of horizontal merger and acquisition strategies?

A.Expanding a company’s geographic coverage

B.Gaining quick access to new technologies or complementary resources and capabilities

C.Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities

D.Extending the company’s business into new product categories

E.Suppressing a rival’s breakthroughs in management or technology

34.Mergers and acquisitions:

A.are nearly always successful in achieving their desired purpose.

B.frequently do not produce the hoped-for outcomes.

C.are generally less effective than forming alliances or partnerships with these same companies.

D.are highly risky because of the financial drain that comes from using the company’s cash resources to pay for the costs of the merger or acquisition.

E.are usually more successful in achieving cost reductions than in expanding a company’s market opportunities.

35.A primary reason for why mergers and acquisitions sometimes fail is due to the:

A.misinterpretation of the cultural differences, like employee disenchantment and low morale, differences in management styles and operating procedures, and operations integration decision mistakes.

B.execution of functional and integration activity, while sustaining and capitalizing on the combined sources of revenue.

C.development of effective integration plans conducive to employee satisfaction.

D.advertising message detailing the merger announcement.

E.creation of management-employee programs in order to foster better communication.

36.Vertical integration strategies:

A.extend a company’s competitive scope within the same industry by expanding its operations across multiple segments or stages of the industry value chain.

B.are one of the best strategic options for helping companies win the race for global market leadership.

C.offer good potential to expand a company’s lineup of products and services.

D.are particularly effective in boosting a company’s ability to expand into additional geographic markets, particularly the markets of foreign countries.

E.area good strategy option for helping a company revamp its value chain and bypass low value-added activities.

37.The best reason for investing company resources in vertical integration (either forward or backward) is to:

A.expand into foreign markets and/or control more of the industry value chain.

B.broaden the firm’s product line and/or avoid the need for outsourcing.

C.gain a first-mover advantage over rivals in revamping the industry value chain.

D.add materially to a company’s technological capabilities, strengthen the company’s competitive position, and/or boost its profitability.

E.achieve product differentiation and/or lengthen the company’s value chain to include more activities performed in-house and thereby gain a greater ability to reduce internal operating costs.

38.A good example of vertical integration is a:

A.global public accounting firm acquiring a small local or regional public accounting firm.

B.large supermarket chain getting into convenience food stores.

C.crude oil refiner purchasing a firm engaged in drilling and exploring for oil.

D.hospital opening up a nursing home for the aged.

E.railroad company acquiring a trucking company specializing in long-haul freight.

39.A vertical integration strategy can expand the firm’s range of activities:

A.backward into sources of supply and/or forward toward end users.

B.backward into other industry business-lines and/or forward to suppliers of raw materials.

C.to enable the supply chain the opportunity for expansion.

D.to complement the industry’s horizontal value chain line of profitability.

E.to establish full integration by participating in a tapered integration (without the outsourced and in-house activities).

40.When firms are involved in a mix of in-house and outsourced activity in any given stage of the vertical chain, it is called:

A.tapered integration.

B.partial integration.

C.full integration.

D.forward integration.

E.backward integration.

41.For backward vertical integration into the business of suppliers to be a viable and profitable strategy, a company:

A.must first be a proficient manufacturer.

B.must be able to achieve the same scale economies as outside suppliers and match or beat suppliers’ production efficiency with no drop-off in quality.

C.must have excess production capacity so that it has an ample in-house ability to undertake additional production activities.

D.needs to have a wide product line, so it can supply parts and components for many products.

E.should have a distinctive competence in production process technology and at least a core competence in manufacturing R&D.

42.Vertical integration can lower costs by:

A.expanding supplier power.

B.facilitating the coordination of production flows and avoiding bottlenecks.

C.establishing the framework for operating.

D.creating control factors across the value chain.

E.accommodating shifting buyer preferences.

43.Which of the following is NOT a potential advantage of backward vertical integration?

A.Reduced vulnerability to powerful suppliers (who may be inclined to raise prices at every opportunity)

B.Reduced risks of disruptions in obtaining crucial components or support services

C.Reduced costs

D.Reduced business risk because of controlling a bigger portion of the overall industry value chain

E.Increase in a company’s differentiation capabilities and perhaps achieving a differentiation-based competitive advantage

44.Backward vertical integration can produce a:

A.full integration when activities remain the domain of key suppliers.

B.tapered integration if the firm consolidates all activities in-house.

C.differentiation-based competitive advantage when activities enhance the performance of the final product.

D.focused differentiation strategy when the market is broad and the product is a commodity.

E.lower degree of flexibility in accommodating shifting buyer preferences.

45.The strategic impetus for forward vertical integration is to:

A.gain better access to end users and better market visibility.

B.achieve the same scale economies as wholesale distributors and/or retail dealers.

C.control price at the retail level.

D.bypass distributors and dealers and sell direct to consumers at the company’s website.

E.build a core competence in mass merchandising.

46.Which of the following is typically the strategic impetus for forward vertical integration?

A.Being able to control the wholesale/retail portion of the industry value chain

B.Experiencing fewer disruptions in the delivery of the company’s products to end users

C.Gaining better access to end users and better market visibility

D.Broadening the company’s product line

E.Allowing the firm access to greater economies of scale

47.Which of the following is NOT a strategic disadvantage of vertical integration?

A.Vertical integration boosts a firm’s capital investment in the industry, thus increasing business risk if the industry becomes unattractive later.

B.Vertical integration backward into parts and components manufacturing can impair a company’s operating flexibility when it comes to changing out the use of certain parts and components.

C.Vertical integration reduces the opportunity for achieving greater product differentiation.

D.Forward or backward integration often calls for radically different skills and business capabilities than the firm possesses.

E.Vertical integration poses all kinds of capacity-matching problems.

48.Bypassing regular wholesale/retail channels in favor of direct sales and Internet retailing can have appeal if it:

A.reinforces the brand, enhances consumer satisfaction, and results in lower prices to end users.

B.can result in better coordination of the firm’s direct sales activity to wholesalers and distributors

C.can establish a retail frontal attack while efficiently managing its backward (defensive) sales orientation.

D.combines the best of all sales channels and provides financial support to distribution allies.

E.creates a channel conflict, thereby providing competitive improvisation.

49.A strategy of vertical integration can have substantial drawbacks, including:

A.whether horizontal integration can limit the performance of strategy-critical activities in ways that increase cost, build expertise, protect proprietary know-how, or increase differentiation.

B.raising the firm’s capital investment in the industry and increasing business risk, as well as providing less flexibility in accommodating shifting buyer preferences by locking the firm into relying on its own in-house activities.

C.the environmental costs of coordinating operations across vertical chain activities.

D.loss of technological know-how.

E.the difficulties faced in entering outside vertical and horizontal markets.

50.A strategy of vertical integration can have both important strengths and weaknesses depending on all of the following, EXCEPT:

A.whether it can limit the performance of strategy-critical activities in ways that increase cost, build expertise, protect proprietary know-how, or increase differentiation.

B.the impact on investment costs, flexibility, and response times.

C.the administrative costs of coordinating operations across more vertical chain activities.

D.how difficult it will be for the company to acquire the set of skills and capabilities needed to operate in another stage of the vertical chain.

E.whether competitors outsource any of their value chain activities.

51.An outsourcing strategy:

A.is nearly always a more attractive strategic option than merger and acquisition strategies.

B.carries the substantial risk of raising a company’s costs.

C.carries the substantial risk of making a company overly dependent on its suppliers.

D.increases a company’s risk exposure to changing technology and/or changing buyer preferences.

E.involves farming out certain value chain activities presently performed in-house to outside vendors.

52.The two big drivers of outsourcing are:

A.an increased ability to cut R&D expenses and an increased ability to avoid the problems of strategic alliances.

B.that outsiders can often perform certain activities better or more cheaply, and outsourcing allows a firm to focus its entire energies on those activities that are at the center of its expertise (its core competencies).

C.a desire to reduce the company’s investment in fixed assets and the need to narrow the scope of the company’s in-house competencies and competitive capabilities.

D.the ability to avoid capital investments that accompany vertical integration and a desire to reduce the company’s risk exposure to changing technology and/or changing buyer preferences.

E.that a smaller in-house workforce and a low investment in intellectual capital will produce cost savings.

53.Outsourcing the performance of value chain activities presently performed in-house to outside vendors and suppliers makes strategic sense EXCEPT when:

A.an activity can be performed better or more cheaply by outside specialists.

B.it allows a company to focus its entire energies on its core business.

C.it restricts a company’s ability to assemble diverse kinds of expertise speedily and efficiently.

D.it reduces the company’s risk exposure to changing technology and/or changing buyer preferences.

E.it allows a company to leverage its key resources.

54.Which of the following is NOT one of the benefits of outsourcing value chain activities presently performed in-house?

A.Streamlines company operations in ways that improve organizational flexibility and cuts the time it takes to get new products into the marketplace

B.Allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best

C.Helps the company assemble diverse kinds of expertise speedily and efficiently

D.Enables a company to gain better access to end users and better market visibility

E.Improves a company’s ability to innovate

55.Relying on outsiders to perform certain value chain activities offers such strategic advantages as:

A.ensuring more costly components or services.

B.improving the company’s inability to innovate by allying with “best-in-class” suppliers.

C.reducing the company’s risk exposure to changing technology and/or changing buyer preferences.

D.increasing the firm’s inability to assemble diverse kinds of expertise speedily and efficiently.

E.reducing its information technology and operational costs so that organizational flexibility is maintained.

56.Outsourcing strategies can offer such advantages as:

A.increasing a company’s ability to strongly differentiate its product and be successful with either a broad differentiation strategy or a focused differentiation strategy.

B.obtaining higher quality and/or cheaper components or services, improving a company’s ability to innovate, and reducing its risk exposure.

C.speeding a company’s entry into foreign markets.

D.permitting greater use of strategic alliances and collaborative partnerships.

E.giving a firm more direct control over the costs of value chain activities.

57.The big risk of employing an outsourcing strategy is:

A.causing the company to become partially integrated instead of being fully integrated.

B.hollowing out a firm’s own capabilities and losing touch with activities and expertise that contribute fundamentally to the firm’s competitiveness and market success.

C.hurting a company’s R&D capability.

D.putting the company in the position of being a late mover instead of an early mover.

E.increasing the firm’s risk exposure to both supply chain management failures and shifts in the composition of the industry value chain.

58.Strategic alliances are:

A.the cheapest means of developing new technologies and getting new products to market quickly.

B.collaborative formal arrangements where two or more companies join forces and agree to work cooperatively toward some strategically relevant objective.

C.a proven means of reducing the costs of performing value chain activities.

D.best used to insulate a company from the impact of the five competitive forces.

E.the best way to help insulate a firm from the adverse impacts of industry driving forces.

59.Which of the following is defined as a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective?

A.Joint venture

B.Vertical integration

C.Strategic alliance

D.Forward integration

E.Outsourcing

60.Which of the following is NOT a factor that makes an alliance “strategic” as opposed to just a convenient business arrangement?

A.The alliance is critical to the company’s achievement of an important objective.

B.The alliance helps block a competitive threat.

C.The alliance helps open up important new market opportunities.

D.The alliance helps build, enhance, or sustain a core competence or competitive advantage.

E.The alliance helps the company obtain additional financing on better credit terms.

61.The formation of a new corporation, jointly owned by two or more companies agreeing to share in the revenues, expenses, and control, is known as:

A.a joint venture.

B.a limited liability company.

C.a partnership.

D.sole proprietorship.

E.an S corporation.

62.Entering into strategic alliances and collaborative partnerships can be competitively valuable because:

A.working closely with outsiders is essential in developing new technologies and new products in virtually every industry.

B.cooperative arrangements with other companies are very helpful in racing against rivals to build a strong global presence and/or racing to seize opportunities on the frontiers of advancing technology.

C.they represent highly effective ways to achieve low-cost leadership and capture first-mover advantages.

D.they are a powerful way for companies to build loyalty and goodwill among customers with diverse needs and expectations.

E.they are quite effective in helping a company transfer the risks of threatening external developments to other companies.

63.An alliance becomes “strategic” as opposed to just a convenient business arrangement when it serves all of the following strategic purposes EXCEPT:

A.builds, sustains, or enhances a core competence or competitive advantage.

B.blocks a competitive threat.

C.increases the bargaining power of alliance members over suppliers or buyers.

D.opens up important new market opportunities.

E.contracts out certain value chain activities that are normally performed in-house to outside vendors.

64.The best strategic alliances:

A.are highly selective, focusing on particular value chain activities and on obtaining a particular competitive benefit.

B.are those whose purpose is to create an industry key success factor.

C.are those which help a company move quickly from one strategic group to another.

D.involve joining forces in R&D to develop new technologies, cheaper than a company could develop the technology on its own.

E.aim at raising an industry’s barriers to entry.

65.Which of the following is NOT a strategically beneficial reason why a company may enter into strategic partnerships or cooperative arrangements with key suppliers, distributors, or makers of complementary products?

A.To improve access to new markets

B.To expedite the development of promising new technologies or products

C.To enable greater opportunities for employee advancement

D.To improve supply chain efficiency

E.To overcome disadvantages of small production volumes that limit scale economies and low production costs

66.Companies racing against rivals for global market leadership need strategic alliances and collaborative partnerships with companies in foreign countries to:

A.combat the bargaining power of foreign suppliers and help defend against the competitive threat of substitute products produced by foreign rivals.

B.help raise needed financial capital from foreign banks and use the brand names of their partners to make sales to foreign buyers.

C.get into critical country markets quickly, gain inside knowledge about unfamiliar markets and cultures, and access valuable skills and competencies that are concentrated in particular geographic locations.

D.help wage price wars against foreign competitors.

E.exercise better control over efforts to revamp the global industry value chain.

67.A company racing to seize opportunities on the frontiers of advancing technology often utilizes strategic alliances and collaborative partnerships to:

A.discourage rival companies from merging with or acquiring the very companies that it is partnering with.

B.reduce overall business risk and raise entry barriers into the newly emerging industry.

C.help master new technologies and build new expertise and competencies, establish a stronger beachhead for participating in the target industry, and open up broader opportunities in the target industry.

D.help defeat competitors that are employing broad differentiation strategies.

E.enhance its chances of achieving global low-cost leadership.

68.Which of the following is NOT one of the factors that affects whether a strategic alliance will be successful and realize its intended benefits?

A.Picking a good partner

B.Recognizing that the alliance must benefit both sides

C.Minimizing the amount of resources that the partners commit to the alliance

D.Ensuring that both parties live up to their commitments

E.Structuring the decision-making process so actions can be taken swiftly when needed

69.Capturing the benefits of strategic alliances is not easy, but success generally is a function of all of the following factors, EXCEPT:

A.being sensitive to cultural differences

B.managing the learning process and allowing for emerging circumstances

C.picking a good partner with good chemistry

D.recognizing that the alliance must benefit both sides

E.ensuring the division of work is directly apportioned to appropriate skill sets

70.Which of the following is NOT a typical reason that many outsourcing alliances prove unstable or break apart?

A.Anticipated gains may fail to materialize due to an overly optimistic view of the synergies.

B.Anticipated gains may fail to materialize due to a poor fit in terms of the combination of resources and capabilities.

C.A partner can gain access to a company’s proprietary knowledge base, technologies, or trade secrets.

D.The partners may disagree over how to divide the profits gained from joint collaboration.

E.There is a risk of becoming dependent on other companies.

71.Experience indicates that strategic alliances:

A.are generally successful.

B.work well in cooperatively developing new technologies and new products but seldom work well in promoting greater supply chain efficiency.

C.work best when they are aimed at achieving a mutually beneficial competitive advantage for the allies.

D.can suffer culture clash and integration problems due to different management styles and business practices.

E.are rarely useful in helping a company win the race for global industry leadership.

72.The Achilles heel (or biggest disadvantage/pitfall) of relying heavily on alliances and cooperative strategies is:

A.that partners will not fully cooperate or share all they know, preferring instead to guard their most valuable information and protect their more valuable know-how.

B.becoming dependent on other companies for essential expertise and capabilities.

C.the added time and extra expenses associated with engaging in collaborative efforts.

D.having to compromise the company’s own priorities and strategies in reaching agreements with partners.

E.the collaborative arrangements will not live up to expectations.

73.The principal advantages of strategic alliances over vertical integration or horizontal mergers/acquisitions are:

A.resource pooling and risk sharing, more adaptive response capabilities, and greater speed of deployment.

B.potential profitability of the alliance and related experience-curve economics.

C.the facilitation of best practices, more production capacity, and relevant synergistic savings.

D.the transactional and relational concept of operating practices and competencies.

E.E)material additions to a company’s technological capabilities, strengthening of the firm’s competitive position, and boosting of its profitability.

74.A company that has greater success in managing its strategic alliance can credit all of the following, EXCEPT:

A.establishing strong interpersonal relationships to facilitate communication.

B.incorporating contractual safeguards.

C.making opportunities for learning a routine management process.

D.establishing a system to manage alliances in a systematic fashion.

E.creating organizational learning barriers across boundaries.

75.A company that fails to manage its strategic alliance probably has:

A.incorporated contractual safeguards.

B.made opportunities for learning a routine management process.

C.created a system to manage alliances in a systematic fashion.

D.established strong interpersonal relationships and established trust.

E.refrained from making commitments to its partners and ensured they do the same.

76.Alliance management is considered an organizational capability and:

A.develops over time, out of effort and learning.

B.decreases a company’s knowledge assets.

C.creates successful strategic alliances.

D.decreases a company’s knowledge capabilities.

E.rapidly transfers assets into the strategic alliance.

77.Strategic offensives should, as a general rule, be grounded in a company’s strategic assets and employ a company’s strengths to attack rivals. Define and discuss the term strategic assets and its significance in gaining a competitive advantage.

78.There are a number of offensive strategy options for improving market positions using cost-based and blue-ocean type strategies. Define the terms and suggest ways in which the strategies could be operationalized.

79.What is a blue-ocean strategy and what is its appeal?

80.Identify and briefly discuss two “best targets” for offensive attacks by companies.

81.Discuss why timing of strategic moves is important.

82.Identify and briefly explain what is meant by each of the following terms:
a. horizontal scope
b. vertical scope
c. scope of the firm

83.Identify and briefly explain what is meant by each of the following terms:
a. a first-mover advantage
b. a first-mover disadvantage (or late-mover advantage)

84.What are mergers and/or acquisitions? How do they contribute to enhancing a company’s position?

85.What are the general strategic objectives of merger and acquisition strategies?

86.What are the strategic advantages of a backward vertical integration strategy?

87.What are the strategic disadvantages of a backward vertical integration strategy?

88.What are the strategic advantages of a forward vertical integration strategy?

89.What are the strategic disadvantages of a forward vertical integration strategy?

90.What are the merits of outsourcing the performance of certain value chain activities as opposed to performing them in-house? Under what circumstances does outsourcing make good strategic sense?

91.Identify and explain at least two drawbacks to forming a strategic alliance.

92.What are the three principal advantages of strategic alliances over vertical integration or mergers/acquisitions?

93.What does a company racing for global market leadership need strategic alliances for?

94.What does a company racing to stake out a strong position in an industry of the future need strategic alliances for?

95.Identify at least three factors that can aid companies in forming a successful strategic alliance.

96.Identify and briefly discuss four disadvantages of a vertical integration system.

97.What are the advantages of strategic alliances and collaborative partnerships with key suppliers?

98.Instead of entering into an alliance or partnership, Smith Limited opts to merge with Design Limited. What are the reasons for preferring a merger to an alliance or partnership? Explain the other organizational mechanisms that are also preferable to alliances.

99.What are the merits of strategic alliances and collaborative partnerships for companies racing to seize opportunities in an industry of the future? Under what circumstances do they make sense? How do they contribute to competitive advantage?

100.Identify and briefly discuss three factors a company must consider in order to capture the benefits of engaging in strategic alliances.

Chapter 06 Test Bank Key

1.Sometimes it makes sense for a company to go on the offensive to improve its market position and business performance. The best offensives tend to incorporate the following EXCEPT:

A.focusing relentlessly on building a competitive advantage.

B.applying resources where rivals are least able to defend themselves.

C.using a strategic offense to allow the company to leverage its weaknesses to strengthen operating vulnerabilities.

D.employing the elements of surprise as opposed to doing what rivals expect and are prepared for.

E.displaying a strong bias for swift, decisive, and overwhelming actions to overpower rivals.

The best offensives tend to incorporate several principles: (1) focusing relentlessly on building competitive advantage and then striving to convert it into a sustainable advantage, (2) applying resources where rivals are least able to defend themselves,(3) employing the element of surprise as opposed to doing what rivals expect and are prepared for, and (4) displaying a capacity for swift and decisive actions to overwhelm rivals.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

2.Once a company has decided to employ a particular generic competitive strategy, then it must make the following additional strategic choices, EXCEPT whether to:

A.focus on building competitive advantages.

B.employ the element of surprise as opposed to doing what rivals expect and are prepared for.

C.display a strong bias for swift, decisive, and overwhelming actions to overpower rivals.

D.create and deploy company resources to cause rivals to defend themselves.

E.pay special attention to buyer segments that a rival is already serving.

The best offensives tend to incorporate several principles: (1) focusing relentlessly on building competitive advantage and then striving to convert it into a sustainable advantage, (2) applying resources where rivals are least able to defend themselves,(3) employing the element of surprise as opposed to doing what rivals expect and are prepared for, and (4) displaying a capacity for swift and decisive actions to overwhelm rivals.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

3.Which of the following is NOT a strategic choice that a company must make to complement and supplement its choice of one of the five generic competitive strategies?

A.Whether to focus on building competitive advantages

B.Whether to employ the element of surprise as opposed to doing what rivals expect and are prepared for

C.Whether to employ a market share leadership strategy

D.Whether to display a strong bias for swift, decisive, and overwhelming actions to overpower

E.Whether to create and deploy company resources to cause rivals to defend themselves

The best offensives tend to incorporate several principles: (1) focusing relentlessly on building competitive advantage and then striving to convert it into a sustainable advantage, (2) applying resources where rivals are least able to defend themselves,(3) employing the element of surprise as opposed to doing what rivals expect and are prepared for, and (4) displaying a capacity for swift and decisive actions to overwhelm rivals.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

4.Strategic offensives should, as a general rule, be based on:

A.exploiting a company’s strongest competitive assets—its most valuable resources and capabilities.

B.instigating and executing the chosen strategy efficiently and effectively.

C.scoping and scaling an organization’s internal and external situation.

D.molding an organization’s character and identity.

E.satisfying the buyer’s needs that the company seeks to meet.

Strategic offensives should, as a general rule, be grounded in a company’s strategic assets and employ a company’s strengths to attack rivals in the competitive areas where they are weakest.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

5.The principal offensive strategy options include all of the following EXCEPT:

A.using a cost advantage to attack competitors on the basis of lower price or better product value.

B.using hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent or distracted rivals.

C.launching a preemptive strike to secure an advantageous position that rivals are prevented or discouraged from duplicating.

D.pursuing continuous product innovation to draw sales and market share away from less innovative rivals.

E.initiating a market threat and counterattack simultaneously to effect a distraction.

The principal offensive strategy options include the following:1. Offering an equally good or better product at a lower price; 2.Leapfrogging competitors by being first to market with next-generation products;3. Pursuing continuous product innovation to draw sales and market share away from less innovative rivals;4. Pursuing disruptive product innovations to create new markets;5.Adopting and improving on the good ideas of other companies; 6.Using hit-and-run or guerrilla warfare tactics to grab market share from complacent or distracted rivals; and 7. Launching a preemptive strike to secure an industry’s limited resources or capture a rare opportunity.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

6.Which of the following is NOT a principal offensive strategy option?

A.Leapfrogging competitors by being first to market with next-generation products

B.Using hit-and-run or guerrilla warfare tactics to grab sales and market share

C.Launching a preemptive strike to secure an advantageous position that rivals are prevented or discouraged from duplicating

D.Pursuing continuous product innovation to draw sales and market share away from rivals

E.Being the final competitor to market a next-generation product so as to guarantee the product is operationally sound

The principal offensive strategy options include the following:1. Offering an equally good or better product at a lower price; 2.Leapfrogging competitors by being first to market with next-generation products;3. Pursuing continuous product innovation to draw sales and market share away from less innovative rivals;4. Pursuing disruptive product innovations to create new markets; 5.Adopting and improving on the good ideas of other companies; 6.Using hit-and-run or guerrilla warfare tactics to grab market share from complacent or distracted rivals; and 7. Launching a preemptive strike to secure an industry’s limited resources or capture a rare opportunity.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

7.An offensive to yield good results can be short if:

A.buyers respond immediately (to a dramatic cost-based price cut or imaginative ad campaign).

B.competition creates an appealing new product.

C.the technology needs debugging.

D.new production capacity needs to be installed.

E.consumer acceptance of an innovative product takes time.

How long it takes for an offensive to yield good results varies with the competitive circumstances. It can be short if buyers respond immediately (as can occur with a dramatic cost-based price cut, an imaginative ad campaign, or a disruptive innovation).

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

8.Which of the following rivals make the best targets for an offensive attack?

A.Firms with weaknesses in areas where the challenger is strong

B.Companies that are financially strong and possess favorable competitive market positioning

C.Large national firms with vast capabilities and intermittent trivial resource deficiencies

D.Strong and financially secure market leaders

E.Small local and regional firms with unrestrained capabilities

Runner-up firms are an especially attractive target when a challenger’s resources and capabilities are well suited to exploiting their weaknesses.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Rivalry and Competition

9.Challenging a struggling rival can do all of the following EXCEPT:

A.sap the rival’s financial strength and competitive position.

B.weaken the rival’s resolve.

C.accelerate the rival’s exit from the market.

D.threaten the rival’s overall survival in the market.

E.strengthen the rival’s loyal following.

Challenging a hard-pressed rival in ways that further sap its financial strength and competitive position can weaken its resolve and hasten its exit from the market. In this type of situation, it makes sense to attack the rival in the market segments where it makes the most profits, since this will threaten its survival the most.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Rivalry and Competition

10.A blue-ocean strategy:

A.is an offensive strike employed by a market leader that is directed at pilfering customers away from unsuspecting rivals to boost profitability.

B.involves an unexpected (out-of- the-blue) preemptive strike to secure an advantageous position in a fast-growing market segment.

C.works best when a company is the industry’s low-cost leader.

D.involves abandoning efforts to beat out competitors in existing markets and instead invent a new industry or new market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand.

E.involves the use of highly creative, never-used-before strategic moves to attack the competitive weaknesses of rivals.

A blue-ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new market segment that renders existing competitors irrelevant and allows a company to create and capture altogether new demand.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

11.Which of the following is NOT an example of a company that uses blue-ocean market strategy?

A.eBay’s online auction industry

B.NetJets’ fractional jet ownership

C.Drybar’s hair blowouts

D.Cirque de Soleil’s live entertainment

E.Walmart’s logistics and distribution

A terrific example of such blue-ocean market space is the online auction industry that eBay created and now dominates. Other companies that have created blue-ocean market spaces include NetJets in fractional jet ownership, Drybar in hair blowouts, Tune Hotels in limited service “backpacker” hotels, and Cirque du Soleil in live entertainment.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

12.All firms are subject to offensive challenges from rivals. Which of the following is NOT among the intent of the best defensive move?

A.Lower the risk of being attacked

B.Weaken the impact of any attack that occurs

C.Pressure challengers to aim their efforts at other rivals

D.Help protect a competitive advantage

E.Harm the firm’s competitive position

In a competitive market, all firms are subject to offensive challenges from rivals. The purposes of defensive strategies are to lower the risk of being attacked, weaken the impact of any attack that occurs, and induce challengers to aim their efforts at other rivals. While defensive strategies usually don’t enhance a firm’s competitive advantage, they can definitely help fortify the firm’s competitive position, protect its most valuable resources and capabilities from imitation, and defend whatever competitive advantage it might have.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Rivalry and Competition

13.Which of the following is NOT a purpose of a defensive strategy?

A.To increase the risk of having to defend an attack

B.To weaken the impact of any attack that occurs

C.To pressure challengers to aim their efforts at other rivals

D.To help protect a competitive advantage

E.To decrease the risk of being attacked

In a competitive market, all firms are subject to offensive challenges from rivals. The purposes of defensive strategies are to lower the risk of being attacked, weaken the impact of any attack that occurs, and induce challengers to aim their efforts at other rivals. While defensive strategies usually don’t enhance a firm’s competitive advantage, they can definitely help fortify the firm’s competitive position, protect its most valuable resources and capabilities from imitation, and defend whatever competitive advantage it might have.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Defensive Strategies

14.Which of the following ways are employed by defending companies to fend off a competitive attack?

A.Remain steadfast to current product features and models to ensure resources are not diverted toward unproductive efforts.

B.Exclude volume discounts or better financing terms from the strategic response in order to maintain current profitability levels.

C.Gain product line exclusivity to force competitors to use other distributors.

D.Trimming the length of warranties to save money.

E.Stay away from competitor’s clients since their loyalty will not allow them to switch.

The most frequently employed approach to defending a company’s present position involves actions that restrict a challenger’s options for initiating a competitive attack. There are any number of obstacles that can be put in the path of would-be challengers. A defender can introduce new features, add new models, or broaden its product line to close off gaps and vacant niches to opportunity-seeking challengers. It can thwart rivals’ efforts to attack with a lower price by maintaining its own lineup of economy-priced options. It can discourage buyers from trying competitors’ brands by lengthening warranties, making early announcements about impending new products or price changes, offering free training and support services, or providing coupons and sample giveaways to buyers most prone to experiment. It can induce potential buyers to reconsider switching. It can challenge the quality or safety of rivals’ products. Finally, a defender can grant volume discounts or better financing terms to dealers and distributors to discourage them from experimenting with other suppliers, or it can convince them to handle its product line exclusively and force competitors to use other distribution outlets.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Defensive Strategies

15.What is the goal of signaling a challenger that strong retaliation is likely in the event of an attack?

A.To alleviate their fears by committing to reduce the costs of value chain activities

B.To cause the challenger to begin the attack instead of waiting

C.To dissuade challengers from attacking or diverting them into using less threatening options

D.To create collaborative relationships with challengers

E.To insulate other firms from adverse impacts resulting from the challenge

The goal of signaling challengers that strong retaliation is likely in the event of an attack is either to dissuade challengers from attacking at all or to divert them to less threatening options. Either goal can be achieved by letting challengers know the battle will cost more than it is worth.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Defensive Strategies

16.Which of the following signals would NOT warn challengers that strong retaliation is likely?

A.Publicly announcing management’s commitment to maintain market share

B.Publicly committing to a company policy of matching competitors’ terms or pricing

C.Maintaining a war chest of cash and marketable securities

D.Making a strong counter-response to the moves of weak competitors

E.Announcing strong quarterly earnings potential to financial analysts

Signals to would-be challengers can be given by: publicly announcing management’s commitment to maintaining the firm’s present market share; publicly committing the company to a policy of matching competitors’ terms or prices; maintaining a war chest of cash and marketable securities; making an occasional strong counter response to the moves of weak competitors to enhance the firm’s image as a tough defender.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Difficulty: 2 Medium
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Defensive Strategies

17.Being first to initiate a particular strategic move can have a high payoff in all of the following EXCEPT when:

A.pioneering helps build up a firm’s image and reputation and creates strong brand loyalty.

B.buyers remain strongly loyal to pioneering firms because of incentives and switching costs barriers.

C.there is a steep learning curve and when learning can be kept proprietary.

D.moving first can constitute a preemptive strike, making imitation extra hard or unlikely.

E.market uncertainties make it difficult to ascertain what will eventually succeed.

There are five conditions in which first-mover advantages are most likely to arise:1. When pioneering helps build a firm’s reputation and creates strong brand loyalty; 2.When a first mover’s customers will thereafter face significant switching costs; 3.When property rights protections thwart rapid imitation of the initial move; 4. When an early lead enables the first mover to move down the learning curve ahead of rivals; and 5. When a first mover can set the technical standard for the industry.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

18.In which of the following instances is being a first-mover NOT particularly advantageous?

A.When moving first with a preemptive strike makes imitation difficult or unlikely

B.When first-time buyers remain strongly loyal to pioneering firms in making repeat purchases

C.When early commitments to new technologies, types of components, or emerging distribution channels produce an absolute cost advantage over rivals

D.When markets are slow to accept the innovative product offering of a first-mover, and fast followers possess sufficient resources and marketing muscle to overtake a first mover

E.When being a pioneer helps build a firm’s image and reputation with buyers

There are five such conditions in which first-mover advantages are most likely to arise:1. When pioneering helps build a firm’s reputation and creates strong brand loyalty; 2.When a first mover’s customers will thereafter face significant switching costs; 3.When property rights protections thwart rapid imitation of the initial move; 4. When an early lead enables the first mover to move down the learning curve ahead of rivals; and 5. When a first mover can set the technical standard for the industry.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

19.First-mover disadvantages (or late-mover advantages) rarely ever arise when:

A.the costs of pioneering are much higher than being a follower and only negligible learning/experience curve benefits accrue to the pioneer.

B.rapid market evolution gives fast followers an opening to leapfrog the pioneer with next-generation products of their own.

C.the pioneer’s products are somewhat primitive and do not live up to buyer expectations, allowing clever followers to win disenchanted buyers with better-performing products.

D.the marketplace is skeptical about the benefits of a new technology or product being pioneered by a first-mover.

E.the market response is strong and the pioneer gains a monopoly position that enables it to recover its investment.

In some instances there are advantages to being an adept follower rather than a first mover. Late-mover advantages (or first-mover disadvantages) arise in four instances: When the costs of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs; when an innovator’s products are somewhat primitive and do not live up to buyer expectations, thus allowing a follower with better-performing products to win disenchanted buyers away from the leader; When rapid market evolution (due to fast-paced changes in either technology or buyer needs) gives second movers the opening to leapfrog a first mover’s products with more attractive next-version products; When market uncertainties make it difficult to ascertain what will eventually succeed, allowing late movers to wait until these needs are clarified, and: When customer loyalty to the pioneer is low and a first mover’s skills, know-how, and actions are easily copied or even surpassed.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

20.In which of the following cases are late-mover advantages (or first-mover disadvantages) NOT likely to arise?

A.When the costs of pioneering are much higher than being a follower and only negligible learning/experience benefits accrue to the pioneer

B.When the marketplace is skeptical about the benefits of a new technology or product being pioneered by a first-mover

C.When the pioneer’s products are somewhat primitive and are easily bested by late movers

D.When opportunities exist for a blue-ocean strategy to invent a new industry or distinctive market segment that creates altogether new demand

E.When technological change is rapid and fast-following rivals find it easy to leapfrog the pioneer with next-generation products of their own

In some instances there are advantages to being an adept follower rather than a first mover. Late-mover advantages (or first-mover disadvantages) arise in four instances: When the costs of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs; when an innovator’s products are somewhat primitive and do not live up to buyer expectations, thus allowing a follower with better-performing products to win disenchanted buyers away from the leader; When rapid market evolution (due to fast-paced changes in either technology or buyer needs) gives second movers the opening to leapfrog a first mover’s products with more attractive next-version products; When market uncertainties make it difficult to ascertain what will eventually succeed, allowing late movers to wait until these needs are clarified, and: When customer loyalty to the pioneer is low and a first mover’s skills, know-how, and actions are easily copied or even surpassed.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

21.Because when to make a strategic move can be just as important as what move to make, a company’s best option with respect to timing is:

A.to be the first mover.

B.to be a fast follower.

C.to be a late mover (because it is cheaper and easier to imitate the successful moves of the leaders and moving late allows a company to avoid the mistakes and costs associated with trying to be a pioneer—first-mover disadvantages usually overwhelm first-mover advantages).

D.to be the last-mover—playing catch-up is usually fairly easy and almost always is much cheaper than any other option.

E.to carefully weigh the first-mover advantages against the first-mover disadvantages and act accordingly.

Because the timing of strategic moves can be consequential, it is important for company strategists to be aware of the nature of first-mover advantages and disadvantages and the conditions favoring each type of move.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

22.The race among rivals for industry leadership is more likely to be a marathon rather than a sprint when:

A.new industry or market segments are yet to be developed and create altogether new consumer demand.

B.fast followers find it easy to leapfrog the pioneer with even better next-generation products of their own.

C.the market depends on the development of complementary products or services that are currently not available, buyers have high switching costs, and influential rivals are in position to derail the efforts of a first-mover.

D.entry barriers are high, substitute products or services are readily available, and buyers are prone to negotiate aggressively for better terms and lower prices.

E.there are nearly always big advantages to being a slow mover rather than an early mover, especially in regards to avoiding the “mistakes” of first or early movers.

Any company that seeks competitive advantage by being a first mover thus needs to ask some hard questions: Does market takeoff depend on the development of complementary products or services that currently are not available?;Is new infrastructure required before buyer demand can surge?; Will buyers need to learn new skills or adopt new behaviors?; Will buyers encounter high switching costs in moving to the newly introduced product or service?; Are there influential competitors in a position to delay or derail the efforts of a first mover? When the answers to any of these questions are yes, then a company must be careful not to pour too many resources into getting ahead of the market opportunity—the race is likely going to be closer to a 10-year marathon than a 2-year sprint.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

23.For every emerging opportunity there exists:

A.a market penetration curve, and this typically has an inflection point where the business model falls into place.

B.an opportunity to achieve first-mover status, which depends on analyzing the competitive status curve where all the potential rivals are encoded.

C.an emerging pitfall that is a counterpoint to the intended growth.

D.a normal curve scenario which signifies the average growth curve will be opportunistic.

E.an intense competition that constrains the company’s prospects for rapid growth and superior profitability.

The lesson here is that there is a market penetration curve for every emerging opportunity. Typically, the curve has an inflection point at which all the pieces of the business model fall into place, buyer demand explodes, and the market takes off.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

24.Any company that seeks competitive advantage by being a first-mover must ask several hard questions prior to executing its strategy. Which question would it NOT ask?

A.Does market takeoff depend on the new development of complementary products?

B.Is a new infrastructure required before buyer demand can surge?

C.Will buyers encounter high switching costs to move?

D.Are there influential competitors in a position to delay or derail the efforts?

E.Did the company pour too many resources into getting ahead of the market opportunity?

Any company that seeks competitive advantage by being a first mover thus needs to ask some hard questions: Does market takeoff depend on the development of complementary products or services that currently are not available?;Is new infrastructure required before buyer demand can surge?; Will buyers need to learn new skills or adopt new behaviors?; Will buyers encounter high switching costs in moving to the newly introduced product or service?; Are there influential competitors in a position to delay or derail the efforts of a first mover?

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

25.What does the scope of the firm refer to?

A.The range of activities the firm performs externally and its social responsibility activities

B.To gain competitive advantage based on where it locates its various value chain activities

C.The firm’s capability to employ vertical integration strategies

D.The range of activities the firm performs internally and the breadth of its product offerings, the extent of its geographic market, and its mix of businesses

E.To prevent foreign competition from affecting the market

The scope of the firm refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: Scope of Operations

26.The range of product and service segments that the firm serves within its market is known as the firm’s:

A.horizontal scope.

B.vertical integration.

C.vertical scope.

D.product outsourcing.

E.joint venture partnership.

Several dimensions of firm scope have relevance for business-level strategy in terms of their capacity to strengthen a company’s position in a given market. These include the firm’s horizontal scope, which is the range of product and service segments that the firm serves within its product or service market.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: Scope of Operations

27.The extent to which a firm’s internal activities encompass one, some, many, or all of the activities that make up an industry’s entire value chain system is known as:

A.horizontal scale.

B.vertical scope.

C.outsourcing scope.

D.cooperative scaled scope.

E.focal scope.

Vertical scope is the extent to which the firm engages in the various activities that make up the industry’s entire value chain system, from initial activities such as raw-material production all the way to retailing and after-sale service activities.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: Scope of Operations

28.The difference between a merger and an acquisition is that:

A.a merger involves one company purchasing the assets of another company with cash, whereas an acquisition involves a company acquiring another company by buying all of the shares of its common stock.

B.a merger is the combining of two or more companies into a single corporate entity, whereas an acquisition involves one company (the acquirer) purchasing and absorbing the operations of another company (the acquired).

C.in a merger, the companies retain their original names, whereas in an acquisition the name of the company being acquired is changed to be the name of the acquiring company.

D.a merger is a combination of three or more companies, whereas an acquisition is a pooling of interests of just two companies.

E.a merger involves two or more companies deciding to adopt the same strategy, whereas an acquisition involves one company taking over the strategy-making function of another company.

A merger is the combining of two or more companies into a single corporate entity, with the newly created company often taking on a new name. An acquisition is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

29.The difference between a merger and an acquisition relates to:

A.strategy and competitive advantage.

B.the presence of available resources and competitive capabilities.

C.whether the end result is related to horizontal or vertical scope.

D.creating a more cost-efficient operation out of the combined companies.

E.the details of ownership, management control, and the financial arrangements.

The difference between a merger and an acquisition relates more to the details of ownership, management control, and financial arrangements than to strategy and competitive advantage.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

30.Which of the following is NOT a typical strategic objective or benefit that drives mergers and acquisitions?

A.To gain quick access to new technologies or other resources and capabilities

B.To create a more cost-efficient operation out of the combined companies

C.To expand a company’s geographic coverage

D.To facilitate a company’s shift from a broad differentiation strategy to a focused differentiation strategy

E.To extend a company’s business into new product categories

Merger and acquisition strategies typically set sights on achieving any of five objectives: Creating a more cost-efficient operation out of the combined companies; Expanding a company’s geographic coverage; Extending the company’s business into new product categories; Gaining quick access to new technologies or other resources and capabilities; and, Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

31.Mergers and acquisitions are often driven by such strategic objectives as:

A.expanding a company’s geographic coverage or extending its business into new product categories.

B.reducing the number of industry key success factors.

C.reducing the number of strategic groups in the industry.

D.facilitating a company’s shift from a low-cost leadership strategy to a focused low-cost strategy.

E.lengthening a company’s value chain and thereby putting it in a better position to deliver superior value to buyers.

Merger and acquisition strategies typically set sights on achieving any of five objectives: Creating a more cost-efficient operation out of the combined companies; Expanding a company’s geographic coverage; Extending the company’s business into new product categories; Gaining quick access to new technologies or other resources and capabilities; and, Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

32.Merger and acquisition strategies:

A.are nearly always superior alternatives to forming alliances or partnerships with these same companies.

B.may offer considerable cost-saving opportunities and can also be beneficial in helping a company try to invent a new industry.

C.are a particularly effective way of pursuing a blue-ocean strategy and an outsourcing strategy.

D.seldom are superior alternatives to forming alliances with these same companies because of the financial drain of using the company’s cash resources to accomplish the merger or acquisition.

E.are one of the best ways for helping a company strongly differentiate its product offering and use a differentiation strategy to strengthen its market position.

Merger and acquisition strategies typically set sights on achieving any of five objectives: Creating a more cost-efficient operation out of the combined companies; Expanding a company’s geographic coverage; Extending the company’s business into new product categories; Gaining quick access to new technologies or other resources and capabilities; and, Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

33.Which of the following is NOT among the intended outcomes of horizontal merger and acquisition strategies?

A.Expanding a company’s geographic coverage

B.Gaining quick access to new technologies or complementary resources and capabilities

C.Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities

D.Extending the company’s business into new product categories

E.Suppressing a rival’s breakthroughs in management or technology

Merger and acquisition strategies typically set sights on achieving any of five objectives: Creating a more cost-efficient operation out of the combined companies; Expanding a company’s geographic coverage; Extending the company’s business into new product categories; Gaining quick access to new technologies or other resources and capabilities; and, Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

34.Mergers and acquisitions:

A.are nearly always successful in achieving their desired purpose.

B.frequently do not produce the hoped-for outcomes.

C.are generally less effective than forming alliances or partnerships with these same companies.

D.are highly risky because of the financial drain that comes from using the company’s cash resources to pay for the costs of the merger or acquisition.

E.are usually more successful in achieving cost reductions than in expanding a company’s market opportunities.

Despite many successes, mergers and acquisitions do not always produce the hoped for outcomes. Cost savings may prove smaller than expected. Gains in competitive capabilities may take substantially longer to realize or, worse, may never materialize at all. Efforts to mesh the corporate cultures can stall due to formidable resistance from organization members. Key employees at the acquired company can quickly become disenchanted and leave; the morale of company personnel who remain can drop to disturbingly low levels because they disagree with newly instituted changes. Differences in management styles and operating procedures can prove hard to resolve. In addition, the managers appointed to oversee the integration of a newly acquired company can make mistakes in deciding which activities to leave alone and which activities to meld into their own operations and systems.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

35.A primary reason for why mergers and acquisitions sometimes fail is due to the:

A.misinterpretation of the cultural differences, like employee disenchantment and low morale, differences in management styles and operating procedures, and operations integration decision mistakes.

B.execution of functional and integration activity, while sustaining and capitalizing on the combined sources of revenue.

C.development of effective integration plans conducive to employee satisfaction.

D.advertising message detailing the merger announcement.

E.creation of management-employee programs in order to foster better communication.

Despite many successes, mergers and acquisitions do not always produce the hoped for outcomes. Cost savings may prove smaller than expected. Gains in competitive capabilities may take substantially longer to realize or, worse, may never materialize at all. Efforts to mesh the corporate cultures can stall due to formidable resistance from organization members. Key employees at the acquired company can quickly become disenchanted and leave; the morale of company personnel who remain can drop to disturbingly low levels because they disagree with newly instituted changes. Differences in management styles and operating procedures can prove hard to resolve. In addition, the managers appointed to oversee the integration of a newly acquired company can make mistakes in deciding which activities to leave alone and which activities to meld into their own operations and systems.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

36.Vertical integration strategies:

A.extend a company’s competitive scope within the same industry by expanding its operations across multiple segments or stages of the industry value chain.

B.are one of the best strategic options for helping companies win the race for global market leadership.

C.offer good potential to expand a company’s lineup of products and services.

D.are particularly effective in boosting a company’s ability to expand into additional geographic markets, particularly the markets of foreign countries.

E.area good strategy option for helping a company revamp its value chain and bypass low value-added activities.

Vertical integration strategy can expand the firm’s range of activities backward into sources of supply and/or forward toward end users. A firm can pursue vertical integration by starting its own operations in other stages of the vertical activity chain or by acquiring a company already performing the activities it wants to bring in-house.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

37.The best reason for investing company resources in vertical integration (either forward or backward) is to:

A.expand into foreign markets and/or control more of the industry value chain.

B.broaden the firm’s product line and/or avoid the need for outsourcing.

C.gain a first-mover advantage over rivals in revamping the industry value chain.

D.add materially to a company’s technological capabilities, strengthen the company’s competitive position, and/or boost its profitability.

E.achieve product differentiation and/or lengthen the company’s value chain to include more activities performed in-house and thereby gain a greater ability to reduce internal operating costs.

Under the right conditions, a vertical integration strategy can add materially to a company’s technological capabilities, strengthen the firm’s competitive position, and boost its profitability. But it is important to keep in mind that vertical integration has no real payoff strategy-wise or profit-wise unless the extra investment can be justified by compensating improvements in company costs, differentiation, or competitive strength.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

38.A good example of vertical integration is a:

A.global public accounting firm acquiring a small local or regional public accounting firm.

B.large supermarket chain getting into convenience food stores.

C.crude oil refiner purchasing a firm engaged in drilling and exploring for oil.

D.hospital opening up a nursing home for the aged.

E.railroad company acquiring a trucking company specializing in long-haul freight.

Vertical integration strategies can aim at full integration(participating in all stages of the vertical chain) or partial integration (building positions in selected stages of the vertical chain). Firms can also engage in tapered integration strategies, which involve a mix of in-house and outsourced activity in any given stage of the vertical chain. Oil companies, for instance, supply their refineries with oil from their own wells as well as with oil that they purchase from other producers—they engage in tapered backward integration.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

39.A vertical integration strategy can expand the firm’s range of activities:

A.backward into sources of supply and/or forward toward end users.

B.backward into other industry business-lines and/or forward to suppliers of raw materials.

C.to enable the supply chain the opportunity for expansion.

D.to complement the industry’s horizontal value chain line of profitability.

E.to establish full integration by participating in a tapered integration (without the outsourced and in-house activities).

A vertical integration strategy can expand the firm’s range of activities backward into sources of supply and/or forward toward end users.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

40.When firms are involved in a mix of in-house and outsourced activity in any given stage of the vertical chain, it is called:

A.tapered integration.

B.partial integration.

C.full integration.

D.forward integration.

E.backward integration.

Firms can also engage in tapered integration strategies, which involve a mix of in-house and outsourced activity in any given stage of the vertical chain.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

41.For backward vertical integration into the business of suppliers to be a viable and profitable strategy, a company:

A.must first be a proficient manufacturer.

B.must be able to achieve the same scale economies as outside suppliers and match or beat suppliers’ production efficiency with no drop-off in quality.

C.must have excess production capacity so that it has an ample in-house ability to undertake additional production activities.

D.needs to have a wide product line, so it can supply parts and components for many products.

E.should have a distinctive competence in production process technology and at least a core competence in manufacturing R&D.

For backward integration to be a cost-saving and profitable strategy, a company must be able to (1) achieve the same scale economies as outside suppliers and (2) match or beat suppliers’ production efficiency with no drop-off in quality.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

42.Vertical integration can lower costs by:

A.expanding supplier power.

B.facilitating the coordination of production flows and avoiding bottlenecks.

C.establishing the framework for operating.

D.creating control factors across the value chain.

E.accommodating shifting buyer preferences.

When there are few suppliers and when the item being supplied is a major component, vertical integration can lower costs by limiting supplier power. Vertical integration can also lower costs by facilitating the coordination of production flows and avoiding bottleneck problems. Furthermore, when a company has proprietary know-how that it wants to keep from rivals, then in-house performance of value-adding activities related to this knowhow is beneficial even if such activities could otherwise be performed by outsiders.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

43.Which of the following is NOT a potential advantage of backward vertical integration?

A.Reduced vulnerability to powerful suppliers (who may be inclined to raise prices at every opportunity)

B.Reduced risks of disruptions in obtaining crucial components or support services

C.Reduced costs

D.Reduced business risk because of controlling a bigger portion of the overall industry value chain

E.Increase in a company’s differentiation capabilities and perhaps achieving a differentiation-based competitive advantage

Backward vertical integration can produce a differentiation-based competitive advantage when performing activities internally contributes to a better-quality product or service offering, improves the caliber of customer service, or in other ways enhances the performance of the final product. On occasion, integrating into more stages along the industry value chain system can add to a company’s differentiation capabilities by allowing it to strengthen its core competencies, better master key skills or strategy-critical technologies, or add features that deliver greater customer value.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

44.Backward vertical integration can produce a:

A.full integration when activities remain the domain of key suppliers.

B.tapered integration if the firm consolidates all activities in-house.

C.differentiation-based competitive advantage when activities enhance the performance of the final product.

D.focused differentiation strategy when the market is broad and the product is a commodity.

E.lower degree of flexibility in accommodating shifting buyer preferences.

Backward vertical integration can produce a differentiation-based competitive advantage when performing activities internally contributes to a better-quality product or service offering, improves the caliber of customer service, or in other ways enhances the performance of the final product. On occasion, integrating into more stages along the industry value chain system can add to a company’s differentiation capabilities by allowing it to strengthen its core competencies, better master key skills or strategy-critical technologies, or add features that deliver greater customer value.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

45.The strategic impetus for forward vertical integration is to:

A.gain better access to end users and better market visibility.

B.achieve the same scale economies as wholesale distributors and/or retail dealers.

C.control price at the retail level.

D.bypass distributors and dealers and sell direct to consumers at the company’s website.

E.build a core competence in mass merchandising.

Like backward integration, forward integration can lower costs by increasing efficiency and bargaining power. In addition, it can allow manufacturers to gain better access to end users, improve market visibility, and include the end user’s purchasing experience as a differentiating feature.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

46.Which of the following is typically the strategic impetus for forward vertical integration?

A.Being able to control the wholesale/retail portion of the industry value chain

B.Experiencing fewer disruptions in the delivery of the company’s products to end users

C.Gaining better access to end users and better market visibility

D.Broadening the company’s product line

E.Allowing the firm access to greater economies of scale

Like backward integration, forward integration can lower costs by increasing efficiency and bargaining power. In addition, it can allow manufacturers to gain better access to end users, improve market visibility, and include the end user’s purchasing experience as a differentiating feature.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

47.Which of the following is NOT a strategic disadvantage of vertical integration?

A.Vertical integration boosts a firm’s capital investment in the industry, thus increasing business risk if the industry becomes unattractive later.

B.Vertical integration backward into parts and components manufacturing can impair a company’s operating flexibility when it comes to changing out the use of certain parts and components.

C.Vertical integration reduces the opportunity for achieving greater product differentiation.

D.Forward or backward integration often calls for radically different skills and business capabilities than the firm possesses.

E.Vertical integration poses all kinds of capacity-matching problems.

Vertical integration has some substantial drawbacks beyond the potential for channel conflict. The most serious drawbacks to vertical integration include the following concerns: slow to embrace technological advances; less flexibility in accommodating shifting buyer preferences; may not enable a company to realize economies of scale; capacity-matching problems; and, calls for developing new types of resources and capabilities.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

48.Bypassing regular wholesale/retail channels in favor of direct sales and Internet retailing can have appeal if it:

A.reinforces the brand, enhances consumer satisfaction, and results in lower prices to end users.

B.can result in better coordination of the firm’s direct sales activity to wholesalers and distributors

C.can establish a retail frontal attack while efficiently managing its backward (defensive) sales orientation.

D.combines the best of all sales channels and provides financial support to distribution allies.

E.creates a channel conflict, thereby providing competitive improvisation.

Bypassing regular wholesale and retail channels in favor of direct sales and Internet retailing can have appeal if it reinforces the brand and enhances consumer satisfaction or if it lowers distribution costs, produces a relative cost advantage over certain rivals, and results in lower selling prices to end users.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

49.A strategy of vertical integration can have substantial drawbacks, including:

A.whether horizontal integration can limit the performance of strategy-critical activities in ways that increase cost, build expertise, protect proprietary know-how, or increase differentiation.

B.raising the firm’s capital investment in the industry and increasing business risk, as well as providing less flexibility in accommodating shifting buyer preferences by locking the firm into relying on its own in-house activities.

C.the environmental costs of coordinating operations across vertical chain activities.

D.loss of technological know-how.

E.the difficulties faced in entering outside vertical and horizontal markets.

The tip of the scales depends on (1) whether vertical integration can enhance the performance of strategy-critical activities in ways that lower cost, build expertise, protect proprietary know-how, or increase differentiation, (2) what impact vertical integration will have on investment costs, flexibility, and response times, (3) what administrative costs will be incurred by coordinating operations across more vertical chain activities, and (4) how difficult it will be for the company to acquire the set of skills and capabilities needed to operate in another stage of the vertical chain.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

50.A strategy of vertical integration can have both important strengths and weaknesses depending on all of the following, EXCEPT:

A.whether it can limit the performance of strategy-critical activities in ways that increase cost, build expertise, protect proprietary know-how, or increase differentiation.

B.the impact on investment costs, flexibility, and response times.

C.the administrative costs of coordinating operations across more vertical chain activities.

D.how difficult it will be for the company to acquire the set of skills and capabilities needed to operate in another stage of the vertical chain.

E.whether competitors outsource any of their value chain activities.

The tip of the scales depends on (1) whether vertical integration can enhance the performance of strategy-critical activities in ways that lower cost, build expertise, protect proprietary know-how, or increase differentiation, (2) what impact vertical integration will have on investment costs, flexibility, and response times, (3) what administrative costs will be incurred by coordinating operations across more vertical chain activities, and (4) how difficult it will be for the company to acquire the set of skills and capabilities needed to operate in another stage of the vertical chain.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

51.An outsourcing strategy:

A.is nearly always a more attractive strategic option than merger and acquisition strategies.

B.carries the substantial risk of raising a company’s costs.

C.carries the substantial risk of making a company overly dependent on its suppliers.

D.increases a company’s risk exposure to changing technology and/or changing buyer preferences.

E.involves farming out certain value chain activities presently performed in-house to outside vendors.

Outsourcing involves contracting out certain value chain activities that are normally performed in-house to outside vendors.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-05 The conditions that favor farming out certain value chain activities to outside parties.
Topic: Outsourcing Strategies

52.The two big drivers of outsourcing are:

A.an increased ability to cut R&D expenses and an increased ability to avoid the problems of strategic alliances.

B.that outsiders can often perform certain activities better or more cheaply, and outsourcing allows a firm to focus its entire energies on those activities that are at the center of its expertise (its core competencies).

C.a desire to reduce the company’s investment in fixed assets and the need to narrow the scope of the company’s in-house competencies and competitive capabilities.

D.the ability to avoid capital investments that accompany vertical integration and a desire to reduce the company’s risk exposure to changing technology and/or changing buyer preferences.

E.that a smaller in-house workforce and a low investment in intellectual capital will produce cost savings.

Outsourcing certain value chain activities makes strategic sense whenever: an activity can be performed better or more cheaply by outside specialists; the activity is not crucial to the firm’s ability to achieve sustainable competitive advantage; the outsourcing improves organizational flexibility and speeds time to market; it reduces the company’s risk exposure to changing technology and buyer preferences; and, it allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-05 The conditions that favor farming out certain value chain activities to outside parties.
Topic: Outsourcing Strategies

53.Outsourcing the performance of value chain activities presently performed in-house to outside vendors and suppliers makes strategic sense EXCEPT when:

A.an activity can be performed better or more cheaply by outside specialists.

B.it allows a company to focus its entire energies on its core business.

C.it restricts a company’s ability to assemble diverse kinds of expertise speedily and efficiently.

D.it reduces the company’s risk exposure to changing technology and/or changing buyer preferences.

E.it allows a company to leverage its key resources.

Outsourcing certain value chain activities makes strategic sense whenever: an activity can be performed better or more cheaply by outside specialists; the activity is not crucial to the firm’s ability to achieve sustainable competitive advantage; the outsourcing improves organizational flexibility and speeds time to market; it reduces the company’s risk exposure to changing technology and buyer preferences; and, it allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-05 The conditions that favor farming out certain value chain activities to outside parties.
Topic: Outsourcing Strategies

54.Which of the following is NOT one of the benefits of outsourcing value chain activities presently performed in-house?

A.Streamlines company operations in ways that improve organizational flexibility and cuts the time it takes to get new products into the marketplace

B.Allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best

C.Helps the company assemble diverse kinds of expertise speedily and efficiently

D.Enables a company to gain better access to end users and better market visibility

E.Improves a company’s ability to innovate

Outsourcing certain value chain activities makes strategic sense whenever: an activity can be performed better or more cheaply by outside specialists; the activity is not crucial to the firm’s ability to achieve sustainable competitive advantage; the outsourcing improves organizational flexibility and speeds time to market; it reduces the company’s risk exposure to changing technology and buyer preferences; and, it allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-05 The conditions that favor farming out certain value chain activities to outside parties.
Topic: Outsourcing Strategies

55.Relying on outsiders to perform certain value chain activities offers such strategic advantages as:

A.ensuring more costly components or services.

B.improving the company’s inability to innovate by allying with “best-in-class” suppliers.

C.reducing the company’s risk exposure to changing technology and/or changing buyer preferences.

D.increasing the firm’s inability to assemble diverse kinds of expertise speedily and efficiently.

E.reducing its information technology and operational costs so that organizational flexibility is maintained.

Outsourcing certain value chain activities makes strategic sense whenever: an activity can be performed better or more cheaply by outside specialists; the activity is not crucial to the firm’s ability to achieve sustainable competitive advantage; the outsourcing improves organizational flexibility and speeds time to market; it reduces the company’s risk exposure to changing technology and buyer preferences; and, it allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-05 The conditions that favor farming out certain value chain activities to outside parties.
Topic: Outsourcing Strategies

56.Outsourcing strategies can offer such advantages as:

A.increasing a company’s ability to strongly differentiate its product and be successful with either a broad differentiation strategy or a focused differentiation strategy.

B.obtaining higher quality and/or cheaper components or services, improving a company’s ability to innovate, and reducing its risk exposure.

C.speeding a company’s entry into foreign markets.

D.permitting greater use of strategic alliances and collaborative partnerships.

E.giving a firm more direct control over the costs of value chain activities.

Outsourcing certain value chain activities makes strategic sense whenever: an activity can be performed better or more cheaply by outside specialists; the activity is not crucial to the firm’s ability to achieve sustainable competitive advantage; the outsourcing improves organizational flexibility and speeds time to market; it reduces the company’s risk exposure to changing technology and buyer preferences; and, it allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-05 The conditions that favor farming out certain value chain activities to outside parties.
Topic: Outsourcing Strategies

57.The big risk of employing an outsourcing strategy is:

A.causing the company to become partially integrated instead of being fully integrated.

B.hollowing out a firm’s own capabilities and losing touch with activities and expertise that contribute fundamentally to the firm’s competitiveness and market success.

C.hurting a company’s R&D capability.

D.putting the company in the position of being a late mover instead of an early mover.

E.increasing the firm’s risk exposure to both supply chain management failures and shifts in the composition of the industry value chain.

The biggest danger of outsourcing is that a company will farm out the wrong types of activities and thereby hollow out its own capabilities.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-05 The conditions that favor farming out certain value chain activities to outside parties.
Topic: Outsourcing Strategies

58.Strategic alliances are:

A.the cheapest means of developing new technologies and getting new products to market quickly.

B.collaborative formal arrangements where two or more companies join forces and agree to work cooperatively toward some strategically relevant objective.

C.a proven means of reducing the costs of performing value chain activities.

D.best used to insulate a company from the impact of the five competitive forces.

E.the best way to help insulate a firm from the adverse impacts of industry driving forces.

A strategic alliance is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

59.Which of the following is defined as a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective?

A.Joint venture

B.Vertical integration

C.Strategic alliance

D.Forward integration

E.Outsourcing

A strategic alliance is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

60.Which of the following is NOT a factor that makes an alliance “strategic” as opposed to just a convenient business arrangement?

A.The alliance is critical to the company’s achievement of an important objective.

B.The alliance helps block a competitive threat.

C.The alliance helps open up important new market opportunities.

D.The alliance helps build, enhance, or sustain a core competence or competitive advantage.

E.The alliance helps the company obtain additional financing on better credit terms.

An alliance becomes “strategic,” as opposed to just a convenient business arrangement, when it serves any of the following purposes: It facilitates achievement of an important business objective (like lowering costs or delivering more value to customers in the form of better quality, added features, and greater durability); It helps build, strengthen, or sustain a core competence or competitive advantage; It helps remedy an important resource deficiency or competitive weakness; It helps defend against a competitive threat, or mitigates a significant risk to a company’s business; It increases bargaining power over suppliers or buyers; It helps open up important new market opportunities; and, It speeds the development of new technologies and/or product innovations.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

61.The formation of a new corporation, jointly owned by two or more companies agreeing to share in the revenues, expenses, and control, is known as:

A.a joint venture.

B.a limited liability company.

C.a partnership.

D.sole proprietorship.

E.an S corporation.

A joint venture entails forming a new corporate entity that is jointly owned by two or more companies that agree to share in the revenues, expenses, and control of the newly formed entity.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

62.Entering into strategic alliances and collaborative partnerships can be competitively valuable because:

A.working closely with outsiders is essential in developing new technologies and new products in virtually every industry.

B.cooperative arrangements with other companies are very helpful in racing against rivals to build a strong global presence and/or racing to seize opportunities on the frontiers of advancing technology.

C.they represent highly effective ways to achieve low-cost leadership and capture first-mover advantages.

D.they are a powerful way for companies to build loyalty and goodwill among customers with diverse needs and expectations.

E.they are quite effective in helping a company transfer the risks of threatening external developments to other companies.

Companies are employing strategic alliances and partnerships to extend their scope of operations via international expansion. It lowers investment costs and risks in comparison to going it alone. Strategic cooperation is a much-favored approach in industries where new technological developments are occurring at a furious pace along many different paths and where advances in one technology spill over to affect others (often blurring industry boundaries).

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

63.An alliance becomes “strategic” as opposed to just a convenient business arrangement when it serves all of the following strategic purposes EXCEPT:

A.builds, sustains, or enhances a core competence or competitive advantage.

B.blocks a competitive threat.

C.increases the bargaining power of alliance members over suppliers or buyers.

D.opens up important new market opportunities.

E.contracts out certain value chain activities that are normally performed in-house to outside vendors.

An alliance becomes “strategic,” as opposed to just a convenient business arrangement, when it serves any of the following purposes: it facilitates achievement of an important business objective (like lowering costs or delivering more value to customers in the form of better quality, added features, and greater durability); it helps build, strengthen, or sustain a core competence or competitive advantage; it helps remedy an important resource deficiency or competitive weakness; it helps defend against a competitive threat, or mitigates a significant risk to a company’s business; it increases bargaining power over suppliers or buyers; it helps open up important new market opportunities; and, it speeds the development of new technologies and/or product innovations.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

64.The best strategic alliances:

A.are highly selective, focusing on particular value chain activities and on obtaining a particular competitive benefit.

B.are those whose purpose is to create an industry key success factor.

C.are those which help a company move quickly from one strategic group to another.

D.involve joining forces in R&D to develop new technologies, cheaper than a company could develop the technology on its own.

E.aim at raising an industry’s barriers to entry.

The best alliances are highly selective, focusing on particular value chain activities and on obtaining a specific competitive benefit. They enable a firm to build on its strengths and to learn.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

65.Which of the following is NOT a strategically beneficial reason why a company may enter into strategic partnerships or cooperative arrangements with key suppliers, distributors, or makers of complementary products?

A.To improve access to new markets

B.To expedite the development of promising new technologies or products

C.To enable greater opportunities for employee advancement

D.To improve supply chain efficiency

E.To overcome disadvantages of small production volumes that limit scale economies and low production costs

Strategic partnerships or cooperative arrangements: facilitate achievement of an important business objective (like lowering costs or delivering more value to customers in the form of better quality, added features, and greater durability); help build, strengthen, or sustain a core competence or competitive advantage; help remedy an important resource deficiency or competitive weakness; help defend against a competitive threat, or mitigate a significant risk to a company’s business; increase bargaining power over suppliers or buyers; help open up important new market opportunities; and, speed the development of new technologies and/or product innovations.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

66.Companies racing against rivals for global market leadership need strategic alliances and collaborative partnerships with companies in foreign countries to:

A.combat the bargaining power of foreign suppliers and help defend against the competitive threat of substitute products produced by foreign rivals.

B.help raise needed financial capital from foreign banks and use the brand names of their partners to make sales to foreign buyers.

C.get into critical country markets quickly, gain inside knowledge about unfamiliar markets and cultures, and access valuable skills and competencies that are concentrated in particular geographic locations.

D.help wage price wars against foreign competitors.

E.exercise better control over efforts to revamp the global industry value chain.

Strategic partnerships or cooperative arrangements: facilitate achievement of an important business objective (like lowering costs or delivering more value to customers in the form of better quality, added features, and greater durability); help build, strengthen, or sustain a core competence or competitive advantage; help remedy an important resource deficiency or competitive weakness; help defend against a competitive threat, or mitigate a significant risk to a company’s business; increase bargaining power over suppliers or buyers; help open up important new market opportunities; and, speed the development of new technologies and/or product innovations.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

67.A company racing to seize opportunities on the frontiers of advancing technology often utilizes strategic alliances and collaborative partnerships to:

A.discourage rival companies from merging with or acquiring the very companies that it is partnering with.

B.reduce overall business risk and raise entry barriers into the newly emerging industry.

C.help master new technologies and build new expertise and competencies, establish a stronger beachhead for participating in the target industry, and open up broader opportunities in the target industry.

D.help defeat competitors that are employing broad differentiation strategies.

E.enhance its chances of achieving global low-cost leadership.

Whenever industries are experiencing high-velocity technological advances in many areas simultaneously, firms find it virtually essential to have cooperative relationships with other enterprises to stay on the leading edge of technology, even in their own area of specialization. In industries like these, alliances are all about fast cycles of learning, gaining quick access to the latest round of technological know-how, and developing dynamic capabilities. In bringing together firms with different skills and knowledge bases, alliances open up learning opportunities that help partner firms better leverage their own resources and capabilities.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

68.Which of the following is NOT one of the factors that affects whether a strategic alliance will be successful and realize its intended benefits?

A.Picking a good partner

B.Recognizing that the alliance must benefit both sides

C.Minimizing the amount of resources that the partners commit to the alliance

D.Ensuring that both parties live up to their commitments

E.Structuring the decision-making process so actions can be taken swiftly when needed

The merits of strategic alliances and collaborative partnerships are: Picking a good partner; being sensitive to cultural differences; recognizing that the alliance must benefit both sides; ensuring that both parties live up to their commitments; structuring the decision-making process so that actions can be taken swiftly when needed; managing the learning process and then adjusting the alliance agreement over time to fit new circumstances.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

69.Capturing the benefits of strategic alliances is not easy, but success generally is a function of all of the following factors, EXCEPT:

A.being sensitive to cultural differences

B.managing the learning process and allowing for emerging circumstances

C.picking a good partner with good chemistry

D.recognizing that the alliance must benefit both sides

E.ensuring the division of work is directly apportioned to appropriate skill sets

The merits of strategic alliances and collaborative partnerships are: Picking a good partner; being sensitive to cultural differences; recognizing that the alliance must benefit both sides; ensuring that both parties live up to their commitments; structuring the decision-making process so that actions can be taken swiftly when needed; managing the learning process and then adjusting the alliance agreement over time to fit new circumstances.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

70.Which of the following is NOT a typical reason that many outsourcing alliances prove unstable or break apart?

A.Anticipated gains may fail to materialize due to an overly optimistic view of the synergies.

B.Anticipated gains may fail to materialize due to a poor fit in terms of the combination of resources and capabilities.

C.A partner can gain access to a company’s proprietary knowledge base, technologies, or trade secrets.

D.The partners may disagree over how to divide the profits gained from joint collaboration.

E.There is a risk of becoming dependent on other companies.

When outsourcing is conducted via alliances, there is no less risk of becoming dependent on other companies for essential expertise and capabilities—indeed, this may be the Achilles’ heel of such alliances. Moreover, there are additional pitfalls to collaborative arrangements. The greatest danger is that a partner will gain access to a company’s proprietary knowledge base, technologies, or trade secrets, enabling the partner to match the company’s core strengths and costing the company its hard-won competitive advantage.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Outsourcing Strategies

71.Experience indicates that strategic alliances:

A.are generally successful.

B.work well in cooperatively developing new technologies and new products but seldom work well in promoting greater supply chain efficiency.

C.work best when they are aimed at achieving a mutually beneficial competitive advantage for the allies.

D.can suffer culture clash and integration problems due to different management styles and business practices.

E.are rarely useful in helping a company win the race for global industry leadership.

Unless there is respect among all the parties for cultural differences, including those stemming from different local cultures and local business practices, productive working relationships are unlikely to emerge.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

72.The Achilles heel (or biggest disadvantage/pitfall) of relying heavily on alliances and cooperative strategies is:

A.that partners will not fully cooperate or share all they know, preferring instead to guard their most valuable information and protect their more valuable know-how.

B.becoming dependent on other companies for essential expertise and capabilities.

C.the added time and extra expenses associated with engaging in collaborative efforts.

D.having to compromise the company’s own priorities and strategies in reaching agreements with partners.

E.the collaborative arrangements will not live up to expectations.

When outsourcing is conducted via alliances, there is no less risk of becoming dependent on other companies for essential expertise and capabilities—indeed, this may be the Achilles’ heel of such alliances.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

73.The principal advantages of strategic alliances over vertical integration or horizontal mergers/acquisitions are:

A.resource pooling and risk sharing, more adaptive response capabilities, and greater speed of deployment.

B.potential profitability of the alliance and related experience-curve economics.

C.the facilitation of best practices, more production capacity, and relevant synergistic savings.

D.the transactional and relational concept of operating practices and competencies.

E.E)material additions to a company’s technological capabilities, strengthening of the firm’s competitive position, and boosting of its profitability.

The principal advantages of strategic alliances over vertical integration or horizontal mergers and acquisitions are threefold: they lower investment costs and risks for each partner by facilitating resource pooling and risk sharing; they are more flexible organizational forms and allow for a more adaptive response to changing conditions; and they are more rapidly deployed.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

74.A company that has greater success in managing its strategic alliance can credit all of the following, EXCEPT:

A.establishing strong interpersonal relationships to facilitate communication.

B.incorporating contractual safeguards.

C.making opportunities for learning a routine management process.

D.establishing a system to manage alliances in a systematic fashion.

E.creating organizational learning barriers across boundaries.

Companies that have greater success in managing their strategic alliances and partnerships often credit the following factors: they create a system for managing their alliance; they build relationships with their partners and establish trust; they protect themselves from the threat of opportunism by setting up safeguards; they make commitments to their partners and see that their partners do the same; they make learning a routine part of the management process.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

75.A company that fails to manage its strategic alliance probably has:

A.incorporated contractual safeguards.

B.made opportunities for learning a routine management process.

C.created a system to manage alliances in a systematic fashion.

D.established strong interpersonal relationships and established trust.

E.refrained from making commitments to its partners and ensured they do the same.

Companies that have greater success in managing their strategic alliances and partnerships often credit the following factors: they create a system for managing their alliance; they build relationships with their partners and establish trust; they protect themselves from the threat of opportunism by setting up safeguards; they make commitments to their partners and see that their partners do the same; they make learning a routine part of the management process.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

76.Alliance management is considered an organizational capability and:

A.develops over time, out of effort and learning.

B.decreases a company’s knowledge assets.

C.creates successful strategic alliances.

D.decreases a company’s knowledge capabilities.

E.rapidly transfers assets into the strategic alliance.

Alliance management is an organizational capability, much like any other. It develops over time, out of effort, experience, and learning. For this reason, it is wise to begin slowly, with simple alliances designed to meet limited, short-term objectives.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

77.Strategic offensives should, as a general rule, be grounded in a company’s strategic assets and employ a company’s strengths to attack rivals. Define and discuss the term strategic assets and its significance in gaining a competitive advantage.

Strategic assets are a company’s most valuable resources and capabilities such as a better-known brand name, a more efficient production or distribution system, greater technological capability, or a superior reputation for quality. Ignoring the need to tie a strategic offensive to a company’s competitive strengths and what it does best is like going to war with a popgun—the prospects for success are dim. For instance, it is foolish for a company with relatively high costs to employ a price-cutting offensive. Likewise, it is ill advised to pursue a product innovation offensive without having proven expertise in R&D and new product development.

AACSB: Analytical Thinking
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

78.There are a number of offensive strategy options for improving market positions using cost-based and blue-ocean type strategies. Define the terms and suggest ways in which the strategies could be operationalized.

Cost-based strategies involve lowering prices to gain market share. Lower prices can produce market share gains if competitors don’t respond with price cuts of their own and if the challenger convinces buyers that its product is just as good or better. Price-cutting offensives should be initiated only by companies that have first achieved a cost advantage. A blue-ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new market segment that renders existing competitors irrelevant and allows a company to create and capture altogether new demand. A “blue ocean” is a market space where the industry does not really exist yet, is untainted by competition, and offers wide-open opportunity for profitable and rapid growth if a company can create new demand with a new type of product offering. A terrific example of such blue-ocean market space is the online auction industry that eBay created and now dominates.

AACSB: Analytical Thinking
AACSB: Knowledge Application
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

79.What is a blue-ocean strategy and what is its appeal?

A blue-ocean strategy seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new market segment that renders existing competitors irrelevant and allows a company to create and capture altogether new demand. This strategy views the business universe as consisting of two distinct types of market space. One is where industry boundaries are well defined, the competitive rules of the game are understood, and companies try to outperform rivals by capturing a bigger share of existing demand. In such markets, intense competition constrains a company’s prospects for rapid growth and superior profitability since rivals move quickly to either imitate or counter the successes of competitors. The second type of market space is a “blue ocean,” where the industry does not really exist yet, is untainted by competition, and offers wide-open opportunity for profitable and rapid growth if a company can create new demand with a new type of product offering. A terrific example of such blue-ocean market space is the online auction industry that eBay created and now dominates.

AACSB: Analytical Thinking
Blooms: Evaluate
Difficulty: 2 Medium
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

80.Identify and briefly discuss two “best targets” for offensive attacks by companies.

Two “best targets” for offensive attacks by companies are:
· Runner-up firms with weaknesses in areas where the challenger is strong. These firms are an especially attractive target when a challenger’s resources and capabilities are well suited to exploiting their weaknesses.
· Struggling enterprises that are on the verge of going under. Challenging a hard-pressed rival in ways that further sap its financial strength and competitive position can weaken its resolve and hasten its exit from the market. In this type of situation, it makes sense to attack the rival in the market segments where it makes the most profits, since this will threaten its survival the most.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.
Topic: Strategic Offenses

81.Discuss why timing of strategic moves is important.

When to make a strategic move is often as crucial as what move to make. Timing is especially important when first-mover advantages or disadvantage sexist. Under certain conditions, being first to initiate a strategic move can have a high payoff in the form of a competitive advantage that later movers can’t dislodge. If the market responds well to its initial move, the pioneer will benefit from a monopoly position (by virtue of being first to market) that enables it to recover its investment costs and make an attractive profit. If the firm’s pioneering move gives it a competitive advantage that can be sustained even after other firms enter the market space, its first-mover advantage will be greater still.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

82.Identify and briefly explain what is meant by each of the following terms:
a. horizontal scope
b. vertical scope
c. scope of the firmHorizontal scope is the range of product and service segments that a firm serves within its focal market. Vertical scope is the extent to which a firm’s internal activities encompass the range of activities that makeup an industry’s entire value chain system, from raw material production to final sales and service activities. Scope of the firm refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.

AACSB: Analytical Thinking
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: Scope of Operations

83.Identify and briefly explain what is meant by each of the following terms:
a. a first-mover advantage
b. a first-mover disadvantage (or late-mover advantage)First-mover advantage occurs if the market responds well to a company’s initial move. The pioneer will benefit from a monopoly position (by virtue of being first to market) that enables it to recover its investment costs and make an attractive profit. If the firm’s pioneering move gives it a competitive advantage that can be sustained even after other firms enter the market space, its first-mover advantage will be greater still. First-mover disadvantage(or late-mover advantage) occurs when the costs of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs.

AACSB: Analytical Thinking
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.
Topic: First-Mover Advantages and Disadvantages

84.What are mergers and/or acquisitions? How do they contribute to enhancing a company’s position?

Mergers and acquisitions are much-used strategic options to strengthen a company’s market position. Horizontal mergers and acquisitions, which involve combining the operations of firms within the same product or service market, provide an effective means for firms to rapidly increase the scale and horizontal scope of their core business. Horizontal mergers and acquisitions can strengthen a firm’s competitiveness in five ways: (1) by improving the efficiency of its operations, (2) by heightening its product differentiation, (3) by reducing market rivalry, (4) by increasing the company’s bargaining power over suppliers and buyers, and (5) by enhancing its flexibility and dynamic capabilities.

AACSB: Analytical Thinking
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

85.What are the general strategic objectives of merger and acquisition strategies?

The general strategic objectives of merger and acquisition strategies are:
· Creating a more cost-efficient operation out of the combined companies.
· Expanding a company’s geographic coverage.
· Extending the company’s business into new product categories.
· Gaining quick access to new technologies or other resources and capabilities.
· Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.
Topic: Acquisitions and Mergers

86.What are the strategic advantages of a backward vertical integration strategy?

Backward vertical integration can produce a differentiation-based competitive advantage when performing activities internally contributes to a better-quality product or service offering, improves the caliber of customer service, or in other ways enhances the performance of the final product. On occasion, integrating into more stages along the industry value chain system can add to a company’s differentiation capabilities by allowing it to strengthen its core competencies, better master key skills or strategy-critical technologies, or add features that deliver greater customer value.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

87.What are the strategic disadvantages of a backward vertical integration strategy?

It is harder than one might think to generate cost savings or improve profitability by integrating backward into activities such as the manufacture of parts and components(which could otherwise be purchased from suppliers with specialized expertise in making the parts and components). For backward integration to be a cost-saving and profitable strategy, a company must be able to (1) achieve the same scale economies as outside suppliers and (2) match or beat suppliers’ production efficiency with no drop off in quality. Neither outcome is easily achieved. To begin with, a company’s in-house requirements are often too small to reach the optimum size for low-cost operation. Furthermore, matching the production efficiency of suppliers is fraught with problems when suppliers have considerable production experience, when the technology they employ has elements that are hard to master, and/or when substantial R&D expertise is required to develop next-version components or keep pace with advancing technology in components production.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

88.What are the strategic advantages of a forward vertical integration strategy?

Forward integration can lower costs by increasing efficiency and bargaining power. In addition, it can allow manufacturers to gain better access to end users, improve market visibility, and include the end user’s purchasing experience as a differentiating feature. Some producers have opted to integrate forward by selling directly to customers at the company’s website. Bypassing regular wholesale and retail channels in favor of direct sales and Internet retailing can have appeal if it reinforces the brand and enhances consumer satisfaction or if it lowers distribution costs, produces a relative cost advantage over certain rivals, and results in lower selling prices to end users.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

89.What are the strategic disadvantages of a forward vertical integration strategy?

The most serious drawbacks to vertical integration include the following concerns:
• Vertical integration raises a firm’s capital investment in the industry, thereby increasing business risk.
• Vertically integrated companies are often slow to embrace technological advances or more efficient production methods when they are saddled with older technology or facilities.
• Vertical integration can result in less flexibility in accommodating shifting buyer preferences.
• Vertical integration may not enable a company to realize economies of scale if its production levels are below the minimum efficient scale.
• Vertical integration poses all kinds of capacity-matching problems.
• Integration forward or backward often calls for developing new types of resources and capabilities.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

90.What are the merits of outsourcing the performance of certain value chain activities as opposed to performing them in-house? Under what circumstances does outsourcing make good strategic sense?

Outsourcing strategies narrow the scope of a business’s operations, in terms of what activities are performed internally. A company can improve its cost position and competitiveness by performing a broader range of industry value chain activities in-house rather than having such activities performed by outside suppliers. When there are few suppliers and when the item being supplied is a major component, vertical integration can lower costs by limiting supplier power. Vertical integration can also lower costs by facilitating the coordination of production flows and avoiding bottleneck problems. Furthermore, when a company has proprietary know-how that it wants to keep from rivals, then in-house performance of value-adding activities related to this know how is beneficial even if such activities could otherwise be performed by outsiders.
Outsourcing certain value chain activities makes strategic sense whenever:
• An activity can be performed better or more cheaply by outside specialists.
• The activity is not crucial to the firm’s ability to achieve sustainable competitive advantage.
• The outsourcing improves organizational flexibility and speeds time to market.
• It reduces the company’s risk exposure to changing technology and buyer preferences.
• It allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Learning Objective: 06-05 The conditions that favor farming out certain value chain activities to outside parties.
Topic: Outsourcing Strategies
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

91.Identify and explain at least two drawbacks to forming a strategic alliance.

Strategic alliances suffer from some drawbacks. Anticipated gains may fail to materialize due to an overly optimistic view of the synergies or a poor fit in terms of the combination of resources and capabilities. When outsourcing is conducted via alliances, there is no less risk of becoming dependent on other companies for essential expertise and capabilities—indeed, this may be the Achilles’ heel of such alliances. Moreover, there are additional pitfalls to collaborative arrangements. The greatest danger is that a partner will gain access to a company’s proprietary knowledge base, technologies, or trade secrets, enabling the partner to match the company’s core strengths and costing the company its hard-won competitive advantage.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

92.What are the three principal advantages of strategic alliances over vertical integration or mergers/acquisitions?

The principal advantages of strategic alliances over vertical integration or horizontal mergers and acquisitions are threefold:
1. They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing. This can be particularly important when investment needs and uncertainty are high, such as when a dominant technology standard has not yet emerged.
2. They are more flexible organizational forms and allow for a more adaptive response to changing conditions. Flexibility is essential when environmental conditions or technologies are changing rapidly. Moreover, strategic alliances under such circumstances may enable the development of each partner’s dynamic capabilities.
3. They are more rapidly deployed—a critical factor when speed is of the essence. Speed is of the essence when there is a winner-take-all type of competitive situation, such as the race for a dominant technological design or a race down a steep experience curve, where there is a large first-mover advantage.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

93.What does a company racing for global market leadership need strategic alliances for?

Strategic alliances and cooperative partnerships provide one way to gain some of the benefits offered by vertical integration, outsourcing, and horizontal mergers and acquisitions while minimizing the associated problems. Increasingly, companies are also employing strategic alliances and partnerships to extend their scope of operations via international expansion and diversification strategies. Strategic alliances help lower a company’s investment costs and risks in comparison to going it alone. It allows two companies to achieve jointly the global scale required for cost competitiveness.

AACSB: Analytical Thinking
AACSB: Knowledge Application
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

94.What does a company racing to stake out a strong position in an industry of the future need strategic alliances for?

Strategic cooperation is a much-favored approach in industries where new technological developments are occurring at a furious pace along many different paths and where advances in one technology spill over to affect others (often blurring industry boundaries). Whenever industries are experiencing high-velocity technological advances in many areas simultaneously, firms find it virtually essential to have cooperative relationships with other enterprises to stay on the leading edge of technology, even in their own area of specialization. In industries like these, alliances are all about fast cycles of learning, gaining quick access to the latest round of technological know-how, and developing dynamic capabilities. In bringing together firms with different skills and knowledge bases, alliances open up learning opportunities that help partner firms better leverage their own resources and capabilities.

AACSB: Analytical Thinking
AACSB: Knowledge Application
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

95.Identify at least three factors that can aid companies in forming a successful strategic alliance.

Three factors that can aid companies in forming a successful strategic alliance are:
1. Recognizing that the alliance must benefit both sides. Information must be shared as well as gained, and the relationship must remain forthright and trustful. If either partner plays games with information or tries to take advantage of the other, the resulting friction can quickly erode the value of further collaboration. Open, trustworthy behavior on both sides is essential for fruitful collaboration.
2. Ensuring that both parties live up to their commitments. Both parties have to deliver on their commitments for the alliance to produce the intended benefits. The division of work has to be perceived as fairly apportioned, and the caliber of the benefits received on both sides has to be perceived as adequate.
3. Structuring the decision-making process so that actions can be taken swiftly when needed. In many instances, the fast pace of technological and competitive changes dictates an equally fast decision-making process. If the parties get bogged down in discussions or in gaining internal approval from higher-ups, the alliance can turn into an anchor of delay and inaction.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

96.Identify and briefly discuss four disadvantages of a vertical integration system.

The most serious drawbacks to vertical integration include the following concerns:
• Vertical integration raises a firm’s capital investment in the industry, thereby increasing business risk.
• Vertically integrated companies are often slow to embrace technological advances or more efficient production methods when they are saddled with older technology or facilities. A company that obtains parts and components from outside suppliers can always shop the market for the newest, best, and cheapest parts, whereas a vertically integrated firm with older plants and technology may choose to continue making suboptimal parts rather than face the high costs of premature abandonment.
• Vertical integration can result in less flexibility in accommodating shifting buyer preferences. It is one thing to design out a component made by a supplier and another to design out a component being made in-house (which can mean laying off employees and writing off the associated investment in equipment and facilities). Integrating forward or backward locks a firm into relying on its own in-house activities and sources of supply.
• Vertical integration may not enable a company to realize economies of scale if its production levels are below the minimum efficient scale. Small companies in particular are likely to suffer a cost disadvantage by producing in-house.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration

97.What are the advantages of strategic alliances and collaborative partnerships with key suppliers?

Typically, strategic alliances involve shared financial responsibility, joint contribution of resources and capabilities, shared risk, shared control, and mutual dependence.
Advantages of a strategic alliance are:
1. It facilitates achievement of an important business objective (like lowering costs or delivering more value to customers in the form of better quality, added features, and greater durability).
2. It helps build, strengthen, or sustain a core competence or competitive advantage.
3. It helps remedy an important resource deficiency or competitive weakness.
4. It helps defend against a competitive threat, or mitigates a significant risk to a company’s business.
5. It increases bargaining power over suppliers or buyers.
6. It helps open up important new market opportunities.
7. It speeds the development of new technologies and/or product innovations.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

98.Instead of entering into an alliance or partnership, Smith Limited opts to merge with Design Limited. What are the reasons for preferring a merger to an alliance or partnership? Explain the other organizational mechanisms that are also preferable to alliances.

There are circumstances when other organizational mechanisms are preferable to alliances and partnering. Mergers and acquisitions are especially suited for situations in which strategic alliances or partnerships do not go far enough in providing a company with access to needed resources and capabilities. Ownership ties are more permanent than partnership ties, allowing the operations of the merger or acquisition participants to be tightly integrated and creating more in-house control and autonomy. Other organizational mechanisms are also preferable to alliances when there is limited property rights protection for valuable know-how and when companies fear being taken advantage of by opportunistic partners.

AACSB: Analytical Thinking
AACSB: Knowledge Application
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

99.What are the merits of strategic alliances and collaborative partnerships for companies racing to seize opportunities in an industry of the future? Under what circumstances do they make sense? How do they contribute to competitive advantage?

The merits of strategic alliances and collaborative partnerships are: Picking a good partner; being sensitive to cultural differences; recognizing that the alliance must benefit both sides; ensuring that both parties live up to their commitments; structuring the decision-making process so that actions can be taken swiftly when needed; managing the learning process and then adjusting the alliance agreement over time to fit new circumstances.
Strategic cooperation is a much-favored approach in industries where new technological developments are occurring at a furious pace along many different paths and where advances in one technology spill over to affect others (often blurring industry boundaries). Whenever industries are experiencing high-velocity technological advances in many areas simultaneously, firms find it virtually essential to have cooperative relationships with other enterprises to stay on the leading edge of technology, even in their own area of specialization. In industries like these, alliances are all about fast cycles of learning, gaining quick access to the latest round of technological know-how, and developing dynamic capabilities. In bringing together firms with different skills and knowledge bases, alliances open up learning opportunities that help partner firms better leverage their own resources and capabilities.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

100.Identify and briefly discuss three factors a company must consider in order to capture the benefits of engaging in strategic alliances.

In order to capture the benefits of engaging in strategic alliances a company must:
1. Pick a good partner. A good partner must bring complementary strengths to the relationship. To the extent that alliance members have non-overlapping strengths, there is greater potential for synergy and less potential for coordination problems and conflict. In addition, a good partner needs to share the company’s vision about the overall purpose of the alliance and to have specific goals that either match or complement those of the company. Strong partnerships also depend on good chemistry among key personnel and compatible views about how the alliance should be structured and managed.
2. Be sensitive to cultural differences. Cultural differences among companies can make it difficult for their personnel to work together effectively. Cultural differences can be problematic among companies from the same country, but when the partners have different national origins, the problems are often magnified. Unless there is respect among all the parties for cultural differences, including those stemming from different local cultures and local business practices, productive working relationships are unlikely to emerge.
3. Recognize that the alliance must benefit both sides. Information must be shared as well as gained, and the relationship must remain forthright and trustful. If either partner plays games with information or tries to take advantage of the other, the resulting friction can quickly erode the value of further collaboration. Open, trustworthy behavior on both sides is essential for fruitful collaboration.

AACSB: Analytical Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.
Topic: Strategic Alliances

Chapter 06 Test Bank Summary

Category# of Questions
AACSB: Analytical Thinking99
AACSB: Knowledge Application4
AACSB: Reflective Thinking3
Accessibility: Keyboard Navigation76
Blooms: Analyze1
Blooms: Apply7
Blooms: Evaluate1
Blooms: Remember21
Blooms: Understand70
Difficulty: 1 Easy36
Difficulty: 2 Medium49
Difficulty: 3 Hard16
Learning Objective: 06-01 Whether and when to pursue offensive or defensive strategic moves to improve a company’s market position.20
Learning Objective: 06-02 When being a first mover or a fast follower or a late mover is most advantageous.14
Learning Objective: 06-03 The strategic benefits and risks of expanding a company’s horizontal scope through mergers and acquisitions.10
Learning Objective: 06-04 The advantages and disadvantages of extending the company’s scope of operations via vertical integration.22
Learning Objective: 06-05 The conditions that favor farming out certain value chain activities to outside parties.8
Learning Objective: 06-06 When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing.28
Topic: Acquisitions and Mergers10
Topic: Defensive Strategies4
Topic: First-Mover Advantages and Disadvantages10
Topic: Outsourcing Strategies9
Topic: Rivalry and Competition3
Topic: Scope of Operations4
Topic: Strategic Alliances27
Topic: Strategic Offenses13
Topic: Vertical Integration, Forward Vertical Integration and Backward Vertical Integration22

Chapter 07 Test Bank

Student: ___________________________________________________________________________

1.The reason the world economy is globalizing at an accelerated pace is because:

A.countries previously open to foreign companies have closed their markets.

B.countries that previously had market or mixed economies now embrace planned economies.

C.information technology expands the importance of geographic distance.

D.growth-minded companies are racing to build stronger competitive positions in the markets of more countries.

E.countries opposed to market or mixed economies have stringent trade barriers in place.

2.The reasons why a company opts to expand outside its home market include all of the following EXCEPT:

A.gaining access to new customers for the company’s products/services.

B.spreading its business risk across a wider market base.

C.achieving lower costs through economies of scale, experience, and increased purchasing power.

D.exploiting its core competencies and capabilities.

E.identifying resources and capabilities in the company’s home market.

3.Exxon Mobil enters into a pact with Gazprom, the world’s largest natural gas extractor, to set up a processing unit in Moscow. Which of the following is most likely the reason for Exxon Mobil to opt for this strategic alliance?

A.To gain access to new customers

B.To scale back its core competencies

C.To restrict its factors of production

D.To gain access to low-cost inputs of production

E.To better compete with Gasprom

4.Why do companies decide to enter a foreign market?

A.To capture economies of scale in product development, manufacturing, or marketing

B.To raise input costs through greater pooled purchasing power

C.To decrease the rate at which they accumulate experience and move up the learning curve

D.To concentrate risk within a broader base of countries, especially when sales are down in one area and the company can undermine sales elsewhere

E.To exploit the natural resources found within its home market

5.Which of the following is NOT a reason why a company decides to enter foreign markets?

A.To spread business risk across a wider geographic market base

B.To capitalize on company competencies and capabilities

C.To achieve lower costs through economies of scale, experience, and increased purchasing power

D.To impart technical knowledge to high-cost human resources in developing nations

E.To gain access to more buyers for the company’s products/services

6.Which of the following is NOT a reason why crafting a strategy to compete in one or more foreign markets is inherently complex?

A.Because factors that affect industry competitiveness vary from country to country

B.Because of the potential for location-based advantages to conducting value chain activities in certain countries

C.Because different government policies and economic conditions make the business climate more favorable in some countries than others

D.Because of the risks for shifts in currency exchange rates

E.Because similarities in buyer tastes and preferences facilitate standardization of products and services

7.Which of the following is NOT an accurate statement as concerns competing in the markets of foreign countries?

A.Localizing a global company’s product offerings country-by-country leads to low-cost advantage.

B.There are country-to-country differences in consumer buying habits and buyer tastes and preferences.

C.A company must contend with fluctuating exchange rates and country-to-country variations in host government restrictions and requirements.

D.Product designs suitable for one country are often inappropriate in another.

E.Market growth rates vary from country to country.

8.The diamond framework is NOT LIKELY to answer which of the following questions about competing on an international basis?

A.Where will the foreign entrants come from?

B.Which countries have the weakest foreign rivals?

C.What are the attributes of a country’s business environment?

D.What location of value chain activities is most beneficial?

E.What are the disadvantages of allowing foreign competition?

9.Competing in the markets of foreign countries generally does NOT involve which of the following?

A.Country-to-country differences in consumer buying habits and buyer tastes and preferences

B.Country-to-country variations in host government restrictions and requirements and fluctuating exchange rates

C.Whether to customize the company’s offerings in each different country market or whether to offer a mostly standardized product worldwide

D.In which countries to locate company operations for maximum locational advantage, given country-to-country variations in wage rates, worker productivity, energy costs, tax rates, and the like

E.Crafting a multidomestic strategy that works just as well in one country as in another and that also has the appeal of turning the world market into a mostly homogeneous market

10.One of the biggest strategic challenges to competing in the international arena includes:

A.how to leverage the opportunities arising from shifting exchange rates.

B.how to charge the same price in all country markets.

C.how to identify foreign firms licensed to produce and distribute the company’s products.

D.whether to offer a standardized product worldwide or a customized product offering in each different country market.

E.whether to pursue a franchising strategy or a joint venture strategy.

11.What aspect of the diamond framework is MOST LIKELY responsible for GlenmarkPharma setting up manufacturing facilities in the United States, the world’s largest market for pharmaceuticals?

A.Licensing strategies

B.Demand conditions

C.Joint venture strategies

D.Franchising strategies

E.Firm strategy, structure, and rivalry

12.Which of the following is NOT a factor analyzed and relied on by firms when developing competitive strength in a foreign market?

A.The relative size of the market, its growth potential, and the nature of domestic buyers’ needs and wants

B.The availability, quality, and cost of raw materials and other inputs that firms will require to produce their products and services

C.The development of different styles of management, organization, and strategy

D.The degree of collaboration with key suppliers and the greater the knowledge sharing throughout the related-industry cluster

E.The level of industry-related support activities to foster customization of products and services

13.Which of the following exemplifies location-based advantage for the companies competing on an international basis?

A.Microsemi Corporation acquires California based Actel Corporation.

B.RBC Wealth Management closes operations in South Florida.

C.Samsung diversifies and ventures into textiles and food processing.

D.Hyundai signs a memorandum of understanding with the government of South Korea to halt exports.

E.De Beers sets up operations in the mining region of South Africa.

14.The diamond framework can be used to reveal the answers to all of the following that are important for competing on an international basis EXCEPT:

A.where foreign entrants into an industry are most likely to come from.

B.how to formulate an exit strategy to push foreign competitors out of the market.

C.which countries’ foreign rivals are likely to be the weakest.

D.how managers can decide which foreign markets to enter first.

E.where to locate different value chain activities so they are the most beneficial.

15.Apollo Tires sets up a manufacturing unit in Mexico. Following this, Renault-Nissan signs a supply contract with the tire multinational. In which of the following ways is Renault-Nissan likely to gain from the pact?

A.Different styles of management, organization, and strategy

B.Knowledge sharing within same value chain system

C.Availability of natural resources at low cost

D.Growth potential and large size of the market

E.Government policies in the host country

16.Which of the following is LIKELY to be viewed as a pro-business government policy from the perspective of companies competing on an international basis?

A.Argentina increases its interest rate on loans to foreign entrants from 15% to 19%.

B.The European Union imposes a 16% tariff on the import of agricultural produce.

C.Australia introduces a permanent employer-sponsored visa program for skilled manpower.

D.Denmark levies a per metric ton carbon tax on electricity.

E.The Chinese government favors partial local ownership of foreign-owned companies.

17.Which of the following is NOT a typical host government requirement that affects the operations of foreign companies?

A.Establishing local content requirement on goods made inside their borders by foreign companies

B.Having rules and policies that protect local companies from foreign competition

C.Placing restrictions on exports to ensure adequate local supplies

D.Requiring foreign companies to use vertical integration to support operations of local companies

E.Imposing burdensome tax structures and regulatory requirements upon foreign companies doing business within their borders

18.The difference between political risks and economic risks is that:

A.political risks stem from instability or weakness in national governments, while economic risks stem from the stability of a country’s monetary system, and its economic and regulatory policies.

B.political risks stem from stability in foreign business, while economic risks stem from an excess of property right protections.

C.political risks stem from hostility to foreign currencies, while economic risks stem from the instability of the monetary system.

D.political risks stem from exchange rate fluctuations, while economic risks stem from hostility to foreign business.

E.political risks stem from the stability of a country’s monetary system, while economic risks stem from instability in national business.

19.A U.S. manufacturer that exports goods made at its U.S. plants for shipment to foreign markets:

A.is competitively disadvantaged when the U.S. dollar declines in value against the currencies of the countries to which it is exporting.

B.is largely unaffected by fluctuating exchange rates. It would, however, be affected if its plants were in foreign countries.

C.becomes more competitive in foreign markets when the U.S. dollar gains in value against the currencies of the countries to which it is exporting.

D.becomes more competitive in foreign markets when the U.S. dollar declines in value against the currencies of the countries to which it is exporting.

E.has no interest in whether the dollar grows stronger or weaker versus foreign currencies unless it is competing only against companies located in foreign countries.

20.A European manufacturer that exports goods made at its European plants to the United States:

A.is competitively disadvantaged when the euro declines in value against the U.S. dollar.

B.is largely unaffected by fluctuating exchange rates between the euro and the U.S. dollar. It would, however, be affected if its plants were in the U.S.

C.becomes more competitive in the U.S. market when the euro declines in value against the U.S. dollar.

D.becomes more competitive in European markets when the euro declines in value against the U.S. dollar.

E.has no interest in whether the euro grows stronger or weaker versus the U.S. dollar unless its chief competitors are other companies located in countries whose currency is also the euro.

21.A U.S. company that makes all of its goods at a plant in Brazil and then exports the Brazilian-made goods to country markets across the world:

A.is competitively disadvantaged when the U.S. dollar declines in value against the Brazilian real.

B.is competitively advantaged when the Brazilian real declines in value against the currencies of the countries to which the Brazilian-made goods are being exported.

C.becomes less competitive in foreign markets when the Brazilian real declines in value against the currencies of the countries to which the Brazilian-made goods are being exported.

D.is competitively advantaged when the U.S. dollar appreciates in value against the Brazilian real.

E.is unaffected by changes in the valuation of foreign currencies against the Brazilian real—all that matters to a U.S. company is the valuation of the U.S. dollar against the Brazilian real.

22.A European-based company that makes all of its goods at a plant in Brazil and then exports the Brazilian-made goods to country markets in many different parts of the world:

A.is competitively disadvantaged when the euro declines in value against the Brazilian real.

B.is competitively disadvantaged when the Brazilian real declines in value against the currencies of the countries to which the Brazilian-made goods are being exported.

C.becomes less competitive in foreign markets when the Brazilian real gains in value against the currencies of the countries to which the Brazilian-made goods are being exported.

D.is competitively advantaged when the euro appreciates in value against the Brazilian real.

E.has no interest in whether the euro grows stronger or weaker versus the Brazilian real unless its chief competitors are other companies located in countries whose currency is also the euro.

23.Why does a U.S. company exporting wooden furniture manufactured in Malaysia to the European Union benefit from the decline in the value of ringgit against the euro?

A.Because decline in the value of ringgit against euro raises the cost of furniture manufactured in Malaysia, making it less competitive in European markets

B.Because decline in the value of ringgit against euro reduces the cost of furniture manufactured in Malaysia, making it more competitive in European markets

C.Because decline in the value of ringgit against euro has no impact on the cost of furniture manufactured in Malaysia, both in Malaysian or European markets

D.Because decline in the value of ringgit against euro makes European goods more competitive as compared to Malaysian goods

E.Because decline in the value of ringgit against euro makes Malaysian goods less competitive in the U.S. market

24.The advantages of manufacturing goods in a particular country and exporting them to foreign markets:

A.are largely unaffected by fluctuating exchange rates.

B.are greatest when local distributors and dealers in that country can be convinced not to carry products that are made outside the country’s borders.

C.can be wiped out when that country’s currency grows weaker relative to the currencies of the countries where the output is being sold.

D.are weakened when that country’s currency grows stronger relative to the currencies of the countries where the output is being sold.

E.are multiplied by the potential for local government officials to raise tariffs on the imports of foreign-made goods into their country.

25.Which of the following statements concerning the effects of fluctuating exchange rates on companies competing in foreign markets is NOT accurate?

A.Fluctuating exchange rates pose significant risks to a company’s competitiveness in foreign markets.

B.The advantages of manufacturing goods in a particular country are largely unaffected by fluctuating exchange rates.

C.Exporters win when the currency of the country from which the goods are being exported grows weaker relative to the currencies of the countries that the goods are being exported to.

D.The advantages of manufacturing goods in a particular country can be undermined when that country’s currency grows stronger relative to the currencies of the countries where the output is being sold.

E.Domestic companies under pressure from lower-cost imports are benefited when their government’s currency grows weaker in relation to the currencies of the countries where the imported goods are being made.

26.Which of the following statements concerning the effects of fluctuating exchange rates on companies competing in foreign markets is true?

A.Fluctuating exchange rates do not pose significant risks to a company’s competitiveness in foreign markets.

B.The advantages of manufacturing goods in a particular country are largely unaffected by fluctuating exchange rates.

C.Companies that are manufacturing goods in a particular country and are exporting much of what they produce are disadvantaged when that country’s currency grows weaker relative to the currencies of the countries that the goods are being exported to.

D.Companies that are manufacturing goods in a particular country and are exporting much of what they produce are benefited when that country’s currency grows weaker relative to the currencies of the countries that the goods are being exported to.

E.Domestic companies under pressure from lower-cost imports are hurt even more when their government’s currency grows weaker in relation to the currencies of the countries where the imported goods are being made.

27.Which of the following statements about fluctuating exchange rates and the related effects on companies competing in foreign markets is true?

A.Fluctuating exchange rates pose significant risks to a company’s competitiveness in foreign markets.

B.The advantages of manufacturing goods in a particular country are largely unaffected by fluctuating exchange rates.

C.Companies that are manufacturing goods in a particular country and are exporting much of what they produce lose out when that country’s currency grows weaker relative to the currencies of the countries that the goods are being exported to.

D.The advantages of manufacturing goods in a particular country improve when that country’s currency grows stronger relative to the currencies of the countries where the output is being sold.

E.Domestic companies under pressure from lower-cost imports are hurt even more when their government’s currency grows weaker in relation to the currencies of the countries where the imported goods are being made.

28.A weaker U.S. dollar is an economically favorable exchange-rate shift for manufacturing plants based in the United States.

A.This is a true statement.

B.No, the U.S. dollar must be stronger.

C.Yes, because it provides for a weakened foreign demand for U.S.-made goods.

D.Yes, because it makes such plants less cost competitive with foreign plants.

E.Yes, because it provides incentives of foreign companies to locate manufacturing facilities in the U.S. to make goods for U.S. consumers.

29.Which of the following exemplifies cross-country differences in demographic, cultural, and market conditions?

A.Nike produces its own line of skate shoes.

B.Starbucks acquires a large coffee farm in Costa Rica.

C.Ireland provides low-costs loans to foreign entrants to stimulate capital investment.

D.Intel’s silicon chips are identical across the world.

E.McDonald’s offers 100% beef-free products in its outlets in India.

30.Companies operating in an international marketplace have to respond to all of the following, EXCEPT:

A.whether to customize their offerings in each different country market to match the tastes and preferences of local buyers.

B.whether to pursue a strategy of offering a mostly standardized product worldwide.

C.how much to customize their offerings in each different country market to match the tastes and preferences of local buyers.

D.the tensions between market pressures to localize a company’s product offerings country by country and the competitive pressures to lower costs through greater product customization.

E.whether to buy a struggling competitor at a bargain price or pay a premium to gain entry to the local market.

31.Which of the following factors does NOT determine whether to employ entry strategy options?

A.Cross-border transfer activities and home country advantages

B.The nature of the firm’s objectives

C.Whether the firm has a full range of resources and capabilities needed to operate abroad

D.Country-specific factors such as trade barriers

E.Transaction costs involved (the cost of contracting with a partner and monitoring compliance with the terms of the contract)

32.Using domestic plants as a production base for exporting goods to selected foreign country markets:

A.can be an excellent initial strategy to test the international waters and learn if attractive market positions can be established in foreign markets.

B.can be a competitively successful strategy when a company is focusing on vacant market niches in each foreign country and does not have to compete head-to-head against strong host country competitors.

C.can be a powerful strategy since a company can maintain a one-country production base allowing it to capitalize on company competencies and capabilities.

D.can be a weak strategy when competitors are pursuing multi-country strategies.

E.can be a powerful strategy because a company is not vulnerable to fluctuating exchange rates.

33.Which of the following is an example of an export strategy?

A.The popular Disney character Mickey Mouse can only be leased or rented for use by companies.

B.Subway allows small-business owners to use its trademarks, services, and products for a fee.

C.The Unites States is the world’s largest producer and supplier of artificial fur.

D.American Airlines’ common stock, owned by AMR Corp., is not available for public purchase.

E.Walmart earns a quarter of its revenue outside the United States.

34.The advantages of using a licensing strategy to participate in foreign markets include:

A.being especially well-suited to achieve scale economies.

B.being able to charge lower prices than rivals.

C.being able to achieve first-mover advantages quickly and easily.

D.being able to leverage the company’s technical know-how, appealing brand, or patents without committing their resources or capabilities to foreign markets.

E.being able to achieve higher product quality and better product performance than with an export strategy.

35.The advantages of using a franchising strategy to pursue opportunities in foreign markets include:

A.having franchisees bear most of the costs and risks of establishing foreign locations and requiring the franchisor to expend only the resources to recruit, train, and support and monitor franchisees.

B.being particularly well-suited to the global expansion efforts of companies with multidomestic strategies.

C.allowing a company to achieve scale economies.

D.being well suited to companies who employ cross-border transfer strategies.

E.being well suited to the global expansion efforts of manufacturers.

36.The big problem a franchisor faces is:

A.allowing franchisees to achieve scale economies.

B.maintaining quality control due to a lack of commitment to consistency and standardization.

C.eliminating the costs and risks associated with establishing a foreign business location.

D.sharing foreign facilities and marketing strategies with local businesses.

E.achieving higher product quality and better product performance than with an export strategy.

37.The advantages of using an acquisition strategy to pursue opportunities in foreign markets include:

A.having a high level of control and speed as an entry strategy to overcome trade barriers.

B.allowing a company to achieve scalable economies.

C.eliminating the costs and risks associated with establishing a foreign business location.

D.achieving variable product quality and competitive product performance.

E.exporting goods at higher costs than rivals in those locations.

38.The big issue an acquisition-minded firm must consider is whether:

A.to acquire the firm at a price that cannot recapture the investment.

B.to require the acquired firm’s resources and management capability to sustain the ongoing struggling operation.

C.to pay a premium price for a successful local company or to buy a struggling firm at a discount price.

D.to pay a price that builds in all the synergistic advantages to the acquired firm.

E.to pay a very high premium price that sends a signal to the market that the new firm has arrived.

39.A greenfield venture in a foreign market is one:

A.where the company creates a wholly owned subsidiary business by setting up all aspects of the operation upon entering the market from the ground up.

B.where foreign facilities and marketing strategies are shared with local businesses.

C.where the company learns through training by the foreign entity on how to compete.

D.that supports exports into a foreign market by marketing indirectly thru local rivals.

E.that offers lower risk and a faster path to financial returns.

40.Greenfield ventures, like all market entry strategies can pose serious problems to achieving foreign market entry success. What is NOT deemed a barrier to success?

A.Such ventures can require costly capital investments.

B.Such ventures can have a tendency to divert valuable resources from current business.

C.Such ventures really need well-functioning strong markets.

D.Such ventures are the fastest entry route to achieve a sizeable market share.

E.Such ventures require legal protections of foreign investors.

41.Which of the following is a condition that makes an internal startup strategy appealing over an acquisition?

A.When an internal startup is more costly.

B.When an internal startup affects the supply-demand balance by increasing production capacity

C.When an internal startup is unable to gain distribution access advantages

D.When an internal startup has the necessary scale and resource strengths to compete with rivals

E.When an internal startup lacks the experience in establishing new subsidiaries

42.Which of the following is NOT an advantage of strategic alliances, joint ventures, and cooperative agreements between domestic and foreign firms?

A.Competing on a more global scale while still preserving their independence

B.Gaining better access to scale economies in production and/or marketing

C.Filling competitively important gaps in their technical expertise and/or knowledge of local markets

D.Sharing distribution facilities and dealer networks, thus mutually strengthening their access to buyers

E.Creating permanent arrangements between the domestic and foreign firms

43.Which of the following is an example of a cross-border alliance?

A.Facebook took over WhatsApp for $19 billion in February 2014.

B.Hyundai Motor Company plans to open a new manufacturing plant in the Czech Republic.

C.The insurance company Geicois a wholly owned subsidiary of Berkshire Hathaway.

D.Renault-Nissan sells more than one in ten cars worldwide.

E.Carrefour, a French grocery chain, established a new wholly-owned venture in Poland.

44.Which of the following is NOT a risk of cross-border alliances between domestic and foreign firms?

A.Overcoming language and cultural barriers

B.Launching new initiatives to stay abreast of shifting market conditions

C.Developing mutually agreeable ways of dealing with key issues or differences

D.Disengaging from the alliance once its purpose has been served

E.Becoming overly dependent on foreign partners for essential expertise

45.The risks of strategic alliances often include all of the following EXCEPT:

A.conflicting objectives and strategies.

B.deep differences of opinion about how to proceed operationally and strategically.

C.important differences in corporate values.

D.misunderstandings about appropriate ethical standards.

E.potential for royalty from trustworthy firms.

46.What is the foremost strategic issue that must be addressed by firms when operating in two or more foreign markets?

A.Deciding on the degree to vary its competitive approach to fit the specific market conditions and buyer preferences in each host country

B.Deciding on the appropriate level of sustainable profitability

C.Deciding on the relative cost competitiveness of the home country

D.Deciding on the degree of globalization to maintain expansion capabilities

E.Deciding on the resources and capabilities of allies

47.Which of the following is NOT one of the strategy options for competing in the markets of foreign countries?

A.A profit sanctuary strategy

B.An international strategy

C.A global strategy.

D.A multidomestic strategy

E.A transnational strategy

48.Which of the following statements regarding multidomestic competition is false?

A.Buyers in different countries are attracted to different product attributes.

B.The benefits from global integration and standardization are high.

C.Industry conditions and competitive forces in each national market differ in important respects.

D.The mix of competitors in each country market varies from country to country.

E.Winning in one country market does not necessarily signal the ability to fare well in other countries.

49.Which of the following strategies identifies a multidomestic approach?

A.Texas Instruments strongly encourages its trading partners to use the UN/EDIFACT standard.

B.Hard Rock Cafes in Hawaii offer fish tacos and ahi tuna sandwich.

C.Coca Cola’s general market approach is controlled from Atlanta.

D.Nestle established its own distribution network in China.

E.Air Asia adapts its price to industry pressures.

50.When is a think-local, act-local approach to strategy making appropriate?

A.When the need for local responsiveness is minimal and when potential efficiency gains from standardization is unrestricted by cross-country opportunities

B.When the local manager is intellectually savvy

C.When the local market provides strong opportunity for growth and profitability

D.When the need for local responsiveness is high due to significant cross-country differences in demographic, cultural, and market conditions and where benefits from standardization is limited

E.When the need for centralized decision making is relevant due to various macroeconomic and market conditions

51.Which of the following statements regarding global competition is false?

A.In global competition, rivals vie for worldwide market leadership.

B.In globally competitive industries, the power and strength of a company’s strategy and resource capabilities in one country significantly enhance its competitiveness in other country markets.

C.In global competition, a firm’s overall competitive advantage (or disadvantage) grows out of its entire worldwide operations.

D.In global competition, there’s more cross-country variation in industry conditions and competitive forces than there is in industries where multidomestic competition prevails.

E.In global competition, many of the same rival companies compete against each other in many different countries, but especially so in countries where sales volumes are large and where having a competitive presence is strategically important to building a strong global position in the industry.

52.Which of the following statements regarding multidomestic and global competition is false?

A.In global competition, rivals vie for worldwide market leadership and the leading competitors compete head-to-head in the markets of many different countries.

B.In globally competitive industries, a company’s competitive position in one country both affects and is affected by its position in other countries.

C.In multidomestic competition, there is greater cross-country variation in market conditions and the nature of the competitive contest among rivals than tends to be the case in globally competitive markets.

D.With multidomestic competition, the competitive contest is localized, with rivals battling for national market leadership; moreover, winning in one country market does not necessarily signal that a company has the ability to fare well in the markets of other countries.

E.In global competition, the size of a firm’s worldwide competitive advantage (or disadvantage) equals the sum of the competitive advantages (or disadvantages) it has in each country market where it competes.

53.Which of the following is the most unlikely element of a localized multidomestic strategy?

A.Granting country managers fairly wide strategy-making latitude

B.Scattering plants across many host countries, each producing product versions for local area markets

C.Adapting marketing and distribution to the buying habits, customs, and culture of each host country

D.Considering the preference for local suppliers (use of some local suppliers may be mandated by host governments)

E.Selling directly to buyers (perhaps via the company’s website) to avoid having to establish networks of wholesale/retail dealers in each country market

54.A “think local, act local” multidomestic type of strategy:

A.is very risky, given fluctuating exchange rates and the propensity of foreign governments to impose tariffs on imported goods.

B.is usually defeated by a “think global, act global” type of strategy.

C.is more appealing when the country-to-country differences in buyer tastes, cultural traditions, and market conditions are diverse.

D.is generally an inferior strategy when one or more foreign competitors are pursuing a global low-cost strategy.

E.can defeat a global strategy if the “think local, act local” multicountry strategist concentrates its efforts exclusively in those foreign markets which have superior resources.

55.The strength of a “think local, act local” multidomestic strategy is that:

A.it matches a company’s competitive approach to prevailing market and competitive conditions in each country market, country by country.

B.it employs strategies that are almost totally different from and also unrelated to its strategies in other countries.

C.it operates independent plants, located in different countries, thus promoting greater achievement of scale economies.

D.it avoids host country ownership requirements and import quotas.

E.it eliminates the costs and burdens of trying to coordinate the strategic moves undertaken in one country with the moves undertaken in the other countries.

56.A “think local, act local” multidomestic strategy works particularly well in all of the following situations, EXCEPT when there are:

A.regulations enacted by the host governments requiring that products sold locally meet strictly defined manufacturing specifications or performance standards.

B.significant country-to-country differences in customer preferences and buying habits.

C.diverse and complicated trade restrictions of host governments preclude the use of a uniform strategy from country-to-country.

D.significant country-to-country differences in distribution channels and marketing methods.

E.large demands to pursue conflicting objectives simultaneously.

57.A “think-local, act local” multidomestic strategy entails:

A.offering a narrow product line aimed at serving buyers in the same segments of country markets worldwide.

B.giving local managers considerable strategy-making latitude and often producing different product versions for different countries.

C.adopting aggressive efforts to locate facilities in those country markets that have superior resources.

D.pursuing strong product differentiation and competing in many buyer segments.

E.extensive efforts to transfer a company’s competencies and resource strengths from one country to another so as to keep entry costs into new country markets low.

58.In which of the following situations is employing a “think local, act local” multidomestic strategy highly questionable?

A.When a company desires to transfer competencies and resources across country boundaries and is striving to build a single, uniform competitive advantage worldwide

B.When there are significant country-to-country differences in customer preferences and buying habits industry is characterized by big economies of scale and strong experience curve effects

C.When the trade restrictions of host governments are diverse and complicated

D.When there are significant country-to-country differences in distribution channels and marketing methods

E.When host governments enact regulations requiring that products sold locally meet strictly defined manufacturing specifications or performance standards

59.What is a primary drawback of a localized multidomestic strategy?

A.It hinders the use of cross-border coordination of a company’s activities and increases a company’s vulnerability to adverse shifts in currency exchange rates.

B.It makes it very difficult to take into account significant country-to-country differences in distribution channels and marketing methods.

C.It makes it difficult and costly to be responsive to country-to-country differences in customer needs, buying habits, cultural traditions, and market conditions.

D.It hinders the transfer of a company’s competencies and resources across country boundaries and hinders the pursuit of a single, uniform competitive advantage in all country markets where a company operates.

E.It is unsuitable for competing in the markets of emerging countries and posing added difficulty in modifying a company’s business model to compete on the basis of low price.

60.A global strategy allows for:

A.the leading companies to compete for the biggest share of the world market, but only occasionally compete head-to-head in different countries.

B.the markets in various countries to be part of the world market and competitive conditions across country markets to be strongly linked.

C.a company’s overall market strength to be the sum of its market shares in each country market where it has a presence.

D.the industry leaders to be foreign companies, while domestic companies are relegated to runner-up status.

E.a firm’s overall competitive advantage to be determined by the size of the competitive advantage it has in each of its profit sanctuaries.

61.A global strategy is one in which a company performs all of the following tasks, EXCEPT:

A.employs the same basic competitive approach in all countries where it operates.

B.sells much of the same products everywhere.

C.strives to build global brands.

D.coordinates its actions worldwide with strong headquarters control represents a think-global, act-global approach.

E.uses local brand names to cater to a country’s specific needs.

62.A think-global, act-global strategic theme puts emphasis on:

A.executing a global domination strategy that focuses the company’s resource strengths on entry strategies across all country boundaries.

B.ensuring that value chain activities are defined by country-specific attributes to capitalize on economies of scale.

C.building a global brand name and aggressively pursuing opportunities to transfer ideas, products, and capabilities from one country to another.

D.elevating resources and capabilities developed on a country-by-country basis so as to capitalize on a country’s uniqueness.

E.implementing mass-customization techniques that can address local preferences efficiently.

63.What is the best way to achieve the efficiency potential of a global strategy?

A.It demands managerial attention to be focused on objective-setting specifically oriented toward production practices.

B.It requires that resources and best practices be shared, value chain activities be integrated, and capabilities be transferred from one location to another as they are developed.

C.It requires that the best identified resources and capabilities be centralized at headquarters.

D.It requires value chain activities to be dispersed across many countries to elevate cost control management as a primary focus in all countries.

E.It requires giving local managers considerable latitude for executing strategies for the country markets they are responsible for.

64.During the 1980s, the YKK Group developed and manufactured all its fastening products within Japan. Which of the following aspects of the global strategy was YKK trying to achieve?

A.YKK catered to homogenous buyer needs across countries and regions.

B.YKK centralized its value chain thereby facilitating centralized control.

C.YKK engaged in higher levels of R&D by spreading risks over higher-volume output.

D.YKK sold the same products under the same brand name everywhere.

E.YKK established a single plant to produce different versions of the same product.

65.Which of the following does NOT accurately characterize the differences between a localized multidomestic strategy and a global strategy?

A.A global strategy entails extensive strategy coordination across countries and a multidomestic strategy entails little or no strategy coordination across countries.

B.A global strategy often entails use of the best suppliers from anywhere in the world, whereas a multidomestic strategy may entail fairly extensive use of local suppliers (especially where use of local sources is required by host governments).

C.A global strategy tends to involve use of similar distribution and marketing approaches worldwide, whereas a multidomestic strategy often entails adapting distribution and marketing to local customs and the culture of each country.

D.A global strategy involves striving to be the global low-cost provider by economically producing and marketing a mostly standardized product worldwide, whereas a multidomestic strategy entails pursuing broad differentiation and striving to strongly differentiate its products in one country from the products it sells in other countries.

E.A global strategy relies upon the same technologies, competencies, and capabilities worldwide, whereas a multidomestic strategy often entails the use of somewhat different technologies, competencies, and capabilities as may be needed to accommodate local buyer tastes, cultural traditions, and market conditions.

66.Which of the following is the most UNLIKELY element of a “think global, act global” approach to crafting a global strategy?

A.Having minimal responsiveness to buyer tastes, cultural traditions, and market conditions in each country market

B.Scattering plants across many countries, with each plant producing product versions for local area markets

C.Utilizing the same competitive capabilities, distribution channels, and marketing approaches worldwide

D.Requiring local managers in host countries to stick close to the chosen global strategy

E.Selling much the same products under the same brand names worldwide

67.The approach of a firm using a “think global, act local” version of a transnational strategy entails:

A.producing and marketing a variety of product versions under the same brand name, with each different version being designed specifically to accommodate the needs and preferences of buyers in a particular country.

B.having little or no strategy coordination across countries.

C.pursuing the same basic competitive strategy theme (low cost, differentiation, best cost, focused) in all countries where the firm does business but giving local managers some latitude to adjust product attributes to better satisfy local buyers and to adjust production, distribution, and marketing to be responsive to local market conditions.

D.selling the company’s products under a wide variety of brand names (often one brand for each country or group of neighboring countries) so buyers in each country market will think they are buying a locally made brand.

E.selling numerous product versions (each customized to buyer tastes in one or more countries and sometimes branded for each country),but opting to only sell direct to buyers at the company’s website so as to bypass the costs of establishing networks of wholesale/retail dealers in each country market.

68.The essential difference between a “think global, act global” and a “think global, act local” approach to strategy-making is that:

A.a “think global, act global” approach entails extensive strategy coordination across countries and a “think global, act local” approach entails little or no strategy coordination across countries.

B.the former aims at implementing the same business model worldwide, whereas the latter aims at implementing customized business models to better match local market circumstances.

C.the “think global, act local” approach gives local managers more latitude to make minor strategy variations where necessary to better satisfy local buyers and to better match local market conditions.

D.a “think global, act global” approach involves selling a mostly standardized product worldwide, whereas a “think global, act local” approach entails selling products that are highly differentiated from country to country.

E.a “think global, act global” approach involves selling under a single brand name worldwide, whereas a “think global, act local” approach entails utilizing multiple brands (typically one for each different country or group of neighboring countries).

69.A primary drawback of a global strategy is that it:

A.allows firms to address local needs as precisely as locally based rivals can.

B.permits firms to be more responsive to changes in local market conditions, either in the form of new opportunities or competitive threats.

C.provides for lower transportation costs and also may involve higher tariffs.

D.involves higher coordination costs due to more complex tasks of managing a globally integrated enterprise.

E.raises production costs due to the greater variety of designs and components.

70.A strategy that incorporates elements of both multidomestic and global strategies is termed a “transnational” strategy, but sometimes it is referred to as a(n):

A.glocalization strategy.

B.international strategy.

C.think-local, act-global strategy.

D.cross-border integrated strategy.

E.standardized integrated strategy.

71.Companies often implement a transnational strategy because it:

A.combines flexible coordination with the pursuit of conflicting objectives simultaneously.

B.provides an easy mode of operating to transfer and share resources and capabilities across borders.

C.is conducive to mass customization techniques that enable companies to address local preferences in an efficient semi-standard manner.

D.is the least complex and easiest to implement of all the strategy choices.

E.is capable of achieving an efficiency potential through centralized decision making and strong headquarter control.

72.What strategy is considered more conducive to transferring and leveraging subsidiary skills and capabilities across borders?

A.A transnational strategy

B.An international strategy

C.A think-local, act-global strategy

D.A cross-border integrated strategy

E.A standardized integrated strategy

73.Companies that compete internationally can pursue competitive advantage in world markets(or offset domestic disadvantages) by:

A.using a differentiation-based competitive strategy in those country markets with superior resources.

B.choosing not to compete in countries with high tariffs and high taxes (which then have to be passed along to buyers in the form of higher prices), thus keeping costs and prices lower than rivals.

C.using an export strategy to circumvent the risks of adverse exchange rate fluctuations.

D.locating value chain activities in whatever nations prove most advantageous in a manner that uses location to lower costs or achieve greater product differentiation, allow for the transfer of competitively valuable competencies and capabilities from one country to another, and allow for cross-border coordination.

E.employing a multidomestic strategy instead of a global strategy.

74.In expanding into foreign markets, a company can strive to gain competitive advantage (or offset domestic disadvantages) by:

A.building a state-of-the-art facility to fully capture scale economies via an export strategy.

B.using export, licensing, or franchising strategies so as to minimize risk and capital investment.

C.locating buyer-related activities in all countries where it sells its product.

D.dispersing its activities among various countries in a manner that lowers costs or else helps achieve greater product differentiation and transferring competitively valuable competencies and capabilities from its domestic operations to its operations in foreign markets.

E.avoiding the use of strategies that entail coordinating its domestic strategic moves with its strategic moves in the various foreign markets it enters.

75.To use location to build competitive advantage, a company that operates transnationally or globally must:

A.employ either an export strategy or a franchising strategy.

B.scatter its production plants across many countries in different parts of the world so as to minimize transportation costs.

C.consider whether to concentrate each activity it performs in a few select countries or disperse performance of the activity to many nations and consider in which countries to locate particular activities.

D.locate production plants in those countries having suppliers that can supply all the necessary raw materials and components so as to avoid inbound shipping costs.

E.concentrate all of its value chain activities in the one country that has the best combination of low wage rates, low shipping costs, and low tax rates on profits.

76.In competing in foreign markets, companies find it advantageous to concentrate their activities in a limited number of locations in all of these situations, EXCEPT when:

A.there are significant scale economies in performing an activity.

B.the costs of manufacturing or other activities are significantly lower in some geographic locations than in others.

C.when there is a steep learning or experience curve associated with performing an activity in a single location (thus making it economical to serve the whole world market from just one or maybe a few locations).

D.certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages.

E.the addition of new production capacity will not adversely impact the supply-demand balance in the local market.

77.When concentrating production in a few locations, which of the following can allow a manufacturer to lower unit costs, boost quality, or master a new technology more quickly?

A.Significant scale economies

B.Learning-curve effects

C.Superior resources

D.Profit sanctuaries

E.Supporting industries

78.Dispersing the performance of value chain activities to many different countries rather than concentrating them in a few country locations tends to be advantageous in all of the following situations, EXCEPT:

A.when high transportation costs make it expensive to operate from central locations.

B.whenever buyer-related activities are best performed in locations close to buyers.

C.if diseconomies of large size exist, thereby making it more economical to perform an activity on a smaller scale in several different locations.

D.when it is desirable to hedge against (1) the risks of fluctuating exchange rates, (2) supply interruptions or (3) adverse political developments.

E.if resources retain their foreign contexts so there is competitive advantage over a broader domain.

79.The competitive advantage opportunities that a global competitor can gain by dispersing performance of its activities across many nations include all of the following, EXCEPT:

A.being able to shift production from one country to another to take advantage of exchange rate fluctuations, differing wage rates, differing energy costs, or differing trade restrictions.

B.being in better position to choose where and how to challenge rivals.

C.shortening delivery times to customers by having geographically scattered distribution facilities.

D.locating buyer-related activities (such as sales, advertising, after-sale service and technical assistance) close to buyers.

E.centralizing value chain activities to foster just-in-time inventory activities.

80.Dispersing particular value chain activities across many countries rather than concentrating them in a select few countries can be more advantageous, EXCEPT when:

A.buyer-related activities (such as sales, advertising, after-sale service and technical assistance) need to take place close to buyers.

B.buyers demand short delivery times and/or high transportation costs make it uneconomical to operate from one or just a few locations.

C.it helps hedge against the risks of exchange rate fluctuations, supply disruptions, and adverse political developments.

D.there are diseconomies of scale in trying to operate from a single location.

E.there are reasons to decouple buyer-related activities in favor of locational advantages.

81.Transferring core competencies and resource strengths from one country market to another is:

A.a good way for companies to develop broader or deeper competencies and competitive capabilities that can become a strong basis for sustainable competitive advantage.

B.best accomplished with a multidomestic strategy as opposed to a global strategy.

C.feasible only with a global strategy; it can’t be done with a multidomestic strategy.

D.unlikely to result in a competitive advantage.

E.nearly always the easiest and most sure-fire way to build competitive advantage in trying to compete successfully in foreign markets.

82.A key approach for a company to grow sales and profits in several country markets is to:

A.transfer its valuable competencies and resource strengths among these markets to aid in the development of broader competencies and capabilities.

B.employ a multidomestic strategy rather than a global strategy.

C.locate technical after-sale services close to buyers.

D.minimize transportation costs among these markets.

E.take advantage of less restrictive restrictions and requirements of host governments.

83.Companies that compete on an international basis have a competitive advantage over their purely domestic rivals:

A.to achieve a larger domestic interest by developing sufficient resource strengths and competitive capabilities for success.

B.to benefit from coordinating activities across different countries’ domains.

C.solely for the benefit of their shareholders.

D.that guarantees the generation of big profits, big returns on investment, and big cash surpluses after dividends are paid.

E.to give full access to the proprietary technological expertise or other competitively valuable capabilities.

84.Sharing and transferring resources and capabilities across borders may also contribute to the development of broader or deeper competencies and capabilities, thereby helping a company achieve:

A.control over its resource capabilities.

B.dominating depth in some competitively valuable area

C.intensity of resource diversification.

D.precision and compliance in resource agility and responsiveness

E.direct investments in foreign countries.

85.Profit sanctuaries are country markets or geographic regions where:

A.a company can rank the competitive advantage opportunities in each industry.

B.a company possesses good strategic fit with other businesses and identifies the value chain where this fit occurs.

C.a company derives substantial profits because of its protected market position or unassailable competitive advantage.

D.a company creates substantial investment strategies because it is losing competitive advantage over competitors.

E.a company invests its dividends in expanding its foreign market presence.

86.Profit sanctuaries are found to differ by a company’s strategy, such that a(n):

A.domestic-only company has access to many profit sanctuary locations worldwide.

B.international competitor usually has a profit sanctuary in its home market and may have other sanctuaries in countries where it has a strong position and market share.

C.globally competitive company generally has a profit sanctuary outside its home market in countries where it is a market leader and enjoys a strong competitive position.

D.transnational company has profit sanctuaries in every country where it operates.

E.company competing in a few country markets has more profit sanctuaries.

87.What supports competitive offensives in one market with resources and profits diverted from operations in another market?

A.Cross-market subsidization

B.A foreign market strategy

C.A domestic-only company

D.A home market offensive

E.A multidomestic company

88.What does the World Trade Organization (WTO) NOT do primarily?

A.Promotes fair trade practices

B.Actively polices dumping

C.Deals with the rules of trade between nations

D.Helps producers, exporters, and importers conduct business

E.Sets countries’ tariff rates

89.What is it called when a company sells its goods in foreign markets at prices that are below the prices at which it normally sells in its home market or well below its full costs per unit?

A.Dumping practices

B.Price-clearing system

C.Clearance sale

D.Discounting practices

E.Competitive advantage

90.What can happen when international rivals compete against one another in multiple-country markets?

A.It could create attractive industries that would have otherwise badly deteriorated.

B.It could produce a business lineup consisting of too many slow-growth, declining, low-margin, or competitively weak businesses.

C.It could create a greater diversity in the types of value chain activities between each business.

D.It could initiate a deterrence effect that encourages mutual restraint in taking aggressive action against one another due to the fear of a retaliatory response that might escalate the battle into a cross-border competitive war.

E.It could increase shareholder interests by concentrating corporate resources on foreign business activities to contend for market leadership.

91.Companies racing for global market leadership:

A.generally have to consider establishing competitive positions in the markets of emerging countries.

B.are well-advised to avoid all the risks and problems of competing in emerging country markets.

C.seldom have the resource capabilities it takes to be effective in competing in emerging country markets and usually are at a strong competitive disadvantage to the domestic market leaders.

D.can usually be expected to earn sizable profits quickly in emerging country markets.

E.usually encounter very low barriers in entering the markets of emerging countries.

92.Which of the following is NOT a typical option that companies have to consider to tailor their strategy to fit the circumstances of emerging country markets?

A.Prepare to compete on the basis of low price.

B.Modify aspects of the company’s business model to accommodate local circumstances (but not so much that the company loses the advantage of global scale and global branding).

C.Change the local market to better match the way the company does business elsewhere.

D.Develop a strategy for the short-term and forget about a long-term strategy because conditions in emerging country markets change so rapidly.

E.Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances.

93.Viable strategic options companies should consider in tailoring their strategy to fit circumstances of emerging country markets include all of the following, EXCEPT:

A.trying to change the local market to better match the way the company does business elsewhere.

B.being prepared to modify aspects of the company’s business model to accommodate local circumstances.

C.preparing to compete on the basis of low price.

D.staying away from those emerging markets where it is impractical to modify the company’s business model to accommodate local circumstances.

E.focusing on local markets whose circumstances will be most challenging to the company’s business model.

94.Which of the following is an example of a modification in the company’s business model to accommodate the unique local circumstances of developing countries?

A.Mahindra and Mahindra ranked number one in J. D. Power Asia Pacific’s new-vehicle overall quality category.

B.Home Depot could rely on its value propositions only in some developing countries.

C.Unilever developed a low-cost detergent, named Wheel, for the Indian market.

D.Japan is known for its competitive strength in consumer electronics.

E.In China, Dell moved from its traditional Internet-based orders to orders over phone and fax.

95.The basic strategy options for local companies in competing against global challengers include:

A.best-cost provider and focused low-cost provider and low-cost leadership strategies.

B.export strategies, licensing strategies, and cross-border transfer strategies.

C.utilizing understanding of local customer needs and preferences to create customized products or services, developing business models to exploit shortcoming in local infrastructure, and using acquisitions and rapid growth to defend against expansion-minded multinationals.

D.franchising strategies, multidomestic strategies keyed to product superiority, global low-cost leadership strategies, and cross-border coordination strategies.

E.focused differentiation and broad differentiation strategies.

96.Televisa, a Mexican media company, became the world’s most prolific producer of Spanish-language soap operas owing to its expertise in Spanish culture and linguistics. Which of the following strategies did Televisa employ to defend against global giants?

A.Develop business models that exploit shortcomings in local distribution networks or infrastructure.

B.Utilize keen understanding of local customer needs and preferences to create customized products or services.

C.Take advantage of aspects of the local workforce with which large international companies may be unfamiliar.

D.Transfer company expertise to cross-border markets and initiate actions to contend on an international level.

E.Use acquisition and rapid-growth strategies to better defend against expansion-minded internationals.

97.Which of the following is NOT a viable strategy option for a local company in competing against global challengers?

A.Using cross-market transfer strategies to hedge against the risks of exchange rate fluctuations and adverse political developments

B.Developing business models to exploit shortcomings in local distribution networks or infrastructures

C.Taking advantage of low-cost labor and other competitively important local workforce qualities

D.Transferring a company’s expertise to cross-border markets and initiating actions to contend on a global scale

E.Using acquisitions and rapid growth strategies to defend against expansion-minded multinationals

98.Identify and briefly discuss the key reasons why a company may consider expanding outside its domestic market.

99.Explain why the strategies of firms that expand internationally are usually grounded in home-country advantages or core competencies.

100.Briefly identify the special features of competing in foreign markets.

101.Explain how exchange rate fluctuations pose a risk to manufacturing companies that rely upon an export strategy to compete in foreign markets.

102.Identify and explain the significance of each of the following terms and concepts:
a. global strategy
b. export strategy
c. licensing strategy
d. franchising strategy

103.Compare and contrast the advantages for entering and competing in foreign markets for the strategic options of exporting, licensing, and franchising.

104.Explain why an acquisition is better than a greenfield venture.

105.What are the pros and cons of using strategic alliances to try to enhance a company’s ability to compete in foreign markets?

106.Discuss in some detail the difference between a multidomestic strategy and a global strategy. Give the pros and cons of each.

107.What circumstances call for use of a multidomestic strategy for competing in international markets?

108.When is a global strategy “superior” to a multidomestic strategy?

109.How does a transnational strategy differ from a multidomestic or a global strategy?

110.When should a company choose to set up operations from the ground up?

111.A global strategy embraces the theme “think global, act global,” whereas a multidomestic strategy relies more on a “think local, act local” mentality. True or false? Explain.

112.Explain the differences between a “think global, act global” strategy and a “think global, act local” strategy.

113.Explain why a company desirous of competing in foreign markets needs to pay careful attention to where it locates it value chain activities.

114.Under what circumstances is it advantageous for a company competing in foreign markets to concentrate its value chain activities in a select few locations?

115.Under what circumstances is it advantageous for a company competing in foreign markets to disperse certain value chain activities across many countries?

116.Discuss why a company desirous of competing in foreign country markets needs to pay close attention to the advantages of the cross-border transfer of competencies and capabilities. Are these transfers often a key to competitive advantage? Why or why not?

117.Identify and briefly describe the strategic options for tailoring a company’s strategy to compete in emerging country markets.

118.Identify and briefly describe a local company’s strategic options in competing against global challengers.

Chapter 07 Test Bank Key

1.The reason the world economy is globalizing at an accelerated pace is because:

A.countries previously open to foreign companies have closed their markets.

B.countries that previously had market or mixed economies now embrace planned economies.

C.information technology expands the importance of geographic distance.

D.growth-minded companies are racing to build stronger competitive positions in the markets of more countries.

E.countries opposed to market or mixed economies have stringent trade barriers in place.

The world economy is globalizing at an accelerating pace as ambitious, growth-minded companies race to build stronger competitive positions in the markets of more and more countries, as countries previously closed to foreign companies open up their markets, and as information technology shrinks the importance of geographic distance.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 The primary reasons companies choose to compete in international markets.
Topic: Why Compete Abroad? – The Advantages and Disadvantages of a Global Strategy

2.The reasons why a company opts to expand outside its home market include all of the following EXCEPT:

A.gaining access to new customers for the company’s products/services.

B.spreading its business risk across a wider market base.

C.achieving lower costs through economies of scale, experience, and increased purchasing power.

D.exploiting its core competencies and capabilities.

E.identifying resources and capabilities in the company’s home market.

A company may opt to expand outside its domestic market for any of five major reasons:(i) To gain access to new customers; (ii) To achieve lower costs through economies of scale, experience, and increased purchasing power; (iii) To gain access to low-cost inputs of production; (iv) To further exploit its core competencies; (v) To gain access to resources and capabilities located in foreign markets. Cross-border strategic alliances create value through resource sharing and risk spreading.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 The primary reasons companies choose to compete in international markets.
Topic: Why Compete Abroad? – The Advantages and Disadvantages of a Global Strategy

3.Exxon Mobil enters into a pact with Gazprom, the world’s largest natural gas extractor, to set up a processing unit in Moscow. Which of the following is most likely the reason for Exxon Mobil to opt for this strategic alliance?

A.To gain access to new customers

B.To scale back its core competencies

C.To restrict its factors of production

D.To gain access to low-cost inputs of production

E.To better compete with Gasprom

A company may opt to expand outside its domestic market for any of five major reasons: (i) To gain access to new customers; (ii) To achieve lower costs through economies of scale, experience, and increased purchasing power; (iii) To gain access to low-cost inputs of production; (iv) To further exploit its core competencies; (v) To gain access to resources and capabilities located in foreign markets. Companies in industries based on natural resources (e.g., oil and gas, minerals, rubber, and lumber) often find it necessary to operate in the international arena since raw-material supplies are located in different parts of the world and can be accessed more cost-effectively at the source.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 07-01 The primary reasons companies choose to compete in international markets.
Topic: Strategies for Global Competition

4.Why do companies decide to enter a foreign market?

A.To capture economies of scale in product development, manufacturing, or marketing

B.To raise input costs through greater pooled purchasing power

C.To decrease the rate at which they accumulate experience and move up the learning curve

D.To concentrate risk within a broader base of countries, especially when sales are down in one area and the company can undermine sales elsewhere

E.To exploit the natural resources found within its home market

Many companies are driven to sell in more than one country because domestic sales volume alone is not large enough to capture fully economies of scale in product development, manufacturing, or marketing. Similarly, firms expand internationally to increase the rate at which they accumulate experience and move down the learning curve. International expansion can also lower a company’s input costs through greater pooled purchasing power. Companies often expand internationally to extend the life cycle of their products. An increasingly important motive for entering foreign markets is to acquire resources and capabilities that may be unavailable in a company’s home market.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 The primary reasons companies choose to compete in international markets.
Topic: Why Compete Abroad? – The Advantages and Disadvantages of a Global Strategy

5.Which of the following is NOT a reason why a company decides to enter foreign markets?

A.To spread business risk across a wider geographic market base

B.To capitalize on company competencies and capabilities

C.To achieve lower costs through economies of scale, experience, and increased purchasing power

D.To impart technical knowledge to high-cost human resources in developing nations

E.To gain access to more buyers for the company’s products/services

Cross-border strategic alliances create value through resource sharing and risk spreading. A company may opt to expand outside its domestic markets to gain access to new customers; to achieve lower costs through economies of scale, experience, and increased purchasing power; and to further exploit its core competencies. Companies also choose to establish operations in other countries to utilize local distribution networks, gain local managerial or marketing expertise, or acquire technical knowledge.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-01 The primary reasons companies choose to compete in international markets.
Topic: Why Compete Abroad? – The Advantages and Disadvantages of a Global Strategy

6.Which of the following is NOT a reason why crafting a strategy to compete in one or more foreign markets is inherently complex?

A.Because factors that affect industry competitiveness vary from country to country

B.Because of the potential for location-based advantages to conducting value chain activities in certain countries

C.Because different government policies and economic conditions make the business climate more favorable in some countries than others

D.Because of the risks for shifts in currency exchange rates

E.Because similarities in buyer tastes and preferences facilitate standardization of products and services

Crafting a strategy to compete in one or more countries of the world is inherently more complex for five reasons. First, different countries have different home-country advantages in different industries. Second, there are location-based advantages to conducting particular value chain activities in different parts of the world. Third, different political and economic conditions make the general business climate more favorable in some countries than in others. Fourth, companies face risk due to adverse shifts in currency exchange rates when operating in foreign markets. And fifth, differences in buyer tastes and preferences present a challenge for companies concerning customizing versus standardizing their products and services.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 07-02 How and why differing market conditions across countries influence a company’s strategy choices in international markets.
Topic: Strategies for Global Competition

7.Which of the following is NOT an accurate statement as concerns competing in the markets of foreign countries?

A.Localizing a global company’s product offerings country-by-country leads to low-cost advantage.

B.There are country-to-country differences in consumer buying habits and buyer tastes and preferences.

C.A company must contend with fluctuating exchange rates and country-to-country variations in host government restrictions and requirements.

D.Product designs suitable for one country are often inappropriate in another.

E.Market growth rates vary from country to country.

Differences in buyer tastes and preferences present a challenge for companies concerning customizing versus standardizing their products and services. Greater standardization of a global company’s product offering can lead to scale economies and learning-curve effects, thus contributing to the achievement of a low-cost advantage. Differing population sizes, income levels, and other demographic factors give rise to considerable differences in market size and growth rates from country to country. Sometimes, product designs suitable in one country are inappropriate in another because of differing local standards. When companies produce and market their products and services in many different countries, they are subject to the impacts of sometimes favorable and sometimes unfavorable changes in currency exchange rates.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-02 How and why differing market conditions across countries influence a company’s strategy choices in international markets.
Topic: Why Compete Abroad? – The Advantages and Disadvantages of a Global Strategy

8.The diamond framework is NOT LIKELY to answer which of the following questions about competing on an international basis?

A.Where will the foreign entrants come from?

B.Which countries have the weakest foreign rivals?

C.What are the attributes of a country’s business environment?

D.What location of value chain activities is most beneficial?

E.What are the disadvantages of allowing foreign competition?

The diamond framework can be used to reveal the answers to several questions that are important for competing on an international basis. First, it can help predict where foreign entrants into an industry are most likely to come from. Second, it can reveal the countries in which foreign rivals are likely to be weakest. And third, because it focuses on the attributes of a country’s business environment that allow firms to flourish, it reveals something about the advantages of conducting particular business activities in that country. Thus the diamond framework is an aid to deciding where to locate different value chain activities most beneficially.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 07-02 How and why differing market conditions across countries influence a company’s strategy choices in international markets.
Topic: Tools to Assess the Impact of Internationalization

9.Competing in the markets of foreign countries generally does NOT involve which of the following?

A.Country-to-country differences in consumer buying habits and buyer tastes and preferences

B.Country-to-country variations in host government restrictions and requirements and fluctuating exchange rates

C.Whether to customize the company’s offerings in each different country market or whether to offer a mostly standardized product worldwide

D.In which countries to locate company operations for maximum locational advantage, given country-to-country variations in wage rates, worker productivity, energy costs, tax rates, and the like

E.Crafting a multidomestic strategy that works just as well in one country as in another and that also has the appeal of turning the world market into a mostly homogeneous market

Crafting a strategy to compete in one or more countries of the world is inherently more complex for five reasons. First, different countries have different home-country advantages in different industries. Second, there are location-based advantages to conducting particular value chain activities in different parts of the world. Third, different political and economic conditions make the general business climate more favorable in some countries than in others. Fourth, companies face risk due to adverse shifts in currency exchange rates when operating in foreign markets. And fifth, differences in buyer tastes and preferences present a challenge for companies concerning customizing versus standardizing their products and services.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 07-02 How and why differing market conditions across countries influence a company’s strategy choices in international markets.
Topic: Implementation of International Strategies

10.One of the biggest strategic challenges to competing in the international arena includes:

A.how to leverage the opportunities arising from shifting exchange rates.

B.how to charge the same price in all country markets.

C.how to identify foreign firms licensed to produce and distribute the company’s products.

D.whether to offer a standardized product worldwide or a customized product offering in each different country market.

E.whether to pursue a franchising strategy or a joint venture strategy.

Differences in buyer tastes and preferences present a challenge for companies competing in one or more countries of the world concerning customizing versus standardizing their products and services.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-02 How and why differing market conditions across countries influence a company’s strategy choices in international markets.
Topic: Implementation of International Strategies

11.What aspect of the diamond framework is MOST LIKELY responsible for GlenmarkPharma setting up manufacturing facilities in the United States, the world’s largest market for pharmaceuticals?

A.Licensing strategies

B.Demand conditions

C.Joint venture strategies

D.Franchising strategies

E.Firm strategy, structure, and rivalry

The four major factors in the diamond framework are: (i) demand conditions, (ii) factor conditions, (iii) related and supporting industries (i.e. industries within the same value chain system); and (iv) firm strategy, structure and rivalry (indicating country environments fostering development of different styles of management, organization and strategy).The demand conditions in an industry’s home market include the relative size of the market, its growth potential, and the nature of domestic buyers’ needs and wants. Industry sectors that are larger and more important in their home market tend to attract more resources and grow faster than others.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 07-02 How and why differing market conditions across countries influence a company’s strategy choices in international markets.
Topic: Tools to Assess the Impact of Internationalization
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