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Exam 8: Corporate Strategy: Vertical Integration and Diversification

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Question 31

Multiple Choice

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In the market for used cars, which of the following is a reason behind the crowding out of desirable cars by lemons or inferior ones?

A) Experience-curve effects
B) Time compression diseconomies
C) Principal-agent problem
D) Information asymmetry

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Question 32

Multiple Choice

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Grace Apparel Inc.has decided to procure fabrics required for its garments from external suppliers instead of maintaining its own dyeing and weaving facilities.How will this decision affect the firm?

A) The firm will be protected against the principal-agent problem.
B) The firm's administrative costs will be low because of necessary bureaucracy.
C) The firm will have more flexibility in purchasing and comparing prices of goods and services.
D) The firm will have high-powered incentives, such as hourly wages and salaries.

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Question 33

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A(n) _____ is best used to depict the transformation of raw materials into finished goods and services along distinct vertical stages.

PepsiCo operates in many countries and sells a wide variety of aerated drinks, other beverages, different types of chips, and Quaker Oats goods to achieve continuous growth.From this data, we can conclude that PepsiCo has been involved in _____.

Elaborate on the parent-subsidiary relationship.

If a strategic business unit is recognized as a cash cow, it is advisable to:

A drawback of short-term contracting as an alternative to making a component in-house is that:

The solar-powered car division of a large automobile company has been experiencing negative cash flows though the market growth for such cars is predicted to be high.If the company invests further resources into this division, it can increase its relative market share in the future.However, if due to technological changes the car cannot create sufficient consumer demand, then the division can prove to be unprofitable.In the Boston Consulting Group (BCG) growth-share matrix, the solar-powered car division will be categorized under:

_____ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources.

In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should:

What are the strategic recommendations for strategic business units categorized under cash cows?

A strategy of _____ will be most beneficial for a firm to enhance its overall corporate performance.

Elaborate on corporate strategy.

Marva Industries, a U.S.-based large conglomerate, competes in the hospitality, education, telecommunications, entertainment, airlines, and chemical industries.It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries.Which of the following strategies is Marva Industries pursuing?

Divina Pharma Inc.and MF Electronics Inc.have together invested and created a new organization, FirstHealth Inc., to focus on developing diagnostic devices.Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments.However, the new organization operates independent of Divina Pharma and MF Electronics.Which of the following alternatives to integration does this scenario best illustrate?

TrueAutos Inc.is a large automobile company.The company's petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars.Which of the following can be inferred from this scenario?

_____ is best described as changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain.

When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using _____.

List the benefits of vertical integration.

What are the three types of specialized assets?