Strategy – FAQ – 02

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List of FAQs

Q1

As customers come to believe that a firm’s product is unique, this allows the firm to…

  1. decrease its advertising expenditures
  2. customize its product
  3. force other companies out of the market by lowering prices
  4. obtain loyal customers

Q2

In the case of a retail business dependent on drive-in customers, the major cost disadvantage independent of scale would be…

  1. favorable locations are not available
  2. other competitors have proprietary product technology
  3. access to raw materials is difficult
  4. other competitors have government subsidies

Q3

Suppliers are powerful when…

  1. satisfactory substitutes are available
  2. they sell a commodity product
  3. they offer a credible threat of forward integration
  4. they are in a highly fragmented industry

Q4

In the airline industry, consolidation among fuel providers serving airport facilities would be considered as ____ factor in the five forces model of competition.

  1. a reduction of the airlines’ abilities to enjoy economies of scale
  2. an increase in switching costs because the airlines have no choice but to use jet fuel and other oil products
  3. an increase in the bargaining power of suppliers of a critical input
  4. an increase in the intensity of rivalry among airlines for scarce resources

Q5

Buyers are powerful when…

  1. there is a threat of forward integration
  2. they purchase a small proportion of the supplier’s output
  3. switching costs are low
  4. the buyers’ industry is fragmented

Q6

The highest amount a firm can charge for its products is most directly affected by…

  1. expected retaliation from competitors
  2. the cost of substitute products
  3. variable costs of production
  4. customers’ high switching costs

Q7

The threat from substitutes is high when…

  1. switching costs are high.
  2. the substitute product’s price is lower than the industry product’s price.
  3. the quality of the substitute product is lower than the quality of the industry’s product.
  4. the substitute product stimulates new process innovations within the industry.

Q8

All of the following are forces that create high rivalry within an industry except…

  1. numerous or equally balanced competitors
  2. high fixed costs
  3. fast industry growth
  4. high storage costs

Q9

The existence of high exit barriers such as ownership of specialized assets (e.g., large aircraft) in the airline industry indicates that…

  1. customers are relatively weak because of the high switching costs created by frequent flyer programs.
  2. the industry is moving toward differentiation of services.
  3. the competitive rivalry in the industry is severe.
  4. the economic segment of the external environment has shifted, but airline strategies have not changed.

Q10

A manufacturer of washing machines has expanded its plant and has created excess capacity, just as the general economy has taken a downturn. The company is likely to…

  1. raise prices on washing machines to offset lost sales
  2. be vulnerable to new entrants to an attractive market
  3. suffer from intense rivalry from international manufacturers
  4. offer rebates and incentives for customers who purchase washing machines

Q11

When rival firms compete aggressively by trying to attract competitors’ customers, this might be an indication of…

  1. an industry with low exit barriers
  2. increasing economies of scale
  3. slow industry growth
  4. high bargaining power among buyers

Q12

Exit barriers to a firm include all of the following except…

  1. generic assets
  2. loyalty to employees
  3. governmental concern about job loss
  4. restrictive labor agreements

Q13

According to the five forces model, an attractive industry would have all of the following characteristics except

  1. low barriers to entry
  2. suppliers and buyers with little bargaining power
  3. a moderate degree of rivalry among competitors
  4. few good product substitutes

Q14

According to the five forces model, an unattractive industry would include all of the following characteristics except

  1. low economies of scale needed for new firms to enter.
  2. low supplier power due to commodity inputs.
  3. high threat of substitute products due to a large number of low-cost alternatives.
  4. high bargaining power of buyers due to low switching costs.

Q15

The competition within each strategic group is…

  1. more intense than is the competition between strategic groups
  2. less intense than is the competition between strategic groups
  3. typically very low
  4. an unknown factor in the analysis of competitive practices within a firm’s strategic group

Q16

Firms within strategic groups…

  1. follow dissimilar strategies
  2. follow similar strategies across certain dimensions
  3. typically engage in greater amounts of intergroup rivalry than intragroup rivalry
  4. exist almost exclusively in the manufacturing sector

Q17

All of the following are implications of strategic groups except…

  1. the strength of the five forces differs across strategic groups.
  2. the strength of the five forces is the same across strategic groups.
  3. competitive rivalry within strategic groups is greater than between strategic groups.
  4. the closer the strategic groups are in terms of strategies, the greater is the likelihood of rivalry.

Q18

Competitor analysis focuses on…

  1. firms with which the company competes directly.
  2. firms that produce products that are substitutes.
  3. all firms in the industry.
  4. companies that might enter the industry.

Q19

Competitor intelligence is…

  1. legally or illegally gained data about competitors’ internal strategic processes and competitive decisions.
  2. strategic information gained from industrial espionage targeting international competitors.
  3. the data that the firm gathers to understand competitors’ objectives, strategies, assumptions, and capabilities.
  4. illegal to gather under the Sarbanes-Oxley Act.

Q20

Once a firm has determined its competitor’s future objectives, current strategy, assumptions, and strengths and weaknesses, its next step is to develop…

  1. an environmental assessment
  2. a marketing plan
  3. a response profile
  4. a task force to implement the plan

Q21

A competitor analysis includes all of the following about competitors except

  1. future objectives
  2. current strategy
  3. assumptions
  4. traditions

Q22

All the following are ethical sources of data for external analysis except

  1. trade shows
  2. competitor’s annual reports
  3. competitor’s help wanted advertisements
  4. a competitor’s confidential memos

Q23

Competitor intelligence could ethically come from all the following except

  1. court records
  2. financial reports
  3. trade show discussions
  4. eavesdropping

Q24

Which of the following represents a competitive intelligence practice that is both legal and ethical?

  1. A firm hires a competitor’s employee and asks that employee to share the names and addresses of business contacts from his/her previous job.
  2. An executive attends a trade show solely to obtain a competitor’s brochures, listen to sales pitches, and ask questions about the competitor’s products.
  3. A city council member shares information about the decision process for selecting a contractor to build a new library wing with his wife, an executive with a construction firm bidding on the contract.
  4. A marketing manager at Smith-Phillips, Inc., sells confidential plans for the company’s expansion into the Far East to a firm that is not a direct competitor.

Q25

Which of the following intelligence gathering techniques is most likely to be legal and ethical?

  1. Hiring investigators to examine the competitor’s trash.
  2. Entering a competitor’s production plant without authorization.
  3. Redirecting a competitor’s emails to one’s own company.
  4. Attending trade show presentations given by a competitor’s employees.

Q26

Managers use corporate-level strategy to identify which industries a company should compete in to maximize long-run profitability.

  1. True
  2. False

Q27

An advantage of horizontal integration is that by staying in one industry, a firm can focus its resources and capabilities on competing successfully in just one area.

  1. True
  2. False

Q28

When a company stays inside one industry, the problems of sustaining a successful business model and strategies over time can be difficult because of changing conditions in the environment.

  1. True
  2. False

Q29

Horizontal integration may be accomplished by acquisitions or mergers.

  1. True
  2. False

Q30

Horizontal integration can help lower costs when it allows a company to reduce the duplication of resources.

  1. True
  2. False

Q31

Product bundling occurs when a firm offers a range of products that are sold together at a single price.

  1. True
  2. False

Q32

One outcome of horizontal integration is industry consolidation, leading to more bargaining power over buyers and suppliers.

  1. True
  2. False

Q33

Vertical integration is undertaken to support the competitive position of a company’s core business.

  1. True
  2. False

Q34

A company achieves full integration when it produces all of a particular input needed for its processes or disposes of all of its completed products through its own operations.

  1. True
  2. False

Q35

Company-specific know-how acquired through training is a specialized asset.

  1. True
  2. False

Q36

Competitive bidding makes suppliers reluctant to make investments that tie them closely to their trading partners.

  1. True
  2. False

Q37

Vertical integration can strengthen a company’s differentiation advantage.

  1. True
  2. False

Q38

Vertical integration can raise costs if, over time, a company continues to purchase inputs from company-owned suppliers when independent suppliers can supply the same inputs at lower cost.

  1. True
  2. False

Q39

Vertical integration can be risky when demand is unpredictable because it is hard to manage the volume or flow of products along the value-added chain.

  1. True
  2. False

Q40

Strategic outsourcing is the decision to allow one or more of a company’s value chain activities or functions to be performed by independent companies.

  1. True
  2. False

Q41

Companies that outsource most or all of their value creation activities are often referred to as virtual corporations.

  1. True
  2. False

Q42

A company may be able to differentiate its final products better by outsourcing certain noncore activities to specialists.

  1. True
  2. False

Q43

A company seeking to form a long-term strategic alliance needs to enter the agreement with total trust in its partner to live up to its end of the agreement.

  1. True
  2. False

Q44

The term bureaucratic costs refers to costs associated with the creation and maintenance of the administrative function in a company.

  1. True
  2. False

Q45

Even though companies may invest in specialized assets to build competitive advantage, it is seldom necessary that suppliers do so.

  1. True
  2. False

Q46

A strategic alliance is a substitute for horizontal integration.

  1. True
  2. False

Q47

Horizontal integration almost always increases rivalry in an industry.

  1. True
  2. False

Q48

Horizontal integration can lead to low-cost advantages but rarely to differentiation advantages.

  1. True
  2. False

Q49

A company should first choose a corporate-level strategy and then look at how changes will affect a company’s current business model and strategies.

  1. True
  2. False

Q50

The final part of the strategy formulation process is…

  1. formulation of business-level strategies
  2. formulation of functional-level strategies
  3. formulation of corporate-level strategies
  4. development of functional-level goals
  5. development of business-level goals

Q51

When a company decides to expand into new industries, it must…

  1. construct its business models at two levels
  2. secure government approval from the Securities and Exchange Commission (SEC)
  3. select a new CEO
  4. all of these choices
  5. none of these choices

Q52

A specialized asset is one that is designed to…

  1. perform a multitude of generic tasks
  2. perform a specified sequence of tasks
  3. perform several nonsequential tasks
  4. perform a specific task
  5. none of these choices

Q53

Companies invest in specialized assets because these assets allow them to…

  1. lower their cost structure
  2. charge excessive prices for their products
  3. better differentiate their product
  4. lower their cost structure & charge excessive prices for their products
  5. lower their cost structure & better differentiate their product

Q54

Many industries have experienced increased consolidation over the last decade due to an increase in…

  1. strategic alliances
  2. vertical integration
  3. horizontal integration
  4. franchising
  5. diversification

Q55

Which of the following is a benefit that firms should expect to gain from the use of horizontal integration?

  1. Expanded control over stages of the supply chain
  2. Better realization of economies of scale
  3. Shared risk with another firm
  4. Reduced risk of holdup
  5. Reduced investments in noncore activities

Q56

Horizontal integration may be thought of as…

  1. moving into a new unrelated industry
  2. giving control to suppliers
  3. gaining control of distributors
  4. staying inside the industry in which the company currently operates
  5. combining functional units within the company

Q57

In today’s business environment, mergers and acquisitions are…

  1. rare
  2. too expensive to undertake
  3. occurring in many industries
  4. an inappropriate technique for expanding a company
  5. none of these choices

Q58

Horizontal integration in an industry tends to…

  1. increase rivalry among firms
  2. reduce rivalry among firms
  3. have little effect on rivalry among firms
  4. reduce the number of consumers buying the products
  5. none of these choices

Q59

Adam’s boss tells him that their company is pursuing a strategy of horizontal integration, which means that the company will…

  1. acquire one of its suppliers
  2. buy one of its rivals
  3. begin to distribute its own products
  4. reorganize into fewer business units
  5. centralize all of its support functions

Q60

Observing the pattern of consolidation in U.S. industries over time, one will notice that…

  1. horizontal integration has never been a very popular strategy
  2. firms that horizontally integrate tend to divest later
  3. horizontal integration has been very popular in the last decade
  4. while a few industries have consolidated since 1970, most remain fragmented
  5. mergers were very common and acquisitions were rare from 1900 to 1999

Q61

Antitrust regulation…

  1. favors large companies
  2. reduces industry competition
  3. is concerned with companies’ abuse of their market power to raise prices for consumers above the level that would exist in more competitive situations
  4. tends to raise prices for consumers
  5. enables the achievement of market power

Q62

When an intermediate manufacturer moves into final assembly, it is pursuing…

  1. backward integration
  2. forward integration
  3. taper integration
  4. related diversification
  5. unrelated diversification

Q63

Which of the following is not a benefit of vertical integration?

  1. Facilitating investments in specialized assets
  2. Enhancing product quality
  3. Improved scheduling
  4. Increasing cost structure
  5. None of these choices

Q64

Vertical integration can be disadvantageous when…

  1. competitors are vertically integrated
  2. demand is stable
  3. industry technology is changing rapidly
  4. technology is changing slowly
  5. competitors are vertically integrated and industry technology changes rapidly

Q65

Taper integration…

  1. has higher bureaucratic costs than does full integration
  2. has lower bureaucratic costs than does long-term contracts
  3. can increase the incentive for in-house suppliers to reduce costs
  4. is preferable to full integration when demand conditions are stable
  5. eliminates the disadvantage of potential technological obsolescence

Q66

Which of the following is a benefit of horizontal integration?

  1. Lower cost structure
  2. Increased product differentiation
  3. Replicated business model
  4. Increased bargaining power over suppliers
  5. All of these choices

Q67

A wealth of data suggests that most mergers and acquisitions…

  1. create extensive value for the companies involved
  2. do not create, and may actually reduce, value for the entities involved
  3. create and sustain large and immediate increases in value
  4. have little financial impact on the firms involved
  5. none of these choices

Q68

A company pursuing a strategy of vertical integration may expand its operations…

  1. backward into an industry that produces inputs for the company’s products
  2. forward into an industry that uses, distributes, or sells the company’s products
  3. laterally into an industry that competes with the company’s products
  4. 1 and 2
  5. 1 and 3

Q69

Under which of the following circumstances is vertical integration hazardous?

  1. When the technology involved in different stages of production is changing rapidly
  2. When vertical integration involves moving downstream into retailing
  3. When the value added by successive stages of production is declining
  4. When the industries involved are undergoing rapid expansion
  5. When the company’s competitors are also following a strategy of vertical integration

Q70

Under which of the following circumstances is vertical integration most likely to help a company establish itself as a differentiated player in its core business?

  1. When backward vertical integration involves circumventing suppliers with the power to charge high prices
  2. When vertical integration is based on a desire to avoid paying market middlemen
  3. When vertical integration allows the company to establish for itself a stable supply of high-quality inputs
  4. When vertical integration facilitates close coordination among adjacent stages of production, eliminating the need to hold excessive inventories
  5. When vertical integration prohibits technologically complementary processes being carried out in quick succession

Q71

Which of the following statements concerning vertical integration is not correct?

  1. Vertical integration can reduce a company’s overall cost of production.
  2. Vertical integration allows a company to circumvent powerful buyers and suppliers.
  3. Vertical integration can be used to protect a company’s investments in proprietary technology.
  4. Vertical integration is a means of implementing just-in-time inventory systems when suppliers are unreliable.
  5. Vertical integration facilitates the attainment of economies of scope.

Q72

Which of the following strategies facilitates the implementation of a just-in-time inventory system?

  1. Short-term contracts
  2. Vertical integration
  3. Unrelated diversification
  4. Diversification based on transferring competencies
  5. Diversification based on realizing economies of scope

Q73

Companies can maintain market discipline over suppliers by…

  1. outsourcing
  2. demanding hostages
  3. attaining a credible commitment
  4. parallel sourcing
  5. full integration

Q74

Which of the following is not a characteristic of strategic alliances entered into to support related diversification?

  1. It is a way for companies to realize some of the benefits of diversification at a lower level of bureaucratic costs.
  2. It requires each company to take an equity stake in the new venture.
  3. A disadvantage is the risk of losing proprietary know-how to a competitor.
  4. It entails investing in a new business or product (including upgrades) instead of an existing one.
  5. It allows a company to swap complementary skills.

Q75

Credible commitments…

  1. are believable promises or pledges to support the development of a long-term relationship between companies
  2. facilitate diversification based on acquisitions and restructuring
  3. facilitate competitive bidding
  4. facilitate vertical integration
  5. reduce the risk of losing proprietary technology to a venture partner and facilitate vertical integration

Q76

Another name for long-term cooperative relationships between two or more companies who agree to commit resources to develop new products is…

  1. horizontal integration
  2. outsourcing
  3. strategic alliance
  4. joint venture
  5. vertical integration

Q77

A hospital supply company invests in training for a team of sales associates to learn the details of each hospital chain’s operations. In return, the hospital chain invests in a computer system that supports supply ordering. The supply company and the hospital chain are working to ensure the success of their long-term relationship by…

  1. reducing the risk of losing proprietary technology
  2. making a credible commitment
  3. encouraging competitive bidding
  4. facilitating vertical integration
  5. using parallel sourcing

Q78

Vertical integration is based on a company entering industries that add ____ to its core products.

  1. costs
  2. little or nothing
  3. incremental elements
  4. shipping expenses
  5. value

Q79

Forward integration means that a company is moving into…

  1. sales
  2. retail
  3. distribution
  4. all of these choices
  5. e. none of these choices

Q80

Ownership of retail outlets may be important for a manufacturer if…

  1. the products produced by the manufacturer are not complex
  2. after-sales service is required for complex products
  3. products are expended in consumption
  4. products are intended for one-time use
  5. products are inexpensive

Q81

Which of the following problems is (are) associated with a strategy of vertical integration?

  1. An increasing cost structure
  2. Manufacturing disadvantages that arise because of rapidly changing technology
  3. Marketing disadvantages that arise when demand is unpredictable
  4. All of these choices
  5. None of these choices

Q82

To build trust in a cooperative relationship, both firms can…

  1. rely on competitive bidding
  2. make mutual investments in specialized assets
  3. write short-term contracts that must be renewed frequently
  4. increase their vertical integration
  5. use outsourcing of noncore activities

Q83

When there is a minimal need for close long-term cooperation between a company and its suppliers, which of the following strategies is the most appropriate?

  1. Full integration
  2. Taper integration
  3. Competitive bidding
  4. Long-term contracting
  5. Diversification based on economies of scope

Q84

Long-term contracts…

  1. are preferable to short-term contracts when there is a minimal need for cooperation
  2. are preferable to vertical integration when it is not feasible to exchange hostages
  3. generally result in lower prices than does competitive bidding
  4. achieve exactly the same outcomes as vertical integration, but they incur higher bureaucratic costs
  5. are a low-cost alternative to vertical integration when it is possible to build cooperative relationships with suppliers

Q85

Outsourcing occurs when a firm…

  1. buys one of its rivals
  2. merges with one of its suppliers
  3. enters into a joint venture with a rival
  4. hires another firm to perform value creation activities
  5. enters into contracts with two suppliers simultaneously

Q86

Which of the following activities should not be outsourced by a virtual corporation?

  1. Manufacturing
  2. Research and development (R&D)
  3. Materials management
  4. Contract management
  5. Marketing

Q87

Which of the following is not an accurate statement about outsourcing?

  1. Outsourcing should be done for an entire function. For example, all of human resources.
  2. Outsourcing requires that some value creation activities be performed outside an organization.
  3. A risk of outsourcing is the decreased control that organizations have over how the functions are performed.
  4. Outsourcing means that activities can be performed by companies that specialize in that activity.
  5. Outsourcing is a strategy that is primarily used by small firms who cannot afford skilled personnel in every specialty.

Q88

In which of the following is a firm most likely to lose direct control over value creation activities?

  1. Merger
  2. Acquisition
  3. Vertical integration
  4. Strategic alliance
  5. Outsourcing

Q89

Outsourcing…

  1. eliminates the need for a value chain
  2. reduces the firm’s dependence on its value chain
  3. reorders the steps in a firm’s value chain
  4. moves some value chain activities outside the firm
  5. strengthens the firm’s capabilities in each value chain function

Q90

To ensure the easy transfer of important competitive information between a firm and its outsourcing contractors, the firm should…

  1. exchange hostages
  2. use parallel sourcing
  3. lengthen the supply chain
  4. develop trust
  5. become a virtual corporation

Q91

When technology in an industry is changing rapidly, a company pursuing a strategy of vertical integration may find itself…

  1. locked into an old, inefficient technology
  2. able to sell its products at continually lower prices
  3. increasing returns on its assets
  4. all of these choices
  5. none of these choices

Q92

A strategy of vertical integration may be a risky strategy for a company to pursue when demand is…

  1. predictable
  2. stable
  3. unpredictable
  4. steadily increasing
  5. rapidly increasing

Q93

Strategic alliances are…

  1. short-term agreements between two companies to jointly develop new products
  2. short-term agreements between two companies to jointly market new products
  3. short-term partnerships between two companies
  4. long-term commitments between two companies to share research and development activities
  5. long-term agreements between two or more companies to jointly develop products that benefit all companies involved in the alliance

Q94

Under a competitive bidding strategy, independent component suppliers compete with each other to be the company that will be chosen to supply…

  1. a particular part for a particular manufacturer
  2. all of the parts for a particular manufacturer
  3. a particular part for all manufacturers in the industry
  4. all parts for all manufacturers in the industry
  5. none of these choices

Q95

A credible commitment on the part of two companies is an example of a…

  1. short-term agreement
  2. commitment that may be terminated by either company at any time
  3. believable promise or pledge to support the development of a long-term relationship between companies
  4. public relations gesture undertaken to stimulate sales
  5. marketing strategy

Q96

Strategic outsourcing is best described as a…

  1. means of getting rid of excess activities
  2. way of getting other companies to do what the outsourcing company no longer wants to do
  3. method of streamlining the marketing activities of a company
  4. decision to allow one or more of a company’s value chain activities to be performed by other companies
  5. none of these choices