Strategy – FAQ – 08

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List of FAQs

Q1

Increasingly, cooperative strategies have been formed by firms who are competitors.

  1. True
  2. False

Q2

If a large Asian cosmetics firm was to engage in a 50-50 partnership with a large American chemical company to form a new company focused on creating advanced skin care products, this would be considered a joint venture.

  1. True
  2. False

Q3

Firms in slow-cycle markets can use cooperative strategies in the transition to more competitive markets.

  1. True
  2. False

Q4

Mergers are the most common cooperative strategy used in standard-cycle markets.

  1. True
  2. False

Q5

Synergistic strategic alliances focus on economies of scope rather than economies of scale.

  1. True
  2. False

Q6

International strategic alliances are less risky than domestic strategic alliances due to diversification across countries.

  1. True
  2. False

Q7

High levels of trust allows less formal contracts to govern the relationship between alliance partners.

  1. True
  2. False

Q8

The code-sharing arrangement between Northwest Airlines and KLM was a cooperative alliance between airlines that involved no investment in a separate entity. This is an example of a(an)

  1. equity-based vertical complementary alliance
  2. equity-based horizontal complementary alliance
  3. nonequity-based vertical complementary alliance
  4. nonequity-based horizontal complementary alliance

Q9

When using business-level and corporate-level cooperative strategies, a firm’s primary intent is to develop strategic alliances that…

  1. enhance the firm’s reputation in the marketplace
  2. are long-lived
  3. will reduce the firm’s political risk
  4. create a competitive advantage

Q10

The use of alliances…

  1. is unlikely to yield success if partnering firms are headquartered in the same country
  2. may be too restrictive to facilitate entry into new markets
  3. usually increases the investment necessary to introduce new products
  4. is increasing, especially among large global firms

Q11

In a(an) ____ the firms involved own equal shares of a newly-created venture.

  1. equality-based strategic alliance
  2. non-equity strategic alliance
  3. joint venture
  4. equity strategic alliance

Q12

A competitive advantage that is developed through a cooperative strategy is called a collaborative or a(n) ____ advantage.

  1. economic
  2. collusive
  3. alliance
  4. relational

Q13

Moon Flower cosmetics company executives are aware that their Asian customer base is interested in advanced skin care treatments beyond Moon Flower’s traditional herbal and organic compounds. Moon Flower and a large American chemical company are in discussions to create a 50-50 partnership in a new firm which would create skin care treatments based on innovative chemical formulations which would be marketed both in Asia and in the U.S. Beyond being a cross-border alliance, this partnership can be called a(an)

  1. nonequity strategic alliance
  2. joint venture
  3. horizontal complementary alliance
  4. equity strategic alliance

Q14

China allows U.S. companies to ally with Chinese firms by purchasing minority ownership positions in the Chinese firms. These relationships are called…

  1. joint ventures
  2. network strategies
  3. equity strategic alliances
  4. nonequity strategic alliances

Q15

Which of the following firms would be most likely to enter an alliance in order to maintain market stability?

  1. large home appliance manufacturing
  2. electronic consumer goods manufacturing
  3. natural gas utility
  4. clothing retailing

Q16

Firms in a standard-cycle market may form alliances in order to…

  1. take advantage of opportunities in emerging market countries
  2. more quickly distribute new products
  3. capture economies of scale
  4. share risky R&D investments

Q17

Smith Commercial Lighting, Inc., which sells lighting for factories and businesses has entered an alliance with Revelation Lighting, Inc., a retailer of home decor lighting in order to expand into the trend of using industrial-type lighting in non-traditional style homes. Smith has invested 40% and Revelation has invested 60% into the new operation. This is an example of a(an)

  1. joint venture
  2. nonequity alliance
  3. horizontal complementary strategic alliance
  4. vertical complementary strategic alliance

Q18

Partners in a horizontal alliance can expect…

  1. benefits proportional to their investments
  2. similar opportunities as a result of the alliance
  3. common management issues
  4. different outcomes

Q19

The three main luxury hotels in a major tourist destination keep very close track of their competitors’ room pricing, restaurant offerings, tour packages, and special services such as airport transportation and spa privileges. When one hotel makes adjustments in prices or offerings, the other hotels follow suit. It is possible that these hotels are…

  1. engaging in tacit collusion
  2. following uncertainty reducing strategies
  3. monitoring business competitors for opportunistic behaviors
  4. following a competitive response strategy

Q20

____ strategic alliances have stronger focus on creation of value than do ____ strategic alliances.

  1. competition reducing, complementary
  2. complementary, competition reducing
  3. uncertainty reducing, complementary
  4. collusive, uncertainty reducing

Q21

CNOOC (China National Offshore Oil Corporation) has been focusing on alliances that are “upstream” from its core business. This type of alliance is classified as a(an) ____ strategic alliance.

  1. synergistic
  2. opportunistic
  3. horizontal
  4. diversifying

Q22

____ are sometimes used to consolidate and spin off poor performing businesses and to allow a company to focus on its core businesses, thus lowering the firm’s level of diversification.

  1. Joint ventures
  2. Synergistic alliances
  3. Horizontal complementary alliances
  4. Dynamic alliance networks

Q23

Which of the following statement is false?

  1. Franchising is most appropriate in fragmented industries.
  2. Franchising provides corporate growth with less risk than do mergers and acquisitions.
  3. Successful franchising allows transfer of knowledge and skills from the franchisor to the franchisee.
  4. Franchising agreements require more trust between firms than do other cooperative strategies.

Q24

A businessperson in Atlanta who wishes to develop a luxury pet kennel approaches the owner of the highly successful Pet Resort and Day Spa in Houston to see if the owner is interesting in franchising the Pet Resort brand. The Atlanta businessperson’s goal is to…

  1. get venture capital from Pet Resort
  2. gain access to Pet Resort’s tacit knowledge
  3. collude with Pet Resort to diminish competition in the kennel industry in Atlanta
  4. join in a vertical complementary alliance with Pet Resort

Q25

McDonald’s, Hilton International, and Krispy Kreme all heavily rely on the ____ strategy.

  1. transnational
  2. network cooperative
  3. cross-border alliances
  4. franchising cooperative

Q26

If GM and Ferrari were to combine some of their automobile manufacturing operations to make a new line of cars under a new brand name, this would be characterized as a(an)

  1. collusive tactic
  2. merger
  3. cross-border strategic alliance
  4. international acquisition

Q27

In a cross-border alliance, the local partner is often a useful source of information about…

  1. sources of capital
  2. the strengths of the foreign firm’s technology
  3. market synergies
  4. long-term planning

Q28

In general, cross-border alliances are more ____ and ____ than domestic alliances.

  1. uncertainty reducing, diversifying
  2. complex, risky
  3. highly leveraged, tightly monitored
  4. flexible, trust-based

Q29

Which of the following statements is true?

  1. Most cooperative strategies are successful if the basic agreements are well written and include appropriate monitoring strategies.
  2. The large majority of cooperative strategies fail despite potential synergies.
  3. Opportunistic behaviors are usually focused on gaining the use of the partner’s manufacturing and financial resources.
  4. Problems with international cooperative strategies usually concern financial-system differences between the partners.

Q30

The opportunity maximization approach is more difficult to establish in international relationships than in domestic relationships because of differences in all except…

  1. laws
  2. culture
  3. trade policies
  4. technology

Q31

Corporate governance is all of the following except…

  1. mechanisms used to determine and control the strategic direction and performance of organizations
  2. a means to establish and maintain harmony between owners and top managers whose interests may conflict
  3. ensuring that top managers’ interests are aligned with the interests of stockholders
  4. resolve conflicts among corporate employees

Q32

In the United States, the fundamental goal of business is to…

  1. ensure customer satisfaction
  2. maximize shareholder wealth
  3. provide job security
  4. generate profits

Q33

In the United States, a firm’s key stakeholder(s) is(are) the…

  1. government
  2. executives
  3. shareholders
  4. customers

Q34

Which of the following is not an internal governance mechanism?

  1. the board of directors
  2. ownership concentration 
  3. executive compensation
  4. the market for corporate control

Q35

Corporate governance revolves around the relationship between which two parties?

  1. shareholders and the board of directors 
  2. shareholders and managers
  3. the board of directors and managers
  4. None of these options are correct

Q36

Corporate governance is important to nations because…

  1. shareholders want large stock returns
  2. firms seek to invest in nations with national governance standards that are acceptable to them
  3. company boards have lobbied for strong governance
  4. the United States requires that other nations adopt its governance practices

Q37

Amos Ball, Inc., is a printing company in Iowa that has been family owned and managed for three generations. Which of the following statements is most likely to be true?

  1. Agency costs at Amos Ball are high.
  2. If research findings are valid, Amos Ball, Inc., will perform better if a family member is CEO than if an outsider is CEO.
  3. At Amos Ball, the opportunity for managerial opportunism is high.
  4. The functions of risk-bearing and decision making are separate at Amos Ball.

Q38

Complete the following: In small firms, managers often own a __________ percentage of the firm, which means there is ___________ separation between ownership and managerial control.

  1. small; small
  2. small; large 
  3. large; small
  4. large; large

Q39

The separation between firm ownership and management creates a(n) ________ relationship. 

  1. governance
  2. control 
  3. agency
  4. dependent

Q40

An agency relationship exists when one party delegates…

  1. decision-making responsibility to a second party
  2. financial responsibility to employees
  3. strategy implementation actions to functional managers
  4. ownership of a company to a second party

Q41

Managerial employment risk is the…

  1. risk that managers will behave opportunistically
  2. risk undertaken by managers to earn stock options
  3. managers’ risk of job loss, loss of compensation, and/or loss of reputation
  4. risk managers will not find a new top management position if they should be dismissed

Q42

Managers may decide to invest ___________ in products that are not associated with the firm’s current lines of business to increase the firm’s level of diversification and decrease their employment risk. 

  1. unsubstantial profits
  2. free cash flows 
  3. marginal profits 
  4. frozen assets

Q43

Product diversification provides two benefits to managers that do not accrue to shareholders: ___________ and ___________. 

  1. greater experience in a wider range of industries; lessening of managerial employment risk
  2. the manager frequently invests in the acquired firm, which allows him or her extensive profits; the manager can frequently buy excess assets divested by the acquired firm
  3. the manager’s supervisory needs are lowered; the manager is allowed greater time to oversee a wider range of activities
  4. the opportunity for higher compensation through firm growth; a reduction in managerial employment risk

Q44

The top management team at Sierra Infusion is concerned about the declining performance of firms in their industry. The team members are becoming concerned about the security of their jobs at Sierra Infusion. At a meeting over dinner, the top management team agrees to go to the board of directors with a proposal for…

  1. increased diversification of Sierra Infusion
  2. the addition of outside directors to the board
  3. increased shareholder participation in decision making
  4. greater concentration on Sierra’s core industry

Q45

In contrast to managers’ desires, shareholders usually prefer that free cash flows be…

  1. used to diversify the firm
  2. returned to them as dividends
  3. used to reduce corporate debt
  4. re-invested in additional corporate assets

Q46

A major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in order to _________, whereas owners wish to diversify the firm to _________.

  1. generate free cash flows; reduce the risk of total firm failure
  2. increase the price of the firm’s stock; increase the dividends paid out from free cash flows
  3. reduce the risk of total firm failure; reduce their total portfolio risk
  4. reduce their employment risk; increase the company’s value

Q47

Compared to managers, shareholders prefer…

  1. safer strategies with greater diversification for the firm
  2. riskier strategies with more focused diversification for the firm
  3. safer strategies with more focused diversification for the firm
  4. riskier strategies with greater diversification for the firm

Q48

Agency costs reflect all of the following except _________ costs. 

  1. monitoring
  2. enforcement 
  3. opportunity
  4. incentive

Q49

All of the following are consequences of the Sarbanes-Oxley Act except…

  1. a decrease in foreign firms listing on U.S. stock exchanges
  2. internal auditing scrutiny has improved and there is greater trust in financial reporting
  3. an increased number of IPOs (initial public offerings) are expected
  4. Section 404 creates excessive costs for firms

Q50

All of the following are areas covered by the Dodd-Frank Wall Street Reform and Consumer Protection Act except…

  1. consumer protection
  2. CEO compensation
  3. regulation of derivatives
  4. retirement accounts

Q51

In the long run, a successful acquisition is one that:

  1. enables the acquirer to make an all-equity purchase, thereby avoiding additional financial leverage.
  2. enables the acquirer to diversify its asset base.
  3. increases the market price of the acquirer’s stock over what it would have been without the acquisition.
  4. increases financial leverage.

Q52

How does a firm capture value when using a franchise business model?

  1. By receiving fees and royalty payments
  2. By selling a premium version of its product or service
  3. By giving advertisers access to target customers
  4. By matching those who want a service with those who are providing it

Q53

Firms with fewer competitive resources than the acting firm are more likely to:

  1. not respond to competitive actions
  2. respond quickly to competitive actions
  3. delay responding to competitive actions
  4. respond to strategic actions, but not to tactical actions

Q54

Competitive dynamics refers to the:

  1. circumstances in which competitors are aware of the degree of their mutual interdependence resulting from market commonality and resource similarity
  2. set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position
  3. ongoing actions and responses among all firms competing within a market for advantageous positions
  4. ongoing set of competitive actions and competitive responses between competitors as they maneuver for advantageous market position

Q55

Blue Apron is committed to helping customers make good choices in what they eat by delivering food directly to consumers. Blue Apron had a __________ model and uses a __________ strategy.

  1. subscription; differentiation
  2. focused differentiation; franchise
  3. cost leadership; subscription
  4. subscription; freemium

Q56

In general, firms are more aware of competitors that have similar resources and that:

  1. have low market dependence
  2. are late movers
  3. have low market commonality
  4. compete against the firm in multiple markets

Q57

Both __________ and __________ affect the awareness and motivation of a firm to undertake actions and responses.

  1. first-mover advantages; corporate size
  2. market commonality; resource similarity
  3. management capabilities; competitive analysis
  4. speed of management decisions; management actions

Q58

Rapid-Built Homes specializes in low-cost prefabricated, modular homes that can be erected in a matter of days anywhere in the country. Rapid-Built focuses on entire subdivisions of homes developed by real estate speculators. ModernModular Homes (ModMod) specializes in modular homes designed by architects, which can be built anywhere in the country. The buyers usually build the home themselves from kits on their own lots. ModMod sells fewer than 100 house kits per year. ModMod is run by two professors of architecture as a sideline business. According to the framework of competitive analysis, Rapid-Built and ModMod:

  1. are direct mutually acknowledged competitors
  2. have high resource similarity
  3. have high market commonality
  4. are probably not engaged in intense competitive rivalry

Q59

Which of the following is true?

  1. As customer loyalty increases, customers are more sensitive to price increases.
  2. Customer loyalty has a positive relationship with firm profitability.
  3. Customer loyalty is fragile and cannot reliably be considered a factor in firm success.
  4. Customer loyalty is of importance only to firms using the differentiation strategy.

Q60

Rivalry among competing sellers is generally more intense when…

  1. there are relatively few industry key success factors and rivals have highly differentiated products.
  2. the industry’s driving forces are strong and rivals have strongly differentiated products.
  3. barriers to entry are moderately high and the pool of likely entry candidates is small.
  4. rivals are active in making fresh moves to lower prices, introduce new products, increase promotional efforts and advertising, and otherwise gain sales and market share.
  5. barriers to entry are high and buyer switching costs are high.