CH 07
CH 07
CH 07
com
CHAPTER 07
STRATEGY FORMULATION: CORPORATE STRATEGY
True/False
1.
Corporate strategy deals with the choice of direction for the firm as a whole.
Answer: T
2.
Corporate parenting is the coordination of cash flow among units.
Answer: F
A merger is a transaction involving two or more corporations in which stock is exchanged, but
from which only one corporation survives.
Answer: T
(p.137)
(p.137)
3.
4.
Vertical integration is going backward on an industrys value chain.
Answer: F
Forward integration is the degree to which a firm operates vertically in multiple locations on an
industrys value chain from extracting raw materials to manufacturing to retailing.
Answer: T
(p.139)
(p.140)
5.
6.
Conglomerate diversification is diversifying into an industry unrelated to its current one.
Answer: T
Exporting grants rights to another company to open a retail store using the franchisers name and
operating system.
Answer: F
(p.140)
(p.143)
7.
Turnkey operations are typically contracts for the construction of operating facilities in exchange
for a fee.
Answer: T
(p.143)
8.
(p.145)
9.
A no change strategy is a decision to do nothing new in a worsening situation, but instead to act as
though the companys problems are only temporary.
(p.147)
Answer: F
10.
A turnaround strategy emphasizes the improvement of operational efficiency and is probably more
appropriate when a corporations problems are pervasive, but not yet critical.
(p.148)
Answer: T
11.
Bankruptcy is the termination of the firm.
Answer: F
(p.150)
12.
Bankruptcy involves giving up management of the firm to the courts in return for some settlement
of the corporations obligations.
(p.150)
Answer: T
13.
BCG stands for Boston Consulting Group.
Answer: T
(p.151)
14.
Cash cows are market leaders typically at the peak of their product life cycle and are usually able
to generate enough cash to maintain their high share of the market.
Answer: F
179
(p.152)
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15.
Eventually, cash cows become stars.
Answer: F
(p.152)
16.
(p.152)
17.
(p.154)
18.
The competitive strength of a product is based only on its market share.
Answer: F
(p.154)
19.
One advantage of portfolio analysis is that it is not easy to define product/market segments.
Answer: F
(p.155)
20.
One disadvantage of portfolio analysis is that it provides an illusion of scientific rigor.
Answer: T
(p.155)
Multiple Choice
21.
Which strategy specifies the firm's overall direction in terms of its general orientation toward
growth, the industries or markets in which it competes, and the manner in which it coordinates
activities and transfers resources among business units?
a.
b.
c.
d.
e.
22.
23.
(p.138)
portfolio strategy
directional strategy
parenting strategy
cooperative strategy
functional strategy
Which kind of corporate strategy deals with the industries or markets in which the firm competes
through its products and business units?
a.
b.
c.
d.
(p.137)
corporate strategies.
directional strategies.
cooperative strategies.
functional strategies.
business strategies.
Which kind of corporate strategy deals with the firm's overall orientation toward growth?
a.
b.
c.
d.
e.
24.
corporate
functional
divisional
organizational
business
Strategies that include the flow of financial and other resources to and from a companys product
lines and business units can be referred to as
a.
b.
c.
d.
e.
(p.137)
portfolio strategy
directional strategy
parenting strategy
cooperative strategy
180
(p.137)
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e.
25.
Which kind of corporate strategy deals with the manner in which the firm coordinates activities
and transfers resources and cultivates capabilities among product lines and business units?
a.
b.
c.
d.
e.
26.
28.
mergers
strategic alliances
diversification
acquisitions
concentration
mergers
strategic alliances
diversification
acquisitions
concentration
Which external growth strategy is a partnership of two or more corporations or business units to
achieve mutually beneficial strategic objectives?
a.
b.
c.
d.
e.
30.
(p.139)
Which external growth strategy occurs when a corporation is completely absorbed as an operating
subsidiary or division of the acquiring firm?
(p.139)
a.
b.
c.
d.
e.
29.
(p.138)
stability
growth
consolidation
retrenchment
expansion
Which external growth strategy involves two or more corporations joining in a stock exchange
and from which only one corporation survives?
a.
b.
c.
d.
e.
(p.137)
portfolio strategy
directional strategy
parenting strategy
cooperative strategy
functional strategy
Which one of the following directional strategies is most frequently used in corporations?
a.
b.
c.
d.
e.
27.
functional strategy
mergers
strategic alliances
diversification
acquisitions
concentration
Which of the following is NOT a reason why the growth strategy is so seductive?
a.
b.
c.
d.
e.
(p.139)
181
(p.139)
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31.
32.
33.
b.
c.
d.
e.
36.
concentration.
conglomerate integration.
concentric diversification.
stability.
retrenchment.
35.
(p.139)
Ford Motor Company's use of company resources to build its River Rouge Plant outside of Detroit
so that iron ore could enter into one end of the plant and a finished automobile could exit out of
the other end is called
(p.140)
a.
b.
c.
d.
e.
34.
organizational trash.
organizational slack.
organizational capacity.
organizational acquisition.
organizational formula.
The most logical strategy for a corporation having a strong competitive position possessing a
high market share in a highly attractive industry is
a.
b.
c.
d.
e.
(p.139)
The purchase of Carrolls Foods for its hog-growing facilities by Smithfield Foods, the worlds
largest pork processor, is an example of
a.
b.
c.
d.
e.
(p.140)
forward integration.
horizontal integration.
backward integration.
transferred integration.
mass integration.
182
(p.140)
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37.
The ability for Nike to manufacture its own shoes and then build stores for distribution is an
example of
a.
b.
c.
d.
e.
38.
39.
41.
42.
(p.140)
forward, backward
vertical, backward
backward, vertical
backward, forward
mass, forward
When a firm internally makes 100% of its key supplies and completely controls its distributors,
this is known as
a.
b.
c.
d.
e.
(p.140)
population theory.
institution theory.
transaction cost economics.
trickle down economics.
transaction growth theory.
40.
forward integration.
horizontal integration.
backward integration.
transferred integration.
mass integration.
The theory that proposes that vertical integration is more efficient than contracting for goods and
services in the marketplace when the transaction costs of buying goods on the open market
becomes too great is known as
a.
b.
c.
d.
e.
(p.140)
(p.140)
full integration.
vertical integration.
mass integration.
economical integration.
strategic integration.
A firm that produces part of its own requirements and buys the rest from outside suppliers is what
type of vertical integration?
a.
full integration
b.
long-term contracts
c.
backwards integration
d.
taper integration
e.
quasi integration
(p.141)
A firm which gets most of its requirements from an outside supplier that is under its partial control
is what type of vertical integration?
(p.141)
a.
b.
c.
d.
e.
full integration
long-term contracts
backwards integration
taper integration
quasi integration
183
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43.
According to transaction cost economics, which of the following is NOT a reason for a firm to
prefer vertical integration over contracting to purchasing supplies or services in the open market?
a.
b.
c.
d.
e.
44.
45.
47.
48.
e.
(p.142)
insourcing.
outsourcing.
resource building.
resource placement.
resource allocation.
(p.142)
long-term contract.
short-term contract.
binding contract.
integrated contract.
outsourced contract.
When resources are purchased from outsiders through long-term contracts instead of being made
in-house, this process is referred to as
a.
b.
c.
d.
e.
(p.141)
An agreement between two separate firms to provide agreed-upon goods and services to each
other for a specified period of time is known as a(n)
a.
b.
c.
d.
e.
(p.142)
46.
A firm's expansion into other geographic locations and/or increasing the range of products and
services offered to current markets is called
a.
b.
c.
d.
e.
(p.141)
184
(p.143)
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49.
Which strategy did KLM choose when it joined forces with Northwest Airlines?
a.
b.
c.
d.
e.
50.
51.
c.
d.
e.
53.
54.
(p.143)
product-market synergy.
financial considerations.
employee satisfaction.
similar product offerings.
market demand.
(p.143)
(p.143)
concentration.
horizontal growth.
concentric diversification.
vertical growth.
conglomerate diversification.
(p.142)
concentration.
horizontal growth.
concentric diversification.
vertical growth.
conglomerate diversification.
52.
(p.142)
product-market synergy.
market demand.
financial considerations.
diverse product offerings.
economic indicators.
185
(p.143)
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55.
An MNC uses which international strategy for entering a foreign market by simply shipping
goods produced in the company's home country to other countries for marketing to minimize risk
and to experiment with a specific product?
a.
b.
c.
d.
e.
56.
c.
d.
e.
(p.145)
An MNC uses which international strategy for entering a foreign market by purchasing another
company already operating in the area developing synergistic benefits gained from acquiring
strong complementary product lines and a good distribution network?
a.
b.
c.
d.
e.
(p.145)
5%
7%
17%
27%
37%
One benefit of a U.S. company entering a joint venture with an international firm is the joint
venture
a.
b.
59.
licensing
joint ventures
production sharing
exporting
acquisitions
The rate of joint venture formation between U.S. companies and international partners has been
growing _____ annually since 1985.
a.
b.
c.
d.
e.
58.
licensing
joint ventures
production sharing
exporting
acquisitions
An MNC uses which international strategy for entering a foreign market by associating itself with
a firm in the host country or a government agency in that country to combine resources and
expertise needed for the development of a new product or technologies?
(p.145)
a.
b.
c.
d.
e.
57.
(p.145)
licensing
joint ventures
production sharing
exporting
acquisitions
186
(p.145)
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60.
An MNC uses which international strategy for entering a foreign market by combining the higher
labor skills and technology available in the developed countries with the lower cost labor
available in the developing countries?
a.
b.
c.
d.
e.
61.
b.
c.
d.
e.
62.
b.
c.
d.
e.
b.
c.
d.
e.
64.
(p.146)
as a way in which an MNC may contract with a foreign government or local firm to trade
raw materials for certain resources belonging to the MNC.
as a way in which an MNC can take total control of operations by either starting a
business from scratch or acquiring a firm already established in the host country.
when a corporation chooses to build a facility from scratch allowing it the freedom to
design the plant, choose suppliers, and hire a work force.
when an MNC has a large amount of management talent available and chooses to
use its personnel to assist a firm in a host country for a specified fee and period of
time.
when an MNC typically contracts for construction of operating facilities in exchange for
a fee.
One study of various growth projects revealed that the most successful growth strategy was
a.
b.
c.
d.
e.
(p.145)
a way in which an MNC may contract with a foreign government or local firm to trade
raw materials for certain resources belonging to the MNC.
a way in which an MNC can take total control of operations by either starting a business
from scratch or acquiring a firm already established in the host country.
when a corporation chooses to build a facility from scratch allowing it the freedom to
design the plant, choose suppliers, and hire a work force.
when an MNC has a large amount of management talent available and chooses to use its
personnel to assist a firm in a host country for a specified fee and period of time.
typically contracts for construction of operating facilities in exchange for a fee.
(p.145)
a way in which an MNC may contract with a foreign government or local firm to trade
raw materials for certain resources belonging to the MNC.
a way in which an MNC can take total control of operations by acquiring a firm already
established in the host country.
when a corporation chooses to build a facility from scratch allowing it the freedom
to design the plant, choose suppliers, and hire its work force.
when an MNC has a large amount of management talent available and chooses to use its
personnel to assist a firm in a host country for a specified fee and period of time.
typically contracts for construction of operating facilities in exchange for a fee.
63.
licensing
joint ventures
production sharing
exporting
acquisitions
(p.145)
vertical growth.
horizontal growth.
concentric diversification.
conglomerate diversification.
a combination of vertical growth and conglomerate diversification.
187
(p.146)
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65.
66.
67.
c.
d.
e.
69.
(p.147)
Which strategy is most appropriate for a company in an industry in which the future is expected to
continue as an extension of the present?
(p.147)
a.
b.
c.
d.
e.
70.
(p.147)
(p.146)
The stability strategy is appropriate for all BUT ONE of the following circumstances?
a.
b.
68.
(p.146)
188
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71.
Which strategy is most appropriate for a corporation having a weak competitive position
regardless of the industry's attractiveness, resulting in poor performance, decreased sales and
lost profits?
a.
b.
c.
d.
e.
72.
b.
c.
d.
e.
73.
A form of divestment and is appropriate when corporate problems can be traced to the
poor performance of an SBU or product line.
Occurs when the corporation reduces the scope of some of its functional activities and
becomes "captive" to another firm.
Emphasizes improving operational efficiency and is appropriate when a
corporation's problems are pervasive, but not yet critical.
Occurs when a corporation liquidates all its assets.
It involves adding different products or divisions to the corporation.
b.
c.
d.
e.
(p.148)
Which strategy involves giving up management of the firm to the courts in return for some
settlement of the corporation's obligations?
a.
b.
c.
d.
e.
(p.148)
merger.
liquidation
integration.
divestment.
turnaround.
Which one of the following is NOT a characteristic of a firm that has chosen a captive company
strategy?
a.
75.
(p.148)
The strategy which takes place in two basic phases of contraction and consolidation is
a.
b.
c.
d.
e.
74.
(p.148)
liquidation
bankruptcy
diversification
divestment
consolidation
189
(p.150)
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76.
Which strategy is the termination of the firm because it is in an unattractive industry and the
company is too weak to be sold as a growing concern?
a.
b.
c.
d.
e.
77.
81.
(p.151)
.5.
1.0.
1.5.
2.0.
2.5.
The growth-share matrix of the Boston Consulting Group suggests that the excess cash being
generated by "cash cows" should be used to fund
a.
b.
c.
d.
e.
(p.151)
market leader.
largest competitor.
market challenger.
market lagger.
smallest competitor.
The line separating areas of high and low relative competitive position as gained from the BCG
growth-share matrix method, is set at
a.
b.
c.
d.
e.
(p.151)
A market share ratio above 1.0, calculated by the Boston Consulting Group's growth-share matrix
method, belongs to the
a.
b.
c.
d.
e.
80.
PIMS.
segmentation analysis
portfolio analysis.
industry analysis.
diversification study.
In the Boston Consulting Group's growth-share matrix, the relative competitive position of a
product, division, or corporation is defined as
a.
b.
c.
d.
e.
79.
liquidation
bankruptcy
diversification
divestment
consolidation
One of the most popular aids to developing corporate strategy in multibusiness corporations views
business units in terms of the cash they generate and is called
(p.151)
a.
b.
c.
d.
e.
78.
(p.150)
"dogs."
"question marks."
"stars."
"white knights."
"buckets."
190
(p.151)
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82.
New products which are typically introduced in a fast-growing industry are called
a.
b.
c.
d.
e.
83.
87.
d.
e.
(p.152)
effective management.
competitive positioning.
innovative initiative.
industry leadership.
market share.
(p.152)
cash cows.
lost leaders.
dogs.
question marks.
stars.
(p.152)
cash cows.
lost leaders.
dogs.
question marks.
stars.
Those products with low market share that do NOT have the potential to bring in much cash are
called
a.
b.
c.
d.
e.
86.
cash cows.
lost leaders.
dogs.
question marks.
stars.
Products that typically bring in far more money than is needed for maintenance of their market
share are called
a.
b.
c.
d.
e.
85.
cash cows.
lost leaders.
dogs.
question marks.
stars.
Market leaders typically at the peak of their product life cycle and usually able to generate enough
cash to maintain their high share of the market are called
(p.151)
a.
b.
c.
d.
e.
84.
(p.151)
191
(p.153)
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88.
Which of the following is NOT defined by GE as one of the variables forming industry
attractiveness?
a.
b.
c.
d.
e.
89.
90.
93.
industry profitability
competitive diversity
market growth rate
market size
market share
The range of scores for the business strength axis of the GE Business Screen is from
a.
b.
c.
d.
e.
92.
(p.153)
Which one of the following is NOT one of the four steps recommended for plotting of products or
SBUs on the GE Business Screen?
(p.154)
a.
b.
c.
d.
e.
91.
market share
market size
market growth rate
pricing practices
industry profitability
(p.153)
(p.154)
192
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94.
95.
e.
96.
b.
c.
d.
e.
98.
99.
(p.157)
According to Campbell, Goold, and Alexander in their parenting-fit matrix, those businesses
which are opportunities for improvement by the parent and the parent clearly understands their
critical success factors well are called
a.
b.
c.
d.
e.
(p.156)
the employees.
organizational knowledge.
plant assets.
joint ventures.
licensing agreements.
The summary of various judgments regarding corporate/business unit fit for the corporation as a
whole is referred to as
a.
b.
c.
d.
e.
(p.156)
the core competencies of the parent corporation and on the value created from the
relationship between the parent and its units.
the cash flow among its business units.
whether a business unit should be growing, stabilizing, or retrenching.
acquiring distinctive competencies in the marketplace.
differentiating its activities into separate units and integrating these activities through
complex integrating mechanisms.
(p.155)
97.
(p.155)
ballast businesses.
heartland businesses.
edge-of-heartland businesses.
alien territory businesses.
value trap businesses.
193
(p.158)
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100.
According to the parenting-fit matrix, those businesses which fit very comfortably with the parent
corporation, but contain very few opportunities to be improved by the parent are called
(p.158)
a.
b.
c.
d.
e.
101.
According to Campbell, Goold, and Alexander in their parenting-fit matrix, those businesses
which fit well with parenting opportunities, but are a misfit with the parent's understanding of the
unit's critical success factors are called
a.
b.
c.
d.
e.
102.
ballast businesses.
heartland businesses.
edge-of-heartland businesses.
alien territory businesses.
value trap businesses.
(p.158)
ballast businesses.
heartland businesses.
edge-of-heartland businesses.
alien territory businesses.
value trap businesses.
A corporate strategy that cuts across divisional boundaries to build synergy across business units
to improve the competitive position of one or more business units is called
(p.159)
a.
b.
c.
d.
e.
103.
vertical strategy.
horizontal strategy.
hierarchical strategy.
portfolio strategy.
pyramid strategy.
Business firms that compete with each other not only in one business unit, but in a number of
related business units are said to be engaging in
a.
b.
c.
d.
e.
oligopolistic competition.
strategic competition.
multipoint competition.
laissez-faire competition.
horizontal competition.
194
(p.159)