Corporate Strategy: Vertical Integration And Diversification

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Questions Bank

What Is Strategy
Strategic Leadership: Managing the Strategy Process
External Analysis: Industry Structure, Competitive Forces, and Strategic Groups
Internal Analysis: Resources, Capabilities, and Core Competencies
Competitive Advantage, Firm Performance, and Business Models
Business Strategy: Differentiation, Cost Leadership, and Blue Oceans
Business Strategy: Innovation, Entrepreneurship, and Platforms
Corporate Strategy: Vertical Integration and Diversification
Corporate Strategy: Strategic Alliances, Mergers and Acquisitions
Global Strategy: Competing Around the World
Organizational Design: Structure, Culture, and Control
Corporate Governance and Business Ethics

All Questions

Question 1

Free

Multiple Choice

General Electric's CEO, Jeffrey Immelt, decided to refocus GE's portfolio of businesses and leverage the firm's core competency in industrial engineering while pursuing future-growth industries.The two industries that CEO Immelt had identified as major future-growth industries were the:

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education and entertainment sectors.

clean-technology sector and health care sector.

capital finance and information technology sectors.

consumer electronics sector and hospitality sector.

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Question 2

Free

Multiple Choice

Decisions relating to "what stages of the industry value chain to participate in" determine a firm's:

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level of diversification.

geographic scope.

vertical integration.

absorptive capacity.

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Question 3

Free

Multiple Choice

Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?

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The first-line employees

The creditors

The chief executive officer

The middle manager

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Question 4

Free

Multiple Choice

Which of the following statements is true of transaction costs?

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When the costs of pursuing an activity in-house are more than the costs of transacting for that activity in the market, then the concerned firm should vertically integrate.

When companies transact in the open market, they incur internal transaction costs.

Transaction costs exclusively consist of external costs associated with economic exchanges.

Transaction costs are necessary to explain and predict the boundaries of a firm.

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Question 5

Free

Multiple Choice

Which of the following is an example of an external transaction cost?

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The cost of setting up a production unit

The cost of searching for a contract manufacturer

The cost of recruiting and retaining employees

The cost of maintaining plant and machinery

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Question 6

Multiple Choice

Which of the following is an example of an internal transaction cost?

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The cost of searching for a contract manufacturer

The cost of signing a contract with a supplier

The cost of buying raw materials

The cost of maintaining a production unit

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Question 7

Multiple Choice

Which of the following statements is true of internal transaction costs?

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Internal transaction costs arise when companies transact in the open market.

When the internal costs involved in pursuing an activity in-house are more than the costs of transacting, then the concerned firm should vertically integrate.

Internal transaction costs tend to increase with organizational size and complexity.

It is beneficial to "buy" goods or services rather than "make" when internal transaction costs are low.

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Question 8

Multiple Choice

A primary advantage of organizing economic activity within firms is the:

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ability to coordinate highly complex tasks to allow for specialized division of labor.

low administrative costs because of reduced bureaucracy.

eradication of the principal-agent problem.

high-powered incentive to work as salaried employees for an existing firm.

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Question 9

Multiple Choice

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?

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The firm will be protected against the principal-agent problem.

The firm's administrative costs will be low because of necessary bureaucracy.

The firm will have more flexibility in purchasing and comparing prices of goods and services.

The firm will have high-powered incentives, such as hourly wages and salaries.

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Question 10

Multiple Choice

Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self interests.What does this best illustrate?

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Diseconomies of scale

Principal-agent problem

Experience-curve effects

Information asymmetries

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Question 11

Multiple Choice

The most efficient way to overcome the principal-agent problem in a firm is to:

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increase the level of vertical integration within the firm.

provide stock options to managers.

downsize the existing workforce.

organize economic activities within the firm.

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Question 12

Multiple Choice

_____ is best described as a situation in which one party is more informed than another, because of the possession of private information.

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Information governance

Information asymmetry

Information deregulation

Information piracy

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Question 13

Multiple Choice

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?

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Experience-curve effects

Time compression diseconomies

Principal-agent problem

Information asymmetry

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Question 14

Multiple Choice

Bill is in an interview for a sales job that requires no experience.He is trying to portray himself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills.The interviewer is convinced that Bill should be hired as a sales person in the company.However, in his resume, Bill had not mentioned his previous work experience as he was fired from that job on the account of using illegal drugs.Which of the following does this scenario best illustrate?

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Information asymmetry

Principal-agent problem

Experience-curve effect

Learning-curve effect

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Question 15

Multiple Choice

When approaching a bank for a loan, the borrower has better knowledge than the lender about his or her own ability to repay the loan without defaulting.What is this situation referred to as?

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Principal-agent problem

Information asymmetry

Experience-curve effect

Learning-curve effect

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Question 16

Multiple Choice

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

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it is the most-integrated alternative to performing an activity so the principal company has no control over the agent.

the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

it fails to allow a long planning period that individual market transactions provide.

the buying firm cannot demand lower prices due to the lack of a competitive bidding process.

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Question 17

Multiple Choice

Which of the following firms is least integrated?

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A firm that enters a joint venture with another company to develop a new technology

A firm that owns production subsidiaries across the globe

A firm that makes equity investments in its supplier's company

A firm that buys all the required raw materials from multiple external vendors

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Question 18

Multiple Choice

_____ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.

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Embargos

Cartel agreements

Strategic alliances

Corporate acquisitions

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Question 19

Multiple Choice

_____ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.

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Lean manufacturing

Licensing

Crowdsourcing

Bootlegging

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Question 20

Multiple Choice

Hitoro Inc.developed a superior touchscreen technology for tablet computers that enabled multiple users to operate the screen at the same time.The technology was leased to Revox Inc., a consumer electronics company, for five years.Which of the following alternatives to integration does this best illustrate?

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Licensing

Franchising

Crowdsourcing

Bootlegging

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