Question 1

A _____ is best defined as a company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy.
A) conglomerate
B) single-business firm
C) parent company
D) subsidiary

Accepted Answer

A company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy is called a conglomerate.

Question 2

Which of the following statements is true of taper integration?
A) It is the most-integrated alternative to performing an activity within one's own corporate family.
B) It refers to a situation in which firms narrow their focus on downstream value chain activities and ignore the upstream value chain activities.
C) It exposes in-house suppliers and distributors to market competition to make performance comparisons possible.
D) It does not rely on outside-market firms for its supplies.

Accepted Answer

Taper integration exposes in-house suppliers and distributors to market competition so that performance comparisons are possible. Rather than hollowing out its competencies by relying too much on outsourcing, taper integration allows a firm to retain and fine-tune its competencies in upstream and downstream value chain activities.

Question 3

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 _____.
A) related-constrained diversification
B) related-linked diversification
C) strategic outsourcing
D) offshore outsourcing

Accepted Answer

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 related-constrained diversification. The choices of alternative business activities are limited-constrained-by the fact that they need to be related through common resources, capabilities, and competencies.

Question 4

_____ is best described as an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.
A) Taper integration
B) Open innovation
C) Diversification
D) Differentiation

Accepted Answer

Diversification is best described as an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes. A firm that engages in diversification increases the variety of products and services it offers or markets and the geographic regions in which it competes. A non-diversified company focuses on a single market, whereas a diversified company competes in several different markets simultaneously.

Question 5

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?
A) Zone pricing
B) Niche marketing
C) Product-market diversification strategy
D) Process diversification strategy

Accepted Answer

Marva Industries is pursuing a product-market diversification strategy. A company that pursues both a product and a geographic diversification strategy simultaneously follows a product-market diversification strategy.

Question 6

Which of the following corporate strategies did ExxonMobil pursue by acquiring XTO Energy, a natural gas company?
A) Taper integration strategy
B) Differentiation strategy
C) Related diversification strategy
D) Cost-leadership strategy

Accepted Answer

In 2009, ExxonMobil bought XTO Energy, a natural gas company, for $31 billion. This strategic move into natural gas is an example of related diversification.

Question 7

Symphon Times Inc., a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of the emerging nations.Which of the following types of diversification strategies is the firm pursuing?
A) Product diversification strategy
B) Process diversification strategy
C) Geographic diversification strategy
D) Product-market diversification strategy

Accepted Answer

Symphon Times is pursuing a geographic diversification strategy. A firm that is active in several different countries is pursuing a geographic diversification strategy.

Question 8

Red Empire Inc., a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries.The company has multiple brands and a large product portfolio under its banner.Which of the following terms would best describe this company?
A) A flagship brand
B) A single-business firm
C) A dominant-business firm
D) A conglomerate

Accepted Answer

Red Empire is a conglomerate. A company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy is called a conglomerate.

Question 9

Today, many companies use PeopleSoft and EDS to avoid maintaining a human resource management system.By doing this, these firms are:
A) engaging in strategic outsourcing.
B) increasing their level of vertical integration.
C) offshoring their core activities.
D) engaging in unrelated diversification.

Accepted Answer

Rather than developing their own human resource management systems, some firms outsource these non-core activities to companies like PeopleSoft (owned by Oracle), EDS (owned by HP), or Perot Systems (owned by Dell), who can leverage their deep competencies and produce scale effects. This is referred to as strategic outsourcing.

Question 10

White Leo Motors (WLM)Inc.generates a major portion of its revenues by manufacturing luxury sports cars.However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name.Which of the following terms best describes WLM?
A) A conglomerate
B) A subsidiary
C) A dominant-business firm
D) A single-business firm

Accepted Answer

White Leo Motors is a dominant-business firm. A dominant-business firm derives between 70-95 percent of its revenues from a single business, but it pursues at least one other business activity. The dominant business shares competencies in products, services, technology, or distribution.

Question 11

_____ is best described as moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.
A) Strategic outsourcing
B) Reverse engineering
C) Forward integration
D) Horizontal integration

Accepted Answer

An alternative to vertical integration is strategic outsourcing, which involves moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.

Question 12

While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S.market.What is the reason behind this strategic difference?
A) KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.
B) Chick-fil-A has a larger customer base and number of outlets in the U.S. market than its competitor KFC.
C) KFC wants to follow a differentiation strategy, and Chick-fil-A wants to pursue a cost-leadership strategy.
D) Chick-fil-A is part of a large conglomerate, whereas KFC has more flexibility to pursue a geographic diversification strategy.

Accepted Answer

KFC is a publicly traded stock company, as part of Yum Brands; Chick-fil-A is privately owned. Public companies are often expected by shareholders to achieve profitable growth as fast as possible to result in an appreciation of the stock price and thus an increase in shareholder value. In contrast, private companies generally grow slower than public companies because their growth is mostly financed through retained earnings and debt rather than equity.

Question 13

Evara Inc.started as a luxury brand for designer apparel.Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings.This expansion allowed the businesses under the company to share a few, if not all, of the common competencies in products, services, technology, and distribution.Which of the following corporate strategies is Evara pursuing in this scenario?
A) Taper integration strategy
B) Niche marketing strategy
C) Related-constrained strategy
D) Related-linked strategy

Accepted Answer

Evara is pursuing a related-linked strategy in this scenario. If executives consider new business activities that share only a limited number of linkages, the firm is using related-linked diversification.

Question 14

How does a conglomerate benefit from following an unrelated diversification strategy?
A) The conglomerate can solely depend on its primary business activity for a major portion of its revenues.
B) The conglomerate can share most of its competencies in products, services, technology, or distribution between all its businesses.
C) The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
D) The conglomerate can limit the learning- and experience-curve effects it faces.

Accepted Answer

Unrelated diversification strategy helps firms gain and sustain competitive advantage because it allows the conglomerate to overcome institutional weaknesses in emerging economies, such as a lack of capital markets and well-defined legal systems and property rights.

Question 15

A firm follows a(n)_____ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.
A) related-constrained strategy
B) unrelated diversification strategy
C) differentiation strategy
D) dominant-business strategy

Accepted Answer

A firm follows an unrelated diversification strategy when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.

Question 16

HK Goods Inc.is a large conglomerate that operates only in its home country.The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries.Which of the following diversification strategies does this best illustrate?
A) Process diversification
B) Product diversification
C) Geographic diversification
D) Market diversification

Accepted Answer

HK Goods is pursuing a product diversification strategy. A firm that is active in several different product markets is pursuing a product diversification strategy.

Question 17

When a firm is said to be pursuing a geographic diversification strategy, it means that the firm will:
A) introduce different products and services in an existing single market.
B) sell its products in several different regional, national, and international markets.
C) operate from multiple headquarters across the globe.
D) depend solely on its in-house facilities for all its production purposes.

Accepted Answer

A firm that is active in several different countries is pursuing a geographic diversification strategy.

Question 18

DS & Co.is following a related-linked diversification strategy, and GreenWing Inc.is following a related-constrained diversification strategy.How do the two firms differ from each other?
A) GreenWing Inc. generates 70 percent of its revenues from its primary business, while DS & Co. generates only 10 percent of its revenues from its primary business.
B) GreenWing Inc. pursues a backward diversification strategy, while DS & Co. pursues a forward diversification strategy.
C) DS & Co. will share fewer common competencies and resources between its various businesses when compared to GreenWing Inc.
D) DS & Co. pursues a differentiation strategy, and GreenWing Inc. pursues a cost leadership strategy, to gain a competitive advantage.

Accepted Answer

DS & Co. will share fewer common competencies and resources between its various businesses when compared to GreenWing. In related-linked diversification, only some businesses share competencies in products, services, technology, or distribution. In related-constrained diversification, all businesses share competencies in products, services, technology, or distribution.

Question 19

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 _____.
A) strategic outsourcing
B) lean manufacturing
C) product-market diversification
D) process diversification

Accepted Answer

From this data, we can conclude that PepsiCo has been involved in product-market diversification. A company that pursues both a product and a geographic diversification strategy simultaneously follows a product-market diversification strategy.

Question 20

A firm that engages in strategic outsourcing typically:
A) increases its internal transaction costs.
B) reduces its level of vertical integration.
C) reduces its level of external transaction costs.
D) increases its level of horizontal integration.

Accepted Answer

An alternative to vertical integration is strategic outsourcing, which involves moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain. A firm that engages in strategic outsourcing reduces its level of vertical integration.

Quiz 8: Corporate Strategy: Vertical Integration and Diversification

A _____ is best defined as a company that combines two or more strategic business units under one overarching corporation and follows an unrelated diversification strategy.

Which of the following statements is true of taper integration?

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 _____.

_____ is best described as an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.

Which of the following corporate strategies did ExxonMobil pursue by acquiring XTO Energy, a natural gas company?

Symphon Times Inc., a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of the emerging nations.Which of the following types of diversification strategies is the firm pursuing?

Today, many companies use PeopleSoft and EDS to avoid maintaining a human resource management system.By doing this, these firms are:

_____ is best described as moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.

While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S.market.What is the reason behind this strategic difference?

How does a conglomerate benefit from following an unrelated diversification strategy?

A firm follows a(n) _____ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.

HK Goods Inc.is a large conglomerate that operates only in its home country.The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries.Which of the following diversification strategies does this best illustrate?

When a firm is said to be pursuing a geographic diversification strategy, it means that the firm will:

DS & Co.is following a related-linked diversification strategy, and GreenWing Inc.is following a related-constrained diversification strategy.How do the two firms differ from each other?

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 _____.

A firm that engages in strategic outsourcing typically: