Deck 9: Corporate Strategy: Strategic Alliances, Mergers, and Acquisitions

Question 1

When deciding whether to build, borrow, or buy as a means of growth, firms no longer need to consider the need for physical closeness to their resource partners.

Answer 1

FALSE
Explanation: Physical closeness is still an issue when considering external resource partners. Many times, firms are able to obtain the required resources to fill the strategic gap through more integrated strategic alliances such as equity alliances or joint ventures (see Exhibit 8.4) rather than through outright acquisition. Mergers and acquisitions are the most costly, complex, and difficult to reverse strategic option. This implies that only if extreme closeness to the resource partner is necessary to understand and obtain its underlying knowledge should M&A be considered the buy option. Regardless, the firm should always first consider borrowing the necessary resources through integrated strategic alliances before looking at M&A.

Question 2

Disney became the world's leading media company to a large extent by pursuing a corporate strategy of

A) related-linked diversification.
B) cost-leadership.
C) unrelated diversification.
D) hostile takeovers.

Answer 2

A
Explanation: Disney became the world's leading media company to a large extent by pursuing a corporate strategy of related-linked diversification. This is because some, but not all, of Disney's business activities share some common resources, capabilities, and competencies.

Question 3

Even if a merger may not increase shareholder value as planned, it is often a wise idea to champion it so that managers will have the greater opportunities of working at an expanding company.

Answer 3

FALSE
Explanation: Managers, as agents, are supposed to act in the best interest of the principals, the shareholders.

Question 4

Juno LLC is a small, new pharmaceutical company that is developing a valuable new drug. Which of these strategies would it be wise for Juno's owners or managers to take?

A) Quickly build downstream complementary assets.
B) Enter multiple learning races within strategic alliances.
C) Seek an alliance with a company or companies that will complete the value chain.
D) Pursue managerial hubris at all levels of development.

Question 5

Showstopper Inc. dominates the ladies' wig market and wants to expand into men's toupees. How can Showstopper's managers determine whether the company should develop a toupee division internally, ally with a toupee maker, or acquire a toupee-making firm?

A) To protect themselves, Showstopper's managers should choose the option that leads to the largest company with the most managerial positions.
B) The managers need to determine whether the skills needed to create wigs and toupees are similar and whether Showstopper creates better hairpieces than its competitors do.
C) The managers must determine whether wig making and toupee making require substantially different skills. If so, the company should pursue internal development.
D) Unless the market for toupees is booming, Showstopper should stick to what it knows and focus on creating the best ladies' wigs in the industry.

Question 6

A drawback involved in using cross-border strategic alliances to enter new foreign markets is that

A) the foreign firm will need to make larger investments when compared to entering the new market on its own.
B) some of the firm's proprietary know-how may be appropriated by the foreign partner.
C) all potential business risks in the new market will have to be faced alone by the foreign firm.
D) the shareholder value of the foreign partner will decline drastically.

Question 7

In terms of the build-borrow-or-buy framework, a firm's internal resources are considered to be relevant when they are

A) similar to those that need to be developed and superior to those of competitors in the targeted area.
B) similar to those that need to be developed and inferior to those of competitors in the targeted area.
C) different from those that need to be developed and superior to those of competitors in the targeted area.
D) different from those that need to be developed and inferior to those of competitors in the targeted area.

Question 8

Managers who are eager to forge business alliances often forget that the expected benefits of the partnership must represent only a small percentage of its monetary and time-related costs.

Question 9

In recent years strategic alliances have declined because of increasing government regulation.

Question 10

A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services is best described as a

A) proprietorship.
B) cooperative.
C) strategic alliance.
D) leveraged buyout.

Question 11

Braintree Inc., a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Braintree and the software company best referred to as in this scenario?

A) an acquisition
B) a strategic alliance
C) a leveraged buyout
D) a proprietorship

Question 12

Organizations seeking strategic alliances often pursue non-equity alliances because they are the easiest to create and to sever. However, the short duration of these alliances often means there is little trust or commitment on either side.

Question 13

A microchip company wants a computer company to produce more powerful tablets and therefore use more of its chips. That same computer company wants the microchip maker to create chips with faster processing power. What approach could these companies take so that both can serve stockholders well?

A) Both companies should reduce prices to force out competitors and make entering the market less appealing to potential rivals
B) Whichever company is larger should acquire the smaller one and impose its management system on the acquired company.
C) The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals' power.
D) For data security reasons, both companies should remain separate and refrain from sharing information.

Question 14

Fabulous Jewelry Inc. is considering a takeover of its competitor, Cranberry Dream Jewelry LLC. In general, Fabulous should go ahead with the acquisition as long as Cranberry is more valuable as a continued standalone company than it would be inside Fabulous.

Question 15

Ayesha is a strategist for the firm Optiks Inc., which produces high-quality HD movie cameras. This company needs a specific material for a new camera they are developing, which is manufactured in large quantities by a competitor called Expert Technology Inc. However, this material is difficult to trade. Because of this, which of the following is most likely the best strategy for Ayesha to suggest?

A) Optiks should acquire Expert Technology.
B) Optiks should form a short-term agreement with Expert Technology.
C) Optiks should form a long-term agreement with Expert Technology.
D) Optiks should enter into co-opetition with Expert Technology.

Question 16

If two large movie-theater chains decide to merge, the result is likely a horizontal integration that creates a more favorable industry structure by decreasing competition.

Question 17

In general, it is shortsighted to acquire companies as a defensive move to prevent rival organizations from gaining access to certain patents, technology, or customer bases.

Question 18

Although Disney acquired Pixar through a hostile takeover, the merger has proven extremely profitable for both entities.

Question 19

How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?

A) It helped HP pursue a taper integration strategy.
B) It enabled HP to compete head on with Cisco's videoconferencing solution.
C) It resulted in depreciation of HP's shareholder value.
D) It failed because HP lacked the expertise in selecting and integrating technology acquisitions.

Question 20

A company that wants to enter a new geographic market within China or Saudi Arabia should avoid joint ventures with companies that are based in that country. Partnering with a foreign entity props up that entity's business rather than weakening it through competition.

Question 21

RHC Pharmaceuticals Inc., Lawrence Pharma Inc., and Quincy Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with one another. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?

A) takeover
B) buyout
C) co-opetition
D) acquisition

Question 22

Nirvana Shoes Inc. and StepOut Shoes Inc., two competing shoe brands, entered into a strategic alliance to study and acquire each other's competencies. Nirvana Shoes entered the strategic alliance to acquire the production system pioneered by StepOut Shoes. Similarly, StepOut Shoes agreed to the strategic alliance to study the design process of Nirvana Shoes. However, Nirvana Shoes was more successful and faster than StepOut Shoes in accomplishing its alliance goal. What does this scenario best illustrate?

A) network effects
B) economies of scope
C) learning races
D) time compression diseconomies

Question 23

Which of the following is a common drawback of a non-equity alliance?

A) lack of trust between partners
B) difficulty initiating the contract
C) difficulty terminating the contract
D) lack of flexibility for the partners

Question 24

Which of the following is an advantage of equity alliances when compared to non-equity alliances?

A) They are more flexible and easy to initiate and terminate.
B) They require smaller capital investments.
C) They produce stronger ties between partners.
D) They are based on contracts rather than ownership.

Question 25

Why did incumbent pharmaceutical firms enter into hundreds of strategic alliances with biotech start-ups?

A) to pursue an unrelated-options perspective without disrupting existing market economics
B) to make small-scale investments in ventures poised to disrupt existing market economics
C) to invest their excess cash flow in the superior technology of the biotech start-ups
D) to share their continuously updated research technology with the biotech start-ups

Question 26

When Turbo Autos Inc. wanted to sell its cars in the country of Sylvanistan, it lacked access to distribution channels and marketing expertise in the country. Thus, Turbo Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner's well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?

A) increasing competitive intensity
B) accessing critical complementary assets
C) procuring additional capital investments
D) reducing differentiation of product and service offerings

Question 27

Which of the following statements is true of joint ventures?

A) They enable the exchange of both tacit and explicit knowledge.
B) They reduce the possibilities of trust and commitment.
C) They are characterized by single reporting lines.
D) They cannot entail long negotiations.

Question 28

Which of the following statements is true of explicit knowledge?

A) Explicit knowledge is about knowing how to do a certain task.
B) Explicit knowledge is knowledge that cannot be codified.
C) Explicit knowledge is shared in non-equity alliance firms.
D) Equity knowledge is acquired only through actively participating in a process.

Question 29

The downside of equity alliances is

A) the weaker ties and reduced trust between partners.
B) the amount of investment that can be involved.
C) that the alliances cannot be abandoned if not promising.
D) that they are not useful stepping-stones toward full integration of the partner firms.

Question 30

Anthonia is a senior manager at Buxley Corp., a motorcycle manufacturer. Buxley has entered an equity alliance with Supremo, a moped manufacturer. "Don't worry, Anthonia," her counterpart at Supremo tells her. "I'm going to send you all our guidelines and documentation for manufacturing catalytic converters, and then you'll be all set." What else should Anthonia request from Supremo?

A) personnel exchanges to share tacit knowledge
B) a gradual change from an equity alliance to a non-equity alliance to show greater commitment
C) nothing, because the information transfer described is complete and appropriate
D) a licensing agreement so that Buxley can exchange codified knowledge with Supremo

Question 31

In a non-equity alliance, which of the following types of information would firms most likely share?

A) a manager's knowledge related to solving non-routine problems
B) a top-level manager's experience related to making strategic decisions
C) the documented information about the material composition of a product
D) the employees' entrepreneurial skills

Question 32

Which of the following is an example of explicit knowledge?

A) knowing how to create surveys
B) a research skill
C) knowing how to assemble semiconductors
D) a research summary

Question 33

When entering a foreign market, it is advisable for a new venture that has a core competency only in R&D to form a strategic alliance with a local partner because

A) the local partner can better protect its proprietary know-how.
B) building downstream complementary assets can be expensive and time-consuming.
C) the strategic alliance will reduce the differentiation of its product and service offerings.
D) the value gap created by the firm can be easily lowered in an alliance.

Question 34

Elegance Inc. is a large cosmetics company that made an initial small investment in a start-up company, Peace Planet, which was developing an organic face lotion. This gave Elegance controlling interests in the start-up company. However, Peace Planet soon began to have financial difficulties because of principal-agent problems. As a result, Elegance did not invest in the next stage of development and pulled out of the company. This approach to strategic alliance is referred to as a

A) break-even analysis.
B) partial joint venture.
C) credible commitment.
D) real-options perspective.

Question 35

In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates

A) the real-options perspective.
B) co-opetition.
C) explicit knowledge.
D) the stakeholder strategy.

Question 36

Which of the following summarizes the benefit of the strategic alliance between HP and DreamWorks?

A) HP and DreamWorks each strengthened their separate markets without impinging on each other's markets.
B) Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone.
C) HP was able to enter a new market, and DreamWorks was able to strengthen its old market.
D) DreamWorks was able to enter a new market, and HP was able to strengthen its old market.

Question 37

Solaris Autos Inc., a large automobile company, made an initial small investment in a start-up company that was developing a solar-powered car. This gave Solaris Autos controlling interests in the start-up company. However, Solaris Autos had no obligations to make continued investments in the experiments of the start-up company. It could invest small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Solaris Autos would have the right to buy out the start-up company. This approach to strategic alliance is referred to as

A) a break-even analysis.
B) a real-options perspective.
C) credible commitment.
D) transaction cost economics.

Question 38

Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them?

A) Recent advances in management science have greatly improved the success rate of strategic alliances.
B) Many owners, managers, and business analysts believe they are essential to survive in an industry.
C) Government entities such as the Federal Trade Commission or the European Union sometimes force companies into strategic alliances.
D) These alliances have an excellent record of success if managers have enough confidence in the outcome.

Question 39

Which of the following corresponds to the use of tacit knowledge?

A) Miguel studies a fact sheet about France.
B) Chandra reads a demographic report about minorities in Texas.
C) Igor assembles a motorcycle from memory.
D) Paulette uses a scientific article to defend her thesis about global warming.

Question 40

Which of the following statements is true of an equity alliance?

A) An equity alliance is based on contractual agreements rather than partial ownership.
B) In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible.
C) In an equity alliance, a standalone organization is created that is jointly owned by two or more parent companies.
D) An equity alliance creates weaker ties between the alliance partners when compared to a non-equity alliance.

Question 41

Which of the following best illustrates a merger between the two companies HQ Inc. and AV Inc.?

A) HQ Inc. purchases AV Inc. for $80 billion despite AV Inc. being against the purchase.
B) HQ Inc. and AV Inc. join together to form a third new entity, while they also operate separately.
C) HQ Inc. outsources a few of its business activities to AV Inc. for competitive advantage.
D) HQ Inc. and AV Inc. join together to form a single new company called HQAV Inc.

Question 42

Which of the following accurately describes a common difference between a merger and an acquisition?

A) A merger tends to include mostly small firms; an acquisition can often involve large firms.
B) A merger involves the combination of three or more firms; an acquisition involved the combination of two firms.
C) A merger involves firms of different size; an acquisition involved firms of the same size.
D) A merger tends to be friendly; an acquisition can be friendly or unfriendly.

Question 43

When does a merger between companies typically occur?

A) when two firms of comparable size join to form a combined entity
B) when large, incumbent firms buy start-up companies
C) when a target firm does not want to be acquired
D) when two or more firms enter a temporary vertical strategic alliance

Question 44

American Snacks Inc., a conglomerate, has a strategic alliance with Très Bien Limité, a French snack-maker. However, Très Bien managers are concerned that the different business units of American Snacks will set up partnerships with direct competitors of Très Bien in France. What can owners and managers at American Snacks do to respond to Très Bien's concern?

A) Require business units at American Snacks and Très Bien to sign loyalty pledges.
B) Encourage business units at American Snacks to act independently.
C) Arrange for the alliance to be managed at the corporate level.
D) Sever the relationship with Très Bien and find a more trusting corporate partner.

Question 45

Which of the following examples describes the task of an alliance manager?

A) Parker oversaw the agreement between her company and the potential alliance partner and offered support when needed.
B) Fred used his knowledge of digital watches to help him manage the day-to-day operations of the alliance.
C) Allyson reviewed the alliance portfolio to make sure it fit with the corporate strategy of her firm.
D) Hussein trained the employees of his alliance partner in the skills needed to create a display for an e-notebook.

Question 46

Future Clothes Inc., a publicly traded company, designs and manufactures wearable technology. What approach should Future Clothes take after a long period of horizontal integration in its industry? Assume that the industry is now stable and competitors have not made any major changes in price or marketing recently.

A) Compete based on price in order to drive out remaining competitors and create a monopoly.
B) Focus on research and development as a form of non-price competition.
C) Encourage new competitors to enter the market to improve competition.
D) Prepare to resist a hostile takeover by buying back as much stock as possible.

Question 47

In Eli Lilly's Office of Alliance Management, the alliance champion is primarily responsible for

A) making sure that an alliance fits within the firm's existing alliance portfolio and corporate-level strategy.
B) providing technical expertise and knowledge needed for the specific technical area in an alliance.
C) providing alliance training and development, as well as diagnostic tools.
D) serving as an alliance process resource and business integrator between the two alliance partners.

Question 48

The Palace Hotel Group purchased Orange Roof Hotels for an estimated value of $120 billion. All the hotels previously owned by Orange Roof Hotels are now managed by the Palace Hotel Group and are known as Palace hotels. What does this scenario best illustrate?

A) a merger
B) a joint venture
C) an acquisition
D) an equity alliance

Question 49

Which of the following scenarios best illustrates horizontal integration?

A) King Autos Inc. enters into a licensing contract with a distributor in a new international market.
B) King Autos Inc. acquires a component parts manufacturer who previously supplied to King Autos' competitor.
C) King Autos Inc. sets up its own distribution channel and retail stores.
D) King Autos Inc. joins with Dimitra Motors Inc., one of its direct competitors.

Question 50

How does horizontal integration within an industry affect the surviving firms?

A) By increasing the threat the surviving firms will face from new entrants
B) By strengthening the rivalry among existing firms
C) By requiring the surviving firms to shift their focus from non-price to price competition
D) By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers

Question 51

What is horizontal integration?

A) the process of merging with a competitor at a different stage of the value chain
B) the process of merging with a competitor at the same stage of the value chain
C) the process of acquiring a competitor at a higher stage of the value chain
D) the process of acquiring a competitor at a lower stage of the value chain

Question 52

Which of the following is true of acquisitions?

A) They can be friendly or hostile.
B) They can occur only when the involved entities are of comparable size.
C) In acquisitions, two independent companies join to form a separate third entity.
D) Acquisitions increase the competitive intensity in an industry.

Question 53

Garrett is an executive vice president at Samm Hardware. He researches a proposal by a larger company, Maximum Hardware, to combine the two companies. By analyzing past performance, conducting focus groups, and interviewing Maximum employees, Garrett concludes that Maximum has poor profit margins, sells shoddy merchandise, and treats customers poorly. What actions should Garrett and Samm Hardware take?

A) Turn down the acquisition offer and prepare to resist a hostile takeover.
B) Attempt a friendly merger and use managerial hubris to improve results at Maximum.
C) Welcome the acquisition and use knowledge transfer to impart Sam Hardware's management practices.
D) Do nothing; the two companies cannot combine without Samm Hardware's explicit consent.

Question 54

A candy company called Hearts Aflame Inc. forms an agreement with another candy company called Dreamcatcher Inc. Through this agreement, Hearts Aflame owns 30 percent of Dreamcatcher. However, Dreamcatcher does not own any part of Hearts Aflame. This type of agreement is called a(n)

A) non-equity alliance.
B) equity alliance.
C) joint venture.
D) capital venture.

Question 55

Which of the following is an ineffective practice in alliance management?

A) coordinating a firm's portfolio of alliances
B) establishing knowledge-sharing routines between alliance partners
C) developing relational capabilities to manage mergers and acquisitions
D) focusing on developing an alliance-management capability in isolation

Question 56

Sanibel Autos Inc. merged with its competitor Vroom Autos Inc. This allowed Sanibel Autos to use its technological competencies along with Vroom Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate?

A) supply-chain
B) technological
C) horizontal
D) perfect

Question 57

When large, incumbent firms buy start-up companies, the transaction is generally described as a(n)

A) joint venture.
B) partnership.
C) acquisition.
D) alliance.

Question 58

Which of the following statements about managing alliance-related tasks is true?

A) Forming an alliance with another firm prohibits that firm from forming other alliances.
B) Alliance management capability is based on three alliance-related tasks.
C) A merger is one of the three options for alliance design and governance.
D) In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage.

Question 59

The process of alliance management begins with

A) selecting the best possible partner.
B) choosing an appropriate governance mechanism.
C) designing the alliance.
D) creating resource combinations that obey the VRIO criteria.

Question 60

Which of the following statements is true about managing alliance-related tasks?

A) Forming an alliance with another firm prohibits that firm from forming other alliances.
B) Alliance management capability is based on three alliance-related tasks.
C) A merger is one of the three options for alliance design and governance.
D) In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage.

Question 61

What causes the winner's curse?

A) buying a firm with principal-agent problems
B) overpaying for an acquisition
C) buying a firm with a competitive disadvantage
D) underpaying for an acquisition

Question 62

Horizontal integration through mergers and acquisitions can help firms strengthen their competitive positions by increasing

A) perfect competition.
B) differentiation.
C) oligarchy.
D) natural monopoly.

Question 63

Which of the following is a result of horizontal integration in terms of Porter's five forces model?

A) The industry structure becomes less consolidated.
B) There is a reduction of excess capacity in the market.
C) The industry structure becomes potentially less profitable.
D) There is an increase in rivalry among existing firms.

Question 64

It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because

A) the horizontal integration activity changes the industry structure from oligopolistic to monopolistically competitive.
B) the surviving firms will need to be protected against the increasing bargaining power of the suppliers.
C) the horizontal integration activity has the potential to reduce competitive intensity in an industry.
D) the surviving firms will need protection against the relaxed entry barriers.

Question 65

The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese market because

A) the U.S. population was growing slowly and becoming more health conscious.
B) its strategic position in the U.S. market was well protected through high entry barriers.
C) this would help the company gain access to large cocoa plantations in China.
D) Hershey's main strategic focus was on product and market diversification and not on the domestic market.

Question 66

A software firm is interested in acquiring an app development company that is small but highly profitable. The app developer also has a widely admired management structure and much lower attrition rates than are common in the industry. Which of these problems should the software firm anticipate?

A) A rival software firm may imitate this approach by acquiring a similar app developer.
B) The software firm may overpay for the app developer, poorly serving the software firm's shareholders.
C) Because most acquisitions are profitable, there is little to worry about in this scenario.
D) The software firm may underpay for the app developer, cheating the app developer's shareholders of profit.

Question 67

Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures. It did this in order to

A) imitate the actions of its competitors like Apple and Facebook.
B) solve its principal-agent problems.
C) fill gaps in its competency lineup.
D) expand through unrelated diversification.

Question 68

Elemental Pharma Inc. recently acquired Crick Pharmaceuticals Inc. It now sells its own products along with the products originally sold by Crick Pharmaceuticals. As a result, Elemental Pharma's sales force will also be marketing the acquired company's products. How will this horizontal integration most likely affect Elemental Pharma?

A) It will lower its costs through economies of scale.
B) It will diminish its economic value creation.
C) Elemental Pharma will increase its cost of distribution.
D) Elemental Pharma will reduce the size of its product line.

Question 69

The main reason behind Alphabet's decision to acquire the Israeli start-up company Waze for $1 billion was probably to

A) preempt its competitors from buying Waze.
B) share its capabilities with Waze.
C) support start-up companies with venture capital.
D) gain access to technology that is alien to it.

Question 70

How has Kraft Foods benefited from its hostile takeover of Cadbury PLC?

A) Its main strategic focus is now on the domestic market.
B) It has opened a market that is growing slowly but has high profit margins.
C) It has access to convenience stores and a new distribution channel.
D) It gained a monopoly in the chocolate-manufacturing industry.

Question 71

Overall, was the Adidas acquisition of Reebok a success?

A) No. Adidas has slipped from number two in the U.S. market to number three.
B) Yes. By acquiring Reebok, Adidas improved its market share and made sure that Nike could not acquire it.
C) The acquisition was a success for Reebok but not for Adidas.
D) The acquisition was a success for Adidas but not for Reebok.

Question 72

Medequip Inc. is a large firm involved in the highly competitive market of high-tech medical equipment. In this market, smaller firms that focus on research are constantly making new technological developments. Which of the following approaches would best serve the needs of Medequip?

A) mergers
B) serial mergers
C) acquisitions
D) serial acquisitions

Question 73

Mediflow, a medium-sized medical technology company, has been successful in its research and development but needs improvement in its European sales. Which of these actions would most likely lead to long-term success for Mediflow's European sales?

A) Alert the European Union that conditions in the European medical technology market are approaching oligopoly.
B) Initiate a hostile takeover of a European rival.
C) Acquire a company that has a successful medical technology sales force in Europe so that Mediflow can gain access to new distribution channels.
D) Contact its congressional representative to request higher tariffs on European technology products.

Question 74

How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?

A) by facilitating excess capacity in the industry
B) by preventing mergers from taking place
C) by lowering competitive intensity in the industry overall
D) by increasing the threat of entry in the industry

Question 75

The managers at Speed Automobile Inc. want to diversify the business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Speed Automobile is most likely a result of

A) time compression diseconomies.
B) experience-curve effects.
C) principal-agent problems.
D) resource ambiguity.

Question 76

Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion?

A) the desire to gain a new capability
B) the need to enter a new geographical market
C) the need to reduce its level of horizontal integration
D) the desire to pursue an unrelated diversification strategy

Question 77

Adidas acquired Reebok primarily to

A) overcome its competitive disadvantage against Nike.
B) get access to the superior technology of Reebok.
C) overcome its principal-agent problems.
D) pursue an unrelated diversification strategy.

Question 78

R&M Chatelaine is one of the largest tax-preparation firms in the United States. It wants to acquire The Tax Experts, a smaller rival. After the merger, Chatelaine will be one of the two largest income-tax preparers in the U.S. market. What should Chatelaine include in its acquisition plans?

A) It should refocus its attention from the national to the international market.
B) In addition to acquiring The Tax Experts, it should also determine the best way to drive independent "mom and pop" tax preparers out of business.
C) Chatelaine will need to explain to the Federal Trade Commission how the acquisition will not result in an increase in prices for consumers.
D) Chatelaine should enter a price-based competition with its other major competitor to force it out of business and become a monopoly.

Question 79

Icarus Airway's decision to acquire Midas Fuels Inc. proved to be ill-fated because the Icarus managers overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers' capabilities were restricted to the airline industry. What does this scenario best illustrate?

A) knowledge race
B) competitive feasibility
C) managerial hubris
D) unfettered free market

Question 80

Which of the following is a disadvantage of a horizontal integration corporate strategy?

A) It increases competitive intensity within an industry.
B) It increases the potential for legal repercussions.
C) It increases the costs associated with increasing value.
D) It increases the threat of new entrants in an industry.