Question 1

Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when

Accepted Answer

There is ample time to launch the new business from the ground up, allowing the company to establish itself and compete effectively in the new industry.

Question 2

Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it

Accepted Answer

Acquiring an existing business is a quick and effective way to hurdle entry barriers and allows the acquirer to move directly to the task of building a strong position in the target industry. It also offers the prospect of gaining an immediate competitive advantage in the new industry, helping to ensure that the diversification move will pass the competitive advantage test for building shareholder value. However, it may not be less expensive than launching a new start-up operation and may still carry risks, so option B and C are incorrect. Option D may be a potential outcome of an acquisition but cannot be generalized as a reason for it.

Question 3

A joint venture is an attractive way for a company to enter a new industry when

Accepted Answer

A joint venture is a good option for a company when it lacks essential skills or resources that a partner can provide. This helps the company gain the necessary expertise and competencies for entering a new industry.

Question 4

The attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether

Accepted Answer

The attractiveness test for evaluating diversification involves determining whether conditions in the target industry allow for profits and return on investment that are at least equal to or better than that of the company's current business(es). This is a key factor in determining whether the new venture will build shareholder value. Other factors such as strategic fit and key success factors are also important, but they are secondary to ensuring that the new industry has the potential for strong financial performance.

Question 5

A joint venture is an attractive way for a company to enter a new industry when

Accepted Answer

A joint venture can be a good option when a company lacks resources, competencies or when the opportunity is too risky or complex to pursue alone. Joining forces with a partner can help the company mitigate risks and share the costs of the venture.

Question 6

The three tests for judging whether a particular diversification move can create value for shareholders are

Accepted Answer

The answer of The three tests for judging whether a...

Question 7

Which one of the following is not one of the elements of crafting corporate strategy for a diversified company?

Accepted Answer

Choosing the appropriate value chain for each business the company has entered is not an element of crafting corporate strategy for a diversified company. The other options, such as picking new industries to enter, leveraging cross-business value chain relationships, and steering corporate resources into the most attractive business units, are important elements of crafting corporate strategy for a diversified company.

Question 8

The task of crafting corporate strategy for a diversified company encompasses

Accepted Answer

Crafting corporate strategy for a diversified company involves all of these tasks, including selecting new industries to enter and determining how to enter them, improving the overall performance of the business units, capitalizing on cross-business value chain relationships, and allocating resources to the most promising units. All of these components are crucial to developing a comprehensive and effective corporate strategy.

Question 9

Diversifying into new businesses can be considered a success only if it

Accepted Answer

Diversifying into new businesses is considered successful if it builds shareholder value, as this indicates the company's overall worth is increasing, benefiting its owners or shareholders.

Question 10

The essential requirement for different businesses to be "related" is that

Accepted Answer

The essential requirement for businesses to be "related" is that their value chains possess competitively valuable cross-business relationships. This means that the different businesses within a company should be able to benefit from synergies by sharing activities, technologies resources. This leads to cost savings, improved product quality, and increased differentiation. The other options are not necessarily indicative of relatedness in the same way as having competitively valuable cross-business relationships.

Question 11

The most popular strategy for entering new businesses and accomplishing diversification is

Accepted Answer

Research shows that acquisition of an existing business already in the chosen industry is the most popular strategy for entering new businesses and accomplishing diversification. This is because it provides immediate access to the industry and its resources, including personnel, technology, and distribution channels. Internal start-up requires more time and resources and carries higher risks, while forming a joint venture or strategic alliance may not always result in complete control over the operations in the new industry.

Question 12

Diversification ought to be considered when

Accepted Answer

The answer of Diversification ought to be considered when
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Question 13

Which of the following is an important appeal of a related diversification strategy?

Accepted Answer

A related diversification strategy offers opportunities to transfer skills, expertise, technical know-how, or other capabilities from one business to another. This can lead to synergies and cost savings, better use of resources, and greater efficiency. It also enables the company to leverage its existing strengths and capabilities in new markets or industries, and to realize economies of scope.

Question 14

Businesses are said to be "related" when

Accepted Answer

Businesses are said to be "related" when their value chains possess competitively valuable cross-business relationships that present opportunities to transfer skills and capabilities from one business to another, share resources or facilities to reduce costs, share use of a well-known brand name, and/or create mutually useful resource strengths and capabilities.

Question 15

Diversification merits strong consideration whenever a single-business company

Accepted Answer

Diversification is generally considered when a company faces diminishing market opportunities and stagnating sales in its main business. Option B is the only choice that mentions this reason for diversification. The other options focus on reasons such as backward and forward integration, achieving industry leadership, declining profits, and strong competition, which may or may not warrant diversification.

Question 16

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves

Accepted Answer

The better-off test evaluates if the diversification move allows the company's existing and new businesses to perform better together, creating synergy and added value under a single corporate umbrella.

Question 17

Which one of the following is not a factor that makes it appealing to diversify into a new industry by forming an internal start-up subsidiary to enter and compete in the target industry?

Accepted Answer

Rapidly growing industries with large and well-established firms may pose significant barriers to entry, making it challenging for an internal start-up to compete effectively. Therefore, such industries may not be appealing for diversification through an internal start-up subsidiary. The other options listed (A, B, C, and E) all present factors that make diversification through an internal start-up subsidiary more appealing.

Question 18

To test whether a particular diversification move has good prospects for creating added shareholder value,corporate strategists should use

Accepted Answer

The attractiveness test, the cost-of-entry test, and the better-off test are the three essential tests to evaluate the potential for creating shareholder value through diversification. These tests assess the attractiveness of the industry, the cost of entering it, and whether the diversification will make the company better off.

Question 19

The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves

Accepted Answer

The cost-of-entry test evaluates whether the cost to enter a target industry is too high, potentially lowering the company's profitability and return on investment. Option A is related to the resource similarity test, option B is related to the financial soundness test, and options D and E are not directly related to the cost-of-entry test.

Question 20

To create value for shareholders via diversification,a company must

Accepted Answer

Diversifying into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses is important to create value for shareholders via diversification. This strategy allows for synergies and efficiencies to be gained through the sharing of resources, knowledge, and expertise between the different businesses. This can lead to cost savings and increased profitability, ultimately benefiting shareholders.

Quiz 8: Corporate Strategy: Diversification and the Multibusiness Company

Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when

Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it

A joint venture is an attractive way for a company to enter a new industry when

The attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether

A joint venture is an attractive way for a company to enter a new industry when

The three tests for judging whether a particular diversification move can create value for shareholders are

Which one of the following is not one of the elements of crafting corporate strategy for a diversified company?

The task of crafting corporate strategy for a diversified company encompasses

Diversifying into new businesses can be considered a success only if it

The essential requirement for different businesses to be "related" is that

The most popular strategy for entering new businesses and accomplishing diversification is

Diversification ought to be considered when

Which of the following is an important appeal of a related diversification strategy?

Businesses are said to be "related" when

Diversification merits strong consideration whenever a single-business company

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves

Which one of the following is not a factor that makes it appealing to diversify into a new industry by forming an internal start-up subsidiary to enter and compete in the target industry?

To test whether a particular diversification move has good prospects for creating added shareholder value,corporate strategists should use

The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves

To create value for shareholders via diversification,a company must