Question 1

Porter's five forces model can be used in regards to the structural attractiveness of an industry.

Accepted Answer

False

Question 2

Instead of operational synergy, conglomerates focus on financial synergy.

Accepted Answer

True

Question 3

Porter's five forces affect the structural attractiveness of an industry.

Accepted Answer

Porter's five forces model analyzes the competitive forces within an industry, including the bargaining power of buyers and suppliers, the threat of new entrants and substitutes, and the intensity of rivalry among existing competitors. These factors influence the structural attractiveness and profitability of the industry.

Question 4

An industry whose products can be easily substituted faces more threats from other firms currently not in the same industry.

Accepted Answer

If a product or service can be easily substituted with a similar product or service from another industry, then customers can switch to the substitute and the industry will face more competition from other firms. This means that other firms, even if they are not currently in the same industry, can become a threat to the industry's profits and market share.

Question 5

By the 1980s MBC began to decrease.

Accepted Answer

There is no context provided to determine what "MBC" refers to, so it cannot be determined whether it decreased or not.

Question 6

The economic benefits of the last unit of growth such as the last acquisition) can be defined as MBC.

Accepted Answer

The economic benefits of the last unit of growth are known as Marginal Benefit or Marginal Revenue, not MBC. MBC is not a commonly used economic term.

Question 7

Operational synergy involves economies of scale.

Accepted Answer

Operational synergy refers to the combined and coordinated efforts of multiple departments, businesses or organizations that allow for greater efficiency, cost savings, and economies of scale. Therefore, it involves economies of scale.

Question 8

Although the term mergers and acquisitions M&As) is often used, in reality, acquisitions dominate the scene.

Accepted Answer

According to various studies and reports, acquisitions outnumber mergers in the corporate world. In fact, most M&A deals are actually acquisitions, where one company acquires another, rather than two companies merging together as equals.

Question 9

When conglomerate units are better off competing as stand-alone entities, we call it diversification premium.

Accepted Answer

When conglomerate units are better off competing as stand-alone entities, it is called the "diversification discount" rather than the "diversification premium."

Question 10

Diversification discount is the situation when unrelated-product diversification enables conglomerate units to beat stand-alone rivals.

Accepted Answer

Diversification discount is actually the opposite situation where the value of a diversified company is less than the sum of its parts if those parts were separate standalone companies. This is because investors may not fully appreciate or understand the different businesses and may prefer to invest in specific businesses they are more confident in. Therefore, diversification can lead to a lower valuation for the conglomerate.

Question 11

Not all product-related diversifiers outperform product-unrelated diversifiers.

Accepted Answer

It is true that not all product-related diversifiers outperform product-unrelated diversifiers. Some product-related diversifications may fail due to mismatched capabilities, lack of synergy, or failure to understand customer needs. On the other hand, some product-unrelated diversifications may be successful due to the availability of new growth opportunities, risk reduction, or enhanced competitiveness. Ultimately, the performance of diversification strategies depends on various internal and external factors that can influence their success or failure.

Question 12

You should understand that the nature of your industry might call for diversification, acquisitions, and restructuring.

Accepted Answer

Different industries may require different strategies for growth, and expanding through diversification, acquisitions, and restructuring can be common methods for achieving success in certain industries.

Question 13

Answering why firms choose different diversification strategies does not help answer why firms differ and how they behave.

Accepted Answer

The statement is incorrect. Understanding why firms choose different diversification strategies is a part of understanding why firms differ and how they behave, as diversification decisions are influenced by a variety of factors such as industry dynamics, organizational capabilities, and competitive pressures. Therefore, analyzing diversification strategies can provide valuable insights into firm behavior and decision-making.

Question 14

Interest in conglomerates has declined in emerging economies due to their developed capital markets.

Accepted Answer

The answer of Interest in conglomerates has declined in emerging...

Question 15

High entry barriers often result in green-field entries as opposed to acquisitions.

Accepted Answer

The answer of High entry barriers often result in green-field...

Question 16

In the United States between the 1950s and 1970s MEB decreased, resulting in a decreased scope of the firm into conglomeration.

Accepted Answer

The answer of In the United States between the 1950s...

Question 17

Research shows that the linkage between product diversification and firm performance seems to be inverted-U shaped.

Accepted Answer

This means that while diversification initially leads to increased performance, there comes a point beyond which further diversification starts to have negative effects on firm performance.

Question 18

A superior product-related diversification strategy does not require a centralized and cooperative organizational architecture in order to add value.

Accepted Answer

A superior product-related diversification strategy requires a centralized and cooperative organizational architecture in order to add value. This allows for the sharing of resources, knowledge, and capabilities across different units or business lines, leading to greater efficiencies and synergies. Without a coordinated approach, there is a risk of duplication, inefficiency, and internal competition, which can undermine the potential benefits of diversification.

Question 19

The scope of the firm is thus determined by a comparison between MEB and MBC.

Accepted Answer

In the context of this statement, MEB (marginal external benefits) and MBC (marginal external costs) are used to determine the scope of the firm, specifically whether the benefits of producing an additional unit of output outweigh the costs imposed on society as a whole. Therefore, the statement is true.

Question 20

You and your firm need to develop policies that avoid acquisitions and restructuring.

Accepted Answer

It may not always be possible or advisable to completely avoid acquisitions and restructuring in a dynamic business environment. Depending on the strategic goals and opportunities, some companies may need to consider these options as means to grow, optimize operations, or gain competitive advantage. However, it is important to have clear policies and guidelines in place to ensure that such moves are carefully evaluated, aligned with business objectives, and executed in a responsible and transparent manner.

Quiz 9: Diversifying, Acquiring, and Restructuring