Toyota and its suppliers have a relationship in which Toyota encourages suppliers to modernize their facilities and provides them with technical and financial assistance to do so. It also promotes longer-term contracts with suppliers and enables engineers in the supplier companies to have better communication with Toyota. This is an example of a(n)

a. worldwide product divisional structure.

b. functional structure.

c. SBU multidivisional structure.

d. strategic network.

Answer: strategic network.

McDonald's operates through a franchising system wherein the head office uses strategic and financial controls to ensure that the franchises are creating the greatest possible value. This is an example of a(n)

a. worldwide product divisional structure.

b. strategic network.

c. SBU multidivisional structure.

d. simple structure.

Answer: strategic network.

Airlines have forged a number of complementary strategic alliances, in part because many airlines are not profitable. Some airlines participate in several alliances simultaneously. This tends to

a. make the partners' true loyalties and intentions unclear.

b. make the role of the strategic center firms more critical to alliance success.

c. distribute the alliances along several segments of the airline industry value chain.

d. be most effective when the alliances are with airlines headquartered in different nations.

Answer: make the partners' true loyalties and intentions unclear.

Toyota heavily uses a strategic network of vertical relationships. Toyota enables engineers in supplier firms to communicate easily with companies with which Toyota has contracts for services. This results in the suppliers and Toyota (the strategic center firm) being more

a. interdependent.

b. competitive with one another.

c. creative.

d. complementary.

Answer: interdependent.

Ichabod Industries has a Latin American Division, a European Division, an Industrial Lubricants Division, and a Food Service Division. Ichabod Industries probably uses the ______ organizational structure.

a. horizontal complementary strategic alliance

b. competitive multidivisional

c. strategic business unit multidivisional

d. hybrid combination

Answer: hybrid combination

The need for the organization to combine local responsiveness and efficiency is most critical in a _____ strategy.

a. multidomestic

b. transnational

c. global

d. focus

Answer: transnational

Which of the following is NOT a preliminary task of the strategic center firm in a strategic network?

a. strategic outsourcing

b. encouraging friendly rivalry among network members

c. allocating internal capital

d. supporting development of new core competencies

Answer: allocating internal capital

It is easiest to identify the company that functions as the strategic center firm in

a. horizontal complementary strategic alliances.

b. vertical complementary strategic alliances.

c. corporate-level cooperative partnerships.

d. international cooperative partnerships.

Answer: vertical complementary strategic alliances.

A multidomestic strategy would be associated with

a. high levels of coordination.

b. informal coordination among units.

c. many integrative mechanisms.

d. interdependent divisions.

Answer: informal coordination among units.

Galatea Foods was founded in Greece by Galatea Chronos in 1978, and the company spread rapidly through Western Europe. Ms. Chronos retains the office of CEO. The Spanish division is headed by her oldest son. The North European division is headed by her only daughter, and the French-Italian division is headed by Ms. Chronos' brother. This company probably uses the _____ strategy.

a. network

b. multidomestic

c. global

d. transnational

Answer: multidomestic

The primary disadvantage of the multidomestic strategy and worldwide geographic area structure relates to limited

a. centralization.

b. coordination across divisions.

c. ability to meet local market needs.

d. potential for global efficiency.

Answer: potential for global efficiency.

One of the primary disadvantages of the global strategy and worldwide product divisional structure is that

a. it is difficult to achieve economies of scale.

b. the firm must develop centers to offer after-sales service to customers.

c. it is difficult to respond effectively to local market needs and preferences.

d. achieving economies of scale with this strategy/structure combination is nearly impossible.

Answer: it is difficult to respond effectively to local market needs and preferences.

In the competitive form of the multidivisional structure, the focus of headquarters is on all of the following EXCEPT

a. integration.

b. performance appraisal.

c. resource allocation.

d. long-range planning.

Answer: integration.

TheLG Company has units operating in significantly different industries and uses financial controls to manage its portfolio. LG is most likely using the _____ structure.

a. combination-matrix

b. cooperative form of the multidivisional

c. competitive form of the multidivisional

d. strategic business unit multidivisional

Answer: competitive form of the multidivisional

Implementing the multidomestic strategy requires decentralization to

a. facilitate the tailoring of products to the demand in local markets.

b. develop economies of scale.

c. achieve economies of scope.

d. reduce bureaucracy and speed up decision making.

Answer: facilitate the tailoring of products to the demand in local markets.

A worldwide geographic area structure is an organizational form in which

a. multiple alliances across the globe link complementary businesses.

b. standardized products are offered across country markets.

c. national interests dominate and management adapts to local or cultural differences.

d. responsiveness to local demand is combined with economies of scale.

Answer: national interests dominate and management adapts to local or cultural differences.

The fewest integrative devices are used in the _____ structure.

a. simple

b. competitive multidivisional

c. SBU

d. network

Answer: competitive multidivisional

In the _____ structure hierarchy, the headquarters relies on strategic controls to set rate-of-return targets.

A. cooperative

B. competitive

C. SBU

Answer: competitive

The CEO of Transector, Inc., set a 6.5 percent rate-of-return target for all divisions for the past year. Now, at the end of the year, three of Transector's seven divisions have not met this rate-of-return goal. The division managers of these three under-performing divisions have all secretly contacted executive-placement firms to investigate openings at other firms, because they know their future at Transector is in jeopardy as financial performance is all-important at Transector. Transector probably uses the _____ structure.

a. competitive form of the multidivisional

b. SBU form of the multidivisional

c. worldwide geographic area

d. distributed strategic network

Answer: competitive form of the multidivisional

Megaline, Inc., with five divisions, follows the competitive form of the multidivisional structure. One division has not met the rate-of-return goals for the past year. Another division has exceeded the rate-of-return goals. The other three divisions met the rate-of-return goals. The headquarters office must decide where to allocate capital in the next year. Which scenario is the MOST likely?

a. The poorest-performing division will get the highest capital allocation so that it can fix its problems and achieve the rate-of-return goal next year.

b. The highest-performing division will get the highest capital allocation because it has the best prospects for creating more wealth for the shareholders next year.

c. The average-performing divisions which met the rate-of-return goals will receive the highest allocation because their performance exactly matched corporate requirements.

d. All divisions will receive the same capital allocation for the next year because this organizational structure rewards divisional managers based on achievement of strategic goals.

Answer: The highest-performing division will get the highest capital allocation because it has the best prospects for creating more wealth for the shareholders next year.

The most centralized and most costly form of the multidivisional structure is the

a. integrated.

b. competitive.

c. SBU.

d. cooperative.

Answer: cooperative.

Which of the following multidivisional structures is CORRECTLY paired with the appropriate corporate-level strategy?

a. competitive form with related-constrained strategy

b. cooperative form with unrelated strategy

c. SBU form with related-linked strategy

d. competitive form with related-linked strategy

Answer: SBU form with related-linked strategy

A firm pursuing an unrelated diversification strategy will utilize a _____ structure.

a. network

b. cooperative form multidivisional

c. competitive form multidivisional

d. functional

Answer: competitive form multidivisional

In the _____ multidivisional structure there is complete independence among the firm's divisions.

a. cooperative

b. matrix

c. competitive

d. SBU

Answer: competitive

When a corporation pursues a related constrained diversification strategy, financial controls may not add value to strategy implementation efforts because it is difficult to

a. use them without reducing cooperation among divisional managers.

b. transfer capital between units.

c. maintain an arms-length relationship between headquarters and the divisions.

d. identify which objective criteria to monitor.

Answer: use them without reducing cooperation among divisional managers.

A firm pursuing a related constrained diversification strategy would typically need all of the following EXCEPT

a. centralization of some organizational functions for the sake of coordination.

b. frequent, direct contact between division managers.

c. division managers' rewards based on division financial performance.

d. temporary teams or task forces formed around specific projects.

Answer: division managers' rewards based on division financial performance.

Icarus Aviation, Athena Instrumentation, and Hercules Miniaturization are strategic business units of Olympia Industries. One can expect that Icarus, Athena, and Hercules

a. use integrative mechanisms to share core competencies.

b. compete with one another in Olympia's internal capital markets.

c. are not necessarily related to one another in terms of products or markets.

d. are network member firms while Olympia is the strategic center firm.

Answer: are not necessarily related to one another in terms of products or markets.

A private university is made up of various "schools," such as the School of Journalism, the School of Business, the School of Law, the School of Arts and Sciences, and so forth. The university is experiencing some financial problems, so the administration has decided to have each school of the university become a profit center. This scheme is somewhat parallel to the organizational structure.

a. network

b. strategic business unit multidivisional

c. functional

d. matrix

Answer: strategic business unit multidivisional

The cooperative multidivisional firm

a. establishes profit centers based on products or markets.

b. has a flat organizational structure which broadens jobs and empowers workers.

c. has a structure organized around both functional specialization and business projects.

d. has a structure requiring heavy use of horizontal integrative devices.

Answer: has a structure requiring heavy use of horizontal integrative devices.

Which organizational structure will emphasize financial controls for headquarters' evaluation of operating units while the operating units will emphasize strategic controls within their units' performance?

a. functional

b. cooperative M-Form

c. SBU form

d. competitive M-Form

Answer: SBU form

Which of the following is a TRUE statement about implementing corporate-level strategies and effective organizational structures?

a. Firms pursuing a related linked strategy should implement a competitive structure with a competitive culture and centralized strategic-planning activities.

b. Firms pursuing an unrelated diversification strategy should use an SBU structure with a small corporate staff, emphasize the R&D function, and integrate divisions to achieve synergies.

c. Firms pursuing a related linked strategy should use an SBU structure, emphasize interdependence among divisions, and manage the strategic planning function from the central office.

d. Firms pursuing a related constrained strategy should implement a cooperative structure, use integrative devices to link divisions, centralize the R&D function, and emphasize sharing.

Answer: Firms pursuing a related constrained strategy should implement a cooperative structure, use integrative devices to link divisions, centralize the R&D function, and emphasize sharing.

The _____ structure is an organizational structure that combines both functional specialization and business.

A. worldwide geographic area

B. network

C. matrix

Answer: matrix

The BEST multidivisional structure to use

a. is the competitive form.

b. is the SBU form.

c. is the cooperative form.

d. depends on the degree of diversification.

Answer: depends on the degree of diversification.

Cisco's _____ corporate-level structure was useful in implementing its _____ business-level strategy.

a. SBU form; integrated cost leadership-differentiation

b. competitive form; differentiation

c. cooperative form; cost leadership

d. cooperative form; integrated cost leadership-differentiation

Answer: cooperative form; integrated cost leadership-differentiation

Cisco used the _____ structure to implement its _____ strategy.

a. functional; cost leadership.

b. SBU form of the multidivisional; related linked

c. cooperative form of the multidivisional; related linked

d. cooperative form of the multidivisional; related constrained

Answer: cooperative form of the multidivisional; related constrained

Ortiz is a manager of BRS Corp. Ortiz's division did not meet financial targets this year. Ramirez, manager of another division, has indicated that Ortiz's division incurred significant costs which resulted in Ramirez's division setting record profits for the year. As a result, performance for BRS as a whole exceeded projections. Which pairing of organizational structures for BRS and bonus for Ortiz is most plausible?

a. cooperative structure; no bonus due to failure to meet divisional target

b. competitive structure; no bonus due to failure to meet divisional target

c. cooperative structure; a bonus for increasing organizational performance

d. competitive structure; a bonus for increasing organizational performance

Answer: cooperative structure; a bonus for increasing organizational performance

The _____ structure is the most appropriate structure for implementing the integrated cost.

A. functional

B. multidivisional

C. strategic business unit

Answer: functional

The _____ structure is best for implementing the related-constrained diversification strategy.

a. functional

b. competitive form of the multidivisional

c. SBU form of the multidivisional

d. cooperative form of the multidivisional

Answer: cooperative form of the multidivisional

Which of the following is NOT a variation of the multidivisional structure?

a. competitive form

b. regional form

c. cooperative form

d. strategic business unit form

Answer: regional form

Typically, a successful firm pursuing a differentiation strategy will

a. have a very hierarchical structure.

b. require a structure that is very formal.

c. use cross-functional development teams.

d. develop free-standing business units.

Answer: use cross-functional development teams.

Which of the following is a TRUE statement about organizational structures for implementing business-level strategies?

a. A cost leadership strategy requires a simple structure emphasizing high specialization, centralization, and structured job roles.

b. A differentiation strategy requires a functional structure with limited formalization, broad job descriptions, and an emphasis on the product R&D and marketing functions.

c. An integrated cost leadership/differentiation strategy requires a multidivisional structure using high formalization, decentralized decision making, and vertical coordination.

d. A focused strategy requires a functional structure featuring high levels of both specialization and formalization.

Answer: A differentiation strategy requires a functional structure with limited formalization, broad job descriptions, and an emphasis on the product R&D and marketing functions.

Successful implementation of the differentiation strategy requires a structure that

a. has specialized jobs.

b. decentralizes decision making.

c. focuses on the finance function.

d. is dominated by the operations function.

Answer: decentralizes decision making.

The integrated cost leadership/differentiation strategy is difficult to implement mostly because

a. different primary and support activities are emphasized when using cost leadership and differentiation strategies.

b. this strategic approach demands more flexibility than most firms can manage.

c. the dual reporting relationships required for this strategy slow organizational decision making.

d. the cost leadership strategy requires less structured job roles than does the differentiation strategy.

Answer: different primary and support activities are emphasized when using cost leadership and differentiation strategies.

Successfully implementing a cost leadership strategy requires

a. freedom from constraining rules.

b. centralization of authority.

c. communication between functional silos.

d. sharing of competencies among divisions.

Answer: centralization of authority.

Agatha Adams founded Insurance Specialists to process medical claims for physicians' practices. She plans to compete on the basis of cost, offering the lowest processing cost per claim in her market area. Ms. Adams' company should

a. be the strategic center firm in a network structure.

b. have a specialized multidivisional structure.

c. develop alliances with firms with complementary competencies.

d. have a highly centralized, functional structure.

Answer: have a highly centralized, functional structure.

Walmart's effective strategy/structure configuration is

a. cost leadership/functional.

b. differentiation/functional.

c. related constrained/multidivisional.

d. related linked/multidivisional.

Answer: cost leadership/functional.

Firms seeking to differentiate particularly need support from the _____ and _____ functions.

a. finance; accounting

b. engineering; operations

c. product R&D; marketing

d. management information; finance

Answer: product R&D; marketing

Some experts consider the _____ structure to be one of the 20th century's most significant organizational.

A. cooperative

B. multidivisional

C. functional

Answer: multidivisional

The three structural characteristics that differ among organizational structures include all of the following EXCEPT

a. centralization.

b. formalization.

c. specialization.

d. intermediation.

Answer: intermediation.

Which of the following is NOT associated with an organizational structure that supports a cost leadership strategy?

a. centralization

b. specialization

c. formalization

d. integration

Answer: integration

___ is the degree to which rules and procedures govern work.

a. Formalization

b. Centralization

c. Specialization

d. Unification

Answer: Formalization

____ is the degree to which decision-making authority is retained at higher managerial levels.

a. Formalization

b. Centralization

c. Specialization

d. Unification

Answer: Centralization

The multidivisional structure was initially designed to produce three major benefits over the functional form. Which of the following is NOT one of the three benefits?

a. aligning the corporate structure with the demands of global expansion

b. more accurate monitoring of the performance of each business

c. facilitating comparison between divisions

d. stimulating managers of poorly performing divisions to look for ways of improving performance

Answer: aligning the corporate structure with the demands of global expansion

Jumbo Industrial Supply has grown from a one-location firm with a restricted product line to a multi-state organization with numerous product lines and a large sales staff. Sales have doubled every year for the last three years. It currently has a simple structure with Jared Smith, the owner-manager, making all major decisions. Jumbo is probably now experiencing or will soon experience

a. coordination and control problems.

b. bureaucratic inefficiencies.

c. excessive competition among division managers.

d. limited communication among functional specialists.

Answer: coordination and control problems.

The noted business historian Alfred Chandler viewed the multidivisional structure as an innovative response to

a. an emerging professional management philosophy.

b. the increasing demand by consumers for both high quality and low prices.

c. coordination and control problems.

d. a shift toward the global economy.

Answer: coordination and control problems.

Functional structures work best for firms for all of the following strategies EXCEPT

a. cost leadership strategy.

b. differentiation strategy.

c. related constrained diversification strategy.

d. single or dominant business corporate strategy.

Answer: related constrained diversification strategy.

Leslie is a newly graduated certified public accountant with a specialty in corporate tax. She wishes to join an organization (not an accounting firm) that will allow her to concentrate on corporate tax and become deeply proficient in this area. Leslie should look for a position in a firm with a _____ structure.

a. simple

b. functional

c. multidivisional

d. network

Answer: functional

One disadvantage of the functional structure is that

a. career paths and professional development are limited.

b. dual reporting relationships blur lines of authority.

c. the CEO cannot coordinate and control the efforts of functional-level employees.

d. communication and coordination are difficult among organizational functions.

Answer: communication and coordination are difficult among organizational functions.

Which of the following does NOT cause a firm to move from a functional structure to a multidivisional structure?

a. increasing diversification

b. coordination and control issues

c. need for knowledge-sharing among specialists

d. greater amounts of data and information to process

Answer: need for knowledge-sharing among specialists

Alfred Chandler found that firms grow in a predictable pattern and that the firm's growth patterns determine its structural form. Which form corresponds to the FINAL stage in Chandler's theory?

a. functional

b. simple

c. vertically integrated

d. multidivisional

Answer: multidivisional

Andermeyer Jewelers, which specializes in high-end jewelry, has been in existence since the 1870s and has served generations of wealthy families. Owned and managed by the Andermeyer family since its founding, it has never had more than 20 designers and jewelers in its shop. Andermeyer Jewelers should use the _____ structure.

a. simple

b. functional

c. matrix

d. network

Answer: simple

Typically, an organization using a simple structure would be

a. large.

b. small.

c. of any size if the firm is privately held.

d. a family-owned-and-managed firm of any size.

Answer: small.

In most cases, the focus strategy is best managed using a _____ structure.

a. simple

b. functional

c. multidivisional

d. vertical

Answer: simple

The benefits of a simple structure include all of the following EXCEPT

a. ease of coordination within the organization.

b. the lack of a need for sophisticated information systems.

c. active involvement by the owner-manager.

d. the ability of specialists to develop deep expertise.

Answer: the ability of specialists to develop deep expertise.

One reason why a long-tenured top-level manager may hesitate to conclude the firm's structure is a problem is that doing so

a. indicates to competitors that the firm is vulnerable to a hostile takeover.

b. will only lead to inefficiencies.

c. requires that the firm undertake a multi-year restructuring period that will delay retirement.

d. suggests that the firm's previous choices were not the best ones.

Answer: suggests that the firm's previous choices were not the best ones

Strategic controls allow corporate-level managers to

a. evaluate business-level performance on objective criteria.

b. concentrate on day-to-day corporate operations.

c. assess performance of employees and managers in each business unit.

d. examine the fit between what the firm might do and what it can do.

Answer: examine the fit between what the firm might do and what it can do.

Financial controls are most important in the _____ strategy.

a. single business

b. related constrained

c. unrelated diversified

d. vertical complementary

Answer: unrelated diversified

____ controls are objective criteria that allow corporate managers to evaluate the returns earned by individual business units.

A. Managerial

B. Financial

C. Environmental

Answer: Financial

A firm's _____ specifies the work to be done and how to do it given the firm's strategy or strategies.

a. structure

b. controls

c. culture

d. strategy

Answer: structure

Structural stability affects the organization's ability to

a. resist organizational inertia.

b. cope with uncertainty about cause-and-effect relationships in the global economy.

c. develop new competitive advantages.

d. consistently and predictably manage its daily work routines.

Answer: consistently and predictably manage its daily work routines.

Selecting the organizational structure and controls that effectively implement the chosen strategy is a challenge for managers because

a. firms must be flexible while retaining a degree of stability.

b. managers are never able to obtain all the information necessary to make the best selection.

c. the structure of a firm should not duplicate the structures of its competitors.

d. the environment changes too rapidly for corporations to maintain a consistent corporate structure.

Answer: firms must be flexible while retaining a degree of stability.

Organizational structure

a. specifies the firm's formal reporting relationships, procedures, controls, and authority and decision-making processes.

b. specifies the firm's informal reporting relationships, procedures, controls, and authority and decision-making processes.

c. specifies the firms formal value proposition, the markets it will serve, and how the firm will provide value in those markets.

d. specifies the firm's control mechanisms, grievance procedures, reporting relationships, procedures, and authority over decision-making processes.

Answer: specifies the firm's formal reporting relationships, procedures, controls, and authority and decision-making processes.

The Amos Ball Printing Company was established in 1866. Currently, Amos Ball V is the CEO and chairman of the board. The company has traditionally used a functional structure. Five years ago, the company branched into online publishing and small-batch printing in addition to its regular large-batch operations. Both new businesses are significantly different in technology and marketing from each other and from Ball's traditional business. Despite the hiring of experienced professionals in these new endeavors, performance continues to be poor and is affecting Ball's overall performance. Which of the following statements is TRUE?

a. Amos should consider adopting the multidivisional structure.

b. Mr. Ball has insufficient power to change the structure of the organization.

c. Restructuring must only be done from a position of strength, so it is necessary to wait until the company's overall performance improves before making radical changes.

d. These businesses are too disparate to coordinate within one corporate structure.

Answer: Amos should consider adopting the multidivisional structure.

The opportunity maximization approach is more difficult to establish in international relationships than in domestic relationships because of differences in all EXCEPT

a. laws.

b. culture.

c. trade policies.

d. technology.

Answer: technology.

One disadvantage of developing effective monitoring systems to manage a strategic alliance is that

a. firms will have to accept greater risks.

b. trust will be eroded.

c. spontaneous opportunities are minimized.

d. power coalitions will still develop.

Answer: spontaneous opportunities are minimized.

In managing cooperative strategies, research indicates that _____ can be a capability that is valuable, rare,

a. stability

b. trustworthiness

c. Internet competency

Answer: trustworthiness

The Microsoft/Nokia alliance that had hundreds of pages to specify each partner's responsibilities would be closest to the _____ approach to managing cooperative ventures. In contrast, the Renault/Nissan alliance 

a. cost minimization; opportunity maximization

b. opportunity maximization; cost minimization

c. cost maximization; opportunity minimization

d. bureaucratic; organic

Answer: cost minimization; opportunity maximization

In practice, the cost minimization strategy can be more expensive than the opportunity maximization strategy. Which of the following is a way in which the cost minimization strategy is less expensive than the opportunity minimization strategy?

a. the loss of unexpected opportunities

b. the cost of extensive monitoring mechanisms

c. the costs of writing detailed contracts

d. the prevention of opportunistic behavior by the partner(s)

Answer: the prevention of opportunistic behavior by the partner(s)

The two basic approaches to successfully manage cooperative strategic alliances involve _____ and _____.

a. cost minimization; opportunity maximization

b. monitoring systems; multiple management approaches

c. contractual systems; financial systems

d. equity approaches; nonequity approaches

Answer: cost minimization; opportunity maximization

Amylin Pharmaceuticals has an alliance with Eli Lilly & Co. to produce diabetes drugs. Lilly, however, recently signed an alliance agreement with another company to also produce diabetes drugs. As a result, Amylin sued Lilly for breech of the alliance agreement. Which of the following risks of cooperative strategies discussed in the chapter is most likely occurring here?

Amylin Pharmaceuticals has an alliance with Eli Lilly & Co. to produce diabetes drugs. Lilly, however, recently signed an alliance agreement with another company to also produce diabetes drugs. As a result, Amylin sued Lilly for breech of the alliance agreement. Which of the following risks of cooperative strategies discussed in the chapter is most likely occurring here?

a. having a true perception of the partner's trustworthiness

b. failing to make available to its partners the resources and capabilities that it committed to the cooperative strategy

c. the partner misrepresenting competencies it can bring to the partnership

d. opportunistic behavior

Answer: opportunistic behavior

DDD Partners, a U.S. business consulting firm is considering a cooperative alliance with an Indian business consulting firm that has a wide practice in the Middle East and Asia. DDD has some European clients, but it sees the Middle East and Asia as growth opportunities. It hopes to learn how to navigate the different cultures and business practices in this part of the world from its alliance with the Indian firm. DDD's greatest risk here is that the Indian firm will

a. insist on excessively close monitoring of DDD's actions.

b. gain access to DDD's core competencies and use them to become a future competitor.

c. not fully share its intangible resources.

d. not make equivalent investments to the alliance as does DDD.

Answer: not fully share its intangible resources.

Which of the following is NOT a risk for firms engaged in cooperative strategies?

a. misrepresentation of a partner's competencies

b. partner acts opportunistically

c. insufficient variation in firms' core competencies

d. failure of partners to make complementary resources available to the partnership

Answer: insufficient variation in firms' core competencies

Greentech, Inc., is a bioengineering firm specializing in food crops. It is considering a cooperative alliance with an Asian agribusiness firm, AsiaFoods, to jointly produce improved crops for the Asian market. The risks that Greentech should consider before entering this alliance include all of the following EXCEPT:

a. Has AsiaFoods accurately represented its competencies?

b. Will AsiaFoods make alliance-specific investments?

c. Can Greentech expect opportunistic behavior from AsiaFoods?

d. Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

Answer: Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

Which of the following statements is TRUE?

a. Most cooperative strategies are successful if the basic agreements are well written and include appropriate monitoring strategies.

b. As many as 50 percent of cooperative strategies fail.

c. Opportunistic behaviors are usually focused on gaining the use of the partner's manufacturing and financial resources.

d. Problems with international cooperative strategies usually concern financial-system differences between the partners.

Answer: As many as 50 percent of cooperative strategies fail.

Dynamic alliance networks work best in industries

a. characterized by frequent product innovations and short product life cycles.

b. that are mature and stable in nature.

c. where the coordination of product and global diversity is critical.

d. that are characterized by predictable market cycles and demand.

Answer: characterized by frequent product innovations and short product life cycles.

Stable alliance networks will most often

a. be used to enhance a firm's internal operations.

b. appear in mature industries where demand is relatively constant and predictable.

c. emerge in industries with short product life cycles.

d. emerge in declining industries as a way to increase process innovations.

Answer: appear in mature industries where demand is relatively constant and predictable.

In a cross-border alliance, the local partner is often a useful source of information about

a. sources of capital.

b. the strengths of the foreign firm's technology.

c. market synergies.

d. long-term planning.

Answer: sources of capital.

Legitimately, a firm may pursue an international strategic alliance for all of the following reasons EXCEPT

a. to enhance the compensation packages of top managers.

b. to leverage core competencies in new markets.

c. to operate within government restrictions in the local country.

d. to escape limited domestic growth opportunities.

Answer: to enhance the compensation packages of top managers.

McDonald's, Hilton International, and Subway all heavily rely on the _____ strategy.

a. transnational

b. network cooperative

c. cross-border alliances

d. franchising cooperative

Answer: franchising cooperative

FrameCo, a maker of commercial greenhouses, has just extricated itself from a failing cooperative alliance with another firm. The expected synergies never were achieved, and FrameCo lost most of its investment. The top management of FrameCo should

a. avoid future cooperative alliances because they lack the skills needed to manage them successfully.

b. enter into future cooperative alliances only if the alliance is closely monitored by a third party to prevent opportunistic behavior by the alliance partner.

c. realize that most cooperative alliances fail and that it should ally itself only with an experienced alliance partner in the future.

d. internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience.

Answer: internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience.

The collaboration between Volvo Aero (a subsidiary of Sweden's AB Volvo) and U.S.-based Pratt & Whitney to produce a new jet engine would be characterized as a(n)

a. collusive tactic.

b. merger.

c. cross-border strategic alliance.

d. international acquisition.

Answer: cross-border strategic alliance.

The primary responsibility of the franchisor, such as McDonald's or Hilton International is to

a. learn about the brand and technology from the franchisee.

b. test the franchisee for potential future acquisition.

c. transfer to the franchisee knowledge and skills needed to compete at the local level.

d. provide feedback to the franchisee regarding how the franchisor could become more effective and efficient.

Answer: transfer to the franchisee knowledge and skills needed to compete at the local level.

Which of the following statements is FALSE?

a. Franchising is most appropriate in fragmented industries.

b. Franchising provides corporate growth with less risk than do mergers and acquisitions.

c. Successful franchising allows transfer of knowledge and skills from the franchisor to the franchisee.

d. Franchising agreements require more trust between firms than do other cooperative strategies.

Answer: Franchising agreements require more trust between firms than do other cooperative strategies.

In the franchising strategy, the most important competitive advantage for the franchisee is the franchisor's

a. brand name.

b. capital resources.

c. access to a consolidated market.

d. geographic locations.

Answer: brand name.

A businessperson in Atlanta who wishes to develop a luxury pet kennel approaches the owner of the highly successful Pet Resort and Day Spa in Houston to see if the owner is interesting in franchising the Pet Resort brand. The Atlanta businessperson's goal is to

a. get venture capital from Pet Resort.

b. gain access to Pet Resort's tacit knowledge.

c. collude with Pet Resort to diminish competition in the kennel industry in Atlanta.

d. join in a vertical complementary alliance with Pet Resort.

Answer: gain access to Pet Resort's tacit knowledge.

The cooperation between Fiat and Chrysler to produce a Fiat-designed car in Chrysler's Illinois factory is a(n) _____ alliance because it allows the firms to share resources and capabilities across multiple functions.

a. synergistic

b. opportunistic

c. horizontal

d. diversifying

Answer: synergistic

Firms entering into synergistic strategic alliances expect to attain

a. technological complexity.

b. economies of scope.

c. monopolistic market power.

d. learning curve efficiencies.

Answer: economies of scope.

The Renault Nissan alliance discussed in the Opening Case is an example of a _____

a. joint venture

b. synergistic alliance

c. horizontal complementary alliance

d. dynamic alliance network

Answer: synergistic alliance

A _____ is a strategy in which firms share some of their resources and capabilities to create economies

b. synergistic strategic alliance

c. diversifying strategic alliance

d. dynamic alliance network

Answer: synergistic strategic alliance

Why are alliances in the airline industry unstable?

a. Unstable industries make for unstable alliances.

b. The potential for firms to take opportunistic actions is too widespread.

c. The industry is declining and profits are not sufficient to divide among alliance partners.

d. The alliances require cooperation among firms that must also compete with one another.

Answer: The alliances require cooperation among firms that must also compete with one another.

A _____ cooperative strategy helps the firm diversify in terms of products offered, markets served, or both.

a. corporate-level

b. business-level

c. national-level

d. industry-level

Answer: corporate-level

____ strategic alliances have stronger focus on value creation than do _____ alliances.

a. competition reducing; complementary

b. complementary; competition reducing

c. uncertainty reducing; complementary

d. collusive; uncertainty reducing

Answer: complementary; competition reducing

For the purpose of diversification, a corporate-level cooperative strategy may be preferable to a merger or acquisition for all the following reasons EXCEPT

a. a host nation may forbid a merger or acquisition.

b. opportunistic behaviors are less likely.

c. cooperative strategies require fewer resources.

d. cooperative strategies allow greater flexibility in diversifying the firm's portfolio.

Answer: opportunistic behaviors are less likely.

In the United States, cooperative strategies to reduce competition may result in _____ if they are explicit.

a. increased tax liabilities

b. litigation

c. government takeover of the firms

d. dissolution of the firm

Answer: litigation

The risks of being accused of collusion are MOST likely under what type of alliance?

a. equity-based vertical complementary alliance

b. equity-based horizontal complementary alliance

c. nonequity-based vertical complementary alliance

d. nonequity-based horizontal complementary alliance

Answer: nonequity-based horizontal complementary alliance

Reduction of competition can be accomplished through all of the following EXCEPT

a. predatory alliances.

b. explicit collusion.

c. tacit collusion.

d. mutual forbearance.

Answer: predatory alliances.

The three main luxury hotels in a major tourist destination keep very close track of their competitors' room pricing, restaurant offerings, tour packages, and special services, such as airport transportation and spa privileges. When one hotel makes adjustments in prices or offerings, the other hotels follow suit. It is possible that these hotels are

a. engaging in tacit collusion.

b. following uncertainty reducing strategies.

c. monitoring business competitors for opportunistic behaviors.

d. following a competitive response strategy.

Answer: engaging in tacit collusion.

Mutual forbearance is

a. illegal in the United States.

b. a type of competition-reducing strategy.

c. a variety of risk-sharing by firms in highly fragmented industries.

d. exercised when alliance partners refrain from opportunistic behaviors.

Answer: a type of competition-reducing strategy.

The fact that the prices consumers pay for branded breakfast cereals are above the prices that would exist if there were true competition suggests that the cereal manufacturers are engaging in

a. excessive cooperation.

b. joint ventures.

c. tacit collusion.

d. horizontal strategic alliances.

Answer: tacit collusion.

A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and vineyard growing rare strains of fruit. This is a(n) _____ strategy.

a. vertical complementary

b. horizontal complementary

c. uncertainty reduction

d. network

Answer: vertical complementary

___ are LEAST likely to involve potential or current competitors.

a. Mutual forbearance strategies

b. Tacit collusion strategies

c. Horizontal complementary strategic alliances

d. Vertical complementary strategic alliances

Answer: Vertical complementary strategic alliances

Smith Commercial Lighting, Inc., which sells lighting for factories and businesses, has entered into an alliance with Revelation Lighting, Inc., a retailer of home decor lighting, in order to expand into the trend of using industrial-type lighting in non-traditional style homes. Smith has invested 40 percent and Revelation has invested 60 percent into the new operation. This is an example of a(n)

a. joint venture.

b. nonequity alliance.

c. horizontal complementary strategic alliance.

d. vertical complementary strategic alliance.

Answer: horizontal complementary strategic alliance.

Firms in _____ markets cooperate to pool resources and gain market power.

a. slow-cycle

b. standard-cycle

c. fast-cycle

d. hyper-cycle

Answer: standard-cycle

The two types of complementary strategic alliances are

a. vertical and horizontal.

b. macro and micro.

c. outsourcing and insourcing.

d. network and complementary.

Answer: vertical and horizontal.

All of the following are business-level cooperative strategic alliances EXCEPT

a. synergistic strategic alliances.

b. uncertainty reduction strategic alliances.

c. complementary strategic alliances.

d. competition response strategic alliances.

Answer: synergistic strategic alliances.

A state-wide alliance of independent hospitals has formed in order to do group purchasing of medical supplies. Group purchasing allows the hospital alliance to negotiate lower prices with suppliers because of the large quantity of materials ordered. This is an example of the advantage of _____ resulting from an alliance.

a. explicit collusion

b. economies of scale

c. opportunistic behavior

d. distribution opportunities

Answer: economies of scale

Firms in a standard-cycle market may form alliances in order to

a. take advantage of opportunities in emerging market countries.

b. more quickly distribute new products.

c. capture economies of scale.

d. share risky R&D investments.

Answer: capture economies of scale.

U.S. Steel and Nucor (the two remaining major players in the U.S. steel industry) have been forming alliances as a _____ market.

a. fast-cycle

b. standard-cycle

c. slow-cycle

d. intermediate-cycle

Answer: slow-cycle

A relatively young firm has developed a method of transferring photographic images of surface textures onto any type of hard surface. This potentially has a huge market in the home-decorating field as well as any hard surface that is typically painted, such as car bodies. The type of alliance partner this firm would be searching for would be one with

a. low-cost labor production facilities in another country.

b. similar products who could help the firm establish economies of scale.

c. access to franchises in new markets.

d. excess resources for investing.

Answer: excess resources for investing.

The alliance between Nokia and Microsoft calls for Nokia to transition its smartphone portfolio to Microsoft's _____ to speed up development.

a. slow-cycle market

b. medium-cycle market

c. standard-cycle market

d. fast-cycle market

Answer: fast-cycle market

A nonequity strategic alliance exists when

a. two firms join together to create a new company.

b. two or more firms have a contractual relationship to share resources and capabilities.

c. two partners in an alliance own unequal shares in the combined entity.

d. the partners agree to sell bonds instead of stock in order to finance a new venture.

Answer: two or more firms have a contractual relationship to share resources and capabilities.

Burgess Corp. manufactures a line of heavy construction equipment. The company has announced a contractual relationship with FS Electronics whereby FS will supply Burgess with advanced GPS navigation and guidance systems. These systems will be an option on all bulldozers, dump trucks, and road graders Burgess produces. What type of alliance is this?

a. joint venture

b. equity strategic alliance

c. nonequity strategic alliance

d. competition reduction alliance

Answer: nonequity strategic alliance

Firms participate in strategic alliances for all the following reasons EXCEPT to

a. create value that they could not develop by acting independently.

b. enter competitive markets more quickly.

c. gain access to resources.

d. retain tight control over intangible core competencies.

Answer: retain tight control over intangible core competencies.

The global airline industry is one in which

a. national political interests prevent airlines from making international alliances.

b. the fast-cycle nature of the industry mandates heavy use of alliances.

c. most alliances tend to be vertical complementary.

d. alliance versus alliance competition dominates firm versus firm competition.

Answer: alliance versus alliance competition dominates firm versus firm competition.

A strategic alliance in which the partners own different percentages of the new company they have formed is called a(n)

a. equity strategic alliance.

b. joint venture.

c. nonequity strategic alliance.

d. cooperative arrangement.

Answer: equity strategic alliance.

Meredith Inc. is a manufacturer of art supplies. The company has announced plans to enter into an equity strategic alliance with JaZz Paper to develop a line of specialty papers for use with a line of specialty paints Meredith manufactures. Which of the following would be the accurate interpretation of this announcement?

a. Meredith will own a majority equity stake in the new venture.

b. JaZz will own a majority equity stake in the new venture.

c. Meredith or JaZz will own an equal equity stake in the new venture.

d. Either Meredith or JaZz will own a majority equity stake, but we do not know which one based on the announcement.

Answer: Either Meredith or JaZz will own a majority equity stake, but we do not know which one based on the announcement.

Japanese telecom NTT DoCoMo Inc. and Chinese Internet search operator Baidu Inc. established an alliance to distribute games and other mobile-phone content. Baidu will own 80 percent of this collaboration with DoCoMo holding the remaining 20 percent. This collaborative arrangement is an example of a(n)

a. joint venture.

b. network strategy.

c. equity strategic alliance.

d. nonequity strategic alliance.

Answer: equity strategic alliance.

Hewlett-Packard licenses some of its intellectual property through strategic alliances. Which of the following is correct about this relationship?

a. This is a joint venture because in licensing arrangements, a new company is created.

b. This is an equity strategic alliance because licensing does not involve the creation of a new company, but does involve an equity commitment.

c. The firms risk charges of collusion because most licensing relationships between competitors involve explicit collusion.

d. This is a nonequity strategic alliance with Hewlett-Packard leveraging its unique capabilities.

Answer: This is a nonequity strategic alliance with Hewlett-Packard leveraging its unique capabilities.

BPM Corp. is a manufacturer of radar systems for regional-sized jet aircraft. The company has announced plans to enter into a joint venture with J3 Composites, a producer of advanced composite materials. The announced venture will produce a new, combined product consisting of the radar unit and protective composite cover. Which of the following ownership arrangements would be most typical for a joint venture?

a. BPM will own more than 50 percent of the venture and a new company will be formed.

b. J3 will own more than 50 percent of the venture and a new company will be formed.

c. BPM and J3 will both own 50 percent of the venture and a new company will be formed.

d. BPM and J3 will both own 50 percent of the venture but no new company will be formed.

Answer: BPM and J3 will both own 50 percent of the venture and a new company will be formed.

Moon Flower cosmetics company executives are aware that their Asian customer base is interested in advanced skin care treatments beyond Moon Flower's traditional herbal and organic compounds. Moon Flower and a large American chemical company are in discussions to create a 50-50 partnership in a new firm, which would create skin care treatments based on innovative chemical formulations that would be marketed both in Asia and in the United States. Beyond being a cross-border alliance, this partnership can be called a(n)

a. nonequity strategic alliance.

b. joint venture.

c. horizontal complementary alliance.

d. equity strategic alliance.

Answer: joint venture.

Fujitsu Siemens Computers is a legally independent company of which Fujitsu and Siemens each own 50 percent. This collaboration is an example of a _____, which is effective at transferring _____.

a. nonequity strategic alliance; explicit knowledge.

b. joint venture; tacit knowledge.

c. joint venture; explicit knowledge.

d. equity strategic alliance; tacit knowledge.

Answer: joint venture; tacit knowledge.

When using cooperative strategies, firms most frequently develop strategic alliances that

a. enhance the firm's reputation in the marketplace.

b. are long-lived.

c. will reduce the firm's political risk.

d. create a competitive advantage.

Answer: create a competitive advantage.

The use of strategic alliances

a. is unlikely to yield success if partnering firms are headquartered in the same country.

b. may be too restrictive to facilitate entry into new markets.

c. usually increases the investment necessary to introduce new products.

d. is more frequent than other types of cooperative strategies.

Answer: is more frequent than other types of cooperative strategies.

In a(n) _____ , two or more firms create a legally independent company to share some of their resources.

a. non-equity strategic alliance

b. joint venture

c. equity strategic alliance

Answer: joint venture

Which type of strategic alliance is best at passing tacit knowledge between firms?

a. primary cooperative strategic alliances

b. joint ventures

c. equity strategic alliances

d. nonequity strategic alliances

Answer: joint ventures

A strategy in which firms work together to achieve a shared objective is a

a. functional-level strategy.

b. business-level strategy.

c. corporate-level strategy.

d. cooperative strategy.

Answer: cooperative strategy.

A cooperative strategy

a. is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage.

b. is a strategy in which firms work together to achieve a shared objective.

c. is an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.

d. specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets.

Answer: is a strategy in which firms work together to achieve a shared objective.

Within the Renault Nissan alliance , both Renault and Nissan have each formed _____ strategic alliances at the business-unit level with other companies.

a. vertical complementary

b. horizontal complementary

c. synergistic

d. diversifying

Answer: horizontal complementary

After a leveraged buyout, _____ typically occur(s).

a. selling of assets

b. further rounds of acquisitions

c. due diligence

d. private synergy

Answer: selling of assets

A leveraged buyout refers to

a. a firm restructuring itself by selling off unrelated units of the company's portfolio.

b. a firm pursuing its core competencies by seeking to build a top management team that comes from a similar background.

c. a restructuring action whereby a party buys all of the assets of a business, financed largely with debt, and takes the firm private.

d. an action where the management of the firm and/or an external party buy all of the assets of a business financed largely with equity.

Answer: a restructuring action whereby a party buys all of the assets of a business, financed largely with debt, and takes the firm private.

The term "leverage" in leveraged buyouts refers to the

a. firm's increased concentration on the firm's core competencies.

b. amount of new debt incurred in buying the firm.

c. fact that the employees are purchasing the firm for which they work.

d. process of removing the firm's stock from public trading.

Answer: amount of new debt incurred in buying the firm.

Whole-firm LBOs tend to result in all the following negative outcomes EXCEPT

a. large debt and increased financial risk.

b. failure to invest in R&D.

c. risk-averse management.

d. inefficient operations.

Answer: inefficient operations.

____ is often used when the acquiring firm paid too high a premium to acquire the target firm.

a. Management buyout

b. Leveraged buyout

c. Downscoping

d. Downsizing

Answer: Downsizing

____ refers to a divestiture, spin-off, or some other means of eliminating businesses that are unrelated to a firm's core business.

A. Hostile takeovers

B. Shakeouts

C. Downscoping

Answer: Downscoping

An investor is analyzing two firms in the same industry. She is looking for long-term performance from her investment. Both firms are basically identical except one firm is involved in substantial downsizing and the other firm is undertaking aggressive downscoping. The investor should invest in the

a. downscoping firm because the higher debt load will discipline managers to act in shareholders' best interests.

b. downscoping firm because of reduced debt costs and the emphasis on strategic controls derived from focusing on the firm's core businesses.

c. downsizing firm because it will be making decisions based on tactical strategies.

d. downsizing firm because it is eliminating employees who are essentially "dead weight" and are dragging down the firm's profitability.

Answer: downscoping firm because of reduced debt costs and the emphasis on strategic controls derived from focusing on the firm's core businesses.

Compared with downsizing, _____ has (have) a more positive effect on firm performance.

a. reconfiguring

b. downscoping

c. leveraged buyouts

d. acquisitions

Answer: downscoping

Ambrose is a scientist working for a pharmaceutical company. His company was acquired by a rival pharmaceutical company, and now it is involved in downsizing and downscoping. Ambrose is concerned about his job security, since he is actively involved in amateur sports in his community and does not wish to disrupt his current lifestyle. Ambrose's job will be most likely to be secure if

a. Ambrose's research is in a non-core activity.

b. the acquisition has been financed by junk bonds.

c. Ambrose is in a position to take a poison pill.

d. Ambrose is a key employee in the firm's primary business.

Answer: Ambrose is a key employee in the firm's primary business.

Magma, Inc., acquired Vulcan, Inc., 3 years ago. Effective integration of the two companies' culture was never achieved, and the two firms' assets were not complementary. It is very likely that Magma will

a. go public through an IPO.

b. review the due diligence information collected before the acquisition.

c. restructure.

d. review its tactical-level strategies.

Answer: restructure.

Which of the following is NOT one of the three main restructuring strategies?

a. realigning

b. downsizing

c. downscoping

d. leveraged buyouts

Answer: realigning

A friendly acquisition

a. raises the price that has to be paid for a firm.

b. enhances the complementarity of the two firms' assets.

c. facilitates the integration of the acquired and acquiring firms.

d. allows joint ventures to be developed.

Answer: facilitates the integration of the acquired and acquiring firms.

____ typically result(s) in the acquiring firm being able to prevent valuable human resources in the acquired firm from leaving.

A. Friendly acquisitions

B. High compensation

Answer: Friendly acquisitions

Which of the following is NOT an attribute of a successful acquisition?

a. The acquiring firm has a large amount of financial slack.

b. The acquired and acquiring firms have complementary assets and/or resources.

c. Innovation and R&D investments continue as part of the firm's strategy.

d. Investments in advertising and image building are made quickly.

Answer: Investments in advertising and image building are made quickly.

Typically, in a failed acquisition, the organization will

a. restructure.

b. go into bankruptcy.

c. focus on building private synergy.

d. increase integration.

Answer: restructure.

The strategy of Citigroup under CEO Sanford Weill was to create a "financial supermarket" where customers shop for a variety of financial services within the same company. This strategy was executed via a series of acquisitions but ultimately failed. This situation was the result of

a. Citigroup's managers focusing too much on acquisitions at the expense of managing their existing businesses.

b. key managers leaving from the acquired firms, which left the firms with inferior management talent.

c. the firm becoming too vertically integrated.

d. the firm becoming too focused on its core businesses.

Answer: Citigroup's managers focusing too much on acquisitions at the expense of managing their existing businesses.

All of the following were results of Citigroup's acquisition strategy EXCEPT

a. overly diversified.

b. a much smaller, though global, business financial service firm.

c. too large.

d. lacking in synergy.

Answer: a much smaller, though global, business financial service firm.

One problem with becoming too large is that large firms

a. tend to have less market power.

b. have less potential for economies of scale.

c. become attractive takeover targets.

d. usually increase bureaucratic controls.

Answer: usually increase bureaucratic controls.

Thomas is an upper-middle level manager for a firm that has been actively involved in acquisitions over the last 10 years. The firm has grown much larger as a result. Thomas has been dismayed to find that recently the managerial culture of the firm has been turning more and more to controls.

a. bureaucratic

b. strategic

c. tactical

d. organic

Answer: bureaucratic

Which of the following is NOT a result of over-diversification?

a. Executives do not have a rich understanding of all of the firm's business units.

b. Managers emphasize strategic controls rather than financial controls.

c. Firms use acquisition as a substitute for innovation.

d. Managers become short-term in their orientation.

Answer: Managers emphasize strategic controls rather than financial controls.

Evidence suggests that firms using acquisitions as a substitute for internally developed innovations

a. are able to offset the loss of research and development competencies by competencies in other areas.

b. extend their time-to-market for new product launches.

c. eventually encounter performance problems.

d. can leverage their core competencies across a broader range of products.

Answer: eventually encounter performance problems.

When managers become overly focused on making acquisitions, it is

a. because the skills of top executives are better used in making acquisitions than they are in daily organization operations.

b. because of the thrill of selecting, chasing, and seizing a target.

c. due to pressure from major stakeholders to diversify the firm.

d. because acquisitions are a quick way to improve the financial standing of the firm.

Answer: because of the thrill of selecting, chasing, and seizing a target.

Private synergy

a. occurs in most related acquisitions and allows firms to see increased returns.

b. is frequently achieved in conglomerates.

c. is not easy for competitors to understand and imitate.

d. is assessed by managers during the due diligence process.

Answer: is not easy for competitors to understand and imitate.

The expenses incurred by firms trying to create synergy through acquisition are called _____ costs.

a. differentiation

b. diversification

c. transaction

d. interaction

Answer: transaction

Transaction costs include all of the following EXCEPT

a. charges from investment bankers who complete due diligence for the acquiring firm.

b. the loss of key employees following the acquisition.

c. managers' time spent evaluating target firms.

d. managers' time spent planning the diversification strategy of the firm.

Answer: managers' time spent planning the diversification strategy of the firm.

The use of high levels of debt in acquisitions has contributed to

a. the increase in above-average returns earned by acquiring firms.

b. an increased risk of bankruptcy for acquiring firms.

c. the confidence of the stock market in firms issuing junk bonds.

d. an increase in investments that have long-term payoffs.

Answer: an increased risk of bankruptcy for acquiring firms.

____ are unsecured obligations that are not tied to specific assets for collateral.

a. Bearer bonds

b. No-load stocks

c. Penny stocks

d. Junk bonds

Answer: Junk bonds

Caterpillar's payment of a 32 percent premium for the acquisition of Bucyrus in 2011 and subsequent need to issue more stock illustrates the acquisition problem of

a. integration difficulties.

b. inability to achieve synergy.

c. large or extraordinary debt.

d. managers overly focused on acquisitions.

Answer: large or extraordinary debt.

Which of the following statements is FALSE?

a. Synergy resulting from an acquisition generates gains in shareholder wealth beyond what they could achieve through diversification of their own portfolios.

b. Private synergy results when the combination of two firms yields competencies and capabilities that could not be achieved by combining with any other firm.

c. Private synergy is easy for competitors to understand and imitate.

d. Private synergy is more likely when the two firms in an acquisition have complementary assets.

Answer: Private synergy is easy for competitors to understand and imitate.

Without effective due diligence the

a. acquiring firm is likely to overpay for an acquisition.

b. firm may miss its opportunity to buy a well-matched company.

c. acquisition may deteriorate into a hostile takeover, reducing the value creating potential of the action.

d. firm may be unable to act quickly and decisively in purchasing the target firm.

Answer: acquiring firm is likely to overpay for an acquisition.

Due diligence includes all of the following activities EXCEPT assessing

a. differences in firm cultures.

b. tax consequences of the acquisition.

c. the level of private synergy between the two firms.

d. financing for intended transaction.

Answer: the level of private synergy between the two firms.

Pappelbon Enterprises recently acquired a chain of convenience stores offering both fuel and food. Pappelbon is now surprised and dismayed to find that the gas pumps have been poorly maintained and will need to be replaced at considerable expense. Each of the following statements accurately reflect this EXCEPT

a. Pappelbon did not fully evaluate the target.

b. Pappelbon overpaid.

c. Pappelbon's due diligence was not fully effective.

d. Pappelbon's management was overly focused on acquisitions.

Answer: Pappelbon's management was overly focused on acquisitions.

Research shows that about _____ percent of mergers and acquisitions are successful.

a. 20

b. 40

c. 60

d. 80

Answer: 20

Problems associated with acquisitions include all of the following EXCEPT

a. managers overly focused on acquisitions.

b. integration difficulties.

c. large or extraordinary debt.

d. excessive time spent on the due diligence process.

Answer: excessive time spent on the due diligence process.

The factors that lead to poor long-term performance by acquisitions include all of the following EXCEPT firms

a. with insufficient diversification.

b. having too much debt.

c. being unable to achieve synergy.

d. growing too large.

Answer: with insufficient diversification.

The _____ phase is probably the single most important determinant of shareholder value creation in mergers and

a. pre-acquisition negotiations

b. pre-acquisition due diligence

c. post-acquisition integration

d. post-acquisition restructuring

Answer: post-acquisition integration

When a firm is overly dependent on one or more products or markets, and the intensity of rivalry in that market is intense, the firm may wish to _____ by making an acquisition.

a. increase new product speed to market

b. broaden its competitive scope

c. increase its economies of scale

d. overcome entry barriers

Answer: broaden its competitive scope

The fastest and easiest way for a firm to diversity its portfolio of businesses is through acquisition because

a. of barriers to entry in many industries.

b. it is difficult and time intensive for companies to develop products that differ from their current product line.

c. innovation in both the acquired and the acquiring firm is enhanced by the exchange of competencies resulting from acquisition.

d. unrelated acquisitions are usually uncomplicated because the acquired firm is allowed to continue to function independently as it did before acquisition.

Answer: it is difficult and time intensive for companies to develop products that differ from their current product line.

Sales of watches among teenagers and twenty-somethings are declining rapidly as this age group uses cellphones, iPods, and other devices to tell time. A company that specializes in selling inexpensive watches to this age group may wish to consider in order to develop new products other than watches.

a. unrelated diversification

b. backward integration

c. forward integration

d. horizontal acquisitions

Answer: unrelated diversification

Each of the following is a rationale for acquisitions EXCEPT

a. achieving greater market power.

b. overcoming significant barriers to entry.

c. increasing speed of market entry.

d. positioning the firm for a tactical competitive move.

Answer: positioning the firm for a tactical competitive move.

A manager in your company is proposing the acquisition of Taylor Company, which has developed a new, innovative product instead of a strategy of developing new products in-house. All of the following arguments are correct EXCEPT

a. the acquisition of Taylor should be primarily for defensive rather than strategic reasons.

b. research suggests that acquisition strategies are a common means of avoiding risky internal ventures.

c. the outcomes of acquisitions can be estimated more easily and accurately than the outcomes for an internal product development process.

d. acquisitions could become a substitute for innovation within your firm.

Answer: the acquisition of Taylor should be primarily for defensive rather than strategic reasons.

Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for

a. market discipline.

b. innovation.

c. risk analysis.

d. international diversification.

Answer: innovation.

Compared to internal product development, acquisitions allow

a. immediate access to innovations in mature product markets.

b. more accurate prediction of return on investment.

c. slower market entry.

d. more effective use of company core competencies.

Answer: more accurate prediction of return on investment.

Research has shown that the more _____ , the greater is the probability that an acquisition will be successful.

a. related the acquired and acquiring firms are

b. diverse the resulting portfolio of competencies

c. disparate the corporate cultures

d. involved investment banking firms are in the due diligence process

Answer: related the acquired and acquiring firms are

According to the Chapter 7 Strategic Focus, China's recent approach to acquisitions has been to focus on hard assets (e.g., mineral deposits or R&D facilities) instead of established branded products because

a. China's initial acquisition activities in branded products was highly successful and it wanted to apply those successful techniques to hard assets that would create more value for Chinese firms.

b. hard assets around the world had appreciated rapidly and China wanted to take advantage of that appreciation.

c. China's currency had depreciated relative to currencies in developed countries making acquisition of hard assets in those countries cheaper.

d. it did not always have the managerial capability to realize successful performance of branded products.

Answer: it did not always have the managerial capability to realize successful performance of branded products.

Managers perceive internal product development as a high-risk activity and tend to choose acquisitions because approximately _____ percent of innovations are imitated within 4 years after patents are obtained.

a. 5

b. 10

c. 60

d. 20

Answer: 60

Internal product development is often viewed as

a. carrying a high risk of failure.

b. the only reliable method of generating new products for the firm.

c. a quicker method of product launch than acquisition of another firm.

d. critical to the success of biotech and pharmaceutical firms.

Answer: carrying a high risk of failure.

Cross-border acquisitions are primarily made to

a. reshape the firm's competitive scope.

b. reduce the cost of new product development.

c. take advantage of higher education levels of labor in developed countries.

d. overcome barriers to entry in another country.

Answer: overcome barriers to entry in another country.

The presence of barriers to entry in a particular market will generally make acquisitions _____ as an entry strategy.

a. less likely

b. more likely

c. prohibitive

d. illegal

Answer: more likely

SpeakEasy, a U.S. software company that specializes in voice-recognition software, wishes to rapidly enter the growing technical translation software market. This market is dominated by firms making highly differentiated products. To enter this market, SpeakEasy would be best served if it considers a(an)

a. vertical acquisition of a firm that uses technical translation products.

b. acquisition of a highly related firm in the technical translation market.

c. cross-border merger, preferably with an Indian or Chinese company.

d. strategy of internally developing the technical translation products needed to compete in this market.

Answer: acquisition of a highly related firm in the technical translation market.

Cross-border acquisitions are critical to U.S. firms competing internationally

a. if they are to develop differentiated products for markets served.

b. when market share growth is the focus.

c. where consolidated operations are beneficial.

d. if they wish to overcome entry barriers to international markets.

Answer: if they wish to overcome entry barriers to international markets.

The acquisition of Sun Microsystems (a computer hardware producer) by Oracle Corporation (a software firm) is an example of a(n)

a. vertical acquisition.

b. unrelated acquisition.

c. horizontal acquisition.

d. merger of equals.

Answer: vertical acquisition.

Horizontal, vertical, and related acquisitions to build market power

a. are likely to undergo regulatory review and analysis by financial markets.

b. are rarely permitted to occur across international borders.

c. typically involve a firm purchasing one of its suppliers or distributors.

d. concentrate on capturing value at more than one stage in the value chain.

Answer: are likely to undergo regulatory review and analysis by financial markets.

Baby Doe's, a designer and manufacturer of children's clothing, has decided to purchase a retail chain specializing in children's clothing. This purchase is a(n)

a. merger.

b. unrelated acquisition.

c. horizontal acquisition.

d. vertical acquisition.

Answer: vertical acquisition.

Manny Inc. recently completed the purchase of its primary supplier. Manny intends to begin expanding the market to which the suppliers' products are sold. This purchase is a(n)

a. merger.

b. unrelated acquisition.

c. horizontal acquisition.

d. vertical acquisition.

Answer: vertical acquisition.

A primary reason for a firm to pursue an acquisition is to

a. avoid increased government regulation.

b. achieve greater market power.

c. exit a hyper-competitive market.

d. achieve greater financial returns in the short run.

Answer: achieve greater market power.