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MGNT4010 B&C Business Policy and Strategy

Self-Revision Exercise

Multiple Choice Questions. Select the BEST answer from each question.

1. PepsiCo bought many of its bottlers. Which entry mode is PepsiCo using to enter the
bottling industry?
A) Joint venture
B) Internal new venture
C) Acquisition
D) Merger

2. One aspect of using a cost leadership strategy is that experience effects may lead to lower
costs. Experience effects are achieved by
A) hiring more experienced personnel.
B) repeating a process until a task becomes easier.
C) spreading out a given expense or investment over a greater volume.
D) competing in an industry a long time.

3. All of the following are potential pitfalls of an integrated overall low cost and
differentiation strategy except:
A) firms that fail to attain both strategies may end up with neither and become “stuck-in-
the-middle.”
B) targeting too large a market that causes unit costs to increase.
C) underestimating the challenges and expenses associated with coordinating value
creating activities in the extended value chain.
D) fail to compete against both low cost producers and differentiators.

4. Corporate-level strategy addresses two related issues


A) how to compete in a given business; the application of technology.
B) what businesses to compete in; how these businesses can achieve synergy.
C) how to integrate primary activities; increase shareholder wealth.
D) how to improve a firm's infrastructure; how to maintain ethical behaviour.

5. A disadvantage of pursuing a cost leadership strategy is that


A) technological change can make production methods obsolete.
B) price wars make it hard to compete with differentiators.
C) it costs more than a differentiation strategy because of the necessity of high capital
investments.
D) powerful buyers are a major threat.

6. In 1952, the Iranian oil industry was nationalized so that foreign ownership of oil-
producing land and equipment was made illegal and the assets were confiscated. Which of
the following disadvantages of global expansion is shown in this example?
A) Political risk
B) Economic risks
C) Industry risks
D) Management risks

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7. A leading proponent of the classical view of social responsibility argues that anytime
managers decide on their own to spend their organization’s resources for the “social good,”
are ___________.
A) contributing social benefits in the name of goodwill
B) just doing what the government says they have to do
C) helping make society a better place for everyone to live
D) adding to the costs of doing business

8. When toy maker Mattel sells Barbie dolls in the Middle East, it changes the doll's shape
to one that is a more accurate portrayal of a female body. Mattel does this in order to
A) transfer technological know-how.
B) respond to differences in local tastes.
C) increase product standardization.
D) realize experience curve effects.

9. When a company increases its growth rate by taking goods or services developed at home
and selling them internationally, it is
A) leveraging its existing products.
B) taking the path of least resistance.
C) realizing cost economies from global expansion.
D) realizing location economies.

10. Which of the following statements concerning profitability and profit growth is false?
A) Attaining future profit growth may require investments that reduce current profitability.
B) Managers must find the right balance between profitability and profit growth.
C) Too much emphasis on current profitability at the expense of profit growth can make an
enterprise less attractive to shareholders.
D) Boosting a company's profitability and profit growth rate is inconsistent with satisfying
the claims of other key stakeholder groups.

11. Another name for long-term cooperative relationships between two or more companies
who agree to commit resources to develop new products is
A) horizontal integration.
B) outsourcing.
C) strategic alliance.
D) joint venture.

12. Which of the following is not an accurate statement about current levels of pay for CEOs
of U.S.-based firms?
A) Most of CEO pay is determined by salary.
B) CEO compensation is not closely tied to corporate performance in most firms.
C) CEO pay is rising more rapidly than pay for other workers.
D) The level of CEO compensation is determined by the corporate board of directors.

13. The purpose of governance mechanisms in corporations is to


A) keep employees in line.
B) reduce the scope and frequency of the agency problem.
C) satisfy the legal requirements.
D) control corporate growth.

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14. When a company expands its sales volume through international expansion it can realize
cost savings from economies of scale through all of the following except
A) spreading fixed costs over its global sales volume.
B) utilizing its production facilities more intensely.
C) learning effects associated with higher volume.
D) improved responsiveness.

15. When Daimler-Benz and Chrysler merged, DaimlerChrysler sharply reduced its U.S.
corporate-level staff, running the combined company primarily from its German
headquarters. Which benefit of horizontal integration does this example illustrate?
A) Economies of scale
B) Reduction of excess capacity
C) Product bundling
D) Cross-selling
E) Elimination of duplicated resources

16. A wealth of data suggests that most mergers and acquisitions


A) create extensive value for the companies involved.
B) do not create, and may actually reduce, value for the entities involved.
C) create and sustain large and immediate increases in value.
D) have little financial impact on the firms involved.

17. Leveraging competencies involves taking a distinctive competency developed by a


business unit in one industry to:
A) create a new business unit in the same industry.
B) create a new business unit in a different industry.
C) acquire a business in a different industry.
D) acquire a business in the same industry.

18. A shrinking market segment poses the greatest threat to a company pursuing which of the
following strategies?
A) Cost leadership
B) Differentiation
C) Focused differentiation
D) Both cost leadership and differentiation simultaneously

19. The principal dangers of a cost leadership approach include all of the following except
A) powerful buyers.
B) imitation of production techniques.
C) changes in consumer tastes.
D) rivals lowering their costs.

20. As compared to a differentiator, the cost leader has the advantage over its rivals of
A) making higher profit margins.
B) being better able to withstand the negative influence of powerful suppliers and buyers.
C) having inimitable production methods.
D) enjoying higher brand loyalty.

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21. Nick is often asked to perform his clown act for birthday parties or school groups, but
instead he only offers his very inexpensive services to children's hospitals. Nick is pursuing
which generic business strategy?
A) Cost leadership
B) Differentiation
C) Focused cost leadership
D) Focused differentiation

22. Which of the following does not allow a company to reduce unit costs?
A) Outsourcing some functions to low cost foreign suppliers
B) Customizing the product to meet local requirements
C) Realizing location economies
D) Pushing its suppliers to outsource some functions to low-cost foreign suppliers
E) Performing an activity at the lowest cost location

23. Which of the following is not a necessity for leveraging the skills of global subsidiaries?
A) The firm must have incentives for local managers to share knowledge and ideas.
B) The firm must be pursuing a strategy of differentiation.
C) The firm's managers must help to transfer competencies around the company.
D) The firm must install incentives that encourage employees to take necessary risks.

24. Which of the following companies exemplifies the trend toward national markets
merging into one large global marketplace?
A) HSBC
B) Disneyland
C) McDonald’s
D) Lenovo desktop computer

25. Which of the following entry mode allows a company to engage in global strategic
coordination?
A) Exporting
B) Licensing
C) Joint ventures
D) Wholly owned subsidiaries

26. Which of the following is not an example of horizontal integration?


A) Coca-Cola buys some of the film-producing firms.
B) Microsoft acquires Rare, Ltd., maker of video games such as Donkey Kong.
C) Georgia Pacific, a wood products firm, is combining operations with another wood
products firm, Louisiana Pacific.
D) Bank of America acquires Merill Lynch.

27. Under which of the following circumstances is vertical integration hazardous?


A) When the technology involved in different stages of production is changing rapidly
B) When vertical integration involves moving downstream into retailing
C) When the value added by successive stages of production is declining
D) When the company's competitors are also following a strategy of vertical integration

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28. A company should pursue unrelated diversification instead of related diversification
when
A) the company's top management is unskilled at acquiring and turning around poorly run
enterprises.
B) its core skills are highly specialized and have few applications outside core business.
C) it wants to maximize growth.
D) the bureaucratic costs of implementation do not exceed the value that can be created by
realizing economies of scope.

29. Which of the following statements is not generally true of a diversification strategy based
on the realization of economies of scope?
A) The strategy allows a company to realize cost economies from sharing manufacturing
facilities, distribution channels, advertising campaigns, and R&D costs among business
units.
B) The strategy may allow a company to use shared resources more intensively, thereby
realizing economies of scale.
C) The strategy allows transferring or leveraging core competencies.
D) The head office evaluates each business unit as a stand-alone operation.

30. A strategy based on diversification may fail to add value because companies
A) seek to achieve differentiation instead of low cost.
B) diversify into areas in which they have some knowledge and miss out on profitable
opportunities in other areas.
C) incur bureaucratic costs that exceed the value created by the strategy.
D) make acquisitions rather than develop new technologies on their own.

31. In which of the following circumstances does a global standardization strategy make the
most sense?
A) Global market standardization is possible, but there are no significant economies of
scale to be realized from centralizing global manufacturing.
B) Global market standardization is not possible, but there are significant economies of
scale to be realized from centralizing global manufacturing.
C) Consumer tastes and preferences differ among national markets, and economies of
scale are insubstantial.
D) Global market standardization is possible, and there are significant economies of scale
to be realized from centralizing global manufacturing.

32. A “cash cow,” referred to in the Boston Consulting Group Portfolio management
technique, refers to a business that has
A) low market growth and relatively high market share.
B) relatively low market share and low market growth.
C) relatively low market share and high market growth.
D) high market growth and relatively high market share.

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Case: IKEA’s Swedish Ways

1. As seen in the case, IKEA adopts low cost business strategy. Discuss two advantages of this
using Porter’s five forces model. (6 marks)

2. What type of strategy in the global environment did IKEA use before 1985? Highlight two
advantages of using this strategy. (10 marks)

3. What type of strategy did IKEA change to when it entered the U.S. market? Discuss the
problem of this strategy and the necessary conditions to overcome this problem. (12 marks)

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