Williams Chapter 7
1. When comparing two companies, a conventional company facing diminishing returns and a high-tech company with low marginal costs, if both companies sell the same quantity at the same price, the conventional company will make more profit because it has lower average costs than the high-tech company.
a. True b. False
2. Tony has been a loyal PlayStation user for the last few years and has invested over $500 in the console, controllers and about 20 games that can only be played on the PlayStation platform. A new game has just been launched for the Xbox One that Tony wants to buy, but he would have to purchase a new Xbox and controllers for $500 in order to play the game. Tony decides not to buy the new Xbox game due the costs. Tony’s decision was based on high switching costs.
a. True b. False
3. Microsoft’s near monopoly of PC operating systems substantially reduces the risks facing the makers of complementary products and the costs of those products.
a. True b. False
4. A common set of features or design characteristics of a product is called a dominant design.
a. True b. False
5. Computer software products have high marginal costs and low fixed costs.
a. True b. False
6. Which of the following statements is true of technology in industries?
a. Technology in industries is accounting for only a minimal share of economic activity.
b. Technology is revolutionizing aspects of the product or production system even in industries not typically considered high-tech.
c. High-technology industries are not required to adhere to technical standards to achieve product differentiation.
d. The lack of complementary products does not affect the success of a high-technology industry.
e. High-technology industries are usually not faced with the challenge of developing business models to achieve a competitive advantage like low-technology industries.
7. The goal of finding ways to make network effects work in a company’s favor and against competitors can be achieved by
a. taking the time to build a quality installed base for its standard after several tests and redesigns.
b. making sure consumers remain hesitant to bear switching costs.
c. focusing on a slow role out and moderating consumer demand.
d. leveraging the positive feedback loop.
e. relying on other industry members to establish a technological standard or format such that it becomes as quickly as possible as the industry standard.
8. One important advantage of being a first mover is that it guarantees success.
a. True b. False
9. The increase in sales of a certain type of cell phone due to the availability and increase in demand of a specific game application only designed for that cell phone is an example of indirect or “cross-side” network effects.
a. True b. False
10. There are no significant benefits to owning a technical standard in an industry.
a. True b. False
11. Which of the following will NOT help an established company in addressing the potential challenge of a disruptive technology?
a. Access to knowledge about how disruptive technologies can revolutionize markets
b. Investing in newly emerging technologies that may ultimately become disruptive technologies
c. Separating out the disruptive technology and creating an autonomous operating division solely for this new technology
d. Asking customers if they are interested in the new technology
e. Understanding that a disruptive technology will require a radically different value chain with a different cost structure
12. Which of the following strategies should a company NOT adopt if it wants to win a format war?
a. Developing killer applications
b. Developing complementary products
c. Joining forces with other companies to develop new technologies
d. Aggressively marketing to jump-start demand
e. Charging extremely high license fee for the technology
13. In order to take advantage of being a first mover in an industry, a new entrant must decide on whether to try to do it alone, enter into a strategic alliance, or license its technology.
a. True b. False
14. Network effects arise in industries where
a. the size of the network of complementary products is a primary determinant of demand for an industry’s product.
b. a large network of companies in an industry use the same business model and strategies.
c. a company adheres to the same technical standards across its network of outlets.
d. companies network together and lobby for establishing certain technical standards.
e. companies that are not in favor of a technical standard network together.
15. Which of the following is NOT a basic strategy for a first mover?
a. Develop and market the innovation itself
b. Develop and market the innovation jointly with other companies through a strategic alliance or joint venture
c. License the innovation to others
d. Discourage development of complementary assets
e. Increase height of imitation barriers
16. Aggressive marketing strategies such as substantial upfront marketing and point-of-sales promotion techniques
a. deters early adopters.
b. helps a company jump-start demand.
c. results in lower emphasis on killer applications.
d. attracts potential early adopters who will bear the switching costs associated with adopting the format.
e. usually triggers a negative feedback loop.
17. Technological disruption
a. is typically a temporary phase lasting a few months.
b. occurs when the manufacturing plants of a company fail.
c. mostly affects the new entrants.
d. compels firms to adopt new business models.
e. is a problem primarily in embryonic industries.
18. Describe the advantages and disadvantages of being a first mover or a follower in a high-tech industry. In your opinion, which strategy is preferable, and why?
19. With reference to high-technology industries, which of the following is an example of a technical standard?
a. Prices of complementary products
b. Medium of advertising used for technology products
c. Color of gadgets produced
d. Layout of keys on a keyboard
e. Number of manufacturing units per industry
20. With reference to high-technology industries, which of the following statements is true about technical standards?
a. They emerge because there are economic benefits associated with them.
b. They cause compatibility problems between products and their complements.
c. They can create a lot of confusion in the minds of consumers.
d. They often result in higher production costs.
e. They increase the risks associated with supplying complementary products.
Chapter 8
1. The result of the shift of national to global markets is the change from oligopolies to segments of fragmented, global industries in which competition threatens profitability and forces these companies to focus intently on qualities such as efficiency and customer responsiveness.
a. True b. False
2. To take advantage of the possible value that global subsidiaries can bring, companies must be open to receive resources from outside the corporate center and provide incentives for new ideas and risk-taking by employees.
a. True b. False
3. United States electronics companies setting up research and production facilities in Japan to take advantage of Japanese success in consumer electronics is an example of which of the following?
a. Factor endowments
b. Local demand conditions
c. Related and supporting industries
d. Firm strategy, structure, and rivalry
e. Using the framework
4. A transnational strategy makes the most sense when demand for local responsiveness is minimal.
a. True b. False
5. Local responsiveness may be driven by economic and political demands placed on companies by host country governments.
a. True b. False
6. Global expansion
a. is feasible only for non-technology-based companies.
b. can enable companies to increase their profitability and grow their profits more rapidly.
c. has significantly decreased in the recent years as the industry barriers are now higher.
d. does not involve selling existing products to new markets in different countries.
e. is not feasible for service-based firms.
7. Which of the following has occurred in international trade over the past half-century?
a. There has been a dramatic increase in the barriers to international trade.
b. Tariff rates on manufactured goods traded by advanced nations have fallen.
c. Regulations prohibiting foreign companies from entering domestic markets and establishing production facilities have increased.
d. The volume of world trade has decreased dramatically.
e. There has been a decline in the value of foreign direct investment.
8. If a company’s competitive advantage derives from its control of proprietary technological knowhow, it should either license its technology to others or pursue a joint venture. a. True b. False
9. What are the potential benefits and risks of global strategic alliances? What actions can a firm take to minimize the risks and maximize the benefits?
10. The upside of using a localization strategy is that a company can charge a higher price because the value achieved by local customization and greater local demand allows the company to reduce costs by attaining scale economies in the local market.
a. True b. False
11. List and briefly describe each of the four basic global strategies.
12. Which of the following statements is true about international strategy?
a. It is usually adopted by companies that face intense cost pressures due to competition.
b. It makes most sense when the pressures for local responsiveness are very intense.
c. It often involves the head office retaining tight control over marketing and product strategy.
d. It often involves decentralizing product development functions such as R&D to different subsidiaries.
e. It involves extensive scope for localization and product differentiation.
13. Dietizza is a fast-food network that makes low-calorie pizzas. As the firm wishes to expand its operations in different locations, it has licensed a few entrepreneurs to open Dietizza outlets under the company’s trademark. The entrepreneurs will take up the responsibility of costs, while Dietizza will assist them in running operations. The company will receive royalty payments and a percentage of profits from the entrepreneurs. Which of the following concepts is illustrated here?
a. Exporting
b. Franchising
c. Wholly owned subsidiary
d. Strategic alliance
e. Joint venture
14. How do the pressures for cost reductions and pressures to be locally responsive cause conflicting demands on company strategies? What are some strategies a company can use to address the pressures for cost reductions and pressures to be locally responsive?
15. Ford and Mazda have decided to enter into a strategic alliance and have agreed upon an appropriate alliance structure. The companies have decided to host a conference for management and employees to better understand the purpose and objectives of the alliance and allow employees of both companies to build interpersonal relationships which will build trust and facilitate harmonious relations between the two firms. Which of the following describes this alliance management technique?
a. Building relational capital
b. Awareness of cultural sensitivity
c. Creating learning symmetry
d. Securing competitive position
e. Establishing a cost-sharing partnership
16. Starbucks, Sony, and Coca-Cola conduct business in two or more countries. These companies can be referred to as multinational companies.
a. True b. False
17. Strong pressures for convergence due to a shared history and culture, or the establishment of a trading block where there are deliberate attempts to harmonize trade policies, infrastructure, and regulations have contributed to the rise in which of the following trends?
a. Regionalism
b. Globalization
c. Monopolies
d. Nationalism
e. Traditional practices
18. Which of the following is an advantage of international licensing?
a. It enables the company to realize scale economies and location economies through manufacturing products in a centralized location.
b. It allows the company to collect profits from one licensee and use them to support others.
c. It eliminates the risk of losing control over a technology that the company owns.
d. It enables the company to coordinate its strategy efficiently to achieve competitive advantage.
e. It takes away the pressure of development costs and risks associated with opening a foreign market from the company.
19. Which of the following statements is true about global standardization strategy?
a. It emphasizes product customization to specifically meet customer needs.
b. It involves the spreading of production, marketing, and research and development activities of companies to all the locations it operates in.
c. It makes most sense when there are strong pressures for cost reductions.
d. It makes most sense when there is maximum pressure for local responsiveness.
e. It fails to focus on achieving location and scale economies.
20. Which entry mode gives a multinational company the tightest control over foreign operations?
a. Exporting from the home country and letting a foreign agent organize local marketing
b. Licensing
c. Franchising
d. Entering into a joint venture with a foreign company to set up overseas operations
e. Setting up a wholly owned subsidiary
Chapter 9
1. An example of increased product differentiation, acquiring or merging with a competitor helps to eliminate excess capacity in an industry.
a. True b. False
2. A company that chooses forward vertical integration into downstream industries is focused on moving toward adding value to component parts, manufacturing, and raw materials.
a. True b. False
3. In order to achieve the increased profitability that horizontal integration can offer, the only area integration must be successful in is reducing rivalry within the industry.
a. True b. False
4. Strategic alliances are what type of agreements?
a. Short-term agreements between two companies to jointly develop new products
b. Short-term agreements between two companies to jointly market new products that benefit all companies involved in creating the product
c. Short-term partnerships between two companies
d. Long-term commitments between two companies to share research and development activities
e. Long-term agreements between two or more companies to jointly develop new products or processes that benefit all companies that are a part of the agreement
5. Product bundling involves offering customers the opportunity to purchase a range of products at a single, combined price.
a. True b. False
6. Vertical integration can be risky when demand is unpredictable because it is hard to manage the volume or flow of products along the value-added chain.
a. True b. False
7. A merger occurs when one company uses capital resources such as stock, debt, or cash to purchase another company.
a. True b. False
8. Which is a quality of long-term contracts?
a. They are preferable to short-term contracts when there is a minimal need for cooperation.
b. They are preferable to vertical integration when it is not feasible to exchange hostages.
c. They generally result in lower prices than competitive bidding.
d. They achieve the same outcomes as vertical integration, but they incur higher bureaucratic costs.
e. They are a low-cost alternative to vertical integration when it is possible to build cooperative relationships with suppliers.
9. Recently, two pharmaceutical companies that held an equal market share decided to pool their operations to create a new firm that was known by a different name. This is an example of a(n)
a. merger.
b. acquisition.
c. procurement.
d. takeover.
e. dissolution.
10. John’s surfboard shop has a long-term relationship with two surfboard makers that produce similar products. John is using
a. parallel sourcing.
b. cross-selling.
c. product bundling.
d. vertical integration.
e. horizontal integration.
11. For a company concentrating on final assembly, adding retail and distribution into its value chain will require
a. backward integration.
b. forward integration.
c. taper integration.
d. related diversification.
e. unrelated diversification.
12. SparklingLeaves is one of the major suppliers of automobile tools to StanMotors, a leading automobile company. Many of the tools are customized to meet the specific needs of StanMotors and hence have little other value. In return, StanMotors has agreed to make SparklingLeaves its sole supplier of automobile equipment for a period of 15 years. This scenario illustrates
a. horizontal integration.
b. a credible commitment.
c. competitive bidding.
d. vertical integration.
e. parallel sourcing.
13. The horizontal integration of pharmaceutical companies helps lower costs by filling the need to achieve scale economies in research and development (R&D), sales, and marketing and combining the fixed costs of building a nationwide pharmaceutical sales force.
a. True b. False
14. Which of the following would be a factor in the decision of strategic managers to vertically disintegrate to strengthen their core business model?
a. There is a substantial increase in low-cost, global, component parts suppliers that compete for the company’s business.
b. The disadvantages of expanding the boundaries of their company by entering adjacent industries outweighs the advantages.
c. The firm’s asset investments are at greater risk of rapid decrease due to technological change or changing customer demands.
d. There have been major shifts in institutional norms or competitive dynamics.
e. All of these are factors in the decision of strategic managers to vertically disintegrate to strengthen their core business model.
15. Company A has made substantial investments in specialized assets and, in theory, because of this investment, has become dependent on Company B. Company B can threaten to change orders to other suppliers as a way of driving down Company A’s prices. Company B is highly unlikely to change suppliers because it is, in turn, a major supplier to Company A and also has made major investments in specialized assets to serve their needs. These companies are mutually dependent because of the specialized investment the other has made. Thus, Company B is unlikely to renege on any pricing agreements because it knows that Company A would respond the same way. This is an example of which of the following?
a. Hostage taking
b. Credible commitment
c. Parallel sourcing policy
d. Market discipline
e. Modularity
16. What is the relationship between a company’s corporate-level strategy and its business model?
17. Regarding backward vertical integration into upstream industries, which of the following describes the step in the value chain before final assembly?
a. Raw materials
b. Retail
c. Component parts manufacturing
d. Customer
e. Final assembly is the final step in the value chain.
18. In the process of strategic outsourcing, which of the following would come after managers review noncore functions to assess whether independent companies that specialize in those activities can perform them more effectively and efficiently?
a. Activities are outsourced to those specialists.
b. Structured long-term, contractual relationships, with rich information sharing between the company and the specialist organization to which it has contracted the activity are formed between the company and its specialists.
c. Determine whether the companies that specialize in particular activities can perform them in ways that lower costs or improve differentiation.
d. Execution of outsourcing.
e. Identify the value-chain activities that form the basis of a company’s competitive advantage.
19. Adam’s boss tells him that their company is pursuing the strategy of horizontal integration. Which of the following is true of this scenario?
a. The company will acquire one of its suppliers.
b. The company will buy or merge with one of its rivals.
c. The company will begin to distribute its own products.
d. The company will change the organizational structure to make it increasingly flat.
e. The company will merge with another company that belongs to a different industry.
20. Which of the following risks of outsourcing can be reduced by ensuring that there is appropriate communication between the outsourcing specialist and the company?
a. Holdup
b. Increased competition
c. Loss of information and forfeited learning opportunities
d. Enhanced differentiation
e. Lower cost structure
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