mrkt 425 test 3

1. The success of the Pixar-Disney strategic alliance demonstrated that:

A. Disney was in desperate need of Pixar's graphic display systems.

B. the two entities' complementary assets matched.

C. it was easier for the alliance partners to reduce the value gap created.

D. the companies were effectively managing an unrelated diversification strategy.

B. the two entities' complementary assets matched

3. Which of the following best illustrates a merger between the two companies GD Inc. and VS Inc.?

A. GD Inc. purchases VS Inc. for $80 billion despite VS Inc. being against the purchase.

B. GD Inc. and VS Inc. join together to form a third new entity, while they also operate separately.

C. GD Inc. outsources a few of its business activities to VS Inc. for competitive advantage.

D. GD Inc. and VS Inc. join together to form a single new company called GDVS Inc.

D. GD Inc. and VS Inc. join together to form a single new company called GDVS Inc.

4. When does a merger between companies typically occur?

A. When two firms of comparable size join to form a combined entity

B. When large, incumbent firms buy startup companies

C. When a target firm does not want to be acquired

D. When two or more firms enter a temporary vertical strategic alliance

A. When two firms of comparable size join to form a combined entity

8. Titan Autos Inc. merged with its competitor, Cadvia Autos Inc. This allowed Titan Autos to use its technological

competencies along with Cadvia Autos's marketing capabilities to capture a larger market share than what the two

entities individually held. What does this scenario best illustrate?

A. Backward integration

B. Forward integration

C. Horizontal integration

D. Vertical integration

C. Horizontal integration

Which of the following scenarios best illustrates horizontal integration?

A. Regal Autos Inc. enters into a licensing contract with a distributor in a new international market.

B. Regal Autos Inc. acquires a component parts manufacturer who previously supplied to Regal Autos' competitor.

C. Regal Autos Inc. sets up its own distribution channel and retail stores.
D. Regal Autos Inc. joins with Marcus Motors Inc., one of its direct competitors.

D. Regal Autos Inc. joins with Marcus Motors Inc., one of its direct competitors.

How does horizontal integration within an industry affect the surviving firms?

A. By increasing the threat the surviving firms will face from new entrants

B. By strengthening the rivalry among existing firms

C. By requiring the surviving firms to shift their focus from non-price to price competition

D. By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers

D. By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers

Which of the following is a result of horizontal integration in terms of Porter's five forces model?

A. The industry structure becomes less consolidated.

B. There is a reduction of excess capacity in the market.

C. The industry structure becomes potentially less profitable.
D. There is an increase in rivalry among existing firms.

B. There is a reduction of excess capacity in the market.

How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?

A. By facilitating excess capacity in the industry

B. By preventing mergers from taking place

C. By lowering competitive intensity in the industry overall
D. By increasing the threat of entry in the industry

C. By lowering competitive intensity in the industry overall

It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because:

A. the horizontal integration activity changes the industry structure from oligopolistic to monopolistically competitive.

B. the surviving firms will need to be protected against the increasing bargaining power of the suppliers.

C. the horizontal integration activity has the potential to reduce competitive intensity in an industry.

D. the surviving firms will need protection against the relaxed entry barriers.

C. the horizontal integration activity has the potential to reduce competitive intensity in an industry.

PureSource Pharma Inc. recently acquired BioChem Pharmaceuticals Inc. It now sells its own products along with the products originally sold by BioChem Pharmaceuticals. As a result, PureSource Pharma's sales force will also be marketing the acquired company's products. How will this horizontal integration most likely affect PureSource Pharma?

A. PureSource Pharma will lower its costs through economies of scale.

B. PureSource Pharma will diminish its economic value creation.

C. PureSource Pharma will increase its cost of distribution.

D. PureSource Pharma will reduce the size of its sales force.

A. PureSource Pharma will lower its costs through economies of scale.

Which of the following is a disadvantage of a horizontal integration corporate strategy?

A. It increases competitive intensity within an industry.

B. It increases the potential for legal repercussions.

C. It increases the costs associated with increasing value.

D. It increases the threat of new entrants in an industry.

B. It increases the potential for legal repercussions.

_____ is best described as the process of merging with a competitor at the same stage of the value chain.

A. Forward integration

B. Taper integration

C. Backward integration
D. Horizontal integration

D. Horizontal integration

The Mansion Hotel Group purchased Red Brick Hotels for an estimated value of $120 billion. All the hotels previously owned by Red Brick Hotels are now managed by the Mansion Hotel Group and are known as Mansion hotels. What does this scenario best illustrate?

A. A merger

B. A joint venture

C. An acquisition
D. An equity alliance

C. An acquisition

6. Which of the following is true of acquisitions?

A. Acquisitions can be friendly or hostile.
B. Acquisitions can occur only when the involved entities are of comparable size.
C. In acquisitions, two independent companies join to form a separate third entity.
D. Acquisitions increase the competitive intensity in an industry.

A. Acquisitions can be friendly or hostile.

When large, incumbent firms buy startup companies, the transaction is generally described as a(n) _____.

A. joint venture

B. partnership

C. acquisition
D. alliance

C. acquisition

To position itself more strongly after the 2001 bursting of the Internet and tech stock bubble, Cisco Systems embarked on a(n) _____.

A. harvest strategy

B. acquisitions-led growth strategy

C. unrelated diversification strategy

D. exit strategy

B. acquisitions-led growth strategy

While Cisco Systems has been successful in selecting and buying both big and small technology ventures, HP had to write off some of its recent technology acquisitions. Which of the following statements best explains this scenario?

A.Cisco was successful due to its unrelated diversification, whereas HP failed by pursuing a related linked diversification strategy.

B. Cisco treated the management of the larger firms it took over more like acquisitions, whereas HP treated its acquisitions as strategic alliances.

C. The acquisitions were successful as the learning and experience curve effects were low.

D. Acquisition and integration capabilities were not equally distributed across firms.

D. Acquisition and integration capabilities were not equally distributed across firms.

Under CEO Robert Iger, Disney has followed an acquisition-led growth strategy. Which of the following was a result of this corporate strategy?

A. Disney attempted full integration with the subsidiaries it acquired after its merger with Pixar.

B. Disney's revenue streams from its various activities became less predictable.

C. Disney became a less diversified company.

D. Disney compensated more easily for losses from flops.

D. Disney compensated more easily for losses from flops.

GreyWing Products Inc., a large conglomerate, took over a small startup company that had made some breakthrough innovations in the field of telecommunications. This purchase would help GreyWing Products to gain access to the startup company's superior technology and human capital. This transaction is an example of a(n):

A. cartel.

B. affiliate leadership.

C. joint venture.

D. acquisition.

D. acquisition.

The managers at Movo Automobile Inc. want to diversify their business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Movo Automobile is most likely a result of:

A. time compression diseconomies.

B. experience-curve effects.

C. principal-agent problems.

D. resource ambiguity.

C. principal-agent problems.

FlyOne Airway's decision to acquire TrueGear Fuels Inc. proved to be ill-fated because its managers had overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers' capabilities were restricted to the airlines industry. What does this scenario best illustrate?

A. Managerial empathy

B. Managerial feasibility

C. Managerial hubris

D. Managerial capitalism

D. Managerial capitalism

____ is best described as a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.

A. Managerial hubris

B. Managerial myopia

C. Self-actualization
D. Self-efficacy

A. Managerial hubris

A _____ is best described as a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

A. proprietorship

B. cooperative

C. strategic alliance
D. leveraged buyout

C. strategic alliance

Vibgyor Inc., a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its cell phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Vibgyor and the software company best referred to as in this scenario?

A. An acquisition
B. A strategic alliance
C. A leveraged buyout
D. A proprietorship

B. A strategic alliance

Which of the following statements is true of strategic alliances?

A. They are always focused on joining the same value chain activities.

B. They enable firms to achieve goals faster, but at higher costs.

C. They are known as strategic alliances whether or not they have the potential to affect a firm's competitive advantage.

D. They are most beneficial when they join together resources and knowledge in a combination that obeys the VRIO principles.

D. They are most beneficial when they join together resources and knowledge in a combination that obeys the VRIO principles.

Which of the following is NOT a reason why firms enter alliances?

A. To replace competitive advantage with competitive parity

B. To strengthen competitive position

C. To enter new markets, either in terms of geography or products and services

D. To learn new capabilities

A. To replace competitive advantage with competitive parity

Why did Yahoo enter into a strategic alliance with Microsoft?

A. To pursue an unrelated diversification strategy

B. To overcome its competitive disadvantage in comparison to Google

C. To invest its excess cash flow in Microsoft's superior technology

D. To share its continuously updated search technology with Microsoft

B. To overcome its competitive disadvantage in comparison to Google

When North Autos Inc. wanted to sell its cars in the country of Balvia, it lacked access to distribution channels and marketing expertise in the country. Thus, North Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner's well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?

A. Increasing competitive intensity

B. Accessing critical complementary assets

C. Procuring additional capital investments

D. Reducing differentiation of product and service offerings

B. Accessing critical complementary assets

In a strategic alliance, the firm that learns faster:

A. has the tendency to lose its competitive advantage.

B. has the incentive to reduce its knowledge sharing.

C. has the tendency to move up a learning curve.

D. has the incentive to invest further in the alliance.

B. has the incentive to reduce its knowledge sharing.

With regard to New United Motor Manufacturing, Inc. (NUMMI), why did General Motors (GM)

enter into a strategic alliance with Toyota?

A. To transfer its knowledge of a completely new production system

B. To learn the lean manufacturing system pioneered by Toyota

C. To better understand the American work force
D. To get access to Toyota's distribution system and marketing expertise

B. To learn the lean manufacturing system pioneered by Toyota

in the New United Motor Manufacturing, Inc. (NUMMI) joint venture, why did Toyota enter into a

strategic alliance with General Motors (GM)?

A. To access GM's completely new production system

B. To learn and implement the just-in-time inventory system pioneered by GM

C. To learn how to implement its lean manufacturing program with an American work force

D. To access GM's distribution system and marketing expertise

C. To learn how to implement its lean manufacturing program with an American work force

A strategic alliance has the potential to help a firm gain and sustain a competitive advantage when it joins together resources and knowledge that are:

A. less differentiated.

B. inexpensive to acquire.

C. common in the industry.

D. difficult to imitate.

D. difficult to imitate

Which of the following best illustrates a strategic alliance?

A. GD Group Inc., a large conglomerate, taking over a startup company against its will

B. Saturn Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines

C. Serene Apparel Inc. taking over one of its fabric suppliers in a less developed nation

D. The electronics subsidiary unit of East Goods Inc. deploying a few of its human resources to the automobile subsidiary of the company

B. Saturn Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines

A _____ is best described as an approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.

A. cost-leadership approach

B. break-even analysis

C. market risk framework

D. real-options perspective

D. real-options perspective

Fervana Autos Inc., a large automobile company, made an initial small investment in a startup company that was developing a solar-powered car. This gave Fervana Autos controlling interests in the startup company. However, Fervana Autos had no obligations to make continued investments in the experiments of the startup company. It could invest in small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Fervana Autos would have the right to buyout the startup company. This approach to strategic alliance is referred to as _____.

A. a break-even analysis

B. a real-options perspective

C. credible commitment

D. transaction cost economics

B. a real-options perspective

In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates _____.

A. the real-options perspective

B. co-opetition

C. explicit knowledge

D. the stakeholder strategy

A. the real-options perspective

How does taking a real-options perspective by entering strategic alliances help incumbent firms?

A.It helps the incumbent firms gain the confidence of the partnering company by making credible commitments.

B. It helps the incumbent firms reduce the value gap they create through their product and service offerings.

C.It allows the incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.

D. It reduces the incumbent firms' cost of acquisition by enabling them to make the entire investment

decision in the beginning itself.

C.It allows the incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.

Which of the following statements is true of the real-options perspective?

A. The approach obligates the incumbent firm to make continued investments when demanded by its partner.

B. The approach allows the incumbent firm to obtain additional information at predetermined stages.

C. The approach fails to provide the incumbent firm a hedge against uncertainty.

D. The approach involves making large investments at the end of a project, irrespective of whether the project is successful or not.

B. The approach allows the incumbent firm to obtain additional information at predetermined stages.

_____ is best described as cooperation by competitors to achieve a strategic objective.

A. Limited liability

B. Proprietorship

C. Co-opetition

D. Commerce

C. Co-opetition

FR Pharmaceuticals Inc., BioCure Pharma Inc., and Regime Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with each other. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?

A. Takeover

B. Buyout

C. Co-opetition

D. Acquisition

C. Co-opetition

The local real estate companies in a city have joined together and arranged a "Property Fair." The expenses of the event will be shared equally by the sponsors. Though many companies compete against each other, they have joined together because the medium will help the companies market themselves through a dedicated forum at an extremely low cost. This arrangement is best referred to as:

A. co-opetition.

B. bootstrapping.

C. a cartel.

D. merging.

A. co-opetition.

A(n) _____ occurs when firms enter into a partnership based on contractual agreements, which results in vertical strategic alliances, that connect different parts of the industry value chain.

A. equity alliance

B. joint venture

C. non-equity alliance

D. greenfield venture

C. non-equity alliance

Supply, distribution, and licensing contractual agreements between firms, which result in vertical strategic alliances, are all examples of _____.

A. cartel arrangements

B. non-equity alliances

C. joint ventures

D. equity alliances

B. non-equity alliances

In a non-equity alliance, which of the following types of information would firms most likely share?

A. A manager's knowledge related to solving non-routine problems

B. A top-level manager's experience related to making strategic decisions

C. The documented information about the material composition of a product

D. The employees' entrepreneurial skills

C. The documented information about the material composition of a product

Amiware Inc., a manufacturer of ceramic cookware, has entered into a contractual agreement with Micoware Inc. The agreement involves vertical strategic alliances connecting different parts of the industry value chain. This arrangement between the two companies best illustrates a(n) _____.

A. joint venture

B. acquisition

C. non-equity alliance

D. greenfield venture

C. non-equity alliance

Which of the following best illustrates a non-equity alliance?

A. A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component parts to Pristine Autos Inc.

B. An alliance between RedGate Systems Inc. and DB Computers Inc. that results in DB Gate Inc., an independent third company

C. A collusion between two competitors, RP Pharma Inc. and Vital Pharma Inc., to fix prices

D. An alliance that allows Virtue Insurance Inc. to claim 49 percent ownership in Mercury Finance Inc.

A. A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component

Which of the following is an advantage of non-equity alliances?

A. They produce strong ties between alliance partners as they are permanent in nature.

B. They are flexible and easy to initiate and terminate.

C. They facilitate the sharing of tacit knowledge between the alliance partners.

D. They are based on ownership rather than contracts.

B. They are flexible and easy to initiate and terminate.

Which of the following is an advantage of equity alliances when compared to non-equity alliances?

A. They are more flexible and easy to initiate and terminate.

B. They require smaller capital investments.

C. They produce stronger ties between partners.
D. They are based on contracts rather than ownership.

C. They produce stronger ties between partners.

Equity alliances are less common than non-equity alliances because they:

A. depend on contractual agreements.

B. produce weaker ties between partners.

C. fail to facilitate the transfer of tacit knowledge.

D. often require larger investments.

D. often require larger investments.

A non-equity alliance is the most common type of strategic alliance because:

A. it produces the strongest ties between alliance partners.

B. it is based on partial ownership.

C. it is easy to initiate and terminate.

D. it is least flexible.

C. it is easy to initiate and terminate

How was Wikipedia able to outperform both Encyclopedia Britannica and Microsoft Encarta?

A. By lowering its network effects

B. By launching an electronic encyclopedia that included a variety of entries

C. By leveraging first-mover advantages
D. By allowing any person, expert or novice, to generate and edit content

D. by allowing any person, expert or novice to generate and edit content

_____ is best described as a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea.

A. patent

B. promissory note

C. franchise

D. royalty

A. Patent

When TrueHeal Pharma Inc. released a new drug to treat insomnia, its chemical composition was disclosed at the back of the drug's cover. However, any attempts by competitors to copy the chemical composition would result in infringement of TrueHeal Pharma's intellectual property rights. Thus, the drug is protected by a _____.

A. promissory bill

B. patent

C. franchise

D. royalty

B. patent

The typical four-step innovation process begins with:

A. the modification and recombination of an existing product or process.

B. the presentation of an idea as findings derived from basic research.

C. the commercialization of an invention by entrepreneurs.
D. a competitor's attempt to imitate an innovation.

B. the presentation of an idea as findings derived from basic research.

The four-step innovation process ends with:

A. idea generation.
B. invention.
C. idea testing.
D, imitation

D. imitation.

Which of the following statements accurately describes social entrepreneurs?

A. Social entrepreneurs are individuals who invest in start-up businesses in order to earn huge returns.

B. Social entrepreneurs are individuals who rely primarily on social networking sites to generate revenues.

C. Social entrepreneurs are employees within organizations who are responsible for carrying out lean production.

D. Social entrepreneurs are those who consider financial, ecological, and social metrics to evaluate their firm's performance.

D. Social entrepreneurs are those who consider financial, ecological, and social metrics to evaluate their firm's performance.

Georgia Ray is the founder of the departmental stores chain, Ether Inc. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and manufactured from recycled material. Also, her company purchases handicrafts from non-profit organizations supporting the aged. Georgia's belief is that her company should be able to support the community at large. Which of the following terms best describes Georgia Ray?

A. Headhunter

B. Category captain

C. Social entrepreneur

D. Trade creditor

C. Social entrepreneur

How has Apple been able to sustain its competitive advantage in the smartphone industry?

A. By reducing its network effects

B. By targeting its new products and services toward laggards

C. By driving the price for the end user to zero

D. By regularly introducing incremental improvements in its products

D. By regularly introducing incremental improvements in its products

FindFriend is an instant messaging application for smartphones. New smartphone users find it easier to connect with friends and relatives through this mobile app when compared to other similar instant messaging applications. Hence, it has the largest user base in the industry. Thus, FindFriend app's value has increased primarily due to its _____.

A. learning curve effects

B. economies of scale

C. economies of scope

D. network effects

D. network effects

Which of the following has been a primary reason for increases in the Apple iPhone's installed base?

A. The decision to enter into the smartphone market during the maturity stage

B. The cost-leadership strategy pursued by Apple

C. The availability of apps that led to network effects

D. The decision to target laggards, the most profitable customer segment

C. The availability of apps that led to network effects

Large companies, such as AT&T, IBM, and GE, have been shifting their knowledge landscape from closed innovation to open innovation because of the:

A. decreasing capability of external suppliers and vendors.

B. lack of reliability on venture capital.

C. increasing need to internally control research and development.

D. increasing supply and mobility of skilled workers.

?

Which of the following statements is true of firms pursuing a closed innovation?

A. Firms following the closed innovation model are less likely to be prone to the not-invented-here syndrome.

B. Firms in the closed innovation model are extremely protective of their intellectual property.

C. Firms in the closed innovation model focus on building a more effective business model to commercialize R&D, rather than focusing on being first to market.

D. Firms following the closed innovation model will find activities such as spin-out ventures or strategic alliances crucial to commercialize their internally developed R&D.

B. Firms in the closed innovation model are extremely protective of their intellectual property.

Which of the following statements accurately brings out the difference between closed innovation and
open innovation?

A. Firms following the open innovation model are much more likely to be prone to the not-invented here syndrome than firms pursuing a closed innovation model.

B. While open innovation focuses on building an effective business model to commercialize R&D, closed innovation focuses on being first to market.

C. Firms following the open innovation model are more protective about their intellectual property than firms pursuing a closed innovation model.

D. While open innovation means introducing new technologies to new markets, closed innovation refers to introducing new technologies to existing markets.

??

Which of the following is stated by the long tail phenomenon?

A.When production is increased by 80 percent, the decrease in cost is close to 20 percent due to economies of scale.

B. To gain a competitive advantage, it is necessary for a business to internalize 80 percent of its R&D, and outsource the remaining 20 percent.

C. For an incumbent firm, 80 percent of its revenue comes from existing customers, and new customers account for the remaining 20 percent.

D. Almost 80 percent of sales in a given product category come from only 20 percent of the offerings in that category.

??

The _____ business model is best described as one in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices.

A. razor-razor-blade

B. freemium

C. pay-as-you-go

D. long tail

D. long tail

How has the long tail business model affected eBay as an online retailer?

A. It has increased the cost of the virtual shelf space.

B. It has allowed eBay to offer limited product selections to its customers.

C. It has helped overcome the problem of thin markets, at no cost to the buyer.
D. It has made eBay highly dependent on products found in the short head to generate revenues.

C. It has helped overcome the problem of thin markets, at no cost to the buyer.

A(n) _____ leverages new technologies to attack existing markets.

A. disruptive innovation

B. incremental innovation

C. radical innovation
D. architectural innovation

A. disruptive innovation

Which of the following statements is true of a disruptive innovation?

A. It begins as a low-cost solution to a new problem.

B. It initially performs better than the existing technology.

C. It involves leveraging existing technologies in new markets.

D. It invades the market from the bottom up, by first capturing the low end.

One factor favoring the success of disruptive innovation is that it relies on stealth attack: It invades the market from the bottom up, by first capturing the low end. Many times, incumbent firms fail to defend the low end of the market, because it is frequently a low-margin business.

D. It invades the market from the bottom up, by first capturing the low end.

s a start-up company, Virtue Mobiles Inc. entered the low end of the highly competitive cell phone industry with its low-cost smartphones. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartphones in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?

A. Radical innovation

B. Incremental innovation

C. Architectural innovation

D. Disruptive innovation

D. Disruptive innovation

When Japanese carmakers attacked the existing U.S. automobile market by first offering small fuel efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in _____.

A. regressive innovation

B. radical innovation

C. disruptive innovation

D. architectural innovation

C. disruptive innovation

Digital photography replacing film photography would be an example of a(n) _____.

A. regressive innovation

B. radical innovation

C. architectural innovation

D. disruptive innovation

D. disruptive innovation

Which of the following is true of a disruptive innovation?

A. It targets existing markets.

B. It initially provides high-cost solutions to existing problems.

C. It introduces a radical idea and creates a new industry.

D. It attacks the market through a top-down process.

A. It targets existing markets.

A factor favoring the success of disruptive innovation is that:

A. incumbent firms are slow to change.

B. new entrants have highly formal organizational structures and processes.

C. the low end of the market is highly guarded.

D. incumbent firms focus on radical innovation rather than incremental innovation.

A. incumbent firms are slow to change.

A firm's resistance to changes in the status quo is referred to as _____.

A. organizational parity

B. organizational liquidity

C. organizational inertia

D. organizational efficacy

C. organizational inertia

The customers entering the market in the growth stage are primarily _____.

A. technology enthusiasts

B. laggards

C. early adopters

D. late majority

C. early adopters

Which of the following statements is true of laggards?

A. They make up the largest customer segment for any business.

B. They tend to enter the market frequently during the decline stage.

C. They do not like waiting too long for new technology to release.

D. They are customers who adopt a new product even if it is not necessary.

B. They tend to enter the market frequently during the decline stage.

While the personal computer industry is flooded and growing with laptops and tablets, John recently

bought a desktop, his first personal computer. He realized that a computer at home would be helpful

for his children for their school projects, and he could use it to maintain the simple accounts of his

plumbing business. Which of the following customer segments does John best represent?

A. Early adopters

B. Category captains

C. Laggards

D. Early majority

C. Laggards

Decisions relating to "what stages of the industry value chain to participate in" determine a firm's:

A. level of diversification.

B. geographic scope.

C. vertical integration.

D. absorptive capacity.

C. vertical integration.

Which of the following stakeholders of a company would most likely be responsible for formulating a

corporate strategy?

A. The first-line employees

B. The creditors

C. The chief executive officer

D. The middle manager

C. The chief executive officer

Grace Apparel Inc. has decided to procure fabrics required for its garments from external suppliers instead of maintaining its own dyeing and weaving facilities. How will this decision affect the firm?

A. The firm will be protected against the principal-agent problem.

B. The firm's administrative costs will be low because of necessary bureaucracy.

C. The firm will have more flexibility in purchasing and comparing prices of goods and services.

D. The firm will have high-powered incentives, such as hourly wages and salaries.

C. The firm will have more flexibility in purchasing and comparing prices of goods and services.

A drawback of short-term contracting as an alternative to making a component in-house is that:

A. it is the most-integrated alternative to performing an activity so the principal company has no

control over the agent.

B. the supplying firm has no incentive to make any transaction-specific investments to increase

performance or quality.

C. it fails to allow a long planning period that individual market transactions provide.

D. the buying firm cannot demand lower prices due to the lack of a competitive bidding process.

B. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self interests. What does this best illustrate?

A. Diseconomies of scale

B. Principal-agent problem

C. Experience-curve effects

D. Information asymmetries

B. Principal-agent problem

The most efficient way to overcome the principal-agent problem in a firm is to:

A. increase the level of vertical integration within the firm.

B. provide stock options to managers.

C. downsize the existing workforce.

D. organize economic activities within the firm.

B. provide stock options to managers

_____ is best described as a situation in which one party is more informed than another, because of the

possession of private information.

A. Information governance

B. Information asymmetry

C. Information deregulation

D. Information piracy

B. Information asymmetry

In the market for used cars, which of the following is a reason behind the crowding out of desirable cars by lemons or inferior ones?

A. Experience-curve effects

B. Time compression diseconomies

C. Principal-agent problem

D. Information asymmetry

D. Information asymmetry

Bill is in an interview for a sales job that requires no experience. He is trying to portray himself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Bill should be hired as a sales person in the company. However, in his resume, Bill had not mentioned his previous work experience as he was fired from that job on the account of using illegal drugs. Which of the following does this scenario best illustrate?

A. Information asymmetry

B. Principal-agent problem

C. Experience-curve effect
D. Learning-curve effect

A. Information asymmetry

When approaching a bank for a loan, the borrower has better knowledge than the lender about his or

her own ability to repay the loan without defaulting. What is this situation referred to as?

A. Principal-agent problem

B. Information asymmetry

C. Experience-curve effect

D. Learning-curve effect

B. Information asymmetry

_____ are best described as voluntary arrangements between firms that involve the sharing of

knowledge, resources, and capabilities with the intent of developing processes, products, or services to

lead to competitive advantage.

A. Embargos

B. Cartel agreements

C. Strategic alliances

D. Corporate acquisitions

C. Strategic alliances

. _____ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.

A. Lean manufacturing

B. Licensing

C. Crowdsourcing

D. Bootlegging

B. Licensing

hitoro Inc. developed a superior touchscreen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Revox Inc., a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?

A. Licensing

B. Franchising

C. Crowdsourcing

D. Bootlegging

A. Licensing

BioGrow Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner's confidence and to prove its involvement, BioGrow Pharma invested $100 million in the project. This investment made by BioGrow Pharma will result in a _____.

A. cartel

B. credible commitment

C. corrective action

D. parent-subsidiary relationship

B. credible commitment

When Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with an Australian company, Orocobre Ltd. Orocobre wanted to establish the bond of trust before making huge investments in specialized equipment required to extract the high-quality lithium. What did Toyota do to instill this trust?

A. It offered Orocobre exposure to Toyota's proprietary information.

B. It made a credible commitment by taking an equity stake in Orocobre.

C. It acquired Orocobre as part of its backward vertical integration plans.

D. It offered Orocobre franchising opportunities to sell hybrid vehicles.

B. It made a credible commitment by taking an equity stake in Orocobre.

Strategic business units that have a relatively low market share but have the potential to grow are best

categorized under _____ in the Boston Consulting Group (BCG) growth-share matrix.

A. dogs

B. stars

C. cash cows

D. question marks

D. question marks

The solar-powered car division of a large automobile company has been experiencing negative cash flows though the market growth for such cars is predicted to be high. If the company invests further resources into this division, it can increase its relative market share in the future. However, if due to technological changes the car cannot create sufficient consumer demand, then the division can prove to be unprofitable. In the Boston Consulting Group (BCG) growth-share matrix, the solar-powered car division will be categorized under:

A. dogs.

B. question marks.

C. stars.

D. underdogs.

B. question marks.

The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growthshare matrix, the smartphone division of True Electra will be categorized under:

A. question marks.

B. stars.

C. cash cows.

D. dogs.

b. STARS

_____ are strategic business units that compete in a low-growth market but hold considerable market share.

A. Dogs

B. Question marks

C. Cash cows

D. Stars

C. Cash cows

DiskOne Inc. holds the highest market share in the low-growth compact disk industry. With the introduction of flash drives, the market for compact disks has reduced. However, DiskOne has been able to generate sufficient revenues for the parent company by selling its products in less developed countries. In the Boston Consulting Group (BCG) growth-share matrix, DiskOne will be categorized under:

A. dogs.

B. cash cows.

C. stars.

D. question marks.

B. cash cows.

TrueAutos Inc. is a large automobile company. The company's petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?

A.The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.

B. The petrol cars SBU will have a relatively low market share in its industry, whereas the hybrid electric cars SBU will have the least market share in its industry.

C. The strategic recommendation for the hybrid electric cars SBU will be to harvest it, whereas for the

petrol cars SBU, the company should just maintain it.

D. The petrol cars SBU is more important than the hybrid electric cars SBU in terms of future growth for the company.

A.The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.

. _____ is best described as the process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully.

A. Reverse engineering

B. Restructuring

C. Rebooting

D. Reverse brainstorming

B. Restructuring

WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company's key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in:

A. reverse engineering.

B. benchmarking.

C. restructuring.

D. crowdsourcing.

C. restructuring

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1. The success of the Pixar-Disney strategic alliance demonstrated that:

A. Disney was in desperate need of Pixar’s graphic display systems.

B. the two entities’ complementary assets matched.

C. it was easier for the alliance partners to reduce the value gap created.

D. the companies were effectively managing an unrelated diversification strategy.

B. the two entities’ complementary assets matched

3. Which of the following best illustrates a merger between the two companies GD Inc. and VS Inc.?

A. GD Inc. purchases VS Inc. for $80 billion despite VS Inc. being against the purchase.

B. GD Inc. and VS Inc. join together to form a third new entity, while they also operate separately.

C. GD Inc. outsources a few of its business activities to VS Inc. for competitive advantage.

D. GD Inc. and VS Inc. join together to form a single new company called GDVS Inc.

D. GD Inc. and VS Inc. join together to form a single new company called GDVS Inc.

4. When does a merger between companies typically occur?

A. When two firms of comparable size join to form a combined entity

B. When large, incumbent firms buy startup companies

C. When a target firm does not want to be acquired

D. When two or more firms enter a temporary vertical strategic alliance

A. When two firms of comparable size join to form a combined entity

8. Titan Autos Inc. merged with its competitor, Cadvia Autos Inc. This allowed Titan Autos to use its technological

competencies along with Cadvia Autos’s marketing capabilities to capture a larger market share than what the two

entities individually held. What does this scenario best illustrate?

A. Backward integration

B. Forward integration

C. Horizontal integration

D. Vertical integration

C. Horizontal integration

Which of the following scenarios best illustrates horizontal integration?

A. Regal Autos Inc. enters into a licensing contract with a distributor in a new international market.

B. Regal Autos Inc. acquires a component parts manufacturer who previously supplied to Regal Autos’ competitor.

C. Regal Autos Inc. sets up its own distribution channel and retail stores.
D. Regal Autos Inc. joins with Marcus Motors Inc., one of its direct competitors.

D. Regal Autos Inc. joins with Marcus Motors Inc., one of its direct competitors.

How does horizontal integration within an industry affect the surviving firms?

A. By increasing the threat the surviving firms will face from new entrants

B. By strengthening the rivalry among existing firms

C. By requiring the surviving firms to shift their focus from non-price to price competition

D. By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers

D. By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers

Which of the following is a result of horizontal integration in terms of Porter’s five forces model?

A. The industry structure becomes less consolidated.

B. There is a reduction of excess capacity in the market.

C. The industry structure becomes potentially less profitable.
D. There is an increase in rivalry among existing firms.

B. There is a reduction of excess capacity in the market.

How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?

A. By facilitating excess capacity in the industry

B. By preventing mergers from taking place

C. By lowering competitive intensity in the industry overall
D. By increasing the threat of entry in the industry

C. By lowering competitive intensity in the industry overall

It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because:

A. the horizontal integration activity changes the industry structure from oligopolistic to monopolistically competitive.

B. the surviving firms will need to be protected against the increasing bargaining power of the suppliers.

C. the horizontal integration activity has the potential to reduce competitive intensity in an industry.

D. the surviving firms will need protection against the relaxed entry barriers.

C. the horizontal integration activity has the potential to reduce competitive intensity in an industry.

PureSource Pharma Inc. recently acquired BioChem Pharmaceuticals Inc. It now sells its own products along with the products originally sold by BioChem Pharmaceuticals. As a result, PureSource Pharma’s sales force will also be marketing the acquired company’s products. How will this horizontal integration most likely affect PureSource Pharma?

A. PureSource Pharma will lower its costs through economies of scale.

B. PureSource Pharma will diminish its economic value creation.

C. PureSource Pharma will increase its cost of distribution.

D. PureSource Pharma will reduce the size of its sales force.

A. PureSource Pharma will lower its costs through economies of scale.

Which of the following is a disadvantage of a horizontal integration corporate strategy?

A. It increases competitive intensity within an industry.

B. It increases the potential for legal repercussions.

C. It increases the costs associated with increasing value.

D. It increases the threat of new entrants in an industry.

B. It increases the potential for legal repercussions.

_____ is best described as the process of merging with a competitor at the same stage of the value chain.

A. Forward integration

B. Taper integration

C. Backward integration
D. Horizontal integration

D. Horizontal integration

The Mansion Hotel Group purchased Red Brick Hotels for an estimated value of $120 billion. All the hotels previously owned by Red Brick Hotels are now managed by the Mansion Hotel Group and are known as Mansion hotels. What does this scenario best illustrate?

A. A merger

B. A joint venture

C. An acquisition
D. An equity alliance

C. An acquisition

6. Which of the following is true of acquisitions?

A. Acquisitions can be friendly or hostile.
B. Acquisitions can occur only when the involved entities are of comparable size.
C. In acquisitions, two independent companies join to form a separate third entity.
D. Acquisitions increase the competitive intensity in an industry.

A. Acquisitions can be friendly or hostile.

When large, incumbent firms buy startup companies, the transaction is generally described as a(n) _____.

A. joint venture

B. partnership

C. acquisition
D. alliance

C. acquisition

To position itself more strongly after the 2001 bursting of the Internet and tech stock bubble, Cisco Systems embarked on a(n) _____.

A. harvest strategy

B. acquisitions-led growth strategy

C. unrelated diversification strategy

D. exit strategy

B. acquisitions-led growth strategy

While Cisco Systems has been successful in selecting and buying both big and small technology ventures, HP had to write off some of its recent technology acquisitions. Which of the following statements best explains this scenario?

A.Cisco was successful due to its unrelated diversification, whereas HP failed by pursuing a related linked diversification strategy.

B. Cisco treated the management of the larger firms it took over more like acquisitions, whereas HP treated its acquisitions as strategic alliances.

C. The acquisitions were successful as the learning and experience curve effects were low.

D. Acquisition and integration capabilities were not equally distributed across firms.

D. Acquisition and integration capabilities were not equally distributed across firms.

Under CEO Robert Iger, Disney has followed an acquisition-led growth strategy. Which of the following was a result of this corporate strategy?

A. Disney attempted full integration with the subsidiaries it acquired after its merger with Pixar.

B. Disney’s revenue streams from its various activities became less predictable.

C. Disney became a less diversified company.

D. Disney compensated more easily for losses from flops.

D. Disney compensated more easily for losses from flops.

GreyWing Products Inc., a large conglomerate, took over a small startup company that had made some breakthrough innovations in the field of telecommunications. This purchase would help GreyWing Products to gain access to the startup company’s superior technology and human capital. This transaction is an example of a(n):

A. cartel.

B. affiliate leadership.

C. joint venture.

D. acquisition.

D. acquisition.

The managers at Movo Automobile Inc. want to diversify their business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Movo Automobile is most likely a result of:

A. time compression diseconomies.

B. experience-curve effects.

C. principal-agent problems.

D. resource ambiguity.

C. principal-agent problems.

FlyOne Airway’s decision to acquire TrueGear Fuels Inc. proved to be ill-fated because its managers had overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers’ capabilities were restricted to the airlines industry. What does this scenario best illustrate?

A. Managerial empathy

B. Managerial feasibility

C. Managerial hubris

D. Managerial capitalism

D. Managerial capitalism

____ is best described as a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.

A. Managerial hubris

B. Managerial myopia

C. Self-actualization
D. Self-efficacy

A. Managerial hubris

A _____ is best described as a voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services.

A. proprietorship

B. cooperative

C. strategic alliance
D. leveraged buyout

C. strategic alliance

Vibgyor Inc., a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its cell phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Vibgyor and the software company best referred to as in this scenario?

A. An acquisition
B. A strategic alliance
C. A leveraged buyout
D. A proprietorship

B. A strategic alliance

Which of the following statements is true of strategic alliances?

A. They are always focused on joining the same value chain activities.

B. They enable firms to achieve goals faster, but at higher costs.

C. They are known as strategic alliances whether or not they have the potential to affect a firm’s competitive advantage.

D. They are most beneficial when they join together resources and knowledge in a combination that obeys the VRIO principles.

D. They are most beneficial when they join together resources and knowledge in a combination that obeys the VRIO principles.

Which of the following is NOT a reason why firms enter alliances?

A. To replace competitive advantage with competitive parity

B. To strengthen competitive position

C. To enter new markets, either in terms of geography or products and services

D. To learn new capabilities

A. To replace competitive advantage with competitive parity

Why did Yahoo enter into a strategic alliance with Microsoft?

A. To pursue an unrelated diversification strategy

B. To overcome its competitive disadvantage in comparison to Google

C. To invest its excess cash flow in Microsoft’s superior technology

D. To share its continuously updated search technology with Microsoft

B. To overcome its competitive disadvantage in comparison to Google

When North Autos Inc. wanted to sell its cars in the country of Balvia, it lacked access to distribution channels and marketing expertise in the country. Thus, North Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner’s well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?

A. Increasing competitive intensity

B. Accessing critical complementary assets

C. Procuring additional capital investments

D. Reducing differentiation of product and service offerings

B. Accessing critical complementary assets

In a strategic alliance, the firm that learns faster:

A. has the tendency to lose its competitive advantage.

B. has the incentive to reduce its knowledge sharing.

C. has the tendency to move up a learning curve.

D. has the incentive to invest further in the alliance.

B. has the incentive to reduce its knowledge sharing.

With regard to New United Motor Manufacturing, Inc. (NUMMI), why did General Motors (GM)

enter into a strategic alliance with Toyota?

A. To transfer its knowledge of a completely new production system

B. To learn the lean manufacturing system pioneered by Toyota

C. To better understand the American work force
D. To get access to Toyota’s distribution system and marketing expertise

B. To learn the lean manufacturing system pioneered by Toyota

in the New United Motor Manufacturing, Inc. (NUMMI) joint venture, why did Toyota enter into a

strategic alliance with General Motors (GM)?

A. To access GM’s completely new production system

B. To learn and implement the just-in-time inventory system pioneered by GM

C. To learn how to implement its lean manufacturing program with an American work force

D. To access GM’s distribution system and marketing expertise

C. To learn how to implement its lean manufacturing program with an American work force

A strategic alliance has the potential to help a firm gain and sustain a competitive advantage when it joins together resources and knowledge that are:

A. less differentiated.

B. inexpensive to acquire.

C. common in the industry.

D. difficult to imitate.

D. difficult to imitate

Which of the following best illustrates a strategic alliance?

A. GD Group Inc., a large conglomerate, taking over a startup company against its will

B. Saturn Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines

C. Serene Apparel Inc. taking over one of its fabric suppliers in a less developed nation

D. The electronics subsidiary unit of East Goods Inc. deploying a few of its human resources to the automobile subsidiary of the company

B. Saturn Pharma Inc. teaming up with a research company to invent and market breakthrough vaccines

A _____ is best described as an approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time.

A. cost-leadership approach

B. break-even analysis

C. market risk framework

D. real-options perspective

D. real-options perspective

Fervana Autos Inc., a large automobile company, made an initial small investment in a startup company that was developing a solar-powered car. This gave Fervana Autos controlling interests in the startup company. However, Fervana Autos had no obligations to make continued investments in the experiments of the startup company. It could invest in small amounts depending on the new product’s success at each stage of its development. If the product proved to be successful, Fervana Autos would have the right to buyout the startup company. This approach to strategic alliance is referred to as _____.

A. a break-even analysis

B. a real-options perspective

C. credible commitment

D. transaction cost economics

B. a real-options perspective

In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup Genentech. In 2009, after witnessing the success of Genentech’s drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates _____.

A. the real-options perspective

B. co-opetition

C. explicit knowledge

D. the stakeholder strategy

A. the real-options perspective

How does taking a real-options perspective by entering strategic alliances help incumbent firms?

A.It helps the incumbent firms gain the confidence of the partnering company by making credible commitments.

B. It helps the incumbent firms reduce the value gap they create through their product and service offerings.

C.It allows the incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.

D. It reduces the incumbent firms’ cost of acquisition by enabling them to make the entire investment

decision in the beginning itself.

C.It allows the incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.

Which of the following statements is true of the real-options perspective?

A. The approach obligates the incumbent firm to make continued investments when demanded by its partner.

B. The approach allows the incumbent firm to obtain additional information at predetermined stages.

C. The approach fails to provide the incumbent firm a hedge against uncertainty.

D. The approach involves making large investments at the end of a project, irrespective of whether the project is successful or not.

B. The approach allows the incumbent firm to obtain additional information at predetermined stages.

_____ is best described as cooperation by competitors to achieve a strategic objective.

A. Limited liability

B. Proprietorship

C. Co-opetition

D. Commerce

C. Co-opetition

FR Pharmaceuticals Inc., BioCure Pharma Inc., and Regime Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with each other. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?

A. Takeover

B. Buyout

C. Co-opetition

D. Acquisition

C. Co-opetition

The local real estate companies in a city have joined together and arranged a "Property Fair." The expenses of the event will be shared equally by the sponsors. Though many companies compete against each other, they have joined together because the medium will help the companies market themselves through a dedicated forum at an extremely low cost. This arrangement is best referred to as:

A. co-opetition.

B. bootstrapping.

C. a cartel.

D. merging.

A. co-opetition.

A(n) _____ occurs when firms enter into a partnership based on contractual agreements, which results in vertical strategic alliances, that connect different parts of the industry value chain.

A. equity alliance

B. joint venture

C. non-equity alliance

D. greenfield venture

C. non-equity alliance

Supply, distribution, and licensing contractual agreements between firms, which result in vertical strategic alliances, are all examples of _____.

A. cartel arrangements

B. non-equity alliances

C. joint ventures

D. equity alliances

B. non-equity alliances

In a non-equity alliance, which of the following types of information would firms most likely share?

A. A manager’s knowledge related to solving non-routine problems

B. A top-level manager’s experience related to making strategic decisions

C. The documented information about the material composition of a product

D. The employees’ entrepreneurial skills

C. The documented information about the material composition of a product

Amiware Inc., a manufacturer of ceramic cookware, has entered into a contractual agreement with Micoware Inc. The agreement involves vertical strategic alliances connecting different parts of the industry value chain. This arrangement between the two companies best illustrates a(n) _____.

A. joint venture

B. acquisition

C. non-equity alliance

D. greenfield venture

C. non-equity alliance

Which of the following best illustrates a non-equity alliance?

A. A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component parts to Pristine Autos Inc.

B. An alliance between RedGate Systems Inc. and DB Computers Inc. that results in DB Gate Inc., an independent third company

C. A collusion between two competitors, RP Pharma Inc. and Vital Pharma Inc., to fix prices

D. An alliance that allows Virtue Insurance Inc. to claim 49 percent ownership in Mercury Finance Inc.

A. A contractual agreement that provides Motor Source Inc. non-exclusive rights to supply component

Which of the following is an advantage of non-equity alliances?

A. They produce strong ties between alliance partners as they are permanent in nature.

B. They are flexible and easy to initiate and terminate.

C. They facilitate the sharing of tacit knowledge between the alliance partners.

D. They are based on ownership rather than contracts.

B. They are flexible and easy to initiate and terminate.

Which of the following is an advantage of equity alliances when compared to non-equity alliances?

A. They are more flexible and easy to initiate and terminate.

B. They require smaller capital investments.

C. They produce stronger ties between partners.
D. They are based on contracts rather than ownership.

C. They produce stronger ties between partners.

Equity alliances are less common than non-equity alliances because they:

A. depend on contractual agreements.

B. produce weaker ties between partners.

C. fail to facilitate the transfer of tacit knowledge.

D. often require larger investments.

D. often require larger investments.

A non-equity alliance is the most common type of strategic alliance because:

A. it produces the strongest ties between alliance partners.

B. it is based on partial ownership.

C. it is easy to initiate and terminate.

D. it is least flexible.

C. it is easy to initiate and terminate

How was Wikipedia able to outperform both Encyclopedia Britannica and Microsoft Encarta?

A. By lowering its network effects

B. By launching an electronic encyclopedia that included a variety of entries

C. By leveraging first-mover advantages
D. By allowing any person, expert or novice, to generate and edit content

D. by allowing any person, expert or novice to generate and edit content

_____ is best described as a form of intellectual property that gives the inventor exclusive rights to benefit from commercializing a technology for a specified time period in exchange for public disclosure of the underlying idea.

A. patent

B. promissory note

C. franchise

D. royalty

A. Patent

When TrueHeal Pharma Inc. released a new drug to treat insomnia, its chemical composition was disclosed at the back of the drug’s cover. However, any attempts by competitors to copy the chemical composition would result in infringement of TrueHeal Pharma’s intellectual property rights. Thus, the drug is protected by a _____.

A. promissory bill

B. patent

C. franchise

D. royalty

B. patent

The typical four-step innovation process begins with:

A. the modification and recombination of an existing product or process.

B. the presentation of an idea as findings derived from basic research.

C. the commercialization of an invention by entrepreneurs.
D. a competitor’s attempt to imitate an innovation.

B. the presentation of an idea as findings derived from basic research.

The four-step innovation process ends with:

A. idea generation.
B. invention.
C. idea testing.
D, imitation

D. imitation.

Which of the following statements accurately describes social entrepreneurs?

A. Social entrepreneurs are individuals who invest in start-up businesses in order to earn huge returns.

B. Social entrepreneurs are individuals who rely primarily on social networking sites to generate revenues.

C. Social entrepreneurs are employees within organizations who are responsible for carrying out lean production.

D. Social entrepreneurs are those who consider financial, ecological, and social metrics to evaluate their firm’s performance.

D. Social entrepreneurs are those who consider financial, ecological, and social metrics to evaluate their firm’s performance.

Georgia Ray is the founder of the departmental stores chain, Ether Inc. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and manufactured from recycled material. Also, her company purchases handicrafts from non-profit organizations supporting the aged. Georgia’s belief is that her company should be able to support the community at large. Which of the following terms best describes Georgia Ray?

A. Headhunter

B. Category captain

C. Social entrepreneur

D. Trade creditor

C. Social entrepreneur

How has Apple been able to sustain its competitive advantage in the smartphone industry?

A. By reducing its network effects

B. By targeting its new products and services toward laggards

C. By driving the price for the end user to zero

D. By regularly introducing incremental improvements in its products

D. By regularly introducing incremental improvements in its products

FindFriend is an instant messaging application for smartphones. New smartphone users find it easier to connect with friends and relatives through this mobile app when compared to other similar instant messaging applications. Hence, it has the largest user base in the industry. Thus, FindFriend app’s value has increased primarily due to its _____.

A. learning curve effects

B. economies of scale

C. economies of scope

D. network effects

D. network effects

Which of the following has been a primary reason for increases in the Apple iPhone’s installed base?

A. The decision to enter into the smartphone market during the maturity stage

B. The cost-leadership strategy pursued by Apple

C. The availability of apps that led to network effects

D. The decision to target laggards, the most profitable customer segment

C. The availability of apps that led to network effects

Large companies, such as AT&T, IBM, and GE, have been shifting their knowledge landscape from closed innovation to open innovation because of the:

A. decreasing capability of external suppliers and vendors.

B. lack of reliability on venture capital.

C. increasing need to internally control research and development.

D. increasing supply and mobility of skilled workers.

?

Which of the following statements is true of firms pursuing a closed innovation?

A. Firms following the closed innovation model are less likely to be prone to the not-invented-here syndrome.

B. Firms in the closed innovation model are extremely protective of their intellectual property.

C. Firms in the closed innovation model focus on building a more effective business model to commercialize R&D, rather than focusing on being first to market.

D. Firms following the closed innovation model will find activities such as spin-out ventures or strategic alliances crucial to commercialize their internally developed R&D.

B. Firms in the closed innovation model are extremely protective of their intellectual property.

Which of the following statements accurately brings out the difference between closed innovation and
open innovation?

A. Firms following the open innovation model are much more likely to be prone to the not-invented here syndrome than firms pursuing a closed innovation model.

B. While open innovation focuses on building an effective business model to commercialize R&D, closed innovation focuses on being first to market.

C. Firms following the open innovation model are more protective about their intellectual property than firms pursuing a closed innovation model.

D. While open innovation means introducing new technologies to new markets, closed innovation refers to introducing new technologies to existing markets.

??

Which of the following is stated by the long tail phenomenon?

A.When production is increased by 80 percent, the decrease in cost is close to 20 percent due to economies of scale.

B. To gain a competitive advantage, it is necessary for a business to internalize 80 percent of its R&D, and outsource the remaining 20 percent.

C. For an incumbent firm, 80 percent of its revenue comes from existing customers, and new customers account for the remaining 20 percent.

D. Almost 80 percent of sales in a given product category come from only 20 percent of the offerings in that category.

??

The _____ business model is best described as one in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choices.

A. razor-razor-blade

B. freemium

C. pay-as-you-go

D. long tail

D. long tail

How has the long tail business model affected eBay as an online retailer?

A. It has increased the cost of the virtual shelf space.

B. It has allowed eBay to offer limited product selections to its customers.

C. It has helped overcome the problem of thin markets, at no cost to the buyer.
D. It has made eBay highly dependent on products found in the short head to generate revenues.

C. It has helped overcome the problem of thin markets, at no cost to the buyer.

A(n) _____ leverages new technologies to attack existing markets.

A. disruptive innovation

B. incremental innovation

C. radical innovation
D. architectural innovation

A. disruptive innovation

Which of the following statements is true of a disruptive innovation?

A. It begins as a low-cost solution to a new problem.

B. It initially performs better than the existing technology.

C. It involves leveraging existing technologies in new markets.

D. It invades the market from the bottom up, by first capturing the low end.

One factor favoring the success of disruptive innovation is that it relies on stealth attack: It invades the market from the bottom up, by first capturing the low end. Many times, incumbent firms fail to defend the low end of the market, because it is frequently a low-margin business.

D. It invades the market from the bottom up, by first capturing the low end.

s a start-up company, Virtue Mobiles Inc. entered the low end of the highly competitive cell phone industry with its low-cost smartphones. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartphones in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?

A. Radical innovation

B. Incremental innovation

C. Architectural innovation

D. Disruptive innovation

D. Disruptive innovation

When Japanese carmakers attacked the existing U.S. automobile market by first offering small fuel efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in _____.

A. regressive innovation

B. radical innovation

C. disruptive innovation

D. architectural innovation

C. disruptive innovation

Digital photography replacing film photography would be an example of a(n) _____.

A. regressive innovation

B. radical innovation

C. architectural innovation

D. disruptive innovation

D. disruptive innovation

Which of the following is true of a disruptive innovation?

A. It targets existing markets.

B. It initially provides high-cost solutions to existing problems.

C. It introduces a radical idea and creates a new industry.

D. It attacks the market through a top-down process.

A. It targets existing markets.

A factor favoring the success of disruptive innovation is that:

A. incumbent firms are slow to change.

B. new entrants have highly formal organizational structures and processes.

C. the low end of the market is highly guarded.

D. incumbent firms focus on radical innovation rather than incremental innovation.

A. incumbent firms are slow to change.

A firm’s resistance to changes in the status quo is referred to as _____.

A. organizational parity

B. organizational liquidity

C. organizational inertia

D. organizational efficacy

C. organizational inertia

The customers entering the market in the growth stage are primarily _____.

A. technology enthusiasts

B. laggards

C. early adopters

D. late majority

C. early adopters

Which of the following statements is true of laggards?

A. They make up the largest customer segment for any business.

B. They tend to enter the market frequently during the decline stage.

C. They do not like waiting too long for new technology to release.

D. They are customers who adopt a new product even if it is not necessary.

B. They tend to enter the market frequently during the decline stage.

While the personal computer industry is flooded and growing with laptops and tablets, John recently

bought a desktop, his first personal computer. He realized that a computer at home would be helpful

for his children for their school projects, and he could use it to maintain the simple accounts of his

plumbing business. Which of the following customer segments does John best represent?

A. Early adopters

B. Category captains

C. Laggards

D. Early majority

C. Laggards

Decisions relating to "what stages of the industry value chain to participate in" determine a firm’s:

A. level of diversification.

B. geographic scope.

C. vertical integration.

D. absorptive capacity.

C. vertical integration.

Which of the following stakeholders of a company would most likely be responsible for formulating a

corporate strategy?

A. The first-line employees

B. The creditors

C. The chief executive officer

D. The middle manager

C. The chief executive officer

Grace Apparel Inc. has decided to procure fabrics required for its garments from external suppliers instead of maintaining its own dyeing and weaving facilities. How will this decision affect the firm?

A. The firm will be protected against the principal-agent problem.

B. The firm’s administrative costs will be low because of necessary bureaucracy.

C. The firm will have more flexibility in purchasing and comparing prices of goods and services.

D. The firm will have high-powered incentives, such as hourly wages and salaries.

C. The firm will have more flexibility in purchasing and comparing prices of goods and services.

A drawback of short-term contracting as an alternative to making a component in-house is that:

A. it is the most-integrated alternative to performing an activity so the principal company has no

control over the agent.

B. the supplying firm has no incentive to make any transaction-specific investments to increase

performance or quality.

C. it fails to allow a long planning period that individual market transactions provide.

D. the buying firm cannot demand lower prices due to the lack of a competitive bidding process.

B. the supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.

Managers in a firm hired to improve the firm’s profitability and ultimately the shareholders’ value will add to the overall costs if they pursue their own self interests. What does this best illustrate?

A. Diseconomies of scale

B. Principal-agent problem

C. Experience-curve effects

D. Information asymmetries

B. Principal-agent problem

The most efficient way to overcome the principal-agent problem in a firm is to:

A. increase the level of vertical integration within the firm.

B. provide stock options to managers.

C. downsize the existing workforce.

D. organize economic activities within the firm.

B. provide stock options to managers

_____ is best described as a situation in which one party is more informed than another, because of the

possession of private information.

A. Information governance

B. Information asymmetry

C. Information deregulation

D. Information piracy

B. Information asymmetry

In the market for used cars, which of the following is a reason behind the crowding out of desirable cars by lemons or inferior ones?

A. Experience-curve effects

B. Time compression diseconomies

C. Principal-agent problem

D. Information asymmetry

D. Information asymmetry

Bill is in an interview for a sales job that requires no experience. He is trying to portray himself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Bill should be hired as a sales person in the company. However, in his resume, Bill had not mentioned his previous work experience as he was fired from that job on the account of using illegal drugs. Which of the following does this scenario best illustrate?

A. Information asymmetry

B. Principal-agent problem

C. Experience-curve effect
D. Learning-curve effect

A. Information asymmetry

When approaching a bank for a loan, the borrower has better knowledge than the lender about his or

her own ability to repay the loan without defaulting. What is this situation referred to as?

A. Principal-agent problem

B. Information asymmetry

C. Experience-curve effect

D. Learning-curve effect

B. Information asymmetry

_____ are best described as voluntary arrangements between firms that involve the sharing of

knowledge, resources, and capabilities with the intent of developing processes, products, or services to

lead to competitive advantage.

A. Embargos

B. Cartel agreements

C. Strategic alliances

D. Corporate acquisitions

C. Strategic alliances

. _____ is best described as a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.

A. Lean manufacturing

B. Licensing

C. Crowdsourcing

D. Bootlegging

B. Licensing

hitoro Inc. developed a superior touchscreen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Revox Inc., a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?

A. Licensing

B. Franchising

C. Crowdsourcing

D. Bootlegging

A. Licensing

BioGrow Pharma Inc. wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner’s confidence and to prove its involvement, BioGrow Pharma invested $100 million in the project. This investment made by BioGrow Pharma will result in a _____.

A. cartel

B. credible commitment

C. corrective action

D. parent-subsidiary relationship

B. credible commitment

When Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with an Australian company, Orocobre Ltd. Orocobre wanted to establish the bond of trust before making huge investments in specialized equipment required to extract the high-quality lithium. What did Toyota do to instill this trust?

A. It offered Orocobre exposure to Toyota’s proprietary information.

B. It made a credible commitment by taking an equity stake in Orocobre.

C. It acquired Orocobre as part of its backward vertical integration plans.

D. It offered Orocobre franchising opportunities to sell hybrid vehicles.

B. It made a credible commitment by taking an equity stake in Orocobre.

Strategic business units that have a relatively low market share but have the potential to grow are best

categorized under _____ in the Boston Consulting Group (BCG) growth-share matrix.

A. dogs

B. stars

C. cash cows

D. question marks

D. question marks

The solar-powered car division of a large automobile company has been experiencing negative cash flows though the market growth for such cars is predicted to be high. If the company invests further resources into this division, it can increase its relative market share in the future. However, if due to technological changes the car cannot create sufficient consumer demand, then the division can prove to be unprofitable. In the Boston Consulting Group (BCG) growth-share matrix, the solar-powered car division will be categorized under:

A. dogs.

B. question marks.

C. stars.

D. underdogs.

B. question marks.

The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growthshare matrix, the smartphone division of True Electra will be categorized under:

A. question marks.

B. stars.

C. cash cows.

D. dogs.

b. STARS

_____ are strategic business units that compete in a low-growth market but hold considerable market share.

A. Dogs

B. Question marks

C. Cash cows

D. Stars

C. Cash cows

DiskOne Inc. holds the highest market share in the low-growth compact disk industry. With the introduction of flash drives, the market for compact disks has reduced. However, DiskOne has been able to generate sufficient revenues for the parent company by selling its products in less developed countries. In the Boston Consulting Group (BCG) growth-share matrix, DiskOne will be categorized under:

A. dogs.

B. cash cows.

C. stars.

D. question marks.

B. cash cows.

TrueAutos Inc. is a large automobile company. The company’s petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?

A.The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.

B. The petrol cars SBU will have a relatively low market share in its industry, whereas the hybrid electric cars SBU will have the least market share in its industry.

C. The strategic recommendation for the hybrid electric cars SBU will be to harvest it, whereas for the

petrol cars SBU, the company should just maintain it.

D. The petrol cars SBU is more important than the hybrid electric cars SBU in terms of future growth for the company.

A.The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.

. _____ is best described as the process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully.

A. Reverse engineering

B. Restructuring

C. Rebooting

D. Reverse brainstorming

B. Restructuring

WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company’s key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in:

A. reverse engineering.

B. benchmarking.

C. restructuring.

D. crowdsourcing.

C. restructuring

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