AGEC 440 final: old questions, class/case discussions, and new material

Which of the following is NOT included in the concept of strategy?

a. strategy is a postulate or a theory of how to compete successfully

b. strategy is success oriented

c. strategy is an allocation of resources that maintains or improves firm performance

d. Strategy includes anticipating the competitive moves of a firm's opponents

e. A good strategy is one that addresses the needs of the market, even if the firm does not have the assets (i.e. strengths) to pursue them

E

Which of the following is NOT considered to be a distinctive characteristic of the Food and Agribusiness system?

a. Food is intertwined with culture, domestically and internationally

b. Uncertainty in the biological basis of crop and livestock production

c. Government intervention (i.e. subsidies and price supports)

d. The agribusiness system is driven by a large number of small scaled producerse. Public and private investment in Ag. Research

D

In the article titled King Bean, When CEO Howard Schultz was attending an International House wares show in Milan, he decided to take a stroll through the city in which he made the following statement: "All kinds of people gathered and chatted at the bars...Right then it struck me like a lightning rod: Why not bring the concept to America? This statement is an example of which of the following components of Mintzberg's model of strategy as a process.

a. Intended strategy

b. Deliberate strategy

c. Realized strategy

d. Emergent strategy

e. Unrealized strategy

D

In the article titled King bean, Howard Schultz' investment in a "world class roasting facility, computer information system, health insurance and stocks for his employess, are examples of which of the following components of Mintzberg's model of strategy as a process.

a. Intended strategy

b. Deliberate strategy

c. Realized strategy

d. Emergent strategy

e. Unrealized strategy

B

Which of the following best defines the concept of a competitive advantage?

a. Actions / resources that create value relative to competing firms

b. Actions / resource that generate positive economic value or profits

c. Products and services that yield better value than competing firms

d. Products and services that generate positive economic value or profits

e. all of the above

A

The article titled "McDonald's ban of beef reared with GM feed" is an example of which of the following concepts?

a. Consumer preferences based on limited information

b. Animal welfare

c. Consumer sovereignty

d. Rational consumer choice

e. A and C

E

Which of the following best defines a firm's performance?

a. Performance is based on the market's valuation of a firm's strategy

b. Performance rests upon the productive or value creation assets

c. Performance is measured by financial / accounting ratios.

d. Performance occurs only when a firm has a competitive advantage

B

The following is an example of the firm survival method:

a. A firm has earned 23.2% Return on Invest Capital (ROIC)

b. A firm was established since 1876

c. A firm's Tobin's q=1.8

d. A firm's cost of equity is 12%

e. None of the above

B

In using the firm survival method, a firm that is still operating is making

a. at least normal economic profits

b. below normal economic profits

c. strictly above normal economic profits

d. None of the above

A

Which of the following performance measures is NOT based on a firm's historical financial performance?

a. Return on invested Capital

b. Weighted average cost of capital

c. Tobin's q

d. Economic Profits

e. None of the above

C

In the article titled, 15$ wage, this is an example of which of the following approaches:.

a. Firm survival approach

b. Multiple stakeholder approach

c. Simple accounting method approach

d. Adjusted historical accounting approach

e. Event study approach

B

The weighted average cost of capital is used with which of the following measures

a. Tobin's q

b. Return on invested capital

c. Economic profits

d. B and C

e. Event study method

D

Identify from the following, factor(s) that are NOT considered a limitation in a SWOT analysis

a. difficult to rank or prioritize strengths and weaknesses (i.e. grocery list)

b. static approach

c. Opportunities or threats can vary depending on the perceptions of the user

d. illustrates the relationship between a firm and its environment

e. B and D

D

In the article titled "why you need to fail", the key message from this article is that success comes from

a. Leveraging your strengths to opportunities

b. Mitigating Threats to one's weakness

c. Finding strength in one's weakness

d. Avoiding failure

e. Doing a SWOT analysis

C

Industrial organization economics was a response to which of the following market conditions?

A. markets are increasingly competitive

B. markets are increasingly concentrated

C. markets are increasingly dynamic

D. markets are increasingly differentiated

E. markets are increasingly mature

B

The Industrial organizational economics approach explains the performance of

A. A subset of firms in an industry

B. An industry

C. A firm

D. A vertical or value chain of interconnected industries (i.e. farm to fork)

E. Firms that produce different products in an industry

B

Industry performance is defined by:

A. the assets and resources of a firm

B. Industry Price

C. a firm's competitive advantage

D. the success of an industry in producing benefits to consumers (and producers)

E. B and D

E

According to Porter, an industry is best defined by which of the following statements

A. an industry as the group of firms producing products that are similar or very close substitutes for each other

B. an industry as the group of firms producing products that are close complements for each other

C. an industry consisting of different firms who utilizes different inputs or resources

D. B and C

E. All of the above

A

A firm that decides to implement a prince is an example that best illustrates the following component of the S-C-P paradigm

A. basic conditions of the market

B. conduct

C. structure

D. performance

E. B and D

B

If there are increasing barriers to entry or a high cost of entering the market, the number of players in the market will

A. increase and thus driving up market prices

B. increase and thus reducing concentration

C. decrease and thus increasing concentration

D. no effect

E. A and D

C

The meat packing industry (pork and cattle) has experienced a trend of:

A. Decreasing concentration due to health concerns

B. Increasing concentration due to opportunities to exploit scale economies

C. Concentration remained unchanged due to immature markets

D. Increasing concentration due to opportunities to exploit scope economies or synergies

E. None of the above

B

The high concentration in the life science or input seed industry was due to the following reason(s):

A. A contraction in the seed market which led to an exit of input sector firm

B. Scale economies in the production of new seed varieties

C. Scope economies due to complementary assets between biotechnology seed and chemicals research

D. Consumers resistance to genetically modified grain products

E. All of the above

C

In the notes titled, "IO approach to Ag", which of the following best describes the "Conduct" of farmers

A. increasing reliance on markets prices for the coordination of production activities

B. increasing use of contracts

C. increasing use of contracts by smaller farmers to meet the needs of niche markets

D. Increasing use of contracts used by a large proportion of very large sized farmers

E. Increasing ability to set higher prices

D

In the case of Walmart (2005), one of the key challenges facing Wal-mart's entry into Japan is:

A. Japanese consumers equate low prices with cheap products

B. Implementation of Wal-mart's business model in to this foreign market

C. Incompatible corporate cultures between Wal-mart and Seiyu

D. Seiyu already has an efficient retail distribution system

E. None of the above

A

In the cases of Hardee Shake and BK breakfast sandwich, which of the following market structures best describes the fast food industry

A. perfect competition

B. monopolistic competition

C. Oligopoly

D. monopoly

E. none of the above

B

In SCP framework, an example of a Monopoly's Conduct is best explained by the following:

A. Competitive advantage

B. Single buyer

C. Single seller

D. Price setter

E. low performance

D

Agribusiness can be viewed as a number of __________ subsectors which work together ___________ and __________ to produce goods and services"

Interrelated; formally; informally

____________ is the over arching principle that impacts the agribusiness system.

Consumer Sovereignty

Given Consumer sovereignty, the efficient of the market can be improved (i.e. increases in consumer surplus and producer surplus), so long as the consumer has __________ information.

Perfect/complete

If a firm's historical performance is poor, yet has a very positive outlook (i.e. managers expect a growing market for their products), we would expect the firm's ROIC (return on invested capital) to be ___________ than its ___________. In addition, we would expect that its __________ is ___________ than _________.

Less; WACC; Tobins q; greater; 1

In accordance to the definition of competitive advantage, technically, a monopolist (e.g. public utility company)__________(does or does not) have a competitive advantage

Does not

As mergers and acquisitions lead to greater concentration, M&A, must, therefore, be anti-competitive. T/F

False

In class we discussed three laws that make up the Sherman act, provide a brief explanation for each of these laws

Prohibit conspiracies to deny market access or suppress competition- E.g. ADM price fixing

Prohibits use of predatory and/or exclusionary conduct to acquire or maintain a monopoly / monopsonist position- E.g. a food manufacturer that prevents a food retailer from stocking competing products so as to achieve a monopoly position

Prohibit Mergers and Acquisitions that lessen competition- E.g. In seed genetics industry Monsonta was to acquire Dekalb genetics which would have made Monsanto a dominant supplier of seed technology

Anti-trust is based on the following goal. Anti trust protects the _______ process and not the _________.

competitive;competitors

In the article titled Obama attacks the healthcare industry, the individual mandate requires that all U.S. citizens must purchase health care insurance. Is this mandate consistent with the goals of a perfectly competitive market, agree or disagree, explain. You need to think about competitive markets in terms beyond its market structure

Perfectly competitive market require assumption of No government intervention. Individual mandate violates this. But more fundamentally competitive market is based on voluntary exchange, that individuals have the freedom to buy and sell what they want. So He violates this.

Structure determines __________ and thus _________.

conduct;performance

The S-C-P approach has been an important framework for agribusiness and strategic management research. In this section, when writing down the equations, please express the variables in terms of their written variable names and not in terms of the notations or variables expressed in class. For instance, I commonly use the notation π to express the variable for profit. Instead. Just spell out the variable name as profit and write out in verbal terms all remaining variables names. (i.e. there is no equation editor in ecampus). More generally speaking, in writing out an equation, write it out in verbal form.a. In class, we identified two key equations to explaining an industry performance. Identify these equations and explain how the variables in each of these equations relate SPECIFICALLY to the RELEVANT elements of the S-C-P Framework

ηi=ηd x n + εo(n-1) P-MC/ P = 1/ ηi :Learner Index The variable N or number of players in

the first equation captures the Structure aspects of the S-C-P

Conduct is captured by the 2nd equation

Given question (19 a), identify those variables that captures the Basic conditions and explain those factors that would increase the size of these basic variables.

Basic variables

-nd

Market demand elasticity

-The greater the number of substitutes the more elastic this variable becomes and therefore leading to a large value.

E0 Supply elasticity of other players.

-The lower the fixed cost or alternatively the higher the variable cost, the greater is the size of this variable

In class we applied the SCP framework to "OPEC oil cut" case and found that a reduction of oil, is likely to generate a greater performance for the oil industry than the grain / ethanol industry. This prediction is based on a particularly strong assumption. Identify and explain what this assumption is (4)? Express this assumption mathematically also. Again, please write out the variable names in full when presenting this mathematical assumption (4) points)

The assumption is we assume firms are homogeneous or that they are ALL the same .Mathematically, this mean that each firm produces on average the same amount where q=Q/n (4)

Is this assumption in part (c) supported in the case (Yes or No) and provide "evidence" from the case to support this assumption.

No Evidence of this assumption of homogeneity. "Most of the cut would come from by Saudi Arabia, although most other OPEC members would also pare their output."

In class, we showed that the price spread margin in the meat packing industry was declining over a period of increasing concentration. Does this price trend support the prediction of SCP (yes or no) and please explain.

No, It does not because SCP predicts that a rising concentration or reduction in the number of players, n, will lead to a larger Lerner index. The price spread statistic is proxy measure for the Lerner index and thus the declining trend does not support the predictions of SCP.

The essence of strategy relates to seeking _______ normal economic returns.

Above

Competitive advantage yields ______ normal economic returns

Above

S-C-P approach traditionally employed to _______ attainment of ________ market conditions

Facilitate;Competitive

$15 wage case

causes fast food companies to develop robots which will be cheaper than paying employees 15/hr.

-are robots valuable? removal of labor costs is value also less employees means less work conflict, no health payments, no over time, so now you can stay open longer but moral considerations of firing people and less people working in the economy. kiosks neutralize threat of higher wage but ex: automation of booking flights eliminated travel agencies. also people view their purpose in their careers

mine worker article

temporary above Economic performance attained if resources are valuable AND rare

ex: mine worker article-big demand for mining bc no one wants to do it.

-resource=human capital so he is a resource for the company.

-is he valuable? value is exploiting opportunities/neutralizing threats. he mines materials that are used in contraction in china so he addresses the opportunity to build in china.

-is he rare? not hard to be college drop out but rare=how many so since there is an excess demand he is rare.

-since he is rare and valuable you expect good performance, but Chinese house market not very sustainable so his mining job might not be sustainable in long run

shark tank t-pee

no other product like it=rare

save water=value

patent=costly to imitate

but he's asking for external funds so he's losing control and some ability to innovate

5 forces analysis of sweet jam industry-identify key threats

-threat of entry is driven by above normal return. Probably don't have high returns, also grandma can make jam so cost is low so threat of entry is not a true threat

-threat of supplier power: this is not big threat since so many fruit producers means low concentration and highly competitive so threat of supplier is not true threat

-threat of substitutes: price impacts substitutes. the low sugar jams are more expensive so this is not necessarily a threat since the price is high, its about price of substitutes not number of them.

-threat of rivalry: identical products. advertising decreased by 76% which means products are very similar bc you only advertise if your product is different, slow industry growth is something that means high rivalry. both of these show high rivalry so this is key threat

-threat of buyer power: producers are fighting for shelf space bc retail industry is very concentrated which makes buyer power a key threat

online education example

on site is mature in growth cycle so they have more competitors, online has less rivals than on site, on site growth is less than online growth so on site has a higher threat of rivalry. if you want to make online a threat you have to drive down the price of online. if you want to create an incentive for professors to want to do online then pay them more. online has more growth so threat of entry is bigger also because there are less barriers to entry-you don't have to build buildings etc. but part of the learning process is in class discussion

Business Approach to SCP

strategy perspective turns SCP upside down and seeks ways to make industry less competitive

What are Porter's Five Forces?

based on SCP framework to assess environmental threats or competitive market conditions

Purpose of Porter's Five Forces

-develop strategies to neutralize threats so as to seek competitive advantage

-assist firm manager's a framework to analyze environmental threats

Porter's 5 Forces

threat of entry

threat of suppliers

threat of buyers

threat of substitutes

threat of rivalry

Threat of Entry

New entrants motivated to enter and compete due to above normal economic profits earned by existing firms

- Increases industry competition - Reduced performance of incumbent firms

-Performance tends to competitive levels

POTENTIAL RIVALS

Barriers to Entry

cost of entry by new firms relative to firms already in the market

- high cost detours entry

- determines sustainability of above normal economic profits

-protects incumbent firm's profits

8 ENTRY BARRIERS

economies of scale

capital requirement

access to distribution

Product differentiation / brand identity

natural cost advantages

learning curve

access to necessary inputs

government policy

Barriers toEntry: economies of scale

- High cost of fixed investment

- Fixed demand and high market share of incumbents

-forces entrance at sub-optimal scale → Higher cost to new entrant

Barriers toEntry: product differentiation

- Incumbents have brand identity and customer loyalty

-New entrants face higher advertising costs to change consumer behavior

-e.g. U.S. Brewing Industry (Budweiser)

Barriers to Entry: natural cost advantage

Independent of scale economies

- Entrants face cost disadvantage relative to incumbent

Barriers to Entry: government policy

- Import Tariffs

- Supply management (Quota allocation schemes)

- Environmental regulation

- Licenses (e.g. fishing, forestry)

Threat of Rivalry

-the intensity of competition among a firm's direct competitors ONLY compete on price

-threatens firms by reducing economic profits

Factors Affecting Rivalry

-Large numbers of competing firms

- Approximates conditions of perfect competition

-Slow industry growth

-Lack of product differentiation --Competition based on price

-Productive capacity is in large increments

Threat of Substitutes

Substitutes places ceiling on prices in an industry

Reduces profit potential for an industry

3 Factors Affecting Threat ofSubstitute

-Relative price of substitutes porter says this affects threat of substitutes more than the number of substitutes

-Switching costs

-Buyer propensity to substitute

Threat of Supplier

Input supplier can charge above normal economic prices to industry

Reduces industry performance

5 Factors Affecting Threat ofSupplier

-Supplier concentration is high

-Threat of vertical integration

-Suppliers' product is important to quality

-Suppliers' product is differentiated

-Industry is not a major customer for suppliers

Threat of Buyer

Reduces industry revenue via reduced prices

Factors Affecting Threat of Buyer

-Buyer concentration is high

-Industry Product is undifferentiated

-Switching costs are low

-Represents significant buyer costs

-Threat of "upstream" integration• -Buyers are economically stressed

-Product is not important to buyer's product

-Industry unable to raise prices

3 generic strategies for creating a competitive advantage

Cost leadership: Be the lowest cost producer -> Charge a low price

Differentiation: Produce a differentiated or innovative product where there are minimal substitutes (reduces competition) -> charge a high price

Focus: To specialize to a target market that may be geographical, age, income segments of the market.

Don't be stuck in the middle only pick 1 of the 3 ex: a differentiated walmart would be a paradox bc you can't have cheap & fancy it contradicts each other

Task Environment

focus of the 5 forces

industry analysis based on industrial organization economic (SCP)

Remote Environment

economic, social, political, technological factors that originate beyond, and usually irrespective of, any single firm's operating situation

Sociocultural Trends

a set of beliefs shared by one social group ex: free speech in US, ex: constitution week at tamu, ex: letter from young about alt right group

Technological Trends

for tech companies freedom of speech is good bc it means more posts, more $

Government/ Regulatory Trends

if govt gets involved in moral issues ex: climate change then according to friedman, thats using force-you can't force someone to be a good person the essence of morality is not forced

Economic Trends

there would be a loss of social welfare because less creativity, innovation, etc. = less business

Some Issues with First Mover Advantage

-First-mover advantage: Introduction of new technology alters and determines industry cost structure (rules of the game) ex: walmart was first to adopt RFID but they weren't the only ones bc now everyone uses it

-Patent protection is limited:- 60% of all patents are imitated with in 4 years•

-Second movers can "imitate" product without violation at 65% of first mover costs so second mover waits until patent is up then makes the process better so costs decrease. patent protection not high outside of US

-Free rider problem: creating an entry barrier via patent can therefore be difficult

weaknesses of SWOT

does not rank strengths and weaknesses

RBV assumptions

- Resources are heterogeneous "heterogeneity in use"

-Resources immobility: resources costly to imitate or acquire

Resource types from least to most heterogenous

-Financial capital:capital from entrepreneur's (VC), equity holders, banks, retained earnings ex: shark tank financing company.

-Physical capital:Meat slaughtering plant, farm land, equipment, geographical location (urban vs. rural), access to raw materials

-Human capital:management and employee knowledge, training, experiences etc.

-Organizational capital: culture, reputation(trust)

VRIO Question Framework

• Purpose: Uses a series of 4 questions to determine whether a firm's resources are a strength or a weakness Competitive advantage

Question of Value

- Resources are valuable (increased performance) if they exploit opportunities or neutralize threats

Question of Rarity

-How many competing firms already possess a particular valuable resource?

- Valuable but common resources (not rare) generate only normal performance

- Determining rarity: Limited number of competitors with similar resources, resource is unique (heterogeneous)

- temporary above Economic performance attained if resources are valuable AND rare: mine worker article

Question of Imitability

-How costly would it be for a second mover to imitate this?

-Value and rare resources can be a source of sustained competitive advantage so long as the resource is not imitable at a low cost

Question of Organization

-3 dimensions of firm organization

1. formal reporting structure

2. Information systems

3. Management Compensation

Causal Ambiguity

imitating firms may not understand which resources contribute to a firm's competitive advantage. it takes a lot of time/$ to figure out what the competitive advantage is

- Limited information and knowledge of Managers

- Managers have multiple hypothesis about resources that generate competitive advantage

- Firms may utilize many resources and they have to be combined in a certain way.

- Increased causal ambiguity reduces imitative efforts

Social Complexity

increases the cost of imitation. deals with human relationships

Forms of Strategic Information

- Direct duplication: Relative cost of duplication• If cost of duplicating resources (imitating firm) < the cost of resources held by competitive advantage firms imitation

-Strategic substitution: firms may substitute other resources for a costly to imitate resources held by a firm with a competitive advantage

Impact on Sustainable Performance With rare and valuable resources

-If resources are (not) -costly- to imitate and substitutes are (available) -unavailable- in relative cost terms then only (temporary) -sustained- above normal economic performance can be achieved

-in reality resources are costly

Limitations of RBV

-Sustainable performance dependent on stability of environment. Most useful in stable environments

-Competitive value not solely attributed to resources internal to the firm

-it is based on existing resources-cannot be used to evaluate start up bc they have no resources