SM-chapter 8 textbook

1. Which of the following best describes the purpose of corporate strategy?
   A. It focuses on improving operational efficiency within a single business unit
   B. It determines where the firm should compete across industries and markets
   C. It focuses on day-to-day management decisions
   D. It measures short-term profit margins

B. It determines where the firm should compete across industries and markets.

2. Why do firms pursue growth even after achieving market dominance?
   A. To satisfy managerial ego
   B. To increase efficiency, market power, and reduce risk through diversification
   C. To avoid government regulation
   D. To raise employee turnover

B

3. Which concept explains how producing more units lowers average cost per unit?
   A. Economies of scale
   B. Diseconomies of scope
   C. Learning curve disadvantage
   D. Price leadership

A

4. What is the main reason not all growth motives are valuable?
   A. Growth never increases profit
   B. Some motives, like empire building, benefit managers more than shareholders
   C. Growth always reduces efficiency
   D. Firms can never over-expand

B

5. Under transaction-cost economics, when should a firm “make” rather than “buy”?
   A. When market transactions are cheaper
   B. When in-house production costs are lower than market transaction costs
   C. When competitors outsource
   D. When demand is falling

B

6. Which issue can arise when managers act in their own interest instead of owners’?
   A. Opportunity cost problem
   B. Principal–agent problem
   C. Market-share conflict
   D. Financial leverage risk

B

7. What is taper integration?
   A. Using only in-house suppliers
   B. Combining internal production with external suppliers and distributors
   C. Fully outsourcing all value-chain activities
   D. Buying a competitor to gain scale

B

8. Which of the following is a benefit of vertical integration?
   A. Increased flexibility through market outsourcing
   B. Reduced control over quality
   C. Improved coordination and scheduling across the value chain
   D. Lower investment in specialized assets

C

9. Which statement about strategic outsourcing is correct?
   A. It increases a firm’s internal control
   B. It involves moving non-core activities outside the firm to specialized partners
   C. It eliminates transaction costs completely
   D. It prevents offshoring of labor

B

10. Which type of corporate diversification focuses on expanding product or service range?
    A. Product diversification
    B. Geographic diversification
    C. Horizontal integration
    D. Vertical integration

A

11. A firm that earns more than 95% of its revenue from one line of business follows which strategy?
    A. Dominant business
    B. Single business
    C. Related-linked diversification
    D. Conglomerate

B

12. Harley-Davidson, which earns about 80% of revenue from motorcycles and 20% from merchandise, is an example of:
    A. Single-business firm
    B. Dominant-business firm
    C. Related-linked firm
    D. Unrelated conglomerate

B

13. ExxonMobil acquiring XTO Energy to expand into natural gas is an example of:
    A. Related-constrained diversification
    B. Related-linked diversification
    C. Unrelated diversification
    D. Product-market diversification

A

14. Amazon expanding from books into AWS cloud services and streaming reflects:
    A. Related-linked diversification
    B. Single-business strategy
    C. Vertical disintegration
    D. Conglomerate expansion

A

15. Which type of diversification typically suffers a “conglomerate discount”?
    A. Related-linked
    B. Related-constrained
    C. Unrelated diversification
    D. Dominant business

C

16. What is a core competency?
    A. A routine administrative task
    B. A unique strength that creates value and provides competitive advantage
    C. A marketing expense
    D. A generic resource like office space

B

17. In the Core-Competence–Market Matrix, leveraging existing competencies in existing markets aims to:
    A. Improve the firm’s current market position
    B. Enter entirely new markets
    C. Build new competencies
    D. Replace old core assets

A

18. Redeploying existing competencies into new markets refers to:
    A. Building new skills
    B. Acquiring unrelated firms
    C. Applying current strengths to new opportunities
    D. Abandoning core capabilities

C

19. According to research, what level of diversification yields the best performance?
    A. Very low (single-business focus)
    B. Moderate related diversification
    C. Extremely high conglomerate diversification
    D. None of the above

B

20. What does the BCG Matrix help managers decide?
    A. How to minimize employee turnover
    B. How to allocate resources among business units based on growth and market share
    C. Which supplier contracts to renew
    D. How to set short-term prices

B

21. P&G’s decision to sell 100 brands and refocus on core ones illustrates:
    A. Over-diversification and refocusing on core competencies
    B. Geographic expansion
    C. Vertical integration
    D. Outsourcing

A

22. Coca-Cola’s investment in BodyArmor to compete with Gatorade is an example of:
    A. Unrelated diversification
    B. Related diversification
    C. Vertical integration
    D. Geographic expansion

B

23. How did Salesforce achieve growth beyond CRM software?
    A. By acquiring unrelated industrial firms
    B. By leveraging core cloud capabilities into collaboration and analytics tools
    C. By vertically integrating into hardware
    D. By cutting all R&D spending

B

24. Why does unrelated diversification often underperform?
    A. It limits economies of scope and creates coordination complexity
    B. It always involves unethical practices
    C. It focuses too much on one product
    D. It prevents risk sharing

A

25. What does the term “diversification discount” mean?
    A. Investors undervalue diversified firms compared to the sum of their parts
    B. Firms offer price discounts when entering new markets
    C. Consumers prefer single-brand products
    D. Diversified firms receive tax penalties

A

26. Why is Amazon’s strategy often described as both vertically integrated and diversified?
    A. It owns its logistics and data infrastructure while expanding into multiple industries like streaming and cloud computing
    B. It focuses only on retail efficiency
    C. It sells only through third-party channels
    D. It outsources all value-chain activities

A

27. How does Tesla use backward vertical integration to strengthen its competitive advantage?
    A. It outsources battery production to reduce risk
    B. It builds its own batteries and software systems to control quality and reduce costs
    C. It licenses its designs to competitors
    D. It focuses on unrelated product lines

B

28. Why did Coca-Cola form an equity alliance with Monster Energy instead of a full acquisition?
    A. To share ownership risks and gain market insight without full control
    B. To completely exit the beverage market
    C. To avoid competing with PepsiCo
    D. To reduce government regulation

A

29. How does Disney demonstrate related-linked diversification?
    A. Its businesses share core storytelling and branding capabilities across film, parks, and streaming
    B. It produces only animated films
    C. It invests only in unrelated tech companies
    D. It sells off its media units

A

30. Why did General Motors’ parent-subsidiary relationship with Opel and Vauxhall fail?
    A. Political conflicts and lack of coordination between U.S. and European managers increased transaction costs
    B. Opel and Vauxhall lacked any technical knowledge
    C. European markets had no growth potential
    D. GM refused to expand into China

A

31. What lesson does the GM case illustrate about high integration?
    A. Even the most integrated corporate relationships can face high internal transaction costs
    B. Integration always guarantees long-term profitability
    C. Decentralized subsidiaries never face political conflict
    D. Firms should always centralize decision-making

A

32. What was a key risk Coca-Cola faced when launching Coke Energy?
    A. The new drink violated an existing non-compete clause with Monster
    B. PepsiCo already owned all energy drink patents
    C. The product was unrelated to consumer health trends
    D. Coke Energy required no marketing investment

A

33. In the BCG Matrix, what strategy should a firm apply to an SBU labeled a “dog”?
    A. Invest heavily to gain market share
    B. Divest or harvest the unit to reallocate resources elsewhere
    C. Expand production capacity
    D. Merge it with a “cash cow” unit

B

34. Why do firms like Apple and Samsung maintain partial in-house production despite outsourcing globally?
    A. To protect intellectual property and maintain product quality control
    B. To reduce learning opportunities
    C. To lower brand reputation
    D. To increase dependence on suppliers

A

35. How does Salesforce’s acquisition of Slack reflect its corporate-level strategy?
    A. It leverages core cloud competencies to expand into collaboration software
    B. It represents unrelated diversification into consumer electronics
    C. It shifts Salesforce into manufacturing
    D. It reduces its focus on software entirely

A

36. If a company experiences repeated quality failures from suppliers, which governance choice is most appropriate?
    A. Outsourcing more activities
    B. Increasing backward vertical integration to internalize production
    C. Entering unrelated industries
    D. Eliminating its quality department

B

37. When a firm’s internal bureaucracy slows innovation and raises costs, what alternative could restore flexibility?
    A. Expanding vertical integration
    B. Outsourcing or using strategic alliances for non-core activities
    C. Acquiring competitors
    D. Increasing managerial layers

B

38. If two business units can share logistics, marketing, and R&D teams, what advantage are they gaining?
    A. Economies of scope
    B. Diseconomies of scale
    C. Market cannibalization
    D. Diversification discount

A

39. Suppose a firm owns suppliers and distributors but suffers from high overhead. What is the likely cause?
    A. Over-reliance on short-term contracts
    B. Excessive vertical integration increasing internal transaction costs
    C. Lack of control over production quality
    D. Limited managerial hierarchy

B

40. When diversification creates a valuation lower than the sum of a firm’s parts, what is occurring?
    A. Diversification premium
    B. Economies of scale
    C. Diversification discount
    D. Market saturation

C

41. A company moves production to a foreign partner with lower costs but later loses technical know-how. What did it experience?
    A. Strategic outsourcing risk through knowledge leakage
    B. Positive spillover innovation
    C. Core-competence reinforcement
    D. Backward integration

A

42. If Amazon began selling its delivery technology to other logistics firms, this would represent:
    A. Backward integration
    B. Forward integration
    C. Related diversification by leveraging an existing capability in a new market
    D. Unrelated diversification

C

43. Why might a firm use both in-house and third-party logistics simultaneously?
    A. To benchmark performance and retain flexibility under taper integration
    B. To increase dependence on suppliers
    C. To avoid learning from partners
    D. To eliminate economies of scale

A

44. When a firm builds new digital capabilities to enter future industries, which cell of the Core-Competence–Market Matrix is it pursuing?
    A. Leverage existing competencies in existing markets
    B. Build new competencies for existing markets
    C. Redeploy existing competencies into new markets
    D. Build new competencies for new markets

D

45. If P&G divested underperforming brands to focus resources on Tide and Pampers, what strategic goal was it pursuing?
    A. Reducing related diversification
    B. Strengthening core competencies and improving portfolio performance
    C. Increasing unrelated diversification
    D. Expanding geographic scope

B