Q&A Hero

Q: Diversifying into new businesses can be considered a success only if it A. results in increased profit margins and bigger total profits. B. builds shareholder value. C. helps a company escape the rigors of competition in its present business. D. leads to the development of a greater variety of distinctive competencies and competitive capabilities. E. helps the company overcome the barriers to entering additional foreign markets.

Q: Diversification ought to be considered when a A. company's profits are being squeezed, and it needs to increase its net profit margins and return on investment. B. company lacks sustainable competitive advantage in its present business. C. company begins to encounter diminishing growth prospects in its mainstay business. D. company has run out of ways to achieve a distinctive competence in its present business. E. company is under the gun to create a more attractive and cost-efficient value chain.

Q: Diversification merits strong consideration whenever a single-business company A. has integrated backward and forward as far as it can. B. faces diminishing market opportunities and stagnating sales in its principal business. C. has achieved industry leadership in its main line of business. D. encounters declining profits in its mainstay business. E. faces strong competition and is struggling to earn a good profit.

Q: Which one of the following is not one of the elements of crafting corporate strategy for a diversified company? A. picking new industries to enter and deciding on the means of entry B. choosing the appropriate value chain for each business the company has entered C. pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage D. steering corporate resources into the most attractive business units E. initiating actions to boost the combined performance of the businesses the firm has entered

Q: The task of crafting corporate strategy for a diversified company encompasses A. picking the new industries to enter and deciding on the means of entry. B. initiating actions to boost the combined performance of the businesses the firm has entered. C. pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage. D. steering corporate resources into the most attractive business units. E. All of these choices are correct.

Q: Under what circumstances might an already diversified company choose to pursue corporate restructuring:

Q: Under what circumstances might a diversified firm choose to divest one or more of its businesses?

Q: Under what circumstances might an already diversified company chose to enter additional businesses and broaden its diversification base?

Q: What are the four main strategic alternatives a diversified company can employ to improve the performance of its overall business lineup?

Q: What factors should management consider when ranking business units and setting a priority for resource allocation?

Q: Explain the difference between a cash cow business and a cash hog business.

Q: What is meant by the term resource fit as it applies to evaluating a diversified company's business lineup?

Q: Briefly explain the Nine-Cell Industry Attractiveness-Competitive Strength Matrix and interpret how a weak performing business unit would be depicted in the matrix.

Q: Briefly explain the relevance of quantitatively measuring the competitive strength of each business in a diversified company's business portfolio and determining which business units are strongest and weakest.

Q: What does the industry attractiveness test involve in evaluating a diversified company's business lineup? Why is it relevant?

Q: Identify and briefly describe the six steps involved in evaluating a diversified company's business lineup and diversification strategy.

Q: Discuss the pros and cons of a strategy of unrelated diversification.

Q: Identify and explain the meaning and strategic significance of each of the following terms:a. related diversificationb. strategic fitc. economies of scoped. retrenchinge. unrelated diversification

Q: What is meant by the term strategic fit? What are the advantages of pursuing strategic fit in choosing which industries to diversify into?

Q: Carefully explain the difference between a strategy of related diversification and a strategy of unrelated diversification.

Q: Identify and briefly discuss each of the three options for entering new businesses. Which one is the most popular in the sense of being used most frequently? For what reasons?

Q: Identify and briefly discuss each of the three tests for determining whether diversification into a new business is likely to build shareholder value.

Q: Briefly discuss when it makes good strategic sense for a company to consider diversification.A

Q: Conditions that may make corporate restructuring strategies appealing includeA. an excessive debt burden with interest costs that eat deeply into profitability.B. a business lineup that consists of too many businesses competing in slow-growth, declining, or low-margin industries.C. a lineup containing too many competitively weak businesses.D. ill-chosen acquisitions that haven't lived up to expectations.E. All of these choices are correct.

Q: Corporate restructuring strategies A. involve making radical changes in a diversified company's business lineup, divesting some businesses, and acquiring new ones so as to put a new face on the company's business lineup. B. entail reducing the scope of diversification to a smaller number of businesses. C. entail selling off marginal businesses to free resources for redeployment to the remaining businesses. D. focus on crafting initiatives to restore a diversified company's money-losing businesses to profitability. E. focus on broadening the scope of diversification to include a larger number of businesses and boost the company's growth and profitability.

Q: Divestiture can be accomplished by A. selling a business outright. B. spinning the unwanted business off as a managerially and financially independent company by selling shares to the investing public via an initial public offering of stock. C. spinning the unwanted business off as a managerially and financially independent company by distributing shares in the new company to existing shareholders of the parent company. D. spinning the unwanted business off as a financially and managerially independent company. E. All of these choices are correct.

Q: In which of the following instances is retrenching to a narrower diversification base not likely to be an attractive or advisable strategy for a diversified company? A. when a diversified company has businesses that are weakly positioned in their respective industries and are struggling to earn a decent return on investment B. when a diversified company has too many cash cows C. when one or more businesses are cash hogs with questionable long-term potential D. when businesses in once-attractive industries have badly deteriorated E. when a diversified company has businesses that have little or no strategic or resource fits with the "core" businesses that management wishes to concentrate on

Q: Retrenching to a narrower diversification base A. is usually the most attractive long-run strategy for a broadly diversified company confronted with recession, high interest rates, mounting competitive pressures in several of its businesses, and sluggish growth. B. is directed at improving long-term performance by building stronger positions in a smaller number of core businesses. C. is an attractive strategy option for revamping a diverse business lineup that lacks strong cross-business financial fit. D. is sometimes an attractive option for deepening a diversified company's technological expertise and supporting a faster rate of product innovation. E. is a strategy best reserved for companies in poor financial shape.

Q: A company that is already diversified may choose to broaden its business base by building positions in new related or unrelated businesses because A. it has resources or capabilities that are eminently transferable to other related or complementary businesses. B. the company's growth is sluggish, and it needs the sales and profit boost that a new business can provide. C. management wants to lessen the company's vulnerability to seasonal or recessionary influences. D. unfavorable driving forces face the company's core business. E. All of these choices are correct.

Q: The option of sticking with the current business lineup makes sense when A. the company's present businesses offer attractive growth opportunities and can be counted on to generate good earnings and cash flows for shareholders. B. companies are seeking multinational diversification. C. corporate executives are excited about market opportunities. D. corporate executives are satisfied with current performance of each of their businesses and can use redirect capabilities and resources for expansion opportunities. E. corporate executives want to divest some businesses and retrench to a narrower diversification base.

Q: Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed, which one of the following is not one of the main strategy options that a company can pursue?A. Stick closely with the existing business lineup.B. Restructure the company's business lineup.C. Craft new initiatives to build or enhance the company's reputation.D. Divest some businesses and retrench to a narrower diversification base.E. Broaden the diversification base.

Q: The strategic options to improve a diversified company's overall performance do not include which of the following categories of actions? A. broadening the company's business scope by making new acquisitions in new industries B. increasing dividend payments to shareholders and/or repurchasing shares of the company's stock C. restructuring the company's business lineup and putting a whole new face on the company's business makeup D. sticking closely with the existing business lineup and pursuing opportunities these businesses present E. divesting weak-performing businesses and retrenching to a narrower base of business operations

Q: Moves to improve a diversified company's overall performance include A. broadening the company's business scope by making new acquisitions in new industries. B. divesting weak-performing businesses and retrenching to a narrower base of business operations. C. restructuring the company's business lineup and putting a whole new face on the company's business makeup. D. sticking closely to the existing business lineup and pursuing the growth opportunities presented by these businesses. E. All of these choices are correct.

Q: Which one of the following is not a reasonable option for deploying a diversified company's financial resources? A. making acquisitions to establish positions in new businesses or to complement existing businesses B. concentrating most of a company's financial resources in cash cow businesses and allocating little or no additional resources to cash hog businesses until they show enough strength to generate positive cash flows C. funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses D. paying down existing debt, increasing dividends, or repurchasing shares of the company's stock E. investing in ways to strengthen or grow existing businesses

Q: The options for allocating a diversified company's financial resources include A. making acquisitions to establish positions in new businesses or to complement existing businesses. B. investing in ways to strengthen or grow existing businesses. C. funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses. D. paying off existing debt, increasing dividends, building cash reserves, or repurchasing shares of the company's stock. E. All of these choices are correct.

Q: Management's ranking of business units and establishing a priority for resource allocation should A. utilize activity-based costing and benchmarking to determine the funding needs of each business unit. B. first consider the strength of funding proposals presented by managers of each division or business unit. C. give priority for funding to cash-hog businesses. D. put business units with the brightest profit and growth prospects and solid strategic and resource fits at the top of the investment priority list. E. always make the company's business units with strong resource strengths and competitive capabilities the central focus of funding initiatives.

Q: Conclusions about what the priorities should be for allocating resources to the various businesses of a diversified company need to be based on such considerations as A. each business's profit and growth prospects. B. industry attractiveness and competitive strength of the various businesses. C. the degree of strategic fit and resource fit with other business units. D. each business's cash flow characteristics and return on capital invested. E. All of these choices are correct.

Q: A diversified company's business units exhibit good financial resource fit when A. each business is a cash cow. B. a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall strengths. C. each business is sufficiently profitable to generate an attractive return on invested capital. D. each business unit produces large internal cash flows over and above what is needed to build and maintain the business. E. the resource requirements of each business exactly match the company's available resources.

Q: Which one of the following is not a rationale for retaining a cash hog business in a diversified company's portfolio? A. Capital infusions needed from the corporate parent are modest relative to the funds available. B. There is a decent chance of growing the business into a solid bottom-line contributor. C. The business is in an industry with low attractiveness and has a weak competitive position in that industry. D. There is a better than even chance that investing in the cash hog will result in it becoming a star business with a strong or market-leading competitive position in a high growth market and high levels of profitability. E. The cash hog has a valuable strategic fit with other business units.

Q: A diversified company has a good financial fit when the excess cash generated by its A. cash cow businesses is sufficient to fund the needs of its cash hog businesses. B. cash cow businesses is sufficient to fund its needs to turn into potential young stars. C. self-supporting stars use their cash flow to fund cash cows. D. cash hog businesses is sufficient to fund the needs of its cash cow businesses. E. potential young stars is sufficient to help stars.

Q: The difference between a cash cow business and a cash hog business is that a cash cow business A. is making money, whereas a cash hog business is losing money. B. generates enough profits to pay off long-term debt, whereas a cash hog business does not. C. generates positive retained earnings, whereas a cash hog business produces negative retained earnings. D. produces large internal cash flows over and above what is needed to build and maintain the business, whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements. E. generates very large increases in sales revenues, whereas a cash hog business has declining sales revenues and chronic deficiencies of working capital.

Q: A cash hog type of business A. is one that is losing money and requires cash infusions from its corporate parent to continue operations. B. generates cash flows that are too small to fully fund its operations and growth, and so must receive cash infusions from outside sources to cover working capital and investment requirements. C. generates negative cash flows from internal operations and thus requires cash infusions from its corporate parent to report a profit. D. is a business growing so rapidly that it does not have the funds to cover its short- and long-term debt obligations. E. is one that has more current liabilities than current assets and faces a liquidity crisis due to declining sales revenues and declining profitability.

Q: A cash cow type of business A. generates unusually high profits and returns on equity investment. B. is so profitable that it has no long-term debt. C. generates positive cash flows over and above its internal requirements, thus providing a corporate parent with cash flows that can be used for financing new acquisitions, investing in cash hog businesses, funding share buyback programs, and/or paying dividends. D. is a business with such a strong competitive advantage that it generates big profits, big returns on investment, and big cash surpluses after dividends are paid. E. has good strategic fit with a cash hog business.

Q: One important dimension of resource fit concerns the potential to generate internal cash flows sufficient to fund capital requirements of its business lineup, termed the firm's A. internal capital market. B. debt policy management. C. liquidity management. D. economic value added. E. All of these choices are correct.

Q: List and discuss three strategy options for competing in emerging markets.

Q: Explain the importance of competing in emerging markets.

Q: Under what circumstances is it advantageous for a company competing in foreign markets to disperse certain internal processes across many countries?

Q: Explain under what circumstances it becomes necessary for a multinational company to concentrate internal processes in a few locations.

Q: Identify and briefly explain two ways that multinational companies are able to use international operations to improve overall competitiveness.

Q: Explain the differences between a think global, act global strategy and a think global, act local strategy.

Q: When is a global strategy "superior" to a multidomestic strategy?

Q: What circumstances call for use of a multidomestic strategy for competing in international markets?

Q: Discuss in some detail the difference between a localized multidomestic strategy and a global strategy, and give the pros and cons of each.

Q: What are the possible benefits and risks of using strategic alliances to try to enhance a company's ability to compete in foreign markets?

Q: Briefly discuss why a domestic company desirous of entering foreign markets might see attractive advantages in forming strategic alliances with foreign companies.

Q: Identify and briefly describe any three of the five strategic options for entering foreign markets.

Q: What are the primary country differences that shape strategy choices in international markets?

Q: Briefly identify the major reasons a company may choose to expand outside its domestic market.

Q: Which of the following is not a strategic option companies should consider in tailoring their strategy to fit circumstances of emerging country markets?A. Try to change the local market to better match the way the company does business elsewhere.B. Be prepared to modify aspects of the company's business model to accommodate local circumstances.C. Prepare to compete on the basis of low price.D. Enter only those emerging markets that provide profit sanctuaries by offering opportunities for offensive strategies, such as preemptive strikes.E. All of these choices are correct.

Q: One of the most viable strategic options companies should consider in tailoring their strategy to fit circumstances of emerging country markets includes A. try to change the local market to better match the way the company does business elsewhere. B. be prepared to modify aspects of the company's business model to accommodate local circumstances. C. prepare to compete on the basis of low price. D. stay away from those emerging markets where it is impractical to modify the company's business model to accommodate local circumstances. E. All of these choices are correct.

Q: Which of the following is not a typical option that companies have to consider to tailor their strategy to fit the circumstances of emerging country markets? A. Prepare to compete on the basis of low price. B. Be prepared to modify aspects of the company's business model to accommodate local circumstances (but not so much that the company loses the advantage of global scale and global branding). C. Try to change the local market to better match the way the company does business elsewhere. D. Develop a strategy for the short-term and forget about a long-term strategy because conditions in emerging country markets change so rapidly. E. Stay away from those emerging markets where it is impractical or uneconomic to modify the company's business model to accommodate local circumstances.

Q: Companies racing for global market leadership A. generally have to consider establishing competitive positions in the markets of emerging countries. B. are well advised to avoid all the risks and problems of competing in emerging country markets. C. seldom have the resource capabilities it takes to be effective in competing in emerging country markets and usually are at a strong competitive disadvantage compared to the domestic market leaders. D. can usually be expected to earn sizable profits quickly in emerging country markets. E. usually encounter very low barriers in entering the markets of emerging countries.

Q: The ability of a multinational or global competitor to shift production from country to country to take advantage of exchange rate fluctuations, energy costs, wage rates, or changes in tariffs is an example of A. a profit sanctuary. B. cross-border coordination. C. an international strategic alliance. D. cross-market subsidization. E. cross-market differences in cultural, demographic, and market conditions.

Q: Cross-border coordination contributes to a competitive advantage for a global competitor by A. allowing production to be shifted from country to country to take advantage of exchange rate fluctuations, energy costs, wage rates, or changes in tariffs and quotas. B. allowing knowledge gained in one location to be transferred to operations in other countries. C. shifting workloads from where they are unusually heavy to locations where personnel are underutilized. D. accelerating product development and enhancing innovation by globally linking and coordinating the scattered R&D departments of a multinational company. E. All of these choices are correct.

Q: Dispersing particular value chain activities across many countries rather than concentrating them in a select few countries can be more advantageous when A. buyer-related activities (such as sales, advertising, after-sale service and technical assistance) need to take place close to buyers. B. high transportation costs make it uneconomical to operate from one or just a few locations. C. it helps hedge against the risks of exchange rate fluctuations, supply disruptions, and adverse political developments. D. there are diseconomies of scale in trying to operate from a single location. E. All of these choices are correct.

Q: Dispersing the performance of value chain activities to many different countries rather than concentrating them in a few country locations tends to be advantageous A. when high transportation costs make it expensive to operate from central locations. B. whenever buyer-related activities are best performed in locations close to buyers. C. when diseconomies of large size exist, thereby making it more economical to perform an activity on a smaller scale in several different locations. D. when it is desirable to hedge against (1) the risks of fluctuating exchange rates (such risks are greater when activities are concentrated in a single location); (2) supply interruptions (due to strikes, mechanical failures, or transportation delays); or (3) adverse political developments. E. All of these choices are correct.

Q: In which of the following circumstances is it not advantageous for a multinational competitor to concentrate its activities in a limited number of locations in order to build competitive advantage? A. When the costs of performing certain value chain activities are significantly lower in certain geographic locations than in others B. When a company has competitively superior patented technology that it can license to foreign partners C. When there is a steep learning or experience curve associated with performing an activity in a single location D. When certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages E. When there are significant scale economies in performing the activity

Q: In competing in foreign markets, companies find it advantageous to concentrate their activities in a limited number of locations when A. there are significant scale economies in performing an activity. B. the costs of manufacturing or other activities are significantly lower in some geographic locations than in others. C. there is a steep learning or experience curve associated with performing an activity in a single location (thus making it economical to serve the whole world market from just one or maybe a few locations). D. certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages. E. All of these choices are correct.

Q: To use location to build competitive advantage when competing in both domestic and foreign markets, a company must A. scatter its production plants across many different country markets so as to minimize the costs of shipping to its own distribution centers and/or wholesalers/retail dealers. B. consider (1) whether to concentrate each activity it performs in a few select countries or to disperse performance of the activity to many nations and (2) in which countries to locate particular activities. C. concentrate buyer-related activities in a few well-chosen locations so as to maximize the capture of distribution-related scale economies. D. disperse both production and distribution activities across many nations in order to hedge against fluctuating exchange rates and lessen the risks of adverse political developments. E. avoid selling in countries where there are high trade barriers or where buyers purchase in small quantities.

Q: To use location to build competitive advantage, a company that operates multinationally or globally must A. employ either an export strategy or a franchising strategy. B. scatter its production plants across many countries in different parts of the world so as to minimize transportation costs. C. consider (1) whether to concentrate each activity it performs in a few select countries or disperse performance of the activity to many nations and (2) in which countries to locate particular activities. D. locate production plants in those countries having suppliers that can supply all the necessary raw materials and components so as to avoid inbound shipping costs. E. concentrate all of its value chain activities in a single countrythe one that has the best combination of low wage rates, low shipping costs, and low tax rates on profits.

Q: When expanding outside its domestic market, a company can gain competitive advantage by A. not pursuing costly efforts to build multiple profit sanctuaries. B. deliberately choosing not to compete in countries with high tariffs and high taxes (which then have to be passed along to buyers in the form of higher prices), thus keeping costs and prices lower than rivals'. C. using an export strategy to circumvent the risks of adverse exchange rate fluctuations. D. using location to lower costs or help achieve greater product differentiation or using cross-border coordination in ways a domestic-only competitor cannot. E. employing a multidomestic strategy instead of a global strategy.

Q: The competitive strategy of a firm pursuing a think global, act local approach to strategy making A. entails little or no strategy coordination across countries. B. usually involves cross-subsidizing the prices in those markets where there are significant country-to-country differences in the product attributes that customers are most interested in. C. involves selling a mostly standardized product worldwide but varying a company's use of distribution channels and marketing approaches to accommodate local market conditions. D. is essentially the same in all country markets where it competes, but it may nonetheless give local managers room to make minor variations where necessary to better satisfy local buyers and to better match local market conditions. E. involves having strongly differentiated product versions for different countries and selling them under distinctly different brand names (one for each country or group of neighboring countries) so that there will be no doubt in customers' minds that the product is more local than global.

Q: The transnational approach of a firm using a think global, act local version of a global strategy entails A. producing and marketing a variety of product versions under the same brand name, with each different version being designed specifically to accommodate the needs and preferences of buyers in a particular country. B. little or no strategy coordination across countries. C. pursuing the same basic competitive strategy theme (low-cost, differentiation, best-cost, focused) in all countries where the firm does business but giving local managers some latitude to adjust product attributes to better satisfy local buyers and to adjust production, distribution, and marketing to be responsive to local market conditions. D. selling the company's products under a wide variety of brand names (often one brand for each country or group of neighboring countries) so that buyers in each country market will think they are buying a locally made brand. E. selling numerous product versions (each customized to buyer tastes in one or more countries and sometimes branded for each country) but opting to only sell direct to buyers at the company's website so as to bypass the costs of establishing networks of wholesale/retail dealers in each country market.

Q: A think global, act global approach to strategy making is preferable to a think local, act local approach when A. a big majority of the company's rivals are pursuing localized multidomestic strategies. B. country-by-country differences are small enough to be accommodated within the framework of a mostly uniform global strategy. C. plants need to be scattered across many countries to avoid high shipping costs. D. market growth rates vary considerably from country to country. E. host governments enact regulations requiring that products sold locally meet strict manufacturing specifications or performance standards.

Q: A think global, act global approach to crafting a global strategy involvesA. pursuing the same basic competitive strategy theme (low-cost, differentiation, best-cost, and focused) in all countries where the firm does business.B. selling much the same products under the same brand names everywhere and expanding into most, if not all, nations where there is significant buyer demand.C. integrating and coordinating the company's strategic moves worldwide.D. utilizing the same competitive capabilities, distribution channels, and marketing approaches worldwide.E. All of these choices are correct.

Q: Two major drawbacks of a think local, act local multidomestic strategy are A. that it is especially vulnerable to fluctuating exchange rates and can usually be defeated by companies employing cross-market subsidization tactics. B. excessive vulnerability to fluctuating exchange rates and having to craft a separate strategy for each country market in which the company competes. C. hindering a company's transfer of competencies and resources across country boundaries (since somewhat different competencies and capabilities are likely to be employed in different host countries) and not promoting the building of a single, unified competitive advantage in all country markets where a company competes. D. greater exposure to both increases in tariffs and restrictive trade barriers, and added difficulty in accommodating the diverse trade restrictions and regulatory requirements of host governments. E. not being able to export products manufactured in one country to markets in other countries and being largely unsuitable for competing in the markets of emerging countries.

Q: The drawbacks of a localized multidomestic strategy include A. hindering the use of cross-market subsidization techniques and increasing company vulnerability to adverse shifts in currency exchange rates. B. the difficulty in taking into account significant country-to-country differences in distribution channels and marketing methods. C. the difficulty in and costs of being responsive to country-to-country differences in customer needs, buying habits, cultural traditions, and market conditions. D. hindering transfer of a company's competencies and resources across country boundaries, and hindering the pursuit of a single, uniform competitive advantage in all country markets where a company operates. E. being unsuitable for competing in the markets of emerging countries and posing added difficulty in building multiple profit sanctuaries.

Q: A think local, act local multidomestic strategy works particularly well when A. host governments enact regulations requiring that products sold locally meet strictly defined manufacturing specifications or performance standards. B. there are significant country-to-country differences in customer preferences and buying habits. C. diverse and complicated trade restrictions of host governments preclude the use of a uniform strategy from country to country. D. there are significant country-to-country differences in distribution channels and marketing methods. E. All of these choices are correct.

Q: The strength of a think local, act local multidomestic strategy is that A. it matches a company's competitive approach to prevailing market and competitive conditions in each country market. B. each of a company's country strategies is almost totally different from and unrelated to its strategies in other countries. C. the plants located in different countries can be operated independently of one another, thus promoting greater achievement of scale economies. D. it avoids host-country ownership requirements, and import quotas. E. it eliminates the costs and burdens of trying to coordinate the strategic moves undertaken in one country with the moves undertaken in the other countries.

Q: A think local, act local multidomestic type of strategy A. is very risky, given fluctuating exchange rates and the propensity of foreign governments to impose tariffs on imported goods. B. is usually defeated by a think global, act global type of strategy. C. is more appealing the bigger the country-to-country differences in buyer tastes, cultural traditions, and marketing methods. D. is generally an inferior strategy when one or more foreign competitors is pursuing a global low-cost strategy. E. can defeat a global strategy if the think local, act local multidomestic strategist concentrates its efforts exclusively in those foreign markets where it has profit sanctuaries.