MGT498 Week 4 Quiz


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MGT498 Week 4 Quiz

1. Which of the following best illustrates backward vertical integration?

an apparel company launching its line of premium wrist watches

a shoe brand outsourcing its production unit to manufacturers in less developed nations

a supplier of plastic bottles launching his or her own brand of sparkling water

a chocolate manufacturing company setting up its own cocoa plantations

2. An inverted U-shaped relationship between the type of diversification and overall firm performance indicates that

levels of vertical integration and overall firm performance share an inverse relationship.

high and low levels of diversification are generally associated with lower overall performance.

firms that compete in single markets benefit the most from economies of scope.

moderate levels of diversification fail to achieve additional value creation.

3. North Carolina National Bank (NCNB) used its unique core competency of identifying, appraising, and integrating acquisition targets to be rebranded as Bank of America, one of the largest banks in the United States. This is an example of a firm

building new core competencies to create and compete in markets of the future.

building new core competencies to protect new market position.

leveraging existing core competencies to improve current market position.

redeploying and recombining existing core competencies to compete in markets of the future.

4. Firms often consolidate industries through horizontal mergers and acquisitions to

increase their market power.

solve principal-agent problems.

motivate managers.

lower their stock prices.

5. Which of the following is an example of explicit knowledge?

the decision-making capability that is intrinsic to an employee

the findings of a research published in a scientific journal

the creative ability of a manager to recognize potential business opportunities

the entrepreneurial skills of a manager

6. What happens in the third phase of alliance management?

The firm initiating the alliance selects its partner.

The incumbent firm designs the alliance.

Alliance partners choose an appropriate governance mechanism.

Alliance partners make relation-specific investments.

7. The executives of Night Sky Inc., a large conglomerate, are making decisions on the stages of the industry value chain the firm must participate in, the range of products and services it should offer, and the global markets it should compete in. What are the executives primarily determining?

the firm’s chain of command

the absorptive capacity of the firm

the boundaries of the firm

the firm’s economies of scale

8. The purchase or takeover of one company by another is a(n)

cartel venture.


joint venture.

9. Highly diversified firms experience a diversification discount in the stock market because they

cannot leverage financial economies.

are unable to overcome institutional weaknesses in emerging economies.

are unable to create additional value.

cannot influence costs.

10. Sequoia Inc., a large multinational conglomerate, has hired an external consultant to process and audit its payroll. This allows the company to focus on manufacturing and marketing activities rather than developing and maintaining its own human resource management systems. Which of the following alternatives to vertical integration has Sequoia Inc. adopted?

forward integration


backward integration

strategic outsourcing

11. The starting point of the build-borrow-or-buy framework is management’s

evaluation of the firm’s existing internal resources to check if they are relevant.

identification of a strategic resource gap that will impede future growth.

evaluation of the alliance partners’ compatibility and commitment.

comparison of the internal transaction costs against the external transaction costs.

12. The management at Just Right Autos Inc. and Blue Skies Automobiles Inc. realized that by combining the two entities, the stakeholders of both the companies would benefit. Their core competencies would act as complementary assets to each other. Consequently, Blue Skies Automobiles joined with Just Right Autos to form a combined entity called Just Blue Autos Inc. Which of the following does this scenario best illustrate?

a franchisee arrangement

a merger

a hostile takeover

a cartel

13. Gerda, a real estate agent, is selling a moderately priced house in a subdivision. She knows from her uncle that the factory being built half a mile from the subdivision will be manufacturing dog food, using a process that creates a very strong odor that permeates the surrounding neighborhood. A buyer, who is unaware of the type of factory under construction, makes an offer on one of the houses Gerda is selling, and within a short time, the deal goes through. What does this scenario best illustrate?

information asymmetries

experience-curve effects

principal-agent problems

network effects

14. HTC started as an original equipment manufacturing firm (OEM) for brand-name mobile device companies. Later, it started offering a line up of innovative and high-performance smartphones by acquiring One & Co., a San Francisco-based design firm. This strategic move of HTC is known as

forward vertical integration.


corporate divestiture.

radical innovation.

15. The local real estate companies in a city have joined together and arranged a “Property Fair.” The sponsors will equally share the expenses of the event. 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 cartel.



16. Which of the following best illustrates horizontal integration?

Perfect Aesthetic Inc. sets up its own retail stores to sell its skincare products directly to customers rather than selling them through large departmental stores.

Denali Electronics Inc. acquires its competitor, Mariana Electronics Inc., to gain access to its core competencies.

Turbodog Autos Inc. sets up its own component-part manufacturing units to have strong control over production.

Accordion Fascination Inc. outsources its production to contract manufacturers in labor-intensive countries.

17. Which of the following is an example of related-constrained diversification?

a company dealing in home appliances hiring another company to carry out its marketing strategies

an automobile company that manufactures petrol cars expanding into the diesel car industry

a grocery store leveraging its extra shelf space by stocking kitchen appliances

a consumer electronics company launching its own line of designer apparel and accessories

18. Which of the following is an example of internal transaction costs?

the costs pertaining to setting up a shop floor

the costs associated with searching for suitable manufacturer contracts

the costs associated with negotiating prices with a business consultancy

the costs linked to outsourcing payroll maintenance

19. The rationale behind related diversification is to

limit learning-curve and experience-curve effects.

benefit from economies of scale and scope.

avoid sharing resources and competencies across different business lines.

obtain only 10 percent of the revenues from the primary business activities.

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

it is easy to initiate and terminate.

it is the least flexible of all strategic alliances.

it is based on partial ownership.

it produces the strongest ties between alliance partners.