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39 Cards in this Set

  • Front
  • Back

A fragmented industry is composed of a large number of small and medium-sized companies


Through chaining, companies increase their buying power, which allows them to negotiate large price reductions with their suppliers, which in turn promotes their competitive advantage.


It can be argued that Microsoft's near monopoly of PC operating systems helped raise the level of industry profitability


Ownership of an industry standard that is protected from imitation by patents and copyrights is a weak organizational resource


Pressure for cost reductions encourages a firm to pursue a cost-leadership strategy, while pressure for local responsiveness encourages a firm to pursue differentiation


An early mover entering a foreign country will experience many advantages but few or no disadvantages


Horizontal integration can help lower costs when it allows a company to reduce the duplication of resources


Vertical integration can raise costs if, over time, a company continues to purchase inputs from company-owned suppliers when independent suppliers can supply the same inputs at lower cost


Free cash flow refers to additional funds from a government stimulus program


Intel is an example of a company that moved from a related diversification strategy to a concentration strategy


Franchising is a business-level strategy that allows companies to

a. spread overhead and administrative costs over a large number of franchises

b. enjoy the competitive advantages of cost leadership or differentiation

c. hedge the costs of supplies

d. expand beyond their base of support

e. engage in new businesses that were previously beyond reach

B. enjoy the competitive advantages of cost leadership or differentiation

Amazon.com and eBay are examples of companies that

a. used the Internet to increase retail sales.

b. employed technology to consolidate what had previously been a fragmented industry

c. pursue a cost-leadership model

d. all of these choicese. none of these choices

D. all of these choices

Which is of the following is a technical standard

a. Typewriter keyboard

b. Dimensions of containers used to ship goods on trucks, railcars, and ships

c. Universal Serial Bus (USB)

d. Communication between a PC and the I nternet via a modem (TCP/IP)

e. All of them

E. All of them

Makers of complementary products will begin large-scale production when

a. the first mover introduces a new product

b. the dominant design is changing

c. consumer demand reaches the plateau of maturity

d. the technical standard is firmly established

e. industry participants begin to purchase from suppliers

D. The technical standard is firmly established

The globalization of production has allowed firms to

a. increase their market share

b. lower their cost structure

c. respond to individual market segments

d. avoid international competition

e. all of these choices

B. Lower their cost structure

When a company expands its sales volume through international expansion, it can realize cost savings from economies of scale through all of the following except

a. spreading fixed costs over its global sales volume

b. utilizing its production facilities more intensely

c. increased bargaining power with its suppliers

d. learning effects associated with higher volume

e. improved responsiveness

E. Improved Responsiveness

Forward integration means that a company is moving into

a. Sale

b. Retail

c. Distribution

d. All of these

e. None of these

D. All of these

When an intermediate manufacturer moves into final assembly, it is pursuing

a. backward integration

b. forward integration

c. taper integration

d. related diversification

e. unrelated diversification

B. Forward Integration

The three main types of diversification strategies are

a. Acquisitions, joint ventures, and divestments

b. Acquisitions, mergers, and buy outs

c. Acquisitions, internal new ventures, and joint ventures

d. Related acquisitions, unrelated acquisitions, and mergers

e. Joint ventures, strategic alliances, and long-term contracts

C. Acquisition, internal new ventures, and joint ventures

Product bundling refers to

a. preparation of products for shipment

b. a complete package of related products

c. a method of stocking products efficiently

d. an inventory procedure for ensuring effective counting of products

e. a package of unrelated products

B. a complete package of related products

Explain why a company in a fragmented industry would want to consolidate the industry?

Fragmented industries have many competitors because of the low entry barriers. Most of these competitors are small to medium size firms. They are often successful following a focus strategy. Consolidating would lead to higher profit potential from cost leadership or differential business models that are successful in that industry.

Strategies used to consolidate (First)

They can choose chaining to established networks of liked merchandising outlets that are interconnected in a way that allows them to operate as one large business

Strategies used to consolidate (Second)

Franchising a company can expand its market presence quickly, and because franchisees essentially own their own business, they are usually strongly motivated to make the company business model work.

Strategies used to consolidate (Third)

Horizontal mergers allow companies to obtain economies of scale and a larger market for products.

Strategies used to consolidate (Fourth)

By using information technology and the internet a company can increase market potential and lower costs.

What are technical standards?

They refer to a set of technical specifications that producers adhere when making a product or component of it.

What are technical standards? (Battles)

Battles used to determine and control technical standards in a market are referred to as format wars. The outcome of the battle has huge implications because the winner has often won an important source of differentiation.

Why are they important?

They help guarantee compatibility between products and their complements.

Why are they important? (Existence)

The existence of standard helps reduce confusion in the minds of the customer.

Why are they Important? (Emergence)

The emergence of standard can help reduce production cost because once established, economies of scale in manufacturing can begin.

Why are they important? (Reduce)

Finally standards help reduce risk associated with supplying complementary products.

How are they established? (Government)

Companies may lobby the government to mandate a standard, or sometimes companies cooperate without gov involvement

How are they established? (Set)

They can be set by cumulative purchasing patterns of customers in the marketplace

How are they established? (winner)

The winner can realize significant benefits because each company is likely to protect innovations through copyrights and patents.

Comparison vertical and horizontal integration

Both risk the inability to blend two different organizational cultures and both can lead to lower costs.

Horizontal integration

Always with rivals

Vertical Integration

Is with buyer or supplier firms which leads to integration, implementation and cost savings differences. They face higher operating costs relative to buyers and suppliers due to lack of competitive pressure, and bureaucratic costs are likely higher because the need for coordination connected in the supply chain

What circumstances would a firm prefer one over the other? (Mergers)

Mergers are more common when the two firms are approximately the same size. It is the blending of assets and may be better for cash poor companies, they are also always friendly.

What circumstances would a firm prefer one over the other? (Acquisition)

Acquisitions require cash or other form of payment to meet the purchase price. They can be friendly or hostile, but when one party is reluctant acquisition is preferred.