Sharing core competencies is one of the primary potential advantages of diversification. In order for diversification to be most successful, it is important that _____________.

61.

Sharing core competencies is one of the primary potential advantages of diversification. In order for diversification to be most successful, it is important that _____________.    A.  the similarity required for sharing core competencies must be in the value chain, not in the product B.  the products use similar distribution channels C.  the target market is the same, even if the products are very different D.  the methods of production are the same For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, different businesses in the corporation must be similar in at least one important way related to the core competence. It is not essential that the products or services themselves be similar, but at least one element in the value chain must require similar skills in creating competitive advantage.

AACSB: Analytic Blooms: Understand Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 2 Medium Topic: Related Diversification through Economies of Scope and Revenue Enhancement

62.

When management uses common production facilities or purchasing procedures to distribute different but related products, they are ________________.    A.  building on core competencies B.  achieving process gains C.  sharing activities D.  using portfolio analysis Corporations can achieve synergy by sharing activities across their business units. These include value-creating activities such as common manufacturing facilities, distribution channels, and sales forces.

AACSB: Analytic Blooms: Remember Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 1 Easy Topic: Related Diversification through Economies of Scope and Revenue Enhancement

63.

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This is an example of ______________.    A.  leveraging core competencies B.  sharing activities C.  pooled negotiating power D.  vertical integration Shaw Industries, a carpet manufacturer, has attained a dominant position in the industry via a strategy of vertical integration. Shaw has successfully implemented strategies of both forward and backward integration.

AACSB: Analytic Blooms: Apply Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 3 Hard Topic: Related Diversification through Market Power

64.

The risks of vertical integration include all of the following EXCEPT:    A.  costs and expenses associated with increased overhead and capital expenditures. B.  problems associated with unbalanced capacities along the value chain. C.  lack of control over valuable assets. D.  additional administrative costs associated with managing a more complex set of activities. The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

AACSB: Analytic Blooms: Understand Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 2 Medium Topic: Related Diversification through Market Power

65.

Unbalanced capacities that limit cost savings, difficulties in combining specializations, and reduced flexibility are disadvantages associated with ___________.    A.  strategic alliances B.  divestment C.  horizontal integration D.  vertical integration The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

AACSB: Analytic Blooms: Understand Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 2 Medium Topic: Related Diversification through Market Power

66.

A firm should consider vertical integration when ___________.    A.  the competitive situation is highly volatile B.  customer needs are evolving C.  the suppliers of the firm willingly cooperate with the firm D.  the suppliers of raw materials to the firm are often unable to maintain quality standards A firm should consider vertical integration if the company is not satisfied with the quality of the value that its present suppliers and distributors are providing.

AACSB: Analytic Blooms: Understand Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 2 Medium Topic: Related Diversification through Market Power

67.

Transaction costs include all of the following costs EXCEPT    A.  search costs B.  negotiating costs C.  agency costs D.  monitoring costs Transaction costs are the sum of search costs, negotiation costs, contracting costs, monitoring costs, and enforcement costs. These transaction costs can be avoided by internalizing the activity, in other words, by producing the input in-house.

AACSB: Analytic Blooms: Remember Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 1 Easy Topic: Related Diversification through Market Power

68.

Vertical integration is attractive when ____________.    A.  internal administrative costs are higher than transaction costs B.  transaction costs are higher than internal administrative costs C.  transaction costs and internal administrative costs are equal D.  search costs are higher than monitoring costs If transaction costs are higher than administrative costs, that is, those costs incurred when coordinating the activities elsewhere in the value chain, vertical integration becomes an attractive strategy.

AACSB: Analytic Blooms: Understand Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 2 Medium Topic: Related Diversification through Market Power

69.

Creating value within business units can happen when the corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures. This is known as ________.    A.  restructuring B.  parenting C.  leveraging core competencies D.  increasing market power Parent companies create value through management expertise. They improve plans and budgets and provide especially competent central functions such as legal, financial, human resource management, and procurement. They also help subsidiaries make wise choices in their own acquisitions, divestitures, and new internal development decisions.

AACSB: Analytic Blooms: Remember Learning Objective: 06-04 How corporations can use unrelated diversification to attain synergistic benefits through corporate restructuring; parenting; and portfolio analysis. Level of Difficulty: 1 Easy Topic: Unrelated Diversification through Financial Synergies and Parenting

70.

Creating value within business units can happen when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. This is action is known as ______.    A.  parenting B.  leveraging core competencies C.  restructuring D.  sharing activities In restructuring, the corporate office tries to find poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. The parent intervenes, often selling off parts of the business; changing the management; reducing payroll and unnecessary sources of expenses; changing strategies; and infusing the company with new technologies, processes, or reward systems.

AACSB: Analytic Blooms: Remember Learning Objective: 06-04 How corporations can use unrelated diversification to attain synergistic benefits through corporate restructuring; parenting; and portfolio analysis. Level of Difficulty: 1 Easy Topic: Unrelated Diversification through Financial Synergies and Parenting