GLOBUS TEST 3 QUESTIONS &
DETAILED ANSWERS PASSED
ALREADY GRADED A+
Corporate Strategy - Correct Answer ✔✔ the decisions that senior management makes
and the goal-directed actions it takes to gain and sustain competitive advantage in
several industries and markets simultaneously
-vertical integration: industry value chain describes the transformation of raw materials
into finished goods and services along distinct vertical changes
-diversification: what range of products and services should the company offer?
-geographic scope: where should the company compete geographically in terms of
regional, national, or international markets?
Why firms need to grow? - Correct Answer ✔✔ 1. increase profits
2. lower costs
3. increase market power
4. reduce risk
5. motivate management
transaction cost economics - Correct Answer ✔✔ a theoretical framework in strategic
management to explain and predict the boundaries of the firm, which is central to
formulating a corporate strategy that is more likely to lead to competitive advantage
transaction costs - Correct Answer ✔✔ all internal and external costs associated with an
economic exchange, whether within a firm or in markets
external transaction costs - Correct Answer ✔✔ costs of searching for a firm or an
individual with whom to contract, and then negotiating, monitoring, and enforcing the
contract
internal transaction costs - Correct Answer ✔✔ costs pertaining to organizing an
economic exchange within a hierarchy; also called administrative costs
Backward vertical integration - Correct Answer ✔✔ changes in an industry value chain
that involve moving ownership of activities upstream to the originating (inputs) point of
the value chain
, Forward vertical integration - Correct Answer ✔✔ changes in an industry value chain
that involve moving ownership of activities closer to the end (customer) point of the
value chain
Benefits of Vertical Integration - Correct Answer ✔✔ -lowering costs
-improving quality
-facilitating scheduling and planning
-facilitating investments in specialized assets
-securing critical supplies and distribution channels
Risks of Vertical Integration - Correct Answer ✔✔ increasing costs, reducing quality,
reducing flexibility, increasing the potential for legal repercussions
taper integration - Correct Answer ✔✔ a way of orchestrating value activities in which a
firm is backwardly integrated but also relies on outside market firms for some of its
supplies, and/or is forwardly integrated but also relies on outside market firms for some
of its distribution
strategic outsourcing - Correct Answer ✔✔ moving one or more internal value chain
activities outside the firm's boundaries to other firms in the industry value chain
4 main types of business diversification - Correct Answer ✔✔ single business: low level
of diversification. derives more than 95 percent of its revenues from 1 business.
dominant business: derive between 70-95 percent of its revenues from a single
business but it peruses at least one other business activity
related diversification: corporate strategy in which a firm derives less than 70 percent of
its revenues from a single business activity and obtains revenues from other lines of
business that are linked to the primary business activity
unrelated diversification: aka the conglomerate: derives less than 70 percent of its
revenues from a single business and there are few, if any, linkages among its business.
conglomerate - Correct Answer ✔✔ a company that combines two or more strategic
business units under one overarching corporation; follows an unrelated diversification
strategy
related constrained diversification strategy - Correct Answer ✔✔ a kind of related
diversification strategy in which executives pursue only businesses where they can
apply the resources and core competencies already available in the primary business
related linked diversification strategy - Correct Answer ✔✔ a kind of related
diversification strategy in which executives pursue various businesses opportunities that
share only a limited number of linkages
DETAILED ANSWERS PASSED
ALREADY GRADED A+
Corporate Strategy - Correct Answer ✔✔ the decisions that senior management makes
and the goal-directed actions it takes to gain and sustain competitive advantage in
several industries and markets simultaneously
-vertical integration: industry value chain describes the transformation of raw materials
into finished goods and services along distinct vertical changes
-diversification: what range of products and services should the company offer?
-geographic scope: where should the company compete geographically in terms of
regional, national, or international markets?
Why firms need to grow? - Correct Answer ✔✔ 1. increase profits
2. lower costs
3. increase market power
4. reduce risk
5. motivate management
transaction cost economics - Correct Answer ✔✔ a theoretical framework in strategic
management to explain and predict the boundaries of the firm, which is central to
formulating a corporate strategy that is more likely to lead to competitive advantage
transaction costs - Correct Answer ✔✔ all internal and external costs associated with an
economic exchange, whether within a firm or in markets
external transaction costs - Correct Answer ✔✔ costs of searching for a firm or an
individual with whom to contract, and then negotiating, monitoring, and enforcing the
contract
internal transaction costs - Correct Answer ✔✔ costs pertaining to organizing an
economic exchange within a hierarchy; also called administrative costs
Backward vertical integration - Correct Answer ✔✔ changes in an industry value chain
that involve moving ownership of activities upstream to the originating (inputs) point of
the value chain
, Forward vertical integration - Correct Answer ✔✔ changes in an industry value chain
that involve moving ownership of activities closer to the end (customer) point of the
value chain
Benefits of Vertical Integration - Correct Answer ✔✔ -lowering costs
-improving quality
-facilitating scheduling and planning
-facilitating investments in specialized assets
-securing critical supplies and distribution channels
Risks of Vertical Integration - Correct Answer ✔✔ increasing costs, reducing quality,
reducing flexibility, increasing the potential for legal repercussions
taper integration - Correct Answer ✔✔ a way of orchestrating value activities in which a
firm is backwardly integrated but also relies on outside market firms for some of its
supplies, and/or is forwardly integrated but also relies on outside market firms for some
of its distribution
strategic outsourcing - Correct Answer ✔✔ moving one or more internal value chain
activities outside the firm's boundaries to other firms in the industry value chain
4 main types of business diversification - Correct Answer ✔✔ single business: low level
of diversification. derives more than 95 percent of its revenues from 1 business.
dominant business: derive between 70-95 percent of its revenues from a single
business but it peruses at least one other business activity
related diversification: corporate strategy in which a firm derives less than 70 percent of
its revenues from a single business activity and obtains revenues from other lines of
business that are linked to the primary business activity
unrelated diversification: aka the conglomerate: derives less than 70 percent of its
revenues from a single business and there are few, if any, linkages among its business.
conglomerate - Correct Answer ✔✔ a company that combines two or more strategic
business units under one overarching corporation; follows an unrelated diversification
strategy
related constrained diversification strategy - Correct Answer ✔✔ a kind of related
diversification strategy in which executives pursue only businesses where they can
apply the resources and core competencies already available in the primary business
related linked diversification strategy - Correct Answer ✔✔ a kind of related
diversification strategy in which executives pursue various businesses opportunities that
share only a limited number of linkages
