WPC 480 Final Exam Questions and
Answers
Corporate iiStrategy ii- iiAnswers ii-The iidecisions ii& iiactions iitaken iito iigain ii& iisustain
iicompetitive iiadvantage iiin iiseveral iiindustries iiand iimarkets iisimultaneously
What iidoes iicorporate iistrategy iiaddress? ii- iiAnswers ii-Where iito iicompete iion ii3
iidimensions:
Industry iivalue iichain: iivertical iiintegration
Products ii& iiservices: iidiversification
Geography: iiregional, iinational, iior iiglobal iimarkets
Vertical iiIntegration ii- iiAnswers ii-The iiprocess iiin iiwhich iiseveral iisteps iiin iithe
iiproduction iiand/or iidistribution iiof iia iiproduct iior iiservice iiare iicontrolled iiand iiowned iiby
iia iisingle iicompany iior iientity, iiin iiorder iito iiincrease iithat iicompany's iior iientity's iipower
iiin iithe iimarketplace
Forward iiIntegration ii- iiAnswers ii-Integrating iisteps iithat iiare iifurther iiforward iiin iithe
iiprocess
Ex. iiconcentrate iiproducers iiintegrating iibottling
Backward iiIntegration ii- iiAnswers ii-Integrating iisteps iithat iiare iifurther iiback iiin iithe
iiproduction iiprocess ii
Ex. iiHermes ii- iigetting iia iicrocodile iifarm iito iisupply iiown iileather
Boundaries iiof iithe iifirm ii- iiAnswers ii-Why iidoes iia iifirm iiexist iiand iito iiwhat iiextent
iishould iithe iifirm iiexpand?
Transaction iiCost iiEconomics ii- iiAnswers ii-Helps iiexplain iiand iipredict iiboundaries iiof
iithe iifirm
Transaction iicosts ii- iiAnswers ii-the iicosts iiassociated iiwith iiactivities iithat iiare iinot
iidirectly iiproductive iibut iiare iiengaged iiin iionly iias iia iiconsequence iiof iithe iineed iito
iicoordinate iiexchange iiamong iithe iiparties iiof iia iitransaction
Internal iitransaction iicosts ii- iiAnswers ii-Recruiting iiand iiretaining iiemployees
,Paying iisalaries iiand iibenefits
Setting iiup iia iishop iifloor
Providing iioffice iispace iiand iicomputers, iietc.
External iiTransaction iiCosts ii- iiAnswers ii-Searching iifor iia iifirm iiindividual iito iicontract
iiwith
Bargaining, iinegotiating, iihaggling iicost
Monitoring, iimeasuring, iisupervising, iienforcing iior iipolicing iiperformance
External iitransaction iicosts iiarise iiprimarily iias iia iiresult iiof: ii- iiAnswers ii-Opportunism
Asset iiSpecificity
Opportunism ii- iiAnswers ii-Willingness iiof iiat iileast iisome iipeople iito iitake iiadvantage iiof
iiothers
Dishonesty
Threat iiof iiOpportunism ii- iiAnswers ii-Greatest iiwhen iithere iiis iian iiasset iispecificity
iiproblem
(i.e. iitransaction iispecific iiinvestment)
Asset iiSpecificity ii- iiAnswers ii-Unique iiassets iiwith iihigh iiopportunity iicost ii- iisignificantly
iimore iivalue iiin iitheir iiintended iius iithan iiin iitheir iinext-best iiuse ii
Ex. iisite iispecificity, iiphysical iiasset iispecificity, iihuman iiasset iispecificity
Asset iiSpecificity iiExamples ii- iiAnswers ii-Oil iirefinery ii& iioil iipipeline
Auto iiparts ii& iiauto iiassembly
Benefits iiof iivertical iiintegration: ii- iiAnswers ii-Reduces iiopportunism
Facilitates iiinvestments iiin iispecialized iiassets
Facilitates iischeduling iiand iiplanning
Secures iicritical iisupplies iiand iidistribution iichannels
Leverage iiR&Cs
, Uses iifiats iiand iiauthority
Risks iiof iiVertical iiIntegration ii- iiAnswers ii-Integration iicosts
Increase iiin iithe iipotential iifor iilegal iirepercussions
Reduction iiin iiflexibility
VI ii- iiIntegration iiCosts ii- iiAnswers ii-Integration iicos iimust iibe iiless iithan iiopportunism
iicost
Firm iivs. iiMarket ii(Make iior iibuy) ii- iiAnswers ii-Firm-Advantage
Firm-Disadvantage
Market-Advantage
Market-Disadvantage
Firm-Advantage ii- iiAnswers ii-Command iiand iicontrol ii- iifiat, iihierarchical iilines iiof
iiauthority
Coordination
Transaction-Specific iiInvestments ii
Community iiof iiknowledge
Firm-Disadvantage ii- iiAnswers ii-Administrative iiCosts
Low-powered iiincentives
Principal-agent iiproblems
Initial iiInvestment ii
Less iiflexibility
Market-Advantages ii- iiAnswers ii-High-powered iiincentives
Flexibility iiespecially iiunder iihigh iiuncertainty
Utilizing iimarket iispecialty ii(i.e. iipick iithe iiwinner; iiprice iimechanism
Answers
Corporate iiStrategy ii- iiAnswers ii-The iidecisions ii& iiactions iitaken iito iigain ii& iisustain
iicompetitive iiadvantage iiin iiseveral iiindustries iiand iimarkets iisimultaneously
What iidoes iicorporate iistrategy iiaddress? ii- iiAnswers ii-Where iito iicompete iion ii3
iidimensions:
Industry iivalue iichain: iivertical iiintegration
Products ii& iiservices: iidiversification
Geography: iiregional, iinational, iior iiglobal iimarkets
Vertical iiIntegration ii- iiAnswers ii-The iiprocess iiin iiwhich iiseveral iisteps iiin iithe
iiproduction iiand/or iidistribution iiof iia iiproduct iior iiservice iiare iicontrolled iiand iiowned iiby
iia iisingle iicompany iior iientity, iiin iiorder iito iiincrease iithat iicompany's iior iientity's iipower
iiin iithe iimarketplace
Forward iiIntegration ii- iiAnswers ii-Integrating iisteps iithat iiare iifurther iiforward iiin iithe
iiprocess
Ex. iiconcentrate iiproducers iiintegrating iibottling
Backward iiIntegration ii- iiAnswers ii-Integrating iisteps iithat iiare iifurther iiback iiin iithe
iiproduction iiprocess ii
Ex. iiHermes ii- iigetting iia iicrocodile iifarm iito iisupply iiown iileather
Boundaries iiof iithe iifirm ii- iiAnswers ii-Why iidoes iia iifirm iiexist iiand iito iiwhat iiextent
iishould iithe iifirm iiexpand?
Transaction iiCost iiEconomics ii- iiAnswers ii-Helps iiexplain iiand iipredict iiboundaries iiof
iithe iifirm
Transaction iicosts ii- iiAnswers ii-the iicosts iiassociated iiwith iiactivities iithat iiare iinot
iidirectly iiproductive iibut iiare iiengaged iiin iionly iias iia iiconsequence iiof iithe iineed iito
iicoordinate iiexchange iiamong iithe iiparties iiof iia iitransaction
Internal iitransaction iicosts ii- iiAnswers ii-Recruiting iiand iiretaining iiemployees
,Paying iisalaries iiand iibenefits
Setting iiup iia iishop iifloor
Providing iioffice iispace iiand iicomputers, iietc.
External iiTransaction iiCosts ii- iiAnswers ii-Searching iifor iia iifirm iiindividual iito iicontract
iiwith
Bargaining, iinegotiating, iihaggling iicost
Monitoring, iimeasuring, iisupervising, iienforcing iior iipolicing iiperformance
External iitransaction iicosts iiarise iiprimarily iias iia iiresult iiof: ii- iiAnswers ii-Opportunism
Asset iiSpecificity
Opportunism ii- iiAnswers ii-Willingness iiof iiat iileast iisome iipeople iito iitake iiadvantage iiof
iiothers
Dishonesty
Threat iiof iiOpportunism ii- iiAnswers ii-Greatest iiwhen iithere iiis iian iiasset iispecificity
iiproblem
(i.e. iitransaction iispecific iiinvestment)
Asset iiSpecificity ii- iiAnswers ii-Unique iiassets iiwith iihigh iiopportunity iicost ii- iisignificantly
iimore iivalue iiin iitheir iiintended iius iithan iiin iitheir iinext-best iiuse ii
Ex. iisite iispecificity, iiphysical iiasset iispecificity, iihuman iiasset iispecificity
Asset iiSpecificity iiExamples ii- iiAnswers ii-Oil iirefinery ii& iioil iipipeline
Auto iiparts ii& iiauto iiassembly
Benefits iiof iivertical iiintegration: ii- iiAnswers ii-Reduces iiopportunism
Facilitates iiinvestments iiin iispecialized iiassets
Facilitates iischeduling iiand iiplanning
Secures iicritical iisupplies iiand iidistribution iichannels
Leverage iiR&Cs
, Uses iifiats iiand iiauthority
Risks iiof iiVertical iiIntegration ii- iiAnswers ii-Integration iicosts
Increase iiin iithe iipotential iifor iilegal iirepercussions
Reduction iiin iiflexibility
VI ii- iiIntegration iiCosts ii- iiAnswers ii-Integration iicos iimust iibe iiless iithan iiopportunism
iicost
Firm iivs. iiMarket ii(Make iior iibuy) ii- iiAnswers ii-Firm-Advantage
Firm-Disadvantage
Market-Advantage
Market-Disadvantage
Firm-Advantage ii- iiAnswers ii-Command iiand iicontrol ii- iifiat, iihierarchical iilines iiof
iiauthority
Coordination
Transaction-Specific iiInvestments ii
Community iiof iiknowledge
Firm-Disadvantage ii- iiAnswers ii-Administrative iiCosts
Low-powered iiincentives
Principal-agent iiproblems
Initial iiInvestment ii
Less iiflexibility
Market-Advantages ii- iiAnswers ii-High-powered iiincentives
Flexibility iiespecially iiunder iihigh iiuncertainty
Utilizing iimarket iispecialty ii(i.e. iipick iithe iiwinner; iiprice iimechanism
