BUSA 4900 Exam 2 Questions With Accurate
Answers Rated A+
Corporate Level Strategy - ANSWER strategies firms use to diversify their
operations from a business operating in a single market into several product
markets and industries
-- diversification
Incentives for Diversification - ANSWER Incentives (value neutral)
-spread risk across various industries, and extension of modern portfolio theory
-diminishing market opportunities and stagnating sales
-obtain valuable tangible or intangible resources
-changes in antitrust regulation or tax laws
Benefits for Diversification - ANSWER Benefits (value creation)
-enhance value via scope economies by sharing activities to reduce costs or
transferring core competencies
-gain market power through vertical integration or multi-point competition
-financial economies through efficient capital allocation or business
restructuring
Strategic Diversification into Related Business - ANSWER Enhance shareholder
value by capturing economies of scope / market power
All businesses have similar value chain activities (share production, tech, &
distribution)
-transfer skills and capabilities
-share activities to reduce costs
-vertical integration
-block competitors through multi-point competitition
Strategic Diversification into Unrelated Business - ANSWER Build shareholder
value by managing a collection of businesses more efficiently
-spread risks across completely different businesses
-focus on attractive growth business
-allocate capital more efficiently
-business restructuring
Basic Criteria for testing the merit of Diversification - ANSWER 1. industry
attractiveness
2. Cost of Entry
3. "Better Off" Together
, Which is better: related or unrelated diversification - ANSWER Related creates
more value because financial economies are harder to achieve
benefits are economies of scope and market power
Unrelated
Posits demanding time requirement
Fails better off test (limited competitive advantage)
Economies of Scope - ANSWER Cost savings the firm creates by
1. successfully sharing its resources or
2. Transferring corporate-level core competencies to new businesses
Market Power - ANSWER Exists when a firm is able to sell its products above
existing competitive level, reduce costs of primary and support activities below
the competitive level, or both
Avenues of Market Power - ANSWER 1. Multi-point competition
2. Vertical Integration
Multi-point Competition - ANSWER Two or more diversified firms simultaneously
compete in the same product or geographic markets
-gain scale means of increasing market power by blocking entrants to market
Vertical Integration - ANSWER Extends a firms competitive and operating scope
within the same industry by expanding the firm's range of activities
-company produces its own inputs (backward integration)
-distributes its own product to end users (forward integration)
-requires significant investments to build more capabilities, while potentially
reducing flexibility
Operational relatedness - ANSWER sharing either a primary or a support activity
to reduce duplicate efforts
-sharing tech, R&D, using common manufacturing or distribution facilities, sales
force, distributor network, or administrative infrastructure
Corporate relatedness - ANSWER transfer competitively valuable resources and
capabilities
- primary method that related linked diversification creates value
-complex set of capabilities linking different businesses through managerial and
tech knowledge
Financial Economies (unrelated diversification) - ANSWER 1. efficient internal
capital allocation
-portfolio of businesses with different risk profiles
2. Restructuring of acquired assets
-purchase at bargain prices and turn around (financial distress)
Answers Rated A+
Corporate Level Strategy - ANSWER strategies firms use to diversify their
operations from a business operating in a single market into several product
markets and industries
-- diversification
Incentives for Diversification - ANSWER Incentives (value neutral)
-spread risk across various industries, and extension of modern portfolio theory
-diminishing market opportunities and stagnating sales
-obtain valuable tangible or intangible resources
-changes in antitrust regulation or tax laws
Benefits for Diversification - ANSWER Benefits (value creation)
-enhance value via scope economies by sharing activities to reduce costs or
transferring core competencies
-gain market power through vertical integration or multi-point competition
-financial economies through efficient capital allocation or business
restructuring
Strategic Diversification into Related Business - ANSWER Enhance shareholder
value by capturing economies of scope / market power
All businesses have similar value chain activities (share production, tech, &
distribution)
-transfer skills and capabilities
-share activities to reduce costs
-vertical integration
-block competitors through multi-point competitition
Strategic Diversification into Unrelated Business - ANSWER Build shareholder
value by managing a collection of businesses more efficiently
-spread risks across completely different businesses
-focus on attractive growth business
-allocate capital more efficiently
-business restructuring
Basic Criteria for testing the merit of Diversification - ANSWER 1. industry
attractiveness
2. Cost of Entry
3. "Better Off" Together
, Which is better: related or unrelated diversification - ANSWER Related creates
more value because financial economies are harder to achieve
benefits are economies of scope and market power
Unrelated
Posits demanding time requirement
Fails better off test (limited competitive advantage)
Economies of Scope - ANSWER Cost savings the firm creates by
1. successfully sharing its resources or
2. Transferring corporate-level core competencies to new businesses
Market Power - ANSWER Exists when a firm is able to sell its products above
existing competitive level, reduce costs of primary and support activities below
the competitive level, or both
Avenues of Market Power - ANSWER 1. Multi-point competition
2. Vertical Integration
Multi-point Competition - ANSWER Two or more diversified firms simultaneously
compete in the same product or geographic markets
-gain scale means of increasing market power by blocking entrants to market
Vertical Integration - ANSWER Extends a firms competitive and operating scope
within the same industry by expanding the firm's range of activities
-company produces its own inputs (backward integration)
-distributes its own product to end users (forward integration)
-requires significant investments to build more capabilities, while potentially
reducing flexibility
Operational relatedness - ANSWER sharing either a primary or a support activity
to reduce duplicate efforts
-sharing tech, R&D, using common manufacturing or distribution facilities, sales
force, distributor network, or administrative infrastructure
Corporate relatedness - ANSWER transfer competitively valuable resources and
capabilities
- primary method that related linked diversification creates value
-complex set of capabilities linking different businesses through managerial and
tech knowledge
Financial Economies (unrelated diversification) - ANSWER 1. efficient internal
capital allocation
-portfolio of businesses with different risk profiles
2. Restructuring of acquired assets
-purchase at bargain prices and turn around (financial distress)
