Strategic Management Final Exam
Questions &Answers(RATED A+)
Chapter 9 - ANSWERCorporate Strategy: Acquisitions, Alliances and Networks
Merger - ANSWERTwo independent companies form a combined entity
(tend to be friendly) Ex) Disney merged with Pixar
Acquisition - ANSWERPurchase or takeover of one company by another
Hostile takeover (when a firms does not want to be acquired)
Ex) Vodaphone takeover of german based Mannesmann
Horizontal Integration - ANSWERProcess of acquiring and merging with competitors, leading to
industry consolidation
Type of corporate strategy designed to improve a firms strategic position
Ex) Music industry --> Live Nation bought Ticketmaster
4 Main benefits of Horizontal integration - ANSWER1. Reduction of competitive intensity
2. Lower Costs
3. Increased differentiation
4. Access to new markets and distribution channels
Reduction in competitive intensity - ANSWERExcess capacity is taken out of the market and
competition decreases
,oligopolistic industry structure, focus is on non-price competition --> greater chance for profitability
How it affects 5 Forces Model:
Strengthening bargaing power with suppliers & buyers
Reduce the threat of entry, rivalry among firms
Lower Costs - ANSWERHorizontal integration is used to lower costs through ECONOMIES OF SCALE
Enhance economic value creation, enhance performance
Industries that have high fixed costs, achieving economies of scale through large output is critical in
lowering costs
Ex) Pharmaceutical companies
Increased Differentiation - ANSWERStrengthen competitive positions by increasing differentiation of
their product and service offerings
Fill gaps in firms product offering by leveraging the combined entity core competencies
Access to new markets and distribution channels - ANSWERGain access to new markets and
distribution channels both US and Globally
Do mergers & acquisitions create competitive advantage? - ANSWERIn most cases they do not.
Destroy shareholder value because the anticipated synergies never materialize
3 Reasons why we see so many M&A's - ANSWER1. Desire to overcome competitive disadvantage
2. Superior acquisition and integration capability
3. Principal-agent problems
, Desire to overcome competitive disadvantages - ANSWERMay put the organization on the road to
gaining a competitive advantage
Ex) Adidas acquiring Reebook achieved economies of scale and scope that were unachievable before
Superior acquisition & integration capability - ANSWERFirms that are able to identify, acquire, and
integrate target companies to strengthen their competitive positions
If it is valuable, rare, difficult to imitate, a superior acquisition & integration can lead to competitive
advantage
Ex) Cisco Systems
Principal-Agent Problems - ANSWERIncentive to grow firms through acquisitions but not for
shareholder value.
Power, Prestige, Pay, Perks, Larger organization, job security
Managerial Hubris: a form of self-delusion in which managers convince themselves of their superior
skills in the face of clear evidence to the contrary
Strategic Alliances - ANSWERArrangement between firms that involve the sharing of knowledge,
resources, and capabilities with the intent of developing processes, products, or services to lead to
competitive advantage
Why do firms enter strategic alliances - ANSWER1. Strengthen competitive position
2. Enter new markets
3. Hedge against uncertainty
4. Access critical complementary assets
Questions &Answers(RATED A+)
Chapter 9 - ANSWERCorporate Strategy: Acquisitions, Alliances and Networks
Merger - ANSWERTwo independent companies form a combined entity
(tend to be friendly) Ex) Disney merged with Pixar
Acquisition - ANSWERPurchase or takeover of one company by another
Hostile takeover (when a firms does not want to be acquired)
Ex) Vodaphone takeover of german based Mannesmann
Horizontal Integration - ANSWERProcess of acquiring and merging with competitors, leading to
industry consolidation
Type of corporate strategy designed to improve a firms strategic position
Ex) Music industry --> Live Nation bought Ticketmaster
4 Main benefits of Horizontal integration - ANSWER1. Reduction of competitive intensity
2. Lower Costs
3. Increased differentiation
4. Access to new markets and distribution channels
Reduction in competitive intensity - ANSWERExcess capacity is taken out of the market and
competition decreases
,oligopolistic industry structure, focus is on non-price competition --> greater chance for profitability
How it affects 5 Forces Model:
Strengthening bargaing power with suppliers & buyers
Reduce the threat of entry, rivalry among firms
Lower Costs - ANSWERHorizontal integration is used to lower costs through ECONOMIES OF SCALE
Enhance economic value creation, enhance performance
Industries that have high fixed costs, achieving economies of scale through large output is critical in
lowering costs
Ex) Pharmaceutical companies
Increased Differentiation - ANSWERStrengthen competitive positions by increasing differentiation of
their product and service offerings
Fill gaps in firms product offering by leveraging the combined entity core competencies
Access to new markets and distribution channels - ANSWERGain access to new markets and
distribution channels both US and Globally
Do mergers & acquisitions create competitive advantage? - ANSWERIn most cases they do not.
Destroy shareholder value because the anticipated synergies never materialize
3 Reasons why we see so many M&A's - ANSWER1. Desire to overcome competitive disadvantage
2. Superior acquisition and integration capability
3. Principal-agent problems
, Desire to overcome competitive disadvantages - ANSWERMay put the organization on the road to
gaining a competitive advantage
Ex) Adidas acquiring Reebook achieved economies of scale and scope that were unachievable before
Superior acquisition & integration capability - ANSWERFirms that are able to identify, acquire, and
integrate target companies to strengthen their competitive positions
If it is valuable, rare, difficult to imitate, a superior acquisition & integration can lead to competitive
advantage
Ex) Cisco Systems
Principal-Agent Problems - ANSWERIncentive to grow firms through acquisitions but not for
shareholder value.
Power, Prestige, Pay, Perks, Larger organization, job security
Managerial Hubris: a form of self-delusion in which managers convince themselves of their superior
skills in the face of clear evidence to the contrary
Strategic Alliances - ANSWERArrangement between firms that involve the sharing of knowledge,
resources, and capabilities with the intent of developing processes, products, or services to lead to
competitive advantage
Why do firms enter strategic alliances - ANSWER1. Strengthen competitive position
2. Enter new markets
3. Hedge against uncertainty
4. Access critical complementary assets
