WPC 480 - Final Exam 2023 with complete solution

Merger Two firms agree to integrate their operations on a relatively co-equal basis Acquisition Controlling 100% interest to make acquired firm a subsidiary business within its portfolio Hostile Takeover Target firm did not solicit the acquiring firm's bid but they eventually agree Market Power Bigger firms with more resources and capabilities (and customers) may achieve... Market Power • Can sell goods or services at prices above competitive levels • Can drive costs below those of competitors Examples of..? Horizontal Acquisition Acquisition of a firm in the same industry (bigger, more resources) Cost-Based Synergies Horizontal acquisition that increases Buyer Power and Economies of Scale Revenue-Based Synergies Horizontal acquistion that increases Supplier Power and provides Monopoly-like Advantages Vertical Acquisition Acquisition of a supplier or distributor of the firm Benefits of Vertical Acquisition Increase a firm's market power by controlling additional parts of the value chain Entry Barriers Factors associated with making it expensive and difficult for new firms to gain market access Differentiated Products and Economies of Scale Features that raise Barriers to Entry Acquisitions - Gain access to new products and capabilities - Special (technological) capability - Increase knowledge base - Increase speed to market - Lower risk Are reasons for...? Change the firms Scope Reduce a firm's dependence on one or more products or markets (unattractive and mature markets) Acquiring to...? Acquisitions Market power (cost or revenue based)? Synergies? To overcome entry barriers? To substitute for new product/capability development? To reduce dependence on one or more products or markets? Managerial opportunism (size drives pay, size and complexity lowers employment risk)? Overconfidence? Reasons for...? Due Diligence The process of evaluating a target firm Due Diligence Ineffective ________ may result in paying an excessive premium for the target company Cultural Differences Why did the Daimler/Chrysler merger fail? Restructuring A strategy through which a firm changes its set of businesses, usually after a failed acquisition Downscoping Restructruing Type: A divestiture, spin-off or other means of eliminating businesses less related to a firm's core business Downsizing Restructure Type: A reduction in the number of a firm's employees and sometimes in the number of its operating units Leveraged Buyout Restructure Type: Party buys all of a firm's assets in order to take the firm private Competition Response Strategy Firms joining forces to respond to competitor strategic action Uncertainty-Reducing Strategy Developing new products and service when firm has mature products or operates in mature industry, to hedge against risk and uncertainty Competition-Reducing Strategy Using explicit collusion or tactic collusion to limit excessive competition Explicit Collusion When firms directly negotiate production output and pricing agreements to reduce competition (Illegal) Tactic Collusion When firms indirectly coordinate their production and pricing decisions by observing other firm's actions and responses Diversifying Alliance An alliance where a firm can expand into a new product or market area (product and geographic diversification) Synergistic Strategic Alliance An alliance that creates synergy across multiple functions or multiple businesses between partner firms. Also to test whether future merger may make sense False The U.S still dominates the World Economy T or F? - Global shift - Blurring the lines between "domestic" and "foreign" firms - Changing world output and world trade picture - Global Labor Market Why is international management becoming more important? International Business - Larger Market Size - Diversification of Business Risks - Labor and Other Inputs Cost Advantages - Taking Advantage of Rising Purchasing Power and Future Wealth in Various Countries Are benefits of...? Ethical Dilemmas in International Business • Bribery • Pollution • Child Labor • Compensation • Health & Safety • Discrimination Examples of...? Economic sanctions by Western nations The dismantling of the apartheid system in South Africa, which occurred in 1994, has been credited to...? Culture • Social Structure • Social Stratification • Religion • Language • Common Historical Background • Diversity Are elements of...? China - 20% English - 6% Hindi - 4.5% Top 3 languages spoken in the world and percentages? 1. Christianity 2. Islam 3. Hinduism 3 most common religions - In order - Power Distance - Individualism - Uncertainty avoidance - Masculinity/Femininity - Long-term/Short-term Orientation Hofstede's 5 Cultural Dimensions Power Distance The extent to which individuals expect a hierarchical structure that emphasizes status differences between subordinates and superiors Individualism The degree to which a society values personal goals, autonomy, and privacy over group loyalty, commitment to group norms, involvement in collective activities, social cohesiveness and intense socialization Uncertainty avoidance The extent to which a society places a high value on reducing risk and instability Masculinity/Femininity The degree to which a society views assertive behavior as important to success and encourages rigidly stereotyped gender roles Long-term/Short-term Orientation The extent to which values are oriented toward the future (saving, persistence) as opposed to the past or present (respect for tradition, fulfilling social obligations) False Knowledge of a foreign language removes barriers to cross-cultural communication T or F? 65% % of communication that is non-verbal in nature Kinesics Gestures, facial expressions body positions, etc. True The Japanese do not tend to spend a lot of time and energy on making small concessions. Instead, they like to view the process holistically, trying to understand each side's views and needs, build trust, and then make concessions, if any, at the end as a form of wrapping up the negotiations. T or F? Collective bargaining Negotiations between a labor union local and management True Unions in the U.S represent a specific group of workers while in other countries unions represent several industries T or F? Political Risks - Forced Divestment - Unwelcome Regulation - Interference with Operations Are what types of risk? Exporting The firm expands its market to include other countries, but retain production facilities within domestic borders Turnkey Projects A specialized type of exporting whereby a contractor agrees to handle the design, construction, startup operations and work force training of a foreign plant Turnkey Deal Host country regulations prevent foreign ownership of an asset such as a petroleum refinery so that a ______ may be the most attractive business option in that country for a firm that possesses that technology Licensing An arrangement whereby a company transfers the rights to a foreign firm to produce and sell its products overseas. In return, the providing company receives a negotiated fee, normally in the form of a royalty False The typical licensing arrangement involves a tangible property T or F? Franchising A company pays a fee for using the brand name of a franchise and agrees to strictly follow the standards and abide by the rules set by the franchise True Licensing is used primarily by manufacturing firms while Franchising is normally pursued by service companies T or F? Joint Ventures An arrangement whereby two or more independent firms agree to establish a separate firm that is owned by the participating companies True In a joint venture the normal equity split is 50/50 T or F? Wholly Owned Subsidiaries An independent firm in a host country where all its equity belongs‑to a foreign company False Most firms use expatriates only for lower-level employees of lesser importance T or F? 2000% and 4000% An expatriate costs between ____% and ____% more than a local employee Hiring Expatriates If sufficient local talent is not available. This is most likely to occur in firms operating in developing countries