Exam 8: Corporate Strategy: Vertical Integration and Diversification

Companies that pursue related diversification are able to create a diversification premium because they:

The core competency of MotorCraft Inc.is its fuel-efficient engine found in its cars.These engines are developed and built in-house.The company realizes that there is a new market opportunity to diversify.Thus, it produces the car engines on a large scale and sells them to other automobile companies.In this scenario, MotorCraft is:

Companies that pursue related diversification are more likely to improve their performance than companies that pursue unrelated diversification.Elaborate.

_____, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another.

DiskOne Inc.holds the highest market share in the low-growth compact disk industry.With the introduction of flash drives, the market for compact disks has reduced.However, DiskOne has been able to generate sufficient revenues for the parent company by selling its products in less developed countries.In the Boston Consulting Group (BCG)growth-share matrix, DiskOne will be categorized under:

Which quadrant in the core competence-market matrix is the hardest to pursue? Give reasons supporting your answer. C. K. Prahalad call the combination of new core competencies with new market opportunities as "mega opportunities"-those that hold significant future-growth opportunities. At the same time, it is likely the most challenging diversification strategy because it requires building new core competencies to create and compete in future markets.

Differentiate between external and internal transaction costs.

Apple and Nike have their own retail outlets and also use other independent retailers, both the brick-and-mortar type and online, to sell their products.This is an example of _____.

Which of the following is an example of an internal transaction cost?

Symphon Times Inc., a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of the emerging nations.Which of the following types of diversification strategies is the firm pursuing?

Which of the following statements is true of internal transaction costs?

What conditions must be met for diversification to enhance firm performance?

When Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with an Australian company, Orocobre Ltd.Orocobre wanted to establish the bond of trust before making huge investments in specialized equipment required to extract the high-quality lithium.What did Toyota do to instill this trust?

While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S.market.What is the reason behind this strategic difference?

Briefly discuss the application of the Boston Consulting Group (BCG)growth-share matrix.

What do you mean by a conglomerate? How does it benefit from a diversification strategy?

HK Goods Inc.is a large conglomerate that operates only in its home country.The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries.Which of the following diversification strategies does this best illustrate?

Which of the following firms is least integrated?

Silver Weave Inc., an apparel company, operates through a business model in which individuals can buy the rights to set up Silver Weave stores and sell the company's merchandise in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month.The owners of the stores have to stock the collection approved from the company's headquarters and also maintain consistent customer service as expected in its flagship store.Which of the following alternatives to integration does this best illustrate?

BioGrow Pharma Inc.wanted its research partner, an R&D company, to develop a cancer vaccine.However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved.Thus, to gain its partner's confidence and to prove its involvement, BioGrow Pharma invested $100 million in the project.This investment made by BioGrow Pharma will result in a _____.