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Exam 6: Corporate-Level Strategy.

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Question 71

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Multipoint competition occurs when

A) firms have multiple retail outlets.
B) firms have multiple products in their primary industry.
C) diversified firms compete against each other in several markets.
D) firms have diversified portfolios of companies.

E) None of the above
F) All of the above

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Question 72

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When firms share activities across units,they are often able to achieve increased value.

A) True
B) False

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Question 73

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Knowing that their firms could be acquired if they are not managed successfully encourages executives to use value-creating diversification strategies.

The more "constrained" the relatedness of diversification,

A major advantage of diversification is that overall monitoring costs are reduced,since each separate business comes under the control of corporate headquarters.

If the businesses in the corporate portfolio are not worth more under the management of the corporation than they would be under any other ownership,then the corporate-level strategy has failed.

Compared with diversification based on intangible resources,diversification based on financial resources is

A company that tries to balance both operational and corporate relatedness and fails risks incurring diseconomies of scope.

Dragonfly Publishers of children's books has purchased White Rabbit,another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different,since Dragonfly produces children's literature,whereas White Rabbit focuses on child-level scientific and nature topics. Which of the following statements is probably TRUE about this acquisition?

A firm that earns less than 70 percent of revenue from its dominant business and has direct connections between its businesses is engaging in diversification.

Successful unrelated diversification through restructuring is typically accomplished by

Hutchison Whampoa Limited (HWL) has businesses in ports and related services,telecommunications,property and hotels,retail and manufacturing,and energy and infrastructure. HWL makes no efforts to share activities or transfer core competencies among the businesses. HWL is following a strategy of diversification.

A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT

Firms using the related constrained strategy share activities in order to create value.

Diversification strategies can be used with both value-creating and value-neutral objectives.

One advantage of an unrelated diversification strategy in a developed economy is that competitors cannot easily imitate the financial economies,whereas they can easily replicate the value gained through the use of a related diversification strategy.

Case Scenario 2: Jewell Company. Jewell Company (JC)is a $2 billion diversified manufacturer and marketer of simple household items, cookware, and hardware. In the early 1950s, JC's business consisted solely of manufactured curtain rods that were sold through hardware stores and retailers like Sears. Since the 1960s however, the company has diversified extensively through acquisition into such businesses as paintbrushes, writing pens, pots and pans, and hairbrushes. Over 90 percent of its growth can be attributed to these many small acquisitions, whose performance it improved tremendously through aggressive restructuring and its corporate emphasis on cost-cutting and cost controls. While JC's sixteen different lines of business may appear quite different, they all share the common characteristics of being staple manufactured items and sold primarily through volume retail channels like Walmart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing, R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills, and acquisition competency)and external (distribution channel of volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billion U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food containers, and a broad range of other plastic storage containers designed for home and office use. While Plastico has been highly innovative (over 80 percent of its growth has come from internal new product development), it has had difficulty controlling costs and is losing ground against powerful customers like Walmart. JC believes that the market power it wields with retailers like Walmart will help it turn Plastico's prospects around. -(Refer to Case Scenario 2). Why would the acquisition of Plastico be good for JC?

An office management firm has developed a system for efficiently organizing small medical and dental practices both through proprietary software and through unique training programs for staff. It has recently acquired a firm specializing in providing management services for veterinary practices. The office management firm is hoping to

GE (discussed in the Chapter 6 Opening Case)is an example of a firm that used its corporate strategy to achieve competitive advantage by selecting and managing a group of different businesses competing in different product markets.

Firms that sold off related units in which resource sharing was a possible source of economies of scope have been found to produce lower returns than those that sold off businesses unrelated to the firm's core businesses.