Chapter 7 Strategy Formulation: Corporate Strategy: Strategic Management & Business Policy, 13e (Wheelen/Hunger)

Strategic Management & Business Policy, 13e (Wheelen/Hunger)
Chapter 7 Strategy Formulation: Corporate Strategy

1) Corporate strategy deals primarily with the choice of direction for the firm as a whole and the
management of its business or product portfolio.
Answer: TRUE
Diff: 1
Page Ref: 206
Topic: Corporate Strategy
2) Corporate parenting is the coordination of cash flow among units.
Answer: FALSE
Diff: 2
Page Ref: 206
3) The most widely pursued corporate directional strategies are those designed to achieve
growth.
Answer: TRUE
Diff: 1
Page Ref: 207
Topic: Directional Strategy
4) A merger is a transaction involving two or more corporations in which stock is exchanged, but
from which only one corporation survives.
Answer: TRUE
Diff: 1
Page Ref: 207
5) The two basic growth strategies are concentration and strategic alliances.
Answer: FALSE
Diff: 2
Page Ref: 207
6) Vertical integration is going backward on an industry's value chain.
Answer: FALSE
Diff: 2
Page Ref: 128
7) Vertical integration is the degree to which a firm operates vertically in multiple locations on an
industry's value chain from extracting raw materials to manufacturing to retailing.
Answer: TRUE
Diff: 2
Page Ref: 208
8) Forward integration is often more profitable than backward integration.
Answer: FALSE
Diff: 3
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9) BP Amoco and Royal Dutch Shell are examples of fully integrated firms because they
internally make 100% of their key supplies and completely control their distributors.
Answer: TRUE
Diff: 3
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AACSB: Reflective Thinking
10) With taper integration, a firm internally makes 100% of its key supplies and completely
control its distributors.
Answer: FALSE
Diff: 2
Page Ref: 20
11) An example of forward quasi-integration would be a large pharmaceutical firm that acquires
part interest in a drugstore chain in order to guarantee that its drugs have access to the
distribution channel.
Answer: TRUE
Diff: 3
Page Ref: 209-210
AACSB: Analytic Skills
12) A long-term contract is considered vertical integration.
Answer: FALSE
Diff: 1
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13) Horizontal growth can be achieved by expanding the firm's products into other geographic
locations and/or by increasing the range of products and services offered to current markets.
Answer: TRUE
Diff: 2
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14) Exporting grants rights to another company to open a retail store using the franchiser's name
and operating system.
Answer: FALSE
Diff: 1
Page Ref: 211
15) Forming a joint venture between a foreign corporation and a domestic company is the most
popular strategy used to enter a new country.
Answer: TRUE
Diff: 2
Page Ref: 211
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16) A relatively quick way to move into an international area is through Greenfield development.
Answer: FALSE
Diff: 2
Page Ref: 213
17) Turnkey operations are typically contracts for the construction of operating facilities in
exchange for a fee.
Answer: TRUE
Diff: 2
Page Ref: 213
18) Management contracts are common when a host government expropriates part or all of a
foreign-owned company's holdings in its country.
Answer: TRUE
Diff: 2
Page Ref: 214
19) Synergy is the concept that two businesses will generate more profits together than they
could separately.
Answer: TRUE
Diff: 2
Page Ref: 214
20) Concentric diversification is growth into unrelated businesses.
Answer: FALSE
Diff: 1
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21) Conglomerate diversification is diversifying into an industry unrelated to its current one.
Answer: TRUE
Diff: 1
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22) In terms of diversification strategies, research suggests that the relationship between
relatedness and performance is curvilinear in the shape of an inverted U-shaped curve.
Answer: TRUE
Diff: 3
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23) The stability strategies are really a lack of any strategy.
Answer: FALSE
Diff: 3
Page Ref: 217
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24) Stability strategies can be very useful in the short run, but they can be dangerous if followed
for too long.
Answer: TRUE
Diff: 2
Page Ref: 217
25) When Sony's CEO, Howard Stringer, eliminated 10,000 jobs and closed 11 plants, he was
addressing the consolidation phase of the turnaround strategy.
Answer: FALSE
Diff: 2
Page Ref: 218
26) According to the BCG Growth Share Matrix, cash cows are market leaders typically at the
peak of their product life cycle and are usually able to generate enough cash to maintain their
high share of the market.
Answer: FALSE
Diff: 2
Page Ref: 223
Topic: Portfolio Analysis
27) According to the BCG Growth Share Matrix, dogs should be either sold off or managed
carefully for the small amounts of cash they can generate.
Answer: TRUE
Diff: 2
Page Ref: 223
28) The GE Business Screen is based on long-term industry attractiveness and business
strength/competitive position.
Answer: TRUE
Diff: 2
Page Ref: 223
29) According to the GE Business Screen, the competitive strength of a product is based only on
its market share.
Answer: FALSE
Diff: 2
Page Ref: 224
30) One disadvantage of portfolio analysis is that it provides an illusion of scientific rigor.
Answer: TRUE
Diff: 1
Page Ref: 225
31) Corporate parenting views the corporation in terms of resources and capabilities that can be
used to build business unit value as well as generate synergies across business units.
Answer: TRUE
Diff: 1
Page Ref: 227
Topic: Corporate Parenting
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32) In multipoint competition, large multi-business corporations compete against other large
multi-business firms in a number of markets.
Answer: TRUE
Diff: 2
Page Ref: 228
33) Which strategy specifies the firm's overall direction in terms of its general orientation toward
growth, the industries or markets in which it competes, and the manner in which it coordinates
activities and transfers resources among business units?
A) corporate
B) functional
C) divisional
D) organizational
E) business
Answer: A
Diff: 1
Page Ref: 206
34) Which kind of corporate strategy deals with the firm's overall orientation toward growth?
A) portfolio strategy
B) directional strategy
C) parenting strategy
D) cooperative strategy
E) functional strategy
Answer: B
Diff: 1
Page Ref: 206
35) Which kind of corporate strategy deals with the manner in which the firm coordinates
activities and transfers resources and cultivates capabilities among product lines and business
units?
A) portfolio strategy
B) directional strategy
C) parenting strategy
D) cooperative strategy
E) functional strategy
Answer: C
Diff: 1
Page Ref: 206
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36) Which one of the following directional strategies is most frequently used in corporations?
A) stability
B) growth
C) consolidation
D) retrenchment
E) expansion
Answer: B
Diff: 1
Page Ref: 207
37) Which external growth strategy involves two or more corporations joining in a stock
exchange and from which only one corporation survives?
A) mergers
B) strategic alliances
C) diversification
D) acquisitions
E) concentration
Answer: A
Diff: 2
Page Ref: 207
38) Which of the following strategies was being used when Allied Corporation and Signal
Companies formed Allied Signal?
A) mergers
C) diversification
D) acquisitions
E) concentration
Answer: A
Diff: 2
Page Ref: 207
39) Which external growth strategy was demonstrated when Procter & Gamble completely
absorbed Gillette?
A) mergers
C) diversification
D) acquisitions
E) concentration
Answer: D
Diff: 2
Page Ref: 208
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40) Which of the following is NOT a reason why the growth strategy is so seductive?
A) There are more opportunities for advancement and promotion.
B) A corporation that experiences successful growth is thought of positively by the marketplace
and potential investors.
C) A large and growth-oriented corporation has more clout and influence.
D) A growing firm can cover up mistakes and inefficiencies because of the increase in cash flow
revenue.
E) A large and growing firm attracts more acquisition offers.
Answer: E
Diff: 2
Page Ref: 208
41) The most logical growth strategy for a corporation having a strong competitive position
possessing a high market share in a highly attractive industry is
A) concentration.
B) conglomerate integration.
C) concentric diversification.
D) stability.
E) retrenchment.
Answer: A
Diff: 2
Page Ref: 209
42) Ford Motor Company's use of company resources to build its River Rouge Plant outside of
Detroit so that iron ore could enter into one end of the plant and a finished automobile could exit
out of the other end is called
A) vertical growth.
B) tapered integration.
C) horizontal integration.
D) external vertical integration.
E) quasi-integration.
Answer: A
Diff: 3
Page Ref: 208
43) The purpose of vertical growth is to
A) take over a function previously supplied by a former employer.
B) take over a function previously provided by a supplier or by a distributor.
C) acquire a company of similar objective.
D) sell a company encumbered with debt.
E) expand to countries with strong trade alliances.
Answer: B
Diff: 2
Page Ref: 208
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44) The purchase of Carroll's Foods for its hog-growing facilities by Smithfield Foods, the
world's largest pork processor, is an example of
A) forward integration.
B) horizontal integration.
C) backward integration.
D) transferred integration.
E) mass integration.
Answer: C
Diff: 2
Page Ref: 208
45) The ability for Nike to manufacture its own shoes and then build stores for distribution is an
example of
A) forward integration.
B) horizontal integration.
C) backward integration.
D) transferred integration.
E) mass integration.
Answer: A
Diff: 2
Page Ref: 208
46) A disadvantage of vertical integration is that it
A) creates exit barriers.
B) improves coordination of activities.
C) increases the cost of improvement of coordination and control.
D) creates entry barriers.
E) avoids time consuming tasks.
Answer: A
Diff: 2
Page Ref: 209
47) An attempt to explain that vertical integration is more efficient than contracting for goods
and services in the marketplace when the transaction costs of buying goods on the open market
becomes too great has been proposed by
A) population theory.
B) institution theory.
C) transaction cost economics.
D) trickle down economics.
E) transaction growth theory.
Answer: C
Diff: 2
Page Ref: 209-210
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48) In many cases, ________ integration is more profitable than ________ integration.
A) forward, backward
B) vertical, backward
C) backward, vertical
D) backward, forward
E) mass, forward
Answer: D
Diff: 3
Page Ref: 209
49) When a firm internally makes 100% of its key supplies and completely controls its
distributors, this is known as
A) full integration.
B) vertical integration.
C) mass integration.
D) economical integration.
E) strategic integration.
Answer: A
Diff: 2
Page Ref: 209
50) When Bristol-Myers Squibb purchased 17% of ImClone's common stock to gain access to a
new drug, it was using which type of integration?
A) full integration
B) long-term contracts
C) backwards integration
D) taper integration
E) quasi integration
Answer: E
Diff: 3
Page Ref: 210
51) A firm's expansion into other geographic locations and/or increasing the range of products
and services offered to current markets is called
A) forward vertical growth.
B) diversification.
C) backward vertical growth.
D) captive company strategy.
E) horizontal growth.
Answer: E
Diff: 2
Page Ref: 211
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52) Which strategy did Delta choose when it acquired Northwest Airlines to obtain access to
Northwest's Asian markets?
A) A retrenchment strategy using horizontal integration through internal means.
B) A horizontal integration strategy.
C) A stability strategy using concentric diversification.
D) A growth strategy using vertical integration through external means.
E) A retrenchment strategy using a concentration method.
Answer: B
Diff: 2
Page Ref: 211
53) As defined by the text, synergy is the concept
A) that involves adding different products or divisions to the corporation.
B) that supports the acquisition of one corporation by another.
C) that two firms can generate more profits together than separately.
D) that a corporation can enter one or more businesses that are necessary to manufacture its own
product.
E) that two functional areas of a corporation can coordinate their work as a team.
Answer: C
Diff: 1
Page Ref: 214
54) Adding a related or complementary product to a corporation's business units is called
A) concentration.
B) horizontal growth.
D) vertical growth.
E) conglomerate diversification.
Answer: C
Diff: 1
Page Ref: 214
55) Growth through diversification out of an industry into an unrelated industry is called
A) concentration.
B) horizontal growth.
D) vertical growth.
E) conglomerate diversification.
Answer: E
Diff: 1
Page Ref: 215
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56) Which strategy might be the most likely when management realizes that the current industry
is unattractive and that the firm lacks outstanding skills that it could easily transfer to related
products or services in other industries?
A) concentration
B) horizontal growth
C) concentric diversification
D) vertical growth
E) conglomerate diversification
Answer: E
Diff: 3
Page Ref: 215
57) With conglomerate diversification, the focus is on
A) product-market synergy.
B) financial considerations.
C) employee satisfaction.
D) similar product offerings.
E) market demand.
Answer: B
Diff: 2
Page Ref: 215
58) An MNC uses which international strategy for entering a foreign market by simply shipping
goods produced in the company's home country to other countries for marketing to minimize risk
and to experiment with a specific product?
A) licensing
B) joint ventures
C) production sharing
D) exporting
E) acquisitions
Answer: D
Diff: 2
Page Ref: 211
59) An MNC uses which international strategy for entering a foreign market by associating itself
with a firm in the host country or a government agency in that country to combine resources and
expertise needed for the development of a new product or technologies?
A) licensing
B) joint ventures
D) exporting
E) acquisitions
Answer: B
Diff: 2
Page Ref: 212
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60) One benefit of a U.S. company entering a joint venture with an international firm is that it
A) reduces the risks of expropriation.
B) enhances the policy of the host country's takeover of the firm.
C) promotes skepticism among other countries not involved in the merger.
D) encourages competitors to work with the company.
E) increases revenues by 20%.
Answer: A
Diff: 2
Page Ref: 213
61) An MNC uses which international strategy for entering a foreign market by purchasing
another company already operating in the area developing synergistic benefits gained from
acquiring strong complementary product lines and a good distribution network?
A) licensing
B) joint ventures
D) exporting
E) acquisitions
Answer: E
Diff: 2
Page Ref: 213
62) In international dealings, green-field development is
A) a way in which an MNC may contract with a foreign government or local firm to trade raw
materials for certain resources belonging to the MNC.
B) a way in which an MNC can take total control of operations by acquiring a firm already
established in the host country.
C) when a corporation chooses to build a facility from scratch allowing it the freedom to design
the plant, choose suppliers, and hire its work force.
D) when an MNC has a large amount of management talent available and chooses to use its
personnel to assist a firm in a host country for a specified fee and period of time.
E) contracting for construction of operating facilities in exchange for a fee.
Answer: C
Diff: 2
Page Ref: 213
63) An MNC uses which international strategy for entering a foreign market by combining the
higher labor skills and technology available in the developed countries with the lower cost labor
available in the developing countries?
A) licensing
B) joint ventures
D) exporting
E) acquisitions
Answer: C
Diff: 2
Page Ref: 213
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64) In international dealings, turnkey operations are

A) a way in which an MNC may contract with a foreign government or local firm to trade raw
B) a way in which an MNC can take total control of operations by either starting a business from
scratch or acquiring a firm already established in the host country.
the plant, choose suppliers, and hire a work force.
E) contracting for construction of operating facilities in exchange for a fee.
Answer: E
Diff: 3
Page Ref: 213
65) Management contracts are used in international dealings
A) as a way in which an MNC may contract with a foreign government or local firm to trade raw
B) as a way in which an MNC can take total control of operations by either starting a business
from scratch or acquiring a firm already established in the host country.
the plant, choose suppliers, and hire a work force.
E) when an MNC typically contracts for construction of operating facilities in exchange for a fee.
Answer: D
Diff: 2
Page Ref: 214
66) Research comparing concentric with conglomerate diversification concludes that
A) conglomerate diversification is always less profitable than concentric diversification.
B) concentric diversification is always less profitable than conglomerate diversification.
C) the relationship between relatedness and performance is curvilinear.
D) neither concentric nor conglomerate diversification are ever profitable.
E) for optimum effectiveness both conglomerate and concentric diversification should be utilized
in tandem.
Answer: C
Diff: 3
Page Ref: 216
67) The controversy surrounding external versus internal growth finds
A) external growth appears to be superior financially to internal growth.
B) internal growth appears to be superior financially to external growth.
C) there appears to be no financial advantage to either.
D) acquisitions have a lower survival rate than new internally generated business ventures.
E) strategic alliances are superior to both.
Answer: B
Diff: 3
Page Ref: 216
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68) The stability strategy is appropriate for all of the following circumstances EXCEPT
A) useful in the short-run but can be dangerous if followed too long.
B) most appropriate for reasonably successful corporations in a reasonably predictable
environment.
C) appropriate when the industry is facing modest or no-growth potential.
D) appropriate when the industry is in decline.
E) popular with small business owners who have found a niche and are happy with their success.
Answer: D
Diff: 2
Page Ref: 217
69) Which strategy is most appropriate as a temporary strategy to enable a corporation to
consolidate its resources after prolonged rapid growth in an industry now facing an uncertain
future?
A) horizontal integration strategy
B) no change strategy
C) retrenchment strategy
D) pause/proceed with caution strategy
E) profit strategy
Answer: D
Diff: 2
Page Ref: 217
70) Which strategy is most appropriate for a company in an industry in which the future is
expected to continue as an extension of the present?
A) horizontal integration strategy
B) no change strategy
C) retrenchment strategy
D) pause/proceed with caution strategy
E) profit strategy
Answer: B
Diff: 2
Page Ref: 217
71) Which of the following describes a turnaround strategy?
A) A form of divestment and is appropriate when corporate problems can be traced to the poor
performance of an SBU or product line.
B) Occurs when the corporation reduces the scope of some of its functional activities and
becomes "captive" to another firm.
C) Emphasizes improving operational efficiency and is appropriate when a corporation's
problems are pervasive, but not yet critical.
D) Occurs when a corporation liquidates all its assets.
E) Involves adding different products or divisions to the corporation.
Answer: C
Diff: 1
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72) The strategy which takes place in two basic phases of contraction and consolidation is
A) merger.
B) liquidation
C) integration.
D) divestment.
E) turnaround.
Answer: E
Diff: 1
Page Ref: 218
73) Which one of the following is NOT a characteristic of a firm that has chosen a captive
company strategy?
A) Probably most appropriate for a company with a strong competitive position in a growing
industry.
B) The firm reduces its functional activities to reduce costs.
C) The firm gains a certainty of sales and production in return for becoming heavily dependent
upon another firm for at least 75% of its sales.
D) One of its customers makes up a large percentage of the company's sales and wants the
company to keep operating as its supplier.
E) Management desperately seeks an "angel" to guarantee the company's continued existence.
Answer: A
Diff: 3
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74) In which strategy does management hope that another company will have the necessary
resources and determination to return the company to profitability?
A) sell out
B) captive company
C) liquidation
D) bankruptcy
E) all of the above
Answer: A
Diff: 1
Page Ref: 219
75) Which strategy involves giving up management of the firm to the courts in return for some
settlement of the corporation's obligations?
A) liquidation
B) bankruptcy
C) diversification
D) divestment
E) consolidation
Answer: B
Diff: 1
Page Ref: 219
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76) Which strategy did Circuit City use in 2008 when it converted its retail stores to cash?
A) liquidation
B) bankruptcy
C) diversification
D) divestment
E) consolidation
Answer: A
Diff: 2
Page Ref: 220
77) One of the most popular aids to developing corporate strategy in multi-business corporations
that views business units in terms of the cash they generate is called
A) PIMS.
B) segmentation analysis
C) portfolio analysis.
D) industry analysis.
E) diversification study.
Answer: C
Diff: 2
Page Ref: 220
78) In the Boston Consulting Group's Growth-Share Matrix, the relative competitive position of
a product, division, or corporation is defined as
A) its market share.
B) its gross sales divided by its market share.
C) its market share multiplied by that of its nearest competitor.
D) its market share divided by that of the smallest other competitor.
E) its market share divided by that of the largest other competitor.
Answer: E
Diff: 2
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79) The growth-share matrix of the Boston Consulting Group suggests that the excess cash being
generated by "cash cows" should be used to fund
A) "dogs."
B) "question marks."
C) "stars."
D) "white knights."
E) "fish."
Answer: B
Diff: 2
Page Ref: 222
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80) According to the BCG Growth-Share Matrix, market leaders that typically are at the peak of
their product life cycle and are usually able to generate enough cash to maintain their high share
of the market are called
A) cash cows.
B) lost leaders.
C) dogs.
D) question marks.
E) stars.
Answer: E
Diff: 1
Page Ref: 222
81) Products that typically bring in far more money than is needed for maintenance of their
market share are called
A) cash cows.
B) lost leaders.
C) dogs.
D) question marks.
E) stars.
Answer: A
Diff: 1
Page Ref: 223
82) According to the BCG Growth Share Matrix, those products with low market share that do
NOT have the potential to bring in much cash are called
A) cash cows.
B) lost leaders.
C) dogs.
D) question marks.
E) stars.
Answer: C
Diff: 1
Page Ref: 223
83) According to the BCG Growth-Share Matrix, the key to success is
A) effective management.
B) competitive positioning.
C) innovative initiative.
D) industry leadership.
E) market share.
Answer: E
Diff: 2
Page Ref: 223
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84) Which of the following is NOT one of the limitations of the BCG Growth Share Matrix?
A) It is too simplistic.
B) The link between market share and profitability is questionable.
C) Growth rate is only one aspect of industry attractiveness.
D) There are too many aspects of overall competitive position included.
E) Small competitors with fast-growing market share are ignored.
Answer: D
Diff: 3
Page Ref: 223
85) Which of the following is NOT defined by GE as one of the variables forming industry
attractiveness?
A) market share
B) market size
C) market growth rate
D) pricing practices
E) industry profitability
Answer: A
Diff: 2
Page Ref: 224
86) The GE Business Screen has been criticized because
A) it is based on the product life cycle.
B) the categories are too few.
C) it can get quite complicated and cumbersome.
D) it is a primitive version of the BCG Growth Share Matrix.
E) it is only appropriate for new products or SBUs in developing industries.
Answer: C
Diff: 3
Page Ref: 225
87) Which of the following is NOT one of the advantages of portfolio analysis?
A) The graphic depiction facilitates communication.
B) It provides the basis for impartial objectivity from which to make decisions.
C) It encourages top management to evaluate each of the corporation's businesses individually.
D) It raises the issue of cash flow availability for use in expansion and growth.
E) It stimulates the use of externally oriented data to supplement management's judgment.
Answer: B
Diff: 3
Page Ref: 225
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88) Which of the following is NOT one of the limitations of portfolio analysis?
A) It contains value-laden terminology that can lead to self-fulfilling prophecies.
B) It is not easy to define product/market segments.
C) It relies too heavily on objective judgments.
D) It suggests the use of standard strategies which may be impractical or may miss potential
opportunities.
E) It provides an illusion of scientific rigor.
Answer: C
Diff: 3
Page Ref: 225
89) Corporate parenting generates corporate strategy by focusing on
A) the core competencies of the parent corporation and on the value created from the relationship
between the parent and its units.
B) the cash flow among its business units.
C) whether a business unit should be growing, stabilizing, or retrenching.
D) acquiring distinctive competencies in the marketplace.
E) differentiating its activities into separate units and integrating these activities through complex
integrating mechanisms.
Answer: A
Diff: 1
Page Ref: 227
90) According to the text, 75% of a company's market value is derived from its
A) employees.
B) intangible assets.
C) plant assets.
D) joint ventures.
E) licensing agreements.
Answer: B
Diff: 2
Page Ref: 227
91) According to Campbell, Goold, and Alexander in their parenting-fit matrix when parent
companies create more value than any of their rivals would if they owned the same businesses,
they have
A) multi-point competition.
B) parenting advantage.
C) corporate parenting.
D) portfolio analysis.
E) no real advantage.
Answer: B
Diff: 2
Page Ref: 227
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92) A corporate strategy that cuts across divisional boundaries to build synergy across business
units to improve the competitive position of one or more business units is called
A) vertical strategy.
B) horizontal strategy.
C) hierarchical strategy.
D) portfolio strategy.
E) pyramid strategy.
Answer: B
Diff: 2
Page Ref: 228
93) When P & G, Kimberly-Clark, and Scott Paper compete with each other in varying
combinations of consumer paper products, they are said to be engaging in
A) oligopolistic competition.
B) strategic competition.
C) multipoint competition.
D) laissez-faire competition.
E) horizontal competition.
Answer: C
Diff: 2
Page Ref: 185
94) What are the three key issues that corporate strategy deals with?
Answer: Corporate strategy deals with three key issues:
1. the firm's overall orientation toward growth, stability, and retrenchment (directional strategy).
2. the industries or markets in which the firm competes through its products and business units
(portfolio strategy)
3. the manner in which management coordinates activities and transfers resources and cultivates
capabilities among product lines and business units (parenting strategy).
Diff: 2
Page Ref: 206
95) Discuss the three general orientations comprising directional strategy?
Answer: The three general orientations comprising directional strategy are growth, stability and
retrenchment. Growth strategies expand the company's activities. Stability strategies make no
change to the company's current activities. Retrenchment strategies reduce the company's level
of activities.
Diff: 2
Page Ref: 207
96) Why is growth a very attractive strategy?
Answer: Growth is a very attractive strategy for two key reasons. First, growth based on
increasing market demand may mask flaws in a company. Second, a growing firm offers more
opportunities for advancement, promotion, and interesting jobs. Growth itself is exciting and
ego-enhancing for CEOs.
Diff: 1
Page Ref: 208
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97) Discuss the two basic growth strategies.

Answer: The two basic growth strategies are concentration on the current product line in one
industry and diversification into other product lines in other industries. If a company's product
lines have real growth potential, concentration of resources on those product lines makes sense
as a strategy for growth. Companies begin thinking about diversification when their growth has
plateaued and opportunities for growth in the original business have been depleted.
Diff: 2
Page Ref: 208
98) What are the more popular options for international entry?
Answer: There are several popular options for international entry. Exporting is a good way to
minimize risk and experiment with a specific product. Exporting involves shipping goods
produced in the company's home country to other countries for marketing. Under a licensing
agreement, the licensing firm grants rights to another firm in the host country to produce and/or
sell a product. The licensee pays compensation to the licensing firm in return for technical
expertise. Under a franchising agreement, the franchiser grants rights to another company to
open a retail store using the franchiser's name and operating system. In exchange, the franchisee
pays the franchiser a percentage of its sales as a royalty. Forming a joint venture between a
foreign corporation and a domestic company is the most popular strategy used to enter a new
country. Companies often form joint ventures to combine the resources and expertise needed to
develop new products or technologies. A relatively quick way to move into an international area
is through acquisitions - purchasing another company already operating in that area. If a
company doesn't want to purchase another company's problems along with its assets, it may
choose green-field development - building its own manufacturing plant and distribution system.
Production sharing is the process of combining the higher labor skills and technology available
in the developed countries with the lower-cost labor available in developing countries. Turnkey
operations are typically contracts for the construction of operating facilities in exchange for a
fee. The BOT (Build, Operate, Transfer) concept is a variation of the turnkey operation. Instead
of turning the facility over to the host country when completed, the company operates the facility
for a fixed period of time during which it earns back its investment, plus a profit. Management
contracts offer a means through which a corporation may use some of its personnel to assist a
firm in a host country for a specified fee and period of time.
Diff: 3
Page Ref: 211-214
99) Discuss the more popular stability strategies.
Answer: The more popular stability strategies include the pause-proceed with caution, no
change, and profit strategies. A pause - proceed with caution - strategy is, in effect, a timeout an opportunity to rest before continuing a growth or retrenchment strategy. A no change strategy
is a decision to do nothing new - a choice to continue current operations and policies for the
foreseeable future. A profit strategy is a decision to do nothing new in a worsening situation but
instead to act as though the company's problems are only temporary.
Diff: 2
Page Ref: 217-218
21
100) Define a retrenchment strategy. Discuss the more popular options.

Answer: A retrenchment strategy may be used when a company has a weak competitive position
in some or all of its product lines resulting in poor performance - sales are down and profits are
becoming losses. The more popular options are turnaround, becoming a captive company,
selling out, bankruptcy, and liquidation. Turnaround strategy emphasizes the improvement of
operational efficiency and is probably most appropriate when a corporation's problems are
pervasive, but not yet critical. The two basic phases of a turnaround strategy are contraction and
consolidation. A captive company strategy is the giving up of independence in exchange for
security. If a corporation with a weak competitive position in this industry is unable either to pull
itself up by its bootstraps or to find a customer to which it can become a captive company, it may
have no choice but to sell out. Bankruptcy involves giving up management of the firm to the
courts in return for some settlement of the corporation's obligations. Liquidation is the
termination of the firm.
Diff: 2
Page Ref: 219-220
101) What is portfolio analysis?
Answer: In portfolio analysis, top management views its product lines and business units as a
series of investments from which it expects a profitable return. The product lines/business units
from a portfolio of investments that top management must constantly juggle to ensure the best
return of the corporation's invested money.
Diff: 1
Page Ref: 220
102) Describe the four categories of the BCG Growth Share Matrix.
Answer: The four categories of the BCG Growth Share Matrix are question marks, stars, cash
cows, and dogs. Question marks are new products with the potential for success, but they need a
lot of case for development. Stars are market leaders typically at the peak of their product life
cycle and are usually able to generate enough cash to maintain their high share of the market.
Cash cows typically bring in far more money than is needed to maintain their market share. In
this declining stage of their life cycle, these products are "milked" for cash that will be invested
in new question marks. Dogs have low market share and do not have the potential to bring in
much cash. Dogs should be either sold off or managed carefully for the small amount of cash
they can generate.
Diff: 3
Page Ref: 222-223
103) Define corporate parenting.
Answer: Corporate parenting views the corporation in terms of resources and capabilities that
can be used to build business unit value as well as generate synergies across business units.
Corporate parenting generates corporate strategy by focusing on the core competencies of the
parent corporation and on the value created from the relationship between the parent and its
businesses.
Diff: 1
Page Ref: 227
22

Chapter 7 Strategy Formulation: Corporate Strategy: Strategic Management & Business Policy, 13e (Wheelen/Hunger)

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Chapter 7 Strategy Formulation: Corporate Strategy: Strategic Management & Business Policy, 13e (Wheelen/Hunger)

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Strategic Management & Business Policy, 13e (Wheelen/Hunger)

Chapter 7 Strategy Formulation: Corporate Strategy

64) In international dealings, turnkey operations are

97) Discuss the two basic growth strategies.

100) Define a retrenchment strategy. Discuss the more popular options.

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