MGT603 Solved MCQs from Book by David (chap 5)

MGT603 Solved MCQs from Book by David (chap 5)

CHAPTER 5

Strategies in Action

True/False

Long-Term Objectives

1. Long-term objectives represent the results expected from pursuing certain strategies. ([Link]

Ans: T Page: 168

2. Objectives provide direction and allow for organizational synergy.

Ans: T Page: 168

3. Strategic objectives include those associated with growth in revenues, growth in earnings, higher dividends, larger profit
margins and improved cash flow.
Ans: F Page 169

4. Strategic objectives include larger market share, quicker on-time delivery than rivals, quicker design-to-market
times than rivals, lower costs than rivals, and wider geographic coverage than rivals.
Ans: T Page: 169

5. “If it ain’t broke, don’t fix it” refers to managing by crisis. ([Link]
Ans: F Page: 170

6. The overall aim of the Balanced Scorecard is to balance financial objectives with strategic objectives.
Ans: F Page: 170

7. Since a combination strategy is not risky, many organizations pursue a combination of two or more strategies
simultaneously. ([Link]
Ans: F Page: 171

8. Horizontal integration is seeking ownership or increased control over competitors.

Ans: T Page 173

9. Divestiture is selling all of a company’s assets, in parts, for their tangible worth.
Ans: F Page 173

10. A chief executive officer is located in the divisional level of a large firm.
Ans: F Page: 174

Integration Strategies

11. Gaining ownership or increased control over distributors or retailers is called forward integration strategy.
Ans: T Page: 174

12. Franchising is an effective means of implementing forward integration.

Ans: T Page: 174

13. A growing trend is for franchisers to buy out their part of the business from their franchisees.
Ans: F Page: 175
14. Forward integration strategy is especially effective when the availability of quality distributors is so limited as to offer a
competitive advantage to those firms that integrate forward.
Ans: T Page: 175

15. A strategy of seeking ownership or increased control of a firm’s supplier is backward integration.
Ans: T Page: 175

16. If a firm’s present suppliers are expensive and unreliable in meeting the firm’s needs for parts, components and/or raw
materials, the firm should pursue a horizontal integration strategy.
Ans: F Page: 176

17. Horizontal integration is an appropriate strategy when the competitors of an organization are doing poorly.
Ans: F Page: 176

Intensive Strategies
18. Market penetration, market development, product development and joint venture are intensive strategies.
Ans: F Page: 177

19. When the correlation between dollar sales and dollar marketing expenditures has historically been low, market
penetration is an appropriate strategy.
Ans: F Page: 178

20. Market development includes introducing present products into new geographic areas.
Ans: T Page: 178

21. An appropriate strategy when an organization has excess production capacity is market development.
([Link]
Ans: T Page: 178

22. Increasing advertising expenditures can be a market development strategy.

Ans: F Page: 179

23. Product development is a strategy that seeks increased sales by improving or modifying present products or services.
Ans: T Page: 179

24. Product development is an appropriate strategy when an organization has successful products that are in the maturity
stage of the product life cycle.
Ans: T Page: 179

Diversification Strategies
25. There are four basic types of diversification: concentric, conglomerate, forward and backward. ([Link]
Ans: F Page: 180

26. Most companies favor related diversification strategies in order to exploit common use of a well-known brand name.
Ans: T Page 180

27. The related diversification strategy is effective when an organization has a weak management team.
Ans: F Page: 181

28. Unrelated diversification is an appropriate strategy when an organization’s present channels of distribution can be used
to market the new products to current customers.
Ans: T Page: 182

29. Donald Trump starting TrumpUniversity in 2005 is a good example of unrelated diversification. ([Link]
Ans: T Page: 183

30. Unrelated diversification may be an especially effective strategy when an organization’s basic industry is experiencing increasing
annual sales and profits. ([Link]
Ans: F Page 184
Defensive Strategies

31. Retrenchment and turnaround are the same strategy. ([Link]

Ans: T Page: 184

32. Although bankruptcy can be an effective type of retrenchment strategy, it does not allow firms to avoid major debt
obligations and to void union contracts.
Ans: F Page 185

33. Chapter 7 bankruptcy is a liquidation procedure used only when a firm sees no hope of being able to operate
successfully or to obtain necessary creditor agreement.
Ans: T Page: 185

34. Chapter 9 bankruptcy applies to municipalities.

Ans: T Page: 185

35. Chapter 13 bankruptcy is similar to Chapter 11, but available only to large corporations. ([Link]
Ans: F Page: 185

36. Divestiture is the selling of land a firm owns.

Ans: F Page: 186

37. Liquidation is often appropriate when retrenchment and divestiture have failed.
Ans: T Page: 188

Michael Porter’s Five Generic Strategies

38. According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership,
differentiation and integration. ([Link]
Ans: F Page: 188

39. For consumers who are price sensitive, cost leadership emphasizes producing standardized products at very low per-
unit cost.
Ans: T Page: 188

40. A best-value strategy offers products or services to a wide range of customers at the lowest price on the market.
Ans: F Page 188

41. A low-cost focus strategy offers products or services to a small range of customers at the lowest price available on the
market.
Ans: T Page 188

42. Jiffy Lube International would be a good example of a firm seeking the best-value focus strategy.
Ans: F Page 188

43. A differentiation strategy can only be achieved with a small target market. ([Link]
Ans: F Page 189

44. Gaining a differentiation advantage is a primary reason for pursuing forward, backward, and horizontal integration
strategies.
Ans: F Page 189

45. A cost leadership strategy can be especially effective when most buyers use the product in the same way.
([Link]
Ans: T Page 190

46. The most effective differentiation bases are those that are hard or expensive for rivals to duplicate.
Ans: T Page 191

47. A differentiation strategy can be especially attractive when the industry has many different niches and segments, thereby
allowing a focuser to pick a competitively attractive niche suited to its own resources.
 Ans: F Page 193

48. In a turbulent, high-velocity market, a lead-change strategy is best whenever the firm has the resources to pursue this
approach.
Ans: T Page 193

Means for Achieving Strategies

49. Cooperative arrangements and joint ventures between competitors are becoming increasingly popular.
Ans: T Page: 193

50. Joint ventures tend to fail when managers who must collaborate daily in operating the venture are not involved in forming or
shaping the venture.
Ans: T Page: 196

51. Divestiture would be an appropriate strategy when a need exists to introduce a new technology quickly.
Ans: F Page: 196

Merger/Acquisition

52. An acquisition occurs when a large organization purchases a smaller one or vice versa.
Ans: T Page: 197

53. When an acquisition or merger is not desired by both parties, it is called a takeover or hostile takeover.
Ans: T Page: 197
54. A leveraged buyout occurs when a firm’s management and other private investors use borrowed funds to buy out the
firm’s shareholders.
Ans: T Page: 200

55. First mover advantage refers to the benefits a firm may achieve by entering a new market or developing a new
product or service prior to rival firms.
Ans: T Page: 200

56. Companies are avoiding outsourcing more and more because it is more expensive than traditional methods and it
does not allow a firm to concentrate on core competencies. ([Link]
Ans: F Page: 201

Strategic Management in Nonprofit and Government Organizations

57. The nonprofit sector is America’s largest employer.

Ans: T Page: 185

58. Strategists in governmental organizations operate with far more strategic autonomy than their counterparts in private
firms.
Ans: F Page: 187

Strategic Management in Small Firms

59. All sizes and types of organizations can utilize and benefit from strategic-management concepts and techniques.
Ans: T Page: 187

60. Research shows strategic management in small firms is more formal than in large firms, but large firms that engage in
strategic management outperform those that do not. ([Link]
Ans: F Page: 187

Multiple Choice

Long-Term Objectives

61. Long-term objectives are needed at which level(s) in an organization?

a. Corporate
b. Divisional
c. Functional
d. All of these
e. None of these
Ans: d Page: 168

62. Financial objectives involve all of the following except:

a. growth in revenues.
b. larger market share.
c. higher dividends.
d. greater return on investment.
e. a rising stock price.
Ans: b Page: 169

63. What principle is based on the belief that the true measure of a really good strategist is the ability to solve
problems?
a. Managing by crisis
b. Managing by objectives
c. Managing by extrapolation
d. Managing by exception
e. Managing by hope
Ans: a Page: 170

64. What principle is built on the idea that there is no general plan for which way to go and what to do?
a. Managing by crisis
b. Managing by extrapolation
c. Managing by objectives
d. Managing by hope
e. Managing by exception
Ans: e Page: 170

65. All of the following are important factors in the Balanced Scorecard except:
a. customer service.
b. employee morale.
c. product quality.
d. business ethics.
e. stockholder equity.
Ans: e Page: 170

66. Which level of strategy is most likely not present in small firms?
a. Corporate/company
b. Functional
c. Divisional
d. Operational
e. All of these are present in small firms
Ans: c Page: 160

67. All of the following are important factors in the Balanced Scorecard except:
a. customer service.
b. employee morale.
c. product quality.
d. business ethics.
e. stockholder equity.
Ans: e Page: 172

68. Budget Rent-a-Car opening car rental shops in Wal-Mart stores is an example of which type of strategy?
a. forward integration
b. backward integration
c. horizontal integration
d. related diversification
e. unrelated diversification
Ans: a Page 173
69. Goodyear Tire & Rubber Co. selling its North American farm-tire business to Titan International is an example of
which type of strategy?
a. related diversification
b. unrelated diversification
c. retrenchment
d. divestiture
e. liquidation
Ans: d page 173

70. Advanced Medical Optics using acquisitions to obtain all medical aspects of eye care, from laser surgery to contacts to
implants for all ages is an example of which type of strategy?
a. forward integration
b. backward integration
c. horizontal integration
d. market development
e. product development
Ans: d Page 173

71. Which of the following is most likely not included in the functional level of a small company?
a. Finance
b. Marketing
c. R&D
d. Department managers
e. Human resource managers
Ans: d Page: 174

Integration Strategies

72. Integration strategies are sometimes collectively referred to as which of these strategies?
a. Horizontal integration
b. Diversification
c. Vertical integration
d. Stuck-in-the-middle
e. Hierarchical integration
Ans: c Page: 174

73. Web sites to sell products directly to consumers are examples of which type of strategy?
a. backward integration
b. product development
c. forward integration
d. horizontal integration
e. conglomerate diversification
Ans: c Page: 174

74. Which of these strategies is effective when the number of suppliers is small and the number of competitors is large?
a. Conglomerate diversification
b. Forward integration
c. Concentric diversification
d. Backward integration
e. Horizontal diversification
Ans: d Page: 176

75. Backward integration is effective in all of these except:

a. when an organization competes in an industry that is growing rapidly.
b. when an organization has both capital and human resources to manage the new business of supplying its own raw materials.
c. when an organization needs to acquire a needed resource quickly.
d. when the advantage of stable prices are not important.
e. when present suppliers have high profit margins.
Ans: d Page: 176

76. What refers to a strategy of seeking ownership of or increased control over a firm’s competitors?
a. Forward integration
b. Conglomerate diversification
c. Backward integration
d. Horizontal integration
e. Concentric diversification
Ans: d Page: 176

77. In which situation would horizontal integration be an especially effective strategy?

a. When an organization can gain monopolistic characteristics in a particular area or region without being challenged by the
federal government for “tending substantially” to reduce competition.
b. When an organization competes in a slowing industry.
c. When decreased economies of scale provide major competitive advantages.
d. When an organization has neither the capital nor human talent needed to successfully manage an expanded organization.
e. When competitors are succeeding due to managerial expertise or having particular resources an organization possesses.
Ans: a Page: 177
MGT603 Strategic Management Solved MCQs from Book
by David (chap 5b)
MGT603 Solved MCQs from Book by David (chap 5b)

Intensive Strategies
78. Which strategy seeks to increase market share of present products or services in present markets through
greater marketing efforts.
a. market penetration
b. forward integration
c. market development
d. backward integration
e. product development
Ans: a Page: 167

79. When a domestic company first begins to export to India, it is an example of

a. horizontal integration.
b. backward integration.
c. forward integration.
d. concentric diversification.
e. market development.
Ans: e Page: 178

80. Which strategy generally entails large research and development expenditures?
a. market penetration
b. retrenchment
c. forward integration
d. product development
e. divestiture
Ans: d Page: 179

81. All of the following situations are conducive to market development except:
a. when an organization competes in a high-growth industry.
b. when an organization is very successful at what it does.
c. when new untapped or unsaturated markets exist.
d. when an organization has excess production capacity.
e. when an organization’s basic industry is becoming rapidly global in scope.
Ans: a Page: 179

Which strategy is appropriate when an organization competes in an industry characterized by rapid technological
developments?
a. retrenchment
b. product development
c. backward integration
d. liquidation
e. market penetration
Ans: b Page: 179

Diversification Strategies

83. Adding new, unrelated products or services for present customers is called
a. forward integration.
b. related diversification.
c. backward integration.
d. conglomerate diversification.
e. unrelated diversification.
Ans: e Page: 182
84. Which strategy should an organization use if it competes in a no-growth or a slow-growth industry.
a. divestiture
b. related diversification
c. backward integration
d. unrelated diversification
e. retrenchment
Ans: b Page: 181

85. Which of the following is not an example of when an organization should use an unrelated diversification
strategy?
a. When revenues derived from an organization’s current products or services would increase significantly by adding the
new unrelated, products.
b. When an organization’s present channels of distribution can be used to market the new products to current customers.
c. When the new products have counter-cyclical sales patterns compared to an organization’s present products.
d. When an organization competes in a highly competitive and/or a no-growth industry.
e. When the organization has a strong management team.
Ans: e Page: 184

86. Adding new, unrelated products or services is called

a. forward integration.
b. related diversification.
c. backward integration.
d. conglomerate diversification.
e. unrelated diversification.
Ans: d Page: 184

Defensive Strategies

87. Win-Dixie closing one-third of its stores and eliminating 22,000 jobs in an attempt to emerge from bankruptcy
would be an example of:
a. divestiture.
b. backward integration.
c. liquidation.
d. retrenchment.
e. forward integration.
Ans: d Page: 184

88. What kind of strategy is retrenchment?

a. A turnaround or reorganization strategy
b. An expansion strategy
c. A conglomerate strategy
d. An intensive strategy
e. An offensive strategy
Ans: a Page: 184

89. Bankruptcy
a. should never be used as a strategy.
b. should be used only when one is legally forced to do so.
c. can be an effective type of retrenchment strategy.
d. should only be used for large firms.
e. should only be used for small, private firms.
Ans: c Page: 185

90. Which chapter of the bankruptcy code applies to municipalities?

a. Chapter 7
b. Chapter 8
c. Chapter 9 ([Link]
d. Chapter 12
e. Chapter 13
91. The Family Farmer Bankruptcy Act of 1986 created
a. Chapter 7.
b. Chapter 8.
c. Chapter 9.
d. Chapter 12.
e. Chapter 13.
Ans: d Page: 185

92. Retrenchment would be an effective strategy when an organization

a. has shrunk so quickly that major internal reorganization is needed.
b. is one of the stronger competitors in a given industry.
c. is plagued by inefficiency, low profitability, poor employee morale and pressure from stockholders to improve performance.
d. has decided to capitalize on opportunities, maximize threats, take advantage of strengths and overcome weaknesses.
e. does not have a clearly distinctive competence and has failed to meet its objectives and goals consistently over time.
Ans: c Page: 185

93. What term refers to selling a division of an organization.

a. Joint venture
b. Divestiture
c. Concentric diversification
d. Liquidation
e. Horizontal integration
Ans: b Page: 186

94. Which strategy should be implemented when a division is responsible for an organization’s overall poor
performance?
a. backward integration
b. divestiture
c. forward integration
d. cost leadership
e. related diversification
Ans: b Page: 186

95. Selling all of a company’s assets in parts for their tangible worth is called
a. joint venture.
b. divestiture.
c. concentric diversification.
d. liquidation.
e. unrelated integration.
Ans: d Page: 186

96. Which strategy would be effective when the stockholders of a firm can minimize their losses by selling the
organization’s assets.
a. integration
b. differentiation
c. diversification
d. cost leadership
e. liquidation
Ans: e Page: 188

Michael Porter’s Five Generic Strategies

97. Under which strategy would you offer products or services to a wide range of customers at the lowest price
available on the market?
a. low-cost
b. best-value
c. low-cost focus
d. best-value focus
e. differentiation
Ans: b Page: 188
98. According to Porter, which strategy offers products or services to a small range of customers at the lowest
price available on the market?
a. low-cost
b. best-value
c. low-cost focus
d. best-value focus
e. differentiation
Ans: c Page: 188

99. Under which condition would a cost leadership strategy be especially effective?
a. When there are many ways to differentiate the product or service and many buyers perceive these differences as having
value.
b. When buyer needs and uses are diverse
c. When few rival firms are following a similar approach
d. When technological change is fast paced and competition revolves around rapidly evolving product features.
e. When the products of rival sellers are essentially identical and supplies are readily available from any of several eager
sellers.
Ans: e Page: 190

100. Under which condition would a differentiation strategy be especially effective?

a. When the target market niche is large, profitable and growing
b. When technological change is fast paced and competition revolves around rapidly evolving product features.
c. When industry leaders do not consider the niche to be crucial to their own success.
d. When the industry has many different niches and segments, thereby allowing a company to pick a competitively attractive
niche suited to its own resources.
e. When few, if any, other rivals are attempting to specialize in the same target segment.
Ans: b Page: 192

Means for Achieving Strategies

101. What occurs when two or more companies form a temporary partnership or consortium for the purpose of
capitalizing on some opportunity.
a. Retrenchment
b. A joint venture
c. Liquidation
d. Forward integration
e. Divestiture
Ans: b Page: 193

102. All of the following are cooperative arrangements except:

a. R&D partnerships.
b. joint-bidding consortia.
c. cross-licensing agreements.
d. cross-manufacturing agreements.
e. marketing plans.
Ans: e Page: 193

103. Which of the following is not a reason joint ventures fail?

a. Managers who must collaborate daily in operating the venture are not involved in forming or shaping the venture.
b. The venture may not be supported equally by both partners.
c. The venture may benefit the partnering companies but may not benefit the customers who then complain about poorer
service or criticize the companies in other ways.
d. Stakeholders from both partners are equally satisfied.
e. The venture may begin to compete more with one of the partners than the other.
Ans: d Page: 196

104. Which strategy would be most appropriate when the distinctive competencies of two or more firms
complement each other especially well?
a. Conglomerate diversification
b. Divestiture
c. Joint venture
d. Retrenchment
e. Integration
Ans: c Page: 196

Merger/Acquisition

105. When two organizations of about equal size unite to form one enterprise, which of these occurs?
a. hostile takeover
b. merger ([Link]
c. acquisition
d. LBO
e. divestiture

106. Mergers and acquisitions are created for all of the following reasons except to
a. gain new technology.
b. reduce tax obligations.
c. gain economies of scale.
d. smooth out seasonal trends in sales.
e. increase its number of employees. ([Link]

107. When companies take over functional operations of other firms, such as human resources, information
systems, payroll, accounting, or customer service, this is called
a. marketing.
b. outsourcing. ([Link]
c. licensing.
d. franchising.
e. divestiture.

Strategic Management in Small Firms

108. According to journalists’ findings, what is a serious obstacle for many small business owners.
a. a lack of business ethics
b. an excess of employees and managerial staff
c. a lack of experience in networking
d. a lack of strategic-management knowledge
([Link] having too many suppliersEssay Questions

109. Define and give an example of three integrative strategies.

The three integrative strategies are forward integration, backward integration and horizontal integration. Forward integration
is the gaining of ownership or increased control over distributors or retailers. An example of forward integration is Gateway
Computer Company opening its own chain of retail computer stores. Backward integration is the seeking of ownership or
increased control of a firm’s suppliers. J.P. Morgan outsourcing its technology operations to firms such as EDS and IBM is an
example of backward integration. Horizontal integration is the seeking of ownership or increased control over competitors.
An example of horizontal integration is when Reader’s Digest Association acquired Reiman Publications LLC.
Page: 174-177

110. List some guidelines for when forward integration would be a particularly good strategy to pursue.
Some guidelines for when forward integration would be an especially effective strategy are: (1) when an organization’s
present distributors are especially expensive, unreliable, or incapable of meeting the firm’s distribution needs; (2) when the
availability of quality distributors is so limited as to offer a competitive advantage to those firms that integrate forward; (3)
when an organization competes in an industry that is growing and is expected to continue to grow markedly; (4) when an
organization has both the capital and human resources needed to manage the new business of distributing its own products;
(5) when the advantages of stable production are particularly high; and (6) when present distributors or retailers have high
profit margins.
Page: 175

111. Define and give an example of three intensive strategies.

Market penetration, market development and product development are the three types of intensive strategies. Seeking
increased market share for present products or services in present markets through marketing efforts is called market
penetration. An example of this is when American Express launched a $100 million + advertising campaign in 2002 to boost
its lead over Citigroup in the credit card industry. Market development is introducing present products or services into new
geographic areas. South African Breweries PLC trying to acquire Miller Brewing Company for about $5 billion is an example
of market development. Product development is seeking increased sales by improving present products or services or
developing new ones. An example of product development is Miller Brewing Company developing the new Skyy Blue citrus
and “vodka-flavored” malt beverage.
Page: 177-179

112. List some guidelines for when market development would be a particularly good strategy to pursue.
Market development would be an effective strategy in all of the following situations: (1) when new channels of distribution are
available that are reliable, inexpensive and of good quality; (2) when an organization is very successful at what it does; (3)
when new untapped or unsaturated markets exist; (4) when an organization has the needed capital and human resources to
manage expanded operations; (5) when an organization has excess production capacity; and (6) when an organization’s
basic industry is becoming rapidly global in scope.
Page: 178

113. Define and give an example of the two diversification strategies.

Related and unrelated are the two types of diversification strategies. Businesses are said to be related when their value
chains posses competitively valuable cross-business strategic fits; businesses are said to be unrelated when their value
chains are so dissimilar that no competitively valuable cross-business relationships exist. An example of related
diversification is [Link] Inc.’s recent move to sell personal computers though its online store. An example of unrelated
diversification is Trump Entertainment Resorts starting Trump university, an online business university.
Pages: 181-183

114. List some guidelines for when related diversification would be a particularly good strategy to pursue.
Six guidelines for when related diversification may be an effective strategy are: (1) when an organization competes in a no-
growth or a slow-growth industry; (2) when adding new, but related, products would significantly enhance the sales of current
products; (3) when new, but related, products could be offered at highly competitive prices; (4) when new, but related,
products have seasonal sales levels that counterbalance an organization’s existing peaks and valleys; (5) when an
organization’s products are currently in the declining stage of the product’s life cycle; and (6) when an organization has a
strong management team.
Page: 181

115. Define and give examples of joint venture, retrenchment, divestiture and liquidation.
A joint venture is when two or more companies form a temporary partnership or consortium for the purpose of capitalizing on
some opportunity. An example of this is when Dell Computer and EMC Corporation created a sales and development
alliance. Retrenchment is regrouping through cost and asset reduction to reverse declining sales and profit. Net2Phone
cutting 110 jobs in 2002 as part of its restructuring plan is an example of retrenchment. Selling a division or part of an
organization is called divestiture. An example of this is Tyco International selling off its plastics department, which accounts
for about 4 percent of Tyco’s sales. Liquidation is the selling off of a company’s assets, in parts, for their tangible worth.
When Service Merchandise liquidated in 2002, it closed all of its 216 stores in 32 states.
Page: 184-188

116. Compare and contrast the five types of bankruptcy: Chapters 7, 9, 11, 12 and 13.
Chapter 7 bankruptcy is a liquidation procedure used only when a corporation sees no hope of being able to operate
successfully or to obtain the necessary creditor agreement. Chapter 9 bankruptcy applies to municipalities. Chapter 11
bankruptcy allows organizations to reorganize and come back after filing a petition for protection. Chapter 12 bankruptcy
provides special relief to family farmers with debt equal to or less than $1.5 million. Chapter 13 bankruptcy is a
reorganization plan similar to Chapter 11, but it is available only to small businesses owned by individuals with unsecured
debts of less than $100,000 and secured debts of less than $350,000.
Page: 185

117. Discuss Michael Porter’s five generic strategies.

According to Porter, strategies allow organizations to gain competitive advantage from three different bases: cost leadership,
differentiation and focus. Porter calls these bases generic strategies. Cost leadership emphasizes producing standardized
products at a very low per-unit cost for consumers who are price-sensitive. Two alternative types of cost leadership
strategies can be defined. Type 1 is a low-cost strategy that offers products or services to a wide range of customers at the
lowest price available on the market. Type 2 is best-value strategy that offers products or services to a wide range of
customers at the best price-value available on the market.; the best value strategy aims to offer customers a range of
products or services at the lowest price available compared to a rival’s products with similar attributes. Differentiation is a
strategy aimed at producing products and services considered unique industrywide and directed at consumers who are
relatively price-insensitive. A low-cost focus strategy offers products or services to a small
range of customers at the lowest price available on the market. A best-value focus strategy offers products or services to a
small range of customers at the best price-value available on the market.
Page: 188

118. What are the characteristics of a firm that is successfully pursuing a cost leadership strategy?
A successful cost leadership strategy usually permeates the entire firm, as evidenced by high efficiency, low overhead,
limited perks, intolerance of waste, intensive screening of budget requests, wide spans of control, rewards linked to cost
containment and broad employee participation in cost control efforts.
Page: 190

119. Discuss four common problems that cause joint ventures to fail.
One problem that causes joint ventures to fail is that managers who should collaborate daily in operating the venture are not
involved in forming or shaping the venture. A second problem is if the venture benefits the partnering companies but may not
benefit customers who then complain about poorer service or criticize the companies in other ways. A third problem occurs if
the venture is not supported equally by both partners, which creates problems. A final problem that can cause a joint venture
to fail is that the venture may begin to compete more with one of the partners than the other.
Page: 196

120. Name at least six reasons for performing mergers or acquisitions.

Reasons include: 1) to provide improved capacity utilization; 2) to make better use of the existing sales force; 3) to reduce
managerial staff; 4) to gain economies of scale; 5) to smooth out seasonal trends in sales; 6) to gain access to new
suppliers, distributors, customers, products and creditors; 7) to gain new technology; and 8) to reduce tax obligations.
Page: 198