2nd Half

Question 1

which are the three areas in which a company can either vertically or horizontally integrate?

Answer 1

1. resources
2. manufacturing
3. distribution

Question 2

what is a merger?

Answer 2

the combining of two or more firms into a single corporate entity

Question 3

what is an acquisition?

Answer 3

the process in which an acquirer purchases and absorbs the operations of another firm “the acquired”

Question 4

which factors fuel horizontal acquisitions?

Answer 4

1. wanting to create more cost efficient operations
2. expanding geographic coverage
3. extending into new product categories
4. gaining more access to resources and capabilities

Question 5

what are the stages of an acquisition process?

Answer 5

1. identify goal
2. identify strategic options
3. choose target
4. due diligence and negotiate
5. acquire and integrate

Question 6

why do most mergers and acquisitions fail?

Answer 6

1. strategic issues: overestimation of synergies and long time to materialize them
2. organizational issues: culture and management style

Question 7

what are some reasons for integrating backwards?

Answer 7

1. reduction of supplier power
2. more control of supply
3. protection of propetary know how

Question 8

what are some reasons for integrating forward

Answer 8

1. increase bargaining power through control
2. better access to end users
3. strengthen brand awareness
4. increase production differentiation

Question 9

what are disadvantages of vertical integration?

Answer 9

1. increased business risk
2. less flexibility in accomodating shifting buyer preferences
3. may not reach economies of scale

Question 10

what are some problems with “outsourcing”?

Answer 10

1. loss of direct control
2. lack of incentives for outside parties

Question 11

what is a strategic alliance?

Answer 11

a formal agreement between two or more separate companies in which they agree to work toward some common objective and share resources and capabilities

Question 12

what is a joint venture? what are the advantages?

Answer 12

a joint venture is a partnership involving the establishment of an independent corporate entity with equity stakes that the partners own and control, sharing its revenues and expenses.

they are less complex than M&A, offer great flexibility, and are fast to execute

Question 13

which factors contribute to the longevity of alliances?

Answer 13

1. collaborating with partners that do not compete directly
2. continuing to collaborate in the parties’ mutual interest

Question 14

what are some drawbacks of joint ventures?

Answer 14

1. culture clash
2. overly optimistic view of synergies
3. risk of dependency on partner firm
4. loss of proprietary knowledge

Question 15

how do you setup a diversification strategy?

Answer 15

1. pick new industries to enter and decide how to enter
2. look at how to leverage cross business value chain
3. establish investment priorities

Question 16

when should a firm consider diversification strategies?

Answer 16

1. when growth opportunities are limited
2. when industry conditions are changing and undermining the firm’s competitive position

Question 17

what is the “three test for building shareholder value”?

Answer 17

1. attractiveness test; are returns equal or better than the present business?
2. cost of entry: is the cost of overcoming entry barriers greater than potential profitability?
3. Better off test: does the strategy contribute to the firm’s competitiveness? (i.e., synergies gained from diversification)

Question 18

how can a firm diversify in practical terms?

Answer 18

1. acquire existing businesses
2. start up
3. joint ventures

Question 19

which diversification options are there? (not way to achieve diversification, just the scope)

Answer 19

1. related business
2. unrelated business

Question 20

what are reason why a firm should NOT go for UNRELATED diversification strategies?

Answer 20

1. reduce risk: this is not an investment portfolio
2. pursue growth for its own sake
3. seek for stabilization of earnings to avoid cyclical swings: again, this is not an investment portfolio
4. pursuing personal managerial motives

Question 21

cash hogs, star business, cash cows

Answer 21

cash hogs need cash to develop

star businesses are self sustainable

cash cows generate excess cash

Question 22

why do firms decide to enter foreign markets?

Answer 22

1. access to new customers
2. access to new resources
3. access to low cost inputs
4. achieve economies of scale

Question 23

what modes of entry exist to enter foreign markets?

Answer 23

1. exporting
2. licensing and franchising
3. foreign subsidiaries (acquisitions)
4. greenfield
5. strategic alliances and joint ventures

Question 24

what are some pros and cons of direct exporting?

Answer 24

pros:
1. low capital requirements

2. economies of scale

cons:
1. shipping costs

2. exchange rate risks
3. tariffs
4. loss of channel control

Question 25

what are pros and cons of franchising strategies?

Answer 25

pros: 1. low capital AND resources requirements 2. income royalties 3. rapid expansion cons: 1. loss of control and know how

Question 26

what are pros and cons of foreign subsidiary strategy? (acquisitions)

Answer 26

pros: 1. large scale entry 2. high level of control 3. avoiding entry barriers cons: 1. high capital requirements 2. complexity

Question 27

what are pros and cons of foreign greenfielding strategies?

Answer 27

pros: 1. high levels of control 2. learning curve 3. direct transfer of the firm's know how and no problem of integration cons: 1. capital requirements 2. political and economic risk 3. slowest form of entry

Question 28

what is business ethics?

Answer 28

application of general ethical principles to the actions and decisions of businesses and the conduct of personnel

Question 29

what are some drivers of unethical strategies'

Answer 29

1. faulty oversight 2. short termism 3. profitability driven choices

Question 30

why should companies be ethical?

Answer 30

1. moral reason 2. economic reason: an ethical strategy can be both good business and serve the interest of shareholders.

Question 31

what are costs linked to unhethical practices?

Answer 31

In fact there are costs related to unethical practices: 1. visible costs: fines, lawsuits and litigations which increase costs and might reduce dividends 2. internal administrative costs: legal and investigative costs, remedy costs, corrective action costs 3. intangible costs: reputation, customers leave, employee turnover, higher recruiting costs for attracting talent

Question 32

what is corporate social responsibility?

Answer 32

the idea that a company should operate in an honourable manner, providing good work conditions and actively improving quality of life in local communities

Question 33

which CSR strategies are you aware of?

Answer 33

1. promote diversity 2. employee well being 3. ethical practices 4. philantropy 5. sustaining the environment

Question 34

What is ESG? What are the areas it covers?

Answer 34

Environmental: climate change, pollution Social: labor practices, talent management, data security Governance: board diversity, executive pay and business ethics

Question 35

what are the three sources of organizational culture?

Answer 35

1. beliefs and values of founders 2. learnign experiences 3. new beliefs and values of new members

Question 36

how can managers change a company's culture if needed?

Answer 36

1. replace key executives 2. promote individuals who support cultural shifts 3. appoint outsiders 4. hire only people who align with new culture 5. design incentives to support culture change 6. revise policies and procedures

Question 37

which three actions are necessary to build an organization capable of good strategy execution?

Answer 37

1. staffing the organization with employess with the needed experience, technical skills, and intellectual capability 2. acquiring and developing resources 3. structuring the organization: deciding which activities to outsource and which to performe internally and determining how much authority to delegate

Question 38

what are the two organizational approaches to decision making?

Answer 38

1. centralization: authority is retained by top management 2. decentralization: authority is delegated to lower level managers and employees

Question 39

which are the pros and cons of centralized decision making?

Answer 39

Pros: 1. no conflict of interests 2. quick decision making IN CRITICAL SITUATIONS Cons: 1. Long response time 2. not stimulating employees 3. not encouraging accountability

Question 40

What are pros and cons of decentralized decision making?

Answer 40

pros: 1. accountability 2. greater motivation 3. flexibiltiy 4. entails less levels of management cons: 1. information asymmetry between higher and lower level management 2. conflicts of interests and ideas