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Explain the two types of related diversification strategy with the help of examples.

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Argus Inc. is a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company?


A) a flagship brand
B) a single-business firm
C) a dominant-business firm
D) a conglomerate

E) A) and B)
F) B) and C)

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Nocturnal Products started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Nocturnal pursuing in this scenario?


A) taper integration strategy
B) niche marketing strategy
C) related-constrained strategy
D) related-linked strategy

E) A) and B)
F) None of the above

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The core competency of GoGo Motors is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that the growing demand for "green" vehicles has created a new market opportunity. Thus, it uses its existing technology to develop an engine that improves the fuel efficiency of recreational motorhomes. In this scenario, GoGo Motors is


A) leveraging existing core competencies to target the chasm between the early adopter and early majority market segment.
B) redeploying and recombining existing core competencies to compete in future markets.
C) building new core competencies to create and compete in future markets.
D) building new core competencies to protect and extend current market position.

E) C) and D)
F) B) and C)

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TL & Co. is following a related-linked diversification strategy, and Soar Inc. is following a related-constrained diversification strategy. How do the two firms differ from each other?


A) Soar Inc. generates 70 percent of its revenues from its primary business, while TL & Co. generates only 10 percent of its revenues from its primary business.
B) Soar Inc. pursues a backward diversification strategy, while TL & Co. pursues a forward diversification strategy.
C) TL & Co. will share fewer common competencies and resources between its various businesses when compared to Soar Inc.
D) TL & Co. pursues a differentiation strategy, and Soar Inc. pursues a cost-leadership strategy, to gain a competitive advantage.

E) C) and D)
F) A) and B)

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Which quadrant in the core competence-market matrix is the hardest to pursue?


A) building new core competencies to protect and extend current market position
B) building new core competencies to create and compete in markets of the future
C) leveraging core competencies to improve current market position
D) redeploying and recombining core competencies to compete in markets of the future

E) A) and B)
F) A) and C)

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


A) product diversification strategy
B) process diversification strategy
C) geographic diversification strategy
D) product-market diversification strategy

E) None of the above
F) B) and C)

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TimeEnough Inc. entered the low-priced digital watch market several years ago. This firm's earnings have been unsteady, but might be growing. According to the BCG growth matrix, TimeEnough is a


A) cash cow.
B) star.
C) dog.
D) question mark.

E) B) and C)
F) None of the above

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Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing.


A) industry
B) functional department
C) economy
D) customer segment

E) None of the above
F) B) and C)

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A strategy of ________ will be most beneficial for a firm to enhance its overall corporate performance.


A) unrelated level of diversification
B) single-business level of diversification
C) dominant-business level of diversification
D) related-linked diversification

E) A) and D)
F) A) and C)

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Which of the following motivations for business growth involves principal-agent problems?


A) increasing profits
B) increasing market power
C) reducing risk
D) motivating managers

E) A) and C)
F) C) and D)

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Coastal Pharma and Brainwave Technologies have together invested and created a new organization, InnerView, to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Coastal Pharma and Brainwave Technologies. Which of the following alternatives to integration does this scenario best illustrate?


A) a joint venture
B) a franchisee
C) a licensing contract
D) a corporate acquisition

E) B) and C)
F) A) and D)

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Amazon.com has decided to enter the college bookstore market. The goal of "Amazon Campus" is to offer co-branded university-specific web sites that offer textbooks and paraphernalia, such as logo sweaters and baseball hats. This development shows Amazon's relentless pursuit of


A) geographic diversification.
B) product diversification.
C) vertical integration.
D) horizontal integration.

E) All of the above
F) A) and B)

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Which of the following is a drawback of vertical integration?


A) It increases the difficulty of securing critical supplies.
B) It impedes scheduling and planning.
C) It increases the potential of legal repercussions.
D) It impedes investments in special assets.

E) A) and B)
F) A) and C)

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How are information asymmetries created? What are the implications?

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Frequently, sellers have better informat...

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BestDrive Inc. is a large automobile company. The company's petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?


A) The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.
B) The petrol cars SBU will have a relatively low market share in its industry, whereas the hybrid electric cars SBU will have the least market share in its industry.
C) The strategic recommendation for the hybrid electric cars SBU will be to harvest it, whereas for the petrol cars SBU, the company should just maintain it.
D) The petrol cars SBU is more important than the hybrid electric cars SBU in terms of future growth for the company.

E) A) and D)
F) B) and C)

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About 20 years ago, Sturdy Light, Inc., produced a sturdy, lightweight backpack in a market that was rapidly growing. Sturdy Light became a leader in this market. Eventually, the backpack market reached the maturity stage and slowed down. However, by this time, Sturdy Light had developed a strong brand name and continued to steadily lead the market. Which of the following describes this scenario?


A) Sturdy Light was a star that developed into a cash cow.
B) Sturdy Light was a question mark that developed into a star.
C) Sturdy Light was a dog that developed into a question mark.
D) Sturdy Light was a cash cow that developed into a star.

E) A) and B)
F) A) and C)

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________, 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.


A) Coordination costs
B) Fixed costs
C) Agency costs
D) Network costs

E) B) and C)
F) None of the above

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Which of the following best illustrates physical-asset specificity?


A) a unique training program developed in an organization
B) a ship container designed to carry more than the average load of iron ore
C) a generic machine that can be used to churn different mixtures
D) a machine solely designed to give a candy its trademarked shape

E) A) and B)
F) A) and C)

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Gold Leaf Computers sources the components for its laptops from various suppliers on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Gold Leaf has determined that it would cost $200 per unit to produce all of the necessary components in its in-house manufacturing facility. In this scenario, Gold Leaf should


A) continue to outsource production.
B) vertically integrate.
C) exit the laptop industry.
D) diversify its activities.

E) A) and B)
F) A) and D)

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