Corporate Strategy - Answer-The decisions & actions taken to gain & sustain competitive advantage in several industries and markets simultaneously
What does corporate strategy address? - Answer-Where to compete on 3 dimensions:
Industry value chain: vertical integration
Products & services...
WPC 480 Final Exam Questions with
Correct Answers
Corporate Strategy - Answer-The decisions & actions taken to gain & sustain
competitive advantage in several industries and markets simultaneously
What does corporate strategy address? - Answer-Where to compete on 3 dimensions:
Industry value chain: vertical integration
Products & services: diversification
Geography: regional, national, or global markets
Vertical Integration - Answer-The process in which several steps in the production
and/or distribution of a product or service are controlled and owned by a single
company or entity, in order to increase that company's or entity's power in the
marketplace
Forward Integration - Answer-Integrating steps that are further forward in the process
Ex. concentrate producers integrating bottling
Backward Integration - Answer-Integrating steps that are further back in the production
process
Ex. Hermes - getting a crocodile farm to supply own leather
Boundaries of the firm - Answer-Why does a firm exist and to what extent should the
firm expand?
Transaction Cost Economics - Answer-Helps explain and predict boundaries of the firm
Transaction costs - Answer-the costs associated with activities that are not directly
productive but are engaged in only as a consequence of the need to coordinate
exchange among the parties of a transaction
Internal transaction costs - Answer-Recruiting and retaining employees
Paying salaries and benefits
Setting up a shop floor
Providing office space and computers, etc.
,External Transaction Costs - Answer-Searching for a firm individual to contract with
Bargaining, negotiating, haggling cost
Monitoring, measuring, supervising, enforcing or policing performance
External transaction costs arise primarily as a result of: - Answer-Opportunism
Asset Specificity
Opportunism - Answer-Willingness of at least some people to take advantage of others
Dishonesty
Threat of Opportunism - Answer-Greatest when there is an asset specificity problem
(i.e. transaction specific investment)
Asset Specificity - Answer-Unique assets with high opportunity cost - significantly more
value in their intended us than in their next-best use
Ex. site specificity, physical asset specificity, human asset specificity
Utilizing market specialty (i.e. pick the winner; price mechanism
Market-Disadvantages - Answer-Search costs
Opportunism - hold-up
Incomplete contracting - specifying & measuring performance; information asymmetries
Enforcement of contracts
When should a firm make (vertically integrate)? - Answer-Value creation of using
organization > value creation of using market
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