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Where a firm chooses to compete i.e. in which industries
How a firm chooses to compete in a specific industry
Why a firm chooses to compete or not
Answers a and b
The scope of a firm's products
The scope of a firm's activities
The scope of a firm's structure and corporate governance system
The firm's geographical scope
The first describes the regions of the world where the firm is present and the second the stages of the industry value chain which the firm performs itself
The first describes the number of countries and the second the number of horizontal businesses where the firm is present
The two are highly inter-related
It's not always clear what the difference is
What business(es) are we in?
How much profit do we want to make?
Who are the customers?
Should we be doing something else?
In terms of its product, geographic and vertical scope
In terms of its geographic and vertical scope
In terms of its geographic and product scope
This is not true. Some firms narrow some aspects of their scope, or voluntarily even break up
Economies of scope
Transaction costs
Corporate complexity
All of the above
Economies of scale refer to cost-advantage from higher volume of a single product
Economies of scope refer to cost-advantage from spreading a common cost over multiple products
Answers a and b
None of the above
Reduce the number of industries and/or products it's directly involved in
Expand the scope of its activities in some relevant way
Create a brand
Not worry too much about fixed costs
Because a brand doesn't cost anything - it's an asset
Because although the brand costs money, this does not appear in the accounts
Because the brand is to do with the marketing department, not production cost
It IS still true for brand extension, since creating and maintaining a brand does cost a lot e.g. in advertising
Economy of scale through better use of fixed assets
Potential for economy of scope based on organisational or managerial capability
Potential for economy of scope based on intangible resources
No potential for economy of scope
A necessary evil
The invisible hand
The visible hand
The iron fist in the velvet glove
Whether the transaction costs of buying in the activity in the market exceed the administrative cost of doing it themselves
Whether transaction costs in the market of buying in the activity exceed the administrative cost buying it in
How reliable their workforce is, compared with an external supplier's reliability
None of the above
The need for managers to understand a wider range of businesses
The need for managers to operate differently to succeed in different businesses
The extent of the linkages between the various businesses
All of the above
Always a mistake
Likely to be less risky than related diversification
Not always as unrelated as it may seem e.g. the businesses may share some common attributes which can be exploited
Always the last resort
Growth, risk reduction and value creation
Risk reduction and economies of scope
Value creation and cost reduction
Cash balancing and risk reduction
Shareholders expect managers to go for growth
Low growth does not look good for managers with an eye on their next job
Managers must do something positive
They are often advised to do so by business consultants
Managers do not have sufficient understanding of other industries
Diversification is simply a poor strategy
Shareholders can invest in other industries themselves, achieving risk-reduction more efficiently
All of the above
They believe that shareholders expect it of them, to show dynamism
It sharpens their managerial skills
Many managers are attracted to the extra complexity of diversification
The experience may reduce risk, and secure their job; and if not it looks dynamic for securing their next job
The linkages or synergies between the businesses concerned
Risk reduction through balancing of counter-cyclical businesses
Getting a price reduction when purchasing common resource inputs
Balancing of cash generation, reducing the need to obtain investment finance externally
A company must internally expand its scope
A company must usually enter into a licence arrangement
A company must usually acquire a company who is expert in an additional business
The firm is be able to spread common cost somehow, either by performing the additional activity internally, or by licensing the resource
A diversified company sets up a finance firm as one of its businesses
Enough cash generated by one set of internal firms is used by other internal firms in need of cash
A subsidiary starts a money-lending business, offering loans to other subsidiaries
External sources of capital become too expensive
Despite the cost-savings, poor investment decisions tend to be made
They deny banks much-needed business
They are illegal in some countries
The money should have been given to shareholders as dividends
There's a saving on advertising costs
There's no commission payable to the internal Human Resources department
Employees can be transferred rather than hired / fired, and the firm knows these people well
The firm does not need to invest so much in training new recruits
See that the barriers to entry to that industry are low
Be able to see a way to make superior profits in that industry
Also consider how unattractive their existing industry is, by comparison
See that some firms in that industry have left, leaving space for newcomers
None. They are all equally important
The "attractiveness" test
The "cost of entry" test
The "better-off" test