Chapter Review - Assignment Example

CHAPTER 4 The companies mentioned in the question are pursuing a cost leadership strategy. This is evident from their pricing mechanisms that focus on lower costs for the units of product that they sell. The reason why they spend so much on advertising is that they need the volumes necessary to make the maximum impact on the sales. 2. The way in which firms can realize their economies of scale at whatever volumes they produce is by ensuring that they invest in international operations or by selling in international markets. The combination of the above strategies is also enough to generate enough sales to justify economies of scale at the current volumes. 3. Forward pricing makes sense when firms are launching products and the strategy is to ensure that in the initial stages, forward pricing is competitive in the hope of increasing sales later on as well as having an outlook that is bullish on the potential of the product. 4. Centralized decision making is effective when goods are mass produced and sold on a large scale whereas decentralized decision making is effective when the products are targeted at niche segments. The lower wages in the former scenario as well as the higher wages in the latter scenario are justified by the pricing of the products. 5. The differences between these two strategies lies in the way in which marketing costs dominate for export related strategy whereas manufacturing costs dominate for import related strategies. The management control issues that these firms face would be in the sphere of having less control when they operate in nondomestic markets in a manufacturing capacity whereas they would have more control when they are operating in a non domestic market in an import related capacity. CHAPTER 5 1. The firms that are following a product differentiation strategy need to be conscious of the costs as well as they contribute to the bottom line of the company. 2. It does not seem paradoxical to me because there are certain aspects of products that are not imitable and these are the patented features. Hence, the way to resolve this paradox is by making products that are have unique and distinctive features. 3. The strength is in predicting above normal profits and the weakness lies in mispricing. 4. It is not the case for firms operating in monopolistic competition as the firms need to be efficient to pursue a product differentiation strategy which needs niche investments and expertise in making unique products and services. 5. The firm needs to pursue a cautious strategy when deciding upon the mix. Evaluation of the mix is possible only after the strategy is followed. 6. I would advise the firm to follow innovative practices to retain the competitive edge and not be complacent about its profits or market share and continue to maintain the advantage. 7. Cultural issues as well as rationalizing different manufacturing and marketing strategies are some of the issues that the firm might face. 8. It is not stuck in the middle as there are ways and means to normalize the processes across countries and operational centers. CHAPTER 6 1. Backward integration often results in maximizing efficiencies across the value chain and hence ensuring that firms gain competitive advantage. The opportunism of vertical integration is that firms can leverage upon the entire supply chain as opposed to some parts of it in backward integration. 2. The threats that I face when buying a used car is rarity of supplies, reliability of service centers and the fact that the condition of the car might not be that good. Buying a car is like vertical integration insofar as it relates to getting the supply chain moving whereas it is unlike vertical integration insofar as it relates to navigating the supply chain. 3. The loss of trust is indeed an issue that needs to be considered when firms realize that potential exchanges between partners cannot be trusted. 4. R&D and Manufacturing: Differences about design of products and components Finance and Manufacturing: Differences about pricing of products and sales Marketing and Sales: Differences between advertising budgets and their efficacy Accounting and everyone else: Differences between valuation and revenue streams 5. I would accept a lower paying job if the role of the job is commiserate with my qualifications and experience if I feel that the job is sufficiently challenging for me. The potential employer might reduce compensation for such roles if they feel that more people would join at lower pay for the job opportunities that they get. 6. Opportunism: When the firm feels that FDI would help economies of scale Capabilities: When the firm feels that it has the necessary facilities to do so CHAPTER 7 1. Firms that exploit core competencies in their diversification strategies might not always produce goods that are similar as multiple competencies might exist for these firms. Though in most cases, they do produce similar products to leverage upon their competencies. 2. The firm might not be able to duplicate the strategies in the acquired firm and hence it might not be possible to follow the same strategies in the acquired firm. 3. It is a fact that external capital markets may undervalue firms whose competitive advantages can be easily imitated. Hence, internal capital markets are much better for resource mobilization for such firms. 4. The firm would follow a less related diversification strategy as the firm needs more resources to follow a highly diversified strategy and without adequate resources, the firm might not be able to diversify too broadly and this leads to a situation where it needs to go public. When it does not want to do that, the firm might be less diversified. 5. A related diversification strategy would be a source of competitive advantage when the firm has fewer resources at its disposal because this strategy can be carried out with fewer resources as compared to a highly diversified strategy that needs more resources. 6. The equity investments can indeed be thought of as a hedge against investing in the unstable country and hence the firm’s ability to diversify its portfolio so that it hedges its investments in the unstable country against risk by investing in other assets that provide the necessary buffer. CHAPTER 8 1. I do not agree with the criticism of the Agency theory as managers in many firms have proven themselves to be capable administrators of shareholder interests and have not contributed to the diminishing loss of the shareholders equity. 2. The managers behave responsibly to maximize the present value of assets. However, this has implications for diversification strategies as managers may not be necessarily interested in chasing revenue streams from new ventures that are diversified. 3. Yes, there is definitely a limit to the efficient size of the firms that can be managed in an M-form as well. Hence, the firms need to be managed in ways that are different from those of the M-Form after they reach a certain level of complexity and size. 4. The essential difference between the large hierarchies in private sector and the bureaucracy in the government is due to the former existing for a profit motive whereas the latter exists (at least on paper) for a welfare motive. Hence, the former is more efficient than the latter. 5. The firm should certainly own this business as the optimal transfer pricing being the market price increases its potential for profits and rewards. 6. The organizational structure that would suit this firm would include a mix of hierarchy as well as decentralization. The hierarchical structure would be the domestic sphere of operations whereas the decentralized structure would be the international operations. This optimal mix would serve the purposes of following an international diversification strategy coupled with domestic market operations. CHAPTER 9 1. It does not follow that a firm pursuing an alliance to exploit economies of scale would necessarily want to follow a cost leadership strategy. The economies of scale can be achieved even in a product differentiation strategy as well. 2. Both GM and Toyota want to achieve synergies because of their merger and in this context, the merger makes perfect sense. However, Toyota stands to gain more from the merger as GM’s distribution network and the value associated with it is more when compared to GM learning how to make small cars. The learning race would definitely act as a deterrent and introduce competitive pressures on both the companies. 3. Alliances are different from Collusion strategies as alliances are overt whereas collusion strategies are tacit and covert by definition. Collusion can be identified by pricing and marketing strategies whereas alliances are more about commonality of interests and mergers are one example. 4. An alliance is much more than a firm hiring smart managers or any such thing as given in the question. By forming an alliance, the respective firms gain access to each other’s competitive advantages and markets as well as competencies that are a result of years of effort. Hence, alliances are pursued for a basket of reasons as mentioned above. 5. As has been emphasized throughout the answers to the questions above, alliances are much more than the individual components and hence the questions of moral hazard as well as other holdups are not necessarily impediments to forming alliances. CHAPTER 10 1. The firm can make a profit on its investment if the acquired firm is run efficiently and In the same way that the parent firm is run as well as by achieving synergies by merging the commonalities inherent in the strategic alliance. Further, the firm is indeed competitive because there have been a host of bidders for the firm. 2. The situation is markedly different from that of the above question as the acquired firm might or might not be a lucrative target bid. Hence, the firm can only make money if the acquired firm is run according to the same strategies that the parent firm is run. 3. Though the existence of free cash flow is bound to encourage feckless behavior, nonetheless managers in some instances actually study acquisitions to death even when sitting on top of enormous cash reserves. Hence, it is not cast in stone that existence of free cash flow means that managers might take decisions that are detrimental to the health of the firm. 4. The hubris hypothesis is indeed valid for instances where the managers acquire targets for takeover just because they feel confident about their strengths. However, in the current economic scenario, managers might be a tad humble given the fail rate of many mergers and acquisitions particularly when cash flows are not that forthcoming. 5. The news that a firm has floated a poison pill is enough for the markets to smell something fishy as the intentions of the firm might be veering towards averting a possible takeover. Since markets work on perceptions, this kind of strategy might backfire on the companies as well. Read More