MM4311 Midterm Review Questions Ivy Yang

Student Name____________________________ Student #_____________________

Part I. True or False (4*10 = 40 points): Please write down the choice and explain why.

1. Outsourcing applies almost exclusively to support activities.

2. Strategic groups are firms in different industries following the same or similar strategies.

3. Organizational culture refers to the core values shared by the firm's managers but not
necessarily lower-level employees.

4. The strategic management process is an informal approach to helping firms respond effectively
to the competitive environment.

5. The five forces model (buyers/suppliers/new entrants/substitutes/rivalry) is a firm-level

analytical model.

6. Generally, the stronger the competitive forces, the higher the profitability of an industry.

7. Switching costs, access to distribution channels, economies of scale, large numbers of

competing firms, and slow industry growth are some of the entry barriers that may affect the
threat of new entrants to an industry.

8. A resource can have high strategic value even if it has no effect on the competitive advantage
of the firm if it is present in very large quantities.

9. Multimarket competition refers exclusively to situations in which firms compete against each
other simultaneously in several geographic markets.

10. Lee’s Water markets water drawn only from a single artesian well in New Territory, Hong
Kong. It has a loyal following in its region. Since Lee’s Water markets the water, just as Coca-
Cola, Nestle, and PepsiCo do, Lee’s Water has high resource similarity with these international
firms.

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MM4311 Midterm Review Questions Ivy Yang

Part II. Multiple Choices (2*15 = 30 points)

____ 11. The __________ environment is composed of elements in the broader society that can
influence an industry and the firms within it.

a. industry
b. general
c. sociocultural
d. competitor

____ 12. The CEO of Enterprise Rent-A-Car credits the success of his firm to the
"intellectual capital and efforts of individuals." This core competence:
a. is protected from being easily copied because it is based on human capital.
b. is permanently nonsubstitutable.
c. has a limited life.
d. is not unique or rare because other firms use human capital.

____ 13. Frequent-guest rates offered by hotel chains are an attempt to:

a. increase customers' switching costs.

b. develop a cost advantage independent of scale.
c. decrease competitors' access to distribution channels.
d. overcome the perishability of the hotel "product."

____ 14. If Southwest Airlines employees lost their high enthusiasm and commitment to the
company:
a. the company could continue without problems because its cost-leadership strategy is dependent
on its efficient internal procedures.
b. replacement employees could be hired and from rival airlines that are laying off employees
easily brought into the Southwest culture.
c. Southwest would have lost one of its core competencies and its performance would be
threatened.
d. there would be no impact on Southwest’s profitability because Southwest’s customers value
the low fares rather than being “entertained” by the employees.

____ 15. __________ is measured by a product's performance characteristics and its attributes for
which customers are willing to pay.
a. value
b. total quality
c. contribution
d. competitive advantage

____ 16. When the costs of supplies increase in an industry, the low-cost leader may:

a. be the only firm able to pay the higher prices and continue to earn average or above- average
returns.
b. lose customers to the competitors as a result of price increases.
c. make it easy for new entrants to the industry to achieve above-average returns.
d. continue competing with rivals on the basis of product features.

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MM4311 Midterm Review Questions Ivy Yang

____ 17. The owner of a store retailing fine quality fabrics for home-sewers bewails the fact that
few young women know how to do fine tailoring, much less simple dressmaking. Many potential
customers are unable to appreciate the premium quality of the fabrics available and are deterred
by the high prices. In the past, the store had a strong demand for fabrics, large classes for
persons interested in learning the fine points of sewing, and a reputation for excellent service and
technical advice. This case is an example of:

a. the hazard of competitors being able to imitate a firm’s core competency.

b. the need for firms to stick to their core competencies through temporary downturns in market
demand.
c. core competencies that have become core rigidities.
d. the lack of intangible resources undermining the core competencies of the firm.

____ 18. An investor is considering buying a restaurant in Central that has been in operation for a
number of years. The restaurant has many long-term kitchen and wait staff who work together
smoothly. It has a reputation for dishes of consistently high quality and an appealing dining
atmosphere.

a. The investor should be aware that intangible assets are difficult to leverage into additional
business.
b. The investor should search for a firm which has competitive advantages based on tangible
resources.
c. The intangible assets of this company will be reflected in the financial statements presented to
the investor.
d. The investor will find that the restaurant's intangible assets don’t bring much profit.

____ 19. Examples of support activities include all of the following EXCEPT:

a. technology development.
b. service after the sale..
c. human resource management
d. procurement.

____ 20. Acme Auto Repair has a thriving business based on its reputation for high quality work,
honesty, and skilled employees. For continued long-term success, Acme's owner should:

a. concentrate on maintaining Acme's present core competencies.

b. focus on developing Acme's future competitive advantages.
c. place more emphasis on tangible resources which are less vulnerable to obsolescence
than intangible resources.
d. recognize that core competencies derived from human resources are more subject to
becoming core rigidities than are core competencies based on other types of resources.

____ 21. An interior decorator has moved his business from Paris to a small town in the United
States, because his spouse's company transferred her there. The decorator is distressed because
the customers in his target market have, in his words, "banal and bourgeois taste."

a. The decorator is highly affiliated with the target market and understands how he can create
value for it.
b. The decorator has no core competencies that will transfer to his new geographic market.
c. The decorator should choose a strategy of cost-leadership in this environment.

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MM4311 Midterm Review Questions Ivy Yang

d. The decorator does not understand that customer needs are neither right nor wrong, good nor
bad.

____ 22. The effectiveness of any of the generic business-level strategies is contingent upon:

a. customer needs and competitors' strategies.

b. product line scope and national economic conditions.
c. the firm's resources, capabilities, and core competencies and the opportunities/threats of
the environment.
d. management's leadership style and the wealth of the firm's target market.

____ 23. Which of the following would be an example of a strategic action?

a. a "two movies for the price of one" campaign by Blockbuster Video

b. entry into the European market by Home Depot
c. product coupons by a local grocer
d. Fare increases by Southwest Airlines

____ 24. Teradyne designs and manufactures testing equipment used mainly in high-tech settings.
Its business is tied directly to the semiconductor industry and Teradyne suffered badly in the
high-tech downturn. Teradyne is now focusing on its proprietary assembly equipment and
customer service as the competitive advantages that it hopes will enable it to survive and grow.
This indicates that Teradyne:

a. is making an attempt to gain sustainable competitive advantage that is inconsistent with the
industry in which it is located.
b. has a fundamentally flawed understanding of the high-tech industry.
c. is making a successful shift from a fast-cycle industry to a slow-cycle industry.
d. is attempting to buffer itself from some of the disadvantages of the fast-cycle industry and
gain some of the advantages of a slower-cycling industry.

____ 25. Nestle Coffee has recently instituted a change to a plastic container with a handgrip
from its traditional metal can. This is a(an):

a. incremental innovation typical of a standard-cycle market.

b. indication that Folger's is competing in a fast-cycle market.
c. a strategic action directed at coffee house chains such as Starbucks.
d. evidence that Folger's has little loyalty to its products.

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MM4311 Midterm Review Questions Ivy Yang

Case Scenario: Romulac, Inc. Romulac Inc. (RI), a subsidiary of a large successful
manufacturing conglomerate, supplies a key component in the assembly of residential cooling
systems (air conditioning units, etc.). There has been tremendous consolidation in RI’s industry,
to the point where only five suppliers of this particular component account for nearly 90% of U.S.
industry sales. Paralleling this trend, its customerscomprised of makers of branded residential
air conditioning units like Carrier and Tranehave seen similar levels of consolidation in their
own industry. Half of these firms produce all their components in-house, while the balance
purchases them from specialized component manufacturers like RI. RI’s business is extremely
capital intensive, and their 40% share of the market allows them to also be the most profitable
domestic player. Strong competitors exist in Europe and Asia. Although like RI, these foreign
players’ strongholds are their home regions, with negligible presence outside of the region. Some
of the larger Asian manufacturers have signaled an interest in more aggressively pursuing the
lucrative U.S. market. RI is presently considering a $400 million dollar investment in a new plant,
which will create a component that is much quieter, more efficient, and is likely to satisfy future
regulatory standards. While the core technology for the new component is very old, RI’s
engineering and design skills have allowed them to retain their low cost-advantage, even though
the component will represent a significant improvement over products currently provided by its
competition.
Questions pertain to Case Scenario: Romulac Inc.

1. Do you think RI should try to be a first-mover or a second mover with this new
technology?

2. As one of RI’s direct competitors, how would you try to respond to RI’s action?