Entrepreneurship: Successfully Launching New Ventures, 3e (Barringer/Ireland) Chapter 14 Strategies for Firm Growth

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1 Entrepreneurship: Successfully Launching New Ventures, 3e (Barringer/Ireland) Chapter 14 Strategies for Firm Growth 1) University Parent Media, the company profiled in the opening feature for Chapter 14, published print guides and provides online resources for the parents of college students. During its early years, University Parent Media relied primary on to increase its sales. A) organic growth B) acquisitions C) franchising D) licensing E) strategic alliances and joint ventures Diff: 1 Page Ref: 455 2) Betsy Calvin owns a firm that manufacturers and sells exercise equipment. She is currently trying to grow her firm by developing new products. Betsy is pursuing a(n) growth strategy. A) outside B) inward C) internal D) external E) domestic Diff: 1 Page Ref: 456 3) Which of the following is an example of an internal growth strategy? A) licensing B) merger C) new product development D) strategic alliance E) franchising Diff: 2 Page Ref: 457 1

2 4) New product development, other product related strategies, and international expansion are examples of: A) external growth strategies B) domestic growth strategies C) secondary growth strategies D) internal growth strategies E) inward growth strategies Diff: 2 Page Ref: 457 5) Internally generated growth is often called growth because it does not rely on outside intervention. A) natural B) whole C) expected D) organic E) ordinary Diff: 2 Page Ref: 457 6) Which mechanism for firm growth involves the creation and sale of new products or services? A) acquisitions B) licensing C) franchising D) new product development E) international expansion Diff: 1 Page Ref: 457 7) Which of the following statement is not true regarding new product development? A) New product development involves designing, producing, and selling new products as a means of increasing firm revenues and profits. B) When developing new products is properly executed, there is tremendous upside potential. C) The key to successful new product development strategy is to develop products that aren't simple "me-too" products. D) In general, developing new products is a low-risk strategy. E) In many fast-paced industries, new product development is a competitive necessity. Diff: 2 Page Ref: 457 2

3 8) Which of the following is an example of an external growth strategy? A) strategic alliances and joint ventures B) improving an existing product or service C) increasing the market penetration of an existing product or service D) extending product lines E) geographic expansion Diff: 2 Page Ref: 457 9) Which of the following is an advantage of internal growth strategies? A) provides maximum control B) adds to industry capacity C) need to develop new resources D) investment in a failed internal effort can be difficult to recoup E) slow form of growth Diff: 2 Page Ref: ) Which of the following was not identified as one of the keys to effective new product and service development? A) focus on a specific target market B) get quality and pricing right C) resist the temptation to conduct ongoing feasibility analysis D) develop products that add value E) find a need and fill it Diff: 2 Page Ref: ) Which of the following was not mentioned in the textbook as a reason that new products fail? A) inadequate advertising and promotion B) bad timing C) focus on a specific target market D) inadequate feasibility analysis E) overestimation of market potential Diff: 2 Page Ref: 459 3

4 12) If a business enhances the quality of a product, makes it more convenient to use, improves its durability, or makes it more up to date, any one of those initiatives fall under the category of: A) increasing the market penetration of an existing product or service B) extending product lines C) geographic expansion D) licensing E) improving an existing product or service Diff: 2 Page Ref: ) A seeks to increase the sales of a product or service through greater marketing efforts or through increased production capacity and efficiency. A) product line extension strategy B) strategic alliance strategy C) geographic expansion strategy D) market penetration strategy E) improving an existing product or service strategy Diff: 2 Page Ref: ) Pam Ryan owns a store that sells running shoes and related products. Pam is currently trying to increase sales through endorsements by famous runners and former Olympic athletics. Pam is pursuing a: A) strategic alliance strategy B) licensing strategy C) market penetration strategy D) geographic expansion strategy E) improving an existing product or service strategy Diff: 2 Page Ref: ) The What Went Wrong? feature in Chapter 14 focuses on Steve & Barry's, a retail chain that grew rapidly from 2003 to 2008 but sold its stores to an investment firm in According to the feature, during its rapid growth, Steve & Barry's sewed the seeds for its ultimately failure primarily because it: A) had a hard time finding celebrity endorsers B) engaged in a number of disappointing acquisitions C) developed a weak brand D) wasn't able to gain market share E) wasn't making money on its retail operations Diff: 2 Page Ref: 460 4

5 16) is work that is done for a company by people other than the company's full-time employees. A) Ability enhancement B) Productivity subcontracting C) Capacity enhancement D) Outsourcing E) Insourcing Diff: 2 Page Ref: ) A strategy involves making additional versions of a product so that it will appeal to different clientele. A) product line extension B) geographic expansion C) improving an existing product or service D) strategic alliance E) market penetration Diff: 2 Page Ref: ) Ted Donovan owns a store that sells all terrain vehicles (ATVs). In the past Ted just sold one version of each of the ATVs he sold in his showroom, but to increase sales, Ted now sells a lowend, a medium-priced, and a high-end version of each of the ATVs he sells. Ted's new strategy is called a: A) improving an existing product or service strategy B) market penetration strategy C) product line extension strategy D) geographic expansion strategy E) joint venture strategy Diff: 2 Page Ref: ) Entrepreneurial businesses that grow by expanding from their original location to additional geographic sites are pursuing a: A) common expansion strategy B) market penetration strategy C) universal networking strategy D) geographic expansion strategy E) product line extension strategy Diff: 2 Page Ref: 462 5

6 20) Don Andrews owns a chain of barbershops, that started near Atlanta, and has expended into northern Florida, South Carolina, and North Carolina. Don is growing his company via a strategy of: A) geographic expansion B) market penetration C) product line extension D) outsourcing E) licensing Diff: 2 Page Ref: ) According to a recent PricewaterhouseCooper's survey (cited in the textbook) of rapidgrowth entrepreneurial firms, of the 350 firms surveyed sell in international markets. A) 15% B) 25% C) 46% D) 77% E) 90% Diff: 3 Page Ref: ) According to the textbook, international new ventures are: A) businesses that have employees located in three or more countries B) businesses that sell products in five or more countries C) businesses that, from inception, seek to derive significant competitive advantage by using their resources to sell products or services in multiple countries D) business that are headquartered in a foreign country and export their products to the U.S. E) new ventures that export at least one-third of their products to foreign countries Diff: 2 Page Ref: ) Which of the following is the primary advantage of exporting as a foreign market entry strategy? A) No foreign currency risk is involved. B) Exporting requires little knowledge of foreign markets. C) Exporting is a relatively inexpensive way for a firm to become involved in foreign markets. D) The exporting company's customers put up most of the capital needed to establish the export operation. E) Exporting involves very little effort on the part of a firm. Diff: 2 Page Ref: 465 6

7 24) Which of the following is the primary disadvantage of licensing as a foreign market entry strategy? A) high transportation costs B) quality control C) It is usually a one-time activity. D) A firm loses partial control of its business operations. E) A firm in effect "teaches" a foreign company how to produce its proprietary products. Diff: 2 Page Ref: ) Which of the following is the primary disadvantage of franchising as a foreign market entry strategy? A) It is usually a one-time activity. B) quality control C) A firm loses partial control of its business finances. D) high transportation costs E) The costs of setting up and maintaining a manufacturing facility and permanent presence in a foreign country can be high. Answer: B Diff: 2 Page Ref: ) growth strategies rely on establishing relationships with third parties, such as mergers, acquisitions, strategic alliances, joint ventures, licensing, and franchising. A) External B) Domestic C) Outside D) Distant E) Peripheral Diff: 1 Page Ref: ) Brad Williamson owns a firm that manufacturers and sells electrical supplies. He is currently trying to grow his firm through alliances and joint ventures. Brad is pursuing a(n): A) domestic growth strategy B) external growth strategy C) subsidiary growth strategy D) internal growth strategy E) secondary growth strategy Answer: B Diff: 1 Page Ref: 465 7

8 28) Which of the following is an example of an external growth strategy? A) market penetration B) product line extension C) joint venture D) new product development E) geographic expansion Diff: 2 Page Ref: ) Which of the following is a disadvantage of growth by means of external growth strategies? A) diversification of business risk B) economies of scale C) getting access to proprietary products or services D) reducing competition E) antitrust implications Diff: 3 Page Ref: ) Which of the following is an advantage of growth by means of external growth strategies? A) clash of corporate cultures B) increased business complexity C) loss of organizational flexibility D) antitrust implications E) diversification of business risk Diff: 3 Page Ref: ) A(n) is the pooling of interests to combine two or more firms into one. A(n) is the outright purchase of one firm by another. A) acquisition, merger B) merger, acquisition C) licensing agreement, acquisition D) joint venture, strategic alliance E) strategic alliance, joint venture Answer: B Diff: 2 Page Ref: 467 8

9 32) Laura Watts owns a printing company. Over the past three years, Laura has significantly increased her sales through the outright purchase of other printing firms. Laura is pursuing a(n) strategy. A) acquisition B) merger C) strategic alliance D) joint venture E) licensing Diff: 2 Page Ref: ) Two years ago, Jason Jennings and Mary Scott each owned a small chain of bagel restaurants in Orange County, California. Just recently, they decided to pool their interests and combine their individual chains of restaurants into one chain. What Jason and Mary did with their firms is called a: A) licensing agreement B) strategic alliance C) acquisition D) joint venture E) merger Diff: 2 Page Ref: ) Which of the following statements is incorrect regarding acquisitions? A) In an acquisition, the surviving firm is called the acquirer. B) An acquisition is the outright purchase of one firm by another. C) In most cases, a firm acquires a competitor or a company that has a product line or distinctive competency that it needs. D) If a firm decides to grow through acquisitions, it is extremely important for it to exercise extreme care in finding acquisition candidates. E) May firms have found that the process of assimilating another company into their current operation was easier than they thought it would be. Diff: 3 Page Ref: 467 9

10 35) In an acquisition, the surviving firm is called the, and the firm that is acquired is called the. A) target, acquirer B) goal, objective C) objective, aggressor D) acquirer, target E) aggressor, objective Diff: 2 Page Ref: ) The granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions is referred to as: A) verifying B) confirming C) endorsing D) licensing E) certifying Diff: 2 Page Ref: ) The is the company that owns the intellectual property. The is the company purchasing the right to use it. A) endorsee, endorser B) licensor, licensee C) licensor, endorsee D) endorser, endorsee E) licensee, licensor Answer: B Diff: 2 Page Ref: ) licensing is the licensing of proprietary technology that the licensor typically controls by virtue of a utility patent. A) Skill B) Intellectual property C) Utility D) Technology E) Expertise Diff: 2 Page Ref:

11 39) Qualcomm, a high-tech company headquartered in San Diego, owns the rights to several of the key components that permit cell phones to work. Instead of selling cell phones itself, Qualcomm grants permission to many companies, such as Samsung and LG, to use specific forms of its intellectual property in exchange for monetary compensation. Qualcomm in engaging in an external growth strategy referred to as: A) licensing B) strategic alliances C) acquisitions D) new product development E) joint ventures Diff: 2 Page Ref: ) is the licensing of a recognized trademark or brand that the licensor typically control through a registered trademark or copyright. A) Goods and character licensing B) Products and trademark licensing C) Products and brand licensing D) Merchandise and character licensing E) Products and services licensing Diff: 2 Page Ref: ) Merchandise and character licensing is the licensing of a recognized trademark or brand and the licensor typically controls through a registered: A) trade secret or copyright B) patent or copyright C) trademark or patent D) patent or trade secret E) trademark or copyright Diff: 2 Page Ref:

12 42) Paul Kite owns a chain of ice cream stores in New England. To draw attention to his stores, he adopted a very colorful and distinctive logo several years ago, which depicts a funny looking cow churning ice cream. Recently, a dairy company asked Paul if it could use a characterization of his funny looking cow on a line a yogurt it is coming out with, and offered to pay Paul's company 3 cents for every carton of yogurt it sells that has the cows image on the carton. If Paul accepts this proposal, he will need to enter into a agreement with the dairy. A) licensing B) joint venture C) strategic alliance D) new product development E) exporting Diff: 2 Page Ref: ) According to the textbook, the key to effective merchandise and character licensing, is: A) get licensing income monthly rather than yearly B) resist the temptation to license a trademark too widely C) licensing a trademark very widely D) restrict licensing agreements to one year E) restrict licensing to product categories that have no relevance and appeal to a firm's core customers Answer: B Diff: 3 Page Ref: ) A is a partnership between two or more firms that is developed to achieve a specific goal, and has no joint ownership involved. A) joint alliances B) joint venture C) licensing agreement D) merger E) strategic alliance Diff: 1 Page Ref:

13 45) Which of the following was identified in the textbook as an advantage of participating in strategic alliances and joint ventures? A) risk and cost sharing B) loss of organizational flexibility C) partner's cultures may clash D) risk becoming dependent on a partner E) loss of proprietary information Diff: 2 Page Ref: ) Which of the following was identified in the textbook as a disadvantage of participating in strategic alliances and joint ventures? A) risk and cost sharing B) learning C) partial loss of decision autonomy D) speed to market E) neutralizing or blocking competitors Diff: 2 Page Ref: ) In the context of strategic alliances, feature cooperation in research and development, engineering, and manufacturing. A) administrative alliances B) directorial alliances C) marketing alliances D) organizational alliances E) technological alliances Diff: 2 Page Ref: ) In the context of strategic alliances, typically match a company with a distribution system with a company that has a product to sell to increase sales of a product or service. A) promotion alliances B) marketing alliances C) organizational alliances D) directional alliances E) technological alliances Answer: B Diff: 2 Page Ref:

14 49) A is an entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization. A) strategic venture B) strategic alliance C) tactical venture D) acquisition venture E) joint venture Diff: 2 Page Ref: ) In a, the partners collaborate at a single point in the value chain to gain economies of scale in production or distribution. In a, the position of the parties is not symmetrical, and the objectives of the parties may diverge. A) link joint venture, scale joint venture B) tactical joint venture, strategic joint venture C) strategic joint venture, tactical joint venture D) stability joint venture, risk joint venture E) scale joint venture, link joint venture Diff: 2 Page Ref: ) Internal growth strategies involve efforts taken within the firm itself, such as new product development, other product-related strategies, and international expansion. Diff: 1 Page Ref: ) Internally generated growth is often called organic growth because it relies on outside intervention. Answer: FALSE Diff: 2 Page Ref: ) New product development involves designing, producing, and selling new products as a means of increasing firm revenues and profitability. Diff: 2 Page Ref: ) New product development is a high-risk growth strategy. Diff: 2 Page Ref:

15 55) A disadvantage of internal growth is that it is a slow form of growth. Diff: 2 Page Ref: ) A market penetration strategy involves making additional versions of a product so that it will appeal to different clientele. Answer: FALSE Diff: 2 Page Ref: ) Outsourcing is work that is done for a company by the company's full-time employees. Answer: FALSE Diff: 2 Page Ref: ) Geographic expansion is most common in retail settings. Diff: 2 Page Ref: ) The majority of entrepreneurial firms first enter foreign markets as exporters. Diff: 2 Page Ref: ) Internal growth strategies rely on establishing relationships with third parties, such as mergers, acquisitions, strategic alliances, joint ventures, licensing, and franchising. Answer: FALSE Diff: 1 Page Ref: ) An acquisition is the pooling of interests to combine two or more firms into one. An merger is the outright purchase of one firm by another. Answer: FALSE Diff: 2 Page Ref: ) In an acquisition, the surviving firm is called the acquirer, and the firm that is acquired is called the target. Diff: 2 Page Ref:

16 63) In regard to acquisitions, many firms have found that the process of assimilating another company into their current operations is not easy and can stretch finances to the brink. Diff: 3 Page Ref: ) Licensing is the granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions. Diff: 2 Page Ref: ) Technology licensing is the licensing of a recognized trademark or brand that the licensor typically controls through a registered trademark or copyright. Answer: FALSE Diff: 2 Page Ref: ) Loss of organizational flexibility is a disadvantage of participating in strategic alliances and joint ventures. Diff: 2 Page Ref: ) A joint venture is a partnership between two or more firms that is developed to achieve a specific goal and has no joint ownership involved. Answer: FALSE Diff: 2 Page Ref: ) In a scale joint venture, the partners collaborate at a single point in the value chain to gain economies of scale in production of distribution. Diff: 2 Page Ref: ) In a link joint venture, the position of the parties is not symmetrical, and the objectives of the partners may diverge. Diff: 2 Page Ref: ) A spin-in occurs when a large company divests itself of one of its smaller divisions and the division becomes an independent company. Answer: FALSE Diff: 3 Page Ref:

17 71) Explain the difference between internal and external growth strategies? Provide examples of each. Answer: Internal growth strategies rely on efforts generated with the firm itself, such as new product development, other product related strategies, and international expansion. External growth strategies rely on establishing relationships with third parties, such as mergers, acquisitions, strategic alliances, joint ventures, licensing, and franchising. Diff: 1 Page Ref: ) Describe the internal growth strategy new product development. Why is it a competitive necessity in some industries that entrepreneurial firms focus on this form of growth? Answer: New product development involves the creation and sale of new products (or services) as a means of increasing firm revenues. In many fast-paced industries, new product development is a competitive necessity. For example, the average product life cycle in the computer software industry is 14 to 16 months. Because of this, to remain competitive, software companies must always have new products in their pipelines. Diff: 2 Page Ref: ) Describe what a product line extension strategy is. What are the advantages of this strategy? Describe a company you are familiar with that utilizes a product line extension growth strategy. product line extension strategy involves making additional versions of a product so that it will appeal to different clientele or making related products to sell to the same clientele. For example, a company may take a low-end product, make another version of it that is a little better, and then make another version of it that represents the top of the line. The advantage of a product extension strategy is that it allows a firm to take one product and extend it into several products without incurring significant additional development expense. In regard to making related products to sell to the same clientele, many firms start by offering one product or service and then expand into related areas. Many companies utilize product extension strategies. Starbucks, for example, now sells bottled Frappuccino Coffee, which is an extension of its more traditional hot coffees and related drinks sold in its restaurants. Diff: 2 Page Ref: ) Describe what licensing is. What type of intellectual property can be licensed? Identify the two types of licensing pursued by entrepreneurial firms. Answer: Licensing is the granting of permission by one company to another company to use a specific form of its intellectual property under clearly defined conditions. Virtually any intellectual property a company owns that is protected by a patent, trademark or copyright can be licensed to a third party. There are two principle types of licensing. Technology licensing is the licensing of proprietary technology that the licensor typically controls by virtue of a utility patent. Merchandise and character licensing is the licensing of a recognized trademark or brand that the licensor typically controls through a registered trademark or copyright. Diff: 2 Page Ref:

18 75) Describe what a joint venture is. Identify the two types of joint ventures. joint venture is an entity created when two or more firms pool a portion of their resources to create a separate, jointly owned organization. The two types of joint ventures are scale joint ventures and link joint ventures. In a scale joint venture, the partners collaborate at a single point in the value chain to gain economies of scale in production and distribution. In a link joint venture, the position of the parties is not symmetrical, and the objectives of the parties may diverge. For example, many of the joint ventures between American and Canadian food companies provide the American partner with access to Canadian markets and distribution channels and the Canadian partner with the opportunity to add to its product line. Diff: 3 Page Ref: