MCQs Directions and methods of growth

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Diversification occurs when a company decides to make new products for new markets. It should have a clear idea about what it expects to gain from
MCQs Directions and methods of growth

MCQs Directions and methods of growth

Diversification occurs when a company decides to make new products for new markets. It should have a clear idea about what it expects to gain from diversification. Here on MCQs.CLUB we have prepared helpful Multiple-Choice Question on growth strategies in business with examples that fully cover practice questions on business development strategy, inorganic and organic growth business, about marketing growth strategy, external growth strategy, horizontal growth strategy, the product growth strategies. These MCQs on growth strategies in strategic management are also useful for competitive exams, business management exams and professional accountancy exams.

  1. Product-market strategy looks at the mix of products and markets a firm can use to try to increase its sales. Ansoff demonstrates the choices available in the form of a matrix with options including:
    1. Market penetration – current products, current markets
    2. Market development – current products, new markets
    3. Product development – new products, current markets
    4. Diversification – new products, new markets
    5. All of the above
  1. Product Market Mix – is a short-hand term for the products/services a firm sells (or a service which a public sector organisation provides) and the markets it sells them to.
    1. True
    2. False
  1. Product development is the launch of new products to existing markets, either through the internal research and development of a firm’s own products, or possibly by acquiring the rights to produce someone else’s product.
    1. The above statement is correct
    2. The above statement is incorrect
  1. Advantages of product development are:
    1. Product development forces competitors to innovate
    2. Newcomers to the market might be discouraged
    3. Both A&B
    4. None
  1. Diversification occurs when a company decides to make new products for new markets. It should have a clear idea about what it expects to gain from diversification.
    1. True
    2. False
  1. Unrelated or Conglomerate Diversification – ‘is development beyond the present industry into products/markets which, at face value, may bear no close relation to the present product/market’.
    1. True
    2. False
  1. Advantages of conglomerate diversification include:
    1. An improvement of the overall profitability and flexibility of the firm through synergy
    2. Organisational learning by buying-in expertise
    3. Use a company’s image and reputation in one market to develop into another
    4. Exploit under-utilised resources
    5. All of the above

  1. Disadvantages of conglomerate diversification are:
    1. The dilution of shareholders’ earnings
    2. Lack of a common identity and purpose in a conglomerate organization
    3. Failure in one of the businesses will drag down the rest
    4. Lack of management experience may reduce management’s ability to run the new business properly
    5. All of the above
  1. Conglomerate diversification can lead to a wide range of organisational characteristics. Generally, there will be trade-offs to be made between elements such as:
    1. Overhead cost structure and level
    2. Responsiveness to changing customer needs and wants
    3. Exploitation of resources and competences
    4. Organisational learning
    5. All of the above
  1. Which of the following is correct?
    1. Synergy is the 2 + 2 = 5 effect, where a firm looks for combined results that reflect a better rate of return than would be achieved by the same resources used independently as separate operations.
    2. Synergy is used to justify diversification. Much of the benefit of synergy is derived from economies of scale and scope.
    3. Both A&B
    4. None
  1. If a firm is looking to implement product-market growth strategies it needs to be aware of the potential risks it will be facing such as:
    1. Market risk – If a firm enters a new market, it will face competition from the existing firms in the market which will want to protect their market share.
    2. Product risk – If a firm is developing a new product, or a new production process, production costs may be increased to lack of experience.
    3. Managerial risk – The management team may not be able to run the new business effectively, especially if it is in a significantly different business area to its existing business.
    4. All of the above
  1. The main issues involved in choosing a method of growth are:
    1. Resources – Does a firm have enough resources and competences to go it alone, or does it have plenty of resources to invest?
    2. Cultural fit – Combining businesses involves integrating people and organisation culture.
    3. Risk – A firm may either increase or reduce the level of risk to which it is subject. External growth often involves more risk than organic (internal) growth.
    4. All of the above
  1. The type of relationships between two or more firms can display differing degrees of intensity, include:
    1. Formal integration: acquisition and merger
    2. Formalised ownership/relationship, such as a joint venture
    3. Contractual relationships, such as franchising
    4. All of the above
  1. A firm can either choose to grow internally or else it can link with another firm.
    1. True
    2. False

  1. Which of the following is correct regarding ‘Organic growth’?
    1. Organic growth is a popular method of growth for many organisations.
    2. It is achieved through the development of an organisation’s own internal resources, rather than combining with any other firms.
    3. Organic growth – Expansion of a firm’s size, profits, activities achieved without taking over other firms.
    4. All of the above
  1. Why might a firm pursue organic growth?
    1. Hidden or unforeseen losses are less likely with organic growth. There are also no issues with having to value a potential acquisition.
    2. The firm has sufficient current resources to comfortably plan, finance and deliver the growth itself.
    3. It might be the only sensible way to pursue genuine technological innovations.
    4. All of the above
  1. If it is assumed that existing products have a finite life, a strategy of organic growth must include plans for innovation because:
    1. It provides the organisation with a distinctive competence, and with the ability to maintain such a competence.
    2. It maintains the organisation’s competitive advantage and market share.
    3. Both A&B
    4. None
  1. The key triggers for innovation are:
    1. Market pull – new market opportunities may generate growth opportunities for firms
    2. Technology push – technological change provides new opportunities.
    3. Both A&B
    4. None
  1. The organic growth by innovation is not always a guarantee of success.
    1. True
    2. False
  1. Potential disadvantages of organic growth include:
    1. Time – It will take longer for a firm to grow organically, then by acquiring another firm.
    2. If the firm is looking to break into new markets, it may lack the access to key suppliers or customers which established players have.
    3. The firm has to bear all the risk of any new product development or market entry strategies.
    4. All of the above
  1. The fundamental approaches to internationalising production are:
    1. cost or competence-led
    2. market-led
    3. Both A&B
    4. None

  1. Cost or competence-led location – In this approach, production decisions are taken on the basis of the technology to be adopted, the scale of production (how many units per year) and the inherent characteristics of the location.
    1. The above statement is correct
    2. The above statement is incorrect
  1. A firm’s decision about which overseas market to enter should be based upon assessment of:
    1. market attractiveness
    2. competitive advantage
    3. risk
    4. All of the above
  1. Why expand overseas?
    1. Life cycle – Home sales may be in the mature or decline stages of the product life cycle. International expansion may allow sales growth since products are often in different stages of the product life cycle in different countries.
    2. Access to cheaper raw materials, or cheaper labour, could be a source of competitive advantage for an organization.
    3. Firms may be pushed into international expansion by domestic adversity, or pulled into it by attractive opportunities abroad.
    4. All of the above
  1. Before undertaking an international expansion, a company must consider both strategic and tactical issues involved. Strategic issues are:
    1. Will the operation make a positive contribution to shareholders’ wealth?
    2. Does the organisation have (or can it raise) the resources necessary to exploit effectively the opportunities overseas?
    3. Have the foreign workers got the skills to do the work required? Will they be familiar with any technology used in production processes?
    4. A&B only
  1. In making a decision as to which market(s) to enter the firm must start by establishing its objectives. Such examples include:
    1. What proportion of total sales will be overseas?
    2. What are the longer-term objectives?
    3. Will it enter one, a few, or many markets?
    4. All of the above
  1. In international business there are several categories of risk. Such as:
    1. Political, Business
    2. Currency and Profit repatriation risk
    3. Both A&B
    4. None
  1. The broad ways of entering foreign markets are:
    1. indirect exports
    2. direct exports
    3. overseas manufacture
    4. All of the above

  1. Exporting – Goods are made at home but sold abroad. It is the easiest, cheapest and most commonly used route into a new foreign market.
    1. True
    2. False
  1. Advantages of exporting are:
    1. Exporters can concentrate production in a single location, giving economies of scale and consistency of product quality.
    2. Firms lacking experience can try international marketing on a small scale.
    3. Firms can test their international marketing plans and strategies before risking investment in overseas operations.
    4. Exporting minimises operating costs, administrative overheads and personnel requirements.
    5. All of the above
  1. Disadvantages of exporting include:
    1. Distance – The firm remains a long way from its customers.
    2. Working capital – The firm’s working capital cycle could be extended due to the time taken to ship produce to the customer.
    3. Potential foreign exchange risk.
    4. All of the above
  1. Indirect exporting is where a firm’s goods are sold abroad by other organisations who can offer greater market knowledge.
    1. True
    2. False
  1. Which of the following is correct regarding ‘Direct exports’?
    1. Direct exporting occurs where the producing organisation itself performs the export tasks.
    2. Sales are made directly to customers overseas who may be the wholesalers, retailers or final users.
    3. Both A&B
    4. None
  1. A firm may choose to manufacture in a foreign country because it wants to sell to that country, Benefits of foreign manufacture include:
    1. A better understanding of customers in the overseas market.
    2. Lower storage and transportation costs, because the distance between production and market is reduced.
    3. Manufacture in the overseas market may help win orders from the public sector.
    4. All of the above
  1. Contract manufacture – manufacture is suited to countries where the small size of the market discourages investment in plant and to firms whose main strengths are in marketing rather than production.
    1. True
    2. False

  1. Advantages of contract manufacture include:
    1. No need to invest in plant overseas
    2. Lower risk of asset expropriation (because assets owned by the contractor)
    3. Lower transport costs and lower production costs (from overseas production)
    4. All of the above
  1. Disadvantages of contract manufacture are:
    1. Suitable overseas producers cannot always be easily identified
    2. The need to train the contractor’s personnel
    3. The contractor may eventually become a competitor
    4. Quality control problems in manufacturing may arise
    5. All of the above
  1. Which of the following is correct?
    1. Outsourcing is the contracting out of specified operations or services to an external provider.
    2. Off-shoring is a form of outsourcing in which the external provider is based in a different country to the organisation which is outsourcing its operations or services.
    3. Both A&B
    4. None
  1. A firm can also grow by combining with other firms, through merger or acquisition.
    1. True
    2. False
  1. Which of the following is correct?
    1. A merger is the joining of two separate companies to form a single company.
    2. An acquisition is the purchase of a controlling interest in another company.
    3. Both A&B
    4. None
  1. The classic reasons for acquisition as a part of strategy are:
    1. Eliminate competition and Market presence
    2. Acquire technology and skills and Safeguard future supplies
    3. Management team improve running of the business
    4. All of the above
  1. Acquiring companies in overseas markets is riskier, for a number of reasons, such as differences in culture and/or language, and differences in the way the foreign company is used to being managed. The acquirer should attempt an evaluation of:
    1. Reaction of competitors to an acquisition
    2. Cultural fit between predator and target
    3. Likelihood of government intervention and legislation
    4. All of the above

  1. A management accountant is required to assess the value of an acquisition. A number of methods are available including:
    1. Accounting rate of return, whereby the company will be valued by estimated future profits over return on capital.
    2. Discounted cash flows, if cash flows are generated by the acquisition.
    3. Price/earnings ratio – the market’s expectations of future earnings.
    4. All of the above
  1. A leveraged buyout (LBO) is a form of debt-financed takeover where the target company is bought up by a team of managers in the company.
    1. True
    2. False
  1. Which of the following is correct?
    1. Franchising – where the franchiser provides expertise, a brand name etc., and the franchisee offers some of the capital.
    2. Consortia – organisations co-operate on specific business prospects.
    3. A Joint Venture is a ‘contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control’.
    4. All of the above
  1. Advantages of joint ventures are:
    1. Joint ventures permit coverage of a larger number of countries since each one requires less investment.
    2. A joint venture can reduce the risk of government intervention.
    3. A joint venture with an indigenous firm provides local knowledge, and can also allow firms a route into markets they might otherwise struggle to enter.
    4. All of the above
  1. Disadvantages of joint ventures are:
    1. There can be major conflicts of interest.
    2. Disagreements may arise over profit shares, amounts invested, the management of the joint venture, and the marketing strategy.
    3. The joint venture may not be fully supported by its parent companies because none of them feel they really own it.
    4. All of the above
  1. Strategic alliances – alliances occur where firms work together to enhance their competitive advantages, but do not create a new legal entity.
    1. True
    2. False
  1. Firms may enter strategic alliances with others for a variety of reasons such as:
    1. Alliances can facilitate entry into new markets on a global or regional basis.
    2. By working together, alliance partners may be able to exploit synergies between their different businesses.
    3. Smaller firms can often work together in an alliance to act as more effective competition to a dominant player in the market then they could if they all acted independently.
    4. All of the above

  1. Limitations of alliances include:
    1. Core competence – Each organisation should be able to focus on its core competence. Alliances do not enable it to create new competences.
    2. Because alliance partners remain separate entities, many fails to achieve the integration or commitment needed to gain any significant competitive advantage.
    3. Strategic priorities – If a key aspect of strategic delivery is handed over to a partner, the firm loses flexibility. A core competence may not be enough to provide a comprehensive customer benefit.
    4. All of the above
  1. A licensing agreement is a commercial contract whereby the licenser gives something of value to the licensee in exchange for certain performances and payments.
    1. True
    2. False
  1. The franchiser offers the franchisee:
    1. Use of the franchise name, and any goodwill associated with it
    2. Use of its business systems and support services (including central marketing support)
    3. Its product/service to sell, and relevant instructions for selling the product/service
    4. Management and staff training programmes
    5. All of the above
  1. Benefits of franchising include:
    1. Reduces capital requirements
    2. Reduces managerial resources
    3. Improves return on promotional expenditure through speed of growth
    4. All of the above
  1. Disadvantages of franchising (for the franchiser) are:
    1. The search for competent candidates is both costly and time consuming where the franchiser requires many outlets.
    2. Danger that franchisees can gain confidential information about the franchiser and subsequently set up as competitor.
    3. Both A&B
    4. None
  1. Divestment is ‘disposal of part of its activities by an entity’.
    1. True
    2. False
  1. Reasons for divestment are:
    1. To rationalise a business as a result of a strategic appraisal, perhaps as a result of portfolio analysis.
    2. Focus on core competences
    3. To allow market valuation to reflect growth and income prospects.
    4. All of the above

  1. Methods of divestment are:
    1. Sale as a going concern to another business (in return for cash and/or shares).
    2. Assets are liquidated – the business is closed and its assets are sold.
    3. Demerger
    4. Management buyout (MBO)
    5. Management buy-in (MBI)
    1. (I) (II) and (III) only
    2. (II) (III) and (V) only
    3. All of the above
    4. None
  1. Which of the following is correct regarding ‘Demergers”?
    1. One term that describes divestment is demerger. This is sometimes referred to as unbundling.
    2. The main feature of a demerger is that one corporate entity becomes two or more separate entities.
    3. Both A&B
    4. None
  1. Management buy-out (MBO) –
    1. A management buy-out is ‘purchase of a business from its existing owners by members of the management team.
    2. This option may appear attractive to managers because it gives them the chance to control their own business, with the absence of any head office constraints.
    3. The MBO option may also be attractive for the divesting company because they can present the MBO as being an opportunity for the business to develop its own talent.
    4. All of the above
  1. Product rationalisation entails reducing the number of products an organisation sells so that if focuses on the products which generate the greatest profit, and avoids having a product portfolio which is too large and expensive to maintain.
    1. The above statement is correct
    2. The above statement is incorrect
  1. Before divesting any products, a firm should also consider:
    1. Impact on total sales
    2. Production overhead costs – If the number of products is reduced, but fixed costs remain the same, these fixed costs will have to be apportioned across a smaller range of products.
    3. Whether the production volume of the remaining products in the portfolio will be increased following the rationalisation.
    4. All of the above
  1. The major elements of a public sector organisation’s strategy are:
    1. Marketing
    2. Service delivery
    3. Resource utilization
    4. All of the above
  1. Haberberg and Rieple strategic concerns for charities include:
    1. Organise and manage internal structure and systems so as to achieve the mission
    2. Develop and manage fundraising to provide consistent and predictable levels of income
    3. Demonstrate good governance
    4. All of the above

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