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Economies Of Scope Flashcards, test questions and answers

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What is Economies Of Scope?

Economies of scope are a type of economies that arise from the sharing of common costs between two or more products, activities or processes. Economies of scope can be achieved by production diversification, which is when the same firm produces multiple goods with shared inputs and/or manufacturing processes. It is an important cost-saving measure in production as it allows firms to spread fixed costs over a greater number of outputs, thus reducing their overall unit cost. For example, if two different products require similar materials and labor then producing both items together would result in reduced total costs. This could include using the same factory equipment for both products or buying supplies at bulk discounts. Additionally, knowledge and experience acquired through the production process may allow the producer to gain additional advantages such as better quality control processes or increased efficiency levels resulting in further cost savings. Economies of scope also enable companies to leverage their existing resources and capabilities into new markets since they have already perfected certain production methods from past experiences. For example, Apple Inc has been able to use its technology expertise to develop software applications for mobile devices like iPads and iPhones despite having no prior experience with these types of products before entering this market segment. Similarly, Amazon has leveraged its massive distribution network developed for books into other consumer goods and services such as music downloads and streaming videos on demand. Both examples demonstrate how companies can achieve economies of scope by leveraging existing resources into new markets where there are fewer entry barriers due to their prior success in related areas.

We've found 5 Economies Of Scope tests

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Kenneth McQuaid
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Ben Powell
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When the CEO of Whole Foods, John Mackey, had to make decisions about the company’s cost structure and value position he was: A. Making strategic trade-offs. B. Conducting a strategic group map evaluation. C. Trying to improve the firm’s economies of scope. D. Leveraging the low-cost position of the company.
Making strategic trade-offs.
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Best defines economies of scope
maximization of resources used throughout an organization
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Local responsiveness forces encountered by MNEs include cultural differences, government demands and economies of scope
False
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The defining characteristic of unrelated diversification (as opposed to related diversification) is A) the presence of cross-business resource fit (whereas the defining characteristic of related diversification is the presence of cross-business strategic fit). B) that the value chains of different businesses are so dissimilar that no competitively valuable cross-business relationships are present (in other words, the value chains of a company’s businesses offer no opportunities to benefit from skills or technology transfer across businesses, economies of scope, cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities). C) the presence of cross-business strategic fit (whereas the defining characteristic of related diversification is the presence of cross-business resource fit). D) that the company’s businesses are in different industries. E) the presence of cross-business financial fit.
B) that the value chains of different businesses are so dissimilar that no competitively valuable cross-business relationships are present (in other words, the value chains of a company’s businesses offer no opportunities to benefit from skills or technology transfer across businesses, economies of scope, cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities).
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At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as superb human resource practices and budgeting systems. This is an example of __________________. A. using related diversification to achieve value by leveraging core competencies to attain economies of scope B. using related diversification to achieve value by leveraging core competencies to acquire market power C. using unrelated diversification to achieve value through portfolio management in order to acquire financial synergies D. using unrelated diversification to achieve value through restructuring and parenting
D. using unrelated diversification to achieve value through restructuring and parenting In this case, the corporate office of Cooper Industries adds value to its acquired, unrelated businesses by performing such activities as auditing their manufacturing operations, improving their accounting activities, and centralizing union negotiations. The primary potential benefits of this unrelated diversification strategy are derived largely from hierarchical relationships; that is, value creation derived from the corporate office.
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Casio, a giant electronic products producer, synthesizes it abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. It uses the same skills to produce card calculators, digital cameras, and other small electronics. These collective skills are known as _________________. A. core competencies B. strategic resources C. shared activities D. economies of scope
A. core competencies Core competencies reflect the collective learning in organizations, which is how to coordinate diverse production skills, integrate multiple streams of technologies, and market diverse products and services. In some circumstances, a core competence can create value and provide a viable basis for synergy among the businesses in a corporation. Casio, a giant electronic products producer, synthesizes its abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. These are the same skills it applies to the design and production of its miniature card calculators, digital cameras, pocket electronic dictionaries, and other small electronics.
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McKesson, a large distribution company, sells many product lines such as pharmaceuticals and liquor through its super warehouses. This is an example of ____________. A. using related diversification to achieve value by sharing activities to create economies of scope B. using related diversification to achieve value by leveraging core competencies to create market power C. using unrelated diversification to create value by managing its portfolio to create financial synergies D. using unrelated diversification to create value by managing its portfolio to create restructuring advantages
A. using related diversification to achieve value by sharing activities to create economies of scope In this case, McKesson uses related diversification to create value by sharing activities in order to create economies of scope.
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Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. This is an example of _______________. A. using related diversification to achieve value by pooling negotiating power to achieve market power B. using related diversification to achieve value by leveraging core competencies to achieve economies of scope C. using related diversification to achieve value by integrating vertically in order to acquire market power D. using related diversification to achieve value by integrating vertically in order to attain economies of scope
C. using related diversification to achieve value by integrating vertically in order to acquire market power In this case, Shaw Industries uses related diversification to achieve value by integrating vertically in order to acquire market power.
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