In which of the following industry environments would an internal auditor be most likely to recommend strategies such as franchising and horizontal mergers?
Answer(s): C
Strategies such as chaining, franchising, and horizontal mergers are commonly used in fragmented industries. Overcoming fragmentation has significant strategic payoffs given that entry is not costly and competitors are weak. If the factor(s) preventing consolidation can be eliminated, industry structure will change. Isolating factors responsible for fragmentation has been achieved in, for example, the fast food industry. The need to have numerous local operations under tight control and near customers has been isolated or neutralized by franchising to local owners. The franchisor provides national advertising, centralized purchasing, and other services, which result in economies of scale and industry consolidation. In effect, the service or production function is separated from the rest of the business. Also, acquisitions (horizontal mergers) that enable a firm to expand when competing with local firms might be difficult because of their contacts and image.
A firm in a fragmented industry must position itself by adopting a competitive strategy appropriate to the industry. 1hich of the following is most clearly a focus strategy?
Answer(s): A
A focus strategy is directed at a buyer group, segment of the product line, or geographic area. Thus, the strategic target is narrow compared with an industry wide strategy designed to achieve cost leadership or product differentiation. Specialization by product type or segment is a focus strategy. This focus may enhance bargaining power with suppliers. It may also increase differentiation because of the perceived expertise and image. The downside is reduced growth opportunities.
A firm in a fragmented industry should most likely take what action to avoid a strategic trap?
Over centralization of the organizational structure is often a mistake. In the intense competition of a fragmented industry, quick response times, local contacts, personal service, and tight operating control are essential.
A firm considering entry into a fragmented industry may be able to eliminate the factors preventing concentration in which ways?I). Recognizing that the industry is "stuck" for noneconomic reasons.II). Adding value to products that cannot be significantly differentiated.III). Specialization by customer type.IV). Acquisitions of local firms.
Answer(s): B
Overcoming fragmentation has significant strategic payoffs given that entry is not costly and competitors are weak. If the factor(s) preventing consolidation can be eliminated, industry structure will change. For example, industries may be "stuck" in a fragmented state for reasons other than underlying economic factors. Firms in the industry lack the resources, skills, awareness, or ambition to make the strategic moves needed for consolidation. Outside firms do not recognize the opportunity offered by an industry °stuck" in a fragmented state, for example, because it is new, small, or obscure. Also, acquisitions may enable a firm to expand when competing with local firms is difficult because of their contacts or image. However, adding value to products that cannot be significantly differentiated and specialization by customer type are methods of coping with, not overcoming, fragmentation.
Post your Comments and Discuss IIA IIA-CIA-PART4 exam with other Community members:
K.Tho Commented on October 05, 2023 Very helpful UNITED STATES
Our website is free, but we have to fight against bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the IIA-CIA-PART4 content, but please register or login to continue.