CA Business Strategy & Advisory 2 — Questions and Answers
Question 1: A company operating in a mature, low-growth industry with high market share is best described in the BCG matrix as a:
- Star
- Cash Cow (Correct answer)
- Question Mark
- Dog
Correct answer: Cash Cow
Cash Cows have high market share in low-growth markets and generate excess cash with little investment needed.
Question 2: Which strategic tool analyzes Value, Rarity, Imitability, and Organization to assess sustainable competitive advantage?
- PESTEL
- VRIO Framework (Correct answer)
- Porter's Five Forces
- Ansoff Matrix
Correct answer: VRIO Framework
The VRIO framework evaluates resources across four dimensions to determine if they can deliver lasting competitive advantage.
Question 3: A US manufacturer acquires a raw material supplier to reduce input costs. This is an example of:
- Horizontal integration
- Conglomerate diversification
- Backward vertical integration (Correct answer)
- Forward vertical integration
Correct answer: Backward vertical integration
Backward vertical integration involves acquiring suppliers that are upstream in the value chain.
Question 4: In advisory engagements, which financial metric best indicates a company's ability to service debt from operating cash flows?
- Current ratio
- Debt-to-equity ratio
- Interest coverage ratio (Correct answer)
- Quick ratio
Correct answer: Interest coverage ratio
The interest coverage ratio (EBIT divided by interest expense) directly measures how many times operating earnings cover interest obligations.
Question 5: Porter's generic strategy of 'differentiation focus' targets:
- All market segments with unique features
- A narrow segment with unique product attributes (Correct answer)
- All segments at the lowest cost
- A narrow segment at the lowest cost
Correct answer: A narrow segment with unique product attributes
Differentiation focus combines a niche market scope with a differentiation competitive advantage, not broad market reach.
Question 6: A strategic alliance differs from a merger primarily because:
- Strategic alliances involve no financial commitment
- The partnering firms retain their independence (Correct answer)
- Alliances are only used for R&D purposes
- Mergers always require government approval
Correct answer: The partnering firms retain their independence
In a strategic alliance, both parties cooperate on specific objectives while remaining legally separate and independent entities.
Question 7: When advising a client on market entry, the 'born global' strategy refers to firms that:
- Expand internationally only after dominating their home market
- Target international markets from inception (Correct answer)
- Use franchising as the sole entry mode
- Partner with local firms before going independent
Correct answer: Target international markets from inception
Born global firms pursue international markets from or near their founding, bypassing the traditional sequential internationalization process.
CA Business Strategy & Advisory 2
A company operating in a mature, low-growth industry with high market share is best described in the BCG matrix as a: