CA Inter P6 · Chapter 13
Strategic Choices MCQs with Answers
11 multiple-choice questions on Strategic Choices for CA Inter P6 Financial Management and Strategic Management. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
A firm that continues to serve the same customers with the same products, aims only for modest, incremental improvements in performance and makes no major change in direction is following a:
- A) Combination strategy
- B) Expansion strategy
- C) Stability strategy
- D) Retrenchment strategy
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Answer: C) Stability strategy
A stability strategy keeps the business broadly unchanged: same products, markets and functions, with incremental improvements. It suits firms in a mature or stable environment that are satisfied with their performance. Expansion involves major growth, and retrenchment involves cutting back.
Question 2
In Ansoff's product-market growth matrix, selling an existing product range in new geographical markets or to new customer segments is called:
- A) Diversification
- B) Market development
- C) Market penetration
- D) Product development
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Answer: B) Market development
Ansoff's matrix has four growth strategies. Market penetration is existing products in existing markets, market development is existing products in new markets, product development is new products in existing markets, and diversification is new products in new markets.
Question 3
A two-wheeler manufacturer acquires a company that makes tyres and fuel tanks used in its motorcycles. This is an example of:
- A) Forward vertical integration
- B) Conglomerate diversification
- C) Horizontal integration
- D) Backward vertical integration
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Answer: D) Backward vertical integration
Backward integration means moving upstream into supplying one's own inputs. Acquiring a supplier of tyres and fuel tanks is therefore backward integration. Forward integration would mean moving towards the customer, for example opening company-owned dealerships. Acquiring another motorcycle maker would be horizontal integration.
Question 4
A garment exporter starts a business making technical textiles for hospitals, using its existing fabric technology, sourcing network and production skills. This move is best described as:
- A) Unrelated (conglomerate) diversification
- B) Market penetration
- C) Related (concentric) diversification
- D) Horizontal integration
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Answer: C) Related (concentric) diversification
Related or concentric diversification means entering a new business that is linked to the existing one through shared technology, skills, markets or resources. Here the technology and skills are shared, though the product and customers are new. Conglomerate diversification would involve a business with no such link.
Question 5
Which of the following correctly orders retrenchment strategies from least drastic to most drastic?
- A) Turnaround → liquidation → divestment
- B) Turnaround → divestment → liquidation
- C) Divestment → liquidation → turnaround
- D) Liquidation → divestment → turnaround
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Answer: B) Turnaround → divestment → liquidation
Retrenchment strategies range in severity. Turnaround tries to reverse decline and restore the whole business. Divestment sells or closes a part of the business that cannot be saved or no longer fits. Liquidation, selling the firm's assets and ending the business, is the last resort.
Question 6
Which of the following is generally a sign that a firm needs a turnaround strategy?
- A) Persistent negative cash flows, falling market share and mounting uncontrolled costs
- B) A steady increase in the dividend payout ratio
- C) Rapid sales growth with rising profit margins
- D) Strong customer loyalty and rising capacity utilisation
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Answer: A) Persistent negative cash flows, falling market share and mounting uncontrolled costs
Turnaround becomes necessary when a business shows signs of sustained decline: continued negative cash flows, falling market share, rising and uncontrolled costs, high employee turnover, declining capacity utilisation and weak management. The other options indicate a healthy business.
Question 7
The Arthur D. Little (ADL) matrix positions a business on which two dimensions?
- A) Market growth rate and relative market share
- B) Market attractiveness and business strength
- C) Newness of products and newness of markets
- D) Stage of industry maturity and the firm's competitive position
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Answer: D) Stage of industry maturity and the firm's competitive position
The ADL matrix is a portfolio technique based on the product life cycle. It combines the stage of industry maturity (embryonic, growth, mature, ageing) with the firm's competitive position (dominant, strong, favourable, tenable, weak). Market growth and relative share are the BCG axes, market attractiveness and business strength are the GE matrix axes, and products and markets are Ansoff's dimensions.
Question 8
Under the ADL matrix, a competitive position that is comparatively rare and is usually attributable to a monopoly or to strong, protected technological leadership is described as:
- A) Strong
- B) Dominant
- C) Favourable
- D) Tenable
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Answer: B) Dominant
The ADL matrix uses five competitive positions: dominant, strong, favourable, tenable and weak. A dominant position is rare and usually comes from a monopoly or protected technological leadership. A strong firm has considerable freedom of choice, a favourable position arises in fragmented industries with no clear leader, and tenable firms perform satisfactorily but are vulnerable to stronger rivals.
Question 9
Navya Foods' instant-noodles SBU has a 35% share of a market growing at 2% a year, and its nearest rival has a 12% share. Management wants to increase the SBU's short-term cash flow, accepting some long-term loss of position, to fund a fast-growing beverages SBU. In BCG terms, the noodles SBU and the strategy chosen for it are:
- A) Star; build
- B) Question mark; hold
- C) Dog; divest
- D) Cash cow; harvest
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Answer: D) Cash cow; harvest
Relative market share = 35% / 12% = about 2.9, which is high, and market growth of 2% is low, so the SBU is a cash cow. Of the BCG post-identification strategies, harvest aims to increase short-term cash flow regardless of the long-term effect. Build increases market share, hold preserves it, and divest sells or liquidates the business.
Question 10
In the BCG growth-share matrix, a business unit with a high relative market share in a low-growth market is classified as a:
- A) Question mark
- B) Star
- C) Cash cow
- D) Dog
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Answer: C) Cash cow
The BCG matrix classifies units by market growth rate and relative market share. Stars have high share and high growth, cash cows have high share and low growth, question marks have low share and high growth, and dogs have low share and low growth. Cash cows generate surplus cash that can fund stars and selected question marks.
Question 11
Two companies from different countries agree to jointly develop and market a new electric vehicle platform, sharing technology and costs while remaining independent legal entities. The main advantage of this strategic alliance is that it allows each partner to:
- A) Access the other's complementary resources and markets while sharing the cost and risk of the venture
- B) Eliminate competition between the two firms in all markets permanently
- C) Gain full ownership and control over the partner's entire business
- D) Avoid any need for coordination or trust between the partners
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Answer: A) Access the other's complementary resources and markets while sharing the cost and risk of the venture
A strategic alliance is a cooperative arrangement in which partners pool resources for a common purpose but stay independent. Its benefits include access to new markets and technology, sharing of cost and risk, and learning from the partner. It requires coordination and trust, and it does not give ownership control, which would require a merger or acquisition.