The Context of Business Understanding the Canadian Business Environment Test Bank

The Context of Business Understanding the Canadian Business Environment By Natalie Guriel, Len Karakowsky

TEST BANK FOR

THE CONTEXT OF BUSINESS Understanding the Canadian Business Environment Len Karakowsky York University

Natalie Guriel York University

1) If McDonald’s wants to introduce a new, healthy salad on its menu, how could the 6 external forces potentially influence or impact McDonalds’ efforts?

Answer: External Force Political

Impact to McDonalds Laws and regulations • McDonalds may need to comply with any food regulations (eg. nutritional labelling); health and safety regulations, regarding washing and storing the fresh food products; environmental legislation regarding the disposal of food waste.

• Food Regulation Examples: o Canadian Food Inspection Agency (importing food) o Food and Drugs Act o Canadian Agricultural Products Act o Consumer Packaging and Labelling Act • McDonalds would have to continue with complying with all other laws and regulations such as employment and labour laws, human rights laws, tax laws, etc.

• Regulations may increase compliance costs.

Taxes • McDonalds would have to charge and collect sales taxes on the salad since it is a prepared food product.

• Are there any potential eligible research and development tax credits (eg. Scientific Research and Experimental Development tax credit) for new product initiatives? Is McDonalds researching or experimenting with new product ingredients, dressings, etc to improve taste?

International trade • McDonalds is a global company and has established trade relationships with suppliers in various countries. McDonalds may need to establish new suppliers in different countries depending on the ingredients of the salad.

• McDonald’s may need to import some special ingredients not in season and this may increase shipping, gasoline costs • McDonalds may need to comply with international trade agreements such as the North American Free Trade Agreement (NAFTA) on imported goods • Would there be any tariffs on any of the food ingredients it needs to import?

Environmental fees/Garbage fees • How is the salad going to be served in a paper box or plastic

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

container? Is it recyclable? Will this increase McDonalds’ garbage or recycling fees if any? For example, do waste and recyclable items have to be disposed of in separate designated containers or bins?

Economic Slow growth economy (The answer • If the economy is not good, it may be a good time to introduce will depend on another low-cost product item, that people can afford or people the economy at may have less disposable income and may be eating out less; the time the therefore, may not be a good time to introduce a new product question is • If the economy is thriving, people may purchase less fast food answered). and more upscale or gourmet food.

Interest rates • If interest rates are still low, may be a good time to borrow money from the bank and invest in product development, since interest (financing) costs will be lower and will affect net profits.

• If interest rates are high, financing costs may be too expensive.

Currency value • If the Canadian dollar is depreciated compared to the U.S. dollar, it may be more expensive to buy imported ingredients from the U.S. • If the Canadian dollar is appreciated compared to the U.S. dollar, it may be less expensive to buy imported ingredients from the U.S. Unemployment • If unemployment rates are low, most people are employed, have income and may be more willing to eat since they can afford it.

• If unemployment rates are high, many people are unemployed, do not have income and may not be willing to eat since they cannot afford it.

Inflation • If inflation rates are low, interest rates are likely to remain low and therefore, it may be a good time for less expensive financing.

• If inflation rates are high, interest rates may be raised and therefore, it may become expensive for financing.

National debt • If national debt is high, this could negatively impact the economy. Taxes may be increased by government and reduce disposable income for individuals. Thus, this may reduce consumer spending and slow the economy further.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

•

Technological

If national debt is low, this can be positive for the economy. The government will not have to spend taxpayer dollars on interest costs and there will likely be little impact to the economy.

Kitchen/Food Preparation • Each restaurant may need special refrigerator equipment to store the salads. There may be costs for new highefficiency/environmentally-friendly cooking equipment or storing technology such as an energy-efficient fridge.

• Each restaurant may require special kitchen tools (computer digitized equipment) to make the salad consistent and more time efficient.

Service • Each cash register may need to be updated with new product information.

Marketing • McDonalds may need to update its website (for menu items), nutrition calculators (on web site) and any special apps for smart phones.

Societal

Customer preferences • What are customers preferring these days? (Eg. unhealthy or healthy food?)

• Will this product appeal to regular customers or new customers?

• Will this bring in new customers to McDonald’s?

• Is the product something regular customers at McDonald’s would want?

• McDonalds is receiving pressure from a variety of stakeholders to provide healthier food choices.

• Certainly, concerns over healthier eating, weight issues, risks of heart and stroke are forcing fast food outlets to improve food quality.

• Introducing a new healthy salad, could help satisfy some stakeholders. (eg. parents, health organizations, media, etc) Socio-cultural factors • Employee morale may improve; employees may feel better about the company since the company is trying to provide healthier choices = may help increase employee productivity and/or reduce employee turnover = reduced training costs = increase in overall profits Compliance and Socially Responsible Business Behaviour

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

• •

Competitive

McDonalds will likely need to disclose nutritional information.

For example, local versus imported ingredients; and actual ingredients in the salad.

McDonalds will need to ensure that its suppliers for the ingredients of the salad are abiding by laws and not engaging in any unethical activity or socially irresponsible behaviour that could cause damage to McDonald’s reputation.

Competitive environment: Type of competition • The type of competition is monopolistic competition with lots of sellers of slightly differentiated products due to design, brand and advertising.

How competitive is the industry?

• The industry is in the mature stage of the industry lifecycle model.

• It is a highly competitive industry. There are thousands of competitors domestic and foreign, both small and large.

However, McDonalds is the world’s most recognized burger chain and is a leader in its products and approach to the burger business.

Examples of competitors • Some examples of McDonalds’ competitors include: o Burger restaurant competitors such as Burger King and Wendy’s. o Fast food outlet competitors such as KFC, Tim Hortons and Pizza Hut. o Salad competitors such as grocery-store salad bars, and fast-food outlets that sell salads.

Possible reaction of competitors • Competitors may react by introducing a similar healthy product, lowering prices, increasing advertising, etc

Global

• • •

Any global events affecting the introduction of the new product? (e.g. hurricanes, crops damaged, new trade agreements, new tariffs, etc.)

How quickly can this new product be introduced into its restaurants globally, or are there political, economic or other external forces that present challenges on a global basis?

Since McDonald’s has franchises worldwide, McDonald’s may need to introduce the product globally

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

2) THE BUSINESS WORLD Can Canadian Tire Flourish in a Rapidly Changing Business Context?

Canadian Tire has certainly become part of the fabric of Canadian society. It’s been around since 1922 and has established itself as a solid Canadian retailer. Like the proverbial “underdog” Canadian hockey team, this Canadian retailer has managed quite well against a growing list of formidable US opponents. Over its 90-plus years, it has established approximately 500 stores across Canada, and with revenues close to $13 billion in 2012, this is no retail slouch.

However, as the expression goes, the times they are a changin’. And the question is, “Can Canadian Tire continue to flourish in these changing times amidst the onslaught of US retailers to Canada?”

US retailers have been invading our retail sector for many years now. It’s an invasion welcomed by most Canadian consumers, but certainly not by Canadian retailers. Home Depot, Walmart, and Target are just a few of Canadian Tire’s adversaries. And the competition continues to heat up. 1 So what’s a good ol’ Canadian business to do? This is the question Canadian Tire is attempting to address. While the company clearly must have done something right to survive this long, some observers are puzzled by its success. In a recent Maclean’s article, writer Chris Sorensen had this to say: Newer stores, located in towns and cities across the country, are brighter and more airy, but largely house the same eclectic inventory—none of it particularly cheap and none of it terribly aspirational either. Customer service, meanwhile, varies wildly from store to store, the result of the company’s independent—and bureaucratic— dealer ownership model. It all seems like a recipe for retail disaster, particularly as an army of welloiled U.S. big box chains—Wal-Mart, Home Depot and soon Target—continue their relentless march north of the border. Yet somehow, Canadian Tire remains standing, earning profits of $453 million on $10.3 billion in retail sales last year, which was up

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

three percent from a year earlier (Canadian Tire Corporation Ltd. also makes money through a banking operation, Canadian Tire Financial Services). 2 How has Canadian Tire managed to retain its place among the top 20 Canadian brands over the past several years?

Experts believe that a big part of Canadian Tire’s appeal is a combination of familiarity and convenience. But that doesn’t tell the whole story. Obviously, Canadian Tire has succeeded by understanding its environment and responding to changing business contexts.

The entrance of Target to the Canadian retail landscape has certainly made companies like Canadian Tire more vigilant and aware of the need to constantly evolve to best meet market demands. After feeling increased pressure from competitors, Canadian Tire has recently been revisiting its strategy. While not a direct competitor, Canadian

Tire competes with Target on a number of product lines, including small appliances, and Canadian Tire’s subsidiary Mark’s Work Wearhouse competes for clothing sales.

In an effort to streamline its decision making, Canadian Tire cut several senior management positions in 2012. It has taken a systematic approach to analyzing the industry and adopting strategies to keep ahead of the game. For example, among recent changes was Canadian Tire’s decision to spend less of its advertising budget on small, grassroots events and more on mainstream media. The aim is to build more brand awareness of Canadian Tire. The nature of advertising will also change, with a greater emphasis on the Canadian Tire image rather than on specific products. While some have suggested that Canadian Tire should play up its Canadian roots to appeal to loyal Canadians, others feel that a strategy based on national sentiment is a waste of time; they believe that other more tangible actions should be taken. As Susan Krashinsky of the Globe and Mail observed: Canadian Tire has survived past incursions by U.S. retailers such as Home Depot Inc. and Wal-Mart Stores Inc. The entry of Wal-Mart particularly caused the company to rethink the layout of its stores, change pricing policies and in more recent years, appeal to female shoppers more directly. It’s efforts such as this, not Canadian roots, that proved most effective. 3 In 2013, Canadian Tire announced plans to significantly improve its digital technology Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

practices, including a partnership with Communitech, a technology company based in Kitchener, Ontario. 4 The aim is to develop apps, content, and other digital innovations to improve the shopping experience of Canadian Tire customers, both online and in the store. Canadian Tire also recently relaunched its online store after executives aborted a previous attempt in 2009. Among the items sold online are tires and wheels, which have to be picked up at Canadian Tire stores where many will also be installed.

This effort was in response to a growing trend of Canadians buying their tires online through US-based websites and having them shipped directly to local mechanics.

Among other changes has been a renewed focus on its automotive roots. In 2013, Canadian Tire opened a number of automotive concept stores that feature drive-in reception areas, express oil and lube services, and auto detailing. Canadian Tire also owns 87 specialty automotive PartSource stores. This is part of its strategic emphasis on auto parts, tools, home supplies, and sporting goods to combat increased competition.

Another area of change is in the customer services offered by Canadian Tire. For example, it recently began offering home installation services for Canadian Tire garage door openers, followed by central vacuum installations and heating and cooling systems.

Canadian Tire has also ventured more deeply into the world of sports. 5 In 2013, it announced a host of deals with amateur sports organizations to strengthen its ties to a major market: up-and-coming athletes. Among the sponsorships is an eight-year agreement with the Canadian Olympic Committee and new or expanded deals with other amateur organizations. These arrangements reflect Canadian Tire’s shift to a greater presence in amateur sport following its 2011 acquisition of sports retailer Forzani Group Ltd. for $771 million. This move entrenched Canadian Tire’s status in the sporting goods market as well as provided it with access to a younger demographic of Canadian consumers (who like to shop at malls). Forzani continues to serve as an independent unit, operating Sport Chek, Sport Mart, and Athletes World stores.

Some observers believe that a continuing challenge for Canadian Tire is to make it clear in consumers’ minds that it offers more than automotive parts, tools, or sporting goods.

On the other hand, marketing experts believe that Canadian Tire must also be cautious to not deviate far from its core business—that is, offering Canadians “everyday” household items rather than upscale home décor. As the old adage goes, you can’t be all things to all people.

Sorensen sums it up nicely: Canadian Tire will need to stay on its toes as its territory is further invaded by big U.S. retailers. But despite its sometimes ungainly appearance, there’s no reason to think the Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

inverted orange triangle and green maple leaf will disappear from the Canadian landscape anytime soon. It may never be a chic proposition. But neither is weatherproofing windows or fixing a clogged toilet. 6 In fact, in 2013 Canadian Tire announced that it would launch smaller stores in city centres, admitting that it needed to adopt a new approach to dealing with existing competitors like Walmart as well as combating new entrants like Target. Canadian Tire attempted the small-store concept in previous years. However, when Walmart began opening Supercentres across Canada (each about seven times the size of the new Canadian Tire format), it reconsidered that approach. Given that Walmart has recently begun toying with the “small box” concept (opening smaller, express versions of its big box stores) and with the entrance of Target, Canadian Tire has been open to revisiting just about anything, including a focus on smaller stores in core city shopping areas and malls. The plan is for these new “express” stores to be about 10,000 square feet.

Big or small, Canadian Tire has a lot to be proud of. It has been an iconic figure in the Canadian marketplace for many years. It has understood well the environmental forces that it must confront and address to survive. And for those patriotic Canadian consumers, let’s hope this good ol’ Canadian retailer sticks around for many more years. Way to go Canadian Tire—may the force(s) be with you, eh!

Read THE BUSINESS WORLD - Can Canadian Tire Flourish in a Rapidly Changing Business Context? (page 2-4). How have the external forces affected Canadian Tire in recent years?

Answer: External Force Political

Influence/Impact on Canadian Tire • •

•

Economic

•

Nothing mentioned in the article, but you can make some assumptions or ask students to provide an example or do some research.

For example, in recent years, increases in the provincial minimum wage have increased labour costs for Canadian Tire and its retail store operations, putting the company at a disadvantage against online retailer competitors with less labour costs.

Another example are environmental fees and taxes have been added to certain products.

Nothing mentioned in the article, but you can make some

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

assumptions or ask students to provide an example or do some research.

Technological

•

•

Societal

•

•

Competitive

• •

Develop apps, content, and other digital innovations - In 2013, Canadian Tire announced plans to significantly improve its digital technology practices, including a partnership with Communitech, a technology company based in Kitchener, Ontario. 4 The aim is to develop apps, content, and other digital innovations to improve the shopping experience of Canadian Tire customers, both online and in the store.

Online shopping - Canadian Tire also recently relaunched its online store after executives aborted a previous attempt in 2009.

Among the items sold online are tires and wheels, which have to be picked up at Canadian Tire stores where many will also be installed. This effort was in response to a growing trend of Canadians buying their tires online through US-based websites and having them shipped directly to local mechanics.

Customers want low prices, so Canadian Tire must keep costs low. For example, “Canadian Tire cut several senior management positions in 2012. It has taken a systematic approach to analyzing the industry and adopting strategies to keep ahead of the game. For example, among recent changes was Canadian Tire’s decision to spend less of its advertising budget on small, grassroots events and more on mainstream media.”

Consumer tastes - Customers like the “combination of familiarity and convenience.” Canadain Tire is putting greater emphasis on the “Canadian Tire image” rather than on specific products. Consumers also enjoy online shopping – “Canadian Tire also recently relaunched its online store after executives aborted a previous attempt in 2009. Among the items sold online are tires and wheels, which have to be picked up at Canadian Tire stores where many will also be installed. This effort was in response to a growing trend of Canadians buying their tires online through US-based websites and having them shipped directly to local mechanics.”

“US retailers have been invading our retail sector for many years now.” Home Depot, Walmart, and Target are just a few competitors.

Strategy adaption and change - The entrance of Target to the Canadian retail landscape has certainly made companies like Canadian Tire more vigilant and aware of the need to constantly evolve to best meet market demands. After feeling increased pressure from competitors, Canadian Tire has recently been revisiting its strategy. While not a direct competitor, Canadian

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

•

•

•

•

Global

•

Tire competes with Target on a number of product lines, including small appliances, and Canadian Tire’s subsidiary Mark’s Work Wearhouse competes for clothing sales.

Focus on core business - Among other changes has been a renewed focus on its automotive roots. In 2013, Canadian Tire opened a number of automotive concept stores that feature drive-in reception areas, express oil and lube services, and auto detailing. Canadian Tire also owns 87 specialty automotive PartSource stores. This is part of its strategic emphasis on auto parts, tools, home supplies, and sporting goods to combat increased competition.

Focus on customer service - Another area of change is in the customer services offered by Canadian Tire. For example, it recently began offering home installation services for Canadian Tire garage door openers, followed by central vacuum installations and heating and cooling systems.

Diversification - Canadian Tire has also ventured more deeply into the world of sports. 5 In 2013, it announced a host of deals with amateur sports organizations to strengthen its ties to a major market: up-and-coming athletes. Among the sponsorships is an eight-year agreement with the Canadian Olympic Committee and new or expanded deals with other amateur organizations. These arrangements reflect Canadian Tire’s shift to a greater presence in amateur sport following its 2011 acquisition of sports retailer Forzani Group Ltd. for $771 million. This move entrenched Canadian Tire’s status in the sporting goods market as well as provided it with access to a younger demographic of Canadian consumers (who like to shop at malls). Forzani continues to serve as an independent unit, operating Sport Chek, Sport Mart, and Athletes World stores.

Some observers believe that a continuing challenge for Canadian Tire is to make it clear in consumers’ minds that it offers more than automotive parts, tools, or sporting goods. On the other hand, marketing experts believe that Canadian Tire must also be cautious to not deviate far from its core business— that is, offering Canadians “everyday” household items rather than upscale home décor.

Global competition – US retailers have been invading our retail sector for many years now. Home Depot, Walmart, and Target are just a few competitors. “The entry of Wal-Mart particularly caused the company to rethink the layout of its stores, change pricing policies and in more recent years, appeal to female shoppers more directly.”

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

1) Case: Amazon and delivery drones In 2013, Ceo Jeff Bezos announced Amazon was testing delivering packages using unmanned drones. While drones have not yet been approved for commercial use, U.S. government agencies like the Federal Aviation Administration (FAA) have started considering special rules and regulations governing their use. In Canada, the federal government agency, Transport Canada, would have to do the same. This futuristic endeavour by Amazon may not be approved for another five years, but it could potentially change how packages are delivered in the future, not just for Amazon, but for all businesses.

The goal for Amazon is to deliver goods to customers, the same day they are ordered, in 30 minutes or less. Certainly, drones have the potential to eliminate time delays due to traffic as well as shipping costs such as postal or courier charges. While some observers have doubted the feasibility of this idea, others say it is only a matter of time before this technology is used for all kinds of purposes. Like the internet, drones were also first used in the military; however, once applied to commercial use, they could have wide and significant implications on business and our future way of life.

A large number of delivery trucks and personnel could be reduced or eliminated altogether; however, an increase in jobs in designing, repairing and operating the drones could take effect. Technical jobs in robotics, computer engineering and math would be needed. According to Amazon, the company has already hired PhDs in math and science to create complex algorithms to deal with error correction, route optimization, sequencing, failure response and so on. Overall, Amazon hopes to increase efficiency, reduce costs and increases sales with this premium delivery service.

While it appears to be a new initiative, many companies including UPS and FedEx have already considered the idea, but are waiting for government approval before changing their business model and structure.

Indeed, if same day delivery becomes the norm (that is, goods delivered in 30 minutes or less), customers can easily come to demand this type of speedy service from other online retailers, or just shop at those who can provide it. Certainly, this may increase the ease of online shopping if you get goods faster than if you had to go to the mall, wait in line, buy them, and drive back home.

Will this revolutionize the delivery industry? Quite possibly. Bezo estimates that 80% of Amazon’s packages are light enough for a drone to deliver. The remaining 20% will still require delivery trucks and people to carry heavier packages. Can this futuristic idea become a reality? A lot depends on the government, and of course, a lot depends on the consumer. If consumers want their books, pizzas and other goods delivered by drones, businesses will certainly try to find a way to meet their needs.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Sources: Wohlsen, Marcus. Delivery drones already exist – and they’re way bigger than Amazon’s. www.wired.com January 6, 2014. http://www.wired.com/business/2014/01/delivery-drones-already-exist/ Banker, Steve. Amazon and drones – Here is why it will work. December 19, 2013. http://www.forbes.com/sites/stevebanker/2013/12/19/amazon-drones-here-is-why-it-willwork/ Alistair, Barr. Amazon testing delivery by drone, CEO Bezos says. December 2, 2013.

USA Today. http://www.usatoday.com/story/tech/2013/12/01/amazon-bezos-drone-delivery/3799021/ How can delivery drones for commercial use (i.e. a technological force) influence all the other external and internal forces, such as political, economic, societal, competitive, global, labour (workers), leadership (management philosophy), structure and strategy?

Answer: External Forces Political

a) Laws and regulations • The introduction of new technology would require government to rethink laws and regulations over the affected industries and areas. For example, Amazon wants government approval from the Federal Aviation Administration (FAA) to use robotic drones to deliver packages to customers. In Canada, Transport Canada would need to approve delivery drones for commercial use. The government therefore has to think of how these robotic drones will be regulated. How will they remain safe when flying in the air, so they do not crash and injure civilians or cause property damage. Similarly, will they interfere with airplanes, birds, and other wildlife? How will they be monitored so the privacy of others are not infringed upon?

Laws that may need to be reviewed and amended include: o aviation law o privacy law o safety law o criminal law (for potential damage of drones by individuals) o property law (for potential damage to property by drones)

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

b) Unemployment insurance/social assistance • If this technology is replacing workers (eg. delivery men), there could be higher unemployment insurance or social assistance pay outs (from more unemployed individuals); as a result, there could be higher costs for government. This may create or increase an annual budget deficit or increase its ongoing debt if government cannot afford to make these payments.

• Creating new jobs to oversee drones (eg. computer and robotic engineers) may result in less unemployed individuals, increase consumer spending and result in less unemployment insurance or social assistance pay outs. c)Taxes • If this new technology creates efficiencies for companies and reduces costs, companies may have higher net profits; therefore, higher corporate tax revenues will be collected by the government. Higher corporate tax revenues can help reduce budget deficits and potentially pay down the debt.

Alternatively, governments may have additional funds to spend on community programs and services.

• If new technologies replaces too many workers and too many workers are unemployed, governments may receive less personal income tax revenue. This could result in a budget deficit or increase the overall government debt. Similarly, governments may have less funds to spend on community programs and services. d) Post office • The Post office (a department of the government) may suffer a reduction in revenues from parcel delivery since Amazon may be using less of this slower service in the future.

Economic

a) Job creation • New technology can be beneficial for the economy by encouraging spending, creating jobs, and increasing profits; however, if the technology replaces too many workers it can also reduce jobs and reduce spending. b) GDP • New technology may help business be more competitive, by reducing business costs and therefore, increasing profits. More profits can contribute to an increase of the country’s gross domestic product (GDP). c) Contribution to service economy and knowledge economy

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

•

Drones are an example of how the economy is changing to a more service and knowledge economy. For instance, manual labour (e.g. delivery) is being replaced by high tech jobs.

Societal

a) Change in consumer tastes and expectations • New technology can change societal expectations and influence consumer tastes. One example is with smartphones.

Consumers now expect their cellphones to be smartphones, with access to email, the internet, GPS capabilities and so on.

Another example is with fast-food burgers. If you go to order a burger and fries from a fast-food restaurant, you expect to receive your meal in minutes. If you had to wait 30 minutes, you may not return to the same establishment.

• Similarly, delivery drones are expected to speed up the time of delivery to same-day delivery, or in 30 minutes or less.

Therefore, instead of waiting for your goods for 3 to 4 weeks, in the future, you may expect your goods to be delivered the same day or otherwise you will shop where you can get your goods sooner. Certainly, consumers may want to shop online more often if it is easier, more cost efficient and more convenient to get their goods. For example, a consumer can save time driving to a physical store; save gasoline costs; save time waiting in line, etc. b) New concerns over ethics and privacy • Consumer concerns over privacy and the ethical use of drones may increase (since drones have been used by the military in some countries). This may cause some interest groups to lobby government to make laws and regulations over drones more stringent.

Competitive

a) New industry created • New technology can change how businesses compete. While the delivery industry is a broad industry that encompasses delivery by air, water and land, if approved by the government, drone delivery may be the birth of a new specialized delivery service. (i.e. the introduction phase of the industry growth model). b) Potential increase in online shopping • Faster delivery by drones versus over forms of delivery may increase the ease of online shopping and getting goods.

• It is possible online shopping sales may increase and retail store sales may go down if consumers can get goods inexpensively and conveniently delivered to their door.

• Alternatively, if consumers do not want this form of delivery due to privacy concerns, online shopping sales could go down (if it is the only delivery option).

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

b) Potential increase in other innovative and value-added activities • New technology can also help reduce business costs and therefore, allow more profits to be spent on more value-added, innovative activities.

Global

a) Political • Delivery drones may not be allowed to cross country borders due to restrictions of other country’s and their laws. This may affect global competition. b) Economic • How drones may affect the global economy is too early at this stage. Government regulation over this industry will be an important factor in determining how drones may be used for commercial use and how they may contribute to the economy. c) Societal • Individuals in different countries may have different views about the use of drones (especially since drones have been used in the military) and may have concerns over their safety and privacy. d) Competitive • New technology can be licensed to other companies in other countries.

• If profitable, companies in other countries may also try to use drones for commercial purposes.

Internal Forces Labour

• •

Leadership (Management philosophy)

• •

Structure

• •

New technology can replace labour (e.g. delivery workers), but create technical jobs such as robotic drone operators or computer engineers.

For example, Amazon has already hired PhDs in math and science to understand this approach to package delivery, such as sequencing, route optimization, error correction, etc.

Managers will need to manage this new technology and ensure it meets business’ needs: to reduce cost, increase profitability and, of course, to satisfy customer needs and expectations.

This may require a more behavioural school type of management approach for managers and workers to think creatively. On the other hand, managing the drones may require jobs to be more specialized and standardized.

The introduction of drones may or may not affect the structure of a business.

If there is a significant reduction in personnel, the

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

organizational structure may become more flat.

Strategy

•

Technology can cause a company to take a different strategy or complement an already existing one. a) Product differentiation • Drones can allow a company to take on a differentiation strategy. Here, the technology which will allow delivery in 30 minutes is a service enhancement and differentiator from other competitors. b) Cost leadership • On the other hand, the company may also try to have a cost leadership strategy by keeping costs low. How can costs be kept low? The elimination (or significant reduction) of costs for delivery trucks, gas, and other maintenance, plus related labour costs, plus postage or courier shipping charges, must occur and be replaced with the lower cost of drones and drone maintenance.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

1) A deliberately planned network or pattern of relationships among individuals in various roles or positions is a/an: a. organizational structure b. organizational strategy c. open system d. closed system Answer: a Diff: 1 Type: MC Page Reference: 7 Skill: recall Objective: Chapter 1- LO1 2) The distribution or grouping of work is often referred to as the organization’s” a. management philosophy b. structure c. strategy d. labour design Answer: b Diff: 1 Type: MC Page Reference: 7 Skill: recall Objective: Chapter 1- LO1 3) The challenges inside an organization involve all of the following except: a. strategy b. leadership c. customers d. employees Answer: c Diff: 1 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Page Reference: 6 Skill: recall Objective: Chapter 1- LO1 4) Challenges evolving outside an organization involve all of the following except: a. downsizing the workforce due to a recession b. complying with a new safety regulation c. updating a computer system due to a new software upgrade d. training new employees on company policy Answer: d Diff: 1 Type: MC Page Reference: 9 Skill: recall Objective: Chapter 1- LO2 5) Inside an organization, executives must manage all of the following but not: a. workers b. strategy c. structure d. consumers Answer: d Diff: 2 Type: MC Page Reference: 6 Skill: recall Objective: Chapter 1- LO1 6) A global recession is a factor that can affect all organizations in all industries and therefore falls under the organization’s: a. general environment b. specific environment c. task environment d. political environment Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Answer: a Diff: 2 Type: MC Page Reference: 9 Skill: recall Objective: Chapter 1- LO2 7) A rise in the price of an input in the automotive industry likely falls under the Ford Motor Company’s: a. internal environment b. general environment c. task environment d. global environment Answer: c Diff: 2 Type: MC Page Reference: 8-9 Skill: recall Objective: Chapter 1- LO2 8) An external stakeholder can be all of the following except: a. customer b. unionized employee c. a service company hired to repair equipment d. competitor Answer: b Diff: 3 Type: MC Page Reference: 8-9 Skill: recall Objective: Chapter 1- LO2 9) A private accounting firm performing an audit on a company’s financial statements and internal controls is a/an: Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

a. internal stakeholder b. external stakeholder c. government department d. international vendor Answer: b Diff: 2 Type: MC Page Reference: 8-9 Skill: applied Objective: Chapter 1- LO2 10) An increase in part-time and temporary work arrangements, as a result of company downsizings, is most likely the result of influences by the: a. political force b. societal force c. economic force d. technological force Answer: c Diff: 2 Type: MC Page Reference: 17 Skill: applied Objective: Chapter 1- LO2 11) Canadian Tire increasing its advertising in response to Rona’s marketing strategy is an example of the general environment’s: a. marketing force b. competitive force c. global force d. societal force Answer: b Diff: 1 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Page Reference: 18 Skill: applied Objective: Chapter 1- LO4 12) A new hardware store opening causes a similar nearby store to reduce its prices on tools and construction supplies. This is likely a response to the: a. societal force b. technological force c. economic force d. competitive force Answer: d Diff: 1 Type: MC Page Reference: 18 Skill: applied Objective: Chapter 1- LO4 13) Business process re-design or re-engineering to increase efficiency in a manufacturing facility is likely due to the: a. societal force b. technological force c. political force d. economic force Answer: b Diff: 2 Type: MC Page Reference: 10 Skill: applied Objective: Chapter 1- LO3 14) Amazon, an online retailer, uses a feature to remember what you purchased and recommends new products to you. This is mainly an example of the: a. competitive force b. global force Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

c. technological force d. societal force Answer: c Diff: 2 Type: MC Page Reference: 8 Skill: applied Objective: Chapter 1- LO3 15) A company decides to install a more efficient assembly-line in a factory in order to receive a tax credit. This is likely a response to the: a. manufacturing force b. technological force c. political force d. economic force Answer: c Diff: 2 Type: MC Page Reference: 11 Skill: applied Objective: Chapter 1- LO3 16) Canada’s reduction in trade barriers such as tariffs and quotas is mainly an example of the: a. competitive and political forces b. global and societal forces c. economic and political forces d. global and political forces Answer: d Diff: 2 Type: MC Page Reference: 27 Skill: applied

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

Objective: Chapter 1- LO3 17) The Alberta government’s recycling fee on selected electronic products is an example of the: a. environment force b. political force c. technological force d. societal force Answer: b Diff: 2 Type: MC Page Reference: 27 Skill: applied Objective: Chapter 1- LO3 18) An increase in retirees is a demographic change creating a demand on industries such as health care and therefore, is an example of the: a. labour force b. environment force c. societal force d. competitive force Answer: c Diff: 2 Type: MC Page Reference: 12 Skill: applied Objective: Chapter 1- LO3 19) Companies going “green” to help the environment by reducing, reusing and recycling waste is mostly due to/the result of: a. societal demands b. global demands c. political demands d. economic demands Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

Answer: a Diff: 2 Type: MC Page Reference: 12 Skill: applied Objective: Chapter 1- LO3 20) The media exposing a company’s unethical workplace practices is an example of the: a. legal force b. societal force c. political force d. global force Answer: b Diff: 2 Type: MC Page Reference: 12 Skill: applied Objective: Chapter 1- LO3 21) A company volunteering to reduce unhealthy trans fats in French Fries is likely in response to: a. a change in consumer laws b. a change in consumer preferences c. a change in the economy d. a change in health industry regulations Answer: b Diff: 2 Type: MC Page Reference: 12 Skill: applied Objective: Chapter 1- LO3 22) Organizational learning involves all of the following except:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

a. adapting to the environment b. learning from their people c. reviewing an old technology d. contributing to the learning of the wider community Answer: c Diff: 2 Type: MC Page Reference: 13 Skill: applied Objective: Chapter 1- LO3 23) Two key issues that threaten the planet are: a. the depletion of natural resources and ongoing release of greenhouse gas emissions b. the increase of oil sands and the reduction of long-term profits c. the depletion of natural resources and the increase of oil sands d. the release of greenhouse emissions and the increase of oil sands Answer: a Diff: 2 Type: MC Page Reference: 13-14 Skill: applied Objective: Chapter 1- LO3 24) According to Statistics Canada, the unemployment rate in Canada has typically been in the range of: a. 6% to 12% b. 10% to 20% c. 3% to 5% d. 0% to 5% Answer: a Diff: 2 Type: MC Page Reference: 15 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

Skill: recall Objective: Chapter 1- LO4 25) Canadian banks are considered to be all of the following except: a. well-regulated b. well-capitalized c. well-staffed d. well-managed Answer: c Diff: 1 Type: MC Page Reference: 16-17 Skill: recall Objective: Chapter 1- LO4 26) Many economists debate what industry Canada currently has a global competitive advantage, but traditionally Canada has been known for its: a. smartphone industry b. natural resources industry c. furniture industry d. aviation industry Answer: b Diff: 1 Type: MC Page Reference: 18-19 Skill: recall Objective: Chapter 1- LO4 27) The natural resources industry faces all of the following challenges except: a. more substitute products b. less regulation c. greater foreign competition d. unfair competition practices

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

Answer: b Diff: 2 Type: MC Page Reference: 19 Skill: recall Objective: Chapter 1- LO4 28) Over the last 50 years in Canada, there has been a significant shift in employment from the ____________ industry to the ___________ industries. a. natural resources; agricultural b. manufacturing; biotechnology c. agricultural; service d. natural resources; manufacturing Answer: c Diff: 2 Type: MC Page Reference: 21 Skill: recall Objective: Chapter 1- LO4 29) The 1994 North American Free Trade Agreement (NAFTA) is made up of: a. Canada, the U.S., Mexico and China b. Canada, the U.S. and Mexico c. Canada, the U.S., Mexico, and South America d. Canada, U.S., Mexico and Europe Answer: b Diff: 1 Type: MC Page Reference: 25 Skill: recall Objective: Chapter 1- LO4 30) Foreign investment in Canada is largely from: a. China Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

b. the United States c. Europe d. India Answer: b Diff: 1 Type: MC Page Reference: 26 Skill: recall Objective: Chapter 1- LO4

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

1) Describe the four internal forces and why can they present challenges for organizations?

Answer: a. Labour (The Employee-Employer Relationship) The ability to attract qualified workers and to extract maximum effort from them can be crucial to business success. However, navigating the labour relationship can be difficult and is fraught with risks. The context in which the labour relationship operates is a highly complex one. Workers are usually interested in maximizing the income they receive from the sale of their labour, whereas businesses usually desire to maximize profit. These two objectives can clash, creating conflicts that can have negative effects on productivity and profits, as well as the economy and society more generally. b. Leadership (Effectively managing people) There is no one perfect way to manage people. It can depend on a variety of factors. c. Structure Organizational structure is a deliberately planned network or pattern of relationships that exists among individuals in various roles or positions. This includes the formal hierarchy of authority, the distribution or grouping of work (for example, into departments) and the rules or procedures that control and coordinate behaviour in the organization. The way work is distributed can affect the success of the firm. d. Strategy Strategy involves using organizational resources and capabilities in the firm to compete. The ability to generate a game plan to succeed is critical. Strategies may need to be adapted as the organization adapts to changes in its external environment.

Objective: LO1 - Identify the key internal forces that shape any business.

2) Compare and contrast the difference between the specific and general environments of organizations.

Answer: The specific sphere has been referred to as the environmental domain of the organization.

For example, changes in the international environment may be a common factor for all organizations with, say, trade agreements affecting Canadian industry in general.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

However, some industries may be differentially affected by changes in the international environment via trade agreements. Not all organizations within an industry or within different industries are equally affected by changes in the environment. There are changes that affect all or some industries, and there are changes or factors that influence the direct sphere or environment of specific organizations.

Specific or Task Environment Any organization is surrounded by external stakeholders . These are parties or groups that have direct influence on the organization's ability to obtain resources and generate outputs. Stakeholders have some kind of stake or interest in the organization and could include such parties as the organization's customers or suppliers, the labour pool from within which the organization obtains employees, competitors, unions, distributors, creditors, the local public, and the government. While not all of these stakeholders may exist or exert influence on every organization, they are the types of factors that potentially constitute the specific environment of an organization.

General Environment The sphere surrounding the organization's specific environment is typically referred to as the general environment . The forces that make up the general environment ultimately shape the specific environment of the organization. Consequently, the general environment will also influence the organization's ability to obtain resources. General environmental factors typically include economic, competitive, technological, global, political, and societal forces.

Objective: LO2 - Identify the forces that compose the specific and general environments of organizations.

3) Who is society and how can the societal force influence business?

Answer: Society can includes customers, the general public, employees, the media, educators and other special interest groups. Societal forces can have an important impact on organizations. Societal forces can: Increase compliance costs for business - For example, we have witnessed an increasing concern for individual welfare in the workplace as societies become more cognizant of human rights and how people should be treated. Consequently, the workplace increasingly emphasizes organizational justice-that is, how employees are treated. This has translated into more laws governing fairness in the workplace. One such area that has been dramatically affected is compensation. Pay equity has been a key issue examined in redressing inconsistencies in pay treatment between men and women. We have also witnessed an increasing emphasis on merit-based pay and pay for performance, which attempt to more closely link actual effort to performance instead of seniority-based pay, Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

which bases pay solely on the number of years an employee has been with the organization.

Force business to adapt to remain competitive - Businesses must respond to society.

Consumer tastes change, for example, and businesses must adapt to such changes.

Similarly, the types of organizations that serve societal demands can change. The aging population in Canada suggests that greater emphasis needs to be placed on industries such as the health care sector.

Force business to adopt society's ethics and values - Society's values and public opinion can influence the type of behaviour that organizations will manifest in that society. From a societal standpoint, it is not difficult to understand the importance of adequately addressing ethical behaviour of business organizations and their constituents.

All sectors of society, including organizations themselves, are drastically affected by many forms of unethical behaviour. There is a growing belief that organizations are social actors responsible for the ethical and unethical behaviour of their employees.

Critics of business argue that organizational leaders must examine more closely the "moral sense-making" within organizations and responsibilities to external constituents.

The tolerance of unethical behaviour in a society would seem to be a precursor to the acceptance of corporate unethical behaviour.

Objective: LO3 - Discuss the nature of the external forces confronting organizations.

4) “Canada’s resource sector is a competitive advantage for Canada.” Do you agree with this statement? Why or why not. Explain.

Answer: Some business leaders contend that mining and natural resources is still Canada's competitive advantage. A competitive advantage is achieved when an organization excels in one or more attributes that allow it to outperform its competitors. An attribute might be having a highly skilled staff, a patented technology, a unique marketing strategy, a wellknown brand, or something else that makes the company a leader in its field.

Other business leaders argue that Canada needs to diversify into other areas, so that when our non-renewable resources run out we will still have a thriving economy. In fact, it has been argued that Canadian corporations are much more involved in the extraction and processing of natural resources than most other countries at comparable stages of economic development.

Today, the resource sector is still an important part of Canada's economy, but faces a number of challenges: ■ Depleting resources: Over the last century, many renewable and nonrenewable resources have been significantly depleted. Mining companies have had to rely on lowerTest Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

grade ores; in the forestry industry, depletion of high-quality fibre has led companies to exploit second- and third-growth timber in less accessible areas; and in the fishing sector, the Newfoundland cod fishery had been essentially exhausted by the late 1980s. 13 ■ New technology and equipment: Costs have increased significantly for improved technology and extraction equipment. New equipment has been required to improve production efficiency, to extract resources requiring advanced extraction systems, to gain greater value from production inputs, and to sustain Canada's competitive position in the global commodities marketplace. 14 ■ Foreign competition: Foreign competition presents another challenge to Canada's natural resource industries. The US softwood lumber producers, for example, have been a major competitor to Canada, resulting in several legal battles over unfair competition practices. Inexpensive labour costs have also been a competitive advantage for foreign producers. In 2009, AbitibiBowater Inc. (now known as Resolute Forest Products, closed its Grand Falls' pulp and paper mill because of reduced demand for paper and increasing labour costs.

■ Pressure from environmental groups: Similarly, environmental concerns have resulted in new regulations for Canadian companies, to which foreign producers are not subject.

The high rate of extraction of natural resources has led environmental groups to lobby governments to protect wilderness areas, reduce yields extracted, and require higher standards for extraction processes. Substitute products that are more sustainable, like bamboo, have also been encouraged. As the fastest growing wood in the world, bamboo has advantages over traditional woods such as cherry, maple, and walnut. Bamboo is highly renewable and, therefore, environmentally friendly. 15 Objective: LO4 - Explain the importance of each of the external forces within the Canadian business context.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) After many protests by the environmentalists, a law was passed to protect various lands near oil drilling. This is an example of the political and societal forces. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 11-12 Skill: applied/recall Objective: Chapter 1-LO3 2) Blackberry, a Canadian company that had over $1 billion loss in 2013, while its competitors had healthy revenues, was mostly impacted by the economic force. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 10 Skill: applied Objective: Chapter 1-LO3 3) An increase in laws protecting employees against workplace bullying is likely an example of the political force. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 11 Skill: applied Objective: Chapter 1-LO3 4) Target, a U.S. retail department store, that entered Canada to compete against Walmart in Canada is an example of only the competitive force. a. True Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

b. False Answer: b Diff: 1 Type: TF Page Reference: 10-11 Skill: applied Objective: Chapter 1-LO4 5) The North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States is an example of only the global force. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 25 Skill: applied Objective: Chapter 1-LO4 6) Walmart (in Canada) increasing its advertising in response to Target entering Canada is likely a response to the societal force. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 18,25 Skill: applied Objective: Chapter 1-LO4 7) Facebook’s new security settings, in order to comply with privacy laws in different countries, are mainly a response to the technological force. a. True b. False Answer: b Diff: 2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Type: TF Page Reference: 25, 27 Skill: applied Objective: Chapter 1-LO4 8) Blackberry’s change from a keyboard smart phone to a touch screen smart phone is mainly a response to the technological force only. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 18 Skill: applied Objective: Chapter 1-LO4 9) An important factor in achieving change within organizations includes learning how to recognize the need for change. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 13 Skill: recall Objective: Chapter 1- LO2 10) The business-labour relationship is often at odds since health, safety and employment laws are becoming more complex. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 6 Skill: recall Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Objective: Chapter 1- LO1

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) Suggest how each of the four perspectives would view current efforts to establish greater diversity in the workplace. Explain your answer.

Answer: 1. Neoclassical Perspective This perspective argues that the forces of supply and demand, if left to operate freely with limited state interference, will ensure optimal assignment of skills and expertise throughout the economy as well as the fairest distribution of wealth.

Any attempt by governments to intervene in this process of free bargaining by employers and workers will disturb these ‘market-clearing’ processes, producing harmful effects.

Therefore government should not implement diversity laws since those employers may simply lose employees or find other ways around these laws.

2. Managerial Perspective. Managerialists argue that workers who are treated decently and with respect will be the most productive workers and that the most successful businesses will be those that provide good wages and benefits, and good working conditions. Therefore, businesses will look out for employees’ concerns, because it is in their economic interests to do so. Government should not need to intervene with laws since it is in the interest of management to treat workers fairly; there is no need for workers to look to government for protection.

3. Industrial Pluralist Perspective. Pluralists support an activist government that intervenes in the work relationship in order to promote decent working conditions and worker ‘voice’ in the determination of those conditions. Therefore we need more government regulation to promote diversity.

4. Critical Perspective. The Critical perspective posits that employment regulation and collective bargaining are at best only marginally useful in protecting workers from this exploitation. Therefore these government regulations will not do anything to help the plight of the under-represented groups. In fact, they could harm this cause since they may be followed at a, minimal or be circumvented and create the illusion that diversity is being promoted. The more important objective is of building class-consciousness, which will be necessary to challenge the capitalist model and replace it with a more egalitarian model. These groups need to create a greater awareness of their plight in society.

Diff: 3 Type: ES Page Reference: 53-79 Skill: both Objective: LO3-5 2) In today’s workforce, the employee has little control over their job security’.

Support that statement.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Answer: The period from approximately the 1930s to the 1980s was when the standard employment relationship (SER) dominated the economic landscape. The SER is characterized by regular, full-time hours at a single employer, often spanning an entire working career. Employees working under the SER receive periodic pay raises, and their employers usually provide health benefits and pension plans. However, since the 1980s, however, the SER has been disintegrating as the dominant for of work. Large segments of the working population in Canada today work under arrangements that are frequently described as non-standard employment (NSE). NSE is less stable, characterized by parttime, temporary, or variable working hours, lower pay, fewer employer-provided benefits, shorter job tenure, and no access to collective bargaining. Many of these workers are young, recent entrants into the labour force. This trend towards NSE means that young people graduating from university today are far less likely to experience the sort of stable, predictable employment patterns that were the norm for earlier generations.

Workers employed under NSE arrangements, and low-income workers who are treated as independent contractors, are often described as vulnerable or precarious workers. They live on the cusp of poverty and are unable to save or plan for the future because their source of income is always on the verge of disappearing.

Diff: 3 Type: ES Page Reference: 48-53 Skill: both Objective: LO1-2

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

1) Joe has worked for 20 years as a sales representative for a successful, non-unionized major fashion retailer and is an outstanding employee. He is in his late forties and was recently told by his manager that he just doesn’t “fit with the culture any more” and his position is “more suitable for a younger person”. Joe was terminated the following week.

What laws exist to potentially protect Joe? Answer: Human rights laws: These laws typically prohibit discrimination in employment based on certain prohibited grounds. In the Canadian Human Rights Act, which applies to businesses governed by Federal laws prohibits discrimination in employment on grounds such as Age, which appears to be the issue in this case. The Canadian Human Rights Act and each of the provincial human rights codes govern human rights issues and provide detailed procedures for investigation and resolution. An employee who feels her employer has discriminated against her on a prohibited ground may file a complaint with the appropriate human rights tribunal and seek a remedy, including lost wages and reinstatement, if she has been dismissed for discriminatory reasons. The prohibitions on discrimination in employment apply through the life of the relationship, including: hiring, terms of employment, and dismissal.

Also consider Termination laws: Common Law Rules Requiring Notice of Termination: All nonunion employees in Canada have an employment contract with their employer.

Sometimes the contract is written, but if it is not, then the parties have a verbal contract.

Disputes about what an employment contract says, or how it should apply in a given situation, are resolved by judges in courts of laws. One rule that judges created, and that forms part of the common law of the employment contract, is a requirement for employers to provide employees with 'reasonable notice' of the termination of the employment contract. How much notice is 'reasonable' is decided by judges, and depends on a number of factors, including length of the employee's service, the employee's age, and the type of work the employee performed.

Diff: 3 Type: ES Page Reference: chapter 2, p.62-78 ; chapter 10, p.422-434 Skill: both Objective: Chapter 2 LO4,5; chapter 10 LO4,5 2) Joe has worked for 20 years as a sales representative for a successful, non-unionized major fashion retailer and is an outstanding employee. He is in his late forties and was recently told by his manager that he just doesn't “fit with the culture any more” and his position is "more suitable for a younger person". Joe was terminated the following week.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

With reference to the pyramid of corporate social responsibility (CSR), how is CSR an issue in this case?

Answer: Economic Responsibilities: The economic responsibility is based upon that society requires that companies be profitable. In other words, companies should generate profits and minimize costs.

The company is successful and therefore profitable. It is acting in a way that it feels will maximize profits for the company Legal Responsibilities: Society also requires companies to be legally responsible. That is, complying with all laws and regulations. For example, employment laws, human rights laws, business law, contract law, copyright law, environmental law and so on. It may be violating certain human rights though it will depend on how the case is argued.

Ethical Responsibilities: Society also expects companies to be ethically responsible. That is, what society considers fair, just and acceptable. Society expects all members to be treated fairly and with dignity. This company seems to have violated that expectation in its treatment of Joe – suggesting he is not a productive employee because he is getting too old for the job.

Philanthropic Responsibilities: Society desires companies to meet their philanthropic responsibilities. These are duties that help with the betterment of society, such as donating money, volunteering etc.

If we could set aside the age discrimination issues and consider the role of companies it certainly would be philanthropic if companies tried to make more use of workers who were say past retirement age. That was not the case here but as an example of philanthropic behavior, we see some companies like Walmart hire retired individuals as “people greeters” – that could be considered an example of philanthropic responsibilities.

Diff: 3 Type: ES Page Reference: chapter 2, p.62-78 ; chapter 10, p.422-434 Skill: both Objective: Chapter 2 LO4,5; chapter 10 LO4,5 3) Joe has worked for 20 years as a sales representative for a successful, non-unionized major fashion retailer and is an outstanding employee. He is in his late forties and was recently told by his manager that he just doesn't “fit with the culture any more” and his position is "more suitable for a younger person". Joe was terminated the following week.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

What CSR arguments would support the need for businesses to treat employee stakeholders with more concern?

Answer: FOR CSR Business should conform to societal expectations The idea here is that this retail company needs to consider that is part of society. It must conform to what society expects of it if it wants to retain legitimacy. By treating its employees with such disdain it will lose its legitimacy as a reputable and upstanding organization. Therefore it needs to re-consider how it treats its older employees since they are members of society.

Practical business strategy.

The fact is if a business disregards its employees it will invite public scrutiny and this can include government scrutiny. It may well face human rights lawsuits for its behavior and so doing the right thing is also a god business strategy to avoid bad press and any potential legal penalties.

Responsibilities to a network of stakeholders If younger employees are potentially helpful that is fine but this business operates in a network of stakeholders. Its employees are stakeholders – they work hard and expect some kind of security in return.

If employees are disregarded they will no longer be a loyal stakeholder in this company. The press and the media are also stakeholders who will consider what this company does to older employees as an important event. Public interest and human rights groups are also stakeholders who are vigilant in protecting employees from this kind of treatment, So the company needs to consider these stakeholders in its actions CSR provides long term benefits By treating employees with dignity this company will reflect positively on its image and build good will.

Reputation is something that most companies desire and by avoiding this kind of behavior the company will not tarnish its image.

Diff: 3 Type: ES Page Reference: chapter 2, p.62-78 ; chapter 10, p.422-434 Skill: both Objective: Chapter 2 LO4,5; chapter 10 LO4,5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) The government plays a very active role in the governance of the labour relationship in order to help achieve a balance between a. the “efficiency” concerns of business, and the ‘equity’ concerns of workers b. the “effectiveness” concerns of business, and the ‘efficiency’ concerns of workers c. the “equity” concerns of business, and the ‘efficiency’ concerns of workers d. the goals of unions and the goals of management e. the goals of employment and the goals of profit Answer: a Diff: 1 Type: MC Page Reference: 49 Skill: recall Objective: LO4 2) A central means by which wealth is distributed in a capitalist economy. a. Employment b. Pay c. Work d. Management e. Unions Answer: a Diff: 1 Type: MC Page Reference: 49 Skill: recall Objective: LO1 3) An employment contract involves all of the following except: a. It sets out specific rules & obligations b. It is usually enforceable in a court of law c. It is applicable to the employer and employee d. It governs the employment relationship e. It requires the establishment of a union Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Answer: e Diff: 2 Type: MC Page Reference: 49 Skill: both Objective: LO1 4) Which of the following are considered employees?: a. independent contractors b. self-employed c. accounting staff d. partners e. volunteers Answer: c Diff: 1 Type: MC Page Reference: 49-52 Skill: both Objective: LO1 5) All of the following factors distinguish an “employee” from an “independent contractor” except: a. Degree of Control b. Coming on time to do the work c. Degree of Economic Risk d. Degree to which the worker performs an essential service for an organization. e. Degree to which the organization provides the necessary tools Answer: b Diff: 2 Type: MC Page Reference: 52 Skill: recall Objective: LO1 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

6) Employment that involves regular, full-time hours at a single employer, often spanning an entire working career is referred to as: a. single career work b. consistent employment relationship c. standard employment relationship (SER) d. non-standard employment relationship e. Employment equity Answer: c Diff: 1 Type: MC Page Reference: 52-53 Skill: recall Objective: LO2 7) A non-standard employment (NSE) includes all of the following except: a. is less stable b. is characterized by part-time, temporary, or variable working hours c. is typically unionized d. has lower pay e. has fewer employer-provided benefits Answer: c Diff: 2 Type: MC Page Reference: 52-53 Skill: recall Objective: LO2 8) A major contributor to growing income inequality in Canada is a. the shift from Standard employment to “self-employment” b. collective bargaining c. partnerships d. employment contracts e. minimum wages Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Answer: a Diff: 2 Type: MC Page Reference: 52-53 Skill: recall Objective: LO2 9) Workers employed under NSE arrangements, and low-income workers who are treated as independent contractors, are often described as a. part-time workers b. employees c. temporary workers d. precarious workers e. partners Answer: c Diff: 2 Type: MC Page Reference: 52-53 Skill: recall Objective: LO2 10) How to balance the interest of business in maximizing profits on one hand, with the interest of workers in securing a decent level of income and security, on the other hand, has been a subject of debate. This debate has been informed by a variety of perspectives that differ on all of the following issues except: a. the role and effectiveness of markets; b. The role of financial services c. the role of bargaining power in the employment relationship; d. the role of management, and the human resources function in particular; and e. the role of unions and collective bargaining.

Answer: b Diff: 2 Type: MC Page Reference: 53-55 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Skill: recall Objective: LO3 11) According to the ______________ perspective, ‘competitive markets’ are the best means of organizing complex economies and societies. a. Neoclassical b. Managerial c. Industrial Pluralist d. Democratic e. critical Answer: a Diff: 2 Type: MC Page Reference: 53-59 Skill: recall Objective: LO3 12) According to the ______________ perspective, the forces of supply and demand, if left to operate freely with limited state interference, will ensure optimal assignment of skills and expertise throughout the economy as well as the fairest distribution of wealth. a. Neoclassical b. Managerial c. Industrial Pluralist d. Democratic e. critical Answer: a Diff: 2 Type: MC Page Reference: 53-59 Skill: recall Objective: LO3 13) All of the following is true of the managerial perspective, except: a. it is closely related to modern human resource management.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

b. It shares a belief with the Neoclassical perspective that government intervention in the governance of work and employment should be minimal. c. it believes in enlightened management practices rather than in the ‘invisible hand’ of the marketplace. d. It argues that workers must form a union in order to be most productive. e. it argues that workers who are treated decently and with respect will be the most productive workers Answer: d Diff: 3 Type: MC Page Reference: 53-59 Skill: both Objective: LO3 14) According to the Managerial perspective: a. employment standards and employment regulation should be kept to a maximum b. legal standards should be set at high level c. Unions and collective bargaining are an unnecessary impediment to managerial flexibility d. Unions should be promoted by governments. e. The decision of workers to support unionization reflects a success of management to address employee needs.

Answer: c Diff: 2 Type: MC Page Reference: 53-59 Skill: recall Objective: LO3 15) The __________ Perspective emphasizes the imbalance of power between workers and employers, and the value to society and economies of striking a reasonable balance between the efficiency concerns of employers and the equity concerns of workers. a. Neoclassical b. Managerial c. Industrial Pluralist Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

d. Democratic e. Critical Answer: c Diff: 2 Type: MC Page Reference: 53-59 Skill: recall Objective: LO3 16) In contrast with Neoclassicalists and Managerialists, Pluralists a. assert that workers have sufficient bargaining power b. support an activist government c. support the minimum wage d. believe in laisse faire government e. promote employment contracts Answer: b Diff: 3 Type: MC Page Reference: 53-59 Skill: recall Objective: LO3 17) Pluralists believe that the most effective way to promote a healthy distribution of wealth throughout the economy, is to: a. promote heavy government taxation b. raise the minimum wage c. promote collective bargaining and unionization. d. promote strikes e. promote more standard work relationships Answer: c Diff: 2 Type: MC Page Reference: 53-59 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

Skill: both Objective: LO3 18) All of the following is true of the Critical Perspective except: a. It asserts that the capitalist system is exploitive b. It draws its inspiration from Marxist theory c. It argues that the interests of labour (workers) and capital (the owners and managers of economic organizations) are irreconcilably in conflict d. It argues that the objective of capital is to extract from labour maximum effort and control at minimal cost. e. It argues that employment regulation and collective bargaining are highly effective at protecting workers from exploitation.

Answer: e Diff: 3 Type: MC Page Reference: 53-59 Skill: both Objective: LO3 19) According to the critical perspective, a central objective of workers should be to a. join a union b. strike c. build class-consciousness d. raise wages e. demand better working conditions Answer: c Diff: 2 Type: MC Page Reference: 53-59 Skill: recall Objective: LO3 20) According to the ___________ perspective, society needs to challenge the capitalist model and replace it with a more egalitarian model.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

a. Critical b. Managerial c. Neoclassical model d. Industrial Pluralist e. Democratic Answer: a Diff: 2 Type: MC Page Reference: 53-59 Skill: recall Objective: LO3 21) The decline in the prevalence and impact of collective bargaining coincided with a shift in the dominant perspectives towards: a. Critical and Managerialist b. Neoclassical and Managerialist c. Industrial Pluralism and Neoclassical d. Neoclassical and Critical e. Managerialist and Industrial pluralism Answer: b Diff: 3 Type: MC Page Reference: 53-59 Skill: both Objective: LO4 22) All of the following is true of the Charter of Rights and Freedoms except: a. it forms part of the Canadian Constitution. b. It governs the relationship between Canadian governments and citizens c. it protect fundamental rights and freedoms of Canadians against certain state interference d. it protects Equality rights, which guarantee no discrimination by law on grounds of race, ethnic origin, colour, religion, sex, age, or mental and physical ability e. It governs the collective bargaining relationship Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

Answer: e Diff: 3 Type: MC Page Reference: 66-67 Skill: recall Objective: LO4 23) If the Government of Ontario paid its female employees less than its male employees for the same work, that could be in violation of the Charter’s protection of: a. equality rights based on sex b. Fundamental freedoms of speech, press, assembly, association, and religion c. Democratic rights d. Mobility rights regarding the right to move freely from province to province for the purposes of residence or employment e. Language rights Answer: a Diff: 2 Type: MC Page Reference: 66-67 Skill: both Objective: LO4 24) When a disabled worker is unable to perform all of the essential duties of a job, human rights legislation imposes on employers: a. a penalty b. undue hardship c. a “duty to accommodate d. employment equity e. a contract Answer: c Diff: 1 Type: MC Page Reference: 69 Skill: both Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

Objective: LO4 25) Each of the following are designated groups in Canada, expect: a. women b. Aboriginal peoples c. visible minorities d. people with disabilities e. Invisible minorities Answer: e Diff: 2 Type: MC Page Reference: 69-75 Objective: LO5 26) The designated groups represent approximately: a. 60 percent of the total work force b. 50 percent of the total work force c. 30 percent of the total work force d. 15 percent of the total work force e. 5 percent of the total work force Answer: a Diff: 2 Type: MC Page Reference: 69-70 Skill: recall Objective: LO5 27) The term _______________ was intended to reflect a distinct Canadian process for achieving equality in all areas of employment. a. affirmative action b. equal opportunity c. duty to accommodate d. employment equity e. affirmative equity Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

Answer: d Diff: 1 Type: MC Page Reference: 76 Skill: recall Objective: LO5 28) Systemic discrimination refers to all of the following except: a. internal policies that tend to disadvantage some groups and favour others. b. Practices that tend to disadvantage some groups and favour others. c. Patterns that tend to disadvantage some groups and favour others. d. Biases that tend to disadvantage some groups and favour others. e. intentional as opposed to unintentional exclusion of some groups.

Answer: e Diff: 2 Type: MC Page Reference: 76 Skill: both Objective: LO5 29) The Employment Equity Act was designed for all of the following reasons except: a. To eliminate employment barriers for the four designated groups identified in the Employment Equity Act b. To redress past discrimination in employment opportunities c. To prevent future barriers. d. To improve access for the designated groups e. To apply to the vast majority of private sector businesses in Canada Answer: e Diff: 2 Type: MC Page Reference: 76-77 Skill: recall Objective: LO5 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

30) Under the Employment equity Act, the employer must: a. hire more members of the designated groups b. Assess whether any barriers exist which may limit the employment opportunities of members of designated groups. c. ensure a collective bargaining system is in place d. fire managers who engage in systemic discrimination e. increase the minimum wage Answer: b Diff: 2 Type: MC Page Reference: 76-77 Skill: recall Objective: LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

13

1) Is there a difference between “employment”, and other forms of work arrangements?

Answer: Since the twentieth century, the dominant model of organizing work has been "employment". Employment is a form of work in which a person (an 'employee') is dependent upon, and mostly subservient to, an 'employer'. In an employment relationship, the employer is assumed to have control over the methods of production, the unilateral authority to decide what and how much to produce, and the right to direct when, where, and how the employee is required to perform their job. The employment relationship is governed by an employment contract, which may set out specific rules, obligations, and rights applicable to the employer and employee, and is usually enforceable in a court of law, like other contracts. At the core of the employment relationship is a basic exchange: the employee sells their labour in exchange for compensation, usually in the form of wages and perhaps benefits of some sort. Employment can be full-time or part-time, indefinite in duration or for a fixed period of time.

Diff: 2 Type: ES Page Reference: 49-54 Skill: both Objective: LO1 2) What is the relevance to understanding the labour relationship?

Answer: Understanding this relationship sheds a light on the nature of our economy and our society, its standards of fairness and well-being. Employment standards legislation entitles "employees" to a minimum wage, overtime pay, mandatory time off and holiday pay, notice of termination, among other benefits. None of these entitlements apply unless the arrangement is characterized as employment. Similarly, human rights laws prohibit discrimination "in employment", and access to unemployment insurance, public pension schemes, and workers' compensation benefits are often contingent upon a worker having been 'employed' for a period of time prior to making their claim for benefits. From a business perspective, there may be advantages to using workers who are not employees of the business. A business that uses independent contractors or "temporary placement" workers may avoid employment standards laws, or the requirement to pay insurance premiums to workers' compensation systems, for instance. By not employing workers, businesses can avoid some potentially costly requirement and adjust more quickly and with less cost to economic downturns. On the other hand, this can have an adverse impact on individuals who fail to achieve job security.

Diff: 3 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Type: ES Page Reference: 49-54 Skill: both Objective: LO2 3) Why is it important to understand the difference between the Standard Employment Relationship and the Non-Standard Employment Relationship?

Answer: First to define both: The SER is characterized by regular, full-time hours at a single employer, often spanning an entire working career. Employees working under the SER receive periodic pay raises, and their employers usually provide health benefits and pension plans. The SER functions in the shadow of an extensive array of government regulation that guides the relationship, and is underpinned by a strong social security net that provides protections to employees whose employment ends for one reason or another. For example, an employee who is laid-off due to lack of work is entitled to unemployment insurance benefits, and an employee injured at work is entitled to workers' compensation benefits. Unemployment and workers' compensation benefits are funded by mandatory employer contributions. In contrast, NSE is less stable, characterized by part-time, temporary, or variable working hours, lower pay, fewer employer-provided benefits, shorter job tenure, and no access to collective bargaining.

Second, why is this important? It is an important distinction to understand since our economy seems to be including a lot more NSE among those employed. Since the 1980s, the SER has been disintegrating as the dominant for of work. Large segments of the working population in Canada today work under arrangements that are frequently described as non-standard employment (NSE). Many of these workers are young, recent entrants into the labour force. This trend towards NSE means that young people graduating from university today are far less likely to experience the sort of stable, predictable employment patterns that were the norm for earlier generations.

Diff: 2 Type: ES Page Reference: 52-54 Skill: both Objective: LO2 4) How do the neoclassical and industrial pluralist perspectives view the appropriate role of markets, management, unions, and labour-related legislation?

Answer: The Neoclassical Perspective argues that the forces of supply and demand, if left to operate freely with limited state interference, will ensure optimal assignment of skills and Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

expertise throughout the economy as well as the fairest distribution of wealth. The "invisible hand of the market" will guide actors towards economic and social prosperity.

Canadian governments-indeed, governments around the world-are misguided in their attempts to 'protect workers' through regulation such as minimum wages, overtime pay, human rights laws, health and safety rules, and laws that permit or even encourage unionization and collective bargaining. Neoclassicalists are not concerned about working conditions being driven down too low in the absence of worker protection legislation.

They believe that the invisible hand of the market will ensure this does not happen. Any attempt by governments to intervene in this process of free bargaining by employers and workers will disturb these 'market-clearing' processes, producing harmful effects.

The Industrial Pluralist Perspective emphasizes the imbalance of power between workers and employers, and the value to society and economies of striking a reasonable balance between the efficiency concerns of employers and the equity concerns of workers. For the Pluralist, the relationship between a business/employer and a worker/employee involves the bearer of power, on one hand, and subordination, on the other hand. In most cases, workers lack the necessary bargaining power to engage in meaningful bargaining about conditions of employment with the result that the business purchasing their labour can in practice set the terms unilaterally. Pluralists support an activist government that intervenes in the work relationship in order to promote decent working conditions and worker 'voice' in the determination of those conditions. Most importantly, the Pluralists believe the most effective way to ensure worker voice, and to promote a healthy distribution of wealth throughout the economy, is to promote collective bargaining and unionization Diff: 3 Type: ES Page Reference: 53-59 Skill: both Objective: LO3 5) What fundamental relevant rules address the issue of termination of employment in Canada?

Answer: Common Law Rules Requiring Notice of Termination: One rule that judges created, and that forms part of the common law of the employment contract, is a requirement for employers to provide employees with 'reasonable notice' of the termination of the employment contract. How much notice is 'reasonable' is decided by judges, and depends on a number of factors, including length of the employee's service, the employee's age, and the type of work the employee performed. This requirement for employers to give 'reasonable notice' helps employees transition from one job to the next.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Statutory Minimum Notice of Termination: If an employer fails to provide the employee with 'reasonable notice', the employee can sue the employer in court to recover it.

Employment standards statutes in Canada include mandatory minimum statutory notice provisions. For example, in Ontario, the Employment Standards Act requires employers to provide the following minimum periods of notice of termination. Both common law 'reasonable notice' and statutory minimum notice are intended to provide employees with a cushion, a period of time to plan for their job loss and to look for another job. These requirements impose costs on employers. However, they are justified on the basis that job losses impose costs on society and employees, some of which should be borne by employers.

Diff: 3 Type: ES Page Reference: 62-65 Skill: both Objective: LO4 6) In what way is Canada’s labour force considered to be diverse?

Answer: Canadian business operates within a very diverse society. The Canadian population reflects a multitude of cultures and demographic backgrounds. For example, recent census figures provided by Statistics Canada show that over 5 million Canadian citizens were foreign-born, comprising nearly 20 percent of the total population. This diversity is increasingly reflected in the Canadian labour pool. Immigrants who came to Canada in the 1990s have accounted for approximately 70 percent of the total growth of the labour force in recent years. Women also comprise a significant component of the Canadian labour force and account for about half of both the employed work force and all union members. Visible minorities and people with disabilities, together with women, make up over 60 percent of Canada’s labour force.

Diff: 2 Type: ES Page Reference: 65-76 Skill: both Objective: LO5 7) How does employment equity legislation attempt to break down barriers to diversity within Canadian workplaces?

Answer: Employment equity was a term developed to reflect a distinct Canadian process for achieving equality in all areas of employment. In addition, the term was intended to Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

distinguish the process from the U.S. notion of "affirmative action," as well as to move beyond the "equal opportunity" measures that were available in Canada at that time. To address systemic discrimination, the Employment Equity Act was designed as an ongoing planning process used by an employer to accomplish a number of objectives, including: •

Eliminating employment barriers for the four designated groups identified in the Employment Equity Act-women, persons with disabilities, Aboriginal people, and members of visible minorities.

•

Redressing past discrimination in employment opportunities and preventing future barriers.

Diff: 2 Type: ES Page Reference: 66-69 Skill: both Objective: LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

1) The employment contract, which may set out specific rules, obligations, and rights applicable to the employer and employee, and is not usually enforceable in a court of law. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 49 Skill: both Objective: LO1 2) Independent contractors, or the self-employed, are not “employees”. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 49 Skill: recall Objective: LO1 3) One of the factors that are considered in deciding whether someone is an employee or an independent contractor includes the Degree of Control. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 49-52 Skill: recall Objective: LO1 4) The standard employment relationship (SER) is characterized by part-time hours at multiple employers, spanning 1-3 years. a. True b. False Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Answer: b Diff: 1 Type: TF Page Reference: 52-53 Skill: recall Objective: LO2 5) Non-standard employment (NSE) has access to collective bargaining. a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 53 Skill: recall Objective: LO2 6) According to the Neoclassical Perspective, the forces of supply and demand, if left to operate freely with limited state interference, will ensure optimal assignment of skills and expertise throughout the economy as well as the fairest distribution of wealth. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 55-56 Skill: both Objective: LO3 7) The Critical perspective emphasize the imbalance of power between workers and employers, and the value to society and economies of striking a reasonable balance between the efficiency concerns of employers and the equity concerns of workers. a. True b. False Answer: b Diff: 2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Type: TF Page Reference: 59 Skill: both Objective: LO4 8) The federal government introduced the Employment Equity Act in 1986 in order to break down barriers for these four designated groups. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 76-77 Skill: recall Objective: LO5 9) Pluralists argue that collective bargaining is valuable because it promotes two important outcomes: Democracy and Voice; and Distributive Fairnes a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 56-57 Skill: both Objective: LO4 10) Pluralists accept the Managerialist’ claim that progressive human resource management policies, and that the supposed economic benefits derived from it, will protect the interests of workers. a. True b. False Answer: b Diff: 3 Type: TF Page Reference: 56-57

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Skill: both Objective: LO3

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) "Scientific management is dead!" Discuss and support this statement.

Support the quote that scientific management is dead. Responses should cover the 3 central areas of scientific management: Answer: • the nature of the job (ie scientific management advocates that jobs be broken down into their simplest components. Why might this not be beneficial? Eg. Today more and more of the labour force is educated and such simplistic jobs are monotonous. In addition, scientific management advocates job standardization. Why might standardization not be beneficial today? Discuss any possible reasons. Can you provide an example of narrow and standardized jobs that may not be productive?

•

The role of the manager: scientific management advocates separating the "thinking" role of managers from the physical role of employees. Can you think of examples where this is not a sensible strategy? Can you think of organizations where it is important to let the workers who are closest to the consumer/product make the relevant decisions about their work?

•

Motivation by tying pay to performance. Can you think of examples where this strategy can be dysfunctional? Eg. Discuss the "cons" of commissions/merit based pay.

2) "Scientific management is dead!" Discuss and support this statement.

Refute the quote that scientific management is dead. That is, argue how scientific management can still be productively applied today. Again, to be systematic, your response should cover the 3 central areas of scientific management: Answer: • the nature of the job (again, consider the notion of compartmentalization/jobs broken down into their simplest components.

Why might this in fact be beneficial? Ie. Can you think of examples of such jobs that are benefited by such a strategy? Modern day assembly lines? McDonalds? Explain. What about job standardization. And compartmentalization? For efficiency. Why might standardization be beneficial today? Can you think of organizations that need to standardize jobs? Can you provide an example of narrow and standardized jobs that are productive? (once again – you could explain a McDonalds type organization) •

The "thinking" role of managers separated from the physical role of employees. Can you think of examples where this is a sensible strategy today? Once again consider the design of McDonald type organizations – in what way do they separate these roles?

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

•

Motivation by tying pay to performance. Can you think of examples where this strategy can be productive? Eg. Some of our class examples pointed to potential benefits of this practice.

3) Isn’t the Behavioral school of management superior to the Classical school since it takes into account human interests?

Answer: This question is asking: Which of the 2 arguments above do you more fully agree with and why? It is not really feasible to suggest that one approach will always be superior, rather one needs to consider contingencies, ie., contingency approach to management The acknowledgement that there is no one best way to manage and that different conditions and situations require the application of different approaches or techniques. Includes consideration of organization size, environmental uncertainty, routineness of task technology and individual differences.

Here are some of the contingencies that should be taken into account when implementing a management philosophy: Organizational size: Large organizations with hundreds of employees cannot be managed in the same manner as small organizations with few employees. The need for control and the challenge to achieve it in massive organizations may tend to encourage an approach that relies on elements of the classical school, such as the need for rules and regulations and the importance of an administrative hierarchy to ensure control. On the other hand, small, entrepreneurial organizations might function more effectively with a minimal number of rules and regulations.

Routineness of task technology: Some organizations may require employees to work in an assembly-line fashion, while their work is governed by machinery. Other jobs may not involve any significant level of technology: retail sales or being a bank teller are jobs that do not necessarily require technological expertise. These jobs are more easily subjected to routinization, as advocated by Taylor, and there should be strict rules on which such workers can rely. On the other hand, jobs that must continually adapt to changing technology require employees who are equally adaptive. High-tech organizations that employ "knowledge workers" are keenly aware that it is difficult to standardize the jobs of these workers, given the high rate of change within the present technology environment.

Environmental uncertainty: An organization that exists within a volatile environment must be prepared for continuous change. Change is the antithesis of the classical approaches, which emphasize stability and order. Consequently, organizations functioning in rapidly changing environments are less likely to find extensive application of the classical school useful in managing their workforce.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Individual differences: In any organization, employees differ with regard to their ability and motivation. Some people function better when given clear guidance-rules and regulations regarding how their job should be performed. Others perform better when the rules governing their performance are minimal. These differences suggest that a blanket application of either the classical or behavioural schools may risk ignoring the fact that the labour force is not homogeneous in terms of responses to the nature of work and management style.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) When Air Canada Struggled to Survive You would not know it by their current status, but many years ago, Air Canada was struggling to just survive. By the end of 2001 things looked grim for Air Canada and its chief executive, Robert Milton. The 2001 world trade centre attack had temporarily changed world opinion about airline travel. Milton laid off roughly a quarter of his staff and analysts were suggesting that Air Canada would very soon run out of cash. In 2002 a further blow was dealt to the airline industry when a ‘new’ disease “SARS” hit news headlines. Toronto was identified as a major area of concern and so flights between Canada and other popular destinations were cancelled. At the time it seemed that matters couldn’t get any worse.

Air Canada had already been struggling before all this. When Milton also took over the then well-known Canadian Airlines, he burdened himself with having to manage two groups of employees who had previously known only competition with one another.

Many of the original Air Canada employees resented the fact that Canadian Airline workers came in with more seniority and thus greater job security. Levels of motivation dropped to an all time low. There was a great deal of ill feeling during and after the merger of the two airlines.

Another seemingly ill-suited strategy was Air Canada’s attempt to oust West Jet by launching a separate low-fare airline in Western Canada. Another ineffective strategy had been to change the brand image of Air Canada. By comparison West Jet maintained a much higher level of productivity and motivation among its staff. West Jet had a highly efficient, nonunion workforce. Job descriptions at West Jet weren’t “written in stone”. By comparison, Air Canada had a rigid corporate structure.

Identify and explain the external and internal forces which might have influenced the difficulties at Air Canada.

Answer: Consider the impact of both internal and external forces in this situation with any assumptions as necessary.

External forces - should be identified as part of the context within which AC operates particularly able students should note that the specific external forces are connected to the kind of industry the organization is in, i.e. different external force for different kinds of organizations. In this instance - should focus on economic forces after 911, political forces of restrictions and security issues, competitive forces - expansion of the airline industry including opening of discount airlines (link here with deregulation of airline industry in Canada), societal forces - link to 911 and also social influences here of SARS, DVT and related public fears. Global forces may wish to relate to events in other countries, e.g. 911, SARS in Asia and link with Canadian cases.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Students who are able to link directly with the specific forces in the Canadian context should be well rewarded as opposed to those who talk about the external forces in a more general way, e.g. political forces of Canada are that it is a capitalist economy but that the government plays an important role in promoting specific political policies, also that Canada is an open economy - competitive forces, some reference to the economic situation in Canada as whole in 2001 - 2002 should be well rewarded.

Internal forces- students should identify the internal forces at AC with a specific focus on people, organizational structure and strategy. They should be able to identify the problems with the takeover of Canadian Airlines with regard to people - lack of synergy between the different groups of workers, this can also be understood as a problem of strategy and a problem of structure where incorporating another organizational structure into the existing structure at AC is problematic. Also that the strategy of takeover was not appropriate at the time - this can also be linked with an inappropriate decision making style. The problems with the organizational structure are indicated in the staff issues and motivation and rigid bureaucracy issues which are contrasted with those of West Jet. There should be sufficient explanation of how these internal forces have influenced the problems at AC. 2) When Air Canada Struggled to Survive You would not know it by their current status, but many years ago, Air Canada was struggling to just survive. By the end of 2001 things looked grim for Air Canada and its chief executive, Robert Milton. The 2001 world trade centre attack had temporarily changed world opinion about airline travel. Milton laid off roughly a quarter of his staff and analysts were suggesting that Air Canada would very soon run out of cash. In 2002 a further blow was dealt to the airline industry when a ‘new’ disease “SARS” hit news headlines. Toronto was identified as a major area of concern and so flights between Canada and other popular destinations were cancelled. At the time it seemed that matters couldn’t get any worse.

Air Canada had already been struggling before all this. When Milton also took over the then well-known Canadian Airlines, he burdened himself with having to manage two groups of employees who had previously known only competition with one another.

Many of the original Air Canada employees resented the fact that Canadian Airline workers came in with more seniority and thus greater job security. Levels of motivation dropped to an all time low. There was a great deal of ill feeling during and after the merger of the two airlines.

Another seemingly ill-suited strategy was Air Canada’s attempt to oust West Jet by launching a separate low-fare airline in Western Canada. Another ineffective strategy had been to change the brand image of Air Canada. By comparison West Jet maintained a Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

much higher level of productivity and motivation among its staff. West Jet had a highly efficient, nonunion workforce. Job descriptions at West Jet weren’t “written in stone”. By comparison, Air Canada had a rigid corporate structure.

Which specific functions or roles of management were especially important as Air Canada tried to resolve its difficulties.

Answer: Planning - generating strategies relating to the restructuring and ensuring that AC is able to meet the demands of the current business environment - e.g. political issues, security issues. The leaders should also be able to plan what will happen after the restructuring/takeover of Canadian Airlines.

Organizing - should be able to arrange resources appropriate after the takeover and also organizing according to the demands of the environment. This should relate to the dynamic/turbulent environment and how the skills of organization are particularly important at such a time in order to maintain stability and focus.

Leading - the role of Milton at that time was especially important as it would be in all times of rapid change/uncertainty. This should be particularly important with regard to motivational issues - at a time when many jobs are being lost.

Controlling - given the changes at AC and level of external instability it is important that a close watch was kept on the functioning of the organization so that a quick response could be put into place if necessary.

Interpersonal - very important at a time of great change, especially with regard to liaison with outside stakeholders (e.g. government, passengers, other airlines etc), and maintaining good relations with current employees to keep motivation at an acceptable level.

Informational - closely connected with the leadership role, relates to providing information to employees and outside stakeholders regarding the changes and how AC is managing them.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) Management has been defined in all of the following ways except: a. The art of getting things done through people. b. Managers give direction to their organizations, provide leadership and decide how to use organizational resources. c. Using employees to achieve one’s personal objectives. d. The process of planning, organization, leading and controlling organizational resources in the effort to achieve organizational goals.

Answer: c Diff: 1 Type: MC Page Reference: 81-82 Skill: recall Objective: LO1 2) The term efficiency refers to using: a. the fewest inputs to produce a given level of output. b. The lowest level of output for the given level of input. c. The highest level of input for a given level of output d. The minimal effort required to produce the lowest level of output Answer: a Diff: 1 Type: MC Page Reference: 81 Skill: recall Objective: LO1 3) The term effectiveness refers to: a. The pursuit of the maximum output for the minimal level of input b. The pursuit and achievement of goals that are appropriate for the organization. c. The pursuit and achievement of maximum profit for the organization d. The pursuit of all organizational goals.

Answer: b Diff: 1 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Type: MC Page Reference: 81 Skill: recall Objective: LO1 4) The most commonly considered four central functions of management are: a. effectiveness, efficiency, profit maximization, leading b. planning, leading, observing, rewarding c. planning, organizing, leading, and controlling. d. leading, managing, organizing, controlling Answer: d Diff: 1 Type: MC Page Reference: 82-83 Skill: recall Objective: LO1 5) Henry Mintzberg, a management scholar, conducted an in-depth study of managers in the 1960s. Mintzberg offered a classification of the various roles that managers play as follows: a. Leadership roles, management roles, planning roles b. interpersonal roles, informational roles and decisional roles. c. Interpersonal roles, leadership roles, decisional roles d. Interpersonal roles, informational roles, follower roles Answer: b Diff: 2 Type: MC Page Reference: 82-83 Skill: recall Objective: LO1 6) Interpersonal roles that are typically ceremonial or symbolic in nature are referred to as: a. Liaison roles

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

b. Leader role c. Figurehead roles d. Representative roles Answer: c Diff: 2 Type: MC Page Reference: 82-83 Skill: recall Objective: LO1 7) A sales manager who develops a working relationship with the production department is fulfilling the role of : a. Liaison b. Figurehead c. Leader d. Motivator Answer: a Diff: 3 Type: MC Page Reference: 82-83 Skill: both Objective: LO1 8) Informational roles include all of the roles of: a. Monitor, performer, coordinator b. Liaison, Leader, disseminator c. Monitor, Motivator, spokesperson d. Monitor, motivator, spokesperson Answer: b Diff: 3 Type: MC Page Reference: 82-83 Skill: recall Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Objective: LO1 9) A marketing manager who is responsible for assessing consumer demand for a newly proposed product is fulfilling the role of: a. Leader b. Communicator c. Monitor d. Disseminator Answer: c Diff: 4 Type: MC Page Reference: 82-83 Skill: both Objective: LO1 10) A manager who provides information to employees regarding performance expectations is fulfilling the role of: a. Disseminator b. Spokesperson c. Liaison d. Leader Answer: a Diff: 4 Type: MC Page Reference: 82-83 Skill: both Objective: LO1 11) A company president who reports to a government regulatory board regarding the company’s environmental policy is playing the role of: a. Disseminator b. Spokesperson c. Liaison d. Leader Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Answer: b Diff: 4 Type: MC Page Reference: 82-83 Skill: both Objective: LO1 12) When managers act as entrepreneurs, disturbance handlers, resource allocators or negotiators, they are fulfilling: a. Decisional roles b. Informational roles c. Interpersonal roles d. Liaison roles Answer: a Diff: 3 Type: MC Page Reference: 82-83 Skill: recall Objective: LO1 13) A personnel manager developing a new performance appraisal system, or a marketing manager developing a new product, would both be considered as playing the role of a. Disturbance handler b. Resource allocator c. Entrepreneur d. Negotiator Answer: c Diff: 3 Type: MC Page Reference: 82-83 Skill: both Objective: LO1

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

14) Dealing with disputes and deciding how to allocate resources to a project are, respectively examples of playing the following roles: a. disturbance handler and negotiator b. decision maker and resource allocator c. motivator and leader d. disturbance handler and resource allocator Answer: d Diff: 1 Type: MC Page Reference: 82-83 Skill: recall Objective: LO1 15) Three streams that are central components of the Classical school of management include: a. scientific management, administrative management , bureaucratic management b. behavioral management, scientific management, bureaucratic management c. scientific management, administrative management, motivational management d. administrative management , bureaucratic management, structural management Answer: a Diff: 2 Type: MC Page Reference: 88 Skill: recall Objective: LO2 16) One of the major driving forces behind the formalization of management thought was a. The government b. Social diversity c. The Industrial Revolution d. Scientific measurement e. Humanism Answer: c Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

Diff: 1 Type: MC Page Reference: 89 Skill: recall Objective: LO2 17) The idea of compartmentalizing the work, according to Scientific Management means that the work should be: a. Extremely monotonous b. Broken down into its most fundamental tasks c. Collected into a series of steps d. Done individually Answer: b Diff: 2 Type: MC Page Reference: 89-91 Skill: recall Objective: LO2 18) According to scientific management, the idea that the work should be governed by clear rules regarding how to perform it, with little or no room for individual discretion is referred to as: a. compartmentalization b. motivation c. standardization d. simplification Answer: c Diff: 2 Type: MC Page Reference: 89-91 Skill: recall Objective: LO2 19) According to scientific management the job of the manager includes all of the following except: Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

a. responsibilities for planning, and conducing time motion studies b. scheduling the work c. performing the physical work rather than the mental work d. direct workers to do the work according to the standardized rules.

Answer: c Diff: 2 Type: MC Page Reference: 89-91 Skill: both Objective: LO2 20) The piece rate system of Scientific management is based on the assumption that: a. Standardized work motivates employees b. Compartmentalized work motivates employees c. High pay motivates employees d. Tying pay to performance motivates employees Answer: d Diff: 3 Type: MC Page Reference: 89-91 Skill: both Objective: LO2 21) The principle of unity of command is advocated as part of the ideology of a. Administrative management b. Bureaucratic management c. Scientific management d. Classical management Answer: a Diff: 2 Type: MC Page Reference: 91 Skill: recall Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

Objective: LO2 22) The concept of esprit de corps refers to the generation of organizational cohesiveness and unity brought about by: a. The military spirit b. Strict supervision c. team spirit and harmony d. piece rate system Answer: c Diff: 3 Type: MC Page Reference: 91 Skill: recall Objective: LO2 23) According to Max Weber and his notion of Bureaucratic management, organizations should demonstrate all of the following except: a. Nepotism b. rigid rules and procedures c. conformity to guidelines d. impersonality Answer: a Diff: 2 Type: MC Page Reference: 92-96 Skill: recall Objective: LO2 24) The behavioral approach to management refers to managerial perspectives that focus on all of the following, except: a. the social or human side of organizations b. the challenges of managing human beings. c. Maximization of efficiency d. Permitting employees to fulfill social, as opposed to simply economic, needs.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

Answer: c Diff: 2 Type: MC Page Reference: 98-99 Skill: both Objective: LO3 25) The behavioral approach includes all the following perspectives except: a. Elton Mayo and the human relations perspective; b. Mary Parker Follett c. Chester Barnard; d. Max Weber Answer: d Diff: 2 Type: MC Page Reference: 98-99 Skill: recall Objective: LO3 26) Elton Mayo’s research on motivation led to the identification of a. scientific management b. the piece rate effect c. the Hawthorne effect d. the Hayward effect Answer: c Diff: 1 Type: MC Page Reference: 100 Skill: recall Objective: LO3 27) Based on Mary Parker Follett’s observations of real-life managers, she identified a number of elements necessary for effective management, including:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

a. Standardization and compartmentalization b. Esprit des corps, and unity of command c. Leadership and communication d. Coordination and self management Answer: d Diff: 3 Type: MC Page Reference: 100-101 Skill: recall Objective: LO3 28) Chester Barnard felt that a critical function of managers is: a. to clearly establish rules governing how the work should be done b. to clearly establish the organizational objectives and ensure that all employees are motivated to help attain these objectives. c. to direct employees to do the work properly and reward them accordingly d. to establishes a close relationship with employees and became their friend Answer: b Diff: 3 Type: MC Page Reference: 101 Skill: recall Objective: LO3 29) The contingencies of management philosophies include: a. Organizational size, Routineness of task technology, Environmental uncertainty, Individual differences b. Organizations size, structure, remuneration, industry c. Organizational size, task technology uncertainty, environmental routines, individual differences d. Environmental uncertainty, individual differences, bureaucracy, administrative management Answer: a Diff: 2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

Type: MC Page Reference: 101-106 Skill: recall Objective: LO2,3 30) Research consistently supports the idea that organizational trust has an impact on all of the following except: a. Employee salary b. organizational citizenship behaviour c. performance d. intention to turnover Answer: a Diff: 3 Type: MC Page Reference: 106-110 Skill: recall Objective: LO4

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

1) According to management scholar Henry Mintzberg, in what ways do managers play interpersonal roles in organizations?

Answer: Interpersonal roles include those managerial tasks that arise from the manager's formal authority base and involve relationships with either other organizational members or external parties. Figurehead roles are typically ceremonial or symbolic in nature. For example, in the role of a figurehead, a supervisor might hand out "employee of the month" awards at a company banquet. In the leader role, the manager may serve as a motivator, a communicator, and a coordinator of her subordinates' activities. This might include conducting performance appraisals, offering training to a new recruit, and so on.

A final role within the interpersonal grouping is that of liaison, which includes those managerial activities that involve developing relationships with members of the organization outside the manager's area of authority. This could include anything from a sales manager's relationship with the production department to a university dean's networking relationship with the city council.

Diff: 2 Type: ES Page Reference: 82-83 Skill: both Objective: LO:1 2) What do the underlying philosophies of management within the classical school of thought all have in common?

Answer: The three classical approaches to management (scientific, administrative, and bureaucratic) share a basic philosophy regarding what is required to manage effectively: The job of managers is to plan, control, and direct the actions of their subordinates to obtain the greatest efficiency from their workers. Scientific management advocated the construction of tasks in a way that minimizes their complexity and emphasized a machine-like approach to managing workers. The administrative management perspective highlighted the view that fundamental principles should guide the role of the manager, regardless of the context. Finally, the belief in the benefits of bureaucracy reflects the view that organizations must be run according to a strict set of rules with a clear hierarchy of authority to ensure accountability and adherence to the rules.

Diff: 3 Type: ES Page Reference: 96-97 Skill: both Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Objective: LO:2 3) In what ways do the underlying philosophies that comprise the behavioural school of thought consider organizations to be social systems?

Answer: The first philosophy to acknowledge this notion was the Human relations movement.

Mayo showed in this case that organizations are social systems - how people function at work makes a difference with regard to how productive they are. Here people are treated with dignity and respect - they are given responsibility and they respond favorably.

Similarly, Mary Parker Follet & Chester Barnard talked about organizations as social systems, including the importance of cooperation & communication, management as a dynamic process. Finally, the Modern Behavioural Science approaches also are based on the notion that organizations are social systems. For example, McGregor asserted that management that views workers in terms of theory Y, view workers as wanting to contribute to the organizations and are not inherently lazy. This colors the dynamics between management and workers. Maslow identified needs that can be satisfied in the workplace. All these require an understanding that organizations are social systems that require workers to be managed in ways that serve this social system in a positive way.

Diff: 3 Type: ES Page Reference: 98-101 Skill: both Objective: LO:3 4) Are workers who trust their company more likely to remain loyal to the company?

Answer: Trust refers to one's perception of the integrity and openness of others, one's comfort with the expected actions of others, one's faith in how others will react, and one's willingness to become vulnerable to the actions of others. Employees want to feel that the organization has their best interests in mind. Although it is now rare to find a worker who remains with one company for his or her entire career, companies are rediscovering the value of loyalty. Organizations cannot build loyalty in the absence of trust. Most important, trust can provide an organization with a competitive advantage that cannot be easily duplicated. Trust is an integral aspect of the psychological contract that exists between the employee and the employer. If a worker feels that their employer is not trustworthy, then that employee will not remain loyal for long.

Diff: 2 Type: ES Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Page Reference: 106-110 Skill: both Objective: LO: 4

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) Managing includes the process of planning, organization, leading and controlling organizational resources in the effort to achieve organizational goals. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 82 Skill: recall Objective: LO1 2) Resource Allocator roles are typically ceremonial or symbolic in nature. For example, in the role of a figurehead, the supervisor might hand out "employee of the month" awards at a company banquet. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 83 Skill: recall Objective: LO1 3) The Industrial Revolution, as the name implies, was a major transformation in work processes that began in the 20th century with the replacement of hand production by machine and factory production. a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 89 Skill: recall Objective: LO2 4) Taylor stated the fundamental objective of management: "Securing the maximum effort for the employer coupled with the maximum prosperity for each employee."

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 89 Skill: recall Objective: LO2 5) Scientific management, or Taylorism, then, was based on careful observation and measurement in order to determine the most efficient methods for performing a task. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 89-90 Skill: recall Objective: LO2 6) In specializing or compartmentalizing the job one needs to combine components and make the job more enriched. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 90 Skill: both Objective: LO2 7) Fayol also advocated the notion of unity of command: that is, each employee should report to only one boss in order to avoid confusion and conflicting instructions. In addition, this authority should be concentrated at the upper levels of the organization. a. True b. False

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Answer: a Diff: 3 Type: TF Page Reference: 92 Skill: recall Objective: LO2 8) According to Max Weber’s philosophy of bureaucratic management, the impersonality of a bureaucracy was also intended to encourage arbitrary and biased, decisions of individuals that might be based on favouritism or personal agendas. a. True b. False Answer: b Diff: 3 Type: TF Page Reference: 95 Skill: recall Objective: LO2 9) We can consider four broad perspectives that constitute the behavioural approach: the Work of Elton Mayo and the human relations perspective; the assertions of Mary Parker Follett and Chester Barnard; and, finally, another sub-school that has been referred to as modem behavioural science. a. True b. False Answer: a Diff: 3 Type: TF Page Reference: 100-102 Skill: recall Objective: LO3 10) According to Max Weber view, management must clearly establish the organizational objectives and ensure that all employees are motivated to help attain these objectives. a. True b. False Answer: b Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Diff: 3 Type: TF Page Reference: 92-95 Skill: recall Objective: LO2

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) Why would a business like Walmart be better structured as a mechanistic rather than an organic organization? Make any assumptions you need to with regard to the nature of this organization.

Answer: This requires some assumptions to be made. Given your perception of a company like Walmart why would you view it as more closely reflecting a mechanistic rather than an organic organization?

Mechanistic – recall: 1. division of labour – how narrow or how wide are jobs - functional specialization, narrow division of labour 2. centralized decision-making 3. high formalization 4. narrow span of control/hierarchical Consider: Strategy, size, technology, environment – i.e., consider the contingencies of structure and explain how each could impact Walmart’s structure.

Size – Walmart is a huge organization. The bigger an organization is, the more hierarchy and rules needed to maintain control over so many employees. Stability and reliability of service also require many rules and levels of management as well as centralized decision making. This is more mechanistic.

Strategy – Walmart is not focused on innovation but in providing cheap goods to customers in an efficient manner. Its focus on efficiency and reliability suggest that it could be served by a mechanistic structure. Similarly, it requires the administrative structure (hierarchy) and rules/regulations to ensure its goal of efficiency is carried out.

Technology – is this company significantly affected by technology? If you assume that the technology that drives Walmart is relatively routine and unchanging then it is fine for Walmart to have the mechanistic structure which doesn’t need to adapt to technological change very fast. You serve customers, you order inventory in using the same technology over time with little change.

Environment – would you assume the environment is relatively stable or dynamicchanging? If you assume that this industry is not subject to much change – it is the retail industry, then creating a mechanistic organization that runs on the ability to repeat what it does over time – i.e. reliability and predictability of operations – is fine.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

- if you think the environment is becoming volatile with more competition (like Target), then you might argue that Walmart needs to become more organic in order to be more adaptive to these competitive changes and changes customer preferences.

2) Why did companies like Nike and Dell decide not to own their manufacturing facilities but rather outsource this to independent manufacturers? How does this differ from the traditional approach?

Answer: These and other companies have found that they can become quite profitable without actually having to own their entire operation. The traditional bureaucracy is structured so that production occurs in company-owned plants, research and development are conducted by in-house experts, and sales and marketing are performed by the company’s own sales and marketing department. Companies that want to be more “virtual”, don’t believe that they need to “own” everything. Dell Computer owns no plants and simply assembles computers from parts whose manufacture has been outsourced. Nike achieved success by focusing on what they do best—designing and marketing their products. They outsource almost all their footwear manufacturing to outside suppliers. The virtual organization doesn’t just outsource the peripheral function of the company; it outsources whatever costs less to outsource than to do in-house.

There are a number of gains potentially achieved by going virtual: 1. The cost savings are significant: A virtual organization does not need to own its own plants, nor employ its own research and development teams, nor hire its own sales staff. This means the virtual organization also doesn’t need to hire the extra staff to support all these functions—such as personnel specialists, company lawyers, accountants, and so on. The virtual organization can outsource most of these functions and focus on what it does best. So there is little if any administrative overhead, so to speak, because work activities are largely contracted.

2. The virtual organization is a great alternative for entrepreneurs: Individuals seeking to start up a new business or venture may face huge startup costs. The network of arrangements within a virtual organization can exploit the expertise of different companies while not requiring the initiator of the business to buy everything and start a business from scratch.

3. For a mature company, going virtual can be a fast way to develop and market new products: Relying on the expertise of partners means that no huge investment is required to enter a new product or service territory.

4. Virtual organizations are fast and flexible: For example, the flexible arrangements of those parties involved can be of a temporary nature to produce a good or service; resources can be quickly arranged and rearranged to meet Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

changing demands and best serve customers; management isn’t getting bogged down in peripheral functions, but is simply focusing on central functions.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) Google started out as a very modest business launched by two Stanford University graduates, Larry Page and Sergey Brin, who had the simple idea of the Google search engine. Google’s success was built entirely on innovation. Brand new products, new services, and news ways of conducting business were the means through which Google rose to fame. All this required a strong company culture of innovation. Its most fundamental challenge has always been to generate an environment where new ideas can flourish. Therefore a critical requirement for its organizational structure is to ensure that the network of relationships, the rules governing work, and the administrative framework all support and encourage innovation. Undoubtedly, Google’s organizational design has played a central role in the company’s culture of innovation.

Brin and Page implemented a very flat level of hierarchy whereby top level management was only one level up from lower level employees. Why? Because in traditional, hierarchical structures, authority systems and reporting levels would slow down the decision-making process and any unnecessary delays in bringing new ideas to the market could mean losing out to competitors. So, instead of hierarchal levels, Google was divided up into small teams that worked on individual projects. Team members rotate to take on the role of team leaders with every new project. This is in contrast to other organizations that often establish one team leader who is always in that role.

The fact is, the fewer the levels of hierarchy, the greater becomes the opportunity for employees to interact freely, collaborate, and make their own decisions. This also has the effect of encouraging leaders or experts to arise naturally rather than being held to a specific job title. The other benefit of creating this relatively flat structure is the ability of employees to readily communicate with the operational leadership, which affords the company a tremendous amount of flexibility.

At Google, the role of the manager or team is to help build consensus among team members rather than to “control” or “manage” them in the traditional sense. In this kind of structure, the role of a manager or leader is analogous to that of an editor who relies on a team of journalists to generate decisions based on the team’s input. These teams range from five to ten people depending on the project. The relative small team size also gives the teams more flexibility and speed for decision making. In addition to dividing into these small teams, every six months, a mutual peer evaluation questionnaire is completed by all team members and this leads to a public ranking where natural leaders are identified.

Of course, while teams are central to Google’s successful innovation, all this is not to say that there are no other elements of structure or departments at Google. Given the fact that this company has grown so large, it needs a certain degree of departmentation.

Google is overseen by a board of directors that directs the company via an executive management group. This group oversees the Engineering, Products, Legal, Finance, and Sales departments. In turn, these departments are each divided into smaller units. For example, the Sales department has branches focused on the Americas, Asia Pacific, Europe, the Middle East, and Africa. However, beyond this traditional-looking structure, Google’s organization minimizes power differences and formal authority.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

The organizational structure is designed to offer employees extensive freedom in making decisions and trying new ideas. This requires a structure that is not managed by “command and control.” The aim is to de-emphasize job titles and power and instead focus on teamwork. Employees need to know that they can take on much decision authority and power over their work. This, too, means that job standardization is a foreign notion to this company. After all, you can’t standardize the process of innovation. The decentralized manner of decision making is also reflected across the organization in such functions as hiring decisions, where at least four Google collaborators co-decide on a new hire. In addition to reinforcing the empowered culture, such participative decisionmaking helps to ensure that new recruits will “fit” within the organizational culture.

Employees are given the autonomy to make changes to a current project or to start their own. Google employees follow something called the 70/20/10 rule. This requires that each employee devotes 70% of every work day to whatever projects are assigned by management, 20% to new projects or ideas related to their core projects, and 10% to any new ideas they want to pursue. Many believe that this rule has driven the development of Google’s innovative products and services. This rule is not restricted to one set of employees. A broad range of programmers, salespeople, and even executives are provided with enough “down time” to be creative. While critics might argue that allowing employees the opportunity to work on whatever they want is a waste of time, that is precisely one of the reasons for Google’s success. It encourages employees to create innovative products by surrounding them with an open environment. Given the fast-paced environment that Google must compete in, its organizational structure is designed to meet market demands efficiently.

How did the contingency of strategy influence how Google designed its organizational structure as organic?

Answer: STRATEGY – IE The main strategy for Google involves pursuing innovation. Google set out to create different kinds of innovative products and services. From the case: “Google’s success was built entirely on innovation. Brand new products, new services, and news ways of conducting business were the means through which Google rose to fame. All this required a strong company culture of innovation.”

An organic structure would help them achieve that by the four elements of structure as follows : An organic structure would help them achieve that by the four elements of structure as follows : 1) Wide Division of labour/ low functional work specialization – ie social specialization encourages workers to be responsible for many areas and not restrict their thinking to a small area of work – this encourages innovation. From case: “The organizational structure is designed to offer employees extensive freedom in making decisions and trying new ideas. This requires a structure that is not managed by “command and control.”

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

2) Decentralization – ie workers are developed as leaders – decision makers – this allows them to flex their creativity and generate decisions – not having to rely on upper management to decide on the projects. From case: “The decentralized manner of decision making is also reflected across the organization in such functions as hiring decisions, where at least four Google collaborators co-decide on a new hire.”

3) Wide Span of control – consistent with innovation is freeing workers up to manage themselves without administrative control above them. From case: “Brin and Page implemented a very flat level of hierarchy whereby top level management was only one level up from lower level employees…So, instead of hierarchal levels, Google was divided up into small teams that worked on individual projects…The fact is, the fewer the levels of hierarchy, the greater becomes the opportunity for employees to interact freely, collaborate, and make their own decisions”.

4) Low levels of formalization: mean that workers learn to conduct their job in a creative, free way, unhindered by lots of rules and restrictions. From case: “Employees are given the autonomy to make changes to a current project or to start their own. Google employees follow something called the 70/20/10 rule. This requires that each employee devotes 70% of every work day to whatever projects are assigned by management, 20% to new projects or ideas related to their core projects, and 10% to any new ideas they want to pursue. While critics might argue that allowing employees the opportunity to work on whatever they want is a waste of time, that is precisely one of the reasons for Google’s success. It encourages employees to create innovative products by surrounding them with an open environment”.

2) Google started out as a very modest business launched by two Stanford University graduates, Larry Page and Sergey Brin, who had the simple idea of the Google search engine. Google’s success was built entirely on innovation. Brand new products, new services, and news ways of conducting business were the means through which Google rose to fame. All this required a strong company culture of innovation. Its most fundamental challenge has always been to generate an environment where new ideas can flourish. Therefore a critical requirement for its organizational structure is to ensure that the network of relationships, the rules governing work, and the administrative framework all support and encourage innovation. Undoubtedly, Google’s organizational design has played a central role in the company’s culture of innovation.

Brin and Page implemented a very flat level of hierarchy whereby top level management was only one level up from lower level employees. Why? Because in traditional, hierarchical structures, authority systems and reporting levels would slow down the decision-making process and any unnecessary delays in bringing new ideas to the market could mean losing out to competitors. So, instead of hierarchal levels, Google was divided up into small teams that worked on individual projects. Team members rotate to take on the role of team leaders with every new project. This is in contrast to other organizations that often establish one team leader who is always in that role.

The fact is, the fewer the levels of hierarchy, the greater becomes the opportunity for employees to interact freely, collaborate, and make their own decisions. This also has the effect of encouraging leaders or experts to arise naturally rather than being held to a Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

specific job title. The other benefit of creating this relatively flat structure is the ability of employees to readily communicate with the operational leadership, which affords the company a tremendous amount of flexibility.

At Google, the role of the manager or team is to help build consensus among team members rather than to “control” or “manage” them in the traditional sense. In this kind of structure, the role of a manager or leader is analogous to that of an editor who relies on a team of journalists to generate decisions based on the team’s input. These teams range from five to ten people depending on the project. The relative small team size also gives the teams more flexibility and speed for decision making. In addition to dividing into these small teams, every six months, a mutual peer evaluation questionnaire is completed by all team members and this leads to a public ranking where natural leaders are identified.

Of course, while teams are central to Google’s successful innovation, all this is not to say that there are no other elements of structure or departments at Google. Given the fact that this company has grown so large, it needs a certain degree of departmentation.

Google is overseen by a board of directors that directs the company via an executive management group. This group oversees the Engineering, Products, Legal, Finance, and Sales departments. In turn, these departments are each divided into smaller units. For example, the Sales department has branches focused on the Americas, Asia Pacific, Europe, the Middle East, and Africa. However, beyond this traditional-looking structure, Google’s organization minimizes power differences and formal authority.

The organizational structure is designed to offer employees extensive freedom in making decisions and trying new ideas. This requires a structure that is not managed by “command and control.” The aim is to de-emphasize job titles and power and instead focus on teamwork. Employees need to know that they can take on much decision authority and power over their work. This, too, means that job standardization is a foreign notion to this company. After all, you can’t standardize the process of innovation. The decentralized manner of decision making is also reflected across the organization in such functions as hiring decisions, where at least four Google collaborators co-decide on a new hire. In addition to reinforcing the empowered culture, such participative decisionmaking helps to ensure that new recruits will “fit” within the organizational culture.

Employees are given the autonomy to make changes to a current project or to start their own. Google employees follow something called the 70/20/10 rule. This requires that each employee devotes 70% of every work day to whatever projects are assigned by management, 20% to new projects or ideas related to their core projects, and 10% to any new ideas they want to pursue. Many believe that this rule has driven the development of Google’s innovative products and services. This rule is not restricted to one set of employees. A broad range of programmers, salespeople, and even executives are provided with enough “down time” to be creative. While critics might argue that allowing employees the opportunity to work on whatever they want is a waste of time, that is precisely one of the reasons for Google’s success. It encourages employees to create innovative products by surrounding them with an open environment. Given the fast-paced Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

environment that Google must compete in, its organizational structure is designed to meet market demands efficiently.

How might the contingency of strategy influence management philosophy within Google’s organization? Explain.

Answer: 1. Organizational size: Large organizations with hundreds of employees cannot be managed in the same manner as small organizations with few employees. The need for control and the challenge to achieve it in massive organizations may tend to encourage an approach that relies on elements of the classical school, such as the need for rules and regulations and the importance of an administrative hierarchy to ensure control. On the other hand, small, entrepreneurial organizations might function more effectively with a minimal number of rules and regulations. Google intentionally breaks up the organization into small teams and therefore can be managed like a smaller organization, using the behavioral as opposed to the more rigid classical approach.

2. Routineness of task technology: Google deals with non-routine technology. It is the antithesis of the “assembly-line” organization. Jobs cannot be easily routinized and the technology changes rapidly. Jobs that must continually adapt to changing technology require employees who are equally adaptive. High-tech organizations like Google that employ "knowledge workers" are keenly aware that it is difficult to standardize the jobs of these workers, given the high rate of change within the present technology environment.

3. Environmental uncertainty: An organization like Google that exists within a volatile environment must be prepared for continuous change. Change is the antithesis of the classical approaches, which emphasize stability and order. Consequently, since Google functions in a rapidly changing environment it is less likely to find extensive application of the classical school useful in managing their workforce.

4. Individual differences: Google’s operating core is composed of knowledge workers – highly educated employees with a desire for stimulating and challenging work. This too must be considered and it would advocate the use of the behavioral approach which considers issues of motivation and job enrichment as opposed to the classical approaches.

The employees are given the autonomy to make changes to a current project or to start their own. The 70/20/10 rule simply asks employees to devote 70% of every work day to whatever projects are assigned by management, 20% to new projects or ideas related to their core projects, and 10% to any new ideas they want to pursue. This behavioral approach, encourages employees to create innovative products by surrounding them with an open environment.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

1) Which of the following is not a universal, defining characteristic of an organization: a. Organizations are social entities b. Organizations interact with the environment c. Organizations are created to achieve goals d. Organizations make a profit Answer: d Diff: 2 Type: MC Page Reference: 123-124 Skill: recall Objective: LO2 2) The classical school of management thought is based implicitly on a conception of organizations that employs a _________ metaphor. a. Family b. Machine c. Organism d. Team Answer: b Diff: 3 Type: MC Page Reference: 125 Skill: both Objective: LO2 3) The open-systems approach of organizations is based on the ____________ metaphor. a. Organism b. Theatre c. Team d. Machine Answer: a Diff: 2 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Page Reference: 125-126 Skill: both Objective: LO2 4) All of the following are defining elements of organizational structure except: a. Work specialization b. Centralization c. Commoditization d. Span of control Answer: c Diff: 2 Type: MC Page Reference: 127 Skill: recall Objective: LO3 5) The degree to which organizational tasks are subdivided into separate jobs is referred to as: a. Specialization b. Horizontal differentiation c. Span of control d. Vertical differentiation Answer: a Diff: 3 Type: MC Page Reference: 127-128 Skill: recall Objective: LO3 6) There are fundamentally two different kinds of specialization referred to as: a. Horizontal and vertical b. Centralized and decentralized c. Functional and Social d. Narrow and wide Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Answer: c Diff: 3 Type: MC Page Reference: 127-128 Skill: recall Objective: LO3 7) The division of jobs into simple, repetitive tasks a. social specialization b. Functional specialization c. vertical specialization d. horizontal specialization Answer: b Diff: 2 Type: MC Page Reference: 127-128 Skill: recall Objective: LO3 8) A potential benefit to employees of reengineering is the possibility of: a. Re-assignment b. promotion c. job enrichment d. higher pay Answer: c Diff: 3 Type: MC Page Reference: 138 Skill: both Objective: LO3 9) Decentralization is most likely to generate: a. worker empowerment Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

b. functional specialization c. social specialization d. narrow span of control Answer: a Diff: 4 Type: MC Page Reference: 128 Skill: both Objective: LO3 10) The number of managers and levels in the organizational hierarchy is referred to as: a. horizontal specialization b. vertical specialization c. vertical differentiation d. horizontal differentiation Answer: b Diff: 3 Type: MC Page Reference: 129 Skill: recall Objective: LO3 11) Imagine two organizations with the same total number of seven members, but with different spans of control. In Organization X, there is the president, 2 managers, and 4 subordinates. In Organization Y, 6 employees are all members of one team who report to one boss, the president.)

We can describe Organization X as having:a. a relatively wider span of control compared to Organization Y b. a relatively narrower span of control compared to Organization Y c. a span of control of 2 versus Organization Y which has a span of control of 1 d. A span of control equal to that of Organization Y. Answer: b Diff: 4 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Page Reference: 129-130 Skill: both Objective: LO3 12) In general terms, a narrow span of control tends to reflect a _______ organization a. tall b. flat c. wide d. narrow Answer: a Diff: 3 Type: MC Page Reference: 129-130 Skill: recall Objective: LO3 13) A central benefit of formalization is: a. It ensures workers have greater autonomy b. It creates more motivation c. It ensures performance is consistent and reliable d. It improves decision making among employees Answer: c Diff: 4 Type: MC Page Reference: 130 Skill: both Objective: LO3 14) An organic structure is most likely to have all of the following characteristics except: a. Narrow Division of labour b. Decentralized decision making c. Wide Span of control d. Low Formalization Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

Answer: a Diff: 4 Type: MC Page Reference: 131 Skill: recall Objective: LO3 15) An organizational strategy focused on cost and efficiency is most likely to have the following structural characteristic: a. Wide Division of labour b. Decentralized decision making c. Wide Span of control d. High Formalization Answer: d Diff: 4 Type: MC Page Reference: 131 Skill: both Objective: LO3 16) Routine technologies are most compatible with: a. Flat structures b. Mechanistic structures c. Tall structures d. Organic structures Answer: b Diff: 4 Type: MC Page Reference: 132 Skill: both Objective: LO3 17) Re-engineering typically involves all of the following except:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

a. The fundamental rethinking of business processes b. the compartmentalization of work into its simplest functions c. the elimination of any company practice that is not adding value d. the focus on the company’s “core competencies” Answer: b Diff: 3 Type: MC Page Reference: 136-137 Skill: recall Objective: LO4 18) A credit agency decided to scrap the traditional method of processing credit applications which was organized around specialized, compartmentalized tasks. They redesigned the work around the process itself of completing a credit application. This is an example of a. Flatting the organizational hierarchy b. Widening the span of control c. Re-engineering d. Departmentalization Answer: c Diff: 3 Type: MC Page Reference: 136-138 Skill: both Objective: LO4 19) An organization that maximizes its fluidity, flatness, and integratedness with the environment is referred to as: a. a virtual organization b. an organic organization c. a mechanistic organization d. a flat organization Answer: a Diff: 3 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

Type: MC Page Reference: 140 Skill: recall Objective: LO5 20) The activity of outsourcing is useful for all of the following except: a. small businesses or start-ups that do not have time to devote to administrative tasks b. cost savings c. Corporations engaged in downsizing. d. Retaining corporate memory Answer: d Diff: 3 Type: MC Page Reference: 140-141 Skill: both Objective: LO5 21) Virtual organizations have al of the following potential advantages except: a. The cost savings are significant b. A great alternative for entrepreneurs c. For a mature company, it can be a fast way to develop and market new products d. Easier to coordinate than a traditional organization Answer: d Diff: 2 Type: MC Page Reference: 144 Skill: recall Objective: LO5 22) All of the following are potential risks of “going virtual” except: a. Giving up the notion of control b. More costly to manage c. Potential to sacrifice competitive learning opportunities d. Lack of employee loyalty Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

Answer: b Diff: 2 Type: MC Page Reference: 144-145 Skill: both Objective: LO5 23) The phenomenon whereby there is a marked decrease in motivation, engagement, and productivity of employees that remain at the company as a result of downsizing and workforce reductions is referred to as: a. demoralization b. lay-off syndrome c. survivor syndrome d. virtual syndrome Answer: c Diff: 2 Type: MC Page Reference: 150 Skill: recall Objective: LO6 24) All of the following have been blamed for the failure of many downsizings to create positive results, except: a. Lack of strategic planning b. Lack of cost control c. Lack of concern for, and involvement with, employees d. Careless removal of corporate memory Answer: b Diff: 2 Type: MC Page Reference: 151 Skill: both Objective: LO6

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

25) A perspective of organizations called ______________ theory argues that organizations are driven to incorporate practices and procedures defined by current concepts of work and those accepted in society. a. downsizing b. rational c. institutional d. non-rational Answer: c Diff: 2 Type: MC Page Reference: 152 Skill: both Objective: LO6 26) _____________ forces refer to practices that come to define what are perceived as legitimate management structures and activities and that place pressure on organizations to conform. a. cloning b. constraining c. learning d. institutional Answer: b Diff: 2 Type: MC Page Reference: 153-154 Skill: both Objective: LO6 27) Studies have found that layoff announcements made by large corporations that were undergoing restructuring and consolidation were followed by increases in share prices.

This is an example of ___________ forces. a. cloning b. constraining c. learning d. institutional Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

Answer: b Diff: 2 Type: MC Page Reference: 153-154 Skill: both Objective: LO6 28) It has been found that downsizing among industry members is more likely to occur when industry leaders downsize. This is an example of _______________ forces. a. cloning b. constraining c. learning d. institutional Answer: a Diff: 2 Type: MC Page Reference: 154 Skill: both Objective: LO6 29) An emphasis on certain approaches toward business strategy that are spread through business education can come to play a role in rationalizing downsizing as a legitimate activity. This is an example of ____________ forces. a. cloning b. constraining c. learning d. institutional Answer: c Diff: 2 Type: MC Page Reference: 154 Skill: both Objective: LO6

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

30) All of the following will influence organizational structure except: a. size b. technology c. environmental uncertainty d. government regulation Answer: d Diff: 3 Type: MC Page Reference: 131-136 Skill: both Objective: LO3

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

1) How has networking become a major trend regarding the changing nature of organizational design?

Answer: We have increasingly been observing organizations limiting themselves to fewer activities in which they have expertise and assigning specialists to handle all other functions. This is also associated with the notion of integrated or networked organizations. Through networking, organizations can engage in cooperative relationships with suppliers, distributors, or competitors. The aim is to improve their efficiency and flexibility in meeting new consumer needs. For example, a close relationship with a distributor might offer the supplier company more information about the changing needs of customers.

Diff: 2 Type: ES Page Reference: 121 Skill: both Objective: LO1 2) How is the machine metaphor relevant to the management philosophy referred to as scientific management?

Answer: The classical school of management thought, including scientific management, administrative management, and bureaucratic management, can be viewed as arising from a specific conceptualization or metaphor of what organizations represent. Arguably, the classical school of management thought is based implicitly on a conception of organizations that employs a machine metaphor. Machines are perceived as entities that function in a prescribed, rational manner. They are devised to perform work that leads toward specific goals, structure, and technology. Consequently, scholars have explained the purpose of organizations as they would a machine—to function in an orderly, prescribed, and controlled manner. The aim, then, is to design organizations as if they were machines - to function in an orderly, prescribed, rational and controlled manner.

Based on that, the classical school of management viewed organizations as entities devised to perform work that led toward specific goals, structure, and technology.

Diff: 4 Type: ES Page Reference: 125 Skill: both Objective: LO2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

3) In what way is the notion of formalization an important element of organizational structure and how has it been changing in many organizations?

Answer: The level of formalization in an organization refers to the degree to which rules, regulations, procedures, and the like govern how work is performed. In other words, formalization reflects the degree to which jobs within the organization are standardized.

A high level of formalization means highly standardized work—that is, clear rules regarding how the work should be performed. Highly standardized work, or work that is very much rule-directed, suggests that there is little individual discretion in how that work can be performed. Workers know what is expected of them and how, exactly, they should be performing their jobs. In addition, the greater the degree of formalization, the less reliance there is on individual discretion. Essentially, what we have witnessed in many organizations is a shift from high formalization and standardization of work practices to less formality. Given the need to adapt to the rapidly changing external environment, organizations have found they must be willing to scrap the old way of doing things in favour of methods that better accommodate the changing demands of their environment.

Diff: 3 Type: ES Page Reference: 130 Skill: both Objective: LO3 4) An organization found that the task of processing a credit application was extremely slow and inefficient, taking anywhere from six days to two weeks to complete. After a credit request was received by phone it was recorded on a piece of paper. This paper was then passed along to credit checkers, pricers (who determined what interest rate to charge), and to many other individuals who performed single, compartmentalized tasks.

Credit applications typically were bounced around to different areas before they were properly completed. How does could this process be re-engineered?

Answer: This credit application system needs to move away from departments and be organized around process—in other words, designing the organization in a way that considers the actual jobs that need to be performed. This is in contrast to a blanket approach to organizational design that would simply advocate the creation of different departments that jobs will be organized in. Often the bureaucratic structure becomes preoccupied with administrative levels of hierarchy, rules, and regulations. What reengineering advocates is to move away from a preoccupation with organizing work based on tasks, jobs, departments, and administrative levels of hierarchy, and instead to focus on processes— Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

the activities required to transform inputs into outputs. Consequently, “scrap” the traditional method organized around specialized, compartmentalized tasks and redesign the work around the process itself of completing a credit application. This did not require numerous specialists, but simply a few generalists. That is, one person could process an entire application without passing it on to others. This will decrease the application time, increase in the number of applications processed, and require fewer employees to do the job.

Diff: 4 Type: ES Page Reference: 137-139 Skill: both Objective: LO4 5) What is a keiretsu and how is it an example of a virtual organization?

Answer: A virtual organization is an organization that attempts to maximize its fluidity, flatness, and “integratedness” with the environment. Outsourcing, networking and shedding noncore functions are three ways organizations can become more ‘virtual’. Typically, a keiretsu involves a large bank or financial institution, a large industrial organization, and a number of smaller firms, where the integrated network of relationships allows the large industrial organization to produce the product with financial assistance from the bank.

The role of the smaller firms may be to supply parts to the manufacturer, conduct research, or perhaps distribute the final product. What we observe in virtual organizations are only those activities that are central—they are kept in-house, so to speak, and all other functions are outsourced to separate companies or individuals who are typically coordinated by a small head office. Or as in this case, each company is simply involved in some kind of network where each brings its own expertise to the collection of companies.

Diff: 3 Type: ES Page Reference: 143 Skill: both Objective: LO5 6) What are the main reasons that downsizings may fail?

Answer:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

There are at least three fundamental issues that have been repeatedly linked with the failure of downsizing. These issues reflect shortcomings in the planning for and execution of organizational downsizings: 1) Lack of strategic planning: The poor performance of downsizing has been associated with the tendency of downsizing programs to be hastily formulated and not linked with the organization’s strategic plans.

2) Lack of concern for, and involvement with, employees: Many downsizings do not involve those who are affected in the planning stages. That is, those in charge of the downsizing do not expect to get objective feedback or advice from those who will potentially be terminated, and so many employees are cut off from the actual planning of the organizational downsizing.. 3) Careless removal of corporate memory: Downsizings can eliminate individuals who are a central part of the organization’s knowledge base— the notion of corporate memory. While intangible, the cost of corporate memory loss to an organization can be significant. This can go beyond simply losing the expertise of a valued, experienced employee.

Diff: 2 Type: ES Page Reference: 151 Skill: recall Objective: LO6

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) If there is any consistent pattern in the sweeping changes to corporate architecture, it has been the delayering of organizational hierarchies. a. True b. False Answer: a Diff: 3 Type: TF Page Reference: 120 Skill: recall Objective: LO1 2) Reengineering is essentially the same notion as downsizing. a. True b. False Answer: b Diff: 3 Type: TF Page Reference: 136-138 Skill: both Objective: LO4 3) The open-systems approach to understanding organizations is based on the metaphor of the organization as a living organism. a. True b. False Answer: a Diff: 3 Type: TF Page Reference: 126 Skill: both Objective: LO2 4) Frederick Taylor’s philosophy of scientific management advocated a high degree of job specialization a. True b. False Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Answer: a Diff: 2 Type: TF Page Reference: 128 Skill: recall Objective: LO2 5) Social specialization refers to the division of jobs into simple, repetitive tasks. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 128 Skill: recall Objective: LO3 6) A narrow span of control tends to reflect a tall organization, while a wide span of control tends to reflect a flat organization. a. True b. False Answer: a Diff: 3 Type: TF Page Reference: 129 Skill: both Objective: LO3 7) Routine technologies are better suited to innovative, organic structures that do not allow formality and rules to govern activity. a. True b. False Answer: b Diff: 3 Type: TF Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Page Reference: 132 Skill: recall Objective: LO3 8) Organizations can become more “virtual” by shedding some of their noncore functions and outsourcing these to affiliated organizations a. True b. False Answer: a Diff: 3 Type: TF Page Reference: 140-145 Skill: recall Objective: LO5 9) There is research evidence indicating that organizations that engaged in an employee downsizing (that is, terminated at least 5% of the workforce combined with little change in plant and equipment costs) did not outperform other organizations in their industry a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 148-149 Skill: recall Objective: LO6 10) Learning forces are pressure for organizations to imitate the behaviours of industry leaders. a. True b. False Answer: b Diff: 3 Type: TF Page Reference: 154 Skill: recall Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Objective: LO6

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) If you were to start up a smartphone company, what five (5) entry barriers would you likely have?

Answer: Economies of Scale - Economies of scale refer to spreading the costs of production over the number of units produced. The cost of a product per unit declines as the number of units per period increases. From the new entrants’ point of view, the entry barrier is increased (and the threat of new entrants is reduced) when incumbents enjoy the benefits of economies of scale. Economies of scale can provide the incumbents with cost advantages to compete with new entrants on the price, if necessary. Global companies, for example, that sell their goods in various countries often achieve economies of scale because of the high volume of products they produce. Clearly, smartphone companies already have established manufacturing plants or have outsourced them to produce a great number of phones. They have learned how to be more efficient and can produce great volumes. General manufacturing overhead costs such as lighting, heating, or property taxes in a manufacturing facility can be spread over the costs of the units. The more units produced, the lower the overhead cost per unit.

Capital Requirements – The smartphone industry has become an oligopoly in Canada.

Only a few companies dominate the industry. In order to enter this industry, it may require millions of dollars to establish the technology, produce the product, distribute it to willing sellers, etc. For some industries, such as the airline and mining industries, the required capital to establish a new firm is significant. Accordingly, the level of required capital for entering certain industries creates barriers for potential new entrants.

Thus, the threat of new entrants is reduced as the level of required capital increases.

Hence, the capital costs to enter the smartphone industry would be huge.

Switching Costs - Switching costs refer to the costs (monetary or psychological) associated with changing from one supplier to another from the buyer’s perspective.

When the switching costs are minimal, customers can easily switch buying products from one firm to another. This creates an opportunity for potential new entrants because they can easily acquire customers from incumbents. Thus, the threat of new entrants increases (or the barrier to new entrants decreases) as the switching costs decrease.

The question is would customers who already have a iPhone, Blackberry, Nokia, or another type of phone switch to your new phone if it came out on the market. Would your company’s product be significantly cheaper or innovative compared to the competition’s product that a customer would be willing to switch to your phone, despite contract cancellation fees, etc?

Access to Distribution Channels - Accessibility to distribution channels can be an entry barrier for potential new entrants. In the situation where incumbents control most of the distribution channels, potential entrants would find it difficult to distribute their products or services, which in turn defers new entry. Accordingly, the threat of new entrants

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

decreases (or the barrier to new entrants increases) as accessibility to distribution channels decreases.

Cost Disadvantages Independent of Scale - The prior four sources are primarily associated with economic factors. However, sometimes advantages that some incumbents hold over potential entrants are independent of economic factors. Such advantages include governmental policies, legal protection (patents and trademarks), and proprietary products. Certainly, other smartphone companies would have patents over certain technologies they would own. Therefore, you would not be able to sell your smartphone with those technologies unless of course you were granted permission via a license, etc.

These advantages create barriers for potential new entrants, which defer their entries.

2) Making any assumptions required, discuss the coffee industry with regard to Porter’s Five Forces Model.

Answer: High Threat

Low Threat

1.Threat of new entrants (new start ups or diversification of existing firms) a) Economies of Scale (spread production costs over number of units produced)

•

No manufacturing plant (i.e. production costs), but corporate head office costs can be spread over each new coffee shop set up

b) Capital requirements (buildings, machinery, manufacturing plants, etc)

•

Low capital requirements: No massive production of a product at a manufacturing plant; just selling coffee at coffee shops; Coffee shops likely “rented” (no building ownership) since

•

•

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

many found in malls etc… c) Switching costs (monetary or psychological) from one supplier to another (to switch to another product or service)

• •

•

d) Access of distribution channels

•

•

e) Cost disadvantages independent of scale Example: govt policy, legal protection (patent, trademark) and proprietary products)

•

depends on the customer on his/her coffee likes no fees (eg. contract fees) to break relationship between competitors Eg. Starbucks is higher quality, higher cost, more atmosphere; Tim Hortons is low cost & convenient Are any distribution channels controlled by a coffee company?

Eg. distribution of coffee beans etc..

There does not appear to be control over any distribution channels No patents or trademarks on any products; coffee made by coffee beans, but no special recipe to protect; no technology or process to patent

2.Bargaining Power of Suppliers (suppliers of raw materials, technologies, or skills that can exert power over prices or threatening to reduce quality) Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

•

•

Who supplies the coffee beans to make the coffee?

Countries such as Brazil, etc There does not 3

•

3.Bargaining Power of Buyers

= High

a. Switching costs

•

b. Undifferentiated Products

• •

c. Importance of Incumbents’ Products to Buyers

•

d. The number of Incumbents Relative to the Number of Buyers

•

•

The customer or buyer can easily switch from drinking Starbucks, to Second Cup to Tim Hortons – there are lots of coffee shops to choose from Some products are not differentiated: For example, Tim Horton’s coffee is cheaper, more convenient

depends on customer; how important is this product overall to the buyer?

• •

• •

appear to be one supplier; coffee can be bought from all over the world The suppliers do not appear to have a lot of power

Some products are differentiated: Starbucks has higher quality, higher prices, more comfortable atmosphere; depends on customer; how important is this product overall to the buyer?

there are lots of coffee shops for buyers/customers to choose from

For example, Starbucks, Timothy’s, Second Cup, Tim Horton’s, Coffee Time, McDonalds, etc..

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

4. Threat of Substitutes

= High There are many substitute drinks: Tea, milk, juice, pop/colas, water, sports drinks, caffeinated power drinks

5. Rivalry among existing firms

=High

•

Lack of differentiation or switching costs

•

Numerous or equally balanced competitors

• •

•

•

Some differentiation among coffee shops (eg. coffee flavours, free services, eg. wifi; coffee shop atmosphere and comfort eg. music)

•

No noticeable exit barriers

There are numerous competitors For example, Starbucks, Timothy’s, Second Cup, Tim Horton’s, Coffee Time, McDonalds (McCafe) etc..

High exit barriers (economic, strategic and emotional factors

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

that keep firms competing even if returns are low or negative) specialized assets, fixed costs, commitment of management and social pressures)

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

1) Case: Cineplex - A Blockbuster Success In an era of free downloaded music, games and movies, the theatre industry has faced some unique challenges. Clearly, customers don’t have to visit the theatre anymore to be entertained. In 2012, Cineplex reported flat attendance. While the same number of people came to the theatre, there wasn’t any new growth despite an increase in the country’s population. Some observers have speculated is this the end of an era? How does a movie theatre stay in business with rising costs and free or low-cost substitutes?

In the last few years, Cineplex has been trying to find new ways to entice customers back to the theatre by offering new perks and creating a new experience that has been different from the past.

In 2012, Cineplex began converting its theatres to all-digital delivery in order to reduce upgrading costs for older technology and to improve the overall sound quality for its customers. But Cineplex didn’t stop there. Cineplex wanted to change the way people thought about and experienced the theatre. Cineplex introduced VIP theatres including reserve seating, enhanced menus, valet parking and an in-seating beverage service. To reflect these premium services, Cineplex has also changed its ticket prices. The greater the service, the higher the price. Indeed, 29 per cent of Cineplex’s revenue came from these premium services. For example, Cineplex also introduced a $50 SuperTicket, which would include admission to a movie and allow a digital download of the movie at a later date. Many film distributors such as Warner Bros., Universal Pictures, Sony Pictures and Paramount Pictures agreed via contracts to participate in this initiative. The downloaded version would become available around the same time of the DVD version release. This digital copy would be also be available in Ultra Violet which would allow the movie to be downloaded and watched on a variety of devices such as desktops, tablets and smartphones.

President and Chief Executive Officer Ellis Jacob stated in an interview with the Canadian Press, “The world is changing, the technology is changing…people want things instantly and they want to be able to watch them on different devices. This provides them with all those options.” Clearly, Cineplex is looking for new ways to increase home entertainment sales as the popularity of physical media has begun to fade. Indeed, this is a new way for the theatre industry to compete with video-on-demand services and other forms of entertainment.

By 2013, Cineplex purchased a digital signage business called EK3 Technologies Inc. to diversify and expand its business into a wider media company. EK3 Technologies Inc. has a long client list including customers such as Walmart, Target, Tim Hortons, Rogers, Scotiabank and McDonalds.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Another strategic move by Cineplex involved an acquisition. In 2013, Cineplex paid $200 million and acquired 24 Empire theatres in the Atlantic provinces and 2 Empire theatres in Ontario. This change gave Cineplex a new presence in Eastern Canada and resulted in it becoming a truly nation-wide theatre chain. While there were some Empire theatres purchased by another company, clearly, this acquisition by Cineplex had eliminated even more of its competitors.

Many smaller theatres across Canada have already closed their doors due to rising costs and tougher competition. Vancouver’s Hollywood Theatre is one theatre that was set for redevelopment, but many community organizers argued it should be saved as a historical site. In other parts of the country, some community members have even tried to keep small theatres open and operating. The Kingsway was one example. The Kingsway was one small Toronto theatre that had closed its doors for 2 ½ years and finally re-opened after much needed updates. The single-screen theatre now operates to a niche set of customers who prefer the more small intimate-theatre setting, over the much larger chain enterprises, but some observers wonder for how long?

In 2013, Cineplex, reported its strongest quarterly profit and revenue in its history. In its second quarter, Cineplex announced $301.6 million in revenue, compared to $263.7 million in the same period in the prior year.

Cineplex, now the largest movie theatre chain in Canada holds 78% of the market, and has joined the ranks of other Canadian companies with annual revenues over a billion dollars.

What will Cineplex be up to next? Cineplex is considering selling its theatre popcorn and Outtakes food brands in retail stores. According to Jacob, “We have 72 million people coming through our doors. There’s nothing to stop us from marketing those brands in the theatre and eventually taking them to shopping malls.”

Read the case “Cineplex: A Blockbuster Success” and answer the following questions: Identify and discuss Cineplex’s current business-level strategy. Is it working why or why not?

Answer: Cineplex’s business-level strategy appears to be a differentiation strategy. It is no longer just offering the customer the service of playing a movie.

• •

In 2012, Cineplex began converting its theatres to all-digital delivery in order to reduce upgrading costs for older technology and to improve the overall sound quality for its customers.

Cineplex introduced VIP theatres including reserve seating, enhanced menus, valet parking and an in-seating beverage service.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

•

Cineplex also introduced a $50 SuperTicket, which would include admission to a movie and allow a digital download of the movie at a later date. Many film distributors such as Warner Bros., Universal Pictures, Sony Pictures and Paramount Pictures agreed via contracts to participate in this initiative. The downloaded version would become available around the same time of the DVD version release. This digital copy would be also be available in Ultra Violet which would allow the movie to be downloaded and watched on a variety of devices such as desktops, tablets and smartphones.

Yes, the strategy appears to be working, as the company is becoming more profitable than ever in its history.

• •

In 2013, Cineplex, reported its strongest quarterly profit and revenue in its history. In its second quarter, Cineplex announced $301.6 million in revenue, compared to $263.7 million in the same period in the prior year.

Cineplex, now the largest movie theatre chain in Canada holds 78% of the market, and has joined the ranks of other Canadian companies with annual revenues over a billion dollars.

2) Case: Cineplex - A Blockbuster Success In an era of free downloaded music, games and movies, the theatre industry has faced some unique challenges. Clearly, customers don’t have to visit the theatre anymore to be entertained. In 2012, Cineplex reported flat attendance. While the same number of people came to the theatre, there wasn’t any new growth despite an increase in the country’s population. Some observers have speculated is this the end of an era? How does a movie theatre stay in business with rising costs and free or low-cost substitutes?

In the last few years, Cineplex has been trying to find new ways to entice customers back to the theatre by offering new perks and creating a new experience that has been different from the past.

In 2012, Cineplex began converting its theatres to all-digital delivery in order to reduce upgrading costs for older technology and to improve the overall sound quality for its customers. But Cineplex didn’t stop there. Cineplex wanted to change the way people thought about and experienced the theatre. Cineplex introduced VIP theatres including reserve seating, enhanced menus, valet parking and an in-seating beverage service. To reflect these premium services, Cineplex has also changed its ticket prices. The greater the service, the higher the price. Indeed, 29 per cent of Cineplex’s revenue came from these premium services. For example, Cineplex also introduced a $50 SuperTicket, which would include admission to a movie and allow a digital download of the movie at a later date. Many film distributors such as Warner Bros., Universal Pictures, Sony Pictures and Paramount Pictures agreed via contracts to participate in this initiative. The downloaded version would become available around the same time of the DVD version release. This digital copy would be also be available in Ultra Violet which would allow the movie to Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

be downloaded and watched on a variety of devices such as desktops, tablets and smartphones.

President and Chief Executive Officer Ellis Jacob stated in an interview with the Canadian Press, “The world is changing, the technology is changing…people want things instantly and they want to be able to watch them on different devices. This provides them with all those options.” Clearly, Cineplex is looking for new ways to increase home entertainment sales as the popularity of physical media has begun to fade. Indeed, this is a new way for the theatre industry to compete with video-on-demand services and other forms of entertainment.

By 2013, Cineplex purchased a digital signage business called EK3 Technologies Inc. to diversify and expand its business into a wider media company. EK3 Technologies Inc. has a long client list including customers such as Walmart, Target, Tim Hortons, Rogers, Scotiabank and McDonalds.

Another strategic move by Cineplex involved an acquisition. In 2013, Cineplex paid $200 million and acquired 24 Empire theatres in the Atlantic provinces and 2 Empire theatres in Ontario. This change gave Cineplex a new presence in Eastern Canada and resulted in it becoming a truly nation-wide theatre chain. While there were some Empire theatres purchased by another company, clearly, this acquisition by Cineplex had eliminated even more of its competitors.

Many smaller theatres across Canada have already closed their doors due to rising costs and tougher competition. Vancouver’s Hollywood Theatre is one theatre that was set for redevelopment, but many community organizers argued it should be saved as a historical site. In other parts of the country, some community members have even tried to keep small theatres open and operating. The Kingsway was one example. The Kingsway was one small Toronto theatre that had closed its doors for 2 ½ years and finally re-opened after much needed updates. The single-screen theatre now operates to a niche set of customers who prefer the more small intimate-theatre setting, over the much larger chain enterprises, but some observers wonder for how long?

In 2013, Cineplex, reported its strongest quarterly profit and revenue in its history. In its second quarter, Cineplex announced $301.6 million in revenue, compared to $263.7 million in the same period in the prior year.

Cineplex, now the largest movie theatre chain in Canada holds 78% of the market, and has joined the ranks of other Canadian companies with annual revenues over a billion dollars.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

What will Cineplex be up to next? Cineplex is considering selling its theatre popcorn and Outtakes food brands in retail stores. According to Jacob, “We have 72 million people coming through our doors. There’s nothing to stop us from marketing those brands in the theatre and eventually taking them to shopping malls.”

Read the case “Cineplex: A Blockbuster Success” and answer the following questions: Explain what types of diversification are seen in this case? How did Cineplex diversify?

Answer: The types of diversification strategies seen in this case are: Unrelated diversification (via acquisition) • By 2013, Cineplex purchased a digital signage business called EK3 Technologies Inc. to diversify and expand its business into a wider media company. EK3 Technologies Inc. has a long client list including customers such as Walmart, Target, Tim Hortons, Rogers, Scotiabank and McDonalds.

Related diversification (via acquisition) • In 2013, Cineplex paid $200 million and acquired 24 Empire theatres in the Atlantic provinces and 2 Empire theatres in Ontario. This change gave Cineplex a new presence in Eastern Canada and resulted in it becoming a truly nation-wide theatre chain Forward integration (via internal development) • Cineplex is considering selling its theatre popcorn and Outtakes food brands in retail stores.

3) Case: Cineplex - A Blockbuster Success In an era of free downloaded music, games and movies, the theatre industry has faced some unique challenges. Clearly, customers don’t have to visit the theatre anymore to be entertained. In 2012, Cineplex reported flat attendance. While the same number of people came to the theatre, there wasn’t any new growth despite an increase in the country’s population. Some observers have speculated is this the end of an era? How does a movie theatre stay in business with rising costs and free or low-cost substitutes?

In the last few years, Cineplex has been trying to find new ways to entice customers back to the theatre by offering new perks and creating a new experience that has been different from the past.

In 2012, Cineplex began converting its theatres to all-digital delivery in order to reduce upgrading costs for older technology and to improve the overall sound quality for its customers. But Cineplex didn’t stop there. Cineplex wanted to change the way people Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

thought about and experienced the theatre. Cineplex introduced VIP theatres including reserve seating, enhanced menus, valet parking and an in-seating beverage service. To reflect these premium services, Cineplex has also changed its ticket prices. The greater the service, the higher the price. Indeed, 29 per cent of Cineplex’s revenue came from these premium services. For example, Cineplex also introduced a $50 SuperTicket, which would include admission to a movie and allow a digital download of the movie at a later date. Many film distributors such as Warner Bros., Universal Pictures, Sony Pictures and Paramount Pictures agreed via contracts to participate in this initiative. The downloaded version would become available around the same time of the DVD version release. This digital copy would be also be available in Ultra Violet which would allow the movie to be downloaded and watched on a variety of devices such as desktops, tablets and smartphones.

President and Chief Executive Officer Ellis Jacob stated in an interview with the Canadian Press, “The world is changing, the technology is changing…people want things instantly and they want to be able to watch them on different devices. This provides them with all those options.” Clearly, Cineplex is looking for new ways to increase home entertainment sales as the popularity of physical media has begun to fade. Indeed, this is a new way for the theatre industry to compete with video-on-demand services and other forms of entertainment.

By 2013, Cineplex purchased a digital signage business called EK3 Technologies Inc. to diversify and expand its business into a wider media company. EK3 Technologies Inc. has a long client list including customers such as Walmart, Target, Tim Hortons, Rogers, Scotiabank and McDonalds.

Another strategic move by Cineplex involved an acquisition. In 2013, Cineplex paid $200 million and acquired 24 Empire theatres in the Atlantic provinces and 2 Empire theatres in Ontario. This change gave Cineplex a new presence in Eastern Canada and resulted in it becoming a truly nation-wide theatre chain. While there were some Empire theatres purchased by another company, clearly, this acquisition by Cineplex had eliminated even more of its competitors.

Many smaller theatres across Canada have already closed their doors due to rising costs and tougher competition. Vancouver’s Hollywood Theatre is one theatre that was set for redevelopment, but many community organizers argued it should be saved as a historical site. In other parts of the country, some community members have even tried to keep small theatres open and operating. The Kingsway was one example. The Kingsway was one small Toronto theatre that had closed its doors for 2 ½ years and finally re-opened after much needed updates. The single-screen theatre now operates to a niche set of customers who prefer the more small intimate-theatre setting, over the much larger chain enterprises, but some observers wonder for how long?

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

In 2013, Cineplex, reported its strongest quarterly profit and revenue in its history. In its second quarter, Cineplex announced $301.6 million in revenue, compared to $263.7 million in the same period in the prior year.

Cineplex, now the largest movie theatre chain in Canada holds 78% of the market, and has joined the ranks of other Canadian companies with annual revenues over a billion dollars.

What will Cineplex be up to next? Cineplex is considering selling its theatre popcorn and Outtakes food brands in retail stores. According to Jacob, “We have 72 million people coming through our doors. There’s nothing to stop us from marketing those brands in the theatre and eventually taking them to shopping malls.”

Read the case “Cineplex: A Blockbuster Success” and answer the following questions: Which management philosophy do you think would work best for Cineplex? Explain with examples.

Answer: Classical School Standardizing the work • Jobs in the theatre do not require extensive education and experience.

Ticket attendants help you pick out what you wish; however, this job has been automated and you can pick out your ticket online or at a kiosk once you arrive. Other jobs include concession stand servers (i.e. popcorn makers, food servers); valet attendants to park your car.

These jobs can be compartmentalized and: o are easy and inexpensive to train o are easy to fill with cheap and readily available pool of labour o have clear rules in how to perform the job o have little to no room for individual discretion o can have consistent job

Behavioural School Collaboration • Managers and workers should view themselves as collaborators or partners in order to be creative to sustain customer attendance. This means workers and managers need to communicate and work together to come up with creative and innovative ideas to run the business effectively. Cineplex needs an executive team that is creative and that can work together effectively to deal with changing customer demands.

Social systems • Organizations are social systems requiring continuous communication and cooperation among all members. Before a movie is played, lights have to be turned down, the curtains opened, the screen rolled down, the

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

performance

commercials must be ready; these must be coordinated with a variety of workers.

Communication system • Managers must establish and maintain a communication system with employees. In order for workers to understand the rules, managers must communicate them.

Supervising the workers • There are few workers to supervise; however, managers can only take charge of their area of expertise: concession stand, versus customer service, vs security etc.

• There is the view that Managers’ mental work should be separated from labourers’ physical work and workers are not capable of managing themselves. There are a lot of students working in theatres.

Some would view that they are not experienced enough to self-manage themselves.

Motivating the workers • Money is the only factor in motivating workers. The jobs here are often part-time and have few benefits. There are not a lot of opportunities for advancement and long-term careers in the theatre.

Authority of management • Authority over subordinates must be earned, since workers will only follow orders when • they understand what is required • they see how their work relates to organizational goals • they believe they will gain some benefit from accomplishing these goals

Division of work • Breaking work down into its simplest components and assigning separate tasks to workers • Manager’s role is to give orders and discipline workers Esprit de corps • Team spirit and harmony should be encouraged amongst workers to generate organizational cohesiveness and unity.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

Goals of the company • Company goals should take precedence over individual interests 4) Case: Cineplex - A Blockbuster Success In an era of free downloaded music, games and movies, the theatre industry has faced some unique challenges. Clearly, customers don’t have to visit the theatre anymore to be entertained. In 2012, Cineplex reported flat attendance. While the same number of people came to the theatre, there wasn’t any new growth despite an increase in the country’s population. Some observers have speculated is this the end of an era? How does a movie theatre stay in business with rising costs and free or low-cost substitutes?

In the last few years, Cineplex has been trying to find new ways to entice customers back to the theatre by offering new perks and creating a new experience that has been different from the past.

In 2012, Cineplex began converting its theatres to all-digital delivery in order to reduce upgrading costs for older technology and to improve the overall sound quality for its customers. But Cineplex didn’t stop there. Cineplex wanted to change the way people thought about and experienced the theatre. Cineplex introduced VIP theatres including reserve seating, enhanced menus, valet parking and an in-seating beverage service. To reflect these premium services, Cineplex has also changed its ticket prices. The greater the service, the higher the price. Indeed, 29 per cent of Cineplex’s revenue came from these premium services. For example, Cineplex also introduced a $50 SuperTicket, which would include admission to a movie and allow a digital download of the movie at a later date. Many film distributors such as Warner Bros., Universal Pictures, Sony Pictures and Paramount Pictures agreed via contracts to participate in this initiative. The downloaded version would become available around the same time of the DVD version release. This digital copy would be also be available in Ultra Violet which would allow the movie to be downloaded and watched on a variety of devices such as desktops, tablets and smartphones.

President and Chief Executive Officer Ellis Jacob stated in an interview with the Canadian Press, “The world is changing, the technology is changing…people want things instantly and they want to be able to watch them on different devices. This provides them with all those options.” Clearly, Cineplex is looking for new ways to increase home entertainment sales as the popularity of physical media has begun to fade. Indeed, this is a new way for the theatre industry to compete with video-on-demand services and other forms of entertainment.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

By 2013, Cineplex purchased a digital signage business called EK3 Technologies Inc. to diversify and expand its business into a wider media company. EK3 Technologies Inc. has a long client list including customers such as Walmart, Target, Tim Hortons, Rogers, Scotiabank and McDonalds.

Another strategic move by Cineplex involved an acquisition. In 2013, Cineplex paid $200 million and acquired 24 Empire theatres in the Atlantic provinces and 2 Empire theatres in Ontario. This change gave Cineplex a new presence in Eastern Canada and resulted in it becoming a truly nation-wide theatre chain. While there were some Empire theatres purchased by another company, clearly, this acquisition by Cineplex had eliminated even more of its competitors.

Many smaller theatres across Canada have already closed their doors due to rising costs and tougher competition. Vancouver’s Hollywood Theatre is one theatre that was set for redevelopment, but many community organizers argued it should be saved as a historical site. In other parts of the country, some community members have even tried to keep small theatres open and operating. The Kingsway was one example. The Kingsway was one small Toronto theatre that had closed its doors for 2 ½ years and finally re-opened after much needed updates. The single-screen theatre now operates to a niche set of customers who prefer the more small intimate-theatre setting, over the much larger chain enterprises, but some observers wonder for how long?

In 2013, Cineplex, reported its strongest quarterly profit and revenue in its history. In its second quarter, Cineplex announced $301.6 million in revenue, compared to $263.7 million in the same period in the prior year.

Cineplex, now the largest movie theatre chain in Canada holds 78% of the market, and has joined the ranks of other Canadian companies with annual revenues over a billion dollars.

What will Cineplex be up to next? Cineplex is considering selling its theatre popcorn and Outtakes food brands in retail stores. According to Jacob, “We have 72 million people coming through our doors. There’s nothing to stop us from marketing those brands in the theatre and eventually taking them to shopping malls.”

Read the case “Cineplex: A Blockbuster Success” and answer the following questions: What three (3) external forces do you think have impacted Cineplex the most in recent years and why?

Answer:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

Technological force - There are many free or low-cost substitutes due to technological advances. There is free downloaded music, video games and movies. There are video-ondemand services that are cheaper and more convenient that customers can watch from their own homes. Clearly, customers don’t have to visit the theatre anymore to be entertained.

Competitive force - Cineplex is now competing with other forms of technology and entertainment. Advancements in technology have allowed Cineplex to offer their customers all-digital sound delivery. Who are Cineplex’s competitors? There are a few Empire theatres left; the Kingsway theatre in Toronto is an independent theatre. for example, etc. Clearly, other movie theatres are competitors, but there are few left.

Cineplex has captured 78% of the market in Canada.

Societal force - Customers are more demanding for greater services and perks. After many years of flat attendance, Cineplex was able to improve sales by satisfying customers by offering all-digital delivery in order to improve the overall sound quality for its customers. Cineplex also introduced VIP theatres including reserve seating, enhanced menus, valet parking and an in-seating beverage service.

Cineplex also introduced a $50 SuperTicket, which would include admission to a movie and allow a digital download of the movie at a later date. The downloaded version would become available around the same time of the DVD version release. This digital copy would be also be available in Ultra Violet which would allow the movie to be downloaded and watched on a variety of devices such as desktops, tablets and smartphones.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

1) The five forces model by Michael Porter mainly helps to assess: a. an individual firm's strengths b. the industry environment c. how to reduce costs d. how to gain a competitive advantage Answer: b Diff: 1 Type: MC Page Reference: 163-164 Skill: both Objective: Chapter 5-LO2 2) When monetary or psychological switching costs for customers are low, the: a. threat of new entrants is low b. threat of new entrants is high c. bargaining power of suppliers is high d. bargaining power of suppliers is low Answer: b Diff: 2 Type: MC Page Reference: 164 Skill: both Objective: Chapter 5-LO2 3) A barrier to entry to selling coffee in the coffee industry is: a. buildings and equipment b. economies of scale c. access to distribution channels d. no significant barriers to entry Answer: d Diff: 1 Type: MC Page Reference: 164 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Skill: both Objective: Chapter 5-LO2 4) Spreading out costs over the number of units produced, and reducing the cost of each unit as the number of units increases means: a. you are using an outdated management accounting method b. you have increased the threat of new entrants c. you have achieved economies of scale d. you have increased your industry threats Answer: c Diff: 2 Type: MC Page Reference: 164 Skill: both Objective: Chapter 5-LO2 5) The threat of new entrants can be high when there are: a. high exit barriers b. products that are differentiated c. high capital costs d. low capital costs Answer: d Diff: 2 Type: MC Page Reference: 164 Skill: both Objective: Chapter 5-LO2 6) The bargaining power of customers is often low when there is: a. product differentiation among few products b. undifferentiated products among lots of products c. no product differentiation d. only one unique product by one seller

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Answer: d Diff: 2 Type: MC Page Reference: 167 Skill: both Objective: Chapter 5-LO2 7) Strategic management often involves: a. analyzing the company's short-term strengths and weaknesses b. managing changes in the internal environment only c. analyzing the internal and external environment d. making changes on an ongoing basis Answer: c Diff: 2 Type: MC Page Reference: 162 Skill: both Objective: Chapter 5-LO1 8) A group of organizations that share resource requirements such as raw materials, labour, technology and customers is a/an: a. partnership b. joint venture c. industry d. global multinational Answer: c Diff: 2 Type: MC Page Reference: 163 Skill: both Objective: Chapter 5-LO2 9) Porter’s five-forces model considers the importance of the following except: a. switching costs Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

b. capital requirements c. economies of scale d. marketing strategy Answer: d Diff: 2 Type: MC Page Reference: 163-166 Skill: both Objective: Chapter 5-LO2 10) A barrier to entry for a new-drug company selling a revolutionary treatment entering the pharmaceutical industry would likely be: a. switching costs by consumers b. undifferentiated products c. the number of incumbents relative to the number of buyers d. capital requirements Answer: d Diff: 2 Type: MC Page Reference: 164 Skill: both Objective: Chapter 5-LO2 11) Access to distribution channels is often a threat related to: a. the bargaining power of suppliers b. rivalry amongst existing firms c. the power of buyers d. new entrants Answer: d Diff: 2 Type: MC Page Reference: 166 Skill: both Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Objective: Chapter 5-LO2 12) When switching costs for customers are minimal: a. the threat of new entrants is high b. the threat of new entrants is low c. the threat of new entrants is equally balanced d. cost becomes an important factor Answer: a Diff: 2 Type: MC Page Reference: 167 Skill: both Objective: Chapter 5-LO2 13) Economies of scale would likely be an entry barrier for a new: a. bank b. coffee shop c. manufacturing facility making soda d. custom furniture manufacturer Answer: c Diff: 2 Type: MC Page Reference: 164 Skill: both Objective: Chapter 5-LO2 14) High exit barriers can increase the: a. threat of new entrants b. the power of suppliers c. the power of customers d. rivalry amongst exiting competitors Answer: d Diff: 2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

Type: MC Page Reference: 168 Skill: both Objective: Chapter 5-LO2 15) Rivalry between firms is the highest when: a. firms are similar in size and resources b. firms are dissimilar in size and resources c. firms are similar in size only d. firms are similar in resources only Answer: a Diff: 2 Type: MC Page Reference: 168 Skill: both Objective: Chapter 5-LO2 16) A substitute for a coffee is a: a. sandwich b. granola bar c. bag of chips d. beverage Answer: d Diff: 2 Type: MC Page Reference: 167 Skill: both Objective: Chapter 5-LO2 17) Dollarama, a Canadian dollar store, likely holds the following business-level strategy: a. corporate b. focus c. cost leadership d. product differentiation Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

Answer: c Diff: 2 Type: MC Page Reference: 173 Skill: both Objective: Chapter 5-LO2 18) A drug company selling a revolutionary drug likely implements the following business-level strategy: a. corporate b. focus c. cost leadership d. product differentiation Answer: d Diff: 2 Type: MC Page Reference: 174 Skill: both Objective: Chapter 5-LO2 19) Patents and government policies can ______ the threat of new entrants. a. increase b. lower c. balance d. have no affect at all on Answer: b Diff: 2 Type: MC Page Reference: 164 Skill: both Objective: Chapter 5-LO2 20) The internal environment is often analyzed using:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

a. Porter's five forces model b. the VRIO model c. diversification analysis d. corporate-level strategy Answer: b Diff: 2 Type: MC Page Reference: 164 Skill: both Objective: Chapter 5-LO3 21) A cost leadership strategy may involve all of the following except: a. reducing production costs b. outsourcing core activities c. achieving economies of scale d. cutting unprofitable product lines Answer: b Diff: 2 Type: MC Page Reference: 164 Skill: both Objective: Chapter 5-LO4 22) Product differentiation may be achieved in numerous ways except: a. improving product features b. optimizing product mix c. linking between functions d. reducing labour costs Answer: d Diff: 2 Type: MC Page Reference: 174 Skill: both Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

Objective: Chapter 5-LO4 23) Targeting a particular buyer group, segment of the product line or geographic market is likely a: a. corporate level strategy b. cost leadership strategy only c. focus strategy d. product differentiation strategy only Answer: c Diff: 2 Type: MC Page Reference: 177 Skill: both Objective: Chapter 5-LO4 24) Analyzing how a business or market should be managed to create synergies relates to a: a. corporate level strategy b. cost leadership strategy only c. focus strategy d. product differentiation strategy only Answer: a Diff: 2 Type: MC Page Reference: 179 Skill: both Objective: Chapter 5-LO4 25) Economies of scope relates to: a. product differentiation achieved by serving more than one market b. cost benefits by serving two markets instead of one c. spreading costs across units of products to lower overall cost per product d. a global outsourcing initiative

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

Answer: b Diff: 2 Type: MC Page Reference: 164 Skill: both Objective: Chapter 5-LO2 26) Intra-firm dynamics is a: a. motive for diversification due to managerial self-interests b. motive for diversification due to consumer self-interests c. type of diversification due to pressure for growth d. type of diversification due to managerial self-interests Answer: a Diff: 2 Type: MC Page Reference: 179 Skill: both Objective: Chapter 5-LO4 27) Vertical integration is a type of diversification that: a. reduces dependence on suppliers b. allows companies to expand into similar products or markets c. results in little synergies d. depends on corporate office management skills Answer: a Diff: 2 Type: MC Page Reference: 183 Skill: both Objective: Chapter 5-LO4 28) A motive for diversification is: a. inter-firm dynamics b. vertical integration Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

c. backward integration d. forward integration Answer: a Diff: 2 Type: MC Page Reference: 181 Skill: both Objective: Chapter 5-LO4 29) Loblaws grocery store diversifying into the mobile market is an example of: a. related diversification b. unrelated diversification c. vertical integration d. horizontal integration Answer: b Diff: 2 Type: MC Page Reference: 182 Skill: both Objective: Chapter 5-LO4 30) Deciding what market a business should compete in is an example of a: a. business-level strategy b. corporate-level strategy c. vertical integration d. related diversification Answer: b Diff: 2 Type: MC Page Reference: 179 Skill: both Objective: Chapter 5-LO4

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

1) Why is strategic management important to business?

Answer: Strategic management consists of the analysis, decisions, implementations, and evaluations a firm undertakes to create and sustain its competitive advantages. The ongoing process of strategic management is critical to a firm which in turn enhances its performance and chances of survival. A strategy assists in meeting a firm’s goals. By and large, the goals of most publicly traded firms are normally to maximize shareholder returns through various means. However, firms can have other goals such as to increase market share or to be a leader in their field.

Objective: LO1: Describe the nature of strategic management.

2) What is a substitute? What substitutes are there for a smartphone?

Answer: A substitute is a product that is different from another product but can potentially serve the same need to the customer. A substitute for talking via a smartphone can include: • • • • •

Talking via a landline phone.

Talking via Skype or another web conferencing tool.

Emailing by desktop, laptop or tablet.

Meeting in-person.

Writing a letter and mailing it.

Objective: LO2: Identify key forces in determining an industry’s structure.

3) In the VRO model, there is the question of rareness. Do you think the resources and capabilities of the company Apple are rare?

Answer: Although valuable resources and capabilities help firms survive, those resources and capabilities need to be rare. In other words, they will have to be controlled by only a small number of firms for the firms to obtain competitive advantage. Thus, managers need to assess if their valuable resources and capabilities are unique among their competitors. Certainly, the iPhone and iPad may be considered to be one of the most popular smartphones and tablets; but is the company rare? Other smartphone companies have developed similar but different technologies; have patents and are competiting along side Apple. And in some cases,quite successfully. Perhaps, what was rare was the leadership of Steve Jobs and his innovativeness. However, since he is no longer leading the company, it begs the question if Apple will be able to produce any new products that can match its previous successes. Is Apple’s resources and capabilities still rare? It doesn’t appear so, but a new and innovative product may be able to change this.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Objective: LO3: Describe how organizational resources and capabilities affect firm performance.

4) What business-level strategy do you think the Hudson Bay Company is employing?

Answer: The Hudson Bay company is employing a product-differentiation business-level strategy.

It has begun to change its image to a more high-end store and it sells high-end designer products at higher prices.

A product differentiation strategy is about a firm’s attempt to gain competitive advantages by increasing the perceived value of its products or services relative to that of other firms’ products or services. The other firms can be either competitors in the same industry or firms from other industries.

Firms can create value for their products or services to differentiate themselves from other firms in many ways, including product features, links between functions, location, product mix, links with other firms, and service. However, managers need to keep in mind that the existence of product differentiation, in the end, is always a matter of customer perception. Sometimes, products sold by two different firms may be very similar, but if customers believe the first is more valuable than the second, then the first product has a differentiation advantage. Therefore, the firm with that product may be able to charge a higher price than the other firm.

The Hudson’s Bay Company therefore no longer competes with Walmart and Target.

Objective: LO4: Describe three generic business strategies.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

1) Strategic management is a process where managers constantly analyze their companies’ external environment, but ignore their internal environment. a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 162 Skill: recall Objective: Chapter 5-LO1 2) Economies of scale are often considered to be an entry barrier for new entrants. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 164 Skill: recall Objective: Chapter 5-LO2 3) Product differentiation between companies usually contributes to greater rivalry among existing firms. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 167 Skill: both Objective: Chapter 5-LO2 4) The VRIO model analyzes companies on their variety, real-time initiatives and organization. a. True b. False Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Answer: b Diff: 2 Type: TF Page Reference: 170 Skill: both Objective: Chapter 5-LO3 5) Walmart is known for its cost leadership strategy. This is also considered a businesslevel strategy. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 173 Skill: both Objective: Chapter 5-LO4 6) A joint venture involves two companies merging together to form a partnership. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 187 Skill: both Objective: Chapter 5-LO4 7) Starbucks diversifying from selling coffee to fruit drinks is an example of unrelated diversification. a. True b. False Answer: b Diff: 2 Type: TF Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Page Reference: 181 Skill: both Objective: Chapter 5-LO4 8) Lululemon likely uses a cost differentiation strategy for its tops, but a product differentiation strategy for its pants. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 189 Skill: both Objective: Chapter 5-LO4 9) A SWOT analysis typically focuses on both the internal and external environment. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 172 Skill: both Objective: Chapter 5-LO3 10) In differentiating a product for the customer, a way to create value is to cut production costs. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 176 Skill: both Objective: Chapter 5-LO4

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) What factors are important for achieving the goal of economic growth for Canada’s economic system?

Answer: The Business Cycle The business cycle refers to the rise and fall of economic activity over time. Although the economy will grow over the long term, economic growth is usually unstable. Business cycles or economic fluctuations vary in length and severity. Some periods of fluctuation are difficult and long; others are short and mild. Generally, the economy in the long run has an upward slope with ups and downs of varying degrees The five stages of the business cycle are expansionary, peak, contraction, trough, and recovery).

The expansionary phase is a period when economic activity is rising. Goods are being produced and sold, the workforce is expanding (that is, jobs are being created), demand for goods is increasing, and the price of goods is rising. Typically, this is a positive period for business. Profits are rising, cash flow is steady, and there is an opportunity for some risk taking. The expansionary period can experience a sudden economic boom or slow and steady growth. The economy needs to be expanding in order for economic growth to occur. Once the economy has reached its highest point, it can be said to have peaked. A peak marks the end of the expansionary phase and the beginning of the contraction phase. A contraction phase is characterized by declining economic activity and falling profits. During this phase, managers usually reduce costs, lay off workers, and halt any plans to invest in the company. A recession is realized when there are two or more consecutive quarter periods of negative or falling economic activity. A depression is an extreme recession that is characterized by longer economic periods of declining economic activity, high unemployment, and high levels of personal and commercial bankruptcies.

Productivity Productivity is also an important factor to achieve economic growth. Productivity measures the level of output versus the level of input in an organization. An input, for example, can include materials, labour, or overhead, whereas an output is often a finished unit of product (or service) ready to be sold. An organization is said to have improved its productivity when it can produce more outputs with the same number of inputs.

Alternatively, an organization can produce the same number of outputs with a reduced number of inputs. When costs are reduced and spread over the total number of units produced, an improvement in productivity has been achieved.

Balance of trade The balance of trade is the value of all the goods and services a country exports minus the value of all the goods and services a country imports. While most trade with Canada involves goods, services have been an important component to the economy. Ideally, Canada would like to have a trade surplus instead of a trade deficit. A trade surplus occurs when a country exports more goods than it imports. This indicates a positive balance of trade and encourages economic growth. A trade deficit exists when a country imports more goods than it exports. A trade deficit is problematic because it results in a Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

negative balance of trade, which means more money is leaving the country than is entering the country.

Exchange rates One factor that can affect the cost of trade is exchange rates. In today’s competitive marketplace, more firms are doing business outside of their home country—that is, buying and selling goods in different markets and currencies. When transactions begin in one currency and settle in another, businesses must deal with exchange rates. An exchange rate or currency rate is the value of a foreign currency compared to a home currency or, in other words, the amount of domestic currency that must be given up to obtain an equivalent unit of the foreign currency. Global companies deal with exchange rates every day because their transactions occur between multiple countries. The most common type of currency transaction for businesses is the purchase and sale of goods and services across borders. A second type of transaction involving multiple currencies is the purchase and sale of investments. A third example of a currency transaction is through financial statement translation.

National debt A low national debt means the government will not have to spend a lot of tax revenues on interest and can spend money appropriately on important services. Debt is borrowed money that must be repaid, usually with interest. Unlike consumer debt, which is debt individuals have accumulated from the purchase of goods and services, national debt, also known as federal debt , is debt accumulated by the government. All local, regional, or national governments can have debt, but a large national debt can be especially problematic for individuals and businesses because this debt can affect the economy as a whole.

2) Explain the four different types of economic systems, and provide one example of a country for each.

Answer: A market economy , also referred to as a capitalist economy or a private enterprise system , is a free market system in which individuals can decide to be employees or owners of their own business. Individuals who establish businesses are “entrepreneurs” and can freely choose which products to produce, distribute, and sell; where to sell them; and what prices to set. In so doing, businesses compete with others in a marketplace where supply and demand determine which goods and services will be produced and consumed.

Market economies offer entrepreneurs certain rights —for example, the right to own private property, the right to compete, the right to make their own choices, and the right to make a profit. The right to make a profit is probably the most significant incentive for Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

individuals to take the risks involved in establishing a business.

Competition is one of the most important features of a market economy. Different individuals and groups are able to compete freely for profit. Competition is beneficial for both consumers and for the overall economy, because it allows different products and services to be produced at different prices. When there is more than one seller of a given product, producers are compelled to create a better product or to find a way of lowering costs to satisfy customers.

This rivalry leads to more varied products, lower prices, and more efficient production.

There is a trend today for countries to move toward market economies, but the transition is not always simple nor is it quickly realized. The availability of money, capital, and adequate distribution systems can impact the ability of individuals to establish businesses and to market their products to those who want them.

While Canada and the United States are considered to have some aspects of a market economy, because government is involved with influencing the economy, these two countries are considered to have mixed systems, instead of market systems. Indeed, there is no country that has a true market economy, without any government influence.

Communism Communism is the economic system that once existed under the Soviet Union. Instead of individuals freely deciding which products to produce, the government owned essentially all of the country’s resources, and economic decisions were made centrally. The government decided which goods and services were produced and in what quantities. Communism tended to limit an individual’s choices, such as the ability to change jobs or to relocate.

Although in theory communism was designed to create economic equality by allocating resources equally to all, the system had many shortcomings.

First, the communist government had to guess which goods to produce, since prices were not set by the market. The government also had to estimate supply and demand. When estimates were inaccurate, the result was either a surplus or a shortage of goods.

A second shortcoming of communism was that it offered little incentive for people to work hard, to improve goods, or to invent new products. As a result, creativity and innovation, in terms of business, were nonexistent.

The third problem with communism was that the government mainly benefited from the earnings. Individuals had little incentive to build a business, since the government took most of the profits. Little business growth meant little to no economic growth.

Today, there are few pure communist economies in the world whereby governments Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

make all of the economic decisions. Cuba and North Korea are two examples of communist systems.

Socialism Socialism is an economic system whereby the government has large ownership in or control over major industries essential to the country’s economy. Coal mines, transportation, steel mills, health care, banking, and utilities are a few examples.

With significant ownership, the state can influence business goals, types of goods produced, prices, and even workers’ rights. How much government ownership is required for a country to be considered socialist? There is no universal agreement. However, most socialist nations are otherwise similar to other countries. Socialist systems, for example, often have democratic governments that protect the rights of citizens.

Although most businesses are privately owned, individuals are heavily taxed so that the government can redistribute profits among its people. High taxation levels can also be attributed to the high level of services offered by socialist systems, such as health care, education, child care, and unemployment benefits.

One advantage socialists believe their system offers is a higher standard of living and more economic stability than other systems. While this could be true, taxes and unemployment are usually higher and levels of innovation lower. Some examples of socialist countries include France, Denmark, and Sweden.

Mixed Economy Canada’s economy is considered a mixed economy since it uses more than one economic system. While most industries are the work of private enterprise, the Canadian government may be considered partly socialist in its control of certain industries such as Canada Post, utilities (for example, water), and some public lands. In Canada, for example, the provincial governments control and regulate the health care system. Similarly, the Ontario government owns and operates the Liquor Control Board of Ontario (LCBO), which controls the sale of certain types of alcohol.

The government is also involved in taxation and in the allocation of resources for special purposes, such as the assistance of retired individuals on a fixed income. The Canada Pension Plan (CPP), for example, is administered by the government and provides pension income for individuals age 65 and older.

Today, most economies are considered mixed systems since governments usually play some role in managing the economy.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) Case: Beer and the Canadian Economy For many Canadians, beer is a poplar alcoholic drink that has become associated with fun social pastimes such as hanging out with friends or watching a hockey game. But did you know for every dollar spent on beer in Canada $1.12 goes back into the Canadian economy? According to a 2013 Conference Board of Canada report, “From Farm to Glass – The Value of Beer in Canada,” beer is considered to be the most consumed alcoholic beverage in Canada, making up 8.1 per cent of household spending in food and beverages. What does this mean? According to the report, Canadians bought an average equivalent of 235 bottles of beer per person whether at beer stores, liquor agencies, airports, trains, sports bars or restaurants.

For retailers this means good business; for the government, this means great tax revenue.

While the beer industry in Canada consists of any business that sells beer, the beer economy is much broader on a whole. The beer economy consists of retail sales, wholesale distribution, transportation, and, of course, the agricultural products themselves that beer depends on. In 2013, it was estimated that the beer economy made up 1 out of every 100 jobs in Canada, which meant 163,000 jobs were related to producing, transporting or selling beer. Today, many breweries are located in Ontario, Quebec, Nova Scotia, New Brunswick and British Columbia while other parts of Canada produce grains, electricity, transportation and packaging materials.

The Atlantic provinces, for instance, have more than 10,000 jobs in the beer economy.

Paperboard manufacturing and transportation are two examples of how they contribute to the economy.

Central Canada, on the other hand, is the home of the brewing hub of the country. The three largest Canadian brewers are located here: Labatts, Molson and Sleeman. Similarly, financial firms, such as insurance companies provide support to the industry. In Central Canada, 87,000 jobs are related to beer in Ontario and Quebec.

The three Prairie provinces provide support functions as well. Water, energy and grains for production are three examples. Distribution and warehousing activities also contribute to the industry. In the Prairies, this means about 20,000 jobs.

The report estimates average annual beer sales to be $12.3 billion annually. The beer economy, however, contributes to $5.8 billion in annual tax revenues for the various levels of government. Through the beer economy, the Canadian government collects personal income tax from individual wages in the beer industry, as well as corporate and sales taxes on beer-related sales.

In Canada, the largest consumers of beer are in the Yukon. Newfoundland ranks second according to the report.

While it is a profitable industry, some consumer and government officials wonder if it could be more competitive in Ontario. The province of Ontario is unlike many of the other Canadian provinces which strictly regulates the sale of beer through the Liquor Control Board of Ontario. Currently, beer is mainly sold through The Beer Store, which is foreign-owned by the U.S.-based Molson-Coors Brewing Company, Sapporo of Japan and Anheuser-Busch InBev of Belgium. While beer is available in some liquor stores,

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

many call this a ‘near-monopoly’ which has resulted in higher prices compared to other provinces where beer is also available in grocery and convenience stores.

In a research study, University of Waterloo economic professor Anindya Sen found that the cost of 24-pack of beer was $35.56 in Ontario ($9.50 more or 27% higher) when compared with two main Quebec grocery stores. Here, a 24-pack was only $25.95.

According to Sen, “[The study] raises the important question of whether through modernizing retailing the Ontario government could be benefiting more – and capturing more revenue – particularly in a period of large government deficits.”

CEO Dave Bryans of the Ontario Convenience Stores Association said “adding private retailers, like convenience stores, who can work with the LCBO wholesale system would benefit the provincial government, and Ontarians would benefit from improved choice and convenience.”

The Ontario Convenience Store Association has been lobbying the government for the right to sell beer in convenience stores. However, not everyone agrees. Some interest groups, like MADD, Mothers’ Against Drunk Driving, argue that increased access and availability of alcohol with private retailers may result in more alcohol-related fatalities, since convenient store owners may be more concerned about making a profit, than checking vigilantly for proper ID. Read the case on Beer and the Canadian Economy and answer the following questions: How is beer important to the Canadian economy?

Answer: Beer is important to the Canadian economy in several ways: •

Provides Jobs - In 2013, it was estimated that the beer economy made up 1 out of every 100 jobs in Canada, which meant 163,000 jobs were related to producing, transporting or selling beer. The Atlantic provinces, for instance, have more than 10,000 jobs in the beer economy. In the Prairies, this means about 20,000 jobs. In Central Canada, 87,000 jobs are related to beer in Ontario and Quebec.

•

Contributes profits to other industries (besides the beer industry) - The beer economy consists of retail sales, wholesale distribution, transportation, and, of course, the agricultural products themselves that beer depends on. To sell beer, inputs required include grains, electricity, transportation and packaging materials.

This helps increase the country’s overall gross domestic product (GDP).

•

Provides tax revenue to all government levels - The report estimates average annual beer sales to be $12.3 billion annually.

2) Case: Beer and the Canadian Economy For many Canadians, beer is a poplar alcoholic drink that has become associated with fun social pastimes such as hanging out with friends or watching a hockey game. But did you know for every dollar spent on beer in Canada $1.12 goes back into the Canadian Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

economy? According to a 2013 Conference Board of Canada report, “From Farm to Glass – The Value of Beer in Canada,” beer is considered to be the most consumed alcoholic beverage in Canada, making up 8.1 per cent of household spending in food and beverages. What does this mean? According to the report, Canadians bought an average equivalent of 235 bottles of beer per person whether at beer stores, liquor agencies, airports, trains, sports bars or restaurants.

For retailers this means good business; for the government, this means great tax revenue.

While the beer industry in Canada consists of any business that sells beer, the beer economy is much broader on a whole. The beer economy consists of retail sales, wholesale distribution, transportation, and, of course, the agricultural products themselves that beer depends on. In 2013, it was estimated that the beer economy made up 1 out of every 100 jobs in Canada, which meant 163,000 jobs were related to producing, transporting or selling beer. Today, many breweries are located in Ontario, Quebec, Nova Scotia, New Brunswick and British Columbia while other parts of Canada produce grains, electricity, transportation and packaging materials.

The Atlantic provinces, for instance, have more than 10,000 jobs in the beer economy.

Paperboard manufacturing and transportation are two examples of how they contribute to the economy.

Central Canada, on the other hand, is the home of the brewing hub of the country. The three largest Canadian brewers are located here: Labatts, Molson and Sleeman. Similarly, financial firms, such as insurance companies provide support to the industry. In Central Canada, 87,000 jobs are related to beer in Ontario and Quebec.

The three Prairie provinces provide support functions as well. Water, energy and grains for production are three examples. Distribution and warehousing activities also contribute to the industry. In the Prairies, this means about 20,000 jobs.

The report estimates average annual beer sales to be $12.3 billion annually. The beer economy, however, contributes to $5.8 billion in annual tax revenues for the various levels of government. Through the beer economy, the Canadian government collects personal income tax from individual wages in the beer industry, as well as corporate and sales taxes on beer-related sales.

In Canada, the largest consumers of beer are in the Yukon. Newfoundland ranks second according to the report.

While it is a profitable industry, some consumer and government officials wonder if it could be more competitive in Ontario. The province of Ontario is unlike many of the other Canadian provinces which strictly regulates the sale of beer through the Liquor Control Board of Ontario. Currently, beer is mainly sold through The Beer Store, which is foreign-owned by the U.S.-based Molson-Coors Brewing Company, Sapporo of Japan and Anheuser-Busch InBev of Belgium. While beer is available in some liquor stores, many call this a ‘near-monopoly’ which has resulted in higher prices compared to other provinces where beer is also available in grocery and convenience stores.

In a research study, University of Waterloo economic professor Anindya Sen found that the cost of 24-pack of beer was $35.56 in Ontario ($9.50 more or 27% higher) when compared with two main Quebec grocery stores. Here, a 24-pack was only $25.95.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

According to Sen, “[The study] raises the important question of whether through modernizing retailing the Ontario government could be benefiting more – and capturing more revenue – particularly in a period of large government deficits.”

CEO Dave Bryans of the Ontario Convenience Stores Association said “adding private retailers, like convenience stores, who can work with the LCBO wholesale system would benefit the provincial government, and Ontarians would benefit from improved choice and convenience.”

The Ontario Convenience Store Association has been lobbying the government for the right to sell beer in convenience stores. However, not everyone agrees. Some interest groups, like MADD, Mothers’ Against Drunk Driving, argue that increased access and availability of alcohol with private retailers may result in more alcohol-related fatalities, since convenient store owners may be more concerned about making a profit, than checking vigilantly for proper ID. Read the case on Beer and the Canadian Economy and answer the following questions: Explain which stakeholders are impacted by the consumption of beer?

Answer: Ten examples are listed here, but certainly there are many more.

• • • • • • • • • •

Employees of beer companies and related industries (agriculture, transportation, distribution, retail sales, etc) – depend on jobs Shareholders of beer companies and related industries (agriculture, transportation, distribution, retail sales, etc) – depend on profit on investment Creditors of beer companies and related industries (agriculture, transportation, distribution, retail sales, etc) – depend on interest payment for profit Insurance companies – insure beer companies and related industries (agriculture, transportation, distribution, retail sales, etc) MADD interest group – concern over laws affecting the consumption of alcohol and potential fatalities due to drinking and driving Government – benefits from tax revenue Customers – enjoy alcohol but could be negatively affected by too much Alcoholics – impacted negatively due to addiction Health practitioners – impacted by patients with alcohol-related illnesses Ontario Convenience Store Association – This interest group lobbies the government for the right to sell beer in convenience stores. for the right to sell beer in convenience stores.

3) Case: Beer and the Canadian Economy For many Canadians, beer is a poplar alcoholic drink that has become associated with fun social pastimes such as hanging out with friends or watching a hockey game. But did you know for every dollar spent on beer in Canada $1.12 goes back into the Canadian Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

economy? According to a 2013 Conference Board of Canada report, “From Farm to Glass – The Value of Beer in Canada,” beer is considered to be the most consumed alcoholic beverage in Canada, making up 8.1 per cent of household spending in food and beverages. What does this mean? According to the report, Canadians bought an average equivalent of 235 bottles of beer per person whether at beer stores, liquor agencies, airports, trains, sports bars or restaurants.

For retailers this means good business; for the government, this means great tax revenue.

While the beer industry in Canada consists of any business that sells beer, the beer economy is much broader on a whole. The beer economy consists of retail sales, wholesale distribution, transportation, and, of course, the agricultural products themselves that beer depends on. In 2013, it was estimated that the beer economy made up 1 out of every 100 jobs in Canada, which meant 163,000 jobs were related to producing, transporting or selling beer. Today, many breweries are located in Ontario, Quebec, Nova Scotia, New Brunswick and British Columbia while other parts of Canada produce grains, electricity, transportation and packaging materials.

The Atlantic provinces, for instance, have more than 10,000 jobs in the beer economy.

Paperboard manufacturing and transportation are two examples of how they contribute to the economy.

Central Canada, on the other hand, is the home of the brewing hub of the country. The three largest Canadian brewers are located here: Labatts, Molson and Sleeman. Similarly, financial firms, such as insurance companies provide support to the industry. In Central Canada, 87,000 jobs are related to beer in Ontario and Quebec.

The three Prairie provinces provide support functions as well. Water, energy and grains for production are three examples. Distribution and warehousing activities also contribute to the industry. In the Prairies, this means about 20,000 jobs.

The report estimates average annual beer sales to be $12.3 billion annually. The beer economy, however, contributes to $5.8 billion in annual tax revenues for the various levels of government. Through the beer economy, the Canadian government collects personal income tax from individual wages in the beer industry, as well as corporate and sales taxes on beer-related sales.

In Canada, the largest consumers of beer are in the Yukon. Newfoundland ranks second according to the report.

While it is a profitable industry, some consumer and government officials wonder if it could be more competitive in Ontario. The province of Ontario is unlike many of the other Canadian provinces which strictly regulates the sale of beer through the Liquor Control Board of Ontario. Currently, beer is mainly sold through The Beer Store, which is foreign-owned by the U.S.-based Molson-Coors Brewing Company, Sapporo of Japan and Anheuser-Busch InBev of Belgium. While beer is available in some liquor stores, many call this a ‘near-monopoly’ which has resulted in higher prices compared to other provinces where beer is also available in grocery and convenience stores.

In a research study, University of Waterloo economic professor Anindya Sen found that the cost of 24-pack of beer was $35.56 in Ontario ($9.50 more or 27% higher) when compared with two main Quebec grocery stores. Here, a 24-pack was only $25.95.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

According to Sen, “[The study] raises the important question of whether through modernizing retailing the Ontario government could be benefiting more – and capturing more revenue – particularly in a period of large government deficits.”

CEO Dave Bryans of the Ontario Convenience Stores Association said “adding private retailers, like convenience stores, who can work with the LCBO wholesale system would benefit the provincial government, and Ontarians would benefit from improved choice and convenience.”

The Ontario Convenience Store Association has been lobbying the government for the right to sell beer in convenience stores. However, not everyone agrees. Some interest groups, like MADD, Mothers’ Against Drunk Driving, argue that increased access and availability of alcohol with private retailers may result in more alcohol-related fatalities, since convenient store owners may be more concerned about making a profit, than checking vigilantly for proper ID. Read the case on Beer and the Canadian Economy and answer the following questions: Determine the barriers to entry for the beer industry (using Michael Porter’s Five Forces model). State your assumptions where necessary.

Answer: Economies of scale The beer industry in Canada competes as an oligopoly. The three dominant brewers are Molson, Labatt and Sleemans. They have been in business for many years and we can assume they have achieved economies of scale to increase efficiencies and to lower prices. Therefore, these global beer companies may be better able to compete on price.

Capital requirements Huge capital requirements would be required to manufacture beer and sell beer nationally. A beer company may need to potentially buy land to grow grains and other ingredients. A manufacturing facility would need to built, etc. Trucks would need to be purchased to distribute/transport the beer to retailers/customers.

Switching costs Switching costs from one supplier to another may or may not be high.

Access to distribution channels In some parts of the country, access to distribution channels may be a barrier to sell beer.

In Ontario, for example, The Beer Store is foreign-owned by three (3) companies: the U.S.-based Molson-Coors Brewing Company, Sapporo of Japan and Anheuser-Busch InBev of Belgium. This store only sells beer manufactured by these three large, global companies.

Cost disadvantages independent of scale Another disadvantage is the cost disadvantages independent of scale such as trademarks over brands, beer receipes etc, plus government regulation over the sale of alcohol.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

1) An economic environment refers to the: a. political, economic and social conditions in which people live b. economic conditions in which an organization operates c. the global environment of business d. a more general meaning of globalization Answer: b Diff: 2 Type: MC Page Reference: 197 Skill: application Objective: Chapter 6-LO1 2) In Year 1, Jerry decided to give up a job that paid an annual salary of $100,000 to go back to school. College tuition cost a total of $50,000 for one year. However, in Year 2, after graduation, Jerry got a job that paid $200,000. The opportunity cost of getting an education for Jerry is: a. $ 50,000 b. $150,000 c. $100,000 d. none of the above Answer: c Diff: 2 Type: MC Page Reference: 197 Skill: application Objective: Chapter 6-LO1 3) A factor of production includes all of the following except: a. cash b. labour c. natural resources d. entrepreneurs Answer: a Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Diff: 2 Type: MC Page Reference: 197 Skill: recall Objective: Chapter 6-LO1 4) Pepsi, an established, global cola manufacturer, likely uses the following examples of the factors of production today: a. knowledge and entrepreneurs b. labour and natural resources c. natural resources and cash d. cash and entrepreneurs Answer: b Diff: 2 Type: MC Page Reference: 197 Skill: both Objective: Chapter 6-LO1 5) The factors of production include all of the following except: a. capital b. entrepreneur c. investors d. natural resources Answer: c Diff: 2 Type: MC Page Reference: 197 Skill: recall Objective: Chapter 6-LO1 6) Macroeconomics is the study of: a. the individual in the economy b. business in the economy Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

c. small data in the economy d. broader economic issues such as unemployment, inflation and the GDP Answer: d Diff: 2 Type: MC Page Reference: 200 Skill: recall Objective: Chapter 6-LO1 7) The analysis of consumer spending on home repairs and renovations would likely fall under: a. microeconomics b. macroeconomics c. the home construction index d. none of the above Answer: a Diff: 1 Type: MC Page Reference: 200 Skill: both Objective: Chapter 6-LO1 8) A benefit of competition to consumers is: a. more ethical companies b. lower prices c. less varied products d. sustainable companies Answer: b Diff: 2 Type: MC Page Reference: 204 Skill: recall Objective: Chapter 6-LO3 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

9) The market system allows for certain rights to exist, except: a. right to own private property b. right to compete c. right to make a profit d. right to denounce your citizenship Answer: d Diff: 2 Type: MC Page Reference: 202 Skill: recall Objective: Chapter 6-LO2 10) Today, the best example of a communistic system would be: a. France b. Singapore c. Cuba d. Vietnam Answer: c Diff: 2 Type: MC Page Reference: 202 Skill: recall Objective: Chapter 6-LO2 11) High levels of taxation with high levels of government services are often associated with: a. market systems b. socialist systems c. communistic systems d. mixed systems Answer: b Diff: 2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Type: MC Page Reference: 203 Skill: recall Objective: Chapter 6-LO2 12) A system with greater economic stability but higher unemployment is usually a: a. market system b. socialist system c. communistic system d. mixed system Answer: b Diff: 2 Type: MC Page Reference: 203 Skill: recall Objective: Chapter 6-LO2 13) Competition can exist when: a. a hardware store competes with a grocery store b. a shoe store competes with a different shoe store c. a cable company in the province of Ontario competes with the same cable company in the province of P.E.I. d. a store closes down due to bankruptcy Answer: b Diff: 2 Type: MC Page Reference: 204 Skill: application Objective: Chapter 6-LO3 14) In Canada, an industry whereby competition is fierce is the: a. municipal tap water industry b. cable television industry c. coffee industry Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

d. satellite radio industry Answer: c Diff: 2 Type: MC Page Reference: 209 Skill: both Objective: Chapter 6-LO3 15) High capital costs are likely barriers of entry that are typical in the ___________ form of competition. a. monopoly b. oligopoly c. monopolisitc d. pure Answer: b Diff: 2 Type: MC Page Reference: 206 Skill: both Objective: Chapter 6-LO3 16) McDonald’s selling burgers and fries likely competes in this form of competition: a. monopoly b. oligopoly c. monopolistic d. pure Answer: c Diff: 2 Type: MC Page Reference: 208 Skill: both Objective: Chapter 6-LO3

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

17) As the sole producer of a product or service, a company in this form of competition is a: a. price taker b. price setter c. price fixer d. price barrier Answer: b Diff: 2 Type: MC Page Reference: 206 Skill: both Objective: Chapter 6-LO3 18) Municipal tap water is typically controlled and operated by a local government. This type of competition is: a. pure competition b. monopolistic competition c. a natural monopoly d. an oligopoly Answer: c Diff: 2 Type: MC Page Reference: 206 Skill: both Objective: Chapter 6-LO3 19) A pharmaceutical company invents and patents a new drug that is not produced by any other seller. This type of competition may be described as: a. a regulated oligopoly b. monopolistic competition c. a limited monopoly d. a natural monopoly Answer: c Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

Diff: 2 Type: MC Page Reference: 206 Skill: both Objective: Chapter 6-LO3 20) Municipal tap water and bottled water would be part of ______ form(s) of competition. a. the same b. the natural monopoly c. separate d. the natural oligopolies Answer: c Diff: 2 Type: MC Page Reference: 206 Skill: both Objective: Chapter 6-LO3 21) An oligopoly is a form of competition in a particular market where: a. there are many small firms competing with no differentiated b. there are a few, large firms selling slightly differentiated products c. there is one producer of a good or service d. there are many, small firms with slightly differentiated products Answer: b Diff: 2 Type: MC Page Reference: 206 Skill: recall Objective: Chapter 6-LO3 22) Cola manufacturers such as Coke and Pepsi are an example of this type of competition: a. pure competition Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

b. monopolistic competition c. a monopoly d. an oligopoly Answer: d Diff: 2 Type: MC Page Reference: 206 Skill: both Objective: Chapter 6-LO3 23) Potatoes grown in P.E.I. are sold across Canada and compete in this form of competition: a. pure competition b. monopolistic competition c. a monopoly d. an oligopoly Answer: a Diff: 2 Type: MC Page Reference: 204 Skill: both Objective: Chapter 6-LO3 24) There are lots of retail stores to buy running shoes in Canada. Walmart, Payless Shoes, Sporting Life, Sears, Athletic World, and the Running Room are just a few examples. There are a variety of prices, styles and designs to choose from. This is an example of: a. pure competition b. monopolistic competition c. a monopoly d. an oligopoly Answer: b Diff: 2 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

Page Reference: 208 Skill: both Objective: Chapter 6-LO3 25) Facebook is a U.S. online social networking site that advertizes to millions of its members across Canada, the United States and abroad. The U.S. gross domestic product (GDP) would include ________ from Facebook. a. sales earned in the U.S. only b. sales earned in the U.S. and Canada only c. sales earned in Canada only d. sales earned in the U.S. and internationally Answer: a Diff: 2 Type: MC Page Reference: 211 Skill: both Objective: Chapter 6-LO4 26) A downward change in the economy can result in an increase in: a. cyclical unemployment b. structural unemployment c. seasonal unemployment d. frictional unemployment Answer: a Diff: 2 Type: MC Page Reference: 227 Skill: recall Objective: Chapter 6-LO5 27) When jobs available do not correspond with the skills of the labour force, an increase in _____________ can occur. a. cyclical unemployment b. structural unemployment Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

c. seasonal unemployment d. frictional unemployment Answer: b Diff: 2 Type: MC Page Reference: 227 Skill: both Objective: Chapter 6-LO5 28) The construction industry exists around the year, but housing construction is most active in the spring and summer. When housing contractors are unemployed in the winter, they are likely affected by: a. cyclical unemployment b. structural unemployment c. seasonal unemployment d. frictional unemployment Answer: c Diff: 2 Type: MC Page Reference: 228 Skill: both Objective: Chapter 6-LO5 29) When only frictional unemployment exists, and no structural or cyclical unemployment is present, there is: a. just seasonal unemployment b. full employment c. the natural rate of unemployment d. total natural unemployment in a region Answer: b Diff: 2 Type: MC Page Reference: 228 Skill: both Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

Objective: Chapter 6-LO5 30) In general terms, full employment means that: a. only cyclical unemployment exists b. only frictional unemployment exists c. no unemployment exists d. there is less than 0.00002% unemployment Answer: b Diff: 2 Type: MC Page Reference: 228 Skill: both Objective: Chapter 6-LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

1) Describe the five factors of production.

Answer: 1. Natural resources include land and raw materials that are found either below or above the ground, such as soil, rocks, minerals, trees, fruits, and vegetables. Raw materials can also include living organisms like fish or agricultural products such as milk and eggs.

2. Labour refers to workers. These are typically employees who contribute their talents and strengths to create goods and services for the owners of a business.

3. Capital includes buildings, machines, tools, and other physical components used in producing goods and services. Money from shareowners, however, is not capital. Money can be used to purchase capital, but money is not capital itself. Money is only an investment, since it cannot create or produce anything on its own to earn income.

4. Knowledge is another factor of production—in fact, it has become the most important factor of production in today’s economy. The high-tech industry has created a need for knowledge workers : individuals with specialized education, skills, training, and experience. For many companies, knowledge is the key factor in achieving a competitive advantage.

5. Entrepreneurs are individuals who establish a business in the pursuit of profit and to serve a need in society. They are the owners, decision makers, and risk takers of the business.Unlike their employees, entrepreneurs have no guarantee of income in return for their time and effort.

Objective: LO1 2) Explain the type of economic system that exists in Canada.

Answer: Canada’s economy is considered a mixed economy since it uses more than one economic system. While most industries are the work of private enterprise, the Canadian government may be considered partly socialist in its control of certain industries such as Canada Post, utilities (for example, water), and some public lands. In Canada, for example, the provincial governments control and regulate the health care system.

Similarly, the Ontario government owns and operates the Liquor Control Board of Ontario (LCBO), which controls the sale of certain types of alcohol. Today, most economies are considered mixed systems since governments usually play some role in managing the economy.

Objective: LO2 3) What type of competition would the window industry fall under? Explain.

Answer: The window industry would fall under the category of monopolistic competition. In monopolistic competition, a large number of companies compete with one another, Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

offering products and services that are differentiated at least in a minor way.

Differentiation strategies include branding, style or design, and advertising.

Windows are sold by various small and large companies. Certainly, windows are differentiated by different brands, styles and designs. Windows are also advertized in flyers, etc. The market controls the price. There are however a variety of prices due to lower quality and higher quality windows.

Objective: LO3 4) Describe the stages in the Business Cycle. What part of the business cycle do think Canada is in now?

Answer: The business cycle refers to the rise and fall of economic activity over time. Although the economy will grow over the long term, economic growth is usually unstable. Business cycles or economic fluctuations vary in length and severity. Some periods of fluctuation are difficult and long; others are short and mild. Generally, the economy in the long run has an upward slope with ups and downs of varying. The five stages of the business cycle are expansionary, peak, contraction, trough, and recovery.

The expansionary phase is a period when economic activity is rising. Goods are being produced and sold, the workforce is expanding (that is, jobs are being created), demand for goods is increasing, and the price of goods is rising. Typically, this is a positive period for business. Profits are rising, cash flow is steady, and there is an opportunity for some risk taking. The expansionary period can experience a sudden economic boom or slow and steady growth.

Once the economy has reached its highest point, it can be said to have peaked. A peak marks the end of the expansionary phase and the beginning of the contraction phase. A contraction phase is characterized by declining economic activity and falling profits.

During this phase, managers usually reduce costs, lay off workers, and halt any plans to invest in the company. A recession is realized when there are two or more consecutive quarter periods of negative or falling economic activity. The most recent recession occurred in 2008. A depression is an extreme recession that is characterized by longer economic periods of declining economic activity, high unemployment, and high levels of personal and commercial bankruptcies.

As of January 2014, Canada is likely in the expansionary phase experiencing slow growth. The answer to this question will depend on when this book and question is read.

Objective: LO4 5) As a student, explain whether or not you would be included in Canada’s unemployment rate.

Answer:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

The unemployment rate is the percentage of people who are unemployed out of the total labour force and who are actively seeking work.

Whether or not you included in the unemployment rate depends on various factors. Here are a few examples: Scenario

Included or not included in the unemployment rate.

A student, who is not employed and not looking for work.

Not included in rate.

A student, who is employed part-time.

Not included in rate. The student is considered to be employed and therefore, not included in the unemployment rate.

A student, who is not employed and but looking for a part-time job.

Included in the rate. The student is considered to be unemployed and actively looking for work.

Included in the rate. The student is considered to be unemployed and actively looking for work.

A student who is going to graduate and has started looking for full-time work.

Objective: LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) Examples of factors of production includes labour, knowledge workers, entrepreneurs and cash. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 197 Skill: recall Objective: Chapter 6-LO1 2) An economic environment is made up of 3 key groups including businesses, charitable organizations and non-profit groups. a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 197 Skill: recall Objective: Chapter 6-LO1 3) Using a microeconomic view, a business owner introducing a new product would have to consider is there enough consumer demand for this product and what is the current supply of similar products. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 200 Skill: application Objective: Chapter 6-LO1 4) Using a macroeconomic view, a restaurant increasing prices would have to consider are employment levels high and is consumer spending high.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 200 Skill: application Objective: Chapter 6-LO1 5) Under socialism, with significant government ownership of certain industries, the government has the ability to control donations to non-profit groups. a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 203 Skill: application Objective: Chapter 6-LO2 6) A market economy offers entrepreneurs certain rights such as the right to own public property. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 202 Skill: recall Objective: Chapter 6-LO2 7) When debt levels get too high, government officials can try to reduce the debt by increasing taxes only. a. True b. False Answer: b Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Diff: 2 Type: TF Page Reference: 222 Skill: recall Objective: Chapter 6-LO4 8) The unemployment rate would likely include a person laid off who decided to travel around the world. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 226 Skill: application Objective: Chapter 6-LO6 9) The baby boom of the 1950s ultimately brought a large number of people into the workforce, creating an increase in cyclical unemployment. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 226 Skill: application Objective: Chapter 6-LO6 10) The total amount of frictional and structural unemployment is equal to the natural rate of unemployment plus full employment. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 228 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Skill: application Objective: Chapter 6-LO6

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) Explain the characteristics of the four stages of the industry lifecycle model.

Answer: Introduction New industries emerge as the result of changes (usually technological or regulatory) that create opportunities for entrepreneurs to leverage novel combinations of resources to develop innovative products, services, or processes.

The early years of an industry are generally a tumultuous period where there is tremendous uncertainty about the future of the market. There is no dominant technology or business model, and it is far from certain that the market will ever grow sufficiently to provide attractive financial returns and growth opportunities. At the same time, this is also a period of unbridled optimism among entrepreneurs jockeying for position as the future of the market unfolds.

Early entrants into an industry tend to be small entrepreneurial firms excited by the prospect and potential growth of a new market. Large, established firms tend to lag behind smaller ones in entering new industries for two reasons. First, a budding market is usually too small and risky to justify the entry of large firms burdened with high overhead costs and the need to generate more certain, even if lower, financial returns.

Second, older incumbent firms usually have bureaucratic organizational structures that inhibit their ability to move quickly and flexibly into new markets. Smaller and more nimble firms rely on simpler structures and lower startup costs to capture a first-mover advantage. Entrepreneurial startups are inherently more tolerant of ambiguity and risk because they have much less to lose than established firms and are therefore more willing to gamble in the hopes of generating a large payoff.

This introductory phase is one of great technical uncertainty where producers experiment with different and novel combinations in the hopes of discovering a superior approach that will dominate over other firms. Firms are intensely focused on research and development (R&D) activities during this period. This results in a high degree of product innovation with many different versions of products incorporating different features and technologies. This also leads to confusion for customers and other stakeholders, which prevents the market from taking off into the growth phase. The types of customers who tend to purchase in the introductory phase of the life cycle are early adopters willing to pay a premium for the privilege of owning a product before most other people, despite its early flaws and glitches. Conservative and price-conscious customers will usually wait until the mature stage before buying. Despite (and partly because of) the uncertainty inherent in a new industry, the introduction phase of the life cycle is a period of extraordinary creativity and innovation. An industry is rarely as vibrant as in its early years, when hope and optimism fuel the dreams Growth The growth stage begins when the market converges around a single dominant design or approach. A dominant design is defined by Anderson and Tushman as “a single architecture that establishes dominance in a product class.” For example, according to the research firm Gartner, Apple’s iPad is expected to dominate the tablet industry until at Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

least 2016. In some cases, technical standards are specified and must be adhered to by all firms wishing to enter the market. When a standard is legally mandated and enforced by a government or standards organization, it is called a de jure standard . For example, the gauge of a railroad track, a light bulb socket, and an electrical outlet are all based on standards that have been explicitly specified by a standards organization—usually to ensure compatibility. A company wanting to produce light bulbs must make them to the correct specifications or they will be useless to consumers.

A de facto standard , on the other hand, arises by virtue of common usage and is not officially sanctioned by any authority. It is a standard “in fact” or “in practice,” rather than in law. Microsoft Windows is the de facto standard for personal computer operating systems because over 90% of the market uses Windows. Software developers must therefore write programs that are compatible with Windows if they want to reach the majority of the market. As the standard or dominant model spreads across the industry, the producers that persist with a different approach usually exit the industry. This is one of the main causes of industry shakeouts.

A shakeout in an industry is defined as a large number of exits from the market at the same time as the aggregate output of the industry increases. A large number of failures in a declining market is not a shakeout. A shakeout is a natural and healthy—albeit painful—process for an industry as it simply purges and weeds out the weaker competitors. The firms remaining after the shakeout emerge as strong competitors able to scale up production and serve the needs of a growing market.

Maturity In the mature stage, the third in the life cycle, growth in aggregate demand begins to slow. Markets start to become saturated as there are fewer new adopters to attract and so competition intensifies even more. This can, nevertheless, be a very profitable period for the surviving firms as the industry enters a period of relative stability. For example, between 1980 and 2000, the US beer brewing industry was in a mature phase and was dominated by three large firms that controlled 80% of the market (Anheuser-Busch: 47%; Miller: 23%; and Coors: 10%). Over the 20-year period, market shares were very stable, and no firm gained or lost more than about a single share point in any one year. Despite the high degree of concentration in mature markets, rivalry is fierce. A single point of market share can mean millions of dollars in revenue, so firms spend large amounts of money on advertising and sometimes enter into damaging price wars to lure customers from the competition. Because technological knowledge has diffused to the far corners of the industry and patents may have expired, firms focus their innovative efforts on incremental improvements to products. This is the era where firms market the “new and improved” versions and 25 different scents and flavours in the hopes of differentiating their products ever so slightly from the competition’s. Incremental innovations also provide opportunities to extend the life cycle to delay the inevitable arrival of the decline stage. As consumers accumulate knowledge of the industry and its products over time, they become much more sophisticated and demanding buyers. This influences the industry’s trend toward the commoditization of its products and makes consumers even more price conscious, which in turn forces firms to continuously squeeze out more cost savings from their production processes .

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

When there is very little product differentiation and consumers have become notoriously fickle, power once held by the manufacturers now shifts to the distribution channel firms that control access to the customer. This is why shelf space is so critical in mature packaged goods markets like laundry detergent. When customers see very little difference between Tide and the competition, they will essentially grab whatever they have access to or what happens to be on sale. Similarly, grocery stores are under continued pressure to keep costs low to maintain their consumer base and to sell their many undifferentiated products. Retailers who control and allocate shelf space have more bargaining power than they did in earlier phases, where customers would seek out a particular product because it possessed features not shared by others.

Given the scale required to compete efficiently, there is little if any entry at this stage of the life cycle. The sources of competitive advantage for firms reside in process engineering to derive greater manufacturing and production efficiencies and reduce costs even more. This often means outsourcing and shedding activities that can be subcontracted more efficiently. In some industries, production will shift from advanced to developing countries during this stage to benefit from lower labour costs. In terms of the generic competitive strategies described in Chapter 5 , whereas differentiation was the favoured approach in the earlier stages, organizations that adopt a cost leadership strategy in mature markets tend to outperform their competitors.

The shift from a dynamic and technologically innovative environment with many small firms to a stable and cost-efficient market with few large rivals also requires a change in the type of organizational structure , as described in Chapter 4 . In the high-flying and uncertain early market, entrepreneurial startups need to be innovative, dynamic, and flexible. The organic structure, with its decentralized approach, limited hierarchy, and low formalization, is better suited to the environment of the introduction and early growth phases. In a mature market, where efficiency and cost-cutting matter more than innovation, the mechanistic structure, with its stricter rules, chain of command, and narrow division of labour, is more appropriate.

Decline An industry enters the decline stage when sales begin to fall. Competition may become especially fierce in the decline stage as firms face tough choices regarding the future. It is difficult to predict when this stage will materialize, and the time it takes for industries to reach the decline stage varies widely. Nevertheless, industry sales typically decline as a result of one of the following: 1. Changes in demographics: Toward the end of the baby boom in the 1960s, demand for baby food dropped and rivalry among the leading firms—Gerber, Heinz, and BeechNut—intensified considerably.

2. Shifting consumer tastes and needs: Social trends and health considerations have resulted in declining demand for cigarettes and tobacco products since the 1980s.

3. Technological substitution: Word processing software led to the decline of the typewriter industry; online streaming and downloading of movies is replacing DVDs, which replaced VHS cassette tapes as the medium of choice for movies. Sales of DVD players, discs, and movie rentals are therefore declining.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

2) Why can an industry enter the decline stage of the industry lifecycle model?

Answer: The industry can enter the decline stage due to declining sales because of 3 key reasons: Changes in demographics: Toward the end of the baby boom in the 1960s, demand for baby food dropped and rivalry among the leading firms—Gerber, Heinz, and BeechNut—intensified considerably.

Shifting consumer tastes and needs: Social trends and health considerations have resulted in declining demand for cigarettes and tobacco products since the 1980s.

Technological substitution: Word processing software led to the decline of the typewriter industry; online streaming and downloading of movies is replacing DVDs, which replaced VHS cassette tapes as the medium of choice for movies. Sales of DVD players, discs, and movie rentals are therefore declining.

3) What strategies can a company employ in order to stay in business?

Answer: 1. Maintain a leadership stance: A leadership strategy requires a firm to continue investing in marketing, support, and product development, hoping that competitors will eventually exit the market. Despite declining sales and profit margins, there may still be opportunities to generate above-average returns for firms that remain the industry leaders during this phase.

2. Pursue a niche strategy: The objective of a niche strategy is to find a specific segment of the industry that may not decline as rapidly as the rest and where the firm can expect to possess some form of competitive advantage to discourage direct competition in the niche. For example, a tobacco firm facing declining cigarette sales may decide to focus exclusively on the more robust cigar market and defend that niche heavily against competitors by investing in marketing and sales support.

A firm can ultimately choose to switch to a harvest, exit, or consolidation strategy after having pursued a leadership or niche approach; however, the reverse is not true.

3. Harvest profits: The harvesting profits strategy requires squeezing as much remaining profit as possible from the industry by drastically reducing costs. The firm must eliminate or severely restrict investments in the industry and take advantage of existing strengths to generate incremental sales. This strategy is ultimately followed by the firm’s exit from the industry.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

4. Exit early: The exit early strategy allows firms to recover some of their prior investments in the industry by exiting the market early in the decline phase, when assets may still be valuable to others and there is greater uncertainty concerning the speed of the decline. Some firms also choose to exit the industry during the mature phase to truly maximize the value from the sale of its assets. Once decline becomes evident, assets are worth much less to potential buyers, who are in a stronger bargaining position. The risk of exiting so early is that an organization’s forecast for decline may prove inaccurate.

5. Consolidate: A consolidation strategy involves acquiring at a reasonable price the best of the remaining firms in the industry. This allows the acquirer to enhance its market power and generate economies of scale and synergies to further reduce costs and make up for declining demand.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

1) Case: Canada Post to phase out urban home delivery In December 2013, Canada Post announced it would phase out urban home delivery of mail services in an effort to restructure its operations across Canada. At that time, about 6,000 – 8,000 positions were expected to be eliminated over the next five years, a 12% reduction of its current workforce. Nonetheless, about 15,000 postal employees were also expected to retire during the same period. Canada Post estimated that the decision would help save $700 to $900 million each year. In another restructuring move, Canada Post also announced it would raise the price of a single postage stamp from $0.63 to $1.00, whereas a booklet of 10 stamps would be sold at a small discount for $8.50 a booklet, or $0.85 per stamp.

Canadian Union of Postal Workers (CUPW) union leader, Denis Lemelin, had stated that it was “a call to action for all the people to stand up and protect the postal service.”

Clearly, this was not a welcomed change for Canada Post employees who were going to lose their jobs.

Unionized Canada Post employees can earn between $19 to $25 per hour plus benefits, a good wage for the middle class. However, the restructuring plans may signal wide-spread changes that may threaten the interests of more than 50,000 Canadian postal workers.

In 2012, Canada Post celebrated its 100th anniversary of postal service operations.

However, the announcement of new changes meant that this door-to-door mail delivery tradition would become extinct like the old ‘milk delivery’ service, a Canadian way of life that has become outdated due to modern conveniences.

Modern technology advancements have reduced Canadians’ need to use the postal service, making the daily ritual of checking for a daily letter or bill, almost unnecessary.

Couriers deliver parcels, bills are paid online, and of course, letter writing has been replaced by emails, texts and tweets. Web conferencing such as Skype has also allowed people to communicate inexpensively.

Canada Post, a federal crown corporation of the Canadian government, has seen a significant decline in revenues for the past several years. While almost 10 billion letters and parcels were delivered each year, there has been a 24% drop in letters since 2008. In the third quarter of 2013, Canada Post reported a loss of $73 million. Without fundamental changes, it was projected to lose over $943 million by 2020. A Canada Post representative said if continued losses are left unchecked, they would jeopardize Canada Post’s financial self-sufficiency and could result in thousands of more jobs lost in the future. Certainly, ongoing losses would be added to the federal government’s debt and be left for Canadian taxpayers to pay for in the long-term. In fact, ongoing debt may affect Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

the government’s ability to provide other types of services that affect a wide range of citizens across the country.

Two-thirds of Canadians already receive their mail by community mail boxes in rural areas and in newer community subdivisions. In 2012, about one-third or 5.1 million people received mail delivered to their door. According to a Canada Post report, the annual cost of home delivery was estimated at $283 per address, whereas the average cost of a community box was $117.

While the changes are necessary to save millions of dollars in operating losses, the change will be a setback for people with mobility issues such as seniors and the disabled.

“Door-to-door delivery remains a critical component for people with disabilities who have mobility issues in particular and would have trouble getting to a public mailbox,” said Laurie Beachell, the national coordinator at the Council of Canadians with Disabilities. She explained that as Canadian taxpayers, they deserve to be able to receive their mail too. Clearly, there are many seniors who do not use computers, tablets and smartphones to communicate and to pay bills, but rather, still rely on mail for different forms of communication.

While Canada was the first G7 nation to initiate the end to its home delivery services, it was not the first country to make changes to how it delivers mail. The United Kingdom government recently sold a 60% stake in its postal service to Royal Mail following a move by other countries to privatize their systems such as in Austria, Germany and the Netherlands. The idea has also been proposed in the U.S., but did not reach advanced discussions in Congress. Similarly, the U.S. postal service has been accumulating losses which hit $5 billion in 2013.

Indeed, rapid technology is affecting how North Americans communicate and live from day to day. For example, Amazon announced in 2013 that it would be testing out flying, robotic delivery drones to mail Amazon packages directly to customer doors.

Certainly, consumers have some benefits to changes in postal delivery services. For example, mail locked in a community box may actually be more safer than in an unlocked mailbox at your own home. Of course, this is something not everyone agrees with. The Mayor of Coquitlam, Richard Stewart, explained his city has many community mailboxes but they are not always private and secure. He stated “We have some of our neighbourhoods where the community mailbox has been broken into at least once a year for the last decade…we end up with people constantly having to go out and change their credit card numbers, change all their bank account numbers and their security systems to avoid identity theft.”

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Federal Transport Minister Lisa Raitt said, “The government of Canada supports Canada Post in its efforts to fulfil its mandate of operating on a self-sustaining financial basis in order to protect taxpayers, while modernizing its business and aligning postal services with the choice of Canadians.”

According to a Conference Board of Canada Report, parcels are the only expected area of growth for Canada Post over the next several years, even though customers keep growing at a rate of 100,000 annually. A Canada Post spokesperson said something had to be done to deal with its financial crisis. In fact, the government had already been discussing the possibility of privatizing the crown corporation by selling it off altogether, which would mean thousands of more jobs lost. However, the Federal government had decided to keep managing Canada Post for now.

The restructuring efforts have many potential financial benefits. The increase in the price of stamps would help increase revenues by $160-$200 million per year and the switch to community mailboxes will save up to $500 million. Streaming operations would help save another $100 million and opening many franchise post offices will cut $40-$50 million in losses.

Another reason for the urgency for Canada Post to become profitable again was to repay its pension plan which has a $6.5-billion solvency deficit. In order for Canada Post to make additional payments to the plan, it will need to start making a profit. “The regulations provide Canada Post with more time to pay off its significant pension deficit so that it can restructure its operation for long-term viability,” said Kevin Sorenson, the minister of state for finance.

Reaction to Canada Post cuts have been posted on the internet under news articles and in some blogs. Some Canadians had asked if the company could have tried something more innovative instead of cutting middle-class jobs and reducing services to seniors and the disabled. Clearly, Canada Post is a unique organization. It is not likely other companies that can easily merge with another corporation or diversify into other businesses. It sells one service – delivering mail and parcels in Canada. Indeed, Canada Post has to stop its operating losses before the condition worsens. Like any corporation, operating losses can only continue for so long. Without profits, a business cannot pay its staff, suppliers, and other creditors, and will ultimately go bankrupt and cease to exist.

Identify and explain which five (5) stakeholder groups would be most affected by the cancellation of urban postal delivery services and why.

Answer: People with mobility issues: • seniors and disabled – may not be able to get access to their mail daily

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

• • • •

they may have to pay someone to pick it up for them, incurring an extra cost or make less trips to the community mail box (eg once a week) may have to switch bills, account statements, and other mail to online options will have to pay more for stamps, for less service (Eg. $0.85 to $1) may be concerned about theft of mail in community mailboxes and identity theft

Residents in urban areas: • will have to pick up their mail from a community mail box, or delivery facility.

• will have to pay more for stamps, for less service (Eg. $0.85 to $1) • may be concerned about theft of mail in community mailboxes and identity theft Mail carriers: • about 6,000 – 8,000 jobs expect to be lost over the next 5 years across Canada.

• may have to apply for unemployment benefits (eg. government assistance), look for a job and get retrained with more transferrable skills • Some mail carriers may retire early Government/taxpayers: • save money, incur fewer losses o “The restructuring efforts have many potential financial benefits. The increase in the price of stamps would help increase revenues by $160$200 million per year and the switch to community mailboxes will save up to $500 million. Streaming operations would help save another $100 million and opening many franchise post offices will cut $40-$50 million in losses.” o “the annual cost of home delivery was estimated at $283 per address, whereas the average cost of a community box was $117.”

• reduce pension deficits o “Another reason for the urgency for Canada Post to become profitable again was to repay its pension plan which has a $6.5-billion solvency deficit. In order for Canada Post to make additional payments to the plan, it will need to start making a profit.”

• unemployment insurance payouts may temporarily go up as 6,000 to 8,000 people/jobs will be terminated Canadian Union of Postal Workers: • will negotiate with Canada Post to keep jobs; but may be unable to do so.

• will lose some union members as 6,000-8,000 jobs expected to be lost over the next 5 years • may need to watch that pension deficits go away in order to ensure member benefits protected • may be able to negotiate pay raises if Canada Post becomes profitable again Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

2) Case: Canada Post to phase out urban home delivery In December 2013, Canada Post announced it would phase out urban home delivery of mail services in an effort to restructure its operations across Canada. At that time, about 6,000 – 8,000 positions were expected to be eliminated over the next five years, a 12% reduction of its current workforce. Nonetheless, about 15,000 postal employees were also expected to retire during the same period. Canada Post estimated that the decision would help save $700 to $900 million each year. In another restructuring move, Canada Post also announced it would raise the price of a single postage stamp from $0.63 to $1.00, whereas a booklet of 10 stamps would be sold at a small discount for $8.50 a booklet, or $0.85 per stamp.

Canadian Union of Postal Workers (CUPW) union leader, Denis Lemelin, had stated that it was “a call to action for all the people to stand up and protect the postal service.”

Clearly, this was not a welcomed change for Canada Post employees who were going to lose their jobs.

Unionized Canada Post employees can earn between $19 to $25 per hour plus benefits, a good wage for the middle class. However, the restructuring plans may signal wide-spread changes that may threaten the interests of more than 50,000 Canadian postal workers.

In 2012, Canada Post celebrated its 100th anniversary of postal service operations.

However, the announcement of new changes meant that this door-to-door mail delivery tradition would become extinct like the old ‘milk delivery’ service, a Canadian way of life that has become outdated due to modern conveniences.

Modern technology advancements have reduced Canadians’ need to use the postal service, making the daily ritual of checking for a daily letter or bill, almost unnecessary.

Couriers deliver parcels, bills are paid online, and of course, letter writing has been replaced by emails, texts and tweets. Web conferencing such as Skype has also allowed people to communicate inexpensively.

Canada Post, a federal crown corporation of the Canadian government, has seen a significant decline in revenues for the past several years. While almost 10 billion letters and parcels were delivered each year, there has been a 24% drop in letters since 2008. In the third quarter of 2013, Canada Post reported a loss of $73 million. Without fundamental changes, it was projected to lose over $943 million by 2020. A Canada Post representative said if continued losses are left unchecked, they would jeopardize Canada Post’s financial self-sufficiency and could result in thousands of more jobs lost in the Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

future. Certainly, ongoing losses would be added to the federal government’s debt and be left for Canadian taxpayers to pay for in the long-term. In fact, ongoing debt may affect the government’s ability to provide other types of services that affect a wide range of citizens across the country.

Two-thirds of Canadians already receive their mail by community mail boxes in rural areas and in newer community subdivisions. In 2012, about one-third or 5.1 million people received mail delivered to their door. According to a Canada Post report, the annual cost of home delivery was estimated at $283 per address, whereas the average cost of a community box was $117.

While the changes are necessary to save millions of dollars in operating losses, the change will be a setback for people with mobility issues such as seniors and the disabled.

“Door-to-door delivery remains a critical component for people with disabilities who have mobility issues in particular and would have trouble getting to a public mailbox,” said Laurie Beachell, the national coordinator at the Council of Canadians with Disabilities. She explained that as Canadian taxpayers, they deserve to be able to receive their mail too. Clearly, there are many seniors who do not use computers, tablets and smartphones to communicate and to pay bills, but rather, still rely on mail for different forms of communication.

While Canada was the first G7 nation to initiate the end to its home delivery services, it was not the first country to make changes to how it delivers mail. The United Kingdom government recently sold a 60% stake in its postal service to Royal Mail following a move by other countries to privatize their systems such as in Austria, Germany and the Netherlands. The idea has also been proposed in the U.S., but did not reach advanced discussions in Congress. Similarly, the U.S. postal service has been accumulating losses which hit $5 billion in 2013.

Indeed, rapid technology is affecting how North Americans communicate and live from day to day. For example, Amazon announced in 2013 that it would be testing out flying, robotic delivery drones to mail Amazon packages directly to customer doors.

Certainly, consumers have some benefits to changes in postal delivery services. For example, mail locked in a community box may actually be more safer than in an unlocked mailbox at your own home. Of course, this is something not everyone agrees with. The Mayor of Coquitlam, Richard Stewart, explained his city has many community mailboxes but they are not always private and secure. He stated “We have some of our neighbourhoods where the community mailbox has been broken into at least once a year for the last decade…we end up with people constantly having to go out and change their credit card numbers, change all their bank account numbers and their security systems to avoid identity theft.”

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

Federal Transport Minister Lisa Raitt said, “The government of Canada supports Canada Post in its efforts to fulfil its mandate of operating on a self-sustaining financial basis in order to protect taxpayers, while modernizing its business and aligning postal services with the choice of Canadians.”

According to a Conference Board of Canada Report, parcels are the only expected area of growth for Canada Post over the next several years, even though customers keep growing at a rate of 100,000 annually. A Canada Post spokesperson said something had to be done to deal with its financial crisis. In fact, the government had already been discussing the possibility of privatizing the crown corporation by selling it off altogether, which would mean thousands of more jobs lost. However, the Federal government had decided to keep managing Canada Post for now.

The restructuring efforts have many potential financial benefits. The increase in the price of stamps would help increase revenues by $160-$200 million per year and the switch to community mailboxes will save up to $500 million. Streaming operations would help save another $100 million and opening many franchise post offices will cut $40-$50 million in losses.

Another reason for the urgency for Canada Post to become profitable again was to repay its pension plan which has a $6.5-billion solvency deficit. In order for Canada Post to make additional payments to the plan, it will need to start making a profit. “The regulations provide Canada Post with more time to pay off its significant pension deficit so that it can restructure its operation for long-term viability,” said Kevin Sorenson, the minister of state for finance.

Reaction to Canada Post cuts have been posted on the internet under news articles and in some blogs. Some Canadians had asked if the company could have tried something more innovative instead of cutting middle-class jobs and reducing services to seniors and the disabled. Clearly, Canada Post is a unique organization. It is not likely other companies that can easily merge with another corporation or diversify into other businesses. It sells one service – delivering mail and parcels in Canada. Indeed, Canada Post has to stop its operating losses before the condition worsens. Like any corporation, operating losses can only continue for so long. Without profits, a business cannot pay its staff, suppliers, and other creditors, and will ultimately go bankrupt and cease to exist.

Describe how any five (5) external forces (from the general environment) may have impacted Canada Post in the last several years. Discuss the nature of each force separately, with examples.

Answer: Political Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

• •

Canada Post, is part of the federal government, as a federal crown corporation and is trying to reduce budget deficits (operating losses) and outstanding debts.

The government has a concern about debts due to its ability to pay for pensions, interest costs, and of course the current and long-term operations etc

Economic • the demand for free email is greater than the demand for letters and postage; email is quicker, less costly and more convenient (since you can email people from your computer, tablet, phone etc…)

Technological • the internet allowed change from mail to: o online communication - email, online voice, texting, etc o online bill payments Societal • consumer preferences have changed • society writes less letters than 20 years ago; sends less xmas cards, etc “Canadians are sending less mail than ever.

• demographic changes – the younger generation prefers to use technology to communicate than mail Competitive • There are different competitors for different services traditionally where mail was used: Personal communication

•

Email

•

•

texting

•

•

social media

•

•

Web audio/video conferencing in-person communication courier companies taxis

•

Google (gmail), yahoo, Microsoft (outlook), hotmail, etc. cell phone companies (Apple, Nokia, Samsung, Blackberry, etc) Twitter, Facebook, LinkedIn, GooglePlus Skype

•

talking face-to-face

•

FedEx, UPS, smaller carriers Blue and White, Beck, Royal Taxi

free online payment services (from the

•

• Sending parcels

Paying bills

• •

•

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

•

banks, utilities, companies selling online

8

•

company that provides the service) a third-party payment service

goods and services •

paypal

Global • Other countries are making changes to their mail services, acting as a model for Canada to follow.

• Case Examples: o “The United Kingdom government recently sold a 60% stake in its postal service to Royal Mail following a move by other countries to privatize their systems such as in Austria, Germany and the Netherlands.”

3) Case: Canada Post to phase out urban home delivery In December 2013, Canada Post announced it would phase out urban home delivery of mail services in an effort to restructure its operations across Canada. At that time, about 6,000 – 8,000 positions were expected to be eliminated over the next five years, a 12% reduction of its current workforce. Nonetheless, about 15,000 postal employees were also expected to retire during the same period. Canada Post estimated that the decision would help save $700 to $900 million each year. In another restructuring move, Canada Post also announced it would raise the price of a single postage stamp from $0.63 to $1.00, whereas a booklet of 10 stamps would be sold at a small discount for $8.50 a booklet, or $0.85 per stamp.

Canadian Union of Postal Workers (CUPW) union leader, Denis Lemelin, had stated that it was “a call to action for all the people to stand up and protect the postal service.”

Clearly, this was not a welcomed change for Canada Post employees who were going to lose their jobs.

Unionized Canada Post employees can earn between $19 to $25 per hour plus benefits, a good wage for the middle class. However, the restructuring plans may signal wide-spread changes that may threaten the interests of more than 50,000 Canadian postal workers.

In 2012, Canada Post celebrated its 100th anniversary of postal service operations.

However, the announcement of new changes meant that this door-to-door mail delivery tradition would become extinct like the old ‘milk delivery’ service, a Canadian way of life that has become outdated due to modern conveniences.

Modern technology advancements have reduced Canadians’ need to use the postal service, making the daily ritual of checking for a daily letter or bill, almost unnecessary.

Couriers deliver parcels, bills are paid online, and of course, letter writing has been Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

replaced by emails, texts and tweets. Web conferencing such as Skype has also allowed people to communicate inexpensively.

Canada Post, a federal crown corporation of the Canadian government, has seen a significant decline in revenues for the past several years. While almost 10 billion letters and parcels were delivered each year, there has been a 24% drop in letters since 2008. In the third quarter of 2013, Canada Post reported a loss of $73 million. Without fundamental changes, it was projected to lose over $943 million by 2020. A Canada Post representative said if continued losses are left unchecked, they would jeopardize Canada Post’s financial self-sufficiency and could result in thousands of more jobs lost in the future. Certainly, ongoing losses would be added to the federal government’s debt and be left for Canadian taxpayers to pay for in the long-term. In fact, ongoing debt may affect the government’s ability to provide other types of services that affect a wide range of citizens across the country.

Two-thirds of Canadians already receive their mail by community mail boxes in rural areas and in newer community subdivisions. In 2012, about one-third or 5.1 million people received mail delivered to their door. According to a Canada Post report, the annual cost of home delivery was estimated at $283 per address, whereas the average cost of a community box was $117.

While the changes are necessary to save millions of dollars in operating losses, the change will be a setback for people with mobility issues such as seniors and the disabled.

“Door-to-door delivery remains a critical component for people with disabilities who have mobility issues in particular and would have trouble getting to a public mailbox,” said Laurie Beachell, the national coordinator at the Council of Canadians with Disabilities. She explained that as Canadian taxpayers, they deserve to be able to receive their mail too. Clearly, there are many seniors who do not use computers, tablets and smartphones to communicate and to pay bills, but rather, still rely on mail for different forms of communication.

While Canada was the first G7 nation to initiate the end to its home delivery services, it was not the first country to make changes to how it delivers mail. The United Kingdom government recently sold a 60% stake in its postal service to Royal Mail following a move by other countries to privatize their systems such as in Austria, Germany and the Netherlands. The idea has also been proposed in the U.S., but did not reach advanced discussions in Congress. Similarly, the U.S. postal service has been accumulating losses which hit $5 billion in 2013.

Indeed, rapid technology is affecting how North Americans communicate and live from day to day. For example, Amazon announced in 2013 that it would be testing out flying, robotic delivery drones to mail Amazon packages directly to customer doors.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

Certainly, consumers have some benefits to changes in postal delivery services. For example, mail locked in a community box may actually be more safer than in an unlocked mailbox at your own home. Of course, this is something not everyone agrees with. The Mayor of Coquitlam, Richard Stewart, explained his city has many community mailboxes but they are not always private and secure. He stated “We have some of our neighbourhoods where the community mailbox has been broken into at least once a year for the last decade…we end up with people constantly having to go out and change their credit card numbers, change all their bank account numbers and their security systems to avoid identity theft.”

Federal Transport Minister Lisa Raitt said, “The government of Canada supports Canada Post in its efforts to fulfil its mandate of operating on a self-sustaining financial basis in order to protect taxpayers, while modernizing its business and aligning postal services with the choice of Canadians.”

According to a Conference Board of Canada Report, parcels are the only expected area of growth for Canada Post over the next several years, even though customers keep growing at a rate of 100,000 annually. A Canada Post spokesperson said something had to be done to deal with its financial crisis. In fact, the government had already been discussing the possibility of privatizing the crown corporation by selling it off altogether, which would mean thousands of more jobs lost. However, the Federal government had decided to keep managing Canada Post for now.

The restructuring efforts have many potential financial benefits. The increase in the price of stamps would help increase revenues by $160-$200 million per year and the switch to community mailboxes will save up to $500 million. Streaming operations would help save another $100 million and opening many franchise post offices will cut $40-$50 million in losses.

Another reason for the urgency for Canada Post to become profitable again was to repay its pension plan which has a $6.5-billion solvency deficit. In order for Canada Post to make additional payments to the plan, it will need to start making a profit. “The regulations provide Canada Post with more time to pay off its significant pension deficit so that it can restructure its operation for long-term viability,” said Kevin Sorenson, the minister of state for finance.

Reaction to Canada Post cuts have been posted on the internet under news articles and in some blogs. Some Canadians had asked if the company could have tried something more innovative instead of cutting middle-class jobs and reducing services to seniors and the disabled. Clearly, Canada Post is a unique organization. It is not likely other companies that can easily merge with another corporation or diversify into other businesses. It sells Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

one service – delivering mail and parcels in Canada. Indeed, Canada Post has to stop its operating losses before the condition worsens. Like any corporation, operating losses can only continue for so long. Without profits, a business cannot pay its staff, suppliers, and other creditors, and will ultimately go bankrupt and cease to exist.

What stage(s) of the industry lifecycle model do you think the Canadian daily letter and parcel delivery service(s) are in and why?

Answer: Two different industries: 1. Daily mail delivery (eg. letters, bills, account statements, greeting cards, flyers) Type of competition: a quasi-monopoly - few people use couriers to send everyday letters, birthday cards and bills. No competitors.

Stage of industry lifecycle model: decline stage Characteristics of the decline stage • negative market growth • cost reduction strategies used • very little innovation Decline due to: • change in technology (Example of technology: the internet, mobile devices, tablets etc have replaced the need for some mail) • change in consumer tastes (emails, texting, web-conferencing, etc easier, cheaper, faster and more convenient to communicate than letters) • change in demographics (younger generation prefers technology devices to communicate rather than letters) Case Examples: • 24% drop in letters since 2008 • reported a loss of $73m in the 3rd quarter of 2013 by Canada Post • Canada Post projected to lose $943m by 2020 2. Parcel delivery (family gifts, textbooks, work-related items, online shopping goods) Type of competition: monopolistic Stage of industry lifecycle model: mature stage Characteristics of the mature stage • existing industry for a longtime • slow growth • competitive • price-conscious buyer • incremental innovation Case Examples: • “According to a Conference Board of Canada Report, parcels are the only expected area of growth for Canada Post for the next several years”

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

•

"Couriers deliver parcels" – General examples: FedEx, UPS, smaller, local companies; and possibly in the future electronic, robotic drones (eg. Amazon)

4) Case: Canada Post to phase out urban home delivery In December 2013, Canada Post announced it would phase out urban home delivery of mail services in an effort to restructure its operations across Canada. At that time, about 6,000 – 8,000 positions were expected to be eliminated over the next five years, a 12% reduction of its current workforce. Nonetheless, about 15,000 postal employees were also expected to retire during the same period. Canada Post estimated that the decision would help save $700 to $900 million each year. In another restructuring move, Canada Post also announced it would raise the price of a single postage stamp from $0.63 to $1.00, whereas a booklet of 10 stamps would be sold at a small discount for $8.50 a booklet, or $0.85 per stamp.

Canadian Union of Postal Workers (CUPW) union leader, Denis Lemelin, had stated that it was “a call to action for all the people to stand up and protect the postal service.”

Clearly, this was not a welcomed change for Canada Post employees who were going to lose their jobs.

Unionized Canada Post employees can earn between $19 to $25 per hour plus benefits, a good wage for the middle class. However, the restructuring plans may signal wide-spread changes that may threaten the interests of more than 50,000 Canadian postal workers.

In 2012, Canada Post celebrated its 100th anniversary of postal service operations.

However, the announcement of new changes meant that this door-to-door mail delivery tradition would become extinct like the old ‘milk delivery’ service, a Canadian way of life that has become outdated due to modern conveniences.

Modern technology advancements have reduced Canadians’ need to use the postal service, making the daily ritual of checking for a daily letter or bill, almost unnecessary.

Couriers deliver parcels, bills are paid online, and of course, letter writing has been replaced by emails, texts and tweets. Web conferencing such as Skype has also allowed people to communicate inexpensively.

Canada Post, a federal crown corporation of the Canadian government, has seen a significant decline in revenues for the past several years. While almost 10 billion letters and parcels were delivered each year, there has been a 24% drop in letters since 2008. In the third quarter of 2013, Canada Post reported a loss of $73 million. Without fundamental changes, it was projected to lose over $943 million by 2020. A Canada Post representative said if continued losses are left unchecked, they would jeopardize Canada Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

13

Post’s financial self-sufficiency and could result in thousands of more jobs lost in the future. Certainly, ongoing losses would be added to the federal government’s debt and be left for Canadian taxpayers to pay for in the long-term. In fact, ongoing debt may affect the government’s ability to provide other types of services that affect a wide range of citizens across the country.

Two-thirds of Canadians already receive their mail by community mail boxes in rural areas and in newer community subdivisions. In 2012, about one-third or 5.1 million people received mail delivered to their door. According to a Canada Post report, the annual cost of home delivery was estimated at $283 per address, whereas the average cost of a community box was $117.

While the changes are necessary to save millions of dollars in operating losses, the change will be a setback for people with mobility issues such as seniors and the disabled.

“Door-to-door delivery remains a critical component for people with disabilities who have mobility issues in particular and would have trouble getting to a public mailbox,” said Laurie Beachell, the national coordinator at the Council of Canadians with Disabilities. She explained that as Canadian taxpayers, they deserve to be able to receive their mail too. Clearly, there are many seniors who do not use computers, tablets and smartphones to communicate and to pay bills, but rather, still rely on mail for different forms of communication.

While Canada was the first G7 nation to initiate the end to its home delivery services, it was not the first country to make changes to how it delivers mail. The United Kingdom government recently sold a 60% stake in its postal service to Royal Mail following a move by other countries to privatize their systems such as in Austria, Germany and the Netherlands. The idea has also been proposed in the U.S., but did not reach advanced discussions in Congress. Similarly, the U.S. postal service has been accumulating losses which hit $5 billion in 2013.

Indeed, rapid technology is affecting how North Americans communicate and live from day to day. For example, Amazon announced in 2013 that it would be testing out flying, robotic delivery drones to mail Amazon packages directly to customer doors.

Certainly, consumers have some benefits to changes in postal delivery services. For example, mail locked in a community box may actually be more safer than in an unlocked mailbox at your own home. Of course, this is something not everyone agrees with. The Mayor of Coquitlam, Richard Stewart, explained his city has many community mailboxes but they are not always private and secure. He stated “We have some of our neighbourhoods where the community mailbox has been broken into at least once a year for the last decade…we end up with people constantly having to go out and change their

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

14

credit card numbers, change all their bank account numbers and their security systems to avoid identity theft.”

Federal Transport Minister Lisa Raitt said, “The government of Canada supports Canada Post in its efforts to fulfil its mandate of operating on a self-sustaining financial basis in order to protect taxpayers, while modernizing its business and aligning postal services with the choice of Canadians.”

According to a Conference Board of Canada Report, parcels are the only expected area of growth for Canada Post over the next several years, even though customers keep growing at a rate of 100,000 annually. A Canada Post spokesperson said something had to be done to deal with its financial crisis. In fact, the government had already been discussing the possibility of privatizing the crown corporation by selling it off altogether, which would mean thousands of more jobs lost. However, the Federal government had decided to keep managing Canada Post for now.

The restructuring efforts have many potential financial benefits. The increase in the price of stamps would help increase revenues by $160-$200 million per year and the switch to community mailboxes will save up to $500 million. Streaming operations would help save another $100 million and opening many franchise post offices will cut $40-$50 million in losses.

Another reason for the urgency for Canada Post to become profitable again was to repay its pension plan which has a $6.5-billion solvency deficit. In order for Canada Post to make additional payments to the plan, it will need to start making a profit. “The regulations provide Canada Post with more time to pay off its significant pension deficit so that it can restructure its operation for long-term viability,” said Kevin Sorenson, the minister of state for finance.

Reaction to Canada Post cuts have been posted on the internet under news articles and in some blogs. Some Canadians had asked if the company could have tried something more innovative instead of cutting middle-class jobs and reducing services to seniors and the disabled. Clearly, Canada Post is a unique organization. It is not likely other companies that can easily merge with another corporation or diversify into other businesses. It sells one service – delivering mail and parcels in Canada. Indeed, Canada Post has to stop its operating losses before the condition worsens. Like any corporation, operating losses can only continue for so long. Without profits, a business cannot pay its staff, suppliers, and other creditors, and will ultimately go bankrupt and cease to exist.

Why is it important for Canada Post to reduce and eliminate its debt? Consider who is impacted by the debt and what are the long-term consequences of debt?

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

15

Answer: Current deficits and debt negatively impacting the following: • overall operations (in a loss position) • employees (lost jobs) • urban residents with mobility issues (no access to mail) • urban residents who will have to pick up their mail (inconvenience; more tax, less service) • others Long-term consequences of debt 1. a country’s credit rating can be lowered, leading to higher borrowing costs (ie a higher interest rate) 2. government austerity programs to reduce debt (cut services, raise taxes) 3. more time spent on addressing reducing debt, rather than on other important nation matters 4. Doctrine of Ricardian Equivalence – consumers and businesses believe taxes will be raised to pay off debt, so they start to save money; therefore, consumer spending goes down, leading to a worsening of the economic situation.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

16

1) Over time as an industry ages, it typically exhibits a pattern consistent with a/an: a. continuing growth curve b. U-shaped growth curve c. inverted U-shaped growth curve d. straight, upward line curve Answer: c Diff: 2 Type: MC Page Reference: 237 Skill: applied/recall Objective: Chapter 7-LO1 2) The industry lifecycle model consists of the four following stages: a. birth, growth, death, rebirth b. introduction, growth, maturity, decline c. introduction, shakeout, consolidation, exit d. introduction, growth, consolidation, decline Answer: b Diff: 2 Type: MC Page Reference: 238 Skill: applied/recall Objective: Chapter 7-LO1 3) An endorsement of an industry by stakeholders such as the government means an industry has achieved: a. cognitive legitimacy b. stakeholder legitimacy c. sociopolitical legitimacy d. external institution legitimacy Answer: c Diff: 2 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Page Reference: 241 Skill: applied/recall Objective: Chapter 7-LO1 4) An electrical outlet with technical standards established by the government is often referred to as a/an: a. de facto standard b. socipolitical standard c. external institutional standard d. de jure standard Answer: d Diff: 2 Type: MC Page Reference: 245 Skill: applied/recall Objective: Chapter 7-LO1 5) Common usage of a product may indicate a dominant design has been established.

This is sometimes called a: a. de facto standard b. socipolitical standard c. external institutional standard d. de jure standard Answer: a Diff: 2 Type: MC Page Reference: 245 Skill: applied/recall Objective: Chapter 7-LO1 6) In the industry lifecycle model, when patents expire and rivalry becomes more fierce with larger players, the industry is likely in the ___________ stage. a. introduction b. growth Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

c. maturity d. decline Answer: c Diff: 2 Type: MC Page Reference: 248 Skill: applied/recall Objective: Chapter 7-LO1 7) Walmart spending large amounts of money on advertising and lowering prices would indicate that this discount retailer is in the ____________ stage of the industry lifecycle model. a. introduction b. growth c. maturity d. decline Answer: c Diff: 2 Type: MC Page Reference: 248 Skill: applied/recall Objective: Chapter 7-LO1 8) Consumers becoming more demanding and more price conscious about certain products in an industry means the industry is likely in the ____________ stage. a. introduction b. growth c. maturity d. decline Answer: c Diff: 2 Type: MC Page Reference: 248 Skill: applied/recall Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Objective: Chapter 7-LO1 9) A new biomedical technology that replaces a current medical procedure and lowers the overall cost likely fits into the ___________ stage of the industry lifecycle model. a. introduction b. growth c. maturity d. decline Answer: a Diff: 2 Type: MC Page Reference: 239 Skill: applied/recall Objective: Chapter 7-LO1 10) Bottled water likely fits into the ________ stage of the industry lifecycle model. a. introduction b. growth c. maturity d. decline Answer: c Diff: 2 Type: MC Page Reference: 249 Skill: applied/recall Objective: Chapter 7-LO1 11) The decline in the use of pay phones is mostly due to a: a. change in demographics b. shift in consumer tastes c. technical substitution d. niche strategy Answer: c Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Diff: 2 Type: MC Page Reference: 251 Skill: applied/recall Objective: Chapter 7-LO1 12) A health conscious trend towards “no smoking” has contributed to a decline in the tobacco industry and is likely due to a: a. change in demographics b. shift in consumer tastes c. technical substitution d. societal health strategy Answer: b Diff: 2 Type: MC Page Reference: 251 Skill: applied/recall Objective: Chapter 7-LO1 13) To deal with declining sales in the tobacco industry, tobacco companies have tried to pursue customers who favour cigars. This is typically referred to as a: a. leadership stance b. niche strategy c. harvesting profits d. customer leadership techniques Answer: b Diff: 2 Type: MC Page Reference: 253 Skill: applied/recall Objective: Chapter 7-LO1 14) BlackBerry, a smartphone company, reduced its workforce by 40% to cut costs. This industry is in the ____________ stage of the lifecycle model.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

a. introduction b. growth c. maturity d. decline Answer: b Diff: 3 Type: MC Page Reference: 249 Skill: applied/recall Objective: Chapter 7-LO1 15) Technological innovations that build on a firm’s existing knowledge and skills in certain areas are called ______________. a. competence-enhancing innovations b. competence-destroying innovation c. architectural innovation d. modular innovations Answer: a Diff: 2 Type: MC Page Reference: 256 Skill: applied/recall Objective: Chapter 7-LO2 16) An innovation that alters how the components interact and are linked with each other is a/an: a. competence-enhancing innovations b. competence-destroying innovation c. architectural innovation d. modular innovations Answer: c Diff: 2 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

Page Reference: 255 Skill: applied/recall Objective: Chapter 7-LO2 17) Innovations that involve changes to the product’s components but leave the overall configuration of the system relatively intact are called: a. incremental innovation b. modular innovations c. competence-enhancing technology d. competence-destroying technology Answer: b Diff: 2 Type: MC Page Reference: 255 Skill: applied/recall Objective: Chapter 7-LO2 18) An upgrade from the iPhone5S to a more recent model with small improvements is an example of an: a. incremental innovation b. technological discontinuity c. competence-enhancing technology d. competence-destroying technology Answer: a Diff: 2 Type: MC Page Reference: 255 Skill: applied/recall Objective: Chapter 7-LO2 19) The invention of the digital camera is considered to be a: a. incremental innovation b. technological discontinuity c. competence-enhancing technology Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

d. competence-destroying technology Answer: d Diff: 2 Type: MC Page Reference: 255 Skill: applied/recall Objective: Chapter 7-LO2 20) In the 1980s, the invention of the personal computer replacing the typewriter is an example of: a. creative destruction b. the punctuated equilibrium c. the dominant design d. the S curve Answer: a Diff: 2 Type: MC Page Reference: 258 Skill: applied/recall Objective: Chapter 7-LO2 21) An example of an architectural innovation would be a: a. new breakthrough medical drug b. tablet c. digital camera d. changes in the materials used in automobile bodies from steel to lighter-weight aluminum Answer: b Diff: 2 Type: MC Page Reference: 255 Skill: applied/recall Objective: Chapter 7-LO2

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

22) The power and performance of microchips would double every 18 months as a function of semiconductor manufacturers’ ability to double the number of transistors on a chip. This prediction has proven fairly accurate and has become to be known as: a. The S curve theory b. Moore's law c. Cumilative Development Effort d. Technological S-Curve Answer: b Diff: 2 Type: MC Page Reference: 261 Skill: applied/recall Objective: Chapter 7-LO3 23) The modern view of work and a job is replacing the traditional view of work as: a. compartmentalization of tasks b. new skills and new combinations of work c. filling a job d. rigid roles Answer: b Diff: 1 Type: MC Page Reference: 263 Skill: applied/recall Objective: Chapter 7-LO4 24) Work today often exists in: a. stable environments b. dynamic environments c. unchanging environments d. unskilled environments Answer: b Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

Diff: 1 Type: MC Page Reference: 263 Skill: applied/recall Objective: Chapter 7-LO4 25) A _____________ allows for the standardization of parts and the optimization of organizational processes for volume and efficiency. a. dynamic environments b. new skill c. dominant design d. machine Answer: c Diff: 2 Type: MC Page Reference: 260 Skill: applied/recall Objective: Chapter 7-LO2 26) _________________ is a way of explaining how innovations swept away old technologies, skills, products, ideas, and industries and replaced them with new ones a. S curve theory b. transitional phase c. creative destruction d. punctuated equilibrium Answer: c Diff: 2 Type: MC Page Reference: 258 Skill: applied/recall Objective: Chapter 7-LO3 27) The era of ferment is typically associated with: a. substantial product-class variation Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

b. the industry maturity stage c. punctuated equilibrium d. the maturity of the dominant design Answer: a Diff: 2 Type: MC Page Reference: 260 Skill: applied/recall Objective: Chapter 7-LO3 28) Modern work technology in organizations has allowed companies to save labour costs due to: a. antivirus software b. automation c. conference calls d. intranet capabilities Answer: b Diff: 2 Type: MC Page Reference: 262 Skill: applied/recall Objective: Chapter 7-LO4 29) A laptop computer changed the standard configuration of the personal computer by making it more portable while its components remained essentially the same. This is an example of: a. modular innovation b. competence-enhancing innovation c. competence-destroying innovation d. architectural innovation Answer: d Diff: 2 Type: MC Page Reference: 255 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

Skill: applied/recall Objective: Chapter 7-LO2 30) A change in automobiles from steel to lighter weight aluminum composites are: a. modular innovation b. competence-enhancing innovation c. competence-destroying innovation d. architectural innovation Answer: a Diff: 2 Type: MC Page Reference: 255 Skill: applied/recall Objective: Chapter 7-LO2

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

1) Greek yogurt is a new, healthy product. What stage of the lifecycle industry would this product fall under? Explain what characteristics this industry would have?

Answer: Mature stage • • • • • • •

Yogurt is a food product that has been around for a very, long time. market growth is moderate consumers are price conscious intense competition companies focus on production, manufacturing and cost efficiencies incremental innovation – Greek yogurt is just another new type of yogurt, with some slightly different health benefits many companies will take a cost leadership strategy, since most products just have small improvements

2) Toyota introduced a family minivan, called the Sienna, with 8 seats and sliding seats to allow the ease of entry for families with 2 or more child car seats. Explain what type of innovation would this be classified as?

Answer: Incremental innovation •

Making relatively minor improvements or modifications to an existing product or practice in the hopes of differentiating it from the competition.

3) Amazon has recently introduced robotic, flying delivery drones and would like to use them to deliver products directly to consumers, eliminating the need for postal or courier delivery services. Describe the typical 4 stages in the evolution of a new technology.

Answer: a. Technological discontinuity • Technological discontinuities tend to appear at rare and irregular intervals. b. Era of Ferment • Technological discontinuities trigger an era of ferment, a period of substantial product-class variation that ends with the emergence of a dominant design. c. Dominant Design • A dominant design allows for the standardization of parts and the optimization of organizational processes for volume and efficiency; therefore, in the specific phase, competition is based more on price than product features.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

d. Era of incremental change • Once a dominant design emerges, future technical progress consists of incremental improvements that elaborate on the standard. The era of incremental change (usually coinciding with the industry maturity stage) is a much longer period of relative stability and equilibrium. These long periods of incremental change are punctuated by technological discontinuities, hence the reference to a punctuated equilibrium.

4) Explain and provide examples of how technology has changed in the workplace since 1980.

Answer:

• • • • •

First IBM computer invented in 1981, replaces typewriters; office workers now use computers Internet (world wide web), invented in 1991, allows company web sites (ie. intranets); allows people to work at home via a network Google, invented in 1998, allows an easy search engine to research business, market and other information Blackberry, the first smartphone , invented in 1999, allows employees to send emails from their phones, communicating and answering questions on the go Facebook, created in 2004, allows employers to search potential hires before interviewing them or offering a contract

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

1) Customers will often pay a premium for a product in the maturity phase of the lifecycle model. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 239 Skill: applied/recall Objective: Chapter 7-LO1 2) Extraordinary creativity and innovation is typical in the growth phase of the industry lifecycle model. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 239 Skill: applied/recall Objective: Chapter 7-LO1 3) Sociopolitical legitimacy refers to the endorsement of an industry, activity, or organizational form by key stakeholders and institutions such as the state and government officials, opinion leaders, or the general public. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 241 Skill: applied/recall Objective: Chapter 7-LO1 4) Convincing stakeholders of the potential viability of a new product or concept occurs in the introduction phase.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 244 Skill: applied/recall Objective: Chapter 7-LO1 5) Microsoft Windows is an example of a de jure standard. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 245 Skill: applied/recall Objective: Chapter 7-LO1 6) Despite fierce competition and many exits, the high growth and reduction in uncertainty attracts many new entrants to the industry. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 248 Skill: applied/recall Objective: Chapter 7-LO1 7) The banking industry has introduced mobile banking and you can now take a photo of a cheque and email it to the bank. This industry is an example of the growth phase of the industry lifecycle model. a. True b. False Answer: b Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Diff: 2 Type: TF Page Reference: 249 Skill: applied/recall Objective: Chapter 7-LO1 8) Changes in demographics can be associated with the decline phase of an industry. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 251 Skill: applied/recall Objective: Chapter 7-LO1 9) Once an industry enters the decline phase, its profits will continue to spiral downward. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 251 Skill: applied/recall Objective: Chapter 7-LO1 10) Laying off workers is the only way to curtail an industry while in the decline phase of the industry lifecycle model. a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 253 Skill: applied/recall Objective: Chapter 7-LO1 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) About five years ago, the federal government allowed Amazon.com Inc. to build a warehouse in Canada in return for the U.S. retailer's promise to promote Canadian culture and to hire its first-ever Canadian employees. As part of the deal, Amazon was required to invest more than $20 million, including $1.5 million for cultural events and awards and for promoting Canadian-authored books. This also included a commitment to add Canadian jobs, improving service for Canadian consumers, and increasing the visibility of Canadian and French-language products on its Canadian website, Amazon.ca.

HOW IS THIS A CASE OF GLOBALIZATION? Answer: RECALL THE THREE PART DEFINITION: GLOBALIZAITON IS A PROCESS THAT INVOLVES: 1. INCREASING LEVELS & VARIETIES OF CROSS BORDER TRANSACTIONS OF PEOPLE, ASSETS OR SEVICES (EG. MERGERS, TRADE, AND OUTSOURCING ETC): ESTABLISHMENT OF SUBISIDIARIES – THE PHYSICAL PRESENCE OF A MULTINATIONAL CORPORATIONS IN CANADA - AMAZON.CA HAS CROSSED THE BORDER FROM U.S. TO CANADA. 2. INCREASES IN FOREIGN DIRECT INVESTMENT ACROSS THE WORLD – AMAZON.CA WILL INVEST $20,000,000 IN CANADA – THEY ARE ESTABLISHING DISTRIBUTION CENTRES HERE AND ARE INVESTING IN PHYSCIAL PLANTS, AS WELL AS LABOUR IN CANADA. 3. INCREASING ECONOMIC INTERDEPENDENCE OF ECONOMIES ACROSS THE WORLD: IN THIS CASE THE PRESENCE OF AMAZON IN CANADA WOULD MAKE THE CANADIAN AND U.S. ECONOMY MORE INTERDEPENDENT – HOW SO? AMAZON WILL CREATE JOBS HERE AND POSITIVELY IMPACT OUR ECONOMY BUT THE IMPACT IS ALSO DEPENDENT ON THE U.S. ECONOMY – WHAT HAPPENS IF THE US ECONOMY WEAKENS AND AMAZON IS FORCED TO CONTRACT? 4. THE AMOUNT OF PROFITS AMAZON MAKES IN CANADA WILL POSTIVELY IMPACT THEIR OPERATIONS WHICH SEE PROFITS RETURN TO THEIR U.S. BASE. AND VICE VERSA: IF THE US ECONOMY EXPANDS AND DOES WELL, AMAZON WILL HAVE THE ABILITY TO EXPAND IN CANADA AND POSITIVELY IMPACT OUR ECONOMY.

2) About five years ago, the federal government allowed Amazon.com Inc. to build a warehouse in Canada in return for the U.S. retailer's promise to promote Canadian culture and to hire its first-ever Canadian employees. As part of the deal, Amazon was required to invest more than $20 million, including $1.5 million for cultural events and awards and for promoting Canadian-authored books. This also included a commitment to add Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Canadian jobs, improving service for Canadian consumers, and increasing the visibility of Canadian and French-language products on its Canadian website, Amazon.ca.

WHAT ARE THE RISKS AND BENEFITS OF AMAZON TO CANADA? Answer: POTENTIAL PROS OF AMAZON IN CANADA: 1. ECONOMIC DEVELOPMENT: WILL CREATE JOBS HERE- THEY ARE INVESTING $20 MILLION AND WILL EMPLOY CONTRACTORS, EMPLOYEES TO WORK IN THEIR DISTRUBUTION CENTRE; TECHNOLOGICAL STAFF TO ENSURE DISTRIBUTION ETC. 2. MANAGEMENT EXPERTISE IS BROUGHT TO CANADA: IE AMAZON IS A VERY WELL EXPERIENCED BUSINESS THAT CAN HELP TRAIN BUSINESS LEADERS IN CANADA TO BE INVOLVED WITH THEIR OPERATIONS. 3. UNITING CULTURES – IE AMAZON IS BRINGING TOGETHER U.S. AND CANADIANS IN AN EFFORT TO DO BUSINESS HERE – THIS KIND OF GLOBAL COOPERATION CAN ENCOURAGE BETTER UNDERSTANDING BETWEEN THE TWO COUNTRIES. 4. BENEFIT TO CONSUMERS OF BOOKS – MORE CHOICE NOW AND OPPORTUNITY TO SAVE MONEY BY HAVINGMORE COMPETITION AND COSTS SAVINGS DUE TO LOWER SHIPPING COSTS. 5. AMAZON COMING TO CANADA CAN FORCE INDIGO TO BECOME MORE COMPETITIVE – THAT BENEFITS CANADA BY ENCOURAGING MORE EFFICIENT BUSINESS PRACTICES. POTENTIONAL CONS TO CANADA: 1. CANADA CAN END UP LOSING JOBS IF INDIGO CANNOT COMPETE AND GOES OUT OF BUSINESS – HURTS CANADIAN EMPLOYMENT. ALONG WITH BANKRUPTCIES OF OTHER SMALLER CANADIAN COMPETITORS... THE HIGHER LEVEL JOBS (LIKE RESEARCH AND DEVELOPENT) REMAIN IN THE U.S. – IE IF INDIGO GOES OUT OF BUSINESS THE HIGHER LEVEL EXECUTIVES AND THE RESEARCH AND DEVELOPMENT JOBS DISAPPEAR. ALL WE ARE LEFT WITH ARE MOSTLY WAREHOUSING JOBS FOR AMAZON. 2. PROFITS OF AMAZON DO NOT GET RE-INVESTED HERE – PROFITS OF AMAZON DO NOT GO TO CREATING MORE JOBS HERE BUT GO BACK TO THE U.S. WHERE THE HEADQUARTERS ARE…

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

3.

NO ALLEGIENCE TO THE HOST COUNTRY OF CANADA – IE AMAZON WILL REMAIN IN CANADA ONLY AS LONG AS WE ARE A “CHEAP” WAREHOUSING SOURCE FOR THEM – OTHERWISE THEY CAN RETURN TO THE US AND HAVE THEIR BOOKS EXPORTED TO US.

3) About five years ago, the federal government allowed Amazon.com Inc. to build a warehouse in Canada in return for the U.S. retailer's promise to promote Canadian culture and to hire its first-ever Canadian employees. As part of the deal, Amazon was required to invest more than $20 million, including $1.5 million for cultural events and awards and for promoting Canadian-authored books. This also included a commitment to add Canadian jobs, improving service for Canadian consumers, and increasing the visibility of Canadian and French-language products on its Canadian website, Amazon.ca.

Now that NAFTA has been in place for many years, what might be the benefits that Canada has experienced from this trade agreement?

Answer: Impact on trade: •

NAFTA achieved its most fundamental objective: to increase the level of trade between Canada and the United States. Canada and US trade increased by about 75% since the establishment of the FTA. Of course, the United States continues to be Canada’s major trading partner, accounting for almost 80% of Canada’s total trade.

Impact on Canadian Employment and Business Advocates of free trade have this to say about NAFTA’s impact on Canadian employment and business: • Foreign competition forces domestic businesses to improve their operations and improve their products and services.

• Protecting domestic business amounts to discouraging competitiveness and innovation and, ultimately, will lead to job losses, given the inability to remain competitive in world markets.

• Free trade encourages countries to abort inefficient operations and focus on the relatively stronger commodities or services in which they have a competitive or comparative advantage.

Impact on Canadian Culture Advocates of free trade have this to say about NAFTA’s impact on Canadian culture: • The agreement is not signing away Canada’s cultural heritage any more than the European Union forced European nations to lose their individual cultures.

• According to Statistics Canada, Canadian cultural exports exceed $4.5 billion, and more royalty money for music is coming into Canada than is leaving.

Impact on Canadian Competitiveness and the Canadian Consumer Advocates of free trade have this to say about NAFTA’s impact on Canada’s competitiveness and the Canadian consumer: Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

• •

• •

One of the central objectives of the FTA was to encourage Canadian businesses to become more competitive through exposure to greater competition from American business.

Canadian consumers are given more choice and are exposed to competitive products with free trade. That is, they will have access to potentially less expensive goods or services—whether they come from the United States or from increasingly competitive Canadian businesses.

Canadian companies that require inputs from US businesses can now obtain them more cheaply and pass these savings on to the consumer.

Canada cannot afford to ignore the US market. If Canadian companies wish to become more competitive, they also need to serve a larger market—and the United States certainly offers a huge market for Canadian goods. Free trade gives Canada greater access to selling goods and services to this market through the reduction of trade barriers.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) Recently Canada embarked on negotiations for a Canada-European Union trade agreement. The European Union (EU)is a collection of many European countries. The Comprehensive Economic and Trade Agreement (CETA) between Canada and Europe is intended to go far beyond the North American Free Trade Agreement (NAFTA) and is designed to eliminate tariffs (98%), encourage foreign investment and promote movement of labour. Canada would get access to Europe's $17-trillion economy and a market of 500 million potential consumers will boost Canada’s gross domestic product by $12-billion and create 80,000 jobs. There is concern though that because Europe is so much bigger a market than we are it may be difficult to compete in some areas. For example, the agreement will more than double the quota of cheese imported from Europe, which could hurt Ontario and Quebec dairy farmers. However, the Canadian government promised to pay compensation to cheese producers, and set up a marketing campaign for local cheese. There are about 46,000 Canadians employed in dairy farming (about 0.2 per cent of Canada’s labour force).

Explain in detail the benefits to Canada of entering into this free trade agreement with Europe (both reducing tariffs on European imports to Canada and Canadian exports to Europe). Discuss potential impact on consumers, employment, competitiveness, and culture in the Canadian context.

Answer: Consumers  Canadian consumers will have more choice/options and better prices as a result of free trade and the removal of tariffs on European imports. More European goods will end up in Canada and buyers will end up paying less for thousands of products made in Europe such as cars, cheese, wine...

Employment  For Canadian companies, removing tariffs on goods exported to Europe provides greater access to 500M consumers and a $17T economy. As a result, Canadian exporters (like the beef and pork producers and automakers) will increase their sales and therefore create jobs for Canadians as their production increases.

Estimates are that 80,000 jobs will be created for Canadians.

Competitiveness  Foreign competition forces domestic businesses to improve their operations and their products or services and make them more innovative, efficient…competitive  One of Canada’s central objectives has been to encourage Canadian Businesses to become more competitive through exposing them to greater competition from global markets, in this case, the European Businesses.

Culture  Doesn’t really impact Canadian culture directly. But if there are Canadian cultural exports to Europe (Alice Munro, Cirque du Soleil…?), they can benefit from increased sales to the European market. As well as the ability for Canadians to gain greater access to European culture through their books, movies, music…

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

2) Recently Canada embarked on negotiations for a Canada-European Union trade agreement. The European Union (EU)is a collection of many European countries. The Comprehensive Economic and Trade Agreement (CETA) between Canada and Europe is intended to go far beyond the North American Free Trade Agreement (NAFTA) and is designed to eliminate tariffs (98%), encourage foreign investment and promote movement of labour. Canada would get access to Europe's $17-trillion economy and a market of 500 million potential consumers will boost Canada’s gross domestic product by $12-billion and create 80,000 jobs. There is concern though that because Europe is so much bigger a market than we are it may be difficult to compete in some areas. For example, the agreement will more than double the quota of cheese imported from Europe, which could hurt Ontario and Quebec dairy farmers. However, the Canadian government promised to pay compensation to cheese producers, and set up a marketing campaign for local cheese. There are about 46,000 Canadians employed in dairy farming (about 0.2 per cent of Canada’s labour force).

What are the potential negative consequences of removing tariffs on European imports to Canada? Discuss potential impact on consumers, employment, competitiveness, and culture in the Canadian context.

Answer: Consumers • Not many negatives for consumers since they are the big winners in this deal.

Though if Canadian retailers are forced out of business by European competitors, Canadians may end up with fewer home-made goods (if that somehow matters to consumers in a way not related to employment).

Employment  Competition from larger European firms may be too strong for many Canadian businesses in some sectors– forcing bankruptcy, job losses through closures.

Especially for cheese producers in Quebec and Ontario, and Ontario wines and liquor.  Perhaps, they could argue that job losses could also arise if EU companies decide to shut down their Canadian subsidiaries and export their tariff-free goods to Canada.

Competitiveness  Many Canadian businesses worry about being overwhelmed by intense new foreign competition because Europe is a much bigger market than Canada so their firms benefit from scale and efficiencies that Canadian companies cannot match.  “If Canadian businesses do not learn as a nation to quickly take advantage of this deal they could be quickly overtaken by the European competitors.”  As with all trade agreements where countries specialize in their areas of comparative advantage, there are winners and losers. Some Canadian industries

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

will expand and others will contract. Some businesses will become efficient, productive competitors, and some will go bankrupt.

Culture  Increased imports of European cultural products (books, movies, music…) can lead to a decline in Canadian cultural products. Though this risk is far less present than with NAFTA and American culture since Canadian culture is more similar to American (than European) and Canadians consume far more US cultural goods.

3) Recently Canada embarked on negotiations for a Canada-European Union trade agreement. The European Union (EU)is a collection of many European countries. The Comprehensive Economic and Trade Agreement (CETA) between Canada and Europe is intended to go far beyond the North American Free Trade Agreement (NAFTA) and is designed to eliminate tariffs (98%), encourage foreign investment and promote movement of labour. Canada would get access to Europe's $17-trillion economy and a market of 500 million potential consumers will boost Canada’s gross domestic product by $12-billion and create 80,000 jobs. There is concern though that because Europe is so much bigger a market than we are it may be difficult to compete in some areas. For example, the agreement will more than double the quota of cheese imported from Europe, which could hurt Ontario and Quebec dairy farmers. However, the Canadian government promised to pay compensation to cheese producers, and set up a marketing campaign for local cheese. There are about 46,000 Canadians employed in dairy farming (about 0.2 per cent of Canada’s labour force).

Explain why the Canadian Government should play the role of guardian of business in this way Answer: Nurturing Young Industries • The infant-industry argument asserts that the government should help a young industry to grow and develop by ensuring that the industry maintains a dominant share of the domestic market until it is mature enough to compete against foreign competition.

• Dairy farms have been around a long time and are not really a ‘young’ industry so that argument would apply perhaps to other sectors that are newer (wineries?).

However, they are certainly new at exporting to Europe so perhaps they do require subsidies to help them become more competitive internationally.

Maintaining Favourable Balance of Trade • Governments want to avoid trade deficits and export as much as possible, and import as little as possible. In this case, it’s unlikely Canadian dairy farms will export their cheese to Europe (unlike Canadian pork and beef or cars) but the subsidies can reduce our imports of European cheese and therefore improve our balance of trade.

Providing subsidies to cheese producers may help them become more competitive and expand their markets to export cheese to Europe.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Protecting Domestic Business from Unfair Competition • If European dairy farms also receive government assistance, then the Canadian government should subsidize Canadian producers in order to level the playing field.

• A foreign competitor who exports products at low prices may be accused of dumping—which is pricing the product below cost or below the cost of the target country’s product. Government subsidies can compensate domestic producers for the unfair dumping practices of their foreign rivals.

Encouraging Direct Foreign Investment • It is Canadian producers getting subsidies, not European ones investing in Canada so this argument doesn’t really apply unless the subsidies somehow make the dairy farming business attractive to European producers wanting to set up set up shop in Canada. Perhaps they will buy existing Canadian farms and invest in Canada. This would obviously be good for the Canadian economy as foreign investment brings jobs, economic stability…

Maintaining Adequate Levels of Domestic Employment • About 46,000 Canadians are employed in the dairy business. Keeping those jobs is a critical objective for the government. If dairy farms need government assistance to stay in business, then perhaps the government should subsidize them in order to maintain domestic employment and all the economic benefits that go along with jobs.

Offering Subsidies to Compete Globally • Whether it is cash payments, low-interest loans or tax breaks, in the global context, such subsidies are intended to help domestic industries deal with global competition. Perhaps the government will need to subsidize Canadian firms so that they can compete with the EU firms. Unfortunately, it’s unlikely Canadian farmers will compete globally and export to other countries so subsidies won’t be of much help.

4) Recently Canada embarked on negotiations for a Canada-European Union trade agreement. The European Union (EU)is a collection of many European countries. The Comprehensive Economic and Trade Agreement (CETA) between Canada and Europe is intended to go far beyond the North American Free Trade Agreement (NAFTA) and is designed to eliminate tariffs (98%), encourage foreign investment and promote movement of labour. Canada would get access to Europe's $17-trillion economy and a market of 500 million potential consumers will boost Canada’s gross domestic product by $12-billion and create 80,000 jobs. There is concern though that because Europe is so much bigger a market than we are it may be difficult to compete in some areas. For example, the agreement will more than double the quota of cheese imported from Europe, which could hurt Ontario and Quebec dairy farmers. However, the Canadian government promised to pay compensation to cheese producers, and set up a

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

marketing campaign for local cheese. There are about 46,000 Canadians employed in dairy farming (about 0.2 per cent of Canada’s labour force).

Explain why the Canadian Government should not play the role of guardian of business in this way Answer: For the arguments against, students should refer to the potential drawbacks of the Government assistance (or so-called corporate welfare).  The core problem of government subsidies (and protectionism) is the use of taxpayers’ money to help one specific industry, fairness to other industries, the notion of ‘letting the market decide’ and ensuring open and fair competition, as well as the danger of industries becoming reliant on government for support.  There are several theoretical points to consider: Protectionism, govt subsidies, bailouts, corporate welfare… essentially redistribute public money from the taxpayers to a few corporations. In other words, everyone pays so that a few can benefit. Why should cheese producers (mostly in Ontario and Quebec) get government subsidies and not other industries? Would these dairy farms survive on their own without government assistance? The competitive marketplace should decide which industries and firms are successful, not government.  Subsidies also discourages firms from being more competitive, efficient, innovative… and result in higher prices for consumers (and possible retaliation from other trading partners).  Great answers will push their thinking to explain how subsidies to dairy farms should not be used to favour some industries over others because it’s very difficult for even the most astute investor to pick winning firms or industries, that it’s foolish to think the government can do it. Spending public money on industries that turn out to be losers down the road is a wasteful and inefficient use of government funds.  Subsidies are not merely harmless forms of assistance to businesses; rather, they constitute a form of trade barrier, just like tariffs, and they create unfair competition.  Subsidies are unfair – they divert money away from more successful businesses and towards less successful ones (i.e., the dairy farms).  Subsidies are contrary to the notion of capitalism – i.e., profitable companies should stay in business; companies that cannot compete should not be permitted to continue.  Subsidies lead to higher taxes, government is simply redistributing public money to a few corporations.  May be viewed as violating fair trade agreements (i.e, unfair to foreign competitors who must compete against government businesses)

5) Recently Canada embarked on negotiations for a Canada-European Union trade agreement. The European Union (EU)is a collection of many European countries. The Comprehensive Economic and Trade Agreement (CETA) between Canada and Europe is intended to go far beyond the North American Free Trade Agreement (NAFTA) and is Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

designed to eliminate tariffs (98%), encourage foreign investment and promote movement of labour. Canada would get access to Europe's $17-trillion economy and a market of 500 million potential consumers will boost Canada’s gross domestic product by $12-billion and create 80,000 jobs. There is concern though that because Europe is so much bigger a market than we are it may be difficult to compete in some areas. For example, the agreement will more than double the quota of cheese imported from Europe, which could hurt Ontario and Quebec dairy farmers. However, the Canadian government promised to pay compensation to cheese producers, and set up a marketing campaign for local cheese. There are about 46,000 Canadians employed in dairy farming (about 0.2 per cent of Canada’s labour force).

This agreement could allow for more foreign ownership of Canadian businesses. Discuss why foreign ownership may be “bad” for Canada.

Answer: Risks of too much Foreign ownership of Canadian businesses: Restricting foreign ownership or investment in Canada is a form of trade protectionism.

While there are many benefits to allowing the free movement of foreign capital into Canada, some of the issues related to allowing unrestricted foreign ownership of Canadian firms are: 1. Losing control of strategic or core assets and industries. Just like crown corporations, some businesses and industries should remain Canadian because they are vital industries or for reasons of national security or preserving Canadian culture. If important Canadian businesses become foreign-owned, we lose the ability to make important decisions in sectors that may be critical to our economy like energy, banking, telecommunications… Also, if the government allows all successful Canadian firms to be indiscriminately sold off, what domestic industries will remain in Canada that we can specialize and obtain a competitive advantage in?

2. Losing head office jobs in Canada. When Canada retains the headquarters of multinational firms, Research & Development (R&D) investments, as well as other corporate spending on suppliers and related services (law, consulting & accounting firms, investment banks…) also remains in Canada. Otherwise, while we may retain the low or mid-level jobs with foreign subsidiaries in Canada, most of the executive level jobs are where the head office is. So successful Canadian executives often leave the country when they move up in their career (executive brain drain).

Students can perhaps refer to examples discussed in class or in the text because the case doesn’t mention any specifics concerning this issue but the question is pretty open-ended so as long as they cover some of the key arguments against increased FDI, yet no real examples, that’s fine. Students can also refer to the threats of Multinational Corporations as discussed in class and the textbook to support their arguments.

Threats of MNC:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

•

MNCs do not have any particular allegiance or commitment to their host country.

Given that a MNC can operate in many different countries, they only maintain allegiance where it serves their economic purpose.

•

Profits tend to be mobile i.e. profits do not necessarily remain within the host country but may be transferred out to other locations . Some critics argue that profits are transferred to countries where the level of tax are lower.

•

In many cases decision making and other key functions of MNCs may be highly centralized in the home country, so that even though other operations are performed in the host country, they do not necessarily include things like R&D and strategic planning.

•

A fourth criticism is that they are too large and too powerful to be controlled by governments. MNCs can actual dominate the local economy of the host country within which they set up business. MNCs are difficult to control and this can create serious ethical concerns for the host country.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

1) Globalization is accurately defined in all of the following except: a. a process that is expanding the degree and forms of cross-border transactions among people, assets, goods, and services b. the growth in direct foreign investment in regions across the world c. the potential for sales growth and the opportunity of obtaining needed resources. d. reflects the shift toward increasing economic interdependence Answer: c Diff: 2 Type: MC Page Reference: 271 Skill: recall Objective: LO1 2) Which of the following is perhaps the most fundamental reason for the growth in world trade? a. the need for businesses to expand their markets b. cultural differences among markets c. fluctuating exchange rates d. political unrest Answer: a Diff: 2 Type: MC Page Reference: 271 Skill: recall Objective: LO1 3) Which of the following is not one of the factors that push organizations to go global? a. obtaining Needed Resources b. the Force of Competition c. shift toward Democracy d. reduction in Trade Barriers Answer: a Diff: 2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Type: MC Page Reference: 272-273 Skill: recall Objective: LO1 4) Which of the following is one of the factors that pull businesses to enter into the international markets? a. competition too strong in local market b. shift towards democracy c. obtaining needed resources d. potential for sales growth Answer: d Diff: 2 Type: MC Page Reference: 272 Skill: recall Objective: LO1 5) The first-mover advantage is a philosophy that involves? a. being the first Canadian company to export goods to an established market b. being the first to establish a strong market position in important world market c. being the first to import goods from a supplier overseas d. being the first to change your company’s competitive strategy to meet market needs Answer: d Diff: 3 Type: MC Page Reference: 272 Skill: recall Objective: LO1 6) Trade barriers can be defined as? a. government barriers that allow the free flow of goods and services between countries b. barriers set up by corporations to prevent the free flow of goods and services

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

c. Government barrier that prevents the free trade of imported goods and services into a country via tariffs, quotas, subsidies, and so on. d. government barriers set up to avoid anti-dumping Answer: c Diff: 2 Type: MC Page Reference: 273 Skill: recall Objective: LO4 7) At the lowest level of interconnectedness, companies can simply do which of the following? a. export or import goods and services b. establish subsidiaries c. direct investments in foreign operations d. mergers and acquisitions Answer: a Diff: 3 Type: MC Page Reference: 274 Skill: both Objective: LO2 8) At the highest level of interconnectedness, companies can do all the following except? a. establish subsidiaries b. embark on mergers and acquisitions c. engage in foreign direct investments d. outsource some of its core functions Answer: d Diff: 3 Type: MC Page Reference: 274 Skill: both

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Objective: LO2 9) All of the following are channels of global business activity except? a. establishing subsidiaries b. push and pull factors c. direct investments in foreign operations d. mergers and Acquisitions Answer: b Diff: 2 Type: MC Page Reference: 275 Skill: recall Objective: LO2 10) Boeing has authorized Mitsubishi Heavy Industries, to use its trademarks, patents, and other proprietary knowledge to manufacture train parts. This is an example of: a. importing b. exporting c. licensing d. joint venture Answer: c Diff: 3 Type: MC Page Reference: 275 Skill: both Objective: LO2 11) The entry of US-based Marshalls into Canada can be defined as? a. outsourcing b. franchising c. foreign direct investment d. mercantilism Answer: c Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Diff: 3 Type: MC Page Reference: 275 Skill: both Objective: LO2 12) The term outsourcing/offshoring refers to: a. Hiring international firms to perform some core functions within an organization b. Hiring local firms to perform some core functions within an organization c. Sending core functions to offshore locations to be performed d. Hiring external organizations to conduct work in certain functions of the company Answer: d Diff: 1 Type: MC Page Reference: 280 Skill: recall Objective: LO2 13) Which of the following is an agreement between two or more companies from different countries to produce a product or service together or to collaborate in the research, development, or marketing of a product or service? a. joint venture b. strategic alliances c. mergers and acquisitions d. franchising Answer: a Diff: 2 Type: MC Page Reference: 284 Skill: recall Objective: LO2 14) If a company wants to gain access to new knowledge or expertise, they could do which of the following?

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

a. create a subsidiary b. outsource its payroll department overseas c. license a business to a franchisee d. merge or acquire a new company Answer: d Diff: 3 Type: MC Page Reference: 285 Skill: both Objective: LO2 15) A Multinational Corporation (MNC) can be defined as? a. a business enterprise that controls assets, factories, and so on that are either operated as a branch office or as affiliates in two or more foreign counties b. a business that engages directly in some form of international business activity, including such activities as exporting, importing, or international production. c. A legally separate company owned and controlled by a parent company and through which the enterprises can produce or market goods and services. d. A corporation that is not linked with one specific home country. Such an enterprise thus has no clear nationality.

Answer: a Diff: 3 Type: MC Page Reference: 286 Skill: recall Objective: LO3 16) To reduce dollars flowing out of the country, the United States can limit the number of Japanese cars being imported by imposing? a. an embargo b. a quota c. a free trade zone d. trade surplus Answer: b Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

Diff: 3 Type: MC Page Reference: 286 Skill: both Objective: LO4 17) The term borderless corporation refers to? a. the increasing ability of MNCs to ignore international boundaries and set up business just about anywhere. b. the increasing ability to set up businesses in multiple countries c. the ability to operate foreign Direct Investments in multiple countries d. the increasing dominance of free trade agreements which allow firms to operate in multiple countries Answer: a Diff: 2 Type: MC Page Reference: 287 Skill: recall Objective: LO3 18) Which of the following is not a benefit of a Multinational Corporation (MNC)? a. encourages economic development b. offers management expertise c. creates employment d. mobile profits Answer: d Diff: 2 Type: MC Page Reference: 289 Skill: recall Objective: LO3 19) Decision making and other key functions such as R&D that may be centralized in a home country is a threat of?

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

a. Borderless corporation b. Translational corporation c. Multinational corporation d. Global corporation Answer: c Diff: 3 Type: MC Page Reference: 289 Skill: recall Objective: LO3 20) Which of the following is a potential threat of a multinational corporation? a. decision making is centralized b. profits are re-invested in host country c. management expertise is shared d. rare technologies are shared Answer: a Diff: 2 Type: MC Page Reference: 289 Skill: recall Objective: LO3 21) If a country specializes in goods that it can produce most readily and cheaply and trades those goods for the goods that another country can produce more readily and cheaply, then both countries are exercising the principles of a. absolute advantage b. comparative advantage c. diversification advantage d. mercantilism Answer: b Diff: 2 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

Page Reference: 290 Skill: recall Objective: LO4 22) Which of the following is the trade of goods and services in open markets where a level playing field is created for businesses in one country to compete fairly against businesses in other countries? a. international trade b. free trade c. mercantilism d. domestic trade Answer: b Diff: 2 Type: MC Page Reference: 290 Skill: recall Objective: LO4 23) A trade surplus can be defined as? a. when a country’s exports exceeds its imports b. removal of barriers to trade c. imports more goods than it exports d. spends more money than it saves Answer: a Diff: 1 Type: MC Page Reference: 291 Skill: recall Objective: LO4 24) Besides tariffs, which of the following is not one of the tools used to restrict trade? a. foreign ownership restrictions b. domestic subsidies c. privatization Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

d. embargoes Answer: c Diff: 2 Type: MC Page Reference: 291 Skill: both Objective: LO4 25) Which of the following is the lowest level of economic integration? a. customs union b. economic union c. free trade area d. common market Answer: c Diff: 1 Type: MC Page Reference: 295 Skill: recall Objective: LO5 26) A collection of countries within an integrated economic region is referred to as? a. a regional economic integration b. a regional trading bloc c. a free trade area d. a common market Answer: b Diff: 1 Type: MC Page Reference: 295 Skill: recall Objective: LO5 27) Which of the following represents the highest level of economic integration?

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

a. Common market b. Customs union c. Free trade area d. Economic union Answer: d Diff: 1 Type: MC Page Reference: 296 Skill: recall Objective: LO5 28) Canada is a member of which of the following trading blocs? a. ASEAN b. APEC c. EU d. both B and C Answer: c Diff: 2 Type: MC Page Reference: 297 Skill: recall Objective: LO5 29) According to advocates of free trade all of the following about NAFTA’s impact on Canadian employment and business is true except a. Foreign competition forces domestic businesses to improve their operations and improve their products and services. b. Protecting domestic business amounts to discouraging competitiveness and innovation and, will lead to job losses, given the inability to remain competitive in world markets c. Free trade encourages countries to abort inefficient operations and focus on the relatively stronger commodities or services in which they have a competitive or comparative advantage d. Many manufacturing jobs are lost to Mexico, given that country’s relatively cheaper labour and, hence, its lower-priced goods.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

Answer: d Diff: 3 Type: MC Page Reference: 301 Skill: both Objective: LO6 30) NAFTA may have impacted the Canadian economy in which of the following ways? a. given Canadian consumers more choice of products and services b. decreased competitiveness of Canadian businesses c. decreased merchandise trade d. Negatively impacted the Canadian culture Answer: a Diff: 3 Type: MC Page Reference: 302 Skill: both Objective: LO6

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

1) How has changes in technology and political shifts toward democracy encouraged the globalization of business.

Answer: Another fundamental source of influence on globalization has been technology.

Advancements in technology have more efficiently facilitated cross-border transactions.

Innovations in information technology, as well as advances in transportation, have made it increasingly easy to transfer information, products, services, capital, and human resources around the world. Email, the Internet, teleconferencing, faxing, and transatlantic supersonic travel were among the activities that were not available until the late 20th century.

Electronic commerce, or ecommerce, has been relatively free from government control, and this flexibility has contributed to the rate of globalization and the generation of virtual global organizations. Virtual organizations increasingly exist at the global level, where the geographic sources of the product or service and the location of the workforce are unimportant.

The shift toward democracy among many societies that were formerly economically and politically repressed has contributed to the creation of new market opportunities.

Numerous totalitarian regimes have been transformed in Eastern Europe and Asia, for example, which has created new economic opportunities for businesses in other parts of the world. Countries like Russia and Poland have shifted toward a more capitalistic and democratic approach. Perhaps one symbol of this acceptance was the success of McDonald’s in entering the Russian marketplace years ago. Similarly, there has been a great interest in foreign investment in China since its move toward privatization— reduction in government ownership—in many areas.

Diff: 2 Type: ES Page Reference: 271-274 Skill: both Objective: LO2

2) Why has outsourcing become such a popular form of global business activity? Give an example to illustrate your response.

Answer: Outsourcing involves hiring external organizations to conduct work in certain functions of the company. So, for example, payroll, manufacturing work etc might be assigned to outsourced staff. This can be a form of global business activity when it is done on an international basis. For example, Taiwanese engineers offer innovative solutions for customers seeking design and manufacturing outsourcing. Currently, its companies are increasingly expert at original design, and they typically dominate manufacturing in central categories such as notebook computers. Taiwan’s success has been attributed to Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

several sources, including its lower pay scales. For example, its engineering costs are approximately one third that of comparable services in the United States. However, many observers are quick to point out that Taiwan’s strength is not simply based on cheap labour but on its entrepreneurial culture combined with effective government involvement. Taiwan has grown from a provider of cheap labour and products to one of the most talented sources of high-tech expertise in the world. This reflects the basic reason for the increase in the use of foreign labour as outsourced labour. Countries can be contracted for the production of finished goods or component parts, and these goods or parts can subsequently be imported to the home country or to other countries for further assembly or sale. India is another example of a major offshore or outsourced location.

Diff: 2 Type: ES Page Reference: 280 Skill: both Objective: LO2 3) What are some of the main reasons that multinational corporations are criticized?

Answer: Multinational corporations (MNCs) Business enterprises that control assets, factories, and so on that are either operated as branch offices or affiliates in two or more foreign countries. It generates products or services through its affiliates in several countries and maintains control over their operation, managing from a global perspective. Typically, MNCs are very large organizations and, in terms of their relative role in the world setting, it has been estimated that the 600 largest MNCs account for about one quarter of the activity of the world’s economies. So they can have a major impact on economices and societies. Most MNCs have headquarters in developed countries—the home country.

MNCs maintain branch plants or subsidiaries in two or more foreign countries; these are the host countries, and they are either developed or developing countries. It is the issue of the impact on host countries where MNC’s are most heavily criticized. Here are the Potential Threats to host countries that have been identified: • MNCs do not have any particular allegiance or commitment to their host country.

• Profits made by an MNC do not necessarily remain within the host country but may be transferred out to other locations depending on where the MNC feels the funds are most needed.

• Decision making and other key functions of MNCs may be highly centralized in the home country, so that even though other operations are performed in the host country, they do not necessarily include things like research and development or strategic planning.

• There is difficulty in the ability to control and hold MNCs accountable, which can create serious ethical concerns for the host country.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Diff: 3 Type: ES Page Reference: 287-289 Skill: both Objective: LO3 4) How do tariffs assist the government in “protecting” their economy and why might their be an incentive to do so?

Answer: Protecting a country’s domestic economy and businesses by restricting imports to prevent domestic producers from losing business to producers of low-priced foreign goods, and to prevent a trade deficit, where more money leaves the country than enters it because imports exceed exports.

1. Low-priced foreign goods that enter the country could compete with goods already produced here and, in effect, take business away from domestic producers. The ultimate consequence may be loss of sales and loss of jobs for domestic industries that are unable to compete with these lower-priced imports.

2. A country that imports more than it exports will have a negative balance of trade, or a trade deficit, which often results in more money flowing out of the country (to buy the imported goods) than flowing in (for our exports).

Among the best-known government responses to address these potential risks are the imposition of tariffs and import quotas. A tariff is essentially a tax placed on goods entering a country. Specifically, protective tariffs are intended to raise the price of imported products to ensure that they are not less expensive than domestically produced goods. This, of course, discourages domestic consumers from buying these foreign imports by making them more expensive to purchase.

Diff: 4 Type: ES Page Reference: 291-293 Skill: both Objective: LO4 5) Contrast the lowest level of economic integration with the highest level.

Answer: Regional integration can occur at different levels of intensity. The lowest level is the free trade area and the highest level is the economic union. It is worthwhile to briefly examine each form.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Free trade area is a form of economic integration that involves the removal of tariffs and nontariff trade barriers (that is, subsidies and quotas) on international trade in goods and services among the member countries. Given that this form involves the lowest degree of regional economic integration, there is greater member autonomy with regard to such issues as how it chooses to deal with nonmembers and what types of barriers it should construct against nonmember countries. On the other hand, the Economic union is a form of economic integration which involves a coordination of economic policies among the member countries. It requires a higher level of integration because it involves the harmonization of fiscal, monetary, and tax policies. In addition, it often includes the creation of a common currency. Consequently, member countries in such an arrangement maintain much less autonomy compared to the lesser forms of economic integration.

Diff: 4 Type: ES Page Reference: 295-298 Skill: both Objective: LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) Forming a strategic alliance or creating a joint venture with a foreign company requires the business to become more fully entrenched in the global context by directly investing in a foreign country. a. True b. False Answer: a Page Reference: 274 Skill: recall Objective: LO2 2) Stats Canada reports suggest that Canada is the United State’s most important trading partner a. True b. False Answer: a Page Reference: 275 Skill: recall Objective: LO6 3) Europe is Canada’s largest trading partner? a. True b. False Answer: b Page Reference: 275 Skill: recall Objective: LO4 4) Joint ventures often aim to extend or enhance the core competencies of the businesses involved, obtain access to the expertise of another organization, and generate new market opportunities for all parties involved a. True b. False Answer: b Page Reference: 284 Skill: recall Objective: LO2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

5) A borderless corporation is sometimes referred to as a Transnational corporation (TNC) a. True b. False Answer: a Page Reference: 288 Skill: recall Objective: LO3 6) Multidomestic firms are companies that integrate their geographically diverse operations through decisions centralized at head office. a. True b. False Answer: b Page Reference: 286 Skill: recall Objective: LO3 7) International Monetary Fund (IMF) was established after World War II to provide long-term economic development in the form of low-interest loans to countries conducting international trade and in need of financial help. a. True b. False Answer: b Page Reference: 294 Skill: recall Objective: LO4 8) The common market involves a somewhat greater degree of economic integration, there is less member autonomy with regard to such issues as how it chooses to deal with nonmembers and what types of barriers it should construct against nonmember countries a. True b. False Answer: b Page Reference: 295

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Skill: recall Objective: LO5 9) The NAFTA agreement has negatively impacted the Canadian culture a. True b. False Answer: b Page Reference: 302 Skill: recall Objective: LO6 10) The impact of NAFTA on Canadian employment and wages has not been clearly determined to date. a. True b. False Answer: a Page Reference: 301 Skill: recall Objective: LO6

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) SCENARIO: Consider the pending Comprehensive Economic and Trade Agreement (CETA) between Canada and Europe. This will go far beyond the North American Free Trade Agreement (NAFTA) and is designed to eliminate thousands of tariffs, encourage foreign investment and promote movement of labour.

The deal will impact just about every sector of the Canadian economy as well as millions of workers and consumers. Canadian consumers might end up paying less for thousands of products made in Europe, such as cars. For Canadian business, a potential advantage is open access to Europe for hundreds of their products, some of which now face high tariffs.

However, many Canadian companies also worry they will be overwhelmed by new foreign competition. For example, the agreement will allow more than double the quota of cheese entering Canada from Europe. This could hurt Ontario and Quebec dairy farmers’ market. However, the Canadian government has claimed it will subsidize those cheese producers, and that it will set up a marketing campaign for local cheese. The deal will also remove a trade barrier that currently protects Ontario wines and liquor from foreign competitors.

Explain in detail the benefits to Canada of entering into this free trade agreement with Europe (both reducing tariffs on European imports to Canada and Canadian exports to Europe). Discuss potential impact on consumers, employment, competitiveness, and culture in the Canadian context.

Answer: Consumers  Canadian consumers will have more choice/options and better prices as a result of free trade and the removal of tariffs on European imports. More European goods will end up in Canada and buyers will end up paying less for thousands of products made in Europe such as cars, cheese, wine...

Employment  For Canadian companies, removing tariffs on goods exported to Europe provides greater access to 500M consumers and a $17T economy. As a result, Canadian exporters (like the beef and pork producers and automakers) will increase their sales and therefore create jobs for Canadians as their production increases.

Estimates are that 80,000 jobs will be created for Canadians.

Competitiveness  Foreign competition forces domestic businesses to improve their operations and their products or services and make them more innovative, efficient…competitive  One of Canada’s central objectives has been to encourage Canadian Businesses to become more competitive through exposing them to greater competition from global markets, in this case, the European Businesses.

Culture Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

 Doesn’t really impact Canadian culture directly. But if there are Canadian cultural exports to Europe (Alice Munro, Cirque du Soleil…?), they can benefit from increased sales to the European market. As well as the ability for Canadians to gain greater access to European culture through their books, movies, music…

2) SCENARIO: Consider the pending Comprehensive Economic and Trade Agreement (CETA) between Canada and Europe. This will go far beyond the North American Free Trade Agreement (NAFTA) and is designed to eliminate thousands of tariffs, encourage foreign investment and promote movement of labour.

The deal will impact just about every sector of the Canadian economy as well as millions of workers and consumers. Canadian consumers might end up paying less for thousands of products made in Europe, such as cars. For Canadian business, a potential advantage is open access to Europe for hundreds of their products, some of which now face high tariffs.

However, many Canadian companies also worry they will be overwhelmed by new foreign competition. For example, the agreement will allow more than double the quota of cheese entering Canada from Europe. This could hurt Ontario and Quebec dairy farmers’ market. However, the Canadian government has claimed it will subsidize those cheese producers, and that it will set up a marketing campaign for local cheese. The deal will also remove a trade barrier that currently protects Ontario wines and liquor from foreign competitors.

What are the potential negative consequences of removing tariffs on European imports to Canada? Discuss potential impact on consumers, employment, competitiveness, and culture in the Canadian context.(8 marks) Answer: Consumers  Not many negatives for consumers since they are the big winners in this deal.

Though if Canadian retailers are forced out of business by European competitors, Canadians may end up with fewer home-made goods (if that somehow matters to consumers in a way not related to employment).

Employment  Competition from larger European firms may be too strong for many Canadian businesses in some sectors– forcing bankruptcy, job losses through closures.

Especially for cheese producers in Quebec and Ontario, and Ontario wines and liquor.  Perhaps, they could argue that job losses could also arise if EU companies decide to shut down their Canadian subsidiaries and export their tariff-free goods to Canada.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Competitiveness  Many Canadian businesses worry about being overwhelmed by intense new foreign competition because Europe is a much bigger market than Canada so their firms benefit from scale and efficiencies that Canadian companies cannot match.  “If Canadian businesses do not learn as a nation to quickly take advantage of this deal they could be quickly overtaken by the European competitors.”  As with all trade agreements where countries specialize in their areas of comparative advantage, there are winners and losers. Some Canadian industries will expand and others will contract. Some businesses will become efficient, productive competitors, and some will go bankrupt.

Culture Increased imports of European cultural products (books, movies, music…) can lead to a decline in Canadian cultural products. Though this risk is far less present than with NAFTA and American culture since Canadian culture is more similar to American (than European) and Canadians consume far more US cultural goods.

3) In order to protect the dairy farmers, the Canadian government has assured the provinces it will pay compensation to cheese producers, and that it will set up a marketing campaign for local cheese. This is essentially a government subsidy to dairy farmers.

Explain why the Canadian Government should play the role of guardian of business in this way Answer: Nurturing Young Industries • The infant-industry argument asserts that the government should help a young industry to grow and develop by ensuring that the industry maintains a dominant share of the domestic market until it is mature enough to compete against foreign competition.

•

Dairy farms have been around a long time and are not really a ‘young’ industry so that argument would apply perhaps to other sectors that are newer (wineries?).

However, they are certainly new at exporting to Europe so perhaps they do require subsidies to help them become more competitive internationally.

Maintaining Favourable Balance of Trade • Governments want to avoid trade deficits and export as much as possible, and import as little as possible. In this case, it’s unlikely Canadian dairy farms will export their cheese to Europe (unlike Canadian pork and beef or cars) but the subsidies can reduce our imports of European cheese and therefore improve our balance of trade. Providing subsidies to cheese producers may help them become more competitive and expand their markets to export cheese to Europe. Similarly, Canada imports 114,000 cars from Europe and exports only 13,000. Perhaps subsidies to car makers would help narrow this gap.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Protecting Domestic Business from Unfair Competition • If European dairy farms also receive government assistance, then the Canadian government should subsidize Canadian producers in order to level the playing field.

•

A foreign competitor who exports products at low prices may be accused of dumping—which is pricing the product below cost or below the cost of the target country’s product. Government subsidies can compensate domestic producers for the unfair dumping practices of their foreign rivals.

Encouraging Direct Foreign Investment • It is Canadian producers getting subsidies, not European ones investing in Canada so this argument doesn’t really apply unless the subsidies somehow make the dairy farming business attractive to European producers wanting to set up set up shop in Canada. Perhaps they will buy existing Canadian farms and invest in Canada. This would obviously be good for the Canadian economy as foreign investment brings jobs, economic stability…

Maintaining Adequate Levels of Domestic Employment • There are 46,000 Canadians are employed in the dairy business. Keeping those jobs is a critical objective for the government. If dairy farms need government assistance to stay in business, then perhaps the government should subsidize them in order to maintain domestic employment and all the economic benefits that go along with jobs.

Offering Subsidies to Compete Globally •

Whether it is cash payments, low-interest loans or tax breaks, in the global context, such subsidies are intended to help domestic industries deal with global competition. Perhaps the government will need to subsidize Canadian firms so that they can compete with the EU firms. Unfortunately, it’s unlikely Canadian farmers will compete globally and export to other countries so subsidies won’t be of much help.

4) In order to protect the dairy farmers, the Canadian government has assured the provinces it will pay compensation to cheese producers, and that it will set up a marketing campaign for local cheese. This is essentially a government subsidy to dairy farmers.

Explain why the Canadian Government should not play the role of guardian of business in this way.

Answer:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

•

The core problem of government subsidies (and protectionism) is the use of taxpayers’ money to help one specific industry, fairness to other industries, the notion of ‘letting the market decide’ and ensuring open and fair competition, as well as the danger of industries becoming reliant on government for support.

•

There are several theoretical points to consider: Protectionism, govt subsidies, bailouts, corporate welfare… essentially redistribute public money from the taxpayers to a few corporations. In other words, everyone pays so that a few can benefit. Why should cheese producers (mostly in Ontario and Quebec) get government subsidies and n

•

Would these dairy farms survive on their own without government assistance?

The competitive marketplace should decide which industries and firms are successful, not government.

•

Subsidies also discourage firms from being more competitive, efficient, innovative… and result in higher prices for consumers (and possible retaliation from other trading partners).

•

Great answers will push their thinking to explain how subsidies to dairy farms should not be used to favour some industries over others because it’s very difficult for even the most astute investor to pick winning firms or industries, that it’s foolish to think the government can do it. Spending public money on industries that turn out to be losers down the road is a wasteful and inefficient use of government funds.

•

Subsidies are not merely harmless forms of assistance to businesses; rather, they constitute a form of trade barrier, just like tariffs, and they create unfair competition.

•

Subsidies are unfair – they divert money away from more successful businesses and towards less successful ones (i.e., the dairy farms).

•

Subsidies are contrary to the notion of capitalism – i.e., profitable companies should stay in business; companies that cannot compete should not be permitted to continue.

•

Subsidies lead to higher taxes, government is simply redistributing public money to a few corporations.

•

May be viewed as violating fair trade agreements (i.e, unfair to foreign competitors who must compete against government businesses)

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

1) Foreign takeovers of Canadian-owned businesses continue to happen. One of the biggest foreign takeovers in Canadian history a number of years ago, triggered a great concern among many Canadian observers that there is a “hollowing out” of corporate Canada. That takeover was by Rio Tinto, a mining company from Britain, that completed a $38-billion (U.S.) deal to buy the 105-year-old Canadian aluminum maker Alcan Inc. (headquartered in Montreal). The deal made Alcan a subsidiary of Rio Tinto – a global company headquartered in Britain (and Australia). Some critics have suggested that the loss of control of Alcan was very bad for Canada. Those opposed to these foreign takeovers argue that Canadian business is losing control and independence to foreign countries. Consequently, there has been concern that the Canadian government should try to curtail this foreign takeover trend before Canadian is transformed completely into a “branch plant economy”.

Identify the three central elements of globalization and describe how this case reflects each of these three elements? Students need to begin with a definition of globalization .

Answer: 1. Globalization can be considered a process that is expanding the degree and forms of cross border transactions among people, assets, goods and services.

2. Rio Tinto is a Britain/Australian company doing business across border in Canada 3. Globalization refers to the growth of direct foreign investment in regions across the world.

4. Buying out Canadian owned Alcan, continuing to operate in Canada and is now expanding into China and India represents direct foreign investment.

5. Shift toward increasing economic interdependence: the process of generating one, single, world economic system or a global system.

6. The purchase of Alcan by Rio Tinto is an erosion of Canadian independence. The case also mentions the Hudson Bay and other companies that have been bought out by none Canadian firms making the Canadian economy more interdependent.

2) Foreign takeovers of Canadian-owned businesses continue to happen. One of the biggest foreign takeovers in Canadian history a number of years ago, triggered a great concern among many Canadian observers that there is a “hollowing out” of corporate Canada. That takeover was by Rio Tinto, a mining company from Britain, that completed a $38-billion (U.S.) deal to buy the 105-year-old Canadian aluminum maker Alcan Inc. (headquartered in Montreal). The deal made Alcan a subsidiary of Rio Tinto – a global company headquartered in Britain (and Australia). Some critics have suggested that the Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

loss of control of Alcan was very bad for Canada. Those opposed to these foreign takeovers argue that Canadian business is losing control and independence to foreign countries. Consequently, there has been concern that the Canadian government should try to curtail this foreign takeover trend before Canadian is transformed completely into a “branch plant economy”.

Based on the text material, describe five factors that may likely have pushed/ pulled Rio Tinto to go global (i.e. to Canada)?

Answer: Pull Factors: 1. Potential for sales growth by acquiring Alcan. This acquisition has helped Rio Tinto to capture market share and expand its business to Canada, and is now moving into China and India—limitless potential beyond just the domestic market.

2. Obtaining needed resources- global business activity can allow firms to obtain resources that are either unavailable or too costly within the domestic borders. e.g. access to inexpensive labour in China, India, as evidenced in the case of Rio Tinto that is expanding into these countries.

Push Factors: 1. The forces of competition - Business that seeks to grow needs to consider the markets beyond domestic boarders--potential for untapped market opportunities still exist.

2. Shift toward democracy - formerly economically and politically repressed societies contributed to the creation of market opportunities. E.g. Eastern Europe, Asia 3. Reduction in trade barriers - general push towards freer trade.

3) Foreign takeovers of Canadian-owned businesses continue to happen. One of the biggest foreign takeovers in Canadian history a number of years ago, triggered a great concern among many Canadian observers that there is a “hollowing out” of corporate Canada. That takeover was by Rio Tinto, a mining company from Britain, that completed a $38-billion (U.S.) deal to buy the 105-year-old Canadian aluminum maker Alcan Inc. (headquartered in Montreal). The deal made Alcan a subsidiary of Rio Tinto – a global company headquartered in Britain (and Australia). Some critics have suggested that the loss of control of Alcan was very bad for Canada. Those opposed to these foreign takeovers argue that Canadian business is losing control and independence to foreign countries. Consequently, there has been concern that the Canadian government should try to curtail this foreign takeover trend before Canadian is transformed completely into a “branch plant economy”.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

What are three potential benefits and three potential negative consequences for the host country (Canada) of this acquisition?

Answer: Three Potential Benefits for the host country 1. Offers management expertise – Bank of Canada Governor claim that the “quality of management more important than nationality” 2. Provides financial support to underdeveloped regions of the world – China, India 3. Encourages International Trade 4. Brings different countries together 5. Facilitates global co-operation and worldwide economic development 6. Creates employment – If they stay in Canada long-term Potential Negative consequences for the host country 1. MNCs do not have any particular allegiance or commitment to their host country 2. Profits made are mobile – go back to head office 3. Decision making and other key functions of MNCs are highly centralized in home country i.e. Britain/Australia 4. Difficult to control and hold them accountable – loss of Alcan devastating Canada 4) Foreign takeovers of Canadian-owned businesses continue to happen. One of the biggest foreign takeovers in Canadian history a number of years ago, triggered a great concern among many Canadian observers that there is a “hollowing out” of corporate Canada. That takeover was by Rio Tinto, a mining company from Britain, that completed a $38-billion (U.S.) deal to buy the 105-year-old Canadian aluminum maker Alcan Inc. (headquartered in Montreal). The deal made Alcan a subsidiary of Rio Tinto – a global company headquartered in Britain (and Australia). Some critics have suggested that the loss of control of Alcan was very bad for Canada. Those opposed to these foreign takeovers argue that Canadian business is losing control and independence to foreign countries. Consequently, there has been concern that the Canadian government should try to curtail this foreign takeover trend before Canadian is transformed completely into a “branch plant economy”.

What six major arguments can you make for the Canadian government to play the role of guardian of Canadian businesses (like Alcan) by preventing such foreign takeovers and also by offering subsidies to Canadian companies (like Alcan) in order to help them compete against foreign companies (like Rio Tinto)?

Answer: 1. Nurturing young industries: Perhaps the most convincing argument for subsidies in general. To avoid this type of takeover, the government needs to help Alcan in the form of subsidies. This way they can grow and maintain a dominant share in the Canadian market and eventually compete globally.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

2. Offering subsidies to compete globally: Government can provide subsidies to help Alcan compete globally with foreign competitors like Rio Tinto 3. Maintaining adequate level of domestic employment Creating/maintaining domestic jobs. While Alcan remain in Canada, this holds true. However, they have no allegiance to Canada and can choose to move their business offshore where they can access cheaper resources such as labour. It is our government’s responsibility to ensure that that does not happen 4. Protecting against unfair global competition: Protect Alcan from dumping by foreign competitors creates a more even playing field.

5. Encouraging Foreign Direct Investment (FDI): Perhaps foreign producers will be attracted by subsidies encourages them to invest $ in Canada by setting up their operations here. This will increase employment and contributes to economic growth 6. Maintaining favourable balance of trade: Increase exports and reduce imports to avoid running a trade deficit. Government would need subsidize Alcan to encourage growth in their export

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) What are the ways governments can provide assistance to businesses? a. Grants b. Loans c. Subsidies d. All of the above Answer: d Diff: 1 Type: MC Page Reference: 340 Skill: recall Objective: LO1 2) The Canadian economic system has been described as a(n): a. Oligopoly system b. Capitalistic system c. Communism system d. Mixed system Answer: d Diff: 1 Type: MC Page Reference: 342 Skill: recall Objective: LO1 3) All developed countries have some sort of economic or business enterprise system that determines the following: a. What goods and services are produced and distributed to society b. How the goods and services are produced and distributed to society c. Who produces and distributes the goods and services to society d. A & B only Answer: d Diff: 1 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Page Reference: 342 Skill: both Objective: LO1 4) Businesses should be free to make and sells what they please and, consequently, reflects the notion that government should not interfere with the economic affairs of business. This is referred to as: a. Capitalism b. Competition c. Laissez Faire d. Both B & C Answer: c Diff: 2 Type: MC Page Reference: 343 Skill: recall Objective: LO1 5) The LCBO is an example of what type of business? a. Non Profit Corporation b. Limited Liability Partnership c. Crown Corporation d. All of the above Answer: c Diff: 2 Type: MC Page Reference: 345 Skill: recall Objective: LO1 6) What are cabinet members? a. The upper house of Parliament where a bill is passed after it has been approved by the House of Commons

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

b. The lower house of Parliament where a bill is passed after it has been approved by the House of Commons c. Members of Parliament who are appointed by the House of Commons to oversee an assigned government or department d. Members of Parliament who are appointed by the prime minister to oversee an assigned government or department Answer: d Diff: 2 Type: MC Page Reference: 347 Skill: recall Objective: LO2 7) The Tax Court of Canada and the Supreme Court of Canada represent what type of court system? a. Lowest level Judiciary b. Federal Judiciary c. Provincial Judiciary d. None of the above Answer: b Diff: 2 Type: MC Page Reference: 347 Skill: both Objective: LO2 8) Explain the role of the Governor General a. The holder of executive authority in Canada’s government. This person typically plays an active administrative role and must sign bills before they become law. b. The holder of executive authority in Canada’s government. This person typically plays a passive administrative role and usually follows the advice of the prime minister, but he or she must sign bills before they become law c. The holder of executive authority in Canada’s government. This person typically plays a passive administrative role and usually follows the advice of the Queen, but he or she must sign bills before they become law d. None of the above Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Answer: b Diff: 2 Type: MC Page Reference: 346 Skill: b Objective: LO2 9) _________________ is a type of tax that is considered a value-add tax or a tax that is paid at each steps of the manufacturing process a. Sales Tax b. Goods and Services Tax (GST) c. Harmonized Sales Tax (HST) d. All of the above Answer: d Diff: 3 Type: MC Page Reference: 348 Skill: both Objective: LO3 10) The government is a guardian of society by: a. Collecting taxes from business, acting as charitable organizations, regulating the corporate environment, protecting the environment b. Collecting taxes from business, acting as business owners, regulating the business sector and safeguarding Canadian interests in the global context c. Collecting taxes from business, acting as business owners, mandating stricter gun laws, preparing ministries for legislation against cruelty to animals d. Collecting taxes from business, acting in the best interests of the public, providing welfare, supporting small business with grants Answer: b Diff: 2 Type: MC Page Reference: 348 Skill: recall

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Objective: LO3 11) Restrictive taxes or regulatory taxes are: a. Primarily aimed at controlling or curbing the increase in prices of the housing prices b. Primarily aimed at controlling or curbing the use of specific products or services c. Primarily support the purchasing of raw materials from a supplier d. Primarily aimed at controlling or curbing public savings Answer: b Diff: 2 Type: MC Page Reference: 349 Skill: recall Objective: LO3 12) What are the rationales for having Crown Corporations? a. To protect industries deemed to be vital to the economy b. To restrict taxation on vulnerable communities c. To nationalize industries that are considered to be “national monopolies” d. A & C Answer: d Diff: 2 Type: MC Page Reference: 349-351 Skill: recall Objective: LO4 13) The CRTC and Canada post are examples of what type of enterprise? a. Social Enterprise b. Marketable enterprise c. Global Enterprise d. Crown Corporation Answer: d Diff: 1 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

Type: MC Page Reference: 349 Skill: recall Objective: LO4 14) _____________ is the largest sources of revenue for municipal governments. The revenue gained from this form of tax is typically used to fund the operating costs of the municipal government and the services that it provides. a. Goods and Services Taxes b. Individual Income Taxes c. Property Taxes d. Corporate Taxes Answer: c Diff: 3 Type: MC Page Reference: 349 Skill: both Objective: LO3 15) Government involvement is necessary due to this type of market system a. Mixed market system b. Communistic market system c. Imperfect competition d. a & b Answer: c Diff: 2 Type: MC Page Reference: 362 Skill: both Objective: LO3 16) What is a bailout? a. A type of government support to business to prevent an organization or industry from financial collapse

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

b. May involve a one-time financial contribution c. Financial assistance in a form of a loan or loan guarantee d. All of the above Answer: d Diff: 2 Type: MC Page Reference: 364 Skill: recall Objective: LO5 17) Identify the two major criticisms of subsidies a. Businesses should be required to manage their costs without external help or “handouts,” from the government; they constitute a form of trade barrier, and they create unfair competition. b. It maintains a favourable balance of trade; it constitutes fair competition. c. A & B d. None of the above Answer: a Diff: 3 Type: MC Page Reference: 365-367 Skill: both Objective: LO5 18) Identify at least two risks that have been associated with government nurturing young industries a. Such protection can discourage domestic industry from increasing competition and engaging in innovation b. there is a question as to whether consumers are better or worse off from such practices as it comes at the expense of blocking access to cheaper foreign goods or services c. a & b d. none of the above Answer: c Diff: 3 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

Type: MC Page Reference: 365-367 Skill: both Objective: LO6 19) ________________ is an accusation against an exporting country of pricing its product below cost or below the cost of the target country’s products a. tariffs b. dumping c. foreign direct investment d. B & C Answer: b Diff: 3 Type: MC Page Reference: 370 Skill: recall Objective: LO6 20) Why should government not play the role of guardian of business? a. Promotes a political agenda, creates an uneven playing field, benefits only a few, creates dependency, contrary to free and open markets, undermines public confidence in politicians b. Promotes a political agenda, creates an even playing field, benefits only a few, creates dependency, contrary to free and open markets, undermines public confidence in politicians c. Promotes a political agenda, creates an even playing field, benefits the many, creates dependency, contrary to free and open markets, undermines public confidence in politicians d. Promotes a political agenda, creates an uneven playing field, benefits only a few, creates interdependency, contrary to free and open markets, undermines public confidence in business Answer: a Diff: 2 Type: MC Page Reference: 374 Skill: recall Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

Objective: LO6 21) Corporate welfare is a. A support mechanism offered by corporations to employees when downsizing b. A support mechanism or safety net for individuals who are unemployed c. A job creation model meant to justify political agenda d. A term used to refer to government assistance given to businesses Answer: d Diff: 2 Type: MC Page Reference: 373 Skill: recall Objective: LO6 22) “Corporate Welfare should not be a public service. Tax dollars should be spent on community services, projects and social programs that provide the greatest benefit to all taxpayers, such as education, health care and national defence.” Which argument of government should not be a guardian of business is this referring to? a. Creates dependency b. Benefits only a few c. Undermines public confidence in politicians d. All of the above Answer: b Diff: 4 Type: MC Page Reference: 375 Skill: both Objective: LO6 23) What are the potential risks of deregulation? a. Governmental exploitation – that is, a reduction in quality of services provided, increases in taxes, or regulation increases to govern the industry’s operation b. Business exploitation – that is, a reduction in quality of products provided, increases prices of manufacturing as a result of the reduction in laws governing the business’ operations Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

c. Non profit exploitation – that is, a reduction in quality of donations being provided, decrease in quality of care provided as a result of the reduction in laws governing the industry’s operation d. Consumer exploitation – that is, a reduction in quality of the products or services being offered, increases in consumer fees, or price increases as a result of the reduction in laws governing the industry’s operation Answer: d Diff: 2 Type: MC Page Reference: 376 Skill: both Objective: LO7 24) What are the potential benefits of deregulation? a. Increased competition arising from the reduction of regulations that have formerly restricted the entry of new competitors b. Decreased competition arising from the increase of regulations that have formerly restricted the entry of new competitors c. Increased competition arising from the increase of regulations that have formerly restricted the entry of new competitors d. None of the above Answer: a Diff: 2 Type: MC Page Reference: 376 Skill: both Objective: LO7 25) ____________ is aimed at correcting market failures and inequities that may arise for a variety of reasons, including the case where insufficient competition exists in an industry. a. Deregulation b. Regulation c. Privatization d. None of the above

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

Answer: b Diff: 3 Type: MC Page Reference: 376 Skill: recall Objective: LO7 26) Divesting of government involvement in the operation, management and ownership of activities refers to: a. Regulation b. Privatization c. both A & B d. None of the above Answer: b Diff: 2 Type: MC Page Reference: 380 Skill: recall Objective: LO7 27) Perfect Competition is a. A mixed market economy that affects the prices of products and services b. An economic term that exemplifies the demand and supply of products and services c. An approach of change that has as its purpose the development of the organization’s human capability to implement strategy and to learn from actions taken about the effectiveness of changes made. d. A market system where many firms all produce an indistinguishable product or service so that no single producer has the power to affect the price of that product or service Answer: d Diff: 2 Type: MC Page Reference: 361 Skill: recall Objective: LO4

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

28) What is the Competition Bureau? a. An independent law enforcement agency b. Ensures that Canadian businesses and consumers proper in a competitive market c. Is responsible for the administration and enforcement of the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act d. All of the above Answer: d Diff: 4 Type: MC Page Reference: 362 Skill: both Objective: LO4 29) What are some of the basic assumptions of the Competition Bureau in regards to competition? a. Makes the economy work more efficiently b. Price fixing, mergers and bid-rigging helps competition c. gives small businesses an equitable chance to compete and participate in the economy d. A & C Answer: a Diff: 1 Type: MC Page Reference: 362 Skill: recall Objective: LO4 30) ___________________is an example of a Crown Corporation. a. LCBO b. Canadian National Railway c. Air Canada d. All of the above Answer: a Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

Diff: 3 Type: MC Page Reference: 349 Skill: recall Objective: LO4

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

13

1) In what way are there limits on each of the fundamental principles of capitalism?

Answer: a) Rights of the Individual: Individuals have every right to pursue their own self interest, which includes seeking to make profits from business enterprises. There are limits placed on individuals’ right to pursue their self-interest. Government regulations enforce rules that affect how business owners conduct their affairs. b) Rights of private property: As opposed to state ownership, capitalism asserts that individuals have the right to own land, labour, and capital. However, because there has been an uneven distribution of wealth in society, the government has intervened in a number of ways. For example, taxation is one approach that can be partly aimed at redistributing wealth among members of society. c) Competition: Competition is the “ invisible hand of the market ” (in the words of economist Adam Smith) that ensures the market works in this manner. In Canada, the notion of perfect competition does not exist in practice—there is no guarantee that an adequate supply of competitors exists across all industries. d) The Role of Government: The view of government is reflected in the French term laissez faire, which means “let people do as they choose.” However, the Canadian government has intervened in business activities in such areas as crown corporations, regulation and offering subsidies and bail-outs.

Diff: 3 Type: ES Page Reference: 343 Skill: both Objective: LO1 2) Briefly describe the differences in responsibilities among the three levels of government in Canada Answer: The government of Canada is organized into three levels: federal, provincial/territorial, and municipal. Each level has unique responsibilities that govern individuals and business; however, some powers may overlap or be shared. 1) The federal level of government is the highest level of government and applies to all Canadians. Some roles include national defence, criminal law, bankruptcy law, postal service, foreign policy, currency, First Nations, banking, and immigration. 2) The provincial level of government is more regional in nature and only affects those citizens and residents who reside in a particular province. Provincial responsibilities include highways, transportation, education, and health care. 3) A municipal government can govern a city or a smaller community, such as a town, village, or parish. Some municipal responsibilities can include police services, fire protection, land planning, sewage, public transportation, garbage collection, and library services.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Diff: 2 Type: ES Page Reference: 344 Skill: both Objective: LO2 3) In what way does government interact with business in order to fulfil its role as guardian of society?

Answer: •

Collector of taxes from businesses: Government collects two types of taxes: revenue taxes and regulatory or restrictive taxes. These monies are collected to help fund government services and program, and include individual income taxes, corporate taxes, property taxes and sales taxes. Restrictive taxes consist of two types, including excise taxes and customs duties or tariffs. Excise taxes are applied to goods and services that the government wants to restrict the purchase of.

•

Acting as business owners: Governments sometimes own a federal or provincial run corporation (sometimes referred to as a public enterprise) that is accountable to Parliament for its operation through a minister.

•

Regulating the business sector: The authority of government imposes constraints to significantly modify economic behavior in the private sector. The motive may include protection of the consumer or the environment, or protection of fair competition among businesses.

•

Safeguarding Canadian interests in the global context: One of the central objectives of government regulation is to protect the public interest. The government has the ability to control the operations of private enterprises through regulations.

Diff: 3 Type: ES Page Reference: 348 Skill: both Objective: LO3 4) In what ways are crown corporations necessary?

Answer:

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

•

Crown Corporations are established for a number of reasons including: o To implement public policy that includes protecting or safeguarding national interests o To protect industries deemed to be vital to the economy o To provide special services that could not otherwise be made available by private business o To nationalize industries that are considered to be “natural monopolies,” including the generation and distribution of electricity.

In these areas, arguably crown corporations are necessary. Where private business can accomplish some of these goals, it can be argued that crown corporations may no longer be required.

Diff: 3 Type: ES Page Reference: 349 Skill: both Objective: LO4 5) Explain several ways government can act as guardian of business, in terms of financial assistance.

Answer: Bailout: Refers to government assistance given to prevent an organization or industry form financial collapse. A government would usually enter into a bailout if the failing company is very large and whose failure would cause negative repercussions for the economy. Bailout often involve a one-time financial contribution to combat significant financial troubles that a business may be experiencing, often in the form of a loan or loan guarantee. Recently, the US government had to bailout the auto industry.

Subsidies: on the other hand, are financial assistance to businesses by government in the form of cash payments, low-interest loans, or potentially reduces taxes. In the global context, subsidies are often intended to assist domestic industry to compete against foreign businesses, whether in the home country or through exports. The government collects revenue through income and sales taxes and it is these funds that are used to help some businesses. An example of this is the lumber industry in Ontario Diff: 2 Type: ES Page Reference: 364-365 Skill: both Objective: LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

6) Why is unfair competition from a foreign competitor a concern for domestic business?

Answer: There is a concern among some businesses that foreign competitors will offer their products at extremely low prices as a means of monopolizing their share of the target country’s market. The ultimate consequence would be that domestic producers could potentially be driven out of business and be replaced by the foreign imports. A foreign competitor who manages to export the products at such low prices may be accused of dumping —which is pricing the product below cost or below the cost of the target country’s product. In other words, a foreign supplier who sells the product at a loss or for less than the price of the seller’s domestic market would be considered guilty of dumping.

Diff: 3 Type: ES Page Reference: 369- 373 Skill: both Objective: LO6 7) Discuss two arguments in favour of privatizing crown corporations relating to competition and efficiency.

Answer: 1. Belief in the Power of Competition as a Control Mechanism Privatization programs are typically guided by the view that the force of market competition is best suited to fostering efficiency and innovation in an industry.

Specifically, the view is that privatization of a state-owned monopoly will open an industry to competition and, consequently, encourage innovation, growth, and efficiency.

Moreover, where privatization opens an industry to foreign competition, this permits consumers to have access to goods or services developed in other parts of the world and will stimulate innovation among domestic firms operating in the industry.

2. Belief that Private Business Can Operate More Efficiently Studies conducted in a variety of countries have found evidence that the private production of goods and services is typically more efficient than public production.

Consequently, many observers feel that it is difficult for government-owned enterprises to reconcile the social goals of the enterprise with the economic-efficiency goals that must be of concern to any business. Removing the political element of an enterprise allows it to focus on efficiency and avoid potential conflicts of interest.

Diff: 4 Type: ES Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Page Reference: 380-383 Skill: both Objective: LO7

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

1) Part of the government’s aim in offering assistance to business is to encourage innovation a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 341 Skill: recall Objective: LO1 2) According to the Fraser Institute, there is a great deal of evidence showing that government assistance to business leads to widespread economic growth and job creation. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 341 Skill: both Objective: LO1 3) The government of Canada is organized into three levels of government: Federal, Provincial/Territorial and municipal a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 344 Skill: recall Objective: LO2 4) The highest level of government that governs all Canadian citizens, residents and others across Canada is the Ministry of Defence a. True Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

b. False Answer: b Diff: 1 Type: TF Page Reference: 344 Skill: recall Objective: LO2 5) Regulation is aimed at correcting market failures and inequities that may arise for a variety of reasons, including the case where insufficient competition exists in an industry a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 376 Skill: both Objective: LO7 6) An example of a restrictive tax is the Harmonized sales tax (HST) a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 348 Skill: recall Objective: LO3 7) Assisting private business by way of bailouts and subsidies is an example of government as guardian of society a. True b. False Answer: b Diff: 3

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Type: TF Page Reference: 358 Skill: recall Objective: LO3 8) A major criticism of subsidies is that they create barriers and unfair competition a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 367 Skill: both Objective: LO5 9) Government’s role as business owner includes the necessity to protect industries that are deemed to be vital to the economy a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 349 Skill: both Objective: LO4 10) Imperfect competition occurs where there are many firms that produce an indistinguishable product or serve that no single producer has the power to affect the price of that product or service a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 361 Skill: recall Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Objective: LO3

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) PayPal is a well-known online payment processor (it’s like a "virtual" credit card for internet payments). Recently, PayPal attempted to create a policy which would deny the use of its service to online merchants selling what could be deemed to be obscene written content. In other words, PayPal would refuse to allow its service to be used to purchase from any business that sells books/material with obscene content.

In what way is PayPal attempting to be socially responsible - make reference to the general definition of CSR in your response (it is not necessary to make reference to the CSR pyramid). Provide 4 arguments FOR and 4 arguments AGAINST PayPal's efforts to be socially responsible in this context. These arguments should be those identified in our text and clearly explained by you. And as always, ensure you APPLY, these arguments to this case.

Answer: FOR CSR – IE FOR PAYPAL’S POLICY TO DENY OBSCENE CONTENT: 1.Business should conform to societal expectations As a socially responsible corporation it is imperative that the products that are being used by a company not be obtained through unethical means. IE PAYPAL SHOULD NOT CONDONE AND HELP organizations who want to profit from pornography. They cannot simply turn a blind eye and make money from assisting these unethical transactions. I.e. if they do that they will LOSE LEGITIMACY IN OUR EYES AND WILL BE SHUNNED BY SOCIETY. 2. CSR is practical strategy CSR is a practical strategy used to avoid public criticism and scrutiny. When the public discovers that PayPal assists the dissemination of child porn or other obscene material there will be back lash & it could prove to be very costly. By being socially responsible PayPal would avoid this unwanted attention. WHAT BACKLASH? WHAT KIND OF UNWANTED ATTENTION? FROM WHOM? GOVERNMENT PENALTY? ethics WATCHDOGS/child porn opponents…

3. PayPal Must acknowledge network of stakeholders If PayPal turn a blind eye to where facilitating obscene purchases then they deny existence of other stakeholders. Who is harmed by these transactions? Possibly children and other victims of pornography. Also if purchasers are negatively influence by these purchases. NAMING OTHER Stakeholders: SOCIETY IN GENERAL WHO LOOKS CRITICALLY AT WHAT THEY ARE DOING. AND PERHAPS HUMAN RIGHTS ACTIVISTS/ANTI-PORN GROUPS WHO ARE ALSO STAKEHLDERS WHO ARE CRITICAL OF THIS BEHAVIOR. 4. Long term benefits for PayPal By making the choice to not be a part of obscene transaction they gain society’s respect.

DMEONSTRATING THIS ETHICAL REPUTATION WILL ESTABLISH GOODWILL AND ENSURE THAT LONGTERM PEOPLE WANT TO INVEST IN THIS COMPANY – THAT IS THE LONG TERM BENEFITS TO THESE BUSINESSES! Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Case Against CSR – i.e. against PAYPAL’S POLICY TO DENY OBSCENE CONTENT:

1) Business is business PayPal has a responsibility to make profits. They cannot be expected to shoulder both an economic and social responsibility. They are in conflict with themselves if they try to fulfill both. They cannot be worried about who uses PayPal for their sales transactions – regardless of the bad nature of the seller.

IE ACCORDING TO THIS ARGUM,ENT THEY SIMPLY DON’T NEED TO BE CONCERNED WITH obscene material purchases- IT IS NOT THEIR BUSINESS – THEY SIMPLY Look to make money.

2) Business plays by its own set of rules PayPal is playing by the set of rules set out by their business environment.

They are playing to win so to speak. They have one objective – to have all kinds of business use PayPal for their transactions. In personal contexts we don’t believe in supporting harmful or obscene things but in business they don’t have to make this moral judgment.

3) Business does not dictate morality PayPal is n the business of online transactions not morality. This is NOT their area of expertise. To ask a corporation to take on the task of social policy is irresponsible. They are not experts on social policy nor should they be as this is the role of the government. PayPal cannot act as a censor of some businesses – they have no right to judge morality!

4) Organizations cannot be held accountable Organizations cannot be held accountable for the actions of their corporate leaders and constituents. It is not an organization that makes a decision to participate in unethical activity therefore an organization should not be held accountable. We cannot tell PayPal who to do business with and who to avoid since we cannot force them to do something that is not covered by law.

2) How is CSR an issue here?

Answer: Social responsibility refers to those obligations or responsibilities that corporation has to go beyond: 1. the production of goods/service for profit 2. the requirements of competition, legal regulations, or customThese companies made a profit and obeyed the law however they did not go beyond to ensure that they were being ethically responsible.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Economic Responsibility Society requires these companies to fulfill their responsibility to use rational business strategy, to generate profit, and minimize costs. By using a Coltan supplier with the lowest price they are minimizing their costs and therefore passing a savings on to their customers. However at what cost to the people of the Eastern Congo? By buying the cheapest Coltan these companies are funding the slaughter of innocent people.

Legal Responsibility Society requires these companies to fulfill their legal responsibility to obey all laws and regulations governing business activity. In this case no laws are being broken. These companies are fulfilling their legal responsibility to obey all laws however perhaps their should be legislation against buying products that are obtained in an unethical manner.

Ethical Responsibility Society expects companies to engage in business practices that are in line with what society considers acceptable. The fact that these companies are purchasing this mineral from unknown sources is a conflict with ethical responsibility. If a company wants to be ethically responsible to society then it should do its homework to find out where its Coltan is coming from. IT MATTERS WHERE THE COLTAN COMES FROM – is the purchase facilitating more bloodshed?

Philanthropic Responsibility Society desires that companies engage in activities that help the betterment of society such as volunteerism and corporate donations. It is not mentioned in this article whether these companies fulfill their philanthropic responsibility to society however it is assumed that they do participate in philanthropic activities.

It is a stretch bue one might argue that the companies ARE IN SOME WAY ASSISTNG LOCAL CITIZENS IN THESE COMMUNITIES TO GET EMPLOYMENT THROUGH MINING (I KNOW THAT IS IRONIC BUT YOU NEED TO SHOW AN UNDERSTANDING OF WHAT THIS ELEMENT CALLED PHILANTHROPY IS).

3) What are arguments supporting the need for companies to monitor their coltan purchases?

Answer: Case for CSR 1) Business should conform to societal expectations As a socially responsible corporation it is imperative that the products that are being used by a company not be obtained through unethical means. If the mineral is obtained through violence, blood shed, torture, loss of life than these companies are failing to fulfill their responsibility of protecting basic human rights. By buying these products they are directly contributing to the blood shed in the Congo. In order to fulfill their social responsibility to society Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

these companies must immediately cease doing business with any company not obtaining Coltan in an ethical manner. They must only buy Coltan from ethical mines. NEED TO TIE IT EXPLICITLY TO SOCIETAL EXPECTATIONS – IE ALL THESE SENTIMENTS ARE ONE FELT STRONGLY BY SOCIETY. IF THEY FAIL TO CONFIRM TO THESE EXPECTATIONS THEY LOSE LEGITIMACY IN OUR EYES AND WILL BE SHUNNED BY SOCIETY. 2) CSR is practical strategy CSR is a practical strategy used to avoid public criticism and scrutiny. When the public discovers where and how these minerals, used in the production of their cellphones etc, were obtained the baack lash could prove to be very costly. By being socially responsible these corporations would avoid this unwanted attention. Eg. Possible GOVERNMENT PENALTY… HUMAN RIGHTS WATCHDOGS...

3) Must acknowledge network of stakeholders If these corporations turn a blind eye to where and how these minerals were obtained then they are dismissing the interests of many of their stakeholders.

Among the stakeholders negatively affected by the sale of these minerals is the people (men, women, and children) of Eastern Congo who are forced to work under horrific working conditions, tortured, and murdered. They are funding the civil conflicts in these areas. Also:SOCIETY IN GENERAL WHO LOOKS CRITICALLY AT WHAT THEY ARE DOING. AND PERHAPS HUMAN RIGHTS ACTIVISTS WHO ARE ALSO STAKEHOLDERS WHO ARE CRITICAL OF THIS BEHAVIOR. 4) Long term benefits By making the choice to research where the minerals come from and purchasing only from ethical mines companies can market their product as “conflict free”. This could potentially be a very effective marketing strategy.

Not only does this benefit the company but it also benefits the people of Eastern Congo. If no market exists for unethical Coltan then hopefully some of the blood shed will cease. DEMONSTRATING THIS ETHICAL REPUTATION WILL ESTABLISH GOODWILL AND ENSURE THAT LONGTERM, PEOPLE WANT TO INVEST IN THIS COMPANY – THAT IS THE LONG TERM BENEFITS TO THESE BUSINESSES!

4) What are arguments refuting the need for companies to monitor their coltan purchases?

Answer: Case Against CSR 5) Business is business These corporations have a responsibility to make profits and minimize costs.

By choosing a supplier with the lowest cost they are fulfilling their obligation Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

to their shareholders to maximize profits and minimize costs. IE ACCORDING TO THIS ARGUMENT THEY SIMPLY DON’T NEED TO BE CONCERNED WITH HOW THE MINERAL IS BEING MINED- IT IS NOT THEIR BUSINESS – THEY SIMPLY LOOK FOR THE CHEAPEST WAY OF GETTING THE PRODUCT! 6) Business plays by its own set of rules These corporations are playing by the set of rules set out by their business environment. They are playing to win so to speak. They have one objective and that is to produce their product at the lowest cost possible without sacrificing quality. If that means getting their Coltan from an unreliable source than that is what needs to be done. Their only obligation is to their owners and shareholders to turn as great a profit as possible.

7) Business does not dictate morality These corporations are in the business of creating and selling electronics. This is their area of expertise. They cannot be expected to shoulder both an economic and social responsibility. They are in conflict with themselves if they try to fulfill both. To ask a corporation to take on the task of social policy is irresponsible. They are not experts on social policy nor should they be as this is the role of the government. – IE ALL WE SHOULD EXPECT THEM TO DO IS LOOK FOR CHEAP SOURCES OF COLTAN – THE GOVERNMENT’S JOB IS TO PROTECT CITIZENS THAT MAY BE ABUSED IN THE EXTRACTION OF THIS MINERAL.

8) Organizations cannot be held accountable Organizations cannot be held accountable for the actions of their corporate leaders and constituents. It is not an organization that makes a decision to participate in unethical activity therefore an organization should not be held accountable. (Had a hard time with this one…not really sure how to defend this argument). LIKE OTHER CASES OF CORPORATE MISBEHAVIOUR – YOU CANNOT TELL A COMPANY HOW TO BEHAVE UNLESS IT IS BREAKING THE LAW. WE CANT TELL THESE BUSINESS TO BE MRE CAREFUL ABOUT COLTAN SINCE THERE IS NO PENALTY FOR THEM TO USE THE CONFLCIT COLTAN. WE CANNOT FORCE THEM TO DO IT AND WE CANNOT PENALIZE THEM IF THEY IGNORE OUR PLEAS.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

1) The anti-aging industry is growing at a very rapid rate. This industry has changed dramatically in recent years. The “new” anti-aging industry has replaced the old industry which really was simply promoting skin care products that promised to erase fine lines and wrinkles but whose effectiveness was questionable. Now you have an extensive variety of very different approaches to anti-aging, some more effective than others.

As the field emerges, consumers are faced with everything from major surgery (like “face lifts”) to more minor medical procedures to prescription or non-prescription products.

There are a huge range of products claiming to make people look younger and that include such strange names as micro-dermabrasion, retinoids, antioxidants and peels. In addition, there are a host of new minor cosmetic procedures that individuals are trying as early as age 25. These “cosmetic fillers”, like Botox offer individuals a less costly option to look younger compared to plastic surgery. Products like Botox injections are becoming so mainstream, individuals are getting them done in shopping malls.

Botox is one of the many commercial names for a protein called botulinum toxin that is produced by the bacterium Clostridium botulinum. In large doses, it causes botulism, a rare illness often linked to food poisoning. However, this substance can be used in cosmetic medicine in a variety of ways such as eliminating wrinkles in efforts to make a person “look younger”. It has taken some time for consumers to accept this product. First, Botox achieved government approval as a cosmetic treatment, and was eventually embraced by most dermatologists (cosmetic doctors). However, even after that approval, it still failed to attract a significant market for many years. Why? Because Botox’s market success was continually undermined by negative stories in the press. Skeptics and critics referred to it as “a deadly poison, causing frozen faces, mutilation and even addiction”.

To respond to the negative images the brand managers at Botox worked to create an image of it as a trustworthy medicine. Now Botox is becoming broadly accepted.

According to critics of the beauty/anti-aging industry, companies like the makers of Botox have been aggressively promoting the benefits of their beauty products and procedures, particularly to younger women. The beauty industry spends billions of dollars to promote their anti-aging products. This aggressive advertising includes the use of “super-skinny”, airbrushed models and celebrities to promote their products. By doing so, the beauty industry has created an ideal image of what people should look like in the minds of the public viewers. According to the beauty industry, “The Ideal Woman” is thin with flawless skin, regardless of her age. Critics are not arguing about the truthfulness of the claims in these advertisements, rather their concern is that the businesses in this industry are telling us how we should look. By promoting a “fantasy” image of people - the implications are that you must look “young and glamorous” if you want to be popular and embraced by others.

Based on the article above, answer the following (3) concept application questions.

Keep in mind that in addressing the questions below, you must apply the concepts, theories or frameworks discussed in class or in the assigned readings. Make any assumptions that you feel are necessary.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Provide and clearly explain three characteristics of the Emergent Phase. For each characteristic indicate how it is illustrated in this case of the anti-aging/beauty industry.

Answer: Emergent phase Characteristics – any three Eg. Small entrepreneurial businesses, innovation is key, many competitors, consumers pay a premium for the products, many different designs no one dominant design…..for each suggest Eg. Many different designs: Botox, surgery, cosmetics, prescription, non-prescription Eg. Innovation in approach to anti-aging – no longer just creams Lots of businesses but no one best approach yet…

2) The anti-aging industry is growing at a very rapid rate. This industry has changed dramatically in recent years. The “new” anti-aging industry has replaced the old industry which really was simply promoting skin care products that promised to erase fine lines and wrinkles but whose effectiveness was questionable. Now you have an extensive variety of very different approaches to anti-aging, some more effective than others.

As the field emerges, consumers are faced with everything from major surgery (like “face lifts”) to more minor medical procedures to prescription or non-prescription products.

There are a huge range of products claiming to make people look younger and that include such strange names as micro-dermabrasion, retinoids, antioxidants and peels. In addition, there are a host of new minor cosmetic procedures that individuals are trying as early as age 25. These “cosmetic fillers”, like Botox offer individuals a less costly option to look younger compared to plastic surgery. Products like Botox injections are becoming so mainstream, individuals are getting them done in shopping malls.

Botox is one of the many commercial names for a protein called botulinum toxin that is produced by the bacterium Clostridium botulinum. In large doses, it causes botulism, a rare illness often linked to food poisoning. However, this substance can be used in cosmetic medicine in a variety of ways such as eliminating wrinkles in efforts to make a person “look younger”. It has taken some time for consumers to accept this product. First, Botox achieved government approval as a cosmetic treatment, and was eventually embraced by most dermatologists (cosmetic doctors). However, even after that approval, it still failed to attract a significant market for many years. Why? Because Botox’s market success was continually undermined by negative stories in the press. Skeptics and critics referred to it as “a deadly poison, causing frozen faces, mutilation and even addiction”.

To respond to the negative images the brand managers at Botox worked to create an image of it as a trustworthy medicine. Now Botox is becoming broadly accepted.

According to critics of the beauty/anti-aging industry, companies like the makers of Botox have been aggressively promoting the benefits of their beauty products and procedures, particularly to younger women. The beauty industry spends billions of Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

dollars to promote their anti-aging products. This aggressive advertising includes the use of “super-skinny”, airbrushed models and celebrities to promote their products. By doing so, the beauty industry has created an ideal image of what people should look like in the minds of the public viewers. According to the beauty industry, “The Ideal Woman” is thin with flawless skin, regardless of her age. Critics are not arguing about the truthfulness of the claims in these advertisements, rather their concern is that the businesses in this industry are telling us how we should look. By promoting a “fantasy” image of people - the implications are that you must look “young and glamorous” if you want to be popular and embraced by others.

Based on the article above, answer the following (3) concept application questions.

Keep in mind that in addressing the questions below, you must apply the concepts, theories or frameworks discussed in class or in the assigned readings. Make any assumptions that you feel are necessary.

Explain how the two kinds of legitimacy required in the emergent phase were issues in the case of Botox – and discuss how they were addressed by the makers of Botox. Which type of legitimacy was the greater challenge here & why? You must refer to these two kinds of legitimacy using the names identified in our course/textbook and clearly define them as well.

Answer: Socio-political: government approval and approval of opinion leaders First, Botox achieved government approval as a cosmetic treatment, and was eventually embraced by most dermatologists (cosmetic doctors). THIS QUOTE IS KEY Cognitive legitimacy: the general public accepts, trusts and understands the purpose or value of this product/industry. This was harder to achieve: even after that approval, it still failed to attract a significant market for many years. Why? Because Botox’s market success was continually undermined by negative stories in the press. Skeptics and critics referred to it as “a deadly poison, causing frozen faces, mutilation and even addiction”.

To respond to the negative images the brand managers at Botox worked to create an image of it as a trustworthy medicine. Now Botox is becoming broadly accepted.

3) The anti-aging industry is growing at a very rapid rate. This industry has changed dramatically in recent years. The “new” anti-aging industry has replaced the old industry which really was simply promoting skin care products that promised to erase fine lines and wrinkles but whose effectiveness was questionable. Now you have an extensive variety of very different approaches to anti-aging, some more effective than others.

As the field emerges, consumers are faced with everything from major surgery (like “face lifts”) to more minor medical procedures to prescription or non-prescription products.

There are a huge range of products claiming to make people look younger and that include such strange names as micro-dermabrasion, retinoids, antioxidants and peels. In addition, there are a host of new minor cosmetic procedures that individuals are trying as early as age 25. These “cosmetic fillers”, like Botox offer individuals a less costly option Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

to look younger compared to plastic surgery. Products like Botox injections are becoming so mainstream, individuals are getting them done in shopping malls.

Botox is one of the many commercial names for a protein called botulinum toxin that is produced by the bacterium Clostridium botulinum. In large doses, it causes botulism, a rare illness often linked to food poisoning. However, this substance can be used in cosmetic medicine in a variety of ways such as eliminating wrinkles in efforts to make a person “look younger”. It has taken some time for consumers to accept this product. First, Botox achieved government approval as a cosmetic treatment, and was eventually embraced by most dermatologists (cosmetic doctors). However, even after that approval, it still failed to attract a significant market for many years. Why? Because Botox’s market success was continually undermined by negative stories in the press. Skeptics and critics referred to it as “a deadly poison, causing frozen faces, mutilation and even addiction”.

To respond to the negative images the brand managers at Botox worked to create an image of it as a trustworthy medicine. Now Botox is becoming broadly accepted.

According to critics of the beauty/anti-aging industry, companies like the makers of Botox have been aggressively promoting the benefits of their beauty products and procedures, particularly to younger women. The beauty industry spends billions of dollars to promote their anti-aging products. This aggressive advertising includes the use of “super-skinny”, airbrushed models and celebrities to promote their products. By doing so, the beauty industry has created an ideal image of what people should look like in the minds of the public viewers. According to the beauty industry, “The Ideal Woman” is thin with flawless skin, regardless of her age. Critics are not arguing about the truthfulness of the claims in these advertisements, rather their concern is that the businesses in this industry are telling us how we should look. By promoting a “fantasy” image of people - the implications are that you must look “young and glamorous” if you want to be popular and embraced by others.

Based on the article above, answer the following (3) concept application questions.

Keep in mind that in addressing the questions below, you must apply the concepts, theories or frameworks discussed in class or in the assigned readings. Make any assumptions that you feel are necessary.

Provide three clear characteristics of the Growth Phase and for each characteristic indicate how it could be illustrated in this case of the anti-aging/beauty industry Answer: ANY THREE EG. Dominant design – make any assumptions – Botox? Non-surgical or minor surgery….?

Eg. Shakeout – companies that don’t adopt dominant design are shaken out – maybe cream companies?

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Eg. Less innovation =- now focus is on generating lots of the product/service cheaper/ more standardized. Focus more on marketing – building perceived differentiation for the consumer.

Eg. Market CONTINUES to expand in interest and bigger companies now enter – e.g. big pharmaceuticals…For each tie to an example of this anti-aging industry

4) The anti-aging industry is growing at a very rapid rate. This industry has changed dramatically in recent years. The “new” anti-aging industry has replaced the old industry which really was simply promoting skin care products that promised to erase fine lines and wrinkles but whose effectiveness was questionable. Now you have an extensive variety of very different approaches to anti-aging, some more effective than others.

As the field emerges, consumers are faced with everything from major surgery (like “face lifts”) to more minor medical procedures to prescription or non-prescription products.

There are a huge range of products claiming to make people look younger and that include such strange names as micro-dermabrasion, retinoids, antioxidants and peels. In addition, there are a host of new minor cosmetic procedures that individuals are trying as early as age 25. These “cosmetic fillers”, like Botox offer individuals a less costly option to look younger compared to plastic surgery. Products like Botox injections are becoming so mainstream, individuals are getting them done in shopping malls.

Botox is one of the many commercial names for a protein called botulinum toxin that is produced by the bacterium Clostridium botulinum. In large doses, it causes botulism, a rare illness often linked to food poisoning. However, this substance can be used in cosmetic medicine in a variety of ways such as eliminating wrinkles in efforts to make a person “look younger”. It has taken some time for consumers to accept this product. First, Botox achieved government approval as a cosmetic treatment, and was eventually embraced by most dermatologists (cosmetic doctors). However, even after that approval, it still failed to attract a significant market for many years. Why? Because Botox’s market success was continually undermined by negative stories in the press. Skeptics and critics referred to it as “a deadly poison, causing frozen faces, mutilation and even addiction”.

To respond to the negative images the brand managers at Botox worked to create an image of it as a trustworthy medicine. Now Botox is becoming broadly accepted.

According to critics of the beauty/anti-aging industry, companies like the makers of Botox have been aggressively promoting the benefits of their beauty products and procedures, particularly to younger women. The beauty industry spends billions of dollars to promote their anti-aging products. This aggressive advertising includes the use of “super-skinny”, airbrushed models and celebrities to promote their products. By doing so, the beauty industry has created an ideal image of what people should look like in the minds of the public viewers. According to the beauty industry, “The Ideal Woman” is thin with flawless skin, regardless of her age. Critics are not arguing about the truthfulness of the claims in these advertisements, rather their concern is that the businesses in this industry are telling us how we should look. By promoting a “fantasy” Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

image of people - the implications are that you must look “young and glamorous” if you want to be popular and embraced by others.

Based on the article above, answer the following (3) concept application questions.

Keep in mind that in addressing the questions below, you must apply the concepts, theories or frameworks discussed in class or in the assigned readings. Make any assumptions that you feel are necessary.

Discuss how the issue of corporate social responsibility (CSR) is relevant to companies in the anti-aging/beauty industry using the CSR pyramid. Make specific reference to the facts raised in this article.

Answer: Csr definition pyramid: Four (4) levels of CSR need to be met for the company to be socially responsible.

Economic Responsibilities: Definition/Explanation/Theory: The economic responsibility is based upon that society requiresthat companies be profitable. In other words, companies should generate profits and minimize costs.

Application/Case Examples: This industry and these companies are very profitable –looking after financial stakeholders Legal Responsibilities: Definition/Explanation/Theory: Society also requires companies to be legally responsible. That is, complying with all laws and regulations. For example, employment laws, human rights laws, business law, contract law, copyright law, environmental law and so on.

Application/Case Examples: they got approval form government to market their products and there is observance of legal obligations Ethical Responsibilities: Definition/Explanation/Theory: Society also expects companies to be ethically responsible. That is, what society considers fair, just and acceptable.

Application/Case Examples: we expect that society is not misled and that members of society are not brainwashed as to what our appearances should look like. These companies are preying off of our vulnerability and need to be accepted. They are exploiting our need to be accepted.

Philanthropic Responsibilities: Definition/Explanation/Theory: Society desires companies to meet their philanthropic responsibilities. These are duties that help with the betterment of society, such as donating money, volunteering etc.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

application/Case Examples: less clear here. These companies make lots of money but don’t necessarily contribute back to society…

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

1) Which of the following best defines Business Ethics? a. The study of morality or moral judgments, standards, and rules of conduct b. The assertion that moral acts are actions that respect others c. The rules, standards, principles or codes giving guidelines for morally right behavior in certain contexts d. Conducting business that does not break the law e. Conducting business that does not infringe on societies moral standards Answer: c Diff: 1 Type: MC Page Reference: 396 Skill: recall Objective: Ch10, LO1 2) “Behavior that in some way has a harmful effect on others and is either illegal or morally unacceptable to the larger community” can be defined as: a. Amoral Behavior b. Immoral Behavior c. Illegal Behavior d. Unethical Behavior e. Immoral Activities Answer: d Diff: 2 Type: MC Page Reference: 396 Skill: recall Objective: Ch10, LO1 3) Immanuel Kant’s Categorical Imperative is the assertion that: a. All behavior is ethical if it is legal b. Moral Actions are actions that respect others. Organizations must conduct their business without infringing on individuals’ rights c. All behavior is legal if it is ethical

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

d. Moral actions are actions that are within the boundaries of the law, regardless if it infringes on an individuals’ right e. Ethical and Legal behavior are one in the same Answer: b Diff: 3 Type: MC Page Reference: 396 Skill: both Objective: Ch10, LO1 4) It is required of a manager to balance the interests of stakeholders when making a decision. Which stakeholder(s) must a manager think of when making a decision? a. All stakeholders relevant to the organization b. Shareholders and Creditors only c. Shareholders, Employees and Customers only d. Shareholders only e. Employees and Customers only Answer: a Diff: 1 Type: MC Page Reference: 397 Skill: both Objective: Ch10, LO1 5) Types of activity that may be considered unethical behavior include: a. Misrepresenting the worth of a product b. Engaging in forms of corporate spying c. Employee theft d. Only A & C e. All of the above Answer: e Diff: 1 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Page Reference: 358 Skill: both Objective: Ch10, LO1 6) Deontological theories of ethics state: a. An action is considered either moral or immoral based on the results of those actions b. Actions are ethical if it produces the greatest good for the greatest amount of people c. Good ends justify bad means d. Managers should consider the impact on all stakeholders before making a decision e. An action is considered either moral or immoral based on the act itself and not on the consequence of the act Answer: e Diff: 2 Type: MC Page Reference: 401 Skill: recall Objective: Ch10, LO2 7) Which of the following would be not justified under the theory of Utilitarianism? a. A CEO bribes a politician in order to win a contract. The result is that hundreds of people will now be employed b. A surgeon forcibly takes a kidney from a criminal on death row in order to save a man who is on the brink of finding the cure to cancer c. A thief steals money from a family who needs it, in order to finance his vacation d. A man saves 5 people by sacrificing 4 e. Someone steals from a few apples from an orchard in order to feed homeless individuals Answer: c Diff: 3 Type: MC Page Reference: 400 Skill: Application Objective: Ch10, LO2

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

8) Which of the following is true? a. End-Point Ethics can always be used to justify Unethical Activity b. Rule Ethics can always be used to justify Unethical Activity c. When determining the “rightness” or “wrongness” of behavior, whose rules should apply? d. Only A & B e. All of the above Answer: d Diff: 3 Type: MC Page Reference: 363 Skill: both Objective: Ch10, LO2 9) What are some of the limitations of End-Point Ethics? a. Difficulty of estimating and comparing relative benefits and costs to the stakeholder b. It does not consider the implications of what it takes to achieve those results c. Utilitarianism can always be used to justify Unethical Activity d. Utilitarianism is the main principle of Rule Ethics e. Both models are inherently flawed, as they are limited by the degree of rigor that the decision maker employs in their use.

Answer: e Diff: 3 Type: MC Page Reference: 403 Skill: recall Objective: Ch10, LO2 10) Rules based on religious beliefs, family values, education, experience are examples of what type of ethics? a. End point ethics b. Utilitarianism c. Rule ethics d. Both end point and rule ethics Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

e. None of the above Answer: c Diff: 1 Type: MC Page Reference: 362 Skill: recall Objective: Ch10, LO2 11) Social exchange theory states: a. Individuals will act unethically if it is in their best interest to do so b. Employees will act unethically when they possess more information than their employers, and their goals conflict c. Employees will act unethically if it helps them attain a higher social status d. Organizations do not make us unethical, but rather the society we live in makes us unethical e. By allowing employees to have social freedom within an organization, employees will begin to act unethically Answer: a Diff: 1 Type: MC Page Reference: 405 Skill: recall Objective: Ch10, LO3 12) Which of the following is not one of the organizational factors affecting decisions to engage in ethical and unethical behavior? a. Decoupling b. Organizational Identity c. Corporate Culture d. Lack of Job Routines e. Work Roles Answer: d Diff: 1 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

Page Reference: 406 Skill: recall Objective: Ch10, LO3 13) “Business ethics advocates that individuals should be motivated by more than a complete focus on self-interest.” What type of perspective is this? a. Social Identity Theory b. Corporate Culture c. End-point ethics d. Normative e. A & D Answer: d Diff: 1 Type: MC Page Reference: 367 Skill: recall Objective: Ch10, LO3 14) A set of shared beliefs regarding how members of the organization should behave and what goals the should seek is defined as: a. Social Identity Theory b. Decoupling c. Organizational Goal Theory d. Organizational Identity Theory e. Organization Culture Answer: e Diff: 1 Type: MC Page Reference: 368 Skill: recall Objective: Ch10, LO3 15) Walt Disney, Jack Welch, Bill Gates and Steve Jobs are examples of what type of organizational myth?

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

a. Legends of Corporate Heroes b. CEOs of technological firms c. All created CSR policies within their organizations d. Examples of Organizational Identity Theory e. All of the above Answer: a Diff: 2 Type: MC Page Reference: 369 Skill: recall Objective: Ch10, LO3 16) Habitual Routines are: a. Commonly accepted methods for performing a task with, potentially, both functional and dysfunctional consequences. b. Commonly accepted methods for creating policies with, potentially, both functional and dysfunctional consequences. c. Individuals classify themselves and others into social categories d. A&B e. All of the above Answer: a Diff: 2 Type: MC Page Reference: 376 Skill: recall Objective: Ch10, LO3 17) Individuals in organizations occupy positions that involve a set of activities, including interacting with others that are required or expected as part of the job. This is known as: a. Bureaucracy b. Social Identity Theory c. Social Contract Theory d. Role Conflict Theory Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

e. Organizational Role Theory Answer: e Diff: 2 Type: MC Page Reference: 377 Skill: recall Objective: Ch10, LO3 18) John Locke and Immanuel Kant posited a model of social contract ethics that includes: a. Rules by which people live are those that they would agree to live by if given the opportunity to make a choice based on reason or knowledge b. Only rules that apply equally to everyone are ethical c. Only rules that are legal are ethical d. B & C e. A& B Answer: e Diff: 4 Type: MC Page Reference: 378 Skill: both Objective: Ch10, LO3 19) A Stakeholder is: a. Any individual or group in the media b. An individual or group who is responsible for the day-to-day operation of the business c. An individual or group with a moral and legal obligation towards the business d. An individual or group with whom a person interacts and who has a vested interest, in the individual e. An individual or group with whom a business interacts and who has a “stake,” or vested interest, in the business Answer: e Diff: 1 Type: MC Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

Page Reference: 382 Skill: recall Objective: Ch10, LO4 20) Environment, Educators, Media, Creditors are what types of stakeholders? a. Internal Stakeholders of Business b. External Stakeholders of Business c. Both internal and external stakeholders of business d. Neither internal or external stakeholders of business e. Special interest groups that help the internal stakeholders of business make decision Answer: b Diff: 1 Type: MC Page Reference: 382 Skill: recall Objective: Ch10, LO4 21) Examples of Internal Stakeholders of business include all except: a. Owners b. Employees c. Managers d. Shareholders e. Union Answer: e Diff: 2 Type: MC Page Reference: 382 Skill: recall Objective: Ch10, LO4 22) The workings of the free and competitive marketplace will “moralize” corporate behavior. This argument was made by: a. John Kenneth Gilbraith b. Archie Carroll Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

c. John Locke d. Milton Friedman e. None of the above Answer: d Diff: 1 Type: MC Page Reference: 383 Skill: both Objective: Ch10, LO5 23) What is included in Archie Carroll’s definition of Social Responsibility? a. Economic responsibilities, Lending responsibilities, Ethical Responsibilities, Philanthropic Responsibilities b. Economic responsibilities, Legal responsibilities, Ethical Responsibilities, Philharmonic Responsibilities c. Economic responsibilities, Legal responsibilities, Ethical Responsibilities, Philanthropic Responsibilities d. Economic responsibilities, Legal responsibilities, Etiological Responsibilities, Philanthropic Responsibilities e. None of the above Answer: c Diff: 1 Type: MC Page Reference: 384 Skill: recall Objective: Ch10, LO5 24) Which two CSR Responsibilities are actually required by society for business to fulfill? a. Ethical Responsibilities and Philanthropic Responsibilities b. Legal responsibilities and Philanthropic Responsibilities c. Economic responsibilities and Ethical Responsibilities d. Economic responsibilities and Etiological Responsibilities e. Economic Responsibilities and Legal Responsibilities

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

Answer: e Diff: 2 Type: MC Page Reference: 384 Skill: recall Objective: Ch10, LO5 25) Identify the arguments against Corporate Social Responsibility a. High Costs are passed to the consumer and organizations cannot be held accountable for their actions b. Business is Business and it plays by its own rules c. Business should not dictate morality d. A & B e. All of the above Answer: e Diff: 2 Type: MC Page Reference: 385 Skill: recall Objective: Ch10, LO5 26) Milton Friedman argued that profit maximization is the primary purpose of business.

What arguments for or against Corporate Social Responsibility does this statement address? a. Business is Business b. Business has the power and resources to do good c. High costs are passed to the consumer d. A & C e. All of the above Answer: a Diff: 2 Type: MC Page Reference: 385 Skill: recall Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

Objective: Objective: Ch10, LO5 27) Give two reasons why business should not dictate morality a. CSR would increase firm costs and require raising prices on goods and services to consumers b. Managers are simply not skilled enough in the area of social policy c. Businesses are economic institutions and they should leave the issue of social policy to the jurisdiction of government d. A & B e. B &C Answer: e Type: MC

28) What are the three key factors organizations are being influenced by to become better corporate citizens? a. Social Media, Corporate Disclosure Legislation, and CSR rankings b. Visual Media, Corporate Disclosure Legislation and CSR rankings c. Social Media, Corporate Disclosure Legislation and CSR rantings d. Social Media, Corporate media Legislation and CSR rankings e. None of the above Answer: a Diff: 2 Type: MC Page Reference: 395 Skill: Recall Objective: Ch10, LO5 29) Social Media is: a. Using Facebook as a platform to talk to family and friends only b. Web-based or mobile technologies that allow people to ex-communicate in a distinct way c. Web-based or mobile technologies that allow people to communicate in an interactive way

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

d. Web-based or mobile technologies that disallow people to communicate in a distinct way e. A & C Answer: c Diff: 2 Type: MC Page Reference: 395 Skill: recall Objective: Ch10, LO5 30) Identify the arguments for Social Responsibility: a. Business should conform to societal expectations b. CSR is a practical strategy c. Business must acknowledge its network of shareholders d. Business has the power and resources to do good e. All of the above Answer: e Diff: 2 Type: MC Page Reference: 385 Skill: recall Objective: Ch10, LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

13

1) Why is it so challenging to determine what is ethical or unethical in the context of business?

Answer: It's all about the lack of a clear definition. A major weakness of much of the scholarly literature on the topic of business ethics is a failure to adequately define the construct of ethics. In addition, ethics has been defined differently by theorists. Some scholars view ethics as an inquiry into theories of what is "good and evil" or into what is "right and wrong." Others have quite simply defined ethics as "the study of morality," the right standards of behaviour between parties in a situation, and activities that we should or should not do. All these are very broad views and don't offer us specifics. Ethics is the study of morality or moral judgments, standards, and rules of conduct. The notion of business ethics has been considered as comprising the rules, standards, principles, or codes giving guidelines for morally right behaviour in certain contexts. The challenge is how to determine those specific sets of rules etc which may vary from country to country, culture to culture and business to business.

Diff: 3 Type: ES Page Reference: 356-358 Skill: both Objective: LO1 2) Imagine you are working for a company and are asked to do some corporate spying on your competitor in order to assist your company in outperforming the competition. What might the end-point ethics model potentially offer to you by way of analyzing the ethics of your decision to spy or not to spy?

Answer: From this perspective we could not get any universal agreement as to the ethics of such a practice. Clearly, many countries have no problem with spying. Reconsider the principles of end-point ethics: Do we achieve the greatest balance of good over harm for all potential stakeholders? First, who gains from spying? Well, your company could benefit from getting this and, consequently, you could benefit as well. Who is harmed by such a transaction? You might consider three potential losers: 1. Does spying compromise your company's ability to do business in the future if this becomes public-will the perception of your company be negative?

2. Competent competitors who are otherwise deserving of profits may lose because their ideas were stolen through spying.

3. Spying may create negative damage to the individual should he/she be caught. If they are not caught does this behavior still take some kind of toll on the person's "psyche"? If, indeed, these three stakeholders are harmed as a consequence of the Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

decision, end-point ethics would likely guide us away from such a decision.

However, end-point ethics does not necessarily condemn such behaviour as unethical. If spying helps conduct business and sell a better product that is fairly priced-the the company "wins". So, depending on how it is applied, end-point ethics potentially could justify spying or condemn it. Certainly, it does not uniformly condemn such a decision. Rather, the result depends on how rigorously the decision maker has identified all potential stakeholders and how carefully he or she weighed the relative costs and benefits (both tangible and intangible) that arise from this action.

Diff: 4 Type: ES Page Reference: 360-364 Skill: both Objective: LO2 3) How is the concept of pretexting an example of how organizations can make us unethical?

Answer: Organizations are sometimes guilty of using euphemisms to help disguise otherwise "illegitimate" workplace behaviour. For example, the term pretexting is a "polite" way of describing the act of acquiring personal information through fraudulent means. This euphemism went relatively unnoticed for a long time. However, about 10 years ago it garnered much unwanted attention at Hewlett-Packard. In 2005, then-CEO Patricia Dunn hired an outside security firm to investigate the source of leaks of confidential HP information to the media. The investigators employed pretexting, gaining confidential information using illicit methods, including impersonation. At the time of HP's investigation, the legality of pretexting was murky at best (it has since been designated as illegal by the US Congress). Regardless of this "innocent-sounding" label, pretexting ultimately cost Dunn her job, and it cost HP $14.5 million in legal penalties to settle a civil suit brought by the attorney general of California for violating the state's identity theft statute. This illustrate how the use of corporate language can mask the true intent of some actions and could legitimize what is otherwise unethical behavior.

Diff: 4 Type: ES Page Reference: 371-372 Skill: both Objective: LO3 4) What is the difference between a shareholder and a stakeholder?

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Answer: Stakeholders are individuals or groups with whom a business interacts and who have a "stake," or vested interest, in the business. A stake can range from simply an interest in management’s actions, to a legal or moral right to be treated a certain way, to a legal claim of ownership at the other extreme. Traditionally, we observe two broad groups of stakeholders: external and internal. External stakeholders comprise such parties as governments, consumers, and community members. Internal stakeholders can include business owners and employees. The notion here is that stakeholders have legitimate claims on the organization. Consequently, a fundamental responsibility of management is to address and manage the needs of differing stakeholder groups-and not just the most obvious stakeholders, the owners/investors or shareholders of the business.

Diff: 2 Type: ES Page Reference: 381-383 Skill: both Objective: LO4 5) IBM’s involvement with Nazi Germany reminds us that sometimes organizations aren’t socially responsible. How well do you think the “business is business” argument defends IBM’s behavior? (see Talking Business 10.6).

Answer: First - what is the "Business Is Business" argument?: This is the argument that profit maximization is the primary purpose of business, and to have any other purpose is not socially responsible. In a free enterprise, private property system, a manager is an employee of the owners of the business and, consequently, is directly responsible to them. In other words, a business's primary responsibility is to the owners or shareholders.

Clearly, owners and shareholders want to maximize profit, and so this should be the business's highest priority. This is a way to rationalize IBM"s behavior - they simply were doing business. However, many of us would argue that this should not have justified turning a "blind eye" to the atrocities that they indirectly impacted.

Diff: 3 Type: ES Page Reference: 385-388 Skill: both Objective: LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) There is one specific definition of business ethics. a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 357 Skill: recall Objective: Ch10, LO1 2) What is legal is not necessarily ethical a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 357 Skill: recall Objective: Ch10, LO1 3) The notion of the “ends justifying the means” is an example of rule ethics a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 363 Skill: recall Objective: Ch10, LO2 4) Both end-point ethics and rule ethics are inherently flawed: They are limited by the degree of rigour that the decision maker employs in their use. a. True b. False Answer: a Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Diff: 3 Type: TF Page Reference: 365 Skill: recall Objective: Ch10, LO2 5) Both rituals and myths play a very small role in the continuous processes of establishing and maintaining what it legitimate and what is acceptable in any organizational culture. a. True b. False Answer: b Diff: 3 Type: TF Page Reference: 368 Skill: both Objective: Ch10, LO3 6) Ethical codes are necessary because laws cannot prescribe the standard of ethical conduct for all situations. a. True b. False Answer: a Diff: 2 Type: TF Page Reference: 370 Skill: both Objective: Ch10, LO3 7) A fundamental responsibility of management is to address and manage the needs of differing stakeholder groups. a. True b. False Answer: a Diff: 1 Type: TF Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Page Reference: 382 Skill: recall Objective: Ch10, LO4 8) All stakeholders are external to the organization a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 382 Skill: recall Objective: Ch10, LO4 9) All scholars believe that it is the responsibility of business organizations to develop a “moral conscience” and exercise ethical judgment or social responsibility. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 383 Skill: both Objective: Ch10, LO5 10) The argument against Corporate Social Responsibility include: Business is Business, Business plays by its own rules, Business should dictate morality, Organizations cannot be held accountable for their actions and high costs are passed to the consumer. a. True b. False Answer: b Diff: 3 Type: TF Page Reference: 385 Skill: both Objective: Ch10, LO5 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) Read Talking Business 11.6. Convenience versus sustainability: The Plastic and Paper bag debate. Analyze the pros and cons of using plastic versus paper bags (as well as a reusable material bag), using the Triple Bottom Line framework.

Answer: Paper bag Economic

•

more expensive for businesses to buy (reducing profits)

Plastic bag •

•

less expensive for businesses than paper bags, improving profitability potentially costly for taxpayers to maintain landfills

Social equity

•

may be convenient for some customers (may depend on type of goods carried)

•

convenient for customers for carrying groceries, lining trash bins, picking up dog poop.

Environment

•

paper bags do not biodegrade that much more faster than plastic. in the making of paper bags, paper bags create 70% more air pollution than plastic. paper bags emit 50% more pollutants than plastic paper bags require 4 times more energy than plastic

•

Waste - Canadians throw away between 9 and 15 billion plastic bags annually, contributing to growing landfills (takes 1,000 years to bio-degrade) Litter – plastic bags end up on streets, natural areas and oceans Harm to wildlife – plastic can kill or harm birds, turtles, fish and other

•

•

•

•

•

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

Reusable material bag • consumer has to pay approx. $1, but may be more economical in the long term as some stores are now charging 0.05 for a plastic bag.

• may not be as convenient, since customers have to carry them around, wash them, etc.

•

reusable bags mean there is the least amount of environmenta l damage to air, water, animal life etc. (i.e. harm done by paper and plastic bags is avoided).

1

•

species.

Greenhouse gas emissions - go up since fossil fuels are used to make plastic. In fact, 9 plastic bags contain enough petroleum to drive a car 1 kilometre.

2) Consider the educational institution you are taking this course from. How would you implement sustainable practices across this institution?

Answer: Department Sustainable Action Department Accounting and Finance

Sustainable Action • Implement the triple bottom line approach to track, measure, and report sustainable practices to stakeholders

Human Resources

• Use an online database to accept résumés instead of mail-based applications to reduce paper • Implement telework and shared workspace options to reduce building space and heating/utility requirements • Promote benefits that include healthy food options and exercise facilities • Train employees on sustainable practices • Hire sustainability consultants to implement green initiatives

Marketing

• Use recyclable materials in promotions • Use electronic media for promotions • Provide discounts or other incentives for purchasing (ie paying for) services early

Information Technology

• Develop policies to dispose of electronics safely • Convert to a paperless office by scanning documents, using online storage, etc.

• Implement electronic management systems to reduce paper storage • Promote videoconferencing and teleconferencing technologies to reduce travel requirements

Research and

• Invest in services that promote sustainable practices

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Development

• Use reusable or recycled products • Reduce materials, water, and energy in providing the educational service

Operations and Logistics

• Reduce packaging and waste • Reduce transportation • Reduce overall emissions

Public Relations • Include sustainable practices as part of organizations’s values and and mission Communications • Use electronic media sources to release announcements and other information to save paper Facilities

• Build or rent green facilities that minimize energy and water usage • Implement a green waste management program • Ensure green cleaning and landscaping practices are used

Procurement

• Develop green purchasing policies • Ensure vendors share the organizations’s sustainable values

Legal and Risk Management

• Evaluate risks of how your products and services may negatively impact people and the environment

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) Case: The plight of the bumble bee Farmers are losing money, not due to bad crops but due to the rise in the cost of keeping or buying bees. Honey bees are disappearing around the globe and no one knows exactly why. Some observers speculate that toxic chemicals, killer parasites or freezing temperatures may be to blame. In the winter of 2013, U.S. beekeepers lost 31% of their bee colonies compared with 21% the previous year. The Canadian Honey Council has reported an average loss of 35% of bee colonies in Canada over the past 3 years, and there are no signs of improvement. Similarly, in Britain, bee farmers lost approximately half of their bee colonies during the winter months.

According to Margaret Ginman, the general secretary of the Bee Farmers’ Association, it has been one of the worst years in history. Dan Davidson, president of the Ontario Beekeepers’ Association, has stated that some beekeepers that have lost 70% since last year, which is a huge amount that can’t be recouped in one season.

Whether or not you eat honey, bees are critical to humans. Bees are pollinating insects that contribute $200 billion to the agriculture industry globally each year. About onethird of all the food we eat is dependent on the pollination by bees. Broccoli and almonds are just a couple of examples. A lower supply of bees and less pollinated crops could result in higher food prices and food shortages to the general public.

In the case of declining bees, smaller farmers are often harder hit than larger agribusiness, because they don’t have the capital and resources to bounce back when times get tough.

David Schuit, a honey producer in Elmwood Ontario, was hoping to expand last year when tragedy struck. One day, he found his bees in ‘terrible agony.’ They were going around in circles, venom was dripping around their backs, and many were unable to find their way back to their hives. The Schuit family farm lost 90% of their bees (approximately 37 million of them) and barely produced half of the honey they normally made in a year. The result – they had to sell their 100 acre, organic farm because they no longer had the income to sustain it.

The U.S. Department of Agriculture has reported that the decline in the honey bee population is a complex problem caused by many variables. Queen bees usually mate while flying, so an increase in rain or stormy weather may prevent them from moving around. But there are other factors involved as well. The Schuits and other agriculturists are blaming the decline of bees due to neonicotinoid pesticides. According to the Globe and Mail, “these are nicotine-like substances that attack the nervous system of insects.

They are also water soluble, meaning they can be added to the soil and taken in by the entire plant, making every part of it lethal to bugs.” And they are used across the globe for many agricultural products.

Soybean, corn and canola farmers, are a few examples, often coating their seeds with this insecticide. Health Canada’s Pest Management Regulatory Agency noticed honey bee deaths often corresponded with corn-planting season. What was the result? After testing bee populations in the region, researchers found that about 70% of bees had traces of neonicotinoids.

While the European Union has already passed a 2-year ban on neonicotinoids to try to recover the bee population, Canada has not yet followed suit. While Beekeeper Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

associations support the ban, grain farmers do not. Since the chemical was approved for use in 2004, Canadian grain farmers argue it has been crucial to sustaining their business.

Grain farmers estimate that a ban on neonicotinoids would mean more insects and other pests would damage their crops. Some farmers estimate losses could rise to 13% affecting higher prices and reducing competitiveness across Canada and the United States.

Other factors are also being looked into. Pesticides are one issue, but there are also the Varroa mites (from Asia) which seem to invade all bee colonies. And of course, prolonged winters can have an effect too. Clearly, more research is necessary to determine what factors are impacting the decline of bees and how farmers can continue to produce food sustainably and safely now and in the future. [paraphrased by Natalie Guriel] (Source: Vidya Kauri and Paul Waldie. No honey, more problems: A catastrophic year for bee colonies. The Globe and Mail. July 31, 2013.)

Explain which stakeholders are impacted by the decline of bee populations across the globe and how are they impacted.

Answer: Stakeholder

Impacted by bees

Honey farmers

•

Bee farmers make honey; so a decline in bees, means more bees may need to be purchased (increasing production costs) and less honey may be produced (lowering revenue from honey sales and affecting overall profitability).

Other farmers

•

Farmers that produce fruits and vegetables need bees to pollinate their crops. A low supply of bees may mean higher prices to buy bees or not enough bees to pollinate the fruits and vegetables; therefore, not enough crops can be sold for business survival.

The public

•

Governments

•

The public may be affected by higher food prices due to food shortages and higher agricultural costs.

The government is a regulator and tax collector. It will want to: ensure laws and regulations to support farmers and their businesses ensure Canada has a strong agricultural industry to grow the economy and contribute to Canada’s GDP ensure food safety via regulations encourage the growth of farming businesses, entrepreneurs, and small businesses.

• • • •

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

•

•

Bee and farming associations

•

encourage job growth and therefore, a reduction in unemployment insurance and social assistance payments to individuals; as well as subsidies and or bailouts to businesses. participate in some research activities to understand the reasons behind the decline of bees. will be involved in researching the issue of declining bees and will serve as a tool to assist farmers

2) Case: The plight of the bumble bee Farmers are losing money, not due to bad crops but due to the rise in the cost of keeping or buying bees. Honey bees are disappearing around the globe and no one knows exactly why. Some observers speculate that toxic chemicals, killer parasites or freezing temperatures may be to blame. In the winter of 2013, U.S. beekeepers lost 31% of their bee colonies compared with 21% the previous year. The Canadian Honey Council has reported an average loss of 35% of bee colonies in Canada over the past 3 years, and there are no signs of improvement. Similarly, in Britain, bee farmers lost approximately half of their bee colonies during the winter months.

According to Margaret Ginman, the general secretary of the Bee Farmers’ Association, it has been one of the worst years in history. Dan Davidson, president of the Ontario Beekeepers’ Association, has stated that some beekeepers that have lost 70% since last year, which is a huge amount that can’t be recouped in one season.

Whether or not you eat honey, bees are critical to humans. Bees are pollinating insects that contribute $200 billion to the agriculture industry globally each year. About onethird of all the food we eat is dependent on the pollination by bees. Broccoli and almonds are just a couple of examples. A lower supply of bees and less pollinated crops could result in higher food prices and food shortages to the general public.

In the case of declining bees, smaller farmers are often harder hit than larger agribusiness, because they don’t have the capital and resources to bounce back when times get tough.

David Schuit, a honey producer in Elmwood Ontario, was hoping to expand last year when tragedy struck. One day, he found his bees in ‘terrible agony.’ They were going around in circles, venom was dripping around their backs, and many were unable to find their way back to their hives. The Schuit family farm lost 90% of their bees (approximately 37 million of them) and barely produced half of the honey they normally made in a year. The result – they had to sell their 100 acre, organic farm because they no longer had the income to sustain it.

The U.S. Department of Agriculture has reported that the decline in the honey bee population is a complex problem caused by many variables. Queen bees usually mate while flying, so an increase in rain or stormy weather may prevent them from moving around. But there are other factors involved as well. The Schuits and other agriculturists are blaming the decline of bees due to neonicotinoid pesticides. According to the Globe and Mail, “these are nicotine-like substances that attack the nervous system of insects.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

They are also water soluble, meaning they can be added to the soil and taken in by the entire plant, making every part of it lethal to bugs.” And they are used across the globe for many agricultural products.

Soybean, corn and canola farmers, are a few examples, often coating their seeds with this insecticide. Health Canada’s Pest Management Regulatory Agency noticed honey bee deaths often corresponded with corn-planting season. What was the result? After testing bee populations in the region, researchers found that about 70% of bees had traces of neonicotinoids.

While the European Union has already passed a 2-year ban on neonicotinoids to try to recover the bee population, Canada has not yet followed suit. While Beekeeper associations support the ban, grain farmers do not. Since the chemical was approved for use in 2004, Canadian grain farmers argue it has been crucial to sustaining their business.

Grain farmers estimate that a ban on neonicotinoids would mean more insects and other pests would damage their crops. Some farmers estimate losses could rise to 13% affecting higher prices and reducing competitiveness across Canada and the United States.

Other factors are also being looked into. Pesticides are one issue, but there are also the Varroa mites (from Asia) which seem to invade all bee colonies. And of course, prolonged winters can have an effect too. Clearly, more research is necessary to determine what factors are impacting the decline of bees and how farmers can continue to produce food sustainably and safely now and in the future. [paraphrased by Natalie Guriel] (Source: Vidya Kauri and Paul Waldie. No honey, more problems: A catastrophic year for bee colonies. The Globe and Mail. July 31, 2013.)

What type of competition is typical in the agricultural industry? Why is it important in this case?

Answer: Perfect competition is usually the type of competition that applies to agricultural products, since corn, apples and potatoes, for example, typically cannot be differentiated by brand, design or advertising. As a farmer, you are a price-taker. You have to sell your produce at the market price. In perfect competition, there are a large number of seller and buyers. No one has control over price. Therefore, prices tend to be lower rather than higher compared to oligopoly and monopoly forms of competition. Also, from a customer perspective, if there is nothing different between products, finding the lowest price becomes absolute. If bee populations continue to decline, this could have an adverse affect on profitability of farmers and force many farmers into bankruptcy. Why? Bees will cost more to buy (increasing production costs) and there may be less overall crops produced (lowering revenues from sales).

3) Case: The plight of the bumble bee Farmers are losing money, not due to bad crops but due to the rise in the cost of keeping or buying bees. Honey bees are disappearing around the globe and no one knows exactly Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

why. Some observers speculate that toxic chemicals, killer parasites or freezing temperatures may be to blame. In the winter of 2013, U.S. beekeepers lost 31% of their bee colonies compared with 21% the previous year. The Canadian Honey Council has reported an average loss of 35% of bee colonies in Canada over the past 3 years, and there are no signs of improvement. Similarly, in Britain, bee farmers lost approximately half of their bee colonies during the winter months.

According to Margaret Ginman, the general secretary of the Bee Farmers’ Association, it has been one of the worst years in history. Dan Davidson, president of the Ontario Beekeepers’ Association, has stated that some beekeepers that have lost 70% since last year, which is a huge amount that can’t be recouped in one season.

Whether or not you eat honey, bees are critical to humans. Bees are pollinating insects that contribute $200 billion to the agriculture industry globally each year. About onethird of all the food we eat is dependent on the pollination by bees. Broccoli and almonds are just a couple of examples. A lower supply of bees and less pollinated crops could result in higher food prices and food shortages to the general public.

In the case of declining bees, smaller farmers are often harder hit than larger agribusiness, because they don’t have the capital and resources to bounce back when times get tough.

David Schuit, a honey producer in Elmwood Ontario, was hoping to expand last year when tragedy struck. One day, he found his bees in ‘terrible agony.’ They were going around in circles, venom was dripping around their backs, and many were unable to find their way back to their hives. The Schuit family farm lost 90% of their bees (approximately 37 million of them) and barely produced half of the honey they normally made in a year. The result – they had to sell their 100 acre, organic farm because they no longer had the income to sustain it.

The U.S. Department of Agriculture has reported that the decline in the honey bee population is a complex problem caused by many variables. Queen bees usually mate while flying, so an increase in rain or stormy weather may prevent them from moving around. But there are other factors involved as well. The Schuits and other agriculturists are blaming the decline of bees due to neonicotinoid pesticides. According to the Globe and Mail, “these are nicotine-like substances that attack the nervous system of insects.

They are also water soluble, meaning they can be added to the soil and taken in by the entire plant, making every part of it lethal to bugs.” And they are used across the globe for many agricultural products.

Soybean, corn and canola farmers, are a few examples, often coating their seeds with this insecticide. Health Canada’s Pest Management Regulatory Agency noticed honey bee deaths often corresponded with corn-planting season. What was the result? After testing bee populations in the region, researchers found that about 70% of bees had traces of neonicotinoids.

While the European Union has already passed a 2-year ban on neonicotinoids to try to recover the bee population, Canada has not yet followed suit. While Beekeeper associations support the ban, grain farmers do not. Since the chemical was approved for use in 2004, Canadian grain farmers argue it has been crucial to sustaining their business.

Grain farmers estimate that a ban on neonicotinoids would mean more insects and other

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

pests would damage their crops. Some farmers estimate losses could rise to 13% affecting higher prices and reducing competitiveness across Canada and the United States.

Other factors are also being looked into. Pesticides are one issue, but there are also the Varroa mites (from Asia) which seem to invade all bee colonies. And of course, prolonged winters can have an effect too. Clearly, more research is necessary to determine what factors are impacting the decline of bees and how farmers can continue to produce food sustainably and safely now and in the future. [paraphrased by Natalie Guriel] (Source: Vidya Kauri and Paul Waldie. No honey, more problems: A catastrophic year for bee colonies. The Globe and Mail. July 31, 2013.)

Do you think neonicotinoids are sustainable for agricultural use? Why or why not?

Answer: While there is some debate on the proven cause of bee population decline, neonicotinoids appear to be a factor in ongoing bee deaths across the globe. Here a few of the reasons: The Europen Union has already banned the chemical and there is pressure for Canada to do the same. There appears to be enough of proof of the damage to bees in Europe.

Health Canada’s Pest Management Regulatory Agency noticed honey bee deaths often corresponded with corn-planting season. What was the result? After testing bee populations in the region, researchers found that about 70% of bees had traces of neonicotinoids.

Conclusion: The use of neonicotinoids does not appear to be sustainable for long-term agricultural use.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

1) Sustainable development often refers to: a. development that meets the needs of the present but not necessarily the needs of the future b. natural resource development that is sustainable c. development that meets the needs of individuals without comprising the needs of future generations d. sustainable manufacturing and retailing only Answer: c Diff: 1 Type: MC Page Reference: 408 Skill: recall Objective: Chapter 11-LO1 2) A long-term approach in sustaining business can be measured by: a. the gross domestic product b. the TBL accounting framework c. modern management practices d. double-loop learning Answer: b Diff: 2 Type: MC Page Reference: 409 Skill: recall Objective: Chapter 11-LO2 3) The triple bottom line framework focuses on the three broad categories: a. financial statement information, human resources and volunteer work b. economic, social equity and the environment c. ethical, legal and philanthropic responsibilities d. social equity, the environment and legal compliance Answer: b Diff: 2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Type: MC Page Reference: 409 Skill: recall Objective: Chapter 11-LO2 4) A focus on increasing profits on harm-free products mainly relates to the _________ component of the TBL framework. a. social equity b. environment c. economic d. ethical Answer: c Diff: 2 Type: MC Page Reference: 10 Skill: recall Objective: Chapter 11-LO2 5) Improving employee morale by improving benefits for workers means the company is contributing to ______ in the TBL approach. a. social equity b. environment c. human resources management d. human rights Answer: a Diff: 2 Type: MC Page Reference: 411 Skill: recall Objective: Chapter 11-LO2 6) Virtual water is water mainly used for: a. drinking by people b. drinking by animals Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

c. cleaning the streets d. producing products for consumption Answer: d Diff: 2 Type: MC Page Reference: 413 Skill: recall Objective: Chapter 11-LO2 7) A carbon footprint measures: a. virtual water, chemicals and smoke into the air b. the triple bottom line approach affects c. greenhouse gas emissions d. nonrenewable resources consumed by people only Answer: c Diff: 2 Type: MC Page Reference: 416 Skill: recall Objective: Chapter 11-LO2 8) One of the highest sources of greenhouse gas emissions is: a. embodied water b. residential natural gas c. electricity used for residential and commercial uses d. agricultural and miscellaneous activities Answer: c Diff: 1 Type: MC Page Reference: 416 Skill: recall Objective: Chapter 11-LO2

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

9) Sustainability is a concern since: a. North Americans, Europeans, Japanese and Australians consume 20% of the world's resources b. North Americans, Europeans, Japanese and Australians consume 40% of the world's resources c. North Americans, Europeans, Japanese and Australians consume 60% of the world's resources d. North Americans, Europeans, Japanese and Australians consume 80% of the world's resources Answer: d Diff: 2 Type: MC Page Reference: 415 Skill: recall Objective: Chapter 11-LO2 10) The primary source of climate change is: a. garbage and waste b. lack of recycling, reusing and reducing c. lack of knowledge d. greenhouse gas emissions Answer: d Diff: 1 Type: MC Page Reference: 415 Skill: recall Objective: Chapter 11-LO2 11) A sustainable resource is a/an: a. natural fossil fuel b. resource that can be replenished at the same rate as it is used c. embodied water d. resource that can be replenished at double the rate as it is used

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

Answer: b Diff: 3 Type: MC Page Reference: 417 Skill: recall Objective: Chapter 11-LO2 12) A good example of a sustainable resource is: a. natural fossil fuels b. recycled bamboo wood c. coal d. nuclear power Answer: b Diff: 3 Type: MC Page Reference: 418 Skill: recall Objective: Chapter 11-LO2 13) A benefit of the Triple Bottom Line approach is: a. an increased amount of subjectivity b. clear measurement standards c. comparability d. flexibility for a wide range of organizations Answer: d Diff: 2 Type: MC Page Reference: 418 Skill: recall Objective: Chapter 11-LO3 14) A disadvantage of the Triple Bottom Line approach is: a. not satisfying enough of stakeholders b. a lack of transparency Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

c. a lack of flexibility d. no measurement standards Answer: d Diff: 2 Type: MC Page Reference: 419 Skill: recall Objective: Chapter 11-LO3 15) Measuring a negative action or inaction and how it fits into the TBL approach is a limitation due to its: a. subjectivity b. lack of comparability c. transparency d. lack of understanding of its stakeholders Answer: a Diff: 2 Type: MC Page Reference: 419 Skill: recall Objective: Chapter 11-LO2 16) The Living Planet Index measures changes to the world's: a. ecosystems b. biological diversity c. ecological footprint d. greenhouse gas emissions Answer: b Diff: 2 Type: MC Page Reference: 420 Skill: recall Objective: Chapter 11-LO4 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

17) The complex relationship between all living organisms and their environment is often referred to as: a. an ecosystem b. biological diversity c. tropical LPI d. living environment system Answer: a Diff: 2 Type: MC Page Reference: 421 Skill: recall Objective: Chapter 11-LO4 18) A country's economic and social well-being can often be measured by: a. environmental performance index b. living planet index c. genuine progress index d. social sustainable index Answer: c Diff: 2 Type: MC Page Reference: 425 Skill: recall Objective: Chapter 11-LO4 19) The genuine progress indicator: a. subtracts the cost of crime b. uses strict standards c. ignores contributions of the family d. ignores population happiness Answer: a Diff: 2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

Type: MC Page Reference: 425 Skill: recall Objective: Chapter 11-LO4 20) Reducing packaging and reducing energy consumption are: a. expensive ventures but worthwhile in the short-term for businesses b. examples of how businesses can implement sustainable practices c. only options for large companies d. difficult practices to achieve in the long-term Answer: b Diff: 1 Type: MC Page Reference: 426 Skill: recall Objective: Chapter 11-LO5 21) Sustainable practices can have many benefits for a company such as: a. an increase in the number of jobs in a company b. improved public relations c. more efficient technology use d. improved strategic management on a global scale Answer: b Diff: 3 Type: MC Page Reference: 426 Skill: recall Objective: Chapter 11-LO5 22) Climate change often refers to increases in global temperature due to changing: a. weather and human interference b. natural weather patterns only c. human interference only d. unexplained nature-related events Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

Answer: a Diff: 1 Type: MC Page Reference: 412 Skill: recall Objective: Chapter 11-LO2 23) Zero-waste-to-landfill is a sustainable goal often achieved by: a. sustainable manufacturing practices b. sustainable distribution c. sustainable retailing d. sustainable marketing Answer: a Diff: 1 Type: MC Page Reference: 437 Skill: recall Objective: Chapter 11-LO6 24) A sustainable practice in marketing may be best achieved by: a. newspaper flyers b. use of social media c. paper-based coupons d. television ads Answer: b Diff: 1 Type: MC Page Reference: 438 Skill: recall Objective: Chapter 11-LO6 25) A sustainable purchase often involves: a. buying used goods only Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

b. recycling products after their use c. giving preferences to suppliers who generate a positive social and environment outcomes d. using sustainable transportation practices to obtain the product Answer: c Diff: 3 Type: MC Page Reference: 440 Skill: recall Objective: Chapter 11-LO6 26) Sustainable distribution typically does not include: a. shipping from storage b. packaging c. returning containers and packaging d. going to the store to buy the product Answer: d Diff: 3 Type: MC Page Reference: 437 Skill: recall Objective: Chapter 11-L6 27) After years of use, when a television or computer no longer works, individuals have the option of: a. recycling the product's parts or disposing of them b. donating them for resale c. returning them to the manufacturer d. reusing the products Answer: a Diff: 2 Type: MC Page Reference: 441

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

Skill: recall Objective: Chapter 11-LO6 28) Managers who deny the long-term effects of environmental degradation likely have: a. little time to devote to sustainable projects b. no company resources to spend on sustainable practices c. lack of knowledge of how environmental issues can affect the business d. no formal accounting education Answer: c Diff: 2 Type: MC Page Reference: 431 Skill: recall Objective: Chapter 11-LO5 29) Implementing sustainable business practices ideally should implemented: a. at the executive level of the organization b. throughout the product's life cycle c. in packaging and marketing departments only d. by engineers who have the specialized technical knowledge to make the product more environmentally friendly Answer: b Diff: 2 Type: MC Page Reference: 433 Skill: recall Objective: Chapter 11-LO6 30) Water shortages continue throughout the world mainly due to: a. greenhouse gas emissions and population growth b. garbage waste, low fresh water and population growth c. pollution, poor infrastructure and population growth d. embodied water, garbage waste and population growth

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

Answer: c Diff: 1 Type: MC Page Reference: 412 Skill: recall Objective: Chapter 11-LO2 31) Changes to the number of employees are typically reported in the _________ component of the TBL framework. a. social equity b. environment c. economic d. human resources Answer: c Diff: 1 Type: MC Page Reference: 410 Skill: recall Objective: Chapter 11-LO2

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

1) Explain the meaning of sustainable development, and how has the phrase been interpreted?

Answer: Original definition - One of the first definitions of sustainable development was created in 1987 by former prime minister of Norway Gro Harlem Brundtland. At the United Nations-sponsored World Commission on Environment and Development, Brundtland described sustainable development in her report, Our Common Future, as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

Three components of the definition - Three components to this definition are: 1) development (to progress the economy and society), 2) sustainability (to sustain resources), and 3) people (current and future generations). According to environmental scientist Tim O'Riordon, the concept of sustainable development (SD) can be used by business, emphasizing the development portion, and environmentalists, emphasizing the sustainable portion. However, O'Riordon contends that SD is a term that gives priority to business because of the focus on development. Nitin Desai explains that sustainable development is "an attempt essentially at talking in terms of redirecting development and growth, rather than stopping it. Because it recognizes very clearly that you must meet people's needs." The challenge in understanding this definition is not just the definition itself but the values that underlie it. And what is the dominant priority? Is it economic growth, or environmental protection? Overall, SD represents needs and limits: the needs of business and people, and the resource limitations of the planet. Traditionally, growing the economy and protecting the environment were looked at as two separate goals, often conflicting with one another. For instance, auto manufacturers were looked upon as important contributors to the economy, providing jobs for people and adding to Canada's GDP. Environmentalists, however, insisted that cars contributed to air, water, and land pollution by emitting greenhouse gases and causing climate change. Today, businesses and people recognize the value of gas-efficient cars. And environmentalists are working together with automakers to promote hybrid models. What was once a radical way of thinking has now become a more understood approach and accepted in the mainstream culture. Business leaders now recognize that society, the economy, and the environment are interrelated systems that have an important impact on one another. One system cannot survive without the others. People require water and air from the environment, and jobs and money from the economy. Similarly, the economy depends on the talents of people and the resources of the earth for development and growth. And the environment requires society and business to maintain its current resources so future generations may enjoy and benefit from its bounty.

Meaning of sustainability today - Today, SD can be viewed as a long-term approach to balancing the needs of people, while growing the economy and preserving the environment. In a general sense, sustainability involves the relationship between with the

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

three Ps: people, profits, and the planet (also referred to as the three Es: social equity, the economy, and the environment).

2) How can the Triple Bottom Line framework be used to assess business sustainability?

Answer: The triple bottom line (TBL) approach can help businesses be more sustainable by assessing profitability (and other economic factors), social equity and environmental performance. Since the three factors interact, one can have a positive or negative affect on the other; thus, affecting business operations and profitability.

Economic Factors While the growth of businesses is necessary for the growth of the economy, the economic category begins with an organization’s need for income to survive. Traditional reporting typically focused on a company’s financial statements: calculating income, expenses, assets, and liabilities. TBL reporting, however, has a broader approach. It goes beyond the financial statements and can include other indicators to show how a business is performing.

Changes to the number of employees, for example, can indicate either job growth or company downsizing. The size of a business, revenue by sector, and research and development costs can also provide other information affecting the company’s bottom line and cash flow. The amount of taxes paid is another economic indicator companies can use to show a company’s growth or decline.

Social Factors Social equity (or the social category) refers to fair and equitable business practices toward employees and the community. What is a fair and equitable business practice? Some examples include fair salaries, a safe workplace, reasonable working hours, and adherence to all employment laws. Respect for diversity and human rights is also an important part of social equity. For companies that outsource some of their business functions to overseas suppliers, a fair business practice would mean not using child labour, even in countries where it may legally be acceptable. Although lower wages are paid, businesses with equitable practices would ensure that workers and their communities are not exploited, harmed, or negatively affected by their business operations. Subsequently, business ethics plays a role in social equity.

Besides employee welfare, the social category includes a company’s commitment to helping the communities it operates in. Charitable donations and volunteer time are two traditional ways an organization can help society. However, many organizations are becoming more involved in meeting specific needs of communities and preserving the long-term sustainability of their businesses. For instance, a company may support education, health care, housing, or other needs that are vital to a community Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Environment Factors Businesses much understand how their activities affect the environment and how changes to the environment can affect their business. Certainly, changes to weather, natural disasters and other environment-related occurrences can stop production, raise costs and impact businesses negatively damaging profitability.

The environment (or the planet) is the category that refers to the need for sustainable practices that protect our water, land, and air. The environment is what needs to be preserved for future generations to enjoy and for the economy to prosper. What currently threatens the planet? Two key concerns are the depletion of natural resources by overconsumption and the ongoing release of greenhouse gas emissions. Depletion of Natural Resources The depletion of natural resources by humans is one of the greatest environmental problems that exists today. Human demand for resources is increasing as the earth’s population continues to grow. However, the demand for resources is growing 1.5 times faster than the earth has the ability to regenerate them. While the global population exceeds 7 billion people, the United Nations expects the global population to exceed 10 billion by 2050, furthering the need for water, land, and other raw materials.

3) What are the benefits and limitations of using the TBL approach in the food industry?

Answer: Benefits of the TBL Approach 1. Improves transparency: In addition to financial statement reporting, the TBL allows an organization to voluntarily report its impact on society and the environment. This can improve accountability as the organization provides information on its nonfinancial activities and exposes itself to both public criticism and praise.

2. Allows flexibility: The TBL is also a framework any organization can use. Whether you are a corporation, the government, or a nonprofit organization, the framework is general enough for most organizations to easily adopt. An organization of any size or any industry can use the TBL method. It can also be used broadly to assess an organization’s overall performance or be applied to an individual project, policy, or geographic area. On an annual basis, organizations can use the framework to assess performance, identify necessary changes, and assist in future decision making.

3. Aims to satisfy more stakeholders: The approach also recognizes the impact of the organization’s actions on all its stakeholders. Stakeholders can include shareowners, employees, the community, and even the environment. As a result, this methodology uses a long-term perspective to improve the impact of an organization’s activities on all the people and groups being affected by it.

Limitations of the TBL Approach

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1. No measurement standards: Unlike generally accepted accounting principles (GAAP) used in accounting, there are no widely accepted standards or rules for measuring, verifying, or auditing TBL data. The mixture of both quantitative and qualitative data means that there is no common unit of measure that can allow all three categories to be added together to arrive at a net figure. Each component—economic, social, and environmental—is unique. While the economic category can use a dollarbased measure, it can also use additional measures to track other indicators other than profits. For example, job growth and employee turnover are two variables. Similarly, the social and environmental categories have other unique indicators that cannot simply be added together.

2. Too subjective: Another limitation of this qualitative method is its subjectivity. The social category, for instance, is subjective and requires more personal judgment than the economic category. For example, what is a positive social action that a company can take to improve the well-being of its employees, the community, and other stakeholders? Is it a monetary donation to a charitable organization, or will a company allowing its employee’s to volunteer their time to a worthy cause also suffice? What meets the needs of employees and the community may depend on a variety of factors: The region, the culture, the values, and the expectations of its stakeholders are just a few.

3. Lack of comparability: Since the TBL approach is not legally required, not all organizations voluntarily use this approach. For organizations that do use it, each organization has the flexibility to choose what data to collect, measure, and include for reporting purposes. For instance, companies can decide to exclude negative activities and only include positive ones. Cost and time constraints may also create obstacles for some organizations in tracking data. There are no consequences if there is missing data or a lack of information, and there is no legal requirement to have a third-party audit. Other factors such as the size of the organization or the type of industry can affect what indicators organizations decide to use. A construction company, for instance, may use a lot of environmental indicators to track waste and other environmental impacts, whereas a nonprofit health group may have more social indicators aimed at helping people.

4) Explain some advantages of using the Genuine Progress Indicator.

Answer: The Genuine Progress Indicator (GPI): • considers a country or region’s economic growth and social well-being.

• includes all variables calculated under the GDP, but subtracts the negative effects of economic growth that cause social harm to a community. The cost of crime, pollution, and resource depletion are a few examples. How does the cost of crime normally increase GDP? Let’s consider a family injured in a home break-in. In calculating GDP, lawyer’s fees, property damage repairs, and medical fees are treated as forms of revenue; however, since the action does harm to a society, in calculating GPI these revenues are subtracted.

• considers positive contributions of the family and the community that are not included in the GDP because no money changes hands. For example, the value of Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

•

housework, volunteer work, and unpaid childcare all contribute to a society’s well-being. Under the GPI, these actions are calculated at the approximate market value of hiring someone to do the work. helps us understand why a population may feel unhappy or dissatisfied despite economic growth.

5) How can business benefit from implementing sustainable practices?

Answer: Businesses can reduce costs (eg .reduce packaging, reduce waste, lower energy use), reduce risks and improve public relations.

6) Explain how a facilities department could implement sustainable business practices?

Answer: A Facilities department could so several things. First, build or rent green facilities that minimize energy and water usage. Second, implement a green waste management program. And third ensure green cleaning and landscaping practices are used.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

1) The triple bottom line approach is an accounting framework to measure an organization's economic, social equity and environmental performance. a. True b. False Answer: a 2) Sustainability is mainly focused on current generations. a. True b. False Answer: b 3) Greenhouse gas emissions can be reduced by using wind power, geothermal power and coal-based forms of energy. a. True b. False Answer: b 4) A limit of the TBL approach is that it requires too many specialists in different fields (eg. engineering, accounting, environmentalists, etc) a. True b. False Answer: b 5) A measurement of biological diversity would best be measured by the Living Planet Index. a. True b. False Answer: a 6) A measurement of a society's economic and social well-being can be measured by the Living Planet Index. a. True b. False Answer: b 7) An ecosystem involves animals, bodies of water and tress but excludes people. a. True Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

b. False Answer: b 8) Reducing operational risk by increasing safety standards can also help to reduce risks to the environment. a. True b. False Answer: a 9) Sustainability measures can be applied to all industries in the same way to reduce, reuse and recycle. a. True b. False Answer: b 10) Sustainable manufacturing involves reducing waste only. a. True b. False Answer: b

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

1) “Blockbuster Video Stores is a good example of a company that could not engage in transformational change”.

Answer: Blockbuster video faced a dramatic change in its external environment as people stop renting DVDs from stores in favour or online streaming (like Netflix, iTunes...) or mailorder DVD rental (e.g. Netflix in the US).

So the forces for change are mainly technological (online streaming, downloading) and competitive (mail-order DVD rental), though students can explore other forces (societal, global, economic?) as long as their arguments are sound.

When customers stop using your product/service because of new technology or competitive substitutes, the organization needs to re-invent itself completely in order to adapt. This is certainly a form of transformational change since it requires a significant change in the firm's strategy and structure (change from a brick-and-mortar business to online or mail-order) that entails changing the organizational culture, mindset... The other alternative for Blockbuster is to remain a brick-and-mortar organization but change their strategy from DVD rental to some other retail business (coffee shop?) - also a significant transformational change. Developmental changes are small incremental changes that simply require firms to the same thing better, more efficiently... while using the same organizational strategy and structure.

The key issue is why it's difficult to implement transformational change: The reasons why organizations resist change are discussed briefly on p.475-478 and include institutionalization, bureaucracies and roles, cognitive scripts. Eg. Can discuss how organizations develop routines and processes that make them reliable and accountable to external stakeholders but that these routines and processes become embedded in the organization's structure and make it more difficult to change and inert. Transformational changes are the most difficult ones since they require radical and significant changes to organizational structures, strategies, culture... Organizations have great difficulty changing because they are rewarded for delivering reliable and consistent results. In order to become reliable and accountable to their stakeholders, organizations develop these reproducible routines and bureaucratic procedures that allow them to deliver stable and consistent outcomes. Changing these routines and procedures is very disruptive to organizations since they lose the reliability and accountability that stakeholders require. If stakeholders withhold their support because of the uncertainty and instability surrounding the organization, it will likely fail. Transformational changes are therefore very disruptive, costly and rarely successful.

Students may also discuss bureaucracies, institutionalization, cognitive scripts as factors making organizations more resistant to change. Assess how well they explain the theories (or use an alternate but equally valid theory) and apply them to the Blockbuster case. The Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

problem with institutionalization is that when organizational processes become 'takenfor-granted', it's much harder for organizations to experiment with new ideas and engage in double-loop learning.

Blockbuster likely had great difficulty implementing changes that addressed the underlying reason for their problems (fewer customers willing to go to a store to rent a DVD that they must return 1-2 days later or pay late fees...) because their way of doing things was so ingrained in their organizational structure and culture that they simply changed superficial things (i.e. reducing late fees) that did not address the root cause of competition from mail-order or online movies. This is single-loop learning.

2) Sam the Record Man Goes Broke A number of years ago, the iconic music retailer Sam the Record Man filed for bankruptcy and closed 24 stores across Canada. The shut down marked the end of a long struggle by the 53-year-old retail dynasty to survive. At its peak, the chain had more than 100 locations and was Canada"s leading specialty music retailer. It also was one of the few retailers that promoted Canadian musicians with shelf space.

The company admitted that "everyone is selling music now...and when they"re not selling them, people are downloading music." Even Canada"s biggest specialty music seller, HMV, admitted the North American market is suffering. Sam';s and its competitors have also felt pricing pressure from the sheer number of large retailers, from Wal-Mart to Costco, selling at a discount.

QUESTION: IN WHAT WAYS DID SAM THE RECORD MAN FAIL TO SUCCESSFULLY ADDRESS THE CHANGING CONTEXTS OF BUSINESS? (MAKE ANY ASSUMPTIONS YOU NEED).

CONSIDER THE CONTEXTS OF SAM THE RECORD MAN: political, economic, global, technological, competitive, labour and societal?

Answer: Political context: You might suggest that the government' reduction in trade barriers (eg.

NAFTA) has paved the way for more competition in Canada. As a result, SRM faced fierce price competition from U.S. retailers and other distributors, which it did not face in periods prior to the advent of free trade when Canadian industries were protected by tariff barriers.

Economic context: You might argue that businesses like SRM are very much influenced by the health of the economy. For example, any economic slowdown could have led to an overall drop in spending for discretionary goods such as music products and CDs.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Global context:: Similar to the political forces above, maybe you could refer to free trade agreements such as NAFTA which have opened the door to new sources of global competition for Canadian firms. This could impact businesses like Sam' by creating more (global) competitors. As the case points out, SRM faced stiff price competition from Wal-mart, an American-based retailer.

Technological context: You could comment on how technology, specifically, the internet has impact the retail music industry. For example, the introduction of internet websites offering users the opportunity to download music shifted the nature of music sales (eg.

Napster). This technological shift in the industry cut into the revenues of every participant in the retail music industry.

Competitive context: The market for retail music sales in Canada appears to be filled with many competitors. For example, in addition to specialty music stores like SRM, there are retailers such Wal-mart, and specialty retailers such as Starbucks. And of course the internet (as above) and the internet download sites has attracted much more competition and made it increasingly difficult for SRM to survive...

Societal context: Perhaps you could argue that changing consumer tastes can affect SRM. For example, perhaps one could argue that as Canada's population has become larger, more diverse and more multicultural, consumers' preferences may have shifted towards more recognized international talent. SRM's business model appears to have been unresponsive to these societal forces.

Labour context: again, you would need to make assumptions. Maybe Sam did not take advantage of changes in the labour force. How demographically diverse was Sam' staff?

Not suggesting any actual problems here but simply trying to address questions using assumptions...

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

1) What stage of the lifecycle is the newspaper industry in? Please explain and justify.

Answer: The newspaper industry is in the decline stage as sales have begun to fall and they are now losing a lot of money. The following typically causes the decline stage: 1) Changes in demographics Most people under 60 are more likely to look for news through electronic devices. The number of people who still like to read the hard copy of a newspaper is dropping constantly.

2) Shifting consumer tastes and needs A greater focus on environment is causing a shift away from hard copy print.

By going “paperless” we are saving trees and doing our part to help out the environment.

3) Technological substitution This is the main reason for the decline of the newspaper industry. As a result of technology the Internet is gradually replacing the newspapers. With Google and Yahoo people are able to find the news they are looking for free of charge. Sites like Kijiji and Craigslist are replacing classified ads in newspapers. We no longer look for coupons in newspapers because there are so many deals being offered through companies like Groupon. Not only are these sites taking the place of newspapers but also because of technology the news is far more accessible. We get Groupons in our email. We can access email on our smart phones as well as news and weather reports.

Page Reference: 235-236 2) What strategies are available to the newspaper industry for dealing with declining sales, and what do you recommend?

Answer: 1) Maintain a leadership stance The newspaper industry could try to push through this decline with the hopes that eventually people will come back to the hard copy print. They could also hope for other newspapers to exit and therefore have less competition.

2) Pursue a niche strategy Newspapers could focus on one particular niche or market and gear the entire paper to that market. By zeroing in on one area they may be able to remain afloat.

3) Harvest Profits The newspaper industry could attempt to squeeze as much profit from its industry by drastically reducing its cost. GIVE US AN EXAMPLES – IE DOWNSIZE, RFEDUCE PRINT RUNS, FIRE SOME STAFF…..

4) Exit Early Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

BUSINESSES IN THE newspaper industry could sell off THEIR assets and exit the industry recouping as much money as possible.

5) Consolidate Newspaper could consolidate and have one newspaper for a much larger geographic area. By consolidating the industry would stand a better chance of surviving this decline.

Page Reference: 235-236 3) How is the newspaper a victim of the paradigm shift?

Answer: The term paradigm refers to our set of beliefs or mental framework for understanding how the world operates. You might also think of a paradigm as our theories, our assumptions, our beliefs or customs. So, how does this apply to our example of the newspaper industry? You might consider the newspaper industry as being prisoners of their old paradigm-they could not conceive of the industry as ever changing, so it was the old, traditional format of news that would always dominate the market. However, the industry did, in fact, experience a paradigm shift brought about by the internet, which did adapt its thinking to recognize new consumer tastes as well as shaping tastes. The paradigm governing the rules of the news industry changed, but for too many years the newspaper publishers thought they could play the game by the old rules, based on the old paradigm. Consequently, they were victims of failing to adapt to changing conditions, failing to shift away from their old paradigm.

Page Reference: 235-236

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

1) Name the six forces encouraging change in organizations a. Organizational change, global changes, economic changes, legal changes, societal changes, competitive changes b. Organizational change, global changes, economic changes, technological changes, societal changes, competitive changes c. Organizational change, economic changes, technological changes, societal changes, competitive changes, transformational changes d. Global changes, economic changes, legal changes, societal changes, competitive changes, technological changes Answer: d Diff: 2 Type: MC Page Reference: 502 Skill: recall Objective: LO1 2) Developmental Change involves the improvement of all of the following except: a. Existing skills b. Processes c. Performance Standards d. Management Answer: d Diff: 1 Type: MC Page Reference: 512 Skill: both Objective: LO2 3) Changes that replaces what already exists with something completely new is an example of: a. Transitional Change b. Transformational Change c. Technological Change d. Legal/Political Change

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Answer: a Diff: 2 Type: MC Page Reference: 513 Skill: both Objective: LO2 4) Reorganizations, simple mergers or acquisitions, creating new products or services that replace old ones are examples of what type of change? a. Societal change b. Organizational change c. Transformational change d. Transitional change Answer: d Diff: 2 Type: MC Page Reference: 514-515 Skill: both Objective: LO2 5) “Single Loop Learning” differs from “Double Loop Learning” in all of the following except: a. Considers the underlying system b. Deals only with the “symptoms” c. Addresses the current problem d. Maintains organizational status quo Answer: a Diff: 2 Type: MC Page Reference: 524 Skill: recall Objective: LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

6) Change that has purpose to create economic value with a focus on form structure and system is referred to as: a. Transformational Change b. Theory O change c. Theory Y change d. Theory E change Answer: d Diff: 1 Type: MC Page Reference: 515 Skill: recall Objective: LO3 7) Theory O would be best utilized in which type of environment? a. Where planning is participative b. Where there is a flatter structure c. It creates shareholder value d. A & B Answer: d Diff: 2 Type: MC Page Reference: 517 Skill: both Objective: LO3 8) An approach to work redesign that recognizes the complex interaction between people and technology in the workplace is referred to as: a. Strategic Restructuring b. Collective bargaining c. Sociotechnological Redesign d. Sociobiological Redesign Answer: c Diff: 2 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Type: MC Page Reference: 517 Skill: recall Objective: LO3 9) Personnel reductions, performance bonuses and sales of assets, are often described as a. Theory O changes b. Theory E changes c. Labour Market changes d. Precarious workers Answer: b Diff: 2 Type: MC Page Reference: 517 Skill: recall Objective: LO3 10) The increased ability of multinational corporations to move freely across borders and set up a business just about anywhere reflects the title: a. Borderless Corporations b. Multicultural Corporations c. Globalization d. Humanitarian Aid Corporations Answer: a Diff: 2 Type: MC Page Reference: 507 Skill: recall Objective: LO1 11) Deregulation and privatization are examples of the importance of considering governmental changes on business strategy and is an example of what type of change? a. Organizational changes b. Socioeconomic changes Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

c. Political changes d. A & B Answer: c Diff: 2 Type: MC Page Reference: 509 Skill: recall Objective: LO1 12) _____________ has influenced profound changes in the relationship of business to its external stakeholders. a. Economic force b. Technology c. Globalization d. Societal force Answer: c Diff: 2 Type: MC Page Reference: 508 Skill: recall Objective: LO1 13) _____________ are mental pictures, usually unconscious, that serve to organize knowledge in some systematic fashion. a. Cognitive Learning b. Conscious Scripts c. Cognitive Scripts d. Institutionalization Answer: c Diff: 2 Type: MC Page Reference: 530 Skill: recall

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

5

Objective: LO 5 14) What two factors largely distinguish transitional from transformational change? a. It is possible to determine the final destination in detail before the transitional change is implemented. b. It is possible to determine the final destination in detail before the transformational change is implemented. c. Transitional change largely impacts employees at the level of skills and actions, but not a the more personal levels of mindset, behavior and culture d. a & c Answer: d Diff: 1 Type: MC Page Reference: 512 Skill: both Objective: LO2 15) A type of change where the future where the future state of the business is dramatically different from the current operating state. a. Transformational change b. Transitional change c. Developmental change d. None of the above Answer: a Diff: 1 Type: MC Page Reference: 512 Skill: both Objective: LO2 16) A learning organization is a. an organization that facilitates the learning of all its members and consciously transforms its members and consciously transforms itself and its context. b. an organization that facilitates the learning of all its members and consciously transitions its members and consciously supports itself and its context.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

6

c. an organization that facilitates the learning of all its members and develops its members and develops itself and its environment. d. None of the above Answer: a Diff: 3 Type: MC Page Reference: 522 Skill: both Objective: LO5 17) What are the three rules for Malcolm Gladwell’s “tipping point”? a. the law of the few; the stickiness factor; the power of contraction b. the law of the many, the stickiness factor; the power of contraction c. the law of the few; the stickiness factor; the power of context d. the law of the many; the factor of tackiness; the power of contraction Answer: c Diff: 3 Type: MC Page Reference: 531 Skill: both Objective: LO6 18) Connectors are: a. Individuals who know a lot of people, are well connected socially, and therefore are critical to the instigation of a word-of-mouth epidemic b. One of the three rules of Malcolm Gladwell’s tipping point theory c. People who are knowledgeable and have a lot of information on products, prices and places d. All of the above Answer: a Diff: 3 Type: MC Page Reference: 531 Skill: both Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

7

Objective: LO6 19) There are specific ways to make a message memorable in terms of presenting and structuring information to influence the impact it will have, this is an example of a. marketing factor b. context factor c. the tipping context d. stickiness factor Answer: d Diff: 2 Type: MC Page Reference: 532 Skill: recall Objective: LO6 20) Identify four out of the ten “rules” that can be used as a tool to assist in the change implementation process a. Line up political sponsorship; Create a shared vision and common direction; b. Analyze the organization and its need for change; develop a word of mouth strategy; build capacity; Create a shared vision and common direction c. Separate from the past; reinforce and institutionalize change; write an impact statement; encourage patience while change is occurring d. Communicate, involve people, and be honest; support a strong leader role; line up political sponsorship; craft an implementation plan Answer: d Diff: 2 Type: MC Page Reference: 519 Skill: recall Objective: LO4 21) “Great institutions are not managed; they are led” – explain what this means a. Managers should set goals and objectives and allow their teams to determine the most appropriate manner in which to attain these goals and objectives.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

8

b. Managers are able to recognize the current paradigms that govern our behaviour and shift to a new paradigm. c. Mental pictures, usually unconscious, that serve to organize knowledge insome systematic fashion. d. Companies need to ensure that their entire supply chain meets reasonable working conditions and standards, at the least to protect their reputations that can be easily and quickly destroyed Answer: a Diff: 2 Type: MC Page Reference: 519 Skill: recall Objective: LO4 22) A type of change where the future state of the business is dramatically different from the current operating state. This is the most challenging type of change to implement, because the future state is unknown, it requires employees to develop new mindsets and behaviours, and the entire organizational culture must change. a. Transformational change b. Transitional change c. Theory O change d. Theory Y change Answer: a Diff: 2 Type: MC Page Reference: 513 Skill: recall Objective: LO2 23) A type of change where the future state of the business is dramatically different from the current operating state. This is the most challenging type of change to implement, because the future state is unknown, it requires employees to develop new mindsets and behaviours, and the entire organizational culture must change. a. Transformational change b. Transitional change c. Theory O change Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

9

d. Theory Y change Answer: a Diff: 2 Type: MC Page Reference: 513 Skill: recall Objective: LO2 24) ____________ are individuals who are unusually charismatic and have the skills to persuade even those who are unconvinced by connectors or mavens a. Mavens b. Changemakers c. Salesmen d. All of the above Answer: c Diff: 2 Type: MC Page Reference: 513 Skill: recall Objective: LO6 25) What is sociotechnical redesign? a. An approach of redesign in technology that is both a continuously changing variable and one that permits and demands organizational change b. An approach that replaces what already exists with something completely new c. An approach of change that has as its purpose the development of the organization’s human capability to implement strategy and to learn from actions taken about the effectiveness of changes made. d. An approach to work redesign that recognizes the complex interaction between people and technology in the workplace Answer: d Diff: 2 Type: MC Page Reference: 517

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

10

Skill: recall Objective: LO3 26) What is sociotechnical redesign? a. An approach of redesign in technology that is both a continuously changing variable and one that permits and demands organizational change b. An approach that replaces what already exists with something completely new c. An approach of change that has as its purpose the development of the organization’s human capability to implement strategy and to learn from actions taken about the effectiveness of changes made. d. An approach to work redesign that recognizes the complex interaction between people and technology in the workplace Answer: d Type: MC

27) Describe the main goals of Theory O Change a. Develop organizational capabilities b. Developing an organizational culture that supports a learning and a high performance employee population c. The planning for this type of change is emergent and participative d. All of the above Answer: d Diff: 1 Type: MC Page Reference: 517 Skill: recall Objective: LO3 28) An organization that facilitates the learning of all its members and consciously transform itself and its context. Identify the three aspects of the learning organization: a. Learning from its people, contributing to the learning of the wider community or context of which it is a part, and adapting to its environment b. Adapting to its environment, the right systems established but simply needs to fine tune them, emergent environment c. Adapting to its environment, learning from its people, finding community partners Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

11

d. None of the above Answer: a Diff: 2 Type: MC Page Reference: 522 Skill: recall Objective: LO5 29) ___________________is the assessment by individuals of whether an error or problem exists in an organization because the systems themselves need to be changed. a. Organizational learning b. Single Loop learning c. Double Loop Learning d. None of the above Answer: c Diff: 1 Type: MC Page Reference: 523 Skill: recall Objective: LO5 30) Institutionalization Theory is: a. Mental pictures, usually unconscious that serve to organize knowledge in some systematic fashion. b. The theory that organizations are driven to incorporate practices and procedures c. An all-encompassing definition of adult learning or development. d. None of the above Answer: b Diff: 2 Type: MC Page Reference: 529 Skill: recall Objective: LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

12

1) Discuss the three rules of Malcolm Gladwell’s Tipping Point.

Answer: Gladwell has developed three rules of epidemics: (1) the law of the few-that is, there are exceptional people who possess social connections, personality, energy, and enthusiasm to be able to spread "the word" (idea or product) in epidemic proportions; (2) the stickiness factor-that is, there are specific ways to make a message memorable in terms of presenting and structuring information to influence the impact it will make; and (3) the power of context-discussed in two parts, essentially that "human beings are a lot more sensitive to their environment than they may think."

Diff: 1 Type: ES Page Reference: 531-533 Skill: both Objective: LO6 2) Identify the 10 steps in the process of transformational change Answer: 1. Analyze the organization and its need for change 2. Create a shared vision and common direction 3. Separate from the past 4. Create a sense of urgency 5. Support a strong leader role 6. Line up political sponsorship 7. Craft an implementation plan 8. Develop enabling structures 9. Communicate, involve people, and be honest 10. Reinforce and institutionalize change Diff: 2 Type: ES Page Reference: 519 Skill: both Objective: LO4

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

3) Briefly identify the nature of economic, competitive and technological forces of change in organizations.

Answer: i) Economic Change – The economic environment acts as a strong influence on the present and future prospects of any organization. We can also consider the international economic environment as exerting an influence on Canadian organizations. A question worth considering is whether the economy is weak or healthy? Downsizing usually occurs during lean times versus rich times. An example of an economic change stems from the 1950’s and the 1970’s where lifetime employment meant stability. In todays market we start seeing telecommuting, part-time work arrangements. ii) Competitive Change –Competition can be seen as domestic and foreign. Both types have accelerated in the past few years and require innovation among firms in many industries. To compete effectively, organizations must continually create new and better methods of serving customers. For example, Research in Motion’s Blackberry versus Apple’s iPhone. iii) Technological Change – Technology plays a central role in how an organization functions, how it obtains resources and, ultimately, how effectively it competes. The technological environment exerts influence across industries.

For example in the case of Bell Canada, the increase in the number of competitors in the telecommunication industry with the increasingly sophisticated technological advances came reductions in operating costs which led to the ability to attract more competitors who could now afford to enter the industry (Rogers, Telus, etc.)

Diff: 4 Type: ES Page Reference: 501 Skill: both Objective: LO1 4) Compare and contrast Theory E and Theory O change.

Answer: Theory E change: A theory of change that has as its purpose the creation of economic value, often expressed as shareholder value. Its focus is on formal structure and systems.

Theory O change: A theory of change that has as its purpose the development of the organization's human capability to implement strategy and to learn from actions taken about the effectiveness of changes made.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Diff: 3 Type: ES Page Reference: 515- 517 Skill: both Objective: LO3 5) Identify and explain some of the ways organizations learn and define organizational learning Answer: Organizational learning is the detection and correction or error, or the collective experience of individuals within the organization that results in changes in organizational procedure. Two types f learning are: a) single loop learning: the correction of errors that employees find in organizational methods of performance in order to keep the system working. It assumes that the organization has the right systems established but simply needs to find tune them.

Results are incremental improvements and improved efficiency. Addresses symptoms rather than root causes. b) double loop learning: requires that individuals assess whether an error or problem exists in an organization because the systems themselves need to be changed.

Changing organizational systems or assumptions requires a deeper level of examination, and typically is a precursor to significant organizational change.

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Radical organizational change can only come about when the members of an organization are encouraged to engage to double-loop learning. This dramatic departure from the present way of doing things is also referred to shifting paradigms.

Diff: 3 Type: ES Page Reference: 471-478 Skill: both Objective: LO5 6) Contrast developmental versus transitional change.

Answer: Developmental change: Attempts to improve upon what the business is currently doing, rather then creating something completely new. This may include the improvement of existing skills, processes, methods, performance standards, or conditions. One the other hand, transitional change actually replaces what already exists with something completely new and requires organizations to depart from old methods of operating while the new state is being established. For example, mergers and acquisitions.

Diff: 3 Type: ES Page Reference: 512- 513 Skill: both Objective: LO2

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4

1) Downsizing, part time and temporary work arrangements, structural unemployment are all examples of economic change a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 502 Skill: recall Objective: LO1 2) Technology changes have a double-edged sword for business – it can create new industries and destroy old ones. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 506 Skill: recall Objective: LO1 3) Globalization has been among the most pervasive forces affecting not only business in Canada but in almost every corner of the world. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 507 Skill: recall Objective: LO1 4) Transformational change attempt to improve upon what the business is currently doing a. True b. False Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

1

Answer: b Diff: 1 Type: TF Page Reference: 512 Skill: recall Objective: LO2 5) According to Mary Young and James E Post, the most effective organizations are those that communicate openly, honestly, consistently and continuously a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 521 Skill: both Objective: LO5 6) “Change is a process, not an event.” a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 522 Skill: recall Objective: LO5 7) According to many scholars, most organizations encourage double-loop learning a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 522 Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

2

Skill: recall Objective: LO5 8) Communication is a product; communication should not include the whys and hows, only the whats. a. True b. False Answer: b Diff: 2 Type: TF Page Reference: 523 Skill: recall Objective: LO4 9) It would seem that radical organizational change can only come about when the members of an organization are encouraged to engage in single-loop learning a. True b. False Answer: b Diff: 1 Type: TF Page Reference: 523 Skill: both Objective: LO5 10) Mavens are people who are knowledgeable and have a lot of information on products, prices and place. a. True b. False Answer: a Diff: 1 Type: TF Page Reference: 532 Skill: both Objective: LO5

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

3

Test Bank for Karakowsky and Guriel, The Context of Business, 1e Copyright © 2015 Pearson Canada Inc.

4