END-OF-CHAPTER PROBLEMS

1.5)  



1.7)  



2.1)  The three methods are low-cost leadership, differentiation and response.  Low-cost leadership can be demonstrated by Wal-Mart, which uses its buying power to pressure its suppliers into concessions.  Differentiation can be illustrated by almost any restaurant or restaurant chain, such as Red Lobster, which offers its customers a distinct menu and style of service.  Response can be illustrated by a courier service such as FedEx, which guarantees specific delivery schedules, or by a custom tailor, who will hand-make a suit specifically for a customer.


2.4)  There have been a few changes since the text was first published a couple of years ago.  On the whole the list is only slighltly changed, but the fun is in the finding...

Company	Parent	Country
Arrow	Bidermann International	France
Braun Household Appliances	Procter & Gamble	United States
Lotus Autos	Proton	Malaysia
Firestone Tires	Bridgestone	Japan
Godiva Chocolate	Campbell Soup	United States
Haagen-Dazs Ice Cream	Nestle	Switzerland
Jaguar Autos	Tata Motors Ltd.	India
MGM Movies	Sony (lead equity partner)	Japan
Lamborghini	Volkswagen	Germany
Goodrich	Michelin	France
Alpo Pet Foods	Nestle	Switzerland

Note:  Ford announced the sale of Jaguar to India's Tata Motors Ltd. on March 26, 2008.


2.6)  Specific answers to this question depend on the organization considered. Some general thoughts follow:

a)  For a producer with high energy costs, major oil prices change the cost structure, result in higher selling prices, and, if the company is energy inefficient compared to other producers, result in a change in competitive position.  Conversely, when oil prices dropped in 1997, it was a bonanza for heavy fuel users such as airlines.

b)  More restrictive quality of water and air legislation increases the cost of production and may, in some cases, prohibit the use of specific technologies.  The high cost of process modification to meet more rigid standards has resulted in the closing of numerous plants including paper mills and steel mills.

c)  A decrease in the number of young prospective employees entering the U.S. labor market in 1985–1998 contributed to a much tighter job market. It is also required organizations to “slimdown” (reduce personnel and add automation) as it became increasingly difficult to replace persons who left.

d)  Inflation, especially at a high or uncertain rates, makes it more difficult to predict both the cost of production and the market demand.

e)  Legislation moving health insurance from a before-tax benefit to taxable income will reduce the take-home pay of employees by the amount of the taxes.  This could have a significant effect on the income of employees in the lower pay classifications, putting substantial pressure on operations managers to increase wages in these classifications.  (This does not mean that it is not a good idea for society- i.e., to make employees more sensitive to the cost of health insurance.)

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