Essentials of Strategic Management The Quest For Competitive Advantage 6th Edition Gamble Test Bank

Essentials of Strategic Management
The Quest for Competitive Advantage

6th Edition Gamble Test Bank
Visit to download the full and correct content document: https://testbankdeal.com/dow
nload/essentials-of-strategic-management-the-quest-for-competitive-advantage-6th-e
dition-gamble-test-bank/
Essentials of Strategic Management, 6e (Gamble)
Chapter 7 Strategies for Competing in International Markets
1) Which of the following is not a reason why the world economy is globalizing at an accelerated
pace?
A) Growth-minded companies are racing to build stronger competitive positions in the markets
of more countries.
B) Information technology is shrinking the importance of geographic distance.
C) Countries that previously had planned economies now embrace mixed or market economies.
D) Countries previously closed to foreign companies have opened their markets.
E) Countries opposed to market or mixed economies have stringent trade barriers in place.
Answer: E
Explanation: The world economy is globalizing at an accelerating pace as ambitious, growth-
minded companies race to build stronger competitive positions in the markets of more and more
countries, as countries previously closed to foreign companies open up their markets, as
countries that previously had planned economies embrace market or mixed economies, and as
information technology shrinks the importance of geographic distance.
Difficulty: 1 Easy
Topic: Strategies for Global Competition
Learning Objective: 07-01 Identify the primary reasons companies choose to compete in
international markets.
Bloom's: Remember
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
1
Copyright © 2019 McGraw-Hill
2) Companies opt to expand into foreign markets in order to
A) grow sales faster than the industry average, reduce the competitive threats from their rivals,
and open up more opportunities to enter into strategic alliances.
B) boost returns on investment, broaden their product lines, avoid tariffs and trade restrictions,
and escape dealing with strong labor unions.
C) avoid having to employ an export strategy, avoid the threat of cross-market subsidization
from their rivals, and enable the use of a global strategy instead of a multidomestic strategy.
D) raise the entry barriers for industry newcomers, neutralize the bargaining power of important
suppliers, grow sales faster, and increase the number of loyal customers.
E) gain access to new customers, achieve lower costs, enhance the company's competitiveness,
capitalize on core competencies, and spread business risk across a wider market base.
Answer: E
Explanation: Strengthening capability to employ offensive strategies is not one of the five
principal reasons that companies choose to expand into foreign markets. A company may opt to
expand outside its home country for a variety of reasons, which include (1) the ability to gain
access to new customers; (2) to achieve lower costs and enhance competitiveness; (3) to leverage
core competencies in new markets; (4) to gain access to resources and capabilities (labor,
resources, technology, distribution networks) in foreign markets; and (5) to spread business risk
across a wider market base.
Difficulty: 1 Easy
Bloom's: Remember
2
3) The reasons why a company opts to expand outside its home market include all of the
following except
A) to exploit its core competencies and capabilities
B) to identify resources and capabilities in the company's home market
C) to achieve lower costs thereby enhancing the firm's competitiveness
D) to gain access to new customers for the company's products/services
E) to achieve lower costs through economies of scale, experience, and increased purchasing
power
Answer: B
Explanation: A company may opt to expand outside its domestic market for any of five major
reasons: (1) To gain access to new customers; (2) To achieve lower costs through economies of
scale, experience, and increased purchasing power; (3) To gain access to low-cost inputs of
production; (4) To further exploit its core competencies; and (5) to gain access to resources and
capabilities located in foreign markets. Cross-border strategic alliances create value through
resource sharing and risk spreading.
Difficulty: 2 Medium
Bloom's: Remember
3
4) Which of the following is not a typical reason for a company to expand into the markets of
foreign countries?
A) Gaining access to new customers
B) Strengthening its capability to employ offensive strategies, especially those that involve
preemptive strikes
C) Achieving lower costs and enhance the firm's competitiveness
D) Capitalizing on company competencies and capabilities
E) Spreading business risk across a wider geographic market base
Answer: B
Explanation: Strengthening capability to employ offensive strategies is not one of the five
expand outside its home country for a variety of reasons, including: (1) the ability to gain access
to new customers; (2) to achieve lower costs and enhance competitiveness; (3) to leverage core
competencies in new markets; (4) to gain access to resources and capabilities (labor, resources,
technology, distribution networks) in foreign markets; and (5) to spread business risk across a
wider market base.
Bloom's: Remember
4
5) Which one of the following is not a reason a company decides to enter foreign markets?
A) Spreading business risk across a wider geographic market base
B) Capitalizing on company competencies and capabilities
C) Achieving lower costs and enhance the firm's competitiveness
D) Building the profit sanctuary necessary to wage guerrilla offensives against global challengers
endeavoring to invade its home market
E) Gaining access to new customers
Answer: D
Explanation: Building a profit sanctuary to wage guerilla offensives is not one of the five
wider market base.
Bloom's: Remember
AACSB: Analytical Thinking
5
6) Which of the following is not a possible reason why Uber opted to expand its on-demand
transportation services into foreign markets?
A) To build the profit sanctuary necessary to wage guerrilla offensives against global challengers
endeavoring to invade its home market
B) To achieve lower costs and enhance the firm's competitiveness
C) To capitalize on company competencies and capabilities
D) To gain access to new customers in new markets
E) To spread its business risk across a wider geographic market base
Answer: A
Explanation: Building a profit sanctuary to wage guerilla offensives is not one of the five
wider market base.
Difficulty: 3 Hard
Bloom's: Apply
6
7) Exxon Mobil has entered into a pact with Gazprom, the world's largest natural gas extractor,
to set up a processing unit in Baku, Azerbaijan. Which of the following is most likely the reason
for Exxon Mobil to opt for this strategic alliance?
A) To better compete with Gazprom
B) To scale back its core competencies
C) To gain access to low-cost inputs of production
D) To gain access to new customers in new markets
E) To restrict its factors of production
Answer: C
Explanation: A company like ExxonMobil may opt to expand outside its domestic market for
any one of the five following major reasons: (1) To gain access to new customers; (2) To achieve
lower costs through economies of scale, experience, and increased purchasing power; (3) To gain
access to low-cost inputs of production; (4) To further exploit its core competencies; (5) To gain
access to resources and capabilities located in foreign markets. Companies like ExxonMobil that
operate primarily in industries based on natural resources (e.g., oil and gas, minerals, rubber, and
lumber) often find it necessary to operate in the international arena since raw-material supplies
are located in different parts of the world and can be accessed more cost-effectively at the
source.
Difficulty: 3 Hard
Bloom's: Apply
AACSB: Reflective Thinking
7
8) One of the biggest strategic challenges to competing in the international arena include
A) how to avoid the risks of shifting exchange rates.
B) whether to charge the same price in all country markets.
C) how many foreign firms to license to produce and distribute the company's products.
D) whether to offer a mostly standardized product worldwide or whether to customize the
company's offerings in each different country market to match the tastes and preferences of local
buyers.
E) whether to pursue a global strategy or an international strategy.
Answer: D
Explanation: Companies operating in a global marketplace must wrestle with whether and how
much to customize their offerings in each different country market to match the tastes and
preferences of local buyers or whether to pursue a strategy of offering a mostly standardized
product worldwide.
Learning Objective: 07-02 Understand why and how differing market conditions across
countries influence a company's strategy choices in international markets
Bloom's: Understand
9) Why do companies decide to enter a foreign market?

A) To exploit the natural resources found within its home market.
B) To decrease the rate at which they accumulate experience and move up the learning curve.
C) To raise input costs through greater pooled purchasing power.
D) To capture economies of scale in product development, manufacturing, or marketing.
E) To concentrate risk within a broader base of countries, especially when sales are down in one
area and the company can undermine sales elsewhere.
Answer: D
Explanation: Many companies are driven to sell in more than one country because domestic
sales volume alone is not large enough to capture fully economies of scale in product
development, manufacturing, or marketing. Similarly, firms expand internationally to increase
the rate at which they accumulate experience and move down the learning curve. International
expansion can also lower a company's input costs through greater pooled purchasing power.
Companies often expand internationally to extend the life cycle of their products. An
increasingly important motive for entering foreign markets is to acquire resources and
capabilities that may be unavailable in a company's home market.
Bloom's: Understand
8
10) Which of the following is not a reason why a company decides to enter foreign markets?
A) To impart technical knowledge to high-cost human resources in developing nations
B) To capitalize on company competencies and capabilities
C) To spread business risk across a wider geographic market base
D) To capture economies of scale in product development, manufacturing, or marketing
E) To achieve lower costs through economies of scale, experience, and increased purchasing
power
Answer: A
Explanation: A company may opt to expand outside its domestic markets to gain access to new
customers; to achieve lower costs through economies of scale, experience, and increased
purchasing power; and to further exploit its core competencies. Companies also choose to
establish operations in other countries to utilize local distribution networks, gain local
managerial or marketing expertise, or acquire technical knowledge.
Difficulty: 3 Hard
Bloom's: Understand
9
11) Which of the following is not an accurate statement as concerns competing in the markets of
foreign countries?
A) Localizing Apple's product offerings country-by-country leads to low-cost advantage.
B) Starbucks must contend with fluctuating exchange rates and country-to-country variations in
host government restrictions and requirements.
C) There are country-to-country differences in Round Table Pizza's customers' buying habits and
buyer tastes and preferences.
D) Market growth rates vary from country to country, impacting John Deere's international sales.
E) Avon's cosmetic products suitable for China are often inappropriate in Singapore and
Malaysia.
Answer: A
Explanation: Differences in buyer tastes and preferences present a challenge for companies
concerning customizing versus standardizing their products and services. Greater standardization
of a global company's product offering can lead to scale economies and learning-curve effects,
thus contributing to the achievement of a low-cost advantage. Differing population sizes, income
levels, and other demographic factors give rise to considerable differences in market size and
growth rates from country to country. Sometimes, product designs suitable in one country are
inappropriate in another because of differing local standards. When companies produce and
market their products and services in many different countries, they are subject to the impacts of
sometimes favorable and sometimes unfavorable changes in currency exchange rates.
Difficulty: 3 Hard
Bloom's: Apply
10
12) Which of the following countries had the lowest manufacturing labor wage rates in 2015?
A) Hungary
B) Brazil
C) India
D) China
E) Mexico
Answer: C
Explanation: India is the correct answer. In 2015, hourly compensation for manufacturing
workers averaged about $1.59 in India, $4.12 in China, $5.90 in Mexico, $9.51 in Taiwan, $8.25
in Hungary, $7.97 in Brazil, $11.08 in Portugal, $22.68 in South Korea, $23.60 in Japan, $30.94
in Canada, $37.71 in the United States, $42.42 in Germany, and $49.67 in Norway.
Difficulty: 3 Hard
Topic: Global Environmental Forces
Bloom's: Remember
13) Which of the following countries had the highest manufacturing labor wage rates in 2015?
A) United States
B) South Korea
C) India
D) China
E) Norway
Answer: E
Explanation: Norway is the correct answer. In 2015, hourly compensation for manufacturing
workers averaged about $1.59 in India, $4.12 in China, $5.90 in Mexico, $9.51 in Taiwan, $8.25
in Hungary, $7.97 in Brazil, $11.08 in Portugal, $22.68 in South Korea, $23.60 in Japan, $30.94
in Canada, $37.71 in the United States, $42.42 in Germany, and $49.67 in Norway. Not
surprisingly, China has emerged as the manufacturing capital of the world—virtually all of the
world's major manufacturing companies now have facilities in China.
Difficulty: 3 Hard
Bloom's: Remember
11
14) Which of the following statements is false?
A) Tiffany entered the mining industry in Canada to access diamonds that could be certified as
"conflict free" and not associated with either the funding of African wars or unethical mining
conditions.
B) Many U.S. airlines locate call centers in countries such as India and Ireland.
C) The advantage to Italian companies like Ducati, Ferrari, and Maserati, which have developed
as part of a related-automotive technology industry cluster, comes from the close collaboration
with key suppliers and the greater knowledge sharing throughout the cluster, resulting in greater
efficiency and innovativeness.
D) Companies like Samsung that export goods to foreign countries always gain in
competitiveness when the currency of South Korea, in which the goods are manufactured, is
strong.
E) Venezuela's 2017 nationalization of a General Motors plant in Valencia that employs nearly
2,700 workers is an example of political risk.
Answer: D
Explanation: While the other examples above illustrated in the chapter are correct, an important
lesson of fluctuating exchange rates is that companies that export goods to foreign countries
always gain in competitiveness when the currency of the country in which the goods are
manufactured is weak. Exporters like Samsung are disadvantaged when the currency of the
country where goods are being manufactured—in this instance, South Korea—grows stronger.
Difficulty: 3 Hard
Bloom's: Understand
12
15) Market size and growth rates in different countries can be influenced positively or negatively
by
A) population sizes, income levels and cultural influences, the current state of the infrastructure,
and distribution and retail networks available.
B) the ability of management to tailor a strategy to take into consideration country differences.
C) the large size of emerging markets such as China and India.
D) competitive rivalry that is only moderate in some countries.
E) the absence or presence of low trade barriers.
Answer: A
Explanation: Differing population sizes, income levels, and other demographic factors give rise
to considerable differences in market size and growth rates from country to country. Moreover,
market growth can be limited by the lack of infrastructure or established distribution and retail
networks in emerging markets.
Bloom's: Understand
16) Which of the following is not a factor surrounding the decision to enter into the markets of
foreign countries?
A) Market growth rates that vary from country to country
B) Country-by-country differences in consumer tastes and buying habits
C) Fluctuating exchange rates and country-by-country variations in host-government restrictions
and requirements
D) Product designs that may be suitable for one country but inappropriate for another
E) Repatriation of foreign company assets by governments in countries outside of home
market(s)
Answer: E
Explanation: All of the following market conditions across countries influence a company's
strategy choices in international markets: (1) buyer tastes, differing population sizes, income
levels, market growth rates, and other demographic factors that influence product customization
decisions; (2) wage rates, worker productivity, energy costs, environmental regulations, tax rates,
and inflation rates that influence location choices; and (3) government policies, economic risk,
and political risk that make a country's business climate attractive or unattractive.
Difficulty: 1 Easy
Bloom's: Understand
13
17) Competing in the markets of foreign countries entails dealing with such factors except
A) fluctuating exchange rates, country-to-country variations in host-government restrictions and
requirements, and variations in cultural, demographic, and market conditions.
B) important country-to-country differences in consumer buying habits and buyer tastes and
preferences.
C) whether to customize the company's offerings in each different country market or whether to
offer a mostly standardized product worldwide.
D) the fact that product designs suitable for one country are sometimes inappropriate in another.
E) the prevalence of global brands.
Answer: E
strategy choices in international markets: (1) buyer tastes, differing population sizes, income
levels, market growth rates, and other demographic factors that influence product customization
decisions; (2) wage rates, worker productivity, energy costs, environmental regulations, tax rates,
and inflation rates that influence location choices; and (3) government policies, economic risk,
and political risk that make a country's business climate attractive or unattractive.
Difficulty: 1 Easy
Bloom's: Understand
14
18) Competing in the markets of foreign countries generally does not involve which of the
following?
A) Country-by-country differences in consumer buying habits, tastes, and preferences
B) Country-by-country variations in host-government regulations, fluctuating exchange rates,
and economic policies
C) Choices to customize the company's offerings to each country market or to offer a primarily
standardized product to all markets around the globe
D) Choices to locate company operations on the basis of variations in wages rates, worker
productivity, energy costs, tax rates, and distribution channels
E) Crafting a multicountry strategy that can transform the world market into one big profit
sanctuary
Answer: E
strategy choices in international markets, except crafting a multicountry strategy: (1) buyer
tastes, differing population sizes, income levels, market growth rates, and other demographic
factors that influence product customization decisions; (2) wage rates, worker productivity,
energy costs, environmental regulations, tax rates, and inflation rates that influence location
choices; and (3) government policies, economic risk, and political risk that make a country's
business climate attractive or unattractive.
Difficulty: 1 Easy
Bloom's: Understand
15
19) What factor is not likely to be responsible for Apple's decision to set up mobile phone
manufacturing facilities in India?
A) comparatively lower exchange rate and political risks
B) potential location advantages in wages, inflation rates, and tax rates that reduce costs
C) global standardization of mobile phone technology
D) growth potential of India's emerging market
E) franchising opportunities in India
Answer: E
Explanation: Four important factors shape a company's strategic approach to competing in
foreign markets: (1) the degree to which there are important cross-country differences in
demographic, cultural, and market conditions; (2) whether opportunities exist to gain a location-
based advantage based on wage rates, worker productivity, inflation rates, energy costs, tax rates,
and other factors that impact cost structure; (3) the risks of adverse shifts in currency exchange
rates; and (4) the extent to which governmental policies affect the local business climate.
Franchising opportunities are not among these four important factors.
Difficulty: 3 Hard
Bloom's: Apply
16
20) Competitive advantages of manufacturing goods in a particular country and exporting them
to foreign markets
A) are largely unaffected by fluctuating exchange rates.
B) are greatest when local distributors and dealers in that country can be convinced not to carry
products that are made outside the country's borders.
C) can be wiped out when that country's currency grows weaker relative to the currencies of the
countries where the output is being sold.
D) are eroded when the manufacturing country's home currency strengthens relative to the
currencies of the foreign countries where the output is being sold.
E) are seriously compromised by the potential for local government officials to raise tariffs on
the imports of foreign-made goods into their country.
Answer: D
Explanation: Fluctuating exchange rates impact companies that export goods to foreign
countries. Companies always gain in cost/price competitiveness when the currency of the
country in which the goods are manufactured is weak. Exporters are disadvantaged when the
currency of the country where goods are being manufactured grows stronger.
Difficulty: 3 Hard
Bloom's: Understand
17
21) Which of the following statements concerning the effects of fluctuating exchange rates on
companies competing in foreign markets is true?
A) Fluctuating exchange rates pose no significant risks to a company's competitiveness in
foreign markets.
B) Competitive advantages of manufacturing goods in a particular country are largely unaffected
by fluctuating exchange rates.
C) Exporters are advantaged when the currency of the country where goods are being
manufactured grows stronger.
D) Exporters always gain in cost/price competitiveness when the currency of the country in
which the goods are manufactured is weak.
E) Exporters always lose in cost/price competitiveness when the currency of the country in
which the goods are manufactured is weak.
Answer: D
Explanation: Fluctuating exchange rates impact companies that export goods to foreign
countries. Companies always gain in cost/price competitiveness when the currency of the
country in which the goods are manufactured is weak. Exporters are disadvantaged when the
currency of the country where goods are being manufactured grows stronger.
Difficulty: 3 Hard
Bloom's: Understand
22) Government host policies are not likely to increase a country's political and economic risks
when
A) the national government is unstable or weak.
B) incentives such as reduced taxes, low-cost loans, and site-development assistance are
provided to companies agreeing to construct or expand production and distribution facilities.
C) there is distress in the country's monetary system.
D) there are threats from piracy and lack of protection for the company's intellectual property.
E) there is new onerous legislation or regulations on foreign-owned businesses.
Answer: B
Explanation: All of the choices, except for "incentives," tend to adversely increase a host
country's political and economic risks.
Bloom's: Understand
18
23) The strategic options for expansion into foreign markets include all of the following except
A) employing a franchising strategy.
B) maintaining a national (one-country) production base and exporting goods to foreign markets.
C) licensing foreign firms to produce and distribute one's products.
D) establishing a subsidiary in a foreign market.
E) creating products and services that are not subject to tariffs and local regulations.
Answer: E
Explanation: The five general modes for entering foreign markets are: (1) exporting from a
national base; (2) licensing foreign firms to produce and distribute goods and services abroad; (3)
franchising involving local ownership; (4) establishing a subsidiary via acquisition or internal
development; and (5) relying on strategic alliances, joint ventures, and other cooperative
agreements with foreign companies.
Difficulty: 1 Easy
Learning Objective: 07-03 Identify the five general modes of entry into foreign markets.
Bloom's: Remember
24) Which of the following is not one of the strategy options for expanding into markets of
foreign countries?
A) A profit sanctuary strategy
B) An export strategy
C) A licensing strategy
D) Establishment of a subsidiary in a foreign market strategy
E) A franchising strategy
Answer: A
Explanation: A profit sanctuary strategy is not one of the five general modes for entering foreign
markets. Strategy options for expanding into markets of foreign countries include: (1) exporting
from a national base; (2) licensing foreign firms to produce and distribute goods and services
abroad; (3) franchising involving local ownership; (4) establishing a subsidiary via acquisition or
internal development; and (5) relying on strategic alliances, joint ventures, and other cooperative
Difficulty: 1 Easy
Bloom's: Remember
19
25) Which of the following is an example of an export strategy?
A) Facebook generates 51 percent of its advertising revenue outside the United States.
B) American Airlines' common stock, owned by AMR Corp., is not available for public
purchase.
C) The popular Harry Potter character Voldemort can only be leased or rented for use by
amusement park operators.
D) ZipCar allows taxi fleet operators to use its trademarks, services, and products for a fee.
E) The United States is home to the world's three largest producers and suppliers of artificial
heart valves.
Answer: E
Explanation: The top three artificial heart valve manufacturers use U.S. domestic plants as a
production base for exporting goods to foreign markets. It is a conservative way to dominate
Difficulty: 3 Hard
Bloom's: Apply
26) Using domestic plants as a production base for exporting goods to selected foreign country
markets
A) can be an excellent initial strategy to pursue international sales.
B) can be a competitively successful strategy when a company is focusing on vacant market
niches in each foreign country.
C) works well when a firm does not have the financial resources to employ cross-market
subsidization.
D) is usually a weak strategy when competitors are pursuing multicountry strategies.
E) can be a powerful strategy because the company is not vulnerable to fluctuating exchange
rates.
Answer: A
Explanation: Using domestic plants as a production base for exporting goods to foreign markets
is an excellent initial strategy for pursuing international sales. It is a conservative way to test the
international waters.
Bloom's: Understand
20
27) The advantages of using an export strategy to build a customer base in foreign markets
include
A) being able to minimize shipping costs, avoid tariffs, and curb the effects of fluctuating
exchange rates.
B) minimizing capital requirements and involvement in foreign markets.
C) being cheaper and more cost effective than licensing and franchising.
D) being cheaper and more cost effective than a multicountry strategy.
E) facilitating the establishment of profit sanctuaries in foreign countries and being more suited
to accommodating local buyer tastes than a global strategy.
Answer: B
Explanation: The amount of capital needed to begin exporting is often quite minimal, and
existing production capacity may be sufficient to make goods for export. With an export-based
entry strategy, a manufacturer can limit its involvement in foreign markets by contracting with
foreign wholesalers experienced in importing to handle the entire distribution and marketing
function in their countries or regions of the world.
Bloom's: Understand
28) The advantages of using a licensing strategy to participate in foreign markets include
A) being especially well suited to the use of cross-market subsidization.
B) being able to charge lower prices than rivals.
C) enabling a company to achieve competitive advantage quickly and easily.
D) being able to leverage the company's technical know-how or patents without committing
significant additional resources to markets that are unfamiliar, politically volatile, economically
uncertain, or otherwise risky.
E) being able to achieve higher product quality and better product performance than with an
export strategy.
Answer: D
Explanation: The advantages of a licensing entry strategy to participate in foreign markets
accrue when (1) a firm with valuable technical know-how or a unique patented product has
neither the internal organizational capability nor the resources to enter foreign markets; (2) a firm
wishes to avoid the risks of committing resources to country markets that are unfamiliar,
politically volatile, economically unstable, or otherwise risky; and (3) a firm does not have to
bear the costs and risks of entering foreign markets on its own, yet it is able to generate income
from royalties.
Difficulty: 1 Easy
Bloom's: Understand
21
29) The advantages of using a franchising strategy to pursue opportunities in foreign markets
include
A) franchisees bear most of the costs and risks of establishing foreign locations, and the
franchisor is required to expend only the resources to recruit, train, and support foreign
franchisees.
B) its being particularly well suited to the global expansion efforts of companies with
multicountry strategies.
C) the ability to build multiple profit sanctuaries.
D) its being particularly well suited to companies that employ cross-market subsidization.
E) its being particularly well suited to the global expansion efforts of manufacturers.
Answer: A
Explanation: Franchising has much the same advantages as licensing. The franchisee bears most
of the costs and risks of establishing foreign locations, so a franchisor has to expend only the
resources to recruit, train, support, and monitor franchisees.
Difficulty: 1 Easy
Bloom's: Understand
30) The disadvantages of using a franchising strategy to pursue opportunities in foreign markets
do not include
A) maintaining quality control.
B) having to decide whether to allow foreign franchisees to modify the franchisor's product
offering to better satisfy the tastes and expectations of local buyers.
C) foreign franchisees that do not always exhibit strong commitment to consistency and
standardization.
D) franchisees bearing most of the costs and risks of establishing foreign locations, so a
franchisor has to expend only the resources to recruit, train, support, and monitor franchisees.
E) the ability to build multiple profit sanctuaries.
Answer: D
Explanation: Franchisees bear most of the costs and risks of establishing foreign locations, so a
franchisor has to expend only the resources to recruit, train, support, and monitor franchisees,
which is a major advantage of using franchising as a foreign market entry strategy.
Bloom's: Understand
22
31) Founding a wholly owned subsidiary in a foreign market to take advantage of all essential
value chain activities requires a strategy that
A) establishes a wholly owned subsidiary.
B) acquires a foreign company.
C) supports direct control over all aspects of operating in a foreign market.
D) establishes a start-up operation.
E) creates multiple country value chains to attain and sustain a competitive advantage in all
markets served.
Answer: C
Explanation: Companies that prefer direct control over all aspects of operating in a foreign
market can establish a wholly owned subsidiary, either by acquiring a foreign company or by
establishing operations from the ground up via internal development.
Bloom's: Understand
32) Acquisition of an existing firm rather than via internal development may be the least risky
and cost-efficient means of overcoming entry barriers such as
A) rapidly building a strong market presence.
B) moving directly to the task of transferring resources and personnel, and integrating and
redirecting activities into the acquiring firm's operation.
C) gaining access to local distribution networks, building supplier networks, and establishing
working relationships with key government officials.
D) fast-tracking exports into a foreign market by marketing indirectly through local rivals.
E) putting the acquiring firm's strategy into place.
Answer: C
Explanation: Acquisition of an existing firm operating in a foreign country may be the less risky
and more cost-efficient than internal development when it comes to hurdling such entry barriers
as gaining access to local distribution channels, building supplier relationships, and establishing
working relationships with key government officials and other constituencies.
Bloom's: Understand
23
33) Which of the following is an example of a cross-border alliance?
A) Hyundai Motor Company plans to open a new manufacturing plant in the Czech Republic.
B) Carrefour, a French grocery chain, established a new wholly owned venture in Poland.
C) Facebook took over WhatsApp for $19 billion in February 2014.
D) The insurance company Geico is a wholly owned subsidiary of Berkshire Hathaway.
E) Renault-Nissan sells more than one in ten cars worldwide.
Answer: E
Explanation: Cross-border alliances enable a growth-minded company like Nissan (Japan) and
Renault (France) to widen its geographic coverage and strengthen its competitiveness in foreign
markets; at the same time, they offer flexibility and allow a company to retain some degree of
autonomy and operating control. Strategic alliances, joint ventures, and other cooperative
agreements with foreign companies are a favorite and potentially fruitful means for entering a
foreign market or strengthening a firm's competitiveness in world markets in order to (1)
strengthen a company's ability to gain a foothold in a desirable market; (2) capture economies of
scale in production and/or marketing; (3) fill gaps in technical expertise and/or knowledge of
local markets (buying habits and product preferences of consumers, local customs, and so on);
(4) share distribution facilities and dealer networks to mutually strengthen access to buyers; (5)
refocus energies away from competition between allies and instead toward teaming up to close
the gap on leading companies; and (6) allow each partner to preserve its independence and avoid
using perhaps scarce financial resources to fund acquisitions.
Difficulty: 3 Hard
Bloom's: Apply
24
34) Which of the following is not an example of a cross-border alliance?
A) Pharmaceutical giants Eli Lilly and Kyowa Hakko Kogyo develop and perform clinical tests
of a new cancer treatment therapy.
B) Western Union purchases the global payments division of British-owned Travelex Ltd.
C) Deutsch, a New York-based wine importer, and Casella, an Australian wine producer, create
and market the Yellowtail wine brand.
D) Lidl, a German deep-discount supermarket chain, establishes a new wholly owned venture
with a supermarket chain in Poland.
E) American Airlines' close ties and shared reservations systems with Japan Airlines and Cathay
Pacific.
Answer: B
Explanation: Strategic alliances, joint ventures, and other cooperative agreements with foreign
companies are a favorite and potentially fruitful means for entering a foreign market or
strengthening a firm's competitiveness in world markets. All of the answer choices—except the
acquisition of Travelex by Western Union—are examples of cross-border alliances that were
formed in order to (1) strengthen a company's ability to gain a foothold in a desirable market; (2)
capture economies of scale in production and/or marketing; (3) fill gaps in technical expertise
and/or knowledge of local markets (buying habits and product preferences of consumers, local
customs, and so on); (4) share distribution facilities and dealer networks to mutually strengthen
access to buyers; (5) refocus energies away from competition between allies and instead towards
teaming up to close the gap on leading companies; and (6) allow each partner to preserve its
independence and avoid using perhaps scarce financial resources to fund acquisitions.
Difficulty: 3 Hard
Bloom's: Apply
25
35) Which of the following is not a potential benefit of strategic alliances or other cooperative
arrangements between foreign and domestic companies?
A) Obtaining wider access to attractive country markets
B) Gaining better access to economies of scale in production and/or marketing
C) Filling competitively important gaps in technical expertise and/or knowledge of local markets
D) Safeguarding the company's dependence, allowing for positive engagement once the purpose
has been serving, and ensuring products of important technical standardization requirements are
not developed
E) Sharing distribution facilities and dealer networks, thus mutually strengthening access to
buyers
Answer: D
Explanation: Even if the alliance becomes a win-win proposition for both parties, there is the
danger of becoming overly dependent on foreign partners for essential expertise and competitive
capabilities.
Difficulty: 3 Hard
Bloom's: Understand
36) Which of the following is not one of the problems and risks of cross-border strategic
alliances, that is, between domestic and foreign firms?
A) Overcoming language and cultural barriers, and the sometimes-extensive managerial time
required for trust-building, communication, and coordination
B) The trouble allies can have reaching mutually agreeable ways to deal with key issues
C) Becoming overly dependent on another company for essential expertise and competitive
capabilities
D) Making it harder to pursue a multidomestic strategy as compared to a global strategy
E) Suspicions about whether allies are being forthright in exchanging information and expertise
Answer: D
Explanation: The risks of using strategic alliances include: (1) cross-border allies typically have
to overcome language and cultural barriers, and figure out how to deal with diverse (or perhaps
conflicting) operating practices; (2) communication, trust-building, and coordination costs are
high in terms of management time; and (3) partners may discover they have conflicting
objectives and strategies, deep differences of opinion about how to proceed, or important
differences in corporate values and ethical standards. Increasing the difficulty of pursuing a
multidomestic (versus global) strategy is not one of the inherent risks of cross-border strategic
alliances.
Difficulty: 3 Hard
Bloom's: Understand
26
37) When a company operates in the markets of two or more different countries, its foremost
strategic decision is
A) whether to use strategic alliances to help defeat its rivals.
B) whether to vary the company's competitive approach to fit specific market conditions and
buyer preferences in each host country or whether to employ essentially the same strategy in all
countries.
C) whether to maintain a national (one-country) manufacturing base and export goods to the
other countries.
D) which foreign companies to team up with via strategic alliances or joint ventures.
E) whether to test the waters with an export strategy before committing to some other
competitive approach.
Answer: B
Explanation: Deciding upon the degree to vary its competitive approach to fit the specific
market conditions and buyer preferences in each host country is perhaps the foremost strategic
issue that must be addressed when operating in two or more foreign markets. Figure 7.1 shows
the three primary strategic options for competing internationally.
Topic: Implementation of International Strategies
Learning Objective: 07-04 Identify the three main options for tailoring a company's international
strategy to cross-country differences in market conditions and buyer preferences.
Bloom's: Understand
27
38) A think local, act local multidomestic type of strategy
A) is very risky, given fluctuating exchange rates and the propensity of foreign governments to
impose tariffs on imported goods.
B) is usually defeated by a think global, act global type of strategy.
C) is more appealing the bigger the country-to-country differences in buyer tastes, cultural
traditions, and marketing methods.
D) is generally an inferior strategy when one or more foreign competitors is pursuing a global
low-cost strategy.
E) can defeat a global strategy if the think local, act local multidomestic strategist concentrates
its efforts exclusively in those foreign markets where it has profit sanctuaries.
Answer: C
Explanation: Figure 7.1 shows the three primary strategic options for competing internationally.
A multidomestic strategy calls for varying a company's product offering and competitive
approach from country to country in an effort to be responsive to significant cross-country
differences in customer preferences, buyer purchasing habits, distribution channels, or marketing
methods. Think local, act local strategy-making approaches are also essential when host-
government regulations or trade policies preclude a uniform, coordinated worldwide market
approach.
Bloom's: Understand
28
39) The strength of a think local, act local multidomestic strategy is that
A) it matches a company's competitive approach to prevailing market and competitive conditions
in each country market.
B) each of a company's country strategies is almost totally different from and unrelated to its
strategies in other countries.
C) the plants located in different countries can be operated independently of one another, thus
promoting greater achievement of scale economies.
D) it avoids host-country ownership requirements, and import quotas.
E) it eliminates the costs and burdens of trying to coordinate the strategic moves undertaken in
one country with the moves undertaken in the other countries.
Answer: A
methods. Think local, act local strategy-making approaches are also essential for matching a
company's competitive approach to prevailing local market and competitive conditions or when
host-government regulations or trade policies preclude a uniform, coordinated worldwide market
approach.
Bloom's: Understand
29
40) A think local, act local multidomestic strategy works particularly well when
A) host governments relax regulations requiring that products sold locally meet strictly defined
manufacturing specifications or performance standards.
B) there are few country-to-country differences in customer preferences and buying habits.
C) diverse and complicated trade restrictions of host governments preclude the use of a uniform
strategy from country to country.
D) there are few country-to-country differences in distribution channels and marketing methods.
E) companies centralize strategy making in global headquarters.
Answer: C
methods. Think local, act local strategy-making approaches are also essential when host-
government regulations or trade policies preclude a uniform, coordinated worldwide market
approach.
Difficulty: 1 Easy
Bloom's: Understand
30
41) The drawbacks of a localized multidomestic strategy include
A) hindering the use of cross-market subsidization techniques and increasing company
vulnerability to adverse shifts in currency exchange rates.
B) the difficulty in taking into account significant country-to-country differences in distribution
channels and marketing methods.
C) the difficulty in and costs of being responsive to country-to-country differences in customer
needs, buying habits, cultural traditions, and market conditions.
D) hindering the transfer of a company's competencies and resources across country boundaries
and hindering the pursuit of a single, uniform competitive advantage in all country markets
where a company operates.
E) being unsuitable for competing in the markets of emerging countries and posing added
difficulty in building multiple profit sanctuaries.
Answer: D
Explanation: Multidomestic think local, act local strategy-making approaches come with two
major drawbacks: (1) they hinder the transfer, of a company's competencies and resources across
country boundaries because the strategies in different host countries can be grounded in varying
competencies and capabilities, and (2) they, do not promote building a single, unified
competitive advantage, especially one based on low cost. Companies employing highly localized
or multidomestic strategies also face big hurdles in achieving low-cost leadership unless they
find ways to customize their products and still be in a position to capture economies of scale and
learning curve effects.
Difficulty: 1 Easy
Bloom's: Understand
31
42) Two major drawbacks of a think local, act local multidomestic strategy are
A) that it is especially vulnerable to fluctuating exchange rates and can usually be defeated by
companies employing cross-market subsidization tactics.
B) excessive vulnerability to fluctuating exchange rates and having to craft a separate strategy
for each country market in which the company competes.
C) hindering a company's transfer of competencies and resources across country boundaries
(since somewhat different competencies and capabilities are likely to be employed in different
host countries) and not promoting the building of a single, unified competitive advantage in all
country markets where a company competes.
D) greater exposure to both increases in tariffs and restrictive trade barriers, and added difficulty
in accommodating the diverse trade restrictions and regulatory requirements of host
governments.
E) not being able to export products manufactured in one country to markets in other countries
and being largely unsuitable for competing in the markets of emerging countries.
Answer: C
Explanation: Multidomestic think local, act local strategy-making approaches come with two
major drawbacks: (1) they hinder the transfer of a company's competencies and resources across
country boundaries because the strategies in different host countries can be grounded in varying
competencies and capabilities, and (2) they do not promote building a single, unified competitive
advantage, especially one based on low cost.
Bloom's: Understand
32
43) A localized or multidomestic strategy
A) is generally preferable to a global strategy in situations where buyers are price sensitive
because a "think local, act local" type of multidomestic strategy is better suited to achieving low
unit costs than a global strategy.
B) involves much less adherence to using the same basic competitive strategy theme (low-cost,
differentiation, best-cost, or focused) in all country markets.
C) is generally best suited for globally standardized industries, in which small country-by-
country differences can be accommodated.
D) is generally inferior to a global strategy when it comes to pursuing product differentiation.
E) has two big drawbacks: (1) it hinders the transfer of a company's competencies and resources
across country boundaries because the strategies in different host countries can be grounded in
varying competencies and capabilities, and (2) it does not promote building a single, unified
competitive advantage, especially one based on low cost.
Answer: E
Explanation: A multidomestic strategy ("think local, act local") calls for varying a company's
product offering and competitive approach from country to country in an effort to be more
responsive than a global strategy, at least in terms of adapting to significant cross-country
methods. The two major drawbacks of a multidomestic strategy are: (1) it hinders the transfer of
a company's competencies and resources across country boundaries because the strategies in
different host countries can be grounded in varying competencies and capabilities, and (2) it does
not promote building a single, unified competitive advantage, especially one based on low cost.
Bloom's: Understand
33
44) A think global, act global approach to strategy making is preferable to a think local, act local
approach when
A) a big majority of the company's rivals are pursuing localized multidomestic strategies.
B) country-by-country differences are small enough to be accommodated within the framework
of a mostly uniform global strategy.
C) plants need to be scattered across many countries to avoid high shipping costs.
D) market growth rates vary considerably from country to country.
E) host governments enact regulations requiring that products sold locally meet strict
manufacturing specifications or performance standards.
Answer: B
Explanation: While multidomestic strategies are best suited for industries where a fairly high
degree of local responsiveness is important, global strategies are best suited for globally
standardized industries; thus small country-by-country differences can be accommodated by a
global strategy.
Difficulty: 1 Easy
Bloom's: Understand
34
45) The transnational approach of a firm using a think global, act local version of a global
strategy entails
A) producing and marketing a variety of product versions under the same brand name, with each
different version being designed specifically to accommodate the needs and preferences of
buyers in a particular country.
B) little or no strategy coordination across countries.
C) pursuing the same basic competitive strategy theme (low-cost, differentiation, best-cost,
focused) in all countries where the firm does business but giving local managers some latitude to
adjust product attributes to better satisfy local buyers and to adjust production, distribution, and
marketing to be responsive to local market conditions.
D) selling the company's products under a wide variety of brand names (often one brand for each
country or group of neighboring countries) so that buyers in each country market will think they
are buying a locally made brand.
E) selling numerous product versions (each customized to buyer tastes in one or more countries
and sometimes branded for each country) but opting to only sell direct to buyers at the
company's website so as to bypass the costs of establishing networks of wholesale/retail dealers
in each country market.
Answer: C
Explanation: Transnational strategies (think global, act local) are approaches to accommodate
cross-country variations in buyer tastes, local customs, and market conditions while also striving
for the benefits of standardization. This middle-ground approach entails utilizing the same basic
competitive theme (low-cost, differentiation, or focused) in each country but allows local
managers the latitude to (1) incorporate whatever country-specific variations in product attributes
are needed to best satisfy local buyers and (2) make whatever adjustments in production,
distribution, and marketing are needed to respond to local market conditions and compete
successfully against local rivals.
Bloom's: Understand
35
46) The competitive strategy of a firm pursuing a think global, act local approach to strategy
making
A) entails little or no strategy coordination across countries.
B) usually involves cross-subsidizing the prices in those markets where there are significant
country-to-country differences in the product attributes that customers are most interested in.
C) involves selling a mostly standardized product worldwide but varying a company's use of
distribution channels and marketing approaches to accommodate local market conditions.
D) is essentially the same in all country markets where it competes, but it may nonetheless give
local managers room to make minor variations where necessary to better satisfy local buyers and
to better match local market conditions.
E) involves having strongly differentiated product versions for different countries and selling
them under distinctly different brand names (one for each country or group of neighboring
countries) so that there will be no doubt in customers' minds that the product is more local than
global.
Answer: D
Explanation: Transnational strategies (think global, act local) are approaches to accommodate
cross-country variations in buyer tastes, local customs, and market conditions while also striving
for the benefits of standardization. This middle-ground approach entails utilizing the same basic
competitive theme (low-cost, differentiation, or focused) in each country but allows local
managers the latitude to (1) incorporate whatever country-specific variations in product attributes
are needed to best satisfy local buyers and (2) make whatever adjustments in production,
distribution, and marketing are needed to respond to local market conditions and compete
successfully against local rivals.
Difficulty: 1 Easy
Bloom's: Understand
36
47) When expanding outside its domestic market, a company can gain competitive advantage by
A) not pursuing costly efforts to build multiple profit sanctuaries.
B) deliberately choosing not to compete in countries with high tariffs and high taxes (which then
have to be passed along to buyers in the form of higher prices), thus keeping costs and prices
lower than rivals'.
C) using an export strategy to circumvent the risks of adverse exchange rate fluctuations.
D) using location to lower costs or help achieve greater product differentiation or using cross-
border coordination in ways a domestic-only competitor cannot.
E) employing a multidomestic strategy instead of a global strategy.
Answer: D
Explanation: To use location to build competitive advantage, a company must consider two
issues: (1) whether to concentrate each internal process in a few countries or to disperse
performance of each process to many nations and (2) in which countries to locate particular
activities. A multinational firm can gain competitive advantage by expanding outside its
domestic market in two important ways: it can use location to lower costs or help achieve greater
product differentiation. That is, multinational companies can achieve a competitive advantage in
world markets by locating their value chain activities in whichever nations prove most
advantageous, by either concentrating activities in certain locations or dispersing internal
processes across multiple locations.
Learning Objective: 07-05 Explain how multinational companies are able to use international
operations to improve overall competitiveness.
Bloom's: Understand
37
48) To use location to build competitive advantage, a company that operates multinationally or
globally must
A) employ either an export strategy or a franchising strategy.
B) scatter its production plants across many countries in different parts of the world so as to
minimize transportation costs.
C) consider (1) whether to concentrate each activity it performs in a few select countries or
disperse performance of the activity to many nations and (2) in which countries to locate
particular activities.
D) locate production plants in those countries having suppliers that can supply all the necessary
raw materials and components so as to avoid inbound shipping costs.
E) concentrate all of its value chain activities in a single country—the one that has the best
combination of low wage rates, low shipping costs, and low tax rates on profits.
Answer: C
activities.
Bloom's: Understand
38
49) To use location to build competitive advantage when competing in both domestic and foreign
markets, a company must
A) scatter its production plants across many different country markets so as to minimize the costs
of shipping to its own distribution centers and/or wholesalers/retail dealers.
B) consider (1) whether to concentrate each activity it performs in a few select countries or to
disperse performance of the activity to many nations and (2) in which countries to locate
particular activities.
C) concentrate buyer-related activities in a few well-chosen locations so as to maximize the
capture of distribution-related economies of scale.
D) disperse both production and distribution activities across many nations in order to hedge
against fluctuating exchange rates and lessen the risks of adverse political developments.
E) avoid selling in countries where there are high trade barriers or where buyers purchase in
small quantities.
Answer: B
activities.
Bloom's: Understand
39
50) In competing in foreign markets, companies find it advantageous to concentrate their
activities in a limited number of locations in all of these situations, except when
A) there is a steep learning or experience curve associated with performing an activity in a single
location (thus making it economical to serve the whole world market from just one or maybe a
few locations).
B) the costs of manufacturing or other activities are significantly lower in some geographic
locations than in others.
C) certain locations have superior resources, allow better coordination of related activities, or
offer other valuable advantages.
D) there are significant economies of scale in performing an activity.
E) the addition of new production capacity will not adversely impact the supply-demand balance
in the local market.
Answer: E
Explanation: Multinational companies should concentrate internal processes in a few locations
in the following situations: (1) when the costs of manufacturing or other activities are
significantly lower in some geographic locations than in others; (2) when there are significant
scale economies; (3) when there is a steep learning curve associated with performing an activity;
and/or (4) when certain locations have superior resources, allow better coordination of related
activities, or offer other valuable advantages, such as a sophisticated production facility or highly
trained local personnel.
Bloom's: Understand
40
51) In which of the following circumstances is it not advantageous for a multinational competitor
to concentrate its activities in a limited number of locations in order to build competitive
advantage?
A) When the costs of performing certain value chain activities are significantly lower in certain
geographic locations than in others
B) When a company has a competitively superior patented technology that it can license to
foreign partners
C) When there is a steep learning or experience curve associated with performing an activity in a
single location
D) When certain locations have superior resources, allow better coordination of related activities,
or offer other valuable advantages
E) When there are significant economies of scale in performing the activity
Answer: B
Explanation: As opposed to concentrating activities in a certain location, dispersing an internal
process across many countries is more advantageous in some situations. Buyer-related activities,
such as distribution to dealers, sales and advertising, and after-sale service, usually must take
place close to buyers, making it necessary to physically locate the capability to perform such
activities in every country market where a global firm has major customers. Dispersing activities
to many locations is also competitively important when high transportation costs, diseconomies
of large size, and trade barriers make it too expensive to operate from a central location or to
hedge against the risks of fluctuating exchange rates and adverse political developments.
Bloom's: Understand
41
52) Dispersing the performance of value chain activities to many different countries rather than
concentrating them in a few country locations tends to be advantageous in all of the following
situations except
A) when high transportation costs make it expensive to operate from central locations.
B) if resources retain their foreign contexts so there is competitive advantage over a broader
domain.
C) when it is desirable to hedge against (1) the risks of fluctuating exchange rates, (2) supply
interruptions, or (3) adverse political developments.
D) if diseconomies of large size exist, thereby making it more economical to perform an activity
on a smaller scale in several different locations.
E) whenever buyer-related activities are best performed in locations close to buyers.
Answer: B
Explanation: Dispersing an internal process across many countries is more advantageous in
some situations. Buyer-related activities, such as distribution to dealers, sales and advertising,
and after-sale service, usually must take place close to buyers, making it necessary to physically
locate the capability to perform such activities in every country market where a global firm has
major customers. Dispersing activities to many locations is also competitively important when
high transportation costs, diseconomies of large size, and trade barriers make it too expensive to
operate from a central location or to hedge against the risks of fluctuating exchange rates and
adverse political developments.
Bloom's: Understand
42
53) Which of the following is an example of a modification in a particular company's business
model to accommodate the unique local circumstances of developing countries?
A) Japan is known for its competitive strength in consumer electronics.
B) Home Depot could rely on its value propositions only in some developing countries.
C) Mahindra and Mahindra ranked number one in J. D. Power Asia Pacific's new-vehicle overall
quality category.
D) Unilever developed a low-cost detergent, named Wheel, for the Indian market.
E) In China, Dell moved from its traditional Internet-based orders to orders over phone and fax.
Answer: E
Explanation: When Dell entered China, it discovered that individuals and businesses were not
accustomed to placing orders through the Internet. To adapt, Dell modified its direct sales model
to rely more heavily on phone and fax orders while waiting for a greater acceptance of online
ordering. Further, because numerous Chinese government departments and state-owned
enterprises insisted that hardware vendors make their bids through distributors and systems
integrators (as opposed to dealing directly with Dell salespeople as did large enterprises in other
countries), Dell opted to use third parties in marketing its products to this buyer segment. But
Dell was careful not to abandon the parts of its business model that gave it a competitive edge
over its rivals.
Difficulty: 3 Hard
Bloom's: Apply
43
54) Televisa, a Mexican media company, became the world's most prolific producer of Spanish-
language soap operas owing to its expertise in Spanish culture and linguistics. Which of the
following strategies did Televisa employ to defend against global giants?
A) Use acquisition and rapid-growth strategies to better defend against expansion-minded
international media companies.
B) Take advantage of aspects of the local workforce with which large international media
companies may be unfamiliar.
C) Utilize keen understanding of local customer needs and preferences to create customized
products or services.
D) Develop business models that exploit shortcomings in local media content distribution
networks or infrastructure.
E) Transfer company expertise to cross-border markets and initiate actions to contend on an
international level.
Answer: E
Explanation: When a company from a developing country has resources and capabilities suitable
for competing in other country markets, launching initiatives to transfer its expertise to foreign
markets becomes a viable strategic option. Televisa, Mexico's largest media company, used its
expertise in Spanish culture and linguistics to become the world's most prolific producer of
Spanish-language soap operas. By continuing to upgrade its capabilities and learn from its
experience in foreign markets, a company can sometimes transform itself into one capable of
competing on a worldwide basis, as an emerging global giant.
Difficulty: 3 Hard
Bloom's: Apply
44
55) The ability of a multinational or global competitor to shift production from country to
country to take advantage of exchange rate fluctuations, energy costs, wage rates, or changes in
tariffs is an example of
A) a profit sanctuary.
B) cross-border coordination.
C) an international strategic alliance.
D) cross-market subsidization.
E) cross-market differences in cultural, demographic, and market conditions.
Answer: B
Explanation: An example of cross-border coordination is shifting production from a plant in one
country to a plant in another to take advantage of exchange rate fluctuations and to respond to
changing wage rates, energy costs, or changes in tariffs and quotas.
Bloom's: Understand
56) Companies racing for global market leadership

A) generally have to consider establishing competitive positions in the markets of emerging
countries.
B) are well advised to avoid all the risks and problems of competing in emerging country
markets.
C) seldom have the resource capabilities it takes to be effective in competing in emerging
country markets and usually are at a strong competitive disadvantage compared to the domestic
market leaders.
D) can usually be expected to earn sizable profits quickly in emerging country markets.
E) usually encounter very low barriers in entering the markets of emerging countries.
Answer: A
Explanation: Companies racing for global leadership have to consider competing in developing-
economy markets such as China, India, Brazil, Indonesia, Thailand, Poland, Russia, and
Mexico—countries where the business risks are considerable but where the opportunities for
growth are huge.
Learning Objective: 07-06 Understand the unique characteristics of competing in developing-
country markets.
Bloom's: Understand
45
57) Which of the following is not a typical option that companies have to consider in order to
tailor their strategy to fit the circumstances of emerging country markets?
A) Prepare to compete on the basis of low price.
B) Be prepared to modify aspects of the company's business model to accommodate local
circumstances (but not so much that the company loses the advantage of global scale and global
branding).
C) Try to change the local market to better match the way the company does business elsewhere.
D) Develop a strategy for the short-term and forget about a long-term strategy because
conditions in emerging country markets change so rapidly.
E) Stay away from those emerging markets where it is impractical or uneconomic to modify the
company's business model to accommodate local circumstances.
Answer: D
Explanation: Among the strategy options for tailoring a company's strategy to fit the sometimes
unusual or challenging circumstances presented in developing-country markets are the following:
(1) prepare to compete on the basis of low price, (2) modify aspects of the company's business
model or strategy to accommodate local circumstances (but not so much that the company loses
the advantage of global scale and global branding), (3) try to change the local market to better
match the way the company does business elsewhere, and (4) stay away from those emerging
markets where it is impractical or uneconomical to modify the company's business model to
accommodate local circumstances. Given the need for patience, developing a short-term strategy
in this situation is illogical and is not among the strategy options for competing in emerging
economies.
Difficulty: 3 Hard
country markets.
Bloom's: Understand
46
58) Which of the following is not a typical option that companies have to consider in order to
tailor their strategy to fit the circumstances of emerging country markets?
A) Try to change the local market to better match the way the company does business elsewhere.
B) Stay away from those emerging markets where it is impractical or uneconomic to modify the
C) Change the local market to better match the way the company does business elsewhere.
D) Modify aspects of the company's business model to accommodate local circumstances (but
not so much that the company loses the advantage of global scale and global branding).
E) Develop a strategy for the short-term and forget about a long-term strategy because conditions
in emerging country markets change so rapidly.
Answer: E
accommodate local circumstances.
country markets.
Bloom's: Understand
47
59) Which of the following is not a strategic option companies should consider in tailoring their
strategy to fit circumstances of emerging country markets?
A) Try to change the local market to better match the way the company does business elsewhere.
B) Modify aspects of the company's business model to accommodate local circumstances.
C) Prepare to compete on the basis of low price.
D) Enter only those emerging markets that provide profit sanctuaries by offering opportunities
for offensive strategies, such as preemptive strikes.
E) Stay away from those emerging markets where it is impractical or uneconomic to modify the
Answer: D
accommodate local circumstances.
country markets.
Bloom's: Understand
60) Briefly identify the major reasons a company may choose to expand outside its domestic
market.
Answer: A company may opt to expand outside its home country for a variety of reasons,
including: (1) the ability to gain access to new customers; (2) to achieve lower costs and enhance
competitiveness; (3) to leverage core competencies in new markets; (4) to gain access to
resources and capabilities (labor, resources, technology, distribution networks) in foreign
markets; and (5) to spread business risk across a wider market base.
Difficulty: 3 Hard
Topic: Global Strategy
Bloom's: Understand
48
61) Explain and provide examples as to why the strategies of firms that expand internationally
are usually grounded in home-country advantages or core competencies.
Answer: A company may be able to extend a market-leading position in its domestic market into
a position of regional or global market leadership by leveraging its core competencies further.
Walmart is capitalizing on its considerable expertise in discount retailing to expand into the
United Kingdom, Japan, China, and Latin America. Walmart executives believe the company has
tremendous growth opportunities in China. Companies can often leverage their resources
internationally by replicating a successful business model, using it as a basic blueprint for
international operations, as Starbucks and McDonald's have done
Difficulty: 3 Hard
Topic: Global Strategy
Bloom's: Understand
62) What are the primary country differences that shape strategy choices in international
markets?
Answer: Heterogeneous market conditions across countries influence a company's strategy

choices in international markets. These conditions include: (1) buyer tastes, differing population
sizes, income levels, market growth rates, and other demographic factors that influence product
customization decisions; (2) wage rates, worker productivity, energy costs, environmental
regulations, tax rates, and inflation rates that influence location choices; and (3) government
policies, economic risk, and political risk that make a country's business climate attractive or
unattractive.
Topic: Global Environmental Forces
Bloom's: Understand
63) Identify and briefly describe any three of the five strategic options for entering foreign
markets.
Answer: The five general modes for entering foreign markets are: (1) exporting from a national
base, (2) licensing foreign firms to produce and distribute goods and services abroad, (3)
franchising involving local ownership, (4) establishing a subsidiary via acquisition or internal
development, and (5) relying on strategic alliances, joint ventures, and other cooperative
Bloom's: Remember
49
64) Briefly discuss why a domestic company desirous of entering foreign markets might see
attractive advantages in forming strategic alliances with foreign companies.
Answer: Strategic alliances, joint ventures, and other cooperative agreements with foreign
companies are a favorite and potentially fruitful means for entering a foreign market or
strengthening a firm's competitiveness in world markets because these approaches can (1)
strengthen a company's ability to gain a foothold in a desirable market; (2) help capture
economies of scale in production and/or marketing; (3) fill gaps in technical expertise and/or
knowledge of local markets (buying habits and product preferences of consumers, local customs,
and so on); (4) enable sharing of distribution facilities and dealer networks to mutually
strengthen access to buyers; (5) refocus energies away from competition between allies and
instead toward teaming up to close the gap on leading companies; and (6) permit each partner to
preserve its independence and avoid using perhaps scarce financial resources to fund
acquisitions.
Bloom's: Understand
65) What are the possible benefits and risks of using strategic alliances to try to enhance a
company's ability to compete in foreign markets?
Answer: Among the benefits of using strategic alliances to compete in foreign markets are (1)
strengthening a company's ability to gain a foothold in a desirable market; (2) capturing
economies of scale in production and/or marketing; (3) filling gaps in technical expertise and/or
knowledge of local markets (buying habits and product preferences of consumers, local customs,
and so on); (4) sharing distribution facilities and dealer networks to mutually strengthen access to
buyers; (5) refocusing energies away from competition between allies and instead toward
teaming up to close the gap on leading companies; and (6) allowing each partner to preserve its
independence and avoid using perhaps scarce financial resources to fund acquisitions. The risks
of using strategic alliances include: (1) cross-border allies typically have to overcome language
and cultural barriers, and figure out how to deal with diverse (or perhaps conflicting) operating
practices; (2) communication, trust-building, and coordination costs are high in terms of
management time; and (3) partners may discover they have conflicting objectives and strategies,
deep differences of opinion about how to proceed, or important differences in corporate values
and ethical standards.
Difficulty: 3 Hard
Bloom's: Understand
50
66) Discuss in some detail the difference between a localized multidomestic strategy and a global
strategy, and give the pros and cons of each.
Answer: A multidomestic strategy calls for varying a company's product offering and
competitive approach from country to country in an effort to be responsive to significant cross-
country differences in customer preferences, buyer purchasing habits, distribution channels, or
marketing methods. Think local, act local strategy-making approaches are also essential when
host-government regulations or trade policies preclude a uniform, coordinated worldwide market
approach. Think local, act local strategy-making approaches come with two major drawbacks:
(1) they hinder transfer of a company's competencies and resources across country boundaries
because the strategies in different host countries can be grounded in varying competencies and
capabilities and (2) they do not promote building a single, unified competitive advantage,
especially one based on low cost. Companies employing highly localized or multidomestic
strategies also face big hurdles in achieving low-cost leadership unless they find ways to
customize their products and still be in a position to capture economies of scale and learning
curve effects. A global strategy is one in which the company's approach is predominantly the
same in all countries: it sells the same products under the same brand names everywhere, utilizes
much the same distribution channels in all countries, and competes on the basis of the same
capabilities and marketing approaches worldwide. Although the company's strategy or product
offering may be adapted in very minor ways to accommodate specific situations in a few host
countries, the company's fundamental competitive approach (low-cost, differentiation, or
focused) remains very much intact worldwide, and local managers stick close to the global
strategy. The main drawback to a global strategy is that it puts considerable strategic emphasis
on building a global brand name and aggressively pursuing opportunities to transfer ideas, new
products, and capabilities from one country to another but ignores country differences.
Difficulty: 3 Hard
Bloom's: Understand
67) What circumstances call for use of a multidomestic strategy for competing in international
markets?
Answer: Multidomestic strategies are best suited for industries where a fairly high degree of
local responsiveness is important, when varying a company's product offering and competitive
approach from country to country aids an effort to be responsive to significant cross-country
methods.
Bloom's: Understand
51
68) When is a global strategy superior to a multidomestic strategy?
Answer: Global strategy is superior to multidomestic strategy in certain situations.

Multidomestic strategies are best suited for industries where a fairly high degree of local
responsiveness is important; global strategies, utilizing a standard approach to all country
markets, are best suited for globally standardized industries. A multidomestic strategy calls for
varying a company's product offering and competitive approach from country to country in an
effort to be responsive to significant cross-country differences in customer preferences, buyer
purchasing habits, distribution channels, or marketing methods, whereas a global strategy calls
for selling the same products under the same brand names everywhere, utilizing much the same
distribution channels in all countries, and competing on the basis of the same capabilities and
marketing approaches worldwide.
Bloom's: Understand
69) A global strategy embraces the theme think global, act global, whereas a multidomestic
strategy relies more on a think global, act local mentality. True or false? Explain.
Answer: Multidomestic strategies (think local, act local) are best suited for industries where a
fairly high degree of local responsiveness is important; global strategies are best suited for
globally standardized industries. Global strategies (think global, act global) employ the same
basic competitive approach in all countries where a company operates and are best suited to
industries that are globally standardized in terms of customer preferences, buyer purchasing
habits, distribution channels, or marketing methods. The think global, act local strategy is known
as a transnational strategy, that is, accommodating cross-country variations in buyer tastes, local
customs, and market conditions while also striving for the benefits of standardization.
Bloom's: Understand
52
70) Discuss in some detail the difference between a multidomestic strategy and a global strategy.
Give the pros and cons of each.
Answer: A multidomestic strategy is one in which a company varies its product offering and
competitive approach from country to country in an effort to be responsive to differing buyer
preferences and market conditions. It is a think-local, act-local type of international strategy,
facilitated by decision making decentralized to the local level. A global strategy contrasts sharply
with a multidomestic strategy in that it takes a standardized, globally integrated approach to
producing, packaging, selling, and delivering the company's products and services worldwide. A
global strategy is one in which a company employs the same basic competitive approach in all
countries where it operates, sells standardized products globally, strives to build global brands,
and coordinates its actions worldwide with strong headquarters control. It represents a think-
global, act-global approach
Difficulty: 3 Hard
Bloom's: Understand
71) Identify and briefly explain two ways that multinational companies are able to use
international operations to improve overall competitiveness.
Answer: A multinational firm can gain competitive advantage by expanding outside its domestic
market in two important ways: it can use location to lower costs or help achieve greater product
differentiation. That is, multinational companies can achieve a competitive advantage in world
markets by locating their value chain activities in whichever nations prove most advantageous,
by either concentrating activities in certain locations or dispersing internal processes across
multiple locations.
Difficulty: 1 Easy
Bloom's: Understand
53
72) Explain under what circumstances it becomes necessary for a multinational company to
concentrate internal processes in a few locations.
Answer: Companies that compete multinationally can pursue competitive advantage in world
markets by locating their value chain activities in whichever nations prove most advantageous.
Multinational companies should concentrate internal processes in a few locations in the
following situations: (1) when the costs of manufacturing or other activities are significantly
lower in some geographic locations than in others; (2) when there are significant scale
economies; (3) when there is a steep learning curve associated with performing an activity;
and/or (4) when certain locations have superior resources, allow better coordination of related
activities, or offer other valuable advantages, such as a sophisticated production facility or highly
trained local personnel.
Difficulty: 3 Hard
Bloom's: Understand
73) Under what circumstances is it advantageous for a company competing in foreign markets to
disperse certain internal processes across many countries?
Answer: Dispersing an internal process across many countries is more advantageous than
concentrating it in a single location in some situations. Buyer-related activities, such as
distribution to dealers, sales and advertising, and after-sale service, usually must take place close
to buyers, making it necessary to physically locate the capability to perform such activities in
every country market where a global firm has major customers. Dispersing activities to many
locations is also competitively important when high transportation costs, diseconomies of large
size, and trade barriers make it too expensive to operate from a central location or to hedge
against the risks of fluctuating exchange rates and adverse political developments.
Bloom's: Analyze
54
74) Explain the importance of competing in emerging markets.
Answer: Developing-economy markets such as China, India, Brazil, Indonesia, Thailand,

Poland, Russia, and Mexico all present considerable business risks but have huge market size
and opportunities for growth, especially as the economies of these countries develop and living
standards climb toward levels in the industrialized world; no company pursuing global market
leadership can afford to ignore the strategic importance of establishing competitive market
positions in China, India, other parts of the Asian-Pacific region, Latin America, and Eastern
Europe.
country markets.
Bloom's: Understand
75) List and discuss three strategy options for competing in emerging markets.
Answer: Among the strategy options for tailoring a company's strategy to fit the sometimes
accommodate local circumstances. Company experiences in entering developing markets such as
China, India, Russia, and Brazil indicate that profitability seldom comes quickly or easily, so an
entrant needs to be patient, work within the system to improve the infrastructure, and lay the
foundation for generating sizable revenues and profits once conditions are ripe for market
takeoff. Building a market for the company's products can often turn into a long-term process
that involves reeducation of consumers, sizable investments in advertising and promotion to alter
tastes and buying habits, and upgrades of the local infrastructure (the supplier base,
transportation systems, distribution channels, labor markets, and capital markets). Profitability in
emerging markets rarely comes quickly or easily; new entrants have to adapt their business
models and strategies to local conditions and be patient in earning a profit.
Difficulty: 3 Hard
country markets.
Bloom's: Understand
55

Essentials of Strategic Management The Quest For Competitive Advantage 6th Edition Gamble Test Bank

Uploaded by

Copyright:

Available Formats

You might also like

Essentials of Strategic Management The Quest For Competitive Advantage 6th Edition Gamble Test Bank

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Essentials of Strategic Management The Quest For Competitive Advantage 6th Edition Gamble Test Bank

Uploaded by

Copyright:

Available Formats

Essentials of Strategic Management

The Quest for Competitive Advantage

9) Why do companies decide to enter a foreign market?

56) Companies racing for global market leadership

Answer: Heterogeneous market conditions across countries influence a company's strategy

Answer: Global strategy is superior to multidomestic strategy in certain situations.

Answer: Developing-economy markets such as China, India, Brazil, Indonesia, Thailand,

You might also like