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International Business, 7e (Griffin/Pustay)

Chapter 14 International Organization Design and Control

1) Which of the following is a characteristic of the current organizational design at Lenovo?

A) establishing clearly defined functional divisions
B) making decisions and plans through consensus
C) decreasing the importance of local managers
D) centralizing the authority of management
Answer: B
Diff: 3
Skill: Concept
Objective: 1
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

2) ________ is the overall pattern of structural components and configurations used to manage the total
organization.
A) Organizational design
B) Functional design
C) Management
D) Strategy
Answer: A
Diff: 1
Skill: Concept
Objective: 1
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

3) Managers at Audio-Tech, an MNE, are trying to determine the best organizational design for the firm.
Which factor is LEAST relevant to this decision?
A) firm size
B) HR metrics
C) technology
D) environment
Answer: B
Diff: 2
Skill: Application
Objective: 1
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

4) What is another name for organizational design?

A) functional design
B) strategic hierarchy
C) management design
D) organization structure
Answer: D
Diff: 1
Skill: Concept
Objective: 1

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5) A study of design changes found that most firms make major design changes about every ________.
A) year
B) two years
C) five years
D) ten years
Answer: C
Diff: 2
Skill: Concept
Objective: 1

6) Which of the following is not typically accomplished through a firm's organizational design?
A) Tasks are assigned to employees.
B) Division of profits is determined.
C) Organizational resources are allocated.
D) Employees learn about performance expectations.
Answer: B
Diff: 2
Skill: Concept
Objective: 1
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

7) Apex Enterprises has recently started to engage in a small amount of direct exporting. As a result,
Apex managers have delegated responsibilities for processing international orders to individuals within
the production department. Which of the following is most likely used by Apex?
A) corollary approach
B) export department
C) international division
D) global product design
Answer: A
Diff: 2
Skill: Application
Objective: 1

8) The ________ is typical for a firm with only a small level of international activity.
A) corollary approach
B) export department
C) international division
D) global product design
Answer: A
Diff: 1
Skill: Concept
Objective: 1

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9) The ________ takes responsibility for overseeing international operations, marketing products,
processing orders, working with foreign distributors, and arranging financing when necessary.
A) corollary approach
B) export department
C) international division
D) global product design
Answer: B
Diff: 1
Skill: Concept
Objective: 1

10) Maureen is manager of the export department at Claussen Cutlery. Which of the following is LEAST
likely a responsibility of Maureen's department?
A) overseeing domestic operations
B) working with foreign distributors
C) processing orders
D) marketing products
Answer: A
Diff: 2
Skill: Application
Objective: 1

11) The ________ allows a firm to concentrate resources and create specialized programs targeted on
international business activity while simultaneously keeping that activity segregated from the firm's
ongoing domestic activities.
A) corollary approach
B) export department
C) international division
D) global product design
Answer: C
Diff: 1
Skill: Concept
Objective: 1

12) A firm would most likely establish an international division when ________.
A) domestic market sales fluctuate
B) decision making becomes decentralized
C) foreign and domestic customers are similar
D) foreign market familiarity becomes essential
Answer: D
Diff: 3
Skill: Concept
Objective: 1
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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13) Which of the following types of knowledge is not necessary to compete effectively in international
business?
A) area knowledge
B) product knowledge
C) functional knowledge
D) geocentric knowledge
Answer: D
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

14) Area knowledge refers to the idea that managers must ________.
A) understand the cultural, commercial, social, and economic conditions in each host country in which
the firm does business
B) be aware of the competitive forces that have implications for global strategy in each market
C) comprehend features such as technological trends, customers needs, and competitive forces affecting
the goods the firm produces
D) have access to coworkers with expertise in basic business functions such as production, marketing,
finance, accounting, human resources management, and information technology
Answer: A
Diff: 2
Skill: Concept
Objective: 2

15) Product knowledge refers to the idea that managers must ________.
A) understand the cultural, commercial, social, and economic conditions in each host country in which
the firm does business
B) be aware of the competitive forces that have implications for global strategy in each market
C) comprehend features such as technological trends, customers needs, and competitive forces affecting
the goods the firm produces
D) have access to coworkers with expertise in basic business functions such as production, marketing,
finance, accounting, human resources management, and information technology
Answer: C
Diff: 2
Skill: Concept
Objective: 2

16) Functional knowledge refers to the idea that managers must ________.
A) understand the cultural, commercial, social, and economic conditions in each host country in which
the firm does business
B) be aware of the competitive forces that have implications for global strategy in each market
C) comprehend features such as technological trends, customers needs, and competitive forces affecting
the goods the firm produces
D) have access to coworkers with expertise in basic business functions such as production, marketing,
finance, accounting, human resources management, and information technology
Answer: D
Diff: 2
Skill: Concept
Objective: 2
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17) Which of the following is not a form of global organization design?

A) product
B) geocentric
C) matrix
D) customer
Answer: B
Diff: 1
Skill: Concept
Objective: 2

18) Which of the following is not one of the managerial philosophies that guide the approach to
functions like organizational design and marketing?
A) ethnocentric approach
B) transnational approach
C) polycentric approach
D) geocentric approach
Answer: B
Diff: 2
Skill: Concept
Objective: 2

19) The ethnocentric approach to management is most likely used by firms that ________.
A) operate internationally the same way they do domestically
B) customize their operations for each foreign market in which they serve
C) analyze the needs of their customers worldwide and then adopt standardized operations for all
markets they serve
D) adapt their marketing strategies for foreign markets, but not their finance strategies
Answer: A
Diff: 2
Skill: Concept
Objective: 2

20) The polycentric approach to management is most likely used by firms that ________.
A) operate internationally the same way they do domestically
B) customize their operations for each foreign market in which they serve
C) analyze the needs of their customers worldwide and then adopt standardized operations for all
markets they serve
D) adapt their marketing strategies for foreign markets, but not their finance strategies
Answer: B
Diff: 2
Skill: Concept
Objective: 2

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21) Scale Systems, an MNE, analyzes the needs of its customers worldwide and then adopts
standardized operations for all markets that the firm serves. Which of the following is most likely used
by Scale Systems?
A) ethnocentric approach
B) polycentric approach
C) geocentric approach
D) transnational approach
Answer: C
Diff: 2
Skill: Application
Objective: 2

22) Which design is the most common form of organizational design adopted by MNCs?
A) global area design
B) global product design
C) global functional design
D) global matrix design
Answer: B
Diff: 2
Skill: Concept
Objective: 2

23) Which design assigns worldwide responsibility for specific products or product groups to separate
operating divisions within a firm?
A) global area design
B) global functional design
C) global product design
D) global hybrid design
Answer: C
Diff: 2
Skill: Concept
Objective: 2

24) Parker Industries manufactures and sells a variety of goods including carpeting, power tools, and
wallpaper. Which form of organization would most like be appropriate for Parker Industries?
A) global product design
B) global functional design
C) global matrix design
D) global hybrid design
Answer: A
Diff: 2
Skill: Application
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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25) Garvey Enterprises, an MNC, uses a global product organizational design. Garvey manufactures and
sells boating accessories to customers around the world. Which form does Garvey most likely use?
A) C-form
B) H-form
C) M-form
D) U-form
Answer: C
Diff: 2
Skill: Application
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

26) Manix Enterprises, an MNC, uses a global product organizational design. Manix manufactures and
sells chemical products and electronics. The firm also owns a financial services company and a small
hotel chain. Which form does Manix most likely use?
A) C-form
B) H-form
C) M-form
D) U-form
Answer: B
Diff: 2
Skill: Application
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

27) What corporate philosophy is facilitated by a global product design?

A) ethnocentric approach
B) polycentric approach
C) geocentric approach
D) transnational approach
Answer: C
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

28) Which of the following is a characteristic of the global product design?

A) minimizes costly duplication pf activities
B) simplifies processes for corporate learning
C) decreases need for regional market metrics
D) facilitates international marketing activities
Answer: D
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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29) Which type of organizational design organizes the firm's activities around specific regions of the
world?
A) global product design
B) global area design
C) global matrix design
D) global hybrid design
Answer: B
Diff: 1
Skill: Concept
Objective: 2

30) Vantage Computers, an MNE, has a multidomestic corporate philosophy. Which organizational
design would be most useful for Vantage?
A) global product design
B) global area design
C) global customer design
D) global matrix design
Answer: B
Diff: 2
Skill: Application
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

31) Cadbury Schweppes PLC has five basic divisions, each representing a different area of the world.
Which organization design does it use?
A) global product design
B) global area design
C) global functional design
D) global hybrid design
Answer: B
Diff: 2
Skill: Application
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

32) Adecco, a temporary employment agency with worldwide clients, has eight regional divisions.
Managers in each division handle recruiting, distribution, promotion, and client services for that region.
Adecco is a service firm that focuses on marketing. Which organizational design is most likely used by
Adecco?
A) global product design
B) global area design
C) global functional design
D) global hybrid design
Answer: B
Diff: 2
Skill: Application
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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33) Which of the following is an advantage of using a global area design?

A) eliminating duplication of functional areas
B) gaining cost efficiencies in manufacturing
C) tailoring the product mix in a region
D) encouraging global product planning
Answer: C
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

34) The ________ calls for a firm to create departments or divisions that have worldwide responsibility
for common organizational functions.
A) global product design
B) global area design
C) global functional design
D) global matrix design
Answer: C
Diff: 1
Skill: Concept
Objective: 2

35) The ________ is used by MNCs that have relatively narrow or similar product lines.
A) global product design
B) global functional design
C) global matrix design
D) global hybrid design
Answer: B
Diff: 2
Skill: Concept
Objective: 2

36) Which of the following is not an advantage of the functional design?

A) Expertise can be transferred easily between functional areas.
B) Managers can maintain centralized control over functional operations.
C) Attention is focused on key areas of the firm.
D) Coordination between divisions is simplified.
Answer: D
Diff: 2
Skill: Concept
Objective: 2

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37) British Airways is a single-business firm with company-wide function operations dedicated to
marketing and operations, public affairs, human resources, and other basic functions. How could the
organizational design of British Airways best be described?
A) global product design
B) global area design
C) global functional design
D) global matrix design
Answer: C
Diff: 2
Skill: Application
Objective: 2

38) Which design is practical only when a firm has relatively few products or customers?
A) global product design
B) global area design
C) global functional design
D) global matrix design
Answer: C
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

39) The ________ is used when a firm serves different customers or customer groups, each with specific
needs calling for special expertise or attention.
A) global area design
B) global functional design
C) global matrix design
D) global customer design
Answer: D
Diff: 1
Skill: Concept
Objective: 2

40) Kodak has three divisions. One division focuses on selling high-quality film to film studios. Another
division sells to professional and amateur photographers. Finally, its new business division targets
emerging markets. What organizational design does Kodak utilize?
A) global product design
B) global area design
C) global customer design
D) global matrix design
Answer: C
Diff: 2
Skill: Application
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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41) Which organizational design is appropriate when the various customer groups targeted by a firm are
so diverse as to require totally distinct marketing approaches?
A) global area design
B) global functional design
C) global matrix design
D) global customer design
Answer: D
Diff: 1
Skill: Concept
Objective: 2

42) A ________ is the result of superimposing one form of organization design on top of a different,
existing form.
A) global area design
B) global functional design
C) global matrix design
D) global hybrid design
Answer: C
Diff: 2
Skill: Concept
Objective: 2

43) Which organizational design promotes flexibility and fluidity in the firm?
A) global area design
B) global functional design
C) global matrix design
D) global hybrid design
Answer: C
Diff: 2
Skill: Concept
Objective: 2

44) Which organization design is LEAST appropriate for firms with few products and relatively stable
markets?
A) global area design
B) global functional design
C) global matrix design
D) global hybrid design
Answer: C
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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45) According to the text, which form of international organizational design is used by most MNCs?
A) global hybrid
B) global matrix
C) global area
D) global customer
Answer: A
Diff: 2
Skill: Concept
Objective: 2

46) Which term refers to the process of linking and integrating functions and activities of different
groups, units, or divisions?
A) decentralization
B) coordination
C) subsidizing
D) channeling
Answer: B
Diff: 1
Skill: Concept
Objective: 3

47) Active subsidiary boards are most useful in which type of organization?
A) an M-form
B) a U-form
C) an H-form
D) an S-form
Answer: C
Diff: 2
Skill: Concept
Objective: 3

48) Management at Isis International, an MNE, is attempting to integrate the functions and activities of
the firm's different units and divisions. Which of the following would LEAST likely help Isis to
accomplish coordination?
A) organizational hierarchy
B) rules and procedures
C) performance metrics
D) task forces
Answer: C
Diff: 2
Skill: Application
Objective: 3

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49) Which term refers to a group of managers from different parts of the world who are connected to
each other in some way?
A) liaison
B) task force
C) informal management network
D) formal management network
Answer: C
Diff: 1
Skill: Concept
Objective: 3

50) Which of the following would LEAST likely trigger the development of an informal management
network?
A) mutual acquaintances
B) training programs
C) performance appraisals
D) joint meetings
Answer: C
Diff: 1
Skill: Concept
Objective: 3

51) ________ is the process of monitoring ongoing performance and making necessary changes to keep
the organization moving toward its performance goals.
A) Coordination
B) Control
C) Implementation
D) Execution
Answer: B
Diff: 1
Skill: Concept
Objective: 4

52) The main levels at which control can be implemented include all of the following except ________.
A) marketing level
B) strategic level
C) organizational level
D) operations level
Answer: A
Diff: 2
Skill: Concept
Objective: 4

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53) ________ is intended to monitor both how well an international business formulates strategy and
how well it goes about implementing that strategy.
A) Functional control
B) Strategic control
C) Organizational control
D) Operations control
Answer: B
Diff: 2
Skill: Concept
Objective: 4

54) Strategic control focuses on how well the firm defines and maintains its desired strategic alignment
with the firm's ________.
A) administration
B) environment
C) subsidiaries
D) employees
Answer: B
Diff: 2
Skill: Concept
Objective: 4

55) What is the most critical aspect of strategic control?

A) control of firm's financial resources
B) control of a firm's marketing plans
C) quality control
D) control of labor issues
Answer: A
Diff: 2
Skill: Concept
Objective: 4

56) Sarita, a manager at a large international firm, is primarily responsible for the financial resources of
the entire organization. Sarita is most likely the firm's ________.
A) chief financial officer
B) auditor
C) controller
D) vice president of financial affairs
Answer: C
Diff: 2
Skill: Application
Objective: 4

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57) Derek is the international controller at Cabot Foods, a large MNE. Derek is most likely the most
concerned about ________.
A) local financial control
B) financial forecasts
C) monthly budgets
D) exchange rate risk
Answer: D
Diff: 2
Skill: Application
Objective: 4

58) What is the most common type of organizational control system?

A) responsibility center control
B) generic organizational control
C) planning process control
D) operations control
Answer: A
Diff: 2
Skill: Concept
Objective: 4

59) What is a primary characteristic of the responsibility center control system?

A) decentralization
B) centralization
C) duplication
D) standardization
Answer: A
Diff: 2
Skill: Concept
Objective: 4

60) At Garmen Industries, each unit has the same control system and the locus of authority resides at the
firm's headquarters. Which control system is most likely used at Garmen?
A) responsibility center control
B) generic organizational control
C) planning process control
D) operations control
Answer: B
Diff: 2
Skill: Application
Objective: 4
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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61) Acme Medical Equipment, an MNC, pursues pursue a similar strategy in each market in which the
firm competes and typically experiences very predictable operations. Which control system would most
likely be best for Acme Medical Equipment?
A) responsibility center control
B) generic organizational control
C) planning process control
D) operations control
Answer: B
Diff: 2
Skill: Application
Objective: 4
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

62) According to the text, Japan's zombie firms should do all of the following EXCEPT ________.
A) monitor inventory levels
B) use information technology effectively
C) expand and diversify product lines
D) listen and respond to customer feedback
Answer: C
Diff: 3
Skill: Concept
Objective: 5

63) United Distillers PLC uses the same strategy in every market. Which type of control method should
it use?
A) standardized organizational control
B) centralized organizational control
C) generic organizational control
D) responsibility center control
Answer: C
Diff: 3
Skill: Application
Objective: 4

64) A(n) ________ calls for a firm to concentrate its organizational control system on the actual
mechanics the firm uses to develop strategic plans.
A) responsibility center control
B) generic organizational control
C) planning process control
D) operations control
Answer: C
Diff: 2
Skill: Concept
Objective: 4

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65) ________ focuses specifically on operating processes and systems within both the firm and its
subsidiaries and operating units.
A) Responsibility center control
B) Generic organizational control
C) Planning process control
D) Operations control
Answer: D
Diff: 2
Skill: Concept
Objective: 4

66) How long is the scope of time for operational control typically?
A) daily
B) weekly
C) monthly
D) yearly
Answer: A
Diff: 2
Skill: Concept
Objective: 4

67) What is the first step in establishing an international control system?

A) Set control standards for performance.
B) Measure actual performance.
C) Compare performance against standards.
D) Discuss deviations with employees.
Answer: A
Diff: 1
Skill: Concept
Objective: 5

68) Which of the following is not a step in a control system?

A) Set control standards for performance.
B) Compare results against competitors' performance.
C) Measure actual performance.
D) Compare performance against standards.
Answer: B
Diff: 1
Skill: Concept
Objective: 5

69) Which element of performance is relatively difficult to measure?

A) actual output
B) worker productivity
C) product quality
D) advertising effectiveness
Answer: D
Diff: 2
Skill: Concept
Objective: 5
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70) Which element of performance is relatively easy to measure?

A) worker productivity
B) advertising effectiveness
C) ethical managerial conduct
D) employee motivation
Answer: A
Diff: 2
Skill: Concept
Objective: 5

71) What control function is Ford primarily using to ensure the firm increases its global automobile
sales?
A) regulations
B) annual goals
C) accounting systems
D) performance appraisals
Answer: B
Diff: 2
Skill: Concept
Objective: 5

72) A(n) ________ is a numerical index of performance that the firm wants to maintain.
A) control standard
B) performance ratio
C) accounting standard
D) benchmark
Answer: B
Diff: 2
Skill: Concept
Objective: 5

73) A common performance ratio used by many firms is ________.

A) breakeven point
B) inventory turnover
C) cost of goods sold
D) earnings per share
Answer: B
Diff: 2
Skill: Concept
Objective: 5

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74) When a firm tries to exert more control over individuals than the individuals think is appropriate, the
result is ________.
A) authoritarianism
B) overcontrol
C) undercontrol
D) control resistance
Answer: B
Diff: 1
Skill: Concept
Objective: 5

75) Which of the following would most likely reduce resistance to control?
A) promoting strategic selection systems
B) creating a system that has a flexible focus
C) creating a system that creates reasonable accountability
D) providing an appeals system overseen by central management
Answer: C
Diff: 2
Skill: Concept
Objective: 5

76) The corollary approach is the final evolution a firm takes to become a global organization.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 1

77) An important characteristic of a successful firm is its ability to match its strategy with a compatible
organizational design.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 1
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

78) The global design chosen by a firm reflects the relative importance of the three types of knowledge
in the firm's operations.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 2

79) Since selling to foreign customers is not fundamentally different from selling to domestic ones, a
firm's export department can get by knowing only a little about foreign markets.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 2

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80) The global product design discourages duplication of functional-area skills.

Answer: FALSE
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

81) Global area design is particularly useful for firms with a transnational corporate philosophy.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

82) The global functional design is most effective when the firm has many products.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

83) British Airways use the global customer design because it allows the firm to standardize its
maintenance and flight procedures regardless of where a flight originates.
Answer: FALSE
Diff: 2
Skill: Application
Objective: 2

84) The global matrix design is the result of superimposing one form of organizational design on top of
a different, existing form.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 2

85) The global matrix design does not allow for flexibility.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 2

86) The global matrix design is most appropriate for firms that operate in stable environments.
Answer: FALSE
Diff: 1
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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87) Most companies use a hybrid of the various organizational designs.

Answer: TRUE
Diff: 3
Skill: Concept
Objective: 2

88) The level of decentralization or centralization used in a firm is fundamental to a firm's organizational
design.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

89) Empowering a subsidiary's board promotes centralization.

Answer: FALSE
Diff: 1
Skill: Concept
Objective: 3

90) A group of managers from different parts of the world who are connected to one another in some
way is called an informal management structure.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 3

91) Informal management networks are typically powerless when it comes to short-circuiting
bureaucracy.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 3

92) The higher the level of interdependence among divisions and functions in a firm, the more
coordination is required.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 3
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

93) An auditor has the role of handling financial control in an international firm.
Answer: FALSE
Diff: 1
Skill: Concept
Objective: 4

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94) Responsibility control centers tend to follow a centralized decision-making system.

Answer: FALSE
Diff: 2
Skill: Synthesis
Objective: 3, 4
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

95) Responsibility center control means that the firm creates unique control systems for each SBU.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 4

96) Operations control systems tend to be less specific and focused than strategic and organizational
control systems.
Answer: FALSE
Diff: 2
Skill: Concept
Objective: 4

97) Peak Manufacturing, an MNE, concentrates its organizational control system on the actual
mechanics and processes the firm uses to develop strategic plans. Peak Manufacturing is using
operations control.
Answer: FALSE
Diff: 2
Skill: Application
Objective: 4

98) Strategic control often involves time periods of several years.

Answer: TRUE
Diff: 1
Skill: Concept
Objective: 4

99) Operations control usually focuses on the lower levels of a firm such as first-line managers and
operating employees.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 4

100) Control standards help provide a road map for managers involved in opening and running a new
operation.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5

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101) Host governments typically require international firms to develop accounting procedures based on
local regulations, which is problematic for firms operating in multiple countries with incompatible
accounting standards.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5

102) Employees of Disneyland Paris felt the company was exercising overcontrol by applying the same
grooming standards in Europe as in the United States.
Answer: TRUE
Diff: 2
Skill: Concept
Objective: 5

103) Participation is a common technique used by firms to overcome employee resistance to control
systems.
Answer: TRUE
Diff: 1
Skill: Concept
Objective: 5

104) Resistance to control varies across cultures.

Answer: TRUE
Diff: 1
AACSB: Multicultural and diversity understanding
Skill: Concept
Objective: 5
Learning Outcome: Explain how differences in culture affect the international business environment

105) Inventory turnover is a common performance ratio used by international firms.

Answer: TRUE
Diff: 1
Skill: Concept
Objective: 5

106) What is the meaning of area knowledge?

Answer: Area knowledge means that managers must understand the cultural, commercial, social, and
economic conditions in each host country market that the firm does business with.
Diff: 2
Skill: Concept
Objective: 2

107) Explain the meaning of product knowledge.

Answer: Product knowledge includes understanding of technological trends, customer needs, and
competitive forces affecting the goods the firm produces and sells.
Diff: 2
Skill: Concept
Objective: 2

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108) What is the meaning of functional knowledge?

Answer: Functional knowledge refers to expertise in the basic business functions of production,
marketing, finance, accounting, human resource management, and information technology.
Diff: 2
Skill: Concept
Objective: 2

109) What is the difference between an M-form design and an H-form design? When would
international firms use each of these?
Answer: A firm with related products using the global product design structure will often have an M-
form design, or multidivisional, where there are various divisions that are self-contained, but have
interrelated activities. The H-form, or holding, is used when products are unrelated and divisions operate
with autonomy and little interdependence.
Diff: 3
AACSB: Reflective thinking skills
Skill: Critical Thinking
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

110) What are the competitive advantages associated with a global product design?
Answer: The benefits are 1) expertise in all aspects of the product in a division; 2) facilitation of
efficiencies in production; 3) ability to incorporate technology into products; 4) quick response to
changes; 5) flexibility in introducing, promoting, and distributing each product; and 6) facilitation of the
geocentric corporate philosophy.
Diff: 3
AACSB: Analytic skills
Skill: Critical Thinking
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

111) What types of firms use the functional design?

Answer: The functional design is used by many firms engaged in extracting and processing natural
resources and by firms that need to impose uniform standards on all their operations.
Diff: 2
Skill: Concept
Objective: 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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112) Why is the control function important to the success or failure of an international business? What
factors are necessary to understand before establishing a control system?
Answer: Control is the process of monitoring ongoing performance and making necessary changes to
keep the organization moving toward its performance goals. Given the complexities in control,
international firms must address a variety of issues in managing the control function. To effectively
manage control, managers need to understand how to establish control systems, what the essential
techniques for control are, why some people resist control, and what managers can do to overcome
this resistance.
Diff: 3
AACSB: Analytic skills
Skill: Synthesis
Objective: 4, 5
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

113) What are the disadvantages of the global product design? Why is coordination especially
problematic?
Answer: The global product design also has disadvantages. For one, it may encourage expensive
duplication because each product group needs its own functional-area skills such as marketing, finance,
and information management, and sometimes even its own physical facilities for production,
distribution, and research and development (R&D). Similarly, each product group must develop its own
knowledge about the cultural, legal, and political environments of the various regional and national
markets in which it operates. Coordination and corporate learning
across product groups also becomes more difficult. If such coordination is an important part of the firm’s
international strategy, a different global design, such as the global area design, may be preferable.
Diff: 3
AACSB: Analytic skills
Skill: Synthesis
Objective: 2, 3
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

114) What is coordination?

Answer: Coordination is the process of linking and integrating functions and activities of different
groups, units, or divisions.
Diff: 2
Skill: Concept
Objective: 3

115) What strategies can firms implement to achieve desired coordination?

Answer: Firms can use the organizational hierarchy itself. Standard operating procedures aid in
coordination. Firms can also use liaisons and task forces or informal management networks to assist in
coordination efforts.
Diff: 2
AACSB: Analytic skills
Skill: Critical Thinking
Objective: 3
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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116) When is a subsidiary board beneficial to an international firm? Why would an MNC appoint
prominent local citizens to a subsidiary board?
Answer: A subsidiary board is most useful when the subsidiary has a great deal of autonomy, its own
self-contained management structure, and a business identity separate from the parent's. Some MNCs
also have found that appointing prominent local citizens to the subsidiary’s board is helpful in
conducting business in a foreign country. These members can help the subsidiary integrate itself into the
local business community and can be an effective source of information for both parent and subsidiary
about local business and political conditions.
Diff: 3
Skill: Critical Thinking
Objective: 3

117) What is an informal management network? How are they established? Do you think they are useful
to an international business? Why or why not?
Answer: An informal management network is a group of managers from different parts of the world
who are connected to one another in some way. These connections often form as a result of personal
contact, mutual acquaintances, and interaction achieved via travel, training programs, joint meetings,
task force experiences, and so on. Informal management networks can be very powerful for short-
circuiting bureaucracy that may delay communication and decision making. They also can be effective
for getting things done more quickly and more effectively than if normal and routine procedures were
always followed.
Diff: 3
AACSB: Reflective thinking skills
Skill: Critical Thinking
Objective: 3

118) What are the three levels of international control?

Answer: The three levels of control are strategic control, organizational control, and operations control.
Diff: 2
Skill: Concept
Objective: 4

119) What is the focus of strategic control?

Answer: Strategic control focuses on how the international business formulates and achieves its
strategic goals.
Diff: 2
Skill: Concept
Objective: 4

120) How is strategic control handled in strategic alliances?

Answer: Most partners agree to develop an independent control system for each alliance in which they
participate. The financial control of the alliances then becomes part of the overall strategic control
system for each partner's firm.
Diff: 2
Skill: Concept
Objective: 4

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121) What is the focus of organizational control?

Answer: Organizational control focuses on how the international business designs the overall
organization in response to changes in the environment or its strategy.
Diff: 2
Skill: Concept
Objective: 4

122) What is the focus of operations control?

Answer: Operations control focuses on how the international business utilizes operating systems within
the organization as well as within individual subsidiaries and operating units, administration, distribution
centers, and manufacturing facilities.
Diff: 2
Skill: Concept
Objective: 4

123) What is the primary difference between responsibility center control and generic organizational
control? Under what circumstances is each type appropriate for an international business?
Answer: Responsibility center control is customized for each unit while generic organizational control
is the same for all units. Strategic business units are frequently defined as responsibility centers, as are
geographical regions or product groups. Once the centers are identified, the firm then evaluates each on
the basis of how effectively it meets its strategic goals. Thus, a unique control system is developed for
each responsibility center. These systems are tailored to meet local accounting and reporting
requirements, the local competitive environment, and other circumstances. A firm may prefer to use
generic organizational control across its entire organization; that is, the control systems used are the
same for each unit or operation, and the locus of authority generally resides at the firm’s headquarters.
Generic organizational control most commonly is used by international firms that pursue similar
strategies in each market in which they compete. Because there is no strategic variation between
markets, responsibility center control would be inappropriate.
Diff: 3
AACSB: Analytic skills
Skill: Critical Thinking
Objective: 4
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

124) What elements of performance are relatively easy to measure?

Answer: Actual output, worker productivity, product quality, unit sales, materials waste, travel
expenses, hiring practices, and employee turnover are all easy to measure.
Diff: 2
Skill: Concept
Objective: 5

125) What are the four functions of organizational design?

Answer: Organizational design allocates organizational resources. It assigns tasks to its employees. It
informs those employees about the firm's rules, procedures, and expectations. It collects and transmits
information necessary for problem solving, decision making, and effective organizational control.
Diff: 2
Skill: Concept
Objective: 1

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126) What are the typical levels a firm goes through with regard to its organizational design as it
transitions from domestic to international to global? What are the three managerial philosophies that
guide organization design? Briefly explain when each philosophy is appropriate.
Answer: If a firm is participating in indirect exporting, it does not need to change its organizational
design. When the firm first begins to export, it can use a corollary approach. This means the firm assigns
any tasks related to the international business to some existing department. When the export business
grows to an extent that other departments cannot manage sufficiently, the firm will move to an export
department approach. In this situation, the department will handle the international business while the
other divisions operate as before. Eventually, more knowledge of foreign markets will be necessary and
the firm will develop an international division. As the firm evolves from being domestically oriented
with international operations to becoming a true multinational corporation with global aspirations, it will
usually create a global organization design. The precise design will depend on the relative importance of
area knowledge, product knowledge, and functional knowledge within the firm. MNCs typically adopt
one of three managerial philosophies that guide their approach to organization design. The ethnocentric
approach is used by firms that operate internationally the same way they do domestically. The
polycentric approach is used by firms that customize their operations for each foreign market they serve.
The geocentric approach is used by firms that analyze the needs of their customers worldwide and then
adopt standardized operations for all markets they serve.
Diff: 3
AACSB: Analytic skills
Skill: Synthesis
Objective: 1, 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

127) What is organizational design? What are the different types of organizational design? Describe each
one briefly.
Answer: Organizational design (sometimes called organization structure) is the overall pattern of
structural
components and configurations used to manage the total organization. The appropriate
design for any given organization may depend on the firm’s size, strategy, technology, and environment,
as well as the cultures of the countries in which the firm operates. Organizational design is also the basic
vehicle through which strategy is ultimately implemented and through which the work of the
organization is actually accomplished.The types of organizational designs are global product design,
global area design, global functional design, global customer design, global matrix design, and hybrid
global designs. The global product design assigns worldwide responsibility for specific products or
product groups to separate operating divisions within a firm. The global area design organizes the firm's
activities around specific areas or regions of the world. The global functional design calls for a firm to
create departments or divisions that have worldwide responsibility for common organizational functions.
The global customer design is used when a firm serves different customers or customer groups, each
with specific needs calling for special expertise or attention. A global matrix design is the result of
superimposing one form of organizational design on top of a different, existing form. A hybrid design is
some blending of elements from other designs to meet a firm's specific situation.
Diff: 3
Skill: Synthesis
Objective: 1, 2
Learning Outcome: Discuss factors affecting the organizational structures of international businesses

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128) Why is it important for an international firm to develop and maintain an effective accounting
system? What accounting issues are faced by firms with subsidiaries in multiple countries? How can
these problems be addressed?
Answer: It is extremely important for international firms to develop and maintain effective accounting
systems because these systems allow managers to fully monitor and understand where the firm's
revenues are coming from in every market in which the firm operates, track and evaluate all of the firm's
costs and expenses, and see how its parts contribute to overall profitability. Problems can arise when the
accounting standards or procedures of the countries in which a firm operates are incompatible with each
other, as is frequently the case. Each subsidiary must maintain its accounting records in accordance with
local procedures and denominate its accounts in the local currency to satisfy local government
regulations and meet the needs of local managers. Yet to meet the needs of investors, regulators, and tax
collectors in the parent’s home country, the parent needs the local accounting records of each subsidiary
translated into the parent’s currency using accounting procedures dictated by the parent’s home country.
The parent further must decide whether it will evaluate the performance of its subsidiaries and the
subsidiaries’ managers using the local currency, the parent’s home country currency, or some
combination of the two.
Diff: 3
AACSB: Analytic skills
Skill: Critical Thinking
Objective: 4

129) What are the steps a firm needs to take when establishing an international control system? How can
a firm overcome resistance to control systems?
Answer: The four steps are to set control standards for performance, measure actual performance,
compare performance against standards, and respond to deviations. Involving employees who are going
to be affected by control in its planning and implementation will enable them to better understand the
goal of the control system, how and why the system works, and how their jobs fit into the system. As a
result, the employees may be less prone to resist it. Another method to reduce resistance that works well
in most cultures is to create a control system that has a clear appropriate focus and that creates
reasonable accountability without overcontrolling.
Diff: 3
AACSB: Analytic skills
Skill: Synthesis
Objective: 4, 5

130) Discuss the behavioral aspects of international control and the reasons for resistance to control.
Answer: Human behavior plays a fundamental role in how well control works. People may resist
control for various reasons. People may feel that the firm is trying to exert more influence than is
appropriate. They may resist control because they feel it is inappropriately focused or because the
control ultimately increases their accountability. Firms can increase participation in an attempt to
overcome employee resistance to control. Firms can also create a control system with reasonable
accountability. It can provide a diagnostic mechanism for addressing unacceptable deviations.
Ultimately, though, firms must recognize that culture plays an important part in the acceptance of
international control.
Diff: 3
Skill: Application
Objective: 5

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