Chapter 8-Strategy in The Global Environment: True/False

Chapter 8—Strategy in the Global Environment
TRUE/FALSE
1. The globalization of production has been decreasing as companies face lower barriers to international
trade and location economies.
ANS: F PTS: 1 DIF: Moderate

OBJ: 2 - Discuss the motives for expanding internationally
NAT: AACSB Analytic | Environmental Influence KEY: Knowledge
2. Factor endowments-the cost and quality of factors of production-are a prime determinant of the
competitive advantage that certain countries have in certain industries.
ANS: T PTS: 1 DIF: Moderate

3. A company can increase its growth rate by taking goods or services developed at home and selling
them internationally.
ANS: T PTS: 1 DIF: Easy

NAT: AACSB Analytic | Creation of Value KEY: Knowledge
4. Location economies refer to the economic benefits that arise from performing a value creation activity
at central headquarters.

5. A company may create value if it can leverage the skills created within subsidiaries and apply them to
other operations within the firm's global network.

6. By offering a standardized product to the global marketplace and manufacturing that product in each
nation in which it does business, a multinational company can realize substantial scale economies.

7. Local responsiveness may be driven by economic and political demands placed on companies by host
country governments.

NAT: AACSB Analytic | Environmental Influence KEY: Comprehension
8. A transnational strategy makes the most sense when there are strong pressures for cost reductions and
when demand for local responsiveness is minimal.

OBJ: 3 - Review the different strategies that companies use to compete in the global market place
NAT: AACSB Analytic | Strategy KEY: Comprehension
9. A localization strategy is most appropriate when there are substantial differences across nations with
regard to consumer tastes and preferences and when cost pressures are not too intense.

10. Companies that pursue a global standardization strategy are trying to develop a business model that
simultaneously achieves low costs and differentiates the product offering across geographic markets.

NAT: AACSB Analytic | Strategy KEY: Knowledge
11. Most manufacturing companies begin their global expansion by exporting.
ANS: T PTS: 1 DIF: Easy

OBJ: 4 - Explain the pros and cons of different modes for entering foreign markets
12. An international strategy may not be viable in the long term and to survive, companies that can pursue
it need to shift toward a global standardization strategy.

13. When a company licenses its technology it can quickly lose control over it.

NAT: AACSB Technology | Information Technologies KEY: Knowledge
14. One advantage of a joint venture is that a company may benefit from a local partner's knowledge of the
many dimensions of a host country.

15. If a company's competitive advantage derives from its control of proprietary technological know-how,
it should either license its technology to others or pursue a joint venture.

16. The best part of global strategic alliances is that selection of the right partner does not affect success of
the alliance.
ANS: F PTS: 1 DIF: Easy

17. An important ingredient of success in a strategic alliance appears to be cultural sensitivity.

18. Southwest Airlines, Sony, and Costco conduct business in two or more countries. These companies are
referred to as multinational companies.

OBJ: 1 - Understand the process of globalization and how that impacts a company's strategy
NAT: AACSB Analytic | Strategy KEY: Application
19. In 2000, the best-selling Christmas item was the Razor Scooter and in 2001 it was Bratz dolls. Today,
these items are not in high demand. This represents differences in customer tastes and preferences.

NAT: AACSB Reflective Thinking | Environmental Influence KEY: Application
20. MTV is a good example of a company that has had to pursue a transnational strategy.
ANS: F PTS: 1 DIF: Difficult

NAT: AACSB Reflective Thinking | Strategy KEY: Application
MULTIPLE CHOICE
21. Which of the following has occurred in international trade over the past half-century?
a. There has been a dramatic increase in the barriers to international trade.
b. Tariff rates on manufactured goods traded by advanced nations have fallen.
c. Regulations prohibiting foreign companies from entering domestic markets and
establishing production facilities have increased.
d. The volume of world trade has decreased dramatically.
e. All of these.
ANS: B PTS: 1 DIF: Moderate
22. The globalization of production has allowed firms to

a. lower their market share.
b. lower their cost structure.
c. respond to individual market segments.
d. avoid international competition.
e. all of these choices.
23. When a company increases its growth rate by taking goods or services developed at home and selling
them internationally, it is
a. leveraging its existing products.
b. taking the path of least resistance.
c. engaging in price positioning.
d. realizing cost economies from global expansion.
e. realizing location economies.
ANS: A PTS: 1 DIF: Moderate
24. When a company expands its sales volume through international expansion, it can realize cost savings
from economies of scale through all of the following except
a. spreading fixed costs over its global sales volume.
b. utilizing its production facilities more intensely.
c. increased bargaining power with its suppliers.
d. learning effects associated with higher volume.
e. improved responsiveness.
ANS: E PTS: 1 DIF: Difficult
NAT: AACSB Analytic | Creation of Value KEY: Comprehension
25. When a company performs a value creation activity in the optimal location for that activity, wherever
in the world that might be, it is trying to capitalize on
a. economies of scale.
b. economies of scope.
c. the transnational strategy.
d. location economies.
e. its localization strategy.
ANS: D PTS: 1 DIF: Moderate
26. Which of the following is not a necessity for leveraging the skills of global subsidiaries?
a. The firm must have incentives for local managers to share knowledge and ideas.
b. The firm's managers must be aware that competencies can develop anywhere.
c. The firm must be pursuing a strategy of differentiation.
d. The firm's managers must help to transfer competencies around the company.
e. The firm must offer incentives that encourage employees to take necessary risks.
ANS: C PTS: 1 DIF: Difficult
OBJ: 2 - Discuss the motives for expanding internationally NAT: AACSB Analytic | Strategy
KEY: Comprehension
27. Global expansion

a. is feasible only for large companies.
b. can enable companies to increase their profitability and grow their profits more rapidly.
c. allows domestic companies in the mature stage of the industry life cycle to maintain
profits but not to increase them.
d. requires locating facilities in foreign countries.
e. makes sense for manufacturing firms but not for service firms.
28. The ability to realize cost economies from global volume is greatest in the case of
a. products that need to be customized to local requirements.
b. commodity-type products that serve universal needs.
c. low-weight, high-value products that can be differentiated by global companies.
d. products that can be economically manufactured in small batches.
e. companies competing in industries where they face a large number of multinational
competitors.
ANS: B PTS: 1 DIF: Difficult
29. Which of the following factors increases pressures for cost reductions?
a. Differences in distribution channels
b. Increasing national wealth
c. Great transportation needs
d. High switching costs
e. Price as the main competitive weapon in a market
ANS: E PTS: 1 DIF: Moderate
30. Which of the following factors increases pressures for local responsiveness?
a. Powerful buyers
b. Persistent excess capacity
c. Low-cost competitors
d. Differences in customer tastes and preferences
e. Trade barriers
31. When toymaker Mattel sells Barbie dolls in the Middle East, it changes the doll's shape to one that is a
more accurate portrayal of a female body. Mattel does this to
a. create a commodity-type product.
b. transfer technological know-how.
c. increase product standardization.
d. realize experience curve effects.
e. respond to differences in local tastes.
32. Differences in tastes and preferences
a. increase pressures for cost reductions.
b. reduce profit potential.
c. increase pressures for local responsiveness.
d. reduce pressures from the host government.
e. prevent a company from pursuing a licensing strategy.
ANS: C PTS: 1 DIF: Moderate
33. Host government demands generally

a. increase pressures for local responsiveness.
b. increase pressures for cost reductions.
c. discourage foreign companies from operating in the home country.
d. impede a company's ability to minimize its transaction costs.
e. impede a company's ability to differentiate its product offering across national borders.
34. A localization strategy is based on which of the following ideas?

a. There is a convergence in the tastes of consumers in different nations of the world.
b. There are substantial economies of scale to be realized from centralizing global
production.
c. Consumer tastes and preferences differ among national markets.
d. There are cost advantages associated with manufacturing a standard product for global
consumption.
e. Competitive strategy should be centralized at the world head office.
35. Cost reduction pressures can be particularly intense in industries producing

a. commodity-type products.
b. highly differential products.
c. goods that do not compete on the basis of price.
d. goods servicing narrowly defined markets.
e. highly advertised goods.
36. In which of the following circumstances does a global standardization strategy make the most sense?
a. Global market standardization is not possible, and there are no significant economies of
scale to be realized from centralizing global manufacturing.
b. Global market standardization is possible, but there are no significant economies of scale
to be realized from centralizing global manufacturing.
c. Global market standardization is not possible, but there are significant economies of scale
d. Consumer tastes and preferences differ among national markets, and economies of scale
are insubstantial.
e. Global market standardization is possible, and there are significant economies of scale to
be realized from centralizing global manufacturing.
37. In which of the following circumstances does a localization strategy make the most sense?
a. Global market standardization is not possible, and there are no significant economies of
scale to be realized from centralizing global manufacturing.
b. Global market standardization is possible, but there are no significant economies of scale
c. Global market standardization is not possible, but there are significant economies of scale
d. Global market standardization is possible, and there are significant economies of scale to
be realized from centralizing global manufacturing.
e. Consumer tastes and preferences differ among national markets, and economies of scale
are substantial.
ANS: A PTS: 1 DIF: Difficult
38. The Achilles heel of international strategy is that

a. market demand inevitably dries up.
b. costs cannot be sufficiently controlled over long periods of time.
c. competitors inevitably emerge.
d. prices eventually tumble drastically.
39. Disadvantages of a global strategy include

a. lack of local responsiveness.
b. inability to engage in global strategic coordination.
c. failure to exploit experience curve effects.
d. lack of control over quality.
e. inability to realize location economies.
ANS: A PTS: 1
40. Which of the following is not an objective of a transnational company?

a. Local responsiveness
b. Realization of experience-based economies
c. Low cross-national integration
d. Global learning
e. Realization of location economies
41. A company with a business-level strategy of cost leadership should pursue which of the following
global expansion strategies?
a. Localization
b. Simple
c. International
d. Transnational
e. Global standardization
42. A telecommunications firm develops new wireless cellular phones, a technology in which foreign
competition is low and the need for local responsiveness is high. What is the most appropriate short-
term strategy for this firm?
a. Global standardization
b. International
c. Localization
d. Transnational
e. Joint venture
43. Foreign subsidiaries play a major role in shaping the future direction of a company pursuing a(n)
a. transnational strategy.
b. international strategy.
c. localization strategy.
d. joint venture.
e. global standardization strategy.
44. A company that enters a foreign market by entering into a licensing agreement with a local company
a. can realize location economies.
b. can engage in global strategic coordination.
c. can realize experience-curve effects.
d. risks losing control over its technology to the venture partner.
e. can engage in global strategic coordination and realize experience-curve effects.
NAT: AACSB Analytic | Information Technologies KEY: Knowledge
45. For a hotel company whose competitive advantage is based on high brand-name recognition, which of
the following ways of serving an overseas market makes the most sense?
a. Franchising
b. Licensing
c. Exporting
d. Entering into a joint venture with a foreign company
e. Setting up a wholly owned subsidiary
46. Which entry mode gives a multinational the tightest control over foreign operations?
a. Exporting from the home country and letting a foreign agent organize local marketing
b. Licensing
c. Franchising
d. Entering into a joint venture with a foreign company to set up overseas operations
e. Setting up a wholly owned subsidiary
47. Which of the following companies exemplifies the trend toward national markets merging into one
large global marketplace?
a. McDonald's
b. Starbucks
c. Coca-Cola
d. Nokia
e. All of these
48. Which of the following is not an attribute of a national or country-specific environment that has an
impact on global competitiveness of companies located in that nation?
a. Factory production endowments
b. Local demand conditions
c. Related and supporting industries
d. Strategy, structure, and rivalry of firms within the nation
e. Advertising expenses
49. A nation's companies gain competitive advantage if their domestic customers are
a. nondemanding purchasers.
b. able to obtain products or services in other countries.
c. sophisticated and demanding.
d. willing to spend money on novelties.
e. not willing to accept low-priced products.
50. Global economies of scale can be realized by

a. expansion of overseas sales.
b. better utilization of production facilities.
c. boosting bargaining power with suppliers.
d. increasing cost savings through learning effects.
51. Factors of production include all but which of the following?

a. Land
b. Labor
c. Raw materials
d. Ethnic diversity
e. Managerial sophistication
52. Which of the following entry modes allow(s) a company to engage in global strategic coordination?
a. Exporting
b. Licensing
c. Joint ventures
d. Wholly owned subsidiaries
e. Joint ventures and wholly owned subsidiaries
53. A key to making a strategic alliance work is

a. having one partner handle daily operations.
b. selecting the right partner.
c. sharing all knowledge.
d. enforcing one culture for both partners.
e. reducing investment in the alliance to a minimum.
ANS: B PTS: 1 DIF: Easy
54. Attaining a credible commitment from a potential partner

a. is a step in partner selection.
b. requires the ability to share skills with partners.
c. requires the ability to learn from alliance partners.
d. is a way to minimize opportunism.
e. requires the ability to share skills with and learn from alliance partners.
55. Most manufacturing companies begin their global expansion by

a. licensing.
b. franchising.
c. exporting.
d. forming a joint venture.
e. setting up a wholly owned subsidiary in the host country.
ANS: C PTS: 1 DIF: Easy
56. Which of the following is not a risk of exporting?

a. Tariff barriers
b. Transportation costs
c. Location diseconomies
d. Prime interest rates
e. Delegation of marketing activities to a local agent
57. Which of these is (are) the risk(s) associated with licensing as a means of entering overseas markets?
a. Licensing limits a company's ability to coordinate strategic moves across countries.
b. A company may lose control of its technology.
c. A company may lose control over its manufacturing, marketing, and strategic functions.
d. All of these.
e. None of these.
58. Black and Decker, Capitol One, Gillette, and Unilever are all companies that conduct business in two
or more national markets. These companies are known as
a. bimarket companies.
b. national companies.
c. transnational companies.
d. multinational companies.
e. localized companies.
ANS: D PTS: 1 DIF: Difficult
59. Swedish strength in fabricated steel products has drawn on strengths in Sweden’s specialty steel
industry. This is an example of which of the following attributes that impact national competitive
advantage?
a. Local demand conditions
b. Competitiveness of related and supporting industries
c. Intensity of rivalry
d. Factor endowments
e. Differences in distribution channels
60. In the wireless telecommunications industry, different technical standards are found in different parts
of the world. A technical standard known as GSM is common in Europe, and an alternative standard,
CDMA, is more common in the United States and parts of Asia. Equipment designed for GSM will not
work on a CDMA network and vice versa. Which of the following pressures for local responsiveness
does this represent?
a. Global environmental demands
b. Host government demands
c. Differences in distribution channels
d. Differences in customer tastes and preferences
e. Differences in infrastructure
NAT: AACSB Reflective Thinking | Creation of Value KEY: Application
61. Managers at WKL Entertainment Inc. are deciding on a global strategy. The company is looking to sell
its services across nations with substantial differences in consumer preferences and where cost
pressures are not too intense. Which strategy should WKL Entertainment Inc. managers pursue?
a. Global standardization
b. Transnational
c. Localization
d. International
e. Multinational
ANS: C PTS: 1 DIF: Difficult
ESSAY
62. What is meant by the term national competitive advantage, and what are the attributes of a nation that
affect the global competitiveness of companies located within that nation?
ANS:
National competitive advantage refers to the fact that the nation within which a company is based may
have an important bearing on the competitive position of that company in the global marketplace.
There are four attributes of a country-specific environment that have an important impact on the global
competitiveness of companies based within that country. Factor endowments encompass a nation's
position in factors of production and include factors such as skilled labor and the infrastructure
necessary to compete in a given industry. Demand conditions refer to the nature of demand for a
product or service in the home country. Relating and supporting industries refer to the presence or
absence of supplier industries and related industries that are internationally competitive. Finally, firm
strategy, structure, and rivalry refers to the conditions in the nation governing how companies are
created, organized, and managed and the nature of domestic rivalry.
PTS: 1 DIF: Difficult

NAT: AACSB Analytic | Environmental Influence KEY: Synthesis
63. Identify and discuss the general ways in which companies can increase their profitability and profit
growth through global expansion.
ANS:
Companies can increase their profitability and profit growth from global expansion in several ways.
First, companies can take goods or services developed at home and sell them internationally. In so
doing, a company instantly expands its market, often by using the same business model. It should be
noted that benefits may come from the fact that products are superior, but it is also important that
companies use existing competencies in foreign markets as well. Second, companies that expand their
sales volume through international expansion can expect to realize savings from economies of scale,
thereby increasing profitability through the ability to lower their cost structure. Third, companies can
realize location economies by performing value creation activities in the optimal location for that
activity, wherever in the world that may be. Different counties offer opportunities to both lower costs
and increase differentiation. Finally, a company can leverage the skills of global subsidiaries by
applying best practices and good ideas that may come from anywhere in the organization.

NAT: AACSB Analytic | Creation of Value KEY: Analysis
64. Whirlpool, a leading U.S. maker of household appliances, has a wholly owned subsidiary that is
responsible for research and development (R&D), manufacturing, and sales in over two dozen
European countries, from Norway to Greece. What are some of the potential advantages that
Whirlpool may gain from its use of a wholly owned subsidiary for global expansion? What are some
of the potential disadvantages?
ANS:
Whirlpool stands to make high profits from its wholly owned subsidiary because it doesn't have to
share profits with a partner, franchisee, or licensee. Also, the firm maintains control over proprietary
technology and know-how. Tight quality control is also possible, which can protect the firm's brand-
name reputation. In addition, Whirlpool will likely realize economies of scale and will be able to use
profits from U.S. operations to fund further expansion into Europe. Finally, the company will benefit
from learning that takes place at its subsidiary.
On the downside, Whirlpool has invested its own capital in the subsidiary and therefore faces a large
risk of financial loss.

NAT: AACSB Reflective Thinking | Strategy KEY: Analysis
65. What are the potential benefits and risks of global strategic alliances? What actions can a firm take to
minimize the risks and maximize the benefits?
ANS:
Global strategic alliances share the risk of global expansion, bring together complementary skills,
facilitate entry into a new market, and can set technological standards. However, the partners risk loss
of control over proprietary know-how, they must learn to work together in a cooperative fashion, and
they must share any profits they earn.
To maximize the benefits and minimize the risks, firms should choose a partner wisely, ensuring that
the partner is trustworthy, has a common vision, and has complementary skills. To reduce the potential
for loss of control, the company should consider walling off the technology, writing contractual
safeguards, use cross-licensing agreements to exchange skills, and ask for a credible commitment in
advance. Finally, bringing the two firms together is a significant challenge and can be eased if
managers are sensitive to cultural differences, if they build interpersonal relationships across company
boundaries, and if they look for opportunities for mutual learning and benefit.
NAT: AACSB Analytic | Strategy KEY: Analysis
66. List and briefly descibe each of the four basic global strategies.
ANS:
Companies that pursue a global standardization strategy focus on increasing profitability by reaping
the cost reductions that come from economies of scale and location economies. A localization strategy
focuses on increasing profitability by customizing the company’s goods or services so that the goods
provide a favorable match to tastes and preferences in national markets. Companies that pursue a
transnational strategy are trying to develop a business model that simultaneously achieves low costs,
differentiates the product offering across geographic markets, and fosters a flow of skills between
different subsidiaries in the company’s global network of operations. Lastly, an international strategy is
pursued when companies are confronted with low cost pressures and low pressures for local
responsiveness.

NAT: AACSB Analytic | Strategy KEY: Synthesis

Chapter 8-Strategy in The Global Environment: True/False

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Chapter 8-Strategy in The Global Environment: True/False

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Chapter 8—Strategy in the Global Environment

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Easy

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

11. Most manufacturing companies begin their global expansion by exporting.

ANS: T PTS: 1 DIF: Easy

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Easy

17. An important ingredient of success in a strategic alliance appears to be cultural sensitivity.

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: T PTS: 1 DIF: Moderate

ANS: F PTS: 1 DIF: Difficult

22. The globalization of production has allowed firms to

27. Global expansion

33. Host government demands generally

34. A localization strategy is based on which of the following ideas?

35. Cost reduction pressures can be particularly intense in industries producing

38. The Achilles heel of international strategy is that

39. Disadvantages of a global strategy include

40. Which of the following is not an objective of a transnational company?

50. Global economies of scale can be realized by

51. Factors of production include all but which of the following?

53. A key to making a strategic alliance work is

54. Attaining a credible commitment from a potential partner

55. Most manufacturing companies begin their global expansion by

56. Which of the following is not a risk of exporting?

PTS: 1 DIF: Difficult

PTS: 1 DIF: Difficult

PTS: 1 DIF: Difficult

PTS: 1 DIF: Difficult

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