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CHAPTER 7: MASTER TEST BANK
UNDERSTANDING AND REACHING GLOBAL CONSUMERS AND MARKETS
Test Item Table by Major Section of the Chapter and Bloom’s Level of Learning
Bloom’s Level of Learning (LL)
Major Section Level 1 Level 2 Level 3

of the Chapter Knowledge Comprehension Application
(Knows Basic (Understands Concepts & (Applies
Terms & Facts) Principles) Principles)
Chapter Opener: 1, 2, 3, 4
Dell
(pp. 158-159)
Dynamics of World 7, 8, 11, 14, 15, 16, 21, 22, 5, 6, 9, 10, 12, 13, 17, 18, 25, 26, 19, 20, 48, 51,
Trade 23, 24, 36, 37, 49, 65, 66, 67, 27, 28, 29, 30, 31, 32, 33, 34, 35, 54
68, 69 38, 39, 40, 41, 42, 43, 44, 45, 46,
(pp. 160-163) 47, 50, 52, 53, 55, 56, 57, 58, 59,
317, 318
60, 61, 62, 63, 64, 70
Marketing in 75, 76, 82, 83, 84, 91, 92, 94, 71, 72, 73, 74, 77, 78, 80, 81, 85, 79, 88, 89, 90,
a Borderless 97, 98, 99, 105, 106, 107, 86, 87, 94, 95, 96, 100, 101, 102, 93, 122, 131,
Economic World 116, 117, 118, 119, 120, 123, 103, 104, 108, 109, 110, 111, 133, 137
124, 125, 129, 132, 134, 135, 112, 113, 114, 115, 121, 126, 319, 321
(pp. 164-171) 136, 138, 139, 140, 142, 143, 127, 128, 130, 141, 144, 145,
147, 148 146, 149, 150, 151, 152, 153
325 320, 322, 323, 324
A Global 154, 155, 156, 157, 163, 164, 158, 165, 169, 173, 174, 175, 159, 160, 161,
Environmental Scan 167, 168, 170, 171, 172, 176, 179, 193, 194, 195, 196, 197, 162, 166, 178,
177, 181, 186, 187, 188, 198, 202, 205, 206, 208, 209, 210, 180, 182, 183,
(pp. 171-179) 199, 200, 201, 203, 204, 212, 214, 215, 218, 219, 220, 223, 184, 185, 189,
213, 216, 217, 222, 224 225, 226, 227 190, 191, 192,
329 326, 327, 328, 330, 331 207, 211, 221
Comparing Global 228, 229, 230, 231, 232, 240, 233, 234, 235, 236, 237, 238, 247, 248, 255,
Market-Entry 241, 242, 243, 244, 245, 246, 239, 250, 254, 258, 259, 260, 263, 267, 270,
Strategies 249, 251, 252, 253, 256, 257, 261, 262, 274, 275, 279 280
264, 265, 266, 268, 269, 271, 332, 333, 334, 335
(pp. 179-183) 272, 273, 276, 277, 278
Crafting a 281, 285, 286, 289, 305, 306, 282, 287, 291, 292, 293, 294, 283, 284, 288,
Worldwide 307, 309, 310, 311 295, 296, 297, 298, 299, 300, 290, 308, 312
Marketing Program 301, 302, 303, 304
(pp. 183-186) 336, 337, 338
Video Case 7: 313 314, 315, 316

CNS
(pp. 188-189)
NOTE: Bold numbers indicate short essay questions. Underlined numbers indicate visually enhanced questions.
Test Item Table by Learning Objective and Bloom’s Level of Learning
Bloom’s Level of Learning (LL)
Learning Objective Level 1 Level 2 Level 3

(LO) Knowledge Comprehension Application
(Knows Basic (Understands Concepts (Applies
Terms & Facts) & Principles) Principles)
LO1 Describe the 7, 8, 11, 14, 15, 16, 21, 5, 6, 9, 10, 12, 13, 17, 18, 25, 19, 20, 48, 51, 54,
nature and scope 22, 23, 24, 35, 36, 49, 26, 27, 28, 29, 30, 31, 32, 33, 79, 88, 89, 90, 93,
of world trade 65, 66, 67, 68, 69, 75, 34, 37, 38, 39, 40, 41, 42, 43, 122, 131, 133, 137
76, 82, 83, 84, 91, 92, 44, 45, 46, 47, 50, 52, 53, 55, 319, 321
from a global
94, 97, 98, 99, 105, 106, 56, 57, 58, 59, 60, 61, 62, 63,
perspective and 107, 116, 117, 118, 119, 64, 70, 71, 72, 73, 74, 77, 78,
identify the major 120, 123, 124, 125, 129, 80, 81, 85, 86, 87, 94, 95, 96,
trends that have 132, 134, 135, 136, 138, 100, 101, 102, 103, 104, 108,
influenced world 139, 140, 142, 143, 147, 109, 110, 111, 112, 113, 114,
trade and global 148 115, 121, 126, 127, 128, 130,
marketing. 317, 318, 325 141, 144, 145, 146, 149, 150,
151, 152, 153
(pp. 160-171)
320, 322, 323, 324
LO2 Identify the 154, 155, 156, 157, 163, 158, 165, 169, 173, 174, 175, 159, 160, 161, 162,
environmental 164, 167, 168, 170, 171, 179, 193, 194, 195, 196, 197, 166, 178, 180, 182,
forces that shape 172, 176, 177, 181, 186, 202, 205, 206, 208, 209, 210, 183, 184, 185, 189,
187, 188, 198, 199, 200, 214, 215, 218, 219, 220, 223, 190, 191, 192, 207,
global marketing
201, 203, 204, 212, 213, 225, 226, 227 211, 221
efforts. 216, 217, 222, 224 326, 327, 328, 330, 331
(pp. 171-179) 329
LO3 Name and 228, 229, 230, 231, 232, 1, 2, 3, 4, 233, 234, 235, 236, 247, 248, 255, 263,
describe the 240, 241, 242, 243, 244, 237, 238, 239, 250, 254, 258, 267, 270, 280
alternative 245, 246, 249, 251, 252, 259, 260, 261, 262, 274, 275,
253, 256, 257, 264, 265, 279
approaches
266, 268, 269, 271, 272, 332, 333, 334, 335
companies use to 273, 276, 277, 278
enter global
markets.
(pp. 179-183)
LO4 Explain the 281, 285, 286, 289, 305, 282, 287, 291, 292, 293, 294, 283, 284, 288, 290,
distinction 306, 307, 309, 310, 311, 295, 296, 297, 298, 299, 300, 308, 312
between 313 301, 302, 303, 304, 314, 315,
316
standardization
and 336, 337, 338
customization
when companies
craft worldwide
marketing
programs.
(pp. 183-186)
NOTE: Bold numbers indicate short essay questions. Underlined numbers indicate visually enhanced questions.
MULTIPLE CHOICE QUESTIONS
7-1 CHAPTER OPENER: DELL COMPREHENSION
Why has Dell, Inc., embarked on a global growth initiative?

a. National sales have decreased.
b. Dell was recently purchased by Lenovo, a major Chinese competitor.
c. There was too much competition in Dell’s direct marketing channel.
d. There are fewer restrictions in computer technology outside the United States.
e. Emerging economies offer significant growth potential.
Answer: e Page(s): 159 LO: 3 AACSB: Global QD: Medium

Rationale: Dell’s global initiative focuses on emerging economies in Asia, Africa, and Latin
America. Compared with mature economies in North America and Western Europe, emerging
economies offer significant growth potential, according to Michael Dell, Dell’s founder and CEO.
In what way is Dell’s expansion into the global arena a departure from its prior marketing
practices?
a. All Dell products were manufactured in the countries within which they were sold.
b. Dell sold its products to emerging markets using the telephone and Internet sales strategy that
was so successful in the United States.
c. Dell opened stores in selected retailers in India.
d. Dell sold only laptops in China whereas it sold both desktops and laptops in India due to trade
restrictions in China.
e. Dell designed and distributed the same products globally to take advantage of economies of
scale.
Answer: c Page(s): 159 LO: 3 AACSB: Global QD: Medium
Rationale: Dell’s global initiative is bold in its departure from prior product development
practices and change to its sales and distribution strategy. It is designing and initially launching
products to meet the specific needs of emerging country customers. Moreover, Dell opened
stores in selected retailers in India, among other initiatives that were different from its U.S.
strategy.
Dell established its company primarily with direct telephone-and Internet-based sales. In terms of
Dell’s global expansion strategy, which of the following statements is most accurate?
a. Dell will sell its computers in “traveling” stores, consisting of custom-made trailers with solar
energy panels that will allow them to reach remote marketplaces.
b. Dell will partner with each country’s largest department stores and sell its computers in the
small appliance department.
c. Dell will issue its own credit card through multinational banks, making it possible for
customers who would not normally qualify for credit to do so.
-3-
d. Dell will distribute its products through electronics retailers to reach more buyers quickly.
e. Dell will maintain the exact same strategies that brought it this far because it sees no reason
to “mess with success.”
Answer: d Page(s): 159 LO: 3 AACSB: Global QD: Medium

Rationale: In emerging economies, customers prefer to see, touch, and use a personal computer
before they buy. In response, Dell opened “experience centers” to help customers get
comfortable with “buying direct.” More boldly, the company decided to distribute its products
through electronics retailers to reach more buyers quickly.
Dell established its company primarily with direct telephone-and Internet-based sales. In terms of
Dell’s global expansion strategy, which of the following statements is most accurate?
a. Dell will continue to use its direct buy strategy but will require all new employees in its sales
force to be multilingual.
b. Dell will open “shop-in-a-shop” counters in selected retailers in India where customers can
reduce purchase anxiety by using the computers before they buy.
c. Dell will establish call centers in all major international cities so that customers may deal
directly with native-born speakers.
d. Dell will issue its own credit card through microfinance-oriented banks, making it possible
for customers who would not normally qualify for credit to do so.
e. Dell will maintain the exact same strategies that brought it this far because it sees no reason
to “mess with success.”
Answer: b Page(s): 159 LO: 3 AACSB: Global QD: Medium

Rationale: In emerging economies, customers prefer to see, touch, and use a personal computer
before they buy. In response, Dell will open “shop-in-a-shop” counters in selected retailers in
India where customers can reduce purchase anxiety by using the computers before they buy.
7-5 DYNAMICS OF WORLD TRADE COMPREHENSION
Which of the following statements about the dynamics of world trade is most accurate?
a. Manufactured goods and commodities account for only 10 percent of world trade.
b. Three-fourths of world trade includes services such as telecommunications, transportation,
and banking.
c. World trade will likely exceed $25 trillion by 2015.
d. All nations participate equally in world trade.
e. There is still greater growth potential in developed countries than emerging ones.

Rationale: All nations do not participate equally in world trade. Manufactured goods account for
75 percent of world trade, with service industries accounting for 25 percent. World trade will
likely exceed $25 trillion in 2015.
7-6 GLOBAL PERSPECTIVE ON WORLD TRADE COMPREHENSION
Which of the following statements about the dynamics of world trade is most accurate?
-4-
a. As the largest international marketer, the United States accounts for 85 percent of world
trade.
b. World trade refers exclusively to the exchange of money for goods or services.
c. An estimated 35 percent of world trade involves countertrade.
d. European intratrade is smaller but more powerful than for any of the other world regions.
e. The United States, Western Europe, Canada, China, and Japan together account for more than
two-thirds of world trade in manufactured goods and commodities.

Rationale: The United States, Europe, Canada, China, and Japan together account for more than
two-thirds of world trade in manufactured goods and commodities. Not all trade involves the
exchange of money for goods or services. An estimated 15 percent to 20 percent of world trade
involves countertrade.
7-7 WORLD TRADE FLOWS KNOWLEDGE
Which of the following countries is the world’s leading exporter?

a. United States
b. China
c. India
d. Germany
e. Japan
Answer: b Page(s): 160 LO: 1 AACSB: Global QD: Easy

Rationale: The United States, China, Japan, Western Europe, and Canada together account for
more than two-thirds of world trade in manufactured goods and commodities. China is the
world’s leading exporter, followed by Germany and the United States. See Figure 7-1 in the
textbook.
Which of the following countries is the world’s leading importer?

a. United States
b. China
c. India
d. Germany
e. Japan
Answer: a Page(s): 160 LO: 1 AACSB: Global QD: Easy

more than two-thirds of world trade in manufactured goods and commodities. The United States
is the world’s leading importer, followed by China and Germany. See Figure 7-1 in the textbook.
-5-
Figure 7-1
7-9 WORLD TRADE FLOWS COMPREHENSION
According to Figure 7-1 above, which of the following countries is the world’s leading exporter?
a. United States
b. France
c. China
d. Germany
e. Japan
Answer: c Page(s): 160-161 LO: 1 AACSB: Global QD: Medium

more than two-thirds of world trade in manufactured goods and commodities. In Figure 7-1, the
data for exports (in billions of U.S. dollars) is shown on the X-axis whereas the data for imports
(in billions of U.S. dollars) is shown on the Y-axis. Each country’s exports and imports is
depicted as a circle; the larger the circle, the greater the size of its exports and imports. Since the
circle that represents China is the farthest to the right on the X-axis, it is the largest exporter.
Drawing a vertical line through the center of this circle, one can estimate that China’s exports
total approximately $1,180 billion or $1.2 trillion. Next, to the left of China is Germany, and then
the United States. See Figure 7-1 in the textbook.
According to Figure 7-1 above, which of the following countries is the world’s leading importer?
a. France
b. Germany
c. Japan
d. United States
e. China
Answer: d Page(s): 160-161 LO: 1 AACSB: Global QD: Medium
-6-
more than two-thirds of world trade in manufactured goods and commodities. In Figure 7-1, the
data for exports (in billions of U.S. dollars) is shown on the X-axis whereas the data for imports
(in billions of U.S. dollars) is shown on the Y-axis. Each country’s exports and imports is
depicted as a circle; the larger the circle, the greater the size of its exports and imports. Since the
circle that represents the United States is the highest on the Y-axis, it is the largest importer.
Drawing a horizontal line through the center of this circle, one can estimate that U.S. imports
total approximately $1,580 billion or $1.6 trillion. Next, below the United States is China, and
then Germany. See Figure 7-1 in the textbook.
7-11 TRADE FEEDBACK EFFECT KNOWLEDGE
Which global perspective on world trade views exports and imports as complementary economic
flows?
a. the balance of trade
b. quotas
c. the trade feedback effect
d. the competitive advantage of nations
e. tariffs
Answer: c Page(s): 160 LO: 1 AACSB: Global QD: Easy

Rationale: A global perspective on world trade views exports and imports as complementary
economic flows: A country’s imports affect its exports and exports affect its imports. Every
nation’s imports arise from the exports of other nations. For example: Increased exports from
country (A) result in increased income, which results in increased demand for imports. This
demand stimulates exports from country (B), increasing its income, which creates consumer
demand for products and services, which in turn, generates demand for imports. This
phenomenon is called the trade feedback effect and is one argument for free trade among nations,
and therefore the establishment of free trade agreements among nations.
7-12 TRADE FEEDBACK EFFECT COMPREHENSION
The trade feedback effect is one argument for

a. decreasing a nation’s exports.
b. free trade agreements.
c. increased tariffs and quotas.
d. international trade associations.
e. decreasing a nation’s imports.

Rationale: Increased exports from country (A) result in increased income, which results in
increased demand for imports. This demand stimulates exports from country (B), increasing its
income, which creates consumer demand for products and services, which in turn, generates
demand for imports. This phenomenon is called the trade feedback effect and is one argument for
free trade among nations, and therefore the establishment of free trade agreements among nations.
7-13 TRADE FEEDBACK EFFECT COMPREHENSION
Which of the following statements accurately describes the global perspective on world trade?
-7-
a. Exports are of significantly greater importance than imports.
b. Imports are of significantly greater importance than exports.
c. Imports and exports should be complementary economic flows: a country’s imports affect its
exports and exports affect its imports.
d. Exports and imports should always be kept in a state of equilibrium.
e. Imports and exports should be controlled through extensive use of international tariffs,
quotas, and other trade regulations.

Rationale: A global perspective on world trade views exports and imports as complementary
economic flows: a country’s imports affect its exports and exports affect its imports, which is
known as the trade feedback effect.
7-14 COUNTERTRADE KNOWLEDGE
Countertrade refers to
a. the illegal agreement of one country to buy products exclusively from another.
b. the legal agreement of one country to buy products exclusively with another.
c. the practice of using barter rather than money for making global sales.
d. the sale of industrial goods from a brick and mortar outlet rather than directly from the
manufacturer.
e. the use of legal tender in making global sales.

Rationale: Key term definition—countertrade.
The practice of using barter rather than money for making global sales is referred to as
a. trade balancing.
b. tariffs.
c. the trade feedback effect.
d. countertrade.
e. currency forbearance.
Answer: d Page(s): 160 LO: 1 AACSB: Global QD: Easy

Rationale: Key term definition—countertrade.
What percentage of world trade involves countertrade?

a. 5 percent to 10 percent
b. 15 percent to 20 percent
c. 25 percent to 30 percent
d. roughly 50 percent
e. Countertrade is so pervasive that it cannot accurately be calculated.
-8-
Rationale: An estimated 15 to 20 percent of world trade involves countertrade, which is the
practice of using barter rather than money for making global sales.
7-17 COUNTERTRADE COMPREHENSION
Volvo of North America delivered automobiles to the Siberian police force when Siberia had no
cash to pay for them. It accepted payment in oil, which it then sold for cash to pay for media
advertising in the United States. This is an example of
a. a quota.
b. countertrade.
c. balance of trade.
d. competitive advantage.
e. a trade feedback effect.

Rationale: Countertrade is the practice of using barter rather than money for making global sales;
in this case, exchanging police cars for oil.
7-18 COUNTERTRADE COMPREHENSION
The Malaysian government recently exchanged 20,000 tons of rice for an equivalent amount of
Philippine corn. This is an example of (a)
a. competitive advantage.
b. countertrade.
d. quota.
e. trade feedback.

in this case, exchanging rice for corn.
7-19 COUNTERTRADE APPLICATION
The Tahitian pearl market might never have existed were it not for Salvador Assael, the “pearl
king” of the South Seas. Assael got into the pearl business at the end of World War II. Tahiti
had thousands of Swiss watches but suddenly had no GIs to buy them. Assael observed that the
Japanese were desperate for watches but had no cash, and also, that the Japanese still had a pearl
industry. So, Assael oversaw the swapping of watches for pearls, which were then sold to the
Australian and U.S. markets. This international barter is an example of
a. a reciprocity agreement.
b. balance of trade.
c. cross-cultural commerce.
d. countertrade.
e. a trade feedback effect.
Answer: d Page(s): 160 LO: 1 AACSB: Global QD: Hard

in this case, exchanging watches for pearls.
-9-
7-20 COUNTERTRADE APPLICATION
Recipco and Tradaq are both companies that connect international companies who want to barter
the products they make for the products they need without using cash or credit. Recipco and
Tradaq assist international companies in making
a. countertrades.
b. quota exchanges.
c. trading exchanges.
d. balances of trade.
e. WTO trade arrangements.
Answer: a Page(s): 160 LO: 1 AACSB: Global QD: Hard

Rationale: Countertrade is the practice of using barter rather than money for making global sales.
Recipco and Tradaq assist companies in bartering the product they make for products they need.
7-21 GROSS DOMESTIC PRODUCT (GDP) KNOWLEDGE
The monetary value of all goods and services produced in a country during one year is referred to
as the
a. gross national production.
b. national monetary reserve.
c. gross domestic product.
d. monetary domestic product.
e. annual national product.

Rationale: Key term definition—gross domestic product.
7-22 GROSS DOMESTIC PRODUCT (GDP) KNOWLEDGE
Gross domestic product refers to

a. the monetary value of all goods and services produced by a single manufacturer during one
year.
b. the monetary value of all domestic exports of a nation during one year.
c. the monetary value of all goods and services produced in a country during one year.
d. the monetary value of all domestic imports of a nation during one year.
e. the difference between all domestic exports and imports for any nation during the course of
one fiscal year.

Rationale: Key term definition—gross domestic product.
7-23 BALANCE OF TRADE KNOWLEDGE
Balance of trade refers to

a. the sum of all a nation’s imports and exports.
b. the difference between the monetary value of a nation’s exports and imports.
- 10 -
c. the comparison of total exports from one country to another.
d. the difference between projected sales and actual sales for a nation’s exports.
e. the state of equilibrium when two neighboring nations participate in countertrade.

Rationale: The difference between the monetary value of a nation’s exports and imports is called
its balance of trade. When a country’s exports exceed its imports, it incurs a surplus in its balance
of trade. When imports exceed exports, a deficit results.
7-24 BALANCE OF TRADE KNOWLEDGE
The difference between the monetary value of a nation’s exports and imports is called its
a. countertrade.
b. trade feedback effect.
d. gross domestic product.
e. tariffs.

Rationale: The difference between the monetary value of a nation’s exports and imports is called
its balance of trade. When a country’s exports exceed its imports, it incurs a surplus in its balance
of trade. When imports exceed exports, a deficit results.
Which of the following statements best describes the relationship between the imports into the
United States and the exports from the United States during the last 30 years?
a. No accurate data has been made available from the WTO on trade imports and exports.
b. The volume of both imports and exports has consistently decreased.
c. Imports into the United States and exports have been about equal, indicating balanced trade.
d. Exports have exceeded imports, indicating a continuing trade surplus.
e. Imports have exceeded exports, indicating a continuing trade deficit.

Rationale: Over the past 30 years, imports have significantly exceeded exports each year,
indicating that the United States has a continuing balance of trade deficit.
Which of the following statements about world trade flows is most accurate?
a. The United States is tied with China and Japan as the world’s leaders in exports.
b. The U.S. percentage share of world exports has shifted upwards over the past 30 years.
c. The United States has maintained a steady percentage share of world imports.
d. The relative position of the United States as a supplier to the world has diminished despite an
absolute growth in exports.
e. The United States’ relative role as an exporter has decreased in areas of aerospace, chemical,
pharmaceutical, and information technology industries within the past five years.
- 11 -
Rationale: The United States is among the world’s leaders in exports. However, the U.S.
percentage of world exports has shifted downward over the past 30 years, whereas its percentage
share of world imports has increased. The relative position of the United States as a supplier to
the world has diminished despite an absolute growth in exports. At the same time, its relative
role as a marketplace for the world has increased. See Figure 7-1 in the textbook.
a. The United States is tied with China and Japan as the world’s leaders in exports.
b. The U.S. percentage share of world exports has shifted downwards over the past 30 years.
c. The United States has maintained a steady percentage share of world imports.
d. The United States’ relative role as an exporter has decreased in the area of aerospace during
the past five years.
e. The relative position of the United States as a supplier to the world has increased because of
an absolute growth in exports.
Answer: b Page(s): 160-161 LO: 1 AACSB: Global QD: Medium

a. China is the world leader in terms of GDP (gross domestic product).
b. The relative position of the United States as a supplier to the world has increased because of
c. The relative position of the United States as a supplier to the world has diminished despite an
e. It is impossible to compare GDPs of different nations since it is an internal measurement of
economic activity.

a. The United States is the world leader in terms of GDP (gross domestic product).
- 12 -
c. The United States is running a continuing trade surplus because it has the world’s largest
gross domestic product.
e. During the past 30 years, the relative position of the United States in terms of GDP has
remained stable despite the fact that actual value of products and services has increased.
Answer: a Page(s): 160-161 LO: 1 AACSB: Global QD: Medium

Rationale: The United States is the world’s perennial leader in terms of gross domestic product
(GDP), which is the monetary value of all goods and services produced in a country during one
year.
a. The EU (European Union) is the world leader in terms of GDP (gross domestic product).
c. The United States is running a continuing trade surplus because it has the world’s largest
gross domestic product.
d. The United States’ relative role as an exporter remains strong in the area of aerospace.
e. During the past 30 years, the relative position of the United States in terms of GDP has
remained stable despite the fact that actual value of products and services has increased.

role as a marketplace for the world has increased. The United States is also among the world’s
leaders in exports due in large part to its global prominence in the aerospace, chemical, office
equipment, information technology, pharmaceutical, telecommunications, and professional
service industries.
a. The EU (European Union) is the world leader in terms of GDP (gross domestic product).
b. The relative position of the United States as a supplier to the world has increased despite an
c. The United States’ role as a marketplace for the world has increased, especially for
automobiles, oil, textiles, and consumer electronics.
e. The United States’ relative role as an exporter changed dramatically when it became a
service-oriented economy.
- 13 -
Which of the following statements best describes what has happened to U.S. exports versus
imports over the last 30 years?
a. No accurate data have been made available from the WTO for trade imports and exports.
b. The volume of imports and exports has consistently decreased.
c. U.S. imports and U.S. exports have been about equal, indicating balanced trade.
d. U.S. exports have exceeded U.S. imports, indicating a continuing trade surplus.
e. The volume of both U.S. exports and U.S. imports has increased significantly.

Rationale: Both U.S. exports and imports have increased substantially over the past 30 years.
Changes in the products Americans buy and sell, additional jobs, and an improved standard of
living are all effects of
a. an increase in imports and an increase of exports.
b. an increase in imports and a decrease in exports.
c. a decrease in imports and a decrease in exports.
d. a state of equilibrium between imports and exports.
e. the reversal of importance between the services sector and the manufacturing sector.
Answer: a Page(s): 161 LO: 1 AACSB: Global QD: Medium

Rationale: Both U.S. exports and imports have increased substantially over the last 30 years.
Every American is significantly affected. The effect varies from the products they buy to those
they sell and the additional jobs and improved standard of living that result.
World trade flows to and from the United States reflect __________ for goods and services
among nations and industries.
a. demand and supply interdependencies
b. disparities between supply and demand
c. positive and negative synergistic trade
d. a negative currency exchange
e. an ethnocentric bias

Rationale: World trade flows to and from the United States reflect demand and supply
interdependencies for goods and services among nations and industries.
- 14 -
The four largest importers of U.S. goods and services are

a. Japan, Germany, China, and Canada.
b. Canada, China, Japan, and Mexico.
c. China, Brazil, Japan, and Germany.
d. Mexico, Canada, Europe, and China.
e. England, Canada, Australia, and New Zealand.

Rationale: The four largest exporters to the United States are Canada, China, Mexico, and Japan.
These countries purchase approximately 67 percent of U.S. exports.
The four largest exporters to the United States are

a. Canada, China, Japan, and Mexico.
b. Japan, Germany, Brazil, and Canada.
c. China, Brazil, Japan, and Germany.
d. Mexico, Argentina, Brazil, and Venezuela.
e. England, Canada, Australia, and New Zealand.

Rationale: The four largest exporters to the United States are Canada, China, Mexico, and Japan.
China, Japan, and South Korea combine for about _________ percent of the total U.S. balance of
trade deficit.
a. 30
b. 50
c. 65
d. 80
e. 95

Rationale: China, Japan and South Korea combine for about 80 percent of the total U.S. balance
of trade deficit, illustrating the trade imbalance between the United States and Asia.
7-38 PORTER’S DIAMOND COMPREHENSION
Michael Porter has identified four key elements to explain why some companies and industries
succeed globally while others fail. These four elements are collectively referred as
a. the balance of trade wheel.
b. the points of difference effect.
d. the international trade pyramid.
e. the diamond of national competitive advantage.
- 15 -
Answer: e Page(s): 161-162 LO: 1 AACSB: Global QD: Medium
Rationale: To explain a nation’s competitive advantage, Michael Porter suggests a “diamond” of
four elements: (1) factor conditions; (2) demand conditions; (3) related and supporting industries;
and (4) company strategy, structure, and rivalry. See Figure 7-2 in the textbook.
Michael Porter has identified four key elements in a nation’s competitive advantage:
__________; demand conditions; related and supporting industries; and company strategy,
structure and rivalry.
a. industry composition
b. size of market
c. governmental regulation
d. suppliers
e. factor conditions

Michael Porter has identified four key elements in a nation’s competitive advantage: factor
conditions; __________; related and supporting industries; and company strategy, structure, and
rivalry.
a. demand conditions
b. ethnocentrism
c. barriers to entry
d. governmental regulation
e. suppliers

conditions; demand conditions; __________; and company strategy, structure, and rivalry.
a. consumer behavior
b. workforce education and skill levels
c. related and supporting industries
d. governmental regulation
e. ethnocentrism
- 16 -
conditions; demand conditions; related and supporting industries; and __________.
a. consumer behavior
b. workforce education and skill levels
c. governmental regulation
d. company strategy, structure, and rivalry
e. suppliers

Figure 7-2
According to Michael Porter’s diamond in Figure 7-2 above, quadrant “A” represents
a. factor conditions.
b. related and supporting industries.
c. demand conditions.
d. managerial conditions.
e. company strategy, structure, and rivalry.
- 17 -
and (4) company strategy, structure, and rivalry. Factor conditions reflect a nation’s ability to
turn its natural resources, education, and infrastructure into a competitive advantage. See Figure
7-2 in the textbook.
According to Michael Porter’s diamond in Figure 7-2 above, quadrant “B” represents

and (4) company strategy, structure, and rivalry. Company strategy, structure, and rivalry include
the conditions governing the way a nation’s businesses are organized and managed, along with
the intensity of domestic competition. See Figure 7-2 in the textbook.
According to Michael Porter’s diamond in Figure 7-2 above, quadrant “C” represents

and (4) company strategy, structure, and rivalry. Demand conditions include both the number
and sophistication of domestic customers for an industry’s product. See Figure 7-2 in the
textbook.
According to Michael Porter’s diamond in Figure 7-2 above, quadrant “D” represents
- 18 -
and (4) company strategy, structure, and rivalry. Related and supporting industries include the
existence of supplier clusters that accelerate innovation and improve quality. See Figure 7-2 in
the textbook.
7-47 FACTOR CONDITIONS COMPREHENSION
The Dutch lead the world in the cut-flower industry because of their research in flower
cultivation, packaging, and shipping. Using this knowledge as a resource is an example of what
Michael Porter would term
a. structural conditions.
b. demand conditions.
c. sociocultural conditions.
d. competitive conditions.
e. factor conditions.

Rationale: Factor conditions reflect a nation’s ability to turn its natural resources, education, and
infrastructure into a competitive advantage. In this case, education (the research in flower
cultivation, packaging, and shipping) is a factor condition. See Figure 7-2 in the textbook.
7-48 FACTOR CONDITIONS APPLICATION
Each day, in a third-class carriage of the express train that runs between Bombay and
Ahmadabad, plainly dressed couriers carry precious cargo: diamonds. Rough gems are imported
to Bombay from dealers in London, Antwerp, Tel Aviv, and New York. Couriers then take these
gems to cutting and polishing centers in Gujarat state and then carry them back to Bombay to be
reexported to the world. This system, based on trust, secrecy, and skilled low-cost labor, has
worked for half a century. It has helped make India the world’s premier center for diamond
cutting and polishing. Nine out of every 10 stones sold in the world pass through India, making
diamonds that country’s largest export. India’s ability to use its skilled labor as a resource is an
example of what Michael Porter would term
c. factor conditions.
e. sociocultural conditions.
Answer: c Page(s): 162 LO: 1 AACSB: Global QD: Hard

infrastructure into a competitive advantage. In this case, the skilled labor of India makes this
system work. See Figure 7-2 in the textbook.
7-49 DEMAND CONDITIONS KNOWLEDGE
According to Michael Porter’s diamond of national competitive advantage, both the number and
sophistication of domestic customers for an industry’s product are examples of
- 19 -

Rationale: Text term definition—demand conditions. See Figure 7-2 in the textbook.
7-50 DEMAND CONDITIONS COMPREHENSION
Which of the following is an example of a demand condition?

a. available natural resources
b. existence of supplier clusters
c. sophistication of consumers
d. intensity of competition
e. competitive wage rates

Rationale: Demand conditions include both the number and sophistication of domestic customers
for an industry’s product. See Figure 7-2 in the textbook.
7-51 DEMAND CONDITIONS APPLICATION
Austria has been described as “the very heartland of European coffee culture.” These “coffee-
knowledgeable” Austrians drink 21.5 liters of coffee per person annually. Starbucks wanted to
open coffee houses in Austria and sell Starbucks coffee there. For Starbucks, the Austrian level
of coffee-drinking sophistication would be an example of
Answer: b Page(s): 162 LO: 1 AACSB: Global QD: Hard

for an industry’s product. Austrians are very knowledgeable when it comes to coffee. See Figure
7-2 in the textbook.
7-52 RELATED AND SUPPORTING INDUSTRIES COMPREHENSION
To become leaders in the world market, countries need related and supporting industries because
a. collaborative suppliers can generate revenue for further investment.
b. they can eliminate the need to import materials from other countries.
c. clusters of strong suppliers can accelerate innovation.
d. most countries still believe strongly in protectionism.
e. their union lessens financial vulnerability and increases buying power.
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Rationale: Related and supporting industries include the existence of supplier clusters that
accelerate innovation and improve quality. See Figure 7-2 in the textbook.
7-53 RELATED AND SUPPORTING INDUSTRIES COMPREHENSION
Which of the following is an element of related and supporting industries?

a. media exposure of products
b. existence of supplier clusters
c. sophistication of consumers
e. aggregation of markets

accelerate innovation and improve quality. See Figure 7-2 in the textbook.
7-54 RELATED AND SUPPORTING INDUSTRIES APPLICATION
Nine out of every 10 diamonds sold in the world pass through India, making diamonds that
country’s largest export at $6.6 billion a year. One of the reasons for its success is the nation’s
2,500 trading firms, banks, airlines, customers’ offices, and courier services that make sure the
diamonds are safely delivered. According to Michael Porter’s theory about national competitive
advantage, India’s success in the diamond industry is due in part to its
a. company strategy, structure, and rivalry.
b. absence of competition.
c. related and supporting industries.
d. factor conditions.
e. demand conditions.

accelerate innovation and improve quality. India’s success in the diamond trade is due in part to
the 2,500 trading firms, banks, airlines, customers’ offices, and courier services—related and
supporting firms and associated industries—that ensure the diamonds are safely delivered to
customers around the globe. See Figure 7-2 in the textbook.
7-55 COMPANY STRATEGY, STRUCTURE, AND RIVALRY COMPREHENSION
Which of the following is an element of company strategy, structure, and rivalry?

a. sales of companies in an industry
b. size of market
c. number of suppliers
e. number of sophisticated consumers

Rationale: Company strategy, structure, and rivalry include the conditions governing the way a
nation’s businesses are organized and managed, along with the intensity of domestic competition.
See Figure 7-2 in the textbook.
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7-56 COMPANY STRATEGY, STRUCTURE, AND RIVALRY COMPREHENSION
The Italian shoe industry has become a world leader because of intense domestic competition
among firms such as Bruno Magli and Rossimoda. According to Michael Porter’s theory about
national competitive advantage, Italy’s success in the shoe industry is due in part to its
a. company strategy, structure, and rivalry.
b. absence of competition.
c. related and supporting industries.
d. factor conditions.
e. demand conditions.

Rationale: Company strategy, structure, and rivalry include the conditions governing the way a
nation’s businesses are organized and managed, along with the intensity of domestic competition.
7-57 COMPETITIVE ADVANTAGE OF NATIONS COMPREHENSION
Which of the following statements reflects Michael Porter’s theory regarding national
competitive advantage?
a. Clusters of strong suppliers can interfere with entry into a global market.
b. A firm that succeeds in global markets often has first succeeded in its domestic market.
c. A country’s natural resources, education, and infrastructure often pose obstacles that cannot
be overcome.
d. The first goal of a global marketer is to actively educate a nation’s domestic customers.
e. A nation’s domestic workforce is more motivated to work for foreign corporations than its
own.

Rationale: While the strategies used by successful global competitors differed in many respects,
a common theme emerged: A firm that succeeds in global markets often has first succeeded in
intense domestic competition. See Figure 7-2 in the textbook.
Although there are many factors contributing to the success of major global marketers, a common
theme seems to be that they
a. first became involved with a formalized trade organization, such as the WTO.
b. specialized in services rather than consumer goods.
c. employed a multicultural or multinational staff.
d. first succeeded in intense domestic competition.
e. were the largest companies in their industry.

Rationale: While the strategies employed by the most successful global competitors have been
different in many respects, a common theme has emerged—a firm that succeeds in global markets
has first succeeded in intense domestic competition. See Figure 7-2 in the textbook.
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b. A firm that succeeds in global markets has often left a domestic market because it was too
competitive.
c. A country’s natural resources, education, and infrastructure can be turned into a competitive
advantage.
own.

infrastructure into a competitive advantage. See Figure 7-2 in the textbook.
a. Clusters of strong suppliers can accelerate innovation.
competitive.
c. A country’s natural resources, education, and infrastructure can represent obstacles that are
often difficult to overcome.
own.

Rationale: Firms and industries seeking leadership in global markets need clusters of world-class
suppliers that accelerate innovation and improve quality. See Figure 7-2 in the textbook.
competitive.
c. A country’s natural resources, education, and infrastructure can represent obstacles that are
often difficult to overcome.
d. Conditions such as the number and sophistication of domestic customers can affect demand
for an industry’s product.
own.
- 23 -
for an industry’s product. See Figure 7-2 in the textbook.
Competitive advantage for global firms grows out of __________, innovation, and change.
a. product quality
b. continuous improvement
c. employment of a multicultural or multinational staff
d. membership in a formalized trade organization
e. market research

has first succeeded in intense domestic competition. Competitive advantage for global firms
grows out of continuous improvement, innovation, and change. See Figure 7-2 in the textbook.
Competitive advantage for global firms grows out of continuous improvement, __________, and
change.
a. product quality
b. employment of a multicultural or multinational staff
c. membership in a formalized trade organization
d. market research
e. innovation

Competitive advantage for global firms grows out of continuous improvement, innovation, and
__________.
a. accountability
b. change
c. product quality
d. company size
e. location

- 24 -
7-65 ECONOMIC ESPIONAGE KNOWLEDGE
The clandestine collection of trade secrets or proprietary information about a company’s

competitors is referred to as
a. trade piracy.
b. transnational fraud.
c. economic espionage.
d. competitive duplicity.
e. transnational espionage.

Rationale: Text-term definition—economic espionage.
Economic espionage is the clandestine collection of trade secrets or __________.

a. government economic information
b. industrial intelligence
c. proprietary information about competitors
d. government weapons information
e. banking lists

Rationale: Text-term definition—economic espionage.
The estimated cost of economic espionage to firms in the United States is estimated to be
a. $10 billion per year.
b. $250 billion per year.
c. $750 billion per year.
d. $900 billion per year.
e. exceeding $1 trillion per year.

Rationale: It is estimated that economic espionage costs U.S. firms $250 billion per year.
The prescribed penalty for individuals found guilty of the theft of trade secrets is
a. up to 15 years in prison and fines up to $500,000.
b. up to 25 years in prison and fines up to $10 million.
c. life in prison with chance of parole after 25 years.
d. expulsion from the United States and/or revocation of citizenship.
e. 30 years in prison and fines to be determined by the courts.
- 25 -
Rationale: The Economic Espionage Act (1996) makes the theft of trade secrets by foreign
entities a federal crime in the United States. This act prescribes prison sentences of up to 15
years and fines up to $500,000 for individuals. Agents of foreign governments found guilty of
economic espionage face a 25-year prison sentence and a $10 million fine.
The prescribed penalty for agents of foreign governments found guilty of economic espionage is
a. up to 15 years in prison and fines up to $500,000.
b. life in prison with chance of parole after 25 years.
c. 25 years in prison and a $10 million fine.
d. permanent expulsion from the United States.
e. 30 years in prison and fines proportional to the damage caused.

Rationale: The Economic Espionage Act (1996) makes the theft of trade secrets by foreign
entities a federal crime in the United States. This act prescribes prison sentences of up to 15
years and fines up to $500,000 for individuals. Agents of foreign governments found guilty of
economic espionage face a 25-year prison sentence and a $10 million fine.
7-70 ECONOMIC ESPIONAGE ACT COMPREHENSION
The Economic Espionage Act

a. allows the World Court in The Hague to adjudicate trade disputes on behalf of United
Nations’ members and requires the home country to impose any penalties.
b. imposes a personal fine on a convicted U.S. citizen of up to $10 million.
c. targets espionage activities that are commonplace in any industry that holds governmental
contracts.
d. makes the theft of trade secrets by foreign entities a federal crime in the United States.
e. is well-intended in theory, but is virtually impossible to enforce.

Rationale: Key term definition—Economic Espionage Act.
7-71 TRENDS IN WORLD TRADE COMPREHENSION
Four trends in the past decade have significantly influenced the landscape of global marketing.
One of them is:
a. an increase in most countries’ GDPs coupled with an increased degree of consumer
ethnocentrism.
b. a significant increase in economic protectionism and a decline in free trade.
c. a more aggressive attitude toward initiating international tariffs and quota systems.
d. a decrease in most countries’ GDPs and a renewal of nationalism.
e. a gradual decline in economic protectionism by individual countries.

Rationale: Four trends in the past decade have significantly influenced the landscape of global
marketing: (1) the gradual decline of economic protectionism by individual countries; (2) the
- 26 -
formal economic integration and free trade among nations; (3) global competition among global
companies for global customers; and (4) the development of networked global marketspace.
One of them is:
a. an increase in economic protectionism and a decline in free trade.
b. a more aggressive attitude towards initiating international tariffs and quota systems.
c. a decrease in most countries’ GDPs and a renewal of nationalism.
d. global competition among global companies for global customers.
e. an increase in most countries’ GDPs coupled with an increased degree of consumer
ethnocentrism.

companies for global customers; and (4) the development of networked global marketspace.
One of them is:
a. an increase in economic protectionism and a decline in free trade.
d. the formal economic integration and free trade among nations.
ethnocentrism.

companies for global customers; and (4) the development of a networked global marketspace.
One of them is:
a. an increase in economic protectionism and a decline free trade.
d. emergence of networked global marketspace.
ethnocentrism.
- 27 -
Rationale: Global marketing has been and continues to be affected by a growing borderless
economic world. Four trends in the past decade have significantly influenced the landscape of
global marketing: gradual decline of economic protectionism by individual countries, formal
economic integration and free trade among nations, global competition among global companies
for global customers, and development of networked global marketspace.
7-75 PROTECTIONISM KNOWLEDGE
The practice of shielding one or more sectors of a country’s economy from foreign competition
through the use of tariffs or quotas is referred to as
a. domestic imperialism.
b. protectionism.
c. blocked competition.
d. import taxation.
e. trade restrictions.

Rationale: Key term definition—protectionism.
7-76 PROTECTIONISM KNOWLEDGE
Protectionism refers to
a. the practice of purchasing products exclusively from a domestic market in order to shore up a
nation’s economy.
b. the use of tariffs, quotas, and boycotts with the express intention of putting foreign
competitors out of business.
c. the practice of shielding one or more sectors of a country’s economy from foreign
competition through the use of tariffs or quotas.
d. a form of domestic imperialism that holds that only those products manufactured within one’s
home nation are of sufficient quality to warrant purchase.
e. the practice of purchasing products exclusively from a foreign developing country in order to
develop its industries and economic infrastructure.

Rationale: Key term definition—protectionism.
7-77 PROTECTIONISM COMPREHENSION
According to economists, protectionism

a. protects a nation’s political security.
b. encourages economic reliance on foreign countries.
c. inhibits the development of domestic industries.
d. creates opportunities for the outsourcing of domestic jobs.
e. creates a more favorable environment for a global economy.

Rationale: Protectionism is the practice of shielding one or more sectors of a country’s economy
from foreign competition through the use of tariffs or quotas. The economic argument for
protectionism is that it limits the outsourcing of jobs, protects a nation’s political security,
- 28 -
discourages economic dependency on other countries, and encourages the development of
domestic industries.
Those in favor of protectionism advocate that protectionism

a. helps reduce tariffs and quotas.
b. encourages the development of domestic industries.
c. encourages economic reliance on foreign countries.
d. creates opportunities for the outsourcing of domestic jobs.
e. creates a more favorable environment for a global economy.

from foreign competition through the use of tariffs or quotas. The economic argument for
protectionism is that it limits the outsourcing of jobs, protects a nation’s political security,
discourages economic dependency on other countries, and encourages the development of
domestic industries.
7-79 PROTECTIONISM APPLICATION
Beginning January 1, 2005, China lifted the import quotas and lowered tariffs on automobiles.
This removal of the quotas and the lowering of tariffs is an example of
a. relaxing the rule of eminent domain.
b. reducing ethnocentrism.
c. enhancing domestic imperialism.
d. reducing protectionism.
e. enhancing countertrade.

from foreign competition through the use of tariffs or quotas. By removing the quotas and
lowering tariffs, China is reducing protectionism of the automobile industry in China.
- 29 -
Figure 7-3
The box with the “?” in Figure 7-3 above leads to which of the following as a result of the
imposition of tariffs and quotas based on protectionist policies of a country?
a. an increase in world trade
b. a decrease in world trade
c. a limit on exports
d. a limit on imports
e. countertrade

Rationale: Protectionism hinders world trade through tariff and quota policies of individual
countries. Tariffs increase prices and quotas limit supply, which ultimately leads to a decrease in
world trade. See Figure 7-3 in the textbook.
7-81 MAKING RESPONSIBLE DECISIONS COMPREHENSION
Which of the following issues raises concerns about the ethics of protectionism?
a. Competitive advantage grows out of continuous improvement.
b. Small firms succeed in foreign niche markets.
c. Tariffs have declined from an average of 40 percent to less than 5 percent.
d. Regional trade agreements provide preferential treatment for member nations.
e. Pan-European marketing strategies are possible due to greater uniformity in packaging
standards.

Rationale: Of the statements above, the possibility of preferential treatment, alternative “d” is
most likely to suggest an ethical consideration.
7-82 TARIFFS KNOWLEDGE

- 30 -
Government taxes on goods or services entering a country that primarily serve to raise prices on
imports are referred to as
a. tariffs.
b. quotas.
c. GATT taxes.
d. foreign excise taxes.
e. trade subsidies.
Answer: a Page(s): 164-165 LO: 1 AACSB: Global QD: Easy

Rationale: Key term definition—tariffs.
Tariffs refer to
a. government payments to companies or industries that primarily serve to create competitive
advantage for domestic products.
b. government taxes on goods or services entering a country that primarily serve to raise prices
on imports.
c. a restriction placed on the amount of a product allowed to enter or leave a country.
d. a minimum requirement for the purchase between two or more nations of products or
services.
e. a refusal to purchase or exchange goods or services with another nation unless certain
financial or ideological requirements have been satisfied.
Answer: b Page(s): 164-165 LO: 1 AACSB: Global QD: Easy

A government tax on goods or services entering a country is referred to as a

a. GATT tax.
b. quota.
c. tariff.
d. foreign excise tax.
e. subsidy.
Answer: c Page(s): 164-165 LO: 1 AACSB: Global QD: Easy

7-85 TARIFFS COMPREHENSION
The U.S. Rice Millers’ Association claims that if the Japanese rice market were opened to
imports by lowering __________, lower prices would save Japanese consumers $6 billion
annually and the United States would gain a large share of the Japanese rice market.
a. boycotts
b. tariffs
c. quotas
d. sanctions
- 31 -
e. subsidies

Rationale: Tariffs are government taxes on goods or services entering a country that primarily
serve to raise prices on imports.
The __________ imposed on bananas by European Union countries cost consumers $2 billion a
year in higher prices.
a. boycotts
b. tariffs
c. quotas
d. sanctions
e. subsidies

U.S. citizens pay $5 billion more annually for shoes and Japanese citizens pay $6 billion more for
rice than the actual cost of the products because
a. both countries have suffered major financial crises due a severe trade imbalance.
b. both countries have imposed tariffs on imported goods to protect their domestic markets.
c. both countries have imposed limits on the quantity of these goods that can leave their
respective domestic markets.
d. both products are considered essentials and as a result are more heavily taxed.
e. these products were purchased at a lower price from nations that currently are under
governmental sanctions.

7-88 TARIFFS APPLICATION
Recently, the Japanese government, under pressure from its domestic farm lobby, slapped
government taxes on mushrooms, leeks, and the reeds used in tatami mats that were being
imported from China. Japan levied
a. GATT taxes.
b. quotas.
c. tariffs.
d. excise taxes.
e. subsidies.
Answer: c Page(s): 164-165 LO: 1 AACSB: Global QD: Hard
- 32 -
If you wanted to set up a business importing amber from Latvia to the United States, you would
have to plan on paying the U.S. Customs Service roughly 20 percent of the value of the product
as a(n) __________.
a. bribe
b. tariff
c. subsidy
d. excise tax
e. quota
Answer: b Page(s): 164-165 LO: 1 AACSB: Global QD: Hard

President Bill Clinton attempted to protect American firms from foreign competition by placing a
government tax on Japanese automobiles imported to the United States. President Clinton’s goal
was to raise the price on Japanese imports, thereby encouraging American consumers to purchase
American-made automobiles. The tax the president threatened to impose is an example of a
__________.
a. boycott
b. tariff
c. quota
d. sanction
e. subsidy

7-91 QUOTA KNOWLEDGE
A restriction placed on the amount of a product allowed to enter or leave a country is referred to
as a
a. quota.
b. tariff.
c. GATT tax.
d. subsidy.
e. excise tax.

Rationale: Key term definition—quota.
- 33 -
7-92 QUOTA KNOWLEDGE
A quota refers to
a. a government tax on goods or services entering a country that primarily serves to raise prices
on imports.
b. government payments to companies or industries that serve to lower costs and provide a
competitive advantage to domestic industries.
c. a restriction placed on the amount of a product allowed to enter or leave a country.
d. a minimum requirement for the purchase of specific products or services between two
nations.
e. a refusal to purchase or exchange goods or services with another nation unless certain
financial or ideological requirements have been satisfied.

Rationale: Key term definition—quota.
7-93 QUOTA APPLICATION
The world’s largest manufacturer of peppermint candy canes was in Albany, Georgia, until it
could no longer afford to buy the sugar needed for its operation. It moved its manufacturing
business to Mexico where there are no restrictions (as existed in the United States) on the amount
of sugar that can be brought into the nation. The movement of this U.S. business to Mexico was
caused by a(n) __________ established by the U.S. government.
a. tariff
b. trade imbalance
c. quota
d. excise tax
e. subsidy

Rationale: A quota is a restriction placed on the amount of a product allowed to enter or leave a
country. In this case, the U.S. government caused domestically grown sugar to be priced higher
than sugar on the world market due to its protectionist policies on sugar.
7-94 GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) KNOWLEDGE
The __________ is an international treaty intended to limit trade barriers and promote world trade
through the reduction of tariffs.
a. North Atlantic Treaty Organization (NATO)
b. General Agreement on Tariffs and Trade (GATT)
c. North American Free Trade Agreement (NAFTA)
d. World Trade Association Treaty (WTAT)
e. United Nations Agreement on Trade (UNAT)

Rationale: Text term definition—General Agreement on Tariffs and Trade (GATT).
7-95 GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) COMPREHENSION
- 34 -
Every country engages in some form of protectionism. However, protectionism has declined
internationally over the past 50 years due in large part to the
a. United Nations Agreement on Trade (UNAT).
b. North American Free Trade Agreement (NAFTA).
c. General Agreement on Tariffs and Trade (GATT).
d. North Atlantic Treaty Organization (NATO).
e. World Trade Association Treaty (WTAT).

Rationale: Protectionism has declined over the past 50 years due in large part to the General
Agreement on Tariffs and Trade (GATT).
7-96 GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) COMPREHENSION
To a degree, every country engages in some form of protectionism. Over the past 50 years
however, this practice has diminished, in large part due to
a. an alignment of nations by ethnicity rather than geographical borders.
b. an increase in population and a decrease in resources.
c. the evolution of mass media.
d. the establishment of GATT.
e. an alignment of nations by political ideology rather than geographical borders.

Rationale: Every country engages in some form of protectionism. However, protectionism has
declined over the past 50 years due in large part to the General Agreement on Tariffs and Trade
(GATT). This international treaty intended to limit trade barriers and promote world trade
through the reduction of tariffs, which it did.
7-97 WORLD TRADE ORGANIZATION (WTO) KNOWLEDGE
A permanent institution that sets rules governing trade between its members through a panel of
trade experts who decide on trade disputes between members and issue binding decisions is
referred to as the __________.
a. League of Nations
b. World Trade Organization (WTO)
c. Association for Commerce Equity (ACE)
d. United Nations Board of Trade (UNBT)
e. Global Better Business Bureau (BBB-G)

Rationale: Key term definition—World Trade Organization (WTO).
The World Trade Organization (WTO) refers to

a. the world’s largest banking institution responsible for establishing and maintaining equitable
exchange rates for all member nations.
b. the world’s largest licensing institution responsible for the certification of products
distributed to a global market.
- 35 -
c. a permanent institution that sets rules governing trade between its members through panels of
trade experts who decide on trade disputes between members and issue binding decisions.
d. a multinational trade organization composed of the world’s wealthiest nations whose primary
purpose is to aid in the economic growth of developing nations.
e. a multinational trade organization comprised of the world’s wealthiest nations whose primary
purpose is to promote free trade economies.

Rationale: Key term definition—World Trade Organization (WTO).
There are __________ World Trade Organization countries, including the United States, which
account for more than 90 percent of world trade.
a. 37
b. 52
c. 97
d. 113
e. 153
Answer: e Page(s): 165-166 LO: 1 AACSB: Global QD: Easy

Rationale: The World Trade Organization (WTO) was formed in 1995 to address a broad array
of world trade issues. Today, there were 153 WTO member countries, including the United
States, which account for more than 90 percent of world trade.
7-100 WORLD TRADE ORGANIZATION (WTO) COMPREHENSION
Which of the following statements about the World Trade Organization (WTO) is most accurate?
a. The WTO is a permanent institution that sets rules governing trade between its members.
b. The WTO sets rules governing trade between its members and the remainder of the world.
c. The 153 member countries of the WTO account for approximately 55 percent of world trade.
d. The WTO uses panels of trade experts who can issue non-binding recommendations.
e. The WTO was formed by the United Nations.

Rationale: The major industrialized nations of the world formed the WTO in 1995 to address
world trade issues. The 153 WTO member countries account for more than 90 percent of world
trade. The WTO is a permanent institution that sets rules governing trade between its members
through panels of trade experts who decide on trade disputes between members and issue binding
decisions.
a. The World Trade organization is a temporary group that meets on an as needed basis.
b. The 153 member countries of the WTO account for approximately 55 percent of world trade.
c. The WTO sets rules governing trade between its members and the remainder of the world.
d. The WTO uses panels of trade experts who can issue binding decisions.
- 36 -
decisions.
a. The World Trade organization is a temporary institution.
b. The 153 member countries of the WTO account for more than 90 percent of world trade.
c. The WTO sets rules governing trade between its members and the remainder of the world.

decisions.
b. The 153 member countries of the WTO account for less than 25 percent of world trade.
c. The WTO sets rules governing trade among its members.

decisions.
b. The 153 member countries of the WTO account for less than 25 percent of world trade.
c. The WTO sets rules governing trade between its members and the rest of the world.
e. The WTO was formed by the major industrialized nations of the world.
- 37 -
decisions.
7-105 EUROPEAN UNION (EU) KNOWLEDGE
The European Union (EU) in mid-2012 consisted of 27 countries with more than 500 million
consumers. The EU has eliminated most barriers to the free flow of goods, services, capital, and
labor across its borders. Which of the following countries is NOT a member of the EU as of mid-
2012?
a. Latvia
b. Greece
c. Ireland
d. Switzerland
e. England
Answer: d Page(s): 166-167 LO: 1 AACSB: Global QD: Easy

Rationale: Switzerland was NOT one of the 27 countries that belong to the EU as of mid-2012.
The European Union is an economic and political union of __________ member countries
located primarily in Europe that have eliminated most barriers to the free flow of goods, services,
capital, and labor across their borders.
a. 17
b. 20
c. 27
d. 30
e. 37
Answer: c Page(s): LO: 2 AACSB: Global QD: Easy

Rationale: The European Union as of mid-2012 consisted of 27 countries that have eliminated
most barriers to the free flow of goods, services, capital, and labor across their borders.
The European Union consists of 27 member countries. This single market houses more than
__________ million consumers with a combined GDP that is larger than that of the United States.
a. 100
b. 200
c. 300
d. 400
e. 500
Answer: e Page(s): LO: 2 AACSB: Global QD: Easy
- 38 -
Rationale: The European Union as of mid-2012 consisted of 27 countries with more than 500
million consumers with a combined GDP that is larger than that of the United States.
7-108 EUROPEAN UNION (EU) COMPREHENSION
The European Union (EU) has created abundant marketing opportunities because it is no longer
necessary to
a. print material in multiple languages.
b. continually monitor currency exchange rates.
c. trade with the former Eastern European communist countries.
d. obey international trade regulations.
e. use the American dollar as an economic standard.

Rationale: One benefit of the EU was the adoption of the euro, which has been a boon to the
electronic commerce in the EU by eliminating the need to continually monitor currency exchange
rates.
The EU has benefited its member nations because

a. there is immunity against world recessions.
b. there is a common language advantage among EU consumers.
c. most companies within the EU are engaging in strategic global partnerships.
d. there is a legally binding code of economic conduct.
e. firms do not need to market their products and services on a nation-by-nation basis.

Rationale: The EU has benefited its member nations because firms do not need to market their
products and services on a nation-by-nation basis. Rather, pan-European marketing strategies are
possible due to greater uniformity in product and packaging standards; fewer regulatory
restrictions on transportation, advertising, and promotion imposed by countries; and removal of
most tariffs that affect pricing practices.
The EU has benefited its member nations because firms do not need to market their products and
services on a nation-by-nation basis, most tariffs that affect pricing practices have been removed,
and
a. there is a legally binding code of economic conduct.
b. there is immunity against world recessions.
c. there are fewer regulatory restrictions on transportation, advertising, and promotion.
d. there is a common language advantage among EU consumers.
e. most companies within the EU are engaging in strategic global partnerships.

Rationale: The EU has benefited its member nations because firms do not need to market their
products and services on a nation-by-nation basis. Rather, pan-European marketing strategies are
possible due to greater uniformity in product and packaging standards; fewer regulatory
- 39 -
restrictions on transportation, advertising, and promotion imposed by countries; and removal of
most tariffs that affect pricing practices.
7-111 NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) COMPREHENSION
The North American Free Trade Agreement was designed to encourage free trade between
a. North America, Central America, and South America.
b. the United States, Canada, and Mexico.
c. the United States and the European Union.
d. member countries originally from NATO (North Atlantic Treaty Organization).
e. North America and The Commonwealth of Independent States.

Rationale: The North American Free Trade Agreement lifted many trade barriers between
Canada, Mexico, and the United States and created a marketplace with more than 450 million
consumers.
7-112 CAFTA-DR COMPREHENSION
CAFTA-DR is a comprehensive free trade agreement between Costa Rica, the Dominican
Republic, El Salvador, Guatemala, Honduras, Nicaragua, and __________.
a. the United States
b. Panama
c. Belize
d. Cuba
e. Mexico

Rationale: CAFTA-DR is a comprehensive free trade agreement among Costa Rica, the
Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States.
7-113 ASIAN FREE TRADE AGREEMENTS COMPREHENSION
Which of the following is most accurate in regards to the Asian free trade agreements?
a. Efforts to liberalize trade in East Asia are growing.
b. Asian free trade agreements are more formal than those of the EU and NAFTA.
c. Asian free trade agreements are based on ethnicity rather than geographical borders.
d. Asian free trade agreements encourage the formation of multinational corporations.
e. Asian free trade agreements recently include India and China.

Rationale: Efforts to liberalize trade in East Asia are growing. Although the trade agreements
are less formal than those underlying the EU and NAFTA, they have reduced tariffs among
countries and promoted trade.
Which of the following is most accurate in regards to the Asian free trade agreements?
- 40 -
a. Efforts to liberalize trade in East Asia have decreased as a result of the economic downturn in
2009.
b. Asian free trade agreements are based on ethnicity rather than geographical borders.
c. Asian free trade agreements encourage the formation of multinational corporations.
d. Asian free trade agreements recently include India and China.
e. Asian free trade agreements have reduced tariffs among countries and promoted trade.

Rationale: Efforts to liberalize trade in East Asia are growing. Although the trade agreements
are less formal than those underlying the EU and NAFTA, they have reduced tariffs among
countries and promoted trade.
The “Little Dragons,” in relation to the Asian free trade agreements, are composed of:
a. Hong Kong, Singapore, South Korea, and Taiwan.
b. Hong Kong, Shanghai, Singapore, and Bangkok.
c. Beijing, Hong Kong, Shanghai, and Singapore.
d. Beijing, Tokyo, Taiwan, and Singapore.
e. Beijing, Hong Kong, Taiwan, and Bangkok.

Rationale: The Asian free trade agreements consist of efforts to liberalize trade in East Asia—
from Japan and the four “Little Dragons” (Hong Kong, Singapore, South Korea, and Taiwan)
through Thailand, Malaysia, and Indonesia.
7-116 GLOBAL COMPETITION KNOWLEDGE
When firms originate, produce, and market their products and services worldwide, it is referred to
as __________.
a. acculturation
b. global competition
c. free trade
d. global branding
e. transactional exchange

Rationale: Key term definition—global competition.
Global competition refers to when

a. a firm produces and markets its products worldwide rather than in its own domestic market.
b. firms originate, produce, and market their products and services worldwide.
c. two firms from two different countries compete for market share in a domestic market.
d. two or more firms from different nations combine their resources to market products globally.
e. the firm from one nation dominates the market for that product in every other nation.
- 41 -
Rationale: Key term definition—global competition.
Pepsi-Cola, now available in more than 160 countries and territories, accounts for __________
percent of all soft drinks sold internationally.
a. 10
b. 15
c. 20
d. 25
e. 30

Rationale: Pepsi-Cola, now available in more than 160 countries and territories, accounts for a
quarter of all soft drinks sold internationally.
7-119 STRATEGIC ALLIANCES KNOWLEDGE
Agreements between two or more independent firms to cooperate for the purpose of achieving
common goals are referred to as
a. compacts.
b. global partnerships.
c. strategic alliances.
d. free trade agreements.
e. economic coalitions.

Rationale: Key term definition—strategic alliance.
7-120 STRATEGIC ALLIANCES KNOWLEDGE
Strategic alliances refer to

a. multinational firms that have as many different product variations, brand names, and
advertising programs as countries in which they do business.
b. when a foreign company and a local firm invest together to create a local business in order to
share ownership, control, and profits of the new company.
c. when a domestic firm actually invests in and owns a foreign subsidiary or division.
d. agreements between two or more independent firms to cooperate for the purpose of achieving
common goals such as a competitive advantage or customer value.
e. the right to a trademark, patent, trade secret, or similarly valued item of intellectual property
of one firm in return for a royalty or fee from another firm.

7-121 STRATEGIC ALLIANCES COMPREHENSION
- 42 -
Collaborative relationships are becoming a common way to meet the demands of global
competition. Global __________ are agreements between two or more independent firms to
cooperate for the purpose of achieving common goals such as a competitive advantage or
customer value creation.
a. compacts
b. collaborative treaties
c. strategic alliances
d. free trade agreements
e. economic coalitions

7-122 STRATEGIC ALLIANCES APPLICATION
Two carmakers have developed a strange but successful partnership. Ford, a U.S. automaker, and
Mazda, an Asian carmaker, have collaborated on several models, including the Explorer, the
Probe, the Mazda 323, and the Mazda MX-6. The U.S. automaker has supplied Mazda with help
in marketing, finance, and styling. In return, Mazda has provided manufacturing and product
development expertise to Ford. Both companies have worked together toward a common goal
and both have benefited as a result of their
a. international contract.
b. free trade agreement.
c. strategic alliance.
d. collaborative treaty.
e. global oligopoly.

Rationale: A strategic alliance is a cooperative venture between two or more independent firms.
The organizations work together to achieve common goals such as gaining competitive advantage
or creating customer value.
7-123 GLOBAL COMPANIES KNOWLEDGE
In terms of the global marketplace, there are three primary types of companies: __________,
multinational firms, and transnational firms.
a. worldwide
b. conglomerate
c. intercontinental
d. international
e. cosmopolitan

Rationale: Three types of companies compete in the global marketplace: international firms,
- 43 -
In terms of the global marketplace, there are three primary types of companies: international
firms, __________ firms, and transnational firms.
a. large-scale
b. conglomerate
c. intercontinental
d. cosmopolitan
e. multinational
Answer: e Page(s): 168 LO: 1 AACSB: Global QD: Easy

Rationale: Three types of companies compete in the global marketplace: international firms,
The administrative, marketing, and manufacturing operations that many international firms,
multinational firms, and transnational firms have around the world are often called
a. divisions.
b. outlets.
c. departments.
d. markets.
e. holding companies.

Rationale: Text term definition—divisions or subsidiaries.
7-126 GLOBAL COMPANIES COMPREHENSION
In terms of the global marketplace, there are three primary types of companies: (1) international
firms; (2) multinational firms; and (3) transnational firms. The key factor that distinguishes one
from another is
a. the firm’s financial capacity to take risks.
b. the willingness and ability to embrace diversity.
c. the firm’s orientation toward and strategy for global markets and marketing.
d. the relative position of the product or service in terms of its life cycle.
e. the relative size of the firm both in financial terms and in production capacity.

Rationale: The three types of companies populate and compete in the global marketplace are: (1)
international firms; (2) multinational firms; and (3) transnational firms. A firm’s orientation and
strategy for global markets and marketing defines the type of company it is or attempts to be.
7-127 GLOBAL COMPANIES COMPREHENSION
The three types of companies populate and compete in the global marketplace are (1)
international firms; (2) multinational firms; and (3) __________ firms.
a. multiethnic
b. transnational
c. multidomestic
d. ethnocentric
- 44 -
e. meganational

international firms; (2) multinational firms; and (3) transnational firms. An international firm
engages in trade as an extension of the marketing strategy in its home country, a multinational
firm markets to each part of the world differently, and a transnational firm emphasizes cultural
similarities across countries.
7-128 GLOBAL COMPANIES COMPREHNSION
The three types of companies that populate and compete in the global marketplace are
international firms, __________ firms, and transnational firms.
a. multiethnic
b. domestic
c. multinational
d. ethnocentric
e. decentralized

international firms; (2) multinational firms; and (3) transnational firms. An international firm
engages in trade as an extension of the marketing strategy in its home country, a multinational
firm markets to each part of the world differently, and a transnational firm emphasizes cultural
similarities across countries.
7-129 INTERNATIONAL FIRM KNOWLEDGE
A(n) __________ firm engages in trade and marketing in different countries as an extension of
the marketing strategy in its home country.
a. multidomestic
b. meganational
c. international
d. multinational
e. transnational

Rationale: Text term definition—international firm.
7-130 INTERNATIONAL FIRM COMPREHENSION
Generally speaking, a(n) __________ firm markets its existing products and services in other
countries the same way it does in its home country.
a. meganational
b. international
c. multinational
d. transnational
e. intranational
- 45 -
Rationale: International firms market their existing products and services in other countries the
same way they do in their home country.
7-131 INTERNATIONAL FIRM APPLICATION
Mars, America’s second-largest candy company, began doing business in Russia in the late
1980s. The Snickers bar is one of the top selling candies in Russia and is marketed in much the
same way as it is in the United States. Mars is most likely a(n) __________ firm.
a. international
b. multidomestic
c. transnational
d. meganational
e. multinational

Rationale: International firms engage in trade and marketing in different countries as an
extension of the marketing strategy in their home country.
7-132 MULTINATIONAL FIRM KNOWLEDGE
A firm that views the world as consisting of unique parts and markets to each part differently is
referred to as a(n)
a. meganational firm.
b. foreign expansion firm.
c. international firm.
d. multinational firm.
e. transnational firm.

Rationale: Text term definition—multinational firm.
7-133 MULTINATIONAL FIRM APPLICATION
Lever Europe, a division of Unilever, markets its Snuggle fabric softener in the United States.
But in 10 European countries, it uses seven brand names, including Kuschelweich in German,
Coccolino in Italy, and Mimosin in France. These products also have different packages,
different advertising programs, and occasionally different formulas. From this information, we
can assume that Lever Europe is a(n) __________ firm.
a. ethnocentric
b. multinational
c. transnational
d. meganational
e. international

Rationale: Companies that use a multidomestic marketing strategy have as many different
product variations as countries in which they do business.
- 46 -
7-134 MULTIDOMESTIC MARKETING STRATEGY KNOWLEDGE
The strategy used by firms that have as many different product variations, brand names, and
advertising programs as countries in which they do business is referred to as a(n)
a. ethnocentric strategy.
b. multidomestic strategy.
c. transnational marketing strategy.
d. meganational marketing strategy.
e. multimarket strategy.

Rationale: Key term definition—multidomestic marketing strategy.
A multidomestic marketing strategy refers to

a. the strategy of transnational firms that employ the practice of standardizing marketing
activities when there are cultural similarities and adapting them when cultures differ.
b. the strategy used by firms that use the same product variations, brand names, and advertising
programs for every country in which they do business.
c. the strategy used by firms that have as many different product variations, brand names, and
advertising programs as countries in which they do business.
d. the strategy of seeking out already established firms in other nations and selling them the
rights to manufacture and distribute the firm’s products through the host nation’s established
infrastructure.
e. the strategy currently used by most U.S. domestic firms that when entering a new
international market, these firms offer only those products that require the least amount of
product adaptation or consumer education.

Rationale: Key term definition—multidomestic marketing strategy.
Companies that use a(n) ___________ marketing strategy have as many different product
variations, brand names, and advertising programs as countries in which they do business.
a. ethnocentric
b. multidomestic
c. transnational
d. meganational
e. international

Rationale: Firms that have as many different product variations, brand names, and advertising
programs as countries in which they do business use a multidomestic marketing strategy.
7-137 MULTIDOMESTIC MARKETING STRATEGY APPLICATION
- 47 -
U.S. appliance manufacturers find that different customs about shopping must be used to
determine product design. For instance, people in Northern Europe shop only once a week, so
they need bigger refrigerators than Southern Europeans, who shop daily. Furthermore, Northern
Europeans insist that freezers should be on the top just as firmly as Southern Europeans insist that
freezers should be on the bottom. Consumers in other regions use their appliances differently and
have other different product demands. Given this information, you should conclude U.S.
appliance manufacturers would be more likely successful if they used a(n) __________ marketing
strategy.
a. ethnocentric
b. multidomestic
c. transnational
d. meganational
e. international

Rationale: Companies that use a multidomestic marketing strategy have as many different
product variations as countries in which they do business.
7-138 TRANSNATIONAL FIRM KNOWLEDGE
A(n) __________ firm views the world as one market and emphasizes cultural similarities across
countries or universal consumer needs and wants more than differences.
a. transcontinental
b. multidomestic
c. international
d. multinational
e. transnational

Rationale: Text term definition—transnational firm.
7-139 GLOBAL MARKETING STRATEGY KNOWLEDGE
The strategy transnational firms employ that standardizes marketing activities when there are
cultural similarities and adapts them when cultures differ is referred to as a(n)
a. global marketing strategy.
b. integrated marketing strategy.
c. transnational marketing strategy.
d. meganational marketing strategy.
e. international marketing strategy.

Rationale: Key term definition—global marketing strategy.
7-140 GLOBAL MARKETING STRATEGY KNOWLEDGE
A global marketing strategy refers to

a. the strategy of transnational firms not to employ adaptive marketing techniques when there
are cultural differences, but to redefine their target markets instead.
- 48 -
b. the strategy of transnational firms not to employ adaptive marketing techniques when there
are cultural differences, but to redirect their marketing resources towards customer education.
c. the strategy of transnational firms that employ the practice of standardizing marketing
activities when there are cultural similarities and adapting them when cultures differ.
d. the strategy of seeking out already established firms in other nations and selling them the
rights to manufacture and distribute the firm’s products through host nation’s established
infrastructure.
e. the strategy currently used by most U.S. domestic firms that when entering a new
international market, these firms offer only those products that require the least amount of
product adaptation or consumer education.

Rationale: Key term definition—global marketing strategy.
7-141 GLOBAL MARKETING STRATEGY COMPREHENSION
Which of the following types of firms would be most likely to use a global marketing strategy?
a. multidomestic
b. multinational
c. multicountry
d. transnational
e. transborder

Rationale: Transnational marketers employ a global marketing strategy—the practice of
standardizing marketing activities when there are cultural similarities and adapting them when
cultures differ.
7-142 GLOBAL BRAND KNOWLEDGE
A brand marketed under the same name in multiple countries with similar and centrally
coordinated marketing programs is referred to as a
a. transnational brand.
b. international brand.
c. multinational brand.
d. global brand.
e. meganational brand.

Rationale: Key term definition—global brand.
7-143 GLOBAL BRAND KNOWLEDGE
A global brand refers to

a. two or more domestic products that coincidentally share the same brand name but represent
two completely unrelated products or manufacturers.
b. two or more international products that coincidentally share the same brand name but
represent two completely unrelated products or manufacturers.
- 49 -
c. a brand marketed under the same name in multiple countries with similar and centrally
coordinated marketing programs.
d. a brand that is essentially the same but that has had minor adaptations made to meet the more
specific needs of different nations.
e. a brand marketed under different names in multiple countries with similar and centrally
coordinated marketing programs.

Rationale: Key term definition—global brand.
7-144 GLOBAL BRAND COMPREHENSION
Which of the following statements regarding global brands is most accurate?

a. A global brand has dispersed marketing centers, each of which is responsible for a specific
region.
b. A global brand is marketed under the same name in multiple countries.
c. A global brand alters the product formulation or service for each geographical region.
d. A global brand delivers multiple benefits based on the GDP of each country.
e. A global brand is a collaborative effort among several different national firms.

Rationale: A global brand is a brand marketed under the same name in multiple countries with
similar and centrally coordinated marketing programs. Global brands have the same product
formulation or service concept, deliver the same benefits to consumers, and use consistent
advertising across multiple countries and cultures. Global brands are sometimes tailored to
specific cultures or countries.
Which of the following statements about global brands is most accurate?

a. A global brand is marketed under different names but uses identical ads for all markets.
b. A global brand has centrally coordinated marketing programs.
c. A global brand alters the product formulation or service for each geographical region.
d. A global brand delivers multiple benefits based on the GDP of each country.
e. A global brand is a collaborative effort among several different national firms.

A global brand is a brand marketed under the same name in multiple countries with similar and
centrally coordinated marketing programs. However, adaptations of global brands are made
a. if required by government regulations in the host market and for no other reason.
b. only in its initial introduction into a market and only until the brand is recognized.
- 50 -
c. by domestic competitors causing brand confusion and loss of market share.
d. only when necessary to better connect the brand to consumers in different markets.
e. when there is a serious drop in market share.

7-147 GLOBAL CONSUMERS KNOWLEDGE
Consumer groups living in many countries or regions of the world that have similar needs or seek
similar features and benefits from products or services are referred to as
a. transnational consumers.
b. meganational consumers.
c. international consumers.
d. multinational consumers.
e. global consumers.

Rationale: Key term definition—global consumers.
7-148 GLOBAL CONSUMERS KNOWLEDGE
Global consumers refer to

a. all potential consumers for any and all products or services regardless of cultural, ethnic, or
national origins.
b. customers within a nation who consider the entire globe a single marketplace.
c. consumer groups living in many countries or regions of the world who have similar needs or
seek similar features and benefits from products or services.
d. consumer groups living in many countries or regions of the world that have similar needs but
seek customized features and benefits from products or services that reflect their individual
cultures.
e. multinational organizations whose products incorporate raw materials, assembly, and
distribution contributions from multiple nations before they are marketed.

Rationale: Key term definition—global consumers.
7-149 MARKETING MATTERS COMPREHENSION
The appreciation of fashion, music, and a desire for novelty and trendier designs and images
a. are preferences found more in American teenagers than in most other cultures around the
world.
b. actually begin at age 10, but begin to decline significantly as students enter high school.
c. ironically are found more for teenagers who cannot afford to make those purchases than for
those who can.
- 51 -
d. are preferences of teenagers around the world regardless of whether they live.
e. rarely, if ever, change once established, which is why identifying these consumers is so
important.

Rationale: Teenagers around the world appreciate fashion and music, and desire novelty and
trendier designs and images.
Thirteen- to nineteen-year-olds in Europe, North America, South America, and the industrialized
nations of Asia
a. are more similar than different regarding their purchase behavior.
b. are becoming more similar, but still differ significantly in terms of fashion and design.
c. are rebelling against the Americanization of fashion and culture.
d. have some very different appreciation of fashions and music.
e. are more and more influenced by Asian culture than European culture.

Rationale: The similarity among teens in Europe, North America, South America, and the
industrialized nations of Asia is greater than their differences. A global study of middle-class
teenagers’ rooms in 25 industrialized countries indicated it was difficult, if not impossible, to tell
where in the world the rooms are located.
Based on a study of 6,500 teens in 26 countries, when asked what country had the most influence
on their attitudes and purchase behavior, 54 percent of teens from the United States, 87 percent of
those from Latin America, 80 percent of the Europeans, and 80 percent of those from Asia named
a. the United States.
b. the United Kingdom.
c. Japan.
d. France.
e. Russia.

Rationale: The study showed that the United States was the country that had the most influence
on these teens.
7-152 NETWORKED GLOBAL MARKETSPACE COMPREHENSION
Which of the following statements about the emergence of a networked global marketspace is
most accurate?
a. Marketspace creates an unfair competitive environment for emerging nations.
b. More business-to-consumer marketing is done on the Internet than business-to-business
marketing.
c. The most active participants in the networked global marketspace are companies in
developing nations.
d. All business in the networked global marketspace is conducted in English.
- 52 -
e. The chief advantage of the global marketspace over the traditional bricks-and-mortar stores
for customers is the ability to shop anywhere, at any time, and at a lower cost.

Rationale: Significantly more business-to-business marketing is done on the Internet than
business-to-consumer marketing. The most active participants in the networked global
marketspace are from the United States, the United Kingdom, Germany, Sweden, Japan, Taiwan,
China, and Canada. Nestlé has used the networked global marketspace to create 65 individual
country websites in more than 20 languages that span five continents.
7-153 NETWORKED GLOBAL MARKETSPACE COMPREHENSION
Four trends have significantly affected world trade and global marketing. The use of __________
as a tool for exchanging goods, services, and information on a global scale is the fourth trend
affecting world trade.
a. telephone communications
b. Internet technology
c. language translators
d. tariff and quota policies
e. multinational marketing strategies

Rationale: The use of Internet technology as a tool for exchanging goods, services, and
information on a global scale is the fourth trend affecting world trade.
7-154 CROSS-CULTURAL ANALYSIS KNOWLEDGE
Cross-cultural analysis refers to the study of

a. the subgroups within the larger, or national, culture with unique values, ideas, and attitudes.
b. the set of values, ideas, and attitudes that are learned and shared among the consumers of a
country.
c. similarities and differences among consumers in two or more nations or societies.
d. buying behaviors within a given nation to identify similarities and differences.
e. buying behaviors within a given nation that links a person’s actions to the cultural group with
which he or she identify most.

Rationale: Key term definition—cross-cultural analysis.
7-155 CROSS-CULTURAL ANALYSIS KNOWLEDGE
The study of similarities and differences among consumers in two or more nations or societies is
referred to as __________.
a. market synthesis
b. cross-cultural analysis
c. international sociographics
d. transnational anthropology
e. multicultural ethnocentrism
- 53 -
Rationale: Key term definition—cross-cultural analysis.
7-156 VALUES KNOWLEDGE
Personally or socially preferable modes of conduct or states of existence that tend to persist over
time are referred to as __________.
a. customs
b. ethics
c. values
d. culture
e. beliefs

Rationale: Key term definition—values.
7-157 VALUES KNOWLEDGE
Values refer to
a. personally or socially held core beliefs that are consistent within a given culture.
b. the beliefs that dictate a person’s behavior, which are often derived from a religious code of
conduct.
c. personally or socially preferable modes of conduct or states of existence that tend to persist
over time.
d. the innate sense of what a person considers to be right or wrong in terms of his or her own
conduct when dealing with others.
e. those personal traits regarding honesty and integrity as well as one’s preferable modes of
conduct or states of existence that have been passed down from generation to generation.

Rationale: Key term definition—values.
7-158 VALUES COMPREHENSION
The reverence that Japan shows towards its elderly is an example of the nation’s __________.
a. values
b. beliefs
c. customs
d. religion
e. cultural diversity

Rationale: A country’s values are personally or socially preferable modes of conduct or states of
existence that are enduring. This would include the behavior of one generation toward another in
Japan.
7-159 VALUES APPLICATION
- 54 -
Which of the following examples best demonstrates a company’s appreciation of another
country’s values?
a. American companies in Germany encourage the use of all types of credit cards.
b. In Brazil, American companies are extremely careful to keep to a strict agenda and time
schedule, even though an informal structure is preferred.
c. Bath products are advertised by portraying intimate scenes between husbands and wives in
countries where personal privacy is important.
d. McDonald’s restaurants in India serve a full line of products except for hamburgers made
from beef.
e. All of these.
Answer: d Page(s): 171-172 LO: 2 AACSB: Global QD: Hard

Rationale: In terms of cultural values, Germans are not comfortable with using unnecessary
credit, many countries are more comfortable with a more personalized informal structure, and
some cultures are more considerate of personal privacy. Since 85 percent of the Indian
population considers the cow to be sacred, McDonald’s is showing consideration for the
country’s values by not selling beef.
Which of the following examples best demonstrates a company’s appreciation for another
country’s values?
a. A German company allows customers to make large purchases using lay-away (paying small
amounts until the item is paid for and delivered).
b. In Brazil, an appliance maintenance firm schedules service appointments allowing only 15
minutes of leeway for missed calls or no shows.
c. In Japan, a spa owner created special exercise classes for husbands and wives.
d. In India, a popular hamburger chain separated its dining area by color for people who wanted
to eat beef and those who did not.
e. Calvin Klein reduced the number of outdoor advertising placements showing scantily clad
models in countries with predominantly Muslim populations.
Answer: e Page(s): 171-172 LO: 2 AACSB: Global QD: Hard

Rationale: In terms of cultural values, Germans are not comfortable with using unnecessary
credit, South American countries are more comfortable with a more personalized informal
structure, Japanese men and women are more considerate of personal privacy, and in India fast-
food chains do not serve hamburgers made of beef because the cow is considered sacred.
Modesty is an important value within Muslim cultures.
Almost all countries have some division of social class. The determining factor for the
assignment to one of these classes may differ from country to country. For example, in the
United States, the primary determining factor is occupation; in India, it is birthright; in China, it is
geographical region and education; and in Singapore, it is income. These differences are best
explained in terms of a country’s
a. cultural mores.
b. beliefs.
c. customs.
d. religion.
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e. values.

Rationale: A country’s values are personally or socially preferable modes of conduct or states of
existence that are enduring.
McDonald’s sells its popular Maharaja Mac that consists of two all-chicken patties, special sauce,
lettuce, cheese, pickles, and onions on a sesame-seed bun in __________.
a. Russia
b. China
c. Tanzania
d. Egypt
e. India

Rationale: McDonald’s sells its popular Maharaja Mac that consists of two all-chicken patties,
special sauce, lettuce, cheese, pickles, and onions on a sesame-seed bun in India.
7-163 CUSTOMS KNOWLEDGE
What is considered normal and expected about the way people do things in a specific country is
referred to as __________.
a. morals
b. ethics
c. values
d. customs
e. beliefs

Rationale: Key term definition—customs.
7-164 CUSTOMS KNOWLEDGE
Customs refer to
a. what is considered normal and expected about the way people do things in a specific country.
b. those actions or activities within a community that are unique or distinctly different from any
other group.
c. actions or behaviors that are repeated over time and carry a specific meaning only to a unique
group, nationality, or ethnicity.
d. traditions among a group of people, a nation, or ethnicity that affect their purchase behaviors.
e. what would be considered unusual or unexpected, and even unacceptable about the way
people do things in a specific country.

Rationale: Key term definition—customs.
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7-165 CUSTOMS COMPREHENSION
3M Company executives were perplexed when the company’s Scotch-Brite floor-cleaning

product initially produced lukewarm sales in the Philippines. A Filipino employee explained that
consumers generally clean floors by pushing coconut shells around with their feet. 3M changed
the shape of the pad to a foot and sales soared. 3M changed its product in response to a Filipino
__________.
a. value
b. belief
c. custom
d. idiosyncrasy
e. demographic pattern

Rationale: Customs are the norms and expectations about the way people do things in a specific
country. Since consumers in the Philippines clean floors with their feet, 3M adapted the shape of
its floor-cleaning product to the custom.
7-166 CUSTOMS APPLICATION
KFC in Japan sells tempura crispy strips. In northern England, it stresses gravy and potatoes. In
Thailand, it offers fresh rice. In Holland instead of potatoes, KFC offers customers a potato and
onion croquette. In France, KFC sells pastries alongside its chicken. These examples illustrate
that KFC exhibits an understanding of and appreciation for the __________ of other societies.
a. demographics
b. symbols
c. customs
d. sensitivities
e. selective perception

Rationale: Customs are what are considered normal and expected about the way people do things
(including what they eat) in a specific country. KFC serves food that suits the tastes of its target
markets in each of the countries listed.
7-167 FOREIGN CORRUPT PRACTICES ACT KNOWLEDGE
The Foreign Corrupt Practices Act

a. has different levels of punishment based upon the wealth of the host nation.
b. regulates only the behavior of U.S. businesses conducting business within the United States.
c. makes the theft of trade secrets by foreign entities a federal crime in the United States.
d. is a unilateral agreement the United States made with several developing nations.
e. makes it a crime for U.S. corporations to bribe an official of a foreign government or political
party to obtain or retain business in a foreign country.

Rationale: Key term definition—Foreign Corrupt Practices Act.
7-168 FOREIGN CORRUPT PRACTICES ACT KNOWLEDGE
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A law, amended by the International Anti-Dumping and Fair Competition Act, makes it a crime
for U.S. corporations to bribe an official of a foreign government or political party to obtain or
retain business in a foreign country, is referred to as the
a. International Law for Egalitarian Ethics Act.
b. International Fair Practices Act.
c. Law of International Equity Act.
d. International Law of Ethical Business Practices Act.
e. Foreign Corrupt Practices Act.

Rationale: : Key term definition—Foreign Corrupt Practices Act.
7-169 FOREIGN CORRUPT PRACTICES ACT COMPREHENSION
Which of the following statements about bribery is most accurate?

a. Bribes, kickbacks, and payoffs offered to entice someone to commit an illegal or improper act
are deemed corrupt in some cultures but not in others.
b. The world’s major exporting nations have agreed to treat bribery of foreign government
officials as a violation of trade agreements.
c. Bribery paid to foreign companies is in some cases a tax-deductible expense in the United
States.
d. It is a crime for U.S. corporations to bribe an official of a foreign government or political
party unless pre-approved by the Federal Trade Commission.
e. It is illegal for a U.S. corporation to bribe an official of a foreign government or political
party to obtain or retain business in a foreign country.

Rationale: Bribes, kickbacks, and payoffs offered to entice someone to commit an illegal or
improper act on behalf of the giver for economic gain are considered corrupt in any culture. The
prevalence of bribery in global marketing has led to an agreement among the world’s major
exporting nations to make bribery of foreign government officials a criminal offense. It is illegal
for a U.S. corporation to bribe an official of a foreign government or political party to obtain or
retain business in a foreign country.
7-170 CULTURAL SYMBOLS KNOWLEDGE
Cultural symbols refer to

a. ideas that can be protected by international copyrights.
b. ideas that cannot be expressed by words or characters.
c. things that represent values that exist solely within a nation.
d. things that represent ideas and concepts.
e. words that represent pictures or designs.

Rationale: Key term definition—cultural symbols.
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Cultural symbols are things that
a. can be protected by international copyrights.
b. cannot be expressed by words or characters.
c. represent values that exist solely within a nation.
d. words that represent pictures or designs.
e. represent ideas and concepts.

The representations of ideas and concepts to which different cultures often attach different
meanings are referred to as
a. universal symbols.
b. symbolic concepts.
c. ideological representations.
d. cultural representations.
e. cultural symbols.

7-173 CULTURAL SYMBOLS COMPREHENSION
By skillfully using __________, global marketers can tie positive symbolism to their products,
services, and brands to enhance their attractiveness to consumers.
a. cultural symbols
b. visual icons
c. trademarks
d. brand names
e. ethnic emblems

Rationale: Cultural symbols are things that represent ideas and concepts. By adroitly using
cultural symbols, global marketers can tie positive symbolism to their products, services, and
brands to enhance their attractiveness to consumers.
Tiffany & Company knows that Japanese are superstitious about the number 4. As a result,
Tiffany sells its fine glassware and china in sets of five, not four, in Japan. Tiffany has used its
knowledge of __________ to avoid connecting its products with the number 4.
a. trademarks
b. visual icons
c. cultural symbols
d. brand names
e. ethnic emblems
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Rationale: The Japanese are superstitious about the number 4, so to avoid a connection to this
cultural symbol, Tiffany sells its products in sets of five, not four.
Parthenon Photo
The Parthenon, shown in the photo above, evokes strong feelings from consumers in Greece. As
a result, marketers must be mindful in accessing the meaning of this __________ when
developing marketing programs to reach consumers of a specific country.
a. cultural symbol
b. secret codes
c. back translations
d. semantic symbolisms
e. semiotics

Rationale: Cultural symbols are things that represent ideas and concepts in a specific culture.
Symbols and symbolism play an important role in cross-cultural analysis because different
cultures attach different meanings to things.
7-176 SEMIOTICS KNOWLEDGE
A field of study that examines the correspondence between symbols and their role in the
assignment of meaning for people is referred to as
a. back translation.
b. symbiotics.
c. semiotics.
d. symbolic linguistics.
e. cross-cultural analysis.
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Rationale: Key term definition—semiotics.
7-177 SEMIOTICS KNOWLEDGE
Semiotics refers to
a. a field of study in marketing linguistics that identifies the connotative meanings behind words
in order to create the most effective product or brand names.
b. a field of study in marketing linguistics that identifies the connotative meanings behind words
in order to create the most effective advertising messages.
c. a field of study that examines the correspondence between symbols and their role in the
assignment of meaning for people.
d. a field of linguistics that translates words into internationally recognized symbols to help
companies carry their product message across international boundaries.
e. the combination of a symbol from one language and the verbal message from another in order
for companies to standardize their brand across international boundaries.

Rationale: Key term definition—semiotics.
7-178 SEMIOTICS APPLICATION
Someone who wanted to study the fact that in some nations black is a sign of mourning while in
other nations white is a sign of mourning would be studying
a. semiotics.
b. semantics.
c. semaphorics.
d. cultural symbolism.
e. cultural linguistics.

Rationale: So important is the role of symbols that a field of study, called semiotics, has emerged
that examines the correspondence between symbols and their role in the assignment of meaning
for people. The colors black and white are symbols with different meanings in different cultures.
7-179 LANGUAGE COMPREHENSION
Even though there are hundreds of different languages and dialects, the three major languages
used in global diplomacy and commerce are
a. English, Japanese, and German.
b. English, French, and Spanish.
c. Japanese, Spanish, and French.
d. Japanese, Spanish, and English.
e. Spanish, English, and Chinese.

Rationale: English, French, and Spanish are the principal languages used in global diplomacy
and commerce. However, the best language in which to communicate with consumers is their
own.
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7-180 LANGUAGE APPLICATION
Canada has two official languages, which are

a. English and French.
b. English and Japanese.
c. English and Spanish.
d. English and Italian.
e. English and German.

Rationale: Canada has two official languages—English and French.
7-181 BACK TRANSLATION KNOWLEDGE
The practice where a translated word or phrase is retranslated into the original language by a
different interpreter to catch errors is referred to as
a. locution.
b. heuristics.
c. transliteration.
d. back translation.
e. cross-cultural paraphrasing.

Rationale: Key term definition—back translation.
7-182 BACK TRANSLATION APPLICATION
If you were responsible for marketing communications at a company that manufactures office
supplies and had to provide product literature to be distributed in France, you would be wise to
use ___________, whereby you have someone to translate your literature from American English
into French, and then have someone else in France translate the French into American English.
a. back talk
b. back translation
c. double talk
d. double entendre
e. double indemnity

Rationale: Back translation is retranslating a word or phrase into the original language using a
different interpreter to catch errors. By having the literature translated into French and then back
into English, you will be sure the literature conveys the intended meaning.
A New York carwash owner wanted to open a carwash in Quebec, Canada. He hired a U.S.
translator to create signage for the new venture and to design some simple advertising. It was not
- 62 -
until the business was opened that he learned that he should have used __________. His French
signs actually said “car bath” instead of “car wash.”
a. Unispeak
b. back translation
c. semiotics
d. semantic symbolism
e. linguistic exchange

Rationale: Back translation is retranslating a word or phrase into the original language by a
different interpreter to catch errors.
Kit Kat Bar Photo
Consider the Kit Kat bar photo above. Kit Kat bars are marketed by Nestlé worldwide. Kit Kat
is pronounced “kitto katsu” in Japanese, which roughly translates to “I will win.” Japanese teens
eat Kit Kat bars for good luck, particularly when taking crucial school exams. This is the result
of
a. faulty semiotics.
b. semantic symbolism.
c. an unexpected mistake in back translation.
d. an intentional manipulation of a cultural icon.
e. a clever example of intentional transliteration.

Rationale: Experienced global marketers use back translation, in which a translated word or
phrase is retranslated into the original language by a different interpreter to catch errors.
Nevertheless, unintended translations can produce favorable results. Consider Kit Kat bars
marketed by Nestlé worldwide. Kit Kat is pronounced “kitto katsu” in Japanese, which roughly
translates to “I will win.” Japanese teens eat Kit Kat bars for good luck, particularly when taking
crucial school exams.
- 63 -
Consider the Kit Kat Bar photo above. Nestlé markets its Kit Kat bar globally, including Japan.
In Japan, “Kit Kat” means “I will win.” Experienced global marketers are concerned with
_________, which involves using interpreters to ensure that words used in brand names or
advertisements in a foreign market do not cause problems with or errors in meaning.
a. unispeak
b. back translation
c. semiotics
d. semantic symbolism
e. linguistic exchange

Rationale: Experienced global marketers use back translation, in which a translated word or
phrase is retranslated into the original language by a different interpreter to catch errors.
Nevertheless, unintended translations can produce favorable results. Consider Kit Kat bars
marketed by Nestlé worldwide. Kit Kat is pronounced “kitto katsu” in Japanese, which roughly
translates to “I will win.” Japanese teens eat Kit Kat bars for good luck, particularly when taking
crucial school exams.
7-186 CULTURAL ETHNOCENTRICITY KNOWLEDGE
The belief that aspects of one’s culture are superior to another’s is referred to as
a. cultural ethnocentricity.
b. consumer ethnocentrism.
c. cultural commitment.
d. cross-cultural bias.
e. cultural imperialism.

Rationale: Text term definition—cultural ethnocentricity.
7-187 CONSUMER ETHNOCENTRISM KNOWLEDGE
The tendency to believe it is inappropriate, indeed immoral, to purchase a foreign-made product

is referred to as
a. cultural ethnocentricity.
c. xenophobia.
d. cross-cultural bias.
e. cultural imperialism.

Rationale: Key term definition—consumer ethnocentrism.
7-188 CONSUMER ETHNOCENTRISM KNOWLEDGE
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Consumer ethnocentrism refers to
a. the belief that all products that are foreign made are cheap and of poor quality.
b. the belief that one should only purchase made by indigenous people groups in developing
countries.
c. the belief that all corporations are corrupt and consumers must look out for themselves.
d. the tendency to believe that the only products that are of true quality are those that are
manufactured in one’s own country.
e. the tendency to believe it is inappropriate, indeed immoral, to purchase a foreign-made
product.

Rationale: Key term definition—consumer ethnocentrism.
7-189 CONSUMER ETHNOCENTRISM APPLICATION
A commercial depicts a young son asking his mother why they have to move. The mother’s
response indicates because Americans are buying products made in other countries, the boy’s
father has lost his job. This commercial reflects an attitude of
a. cultural semiotics.
b. the trade feedback effect.
c. protectionism.
d. cultural ethnocentricity.
e. consumer ethnocentrism.

Rationale: Consumer ethnocentrism is the tendency to believe that it is inappropriate, indeed
immoral, to purchase foreign-made products. In this case, the loss of a family’s livelihood is
being blamed on people who purchase products made outside the United States.
A woman from Bloomington, Indiana, is in Chicago for a weekend of shopping and fine dining.
After shopping in at least 10 different stores and trying at least 20 different outfits, she finds
exactly what she has been looking for—the perfect linen suit. At the register however, she
notices that the label indicates that the suit was made in Ireland. Although she agrees with the
salesclerk that the suit is indeed perfect, and that Irish linen is considered to be some of the best,
she does not purchase that suit; instead, she selects a less flattering, more expensive suit that
contains a label stating it was made in the United States. This behavior would likely be an
example of
a. the trade feedback effect.
b. cultural ethnocentricity.
c. consumer ethnocentrism.
d. cultural semiotics.
e. cultural bias.

Rationale: Consumer ethnocentrism is the tendency to believe it is inappropriate, indeed
immoral, to purchase foreign-made products. In this case, the consumer was willing to buy a
lower-quality, higher-priced item made in the United States instead of one made outside the
United States that fit perfectly and was less expensive.
- 65 -
Not so many years ago, many U.S. consumers thought Americans who purchased Japanese-made
radios, televisions, and other electronic equipment were behaving not only inappropriately, but
also immorally. U.S. consumers who thought buying Japanese products was wrong were
exhibiting
a. back translation.
d. consumer bias.
e. cultural ethnocentricity.

Rationale: Consumer ethnocentrism is the tendency of consumers to believe is inappropriate,
even immoral, to buy foreign-made products. Such consumers believe the purchase of imported
products results in lost jobs in the home country, harm to domestic marketers, and is indicative of
a lack of patriotism.
“Buy American-made products. Keep America working.”—Jim Brown, Cleveland, Ohio, USA,
is a slogan that reflects
a. the American value of working hard for your money.
b. patriotism in a time of political uncertainty.
c. an American attitude of consumer ethnocentrism.
d. a promotional campaign by an American manufacturer.
e. the American value of capitalism.

Rationale: Consumer ethnocentrism is the tendency to believe that it is inappropriate, indeed
immoral, to purchase foreign-made products.
7-193 ECONOMIC CONSIDERATIONS COMPREHENSION
Since global marketing is affected by economic considerations, a scan of the global marketplace
should include this factor:
a. an analysis of cultural diversity within the country under consideration.
b. regulatory constraints regarding contracts, mergers, and partnerships.
c. measurement of consumer income in different countries.
d. an assessment of language differences including dialect variation.
e. political and ideological differences between the countries involved.

Rationale: A scan of the global marketplace should include: (1) a comparative analysis of the
economic development in different countries; (2) an assessment of the economic infrastructure in
these countries; (3) measurement of consumer income in different countries; and (4) recognition
of a country’s currency exchange rates.
- 66 -
c. an assessment of language differences including dialect variation.
d. political and ideological differences between the countries involved.
e. an assessment of the economic infrastructure in these countries.

d. a comparative analysis of the economic development in different countries.
e. political and ideological differences between the countries involved.

d. political and ideological differences between the countries involved.
e. recognition of a country’s currency exchange rates.

- 67 -
7-197 STAGES OF ECONOMIC DEVELOPMENT COMPREHENSION
The two major classifications of stages of economic development helpful to global marketers are
a. capitalist and communist.
b. developed and underdeveloped.
c. developed and developing.
d. capitalist and developing.
e. free enterprise and planned economy.

Rationale: The two major groupings of the approximately 195 independent countries in the
world are “developed” and “developing.”
7-198 DEVELOPED COUNTRIES KNOWLEDGE
Private enterprise dominates __________ countries, although they have substantial public sectors
as well.
a. developing
b. evolving
c. developed
d. emerging
e. third-world

Rationale: Text term definition—developed countries.
7-199 DEVELOPING COUNTRIES KNOWLEDGE
Countries moving from an agricultural to an industrial economy are referred to as __________

countries.
a. primitive
b. emerging
c. developing
d. agrarian
e. evolving

Rationale: Text term definition—developing countries.
7-200 BOTTOM OF THE PYRAMID KNOWLEDGE
The largest, but poorest socioeconomic group of people in the world, is often referred to as being
at the
a. bottom of the pyramid.
b. pivot point of economic growth.
c. focal point of economic change.
d. bottom of the economic pool.
e. edge of global evolution.
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Rationale: Key term definition—bottom of the pyramid.
7-201 BOTTOM OF THE PYRAMID KNOWLEDGE
Bottom of the pyramid refers to

a. the largest and most powerful socioeconomic group of people in the world whose combined
buying power essentially dominates the world’s economy.
b. the tenth lowest firm, in terms of market share, within any given industry.
c. the last link in the chain between the manufacturer and the ultimate consumer.
d. the department within a firm with the least input into how the organization operates.
e. the largest, but poorest socioeconomic group of people in the world.

Rationale: Key term definition—bottom of the pyramid.
7-202 BOTTOM OF THE PYRAMID COMPREHENSION
Motorola developed a low-cost cell phone with battery life as long as 500 hours for rural villagers
without regular electricity and an extra-loud volume for use in noisy markets. This phone, a no-
frills design priced at $40, is most likely targeted to people at the
a. focal point of economic change.
b. pivot point of economic growth.
c. bottom of the pyramid.
d. bottom of the economic pool.
e. edge of global evolution.

Rationale: In global marketing terms, the largest, but poorest socioeconomic group of people in
the world is often referred to as being at the bottom of the pyramid. Motorola chose to serve
people at the bottom of the pyramid by being responsive to their conditions and needs.
7-203 ECONOMIC INFRASTRUCTURE KNOWLEDGE
A country’s communication, transportation, financial, and distribution systems are considered to

be its
a. capital infrastructure.
b. fixed-asset infrastructure.
c. economic infrastructure.
d. geopolitical network.
e. network infrastructure.

Rationale: Text term definition—economic infrastructure.
7-204 ECONOMIC INFRASTRUCTURE KNOWLEDGE
Economic infrastructure refers to
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a. a nation’s military-industrial complex.
b. a country’s governmental services.
c. the people and the wealth of a nation.
d. a country’s communication, transportation, financial, and distribution systems.
e. all of a country’s natural resources, whether or not they are currently being exploited.

Rationale: Text term definition—economic infrastructure.
7-205 ECONOMIC INFRASTRUCTURE COMPREHENSION
Two-thirds of the commercial transactions in Russia involve non-monetary forms of payment.

This is a function of the country’s __________.
a. capital infrastructure
b. political infrastructure
c. economic infrastructure
d. geopolitical network
e. financial exchange system

Rationale: Communications, transportation systems, financial services, as well as distribution
systems contribute to a nation’s economic infrastructure.
Although Russia now has a free economy, there are still some problems with its financial and
legal systems as well as with the notion of
a. private property.
b. product promotion.
c. paid advertising.
d. community property.
e. foreign exchange rates.

Rationale: When entering a foreign market, even the financial and legal system can cause
problems. In Russia and elsewhere, formal operating procedure among financial institutions and
the notion of private property are still limited.
7-207 ECONOMIC INFRASTRUCTURE APPLICATION
In Latvia, only one six-lane highway connects Riga with Moscow. Otherwise, the roads are two-
lane and many are made of cobblestones or bricks. This limits the speed with which deliveries
can be made and means that delivery trucks must be quite small. The road network in Latvia is
an example of its
a. capital infrastructure.
b. political infrastructure.
c. economic infrastructure.
d. geopolitical network.
e. ecosystem.
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Rationale: Communications, transportation systems, financial services, as well as distribution
systems contribute to a nation’s economic infrastructure.
7-208 CONSUMER INCOME COMPREHENSION
Generally, as the proportion of middle-income households in a country __________, the

__________ a nation’s purchasing power.
a. increases; greater
b. increases; less
c. decreases; greater
d. levels off; greater
e. There is no relationship between middle-income households and the nation’s purchasing
power.

Rationale: Generally, as the proportion of middle-income households in a country increases, the
greater a nation’s purchasing power tends to be.
Generally, as the proportion of middle-income households in a country __________, the nation’s

purchasing power increases.
a. decreases
b. increases
c. levels off
d. reaches 33 percent of the total population
e. reaches 50 percent of the total population

Generally, as the proportion of middle-income households in a country increases, the nation’s

purchasing power __________.
a. levels off
b. decreases
c. increases
d. becomes less of an economic priority
e. becomes progressively unstable

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7-211 CONSUMER INCOME APPLICATION
Foreign countries with very low per capita incomes may, nonetheless, be attractive markets for
expensive goods. To get a more accurate picture of a country’s purchasing power, a country’s
__________ must also be considered.
a. total income
b. total area
c. geographical location
d. culture
e. income distribution

Rationale: A country’s income distribution is important because it gives a more reliable picture
of a country’s purchasing power. Generally, as the proportion of middle-income households in a
country increases, the greater a nation’s purchasing power tends to be.
7-212 MICROFINANCE KNOWLEDGE
The practice of offering small, collateral-free loans to individuals who otherwise would not have
access to the capital necessary to begin small businesses or other income-generating activities, is
referred to as
a. macrofinance.
b. microfinance.
c. microcapitalization.
d. macrocapitalization.
e. megafinance.

Rationale: Key term definition—microfinance.
7-213 MICROFINANCE KNOWLEDGE
Microfinance refers to
a. the practice of offering small, collateral-free loans to individuals who otherwise would not
have access to the capital necessary to begin small businesses or other income-generating
activities in exchange for a percentage of future profits rather than repaying of loans.
b. the practice of offering small, collateral-free loans to individuals who otherwise would not
have access to the capital necessary to begin small businesses or other income-generating
activities.
c. the lending of money contingent upon a daily accounting of all expenditures made and all
income generated.
d. the day-to-day expenses such as coffee for the office, flowers for anniversaries, etc. that are
considered too small or too insignificant to be itemized and instead are listed as discretionary
funds.
e. the expenditures within an individual household assigned to each individual family member
whether they personally generate income or not.

Rationale: Key term definition—microfinance.
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7-214 MICROFINANCE COMPREHENSION
Hindustan Lever realized it could not sell to the rural poor in India unless it found ways to
distribute its products such as soap, shampoos, and laundry detergents. Lever provided start-up
loans to women to buy stocks of products to sell to local villagers. Today, over 45,000 poor
women sell Lever products in 135,000 villages in India. This is an example of Lever’s use of
a. macrofinance.
b. macrocapitalization.
c. microfinance.
d. microcapitalization.
e. megafinance.

Rationale: Microfinance is the practice of offering small collateral-free loans to individuals who
otherwise would not have access to the capital necessary to begin small businesses or other
income-generating activities. Lever is using microfinance in the example given.
7-215 MICROFINANCE COMPREHENSION
Hindustan Lever realized it could not sell to the rural poor in India unless it found ways to
distribute its products such as soap, shampoos, and laundry detergents. Lever provided start-up
loans to women to buy stocks of products to sell to local villagers. Today, over 45,000 poor
women sell Lever products to 600,000 consumers in 135,000 villages in India. This effort was
called __________.
a. Project Open Roads
b. Project Fresh Start
c. Project Tikva
d. Project Shakti
e. Project Helping Hand

Rationale: Hindustan Lever began the Project Shakti initiative in India as a form of
microfinance. Microfinance is the practice of offering small collateral-free loans to individuals
who otherwise would not have access to the capital necessary to begin small businesses or other
income-generating activities.
7-216 CURRENCY EXCHANGE RATE KNOWLEDGE
The price of one country’s currency expressed in terms of another country’s currency is referred
to as the
a. balance of price.
b. currency exchange rate.
c. money conversion factor.
d. balance of payments.
e. equity exchange factor.

Rationale: Key term definition—currency exchange rate.
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7-217 CURRENCY EXCHANGE RATE KNOWLEDGE
A currency exchange rate refers to

a. the unit equivalency of all international currency.
b. the ratio of a nation’s basic unit of currency relative to the price of silver.
c. the ratio of a nation’s basic unit of currency relative to the price of gold.
d. the price of one country’s currency expressed in terms of another country’s currency.
e. the unit of wealth (gold, oil, diamonds, etc.) upon which a nation bases its national currency.

Rationale: Key term definition—currency exchange rate.
7-218 CURRENCY EXCHANGE RATE COMPREHENSION
Fluctuations in the __________ among the world’s currencies have direct impact on the sales and
profits made by global companies.
a. design
b. transportation
c. reciprocity
d. exchange rates
e. numismatic value

Rationale: A currency exchange rate is the price of one country’s currency expressed in terms of
another country’s currency, such as the U.S. dollar expressed in Brazilian reals. Fluctuations in
exchange rates among the world’s currencies have direct impact on the sales and profits made by
global companies.
When foreign currencies can buy more U.S. dollars,

a. products are more expensive and worth less to foreign customers.
b. products are more expensive and worth more to foreign customers.
c. products are less expensive and worth more to foreign customers.
d. economists consider it an indicator of an impending long-term economic downturn.
e. American consumers buy in large quantities and stockpile in fear of an impending economic
crisis.

Rationale: Exchange rate fluctuations affect the sales and profits made by global companies.
When foreign currencies can buy more U.S. dollars, for example, U.S. products are less
expensive for the foreign customer.
Which of the following statements concerning currency exchange rates is most accurate?
a. Fluctuations in exchange rates among the world’s currencies are of critical importance in
global marketing.
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b. Fluctuations in exchange rates among the world’s currencies are of minor importance in
global marketing.
c. Exchange rate fluctuations are relatively rare, but they usually have serious long-term
consequences.
d. Exchange rate fluctuations are almost nonexistent due in great part to the euro.
e. Exchange rate fluctuations may affect the financial sector but rarely reach the consumer.

Rationale: Exchange rate fluctuations affect the sales and profits made by global companies.
When foreign currencies can buy more U.S. dollars, for example, U.S. products are less
expensive for the foreign customer.
7-221 CURRENCY EXCHANGE RATE APPLICATION
Chrysler Corporation wanted to sell its Jeeps in Japan. The car was priced in U.S. dollars at
about $19,000, but when it reached the Japanese car showrooms, its price was over ¥31,000
Japanese yen, and the Japanese could not afford to buy it. Its price was set without regard for the
a. balance of price.
b. currency exchange rate.
c. reciprocity price.
d. balance of payments.
e. equity exchange factor.

Rationale: A currency exchange rate is the price of one country’s currency expressed in terms of
another country’s currency.
7-222 REGULATORY CLIMATE KNOWLEDGE
The political and regulatory climate for marketing in a country or region of the world means not
only identifying the current climate but also determining how
a. it conducts its macrofinancing.
b. its citizens budget their money.
c. long a favorable or unfavorable climate will last.
d. the country’s stocks are performing on the stock exchange.
e. its population ranks in size compared to other countries.

Rationale: The political and regulatory climate for marketing in a country or region of the world
means not only identifying the current climate but also determining how long a favorable or
unfavorable climate will last.
7-223 REGULATORY CLIMATE COMPREHENSION
An assessment of a country’s or region’s political-regulatory climate includes an analysis of its

political stability and __________.
a. ISO 9000 rating
b. stock market performance
c. trade regulations
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d. cultural diversity
e. currency exchange rates

Rationale: An assessment of a country’s or region’s political-regulatory climate includes an
analysis of its political stability and trade regulations.
7-224 POLITICAL STABILITY KNOWLEDGE
Trade among nations or regions depends on political stability. In recent times, billions of dollars
have been lost in __________ and __________ as a result of internal political strife, terrorism,
and war.
a. Russia; Poland
b. France; Spain
c. China; Japan
d. the Middle East; Africa
e. Germany; the United Kingdom

Rationale: Billions of dollars have been lost in the Middle East and Africa.
7-225 GOING ONLINE COMPREHENSION
The PRS group maintains a website that can be used to determine

a. changing demographic and psychographic data for each country in the registry.
b. a country’s political risk ratings using multiple databases of country-specific information.
c. the tariffs of each country and their relative effect on product/services sales.
d. the rankings of American products relative to domestic equivalents in each country.
e. changing social trends within different segments of the economy.

Rationale: The focus of the PRS group is on maintaining multiple databases of country-specific
information, including political risk ratings. These can be used to determine the relative
favorability of various business climates.
7-226 TRADE REGULATIONS COMPREHENSION
Japanese car safety rules require all automobile replacement parts to be Japanese and EU nations
have 10,000 rules that specify how goods are to be made and marketed. These are examples of
a. ISO 9000 standards.
b. trade barriers.
c. universal codes.
d. binding requirements.
e. “the price of doing business.”

Rationale: Countries have a variety of rules that govern business practices within their borders.
These rules often serve as trade barriers.
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7-227 ISO 9000 COMPREHENSION
Standards for registration and certification of a manufacturer’s quality management and quality
assurance system are referred to as__________ standards.
a. UN 2012
b. NAICS
c. NAFTA
d. ISO 9000
e. ISO 14000

Rationale: The European Union’s ISO 9000 quality standards involve registration and
certification of a manufacturer’s quality management and quality assurance system.
7-228 GLOBAL MARKET ENTRY STRATEGIES KNOWLEDGE
A firm’s profit potential and control over marketing activities __________ as it moves from
exporting to direct investment as a global market-entry strategy.
a. becomes more stable
b. increases
c. levels off
d. decreases
e. becomes more unpredictable

Rationale: A firm’s profit potential and control over marketing activities increases as it moves
from exporting to direct investment as a global market-entry strategy. But so does the firm’s
financial commitment and risk. Firms often engage in exporting, licensing, and joint ventures
before pursuing a direct investment strategy.
Once a company has decided to enter the global marketplace, it must select a means of market
entry. Four general options exist: (1) __________; (2) licensing; (3) joint venture; and (4) direct
investment.
a. exporting
b. accreditation
c. multiparty
d. cooperative
e. franchising

Rationale: Four general options exist: (1) exporting; (2) licensing; (3) joint venture; and (4)
direct investment.
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entry. Four general options exist: (1) exporting; (2) __________; (3) joint venture; and (4) direct
investment.
a. macrofinancing
b. microfinancing
c. franchising
d. licensing
e. collateral

direct investment.
entry. Four general options exist: (1) exporting; (2) licensing; (3) __________; and (4) direct
investment.
a. franchising
b. cooperative
c. multiparty
d. mutual
e. joint venture

direct investment.
entry. Four general options exist: (1) exporting; (2) licensing; (3) joint venture; and (4)
__________.
a. franchising
b. shared
c. combined
d. cooperative
e. direct investment

direct investment.
7-233 GLOBAL MARKET ENTRY STRATEGIES COMPREHENSION
A firm’s profit potential and control over marketing activities increases as it moves from
exporting to direct investment as a global market-entry strategy. But so does the firm’s
a. likelihood of long-term success.
b. financial commitment and risk.
- 78 -
c. vulnerability to political changes and doctrines.
d. need for a more educated workforce.
e. need for a larger workforce.

Rationale: A firm’s profit potential and control over marketing activities increases as it moves
from exporting to direct investment as a global market-entry strategy. But, so does the firm’s
financial commitment and risk. Firms often engage in exporting, licensing, and joint ventures
before pursuing a direct investment strategy.
Figure 7-5
According to Figure 7-5 above, point “A” would most likely be __________.
a. joint venture
b. licensing
c. exporting
d. direct investment
e. franchise

Rationale: From least risk to greatest risk, the options for entering the global marketplace are:
(A) exporting; (B) licensing; (C) joint venture; and (D) direct investment. See Figure 7-5 in the
textbook.
According to Figure 7-5 above, point “B” would most likely be __________.
a. exporting
b. joint venture
c. direct investment
- 79 -
d. franchising
e. licensing

textbook.
According to Figure 7-5 above, point “C” would most likely be __________.
a. exporting
b. joint venture
d. licensing
e. franchising

textbook.
According to Figure 7-5 above, point “D” would most likely be __________.
a. exporting
b. joint venture
d. franchising
e. licensing

textbook.
According to Figure 7-5 above, points “A” and “D” would most likely be __________ and
__________ respectively.
a. joint venture; licensing
b. licensing; exporting
c. licensing; joint venture
d. direct investment; licensing
e. exporting; direct investment
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textbook.
According to Figure 7-5 above, points “B” and “C” would most likely be __________ and
__________ respectively.
a. exporting; licensing
b. licensing; joint venture
c. joint venture; direct investment
d. exporting; direct investment
e. exporting; joint venture

textbook.
7-240 EXPORTING KNOWLEDGE
A global market-entry strategy in which a company produces goods in one country and sells them
in another country is referred to as __________.
a. exporting
b. direct investment
c. countertrade
d. licensing
e. multinational marketing

Rationale: Key term definition—exporting.
Exporting refers to a global market-entry strategy

a. in which a company will sell its products in international markets but not in its own domestic
market.
b. in which a company produces goods in one country and sells them in another country.
c. in which a company will manufacture its product in several countries at the same time using
different brand names and slight product modifications.
d. in which a company will manufacture products specifically designed for non-domestic
markets, but will sell those products to distributors who take title and resell the products to
different companies around the world.
e. whereby a product is made in one country, assembled in a second country, and ultimately
marketed to a third country.

Rationale: Key term definition—exporting.
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What market entry option allows a company to make the least number of changes in terms of its
product, its organization, and even its corporate goals?
a. exporting
b. licensing
c. joint venture
e. franchising

Rationale: Exporting allows a company to make the least number of changes in terms of its
product, its organization, and even its corporate goals.
7-243 INDIRECT EXPORTING KNOWLEDGE
Indirect exporting refers to

a. offering the right to a trademark, patent, trade secret, or similarly valued item of intellectual
property in return for a royalty or fee.
b. contracting with a foreign firm to manufacture products according to stated specifications.
c. the combined investment of a foreign country and a local firm to create a local business.
d. when a firm sells its domestically produced goods in a foreign country through an
intermediary.
e. when a firm sells its domestically produced goods in a foreign country without
intermediaries.

Rationale: Text term definition—indirect exporting.
When a firm sells its domestically produced goods in a foreign country through an intermediary,
it is referred to as
a. direct exporting.
b. indirect exporting.
c. licensing.
d. contract manufacturing.
e. foreign assembly.

Indirect exporting occurs when a firm sells its domestically produced goods in a foreign country
a. in violation of a quota.
b. without paying import tariffs.
c. without paying export duties.
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d. through an intermediary.
e. through a joint venture.

What type of exporting has the least amount of commitment and risk but will probably return the
least profit?
a. direct
b. indirect
c. licensing
d. joint venture

Rationale: Indirect exporting has the least amount of commitment and risk but will probably
return the least profit.
7-247 INDIRECT EXPORTING APPLICATION
A small Canadian winery located in British Columbia has developed a superior tasting wine. It
has no overseas contacts but wants to get its wine on the shelves in selected Asian and European
markets where growth has been substantial in the last two years. What type of exporting option
would best suit this company?
a. direct exporting
b. licensing
c. indirect exporting
d. joint venture
e. cooperative partnership

Rationale: Indirect exporting is ideal for a company that has no overseas contacts but wants to
market abroad.
7-248 INDIRECT EXPORTING APPLICATION
The U.S. motorcycle manufacturer Harley-Davidson uses intermediaries to sell its motorcycles in
numerous nations outside the United States. Harley-Davidson uses
b. licensing.
c. contract manufacturing.
d. indirect exporting.

Rationale: Indirect exporting occurs when a firm sells its domestically produced goods in a
foreign country through an intermediary.
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7-249 MARKETING MATTERS KNOWLEDGE
Fran Wilson Creative Cosmetics attributes its success to a top-quality product, effective
advertising, and a novel __________ program.
a. joint venture
b. cooperative agreement
c. franchise operation
d. export marketing

Rationale: Fran Wilson Creative Cosmetics does not sell to department stores. Rather, the
company sells its Moodmatcher lipstick through a network of Japanese distributors that reach
Japan’s 40,000 beauty salons.
To circumvent competing with Japanese firms through their traditional channel of distribution,
Fran Wilson Creative Cosmetics Moodmatcher lip coloring is sold in which type of retail venue?
a. grocery stores
b. flower shops
c. beauty salons
d. department stores
e. gift stores

Rationale: Fran Wilson Creative Cosmetics does not sell to department stores. Rather, the
company sells its Moodmatcher lipstick through a network of Japanese distributors that reach
Japan’s 40,000 beauty salons.
7-251 DIRECT EXPORTING KNOWLEDGE
Direct exporting refers to

a. offering the right to a trademark, patent, trade secret, or similarly valued items of intellectual
b. contracting with a foreign firm to manufacture products according to certain specifications.
c. when a foreign country and a local firm invest together to create a local business.
d. when a firm sells its domestically produced goods in a foreign country through an
intermediary.
e. when a firm sells its domestically produced goods in a foreign country without
intermediaries.

Rationale: Text term definition—direct exporting.
7-252 DIRECT EXPORTING KNOWLEDGE
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What global market-entry strategy involves slightly more risk than indirect exporting for a
company but also opens the door to increased profits?
a. direct exporting
b. licensing
c. cooperative
d. joint venture

Rationale: Direct exporting involves slightly more risk than indirect exporting for a company but
also opens the door to increased profits.
The prominent global market-entry strategy among small-and medium-sized companies is

a. exporting.
b. franchising.
c. licensing.
d. joint venture.
e. direct investment.

Rationale: Exporting is the prominent global market-entry strategy among small- and medium-
sized companies. Sixty percent of U.S. firms exporting products have fewer than 100 employees.
7-254 DIRECT EXPORTING COMPREHENSION
Most companies become involved in direct exporting when

a. foreign governments believe that they will benefit the most from allowing the entry of direct
exports.
b. emerging markets in foreign countries become economically viable.
c. they believe their volume of sales will be sufficiently large and easy to obtain so that they do
not require intermediaries.
d. the domestic market becomes saturated with competing products and services.
e. evolving technologies in foreign countries come online.

Rationale: Most companies become involved in direct exporting when they believe their volume
of sales will be sufficiently large and easy to obtain so that they do not require intermediaries.
7-255 DIRECT EXPORTING APPLICATION
When a U.S. airplane manufacturer sells its airplanes to business executives in Germany without
using intermediaries, it is referred to as
c. licensing.
d. foreign manufacturing.
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Rationale: Direct exporting is when a firm sells its domestically produced goods in a foreign
country without intermediaries.
7-256 LICENSING KNOWLEDGE
Licensing refers to
c. when a foreign country and a local firm invest together to create a local business.
d. having a company handle its own exports directly without intermediaries.
e. exporting through an intermediary, which often has the knowledge and means to succeed in
selling a firm’s product abroad.

Rationale: Under licensing, a company offers the right to a trademark, patent, trade secret, or
other similarly valued items of intellectual property in return for a royalty or a fee.
Offering the right to a trademark, patent, trade secret, or similarly valued items of intellectual
property in return for a royalty or fee is referred to as
c. licensing.
e. outside branding.

other similarly valued items of intellectual property in return for a royalty or a fee.
7-258 LICENSING COMPREHENSION
A form of low-risk and capital-free entry into international markets that includes local
manufacturing and local assembly is referred to as
a. indirect exporting.
b. direct ownership.
c. joint ventures.
d. licensing.
e. direct exporting.

other valued item in exchange for a royalty or fee. The advantages to the company granting the
license are low risk and capital-free entry into international marketing.
- 86 -
Which of the following is an advantage inherent in the use of licensing?

a. The licensee retains control of its product.
b. The licensee is protected from creating a potential competitor.
c. The licensee gains information about the dynamics of the market.
d. There is an exemption from domestic trade regulations.
e. There is an increase in potential profit gains.

Rationale: The licensee gains information that allows it to start with a competitive advantage,
and the foreign country gains employment by having the product manufactured locally. The
remaining answers are all potential drawbacks of licensing.
Which of the following is an advantage inherent in the use of licensing?

a. The foreign country gains employment.
b. There is an exemption from domestic trade regulations.
c. There is an increase in potential profit gains.
d. The licensee retains control of its product.
e. The licensee is protected from creating a potential competitor.

Rationale: The licensee gains information that allows it to start with a competitive advantage,
and the foreign country gains employment by having the product manufactured locally. The
remaining answers are all potential drawbacks of licensing.
Which of the following is a disadvantage associated with licensing?

a. The licensor has lower wages and prices.
b. The licensor may create its own competition.
c. The licensor has increased profit potential.
d. The licensor has complete control of the product.
e. The firm’s reputation is improved if it selects a poor choice as a licensee.

Rationale: Lower wages and prices are not a disadvantage to licensing arrangements with foreign
firms. Licensing decreases profit potential and gives the company no control over its product,
which is why a poor choice in licensee can create a poor image for product. The licensing firm
may create its own competition, as some licensees are able to modify the product somehow and
enter the market with product and marketing knowledge gained at the expense of the company
that got them started.
Which form of entry into a global market makes a firm the most vulnerable to harm regarding its
brand name or reputation?
- 87 -
a. direct exporting
b. indirect exporting
c. licensing
d. contract manufacturing
e. joint ventures

Rationale: There are some serious drawbacks to licensing. The licensor forgoes control of its
product and reduces the potential profits. In addition, it may even be creating its own
competition. Finally, should the licensee prove to be a poor choice, the brand name or reputation
of the licensor may be harmed.
7-263 LICENSING APPLICATION
Tricon was the restaurant division of PepsiCo until it was spun off in 1997. Since then, Tricon
has opened 6,000 KFC restaurants abroad. It has 158 restaurants in Indonesia and more than 500
restaurants in China. All are locally owned and the owner pays a fee to Tricon. Tricon is
engaged in
c. licensing.

Rationale: Tricon has given the local restaurant owners the benefit of its patents, trade secrets,
etc., and the owners pay Tricon a licensing fee.
Two variations on licensing are

a. contract manufacturing and direct investment.
b. contract manufacturing and joint ventures.
c. foreign assembly and franchising.
d. contract manufacturing and contract assembly.
e. foreign assembly and joint ventures.

Rationale: Two variations on licensing are contract manufacturing and contract assembly, which
represent alternative ways to produce a product within the foreign country. A third variation of
licensing is franchising.
7-265 CONTRACT MANUFACTURING KNOWLEDGE
Contract manufacturing refers to

b. contracting with a foreign firm to manufacture products according to stated specifications.
- 88 -
c. contracting between a foreign country and a local firm to invest together to create a local
business.
d. having a company handle its own exports directly, without intermediaries.
e. exporting through an intermediary, which has the knowledge and means to succeed in selling
a firm’s product abroad.

Rationale: Text term definition—contract manufacturing.
7-266 CONTRACT MANUFACTURING KNOWLEDGE
Companies that contract with a foreign firm to manufacture products according to stated
specifications are using
c. joint ventures.
e. contract assembly.

Rationale: Text term definition—contract manufacturing.
7-267 CONTRACT MANUFACTURING APPLICATION
New Balance Athletic Shoes, Inc. claimed its shoes were “made in the USA” when actually the
shoe soles and most of the uppers were made in China. The shoes were assembled in the United
States. The Federal Trade Commission did not think that assembling the shoes in the United
States was enough to use the “made in the USA” logo. New Balance actually used
c. a joint venture.

Rationale: Contract manufacturing is when a U.S. company contracts with a foreign firm to
manufacture products according to stated specifications. New Balance contracted with a Chinese
firm to manufacture soles and uppers to New Balance’s specifications, which were then
assembled in the United States.
7-268 CONTRACT ASSEMBLY KNOWLEDGE
Contracting with a foreign firm to assemble parts and components that have been shipped to that
country is referred to as
c. direct investment.
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Rationale: Text term definition—contract assembly.
7-269 CONTRACT ASSEMBLY KNOWLEDGE
Contract assembly refers to

b. contracting with a foreign firm to assemble parts and components that have been shipped to
that country.
c. when a foreign company and a local firm invest together to create a local business.
e. contracting with a foreign firm to manufacture products according to stated specifications.

Rationale: Text term definition—contract assembly.
7-270 FRANCHISING APPLICATION
Tricon was the restaurant division of PepsiCo until it was spun off in 1997. Since then Tricon has
opened 6,000 KFC restaurants abroad. It has 158 restaurants in Indonesia and more than 500
restaurants in China. All are locally owned and subject to a contractual agreement that allows the
owners to operate the business under the established KFC brand name and according to specific
rules. Tricon is engaged in
a. contract assembly.
b. a joint venture.
c. contract manufacturing.
d. a partnership.
e. franchising.
Answer: e Page(s): 182 LO: 3 AACSB: Global QD: Hard

Rationale: Franchising is a type of licensing.
7-271 JOINT VENTURE KNOWLEDGE
A joint venture refers to

c. when a foreign company and a local firm invest together to create a local business.
d. having a company handle its own exports directly, but using intermediaries for importing.
e. exporting through an intermediary, which often has the knowledge and means to succeed in
selling a firm’s product abroad.

Rationale: Key term definition—joint venture.
- 90 -
A global market-entry strategy in which a foreign company and a local firm invest together to
create a local business in order to share ownership, control, and profits of the new company is
referred to as
a. licensing.
b. a joint venture.
c. direct exporting.
d. a local assembly.
e. local manufacturing.

Rationale: Key term definition—joint venture.
PepsiCo and __________ entered into a joint venture to market Frito-Lay’s, Cheetos, Ruffles, and
Doritos in Israel.
a. The Strauss Group
b. Ericsson
c. General Mills
d. Hebrew National
e. CGCT

Rationale: The Strauss Group has a joint venture with PepsiCo to market Frito-Lay’s Cheetos,
Ruffles, Doritos, and other snacks in Israel.
7-274 JOINT VENTURE COMPREHENSION
The __________ arrangement between Ericsson, a Swedish telecommunications firm, and

CGCT, a French switch maker, enabled them together to beat out AT&T for a $100 million
French contract.
a. franchising
b. licensing
c. joint venture
e. exporting

Rationale: A joint venture between Ericsson, a Swedish telecommunications firm, and CGCT, a
French switch maker, enabled them together to beat out AT&T for a $100 million French
contract.
7-275 JOINT VENTURE COMPREHENSION
A disadvantage of a joint venture arrangement when entering a new global market is that
a. no intermediaries are used to distribute the product.
b. the first entering the foreign marketing must pay royalties to the host firm.
- 91 -
c. one of the companies forgoes control over its product.
d. when the two companies disagree about policies.
e. this method has the least amount of subsidies from the host country’s government.

Rationale: The disadvantages arise when the two companies disagree about policies or courses of
action for their joint venture or when governmental bureaucracy bogs down the effort.
7-276 DIRECT INVESTMENT KNOWLEDGE
Direct investment in international marketing refers to

c. a national market-entry strategy that entails a foreign company and a local firm investing
together to create a local business.
e. a global market-entry strategy that entails a domestic firm actually investing in and owning a
foreign subsidiary or division.

Rationale: Key term definition—direct investment.
A global market-entry strategy that entails a domestic firm actually investing in and owning a
foreign subsidiary or division is referred to as
a. licensing.
b. local assembly.
c. a joint venture.
d. direct investment.
e. local manufacturing.

Rationale: Key term definition—direct investment.
When Nestlé actually owns a subsidiary or division in a foreign country, such as when it
established its own ice cream manufacturing operation in China, this global market entry strategy
is known as __________ and represents the greatest commitment a company can make.
a. licensing
b. local assembly
c. a joint venture
e. local manufacturing
- 92 -
Rationale: The biggest commitment a company can make when entering the global market is
direct investment, which entails a domestic firm actually investing in and owning a foreign
subsidiary or division.
7-279 DIRECT INVESTMENT COMPREHENSION
Which form of entry into a foreign market requires the greatest commitment?
a. direct exporting
b. direct investment
c. joint venture
d. licensing
e. indirect exporting

Rationale: The biggest commitment a company can make when entering the international market
is by direct investment, which entails actually investing in and owning a foreign subsidiary or
division.
7-280 DIRECT INVESTMENT APPLICATION
Both Honda and Toyota have plants in the United States that use American labor. This example
is an illustration of Honda and Toyota practicing
b. direct investment.
c. joint venture.
d. licensing.
e. indirect exporting.

Rationale: Direct investment entails a domestic firm actually investing in and owning a foreign
subsidiary or division. Honda and Toyota are domestic firms (to Japan) that own a foreign (U.S.)
subsidiary or division.
7-281 PRODUCT EXTENSION KNOWLEDGE
Global companies have five strategies for matching products and their promotion efforts to global
markets. The strategy of selling virtually the same product in other countries is referred to as
a. product adaptation.
b. product invention.
c. brand adaptation.
d. product extension.
e. product integration.

Rationale: Text term definition—product extension. See Figure 7-6 in the textbook.
7-282 PRODUCT EXTENSION COMPREHENSION
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As a general rule, __________ seems to work best when the consumer market target for the
product is alike across countries and cultures—that is, consumers share the same desires, needs,
and use for the product.
a. product adaptation
b. product extension
c. product integration
d. product invention
e. product customization

Rationale: Product extension seems to work best when the consumer market target for the
product is alike across countries and cultures. See Figure 7-6 in the textbook.
7-283 PRODUCT EXTENSION APPLICATION
Coca-Cola, Gillette razors, and Wrigley’s gum are virtually selling the same product in other
countries. This is an example of which type of international product strategy?
a. product customization
b. product adaptation
c. product extension
d. product integration
e. product invention

Rationale: Coca-Cola, Gillette razors, and Wrigley’s gum are using a product extension
strategy—they are selling virtually the same product in other countries. See Figure 7-6 in the
textbook.
7-284 PRODUCT EXTENSION APPLICATION
The company that makes Breathe-Right nasal strips sells the same product in other countries.
This is an example of which type of global product strategy?
a. product customization
b. product extension
c. product adaptation
e. product integration

Rationale: The product strategy of selling virtually the same product in other countries is a
product extension strategy. As a general rule, product extension seems to work best when the
consumer market target for the product is alike across countries and cultures—that is, consumers
share the same desires, needs, and uses for the product. See Figure 7-6 in the textbook.
7-285 PRODUCT ADAPTATION KNOWLEDGE
markets. Changing a product in some way to make it more appropriate for a country’s climate or
preferences is an example of which type of strategy?
- 94 -
a. product extension
b. product customization

Rationale: Text term definition—product adaptation. See Figure 7-6 in the textbook.
7-286 PRODUCT ADAPTATION KNOWLEDGE
Changing a product in some way to make it more appropriate for a country’s climate or
preferences is an example of which type of product strategy?

Rationale: Text term definition—product adaptation. See Figure 7-6 in the textbook.
7-287 PRODUCT ADAPTATION COMPREHENSION
Frito-Lay produces and markets potato chips in Russia that have seafood flavor. This is an
example of
a. product integration.
b. product invention.
c. product adaptation.
d. product customization.
e. product extension.

Rationale: Changing a product in some way to make it more appropriate for a country’s climate
or preferences is a product adaptation strategy. See Figure 7-6 in the textbook.
7-288 PRODUCT ADAPTATION APPLICATION
KFC in Japan altered the sweetness of its coleslaw to appeal to Japanese tastes. This is an
example of which type of global product strategy?

Rationale: Changing a product in some way to make it more appropriate for a country’s climate
or preferences is a product adaptation strategy. See Figure 7-6 in the textbook.
- 95 -
7-289 PRODUCT INVENTION KNOWLEDGE
markets. Designing a product to serve the unmet needs of a foreign nation is which type of
product strategy?

Rationale: Text term definition—product invention. See Figure 7-6 in the textbook.
7-290 PROMOTION MESSAGE APPLICATION
Even though Exxon adapts its gasoline blends for different countries based on climate, the
promotion message is unchanged. The wording of that slogan is “_________.”
a. Put a tiger in your tank
b. Put the pedal to the metal
c. Buy American-refined fuel
d. Keep American’s working
e. Power in the Pistons

Rationale: Exxon’s promotional message is “Put a Tiger in Your Tank.”
7-291 DUAL ADAPTATION COMPREHENSION
markets. Nescafé coffee is marketed using different coffee blends and promotional campaigns to
match consumer preferences in different countries. For example, Nescafé generally emphasizes
the taste, aroma, and warmth of shared moments in its advertising around the world. However, in
Thailand, Nescafé is advertised as a way to relax from the pressures of daily life. This is an
example of which type of global product strategy?
d. dual adaptation
e. dual integration

Rationale: A dual adaptation strategy means modifying both the products and promotion
messages, which Nescafé has done in this example. See Figure 7-6 in the textbook.
7-292 DUAL ADAPTATION COMPREHENSION
- 96 -
Nescafé coffee is marketed using different coffee blends and promotional campaigns to match
consumer preferences in different countries. For example Nescafé generally emphasizes the taste,
aroma, and warmth of shared moments in its advertising around the world. However in Thailand
Nescafé is advertised as a way to relax from the pressures of daily life. Nescafé is using which
type of product strategy?
d. dual adaptation
e. dual integration

Rationale: A dual adaptation strategy means modifying both the products and promotion
messages, which Nescafé has done in this example.
Figure 7-6
7-293 PRODUCT AND PROMOTION STRATEGY COMPREHENSION
markets. According to Figure 7-6 above, “A” refers to which type of strategy?
a. product extension strategy
b. communication adaptation strategy
c. product adaptation strategy
d. dual adaptation strategy
e. product invention strategy

Rationale: A product extension strategy (“A”) uses the same product and the same promotional
emphasis. See Figure 7-7 in the textbook.
markets. According to Figure 7-6 above, “B” refers to which type of strategy?
- 97 -
b. communication adaptation strategy
c. product adaptation strategy
d. dual adaptation strategy
e. product invention strategy

Rationale: A product adaptation strategy (“B”) uses the same promotion but an adapted product.
markets. According to Figure 7-6 above, “C” refers to which type of strategy?
b. product adaptation strategy
c. dual adaptation strategy
d. product invention strategy
e. communication adaptation strategy

Rationale: A communication adaptation strategy (“C”) uses the same product and adapts the
promotion. See Figure 7-6 in the textbook.
markets. According to Figure 7-6 above, “D” refers to which type of strategy?

Rationale: A dual adaptation strategy (“D”) adapts both the product and the promotion. See
Figure 7-6 in the textbook.
markets. According to Figure 7-6 above, “E” refers to which type of strategy?
- 98 -
Rationale: A product invention strategy (“E”) requires the invention of an entirely new product.
Figure 7-7
7-298 DISTRIBUTION STRATEGY COMPREHENSION
Figure 7-7 above outlines the distribution channels through which a product manufactured in one
country must travel to reach its destination in another country. “A” represents the
a. seller.
b. seller’s international marketing headquarters.
c. channels between nations.
d. channels within the foreign nation.
e. final customer.

Rationale: Figure 7-7 above outlines the distribution channels through which a product
manufactured in one country must travel to reach its destination in another country. “A”
represents the seller; its headquarters is the starting point and is responsible for the successful
distribution to the ultimate consumer. “B” is the seller’s international marketing headquarters.
“C” represents the channels between nations. “D” represents the channels within a foreign
nation. “E” represents the final or ultimate consumer.
country must travel to reach its destination in another country. “B” represents the
a. channels within foreign nations.
b. channels between nations.
c. seller’s international marketing headquarters.
d. political forces.
e. final consumer.

- 99 -
country must travel to reach its destination in another country. “C” represents the
a. seller.
d. channels within foreign nations.
e. final consumer.

country must travel to reach its destination in another country. Which letter in the figure (“A,”
“B,” “C,” “D,” or “E”) would identify intermediaries used to move the product from one country
to another?
a. “A”
b. “B”
c. “C”
d. “D”
e. “E”

Rationale: Intermediaries that can handle this responsibility include resident buyers in a foreign
country, independent merchant wholesalers who buy and sell the product, or agents who bring
buyers and sellers together.
country must travel to reach its destination in another country. “E” represents the
a. seller.
d. channels within foreign nations.
e. final consumer.

- 100 -
Figure above 7-7 outlines the distribution channels through which a product manufactured in one
country must travel to reach its destination in another country. Channels of distribution in global
marketing are often long and complex. “A” represents the __________ and “B” identifies the
__________.
a. seller; final consumer
b. seller; seller’s international marketing headquarters
c. seller international marketing headquarters; channels between nations
d. channels between nations; channels within foreign nations
e. channels within foreign nations; final consumer

7-304 DISTRIBUTION STRATEGY APPLICATION
country must travel to reach its destination in another country. Channels within a foreign nation
can be very long or surprisingly short. Which letter in the figure represents these channels?
a. “A”
b. “B”
c. “C”
d. “D”
e. “E”

Rationale: Cell “D” represents channels within foreign nations.
7-305 DUMPING KNOWLEDGE
When a firm sells a product in a foreign country below its domestic price or below its actual cost,
it is referred to as
a. loss-leader pricing.
b. surplus marketing.
c. dumping.
d. second-market pricing.
e. entrepreneurial pricing.

Rationale: Key term definition—dumping.
- 101 -
Dumping refers to
a. illegally disposing of unusable or damaged goods to avoid paying removal fees and/or taxes.
b. when a firm sells damaged or unsalable goods below their original production cost.
c. when a firm sells quality goods at significantly lower prices for the primary purpose of
reducing inventory to make room for seasonal goods.
d. when a firm sells quality goods at significantly lower prices for the primary purpose of
reducing inventory to make room for newer or more expensive models.
e. when a firm sells a product in a foreign country below its domestic price or below its actual
cost.

What is the term for a firm selling a product in a foreign country below its domestic price or
below its actual cost?
a. dumping
b. surplus marketing
c. second-market pricing
d. channeling
e. entrepreneurial pricing

7-308 DUMPING APPLICATION
Eastman Kodak accused Japanese rival Fuji Photo Film of selling photographic paper in the
United States for 25 percent below what it charges in Japan. In other words, Eastman Kodak
accused Fuji of __________.
a. tariff avoidance
b. countertrade
c. surplus marketing
d. dumping
e. underbidding

Rationale: A firm selling a product in a foreign country below its domestic price or below its
actual cost is often accused of dumping.
7-309 GRAY MARKET KNOWLEDGE
A situation where products are bought in a lower-priced country from a manufacturer’s

authorized reseller, shipped to higher-priced countries, and then sold through unauthorized
retailers below the manufacturer’s suggested retail price is referred to as __________.
a. the black market
- 102 -
b. a gray market
c. dumping
d. a globalized market
e. parallel exporting

Rationale: Key term definition—gray market.
A gray market refers to

a. the segment of products specifically designed for the need of older buyers.
b. a situation where products are sold through unauthorized channels of distribution.
c. a once active and powerful market that is rapidly becoming the bottom of the barrel.
d. a pricing structure that is based upon “haggling” that is considered acceptable in some
countries but not others.
e. the willingness of one party to accept “gifts” in exchange for better prices or price
allowances.

Rationale: Key term definition—gray market.
Another term for a gray market is

a. parallel exporting.
b. back-channel market.
c. mature marketing.
d. parallel importing.
e. transparent market.

Rationale: Key term definition—gray market or parallel importing.
7-312 GRAY MARKET APPLICATION
The Japanese manufacture tractors for rice paddies. They are smaller than most U.S. tractors and
perfect for a weekend farmer who wants to tend to a small garden. The tractors are not sold in the
United States through any authorized channels, yet they are available in the United States at
prices below the manufacturer’s suggested retail price. What is the term for how these tractors
are being sold?
a. the gray market
b. under the counter
c. over the counter
d. bypassed global channels
e. breaking the distribution monopoly
- 103 -
Rationale: Gray marketing is a situation where products are bought in a lower-priced country
from a manufacturer’s authorized reseller, shipped to higher-priced countries, and sold through
unauthorized channels of distribution below the manufacturer’s suggested retail price.
7-313 VIDEO CASE 7: CNS KNOWLEDGE
In global retailing, the acronym “OTC” stands for

a. Off the Cuff.
b. Over the Counter.
c. Off-tariff Countries.
d. Outstanding Trade Countries.
e. Off-shore Trade Consortiums.

Rationale: “OTC” refers to over-the-counter medical products like aspirin or cough syrup that
customers can buy without a doctor’s prescription.
7-314 VIDEO CASE 7: CNS COMPREHENSION
When CNS decided to enter the global market for its Breathe Right strips, there were many
contributing factors for doing so. However, according to Kevin McKenna, vice president for
international at CNS, the real key to successfully enter a specific global market is
a. selecting a country where there will be virtually no product competition.
b. having a local partner that is entrepreneurial with an ability to distribute and sell.
c. capitalizing on America’s reputation as a leader in medical product innovation.
d. having an internationally known celebrity spokesperson who transcends national boundaries.
e. having a quality product that can easily be manufactured and distributed.

Rationale: The real key to success in global marketing is having a local partner that is
entrepreneurial and has an ability to execute in terms of achieving distribution and sales.
Many changes influenced the opportunities for global sales of Breathe Right strips. One of these
is:
a. an increase in pollution resulting in a larger number of people suffering from allergies, who
would benefit from the product.
b. a heightened interest in products considered to be “quick fixes.”
c. a distrust of the formal medical community and a desire for self-healing alternatives.
d. an expansion of the pharmacist role from that of medical professional to selling and
marketing OTC products.
e. a desire to avoid invasive procedures or medications.
Answer: d Page(s): LO: 4 AACSB: Global QD: Medium

Rationale: Key trends include increased availability of over-the-counter products formerly
available only by prescription; and a global push toward self-care, spurred by the increasing cost
of health and medical care. Additionally, OTC products have extended beyond the traditional
boundary of the pharmacy and into grocery and other channels, and the role of the pharmacist has
- 104 -
expanded from that of medical professional to one that includes selling and marketing OTC
products to consumers.
To ensure the Breathe Right brand continues to meet growth expectations, CNS uses a three-stage
approach to penetrate and develop new markets: (1) explore/test the concept; (2) establish the
product; and (3) __________.
a. manage the product
b. benchmark the product
c. analyze market trends
d. perform cross-cultural analysis
e. assess political and regulatory requirements

Rationale: CNS uses a three-stage approach to penetrate and develop new markets: (1)
explore/test the concept; (2) establish the product; and (3) manage the product.
- 105 -
SHORT ESSAY QUESTIONS
7-317 TRADE FEEDBACK EFFECT KNOWLEDGE
What is the trade feedback effect?
Answer:
The global perspective of world trade views exports and imports as complementary economic
flows. A country’s imports affect its exports and exports affect its imports. Every nation’s
imports arise from the exports of other nations. As the exports of one country increase, its
national output and income rise, which in turn leads to an increase in the demand for imports.
This nation’s greater demand for imports stimulates the exports of other countries. Increased
demand for exports of other nations energizes their economic activity, resulting in higher national
income, which stimulates their demand for imports. In short, imports affect exports and vice
versa. This phenomenon is called the trade feedback effect and is one argument for free trade
among nations.
Page(s): 160 LO: 1 AACSB: Global QD: Easy
7-318 PORTER’S DIAMOND KNOWLEDGE
List and briefly describe the four main elements of Porter’s diamond of national competitive
advantage.
Answer:
The four major elements of Porter’s diamond of national competitive advantage include factor
conditions, demand conditions, related and supporting industries, and company strategy,
structure, and rivalry. (1) Factor conditions include a nation’s ability to use its natural resources,
education and skill levels, and wage rates. (2) Demand conditions refer to the size of the market,
sophistication of consumers, and media exposure of an industry’s products. (3) Related and
supporting industries refers to the existence of supplier clusters that can accelerate innovation.
(4) Company strategy, structure, and rivalry refer to the number of companies in an industry, the
intensity of competition, and whether ownership is public or private.
Page(s): 161-163 LO: 1 AACSB: Global QD: Easy
Play devil’s advocate. Select any American industry and argue persuasively why protectionism is
not only patriotic, it is absolutely essential for survival.
Answer:
A quality answer will provide at least three reasons (with examples!) specific to the industry
chosen, touching on such arguments as preserving jobs, protecting a nation’s political security,
discouraging economic dependency on other countries, or encouraging domestic industry.
- 106 -
Page(s): 164-165 LO: 1 AACSB: Global QD: Hard
Give at least one argument for and one argument against protectionism.
Answer:
People who favor protectionism believe that it preserves jobs, protects a nation’s political
security, discourages economic dependency on other countries, and encourages domestic
industry. Those who oppose protectionism believe that it inhibits world trade and results in
higher domestic prices on goods and services produced by protected industries. While the
decreased supply may raise prices, the tariffs are a virtually certain way to do so.
Page(s): 164-165 LO: 1 AACSB: Global QD: Medium
“A signal that the world’s trading nations are committed to open markets—and will resist
protectionism—would inject confidence and energy into our markets,” says the U.S. Trade
Representative. Discuss this statement.
Answer:
This statement indicates that the U.S. Trade Representative is opposed to protectionism. He
believes it inhibits world trade and that it may result in higher domestic prices on goods and
services produced by protected industries. Lower prices will increase consumer buying and
increased consumer buying will increase production. Increased production will lead to more jobs,
higher profits, and increased confidence.
Page(s): 164-165 LO: 1 AACSB: Global QD: Hard
7-322 TARIFFS AND QUOTAS COMPREHENSION
If your primary motive was to raise prices on imports, would you use tariffs or quotas? Why?
Answer:
If your primary motive was to raise prices on imports, then your choice would be tariffs. Tariffs
are government taxes on goods or services entering a country. They help equalize price
competition between foreign and domestic goods. Quotas are restrictions placed on the amount
of a product that may enter or leave a country. See Figure 7-3 in the textbook.
7-323 WORLD TRADE ORGANIZATION COMPREHENSION
Briefly describe the World Trade Organization (WTO) and its purpose.
Answer:
The World Trade Organization (WTO) was formed in 1995 to address a broad array of world
trade issues. There are 153 WTO member countries including the United States, which account
- 107 -
for more than 90 percent of world trade. The WTO is a permanent institution that sets rules
governing trade between its members through panels of trade experts, who decide on trade
disputes between members and issue binding decisions. The WTO reviews more than 200
disputes annually.
7-324 RISE OF ECONOMIC INTEGRATION COMPREHENSION
In recent years, a number of countries with similar economic goals have formed transnational
trade groups or signed trade agreements for the purpose of promoting free trade. Describe the
best-known three.
Answer:
(1) The European Union (EU) in mid-2012 consists of 27 countries with more than 500 million
consumers. The EU has eliminated most barriers to the free flow of goods, services, capital, and
labor across its borders. In addition, 16 countries have adopted the euro, eliminating the need to
continually monitor the currency exchange rate. (2) North American Free Trade Agreement
(NAFTA) lifted many trade barriers between Canada, Mexico, and the United States and created
a marketplace with more than 450 million consumers. In 2006, a comprehensive free trade
agreement among Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras,
Nicaragua, and the United States extended many NAFTA benefits to Central American countries
and the Dominican Republic. Called CAFTA-DR, this agreement is viewed as a step toward a
34-country Free Trade Area of the Americas for the Western Hemisphere. (3) Asian free trade
agreements are growing. They are less formal than those underlying the EU and NAFTA, but
they have reduced tariffs among countries and promoted trade.
Three types of companies populate and compete in the global marketplace. Identify and
succinctly describe each type.
Answer:
All three types of global companies employ people in different countries and many have
administrative, marketing, and manufacturing operations (often called divisions or subsidiaries)
around the world. However, a firm’s orientation toward and strategy for global markets and
marketing defines the type of company it is or attempts to be. The three are: (1) An international
firm engages in trade and marketing in different countries as an extension of the marketing
strategy in its home country. (2) A multinational firm views the world as consisting of unique
parts and markets to each part differently. (3) A transnational firm views the world as one market
and emphasizes cultural similarities across countries or universal consumer needs and wants more
than differences.
Page(s): 168-169 LO: 1 AACSB: Global QD: Easy
7-326 CROSS-CULTURAL ANALYSIS COMPREHENSION
- 108 -
Identify and describe the factors a company should consider in order to do a thorough cross-
cultural analysis. In your answer, be sure to define cross-cultural analysis.
Answer:
Cross-cultural analysis involves the study of similarities and differences among consumers in two
or more nations or societies. A thorough analysis should include a study of a country’s values,
customs, symbols, and language. Values are the personally or socially preferable modes of
conduct or states of existence that tend to persist over time. Customs are the norms and
expectations about the way people do things in a specific country. Cultural symbols are things
that represent ideas and concepts. It is important not to assume that all symbols have a universal
meaning. Language study should include more than a literal translation; knowledge of nuances
and idioms as well as an acknowledgment of dialects or multiple national languages is important
as well.
7-327 BACK TRANSLATION COMPREHENSION
Why is it a wise idea for global marketers use back translation? Provide an example to support
your answer.
Answer:
Back translation is where a translated word or phrase is retranslated into the original language by
a different interpreter to catch errors. This will help prevent unintended meanings from occurring
in marketing plans. Examples from the textbook of the unintended meanings of brand names are
P&G’s Pert shampoo, Cadbury Schweppes Tonic Water, and Vicks.
Page(s): 174 LO: 2 AACSB: Global QD: Medium
7-328 ENTHNOCENTRICITY/ETHNOCENTRISM COMPREHENSION
What is the difference between cultural ethnocentricity and consumer ethnocentrism?
Answer:
Cultural ethnocentricity is the belief that aspects of one’s culture are superior to another’s.
Consumer ethnocentrism is the belief that it is wrong or inappropriate to buy foreign-made
products. With the latter belief, a person would buy a domestic product even if a superior or less
expensive foreign-made item were available.
7-329 ECONOMIC CONSIDERATIONS KNOWLEDGE
Global marketing is also affected by economic considerations. Identify the three steps that should
be performed when scanning the global marketplace.
Answer:
A scan of the global marketplace should include: (1) an assessment of the economic infrastructure
in different countries; (2) measurement of consumer income in different countries; and (3)
recognition of a country’s currency exchange rates.
- 109 -
Page(s): 175 LO: 2 AACSB: Global QD: Easy
What is meant by the term economic infrastructure and how can this affect a firm’s plans to enter
a global market?
Answer:
Economic infrastructure is a country’s communication, transportation, financial, and distribution
systems. This represents a critical consideration in a company’s determination of whether it
should try to market to a country’s consumers and organizations. You might have the best
product in the world, but if you are not able to physically reach your customer because the rains
have washed away the roads, you will not be successful. Similarly, if the financial payment
systems aren’t developed (consumers lack credit cards; pay only in cash), exchange relationships
may be more limited.
7-331 BOTTOM OF THE PYRAMID COMPREHENSION
Describe the people at the bottom of the pyramid and give an example of how global companies
are choosing to serve them.
Answer:
About 86 percent of the world’s population of roughly 7.1 billion people reside in developing
countries on one-fifth of total world income. Four billion of these people live on less than $2 per
day. In global marketing terms, they are viewed as being at the bottom of the pyramid, which is
the largest, but poorest socioeconomic group of people in the world. Motorola is an example of a
global company that is choosing to serve these people by providing a low-cost cell phone with
battery life as long as 500 hours for rural villagers without regular electricity and an extra-loud
volume for use in noisy markets. [Students may have other examples of their own.]
What are the market entry strategy options available to a company seeking to enter the global
marketplace? How do they relate to each other in terms of profit potential, risk, financial
commitment required, and marketing control?
Answer:
Once a company has decided to enter the global marketplace, it may select one of four strategies:
(1) exporting, which involves producing goods in one country and selling them in another
country; (2) licensing, where a company offers the right to a trademark, patent, trade secret, or
other similarly valued items of intellectual property in return for a royalty or a fee; (3) joint
venture, which involves a foreign company and a local firm investing together to create a local
business; and (4) direct investment, which entails a domestic firm actually investing in and
owning a foreign subsidiary or division. The amount of financial commitment, risk, marketing
control, and profit potential increases as the firm moves from exporting to direct investment. See
- 110 -
Figure 7-5 in the textbook.
Explain the difference between indirect exporting and direct exporting. What are the advantages
and disadvantages of each approach?
Answer:
Indirect exporting is when a firm sells its domestically produced goods in a foreign country
through an intermediary. It has the least amount of commitment and risk but will probably return
the least profit. Indirect exporting is ideal for a company that has no overseas contacts but wants
to market abroad. The intermediary is often a distributor that has the marketing know-how and
resources necessary for the effort to succeed. Direct exporting is when a firm sells its
domestically produced goods in a foreign country without intermediaries. Direct exporting
involves more risk than indirect exporting for the company but also opens the door to increased
profits. Most companies become involved in direct exporting when they believe their volume of
sales will be sufficiently large and easy to obtain so that they do not require intermediaries.
Discuss licensing. Define it, give the advantages and disadvantages, and explain what contract
manufacturing, contract assembly, and franchising are.
Answer:
Licensing offers the right to a company trademark, patent, trade secret, or other similarly valued
items of intellectual property in return for a royalty or a fee. The advantages to the company
granting the license are low risk and a capital-free entry into a foreign country. The licensee
gains information that allows it to start with a competitive advantage and the foreign country
gains employment by having the product manufactured locally. However, the licensor forgoes
control of its product and reduces the potential profits gained from it. The licensor may be
creating its own competition. To offset this disadvantage, many companies strive to stay
innovative so that the licensee remains dependent on them. Additionally, should the licensee
prove to be a poor choice, the name or reputation of the company may be harmed. Contract
manufacturing is when a U.S. company contracts with a foreign firm to manufacture products
according to stated specifications. The product is then sold in the foreign country or exported
back to the United States. With contract assembly, the U.S. company may contract with a foreign
firm to assemble (not manufacture) parts and components that have been shipped to that country.
Franchising is one of the fastest growing market-entry strategies. Franchises include soft drink,
motel, retailing, fast food, and car rental operations, and a variety of business services. A
franchise is a contractual arrangement between a parent company (a franchisor) and an individual
or firm (a franchisee) that allows the franchisee to operate a certain type of business under an
established name and according to specific rules.
- 111 -
Explain the difference between joint venture and direct investment market entry strategies. What
are the advantages and disadvantages of each approach?
Answer:
When a foreign company and a local firm invest together to create a local business, it is called a
joint venture. These two companies share ownership, control, and profits of the new company.
The advantages are twofold: First, one company may not have the necessary financial, physical,
or managerial resources to enter a foreign market alone. Second, a government may require or
strongly encourage a joint venture before it allows a foreign company to enter its market. The
disadvantages arise when companies disagree about policies or courses of action or when
governmental bureaucracy bogs down the effort. Direct investment entails a domestic firm
actually investing in and owning a foreign subsidiary or division. Advantages include cost
savings, better understanding of local market conditions, and fewer local restrictions.
Disadvantages include increased financial commitments and risks.
7-336 PRODUCT AND PROMOTION STRATEGIES COMPREHENSION
What are the product and promotion strategies available to a company seeking to enter the global
marketplace? How do they relate to each other in terms of the same or adapted product and
promotion?
Answer:
There are five product and promotional strategies for global marketing. (1) Sell the same home
country product using the same home country promotion in a foreign country (product extension
strategy). (2) Sell the same home country product using an adapted promotion strategy in a
foreign country (communication adaptation strategy). (3) Sell an adapted home country product
using the same home country promotion in a foreign country (product adaptation strategy). (4)
Sell an adapted home country product using an adapted home country promotion in a foreign
country (dual adaptation strategy). (5) Create a new product for the foreign market (product
invention strategy).
Give an example of a global channel of distribution.
Answer:
Figure 7-7 outlines the channel through which a product manufactured in one country must travel
to reach its destination in another country. The first step involves the seller; its headquarters is
the starting point and is responsible for the successful distribution to the ultimate consumer. The
next step is the channel between two nations, moving the product from one country to another.
Intermediaries that can handle this responsibility include resident buyers in a foreign country,
independent merchant wholesalers who buy and sell the product, or agents who bring buyers and
sellers together. Once the product is in the foreign nation, that country’s distribution channels
take over. These channels can be very long or surprisingly short, depending on the product line.
Ultimately, the products reach the final or ultimate consumer.
- 112 -
7-338 PRICING STRATEGY COMPREHENSION
Explain the difference between dumping and parallel importing.
Answer:
Dumping is when a firm sells a product in a foreign country below its domestic price or below its
actual cost. Parallel importing, also known as gray marketing, is when companies price their
products very high in some countries but competitively in others. Individuals then buy products
in a lower-priced country from an authorized retailer, ship them to higher-priced countries, and
sell them below the suggested retail price through unauthorized retailers.
- 113 -

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Bloom’s Level of Learning (LL)

Major Section Level 1 Level 2 Level 3

Video Case 7: 313 314, 315, 316

Test Item Table by Learning Objective and Bloom’s Level of Learning

Bloom’s Level of Learning (LL)

Learning Objective Level 1 Level 2 Level 3

MULTIPLE CHOICE QUESTIONS

7-1 CHAPTER OPENER: DELL COMPREHENSION

Why has Dell, Inc., embarked on a global growth initiative?

Answer: e Page(s): 159 LO: 3 AACSB: Global QD: Medium

7-2 CHAPTER OPENER: DELL COMPREHENSION

7-3 CHAPTER OPENER: DELL COMPREHENSION

Answer: d Page(s): 159 LO: 3 AACSB: Global QD: Medium

7-4 CHAPTER OPENER: DELL COMPREHENSION

Answer: b Page(s): 159 LO: 3 AACSB: Global QD: Medium

7-5 DYNAMICS OF WORLD TRADE COMPREHENSION

Answer: c Page(s): 160 LO: 1 AACSB: Global QD: Medium

7-6 GLOBAL PERSPECTIVE ON WORLD TRADE COMPREHENSION

Answer: e Page(s): 160 LO: 1 AACSB: Global QD: Medium

7-7 WORLD TRADE FLOWS KNOWLEDGE

Which of the following countries is the world’s leading exporter?

Answer: b Page(s): 160 LO: 1 AACSB: Global QD: Easy

7-8 WORLD TRADE FLOWS KNOWLEDGE

Which of the following countries is the world’s leading importer?

Answer: a Page(s): 160 LO: 1 AACSB: Global QD: Easy

7-9 WORLD TRADE FLOWS COMPREHENSION

Answer: c Page(s): 160-161 LO: 1 AACSB: Global QD: Medium

7-10 WORLD TRADE FLOWS COMPREHENSION

Answer: d Page(s): 160-161 LO: 1 AACSB: Global QD: Medium

7-11 TRADE FEEDBACK EFFECT KNOWLEDGE

Answer: c Page(s): 160 LO: 1 AACSB: Global QD: Easy

7-12 TRADE FEEDBACK EFFECT COMPREHENSION

The trade feedback effect is one argument for

Answer: b Page(s): 160 LO: 1 AACSB: Global QD: Medium

7-13 TRADE FEEDBACK EFFECT COMPREHENSION

Answer: c Page(s): 160 LO: 1 AACSB: Global QD: Medium

7-14 COUNTERTRADE KNOWLEDGE

Answer: c Page(s): 160 LO: 1 AACSB: Global QD: Easy

7-15 COUNTERTRADE KNOWLEDGE

Answer: d Page(s): 160 LO: 1 AACSB: Global QD: Easy

7-16 COUNTERTRADE KNOWLEDGE

What percentage of world trade involves countertrade?

Answer: b Page(s): 160 LO: 1 AACSB: Global QD: Easy

7-17 COUNTERTRADE COMPREHENSION

Answer: b Page(s): 160 LO: 1 AACSB: Global QD: Medium

7-18 COUNTERTRADE COMPREHENSION

Answer: b Page(s): 160 LO: 1 AACSB: Global QD: Medium

7-19 COUNTERTRADE APPLICATION

Answer: d Page(s): 160 LO: 1 AACSB: Global QD: Hard

Answer: a Page(s): 160 LO: 1 AACSB: Global QD: Hard

7-21 GROSS DOMESTIC PRODUCT (GDP) KNOWLEDGE

Answer: c Page(s): 160 LO: 1 AACSB: Global QD: Easy

7-22 GROSS DOMESTIC PRODUCT (GDP) KNOWLEDGE

Gross domestic product refers to