Chapter 07

International Strategy: Creating Value in Global Markets

True / False Questions

1. The trend towards worldwide markets makes it easier to predict where competitors will spring up.

True False

2. Because many countries are investing in countries other than their own, each country is becoming more
autonomous and independent.

True False

3. Increasing international exchange in goods and services can run into the difficulty of having one offer that
meets the needs of customers at differing income levels.

True False

4. By 2015, it is predicted that trade within nations will exceed trade across nations.

True False

5. There are risks associated with the Bottom of the Pyramid strategy. One of them is that the new low-cost
products that are developed may cannibalize the sales of the core products of the company using the
strategy.

True False

6. Emerging markets are growing slower than developed markets, thus shifting the structure of the global
economy.

True False

7. Multinational companies, like GE, take advantage of globalization to tap into talent around the world in
order to build products.

True False

8. The shift in the global automobile market over the past several years, in which China supplanted the U.S. at
the largest market for automobiles in 2009, is an example of how the structure of the global economy is
unchanging.

True False

9. According to The Economist article explained in Exhibit 7.1 in the textbook, the rate of GDP growth is the
highest in the European Union and the United States.

True False

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10. Globalization is a term used to mean the growing dissimilarity of laws, rules, norms, values and ideas
across countries.

True False

11. The Michael Porter Diamond of National Advantage is a framework that explains why countries foster
successful multinational corporations based on factor endowments and demand conditions only.

True False

12. The factor endowments of a country are inherited and cannot be created.

True False

13. With regard to factor conditions, the pool of resources that a firm (or nation) has is much more important
than the speed and efficiency with which these resources are deployed.

True False

14. Demanding domestic consumers tend to push firms to move ahead of companies in other countries where
consumers are less demanding and more complacent.

True False

15. High levels of environmental awareness in Denmark have led to a decline in Danish industrial
competitiveness in the international marketplace.

True False

16. Countries with a strong supplier base benefit by adding efficiency to downstream activities.

True False

17. Typically, intense rivalry in domestic markets does not force firms to look outside their national boundaries
for new markets.

True False

18. Rivalry is particularly intense in nations with conditions of strong consumer demand, strong supplier bases,
and high new-entrant potential from related industries.

True False

19. The Indian software industry has become one of the leading global markets for software. The industry has
grown to over 60 billion USD, and Indian IT firms provide software and services to over half the Fortune
500 firms. This success is being driven by factor endowments such as a large, growing market with
sophisticated customers.

True False

20. The Indian software industry has become one of the leading global markets for software. The industry has
grown to over 60 billion USD, and Indian IT firms provide software and services to over half the Fortune
500 firms. This success is being driven by related and supporting industries such as a large network of
public and private educational institutions.

True False

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21. Many international firms are increasing their efforts to market their products and services to countries such
as India and China as the ranks of their middle class continue to increase.

True False

22. Expanding the global presence of a firm automatically increases its scale of operations.

True False

23. Arbitrage opportunities are simple trading opportunities and therefore account for little of the success
Walmart experiences.

True False

24. Arbitrage opportunities in global financial markets are more attractive to global companies than local
corporations, because they enable them to buy in huge volume and therefore increase their bargaining
power with suppliers.

True False

25. International expansion can extend the life cycle of a product that is in its maturity stage in the company
home country.

True False

26. A disadvantage of international expansion is that it can enable a firm to optimize the location of every
activity in its value chain.

True False

27. The laws and the enforcement of laws associated with the protection of intellectual property rights
represent a significant currency and management risk to multinational firms.

True False

28. Reverse innovation occurs when a company develops a product that meets the needs of a developed
country and then adapts it to the needs of the developing country.

True False

29. The World Bank publishes the Euromoney magazine Country Risk Rating semiannual report. In the text,
the January 2013 sampling of these ratings indicates that Norway is the best country in which to invest in
terms of its expected level of risk based on the evaluation of its political, economic and structural risks and
debt indicators and access to capital.

True False

30. Firms can lessen political instability and adverse government actions risks by: competing in a range of
geographic markets, developing stakeholder coalitions, cultivating relationships with key influences, and
including key public-private stakeholders in their boards.

True False

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31. Two opposing pressures that managers face when they compete in foreign markets are cost reduction and
adaptation to foreign markets.

True False

32. Theodore Levitt, a marketing strategist, argued that people around the world are willing to sacrifice
preferences in product features, functions, and design for lower prices and lower quality.

True False

33. Among the assumptions of Theodore Levitt that would favor a global strategy is that consumers around the
world are becoming less price-sensitive.

True False

34. Within a worldwide market, the most effective strategies are neither purely multidomestic nor purely
global.

True False

35. Customer needs and interests are becoming increasingly divergent worldwide, according to Theodore
Levitt.

True False

36. The Nestle line of pizzas marketed in the United Kingdom includes cheese with ham and pineapple topping
on a French bread crust. This is an example of company adaptation to global markets.

True False

37. In addition to responding to pressures to lower costs, managers must strive to be responsive to global
pressures in order to tailor their products to the demand of the local market in which they do business.

True False

38. Since the strategies and tactics to differentiate products and services to local markets can involve additional
expenses, company costs will tend to fall.

True False

39. In choosing one of the four basic strategies for competing in the global marketplace (international, global,
multidomestic, transnational), the strategy that a company selects depends upon the degree of pressure that
it is facing for revenues.

True False

40. As the pressure to lower costs increases, firms move toward selecting global and transnational strategies for
competing in the global marketplace.

True False

41. Industries in which proportionally more value is added in upstream activities are more likely to benefit
from a global strategy than those in which more value is added downstream (closer to the customer).

True False

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42. In a global strategy a firm operates all of its businesses under a single common strategy, regardless of
location.

True False

43. A multidomestic strategy is the most appropriate strategy for international operations, because it drives
economies of scale as far as possible and provides a middle-of-the-road product that appeal to the largest
number of consumers in every market.

True False

44. The need to attain economies of scale encourages multinational firms to operate under a multidomestic
strategy.

True False

45. Corporations with multiple foreign operations that act very independently of one another are following a
multidomestic strategy.

True False

46. A multidomestic strategy would likely include the use of high volume, centralized production facilities to
maximize economies of scale.

True False

47. A limitation of a multidomestic strategy is that it may lead to over-adaptation as conditions change.

True False

48. Multinational firms following a transnational strategy strive to optimize the trade-offs associated with
efficiency, local adaptation, and learning.

True False

49. A key tenet of a transnational strategy is improved adaptation to all competitive situations as well as
flexibility by capitalizing on communication and knowledge flows throughout the organization.

True False

50. Panasonic needed to change its strategy in the 1980s in order to respond to demographic and economic
changes in China. As the Chinese middle class began to emerge, local companies responded with
competitive products. Panasonic then changed its strategy from a transnational strategy to a global
strategy.

True False

51. According to studies by Rugman and Verbeke, most of the 500 largest companies in the world are global.

True False

52. Trading blocs and free trade zones promote the rise of international expansion.

True False

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53. Traditionally, company globalization is measured in terms of its foreign sales as a percentage of total sales,
but this can be confused with regionalization.

True False

54. A U.S. firm expands into China and Canada at exactly the same sales volume. The physical distance is the
only factor that affects the true distance between the countries.

True False

55. The U.S. and Australia have common language and culture and yet the true distance is great.

True False

56. The U.S. and Mexico are close geographically and so is the true distance.

True False

57. Major Western hemisphere trade blocs include NAFTA, Mercosur, and ASEAN.

True False

58. A natural regional trade bloc based upon language affinity is the region from Algeria and Morocco to
Oman and Yemen.

True False

59. Central and South America are not part of a natural regional bloc because they only share language,
religion, and colonization history.

True False

60. The European Union is a trading bloc that eases trade restrictions, taxes, and tariffs for its members.

True False

61. A franchise generally expires after a few years, whereas a license is designed to last into perpetuity.

True False

62. Typically, joint ventures involve less control and risk than franchising.

True False

63. Typically, the least risky method of entry into a foreign market is through the establishment of a wholly
owned foreign subsidiary so that the parent organization can maintain a high level of control.

True False

64. Exporting is an expensive way to enter foreign markets.

True False

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65. When considering the exporting decision, companies should consider that the ability to tailor their products
to meet local market needs typically is very limited.

True False

66. When considering the export decision, firms should not partner with local distributors because many
foreign markets are nationally regulated.

True False

67. Licensing is a contractual arrangement that involves a long period of time and includes factors such as
monitoring of operations, training, and advertising.

True False

68. In international markets, a disadvantage of licensing is that the firm granting a license incurs little risk,
since it does not have to invest any significant resources into the country itself.

True False

69. Wholly owned subsidiaries are least appropriate where a firm already has the appropriate knowledge and
capabilities that it can leverage rather easily through multiple locations.

True False

70. Wholly owned subsidiaries are typically the most expensive and risky entry mode. The risk is shared,
however, with the company partners.

True False

Multiple Choice Questions

71. Which of the following is not a risk normally associated with Bottom of the Pyramid strategies?

A. A low-end version of a brand may detract from the overall brand attractiveness.
B. The new low-cost products they develop may cannibalize the sales of their core products.
C. Entrenched competitors can impact the ability of the new firm to enter the market successfully.
D. New products may be perceived as exploiting the privileged customer with substandard products.

72. Multinational firms are constantly faced with the dilemma of choosing between _______ and __________.

A. local adaptation; local integration

B. local adaptation; global integration
C. global adaptation; local integration
D. global adaptation; global integration

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73. The rise of _________ capitalism around the world creates tremendous business opportunities for
multinational corporations.

A. social
B. multinational
C. market
D. democratic

74. According to Exhibit 7.1 in the textbook, the country experiencing the highest rate of growth in GDP from
2001-2011 was

A. the United States.

B. Japan.
C. China.
D. India.

75. According to Exhibit 7.1 in the textbook, the country experiencing the lowest rate of growth in GDP from
2001-2011 was

A. the United States.

B. China.
C. India.
D. Japan.

76. Globalization opens the doors for companies to attract new customers. One of the challenges is to
determine how to meet the needs of these customers who have

A. different income levels.

B. low income levels.
C. high income levels.
D. steady income levels.

77. The trade among nations has increased dramatically in recent years, and it is estimated that by 2015 the
trade ________ nations will exceed the trade _______ nations.

A. within; across
B. across; within
C. with; outside of
D. above; within

78. When the GE wind energy business tapped into world-wide talent, it was able to expand using a(n)
_________________ strategy.

A. focus
B. diversification
C. unrelated
D. generic

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79. Statistics indicate that over half of the world output now comes from emerging markets. This is leading to
a(n) ___________ of living standards across the globe and is changing the face of business.

A. divergence
B. convergence
C. expansion
D. contraction

80. According to the textbook, globalization involves international exchange. Included in this exchange is trade
in goods and services as well as the exchange of __________, __________, and _________ across
countries.

A. habits; values; ideas

B. traditions; legal systems; history
C. money; ideas; information
D. statistics; personnel; purchasing power

81. In the Porter Diamond of National Advantage framework, which of the following factors does not affect
nation competitiveness?

A. The position of the nation in factors of production necessary to compete in a given industry.
B. The presence or absence in the nation of internationally competitive supplier industries.
C. The conditions in the nation governing the nature of foreign rivalry.
D. The nature of home-market demand of the products or services of the industry.

82. Rivalry is intense in nations with conditions of __________ consumer demand, __________ supplier bases,
and __________ new entrant potential from related industries.

A. weak; weak; high

B. strong; strong; low
C. weak; weak; low
D. strong; strong; high

83. According to Michael Porter, firms that have experienced intense domestic competition are

A. unlikely to have the time or resources to compete abroad.

B. more likely to demand protection from their governments.
C. most likely to design strategies aimed primarily at the domestic market.
D. more likely to design strategies that will allow them to successfully compete abroad.

84. Which of the factors below has not made the software services industry in India extremely competitive on a
global scale?

A. large pool of skilled workers

B. large, growing market and sophisticated customers
C. tax and antitrust legislation that protects the dominant players in the industry
D. large network of public and private educational institutions

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85. In reviewing the Indian Software industry and the diamond of national advantage, which of the following is
a growing detractor to the national competitive advantage in this industry?

A. large pool of skilled workers

B. eroding cost advantage of Indian firms
C. rapidly improving communications infrastructure
D. large, growing market and sophisticated customers

86. In reviewing the Indian Software industry and the diamond of national advantage, which of the following is
a growing detractor to the national competitive advantage in this industry?

A. English-language capability
B. growing market and sophisticated, customers
C. duty-free access to imported computers and software
D. rise of competing low-labor-cost countries

87. In reviewing the Indian Software industry and the diamond of national advantage, which of the following is
a relatively weak set of factors in the national competitive advantage in this industry?

A. U.S. demand conditions

B. Factor endowments
C. Domestic rivalry
D. Domestic demand conditions

88. Countries with demanding consumers, like environmentally-concerned Denmark, drive __________ to
meet the demand.

A. worldwide innovation
B. in-country innovation
C. foreign manufacturing
D. global exchange

89. Related industries create the probability that new companies will enter the market. This ________
competition and forces existing firms to improve ___________.

A. decreases, innovation
B. decreases, efficiency
C. increases, efficiency
D. increases, sales

90. Which of these points on the Porter diamond of national advantage is the strongest indicator of global
competitive success?

A. foreign rivalry
B. domestic rivalry
C. global rivalry
D. international rivalry

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91. Which of the following is not a motivation for a company to pursue international expansion?

A. It wishes to increase the size of the potential markets for its products and services.
B. It wishes to take advantage of arbitrage opportunities in order to increase profit.
C. It wishes to optimize value-chain activities to enhance performance, reduce costs, and reduce risk.
D. It wishes to increase foreign market penetration by developing products for the home market.

92. If a company is considering optimizing the physical location for every activity in the value chain, which of
the following is not a possible strategic advantage for that decision?

A. Performance enhancement
B. Cost reduction
C. Political risk reduction
D. Life-cycle enhancement

93. The sale of Boeing commercial aircraft and Microsoft operating systems in many countries enables these
companies to benefit from

A. higher prices in their domestic markets.

B. reducing their exposure to currency risks.
C. economies of scale.
D. optimizing the location for many activities in their value chain.

94. If the U.S. dollar appreciates relative to foreign currency, what is likely to be the result for the U.S.
company that has branches abroad?

A. Profits will increase, when measured in U.S. dollars.

B. Profits will decrease, when measured in U.S. dollars.
C. Foreign exports to the United States will decrease.
D. Foreign demand for U.S. goods and services will decrease.

95. __________ occurs when a firm decides to utilize other firms to perform value-creating activities that were
previously performed in-house.

A. Offshoring
B. A global strategy
C. Outsourcing
D. A transnational strategy

96. In considering the decision to offshore, which of the following generally is not one of the hidden costs?

A. Total wage costs and indirect costs

B. Wage deflation
C. Reduction in intellectual property rights
D. Increased inventory and coordination costs

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97. L'Oreal acquired two U.S. firms that developed and sold hair care products to African-American customers.
This permitted it to build a new ethnic hair care division in Europe and Africa. This represents an
advantage of international expansion using ____________.

A. arbitrage
B. optimization of the location of value-chain activities
C. performance enhancement
D. learning opportunities

98. GE Healthcare developed a portable, inexpensive ultrasound device for the emerging Chinese market. It
expects to sell the device in the United States at a price cheap enough for every physician, paramedic, and
emergency room nurse to purchase. This is an example of

A. total wage costs and indirect costs.

B. risk reduction.
C. reverse innovation.
D. optimization of value-chain activity locations.

99. Sources of political risk do not include

A. availability of the rule of law.

B. social unrest.
C. military turmoil.
D. demonstrations.

100. For years O.R.T. Technologies resisted moving any operations outside Israel. However, when faced with a
sharp rise in the value of the shekel, the maker of specialized software for managing gas stations froze all
local hiring and decided to transfer some developmental work to Eastern Europe. This is an example of
_____________ risk.

A. political
B. economic
C. currency
D. management

101. A report issued by the World Trade Organization described the production of a particular U.S. car. The
study showed that 30 percent of the car value goes to Korea for assembly, 17.5 percent to Japan for
components and advanced technology, 7.5 percent to Germany for design, 4 percent to Taiwan and
Singapore for minor parts, 2.5 percent to U.K. for advertising and marketing services, and 1.5 percent to
Ireland and Barbados for data processing. This is an example of

A. outsourcing and offshoring.

B. outsourcing and on-shoring.
C. insourcing and offshoring.
D. insourcing and outsourcing.

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102. Ricoh Americas Corporation has significant international operations. Faced with local reticence to adapt
changes that come from other global regions, what does Ricoh suggest is the most successful approach?

A. Bring in global market representatives to force change locally.

B. Obligate local offices to adopt the corporate decision.
C. Ensure stakeholder participation early in the change process.
D. Ignore the problem because it is only a temporary issue.

103. Renault paid 1 billion USD to acquire a 25 percent ownership stake in the Russian automaker AvtoVAZ in
2008. Just one year later, Russian Prime Minister Vladimir Putin threatened to dilute the Renault ownership
stake unless it contributed more money to prop up AvtoVAZ, which was then experiencing a significant
slide in sales. This is an example of _____________ risk.

A. currency
B. economic
C. political
D. management

104. According to the Euromoney magazine 2014 annual Country Risk Rating, which one of the following
countries has the highest economic risk?

A. South Korea
B. China
C. Colombia
D. Argentina

105. Which one of the following is one of the Theodore Levitt assumptions supporting a pure global strategy?

A. Consumers are willing to pay more for specific product features.

B. Customer needs and interests are becoming more dissimilar.
C. MNCs can successfully compete globally by aggressively pricing products at the sacrifice of product
features.
D. If the world markets are treated as heterogeneous, substantial economies of scale are easily achieved.

106. When firms expand into global markets, they are faced with the choice of reducing costs and/or adapting to
the local market. When high pressures exist to lower costs, companies should choose a(n) __________ or
__________ in order to compete in the global marketplace.

A. global strategy; transnational strategy

B. global strategy: multidomestic strategy
C. international strategy; multidomestic strategy
D. international strategy; transnational strategy

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107. When firms expand into global markets, they are faced with the choice of reducing costs and/or adapting to
the local market. When high pressures exist to adapt locally, companies should choose a(n) __________ or
__________ in order to compete in the global marketplace.

A. global strategy; transnational strategy

B. global strategy: multidomestic strategy
C. international strategy; global strategy
D. transnational strategy; multidomestic strategy

108. To be responsive to local pressures, companies must ____________ their offerings and strategies from
country to country to reflect local consumer preferences.

A. internationalize
B. globalize
C. differentiate
D. standardize

109. When differentiating products and services to local markets, strategies and tactics are likely to __________
company costs.

A. decrease
B. increase
C. obliterate
D. decentralize

110. In the quest to achieve competitive advantage in global markets, competitive pressures require that firms do
what they can to _______ unit costs so that consumers will not perceive their product and service offerings
as too expensive.

A. raise
B. decentralize
C. define
D. lower

111. Which would be the appropriate strategy for companies to use to compete in the global marketplace if the
marketplace pressure is for lower costs with little pressure for local adaptation?

A. international strategy
B. global strategy
C. multidomestic strategy
D. transnational strategy

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112. High pressure for local adaptation combined with low pressure for lower costs would suggest what type of
international strategy?

A. global strategy
B. multidomestic strategy
C. transnational strategy
D. overall cost leadership strategy

113. In considering the transnational strategy, Nestle evaluates the limits of decentralization. The closer they are
to the consumer in activities such as branding and pricing, the more then tend to decentralize. The more
they deal with production and logistics, the more they centralize decision-making. The production and
logistics decisions involve _______ activities.

A. upstream
B. in its infrastructure
C. downstream
D. midstream

114. Industries in which proportionally more value is added in __________ activities are more likely to benefit
from a global strategy.

A. downstream
B. upstream
C. marketing
D. sales

115. Which of the following types of international firms are most likely to benefit from a global strategy as
opposed to a multidomestic strategy?

A. firms that compete in industries in which consumer preferences vary substantially in each country
B. firms in industries that are expanding very rapidly
C. firms in industries that have value added by sales and marketing departments
D. firms in industries that have much value added in research and design or manufacturing

116. Recent trends that might lead managers of multinational corporations (MNCs) to adopt a more
decentralized strategy for their operations would include all of the following except

A. customer needs, interests, and tastes becoming increasingly homogenized.

B. consumers around the world increasingly willing to tradeoff idiosyncratic preferences in product
features for lower price.
C. flexible manufacturing trends allowing a decline in the minimum volume required to reach acceptable
levels of production efficiency.
D. fluctuating exchange rates.

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117. Firms following a global strategy strive to offer __________ products and services as well as locate
manufacturing, Research and Development, and marketing activities in a limited number of locations.

A. widely differentiated
B. more expensive local
C. internationally differentiated
D. standardized

118. As in the case of Siebel Systems (now part of Oracle), elements of a global strategy may facilitate the
competitive advantage of differentiation by

A. increased freedom of individual business units to adapt to local tastes.

B. the creation of a worldwide network to achieve consistent service regardless of location.
C. flexibility in applying Research and Development to meet country-specific needs.
D. tailoring products to meet country-specific needs.

119. Which of the following is not a risk associated with a global strategy?

A. A firm with only one manufacturing location must export its product, sometimes at great distance from
the operation.
B. The geographic concentration of any activity may also tend to isolate that activity from the targeted
markets.
C. Concentrating an activity in a single location makes the rest of the firm dependent on that location.
D. The pressures for local adaptation may elevate the cost structure of the firm.

120. Which one of the following is not a limitation of a global strategy?

A. limited ability to adapt to local markets

B. the ability to locate activities in optimal locations
C. the concentration of activities may increase dependence on a single facility
D. single locations may lead to higher tariffs and transportation costs

121. Which of the following is a reason for the rise in regional expansion?

A. increase in the number of trading blocs and free trade zones

B. decrease in the number of trading blocs and free trade zones
C. increasing national trade restrictions
D. increasing local taxes and tariffs

122. Which one of the following explains why so few firms are global?

A. Culture, language, and religion are similar between countries.

B. Legal and political systems are similar between countries.
C. Governments are increasing trade restrictions in general.
D. Geographic distance is multiplied by distance in culture, language, religion, and legal and political
systems.

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123. Which one of the following is not a Western hemisphere trade bloc?

A. NAFTA
B. MERCOSUR
C. ASEAN
D. Latin American Integration Association

124. Canada and Mexico are the same distance from the United States, but trade is higher between the U.S. and
Canada than with Mexico because

A. true distance is smaller between the U.S. and Canada.

B. all three countries share the same legal system.
C. there are few immigration problems with Mexico.
D. Americans prefer Canadian food to Mexican food.

125. Regionalization is most important because it permits companies to organize their activities based upon

A. physical distance between the home country and the foreign country.
B. the extrinsic distance between the home country and the foreign country.
C. the true distance between the home country offer and the foreign country.
D. shareholder expectations.

126. Similarity of culture, laws, rules, and norms encourages

A. regionalization.
B. globalization.
C. trans-nationalization.
D. ethnocentric expansion.

127. According to the textbook, _______________ economic integration has progressed as a faster pace than
_________ economic integration.

A. global; international
B. international; regional
C. regional; global
D. regional; inter-regional

128. Regions represent the outcomes of centuries of political and cultural history that results in not only
_________ but also mutual _____________.

A. differences; expectations
B. similarities; expectations
C. commonalities; losses
D. commonalities; affinities

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129. Shared Spanish colonialism is one reason that explains regionalism tendencies in

A. Asia.
B. South America.
C. the United States.
D. Africa.

130. Shared Arabic language and the Muslim religion is one reason that explains regionalism tendencies in

A. South America.
B. the Maghreb.
C. European Union.
D. North America.

131. Which of the following describes the most typical order of entry into foreign markets?

A. franchising, licensing, exporting, joint venture, and wholly owned subsidiary

B. exporting, franchising, licensing, joint venture, and wholly owned subsidiary
C. licensing, exporting, franchising, joint venture, and wholly owned subsidiary
D. exporting, licensing, franchising, joint venture, and wholly owned subsidiary

132. A domestic corporation considering international expansion for the first time typically will follow which of
these paths?

A. It will start by implementing a wholly owned foreign subsidiary.

B. It will implement a low risk-low control strategy such as exporting.
C. It will license or franchise its operations
D. It will form a joint venture with a reputable foreign producer.

133. The form of entry strategy into international operations that offers the lowest level of control for the
domestic corporation would be

A. franchising.
B. licensing.
C. joint venture.
D. exporting.

134. Fees that a multinational receives from a foreign licensee in return for its use of intellectual property
(trademark, patent, trade secret, technology) are usually called

A. transfer prices.
B. dividends.
C. royalties.
D. intra-corporate inflows.

7-18
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135. The difference between a franchise contract and a licensing contract is that a

A. franchise contract is more specific and usually longer in duration.

B. franchise contract must include a foreign government.
C. licensing contract covers more aspects of operations.
D. franchise contract involves less control and less risk.

136. The __________ entail the creation of a third-party legal entity, whereas the __________ do not.

A. licensing agreements; joint ventures

B. strategic alliances; joint ventures
C. joint ventures; strategic alliances
D. franchising agreements; strategic alliances

137. A __________ is a business in which a multinational company owns 100 percent of the stock.

A. wholly owned subsidiary

B. strategic alliance
C. joint venture
D. franchising operation

138. __________ are most appropriate when a firm already has the appropriate knowledge and capabilities that
it can leverage rather easily through multiple locations in many countries.

A. Joint ventures
B. Strategic alliances
C. Licensing agreements
D. Wholly owned subsidiaries

139. What agreement entails the creation of a third-party legal entity?

A. strategic alliance
B. joint venture
C. licensing
D. exporting

140. A firm can establish a wholly owned subsidiary by

A. acquiring an existing company in the home country.

B. keeping all of the activity offshore.
C. licensing intellectual property.
D. entering into a franchising agreement.

7-19
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 Chapter 07 International Strategy: Creating Value in Global Markets Answer
Key

True / False Questions

1. The trend towards worldwide markets makes it easier to predict where competitors will spring up.

FALSE
The rise of globalization, meaning the rise of market capitalism around the world, means competitors
can now come from just about anywhere.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

2. Because many countries are investing in countries other than their own, each country is becoming more
autonomous and independent.

FALSE
Globalization, which is on the rise, has two meanings. One is the increase in international exchange,
including trade in goods and services as well as exchange of money, ideas, and information. The second
is the growing similarity of laws, rules, norms, values, and ideas across countries.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

3. Increasing international exchange in goods and services can run into the difficulty of having one offer
that meets the needs of customers at differing income levels.

TRUE
One of the challenges with globalization is determining how to meet the needs of customers at very
different income levels. In many developing economies, distributions of income remain much wider
than they do in the developed world, leaving many impoverished even as the economies grow.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

7-20
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McGraw-Hill Education.
4. By 2015, it is predicted that trade within nations will exceed trade across nations.

FALSE
The trade among nations has increased dramatically in recent years and it is estimated that by 2015, the
trade across nations will exceed the trade within nations.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

5. There are risks associated with the Bottom of the Pyramid strategy. One of them is that the new low-
cost products that are developed may cannibalize the sales of the core products of the company using
the strategy.

TRUE
Firms need to actively manage the risks that accompany BOP strategies. These include concerns about
the image of the firm if they are perceived as exploiting underprivileged customers by providing them
with substandard products or selling them something they do not need or cannot afford. Second, there is
a risk that a low-end version of a brand may detract from the overall attractiveness of the brand. Third,
the new low-cost products they develop may cannibalize the sales of their core products. Finally, firms
employing a BOP strategy need to be aware of the entrenched competitors they may face.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

6. Emerging markets are growing slower than developed markets, thus shifting the structure of the global
economy.

FALSE
The growth experienced by developed economies in the first decade of the 2000s was anemic, while the
growth in developing economies was robust. This trend is continuing, with emerging markets growing 4
percent faster than developed markets in 2011 and 2012. This has resulted in a dramatic shift in the
structure of the global economy. As of 2013, over half the world output will come from emerging
markets.

AACSB: Analytical Thinking

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Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

7-21
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7. Multinational companies, like GE, take advantage of globalization to tap into talent around the world in
order to build products.

TRUE
The GE wind energy business benefits by tapping into talent around the world. The firm has built
research centers in China, Germany, India, and the U.S. CEO Jeffrey Immelt explains that they do this
in order to access the best brains everywhere in the world. All four centers have played a key role in
GEs development of huge 92-ton turbines.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

8. The shift in the global automobile market over the past several years, in which China supplanted the
U.S. at the largest market for automobiles in 2009, is an example of how the structure of the global
economy is unchanging.

FALSE
This rapid rise in global capitalism has dramatic effects on the growth in different economic zones. As
shown in Exhibit 7.1, the growth experienced by developed economies in the first decade of the 2000s
was anemic, while the growth in developing economies was robust. This has resulted in a dramatic shift
in the structure of the global economy. Over half of the output in the world now comes from emerging
markets. This is leading to a convergence of living standards across the globe and is changing the face
of business. One example of this is the shift in the global automobile market. China supplanted the
United States as the largest market for automobiles in 2009.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

9. According to The Economist article explained in Exhibit 7.1 in the textbook, the rate of GDP growth is
the highest in the European Union and the United States.

FALSE
This rapid rise in global capitalism has dramatic effects on the growth in different economic zones. As
shown in Exhibit 7.1, the growth experienced by developed economies in the first decade of the 2000s
was anemic, while the growth in developing economies was robust. This has resulted in a dramatic shift
in the structure of the global economy. Over half the world's output now comes from emerging markets.
This is leading to a convergence of living standards across the globe and is changing the face of
business. According to the textbook Exhibit 7.1, Japan has the smallest GDP growth rate, followed by
the European Union and the United States.

AACSB: Analytical Thinking

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Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

7-22
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10. Globalization is a term used to mean the growing dissimilarity of laws, rules, norms, values and ideas
across countries.

FALSE
Globalization is a term that has two meanings: (1) the increase in international exchange, including
trade in goods and services as well as exchange of money, ideas, and information; (2) the growing
similarity of laws, rules, norms, values, and ideas across countries.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

11. The Michael Porter Diamond of National Advantage is a framework that explains why countries foster
successful multinational corporations based on factor endowments and demand conditions only.

FALSE
The Porter Diamond of National Advantage is a framework for explaining why countries foster
successful multinational corporations, consisting of four factors: factor endowments; demand
conditions; related and supporting industries; and firm strategy, structure, and rivalry.

AACSB: Analytical Thinking

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Blooms: Remember
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 1 Easy
Topic: Factors Affecting Nation Competitiveness

12. The factor endowments of a country are inherited and cannot be created.

FALSE
Classical economics suggests that factors of production such as land, labor, and capital are the building
blocks that create usable consumer goods and services. However, companies in advanced nations
seeking competitive advantage over firms in other nations create many of the factors of production, such
as skilled human resources.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

7-23
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13. With regard to factor conditions, the pool of resources that a firm (or nation) has is much more
important than the speed and efficiency with which these resources are deployed.

FALSE
The pool of resources is less important than the speed and efficiency with which these resources are
deployed. Thus, firm-specific knowledge and skills created within a country that are rare, valuable,
difficult to imitate, and rapidly and efficiently deployed are the factors of production that ultimately lead
to competitive advantage for the nation.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

14. Demanding domestic consumers tend to push firms to move ahead of companies in other countries
where consumers are less demanding and more complacent.

TRUE
Countries with demanding consumers drive firms in that country to meet high standards, upgrade
existing products and services, and create innovative products and services. Denmark is known for its
environmental awareness. Demand from consumers for environmentally safe products has spurred
Danish manufacturers to become leaders in water pollution control equipment which it exports
successfully.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

15. High levels of environmental awareness in Denmark have led to a decline in Danish industrial
competitiveness in the international marketplace.

FALSE
Countries with demanding consumers drive firms in that country to meet high standards, upgrade
existing products and services, and create innovative products and services. Denmark is known for its
environmental awareness. Demand from consumers for environmentally safe products has spurred
Danish manufacturers to become leaders in water pollution control equipment which it exports
successfully.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

7-24
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16. Countries with a strong supplier base benefit by adding efficiency to downstream activities.

TRUE
Related and supporting industries enable firms to manage inputs more effectively. Countries with a
strong supplier base benefit by adding efficiency to downstream activities. A competitive supplier base
helps a firm obtain inputs using cost-effective, timely methods, thus reducing manufacturing costs.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

17. Typically, intense rivalry in domestic markets does not force firms to look outside their national
boundaries for new markets.

FALSE
Domestic rivalry provides a strong impetus for firms to innovate and find new sources of competitive
advantage. This intense rivalry forces firms to look outside their national boundaries for new markets,
setting up the conditions necessary for global competitiveness.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

18. Rivalry is particularly intense in nations with conditions of strong consumer demand, strong supplier
bases, and high new-entrant potential from related industries.

TRUE
Rivalry is particularly intense in nations with conditions of strong consumer demand, strong supplier
bases, and high new-entrant potential from related industries.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

7-25
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19. The Indian software industry has become one of the leading global markets for software. The industry
has grown to over 60 billion USD, and Indian IT firms provide software and services to over half the
Fortune 500 firms. This success is being driven by factor endowments such as a large, growing market
with sophisticated customers.

FALSE
Factor endowments are production, such as skilled labor or infrastructure, necessary to compete in a
given industry. Demand conditions refer to the demands that consumers place on an industry for goods
and services.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

20. The Indian software industry has become one of the leading global markets for software. The industry
has grown to over 60 billion USD, and Indian IT firms provide software and services to over half the
Fortune 500 firms. This success is being driven by related and supporting industries such as a large
network of public and private educational institutions.

TRUE
Related and supporting industries enable firms to manage inputs more effectively.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

21. Many international firms are increasing their efforts to market their products and services to countries
such as India and China as the ranks of their middle class continue to increase.

TRUE
Many multinational firms are intensifying their efforts to market their products and services to countries
such as India and China as the ranks of their middle class have increased over the past decade. An
OECD study predicts that consumption by middle-class consumers in Asian markets will grow from 4.9
trillion USD in 2009 to over 30 trillion USD by 2020. At that point, Asia will make up 60 percent of
global middle-class consumption, up from 20 percent in 2009.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

7-26
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22. Expanding the global presence of a firm automatically increases its scale of operations.

TRUE
Expanding company global presence also automatically increases its scale of operations, providing it
with a larger revenue and asset base. Such an increase in revenues and asset base potentially enables a
firm to attain economies of scale. This provides multiple benefits, including the spreading of fixed costs
such as Research and Development over a larger volume of production. Examples include the sale of
Boeing commercial aircraft and Microsoft operating systems in many foreign countries.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

23. Arbitrage opportunities are simple trading opportunities and therefore account for little of the success
Walmart experiences.

FALSE
In its simplest form, arbitrage involves buying something from where it is cheap and selling it
somewhere where it commands a higher price. A big part of the Walmart success can be attributed to its
expertise in arbitrage. The possibilities for arbitrage are not necessarily confined to simple trading
opportunities. It can be applied to virtually any factor of production and every stage of the value chain.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

24. Arbitrage opportunities in global financial markets are more attractive to global companies than local
corporations, because they enable them to buy in huge volume and therefore increase their bargaining
power with suppliers.

TRUE
In the current integrated global financial markets, a firm can borrow anywhere in the world where
capital is cheap and use it to fund a project in a country where capital is expensive. Such arbitrage
opportunities are even more attractive to global corporations because their larger size enables them to
buy in huge volume, thus increasing their bargaining power with suppliers.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

7-27
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25. International expansion can extend the life cycle of a product that is in its maturity stage in the company
home country.

TRUE
Extending the life cycle of a product that is in its maturity stage in the home country but that has greater
demand potential elsewhere is a benefit of international expansion. In recent decades, U.S. soft-drink
producers such as Coca-Cola and PepsiCo have aggressively pursued international markets to attain
levels of growth that simply would not be available in the United States.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

26. A disadvantage of international expansion is that it can enable a firm to optimize the location of every
activity in its value chain.

FALSE
Optimizing the physical location for every activity in its value chain is another benefit of international
expansion. This can yield one or more of three strategic advantages: performance enhancement, cost
reduction, and risk reduction.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

27. The laws and the enforcement of laws associated with the protection of intellectual property rights
represent a significant currency and management risk to multinational firms.

FALSE
There are four main types of risk: political risk, economic risk, currency risk, and management risk. The
laws and the enforcement of laws associated with the protection of intellectual property rights can be a
major potential economic risk (rather than currency or management risk) in entering new countries.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

7-28
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28. Reverse innovation occurs when a company develops a product that meets the needs of a developed
country and then adapts it to the needs of the developing country.

FALSE
Many leading companies are discovering that developing products specifically for emerging markets
can pay off in a big way. In the past, multinational companies typically developed products for their rich
home markets and then tried to sell them in developing countries with minor adaptations. However, as
growth slows in rich nations and demand grows rapidly in developing countries such as India and
China, this approach becomes increasingly inadequate. Instead, companies like GE have committed
significant resources to developing products that meet the needs of developing nations, products that
deliver adequate functionality at a fraction of the cost. These products have subsequently found
considerable success in value segments in wealthy countries as well. Hence, this process is referred to as
reverse innovation, a new motivation for international expansion.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

29. The World Bank publishes the Euromoney magazine Country Risk Rating semiannual report. In the
text, the January 2013 sampling of these ratings indicates that Norway is the best country in which to
invest in terms of its expected level of risk based on the evaluation of its political, economic and
structural risks and debt indicators and access to capital.

TRUE
Euromoney magazine publishes a semiannual Country Risk Rating that evaluates political, economic,
and other risks that entrants potentially face. Exhibit 7.3 presents a sample of country risk ratings,
published by the World Bank, from the 178 countries that Euromoney evaluates. Note that the lower the
score, the higher the expected level of risk for new entrants into the market. The overall risk rating score
for Norway is 89.97.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

30. Firms can lessen political instability and adverse government actions risks by: competing in a range of
geographic markets, developing stakeholder coalitions, cultivating relationships with key influences,
and including key public-private stakeholders in their boards.

TRUE
Firms can lessen political instability and adverse government actions risks by: competing in a range of
geographic markets, developing stakeholder coalitions, cultivating relationships with key influences,
and including key public-private stakeholders in their boards.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium

7-29
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McGraw-Hill Education.
 Topic: International Expansion Company Motivations and Risks

31. Two opposing pressures that managers face when they compete in foreign markets are cost reduction
and adaptation to foreign markets.

FALSE
There are two opposing forces that firms face when they expand into global markets: cost reduction and
adaptation to local markets.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 1 Easy
Topic: Achieving Competitive Advantage in Global Markets

32. Theodore Levitt, a marketing strategist, argued that people around the world are willing to sacrifice
preferences in product features, functions, and design for lower prices and lower quality.

FALSE
Levitt advocated global product and brand strategies based on three assumptions: customer needs and
interests are becoming increasingly homogeneous worldwide; people around the world are willing to
sacrifice preferences in features, design, and the like for lower prices at high quality; substantial
economies of scale in production and marketing can be achieved through supplying global markets.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

33. Among the assumptions of Theodore Levitt that would favor a global strategy is that consumers around
the world are becoming less price-sensitive.

FALSE
Levitt advocated global product and brand strategies based on three assumptions: customer needs and
interests are becoming increasingly homogeneous worldwide; people around the world are willing to
sacrifice preferences in features, design, and the like for lower prices at high quality; substantial
economies of scale in production and marketing can be achieved through supplying global markets.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

7-30
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34. Within a worldwide market, the most effective strategies are neither purely multidomestic nor purely
global.

TRUE
All firms must balance the need to lower costs (where highly standardized products are preferred) with
the need to be responsive to local pressures (where differentiating offerings is required). Most strategies
incorporate some elements of both.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

35. Customer needs and interests are becoming increasingly divergent worldwide, according to Theodore
Levitt.

FALSE
The Levitt approach rested on three key assumptions. The first is that customer needs and interests are
becoming increasingly homogeneous worldwide.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

36. The Nestle line of pizzas marketed in the United Kingdom includes cheese with ham and pineapple
topping on a French bread crust. This is an example of company adaptation to global markets.

FALSE
Many other companies adapt lines to idiosyncratic country preferences and develop local brands
targeted to local market segments. For example, the Nestle line of pizzas marketed in the United
Kingdom includes cheese with ham and pineapple topping on a French bread crust.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

37. In addition to responding to pressures to lower costs, managers must strive to be responsive to global
pressures in order to tailor their products to the demand of the local market in which they do business.

FALSE
In addition to responding to pressures to lower costs, managers must strive to be responsive to local
pressures in order to tailor their products to the demand of the local market in which they do business.

AACSB: Analytical Thinking

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Blooms: Understand

7-31
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McGraw-Hill Education.
 Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

38. Since the strategies and tactics to differentiate products and services to local markets can involve
additional expenses, company costs will tend to fall.

FALSE
Since the strategies and tactics to differentiate products and services to local markets can involve
additional expenses, company costs will tend to rise.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

39. In choosing one of the four basic strategies for competing in the global marketplace (international,
global, multidomestic, transnational), the strategy that a company selects depends upon the degree of
pressure that it is facing for revenues.

FALSE
The two opposing pressures result in four different basic strategies that companies can use to compete in
the global marketplace: international, global, multidomestic, and transnational. The strategy that a firm
selects depends on the degree of pressure that it is facing for cost reductions and the importance of
adapting to local markets.

AACSB: Analytical Thinking

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Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

40. As the pressure to lower costs increases, firms move toward selecting global and transnational strategies
for competing in the global marketplace.

TRUE
The two opposing pressures result in four different basic strategies that companies can use to compete in
the global marketplace: international, global, multidomestic, and transnational. The strategy that a firm
selects depends on the degree of pressure that it is facing for cost reductions and the importance of
adapting to local markets. Exhibit 7.4 shows the conditions under which each of these strategies would
be most appropriate. As the pressures to lower costs increase, firms move from international strategy to
global strategy. As the pressures for local adaption increase, at the same time as the pressures to lower
costs increase, firms move from multidomestic strategy to transnational strategy.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

7-32
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41. Industries in which proportionally more value is added in upstream activities are more likely to benefit
from a global strategy than those in which more value is added downstream (closer to the customer).

TRUE
Typically, primary activities that are downstream (e.g., marketing or service), or closer to the customer,
require more decentralization to adapt to local market conditions (a multidomestic strategy). Upstream
primary activities (e.g., logistics and operations) tend to be centralized (a global strategy) because there
is less need for adapting them to local markets and the firm benefits from economies of scale.

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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

42. In a global strategy a firm operates all of its businesses under a single common strategy, regardless of
location.

TRUE
With a global strategy, competitive strategy is centralized and controlled to a large extent by the
corporate office.

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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 1 Easy
Topic: Achieving Competitive Advantage in Global Markets

43. A multidomestic strategy is the most appropriate strategy for international operations, because it drives
economies of scale as far as possible and provides a middle-of-the-road product that appeal to the
largest number of consumers in every market.

FALSE
A firm whose emphasis is on differentiating its product and service offerings to adapt to local markets
follows a multidomestic strategy. Decisions evolving from a multidomestic strategy tend to be
decentralized to permit the firm to tailor its products and respond rapidly to changes in demand.

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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

7-33
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44. The need to attain economies of scale encourages multinational firms to operate under a multidomestic
strategy.

FALSE
A firm whose emphasis is on differentiating its product and service offerings to adapt to local markets
follows a multidomestic strategy. This typically results in lower ability to leverage economies of scale
and higher cost structures.

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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

45. Corporations with multiple foreign operations that act very independently of one another are following a
multidomestic strategy.

TRUE
A firm whose emphasis is on differentiating its product and service offerings to adapt to local markets
follows a multidomestic strategy. Decisions evolving from a multidomestic strategy tend to be
decentralized to permit the firm to tailor its products and respond rapidly to changes in demand.

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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 1 Easy
Topic: Achieving Competitive Advantage in Global Markets

46. A multidomestic strategy would likely include the use of high volume, centralized production facilities
to maximize economies of scale.

FALSE
A firm whose emphasis is on differentiating its product and service offerings to adapt to local markets
follows a multidomestic strategy. This typically results in lower ability to leverage economies of scale
and higher cost structures.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 1 Easy
Topic: Achieving Competitive Advantage in Global Markets

47. A limitation of a multidomestic strategy is that it may lead to over-adaptation as conditions change.

TRUE
While the multidomestic strategy is based on adaptation to local conditions, the optimal degree of local
adaptation evolves over time. Firms must recalibrate the need for local adaptation on an ongoing basis;
excessive adaptation extracts a price as surely as under adaptation.

AACSB: Analytical Thinking

7-34
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 Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

48. Multinational firms following a transnational strategy strive to optimize the trade-offs associated with
efficiency, local adaptation, and learning.

TRUE
A transnational strategy strives to optimize the trade-offs associated with efficiency, local adaptation,
and learning. It seeks efficiency not for its own sake, but as a means to achieve global competitiveness.
It recognizes the importance of local responsiveness but as a tool for flexibility in international
operations.

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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 1 Easy
Topic: Achieving Competitive Advantage in Global Markets

49. A key tenet of a transnational strategy is improved adaptation to all competitive situations as well as
flexibility by capitalizing on communication and knowledge flows throughout the organization.

TRUE
A central philosophy of the transnational organization is enhanced adaptation to all competitive
situations as well as flexibility by capitalizing on communication and knowledge flows throughout the
firm. A principal characteristic is the integration of unique contributions of all units into worldwide
operations.

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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 1 Easy
Topic: Achieving Competitive Advantage in Global Markets

7-35
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50. Panasonic needed to change its strategy in the 1980s in order to respond to demographic and economic
changes in China. As the Chinese middle class began to emerge, local companies responded with
competitive products. Panasonic then changed its strategy from a transnational strategy to a global
strategy.

FALSE
Panasonic benefited from moving from a global to a transnational strategy. Panasonic moved into China
in the late 1980s, seeing it as a low-cost region in which to manufacture its products. Traditionally,
Panasonic had used a global strategy in its operations. It designed standardized products in Japan,
manufactured them in low-cost markets, and sold its products primarily in developed markets. China
simply served as a manufacturing location. This worked well until the Chinese economy started to grow
and mature. As the Chinese middle class began to emerge, local competitors, such as Haier, quickly
jumped in with products designed for the Chinese market and out-competed Panasonic in the growing
market. This led Panasonic to radically change its way of competing in the global market. Panasonic
embraced the need to balance global integration with local adaptation.

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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 3 Hard
Topic: Achieving Competitive Advantage in Global Markets

51. According to studies by Rugman and Verbeke, most of the 500 largest companies in the world are
global.

FALSE
Extensive analysis of the distribution data of sales across different countries and regions led Alan
Rugman and Alain Verbeke to conclude that there is a strong case to be made that most companies
today are regional or bi-regional, not global.

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

52. Trading blocs and free trade zones promote the rise of international expansion.

FALSE
Another reason for regional expansion is the rise of the trading blocs and free trade zones. A number of
regional agreements have been created that facilitate the growth of business within these regions by
easing trade restrictions, and taxes and tariffs.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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53. Traditionally, company globalization is measured in terms of its foreign sales as a percentage of total
sales, but this can be confused with regionalization.

TRUE
This measure can be misleading. For example, consider a U.S. firm that has expanded its activities into
Canada. Clearly, this initiative is qualitatively different from achieving the same sales volume in a
distant country such as China. Similarly, if a Malaysian firm expands into Singapore or a German firm
starts selling its products in Austria, this would represent an expansion into a geographically adjacent
country. Such nearby countries would often share many common characteristics in terms of language,
culture, infrastructure, and customer preferences. In other words, this is more a case of regionalization
than globalization.

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

54. A U.S. firm expands into China and Canada at exactly the same sales volume. The physical distance is
the only factor that affects the true distance between the countries.

FALSE
When we look at what we might call the true distance between the U.S. and China, the effects of
geographic distance are multiplied by distance in terms of culture, language, religion, and legal and
political systems between the two countries. On the other hand, although U.S. and Australia are
geographically distant, the true distance is somewhat less when one considers distance along the other
dimensions.

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

55. The U.S. and Australia have common language and culture and yet the true distance is great.

FALSE
Although U.S. and Australia are geographically distant, the true distance is somewhat less when one
considers distance along the other dimensions such as language and culture.

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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56. The U.S. and Mexico are close geographically and so is the true distance.

FALSE
Both Canada and Mexico are the same distance from the United States. However, U.S. companies find
it easier to expand operations into Canada than into Mexico. Canada and the U.S. share many
commonalities in terms of language, culture, economic development, legal and political systems, and
infrastructure development. Thus, if we view distance as having many dimensions, the U.S. and Canada
are very close, whereas there is greater distance between the U.S. and Mexico. The true distance is
closer between the U.S. and Canada than between the U.S. and Mexico.

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

57. Major Western hemisphere trade blocs include NAFTA, Mercosur, and ASEAN.

FALSE
A number of regional agreements have been created that facilitate the growth of business within these
regions by easing trade restrictions and taxes and tariffs. These have included the European Union (EU),
North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations (ASEAN),
and MERCOSUR (a South American trading block). Only NAFTA and MERCOSUR concern the
Western hemisphere.

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

58. A natural regional trade bloc based upon language affinity is the region from Algeria and Morocco to
Oman and Yemen.

TRUE
Stretching from Algeria and Morocco in the West to Oman and Yemen in the East, more than 30
countries share the Arabic language and the Muslim religion, making these countries a natural regional
bloc.

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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59. Central and South America are not part of a natural regional bloc because they only share language,
religion, and colonization history.

FALSE
Regional economic integration has progressed at a faster pace than global economic integration, and the
trade and investment patterns of the largest companies reflect this reality. After all, regions represent the
outcomes of centuries of political and cultural history that results in not only commonalities but also
mutual affinity. The countries of South and Central America share the Spanish language (except Brazil),
the Catholic religion, and a history of Spanish colonialism.

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Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

60. The European Union is a trading bloc that eases trade restrictions, taxes, and tariffs for its members.

TRUE
Another reason for regional expansion is the rise of the trading blocs and free trade zones. A number of
regional agreements have been created that facilitate the growth of business within these regions by
easing trade restrictions, and taxes and tariffs.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

61. A franchise generally expires after a few years, whereas a license is designed to last into perpetuity.

FALSE
Licensing enables a company to receive a royalty or fee in exchange for the right to use its trademark,
patent, trade secret, or other valuable item of intellectual property. Franchising contracts generally
include a broader range of factors in an operation and have a longer time period during which the
agreement is in effect.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 1 Easy
Topic: Entry Modes of International Expansion

62. Typically, joint ventures involve less control and risk than franchising.

FALSE
A joint venture has a higher degree of ownership (both investment and risk) and control than does
franchising.

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 Level of Difficulty: 1 Easy
Topic: Entry Modes of International Expansion

63. Typically, the least risky method of entry into a foreign market is through the establishment of a wholly
owned foreign subsidiary so that the parent organization can maintain a high level of control.

FALSE
Establishing a wholly owned subsidiary is the most expensive and risky of the various entry modes.
However, it can also yield the highest returns. In addition, it provides the multinational company with
the greatest degree of control of all activities, including manufacturing, marketing, distribution, and
technology development. Wholly owned subsidiaries are most appropriate where a firm already has the
appropriate knowledge and capabilities that it can leverage rather easily through multiple locations.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

64. Exporting is an expensive way to enter foreign markets.

FALSE
Exporting is a relatively inexpensive way to enter foreign markets, but it is not without significant
downsides.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

65. When considering the exporting decision, companies should consider that the ability to tailor their
products to meet local market needs typically is very limited.

TRUE
Exporting is a relatively inexpensive way to enter foreign markets, but it is not without significant
downsides. The ability to tailor company products to meet local market needs typically is very limited.

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Blooms: Understand
Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

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66. When considering the export decision, firms should not partner with local distributors because many
foreign markets are nationally regulated.

FALSE
Exporting consists of producing goods in one country to sell in another. The entry strategy enables a
firm to invest the least amount of resources in terms of its product, its organization, and it overall
corporate strategy. Because many foreign markets are nationally regulated and dominated by networks
of local intermediaries, firms need to partner with local distributors to benefit from their valuable
expertise and knowledge of their own markets.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

67. Licensing is a contractual arrangement that involves a long period of time and includes factors such as
monitoring of operations, training, and advertising.

TRUE
Franchising usually involves a longer time period than licensing and includes other factors, such as
monitoring of operations, training, and advertising.

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Blooms: Understand
Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

68. In international markets, a disadvantage of licensing is that the firm granting a license incurs little risk,
since it does not have to invest any significant resources into the country itself.

FALSE
In international markets, an advantage of licensing is that the firm granting a license incurs little risk,
since it does not have to invest any significant resources into the country itself.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

69. Wholly owned subsidiaries are least appropriate where a firm already has the appropriate knowledge
and capabilities that it can leverage rather easily through multiple locations.

FALSE
Wholly owned subsidiaries are most appropriate where a firm already has the appropriate knowledge
and capabilities that it can leverage rather easily through multiple locations.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.

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 Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

70. Wholly owned subsidiaries are typically the most expensive and risky entry mode. The risk is shared,
however, with the company partners.

FALSE
Wholly owned subsidiaries are typically the most expensive and risky entry mode. With franchising,
joint ventures, or strategic alliances, the risk is shared with the firm's partners. With wholly owned
subsidiaries, the entire risk is assumed by the parent company. The risks associated with doing business
in a new country (e.g., political, cultural, and legal) can be lessened by hiring local talent.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

Multiple Choice Questions

71. Which of the following is not a risk normally associated with Bottom of the Pyramid strategies?

A. A low-end version of a brand may detract from the overall brand attractiveness.
B. The new low-cost products they develop may cannibalize the sales of their core products.
C. Entrenched competitors can impact the ability of the new firm to enter the market successfully.
D. New products may be perceived as exploiting the privileged customer with substandard products.
In many developing economies, distributions of income remain much wider than they do in the
developed world, leaving many impoverished even as the economies grow. The challenge for
multinational firms is to tailor their products and services to meet the needs of the bottom of the
pyramid. Global corporations are increasingly changing their product offerings to meet the needs of the
nearly 5 billion poor people in the world who inhabit developing countries.

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Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

7-42
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72. Multinational firms are constantly faced with the dilemma of choosing between _______ and
__________.

A. local adaptation; local integration

B. local adaptation; global integration
C. global adaptation; local integration
D. global adaptation; global integration
Some governments make better use of inflows of foreign investment and know-how than others.
Explanations include the need of governments to have track records of business-friendly policies to
attract multinationals and local entrepreneurs to train workers, invest in modern technology, and nurture
local suppliers and managers. Also, it means carefully managing the broader economic factors in an
economy, such as interest rates, inflation, and unemployment.

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Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

73. The rise of _________ capitalism around the world creates tremendous business opportunities for
multinational corporations.

A. social
B. multinational
C. market
D. democratic
The rise of globalization (meaning the rise of market capitalism around the world) has undeniably
created tremendous business opportunities for multinational corporations. For example, while
smartphone sales declined in Western Europe in the third quarter of 2014, they grew at a 50 percent rate
in Eastern Europe, the Middle East, and Africa.

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Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

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74. According to Exhibit 7.1 in the textbook, the country experiencing the highest rate of growth in GDP
from 2001-2011 was

A. the United States.

B. Japan.
C. China.
D. India.
As shown in Exhibit 7.1, the growth experienced by developed economies in the first decade of the
2000s was anemic, while the growth in developing economies was robust. This has resulted in a
dramatic shift in the structure of the global economy. Over half of the output of the world now comes
from emerging markets. This is leading to a convergence of living standards across the globe and is
changing the face of business. One example of this is the shift in the global automobile market. China
supplanted the United States as the largest market for automobiles in 2009.

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Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

75. According to Exhibit 7.1 in the textbook, the country experiencing the lowest rate of growth in GDP
from 2001-2011 was

A. the United States.

B. China.
C. India.
D. Japan.
As shown in Exhibit 7.1, the growth experienced by developed economies in the first decade of the
2000s was anemic, while the growth in developing economies was robust. This has resulted in a
dramatic shift in the structure of the global economy. Over half of the output of the world now comes
from emerging markets. This is leading to a convergence of living standards across the globe and is
changing the face of business. One example of this is the shift in the global automobile market. China
supplanted the United States as the largest market for automobiles in 2009.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

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76. Globalization opens the doors for companies to attract new customers. One of the challenges is to
determine how to meet the needs of these customers who have

A. different income levels.

B. low income levels.
C. high income levels.
D. steady income levels.
One of the challenges with globalization is determining how to meet the needs of customers at very
different income levels. In many developing economies, distributions of income remain much wider
than they do in the developed world, leaving many impoverished even as the economies grow. The
challenge for multinational firms is to tailor their products and services to meet the needs of the bottom
of the pyramid.

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Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

77. The trade among nations has increased dramatically in recent years, and it is estimated that by 2015 the
trade ________ nations will exceed the trade _______ nations.

A. within; across
B. across; within
C. with; outside of
D. above; within
The trade among nations has increased dramatically in recent years, and it is estimated that by 2015 the
trade across nations will exceed the trade within nations.

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Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

78. When the GE wind energy business tapped into world-wide talent, it was able to expand using a(n)
_________________ strategy.

A. focus
B. diversification
C. unrelated
D. generic
The importance of international expansion as a viable diversification strategy can be illustrated by GEs
wind energy business that benefits by tapping into talent around the world. The firm has built research
centers in China, Germany, India, and the U.S. CEO Jeffrey Immelt says that this solution was created
in order to access the best brains everywhere in the world. All four centers have played a key role in
GEs development of huge 92-ton turbines.

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 Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

79. Statistics indicate that over half of the world output now comes from emerging markets. This is leading
to a(n) ___________ of living standards across the globe and is changing the face of business.

A. divergence
B. convergence
C. expansion
D. contraction
Over half of the world output now comes from emerging markets. This is leading to a convergence of
living standards across the globe and is changing the face of business.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
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Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

80. According to the textbook, globalization involves international exchange. Included in this exchange is
trade in goods and services as well as the exchange of __________, __________, and _________ across
countries.

A. habits; values; ideas

B. traditions; legal systems; history
C. money; ideas; information
D. statistics; personnel; purchasing power
Globalization is a term that has two meanings: (1) the increase in international exchange, including
trade in goods and services as well as exchange of money, ideas, and information; (2) the growing
similarity of laws, rules, norms, values, and ideas across countries.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview

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81. In the Porter Diamond of National Advantage framework, which of the following factors does not affect
nation competitiveness?

A. The position of the nation in factors of production necessary to compete in a given industry.
B. The presence or absence in the nation of internationally competitive supplier industries.
C. The conditions in the nation governing the nature of foreign rivalry.
D. The nature of home-market demand of the products or services of the industry.
Porter concluded that there are four broad attributes of nations that individually, and as a system,
constitute what is termed the Diamond of National Advantage. In effect, these attributes jointly
determine the playing field that each nation establishes and operates for its industries. These factors are:
factor endowments, demand condition, related and supporting industries, and firm strategy, structure,
and rivalry.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

82. Rivalry is intense in nations with conditions of __________ consumer demand, __________ supplier
bases, and __________ new entrant potential from related industries.

A. weak; weak; high

B. strong; strong; low
C. weak; weak; low
D. strong; strong; high
Rivalry is particularly intense in nations with conditions of strong consumer demand, strong supplier
bases, and high new entrant potential from related industries. This competitive rivalry increases the
efficiency with which firms develop, market, and distribute products and services within the home
country.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

7-47
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83. According to Michael Porter, firms that have experienced intense domestic competition are

A. unlikely to have the time or resources to compete abroad.

B. more likely to demand protection from their governments.
C. most likely to design strategies aimed primarily at the domestic market.
D. more likely to design strategies that will allow them to successfully compete abroad.
Competitive rivalry increases the efficiency with which firms develop, market, and distribute products
and services within the home country. This intense rivalry forces firms to look outside their national
boundaries for new markets, setting up the conditions necessary for global competitiveness.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

84. Which of the factors below has not made the software services industry in India extremely competitive
on a global scale?

A. large pool of skilled workers

B. large, growing market and sophisticated customers
C. tax and antitrust legislation that protects the dominant players in the industry
D. large network of public and private educational institutions
In India, the Diamond of National Advantage framework for software shows a large pool of skilled
workers, a large network of public and private educational institutions, a large, growing market, and
sophisticated customers.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

85. In reviewing the Indian Software industry and the diamond of national advantage, which of the
following is a growing detractor to the national competitive advantage in this industry?

A. large pool of skilled workers

B. eroding cost advantage of Indian firms
C. rapidly improving communications infrastructure
D. large, growing market and sophisticated customers
It is interesting to note that the cost advantage of Indian firms has eroded. For example, TCS engineer
compensation soared 13 percent in 2010. Further, IBM and Accenture are aggressively building up their
Indian operations, hiring tens of thousands of sought-after Indians by paying them more, thereby
lowering their costs while raising those of TCS.

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Blooms: Understand

7-48
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 Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

86. In reviewing the Indian Software industry and the diamond of national advantage, which of the
following is a growing detractor to the national competitive advantage in this industry?

A. English-language capability
B. growing market and sophisticated, customers
C. duty-free access to imported computers and software
D. rise of competing low-labor-cost countries
It is interesting to note that the cost advantage of Indian firms has eroded. For example, TCS engineer
compensation soared 13 percent in 2010. Further, IBM and Accenture are aggressively building up their
Indian operations, hiring tens of thousands of sought-after Indians by paying them more, thereby
lowering their costs while raising those of TCS. Finally, many low-labor-cost countries, such as China,
the Philippines, and Vietnam, are emerging as threats to the Indian competitors.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

87. In reviewing the Indian Software industry and the diamond of national advantage, which of the
following is a relatively weak set of factors in the national competitive advantage in this industry?

A. U.S. demand conditions

B. Factor endowments
C. Domestic rivalry
D. Domestic demand conditions
Although the Indian success cannot be explained in terms of its home-market demand (according to the
Porter model), the nature of the industry enables software to be transferred among different locations
simultaneously by way of communications links. Thus, competitiveness of markets outside India can be
enhanced without a physical presence in those markets.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

7-49
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88. Countries with demanding consumers, like environmentally-concerned Denmark, drive __________ to
meet the demand.

A. worldwide innovation
B. in-country innovation
C. foreign manufacturing
D. global exchange
Consumers who demand highly specific, sophisticated products and services force firms to create
innovative, advanced products and services to meet the demand. This consumer pressure presents
challenges to a country's industries. But in response to these challenges, improvements to existing goods
and services often result, creating conditions necessary for competitive advantage over firms in other
countries.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

89. Related industries create the probability that new companies will enter the market. This ________
competition and forces existing firms to improve ___________.

A. decreases, innovation
B. decreases, efficiency
C. increases, efficiency
D. increases, sales
Related industries create the probability that new companies will enter the market, increasing
competition and forcing existing firms to become more competitive through efforts such as cost control,
product innovation, and novel approaches to distribution. Combined, these give the home country's
industries a source of competitive advantage.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

7-50
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McGraw-Hill Education.
90. Which of these points on the Porter diamond of national advantage is the strongest indicator of global
competitive success?

A. foreign rivalry
B. domestic rivalry
C. global rivalry
D. international rivalry
Among all the points on the Porter diamond of national advantage, domestic rivalry is perhaps the
strongest indicator of global competitive success. Firms that have experienced intense domestic
competition are more likely to have designed strategies and structures that allow them to successfully
compete in world markets.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-02 The sources of national advantage, that is, why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 2 Medium
Topic: Factors Affecting Nation Competitiveness

91. Which of the following is not a motivation for a company to pursue international expansion?

A. It wishes to increase the size of the potential markets for its products and services.
B. It wishes to take advantage of arbitrage opportunities in order to increase profit.
C. It wishes to optimize value-chain activities to enhance performance, reduce costs, and reduce risk.
D. It wishes to increase foreign market penetration by developing products for the home market.
There are many motivations for a company to pursue international expansion. The most obvious one is
to increase the size of potential markets for its products and services. A second reason is that the
company can take advantage of arbitrage opportunities. A third reason is that a company wishes to
enhance the growth rate of a product that is in its maturity state in the home country. A fourth reason is
that the company wishes to benefit from optimizing the physical location for every activity in its value
chain. A fifth reason is that possibilities exist for reverse innovation, whereby a company develops new
products for emerging markets that have adequate functionality at a low cost and then often are
introduced to the home country after successfully penetrating the emerging market.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

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92. If a company is considering optimizing the physical location for every activity in the value chain, which
of the following is not a possible strategic advantage for that decision?

A. Performance enhancement
B. Cost reduction
C. Political risk reduction
D. Life-cycle enhancement
Optimizing the location for every activity in the value chain can yield one or more of three strategic
advantages: performance enhancement, cost reduction, and risk reduction.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

93. The sale of Boeing commercial aircraft and Microsoft operating systems in many countries enables
these companies to benefit from

A. higher prices in their domestic markets.

B. reducing their exposure to currency risks.
C. economies of scale.
D. optimizing the location for many activities in their value chain.
Expanding the global presence of a company automatically increases its scale of operations, providing it
with a larger revenue and asset base, which potentially enables a firm to attain economies of scale. One
advantage is the spreading of fixed costs such as research and development over a larger volume of
production. Examples include the sale in many foreign countries of commercial aircraft by Boeing and
operating systems by Microsoft.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

7-52
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94. If the U.S. dollar appreciates relative to foreign currency, what is likely to be the result for the U.S.
company that has branches abroad?

A. Profits will increase, when measured in U.S. dollars.

B. Profits will decrease, when measured in U.S. dollars.
C. Foreign exports to the United States will decrease.
D. Foreign demand for U.S. goods and services will decrease.
When the U.S. dollar appreciates against other currencies, U.S. goods can be more expensive to
consumers in foreign countries. Appreciation of the U.S. dollar can have negative implications for
American companies that have branch operations overseas. The reason for this is that profits from
abroad must be exchanged for dollars at a more expensive rate of exchange, reducing the amount of
profit when measured in dollars.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 3 Hard
Topic: International Expansion Company Motivations and Risks

95. __________ occurs when a firm decides to utilize other firms to perform value-creating activities that
were previously performed in-house.

A. Offshoring
B. A global strategy
C. Outsourcing
D. A transnational strategy
Outsourcing occurs when a firm decides to utilize other firms to perform value-creating activities that
were previously performed in-house. It may be a new activity that the firm is perfectly capable of doing
but chooses to have someone else perform for cost or quality reasons. Outsourcing can be to either a
domestic or foreign firm.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

7-53
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96. In considering the decision to offshore, which of the following generally is not one of the hidden costs?

A. Total wage costs and indirect costs

B. Wage deflation
C. Reduction in intellectual property rights
D. Increased inventory and coordination costs
Common savings from offshoring, such as lower wages, benefits, energy costs, regulatory costs, and
taxes, are all easily visible and immediate. In contrast, there are a host of hidden costs that arise over
time and often overwhelm the cost savings of offshoring. These hidden costs include: total wage costs,
indirect costs, increased inventory, reduced market responsiveness, coordination costs, intellectual
property rights, and wage inflation.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

97. L'Oreal acquired two U.S. firms that developed and sold hair care products to African-American
customers. This permitted it to build a new ethnic hair care division in Europe and Africa. This
represents an advantage of international expansion using ____________.

A. arbitrage
B. optimization of the location of value-chain activities
C. performance enhancement
D. learning opportunities
By expanding into new markets, corporations expose themselves to differing market demands, research
and development capabilities, functional skills, organizational processes, and managerial practices. This
provides opportunities for managers to transfer the knowledge that results from these exposures back to
their home office and to other divisions in the firm. Thus, expansion into new markets provides a range
of learning opportunities.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

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98. GE Healthcare developed a portable, inexpensive ultrasound device for the emerging Chinese market. It
expects to sell the device in the United States at a price cheap enough for every physician, paramedic,
and emergency room nurse to purchase. This is an example of

A. total wage costs and indirect costs.

B. risk reduction.
C. reverse innovation.
D. optimization of value-chain activity locations.
A number of firms have seen the need to develop technologies and products that are appropriate to
developing markets, only to find that these innovations are valuable in their home markets as well.
Reverse innovation is a motivation for international expansion in which new products developed by
developed-country multinational firms for emerging markets have adequate functionality at a low cost
and often are marketed later to developed countries.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

99. Sources of political risk do not include

A. availability of the rule of law.

B. social unrest.
C. military turmoil.
D. demonstrations.
Some countries around the globe may be hazardous to the health of corporate initiatives because of
political risk. Forces such as social unrest, military turmoil, demonstrations, and even violent conflict
and terrorism can pose serious threats. Another source of political risk in many countries is the absence
of the rule of law. The absence of rules or the lack of uniform enforcement of existing rules leads to
what might often seem to be arbitrary and inconsistent decisions by government officials. This can
make it difficult for foreign firms to conduct business.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

7-55
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100. For years O.R.T. Technologies resisted moving any operations outside Israel. However, when faced
with a sharp rise in the value of the shekel, the maker of specialized software for managing gas stations
froze all local hiring and decided to transfer some developmental work to Eastern Europe. This is an
example of _____________ risk.

A. political
B. economic
C. currency
D. management
Currency fluctuations can pose substantial risks. A company with operations in several countries must
constantly monitor the exchange rate between its own currency and that of the host country to minimize
currency risks. Even a small change in the exchange rate can result in a significant difference in the cost
of production or net profit when doing business overseas.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

101. A report issued by the World Trade Organization described the production of a particular U.S. car. The
study showed that 30 percent of the car value goes to Korea for assembly, 17.5 percent to Japan for
components and advanced technology, 7.5 percent to Germany for design, 4 percent to Taiwan and
Singapore for minor parts, 2.5 percent to U.K. for advertising and marketing services, and 1.5 percent to
Ireland and Barbados for data processing. This is an example of

A. outsourcing and offshoring.

B. outsourcing and on-shoring.
C. insourcing and offshoring.
D. insourcing and outsourcing.
A report issued by the World Trade Organization described the production of a particular U.S. car as
follows: 30 percent of the car value goes to Korea for assembly, 17.5 percent to Japan for components
and advanced technology, 7.5 percent to Germany for design, 4 percent to Taiwan and Singapore for
minor parts, 2.5 percent to U.K. for advertising and marketing services, and 1.5 percent to Ireland and
Barbados for data processing. Today, we are increasingly witnessing two interrelated trends:
outsourcing and offshoring.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

7-56
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102. Ricoh Americas Corporation has significant international operations. Faced with local reticence to adapt
changes that come from other global regions, what does Ricoh suggest is the most successful approach?

A. Bring in global market representatives to force change locally.

B. Obligate local offices to adopt the corporate decision.
C. Ensure stakeholder participation early in the change process.
D. Ignore the problem because it is only a temporary issue.
Another challenge that is fairly typical is that the not-invented-here mentality may set in when one
region proposes an idea across the globe. There is no question that the passion for an idea is typically
going to lie with the originator; as a result, it may be difficult for that person to understand or accept
resistance from another region when that region does not feel the same passion for the idea or concept.
It may turn into a long, emotional battle of wills if the other region believes it has a superior idea,
concept, or current way of operating. This is often a surprise to a person new to global marketing or
communications. The key to success is to ensure that the key stakeholders have a voice in the process
early and can see their fingerprints on the finished idea.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

103. Renault paid 1 billion USD to acquire a 25 percent ownership stake in the Russian automaker AvtoVAZ
in 2008. Just one year later, Russian Prime Minister Vladimir Putin threatened to dilute the Renault
ownership stake unless it contributed more money to prop up AvtoVAZ, which was then experiencing a
significant slide in sales. This is an example of _____________ risk.

A. currency
B. economic
C. political
D. management
Another source of political risk in many countries is the absence of the rule of law. In this case, Renault
realized its ownership claim may not have held up in the corrupt Russian court system. Therefore, it was
forced to negotiate and eventually agreed to transfer over 300 million USD in technology and expertise
to the Russian firm to ensure its ownership stake would stay at 25 percent.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: International Expansion Company Motivations and Risks

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104. According to the Euromoney magazine 2014 annual Country Risk Rating, which one of the following
countries has the highest economic risk?

A. South Korea
B. China
C. Colombia
D. Argentina
According to the Euromoney magazine 2014 annual Country Risk Rating, the country listed with the
highest economic risk is Libya with a rating of 5 out of 5. In the selection of choices given for this
question, the country with the high economic risk is Argentina with a rating of 4 out of 5. Note that the
overall ratings range from 1 to 5, with higher risk receiving the higher score.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion, including the emerging trend
for greater offshoring and outsourcing activity.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

105. Which one of the following is one of the Theodore Levitt assumptions supporting a pure global
strategy?

A. Consumers are willing to pay more for specific product features.

B. Customer needs and interests are becoming more dissimilar.
C. MNCs can successfully compete globally by aggressively pricing products at the sacrifice of
product features.
D. If the world markets are treated as heterogeneous, substantial economies of scale are easily
achieved.
Levitt advocated strategies that favored global products and brands. This approach rested on three key
assumptions: customer needs and interests are becoming increasingly homogeneous worldwide; people
around the world are willing to sacrifice preferences in product features, functions, design, and the like
for lower prices at high quality; substantial economies of scale in production and marketing can be
achieved through supplying global markets.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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106. When firms expand into global markets, they are faced with the choice of reducing costs and/or
adapting to the local market. When high pressures exist to lower costs, companies should choose a(n)
__________ or __________ in order to compete in the global marketplace.

A. global strategy; transnational strategy

B. global strategy: multidomestic strategy
C. international strategy; multidomestic strategy
D. international strategy; transnational strategy
The two opposing pressures result in four different basic strategies that companies can use to compete in
the global marketplace: international, global, multidomestic, and transnational. The strategy that a firm
selects depends on the degree of pressure that it is facing for cost reductions and the importance of
adapting to local markets. When firms are faced with high pressures to lower costs, the international
strategy and the multidomestic strategy would be most appropriate.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

107. When firms expand into global markets, they are faced with the choice of reducing costs and/or
adapting to the local market. When high pressures exist to adapt locally, companies should choose a(n)
__________ or __________ in order to compete in the global marketplace.

A. global strategy; transnational strategy

B. global strategy: multidomestic strategy
C. international strategy; global strategy
D. transnational strategy; multidomestic strategy
The two opposing pressures result in four different basic strategies that companies can use to compete in
the global marketplace: international, global, multidomestic, and transnational. The strategy that a firm
selects depends on the degree of pressure that it is facing for cost reductions and the importance of
adapting to local markets. When firms are faced with high pressures to adapt locally, the transnational
strategy and the multidomestic strategy would be most appropriate.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

7-59
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108. To be responsive to local pressures, companies must ____________ their offerings and strategies from
country to country to reflect local consumer preferences.

A. internationalize
B. globalize
C. differentiate
D. standardize
In addition to responding to pressures to lower costs, managers must strive to be responsive to local
pressures in order to tailor their products to the demand of the local market in which they do business.
This requires differentiating their offerings and strategies from country to country to reflect consumer
tastes and preferences and making changes to reflect differences in distribution channels, human
resource practices, and governmental regulations.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

109. When differentiating products and services to local markets, strategies and tactics are likely to
__________ company costs.

A. decrease
B. increase
C. obliterate
D. decentralize
This requires differentiating their offerings and strategies from country to country to reflect consumer
tastes and preferences and making changes to reflect differences in distribution channels, human
resource practices, and governmental regulations. However, since the strategies and tactics to
differentiate products and services to local markets can involve additional expenses, a firm's costs will
tend to rise.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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110. In the quest to achieve competitive advantage in global markets, competitive pressures require that
firms do what they can to _______ unit costs so that consumers will not perceive their product and
service offerings as too expensive.

A. raise
B. decentralize
C. define
D. lower
The opposing pressures that managers face place conflicting demands on firms as they strive to be
competitive. On the one hand, competitive pressures require that firms do what they can to lower unit
costs so that consumers will not perceive their product and service offerings as too expensive. This may
lead them to consider locating manufacturing facilities where labor costs are low and developing
products that are highly standardized across multiple countries.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-04 The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering
international markets.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

111. Which would be the appropriate strategy for companies to use to compete in the global marketplace if
the marketplace pressure is for lower costs with little pressure for local adaptation?

A. international strategy
B. global strategy
C. multidomestic strategy
D. transnational strategy
An international strategy would be the best pure choice for a company to make in its quest to compete
in the global marketplace, if both the pressures to lower costs and adapt locally are low.

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Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

112. High pressure for local adaptation combined with low pressure for lower costs would suggest what type
of international strategy?

A. global strategy
B. multidomestic strategy
C. transnational strategy
D. overall cost leadership strategy
A multidomestic strategy is used in industries where the pressure for local adaptation is high and the
pressure for lowering costs is low.

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 Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

113. In considering the transnational strategy, Nestle evaluates the limits of decentralization. The closer they
are to the consumer in activities such as branding and pricing, the more then tend to decentralize. The
more they deal with production and logistics, the more they centralize decision-making. The production
and logistics decisions involve _______ activities.

A. upstream
B. in its infrastructure
C. downstream
D. midstream
Primary activities that are upstream (e.g., logistics and operations), or further away from the customer,
tend to be centralized. This is because there is less need for adapting these activities to local markets
and the firm can benefit from economies of scale. Additionally, many support activities, such as
information systems and procurement, tend to be centralized in order to increase the potential for
economies of scale.

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Blooms: Apply
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 3 Hard
Topic: Achieving Competitive Advantage in Global Markets

114. Industries in which proportionally more value is added in __________ activities are more likely to
benefit from a global strategy.

A. downstream
B. upstream
C. marketing
D. sales
Primary activities that are downstream (e.g., marketing and sales, and service), or closer to the
customer, tend to require more decentralization in order to adapt to local market conditions (a
multidomestic strategy). Primary activities that are upstream (e.g., logistics and operations), or further
away from the customer, tend to be centralized (a global strategy). This is because there is less need for
adapting these activities to local markets and the firm can benefit from economies of scale.

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Blooms: Apply
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 3 Hard
Topic: Achieving Competitive Advantage in Global Markets

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115. Which of the following types of international firms are most likely to benefit from a global strategy as
opposed to a multidomestic strategy?

A. firms that compete in industries in which consumer preferences vary substantially in each country
B. firms in industries that are expanding very rapidly
C. firms in industries that have value added by sales and marketing departments
D. firms in industries that have much value added in research and design or manufacturing
Primary activities that are downstream (e.g., marketing and sales, and service), or closer to the
customer, tend to require more decentralization in order to adapt to local market conditions (a
multidomestic strategy). Primary activities that are upstream (e.g., Research and Development, design,
or manufacturing), or further away from the customer, tend to be centralized (a global strategy). This is
because there is less need for adapting these activities to local markets and the firm can benefit from
economies of scale.

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Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

116. Recent trends that might lead managers of multinational corporations (MNCs) to adopt a more
decentralized strategy for their operations would include all of the following except

A. customer needs, interests, and tastes becoming increasingly homogenized.

B. consumers around the world increasingly willing to tradeoff idiosyncratic preferences in product
features for lower price.
C. flexible manufacturing trends allowing a decline in the minimum volume required to reach
acceptable levels of production efficiency.
D. fluctuating exchange rates.
A decentralized strategy such as that seen within the multidomestic organization, allows for greater
adaptation at the local level, which would not be necessary if customers were becoming more
homogenous.

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Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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117. Firms following a global strategy strive to offer __________ products and services as well as locate
manufacturing, Research and Development, and marketing activities in a limited number of locations.

A. widely differentiated
B. more expensive local
C. internationally differentiated
D. standardized
Firms following a global strategy strive to offer standardized products and services as well as to locate
manufacturing, Research and Development, and marketing activities in only a few locations.

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Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

118. As in the case of Siebel Systems (now part of Oracle), elements of a global strategy may facilitate the
competitive advantage of differentiation by

A. increased freedom of individual business units to adapt to local tastes.

B. the creation of a worldwide network to achieve consistent service regardless of location.
C. flexibility in applying Research and Development to meet country-specific needs.
D. tailoring products to meet country-specific needs.
One advantage of a global strategy is that it can enable a firm to create a standard level of quality
throughout the world. Tom Siebel, former chairman of Siebel Systems (now part of Oracle), e-business
application software developer, says that his customers, global companies like IBM, Zurich Financial
Services, and Citicorp, expect the same high level of service and quality, and the same licensing
policies, no matter where they do business with them around the world.

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Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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119. Which of the following is not a risk associated with a global strategy?

A. A firm with only one manufacturing location must export its product, sometimes at great distance
from the operation.
B. The geographic concentration of any activity may also tend to isolate that activity from the targeted
markets.
C. Concentrating an activity in a single location makes the rest of the firm dependent on that location.
D. The pressures for local adaptation may elevate the cost structure of the firm.
Some risks associated with a global strategy include: if a firm has only one manufacturing facility, it
must export its output to other markets, some of which may be a great distance from the operation; the
geographic concentration of any activity may also tend to isolate that activity from the targeted markets;
concentrating an activity in a single location also makes the rest of the firm dependent on that location.

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Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

120. Which one of the following is not a limitation of a global strategy?

A. limited ability to adapt to local markets

B. the ability to locate activities in optimal locations
C. the concentration of activities may increase dependence on a single facility
D. single locations may lead to higher tariffs and transportation costs
Limitations of global strategies include: a limited ability to adapt to local markets, a concentration of
activities that may increase dependence on a single facility, and single locations that may lead to higher
tariffs and transportation costs.

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Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international, global,
multidomestic, and transnational.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

121. Which of the following is a reason for the rise in regional expansion?

A. increase in the number of trading blocs and free trade zones

B. decrease in the number of trading blocs and free trade zones
C. increasing national trade restrictions
D. increasing local taxes and tariffs
Another reason for regional expansion is the rise of the trading blocs and free trade zones. A number of
regional agreements have been created that facilitate the growth of business within these regions by
easing trade restrictions and taxes and tariffs.

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 Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

122. Which one of the following explains why so few firms are global?

A. Culture, language, and religion are similar between countries.

B. Legal and political systems are similar between countries.
C. Governments are increasing trade restrictions in general.
D. Geographic distance is multiplied by distance in culture, language, religion, and legal and political
systems.
Distance, in the final analysis, may be viewed as a concept with many dimensions, not just a measure of
geographical distance. When the effects of geographic distance are multiplied by distance in terms of
culture, language, religion, and legal and political systems between two countries, companies will
choose to remain regional or, at best, bi-regional.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

123. Which one of the following is not a Western hemisphere trade bloc?

A. NAFTA
B. MERCOSUR
C. ASEAN
D. Latin American Integration Association
North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations (ASEAN),
and MERCOSUR (a South American trading block), Latin American Integration Association (LAIA or
ALADI) is a regional organization whose membership includes Argentina, Bolivia, Brazil, Chile,
Colombia, Cuba, Ecuador, Mexico, Paraguay, Panama, Peru, Uruguay and Venezuela. All ASEAN
member states are located in southeast Asia.

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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124. Canada and Mexico are the same distance from the United States, but trade is higher between the U.S.
and Canada than with Mexico because

A. true distance is smaller between the U.S. and Canada.

B. all three countries share the same legal system.
C. there are few immigration problems with Mexico.
D. Americans prefer Canadian food to Mexican food.
Distance, in the final analysis, may be viewed as a concept with many dimensions, not just a measure of
geographical distance. True distance includes the effects of geographic distance multiplied by distance
in terms of culture, language, religion, and legal and political systems between two countries.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

125. Regionalization is most important because it permits companies to organize their activities based upon

A. physical distance between the home country and the foreign country.
B. the extrinsic distance between the home country and the foreign country.
C. the true distance between the home country offer and the foreign country.
D. shareholder expectations.
Distance, in the final analysis, may be viewed as a concept with many dimensions, not just a measure of
geographical distance. True distance includes the effects of geographic distance multiplied by distance
in terms of culture, language, religion, and legal and political systems between two countries. Most
companies are regional or, at best, bioregional, not global, even today.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

126. Similarity of culture, laws, rules, and norms encourages

A. regionalization.
B. globalization.
C. trans-nationalization.
D. ethnocentric expansion.
Regionalization is the increasing international exchange of goods, services, money, people, ideas, and
information; and the increasing similarity of culture, laws, rules, and norms within a region such as
Europe, North America, or Asia.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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127. According to the textbook, _______________ economic integration has progressed as a faster pace than
_________ economic integration.

A. global; international
B. international; regional
C. regional; global
D. regional; inter-regional
Regional economic integration has progressed at a faster pace than global economic integration, and the
trade and investment patterns of the largest companies reflect this reality.

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

128. Regions represent the outcomes of centuries of political and cultural history that results in not only
_________ but also mutual _____________.

A. differences; expectations
B. similarities; expectations
C. commonalities; losses
D. commonalities; affinities
Regions represent the outcomes of centuries of political and cultural history that results in not only
commonalities but also mutual affinity.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

129. Shared Spanish colonialism is one reason that explains regionalism tendencies in

A. Asia.
B. South America.
C. the United States.
D. Africa.
Regions represent the outcomes of centuries of political and cultural history that results in not only
commonalities but also mutual affinity. The countries of South and Central America share the Spanish
language (except Brazil), the Catholic religion, and a history of Spanish colonialism.

AACSB: Analytical Thinking

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

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130. Shared Arabic language and the Muslim religion is one reason that explains regionalism tendencies in

A. South America.
B. the Maghreb.
C. European Union.
D. North America.
Regions represent the outcomes of centuries of political and cultural history that results in not only
commonalities but also mutual affinity. Stretching from Algeria and Morocco in the West to Oman and
Yemen in the East, more than 30 countries share the Arabic language and the Muslim religion, making
these countries a natural regional bloc. The Maghreb includes Morocco, Algeria, Tunisia, Libya,
Mauritania, and the Western Sahara.

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Learning Objective: 07-06 The difference between regional companies and truly global companies.
Level of Difficulty: 2 Medium
Topic: Achieving Competitive Advantage in Global Markets

131. Which of the following describes the most typical order of entry into foreign markets?

A. franchising, licensing, exporting, joint venture, and wholly owned subsidiary

B. exporting, franchising, licensing, joint venture, and wholly owned subsidiary
C. licensing, exporting, franchising, joint venture, and wholly owned subsidiary
D. exporting, licensing, franchising, joint venture, and wholly owned subsidiary
The various types of entry form a continuum ranging from exporting (low investment and risk, low
control), followed by licensing, franchising, joint venture and finally to a wholly owned subsidiary
(high investment and risk, high control).

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

132. A domestic corporation considering international expansion for the first time typically will follow
which of these paths?

A. It will start by implementing a wholly owned foreign subsidiary.

B. It will implement a low risk-low control strategy such as exporting.
C. It will license or franchise its operations
D. It will form a joint venture with a reputable foreign producer.
Exporting consists of producing goods in one country to sell in another. This entry strategy enables a
firm to invest the least amount of resources in terms of its product, its organization, and its overall
corporate strategy. Multinationals often stumble onto a stepwise strategy for penetrating markets,
beginning with the exporting of products.

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 Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

133. The form of entry strategy into international operations that offers the lowest level of control for the
domestic corporation would be

A. franchising.
B. licensing.
C. joint venture.
D. exporting.
The various types of entry form a continuum ranging from exporting (low investment and risk, low
control) to a wholly owned subsidiary (high investment and risk, high control).

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

134. Fees that a multinational receives from a foreign licensee in return for its use of intellectual property
(trademark, patent, trade secret, technology) are usually called

A. transfer prices.
B. dividends.
C. royalties.
D. intra-corporate inflows.
Licensing enables a company to receive a royalty or fee in exchange for the right to use its trademark,
patent, trade secret, or other valuable item of intellectual property.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 1 Easy
Topic: Entry Modes of International Expansion

135. The difference between a franchise contract and a licensing contract is that a

A. franchise contract is more specific and usually longer in duration.

B. franchise contract must include a foreign government.
C. licensing contract covers more aspects of operations.
D. franchise contract involves less control and less risk.
Licensing enables a company to receive a royalty or a fee in exchange for the right to use its trademark,
patent, trade secret, or other valuable item of intellectual property. Franchising contracts generally
include a broader range of factors in an operation and have a longer time period during which the
agreement is in effect.

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 Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

136. The __________ entail the creation of a third-party legal entity, whereas the __________ do not.

A. licensing agreements; joint ventures

B. strategic alliances; joint ventures
C. joint ventures; strategic alliances
D. franchising agreements; strategic alliances
Joint ventures and strategic alliances differ in that joint ventures entail the creation of a third-party legal
entity, whereas strategic alliances do not. In addition, strategic alliances generally focus on initiatives
that are smaller in scope than joint ventures.

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Blooms: Remember
Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 1 Easy
Topic: Entry Modes of International Expansion

137. A __________ is a business in which a multinational company owns 100 percent of the stock.

A. wholly owned subsidiary

B. strategic alliance
C. joint venture
D. franchising operation
A wholly owned subsidiary is a business in which a multinational company owns 100 percent of the
stock. Two ways a firm can establish a wholly owned subsidiary are: acquire an existing company in the
home country or develop a totally new operation (often referred to as a greenfield venture).

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Blooms: Remember
Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 1 Easy
Topic: Entry Modes of International Expansion

138. __________ are most appropriate when a firm already has the appropriate knowledge and capabilities
that it can leverage rather easily through multiple locations in many countries.

A. Joint ventures
B. Strategic alliances
C. Licensing agreements
D. Wholly owned subsidiaries
Wholly owned subsidiaries are most appropriate when a firm already has the appropriate knowledge and
capabilities that it can leverage rather easily through multiple locations.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

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139. What agreement entails the creation of a third-party legal entity?

A. strategic alliance
B. joint venture
C. licensing
D. exporting
Joint ventures entail the creation of a third-party legal entity, whereas strategic alliances do not.

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Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

140. A firm can establish a wholly owned subsidiary by

A. acquiring an existing company in the home country.

B. keeping all of the activity offshore.
C. licensing intellectual property.
D. entering into a franchising agreement.
A wholly owned subsidiary is a business in which a multinational company owns 100 percent of the
stock. Two ways a firm can establish a wholly owned subsidiary are to (1) acquire an existing company
in the home country or (2) develop a totally new operation (often referred to as a greenfield venture).

AACSB: Analytical Thinking

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Blooms: Understand
Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Level of Difficulty: 2 Medium
Topic: Entry Modes of International Expansion

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