Deck 13: Exporting and Global Sourcing

Question 1

Which of the following activities is applicable to the final stage of exporting?

A) The firm engages appropriate bankers and international trade attorneys.
B) The firm screens the most attractive export markets.
C) The firm needs to refine approaches to suit market conditions.
D) The firm acquires product development and foreign language skills.

Answer 1

C

Question 2

Organic Towel Exports (Scenario)
The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's website. Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following most strongly suggests OTC should NOT export its towels to Earth Waves?

A) OTC managers are risk-takers with the determination to expand OTC.
B) OTC's towel manufacturing at the Liverpool facility is nearing maximum capacity.
C) Earth Waves has a large client base and publishes a semiannual catalog.
D) Earth Waves has offered to guide OTC through Canadian regulations.

Answer 2

B

Question 3

Organic Towel Exports (Scenario)
The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's website. Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following should be considered first in making the decision to export OTC towels to Canada?

A) What is the probability of OTC and Earth Waves entering into a joint venture?
B) How much fluctuation occurs in the exchange rate between the Canadian dollar and the British pound?
C) What is the likelihood of Earth Waves opening a subsidiary in Canada?
D) What documentation would be required for OTC to export towels to Asia?

Answer 3

B

Question 4

Describe the four-step process many managers use to achieve successful exporting.

Question 5

Which of the following is an advantage of exporting?

A) It allows focal firms to attain maximum control by establishing ownership of key assets in the foreign market.
B) It is a high-control strategy that requires substantial resource commitment when compared to equity joint ventures.
C) It minimizes exposure to tariffs and other trade barriers, as well as fluctuations in exchange rates.
D) It increases overall sales volume, improves market share, and reduces per-unit costs of manufacturing and can potentially generate profit margins that are often more favorable than in the domestic market.

Question 6

Which of the following is a characteristic of direct exporting?

A) exporter uses few corporate resources and personnel
B) exporter develops a closer relationship with foreign buyers
C) exporter contracts with domestic intermediaries
D) exporter delegates responsibility of finding buyers

Question 7

A company-owned subsidiary is ________.

A) accomplished by contracting with intermediaries located in the firm's home market
B) typically achieved by contracting with intermediaries located in the foreign market
C) a foreign intermediary that serves as an extension of the exporter, negotiating on behalf of the exporter and assuming such responsibilities as local supply-chain management, pricing, and customer service
D) a representative office of the focal firm that handles marketing, physical distribution, promotion, and customer service activities in the foreign market

Question 8

Focal firms that internationalize through exporting will most likely perform ________ in the home market.

A) sales
B) distribution
C) marketing
D) manufacturing

Question 9

Indirect exporting is exporting that is accomplished by contracting with intermediaries located in the home or domestic market.

Question 10

Which of the following is most likely a disadvantage to firms who use exporting as an entry strategy?

A) high cost of foreign market entry
B) difficulties withdrawing from foreign markets
C) The firm must acquire and dedicate capabilities to conduct complex transactions, which can strain organizational resources.
D) high risk due to uncertainty in the political environment of the foreign market

Question 11

Compared to other entry strategies, exporting minimizes risk and maximizes flexibility.

Question 12

Organic Towel Exports (Scenario)
The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's website. Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following most likely supports OTC exporting their towels to Earth Waves?

A) Domestic sales of OTC towels have dwindled, and a new market is needed.
B) Earth Waves is located in an excellent location in central Toronto.
C) OTC is an SME that can readily adapt to the demands of the Canadian market.
D) The founder of OTC has numerous contacts in Canada.

Question 13

Exporting and importing collectively refers to international trade.

Question 14

Which of the following services CANNOT be exported?

A) insurance services
B) education
C) pure services
D) construction

Question 15

After managers have chosen an appropriate market for exporting, the next step is to ________.

A) decide about the resources to be committed
B) acquire the skills and competencies to handle export operations
C) engage appropriate international trade attorneys
D) modify advertising and promotional activities to suit individual markets

Question 16

The Internet provides the means to sell products directly to customers rather than going through traditional wholesale and retail channels.

Question 17

The Internet facilitates international trade in the service sector by ________.

A) providing the means to export some types of services to foreign markets
B) providing the means to avoid taxes in the foreign market
C) allowing firms to attain maximum control by establishing ownership of key assets
D) eliminating the need to deal with foreign currency exchange rates

Question 18

In a short essay, explain the factors involved in a firm's decision to use indirect exporting or direct exporting.

Question 19

________ will internationalize via FDI because they require direct contact with customers.

A) Insurance firms
B) Accountants
C) Construction firms
D) Retailing firms

Question 20

Organic Towel Exports (Scenario)
The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's website. Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following questions must be evaluated by OTC managers as a first step to exporting?

A) What are the risks involved in exporting OTC towels to Earth Waves?
B) Do Canadian towel companies have a high success rate when they export?
C) Will OTC save money on domestic marketing by exporting?
D) How can OTC adapt its distribution strategy in Canada?

Question 21

Which of the following is TRUE with regard to global sourcing?

A) Global sourcing has declined significantly in the current phase of globalization.
B) Global sourcing is a low-control strategy in which the focal firm sources from independent suppliers through contractual agreements.
C) Global sourcing refers to the relocation of a business process or entire manufacturing facility to a foreign country.
D) Global sourcing does not represent the firm's initial involvement in international business.

Question 22

________ refers to sourcing from the firm's own production facilities.

A) Captive sourcing
B) Crowdsourcing
C) Business process outsourcing
D) Externalization

Question 23

The growth of global sourcing has been driven by ________.

A) the declining demand for highly skilled workers
B) the rapidly aging population in advanced economies
C) technological advances in communications
D) the rising costs of international business

Question 24

The bill of lading is the "birth certificate" of the goods being shipped and indicates the country where they originate.

Question 25

The procurement of selected value-adding activities, including production of intermediate goods or finished products, from independent suppliers is known as ________.

A) outsourcing
B) franchising
C) offshoring
D) licensing

Question 26

Which of the following documents is the contract between the shipping company and the exporter?

A) pro forma invoice
B) bill of lading
C) export declaration
D) commercial invoice

Question 27

In a short essay, explain why most firms use exporting as part of their internationalization portfolio, and discuss how Incoterms have mitigated problems with logistics.

Question 28

Fun Play Global Sourcing (Scenario)
Fun Play Inc., a company manufacturing toys for children, has decided to outsource some of its value-chain activities. However, the firm has no experience with global sourcing and has hired a consulting firm to assist its managers. The consulting firm has been assigned the task of determining which activities should be outsourced and where the outsourced activities should be located.

-Which of the following would most likely be considered by the consultants while deciding whether to keep each value-adding activity in the home country or locate it in a foreign country?

A) Who will be responsible for training suppliers in foreign locations?
B) Can different value-adding activities be effectively configured across the world?
C) Would the HR department of Fun Play be able to ensure smooth repatriation for managers after they complete their assignments abroad?
D) What are the odds in favor of Fun Play's dominating the children's toy segment in its home country?

Question 29

Incoterms are universally accepted terms of sale that specify how the buyer and the seller share the cost of freight and insurance in an international transaction and at which point the buyer takes title to the goods.

Question 30

Incoterms were developed by the International Chamber of Commerce in order to ________.

A) provide permission to export
B) standardize the cost of shipping and insuring exported items
C) define how the buyer and seller share freight and insurance costs
D) reduce the costs of shipping and insuring exported products

Question 31

The exporter usually first issues a quotation or pro forma invoice upon request by potential customers.

Question 32

Contract manufacturing can best be defined as ________.

A) the outsourcing to independent suppliers of business service functions such as accounting, payroll, human resource functions, travel services, IT services, customer service, or technical support
B) the relocation of a business process or entire manufacturing facility to a foreign country
C) sourcing from the firm's own production facilities
D) an arrangement in which the focal firm contracts with an independent supplier to manufacture products according to well-defined specifications

Question 33

Which of the following is the best example of a back-office BPO (Business Processing Outsourcing) activity?

A) customer service
B) billing
C) marketing
D) technical support

Question 34

Focal firms typically source from external suppliers for all of the following reasons EXCEPT ________.

A) the product or service obtained is non-core
B) the product can be purchased inexpensively
C) the supplier specializes in providing the product or service
D) the supplier offers the same product to competing firms

Question 35

If a computer contains a microprocessor from Costa Rica and a hard disk drive from the Philippines, the computer manufacturer, who is based in Texas and operates across Europe and West Asia, most likely uses ________ as an entry strategy.

A) exporting
B) franchising
C) global sourcing
D) licensing

Question 36

Trade fairs are not only excellent sites to meet potential intermediaries, they also provide the means to become familiar with key players in the local industry and to generally learn about the target market.

Question 37

Prox Inc. is a U.S.-based manufacturer of consumer electronics. It decides to export to Mexico and wants to protect its goods against damage, loss, and pilferage. Which of the following documents is applicable here?

A) insurance certificate
B) bill of lading
C) pro forma invoice
D) license

Question 38

Exporters usually purchase an insurance certificate to protect the exported goods against damage, loss, pilferage (theft), and, in some cases, delay.

Question 39

Fun Play Global Sourcing (Scenario)
Fun Play Inc., a company manufacturing toys for children, has decided to outsource some of its value-chain activities. However, the firm has no experience with global sourcing and has hired a consulting firm to assist its managers. The consulting firm has been assigned the task of determining which activities should be outsourced and where the outsourced activities should be located.
Which of the following is most likely to be the consultants' utmost concern while deciding if clothing for Fun Play dolls needs to be outsourced?

A) Is doll clothing part of Fun Play's core competencies?
B) What kind of fabric is used for clothing Fun Play dolls?
C) Do the competitors of Fun Play outsource accounting activities abroad?
D) Does Fun Play intend to follow a strategy of product diversification in the near future?

Question 40

Fun Play Global Sourcing (Scenario)
Fun Play Inc., a company manufacturing toys for children, has decided to outsource some of its value-chain activities. However, the firm has no experience with global sourcing and has hired a consulting firm to assist its managers. The consulting firm has been assigned the task of determining which activities should be outsourced and where the outsourced activities should be located.

-If Fun Play decides to source from its own wholly owned subsidiary, it would be engaging in ________.

A) offshoring
B) contract manufacturing
C) cause marketing
D) captive sourcing

Question 41

The pattern or geographic arrangement of locations where the firm carries out value-chain activities is known as ________.

A) configuration of value-adding activity
B) internalization
C) visual merchandising
D) disintermediation

Question 42

Given the complexities of international business, manufacturing is generally the only value-chain activity that firms outsource abroad.

Question 43

Not all business activities and processes lend themselves to global sourcing.

Question 44

Front-office activities typically include internal, upstream business functions.

Question 45

The recent economic turndown is expected to pressure advanced-economy firms to seek further ways to reduce costs.

Question 46

In advanced economies, firms generally do not outsource value-chain activities because they fear the loss of proprietary knowledge and trade secrets.

Question 47

The likelihood of internalizing ________ rather than outsourcing it is considerably high.

A) R&D
B) manufacturing of parts
C) sales and distribution
D) customer service

Question 48

The use of global sourcing has declined during the current phase of globalization.

Question 49

Business activities that would most likely be offshored are characterized by ________.

A) high-value-adding activities that contribute more productively to increasing company performance
B) services related to critical, long-term research projects and product development
C) routine tasks that do not relate to the firm's primary service or product
D) functions related to the firm's core competencies and strategic assets

Question 50

As a strategic asset, ________ is of the lowest importance to a firm.

A) customer service
B) R&D, design
C) manufacturing of parts
D) marketing and branding

Question 51

Contract manufacturing is an arrangement in which the focal firm contracts with an independent supplier to manufacture products according to well-defined specifications.

Question 52

In the decision about whether to outsource, manufacturing of products is considered of high importance to a firm.

Question 53

Front office activities cannot be classified under BPO (Business Process Outsourcing).

Question 54

Firms usually internalize those value-chain activities they consider part of their core competencies.

Question 55

Back office activities can be classified under BPO (Business Process Outsourcing).

Question 56

Offshoring is common in the service sector, including banking, software code writing, legal services, and customer-service activities.

Question 57

Which of the following activities is highly important to firms as a strategic asset?

A) manufacturing of parts
B) customer service
C) sales and distribution
D) marketing and branding

Question 58

Which of the following statements is TRUE with regard to the R&D activities of a firm?

A) As a strategic asset, R&D activities are of moderate importance to the firm.
B) R&D activities are usually concentrated at home.
C) R&D activities have a low likelihood of being internalized.
D) R&D activities have a high likelihood of being outsourced.

Question 59

Which of the following is TRUE with regard to offshoring?

A) Offshoring is common in the service sector, including banking, software code writing, legal services, and customer-service activities.
B) Russia is the current leader in the processing of advanced economies' relocated business services.
C) Offshoring substantially reduces the overall efficiency of MNEs.
D) With rapid globalization and internationalization of businesses, offshoring is a visibly declining trend.

Question 60

The relocation of a business process or entire manufacturing facility to a foreign country is known as ________.

A) offshoring
B) captive sourcing
C) outsourcing
D) subsidizing

Question 61

Audio Component Outsourcing (Scenario)
Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality.

-Global sourcing becomes a catalyst to overhaul organizational processes and company operations and increases the firm's overall competitive advantages by ________.

A) encouraging firms to train unskilled labor through extensive training programs
B) allowing firms to free expensive analysts, engineers, and managers from routine tasks to spend more time on high-value-adding activities
C) relaxing quality standards
D) installing a system of rewards to motivate employees

Question 62

In a short essay, describe three key drivers responsible for the recent growth of global sourcing.

Question 63

Audio Component Outsourcing (Scenario)
Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality.
Which of the following is a potential benefit that Echo can derive from global sourcing?

A) cheap R&D
B) access to qualified personnel in the home country
C) strong intellectual property protection
D) improved productivity and service

Question 64

Audio Component Outsourcing (Scenario)
Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality.

-Which of the following is a major challenge often faced by focal firms that engage in global sourcing?

A) no control over the quality of outputs
B) domestic management of local distribution
C) increased costs of business travel
D) lower-than-expected cost savings

Question 65

Industries that benefit the most from global sourcing are characterized by low labor intensity in product and service production.

Question 66

Distinguish between captive sourcing and contract manufacturing.

Question 67

Which of the following is most likely to occur if a U.S. firm outsources some of its business operations to a Japanese company, and the Japanese yen strengthens against the dollar?

A) The probability of intellectual property laws being enforced would significantly decrease in Japan.
B) The U.S. company will experience additional cost savings in using the services of the Japanese company.
C) Outsourcing business operations to Japan would become less expensive.
D) The U.S. company will experience higher costs in using the services of the Japanese company.

Question 68

________ is the primary rationale for sourcing abroad.

A) Superior quality control
B) Centralized management of work teams
C) Cost efficiency
D) Uninterrupted innovation

Question 69

Which of the following refers to a risk, stemming from environmental factors, that is closely associated with global sourcing?

A) weak intellectual property laws
B) overreliance on suppliers
C) high energy costs
D) rapid turnover of skilled employees

Question 70

Audio Component Outsourcing (Scenario)
Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality.
Which of the following is a benefit of global sourcing?

A) bridging of the rich-poor divide
B) minimal reliance on suppliers
C) access to qualified personnel abroad
D) elimination of competitors

Question 71

Audio Component Outsourcing (Scenario)
Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality.

-The strategic view of global sourcing suggests that ________.

A) just as firms achieve gains in efficiency, productivity, quality, and revenues by leveraging offshore talent, they also obtain the means to turn around failing businesses, speed up innovation, restructure operations, and fund otherwise-unaffordable development projects
B) firms that procure supplies from foreign subsidiaries are more likely than not to lose ground to competitors who primarily bank on their own resources
C) a strong legal environment is not the prerequisite for increasing efficiencies by relocating strategic operations abroad
D) the firms' innovative activities tend to make mature products obsolete over time

Question 72

Typically, firms tend to concentrate research and development activities abroad rather than in their home countries.

Question 73

The likelihood of a firm internalizing research and development instead of outsourcing it is high.

Question 74

How do firms decide whether or not to outsource? In a short essay, describe the factors that contribute to the decision to internalize or externalize business activities.

Question 75

Audio Component Outsourcing (Scenario)
Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality.
Which of the following would be most important to determine in deciding whether to outsource some of Echo's value-chain activities?

A) What are the long-term strategic goals and objectives of Echo?
B) Do engineers working in Echo have the ability to speak one or more European languages?
C) Are Echo employees generally afforded a high degree of workplace freedom?
D) Does Echo intend to increase its annual budget for innovation?

Question 76

Audio Component Outsourcing (Scenario)
Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality.

-Which of the following is TRUE with regard to the risks of global sourcing?

A) Inadequate legal systems, red tape, convoluted tax systems, and complex business regulations complicate local operations in many countries.
B) Firms that source from countries whose currencies are strengthening experience lower costs.
C) Global sourcing weakens competition leading to a considerably risk-free international business environment.
D) Environmental challenges exclude currency fluctuations, tariffs and other trade barriers, high energy and transportation costs.

Question 77

Audio Component Outsourcing (Scenario)
Echo Corp., a company based in Boston, manufactures high-quality audio components, such as speakers, amplifiers, and receivers for home entertainment systems. Echo has been losing market share in recent years due to the competitive pricing of other audio component manufacturers that engage in global sourcing. Echo managers are attempting to convince Nathan Douglas, the firm's founder and CEO, that global sourcing would enable the firm to be more competitive without sacrificing quality.
Which of the following, if TRUE, most supports the argument in favor of global sourcing?

A) There is no scarcity of qualified personnel in and around Boston.
B) Studies show that by reconfiguring their value-chain systems or reengineering their business processes, companies can substantially improve their production efficiency and resource utilization.
C) Camden Audio, Echo's most formidable rival, follows a strategy of product diversification.
D) The rate of employee turnover at Echo has stabilized over the last decade.

Question 78

The likelihood of a firm internalizing marketing and branding instead of outsourcing it is high.

Question 79

In the decision about whether to outsource, research and development is considered an important issue for the firm.

Question 80

What is offshoring? Describe the types of industries that tend to offshore.