Deck 12: The Strategy of International Business

Question 1

In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm.

Answer 1

True

Question 2

According to Michael Porter, one way to create superior value is to differentiate the product so that consumers are willing to pay a premium price.

Answer 2

True

Question 3

Moving down the experience curve means higher costs of increasing value and lower levels of profitability for a firm.

Answer 3

False

Question 4

A strategy that focuses primarily on increasing the manufacturing rate of a product is referred to as a low-cost strategy.

Question 5

Profit growth is measured by the percentage increase in a company's total production over time.

Question 6

The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products.

Question 7

Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth.

Question 8

Firms that pursue an international strategy focus on increasing profitability by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

Question 9

Consumer surplus captures some of the value of a product, which reduces the price a firm can charge for it.

Question 10

A strategic alliance is a cooperative agreement between potential or actual competitors.

Question 11

The experience curve refers to systematic increases in production costs that have been observed to occur over the life of a product.

Question 12

Learning effects are more evident in the sales profession than in manual labor jobs.

Question 13

The information system of a company is an example of a support activity.

Question 14

The term mini-multinational refers to the totality of a firm's organization, including organization architecture, control systems and incentives, organizational culture, processes, and people.

Question 15

The ability to spread fixed costs over a large volume is a source of economies of scale.

Question 16

Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.

Question 17

Universal needs exist when the tastes and preferences of consumers in different nations are identical.

Question 18

Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to locations where they are performed most efficiently and effectively.

Question 19

Varying distribution channels among countries may make it necessary for a company to place marketing functions within national subsidiaries.

Question 20

A firm's core competencies refers to those activities that are easily matched by competitors.

Question 21

How does a company measure profit growth?

A) by dividing the net profits of the firm by total invested capital
B) by subtracting the previous year's gross profit from the current year's gross profit
C) by calculating the difference between the previous year's profitability and the current year's profitability
D) by finding the percentage increase in net profits over time
E) by adding the profitability of the last two fiscal years

Question 22

The value of Omega's top selling fitness product to an average consumer is $150 and the average unit cost of producing that product is $65. In this scenario, $85 ($150−$65) represents

A) consumer surplus.
B) value creation.
C) cost curve.
D) value efficiency.
E) customer reservation.

Question 23

Acquiring an existing company in a foreign nation is an example of a strategic alliance.

Question 24

According to researchers, firms facing strong cost pressures and pressures for local responsiveness should pursue a global standardization strategy.

Question 25

WiseGuy Inc. sells its finance software for $100. It costs the company $59 to make the product. Customers value the software at $90. In this scenario, WiseGuy Inc.'s value creation is

A) $59.
B) $31.
C) $10.
D) $28.
E) $272.

Question 26

The rate of return that a firm makes on its invested capital is referred to as

A) stakeholder return.
B) profitability.
C) profit growth.
D) process value.
E) strategic fit.

Question 27

Karina believes the value of a wristwatch sold at $160 is $250. In this scenario, the $250 value is referred to as the

A) market price.
B) customer's negotiated price.
C) base value of the product.
D) customer's reservation price.
E) profit growth price.

Question 28

Strong pressures for cost reductions are a good reason to use a global standardization strategy.

Question 29

By standardizing equipment and streamlining its operations, PinPoint Airlines competes by offering less expensive flights than the competition. According to Michael Porter, the strategy that PinPoint Airlines is using is

A) low-cost.
B) differentiation.
C) value transfer.
D) efficiency frontier.
E) diversification.

Question 30

A localization strategy focuses on using mass production of product to meet general tastes and preferences.

Question 31

Assume that the value of a base model computer to an average consumer is $300, the average price that Dell can charge a consumer for that product is $275, and the average unit cost of producing that product for Dell is $150. For this scenario, which statement is true?

A) Dell can easily increase its price above $300.
B) The profit for Dell on each computer is $150.
C) The consumer surplus per computer is $25.
D) The higher the intensity of competitive pressure, the higher the price that Dell can charge relative to $300.
E) The lower the consumer surplus, the greater the value for the money the consumer gets.

Question 32

An international strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization.

Question 33

Nature Farm Granola is in a highly-competitive market and has decided to focus on sugar-free granola bars. These granola bars will cost more for the consumer, but the company knows there is high demand for this type of product and feels consumers will pay the price. In addition, none of their competitors have produced this product. This is an example of a ________ strategy

A) standardization
B) differentiation
C) target-identification
D) low-cost
E) profitability

Question 34

The ________ shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position.

A) purchasing power parity
B) experience curve
C) efficiency frontier
D) optimal output model
E) supply-and-demand curve

Question 35

Consumer surplus results when companies charge a lower price for products than the value placed on them by customers. This occurs because

A) the value creation results in a corresponding reduction in costs of production.
B) it is highly unlikely that the same good or service will be available to the customers from other firms.
C) the firm is competing with other firms for the customer's business.
D) the firm charges a price that reveals a consumer's assessment of the product's value.
E) the firm creates value for the customer by producing a wide range of products.

Question 36

Namaste Inc. sells its yoga mats for $50. It costs the company $35 to make the product. Customers value the mats at $60. In this scenario, the consumer surplus is

A) $38.
B) $50.
C) $10.
D) $28.
E) $15.

Question 37

A(n) ________ is used by economists when referring to charging each customer a price that reflects that individual's assessment of the value of a product.

A) producer surplus
B) reservation price
C) value price
D) efficiency frontier
E) competitive advantage.

Question 38

According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry?

A) differentiation and low-cost
B) value creation and generalization
C) one-size-fits-all and zero-sum
D) comparison and standardization
E) profitability and strategic fit

Question 39

According to Michael Porter, superior profitability goes to a firm that

A) creates products similar to their competitors.
B) keeps the gap between value and cost of production smaller than the gap attained by competitors.
C) drives down the cost structure of its business.
D) has the highest cost structure in the industry.
E) has the least valuable product in the industry.

Question 40

In general, the more value customers place on a firm's products, the more it leads to

A) less profit for the firm.
B) higher competitive pressure from other firms.
C) lesser the quality of the product.
D) lesser the consumer surplus for those products.
E) higher prices the firm can charge for those products.

Question 41

What is a support activity in the operations of a firm?

A) research and development
B) customer service
C) marketing and sales
D) creation and maintenance of information systems
E) production

Question 42

Of all the value creation activities in a firm, ________ creates value by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs.

A) production
B) marketing and sales
C) its human resources
D) logistics
E) its information system

Question 43

The concept of ________ suggests that when a company has built significant value into its product offerings, trying to increase the value of the products by even a small amount requires a significant financial investment.

A) tragedy of the commons
B) diminishing returns
C) the Sullivan principle
D) supply-and-demand
E) purchasing power parity

Question 44

StickyGlue Corp. creates adhesives used in the construction business. A primary activity in the operations of StickyGlue Corp. would be

A) logistics.
B) research and development.
C) information systems.
D) human resources.
E) company infrastructure.

Question 45

Who should be considered as part of a firm's infrastructure because of the considerable influence associated with the position?

A) procurement manager
B) top management
C) production manager
D) research and development scientist
E) marketing personnel

Question 46

Midwest Sports produces in-house all the products that it sells through its network of stores. It has a function in its value chain that controls sending the physical materials through the value chain, from procurement through production and into distribution. This function is called

A) human resources.
B) finance.
C) marketing.
D) logistics.
E) research and development.

Question 47

A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if

A) the product is already being offered by local companies in the nations that the company enters.
B) the product is a generic product that requires little differentiation.
C) indigenous competitors in the nations that the company enters lack comparable products.
D) there is a high inflation in the nations that the company enters.
E) the product is perceived to be very costly in the home country of the company.

Question 48

Lindsey works at Lincoln Office Furniture Group. She fields calls from people who purchase their ready-to-build products and need assistance during the process. Which primary activity is Lindsey involved with?

A) production
B) marketing and sales
C) human resources
D) customer service
E) logistics

Question 49

At the beginning of the year, Marissa created three goals for each sales person on her staff and she uses those goals as a way to measure their performance throughout the year. These goals are an example of

A) reports.
B) controls.
C) rewards.
D) knowledge flows.
E) folkways.

Question 50

AR Supply locates its global manufacturing in Mexico, its global distribution in Indonesia, and its design in Italy. By dispersing different stages of its value chain to those locations around the world where the value added is maximized or where the costs of value creation are minimized, AR Supply has created a(n)

A) factor endowment.
B) dispersal chain.
C) global web.
D) exchange rate.
E) home country advantage.

Question 51

How does possessing a core competency help a firm?

A) It helps a firm to create value in such a way that premium pricing is impossible.
B) It reduces a firm's dependence on its logistics function.
C) It enables a firm to reduce the costs of value creation.
D) It reduces the scope of transfer of skills to foreign markets.
E) It reduces the need to replicate a business model in a foreign market.

Question 52

Processes are defined as the

A) manner in which decisions are made and work is performed within the organization.
B) metrics used to measure the performance of subunits.
C) devices used to reward appropriate managerial behavior.
D) metrics used to make judgments about how well managers are running the subunits.
E) norms and value systems that are shared among employees of an organization.

Question 53

WeShop4You has created a grocery delivery service that is unmatched by its competition. The value the company has created now makes it difficult to implement new ideas without spending more money than it originally took to start the business. This demonstrates the idea of

A) entrepreneurism.
B) a low-cost strategy.
C) consumer surplus.
D) diminishing returns.
E) offshoring.

Question 54

GreenFresh Food Products believes that as far as its products are concerned, tastes vary worldwide and so it has to customize its products, marketing strategy, and business strategy to allow for differing national conditions. What is affecting the company's ability to increase its profitability and profit growth by expanding globally?

A) the imperative of localization
B) economies of scale
C) customer surplus.
D) the leveraging of skills developed in foreign operations
E) the dispersion of individual value creation activities

Question 55

When Nathan accepted his new job, his manager explained that each employee who demonstrated at least two ideas that could lead the company to a competitive advantage received a $5,000 bonus at the end of the year. This bonus is an example of a(n)

A) control.
B) hierarchy.
C) folkway.
D) incentive.
E) process.

Question 56

According to the basic strategy paradigm, a firm maximizes its profitability when it

A) creates products similar to the products of its competitors.
B) minimizes the value provided by its products.
C) picks a position on the efficiency frontier in which there is little support for their choice.
D) strips all the value out of its product offering.
E) configures internal operations to support the position selected by it on the efficiency frontier.

Question 57

The value creation activities of a firm are categorized as

A) primary activities and support activities.
B) strategic activities and functional activities.
C) ancillary functions and tertiary functions.
D) primary activities and core activities.
E) goal-oriented activities and organizational activities.

Question 58

For Bank of America, the "production" activity typically occurs when the

A) customer specifies the service requirements.
B) service is paid for by the customer.
C) service is designed in-house.
D) service is delivered to the customer.
E) customer provides feedback.

Question 59

The 2,500 people working in Saturn Inc.'s corporate office deal with the organizational structure, control systems, and culture of the firm. These three things comprise which support function of Saturn Inc.?

A) human resources
B) logistics
C) information systems
D) company infrastructure
E) inventory management

Question 60

Kitchen-Rite believes that by producing its small appliances in Canada, they can take advantage of lower wage rates in that country. By pursuing such a strategy, Kitchen-Rite hopes to realize

A) a position inside the efficiency frontier.
B) the experience curve.
C) economies of scale.
D) location economies.
E) demographic advantages.

Question 61

Marketing functions may have to be delegated to national subsidiaries when there is a

A) difference in distribution channels.
B) pressure for decreasing consumer surplus.
C) lack of product customization.
D) pressure for increasing economies of scale.
E) pressure for increasing consumers' reservation price.

Question 62

Gen-Supply reminds employees that its flagship product used to cost the company $154 to manufacture when the company launched ten years ago. Now, the same product costs just $58 to manufacture. This demonstrates the effects of

A) a global web.
B) dispersion linkage.
C) economies of scale.
D) the experience curve.
E) the efficiency frontier.

Question 63

A ________ is most favorable to reap gains from global scale economies.

A) low demand for local responsiveness
B) high pressure for cost reduction
C) lack of universal needs
D) national difference in accepted business practices
E) high pressure to delegate production to domestic subsidiaries

Question 64

When Brite Fabrics first began operations, it took six hours to make a coat in the workroom. Today, that task takes three hours as more efficient sewing and patterning techniques have been introduced. This improvement in efficiency is an example of

A) diminishing returns.
B) location economies.
C) a geographic implication.
D) learning effects.
E) an efficiency frontier.

Question 65

Rite-Right Pen Corp., based in Florida, has a manufacturing facility in Thailand where local content rules regulate manufacturing processes. These rules show the effects of

A) variances in distribution channels.
B) host-government demands.
C) service-oriented processes.
D) infrastructure differences.
E) traditional practices.

Question 66

Amazon Prime incurs a huge fixed cost to obtain streaming rights to movies and television programs. However, it is able to spread this cost over a large number of subscribers that results in a cost-savings phenomenon referred to as

A) volume synergies.
B) economies of scale.
C) captured savings.
D) size effects.
E) location economies.

Question 67

Firms that compete in the global marketplace typically face which two types of competitive pressure?

A) pressures for increasing investment and pressures to minimize consumer surplus
B) pressures for labor skill enhancement and pressures to minimize economies of scale
C) pressures for cost reductions and pressures to be locally responsive
D) pressures for global promotions and pressures to move down the efficiency frontier
E) pressures for product standardization and pressures to move up the experience curve

Question 68

By producing its products in larger volume than its competitors, Epli-Mart is able to achieve substantial reductions in unit cost. In other words, Epli-Mart achieves

A) location economies.
B) learning effects.
C) standardization economies.
D) core economies.
E) economies of scale.

Question 69

A number of studies have observed that a product's production costs decline by some quantity about each time

A) annual output is halved.
B) cumulative output doubles.
C) the workforce is trimmed by 75 percent.
D) fixed investment triples.
E) foreign domestic investment doubles.

Question 70

The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally

A) increased cost pressures.
B) decreased the demand for local responsiveness.
C) decreased pressures for cost reduction.
D) increased consumer surplus.
E) reduced the production of conventional commodity products.

Question 71

Merck, a pharmaceutical company, has taken thousands of drugs through the federal approval process and so can do it more cost efficiently than many competitors who are new to the industry. These cost savings that come to Merck in the drug approval process are an example of

A) learning effects.
B) factor endowments.
C) ancillary effects.
D) economies of scale.
E) location economies.

Question 72

The ________ refers to systematic reductions in production costs that have been observed to occur over the life of a product.

A) experience curve
B) learning effect
C) location economies
D) efficiency slope
E) economies of scale

Question 73

Cost reduction pressures tend to be particularly intense in industries that

A) create products that serve universal needs.
B) create customized products.
C) are not involved in international business.
D) produce products that have inelastic demand.
E) serve different customers with different needs.

Question 74

Learning effects will be most significant in which of these tasks?

A) pizza delivery for a fast-food major
B) data entry for a loan recovery center
C) assembly process involving 1,000 complex steps
D) switchboard operator at an automobile dealer
E) delivering letters to different recipients

Question 75

________ are most likely to discourage global expansion of businesses.

A) Economies of scale
B) Factor endowments
C) Trade barriers
D) Mass customization
E) Low transportation costs

Question 76

Products such as steel, bulk chemicals, and industrial electronics do not require much differentiation because the taste and preference for these products is similar all around the world. These products are examples of

A) universal needs.
B) the efficiency frontier.
C) local customization.
D) lateral requirements.
E) market differentiation.

Question 77

Economies of scale are achieved when a company reduces unit costs by

A) manufacturing products based on factor endowments.
B) producing a larger volume of product.
C) reducing staff.
D) eliminating competitor value.
E) acquiring a new supplier.

Question 78

One argument for the idea that customer demands for local customization are on the decline worldwide is that

A) local and indigenous industries are increasingly filling up available demand.
B) high costs of local customization are deterring companies from doing so.
C) governments across the world are standardizing their legal procedures.
D) customer tastes have converged worldwide.
E) managers worldwide ignore the differences in consumer tastes and preferences.

Question 79

The two phenomena that help explain the experience curve are

A) learning effects and economies of scale.
B) technology inputs and wealth transfer.
C) leveraging subsidiary and local responsiveness.
D) standardized manufacturing and global web.
E) efficiency frontier and location economies.

Question 80

Learning effects tend to be more significant when

A) a task involves a few simple steps.
B) a task is repeated for a period of over five years.
C) the workforce consists of unskilled labor.
D) the cumulative output becomes half of what it was originally.
E) a technologically complex task is repeated.