Deck 7: International Strategy: Creating Value in Global Markets

Question 1

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.

Answer 1

True
Explanation: 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.

Question 2

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.

Answer 2

False
Explanation: 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.

Question 3

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

Answer 3

False
Explanation: 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.

Question 4

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

Question 5

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.

Question 6

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.

Question 7

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

Question 8

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.

Question 9

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.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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.

Question 18

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

Question 19

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

Question 20

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.

Question 21

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.

Question 22

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.

Question 23

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

Question 24

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

Question 25

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.

Question 26

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.

Question 27

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

Question 28

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

Question 29

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

Question 30

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.

Question 31

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

Question 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.

Question 33

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.

Question 34

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

Question 35

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

Question 36

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.

Question 37

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.

Question 38

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

Question 39

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

Question 40

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.

Question 41

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.

Question 42

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

Question 43

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

Question 44

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.

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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).

Question 51

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

Question 52

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

Question 53

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

Question 54

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.

Question 55

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

Question 56

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

Question 57

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

Question 58

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.

Question 59

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

Question 60

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

Question 61

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

Question 62

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

Question 63

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

Question 64

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

Question 65

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.

Question 66

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.

Question 67

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

Question 68

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

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

Question 69

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.

Question 70

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

Question 71

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.

Question 72

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

Question 73

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.

Question 74

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.

Question 75

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

Question 76

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.

Question 77

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

Question 78

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

Question 79

Exporting is an expensive way to enter foreign markets.

Question 80

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