Question 1

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

Accepted Answer

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.

Question 2

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

Accepted Answer

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.

Question 3

When U.S.currency appreciates against other currencies,U.S.goods can be less expensive to consumers in foreign countries.

Accepted Answer

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. When the U.S. dollar appreciates against other currencies, for example, U.S. goods can be more expensive to consumers in foreign countries.

Question 4

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.

Accepted Answer

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.

Question 5

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.

Accepted Answer

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.

Question 6

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.

Accepted Answer

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.

Question 7

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

Accepted Answer

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.

Question 8

Offshoring takes place when a firm decides to shift an activity that they were previously performing in a domestic location to a foreign location.

Accepted Answer

Offshoring takes place when a firm decides to shift an activity that they were performing in a domestic location to a foreign location. For example, both Microsoft and Intel now have Research and Development facilities in India, employing a large number of Indian scientists and engineers.

Question 9

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

Accepted Answer

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.

Question 10

Differences in foreign markets such as culture,language,and customs can represent significant management risks when firms enter foreign markets.

Accepted Answer

Management risks may be considered the challenges and risks that managers face when they must respond to the inevitable differences that they encounter in foreign markets. These take a variety of forms: culture, customs, language, income levels, customer preferences, distribution systems, and so on.

Question 11

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

Accepted Answer

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.

Question 12

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

Accepted Answer

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

Question 13

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).

Accepted Answer

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.

Question 14

Firms can eliminate 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.

Accepted Answer

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 15

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 appeals to the largest number of consumers in every market.

Accepted Answer

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.

Question 16

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

Accepted Answer

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.

Question 17

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 high quality.

Accepted Answer

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.

Question 18

When the U.S.currency appreciates against other currencies,it becomes more expensive for American companies that have branch operations overseas,when they declare foreign profits in the United States.

Accepted Answer

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.

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

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.

Quiz 7: International Strategy: Creating Valuein Global Markets

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

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

When U.S.currency appreciates against other currencies,U.S.goods can be less expensive to consumers in foreign countries.

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.

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.

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

Offshoring takes place when a firm decides to shift an activity that they were previously performing in a domestic location to a foreign location.

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

Differences in foreign markets such as culture,language,and customs can represent significant management risks when firms enter foreign markets.

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

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

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).

Firms can eliminate 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.

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 appeals to the largest number of consumers in every market.

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

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 high quality.

When the U.S.currency appreciates against other currencies,it becomes more expensive for American companies that have branch operations overseas,when they declare foreign profits in the United States.

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

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