Question 1

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 2

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

Accepted Answer

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

Question 3

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

Accepted Answer

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.

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

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.

Question 6

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

Accepted Answer

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.

Question 7

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.

Accepted Answer

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.

Question 8

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.

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 9

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

Accepted Answer

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.

Question 10

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

Accepted Answer

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.

Question 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.

Accepted Answer

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.

Question 12

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.

Accepted Answer

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.

Question 13

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

Accepted Answer

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.

Question 14

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 15

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

Accepted Answer

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.

Question 16

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 17

Two opposing pressures that managers face when they compete in foreign markets are cost reduction and adaptation to foreign 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 18

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.

Accepted Answer

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.

Question 19

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. This enables a firm to expand its market and to charge different prices in different markets. For firms following this strategy, differences in language, culture, income levels, customer preferences, and distribution systems are only a few of the many factors that must be considered. Even in the case of relatively standardized products, at least some level of local adaptation is often necessary.

Question 20

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

Accepted Answer

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

Quiz 7: International Strategy: Creating Value in Global Markets