Deck 13: The Strategy of International Business

Question 1

The success of many multinational corporations is based not just upon the goods or services that they sell in foreign nations, but also upon the core competencies that underlie the development, production, and marketing of those goods or services.

Answer 1

True

Question 2

Top management should be viewed as part of the firm's infrastructure.

Answer 2

True

Question 3

Cost savings that come from learning by doing are known as economies of scale.

Answer 3

False

Question 4

Systematic increases in sales that have been observed to occur over the life of the product are referred to as the experience curve.

Question 5

Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs.

Question 6

The preeminent strategic goal for most firms is to maximize the value of the firm for its owners.

Question 7

For a firm, all positions on the efficiency frontier are viable.

Question 8

Economies that arise from performing a value creation activity in the optimal location are known as location economies.

Question 9

According to Porter, the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more.

Question 10

The skills within the firm that a competitor cannot easily match or imitate are known as core competence.

Question 11

Global expansion offers companies the opportunity to generate greater profits than companies that focus strictly on the domestic market.

Question 12

Profit growth is measured by the percentage increase in net profits over time.

Question 13

Core competencies enable a firm to reduce the costs of value creation and/or to create perceived value in such a way that premium pricing is possible.

Question 14

R&D, production, marketing and sales, and customer service are all examples of primary activities.

Question 15

Support activities include the design, creation, and delivery of a product.

Question 16

Support activities are always less important than the primary activities in achieving a competitive advantage.

Question 17

The strategy, operations, and organization of a firm must all be consistent with each other if the firm is to attain a competitive advantage and achieve superior profitability.

Question 18

A firm's strategy can be defined as the actions that managers take to attain the goals of the firm.

Question 19

The customer is able to garner the benefit of the consumer surplus because one firm is competing with other firms for the customer's business, so the firm must charge a lower price than it could if it were a monopoly supplier.

Question 20

The amount of value a firm creates is measured by the difference between its costs of production and the price that it charges for its products.

Question 21

A global standardization strategy is appropriate when a firm is facing low pressures for cost reduction but high pressure for local responsiveness.

Question 22

Learning effects tend to be more significant when a technologically simple task is repeated.

Question 23

When a firm focuses on increasing profitability by customizing the product or service so that they provide a good match to tastes and preferences in different national markets, the firm is following a transnational strategy.

Question 24

When the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness, the ideal strategy to follow is the transnational strategy.

Question 25

Two types of competitive pressure that affect the ability of multinational enterprises to compete in the global marketplace are pressure for cost reductions and pressure for local responsiveness.

Question 26

Threats of protectionism, economic nationalism, and local content rules dictate that international businesses manufacture locally.

Question 27

Pressures for local responsiveness imply that it may not be possible for a firm to realize the full benefits from economies of scale, learning effects, and location economies.

Question 28

Moving up the experience curve allows a firm to reduce its cost of creating value and increase its profitability.

Question 29

The distinguishing feature of many firms that pursue an international strategy is that they are selling a product that serves local needs, but they do not face significant competitors.

Question 30

A multinational firm may need to delegate marketing functions to national subsidiaries to be responsive to local differences in distribution channels.

Question 31

Once a firm has established a low-cost position, it can act as a barrier to new competition.

Question 32

To leverage subsidiary skills, companies should establish incentive systems that encourage local employees to acquire new skills.

Question 33

Because differentiation across countries can involve significant duplication and a lack of product standardization, it may reduce costs.

Question 34

As competition intensifies, global standardization strategies and transnational strategies tend to become less viable, and managers need to orientate their companies toward either an international strategy or a localization strategy.

Question 35

One of the sources of economies of scale is the ability to spread fixed costs over a large volume.

Question 36

A localization strategy makes most sense when demands for local responsiveness are high, but cost pressures are moderate or low.

Question 37

When consumer tastes and preferences differ significantly between countries, there is low pressure for local responsiveness.

Question 38

Pressures for cost reduction are minimal in industries where major competitors are based in low-cost locations, where there is persistent excess capacity, and where consumers are powerful and face low switching costs.

Question 39

Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical.

Question 40

In a multinational enterprise, skills are always generated at the headquarters location and are then dispersed to the rest of the organization.

Question 41

When companies disperse different stages of the value chain to those locations around the world where perceived value is maximized or where the costs of value creation are minimized, companies create:

A) a differentiated organization.
B) a location economy curve.
C) economies of scale.
D) a global web of value creation activities.

Question 42

Which of the following is an example of a primary activity in a firm's value chain?

A) Information systems
B) Research and development
C) Logistics
D) Human relations

Question 43

_____ imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs.

A) Efficiency matrixes
B) Diminishing returns
C) Cost plus curves
D) Strategy convex curves

Question 44

A strategy that focuses on increasing the attractiveness of a product is referred to as a(n):

A) differentiation strategy.
B) low cost strategy.
C) effectiveness strategy.
D) efficiency strategy.

Question 45

For transnational enterprises to be successful, they must focus on leveraging the skills found at their subsidiaries around the world.

Question 46

_____ can be defined as the rate of return that the firm makes on its invested capital, which is calculated by dividing the net profits of the firm by total invested capital.

A) Profitability
B) Performance
C) Cash flow
D) Efficiency

Question 47

Economies that arise from performing a value creation activity in the optimal place for that activity are referred to as:

A) factor economies.
B) production economies.
C) location economies.
D) value creation economies.

Question 48

The value of a product to an average consumer is V; and the average price that the firm can charge a consumer for that product is P. Here, V - P can be termed as:

A) consumer surplus per unit.
B) producer surplus per unit.
C) profit growth.
C) The firm's profit per unit sold (π) is equal to P - C, while the consumer surplus per unit is equal to V - P.
D) profit per unit sold.
The value of a product to an average consumer is V; the average price that the firm can charge a consumer for that product given competitive pressures and its ability to segment the market is P; and the average unit cost of producing that product is

Question 49

Which of the following statements is NOT true?

A) The way to increase the profitability of a firm is to create more value.
B) 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.
C) The more value customers place on a firm's products, the higher the price the firm is able to charge for those products.
D) The price a firm charges for a good or service is typically more than the value the customer places on that good or service.

Question 50

Which of the following is an example of a support activity in a firm's value chain?

A) R&D
B) Customer service
C) Human resources
D) Marketing and sales

Question 51

The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because:

A) the customer's disposable income is significantly higher than what the market demands.
B) the customer captures some of that value in the form of a consumer surplus.
C) regulatory mechanisms ensure that the customer is not overcharged for products/services.
D) marketers implement psychological pricing tactics to ensure that customers perceive the prices to be low.

Question 52

Enterprises that pursue an international strategy tend to decentralize control over marketing and product strategies.

Question 53

A consumer surplus can be best described as:

A) what the consumer has "left-over" after a purchase.
B) how much extra a consumer has to pay for a product.
C) value for the money.
D) the premium charged for a quality product.

Question 54

The basic strategy paradigm suggests that to maximize its profitability, a firm should do all of the following, EXCEPT:

A) choose, according to strategy, any position on the efficiency frontier as all positions are viable.
B) pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice.
C) configure its internal operations so that they support the position on the efficiency frontier.
D) make sure that the right organization structure is in place to execute the strategy.

Question 55

_____ activities of the value chain provide inputs that allow the primary activities to occur.

A) Complementary
B) Basic
C) Core
D) Support

Question 56

Research has shown that in the modern multinational enterprise, core competencies and skills typically reside in the home country.

Question 57

The percentage increase in net profits over time measures:

A) capital return.
B) profitability.
C) market growth.
D) profit growth.

Question 58

A firm benefits by basing each value creation activity it performs at that location where economic, political, and cultural conditions, including relative factor costs, are most conducive to the performance of that activity. Firms that pursue such a strategy can realize:

A) differentiation.
B) location economies.
C) vertical integration.
D) horizontal integration.

Question 59

The efficiency frontier has a convex shape because of:

A) consumer surplus.
B) diminishing returns.
C) profitability.
D) differentiation strategy.

Question 60

_____ activities are basically concerned with creating the product, marketing and delivering the product to buyers, and providing support and after-sales service.

A) Support
B) Subordinate
C) Ancillary
D) Primary

Question 61

It has been observed in the aircraft industry that, each time cumulative output of airframes was doubled, unit costs typically declined to 80 percent of their previous level. This is an example of:

A) the core performance curve.
B) the location curve.
C) the strategic curve.
D) the experience curve.

Question 62

A firm that is facing both strong cost pressures and strong pressures for local responsiveness should follow a(n) _____ strategy.

A) localization
B) global standardization
C) international
D) transnational

Question 63

Economies of scale arise from all of the following sources, EXCEPT:

A) increasing fixed costs by limiting them to small volumes.
B) serving domestic and international markets from the same production facilities.
C) serving global markets.
D) bargaining with suppliers to bring down the cost of key inputs.

Question 64

Which strategy focuses on increasing profitability by customizing the firm's goods or services so they provide a good match to tastes and preferences in different national markets?

A) Global standardization strategy
B) Transnational strategy
C) Localization strategy
D) International strategy

Question 65

_____ exists when the tastes and preferences of consumers in different nations are similar if not identical.

A) Universal needs
B) Homogenous needs
C) Basic needs
D) Bundled needs

Question 66

It has been observed that a product's production costs decline by some quantity about each time, cumulative output:

A) increases by twenty five percent.
B) quadruples.
C) doubles.
D) triples.

Question 67

A firm that is pursuing a(n) _____ strategy is simultaneously trying to achieve low costs through location economies, economies of scale, and learning effects, and trying to differentiate its product offering across geographic markets.

A) global customization
B) international
C) localization
D) transnational

Question 68

When a firm has a strategic goal of pursuing a low-cost strategy on a worldwide scale, the firm should follow a(n) _____ strategy.

A) global standardization
B) localization
C) international
D) customization

Question 69

Which of the following is a disadvantage of the localization strategy?

A) Decrease in the value of the product in the local market
B) Duplication of functions
C) Inability to accommodate varying tastes and preferences in different markets
D) Reduced customization

Question 70

Learning effects:

A) tend to be less significant when a technologically complex task is repeated.
B) will be less significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps.
C) typically disappear after a while, in spite of the complexity of the task.
D) are more significant after two or three years of the introduction of a new process.

Question 71

Which of the following is less likely to add to the pressure for a firm to be locally responsive?

A) National differences in consumer tastes and preferences
B) Differences in infrastructure and traditional practices
C) Switching costs for consumers
D) Host-government demands

Question 72

Firms usually respond to pressures for cost reduction by trying to:

A) lower the costs of value creation.
B) be locally responsive.
C) undertaking product differentiation.
D) diversifying product lines.

Question 73

Which of the following is NOT associated with firms following the global standardization strategy?

A) Low pressures for local responsiveness
B) Use cost advantage to support aggressive pricing in world markets
C) High pressures for cost reductions
D) Customize product offering and marketing strategy to local conditions

Question 74

_____ strategy is most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense.

A) Localization
B) Transnational
C) Global standardization
D) International

Question 75

Responding to pressure for _____ requires that a firm differentiate its product offering and marketing strategy from country to country.

A) cost reductions
B) experience effects
C) lowering the costs of value creation
D) being locally responsive

Question 76

Lenovo's ThinkPad laptop computers is designed in the United States, the case, keyboard, and hard drive are made in Thailand; the display screen and memory in South Korea; the built-in wireless card in Malaysia; and the microprocessor in the United States. In each case, these components are manufactured and sourced from the optimal location given current factor costs. In this example, Lenovo has:

A) vertical integration advantages.
B) a global web of value creation activities.
C) learning effects.
D) high local responsiveness.

Question 77

Moving down the experience curve:

A) increases the cost of a firm's raw material.
B) allows a firm to reduce its cost of creating value.
C) decreases a firm's profitability.
D) increases the R & D expenditure of a firm.

Question 78

It has been suggested that learning effects are important only during the start-up period of a new process and that they cease after two or three years. Any decline in the experience curve after such a point is due to:

A) reduction in fixed costs.
B) higher depreciation costs.
C) economies of scale.
D) obsolescence.

Question 79

_____ refer(s) to systematic reductions in production costs that have been observed to occur over the life of a product.

A) Experience curve
B) Economies of scale
C) Location economies
D) Production possibility

Question 80

When individuals gain knowledge of the most efficient ways to perform particular tasks, they are saving costs through:

A) location economies.
B) value creation effects.
C) experience curve effects.
D) learning effects.