Question 1

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.

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 2

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 3

A limitation of a multidomestic strategy is that it may lead to over-adaptation 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 4

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 5

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

Accepted Answer

This measure can be misleading. For example, consider a U.S. firm that has expanded its activities into Canada. Clearly, this initiative is qualitatively different from achieving the same sales volume in a distant country such as China. Similarly, if a Malaysian firm expands into Singapore or a German firm starts selling its products in Austria, this would represent an expansion into a geographically adjacent country. Such nearby countries would often share many common characteristics in terms of language, culture, infrastructure, and customer preferences. In other words, this is more a case of regionalization than globalization.

Question 6

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

Accepted Answer

Although U.S. and Australia are geographically distant, the true distance is somewhat less when one considers distance along the other dimensions such as language and culture.

Question 7

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.

Question 8

Trading blocs and free trade zones promote 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 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

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 11

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 12

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

Accepted Answer

Stretching from Algeria and Morocco in the West to Oman and Yemen in the East, more than 30 countries share the Arabic language and the Muslim religion, making these countries a natural regional bloc.

Question 13

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

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 14

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 15

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

Accepted Answer

Both Canada and Mexico are the same distance from the United States. However, U.S. companies find it easier to expand operations into Canada than into Mexico. Canada and the U.S. share many commonalities in terms of language, culture, economic development, legal and political systems, and infrastructure development. Thus, if we view distance as having many dimensions, the U.S. and Canada are very close, whereas there is greater distance between the U.S. and Mexico. The true distance is closer between the U.S. and Canada than between the U.S. and Mexico.

Question 16

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

Accepted Answer

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. These have included the European Union (EU), North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations (ASEAN), and MERCOSUR (a South American trading block). Only NAFTA and MERCOSUR concern the Western hemisphere.

Question 17

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 18

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.

Accepted Answer

Panasonic benefited from moving from a global to a transnational strategy. Panasonic moved into China in the late 1980s, seeing it as a low-cost region in which to manufacture its products. Traditionally, Panasonic had used a global strategy in its operations. It designed standardized products in Japan, manufactured them in low-cost markets, and sold its products primarily in developed markets. China simply served as a manufacturing location. This worked well until the Chinese economy started to grow and mature. As the Chinese middle class began to emerge, local competitors, such as Haier, quickly jumped in with products designed for the Chinese market and out-competed Panasonic in the growing market. This led Panasonic to radically change its way of competing in the global market. Panasonic embraced the need to balance global integration with local adaptation.

Question 19

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

Accepted Answer

Regional economic integration has progressed at a faster pace than global economic integration, and the trade and investment patterns of the largest companies reflect this reality. After all, regions represent the outcomes of centuries of political and cultural history that results in not only commonalities but also mutual affinity. The countries of South and Central America share the Spanish language (except Brazil), the Catholic religion, and a history of Spanish colonialism.

Question 20

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.

Quiz 7: International Strategy: Creating Value in Global Markets

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.

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

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

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.

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

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

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

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

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

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).

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

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

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

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.

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

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

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

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

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