Ch.12 Exam Prep The Strategy of International Business

Global Business Today, 11e (Hill)

Chapter 12 The Strategy of International Business

1) A strategic alliance is a cooperative agreement between potential or actual competitors.

2) Profit growth is measured by the percentage increase in a company's total production over time.

3) 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.

4) Consumer surplus captures some of the value of a product, which reduces the price a firm can charge for it.

5) A strategy that focuses primarily on increasing the manufacturing rate of a product is referred to as a low-cost strategy.

6) According to Michael Porter, one way to create superior value is to differentiate the product so that consumers are willing to pay a premium price.

7) In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm.

8) The information system of a company is an example of a support activity.

9) The term mini-multinational refers to the totality of a firm's organization, including organization architecture, control systems and incentives, organizational culture, processes, and people.

10) Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to locations where they are performed most efficiently and effectively.

11) A firm's core competencies refers to those activities that are easily matched by competitors.

12) Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.

13) The experience curve refers to systematic increases in production costs that have been observed to occur over the life of a product.

14) Learning effects are more evident in the sales profession than in manual labor jobs.

15) The ability to spread fixed costs over a large volume is a source of economies of scale.

16) Moving down the experience curve means higher costs of increasing value and lower levels of profitability for a firm.

17) Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth.

18) Universal needs exist when the tastes and preferences of consumers in different nations are identical.

19) Varying distribution channels among countries may make it necessary for a company to place marketing functions within national subsidiaries.

20) Firms that pursue an international strategy focus on increasing profitability by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

21) Strong pressures for cost reductions are a good reason to use a global standardization strategy.

22) A localization strategy focuses on using mass production of product to meet general tastes and preferences.

23) According to researchers, firms facing strong cost pressures and pressures for local responsiveness should pursue a global standardization strategy.

24) An international strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization.

25) Acquiring an existing company in a foreign nation is an example of a strategic alliance.

26) The rate of return that a firm makes on its invested capital is referred to as

A) stakeholder return.

B) profitability.

C) profit growth.

D) process value.

E) strategic fit.

27) How does a company measure profit growth?

A) by dividing the net profits of the firm by total invested capital

B) by subtracting the previous year's gross profit from the current year's gross profit

C) by calculating the difference between the previous year's profitability and the current year's profitability

D) by finding the percentage increase in net profits over time

E) by adding the profitability of the last two fiscal years

28) Namaste Inc. sells its yoga mats for $50. It costs the company $35 to make the product. Customers value the mats at $60. In this scenario, the consumer surplus is

A) $38.

B) $50.

C) $10.

D) $28.

E) $15.

29) WiseGuy Inc. sells its finance software for $100. It costs the company $59 to make the product. Customers value the software at $90. In this scenario, WiseGuy Inc.'s value creation is

A) $59.

B) $31.

C) $10.

D) $28.

E) $272.

30) In general, the more value customers place on a firm's products, the more it leads to

A) less profit for the firm.

B) higher competitive pressure from other firms.

C) lesser the quality of the product.

D) lesser the consumer surplus for those products.

E) higher prices the firm can charge for those products.

31) Consumer surplus results when companies charge a lower price for products than the value placed on them by customers. This occurs because

A) the value creation results in a corresponding reduction in costs of production.

B) it is highly unlikely that the same good or service will be available to the customers from other firms.

C) the firm is competing with other firms for the customer's business.

D) the firm charges a price that reveals a consumer's assessment of the product's value.

E) the firm creates value for the customer by producing a wide range of products.

32) A(n) ________ is used by economists when referring to charging each customer a price that reflects that individual's assessment of the value of a product.

A) producer surplus

B) reservation price

C) value price

D) efficiency frontier

E) competitive advantage.

33) Karina believes the value of a wristwatch sold at $160 is $250. In this scenario, the $250 value is referred to as the

A) market price.

B) customer's negotiated price.

C) base value of the product.

D) customer's reservation price.

E) profit growth price.

34) Assume that the value of a base model computer to an average consumer is $300, the average price that Dell can charge a consumer for that product is $275, and the average unit cost of producing that product for Dell is $150. For this scenario, which statement is true?

A) Dell can easily increase its price above $300.

B) The profit for Dell on each computer is $150.

C) The consumer surplus per computer is $25.

D) The higher the intensity of competitive pressure, the higher the price that Dell can charge relative to $300.

E) The lower the consumer surplus, the greater the value for the money the consumer gets.

35) The value of Omega's top selling fitness product to an average consumer is $150 and the average unit cost of producing that product is $65. In this scenario, $85 ($150−$65) represents

A) consumer surplus.

B) value creation.

C) cost curve.

D) value efficiency.

E) customer reservation.

36) Nature Farm Granola is in a highly-competitive market and has decided to focus on sugar-free granola bars. These granola bars will cost more for the consumer, but the company knows there is high demand for this type of product and feels consumers will pay the price. In addition, none of their competitors have produced this product. This is an example of a ________ strategy

A) standardization

B) differentiation

C) target-identification

D) low-cost

E) profitability

37) According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry?

A) differentiation and low-cost

B) value creation and generalization

C) one-size-fits-all and zero-sum

D) comparison and standardization

E) profitability and strategic fit

38) By standardizing equipment and streamlining its operations, PinPoint Airlines competes by offering less expensive flights than the competition. According to Michael Porter, the strategy that PinPoint Airlines is using is

A) low-cost.

B) differentiation.

C) value transfer.

D) efficiency frontier.

E) diversification.

39) According to Michael Porter, superior profitability goes to a firm that

A) creates products similar to their competitors.

B) keeps the gap between value and cost of production smaller than the gap attained by competitors.

C) drives down the cost structure of its business.

D) has the highest cost structure in the industry.

E) has the least valuable product in the industry.

40) The ________ shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position.

A) purchasing power parity

B) experience curve

C) efficiency frontier

D) optimal output model

E) supply-and-demand curve

41) The concept of ________ suggests that when a company has built significant value into its product offerings, trying to increase the value of the products by even a small amount requires a significant financial investment.

A) tragedy of the commons

B) diminishing returns

C) the Sullivan principle

D) supply-and-demand

E) purchasing power parity

42) WeShop4You has created a grocery delivery service that is unmatched by its competition. The value the company has created now makes it difficult to implement new ideas without spending more money than it originally took to start the business. This demonstrates the idea of

A) entrepreneurism.

B) a low-cost strategy.

C) consumer surplus.

D) diminishing returns.

E) offshoring.

43) According to the basic strategy paradigm, a firm maximizes its profitability when it

A) creates products similar to the products of its competitors.

B) minimizes the value provided by its products.

C) picks a position on the efficiency frontier in which there is little support for their choice.

D) strips all the value out of its product offering.

E) configures internal operations to support the position selected by it on the efficiency frontier.

44) The value creation activities of a firm are categorized as

A) primary activities and support activities.

B) strategic activities and functional activities.

C) ancillary functions and tertiary functions.

D) primary activities and core activities.

E) goal-oriented activities and organizational activities.

45) StickyGlue Corp. creates adhesives used in the construction business. A primary activity in the operations of StickyGlue Corp. would be

A) logistics.

B) research and development.

C) information systems.

D) human resources.

E) company infrastructure.

46) For Bank of America, the "production" activity typically occurs when the

A) customer specifies the service requirements.

B) service is paid for by the customer.

C) service is designed in-house.

D) service is delivered to the customer.

E) customer provides feedback.

47) What is a support activity in the operations of a firm?

A) research and development

B) customer service

C) marketing and sales

D) creation and maintenance of information systems

E) production

48) Of all the value creation activities in a firm, ________ creates value by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs.

A) production

B) marketing and sales

C) its human resources

D) logistics

E) its information system

49) Lindsey works at Lincoln Office Furniture Group. She fields calls from people who purchase their ready-to-build products and need assistance during the process. Which primary activity is Lindsey involved with?

A) production

B) marketing and sales

C) human resources

D) customer service

E) logistics

50) Midwest Sports produces in-house all the products that it sells through its network of stores. It has a function in its value chain that controls sending the physical materials through the value chain, from procurement through production and into distribution. This function is called

A) human resources.

B) finance.

C) marketing.

D) logistics.

E) research and development.

51) The 2,500 people working in Saturn Inc.'s corporate office deal with the organizational structure, control systems, and culture of the firm. These three things comprise which support function of Saturn Inc.?

A) human resources

B) logistics

C) information systems

D) company infrastructure

E) inventory management

52) Who should be considered as part of a firm's infrastructure because of the considerable influence associated with the position?

A) procurement manager

B) top management

C) production manager

D) research and development scientist

E) marketing personnel

53) At the beginning of the year, Marissa created three goals for each sales person on her staff and she uses those goals as a way to measure their performance throughout the year. These goals are an example of

A) reports.

B) controls.

C) rewards.

D) knowledge flows.

E) folkways.

54) Processes are defined as the

A) manner in which decisions are made and work is performed within the organization.

B) metrics used to measure the performance of subunits.

C) devices used to reward appropriate managerial behavior.

D) metrics used to make judgments about how well managers are running the subunits.

E) norms and value systems that are shared among employees of an organization.

55) When Nathan accepted his new job, his manager explained that each employee who demonstrated at least two ideas that could lead the company to a competitive advantage received a $5,000 bonus at the end of the year. This bonus is an example of a(n)

A) control.

B) hierarchy.

C) folkway.

D) incentive.

E) process.

56) GreenFresh Food Products believes that as far as its products are concerned, tastes vary worldwide and so it has to customize its products, marketing strategy, and business strategy to allow for differing national conditions. What is affecting the company's ability to increase its profitability and profit growth by expanding globally?

A) the imperative of localization

B) economies of scale

C) customer surplus.

D) the leveraging of skills developed in foreign operations

E) the dispersion of individual value creation activities

57) A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if

A) the product is already being offered by local companies in the nations that the company enters.

B) the product is a generic product that requires little differentiation.

C) indigenous competitors in the nations that the company enters lack comparable products.

D) there is a high inflation in the nations that the company enters.

E) the product is perceived to be very costly in the home country of the company.

58) How does possessing a core competency help a firm?

A) It helps a firm to create value in such a way that premium pricing is impossible.

B) It reduces a firm's dependence on its logistics function.

C) It enables a firm to reduce the costs of value creation.

D) It reduces the scope of transfer of skills to foreign markets.

E) It reduces the need to replicate a business model in a foreign market.

59) Kitchen-Rite believes that by producing its small appliances in Canada, they can take advantage of lower wage rates in that country. By pursuing such a strategy, Kitchen-Rite hopes to realize

A) a position inside the efficiency frontier.

B) the experience curve.

C) economies of scale.

D) location economies.

E) demographic advantages.

60) AR Supply locates its global manufacturing in Mexico, its global distribution in Indonesia, and its design in Italy. By dispersing different stages of its value chain to those locations around the world where the value added is maximized or where the costs of value creation are minimized, AR Supply has created a(n)

A) factor endowment.

B) dispersal chain.

C) global web.

D) exchange rate.

E) home country advantage.

61) ________ are most likely to discourage global expansion of businesses.

A) Economies of scale

B) Factor endowments

C) Trade barriers

D) Mass customization

E) Low transportation costs

62) The ________ refers to systematic reductions in production costs that have been observed to occur over the life of a product.

A) experience curve

B) learning effect

C) location economies

D) efficiency slope

E) economies of scale

63) A number of studies have observed that a product's production costs decline by some quantity about each time

A) annual output is halved.

B) cumulative output doubles.

C) the workforce is trimmed by 75 percent.

D) fixed investment triples.

E) foreign domestic investment doubles.

64) The two phenomena that help explain the experience curve are

A) learning effects and economies of scale.

B) technology inputs and wealth transfer.

C) leveraging subsidiary and local responsiveness.

D) standardized manufacturing and global web.

E) efficiency frontier and location economies.

65) Merck, a pharmaceutical company, has taken thousands of drugs through the federal approval process and so can do it more cost efficiently than many competitors who are new to the industry. These cost savings that come to Merck in the drug approval process are an example of

A) learning effects.

B) factor endowments.

C) ancillary effects.

D) economies of scale.

E) location economies.

66) When Brite Fabrics first began operations, it took six hours to make a coat in the workroom. Today, that task takes three hours as more efficient sewing and patterning techniques have been introduced. This improvement in efficiency is an example of

A) diminishing returns.

B) location economies.

C) a geographic implication.

D) learning effects.

E) an efficiency frontier.

67) Learning effects will be most significant in which of these tasks?

A) pizza delivery for a fast-food major

B) data entry for a loan recovery center

C) assembly process involving 1,000 complex steps

D) switchboard operator at an automobile dealer

E) delivering letters to different recipients

68) Learning effects tend to be more significant when

A) a task involves a few simple steps.

B) a task is repeated for a period of over five years.

C) the workforce consists of unskilled labor.

D) the cumulative output becomes half of what it was originally.

E) a technologically complex task is repeated.

69) By producing its products in larger volume than its competitors, Epli-Mart is able to achieve substantial reductions in unit cost. In other words, Epli-Mart achieves

A) location economies.

B) learning effects.

C) standardization economies.

D) core economies.

E) economies of scale.

70) Amazon Prime incurs a huge fixed cost to obtain streaming rights to movies and television programs. However, it is able to spread this cost over a large number of subscribers that results in a cost-savings phenomenon referred to as

A) volume synergies.

B) economies of scale.

C) captured savings.

D) size effects.

E) location economies.

71) Economies of scale are achieved when a company reduces unit costs by

A) manufacturing products based on factor endowments.

B) producing a larger volume of product.

C) reducing staff.

D) eliminating competitor value.

E) acquiring a new supplier.

72) Gen-Supply reminds employees that its flagship product used to cost the company $154 to manufacture when the company launched ten years ago. Now, the same product costs just $58 to manufacture. This demonstrates the effects of

A) a global web.

B) dispersion linkage.

C) economies of scale.

D) the experience curve.

E) the efficiency frontier.

73) Firms that compete in the global marketplace typically face which two types of competitive pressure?

A) pressures for increasing investment and pressures to minimize consumer surplus

B) pressures for labor skill enhancement and pressures to minimize economies of scale

C) pressures for cost reductions and pressures to be locally responsive

D) pressures for global promotions and pressures to move down the efficiency frontier

E) pressures for product standardization and pressures to move up the experience curve

74) Cost reduction pressures tend to be particularly intense in industries that

A) create products that serve universal needs.

B) create customized products.

C) are not involved in international business.

D) produce products that have inelastic demand.

E) serve different customers with different needs.

75) Products such as steel, bulk chemicals, and industrial electronics do not require much differentiation because the taste and preference for these products is similar all around the world. These products are examples of

A) universal needs.

B) the efficiency frontier.

C) local customization.

D) lateral requirements.

E) market differentiation.

76) The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally

A) increased cost pressures.

B) decreased the demand for local responsiveness.

C) decreased pressures for cost reduction.

D) increased consumer surplus.

E) reduced the production of conventional commodity products.

77) A ________ is most favorable to reap gains from global scale economies.

A) low demand for local responsiveness

B) high pressure for cost reduction

C) lack of universal needs

D) national difference in accepted business practices

E) high pressure to delegate production to domestic subsidiaries

78) One argument for the idea that customer demands for local customization are on the decline worldwide is that

A) local and indigenous industries are increasingly filling up available demand.

B) high costs of local customization are deterring companies from doing so.

C) governments across the world are standardizing their legal procedures.

D) customer tastes have converged worldwide.

E) managers worldwide ignore the differences in consumer tastes and preferences.

79) Marketing functions may have to be delegated to national subsidiaries when there is a

A) difference in distribution channels.

B) pressure for decreasing consumer surplus.

C) lack of product customization.

D) pressure for increasing economies of scale.

E) pressure for increasing consumers' reservation price.

80) Rite-Right Pen Corp., based in Florida, has a manufacturing facility in Thailand where local content rules regulate manufacturing processes. These rules show the effects of

A) variances in distribution channels.

B) host-government demands.

C) service-oriented processes.

D) infrastructure differences.

E) traditional practices.

81) Firms that pursue a(n) ________ strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

A) international

B) transnational

C) localization

D) global standardization

E) nationalization

82) How do firms approach customization of products when using the global standardization strategy?

A) These firms focus on customizing products to various conditions.

B) These firms are typically first-movers in customizing product offerings.

C) These firms focus on regional differences but do not assess national differences.

D) These firms rely on customization to reduce production runs and lower costs.

E) These firms try not to customize to meet local conditions to allow for longer production runs.

83) A firm is most likely to pursue a global standardization strategy when

A) it wants to implement a high-cost strategy on a global scale.

B) it wants to reduce consumer surplus.

C) there are no universal needs to be served.

D) there are strong demands for local responsiveness.

E) there are strong pressures for cost reduction.

84) Denim Supply Inc. does not feel the pressure to create custom jeans for any of its markets around the world, but it does want to focus on cost reductions. What strategy should this company consider using to achieve this?

A) domestic strategy

B) global standardization strategy

C) international strategy

D) transnational strategy

E) nationalization strategy

85) A(n) ________ focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets.

A) international strategy

B) global standardization strategy

C) localization strategy

D) transnational strategy

E) nationalization strategy

86) A localization strategy should be considered when

A) it allows a firm to capture the cost reductions of mass-producing a standardized product.

B) it reduces duplication of functions.

C) it involves longer production runs.

D) it makes sense if the value added by customization supports higher pricing.

E) it substantially reduces local demand.

87) A global motor vehicle parts manufacturer wants to start production in China. While catering to local responsiveness, what can the firm do to get scale economies?

A) increase costs whenever possible

B) use common components across many different models

C) shorten the production runs for each component

D) increase the duplication of functions required for each operation

E) manufacture only one type of car and sell it in all the international markets

88) A firm should use a(n) ________ strategy when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness.

A) global standardization

B) localization

C) international

D) transnational

E) nationalization

89) Researchers Bartlett and Ghoshal noted that in the modern global environment, competition is so intense that in order to survive, a company must do all they can to

A) ignore factor endowments.

B) provide local responsiveness.

C) create first-mover advantage.

D) increase costs of production.

E) rely on location economies.

90) Firms that pursue a(n) ________ strategy differentiate their product offering across geographic markets to account for local differences.

A) international

B) global standardization

C) transnational

D) multidomestic

E) nationalization

91) In today's global marketplace, ________ companies successfully use a transnational strategy.

A) the majority of

B) only service

C) only agricultural

D) more and more

E) very few

92) Firms that pursue a(n) ________ strategy take products first produced for their domestic market and sell them across various markets with only minimal local customization.

A) nationalization

B) transnational

C) global standardization

D) international

E) localization

93) Xerox had a monopoly on photocopiers for several years as the technology underlying the photocopier was protected by strong patents. As it served a universal need, this favorable position led Xerox to pursue a(n)

A) global standardization strategy.

B) localization strategy.

C) international strategy.

D) transnational strategy.

E) nationalization strategy.

94) Denti-Way Systems, a manufacturer of dental appliances, invented and patented a new x-ray machine that radically reduced maintenance and operational issues. Responding to global demand, it decided to sell the machines manufactured at its plant in the United States to various markets across the globe. Since the product features provided by Denti-Way were not provided by any other competitor, Denti-Way did not feel any pressure for cost reductions. Which strategy is most likely being pursued by Denti-Way?

A) international

B) localization

C) global standardization

D) transnational

E) nationalization

95) An international strategy is unique in that companies are selling a product that serves universal needs, but they do not

A) sell to foreign nations.

B) understand local needs.

C) have significant competition.

D) pursue R&D.

E) focus on technology products.

96) A cooperative agreement between potential or actual competitors is called a(n)

A) tactical union.

B) strategic alliance.

C) political affiliation.

D) economic association.

E) nationalization.

97) Frisco Corp. and Farren Industries agreed to a short-term contract in which Frisco Corp. would develop the software for Farren Industries to use when selling to the international customer. This short-term agreement is an example of a

A) franchising agreement.

B) global web.

C) free trade agreement.

D) strategic alliance.

E) licensing deal.

98) One disadvantage of a strategic alliance is

A) it is difficult for a firm to enter into a foreign market.

B) the fixed costs of developing new products tend to increase.

C) competitors gain a low-cost route to new technology and markets.

D) a foreign firm tends to face higher trade barriers.

E) it always leads to a loss for either of the firms involved.

99) One of the principal risks associated with a strategic alliance is that

A) it brings together the complementary skills of alliance partners.

B) it makes it difficult for the partner firms to enter into a foreign market.

C) a firm can give away more than it receives.

D) it does not allow firms to share fixed costs.

E) it almost always fails.

100) As the manager of the U.S. branch, Poitr knows it is important to build relationships between himself and the managers of the branches in Singapore and Dublin. Poitr wants to create

A) relational capital.

B) the Sullivan principle.

C) factor endowments.

D) symbiotics.

E) a first-mover advantage.

101) Discuss the significance of value creation. According to Michael Porter, what are the two primary strategies for creating value?

102) Describe the difference between support activities and primary activities within a firm.

103) Discuss how marketing and sales help a firm create value.

104) Describe the different ways in which a firm benefits from global expansion.

105) Discuss how core competencies help a firm develop a competitive advantage.

106) What is an experience curve? What is its strategic significance?

107) Explain the value of learning effects and provide examples of industries that benefit from them.

108) Discuss the different types of competitive pressures that firms competing in a global marketplace face. How can firms respond to such pressures?

109) Name four sources of pressures for local responsiveness and explain why they create pressure.

110) Describe a global standardization strategy.

111) Discuss a transnational strategy and explain its role in the global market today.

112) Discuss the biggest drawback to the international strategy and explain how Xerox faced this challenge.

113) What are strategic alliances?

114) The advantages of strategic alliances are as follows:

115) Explain the three characteristics necessary in a good ally when considering a strategic alliance.