Chapter 17 Global Production and Supply Chain Full Test Bank

Student name:__________

1) What is strategy? How does strategy relate to a firm’s profitability?

2) What is the difference between profitability and profit growth?

3) How can a firm increase its profitability?

4) Discuss the efficiency frontier. How does strategic positioning relate to the efficiency frontier?

5) Consider the firm in terms of a value chain. What is the difference between primary activities and support activities? Provide examples of each.

6) How can the marketing and sales functions of a firm create value?

7) Describe the benefits of global expansion for firms.

8) Discuss the creation of a global web of value creation activities.

9) What are learning effects? When are learning effects most significant?

10) How can firms successfully leverage the skills developed at the subsidiary level?

11) What are the two types of competitive pressures that firms competing in the global marketplace face? How do firms respond to these pressures?

12) Discuss how a firm’s marketing strategies may have to address differences in distribution channels in other countries.

13) Consider a transnational strategy. Why would a firm choose this strategic alternative? What are the disadvantages of this strategy?

14) Discuss the evolution of strategy. How does cost become important in the long term?

15) _____ is measured by the percentage increase in net profits over time.

A) Profit growth
B) Value
C) Profitability
D) Operational economy

16) The amount of value a firm creates is measured by the

A) economies of scale they are able to achieve.
B) difference between its costs of production and the value that consumers perceive in its products.
C) profitability the firm achieves.
D) difference between its costs of production and the price that it charges for its products.

17) The _____ all of the different positions that a firm can adopt with regard to adding value to the product and low cost assuming that its internal operations are configured efficiently to support a particular position.

A) economies of scale are
B) diminishing returns imply
C) efficiency frontier shows
D) value creation scale shows

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

A) exploit core competencies
B) attain a comparative advantage
C) experience a learning curve
D) attain a competitive advantage

19) _____ include the design, creation, and delivery of a product.

A) Primary activities
B) Core competencies
C) Support activities
D) Universal needs

20) Research and development, production, marketing and sales, and customer service are all examples of

A) core competencies.
B) primary activities.
C) value creation.
D) secondary activities.

21) Top management should be viewed as part of the firm’s

A) primary activities.
B) experience curve.
C) infrastructure.
D) universal strategy.

22) _____ 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

23) The percentage increase in net profits over time measures

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

24) Which of the following statements is true?

A) The way to increase the profitability of a firm is to create a greater number of products.
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 lower 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.

25) 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.

26) 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.
D) profit per unit sold.

27) 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.

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

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

29) The efficiency frontier has a convex shape because of

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

30) _____ 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

31) The basic strategy paradigm suggests that to maximize its profitability, a firm should do which of the following?

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 a low product demand anticipated.
C) Configure its external operations so that they support the position of diminishing returns.
D) Make sure that the right organization structure is in place to execute its strategy.

32) _____ 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

33) 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

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

A) research and development
B) customer service
C) human resources
D) marketing and sales

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

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

36) Michael Porter argues that

A) those firms that create superior value will achieve superior profitability.
B) standardization of product is a basic strategy for attaining a competitive advantage in an industry.
C) it is necessary for a firm to have the lowest cost structure or create the most valuable product.
D) it is important that the gap between value and the cost of production be smaller than that of competitors.

37) The term ________ refers to skills within the firm that competitors cannot easily match or imitate and that may exist in the firm’s value creation activities.

A) experience curves
B) core competence
C) economies of scale
D) learning effects

38) Location economies are the economies that arise from performing a _____ activity in the optimal location for that activity.

A) universal need
B) core competence
C) value creation
D) localization strategy

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

A) economies of scale
B) value creation
C) location economies
D) experience curve

40) Global expansion offers companies the opportunity to generate greater profits than companies that focus strictly on

A) value creation.
B) economies of scale.
C) location economies.
D) the domestic market.

41) _____ 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.

A) Core competencies
B) Global standardization strategies
C) Operations
D) Location economies

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

A) international strategies.
B) location economies.
C) localization strategies.
D) economies of scale.

43) Cost savings that come from learning by doing are known as

A) learning curves.
B) economies of scale.
C) learning effects.
D) experience curves.

44) Learning effects tend to be

A) the same regardless of whether a task is simple or complex.
B) more significant when a technologically simple task is repeated.
C) less significant when a technologically complex task is repeated.
D) more significant when a technologically complex task is repeated.

45) _____ allows a firm to reduce its cost of creating value and increase its profitability.

A) Moving down the experience curve
B) Moving up the experience curve
C) Moving down the learning effect curve
D) Moving up the learning effect curve

46) 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.

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.

48) 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.

49) Lenovo’s ThinkPad laptop computers are 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.

50) _____ 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

51) It has been observed that a product’s production costs decline by some quantity about each time cumulative output

A) increases by 25 percent.
B) quadruples.
C) doubles.
D) triples.

52) 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.

53) 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, despite the complexity of the task.
D) are more significant after two or three years of the introduction of a new process.

54) 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.

55) Economies of scale arise from which of the following sources?

A) increasing fixed costs by limiting them to small volumes
B) serving domestic and international markets from the same production facilities
C) serving only domestic markets
D) bargaining with distributors to drive up the product costs

56) Which of the following is one of the two types of competitive pressure that affects the ability of multinational enterprises to compete in the global marketplace?

A) pressure for cost increases
B) pressure for local responsiveness
C) pressure for value creation
D) pressure for increased profitability

57) A multinational enterprise doing business in Nigeria decided to change the labeling on its product to conform to local customs and preferences. What type of competitive pressure did this company experience?

A) pressure for cost increases
B) pressure for local responsiveness
C) pressure for value creation
D) pressure for increased profitability

58) Which of the following is true of firms that compete in the global marketplace?

A) They must employ a transnational policy in order to have a competitive edge.
B) Because differentiation across countries can involve significant duplication and a lack of product standardization, it may raise costs.
C) They must employ adomestic policy in order to have a competitive edge.
D) Because differentiation across countries can involve significant duplication and a lack of product standardization, it may reduce costs.

59) Universal needs exist when

A) the tastes and preferences of consumers in different nations are similar if not identical.
B) conventional commodity products requested in one country are different than those requested in another country.
C) the tastes and preferences of consumers in the same nation are similar if not identical.
D) consumers are willing to pay a high price for a product regardless of what country they reside in.

60) Pressures for cost reduction are intense in industries where

A) major competitors are based in high-cost locations.
B) consumers are weak and face high switching costs.
C) there is persistent excess capacity.
D) the company is located in a low-cost location.

61) A multinational firm may need to delegate marketing functions to national subsidiaries to

A) fully implement the firm’s localization strategy.
B) employ economies of scale.
C) meet the requirements for a global standardization strategy.
D) be responsive to local differences in distribution channels.

62) 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.

63) Responding to pressure for _____ requires that a firm differentiate its products and marketing strategy from country to country, even though it may raise costs.

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

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

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

65) When AMD sells its computer chips in countries across the world, it doesn’t need to worry too much about customizing the product to local needs and preferences because computer chips are ________ needs.

A) universal
B) homogenous
C) basic
D) single-user

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

A) local responsiveness
B) profitability
C) value creation
D) global standardization

67) When a firm focuses on increasing profitability by customizing the product or service so that it provides a good match to tastes and preferences in different national markets, the firm is following _____ strategy.

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

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

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

69) _____ strategy makes most sense when demands for local responsiveness are high, but cost pressures are moderate or low.

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

70) The distinguishing feature of many firms that pursue _____ strategy is that they are selling a product that serves universal needs, but they do not face significant competitors.

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

71) According to researchers Bartlett and Ghoshal, for transnational enterprises to be successful, they must focus on

A) selling a product that serves universal needs.
B) leveraging subsidiary skills.
C) 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.
D) ensuring that the flow of skills from the home country to the foreign subsidiaries is one way and uninterrupted.

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

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

73) Which of the following is associated with firms following the global standardization strategy?

A) high pressures for local responsiveness
B) cost advantage used to support aggressive pricing in world markets
C) low pressures for cost reductions
D) product offering and marketing strategy customized to local conditions

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

75) What 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

76) What is a disadvantage of the localization strategy?

A) a decrease in the value of the product in the local market
B) some duplication of functions
C) an inability to accommodate varying tastes and preferences in different markets
D) reduced customization

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

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

78) A firm that is pursuing _____ 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) a global customization
B) an international
C) a localization
D) a transnational

79) A firm facing low pressures for cost reductions and low pressures for local responsiveness is most likely to follow _____ strategy.

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

80) For firms selling a product that serves universal needs but not facing significant competition, _____ strategy makes sense.

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

81) Which of the following is true of the international strategy?

A) Product development tends to be highly decentralized.
B) Manufacturing and marketing are typically located in the headquarters location.
C) Extensive production customization is common.
D) The strategy is not viable in the long term.

82) _____ strategy customizes the product offering to local demands and increases the value of that product in the local market.

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

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

⊚ true
⊚ false

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

⊚ true
⊚ false

85) The customer is able to receive 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.

⊚ true
⊚ false

86) 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.

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false

89) 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.

⊚ true
⊚ false

90) The skills within the firm that a competitor cannot easily match or imitate are known as the core knowledge base.

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false

94) In a multinational enterprise, skills are primarily generated at the home location and are then dispersed to the rest of the organization.

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false

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

⊚ true
⊚ false