Verified Test Bank Organizational Design And Control Ball 2e

Module 10 Organizational Design and Control

1) A company's organizational structure helps to determine where formal power and authority will be located within the organization.

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Question Details
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 10-01 Explain why the design of organizational structure is important to international companies.
Topic : Overview of Organizational Structure and Design
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking

A company's structure helps determine where formal power and authority will be located within the organization. This structure is what we typically see in a company's organization chart.

2) One of the four elements that must be considered when designing the structure of an international company is customer expertise, which allows a business to gauge the similarity of client groups and market segments.

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What elements need to be considered when designing the structure of an IC? There are four: (1) Product and technical expertise for the company’s different businesses. (2) Geographic expertise on the countries and regions in which the company operates. (3) Customer expertise to gauge the similarity of client groups, industries, market segments, or population groups that transcend the boundaries of individual countries or regions. (4) Functional expertise in the company’s value chain activities.

3) An evolving structure for an international organization over time is normal, as the company's involvement in foreign markets increases over time.

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Question Details
Bloom's : Understand
Learning Objective : 10-01 Explain why the design of organizational structure is important to international companies.
Topic : Overview of Organizational Structure and Design
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Difficulty : 1 Easy

The structure of an IC has to be able to evolve over time. This capability is essential because it allows the IC to respond to change and to efficiently and effectively reconfigure the way in which its competencies and resources are integrated within and across the company's various units.

4) Organizational design is another term for a company’s mission statement.

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Organizational design is a process that determines how a company should be organized to ensure its worldwide business activities are integrated in an efficient and effective manner.

5) The international division is a division in the organization that is responsible for all non-home-country activities and reports to the domestic division.

⊚ true
⊚ false

Question Details
Bloom's : Understand
Difficulty : 2 Medium
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-02 Identify the various organizational dimensions managers must consider when selecting organizational structures.
Topic : Forms Available for Structuring International Companies

The international division is a division in the organization that is at the same level as the domestic division and is responsible for all non-home-country activities.

6) When companies’ overseas operations increase, most companies establish worldwide organizations based on product, region, function, or customer classes.

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Most companies establish worldwide organizations based on product, region, function, or customer classes.

7) The international product structure is preferred by companies that manufacture products with a stable technological content that requires strong marketing ability.

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The geographic region structure appears to be popular with companies that manufacture products with a rather low technological content. It is also favored by firms with diverse products, each having different product requirements, competitive environments, and political risks. Many producers of consumer products, such as prepared foods, pharmaceuticals, and household products, employ a geographic region structure.

8) The international product structure eliminates the duplication of product and area specialists.

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Although the global corporate form of a product usually eliminates the duplication of product experts common in a company with an international division, it creates a duplication of area experts.

9) Few international companies are organized by function at the top level.

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Question Details
Bloom's : Understand
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-02 Identify the various organizational dimensions managers must consider when selecting organizational structures.
Topic : Forms Available for Structuring International Companies
Difficulty : 1 Easy

Few ICs are organized by function at the top level. Those that are organized in this way believe worldwide functional expertise is more significant to the firm than is product or area knowledge.

10) Hybrid organizations are often the result of a regionally organized company having introduced a new and different product from what the regionally organized form is accustomed to handling.

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The hybrid form is often the result of a regionally organized company having introduced a new and different product line that management believes can best be handled by a worldwide product division.

11) In a typical matrix organization, an organizational structure based on one or possibly two dimensions is superimposed on an organization based on another dimension.

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It is called a matrix because an organizational structure based on one or possibly two dimensions is superimposed on an organization based on another dimension. In an organization of two dimensions, such as area and product, both the geographic area managers and the product managers will be at the same level, and their responsibilities will overlap.

12) The matrix overlay organizational form attempts to eliminate some of the problems of the matrix organization.

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The matrix overlay is an organization in which top-level divisions are required to heed input from a staff composed of experts of another organizational dimension in an attempt to avoid the double-reporting difficulty of a matrix organization but still mesh two or more dimensions. The matrix overlay attempts to address the problems of the matrix structure by requiring accountability of all functions in the organization while avoiding the management complications of a pure matrix structure.

13) Strategic business units are an organizational form in which geographic divisions of a company are defined as distinct, independent businesses.

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Strategic business units are an organizational form in which product divisions have been defined as though they were distinct, independent businesses.

14) Advantages of the virtual corporation concept include that it allows a company to build competence from the ground up and to increase management's control over the corporation's activities.

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15) The horizontal organization has been characterized as anti-organization because its designers try to remove the constraints imposed by the conventional organizational structure.

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The horizontal organization has been characterized as anti-organization because its designers try to remove the constraints imposed by the conventional organizational structure.

16) In a typical chain of command in a corporate entity, the parent company is controlled by a subsidiary.

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Question Details
Bloom's : Understand
Difficulty : 2 Medium
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-03 Explain how decision making is allocated between parent and wholly owned subsidiaries in an international company.
Topic : Choosing An International Business Strategy

17) In a firm without a global product policy, the preference of the operations management people in the home office has always been to customize the product.

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In a firm without a global product policy, the preference of the operations management people in the home office has always been to standardize the product or at least the production process in as many overseas plants as possible.

18) The less familiar the home company is with cultural values in a host country, the more likely the home company will rely on the subsidiary for management.

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Another contributor to the degree of headquarters’ reliance on subsidiary management is its familiarity with conditions in the subsidiary’s host country, including culture. The less familiar or the more different from home headquarters management perceives conditions in the host country to be, the more likely headquarters is to rely on subsidiary management.

19) With less than 50 percent of the voting stock, or even with no voting stock, an IC can still have control over a subsidiary’s activities.

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Question Details
Bloom's : Understand
Difficulty : 2 Medium
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-04 Discuss how an international company can maintain control of a joint venture or of a company of which it owns less than 50 percent of the voting stock.
Topic : Advantages and Disadvantages of Joint Ventures

With less than 50 percent of the voting stock and even with no voting stock, an IC can exercise control over a subsidiary's decisions and activities.

20) For controls to be effective, all operating units of an IC must provide headquarters with timely, accurate, and complete reports, including those dealing with financial, technological, market opportunity, and political and economic information.

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⊚ false

Question Details
Bloom's : Understand
Difficulty : 2 Medium
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-05 List the types of information an international companys units around the world need to report to the parent company.
Topic : Reporting of Information

As stated directly in the text, for controls to be effective, all operating units of an IC must provide headquarters with timely, accurate, and complete reports, including those dealing with financial, technological, market opportunity, and political and economic information.

21) After acquiring two new foreign affiliates, Henson Manufacturing created a new organizational chart to indicate where formal authority would lie within the organization. This organizational chart is an indication of

A) production development.
B) organizational design.
C) production logistics.
D) organizational structure.

Question Details
Difficulty : 2 Medium
Learning Objective : 10-01 Explain why the design of organizational structure is important to international companies.
Topic : Overview of Organizational Structure and Design
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Bloom's : Apply

A company’s structure helps determine where formal power and authority will be located within the organization. This structure is what we typically see in a company’s organization chart.

22) Organizational design is best described as

A) a process that deals with how an international business should be organized to ensure that its global business activities are integrated efficiently and effectively.
B) management’s concern with the size of an organization or the complexity of its business operations.
C) something that must remain stable over time to enable the organization to create and exploit competitive advantage.
D) an aspect of business that becomes less important as an IC encounters increased environmental and strategic change.

Organizational design is a process that determines how a company should be organized to ensure its worldwide business activities are integrated in an efficient and effective manner.

23) What is an accurate description of an IC's structures and systems?

A) Management must avoid changing them over time, to avoid disrupting operations.
B) They must be designed before a company can develop its strategy.
C) They need to be able to evolve over time.
D) They depend on the country in which the IC is headquartered.

The structure of an IC needs to be able to evolve over time. This capability is essential because it allows the IC to respond to change and to efficiently and effectively reconfigure the way in which its competencies and resources are integrated within and across the company’s various business units.

24) While assessing the structure of the proposed international company, the management team asked for reports on the terrain of the country where they planned to build a new plant. This report would be used to forecast the costs of building which would vary significantly if the terrain was mountainous. Which of the four elements of designing the structure of an IC does this represent?

A) customer expertise
B) geographic expertise
C) functional expertise
D) product and technical expertise

25) The two main issues for management to consider in designing an international company's structure include:

A) departmentalizing to most effectively take advantage of efficiencies gained from specialization of capital.
B) integrating functions to achieve lowest possible costs.
C) ensuring that policies and procedures can enable continued product innovation.
D) coordinating departments' activities to meet the firm's overall objectives.

26) Organizational designers in the IC must be aware that the gain achieved from increased specialization of labor may sometimes be nullified by

A) the increased cost of geographic expansion.
B) the increased cost of coordination.
C) the increased cost of product development.
D) increased costs from unionization.

What are the main issues to consider in designing an international company's structure? Two that management faces are (1) departmentalizing to most effectively take advantage of efficiencies gained from specialization of labor and (2) coordinating the resulting departments' activities to meet the firm's overall objectives. As all managers know, these two goals can conflict with each other; that is, the gain from increased specialization of labor may sometimes be nullified by the increased cost of coordination. The search for an optimal balance between them often leads to a reorganization of the IC's structure.

27) When designing the structure of an IC, the element a company considers while it assesses population groups is

A) product and technical expertise.
B) functional expertise.
C) customer expertise.
D) geographical expertise.

What elements need to be considered when designing the structure of an IC? There are four: product and technical expertise for the company's different businesses; geographic expertise on the countries and regions in which the company operates; customer expertise to gauge the similarity of client groups, industries, market segments, or population groups that transcend the boundaries of individual countries or regions; and functional expertise in the company's value chain activities.

28) In designing the organizational structure, management knows that two concerns, __________ and __________, run counter to each other.

A) an effective way to departmentalize; coordinating activities
B) earning profits; paying taxes
C) hiring employees; gauging client groups
D) sales growth; research and design expenditures

29) What method do companies often use when initially entering a foreign market? This method would create the least amount of risk.

A) Export product to the foreign market.
B) Acquire an existing business in the foreign market.
C) Create a wholly owned subsidiary.
D) Build a manufacturing facility in foreign market.

No one structure is best for all companies and contexts. Rather, managers have to consider the nature of their company's international operating environment and strategy—both currently and how they might look in the future—when deciding on the IC's structure.

30) A division in the organization that is at the same level as the domestic division and is responsible for all non-home-country activities is a(n)

A) foreign division.
B) global product division.
C) regional division.
D) international division.

An international division is a division in the organization that is at the same level as the domestic division and is responsible for all non-home-country activities.

31) Keller Corp., based in Virginia, has exported its line of luggage and travel products into Europe for the past three years and has decided to create a new division based in Paris to handle all overseas activity. What type of division is the company creating?

A) international
B) domestic
C) global
D) regional

Question Details
Difficulty : 2 Medium
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-02 Identify the various organizational dimensions managers must consider when selecting organizational structures.
Topic : Forms Available for Structuring International Companies
Bloom's : Apply

At first, a firm might have no one responsible for international business; its marketing department might fill the export orders. Next, the firm might create an export department, possibly within the marketing department. If the company begins to invest in various overseas locations, it might then form an international division to take charge of all overseas activity.

32) Within the international division structure, it is common for

A) conflicts to be minimized within the firm.
B) fewer power struggles to arise over product designs.
C) the challenges of managing the international division to diminish as larger size and scale are achieved.
D) disagreements to be had regarding prices charged to the international division by the domestic unit.

Unfortunately, the use of an international division structure can result in conflicts within the firm. For example, there may be disagreements and power struggles between the domestic operations and the international division over product designs, priority in scheduling of production, or the prices that the domestic unit charges to the international unit. The challenges of managing the international division effectively as the size of this division and the range of products, markets, and activities increase, can be substantial, which can result in rising inefficiency. Therefore, as the company's overseas operations increase in importance and scope, management often eliminates international divisions in favor of worldwide organizational structures based on product, region, function, or customer classes. Few ICs are organized by function at the top level.

33) Once a company’s overseas operations have achieved satisfactory levels, the company might decide to eliminate the international division and incorporate a worldwide structure. These structures are usually based on one of four things, including

A) processing.
B) product.
C) media availability.
D) tariffs.

As the company's overseas operations increase in importance and scope, management often eliminates international divisions in favor of worldwide organizational structures based on product, region, function, or customer classes. At second, third, and still lower levels, these four characteristics—product, region, function, and customer classes—plus process, national subsidiary, and international or domestic, provide the basis for subdivisions.

34) When creating a worldwide organizational structure, one criteria that companies do not rely on as the basis for organizational subdivisions at the second, third, and still lower levels is

A) size of company
B) national subsidiary
C) region.
D) function

35) One advantage of companies with global structures is that they

A) outperform those with international divisions.
B) are organized on the basis of geography and not on products or processes.
C) are large companies with numerous overseas manufacturing facilities.
D) may obtain lower production costs by promoting worldwide product standardization.

As they grow over time, most ICs move away from the use of international divisions and instead implement one of the global structures based on either global product or global geographic factors. When an IC's managers choose one of these designs for the organization's structure, they usually expect that their company will now (1) be more capable of developing competitive strategies to confront increasing global competition, (2) obtain lower production costs by promoting worldwide product standardization and manufacturing rationalization, and/or (3) enhance technology transfer and the allocation of company resources.

36) One expectation by companies that adopt the global organizational form is that this change may

A) permit the company to obtain cheaper labor.
B) help the company be more capable of developing strategies to confront global competition.
C) enable the company to get lower interest rates to finance expansion.
D) enable the company to avoid regulations and policies set down by foreign governments.

37) As their overseas operations have increased in importance, larger multinationals have felt the need to

A) change from a global structure to an international division.
B) establish home country operations that handle all aspects of production and marketing.
C) eliminate their domestic operations.
D) establish worldwide organizations based on product, customer class, function, or region at the top level.

The challenges of managing the international division effectively as the size of this division and the range of products, markets, and activities increase, can be substantial, which can result in rising inefficiency. Therefore, as the company's overseas operations increase in importance and scope, management often eliminates international divisions in favor of worldwide organizational structures based on product, region, function, or customer classes. At second, third, and still lower levels, these four characteristics—product, region, function, and customer classes—plus process, national subsidiary, and international or domestic, provide the basis for subdivisions.

38) The international structural stages model suggests that a typical evolutional path for an international company's structure would be

A) from international division to worldwide product division to geographical area division.
B) from geographical area division to worldwide product division to global matrix.
C) from functional division to horizontal company to virtual corporation.
D) from international division to worldwide product division to global matrix.

The international structural stages model suggests that a typical evolutional path for an international company's structure would be from international division to worldwide product division to global matrix. Figure 10.3 combines these paths for the IC’s design and evolution with the international stages model of organizational structures

39) The use of an international product structure typically

A) represents a sharp move away from pre-export department times.
B) removes domestic product divisions.
C) helps to avoid duplication of product experts.
D) suffers from a duplication of area experts.

An international product structure represents a return to pre-export department times in that the domestic product division is given responsibility for global line and staff operations. Product divisions are then responsible for the worldwide operations, such as marketing and production, of those products and services under their control. Each division generally has regional experts, so while this organizational form avoids the duplication of product experts common in a company with an international division, it does create a duplication of area experts. Occasionally, to avoid placing regional specialists in each product division, the IC will have a group of managerial specialists in an international division who advise the product divisions but have no authority over them (see Figure 10.4).

40) Malek Inc. has implemented a company structure in which the domestic product division is responsible for all global line and staff operations. In addition, each product division is responsible for the worldwide operation efforts of marketing and production. Which structure does this company use?

A) geographic region
B) international product
C) hybrid
D) global functional

41) The geographic region structure seems to be popular with companies that

A) operate in a purely domestic market offering customized products.
B) favor licensing as a form of market entry.
C) manufacture products with a low technological content.
D) manufacture products incorporating high technology in industrialized regions.

The geographic region structure is popular with companies that manufacture products with a rather low or stable technological content that requires strong marketing ability. It is also favored by firms with diverse products, each having different product requirements, competitive environments, and political risks. Many producers of consumer products, such as prepared foods, pharmaceuticals, and household products, employ a geographic region structure. The disadvantage of an organization divided into geographic regions is that each region must have its own product and functional specialists, so although the duplication of area specialists found in international product division structures is eliminated, duplication of product and functional specialists is necessary.

42) What is one disadvantage of the geographic region structure?

A) All managers report to their respective home or host country office.
B) It is not appropriate for companies that produce items with low technological content.
C) Each region must have its own product and functional specialists.
D) It complicates the task of directing worldwide operations.

The disadvantage of an organization divided into geographic regions is that each region must have its own product and functional specialists, so although the duplication of area specialists found in international product division structures is eliminated, duplication of product and functional specialists is necessary.

43) One characteristic of the geographic regionalized organization is

A) it has the advantage that it avoids duplication of product and functional specialists.
B) it seems to be popular with companies that have diverse products, each with different product requirements, competitive environments, and political risks.
C) it avoids problems with global product planning.
D) it has geographic area managers who report directly to domestic operating units.

44) What is a disadvantage of the geographic region organizational structure?

A) It creates increased complexity of directing worldwide operations.
B) It is inappropriate for use in global companies.
C) It creates duplication of area and product specialists.
D) It can make product coordination across regions challenging.

The geographic region structure is popular with companies that manufacture products with a rather low or stable technological content that requires strong marketing ability. It is also favored by firms with diverse products, each having different product requirements, competitive environments, and political risks. The disadvantage of an organization divided into geographic regions is that each region must have its own product and functional specialists, so although the duplication of area specialists found in international product division structures is eliminated, duplication of product and functional specialists is necessary. Production coordination across regions presents challenges, as does global product planning. To address these, ICs often place specialized product managers on the headquarters staff. Although these managers have no line authority, they do provide input to corporate decisions concerning products.

45) The common characteristic of multinationals that are organized by function is a narrow and

A) highly integrated product mix.
B) highly integrated customer list.
C) vertically integrated marketing mix.
D) highly concentrated regional focus.

The common factor among the users of the functional form is a narrow and highly integrated product mix, such as that of aircraft manufacturers or oil refining companies.

46) Nate works for a company that is mostly based on a geographic unit structure but also combines elements of a functional unit structure and product division structure. This company provides an example of which type of structure?

A) hybrid
B) matrix
C) matrix overlay
D) virtual

A hybrid organization is a structure organized by more than one dimension at the top level. In a hybrid organization, the top level is a mixture of the organizational forms described above, and the lower levels may or may not be. Figure 10.7 illustrates a simple hybrid form. Starbucks uses a hybrid structure, with functional units (e.g., for finance, human resources, and marketing), geographical units (e.g., the Americas, China and Asia-Pacific, and Europe, Middle East and Africa), and product divisions (e.g., coffee and related, baked goods, and merchandise).

47) A hybrid organization may result from

A) the firm's acquiring a company with distinct products and distribution channels.
B) management's attempt to mesh product and regional expertise.
C) the consistent use of a geographic unit structure.
D) a firm's use of SBUs.

In a hybrid organization, the top level is a mixture of the organizational forms described, and the lower levels may or may not be. Such combinations are often the result of a regionally organized company having introduced a new and different product line that management believes can be handled best by a worldwide product division. A firm that acquires a company with distinct products and a functioning marketing network may be integrated into the organization as a product division even though the rest of the firm is organized on a regional basis. Later, after corporate management becomes familiar with the operation, this acquired unit may be regionalized.

48) Madison Enterprises is an international corporation that sells sporting equipment and has had regional units for the past ten years. Recently, the company acquired an international business that specializes in skincare products for athletes. Madison Enterprises has brought that company in and retained its product division setup. What type of structure does Madison Enterprises now use?

A) hybrid
B) matrix overlay
C) virtual
D) matrix

Hybrid structures are often the result of a regionally organized company having introduced a new and different product line that management believes can best be handled by a worldwide product division. A firm that acquires a company with distinct products and a functioning marketing network may be integrated into the organization as a product division even though the rest of the firm is organized on a regional basis. Later, after corporate management becomes familiar with the operation, this acquired unit may be regionalized.

49) The __________ organization has evolved from management's attempt to mesh product and regional and functional expertise while maintaining clear lines of authority.

A) hybrid
B) matrix
C) global
D) network

The matrix organization is an organizational structure composed of one or more superimposed organizational structures in an attempt to mesh product, regional, functional, and other expertise. The matrix organization has evolved from management's attempt to mesh product, regional, and functional expertise while still maintaining clear lines of authority.

50) Problems with the matrix structure include:

A) two or more managers must agree on decisions.
B) special divisions often must be established to serve heterogeneous customer segments.
C) global branding and production coordination are hindered.
D) functional concerns are ignored.

Although it once seemed the matrix organizational form would let firms simultaneously access the advantages of product, regional, and functional forms, you might ask yourself whether its multiple reporting relationship might be a problem. In fact, the disadvantages of the matrix form have kept most worldwide companies from adopting it. One problem with it is that the two managers (or three, if it is a three-dimensional matrix) must agree on a decision. This can lead to less-than-optimal compromises, delayed responses, and power politics in which more attention is paid to the process than to the problem. When the managers cannot agree, the problem goes higher in the organization and takes top management away from its duties.

51) An organization in which top-level divisions are required to heed input from a staff composed of experts from another organizational dimension in an attempt to avoid the double-reporting difficulty of a matrix organization but still mesh two or more dimensions is known as a

A) hybrid organization.
B) matrix organization.
C) matrix overlay.
D) virtual corporation.

An organization in which top-level divisions are required to heed input from a staff composed of experts of another organizational dimension in an attempt to avoid the double-reporting difficulty of a matrix organization but still mesh two or more dimensions is a matrix overlay.

52) __________ are organizational forms in which product divisions are defined as though they were independent businesses.

A) Free-form management units
B) Strategic business units
C) Matrix overlays
D) Virtual corporations

Strategic business units are organizational forms in which product divisions are defined as though they were independent businesses.

53) Most strategic business units are organized based on

A) geographic region.
B) functional area.
C) customer class.
D) product line.

Strategic business units are organizational forms in which product divisions are defined as though they were independent businesses. Most SBUs are based on product lines.

54) The organizational form at Luscious Chocolate Company includes separate groups organized by specialization, including candy bars, baking chocolate, and premium chocolates. Each of these groups are defined as distinct, independent businesses with clearly defined markets. What is this an example of?

A) a matrix overlay
B) strategic business units
C) a hybrid structure
D) a geographic region

Strategic business units are self-contained business entities with a clearly defined market, specific competitors, the ability to carry out its business mission, and a size appropriate for control by a single manager. There is no mention of specialized production technology.

55) Carlton Office Systems Inc. needs to improve overall organizational efficiency. To accomplish this, the company has implemented a complete redesign of all business systems and reporting hierarchies. During this process, significant cuts were made in middle management staff. What organizational trend is taking place at this company?

A) virtual corporation
B) reengineering
C) horizontal corporation
D) downsizing

Reengineering involves redesigning organizational structure, hierarchy, business systems, and processes in order to improve organizational efficiency. Reengineering is often accompanied by a significant reduction in middle management staff, restructuring of work processes across functional departments, and improvement in the speed and quality of strategy execution.

56) Reengineering of organization forms exemplifies

A) a redesign of the company's products to improve their quality.
B) disempowerment of employees.
C) movement toward lean, fast, and innovative structures and processes.
D) increased use of specialization and increased organizational hierarchy.

One result of ongoing pressures for change in international companies is that changes in organizational form, often called reengineering, have become an almost constant process. Reengineering involves redesigning organizational structure, hierarchy, business systems, and processes to improve organizational efficiency. Not only are companies mixing older, established forms of organization, they are also changing to different forms, many of which are modified versions of long-established forms with new names. Reengineering is often accompanied by a significant reduction in middle management staff, restructuring of work processes across functional departments, and improvement in the speed and quality of strategy execution. CEOs are striving to make their organizations lean, flat, fast to respond, and innovative.

57) New York Shoe House Inc. wants to sell its new line of summer sandals in Europe for just one season. The company does not currently sell in Europe. To accomplish this, the company plans to build a network of European suppliers and distributors and will break ties with them after this season. Most communication will take place through computer applications. What organizational trend does this demonstrate?

A) virtual corporation
B) strategic business units
C) horizontal corporation
D) reengineering

A virtual corporation, also called a network corporation or a modular corporation, is an organization that coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization. In other words, it relies to a great extent on third parties to conduct its business.

58) An organization that coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization is known as a

A) modular network.
B) horizontal corporation.
C) strategic business unit.
D) virtual corporation.

An organization that coordinates economic activity to deliver value to customers using resources outside the traditional boundaries of the organization is known as a virtual corporation.

59) Virtual corporations are also called

A) modular networks.
B) corporate networks.
C) modular corporations.
D) anti-organizations.

Question Details
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-02 Identify the various organizational dimensions managers must consider when selecting organizational structures.
Topic : Forms Available for Structuring International Companies
Bloom's : Remember
Difficulty : 1 Easy

A virtual corporation is also called a network corporation or a modular corporation.

60) The potential benefits of the virtual corporation concept include

A) greater flexibility than is associated with more typical corporate structures.
B) a greater number of employees working on site.
C) the opportunity to redesign organizational structures and hierarchy.
D) a reduction in management's control over the corporation's activities.

The virtual corporation concept has several potential benefits. In particular, it permits greater flexibility than other corporate structures. Rather than building competence from the ground up and incurring high startup costs that could limit future production decisions, virtual corporations form a network of dynamic relationships that allows them to take advantage of the competencies of other organizations in order to respond rapidly to changing circumstances. However, this form of organization can have disadvantages, including the potential to reduce management's control over the corporation's activities; networks are vulnerable to the opportunistic actions of partners, including cost increases, unintended "borrowing" of technical and other knowledge, and departure from the relationship at inappropriate times. From the standpoint of employees, the virtual organization may replace the security of long-term employment and the promise of ever-increasing salaries with the insecurity of a global market.

61) The potential disadvantages of the virtual corporation concept include:

A) greater flexibility than is associated with more typical corporate structures.
B) improved organizational efficiency.
C) increased job security of long-term employment for employees.
D) a reduction in management's control over the corporation's activities.

62) Which type of company is characterized by lateral decision processes, horizontal networks, and a strong corporate-wide business?

A) modular network
B) horizontal corporation
C) modular corporation
D) virtual organization

The form of organization characterized by lateral decision processes, horizontal networks, and a strong corporate-wide business philosophy is known as a horizontal corporation.

63) What is a characteristic of a horizontal corporation?

A) It often draws teams from different departments to solve a problem or deliver a product.
B) It puts greater decision-making responsibility in the hands of managers from outside the company.
C) It is considered the most conventional organizational structure.
D) It is the same as a "virtual organization."

A horizontal corporation is a form of organization characterized by lateral decision processes, horizontal networks, and a strong corporate-wide business philosophy. Firms such as 3M, General Electric, and DuPont have chosen this organizational form to foster the flexibility to respond quickly to advances in technology and be product innovators. In many companies, teams are drawn from different departments to solve a problem or deliver a product. The horizontal organization has been characterized as "anti-organization" because its designers are seeking to remove the constraints imposed by the more conventional organizational structures.

64) Within a horizontal corporation, the decision-making process is best described as

A) virtual.
B) hierarchical.
C) vertical.
D) lateral.

A horizontal corporation is a form of organization characterized by lateral decision processes, horizontal networks, and a strong corporate-wide business philosophy.

65) A company might elect to use the horizontal organizational form if it wanted to give more decision-making responsibility to

A) the customer.
B) middle management.
C) stockholders.
D) upper management.

66) What is one of the reasons an international company might adopt the horizontal organization format?

A) They reduce costs by eliminating middle management.
B) They enhance efficiency by increasing the use of vertical decision processes.
C) They spark innovation and new product development.
D) They enable top management to control processes through centralized approval systems.

Proponents of the horizontal organization format claim lateral relationships spark innovation and new product development and place more decision-making responsibility in the hands of middle managers and other skilled professionals, who do not have to clear each detail with higher-ups. The objective of the horizontal organization form is to substitute cooperation and coordination, which are in everyone's interest, for strict control and supervision. Pursued effectively, this approach can help develop international communities of skilled workers that create and exploit valuable intangible assets.

67) Proponents of the horizontal corporation would say that this approach

A) increases lateral relationships that inhibit innovation and new-product development.
B) places more decision-making responsibility in the hands of middle managers and other skilled professionals.
C) enhances increased control and supervision by upper management.
D) enhances efficiency by increasing the use of vertical decision processes.

68) The text predicts that in the future, managers in many ICs can expect

A) to increase the use of structures based on function in order to gain economies of scale.
B) to revert to more traditional organizational structures.
C) to see expanded headquarters organizations in order to manage increased international scope of operations.
D) to make greater use of the dynamic network structure.

Managers in many ICs can expect to make greater use of the dynamic network structure that breaks down the major functions of the firm into smaller companies coordinated by a downsized headquarters organization. Business functions such as marketing and accounting may be provided by separate organizations—some owned partially or fully by the IC, some not. To attain the optimal design and level of control, a firm must focus on its core business. Anything not essential to the business can often be done cheaper, faster, and better by outside suppliers.

69) Companies controlled by other companies (known as parent companies) through ownership of enough voting stock to elect a majority of the voting members on the company's board of directors are known as

A) affiliates.
B) virtual organizations.
C) networked organizations.
D) subsidiaries.

70) Companies controlled by other companies, in which less-than-majority owners may exercise control by a variety of means, both those involving stock ownership and those involving non-ownership mechanisms, are known as

A) international companies.
B) affiliates.
C) networked organizations.
D) subsidiaries.

Affiliates are companies controlled by other companies, but less-than-majority owners may exercise control by a variety of means, both those involving stock ownership and those involving non-ownership mechanisms.

71) A company in which the parent company has 100 percent ownership is known as a(n)

A) affiliate.
B) greenfield venture.
C) wholly owned subsidiary.
D) acquisition.

Question Details
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-03 Explain how decision making is allocated between parent and wholly owned subsidiaries in an international company.
Topic : Choosing An International Business Strategy
Bloom's : Remember
Difficulty : 1 Easy

The control of a company in which the parent has 100 percent ownership is known as a wholly owned subsidiary.

72) When comparing controls in international companies to those in domestic operations, it is correct to say that

A) domestic operations need more controls than ICs.
B) controls are the same for both ICs and domestic operations.
C) ICs need more controls than domestic operations.
D) ICs and domestic operations rely on totally different controls.

Every successful company uses controls to put its plans into effect, evaluate the plans' effectiveness, make desirable corrections, and evaluate and reward or correct executive performance. The challenges associated with achieving effective control are more complicated for an IC than for a one-country operation. Different languages, cultures, and attitudes; different taxation and accounting methods; different currencies, labor costs, and market sizes; different degrees of political stability and security for people and property; and many other factors contribute to these challenges. Yet ICs need controls even more than do domestic operations.

73) Sanjay works for Betton Pharmacies, which is controlled by the parent company of Grayson Labs. In other words, Sanjay works for a(n)

A) subsidiary.
B) affiliate.
C) virtual corporation.
D) horizonal corporation.

Question Details
Difficulty : 2 Medium
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-03 Explain how decision making is allocated between parent and wholly owned subsidiaries in an international company.
Topic : Choosing An International Business Strategy
Bloom's : Apply

Subsidiaries are companies controlled by other companies (known as parent companies) through ownership of enough voting stock to elect a majority of the voting members on the company’s board of directors. Affiliates are companies controlled by other companies, but less-than-majority owners may exercise control by a variety of means, both those involving stock ownership and those involving non-ownership mechanisms.

74) The extent to which an IC relies on subsidiary management to make decisions would most likely depend on

A) the location of competitor ICs.
B) the availability of virtual networks.
C) the size of the IC.
D) the costs of reengineering.

The extent to which an IC relies on subsidiary management to make decisions can depend on how well the executives know company policies and each other, on whether headquarters management thinks it understands host country conditions, on the distance between the home country and the host country, and on how big and how old the parent company is.

75) Headquarters is more likely to rely on subsidiary management if:

A) subsidiary managers are from another country.
B) conditions in the host country are very similar to those in the home country.
C) the subsidiary is located far away from headquarters.
D) the host country has similar institutions and politics to those in the home country.

Headquarters' reliance on subsidiary management also depends on how far away the host country is. A U.S. parent company is likely to place more reliance on the management of an Indonesian subsidiary than on the management of a Canadian subsidiary for two reasons: U.S. management typically perceives that it understands management conditions in Canada more easily than conditions in Indonesia, and Indonesia is much farther from the United States than Canada is—not merely geographically but also in terms of culture, institutions, politics, and other variables.

76) In larger, older organizations, more decisions are

A) delegated to the subsidiary headquarters.
B) delegated to empowered, decentralized subsidiary managers.
C) made at headquarters of the parent company.
D) made jointly between the subsidiary and parent company.

As a general rule, a large company can afford to hire more specialists, experts, and experienced executives than can a smaller one. The longer a company has been an IC, the more likely it is to have a number of experienced executives who know company policies and have worked at headquarters and in the field. Successful experience builds confidence. In most ICs, the top positions are at headquarters, and the ablest and most persistent executives will typically get positions there eventually. Thus, over time, the headquarters of a successful IC is run by experienced executives who are confident of their knowledge of the business in the home and host countries. It follows that in larger, older ICs, more decisions are made at headquarters and fewer are delegated to subsidiaries.

77) A decision to move production factors from one country to another would be

A) unaffected by currency and political stability.
B) made cooperatively by subsidiary managers.
C) based on tax, labor supply, and market conditions.
D) rejected by managers of the host country receiving the new activity.

An IC may decide to move factors of production from one country to another, or to expand in one country instead of another. In addition to the cost, availability, and skill levels of labor, other possible reasons for such a move include corporate tax rates, market conditions, currency fluctuation, and political instability. It is understandable that the subsidiary from which factors are being taken will be unenthusiastic about giving up control over existing activities, and its management slow, at best, to cut capacity or to downsize or eliminate local operations. Headquarters will typically have to make such decisions.

78) When the IC headquarters decides which subsidiary would get to fill an order for a customer abroad, IC management would consider all of the following EXCEPT:

A) production costs.
B) working relationship.
C) tax rates.
D) currency restrictions.

Parent headquarters might decide which subsidiary gets the business. Among the considerations in the decision would be production costs, transportation costs, comparative tariff rates, customers' currency restrictions, comparative order backlogs, governmental pressures, and taxes. Making such a decision in IC headquarters avoids price competition among members of the same IC group. Since the subsidiary and the IC work together, the working relationship is already established so would not be a consideration.

79) It is sensible for an IC to direct or allocate as much profit as reasonably possible to subsidiaries in countries with

A) problematic labor relations.
B) the most currency controls.
C) higher taxes.
D) the least social unrest.

If the host country of one of the subsidiaries has lower taxes than the other host countries, the IC will try to maximize profits in the lower-tax country and reduce them in the higher-tax country. Other factors that affect the allocation of profit among host countries include country differences in currency controls, labor relations, political climate, and social unrest. It is sensible to direct as much profit as reasonably possible to subsidiaries in countries with the fewest currency controls, the best labor relations and political climate, and the least social unrest.

80) Price and profit allocation decisions are usually best made

A) at the subsidiary headquarters.
B) at the IC headquarters.
C) cooperatively by both subsidiary and IC headquarters.
D) at the subsidiary headquarters in the host country with the lowest prices.

Price and profit allocation decisions are usually best made at parent-company headquarters, which is supposed to maintain the overall view, looking out for the best interests of the enterprise as a whole. Naturally, however, subsidiary management does not gladly make decisions to accept lower profits, largely because its evaluation may suffer as a result of the apparent reduction in performance.

81) Pricing established for transactions between members of the enterprise is called

A) internal pricing.
B) market pricing.
C) transfer pricing.
D) resettlement pricing.

Pricing established for transactions between members of the enterprise is called transfer pricing.

82) In situations where ICs are setting transfer prices

A) host governments are generally unaware of the actions by ICs operating within their borders.
B) management must demonstrate they are not making profits on the sales.
C) the IC should show that other companies are charging comparable prices for the same or similar products.
D) the home country is usually more concerned than the host country, especially if the home country's tax rates are lower.

The host and home governments should be expected to be aware of and interested in transfer pricing and profit allocation by ICs operating within their borders. The companies must expect questioning by both governments and be prepared to demonstrate that prices or allocations are reasonable. Management needs to show that other companies charge comparable prices for the same or similar items or, if there are no similar items, show that costs plus profit have been used reasonably to arrive at the price.

83) While there may be valid reasons for decisions to always be made at an ICs headquarters, why is it important for some decisions to be delegated to the subsidiary?

A) Managers at the subsidiary must have all decisions approved by the parent company.
B) Managers at the subsidiary may become hostile and disloyal.
C) The subsidiary has more local knowledge.
D) The subsidiary is typically on a lower pay scale.

An extremely important consideration for parent-company management is that the management of its subsidiaries is motivated and loyal. If all the big decisions are made, or are perceived to be made, at IC headquarters, the managers of subsidiaries can lose incentive and prestige with their employees and community. These managers may grow hostile and disloyal.

84) How is the headquarters of an IC affected in a joint venture?

A) Headquarters has more control over activities in a joint venture.
B) The ability to take action in a joint venture is similar to that of a wholly owned subsidiary.
C) Headquarters does not enjoy as much freedom of action in a joint venture.
D) In a joint venture, the headquarters of a company is not included in decision making activities.

All the reasons we looked at earlier for making decisions at IC headquarters, at subsidiary headquarters, or cooperatively also apply to joint-venture situations. However, headquarters will almost never have as much freedom of action and flexibility in a joint venture as it has with subsidiaries that it owns 100 percent.

85) Some ways that an IC can exercise control over a subsidiary’s activities include all of the following EXCEPT

A) retaining control of technology.
B) writing up a management contract.
C) retaining control of the finances.
D) using its ownership to outvote its partner.

Question Details
Bloom's : Understand
Difficulty : 2 Medium
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Topic : Choosing An International Business Strategy
Learning Objective : 10-04 Discuss how an international company can maintain control of a joint venture or of a company of which it owns less than 50 percent of the voting stock.

With less than 50 percent of the voting stock and even with no voting stock, an IC can exercise control over a subsidiary's decisions and activities. Some methods of maintaining control are drawing up a management contract; retaining control of the finances; retaining control of the technology; putting people from the IC in important executive positions.

86) In terms of reporting, it is important that all operating units of an IC provide timely and complete reports regarding finances, market opportunities, political and economic activities, and

A) culture.
B) economies of scale.
C) factors of production.
D) technology.

Question Details
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-05 List the types of information an international companys units around the world need to report to the parent company.
Topic : Reporting of Information
Bloom's : Remember
Difficulty : 1 Easy

For decision making and control of organizational resources to be effective, all operating units of an IC must provide headquarters with timely, accurate, and complete reports, including (1) financial, (2) technological, (3) market opportunity, and (4) political and economic reports.

87) The types of information an IC needs to have reported by subsidiaries includes

A) financial.
B) organizational structure and systems.
C) cultural.
D) staffing.

88) Caroline works in Asia for an affiliate of Sheppard Electronics based in Oklahoma. She has learned that a large geographic sector in Asia would benefit from the company’s master recharging station and shares that information with headquarters in her monthly report. Which aspect of reporting does this reflect?

A) economics
B) technological
C) market opportunities
D) financial

Question Details
Difficulty : 2 Medium
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Bloom's : Apply
Learning Objective : 10-05 List the types of information an international companys units around the world need to report to the parent company.
Topic : Reporting of Information

The affiliates in various countries may spot new or growing markets for some product of the enterprise. This could be profitable all around, as the IC sells more of the product while the affiliate earns sales commissions. Of course, if the new market is sufficiently large, the affiliate may begin to assemble or produce the product under license from the parent company or from another affiliate. Other market-related information that should be reported to IC headquarters includes competitors’ activities, price developments, and new products of potential interest to the IC group.

89) Greenway Farm Equipment Co. is a subsidiary of Tuppin Manufacturing Group. Recently, the production team at Greenway learned that a developer had automated a faster process for attaching component parts and advised Tuppin about the innovation. What type of reporting does this reflect?

A) economics
B) technological
C) market opportunities
D) financial

New technology is constantly being developed, and when it happens locally, the subsidiary or affiliated company is likely to learn about it before IC headquarters, hundreds or thousands of miles away. If headquarters finds the innovation potentially valuable, it can gain competitive advantage by being the first to contact the developer for a license to use it, or perhaps by purchasing the developing company outright to gain ownership and control over the new technology.

90) Connor works at the headquarters of FiberNet Corp. He receives bimonthly reports that reveal if surplus funds are available. It is then Connor’s job to determine how those funds should be allocated. What type of report would provide Connor with this information?

A) economics
B) technological
C) market opportunities
D) financial

A surplus of funds in one subsidiary often is retained there for investment or contingencies. On the other hand, such a surplus might be more useful at the parent company, in which case, the parent would pay the subsidiary a dividend. Or perhaps another subsidiary or affiliate needs capital, and the surplus could be lent or invested there. Obviously, parent headquarters must know of the existence and size of a surplus to determine its best use.

91) ________ refers to the way that an organization formally arranges its various domestic and international units and activities, and the relationships among these various organizational components.

Organizational structure refers to the way that an organization formally arranges its various domestic and international units and activities, and the relationships among these various organizational components.

92) ________ is a process that deals with how an international business should be organized in order to ensure that its worldwide business activities are able to be integrated in an efficient and effective manner.

Organizational design is a process that determines how a company should be organized to ensure its worldwide business activities are integrated in an efficient and effective manner. As suggested in Figure 10.1, that an IC's structures and systems be consistent with each other, with the environmental context in which the organization is operating, and with the strategy the IC is using is essential.

93) The two main issues management must consider in designing an international company's structure are (1) ________ to most effectively take advantage of efficiencies gained from specialization of labor and (2) ________ the resulting departments' activities to meet the firm's overall objectives.

The two main issues management must consider in designing an international company's structure are (1) departmentalizing to most effectively take advantage of efficiencies gained from specialization of labor and (2) coordinating the resulting departments' activities to meet the firm's overall objectives. As all managers know, these two goals can conflict with each other; that is, the gain from increased specialization of labor may sometimes be nullified by the increased cost of coordination. The search for an optimal balance between them often leads to a reorganization of the IC's structure.

94) The ________ structure involves a division in the organization that is at the same level as the domestic division and is responsible for all non-home-country activities.

The international division is a division in the organization that is at the same level as the domestic division and is responsible for all non-home-country activities.

95) Companies that use the ________ structure return to pre-export times compared to other structures.

An international product structure represents a return to pre-export department times in that the domestic product division is given responsibility for global line and staff operations.

96) A common problem with the use of an international product structure is that it creates a duplication of ________ experts.

A common problem with the use of an international product structure is that it creates a duplication of area experts.

97) The type of structure that simplifies the task of directing worldwide operations because every country in the world is clearly under the control of someone who is in contact with headquarters is called ________ structure.

98) The common factor among the users of the global ________ structure is a narrow and highly integrated product mix, such as that of aircraft manufacturers or oil refining companies.

The common factor among the users of the functional form of organization is a narrow and highly integrated product mix, such as that of aircraft manufacturers or oil refining companies.

99) A structure organized by more than one dimension at the top level is known as a ________ organization.

A structure organized by more than one dimension at the top level is a hybrid organization.

100) An organizational structure composed of one or more superimposed organizational structures is called a ________ organization.

An organizational structure composed of one or more superimposed organizational structures is a matrix organization.

101) A business entity with a clearly defined market, specific competitors, the ability to carry out its business mission, and a size appropriate for control by a single manager is a ________.

A business entity with a clearly defined market, specific competitors, the ability to carry out its business mission, and a size appropriate for control by a single manager is a strategic business unit.

102) Most SBUs are organized based on ________.

Most SBUs are organized based on product lines.

103) ________ involves redesigning organizational structure, hierarchy, business systems, and processes in order to improve organizational efficiency.

Reengineering involves redesigning organizational structure, hierarchy, business systems, and processes in order to improve organizational efficiency.

104) An organization which coordinates economic activity to deliver value to customers using resources outside its traditional boundaries is a ________ corporation.

105) A form of organization characterized by lateral decision processes, horizontal networks, and a strong corporatewide business philosophy is a ________ corporation.

A horizontal corporation is a form of organization characterized by lateral decision processes, horizontal networks, and a strong corporate-wide business philosophy.

106) Companies controlled by a parent company through ownership of enough voting stock to elect majorities on the board of directors are ________.

Companies controlled by other companies through ownership of enough voting stock to elect majorities on the board of directors are subsidiaries.

107) Companies controlled by other companies, but where less-than-majority owners may exercise control by a variety of means, both those involving stock ownership and those involving nonownership mechanisms are ________.

Question Details
Bloom's : Understand
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Difficulty : 3 Hard
Learning Objective : 10-03 Explain how decision making is allocated between parent and wholly owned subsidiaries in an international company.
Topic : Choosing An International Business Strategy

Companies controlled by other companies, but where less-than-majority owners may exercise control by a variety of means, both those involving stock ownership and those involving nonownership mechanisms are affiliates.

108) Companies in which the parent firm has 100 percent ownership are known as ________.

Question Details
Bloom's : Understand
Accessibility : Keyboard Navigation
AACSB : Reflective Thinking
Learning Objective : 10-03 Explain how decision making is allocated between parent and wholly owned subsidiaries in an international company.
Topic : Choosing An International Business Strategy
Difficulty : 1 Easy

Companies in which the parent firm has 100 percent ownership are known as wholly owned subsidiaries.

109) Pricing that is established for transactions between members of the enterprise is called ________ pricing.

Pricing that is established for transactions between members of the enterprise is called transfer pricing.

110) As revolutions have become more prevalent in recent years and changed the face of government in many countries, ________ reporting has multiplied in number and importance.

Not surprisingly, reports on political and economic conditions have multiplied mightily in number and importance in recent years as revolutions—some peaceful, some not—have toppled and changed governments.

111) What is organizational design and why is it an important topic for managers of international companies to understand?

Question Details
AACSB : Analytical Thinking
Bloom's : Understand
Difficulty : 2 Medium
Learning Objective : 10-01 Explain why the design of organizational structure is important to international companies.
Topic : Overview of Organizational Structure and Design
Accessibility : Keyboard Navigation

112) Compare and contrast three of the most common international company structures.

Question Details
AACSB : Analytical Thinking
Bloom's : Understand
Difficulty : 2 Medium
Topic : Overview of Organizational Structure and Design
Accessibility : Keyboard Navigation
Learning Objective : 10-02 Identify the various organizational dimensions managers must consider when selecting organizational structures.

113) Discuss some of the variables that determine where decision making is made in an international company.

Question Details
AACSB : Analytical Thinking
Bloom's : Understand
Difficulty : 2 Medium
Topic : Overview of Organizational Structure and Design
Accessibility : Keyboard Navigation
Learning Objective : 10-03 Explain how decision making is allocated between parent and wholly owned subsidiaries in an international company.

114) Explain why there is a loss of freedom and flexibility associated with a joint venture.

Question Details
AACSB : Analytical Thinking
Bloom's : Understand
Difficulty : 2 Medium
Topic : Overview of Organizational Structure and Design
Accessibility : Keyboard Navigation
Learning Objective : 10-04 Discuss how an international company can maintain control of a joint venture or of a company of which it owns less than 50 percent of the voting stock.

115) What are the types of information that an international company needs to have reported to it by its units around the world, and why is each type important for the IC and its control efforts?

Question Details
AACSB : Analytical Thinking
Bloom's : Understand
Difficulty : 2 Medium
Accessibility : Keyboard Navigation
Learning Objective : 10-05 List the types of information an international companys units around the world need to report to the parent company.
Topic : Reporting of Information

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