Exam for Strategic Management Part X

93. The sale of Boeing commercial aircraft and Microsoft operating systems in many countries enables these companies to benefit from A. higher prices in their domestic markets. B. reducing their exposure to currency risks. C. economies of scale. D. optimizing the location for many activities in their value chain. Expanding the global presence of a company automatically increases its scale of operations, providing it with a larger revenue and asset base, which potentially enables a firm to attain economies of scale. One advantage is the spreading of fixed costs such as research and development over a larger volume of production. Examples include the sale in many foreign countries of commercial aircraft by Boeing and operating systems by Microsoft. 94. If the U.S. dollar appreciates relative to foreign currency, what is likely to be the result for the U.S. company that has branches abroad? A. Profits will increase, when measured in U.S. dollars. B. Profits will decrease, when measured in U.S. dollars. C. Foreign exports to the United States will decrease. D. Foreign demand for U.S. goods and services will decrease. When the U.S. dollar appreciates against other currencies, U.S. goods can be more expensive to consumers in foreign countries. Appreciation of the U.S. dollar can have negative implications for American companies that have branch operations overseas. The reason for this is that profits from abroad must be exchanged for dollars at a more expensive rate of exchange, reducing the amount of profit when measured in dollars. 95. __________ occurs when a firm decides to utilize other firms to perform value-creating activities that were previously performed in-house. A. Offshoring B. A global strategy C. Outsourcing D. A transnational strategy Outsourcing occurs when a firm decides to utilize other firms to perform value-creating activities that were previously performed in-house. It may be a new activity that the firm is perfectly capable of doing but chooses to have someone else perform for cost or quality reasons. Outsourcing can be to either a domestic or foreign firm. 96. In considering the decision to offshore, which of the following generally is not one of the hidden costs? A. Total wage costs and indirect costs B. Wage deflation C. Reduction in intellectual property rights D. Increased inventory and coordination costs Common savings from offshoring, such as lower wages, benefits, energy costs, regulatory costs, and taxes, are all easily visible and immediate. In contrast, there are a host of hidden costs that arise over time and often overwhelm the cost savings of offshoring. These hidden costs include: total wage costs, indirect costs, increased inventory, reduced market responsiveness, coordination costs, intellectual property rights, and wage inflation. 97. L'Oreal acquired two U.S. firms that developed and sold hair care products to AfricanAmerican customers. This permitted it to build a new ethnic hair care division in Europe and Africa. This represents an advantage of international expansion using ____________. A. arbitrage B. optimization of the location of value-chain activities C. performance enhancement D. learning opportunities By expanding into new markets, corporations expose themselves to differing market demands, research and development capabilities, functional skills, organizational processes, and managerial practices. This provides opportunities for managers to transfer the knowledge that results from these exposures back to their home office and to other divisions in the firm. Thus, expansion into new markets provides a range of learning opportunities. 98. GE Healthcare developed a portable, inexpensive ultrasound device for the emerging Chinese market. It expects to sell the device in the United States at a price cheap enough for every physician, paramedic, and emergency room nurse to purchase. This is an example of A. total wage costs and indirect costs. B. risk reduction. C. reverse innovation. D. optimization of value-chain activity locations. A number of firms have seen the need to develop technologies and products that are appropriate to developing markets, only to find that these innovations are valuable in their home markets as well. Reverse innovation is a motivation for international expansion in which new products developed by developed-country multinational firms for emerging markets have adequate functionality at a low cost and often are marketed later to developed countries. 99. Sources of political risk do not include A. availability of the rule of law. B. social unrest. C. military turmoil. D. demonstrations. Some countries around the globe may be hazardous to the health of corporate initiatives because of political risk. Forces such as social unrest, military turmoil, demonstrations, and even violent conflict and terrorism can pose serious threats. Another source of political risk in many countries is the absence of the rule of law. The absence of rules or the lack of uniform enforcement of existing rules leads to what might often seem to be arbitrary and inconsistent decisions by government officials. This can make it difficult for foreign firms to conduct business. 100. For years O.R.T. Technologies resisted moving any operations outside Israel. However, when faced with a sharp rise in the value of the shekel, the maker of specialized software for managing gas stations froze all local hiring and decided to transfer some developmental work to Eastern Europe. This is an example of _____________ risk. A. political B. economic C. currency D. management Currency fluctuations can pose substantial risks. A company with operations in several countries must constantly monitor the exchange rate between its own currency and that of the host country to minimize currency risks. Even a small change in the exchange rate can result in a significant difference in the cost of production or net profit when doing business overseas. 101. A report issued by the World Trade Organization described the production of a particular U.S. car. The study showed that 30 percent of the car value goes to Korea for assembly, 17.5 percent to Japan for components and advanced technology, 7.5 percent to Germany for design, 4 percent to Taiwan and Singapore for minor parts, 2.5 percent to U.K. for advertising and marketing services, and 1.5 percent to Ireland and Barbados for data processing. This is an example of A. outsourcing and offshoring. B. outsourcing and on-shoring. C. insourcing and offshoring. D. insourcing and outsourcing. A report issued by the World Trade Organization described the production of a particular U.S. car as follows: 30 percent of the car value goes to Korea for assembly, 17.5 percent to Japan for components and advanced technology, 7.5 percent to Germany for design, 4 percent to Taiwan and Singapore for minor parts, 2.5 percent to U.K. for advertising and marketing services, and 1.5 percent to Ireland and Barbados for data processing. Today, we are increasingly witnessing two interrelated trends: outsourcing and offshoring. 102. Ricoh Americas Corporation has significant international operations. Faced with local reticence to adapt changes that come from other global regions, what does Ricoh suggest is the most successful approach? A. Bring in global market representatives to force change locally. B. Obligate local offices to adopt the corporate decision. C. Ensure stakeholder participation early in the change process. D. Ignore the problem because it is only a temporary issue. Another challenge that is fairly typical is that the not-invented-here mentality may set in when one region proposes an idea across the globe. There is no question that the passion for an idea is typically going to lie with the originator; as a result, it may be difficult for that person to understand or accept resistance from another region when that region does not feel the same passion for the idea or concept. It may turn into a long, emotional battle of wills if the other region believes it has a superior idea, concept, or current way of operating. This is often a surprise to a person new to global marketing or communications. The key to success is to ensure that the key stakeholders have a voice in the process early and can see their fingerprints on the finished idea. 103. Renault paid 1 billion USD to acquire a 25 percent ownership stake in the Russian automaker AvtoVAZ in 2008. Just one year later, Russian Prime Minister Vladimir Putin threatened to dilute the Renault ownership stake unless it contributed more money to prop up AvtoVAZ, which was then experiencing a significant slide in sales. This is an example of _____________ risk. A. currency B. economic C. political D. management Another source of political risk in many countries is the absence of the rule of law. In this case, Renault realized its ownership claim may not have held up in the corrupt Russian court system. Therefore, it was forced to negotiate and eventually agreed to transfer over 300 million USD in technology and expertise to the Russian firm to ensure its ownership stake would stay at 25 percent. 104. According to the Euromoney magazine 2014 annual Country Risk Rating, which one of the following countries has the highest economic risk? A. South Korea B. China C. Colombia D. Argentina According to the Euromoney magazine 2014 annual Country Risk Rating, the country listed with the highest economic risk is Libya with a rating of 5 out of 5. In the selection of choices given for this question, the country with the high economic risk is Argentina with a rating of 4 out of 5. Note that the overall ratings range from 1 to 5, with higher risk receiving the higher score. 105. Which one of the following is one of the Theodore Levitt assumptions supporting a pure global strategy? A. Consumers are willing to pay more for specific product features. B. Customer needs and interests are becoming more dissimilar. C. MNCs can successfully compete globally by aggressively pricing products at the sacrifice of product features. D. If the world markets are treated as heterogeneous, substantial economies of scale are easily achieved. Levitt advocated strategies that favored global products and brands. This approach rested on three key assumptions: customer needs and interests are becoming increasingly homogeneous worldwide; people around the world are willing to sacrifice preferences in product features, functions, design, and the like for lower prices at high quality; substantial economies of scale in production and marketing can be achieved through supplying global markets. 106. When firms expand into global markets, they are faced with the choice of reducing costs and/or adapting to the local market. When high pressures exist to lower costs, companies should choose a(n) __________ or __________ in order to compete in the global marketplace. A. global strategy; transnational strategy B. global strategy: multidomestic strategy C. international strategy; multidomestic strategy D. international strategy; transnational strategy The two opposing pressures result in four different basic strategies that companies can use to compete in the global marketplace: international, global, multidomestic, and transnational. The strategy that a firm selects depends on the degree of pressure that it is facing for cost reductions and the importance of adapting to local markets. When firms are faced with high pressures to lower costs, the international strategy and the multidomestic strategy would be most appropriate. 107. When firms expand into global markets, they are faced with the choice of reducing costs and/or adapting to the local market. When high pressures exist to adapt locally, companies should choose a(n) __________ or __________ in order to compete in the global marketplace. A. global strategy; transnational strategy B. global strategy: multidomestic strategy C. international strategy; global strategy D. transnational strategy; multidomestic strategy The two opposing pressures result in four different basic strategies that companies can use to compete in the global marketplace: international, global, multidomestic, and transnational. The strategy that a firm selects depends on the degree of pressure that it is facing for cost reductions and the importance of adapting to local markets. When firms are faced with high pressures to adapt locally, the transnational strategy and the multidomestic strategy would be most appropriate. 108. To be responsive to local pressures, companies must ____________ their offerings and strategies from country to country to reflect local consumer preferences. A. internationalize B. globalize C. differentiate D. standardize In addition to responding to pressures to lower costs, managers must strive to be responsive to local pressures in order to tailor their products to the demand of the local market in which they do business. This requires differentiating their offerings and strategies from country to country to reflect consumer tastes and preferences and making changes to reflect differences in distribution channels, human resource practices, and governmental regulations. 109. When differentiating products and services to local markets, strategies and tactics are likely to __________ company costs. A. decrease B. increase C. obliterate D. decentralize This requires differentiating their offerings and strategies from country to country to reflect consumer tastes and preferences and making changes to reflect differences in distribution channels, human resource practices, and governmental regulations. However, since the strategies and tactics to differentiate products and services to local markets can involve additional expenses, a firm's costs will tend to rise. 110. In the quest to achieve competitive advantage in global markets, competitive pressures require that firms do what they can to _______ unit costs so that consumers will not perceive their product and service offerings as too expensive. A. raise B. decentralize C. define D. lower The opposing pressures that managers face place conflicting demands on firms as they strive to be competitive. On the one hand, competitive pressures require that firms do what they can to lower unit costs so that consumers will not perceive their product and service offerings as too expensive. This may lead them to consider locating manufacturing facilities where labor costs are low and developing products that are highly standardized across multiple countries. 111. Which would be the appropriate strategy for companies to use to compete in the global marketplace if the marketplace pressure is for lower costs with little pressure for local adaptation? A. international strategy B. global strategy C. multidomestic strategy D. transnational strategy An international strategy would be the best pure choice for a company to make in its quest to compete in the global marketplace, if both the pressures to lower costs and adapt locally are low. 112. High pressure for local adaptation combined with low pressure for lower costs would suggest what type of international strategy? A. global strategy B. multidomestic strategy C. transnational strategy D. overall cost leadership strategy A multidomestic strategy is used in industries where the pressure for local adaptation is high and the pressure for lowering costs is low. 113. In considering the transnational strategy, Nestle evaluates the limits of decentralization. The closer they are to the consumer in activities such as branding and pricing, the more then tend to decentralize. The more they deal with production and logistics, the more they centralize decision-making. The production and logistics decisions involve _______ activities. A. upstream B. in its infrastructure C. downstream D. midstream Primary activities that are upstream (e.g., logistics and operations), or further away from the customer, tend to be centralized. This is because there is less need for adapting these activities to local markets and the firm can benefit from economies of scale. Additionally, many support activities, such as information systems and procurement, tend to be centralized in order to increase the potential for economies of scale. 114. Industries in which proportionally more value is added in __________ activities are more likely to benefit from a global strategy. A. downstream B. upstream C. marketing D. sales Primary activities that are downstream (e.g., marketing and sales, and service), or closer to the customer, tend to require more decentralization in order to adapt to local market conditions (a multidomestic strategy). Primary activities that are upstream (e.g., logistics and operations), or further away from the customer, tend to be centralized (a global strategy). This is because there is less need for adapting these activities to local markets and the firm can benefit from economies of scale. 115. Which of the following types of international firms are most likely to benefit from a global strategy as opposed to a multidomestic strategy? A. firms that compete in industries in which consumer preferences vary substantially in each country B. firms in industries that are expanding very rapidly C. firms in industries that have value added by sales and marketing departments D. firms in industries that have much value added in research and design or manufacturing Primary activities that are downstream (e.g., marketing and sales, and service), or closer to the customer, tend to require more decentralization in order to adapt to local market conditions (a multidomestic strategy). Primary activities that are upstream (e.g., Research and Development, design, or manufacturing), or further away from the customer, tend to be centralized (a global strategy). This is because there is less need for adapting these activities to local markets and the firm can benefit from economies of scale. 116. Recent trends that might lead managers of multinational corporations (MNCs) to adopt a more decentralized strategy for their operations would include all of the following except A. customer needs, interests, and tastes becoming increasingly homogenized. B. consumers around the world increasingly willing to tradeoff idiosyncratic preferences in product features for lower price. C. flexible manufacturing trends allowing a decline in the minimum volume required to reach acceptable levels of production efficiency. D. fluctuating exchange rates. A decentralized strategy such as that seen within the multidomestic organization, allows for greater adaptation at the local level, which would not be necessary if customers were becoming more homogenous. 117. Firms following a global strategy strive to offer __________ products and services as well as locate manufacturing, Research and Development, and marketing activities in a limited number of locations. A. widely differentiated B. more expensive local C. internationally differentiated D. standardized Firms following a global strategy strive to offer standardized products and services as well as to locate manufacturing, Research and Development, and marketing activities in only a few locations. 118. As in the case of Siebel Systems (now part of Oracle), elements of a global strategy may facilitate the competitive advantage of differentiation by A. increased freedom of individual business units to adapt to local tastes. B. the creation of a worldwide network to achieve consistent service regardless of location. C. flexibility in applying Research and Development to meet country-specific needs. D. tailoring products to meet country-specific needs. One advantage of a global strategy is that it can enable a firm to create a standard level of quality throughout the world. Tom Siebel, former chairman of Siebel Systems (now part of Oracle), e-business application software developer, says that his customers, global companies like IBM, Zurich Financial Services, and Citicorp, expect the same high level of service and quality, and the same licensing policies, no matter where they do business with them around the world. 119. Which of the following is not a risk associated with a global strategy? A. A firm with only one manufacturing location must export its product, sometimes at great distance from the operation. B. The geographic concentration of any activity may also tend to isolate that activity from the targeted markets. C. Concentrating an activity in a single location makes the rest of the firm dependent on that location. D. The pressures for local adaptation may elevate the cost structure of the firm. Some risks associated with a global strategy include: if a firm has only one manufacturing facility, it must export its output to other markets, some of which may be a great distance from the operation; the geographic concentration of any activity may also tend to isolate that activity from the targeted markets; concentrating an activity in a single location also makes the rest of the firm dependent on that location. 120. Which one of the following is not a limitation of a global strategy? A. limited ability to adapt to local markets B. the ability to locate activities in optimal locations C. the concentration of activities may increase dependence on a single facility D. single locations may lead to higher tariffs and transportation costs Limitations of global strategies include: a limited ability to adapt to local markets, a concentration of activities that may increase dependence on a single facility, and single locations that may lead to higher tariffs and transportation costs. 121. Which of the following is a reason for the rise in regional expansion? A. increase in the number of trading blocs and free trade zones B. decrease in the number of trading blocs and free trade zones C. increasing national trade restrictions D. increasing local taxes and tariffs Another reason for regional expansion is the rise of the trading blocs and free trade zones. A number of regional agreements have been created that facilitate the growth of business within these regions by easing trade restrictions and taxes and tariffs. 122. Which one of the following explains why so few firms are global? A. B. C. D. Culture, language, and religion are similar between countries. Legal and political systems are similar between countries. Governments are increasing trade restrictions in general. Geographic distance is multiplied by distance in culture, language, religion, and legal and political systems. Distance, in the final analysis, may be viewed as a concept with many dimensions, not just a measure of geographical distance. When the effects of geographic distance are multiplied by distance in terms of culture, language, religion, and legal and political systems between two countries, companies will choose to remain regional or, at best, bi-regional. 123. Which one of the following is not a Western hemisphere trade bloc? A. NAFTA B. MERCOSUR C. ASEAN D. Latin American Integration Association North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations (ASEAN), and MERCOSUR (a South American trading block), Latin American Integration Association (LAIA or ALADI) is a regional organization whose membership includes Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Paraguay, Panama, Peru, Uruguay and Venezuela. All ASEAN member states are located in southeast Asia. 124. Canada and Mexico are the same distance from the United States, but trade is higher between the U.S. and Canada than with Mexico because A. true distance is smaller between the U.S. and Canada. B. all three countries share the same legal system. C. there are few immigration problems with Mexico. D. Americans prefer Canadian food to Mexican food. Distance, in the final analysis, may be viewed as a concept with many dimensions, not just a measure of geographical distance. True distance includes the effects of geographic distance multiplied by distance in terms of culture, language, religion, and legal and political systems between two countries. 125. Regionalization is most important because it permits companies to organize their activities based upon A. physical distance between the home country and the foreign country. B. the extrinsic distance between the home country and the foreign country. C. the true distance between the home country offer and the foreign country. D. shareholder expectations. Distance, in the final analysis, may be viewed as a concept with many dimensions, not just a measure of geographical distance. True distance includes the effects of geographic distance multiplied by distance in terms of culture, language, religion, and legal and political systems between two countries. Most companies are regional or, at best, bioregional, not global, even today. 126. Similarity of culture, laws, rules, and norms encourages A. regionalization. B. globalization. C. trans-nationalization. D. ethnocentric expansion. Regionalization is the increasing international exchange of goods, services, money, people, ideas, and information; and the increasing similarity of culture, laws, rules, and norms within a region such as Europe, North America, or Asia. 127. According to the textbook, _______________ economic integration has progressed as a faster pace than _________ economic integration. A. global; international B. international; regional C. regional; global D. regional; inter-regional Regional economic integration has progressed at a faster pace than global economic integration, and the trade and investment patterns of the largest companies reflect this reality. 128. Regions represent the outcomes of centuries of political and cultural history that results in not only _________ but also mutual _____________. A. differences; expectations B. similarities; expectations C. commonalities; losses D. commonalities; affinities Regions represent the outcomes of centuries of political and cultural history that results in not only commonalities but also mutual affinity. 129. Shared Spanish colonialism is one reason that explains regionalism tendencies in A. Asia. B. South America. C. the United States. D. Africa. Regions represent the outcomes of centuries of political and cultural history that results in not only commonalities but also mutual affinity. The countries of South and Central America share the Spanish language (except Brazil), the Catholic religion, and a history of Spanish colonialism. 130. Shared Arabic language and the Muslim religion is one reason that explains regionalism tendencies in A. South America. B. the Maghreb. C. European Union. D. North America. Regions represent the outcomes of centuries of political and cultural history that results in not only commonalities but also mutual affinity. Stretching from Algeria and Morocco in the West to Oman and Yemen in the East, more than 30 countries share the Arabic language and the Muslim religion, making these countries a natural regional bloc. The Maghreb includes Morocco, Algeria, Tunisia, Libya, Mauritania, and the Western Sahara. 131. Which of the following describes the most typical order of entry into foreign markets? A. franchising, licensing, exporting, joint venture, and wholly owned subsidiary B. exporting, franchising, licensing, joint venture, and wholly owned subsidiary C. licensing, exporting, franchising, joint venture, and wholly owned subsidiary D. exporting, licensing, franchising, joint venture, and wholly owned subsidiary The various types of entry form a continuum ranging from exporting (low investment and risk, low control), followed by licensing, franchising, joint venture and finally to a wholly owned subsidiary (high investment and risk, high control). 132. A domestic corporation considering international expansion for the first time typically will follow which of these paths? A. It will start by implementing a wholly owned foreign subsidiary. B. It will implement a low risk-low control strategy such as exporting. C. It will license or franchise its operations D. It will form a joint venture with a reputable foreign producer. Exporting consists of producing goods in one country to sell in another. This entry strategy enables a firm to invest the least amount of resources in terms of its product, its organization, and its overall corporate strategy. Multinationals often stumble onto a stepwise strategy for penetrating markets, beginning with the exporting of products. 133. The form of entry strategy into international operations that offers the lowest level of control for the domestic corporation would be A. franchising. B. licensing. C. joint venture. D. exporting. The various types of entry form a continuum ranging from exporting (low investment and risk, low control) to a wholly owned subsidiary (high investment and risk, high control). 134. Fees that a multinational receives from a foreign licensee in return for its use of intellectual property (trademark, patent, trade secret, technology) are usually called A. transfer prices. B. dividends. C. royalties. D. intra-corporate inflows. Licensing enables a company to receive a royalty or fee in exchange for the right to use its trademark, patent, trade secret, or other valuable item of intellectual property. 135. The difference between a franchise contract and a licensing contract is that a A. franchise contract is more specific and usually longer in duration. B. franchise contract must include a foreign government. C. licensing contract covers more aspects of operations. D. franchise contract involves less control and less risk. Licensing enables a company to receive a royalty or a fee in exchange for the right to use its trademark, patent, trade secret, or other valuable item of intellectual property. Franchising contracts generally include a broader range of factors in an operation and have a longer time period during which the agreement is in effect. 136. The __________ entail the creation of a third-party legal entity, whereas the __________ do not. A. licensing agreements; joint ventures B. strategic alliances; joint ventures C. joint ventures; strategic alliances D. franchising agreements; strategic alliances Joint ventures and strategic alliances differ in that joint ventures entail the creation of a thirdparty legal entity, whereas strategic alliances do not. In addition, strategic alliances generally focus on initiatives that are smaller in scope than joint ventures. 137. A __________ is a business in which a multinational company owns 100 percent of the stock. A. wholly owned subsidiary B. strategic alliance C. joint venture D. franchising operation A wholly owned subsidiary is a business in which a multinational company owns 100 percent of the stock. Two ways a firm can establish a wholly owned subsidiary are: acquire an existing company in the home country or develop a totally new operation (often referred to as a greenfield venture). 138. __________ are most appropriate when a firm already has the appropriate knowledge and capabilities that it can leverage rather easily through multiple locations in many countries. A. Joint ventures B. Strategic alliances C. Licensing agreements D. Wholly owned subsidiaries Wholly owned subsidiaries are most appropriate when a firm already has the appropriate knowledge and capabilities that it can leverage rather easily through multiple locations. 139. What agreement entails the creation of a third-party legal entity? A. strategic alliance B. joint venture C. licensing D. exporting Joint ventures entail the creation of a third-party legal entity, whereas strategic alliances do not. 140. A firm can establish a wholly owned subsidiary by A. acquiring an existing company in the home country. B. keeping all of the activity offshore. C. licensing intellectual property. D. entering into a franchising agreement. A wholly owned subsidiary is a business in which a multinational company owns 100 percent of the stock. Two ways a firm can establish a wholly owned subsidiary are to (1) acquire an existing company in the home country or (2) develop a totally new operation (often referred to as a greenfield venture).