1. A firm's strategy can be defined as the actions that managers take to attain the

Transcription

1 Chapter 13 The Strategy of International Business True / False Questions 1. A firm's strategy can be defined as the actions that managers take to attain the goals of the firm. True False 2. The preeminent strategic goal for most firms is to maximize the value of the firm for its owners. True False 3. Profit growth is measured by the percentage increase in net profits over time. True False 4. The amount of value a firm creates is measured by the difference between its costs of production and the price that it charges for its products. True False

2 5. The customer is able to garner the benefit of the consumer surplus because one firm is competing with other firms for the customer's business, so the firm must charge a lower price than it could if it were a monopoly supplier. True False 6. According to Porter, the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more. True False 7. Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. True False 8. For a firm, all positions on the efficiency frontier are viable. True False 9. The strategy, operations, and organization of a firm must all be consistent with each other if the firm is to attain a competitive advantage and achieve superior profitability. True False

3 10. Support activities include the design, creation, and delivery of a product. True False 11. R&D, production, marketing and sales, and customer service are all examples of primary activities. True False 12. Support activities are always less important than the primary activities in achieving a competitive advantage. True False 13. Top management should be viewed as part of the firm's infrastructure True False 14. Global expansion offers companies the opportunity to generate greater profits than companies that focus strictly on the domestic market. True False

4 15. The success of many multinational corporations is based not just upon the goods or services that they sell in foreign nations, but also upon the core competencies that underlie the development, production, and marketing of those goods or services. True False 16. The skills within the firm that a competitor cannot easily match or imitate are known as core competence. True False 17. Core competencies enable a firm to reduce the costs of value creation and/or to create perceived value in such a way that premium pricing is possible. True False 18. Economies that arise from performing a value creation activity in the optimal location are known as location economies. True False 19. Systematic increases in sales that have been observed to occur over the life of the product are referred to as the experience curve. True False

5 20. Cost savings that come from learning by doing are known as economies of scale. True False 21. Learning effects tend to be more significant when a technologically simple task is repeated. True False 22. One of the sources of economies of scale is the ability to spread fixed costs over a large volume. True False 23. Moving up the experience curve allows a firm to reduce its cost of creating value and increase its profitability. True False 24. Once a firm has established a low-cost position, it can act as a barrier to new competition. True False

6 25. In a multinational enterprise, skills are always generated at the headquarters location and are then dispersed to the rest of the organization. True False 26. To leverage subsidiary skills, companies should establish incentive systems that encourage local employees to acquire new skills. True False 27. Two types of competitive pressure that affect the ability of multinational enterprises to compete in the global marketplace are pressure for cost reductions and pressure for local responsiveness. True False 28. Because differentiation across countries can involve significant duplication and a lack of product standardization, it may reduce costs. True False 29. Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical. True False

7 30. Pressures for cost reduction are minimal in industries where major competitors are based in low-cost locations, where there is persistent excess capacity, and where consumers are powerful and face low switching costs. True False 31. When consumer tastes and preferences differ significantly between countries, there is low pressure for local responsiveness. True False 32. A multinational firm may need to delegate marketing functions to national subsidiaries to be responsive to local differences in distribution channels. True False 33. Threats of protectionism, economic nationalism, and local content rules dictate that international businesses manufacture locally. True False 34. Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm's core competencies wholesale from one nation to another. True False

8 35. A global standardization strategy is appropriate when a firm is facing low pressures for cost reduction but high pressure for local responsiveness. True False 36. When a firm focuses on increasing profitability by customizing the product or service so that they provide a good match to tastes and preferences in different national markets, the firm is following a transnational strategy. True False 37. When the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness, the ideal strategy to follow is the transnational strategy. True False 38. A localization strategy makes most sense when demands for local responsiveness are high, but cost pressures are moderate or low. True False 39. The distinguishing feature of many firms that pursue an international strategy is that they are selling a product that serves local needs, but they do not face significant competitors. True False

9 40. As competition intensifies, global standardization strategies and transnational strategies tend to become less viable, and managers need to orientate their companies toward either an international strategy or a localization strategy. True False Multiple Choice Questions 41. can be defined as the rate of return that the firm makes on its invested capital, which is calculated by dividing the net profits of the firm by total invested capital. A. Profitability B. Performance C. Cash flow D. Efficiency

10 42. The percentage increase in net profits over time measures: A. capital return. B. profitability. C. market growth. D. profit growth. 43. Which of the following statements is NOT true? A. The way to increase the profitability of a firm is to create more value. B. The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products. C. The more value customers place on a firm's products, the higher the price the firm is able to charge for those products. D. The price a firm charges for a good or service is typically more than the value the customer places on that good or service.

11 44. The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because: A. the customer's disposable income is significantly higher than what the market demands. B. the customer captures some of that value in the form of a consumer surplus. C. regulatory mechanisms ensure that the customer is not overcharged for products/services. D. marketers implement psychological pricing tactics to ensure that customers perceive the prices to be low. 45. The value of a product to an average consumer is V; and the average price that the firm can charge a consumer for that product is P. Here, V - P can be termed as: A. consumer surplus per unit. B. producer surplus per unit. C. profit growth. D. profit per unit sold.

12 46. A consumer surplus can be best described as: A. what the consumer has "left-over" after a purchase. B. how much extra a consumer has to pay for a product. C. value for the money. D. the premium charged for a quality product. 47. A strategy that focuses on increasing the attractiveness of a product is referred to as a(n): A. differentiation strategy. B. low cost strategy. C. effectiveness strategy. D. efficiency strategy. 48. The efficiency frontier has a convex shape because of: A. consumer surplus. B. diminishing returns. C. profitability. D. differentiation strategy.

13 49. imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. A. Efficiency matrixes B. Diminishing returns C. Cost plus curves D. Strategy convex curves 50. The basic strategy paradigm suggests that to maximize its profitability, a firm should do all of the following, EXCEPT: A. choose, according to strategy, any position on the efficiency frontier as all positions are viable. B. pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice. C. configure its internal operations so that they support the position on the efficiency frontier. D. make sure that the right organization structure is in place to execute the strategy.

14 51. activities are basically concerned with creating the product, marketing and delivering the product to buyers, and providing support and after-sales service. A. Support B. Subordinate C. Ancillary D. Primary 52. Which of the following is an example of a primary activity in a firm's value chain? A. Information systems B. Research and development C. Logistics D. Human relations 53. Which of the following is an example of a support activity in a firm's value chain? A. R&D B. Customer service C. Human resources D. Marketing and sales

15 54. activities of the value chain provide inputs that allow the primary activities to occur. A. Complementary B. Basic C. Core D. Support 55. A firm benefits by basing each value creation activity it performs at that location where economic, political, and cultural conditions, including relative factor costs, are most conducive to the performance of that activity. Firms that pursue such a strategy can realize: A. differentiation. B. location economies. C. vertical integration. D. horizontal integration.

16 56. Economies that arise from performing a value creation activity in the optimal place for that activity are referred to as: A. factor economies. B. production economies. C. location economies. D. value creation economies. 57. When companies disperse different stages of the value chain to those locations around the world where perceived value is maximized or where the costs of value creation are minimized, companies create: A. a differentiated organization. B. a location economy curve. C. economies of scale. D. a global web of value creation activities.

17 58. Lenovo's ThinkPad laptop computers is designed in the United States, the case, keyboard, and hard drive are made in Thailand; the display screen and memory in South Korea; the built-in wireless card in Malaysia; and the microprocessor in the United States. In each case, these components are manufactured and sourced from the optimal location given current factor costs. In this example, Lenovo has: A. vertical integration advantages. B. a global web of value creation activities. C. learning effects. D. high local responsiveness. 59. refer(s) to systematic reductions in production costs that have been observed to occur over the life of a product. A. Experience curve B. Economies of scale C. Location economies D. Production possibility

18 60. It has been observed that a product's production costs decline by some quantity about each time, cumulative output: A. increases by twenty five percent. B. quadruples. C. doubles. D. triples. 61. It has been observed in the aircraft industry that, each time cumulative output of airframes was doubled, unit costs typically declined to 80 percent of their previous level. This is an example of: A. the core performance curve. B. the location curve. C. the strategic curve. D. the experience curve. 62. When individuals gain knowledge of the most efficient ways to perform particular tasks, they are saving costs through: A. location economies. B. value creation effects. C. experience curve effects. D. learning effects.

19 63. Learning effects: A. tend to be less significant when a technologically complex task is repeated. B. will be less significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps. C. typically disappear after a while, in spite of the complexity of the task. D. are more significant after two or three years of the introduction of a new process. 64. It has been suggested that learning effects are important only during the start-up period of a new process and that they cease after two or three years. Any decline in the experience curve after such a point is due to: A. reduction in fixed costs. B. higher depreciation costs. C. economies of scale. D. obsolescence. 65. Economies of scale arise from all of the following sources, EXCEPT: A. increasing fixed costs by limiting them to small volumes. B. serving domestic and international markets from the same production facilities C. serving global markets. D. bargaining with suppliers to bring down the cost of key inputs.

20 66. Moving down the experience curve: A. increases the cost of a firm's raw material. B. allows a firm to reduce its cost of creating value. C. decreases a firm's profitability. D. increases the R & D expenditure of a firm. 67. Firms usually respond to pressures for cost reduction by trying to: A. lower the costs of value creation. B. be locally responsive. C. undertaking product differentiation. D. diversifying product lines. 68. Responding to pressure for requires that a firm differentiate its product offering and marketing strategy from country to country. A. cost reductions B. experience effects C. lowering the costs of value creation D. being locally responsive

21 69. exists when the tastes and preferences of consumers in different nations are similar if not identical. A. Universal needs B. Homogenous needs C. Basic needs D. Bundled needs 70. Which of the following is less likely to add to the pressure for a firm to be locally responsive? A. National differences in consumer tastes and preferences B. Differences in infrastructure and traditional practices C. Switching costs for consumers D. Host-government demands 71. When a firm has a strategic goal of pursuing a low-cost strategy on a worldwide scale, the firm should follow a(n) strategy. A. global standardization B. localization C. international D. customization

22 72. Which of the following is NOT associated with firms following the global standardization strategy? A. Low pressures for local responsiveness B. Use cost advantage to support aggressive pricing in world markets C. High pressures for cost reductions D. Customize product offering and marketing strategy to local conditions 73. strategy is most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense. A. Localization B. Transnational C. Global standardization D. International

23 74. Which strategy focuses on increasing profitability by customizing the firm's goods or services so they provide a good match to tastes and preferences in different national markets? A. Global standardization strategy B. Transnational strategy C. Localization strategy D. International strategy 75. Which of the following is a disadvantage of the localization strategy? A. Decrease in the value of the product in the local market B. Duplication of functions C. Inability to accommodate varying tastes and preferences in different markets D. Reduced customization 76. A firm that is facing both strong cost pressures and strong pressures for local responsiveness should follow a(n) strategy. A. localization B. global standardization C. international D. transnational

24 77. A firm that is pursuing a(n) strategy is simultaneously trying to achieve low costs through location economies, economies of scale, and learning effects, and trying to differentiate its product offering across geographic markets. A. global customization B. international C. localization D. transnational 78. A firm facing low pressures for cost reductions and low pressures for local responsiveness, is most likely to follow a(n) strategy. A. global standardization B. localization C. international D. transnational 79. For firms that are selling a product that serves universal needs, and that do not face significant competition, a(n) strategy makes sense. A. localization B. international C. transnational D. global standardization

25 80. Which of the following is true of the international strategy? A. Product development tends to be highly decentralized. B. Manufacturing and marketing are typically located in the headquarters location. C. Extensive production customization is common. D. The strategy is not viable in the long-run. Essay Questions 81. What is strategy? How does strategy relate to a firm's profitability?

26 82. What is the difference between profitability and profit growth? 83. How can a firm increase its profitability? 84. Discuss Michael Porter's interpretation of value creation and competitive advantage.

27 85. Discuss efficiency frontier. How does strategic positioning relate to the efficiency frontier? 86. Consider the firm in terms of a value chain. What is the difference between primary activities and support activities? Provide examples of each.

28 87. How can the marketing and sales functions of a firm create value? 88. Describe the benefits of global expansion for firms. 89. What is a core competence? Why is it essential to the success of the firm?

29 90. Explain the concept of location economies. 91. Discuss the creation of a global web of value creation activities. 92. What is an experience curve?

30 93. What are learning effects? When are learning effects most significant? 94. How can firms successfully leverage the skills developed at the subsidiary level? 95. What are the two types of competitive pressures that firms competing in the global marketplace face? How do firms respond to these pressures?

31 96. Discuss the factors that lead to pressure for local responsiveness. 97. What are the four basic strategies that firms use to compete in international markets? 98. Describe localization strategy.

32 99. Consider a transnational strategy. Why would a firm choose this strategic alternative? What are the disadvantages of this strategy? 100. Discuss the evolution of strategy. How does cost become important in the long term?

33 Chapter 13 The Strategy of International Business Answer Key True / False Questions 1. A firm's strategy can be defined as the actions that managers take to attain the goals of the firm. TRUE A firm's strategy can be defined as the actions that managers take to attain the goals of the firm. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

34 2. The preeminent strategic goal for most firms is to maximize the value of the firm for its owners. TRUE A firm's strategy can be defined as the actions that managers take to attain the goals of the firm. For most firms, the preeminent goal is to maximize the value of the firm for its owners, its shareholders. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm 3. Profit growth is measured by the percentage increase in net profits over time. TRUE Profit growth is measured by the percentage increase in net profits over time. In general, higher profitability and a higher rate of profit growth will increase the value of an enterprise and thus the returns garnered by its owners, the shareholders. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

35 4. The amount of value a firm creates is measured by the difference between its costs of production and the price that it charges for its products. FALSE The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm 5. The customer is able to garner the benefit of the consumer surplus because one firm is competing with other firms for the customer's business, so the firm must charge a lower price than it could if it were a monopoly supplier. TRUE The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the customer captures some of that value in the form of what economists call a consumer surplus. The customer is able to do this because the firm is competing with other firms for the customer's business, so the firm must charge a lower price than it could, were it a monopoly supplier. Blooms: Understand

36 Difficulty: 2 Medium Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm 6. According to Porter, the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more. TRUE Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry. According to Porter, superior profitability goes to those firms that can create superior value, and the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more and are prepared to pay a premium price. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

37 7. Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. TRUE Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm 8. For a firm, all positions on the efficiency frontier are viable. FALSE Not all positions on the efficiency frontier are viable. In the international hotel industry, for example, there might not be enough demand to support a chain that emphasizes very low cost and strips all the value out of its product offering. International travelers are relatively affluent and expect a degree of comfort (value) when they travel away from home. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy.

38 Topic: Strategy and the Firm 9. The strategy, operations, and organization of a firm must all be consistent with each other if the firm is to attain a competitive advantage and achieve superior profitability. TRUE The strategy, operations, and organization of the firm must all be consistent with each other if it is to attain a competitive advantage and garner superior profitability. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm 10. Support activities include the design, creation, and delivery of a product. FALSE Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

39 11. R&D, production, marketing and sales, and customer service are all examples of primary activities. TRUE Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. The primary activities include research and development, production, marketing and sales, and customer service. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm 12. Support activities are always less important than the primary activities in achieving a competitive advantage. FALSE The support activities of the value chain provide inputs that allow the primary activities to occur. In terms of attaining a competitive advantage, support activities can be as important as, if not more important than, the "primary" activities of the firm. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy.

40 Topic: Strategy and the Firm 13. Top management should be viewed as part of the firm's infrastructure TRUE The final support activity is the company infrastructure, or the context within which all the other value creation activities occur. Because top management can exert considerable influence in shaping these aspects of a firm, top management should also be viewed as part of the firm's infrastructure. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm 14. Global expansion offers companies the opportunity to generate greater profits than companies that focus strictly on the domestic market. TRUE Expanding globally allows firms to increase their profitability and rate of profit growth in ways not available to purely domestic enterprises. Blooms: Remember Difficulty: 1 Easy Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth

41 15. The success of many multinational corporations is based not just upon the goods or services that they sell in foreign nations, but also upon the core competencies that underlie the development, production, and marketing of those goods or services. TRUE The success of many multinational companies that expand in this manner is based not just upon the goods or services that they sell in foreign nations, but also upon the core competencies that underlie the development, production, and marketing of those goods or services. Blooms: Remember Difficulty: 1 Easy Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth 16. The skills within the firm that a competitor cannot easily match or imitate are known as core competence. TRUE The term core competence refers to skills within the firm that competitors cannot easily match or imitate. Blooms: Remember Difficulty: 1 Easy Learning Objective: Recognize how firms can profit by expanding globally.

42 Topic: Global Expansion, Profitability, and Profit Growth 17. Core competencies enable a firm to reduce the costs of value creation and/or to create perceived value in such a way that premium pricing is possible. TRUE Core competencies are the bedrock of a firm's competitive advantage. They enable a firm to reduce the costs of value creation and/or to create perceived value in such a way that premium pricing is possible. Blooms: Remember Difficulty: 1 Easy Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth 18. Economies that arise from performing a value creation activity in the optimal location are known as location economies. TRUE Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be (transportation costs and trade barriers permitting). Blooms: Remember Difficulty: 1 Easy Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth

43 19. Systematic increases in sales that have been observed to occur over the life of the product are referred to as the experience curve. FALSE The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product. Blooms: Remember Difficulty: 1 Easy Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth 20. Cost savings that come from learning by doing are known as economies of scale. FALSE Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by repetition how to carry out a task, such as assembling airframes, most efficiently. Blooms: Remember Difficulty: 1 Easy Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth

44 21. Learning effects tend to be more significant when a technologically simple task is repeated. FALSE Learning effects tend to be more significant when a technologically complex task is repeated, because there is more that can be learned about the task. Thus, learning effects will be more significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps. Blooms: Understand Difficulty: 2 Medium Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth 22. One of the sources of economies of scale is the ability to spread fixed costs over a large volume. TRUE Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. Attaining economies of scale lowers a firm's unit costs and increases its profitability. Blooms: Understand Difficulty: 2 Medium Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth

45 23. Moving up the experience curve allows a firm to reduce its cost of creating value and increase its profitability. FALSE Moving down the experience curve allows a firm to reduce its cost of creating value and increase its profitability. The firm that moves down the experience curve most rapidly will have a cost advantage vis-à-vis its competitors. Blooms: Understand Difficulty: 2 Medium Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth 24. Once a firm has established a low-cost position, it can act as a barrier to new competition. TRUE Once a firm has established a low-cost position, it can act as a barrier to new competition. Specifically, an established firm that is well down the experience curve can price so that it is still making a profit while new entrants, which are farther up the curve, are suffering losses. Blooms: Understand Difficulty: 2 Medium Learning Objective: Recognize how firms can profit by expanding globally.

46 Topic: Global Expansion, Profitability, and Profit Growth 25. In a multinational enterprise, skills are always generated at the headquarters location and are then dispersed to the rest of the organization. FALSE Skills can be created anywhere within a multinational's global network of operations, wherever people have the opportunity and incentive to try new ways of doing things. The creation of skills that help to lower the costs of production, or to enhance perceived value and support higher product pricing, is not the monopoly of the corporate center. Blooms: Understand Difficulty: 2 Medium Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth 26. To leverage subsidiary skills, companies should establish incentive systems that encourage local employees to acquire new skills. TRUE Managers of the multinational enterprise must establish an incentive system that encourages local employees to acquire new skills. This is not as easy as it sounds. Creating new skills involves a degree of risk. Blooms: Understand

47 Difficulty: 2 Medium Learning Objective: Recognize how firms can profit by expanding globally. Topic: Global Expansion, Profitability, and Profit Growth 27. Two types of competitive pressure that affect the ability of multinational enterprises to compete in the global marketplace are pressure for cost reductions and pressure for local responsiveness. TRUE Firms that compete in the global marketplace typically face two types of competitive pressure that affect their ability to realize location economies and experience effects, to leverage products and transfer competencies and skills within the enterprise. They face pressures for cost reductions and pressures to be locally responsive. Blooms: Remember Difficulty: 1 Easy Learning Objective: Understand how pressures for cost reductions and pressures for local responsiveness influence strategic choice. Topic: Cost Pressures and Pressures for Local Responsiveness

48 28. Because differentiation across countries can involve significant duplication and a lack of product standardization, it may reduce costs. FALSE Firms that compete in the global marketplace face pressures for cost reductions and pressures to be locally responsive. Because differentiation across countries can involve significant duplication and a lack of product standardization, it may raise costs. Blooms: Remember Difficulty: 1 Easy Learning Objective: Understand how pressures for cost reductions and pressures for local responsiveness influence strategic choice. Topic: Cost Pressures and Pressures for Local Responsiveness 29. Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical. TRUE Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical. This is the case for conventional commodity products such as bulk chemicals, petroleum, steel, sugar, and the like. Blooms: Remember Difficulty: 1 Easy

49 Learning Objective: Understand how pressures for cost reductions and pressures for local responsiveness influence strategic choice. Topic: Cost Pressures and Pressures for Local Responsiveness 30. Pressures for cost reduction are minimal in industries where major competitors are based in low-cost locations, where there is persistent excess capacity, and where consumers are powerful and face low switching costs. FALSE Pressures for cost reductions are intense in industries where major competitors are based in low-cost locations, where there is persistent excess capacity, and where consumers are powerful and face low switching costs. Blooms: Remember Difficulty: 1 Easy Learning Objective: Understand how pressures for cost reductions and pressures for local responsiveness influence strategic choice. Topic: Cost Pressures and Pressures for Local Responsiveness

50 31. When consumer tastes and preferences differ significantly between countries, there is low pressure for local responsiveness. FALSE Strong pressures for local responsiveness emerge when customer tastes and preferences differ significantly between countries, as they often do for deeply embedded historic or cultural reasons. Blooms: Remember Difficulty: 1 Easy Learning Objective: Understand how pressures for cost reductions and pressures for local responsiveness influence strategic choice. Topic: Cost Pressures and Pressures for Local Responsiveness 32. A multinational firm may need to delegate marketing functions to national subsidiaries to be responsive to local differences in distribution channels. TRUE A firm's marketing strategies may have to be responsive to differences in distribution channels among countries, which may necessitate the delegation of marketing functions to national subsidiaries. Blooms: Remember Difficulty: 1 Easy Learning Objective: Understand how pressures for cost reductions and pressures for local responsiveness influence strategic choice. Topic: Cost Pressures and Pressures for Local Responsiveness

51 33. Threats of protectionism, economic nationalism, and local content rules dictate that international businesses manufacture locally. TRUE Economic and political demands imposed by host-country governments may require local responsiveness. Threats of protectionism, economic nationalism, and local content rules (which require that a certain percentage of a product should be manufactured locally) dictate that international businesses manufacture locally. Blooms: Remember Difficulty: 1 Easy Learning Objective: Understand how pressures for cost reductions and pressures for local responsiveness influence strategic choice. Topic: Cost Pressures and Pressures for Local Responsiveness

52 34. Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm's core competencies wholesale from one nation to another. TRUE Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm's core competencies wholesale from one nation to another. Concessions often have to be made to local conditions. Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the different strategies for competing globally and their pros and cons. Topic: Choosing a Strategy

53 35. A global standardization strategy is appropriate when a firm is facing low pressures for cost reduction but high pressure for local responsiveness. FALSE Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies; that is, their strategic goal is to pursue a low-cost strategy on a global scale. This strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal. Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the different strategies for competing globally and their pros and cons. Topic: Choosing a Strategy 36. When a firm focuses on increasing profitability by customizing the product or service so that they provide a good match to tastes and preferences in different national markets, the firm is following a transnational strategy. FALSE A localization strategy focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets.

54 Blooms: Remember Difficulty: 1 Easy Learning Objective: Identify the different strategies for competing globally and their pros and cons. Topic: Choosing a Strategy 37. When the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness, the ideal strategy to follow is the transnational strategy. TRUE Sometimes a firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness. How can managers balance the competing and inconsistent demands such divergent pressures place on the firm? According to some researchers, the answer is to pursue what has been called a transnational strategy. Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the different strategies for competing globally and their pros and cons. Topic: Choosing a Strategy

55 38. A localization strategy makes most sense when demands for local responsiveness are high, but cost pressures are moderate or low. TRUE Localization is most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense. By customizing the product offering to local demands, the firm increases the value of that product in the local market. Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the different strategies for competing globally and their pros and cons. Topic: Choosing a Strategy 39. The distinguishing feature of many firms that pursue an international strategy is that they are selling a product that serves local needs, but they do not face significant competitors. FALSE Many enterprises have pursued an international strategy, taking products first produced for their domestic market and selling them internationally with only minimal local customization. The distinguishing feature of many such firms is that they are selling a product that serves universal needs, but they do not face significant competitors.

56 Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the different strategies for competing globally and their pros and cons. Topic: Choosing a Strategy 40. As competition intensifies, global standardization strategies and transnational strategies tend to become less viable, and managers need to orientate their companies toward either an international strategy or a localization strategy. FALSE International strategy may not be viable in the long term, and to survive, firms need to shift toward a global standardization strategy or a transnational strategy in advance of competitors. The same can be said about a localization strategy. Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the different strategies for competing globally and their pros and cons. Topic: Choosing a Strategy Multiple Choice Questions

57 41. can be defined as the rate of return that the firm makes on its invested capital, which is calculated by dividing the net profits of the firm by total invested capital. A. Profitability B. Performance C. Cash flow D. Efficiency Profitability can be defined as the rate of return that the firm makes on its invested capital (ROIC), which is calculated by dividing the net profits of the firm by total invested capital. To maximize the value of a firm, managers must pursue strategies that increase the profitability of the enterprise and its rate of profit growth over time. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

58 42. The percentage increase in net profits over time measures: A. capital return. B. profitability. C. market growth. D. profit growth. Profit growth is measured by the percentage increase in net profits over time. In general, higher profitability and a higher rate of profit growth will increase the value of an enterprise and thus the returns garnered by its owners, the shareholders. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

59 43. Which of the following statements is NOT true? A. The way to increase the profitability of a firm is to create more value. B. The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products. C. The more value customers place on a firm's products, the higher the price the firm is able to charge for those products. D. The price a firm charges for a good or service is typically more than the value the customer places on that good or service. The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the customer captures some of that value in the form of what economists call a consumer surplus. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

60 44. The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because: A. the customer's disposable income is significantly higher than what the market demands. B. the customer captures some of that value in the form of a consumer surplus. C. regulatory mechanisms ensure that the customer is not overcharged for products/services. D. marketers implement psychological pricing tactics to ensure that customers perceive the prices to be low. The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the customer captures some of that value in the form of what economists call a consumer surplus. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

61 45. The value of a product to an average consumer is V; and the average price that the firm can charge a consumer for that product is P. Here, V - P can be termed as: A. consumer surplus per unit. B. producer surplus per unit. C. profit growth. D. profit per unit sold. The value of a product to an average consumer is V; the average price that the firm can charge a consumer for that product given competitive pressures and its ability to segment the market is P; and the average unit cost of producing that product is C. The firm's profit per unit sold (π) is equal to P - C, while the consumer surplus per unit is equal to V - P. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

62 46. A consumer surplus can be best described as: A. what the consumer has "left-over" after a purchase. B. how much extra a consumer has to pay for a product. C. value for the money. D. the premium charged for a quality product. The value of a product to an average consumer is V; the average price that the firm can charge a consumer for that product given competitive pressures and its ability to segment the market is P. The consumer surplus per unit is equal to V P (another way of thinking of the consumer surplus is as "value for the money"; the greater the consumer surplus, the greater the value for the money the consumer gets). Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

63 47. A strategy that focuses on increasing the attractiveness of a product is referred to as a(n): A. differentiation strategy. B. low cost strategy. C. effectiveness strategy. D. efficiency strategy. A strategy that focuses primarily on increasing the attractiveness of a product is known as a differentiation strategy. Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

64 48. The efficiency frontier has a convex shape because of: A. consumer surplus. B. diminishing returns. C. profitability. D. differentiation strategy. The efficiency frontier shows all of the different positions that a firm can adopt with regard to adding value to the product (V) and low cost (C) assuming that its internal operations are configured efficiently to support a particular position. The efficiency frontier has a convex shape because of diminishing returns. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

65 49. imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. A. Efficiency matrixes B. Diminishing returns C. Cost plus curves D. Strategy convex curves The efficiency frontier has a convex shape because of diminishing returns. Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

66 50. The basic strategy paradigm suggests that to maximize its profitability, a firm should do all of the following, EXCEPT: A. choose, according to strategy, any position on the efficiency frontier as all positions are viable. B. pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice. C. configure its internal operations so that they support the position on the efficiency frontier. D. make sure that the right organization structure is in place to execute the strategy. Porter emphasizes that it is very important for management to decide where the company wants to be positioned with regard to value (V) and cost (C), to configure operations accordingly, and to manage them efficiently to make sure the firm is operating on the efficiency frontier. However, not all positions on the efficiency frontier are viable. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

67 51. activities are basically concerned with creating the product, marketing and delivering the product to buyers, and providing support and after-sales service. A. Support B. Subordinate C. Ancillary D. Primary Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm

68 52. Which of the following is an example of a primary activity in a firm's value chain? A. Information systems B. Research and development C. Logistics D. Human relations Research and development (R&D) is concerned with the design of products and production processes. Although we think of R&D as being associated with the design of physical products and production processes in manufacturing enterprises, many service companies also undertake R&D. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain the concept of strategy. Topic: Strategy and the Firm