ESSENTIALS OF STRATEGIC MANAGEMENT, 3RD EDITION
CHAPTER 6
Strategy in the Global Environment
Name: __________________________ Date: _____________
1.
T F Rivalry for any company is understood by examining what happens only within the
boundaries of its home country.
ANS: False
NAT:
2.
T
F
NAT:
REF: 147
T F Expanding globally can enable a company to increase its profitability and grow its profits
more rapidly.
NAT:
PTS: 1
REF: 146
AACSB Analytic | AACSB Strategy
T F The average tariff rate on manufactured goods traded between advanced nations has fallen
from around 40 percent to under 4 percent.
ANS: True
NAT:
PTS: 1
REF: 146
AACSB Analytic | AACSB Strategy
T F The volume of world merchandise trade has grown slower than the world’s economy since
1950.
ANS: False
NAT:
PTS: 1
REF: 146
AACSB Analytic | AACSB Strategy
T F The trend toward the globalization of production and markets is on the rise because industry
boundaries do not stop at national borders.
ANS: True
NAT:
9.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
8.
REF: 147
T F Many believe that the world's economic system is moving toward a system in which national
markets are merging into one huge global marketplace.
NAT:
7.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
6.
REF: 147
T F The globalization of production has been increasing as companies take advantage of lower
barriers to international trade and investment to disperse important parts of their production process
around the globe.
NAT:
5.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
4.
REF: 146
Global strategy affects firms only at the corporate level.
ANS: False
3.
PTS: 1
AACSB Analytic | AACSB Strategy
PTS: 1
REF: 147
AACSB Analytic | AACSB Strategy
T F The shift from national to global markets has intensified competitive rivalry in industry after
industry.
Chapter 6: Strategy in the Global Environment
ANS: True
NAT:
10.
NAT:
T
F
F
PTS: 1
REF: 149
AACSB Analytic | AACSB Strategy
T F Companies that compete in the global marketplace typically face two types of competitive
pressures, cost reductions and expanding globally.
ANS: False
NAT:
PTS: 1
REF: 152
AACSB Analytic | AACSB Strategy
T F Universal needs exist when the tastes and preferences of consumers in different nations are
similar if not identical.
ANS: True
NAT:
PTS: 1
REF: 154
AACSB Analytic | AACSB Strategy
T F Responding to pressures to be locally responsive requires that a company differentiate its
products and marketing strategy.
ANS: True
NAT:
PTS: 1
REF: 154
AACSB Analytic | AACSB Strategy
T F Companies pursuing a low-cost strategy on a global scale are following a global
standardization strategy.
ANS: True
NAT:
19.
REF: 150
T F Location economics benefits arise from performing a value creation activity in the location
optimal for that activity, wherever in the world that might be.
NAT:
18.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
17.
REF: 148
Walmart opened its first stores in Mexico in 1993.
NAT:
16.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: False
15.
REF: 148
Proctor & Gamble's global success was based only on its portfolio of consumer goods.
NAT:
T
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: False
14.
REF: 148
T F The success of many multinational companies is based only upon the goods or services they
sell in foreign nations.
NAT:
13.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: False
12.
REF: 147
T F A company can increase it growth rate by taking goods or services developed at home and
selling them internationally.
ANS: True
11.
PTS: 1
AACSB Analytic | AACSB Strategy
PTS: 1
REF: 156
AACSB Analytic | AACSB Strategy
T F A transnational strategy makes the most sense when there are strong pressures for cost
reductions and demand for local responsiveness is minimal.
ANS: False
NAT:
PTS: 1
AACSB Analytic | AACSB Strategy
REF: 159
51
52
20.
Chapter 6: Strategy in the Global Environment
T F A localization strategy involves manufacturing global output in a limited number of
centralized locations to realize scale economies.
ANS: False
NAT:
21.
NAT:
REF: 159
T F An international strategy may not be viable in the long term, and to survive, companies that
are able to pursue it might ultimately need to shift towards a global standardization strategy.
NAT:
PTS: 1
REF: 160
AACSB Analytic | AACSB Strategy
T F An international strategy is appropriate when firms face high cost pressures and low
pressures for local responsiveness.
ANS: False
NAT:
PTS: 1
REF: 159
AACSB Analytic | AACSB Strategy
T F Companies pursuing an international strategy tend to centralize product development
functions, such as R&D at home.
ANS: True
NAT:
PTS: 1
REF: 160
AACSB Analytic | AACSB Strategy
T F Companies following an international strategy avoid any attempt at local customization of
product offering.
ANS: False
NAT:
PTS: 1
REF: 160
AACSB Analytic | AACSB Strategy
T F A problem with the international strategy is that over time, competitors inevitably emerge,
and if managers do not take pro-active steps to reduce their cost structure, their company may be
rapidly out-flanked by efficient global competitors.
ANS: True
NAT:
30.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
29.
REF: 156
T F Through transnational strategy a firm tries to achieve low costs, product differentiation across
geographic markets, and foster skills among different subsidiaries.
NAT:
28.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
27.
REF: 159
T F Companies that pursue a global standardization strategy are trying to develop a business
model that simultaneously achieves low costs and differentiates the product offering across
geographic markets.
NAT:
26.
PTS: 1
AACSB Analytic | AACSB Strategy67
ANS: False
25.
REF: 157
T F In companies following a transnational strategy, the flow of skills and product offerings moves
in one direction—from the home company to foreign subsidiaries.
NAT:
24.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
23.
REF: 157
T F A localization 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.
ANS: True
22.
PTS: 1
AACSB Analytic | AACSB Strategy
PTS: 1
REF: 160
AACSB Analytic | AACSB Strategy
T F MTV is a good example of a company that has had to pursue a localization strategy by
varying its programming to match the demands of viewers in different nations.
Chapter 6: Strategy in the Global Environment
ANS: True
NAT:
31.
T
F
Most manufacturing companies begin their global expansion via international licensing.
NAT:
T
F
T
F
REF: 162-163
When a company licenses its technology, it can quickly lose control over it.
NAT:
PTS: 1
REF: 163
AACSB Analytic | AACSB Strategy
T F One advantage of joint ventures is that a company may benefit from a local partner's
knowledge of the many dimensions of a host country.
ANS: True
NAT:
PTS: 1
REF: 164
AACSB Analytic | AACSB Strategy
T F Establishing a wholly owned subsidiary is generally the least costly method of serving a
foreign market.
ANS: False
NAT:
PTS: 1
REF: 165
AACSB Analytic | AACSB Strategy
T F Franchising is a specialized form of licensing in which the franchiser sells the franchisee
intangible property (normally a trademark) and insists that the franchisee agree to abide by strict
rules about how it does business.
ANS: True
NAT:
PTS: 1
REF: 163
AACSB Analytic | AACSB Strategy
T F Many of the issues that arise in the case of technological know-how do not arise in the case of
management know-how.
ANS: True
NAT:
40.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
39.
REF: 161
T F International licensing is an arrangement whereby a foreign licensee buys the rights to
produce a company's product in the licensee's country for a negotiated fee.
NAT:
38.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
37.
REF: 161
Sony came to dominate the global television market via franchising.
NAT:
36.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: False
35.
REF: 162
T F One advantage of exporting is that it avoids the cost of establishing manufacturing operations
in the host country.
NAT:
34.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: True
33.
REF: 158
AACSB Analytic | AACSB Strategy
ANS: False
32.
PTS: 1
53
PTS: 1
REF: 167
AACSB Analytic | AACSB Strategy
T F The greater the pressures for cost reduction are, the more likely it is that a company will want
to pursue some combination of exporting and wholly owned subsidiaries.
ANS: True
NAT:
PTS: 1
AACSB Analytic | AACSB Strategy
REF: 167
54
41.
Chapter 6: Strategy in the Global Environment
The globalization of production has allowed firms to
a)
increase their market share.
b)
lower their cost structure.
c)
respond to individual market segments.
d)
avoid international competition.
e)
meet all of these goals.
ANS: B
NAT:
42.
NAT:
REF: 146-147
Global expansion
a)
is feasible only for large companies.
b)
can enable companies to increase their profitability and grow their profits more rapidly.
c)
allows domestic companies in the mature stage of the industry life cycle to maintain profits but
not to increase them.
d)
requires locating facilities in foreign countries.
e)
makes sense for manufacturing firms, but not for service firms.
NAT:
PTS: 1
REF: 148
AACSB Analytic | AACSB Strategy
Which of the following is not one of the ways in which expanding globally can enable companies to
increase their profitability and grow their profits more rapidly?
a)
Leveraging existing products in new markets.
b)
Realizing economies of scale.
c)
Locating in foreign countries with significant trade barriers.
d)
Realizing location economies.
e)
Leveraging skills created within subsidiaries applying them to other operations.
ANS: C
NAT:
45.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: B
44.
REF: 147
Which of the following is not an implication of the globalization of production and markets for
competition within an industry?
a)
Industry boundaries do not stop at national borders so managers must understand what is
happening globally.
b)
Increasing competitive rivalry in numerous industries
c)
Creation of significant opportunities
d)
Profit potential of any company rests on their international strategy.
e)
All of these are implications of the globalization of production and markets.
ANS: D
43.
PTS: 1
AACSB Analytic | AACSB Strategy
PTS: 1
REF: 148-152
AACSB Analytic | AACSB Strategy
When a company increases its growth rate by taking goods or services developed at home and selling
them internationally it is
a)
leveraging its existing products.
b)
taking the path of least resistance.
c)
engaging in product positioning.
d)
realizing cost economies from global expansion.
e)
realizing location economies.
ANS: A
NAT:
PTS: 1
AACSB Analytic | AACSB Strategy
REF: 148
Chapter 6: Strategy in the Global Environment
46.
When a company expands its sales volume through international expansion it can realize cost savings
from economies of scale through all of the following except
a)
spreading fixed costs over its global sales volume.
b)
utilizing its production facilities more intensely.
c)
increased bargaining power with its suppliers.
d)
improved customer responsiveness.
e)
all of these are ways that a company can realize cost savings from economies of scale.
ANS: D
NAT:
47.
PTS: 1
REF: 151
AACSB Analytic | AACSB Value of Creation
When Dell opened a service call center in India to take advantage of an educated, English-speaking
workforce and lower its costs, it was realizing which of the following benefits of global expansion?
a)
Economies of scale
b)
Leveraging organizational skills
c)
Leveraging competencies
d)
Location economies
e)
None of these
ANS: E
NAT:
PTS: 1
REF: 153
AACSB Analytic | AACSB Value of Creation
Responding to pressures for cost reductions requires that a company try to minimize its
____________.
a)
overhead costs.
b)
tangible asset costs.
c)
unit costs.
d)
intangible asset costs.
e)
none of the above.
ANS: C
NAT:
50.
REF: 149
When a company performs a value creation activity in the optimal location for that activity, wherever
in the world that might be, they are trying to capitalize on
a)
location economies
b)
economies of scope.
c)
the transnational strategy.
d)
economies of scale.
e)
their localization strategy.
NAT:
49.
PTS: 1
AACSB Analytic | AACSB Value of Creation
ANS: D
48.
55
PTS: 1
REF: 152
AACSB Analytic | AACSB Value of Creation
Which of the following does not allow a company to reduce unit costs?
a)
Outsourcing some functions to low-cost foreign suppliers
b)
Customizing the product to meet local requirements
c)
Realizing location economies
d)
Pushing its suppliers to outsource some functions to low-cost foreign suppliers
e)
Performing an activity at the lowest-cost location
ANS: B
NAT:
PTS: 1
REF: 152
AACSB Analytic | AACSB Value of Creation
56
51.
Chapter 6: Strategy in the Global Environment
Which of the following factors increases pressures for cost reductions?
a)
Differences in distribution channels between home and foreign markets are modest.
b)
Increasing national wealth is expanding the market.
c)
The product has great transportation needs.
d)
The product has high switching costs.
e)
Differentiation on nonprice factors is difficult, and price is the main competitive weapon in a
market.
ANS: E
NAT:
52.
NAT:
REF: 154
When toy maker Mattel sells Barbie dolls in the Middle East, it changes the doll's shape to one that is
a more accurate portrayal of a female body. Mattel does this in order to
a)
create a commodity-type product.
b)
transfer technological know-how.
c)
respond to differences in local tastes.
d)
realize experience curve effects.
e)
increase product standardization
NAT:
PTS: 1
REF: 155
AACSB Analytic | AACSB Value of Creation
Differences in tastes and preferences
a)
increase pressures for cost reductions.
b)
reduce profit potential.
c)
prevent a company from pursuing a licensing strategy
d)
reduce pressures from the host government.
e)
increase pressures for local responsiveness.
ANS: E
NAT:
55.
PTS: 1
AACSB Analytic | AACSB Value of Creation
ANS: C
54.
REF: 154
Which of the following factors increases pressures for local responsiveness?
a)
Differences in customer tastes and preferences
b)
Persistent excess capacity
c)
Low-cost competitors
d)
Powerful buyers
e)
High international trade barriers
ANS: A
53.
PTS: 1
AACSB Analytic | AACSB Value of Creation
PTS: 1
REF: 154
AACSB Analytic | AACSB Value of Creation
Host government demands generally
a)
discourage foreign companies from operating in the home country.
b)
increase pressures for cost reductions.
c)
increase pressures for local responsiveness.
d)
impede a company's ability to minimize its transaction costs.
e)
impede a company's ability to differentiate its product offering across national borders.\
ANS: C
NAT:
PTS: 1
REF: 155
AACSB Analytic | AACSB Value of Creation
Chapter 6: Strategy in the Global Environment
56.
In which of the following circumstances does a global standardization strategy make the most sense?
a)
Global market standardization is not possible, and there are no significant economies of scale to
be realized from centralizing global manufacturing.
b)
Global market standardization is possible, but there are no significant economies of scale to be
realized.
c)
Global market standardization is not possible, but there are significant economies of scale to be
realized from centralizing global manufacturing.
d)
Consumer tastes and preferences differ among national markets, and economies of scale are
insubstantial.
e)
Global market standardization is possible, and there are significant economies of scale and
location economies to be realized.
ANS: E
NAT:
57.
PTS: 1
REF: 157
AACSB Analytic | AACSB Strategy
A company with a business-level strategy of cost leadership should pursue which of the following
global expansion strategies?
a)
Localization
b)
Global standardization
c)
International
d)
Transnational
e)
Simple
ANS: B
NAT:
PTS: 1
REF: 156
AACSB Reflective Thinking | AACSB Strategy
A commodity oil producer would probably achieve the highest level of profitability with a(n)
___________ strategy.
a)
global standardization
b)
international
c)
localization
d)
transnational
e)
focus
ANS: A
NAT:
60.
REF: 156-157
A global standardization strategy is most appropriate in an industry in which pressures for cost
reductions are ____________ and pressures for local responsiveness are ___________.
a)
low; high
b)
high; high
c)
low; low
d)
high; low
e)
variable; high
NAT:
59.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: D
58.
57
PTS: 1
REF: 156
AACSB Reflective Thinking | AACSB Strategy
A localization strategy is most appropriate in an industry in which pressures for cost reductions are
_________ and pressures for local responsiveness are _________.
a)
high; high
b)
high; low
c)
low; low
d)
low; high
e)
variable; high
ANS: D
NAT:
PTS: 1
AACSB Analytic | AACSB Strategy
REF: 157
58
61.
Chapter 6: Strategy in the Global Environment
A localization strategy is based on which of the following ideas?
a)
There is a convergence in the tastes of consumers in different nations of the world.
b)
There are substantial economies of scale to be realized from centralizing global production.
c)
Consumer tastes and preferences differ among national markets.
d)
There are cost advantages associated with manufacturing a standard product for global
consumption.
e)
Competitive strategy should be centralized at the world head office.
ANS: C
NAT:
62.
NAT:
REF: 157
All of the following are consistent for a company pursuing a transnational strategy except
a)
achieve low costs.
b)
differentiate the product offering across geographic markets.
c)
increasing profitability.
d)
foster a flow of skills.
e)
focus on leveraging subsidiary skills.
NAT:
PTS: 1
REF: 159
AACSB Analytic | AACSB Strategy
Pursuing an international strategy includes all of the following except
a)
centralize product development at home.
b)
establish manufacturing functions in each major country.
c)
international licensing
d)
establish marketing functions in each major country.
e)
All of the above
ANS: C
NAT:
65.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: C
64.
REF: 157
If a company wishes to achieve high local customization and it can charge higher prices for this
customization, a company should pursue a(n) __________ strategy.
a)
transnational
b)
global standardization
c)
international
d)
localization
e)
simple
ANS: D
63.
PTS: 1
AACSB Analytic | AACSB Strategy
PTS: 1
REF: 160
AACSB Analytic | AACSB Strategy
A telecommunications firm develops new wireless cellular phones, a technology in which foreign
competition is low and the need for local responsiveness is low. What is the most appropriate shortterm strategy for this firm?
a)
Global standardization
b)
International
c)
Localization
d)
Transnational
e)
Forming a joint venture
ANS: B
NAT:
PTS: 1
AACSB Analytic | AACSB Strategy
REF: 160
Chapter 6: Strategy in the Global Environment
66.
Which of the following is not a drawback to licensing?
a)
A company does not have tight control over operations in foreign countries.
b)
Licensing limits a company's ability to coordinate strategy.
c)
A company may lose control of technological know-how.
d)
A company's brand could become damaged if the licensee does not perform up to established
standards.
e)
All of these are drawbacks to licensing.
ANS: D
NAT:
67.
PTS: 1
REF: 162
AACSB Analytic | AACSB Strategy
A company that enters a foreign market by entering into a licensing agreement with a local company
a)
will realize location economies.
b)
must engage in global strategic coordination.
c)
will realize experience curve effects.
d)
risks losing control over its technology to the venture partner.
e)
must engage in global strategic coordination and will realize experience curve effects.
ANS: D
NAT:
PTS: 1
REF: 162-163
AACSB Analytic | AACSB Strategy
For a hotel company whose competitive advantage is based on high brand name recognition, which of
the following ways of serving an overseas market makes the most sense?
a)
Exporting
b)
Licensing
c)
Franchising
d)
Entering into a joint venture with a foreign company
e)
Setting up a wholly owned subsidiary
ANS: C
NAT:
70.
REF: 162-163
If a company lacks the capital to develop operations overseas and/or they are unwilling to commit
resources to an unfamiliar or politically volatile foreign market, which of the following entry options
is the most viable?
a)
International licensing
b)
Setting up a wholly owned subsidiary
c)
Joint venture
d)
Franchising
e)
Global standardization
NAT:
69.
PTS: 1
AACSB Analytic | AACSB Strategy
ANS: A
68.
59
PTS: 1
REF: 163
AACSB Analytic | AACSB Strategy
Which entry mode gives a multinational the tightest control over foreign operations?
a)
Exporting from the home country and letting a foreign agent organize local marketing
b)
Licensing
c)
Franchising
d)
Entering into a joint venture with a foreign company to set up overseas operations
e)
Setting up a wholly owned subsidiary
ANS: E
NAT:
PTS: 1
AACSB Analytic | AACSB Strategy
REF: 165
60
71.
Chapter 6: Strategy in the Global Environment
Which of the following entry modes is generally the most costly method of serving a foreign market?
a)
Exporting
b)
Wholly owned subsidiaries
c)
Joint ventures
d)
Licensing
e)
Joint ventures and wholly owned subsidiaries are equally costly.
ANS: B
NAT:
72.
PTS: 1
REF: 165
AACSB Analytic | AACSB Strategy
Identify and discuss the general ways in which companies can increase their profitability and profit
growth through global expansion.
Ans: There are several ways that companies can increase their profitability and profit growth from global
expansion. First, companies can take goods or services developed at home and sell them internationally. In
so doing, a company instantly expands its market, often by using the same business model. It should be
noted that benefits may come from the fact that products are superior, but it is also important that
companies use existing competencies in foreign markets as well. Second, companies that expand their sales
volume through international expansion can expect to realize savings from economies of scale, thereby
increasing profitability through the ability to lower their cost structure. Third, companies can realize
location economies by performing value-creation activities in the optimal location for that activity,
wherever in the world that may be. Different countries offer opportunities to both lower costs and increase
differentiation. Finally, a company can leverage the skills of global subsidiaries by applying best practices
and good ideas that may come from anywhere in the organization.
REF: 148-152
NAT:
73.
AACSB Reflective Thinking | AACSB Strategy
Consider the case of a family-owned furniture making business, headquartered in the U.S., with
fewer than 50 employees, that is contemplating exporting its products for the first time. What market
do you recommend it enter, and when and how should it enter? Explain your answers.
Ans: A furniture maker must find a country that has a high current and future standard of living, such that
buyers can afford to pay for a luxury item such as furniture. The market may be large or small, because a
small firm does not need to enter a new market on a large scale. In addition, the market should be close to
the United States in order to minimize transportation costs, which would be high for heavy, bulky furniture
items. Finally, the market should have low trade barriers with the United States. Mexico, Canada, and
Western European countries would all seem to meet these criteria.
Each of the markets recommended
above have established firms in the furniture industry, which will make formidable rivals. The firm should
take actions to ensure its advantages, such as establishing a brand name, pricing so as to build sales
volume, and so on.
The scale of entry will be small, both because of necessity and because of caution.
With time, if the strategy proves successful, the venture can be expanded.
REF: 161-167
NAT:
74.
AACSB Reflective Thinking | AACSB Strategy
Whirlpool, a leading U.S. maker of household appliances, has a wholly owned subsidiary that is
responsible for R&D, manufacturing, and sales in over two dozen European countries, from Norway
to Greece. What are some of the potential advantages that Whirlpool may gain from its use of a
wholly owned subsidiary for global expansion? What are some of the potential disadvantages?
Ans: Whirlpool stands to make high profits from its wholly owned subsidiary because it doesn't have to
share profits with a partner, franchisee, or licensee. Also, the firm maintains control over proprietary
technology and know-how. Tight quality control is also possible, which can protect the firm's brand name
reputation. In addition, Whirlpool will likely realize economies of scale, and will be able to use profits from
U.S. operations to fund further expansion into Europe. Finally, the company will benefit from learning that
takes place at its subsidiary. On the downside, Whirlpool has invested its own capital in the subsidiary, and
therefore faces a large risk of financial loss.
REF: 165
NAT:
AACSB Reflective Thinking | AACSB Strategy