MSM 6650 Chapter 10

Searching for low-cost labor can lead to a loss of reputation for MNEs under which of the following conditions?

Corrupt local governments fail to enforce safety standards.

True or false: The benefits of local responsiveness always outweigh the costs.

False

Which country has become a hub for MNEs seeking to outsource business processes such as IT and customer service due to an abundance of highly educated but low-cost labor?

India

Which of the following statements about pursuing international expansion is true?

It can enhance a firm's competitive advantage.

Which of the following statements about the CAGE distance framework is true?

It is designed to aid MNEs in deciding where to compete in the world.

Which of the following best defines national competitive advantage?

It is the extent to which a country can compete in international markets.

Which of the following are benefits of a transnational strategy? (Check all that apply.)

It promotes global learning and the diffusion of best practices and innovations. It harnesses economies of scale.

Relaxicab Inc. is a 100-year-old, multinational enterprise (MNE). Which of the following activities would the company most likely have been involved in during the stage of Globalization 2.0?

It would have increased its local responsiveness to country-specific circumstances by duplicating business functions overseas.

Though many benefits exist, which of the following are among the drawbacks of a transnational strategy? (Check all that apply.)

It's difficult to implement. It requires implementing a complex organizational structure.

Which of the following statements is true of local responsiveness?

Local responsiveness generally entails higher costs.

Which of the following statements regarding factor conditions in Porter's diamond framework is true?

Natural resources are not necessarily needed to generate world-leading companies.

Which of the following is a feature of Logitech as a global collaboration network?

The company has been able to organize work continuously because its teams in different locations around the globe can work 24/7.

Multinational Enterprise (MNE)

a company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries

CAGE Distance Framework

a decision framework based on the relative distance between home and a foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance

Swiss-based Nestlé, the largest food company in the world, is well known for customizing its product offerings to suit local preferences, tastes, and requirements. Which of the following strategies does the company pursue?

a multidomestic strategy

Polycentric Innovation Strategy

a strategy in which MNEs now draw on multiple, equally important innovation hubs through the world characteristic of Globalization 3.0

Liability of Foreignness

additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances

When an MNE does not face strong pressure for cost reductions or local responsiveness, an international strategy is typically ______.

advantageous

When firms from wealthy countries trade with firms from poor countries, they benefit from economic _______.

arbitrage

Demand Conditions

are the specific characteristics of demand in a firm's domestic market

Develop New Competencies

attractive to firms that base their competitive advantage on differentiation strategy take part in communities of learning

Location Economies

benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be

Greenfield Operations

building new, fully owned plants and facilities from scratch

Administrative and Political Distance

captured in factors such as the absence or presence of shared monetary or political associations, political hostilities, and weak or strong legal and financial institutions colony-colonizer relationships also have a strong positive effect on bilateral trade between countries also erect other political and administrative barriers, such as tariffs, trade quotas, FDI restrictions, etc. strong legal and ethical pillars as well as well-functioning economic institutions such as capital markets and an independent central bank reduces distance strong institutions, both formal and informal, reduce uncertainty and thus reduce transaction costs

Competitive Intensity in a Focal Industry

companies that face a highly competitive environment at home tend to outperform global competitors that lack such intense domestic competition

When Walmart posted a list of banned suppliers on its website, this was an example of ______.

corporate social responsibility

The strategic foundations of the globalization hypothesis are based primarily on

cost reduction

Which of the following pressures opposes local responsiveness on the integration-responsiveness framework? (Check all that apply.)

cost reductions

The cultural disparity between the internationally expanding firm's home country and its targeted host country is known as ______.

cultural distance

The specific characteristics of needs in a firm's domestic market, such as customers who hold companies to a high standard of value creation and cost containment, are also called ______.

demand conditions

What are the factors in Michael Porter's model of national competitiveness? (Check all that apply.)

demand conditions related industries/complementors competitive intensity in a focal industry factors conditions

Which of the following factors helped make Germany, which was a tough environment for a car company, conducive to successful car companies?

demanding customers no-speed-limit autobahn fierce domestic competition

Gain Access to a Larger Market

economies of scope and economies of scale benefits can be reaped

According to Porter's diamond of national competitive advantage, factor conditions are best described as a country's

endowments in terms of natural, human, and other resources.

When a country's demand conditions include high-density urban living and high energy costs, consumers can be expected to prefer air conditioners that are which of the following? (Check all that apply.)

energy-efficient small quiet

Prestige Worldwide Inc. owns coffee plantations in Brazil. The company trades its coffee produce directly with coffee merchants in foreign markets who later resell and distribute it throughout their country. In this scenario, Prestige Worldwide's activities best illustrate

exporting

The oldest form of internationalization is ______, which involves producing goods in one country to sell in another country.

exporting

When looking at the modes of foreign-market entry, one could conclude that ______.

exporting might be the earliest stage of commitment because it allows the firm to test whether a foreign market is ready for its products

A country's natural, human, and other resources can be expressed in terms of ______.

factor conditions

Porter's diamond framework to explain national competitive advantage includes four interrelated factors: demand conditions, competitive intensity in a focal industry, related and supporting industries/complementors, and ______.

factor conditions

True or false: Though low-skilled laborers make much less in developing countries, no such difference in wages exists for high-skilled workers.

false

Complementors

firms that provide a good or service that leads customers to value the focal firm's offering more when the two are combined

Rekall Autos Inc., an automobile company based in the country of Springfield, made a capital investment of $400,000 to set up production units and distribution channels in the country of Uganda from where it plans to access the Uganda market. Such investments are best known as

foreign direct investments

Tyrell Corporation is an electronics company based in the country of Palmia. The company has manufacturing facilities in four other countries where labor costs are low. It also has its research centers in three other countries because these countries offer best-of-class capabilities. However, Tyrell Corporation does not offer much product differentiation, which means that price is the main competitive weapon. In this scenario, Aaron Inc. most likely implements a __________ strategy.

global-standardization

In order for a company to be considered a multinational enterprise, it must operate ______.

in more than one country

With a multidomestic strategy, products are manufactured on a local level. This has the potential of ______.

increasing the risk of intellectual property appropriation

Due to globalization, the world's market economies are becoming more ______.

integrated and interdependent

If a firm's goal is to leverage home-based core competencies in foreign markets, it should pursue a(n) ______ strategy.

international

Mount Mountain is a manufacturer of outdoor gear and apparel. It uses American sizing and standards for its apparel and gear across all markets. Which strategy is Mount Mountain adhering to?

international

The Bluth Company is a condominium-building company that is based in the country of Veritas. It sells high-priced homes to consumers in Veritas as well as to consumers in other countries. It has extremely high brand loyalty. The industry it operates in is characterized by low pressure for local responsiveness and low pressure for cost reductions. In this scenario, The Bluth Company most likely pursues a(n) _________ strategy.

international

A benefit of an international strategy is ______.

leveraging core competences

Benicio's Burritos is a leader in the Mexican fast-food category in the United States. It decides to expand internationally, starting in Japan. Benicio's Burritos fails within a year, learning later that Mexican food is uncommon in Japan and that the flavor profiles are not compatible with Japanese palates. The failure of Benicio's Burritos can be attributed to which of the following?

liability of foreignness

MNEs pursuing a multidomestic strategy hope that ______.

local consumers will perceive them to be a domestic company

________ are described as the benefits from locating value chain activities in prime geographies for a specific activity.

location economies

Gain Access to Low-Cost Input Factors

low-cost strategy businesses are attracted to go overseas to gain access to low-cost input factors access to low-cost raw materials and labor costs

In ______ societies, competitiveness, assertiveness, and the exercise of power are considered ideal.

masculine

The Japanese market is very particular, and MNEs tend to have a challenging time breaking into the market successfully. To provide the most local responsiveness and to influence Japanese consumers in believing that the products are local, an MNE should follow a(n) ______ strategy.

multidomestic

The integration-responsiveness framework suggests that companies facing high pressure for both local responsiveness and low pressure for cost reduction should follow a(n) ______ strategy.

multidomestic

The best explanation of why Gulf airlines are giving U.S. legacy carriers stiff competition is that the Gulf carriers

offer better service for lower costs than do the U.S. legacy carriers.

When companies face a highly competitive environment at home, they are more likely to ______.

outperform global competition that lacks such intense domestic competition

When companies face a highly competitive environment at home, they are more likely to _________.

outperform global competition that lacks such intense domestic competition

Which of the following characteristics help make an MNE's international strategy successful? (Check all that apply.)

prominent brand names large domestic markets strong reputation

Global-Standardization Strategy

strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost

Integration-Responsiveness Framework

strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantages when competing globally

Transnational Strategy

strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable)

As MNEs compete internationally, a focus on local responsiveness allows them to do which of the following?

tailor product offerings to fit local preferences and requirements

A multinational enterprise would likely be motivated to pursue a global-standardization strategy in order to ______. (Check all that apply.)

take advantage of economies of scale take advantage of location economies

According to the CAGE distance framework, cultural distance most affects industries or products

that are related to national and/or religious identity.

Which of the following factors best helps capture administrative and political distances?

the absence or presence of weak legal and financial institutions

A company should only expand abroad if ______.

the benefits outweigh the costs

National Culture

the collective mental and emotional "programming of the mind" that differentiates human groups

According to the CAGE distance framework, what does cultural distance represent?

the cultural disparity between an internationally expanding firm's home country and its targeted host country

All other things equal, the greater the cultural distance, ______.

the greater the liability of foreignness

Which of the following factors help define the administrative and political distance between two countries? (Check all that apply.)

the strength of legal or financial institutions the absence or presence of shared monetary associations the absence or presence of political hostilities

Born Global

their founders start them with the intent of running global operations

If an MNE wishes to be responsive to the needs of its local consumers but also wants to attain a lowest-cost position, it should follow a(n) ______ strategy.

transnational

The integration-responsiveness framework suggests that companies facing high pressure for both local responsiveness and cost reduction should follow a(n) ______ strategy.

transnational

True or false: Multinational enterprises are the driving force behind globalization.

true

Geographic Distance

two countries are from each other but also includes additional attributes, such as the country's physical size, the within-country distances to its borders, the country's topography, its time zones, whether the countries are contiguous to one another or have access to waterways and the oceans, and the countries infrastructure

Multinational enterprises will often make foreign direct investments (FDI) which is a firm's investment in _________ abroad.

value chain activities

Which of the following are the most important determinants of economic distance? (Check all that apply.)

wealth and per capita income

National Competitive Advantage

world leadership in specific industries

Globalization 3.0

(21st century) currently in this stage now freely locate business functions anywhere in the world based on an optimal mix of costs, capabilities, and PESTEL factors MNE reorganizes from a multinational company with self-contained operations in a few selected countries to a more seamless global enterprise with centers of expertise each of these centers of expertise is a hub within a global network for delivering products and services to increase the rate of low-cost innovation that can be sued to disrupt existing markets trend toward global collaboration networks during this stage raising the interesting question "What defines a U.S. company?"

Under globalization 3.0, Global-collaboration networks freely locate business functions anywhere in the world based on an optimal mix of which factors?

- capabilities - PESTEL factors - costs

Which of the following dimensions are considered in the CAGE distance framework?

- economic distance - geographic distance - cultural distance

Which of the following factors enabled India to gain a competitive advantage in bussines process outsourcing?

- its well educated English speaking workforce - its low cost labor

Benefits of Transnational Strategy (2)

1. attempts to combine benefits of localization and standardization strategies simultaneously by creating a global matrix structure 2. economies of scale, location, experience, and learning

2 Opposing Forces MNEs Face when Competing around the

1. cost reductions 2. local responsiveness

Economic Distance Increases Between Two Countries When...(3)

1. different consumer incomes 2. different costs and quality of natural, financial, and human resources 3. different information or knowledge

3 Advantages of Going Global

1. gain access to a larger market 2. gain access to low-cost input factors 3. develop new competencies

Four Different Strategic Positions to Gain and Sustain Competitive Advantage when Competing Globally

1. international 2. multidomestic 3. global-standardization 4. transnational

Geographic Distance Increases Between Two Countries When...(3)

1. lack of common border, waterway access, adequate transportation, or communication links 2. physical remoteness 3. different climates and time zones

Benefits of International Strategy (3)

1. leveraging core competencies 2. economies of scale 3. low-cost implementation through: a. exporting or licensing (for products) b. franchising (for services) c. licensing (for trademarks)

3 Disadvantages to Going Global

1. liability of foreignness 2. loss of reputation 3. loss of intellectual property

Benefits of Global-Standardization Strategy (2)

1. location economies: global division of labor based on wherever best-of-class capabilities reside at lowest cost 2. economies of scale and standardization

Risks of International Strategy (3)

1. no or limited local responsiveness 2. highly affected by exchange-rate fluctuations 3. IP embedded in product or service could be expropriated

The decision framework that is based on the relative distance between home and a foreign target country is the ______.

CAGE distance framework

Calculating cultural distance involves comparing the cultures of which of the following? (Check all that apply.)

a firm's home country a targeted host country

Which of the following factors contribute to the existence of high-quality suppliers and complementors in a given industry?

a high level of competition sophisticated customers

Multinational enterprises need an effective flobal strategy in order to ________.

achieve a competitive advantage against other companies.

Which of the following foreign entry modes requires the highest level of investment in terms of capital and other resources and allows for a high level of control?

acquisitions

Natural Resources

are often not needed to generate world-leading companies, because competitive advantage is often based on other factor endowments such as human capital and know-how

Globalization Hypothesis

assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous

Death-of-Distance Hypothesis

assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally

Firms can achieve increased competitive advantage as a result of ______, which are firms that produce a good or service that increases the perceived value of a focal firm's offering when the two are combined.

complementors

Factor Conditions

describe a country's endowments in terms of natural, human, and other resources. other important factors include capital markets, a supportive institutional framework, research universities, and public infrastructure (airports, roads, schools, health care system), among others

Companies seek to access international markets as a means of ______.

increasing their economic value creation

The additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances, are best described as a(n)

liability of foreignness.

The benefits to be accrued from locating value chain activities in the world's optimal geographies for a specific activity are known as________ economies.

location

One notable advantage of a multidomestic strategy is ______.

lower exchange-rate exposure

Gunther is transferred from the United States to Hong Kong for work. He notices that his colleagues at the new office, most of whom are Hong Kong natives, behave and communicate in a similar manner that is a striking contrast to what Gunther is accustomed to. Gunther is observing his colleagues' ______.

national culture

Global Strategy

part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign an domestic companies around the world

The extent to which members of a society feel anxious when faced with an unknown situation is known as ______.

uncertainty avoidance

U.S. MNEs make up less than 1 percent of the number of total U.S. Companies, but they:

- Account for 11 percent of private sector employment growth since 1990 - Employ 19 percent of the work force - Pay 25 percent of the wages - Provide for 31 percent of the U.S. gross domestic product (GDP) - Make up 74 percent of private sector R&D spending

Administrative and Political Distance Increases Between Two Countries When... (5)

1. absence of trading bloc 2. absence of shared currency, monetary or political association 3. absence of colonial ties 4. political hostilities 5. weak legal and financial institutions

CAGE Framework Acronym

C ultural A dministrative and political G eographic E conomic

Which of the following is an advantage of using licensing or franchising as a foreign entry mode?

Either one requires low capital investments.

A multidomestic strategy is appropriate when which of the following conditions exist? (Check all that apply.)

The firm feels little need to reduce costs. Markets in the host country are idiosyncratic. The firm faces high demand for local responsiveness.

Which of the following have the effect of shrinking the administrative and political distance between countries? (Check all that apply.)

a colony-colonizer relationship shared currency trade agreements

Foreign Direct Investment (FDI)

a firm's investment in value chain activities abroad

Multinational enterprises that manufacture commodity products that focus on cost leadership tend to use a(n) ______ strategy.

global-standardization

The process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs, is known as ______.

globalization

________ is how firms are able to source supplies at lower costs, to learn new competencies, and to further differentiate their products and services overseas.

globalization

Which of the following factors enabled India to gain a competitive advantage in business process outsourcing? (Check all that apply.)

its low-cost labor its well-educated, English-speaking workforce

Firms located in regional clusters benefit from _________

knowledge spillover

Exporting

producing goods in one country to sell in another often used to test whether a foreign market is ready for a firm's products

In a global-standardization strategy, the main competitive element is ______.

reduced cost

Companies from wealthy countries tend to trade with other rich countries rather than poor countries because they can

replicate their existing business model more easily.

When pursuing an international strategy, a company ______.

sells the same product in both domestic and foreign markets

Multidomestic Strategy

strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies

International Strategy

strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets

Which of the following strongly affects the cultural distance between two countries?

the languages spoken in each country

When a company has difficulty coordinating operations across geographic distance and between distinct culture environments, it experiences ______.

the liability of foreignness

Which of the following risks do companies face when expanding internationally? (Check all that apply.)

the liability of foreignness loss of intellectual property loss of reputation

Local Responsiveness

the need to tailor product and service offerings to fit local consumer preferences and host-country requirements

Globalization

the process of closer integration and exchange between different countries and people worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs

Economic Distance

wealth and per capita income of consumer companies from wealthy countries benefit in cross-border trade with other wealthy countries when their competitive advantage is based on economies of experience, scale, scope, and standardization companies from wealthy countries also trade with companies from poor countries to benefit from economic arbitrage

National culture, according to Geert Hofstede, can be defined as different groups' distinctive ______.

"programming of the mind"

Globalization 1.0

(1900-1941) important business functions were located in the home country only sales and distribution operations took place overseas blossoming of the idea of MNEs

Globalization 2.0

(1945-2000) not only to meet the needs that went unfulfilled during the war years but also to reconstruct the damage from the war MNEs began to create smaller, self-contained copies of themselves required significant amounts of foreign direct investment knowledge flow back to U.S. headquarters, however, remained limited in most instances

Global-collaboration networks freely locate business functions anywhere in the world based on an optimal mix of which factors?

- capabilities - PESTEL factors - costs

Which of the following are common reasons for companies to make foreign direct investments?

- to avoid import restrictions - to reduce labor costs - to reduce tax burdens

Which of the following helped motivate globalization after the end of World War II

- unfilled needs during the war - the need to reconstruct economies damaged by war

Which of the following statements about workers in the United States versus workers in other countries is true?

A manufacturing worker in the United States makes several times what a similar worker in China.

Costs of Global-Standardization Strategy (5)

1. no local responsiveness 2. little or no product differentiation 3. some exchange-rate exposure 4. "race to the bottom" as wages increase 5. some risk of IP expropriation

Geert Hoftstede's 6 Dimensions of Cultural Emergence

1. power distance 2. individualism 3. masculinity-femininity 4. uncertainty avoidance 5. long-term orientation 6. indulgence

Cultural Distance Most Affects Industries or Products...(3)

1. with high linguistic content (TV) 2. related to national and/or religious identity (foods) 3. carrying country-specific quality associations (wines)

MNEs pursuing a________ ocean strategy tend to also pursue a transnational strategy.

Blue

Characteristics of International Strategy (5)

1. often the first step in internationalizing 2. used by MNEs with relatively large domestic markets or strong exporters 3. well-suited for high-end products with high value-to-weight ratios such as machine tools and luxury goods that can be shipped across the globe 4. products and services tend to have strong brands 5. main business-level strategy tends to be differentiation because exporting, licensing, and franchising add additional costs

Characteristics of Global-Standardization Strategy (2)

1. used by MNEs that are offering standardized products and services 2. main business-level strategy is cost leadership

Characteristics of Transnational Strategy (2)

1. used by MNEs that pursue a blue ocean strategy at the business level by simultaneously focusing on product differentiation and low cost 2. mantra: think globally, act locally

When multinationals draw on multiple innovation hubs that all have equal status, they pursue a ______.

polycentric innovation strategy

Which of the following are among the primary considerations when determining the mod in which a firm enters a foreign market?

- the desired level of control over foreign operations - the degree of investment

Cultural Distance Increases Between Two Countries When... (3)

1. different languages, ethnicities, religions, social norms, and dispositions 2. lack of connective ethnic and social networks 3. lack of trust and mutual respect

Risks of Multidomestic Strategy (4)

1. duplication of key business functions in multiple countries leads to high cost of implementation 2. little or no economies of scale 3. little or no learning across different regions 4. higher risk of IP expropriation

Porter's Diamond of National Competitive Advantage (4)

1. factor conditions 2. demand conditions 3. competitive intensity in focal industry 4. related and supporting industries/complementors

Costs of Transnational Strategy (3)

1. global matrix structure is costly and difficult to implement, leading to high failure rate 2. some exchange-rate exposure 3. higher risk of IP expropriation

Three Stages of Globalizaton

1. globalization 1.0 (1990-1941) 2. globalization 2.0 (1945-2000) 3. globalization 3.0 (21st century)

Benefits of Multidomestic Strategy (3)

1. highest-possible local responsiveness 2. increased differentiation 3. reduced exchange-rate exposure

2 Particular Downsides of Global Business Reduced by Foreign-Entry Modes with a High Level of Control

1. loss of reputation 2. loss of intellectual property

2 Consequences for MNES from Continued Economic Development across the Globe

1. rising wages and other costs are likely to negate any benefits of access to low-cost input factors 2. as the standard of living rises in emerging economies, MNEs are hoping that increased purchasing power will enable workers to purchase the products they used to make for export only

Administrative and Political Distance Most Affects Industries or Products...(1)

1. that a foreign government views as staples (electricity), as building national reputations (aerospace), or as vital to national security (telecommunications)

Characteristics of Multidomestic Strategy (4)

1. used by MNEs to compete in host countries with large and/or lucrative but idiosyncratic domestic markets 2. often used in consumer products and food industries 3. main business-level strategy is differentiation 4. MNE wants to be perceived as local company

Geographic Distance Most Affects Industries or Products...(3)

1. with low value-to-weight ratio (cement) 2. that are fragile or perishable (glass, meats) 3. in which communications are vital (financial services)

Economic Distance Most Affects Industries or Products...(2)

1. for which demand varies by income (cars) 2. in which labor and other cost differences matter (textiles)

"A process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs" is the definition of

globalization

Global strategy is a firm's quest to gain a(n) ________ when competing against foreign companies around the world.

competitive advantage