Capstone-Chapter 7 71-131

74. A think-global, act-global strategic theme puts emphasis on

A. executing a global domination strategy that focuses the company's resource strengths on entry strategies across all country boundaries. B. ensuring that value chain activities are defined by country-specific attributes to capitalize on economies of scale. C. building a global brand name and aggressively pursuing opportunities to transfer ideas, products, and capabilities from one country to another. D. elevating resources and capabilities developed on a country-by-country basis so as to capitalize on a country's uniqueness. E. implementing mass-customization techniques that can address local preferences efficiently. Correct Answer: C

119. Discuss in some detail the difference between a multidomestic strategy and a global strategy. Give the pros and cons of each.

A multidomestic strategy is one in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level. A global strategy contrasts sharply with a multidomestic strategy in that it takes a standardized, globally integrated approach to producing, packaging, selling, and delivering the company's products and services worldwide. A global strategy is one in which a company employs the same basic competitive approach in all countries where it operates, sells standardized products globally, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. It represents a think-global, act-global approach.

127. Identify and briefly explain two ways that multinational companies are able to use international operations to improve overall competitiveness.

A multinational firm can gain competitive advantage by expanding outside its domestic market in two important ways: it can use location to lower costs or help achieve greater product differentiation. That is, multinational companies can achieve a competitive advantage in world markets by locating their value chain activities in whichever nations prove most advantageous, via either concentrating activities in certain locations, or dispersing internal processes across multiple locations.

122. How does a transnational strategy differ from a multidomestic or a global strategy?

A transnational strategy (sometimes called glocalization) incorporates elements of both a globalized and a localized approach to strategy making. This type of middle-ground strategy is called for when there are relatively high needs for local responsiveness as well as appreciable benefits to be realized from standardization. A transnational strategy encourages a company to think global, act local to balance these competing objectives. Often, companies implement a transnational strategy with mass-customization techniques that enable them to address local preferences in an efficient, semi-standardized manner. As a rule, most companies that operate internationally endeavor to employ as global a strategy as customer needs and market conditions permit. A transnational strategy is far more conducive than other strategies to transferring and leveraging subsidiary skills and capabilities.

109. Televisa, a Mexican media company, became the world's most prolific producer of Spanish-language soap operas owing to its expertise in Spanish culture and linguistics. Which of the following strategies did Televisa employ to defend against global giants?

A. Develop business models that exploit shortcomings in local distribution networks or infrastructure. B. Utilize keen understanding of local customer needs and preferences to create customized products or services. C. Take advantage of aspects of the local workforce with which large international companies may be unfamiliar. D. Transfer company expertise to cross-border markets and initiate actions to contend on an international level. E. Use acquisition and rapid-growth strategies to better defend against expansion-minded internationals. Correct Answer: D

75. What is the best way to achieve the efficiency potential of a global strategy?

A. It demands managerial attention to be focused on objective-setting specifically oriented toward production practices. B. It requires that resources and best practices be shared, value chain activities be integrated, and capabilities be transferred from one location to another as they are developed. C. It requires that the best identified resources and capabilities be centralized at headquarters. D. It requires value chain activities to be dispersed across many countries to elevate cost control management as a primary focus in all countries. E. It requires giving local managers considerable latitude for executing strategies for the country markets they are responsible for. Correct Answer: B

107. Which of the following is an example of a modification in the company's business model to accommodate the unique local circumstances of developing countries?

A. Mahindra and Mahindra ranked number one in J. D. Power Asia Pacific's new-vehicle overall quality category. B. Home Depot could rely on its value propositions only in some developing countries. C. Unilever developed a low-cost detergent, named Wheel, for the Indian market. D. Japan is known for its competitive strength in consumer electronics. E. In China, Dell moved from its traditional Internet-based orders to orders over phone and fax. Correct Answer: E

98. Profit sanctuaries are country markets or geographic regions where a company

A. can rank the competitive advantage opportunities in each industry. B. possesses good strategic fit with other businesses and identifies the value chain where this fit occurs. C. derives substantial profits because of its protected market position or unassailable competitive advantage. D. creates substantial investment strategies because it is losing competitive advantage over competitors. E. invests its dividends in expanding its foreign market presence. Correct Answer: C

117. Explain why an acquisition is better than a greenfield venture.

Companies that prefer direct control over all aspects of operating in a foreign market can establish a wholly owned subsidiary, either by acquiring a foreign company or by establishing operations from the ground up via internal development. A subsidiary business that is established by setting up the entire operation from the ground up is called a greenfield venture. Acquisition is the quicker of the two options, and it may be the least risky and most cost-efficient means of hurdling such entry barriers as gaining access to local distribution channels, building supplier relationships, and establishing working relationships with government officials and other key constituencies. Buying an ongoing operation allows the acquirer to move directly to the task of transferring resources and personnel to the newly acquired business, redirecting and integrating the activities of the acquired business into its own operation, putting its own strategy into place, and accelerating efforts to build a strong market position.

113. Briefly identify the special features of competing in foreign markets.

Crafting a strategy to compete in one or more countries of the world is inherently more complex for five reasons. First, different countries have different home-country advantages in different industries; competing effectively requires an understanding of these differences. Second, there are location-based advantages to conducting particular value chain activities in different parts of the world. Third, different political and economic conditions make the general business climate more favorable in some countries than in others. Fourth, companies face risk due to adverse shifts in currency exchange rates when operating in foreign markets. And fifth, differences in buyer tastes and preferences present a challenge for companies concerning customizing versus standardizing their products and services.

125. Explain the differences between a "think-global, act-global" strategy and a "think-global, act-local" strategy

Global (think global, act global) has the following advantages: • Has lower costs due to scale and scope economies • Can lead to greater efficiencies due to the ability to transfer best practices across markets • Increases innovation from knowledge sharing and capability transfer • Offers the benefit of a global brand and reputation The disadvantages include: • Cannot address local needs precisely • Is less responsive to changes in local market conditions • Involves higher transportation costs and tariffs • Has higher coordination and integration costs Transnational (think global, act local) has the following advantages: • Offers the benefits of both local responsiveness and global integration • Enables the transfer and sharing of resources and capabilities across borders • Provides the benefits of flexible coordination The disadvantages include: • Is more complex and harder to implement • Entails conflicting goals, which may be difficult to reconcile and require trade-offs • Involves more costly and time-consuming implementation

112. Explain why the strategies of firms that expand internationally are usually grounded in home-country advantages or core competencies.

A company may be able to extend a market-leading position in its domestic market into a position of regional or global market leadership by leveraging its core competencies further. Walmart is capitalizing on its considerable expertise in discount retailing to expand into the United Kingdom, Japan, China, and Latin America. Walmart executives believe the company has tremendous growth opportunities in China. Companies can often leverage their resources internationally by replicating a successful business model, using it as a basic blueprint for international operations, as Starbucks and McDonald's have done.

118. What are the pros and cons of using strategic alliances to try to enhance a company's ability to compete in foreign markets?

A company can benefit immensely from a foreign partner's familiarity with local government regulations, its knowledge of the buying habits and product preferences of consumers, its distribution-channel relationships, and so on. Another reason for cross-border alliances is to capture economies of scale in production and/or marketing. By joining forces in producing components, assembling models, and marketing their products, companies can realize cost savings not achievable with their own small volumes. A third reason to employ a collaborative strategy is to share distribution facilities and dealer networks, thus mutually strengthening each partner's access to buyers. A fourth benefit of a collaborative strategy is the learning and added expertise that comes from performing joint research, sharing technological know-how, studying one another's manufacturing methods, and understanding how to tailor sales and marketing approaches to fit local cultures and traditions. A fifth benefit is that cross-border allies can direct their competitive energies more toward mutual rivals and less toward one another; teaming up may help them close the gap on leading companies. And, finally, alliances can be a particularly useful way for companies across the world to gain agreement on important technical standards—they have been used to arrive at standards for assorted PC devices, Internet-related technologies, high-definition televisions, and mobile phones. Alliances and joint ventures with foreign partners have their pitfalls, however. Sometimes a local partner's knowledge and expertise turns out to be less valuable than expected (because its knowledge is rendered obsolete by fast-changing market conditions or because its operating practices are archaic). Cross-border allies typically must overcome language and cultural barriers and figure out how to deal with diverse (or conflicting) operating practices. The transaction costs of working out a mutually agreeable arrangement and monitoring partner compliance with the terms of the arrangement can be high. The communication, trust building, and coordination costs are not trivial in terms of management time. Often, partners soon discover they have conflicting objectives and strategies, deep differences of opinion about how to proceed, or important differences in corporate values and ethical standards. One worrisome problem with alliances or joint ventures is that a firm may risk losing some of its competitive advantage if an alliance partner is given full access to its proprietary technological expertise or other competitively valuable capabilities. There is a natural tendency for allies to struggle to collaborate effectively in competitively sensitive areas, thus spawning suspicions on both sides about forthright exchanges of information and expertise. It requires many meetings of many people working in good faith over a period of time to iron out what is to be shared, what is to remain proprietary, and how the cooperative arrangements will work. Even if the alliance proves to be a win-win proposition for both parties, there is the danger of becoming overly dependent on foreign partners for essential expertise and competitive capabilities. Companies aiming for global market leadership need to develop their own resource capabilities in order to be masters of their destiny. Frequently, experienced international companies operating in 50 or more countries across the world find less need for entering into cross-border alliances than do companies in the early stages of globalizing their operations.

130. Explain the importance of competing in emerging markets.

Developing-economy markets such as China, India, Brazil, Indonesia, Thailand, Poland, Russia, and Mexico all are countries where the business risks are considerable but where the market size and opportunities for growth are huge, especially as their economies develop and living standards climb toward levels in the industrialized world. No company pursuing global market leadership can afford to ignore the strategic importance of establishing competitive market positions in China, India, other parts of the Asian-Pacific region, Latin America, and Eastern Europe.

111. Identify and briefly discuss the key reasons why a company may consider expanding outside its domestic market.

A company may opt to expand outside its domestic market for any of five major reasons: 1. To gain access to new customers. Expanding into foreign markets offers potential for increased revenues, profits, and long-term growth; it becomes an especially attractive option when a company encounters dwindling growth opportunities in its home market. Companies often expand internationally to extend the life cycle of their products, as Honda has done with its classic 50-cc motorcycle, the Honda cub (which is still selling well in developing markets, more than 50 years after it was first introduced in Japan). 2. To achieve lower costs through economies of scale, experience, and increased purchasing power. Many companies are driven to sell in more than one country because domestic sales volume alone is not large enough to capture fully economies of scale in product development, manufacturing, or marketing. Similarly, firms expand internationally to increase the rate at which they accumulate experience and move down the learning curve. International expansion can also lower a company's input costs through greater pooled purchasing power. 3. To gain access to low-cost inputs of production. Companies in industries based on natural resources (e.g., oil and gas, minerals, rubber, and lumber) often find it necessary to operate in the international arena since raw-material supplies are located in different parts of the world and can be accessed more cost-effectively at the source. Other companies enter foreign markets to access low-cost human resources; this is particularly true of industries in which labor costs make up a high proportion of total production costs. 4. To further exploit its core competencies. A company may be able to extend a market-leading position in its domestic market into a position of regional or global market leadership by leveraging its core competencies further. Walmart is capitalizing on its considerable expertise in discount retailing to expand into the United Kingdom, Japan, China, and Latin America. 5. To gain access to resources and capabilities located in foreign markets. An increasingly important motive for entering foreign markets is to acquire resources and capabilities that may be unavailable in a company's home market. Companies often make acquisitions abroad or enter into cross-border alliances to gain access to capabilities that complement their own or to learn from their partners. In addition, companies that are the suppliers of other companies often expand internationally when their major customers do so, to meet their customers' needs abroad and retain their position as a key supply chain partner. Automotive parts suppliers, for example, have followed automobile manufacturers abroad, and retail-goods suppliers, such as Newell-Rubbermaid, have followed their discount retailer customers, such as Walmart, into foreign markets.

115. Identify and explain the significance of each of the following terms and concepts: a. global strategy b. export strategy c. licensing strategy d. franchising strategy

A global strategy is one in which a company employs the same basic competitive approach in all countries where it operates, sells standardized products globally, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. It represents a think-global, act-global approach. Using domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales. It is a conservative way to test the international waters. The amount of capital needed to begin exporting is often minimal; existing production capacity may well be sufficient to make goods for export. With an export-based entry strategy, a manufacturer can limit its involvement in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire distribution and marketing function in their countries or regions of the world. If it is more advantageous to maintain control over these functions, however, a manufacturer can establish its own distribution and sales organizations in some or all of the target foreign markets. Either way, a home-based production and export strategy helps the firm minimize its direct investments in foreign countries. Licensing as an entry strategy makes sense when a firm with valuable technical know-how, an appealing brand, or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets. Licensing also has the advantage of avoiding the risks of committing resources to country markets that are unfamiliar, politically volatile, economically unstable, or otherwise risky. By licensing the technology, trademark, or production rights to foreign-based firms, the firm can generate income from royalties while shifting the costs and risks of entering foreign markets to the licensee. While licensing works well for manufacturers and owners of proprietary technology, franchising is often better suited to the international expansion efforts of service and retailing enterprises. Franchising has many of the same advantages as licensing. The franchisee bears most of the costs and risks of establishing foreign locations; a franchisor has to expend only the resources to recruit, train, support, and monitor franchisees.

120. What circumstances call for use of a multidomestic strategy for competing in international markets?

A multidomestic strategy is one in which a company varies its product offering and competitive approach from country to country in an effort to meet differing buyer needs and to address divergent local-market conditions. It involves having plants produce different product versions for different local markets and adapting marketing and distribution to fit local customs, cultures, regulations, and market requirements. In essence, a multidomestic strategy represents a think-local, act-local approach to international strategy. A think-local, act-local approach to strategy making is most appropriate when the need for local responsiveness is high due to significant cross-country differences in demographic, cultural, and market conditions and when the potential for efficiency gains from standardization is limited. A think-local, act-local approach is possible only when decision making is decentralized, giving local managers considerable latitude for crafting and executing strategies for the country markets they are responsible for. Giving local managers decision-making authority allows them to address specific market needs and respond swiftly to local changes in demand. It also enables them to focus their competitive efforts, stake out attractive market positions vis-à-vis local competitors, react to rivals' moves in a timely fashion, and target new opportunities as they emerge.

77. Which of the following does NOT accurately characterize the differences between a localized multidomestic strategy and a global strategy?

A. A global strategy entails extensive strategy coordination across countries and a multidomestic strategy entails little or no strategy coordination across countries. B. A global strategy often entails use of the best suppliers from anywhere in the world, whereas a multidomestic strategy may entail fairly extensive use of local suppliers (especially where use of local sources is required by host governments). C. A global strategy tends to involve use of similar distribution and marketing approaches worldwide, whereas a multidomestic strategy often entails adapting distribution and marketing to local customs and the culture of each country. D. A global strategy involves striving to be the global low-cost provider by economically producing and marketing a mostly standardized product worldwide, whereas a multidomestic strategy entails pursuing broad differentiation and striving to strongly differentiate its products in one country from the products it sells in other countries. E. A global strategy relies upon the same technologies, competencies, and capabilities worldwide, whereas a multidomestic strategy often entails the use of somewhat different technologies, competencies, and capabilities as may be needed to accommodate local buyer tastes, cultural traditions, and market conditions. Correct Answer: D

103. What can happen when international rivals compete against one another in multiple-country markets?

A. It could create attractive industries that would have otherwise badly deteriorated. B. It could produce a business lineup consisting of too many slow-growth, declining, low-margin, or competitively weak businesses. C. It could create a greater diversity in the types of value chain activities between each business. D. It could initiate a deterrence effect that encourages mutual restraint in taking aggressive action against one another due to the fear of a retaliatory response that might escalate the battle into a cross-border competitive war. E. It could increase shareholder interests by concentrating corporate resources on foreign business activities to contend for market leadership. Correct Answer: D

71. What is a primary drawback of a localized multidomestic strategy?

A. It hinders the use of cross-border coordination of a company's activities and increases a company's vulnerability to adverse shifts in currency exchange rates. B. It makes it very difficult to take into account significant country-to-country differences in distribution channels and marketing methods. C. It makes it difficult and costly to be responsive to country-to-country differences in customer needs, buying habits, cultural traditions, and market conditions. D. It hinders the transfer of a company's competencies and resources across country boundaries and hinders the pursuit of a single, uniform competitive advantage in all country markets where a company operates. E. It is unsuitable for competing in the markets of emerging countries and posing added difficulty in modifying a company's business model to compete on the basis of low price. Correct Answer: D

105. Which of the following is NOT a typical option that companies have to consider to tailor their strategy to fit the circumstances of emerging country markets?

A. Prepare to compete on the basis of low price. B. Modify aspects of the company's business model to accommodate local circumstances (but not so much that the company loses the advantage of global scale and global branding). C. Change the local market to better match the way the company does business elsewhere. D. Develop a strategy for the short-term and forget about a long-term strategy because conditions in emerging country markets change so rapidly. E. Stay away from those emerging markets where it is impractical or uneconomic to modify the company's business model to accommodate local circumstances. Correct Answer: D

76. During the 1980s, the YKK Group developed and manufactured all its fastening products within Japan. Which of the following aspects of the global strategy was YKK trying to achieve?

A. YKK catered to homogenous buyer needs across countries and regions. B. YKK centralized its value chain thereby facilitating centralized control. C. YKK engaged in higher levels of R&D by spreading risks over higher-volume output. D. YKK sold the same products under the same brand name everywhere. E. YKK established a single plant to produce different versions of the same product. Correct Answer: B

80. The essential difference between a "think-global, act-global" and a "think-global, act-local" approach to strategy-making is that

A. a "think-global, act-global" approach entails extensive strategy coordination across countries and a "think-global, act-local" approach entails little or no strategy coordination across countries. B. the former aims at implementing the same business model worldwide, whereas the latter aims at implementing customized business models to better match local market circumstances. C. the "think-global, act-global" approach gives local managers more latitude to make minor strategy variations where necessary to better satisfy local buyers and to better match local market conditions. D. a "think-global, act-global" approach involves selling a mostly standardized product worldwide, whereas a "think-global, act-global" approach entails selling products that are highly differentiated from country to country. E. a "think-global, act-global" approach involves selling under a single brand name worldwide, whereas a "think-global, act-local" approach entails utilizing multiple brands (typically one for each different country or group of neighboring countries). Correct Answer: C

78. A "think-global, act-global" approach to strategy making is preferable to a "think-local, act-local" approach when

A. a big majority of the company's rivals are pursuing localized multidomestic strategies. B. country-by-country differences are small enough to be accommodated within the framework of a mostly uniform global strategy. C. host governments enact regulations requiring that products sold locally meet strict manufacturing specifications or performance standards. D. plants need to be scattered across many countries to avoid high shipping costs. E. market growth rates vary considerably from country to country. Correct Answer: B

94. Transferring core competencies and resource strengths from one country market to another is

A. a good way for companies to develop broader or deeper competencies and competitive capabilities that can become a strong basis for sustainable competitive advantage. B. best accomplished with a multidomestic strategy as opposed to a global strategy. C. feasible only with a global strategy; it can't be done with a multidomestic strategy. D. unlikely to result in a competitive advantage. E. nearly always the easiest and most sure-fire way to build competitive advantage in trying to compete successfully in foreign markets. Correct Answer: A

85. What strategy is considered more conducive to transferring and leveraging subsidiary skills and capabilities across borders?

A. a transnational strategy B. an international strategy C. a think-local, act-global strategy D. a cross-border integrated strategy E. a standardized integrated strategy Correct Answer: A

81. A primary drawback of a global strategy is that it

A. allows firms to address local needs as precisely as locally based rivals can. B. permits firms to be more responsive to changes in local market conditions, either in the form of new opportunities or competitive threats. C. provides for lower transportation costs and also may involve higher tariffs. D. involves higher coordination costs due to more complex tasks of managing a globally integrated enterprise. E. raises production costs due to the greater variety of designs and components. Correct Answer: D

92. The competitive advantage opportunities that a global competitor can gain by dispersing performance of its activities across many nations include all of the following, EXCEPT

A. being able to shift production from one country to another to take advantage of exchange rate fluctuations, differing wage rates, differing energy costs, or differing trade restrictions. B. being in better position to choose where and how to challenge rivals. C. shortening delivery times to customers by having geographically scattered distribution facilities. D. locating buyer-related activities (such as sales, advertising, after-sale service and technical assistance) close to buyers. E. centralizing value chain activities to foster just-in-time inventory activities. Correct Answer: E

108. The basic strategy options for local companies in competing against global challengers include

A. best-cost provider and focused low-cost provider and low-cost leadership strategies. B. export strategies, licensing strategies, and cross-border transfer strategies. C. utilizing understanding of local customer needs and preferences to create customized products or services, developing business models to exploit shortcoming in local infrastructure, and using acquisitions and rapid growth to defend against expansion-minded multinationals. D. franchising strategies, multidomestic strategies keyed to product superiority, global low-cost leadership strategies, and cross-border coordination strategies. E. focused differentiation and broad differentiation strategies. Correct Answer: C

87. In expanding into foreign markets, a company can strive to gain competitive advantage (or offset domestic disadvantages) by

A. building a state-of-the-art facility to fully capture scale economies via an export strategy. B. using export, licensing, or franchising strategies so as to minimize risk and capital investment. C. locating buyer-related activities in all countries where it sells its product. D. dispersing its activities among various countries in a manner that lowers costs or else helps achieve greater product differentiation and transferring competitively valuable competencies and capabilities from its domestic operations to its operations in foreign markets. E. avoiding the use of strategies that entail coordinating its domestic strategic moves with its strategic moves in the various foreign markets it enters. Correct Answer: D

93. Dispersing particular value chain activities across many countries rather than concentrating them in a select few countries can be more advantageous, EXCEPT when

A. buyer-related activities (such as sales, advertising, after-sale service and technical assistance) need to take place close to buyers. B. buyers demand short delivery times and/or high transportation costs make it uneconomical to operate from one or just a few locations. C. it helps hedge against the risks of exchange rate fluctuations, supply disruptions, and adverse political developments. D. there are diseconomies of scale in trying to operate from a single location. E. there are reasons to decouple buyer-related activities in favor of locational advantages. Correct Answer: E

83. Companies often implement a transnational strategy because it

A. combines flexible coordination with the pursuit of conflicting objectives simultaneously. B. provides an easy mode of operating to transfer and share resources and capabilities across borders. C. is conducive to mass customization techniques that enable companies to address local preferences in an efficient semi-standard manner. D. is the least complex and easiest to implement of all the strategy choices. E. is capable of achieving an efficiency potential through centralized decision making and strong headquarter control. Correct Answer: C

97. Sharing and transferring resources and capabilities across borders may also contribute to the development of broader or deeper competencies and capabilities, thereby helping a company achieve

A. control over its resource capabilities. B. a dominating depth in some competitively valuable area. C. an intensity of resource diversification. D. precision and compliance in resource agility and responsiveness. E. direct investments in foreign countries. Correct Answer: B

100. What supports competitive offensives in one market with resources and profits diverted from operations in another market?

A. cross-market subsidization B. a foreign market strategy C. a domestic-only company D. a home market offensive E. a multidomestic company Correct Answer: A

99. Profit sanctuaries are found to differ by a company's strategy, such that a(n)

A. domestic-only company has access to many profit sanctuary locations worldwide. B. international competitor usually has a profit sanctuary in its home market and may have other sanctuaries in countries where it has a strong position and market share. C. globally competitive company generally has a profit sanctuary outside its home market in countries where it is a market leader and enjoys a strong competitive position. D. transnational company has profit sanctuaries in every country where it operates. E. company competing in a few country markets has more profit sanctuaries. Correct Answer: B

102. What is it called when a company sells its goods in foreign markets at prices that are below the prices at which it normally sells in its home market or well below its full costs per unit?

A. dumping practices B. price-clearing system C. clearance sale D. discounting practices E. competitive advantage Correct Answer: A

88. To use location to build competitive advantage, a company that operates transnationally or globally must

A. employ either an export strategy or a franchising strategy. B. scatter its production plants across many countries in different parts of the world so as to minimize transportation costs. C. consider whether to concentrate each activity it performs in a few select countries or disperse performance of the activity to many nations and consider in which countries to locate particular activities. D. locate production plants in those countries having suppliers that can supply all the necessary raw materials and components so as to avoid inbound shipping costs. E. concentrate all of its value chain activities in the one country that has the best combination of low wage rates, low shipping costs, and low tax rates on profits. Correct Answer: C

73. A global strategy is one in which a company performs all of the following tasks, EXCEPT

A. employs the same basic competitive approach in all countries where it operates. B. sells much of the same products everywhere. C. strives to build global brands. D. coordinates its actions worldwide with strong headquarters control represents a think-global, act-global approach. E. uses local brand names to cater to a country's specific needs. Correct Answer: E

104. Companies racing for global market leadership

A. generally have to consider establishing competitive positions in the markets of emerging countries. B. are well-advised to avoid all the risks and problems of competing in emerging country markets. C. seldom have the resource capabilities it takes to be effective in competing in emerging country markets and usually are at a strong competitive disadvantage to the domestic market leaders. D. can usually be expected to earn sizable profits quickly in emerging country markets. E. usually encounter very low barriers in entering the markets of emerging countries. Correct Answer: A

82. A strategy that incorporates elements of both multidomestic and global strategies is termed a "transnational" strategy, but sometimes it is referred to as a(n)

A. glocalization strategy. B. international strategy. C. think-local, act-global strategy. D. cross-border integrated strategy. E. standardized integrated strategy. Correct Answer: A

79. The approach of a firm using a "think-global, act-local" version of a transnational strategy entails

A. producing and marketing a variety of product versions under the same brand name, with each different version being designed specifically to accommodate the needs and preferences of buyers in a particular country. B. having little or no strategy coordination across countries. C. pursuing the same basic competitive strategy theme (low cost, differentiation, best cost, focused) in all countries where the firm does business but giving local managers some latitude to adjust product attributes to better satisfy local buyers and to adjust production, distribution, and marketing to be responsive to local market conditions. D. selling the company's products under a wide variety of brand names (often one brand for each country or group of neighboring countries) so buyers in each country market will think they are buying a locally made brand. E. selling numerous product versions (each customized to buyer tastes in one or more countries and sometimes branded for each country), but opting to only sell direct to buyers at the company's website so as to bypass the costs of establishing networks of wholesale/retail dealers in each country market. Correct Answer: C

101. What does the World Trade Organization (WTO) NOT do primarily?

A. promotes fair trade practices B. actively polices dumping C. deals with the rules of trade between nations D. helps producers, exporters, and importers conduct business E. sets countries' tariff rates Correct Answer: E

84. The transnational approach of a firm using a "think-global, act-local" version of a global strategy entails

A. selling numerous product versions (each customized to buyer tastes in one or more countries and sometimes branded for each country) but opting to only sell direct to buyers at the company's website so as to bypass the costs of establishing networks of wholesale/retail dealers in each country market. B. pursuing the same basic competitive strategy theme (low-cost, differentiation, best-cost, focused) in all countries where the firm does business but giving local managers some latitude to adjust product attributes to better satisfy local buyers and to adjust production, distribution, and marketing to be responsive to local market conditions. C. selling the company's products under a wide variety of brand names (often one brand for each country or group of neighboring countries) so that buyers in each country market will think they are buying a locally made brand. D. producing and marketing a variety of product versions under the same brand name, with each different version being designed specifically to accommodate the needs and preferences of buyers in a particular country. E. little or no strategy coordination across countries. Correct Answer: B

90. When concentrating production in a few locations, which of the following can allow a manufacturer to lower unit costs, boost quality, or master a new technology more quickly?

A. significant scale economies B. learning-curve effects C. superior resources D. profit sanctuaries E. supporting industries Correct Answer: B

72. A global strategy allows for

A. the leading companies to compete for the biggest share of the world market, but only occasionally compete head-to-head in different countries. B. the markets in various countries to be part of the world market and competitive conditions across country markets to be strongly linked. C. a company's overall market strength to be the sum of its market shares in each country market where it has a presence. D. the industry leaders to be foreign companies, while domestic companies are relegated to runner-up status. E. a firm's overall competitive advantage to be determined by the size of the competitive advantage it has in each of its profit sanctuaries. Correct Answer: B

89. In competing in foreign markets, companies find it advantageous to concentrate their activities in a limited number of locations in all of these situations, EXCEPT when

A. there are significant scale economies in performing an activity. B. the costs of manufacturing or other activities are significantly lower in some geographic locations than in others. C. when there is a steep learning or experience curve associated with performing an activity in a single location (thus making it economical to serve the whole world market from just one or maybe a few locations). D. certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages. E. the addition of new production capacity will not adversely impact the supply-demand balance in the local market. Correct Answer: E

96. Companies that compete on an international basis have a competitive advantage over their purely domestic rivals

A. to achieve a larger domestic interest by developing sufficient resource strengths and competitive capabilities for success. B. to benefit from coordinating activities across different countries' domains. C. solely for the benefit of their shareholders. D. that guarantees the generation of big profits, big returns on investment, and big cash surpluses after dividends are paid. E. to give full access to the proprietary technological expertise or other competitively valuable capabilities. Correct Answer: B

95. A key approach for a company to grow sales and profits in several country markets is to

A. transfer its valuable competencies and resource strengths among these markets to aid in the development of broader competencies and capabilities. B. employ a multidomestic strategy rather than a global strategy. C. locate technical after-sale services close to buyers. D. minimize transportation costs among these markets. E. take advantage of less restrictive restrictions and requirements of host governments. Correct Answer: A

106. Viable strategic options companies should consider in tailoring their strategy to fit circumstances of emerging country markets include all of the following, EXCEPT

A. trying to change the local market to better match the way the company does business elsewhere. B. being prepared to modify aspects of the company's business model to accommodate local circumstances. C. preparing to compete on the basis of low price. D. staying away from those emerging markets where it is impractical to modify the company's business model to accommodate local circumstances. E. focusing on local markets whose circumstances will be most challenging to the company's business model. Correct Answer: E

86. Companies that compete internationally can pursue competitive advantage in world markets (or offset domestic disadvantages) by

A. using a differentiation-based competitive strategy in those country markets with superior resources. B. choosing not to compete in countries with high tariffs and high taxes (which then have to be passed along to buyers in the form of higher prices), thus keeping costs and prices lower than rivals. C. using an export strategy to circumvent the risks of adverse exchange rate fluctuations. D. locating value chain activities in whatever nations prove most advantageous in a manner that uses location to lower costs or achieve greater product differentiation, allow for the transfer of competitively valuable competencies and capabilities from one country to another, and allow for cross-border coordination. E. employing a multidomestic strategy instead of a global strategy. Correct Answer: D

110. Which of the following is NOT a viable strategy option for a local company in competing against global challengers?

A. using cross-market transfer strategies to hedge against the risks of exchange rate fluctuations and adverse political developments B. developing business models to exploit shortcomings in local distribution networks or infrastructures C. taking advantage of low-cost labor and other competitively important local workforce qualities D. transferring a company's expertise to cross-border markets and initiating actions to contend on a global scale E. using acquisitions and rapid growth strategies to defend against expansion-minded multinationals Correct Answer: A

91. Dispersing the performance of value chain activities to many different countries rather than concentrating them in a few country locations tends to be advantageous in all of the following situations, EXCEPT

A. when high transportation costs make it expensive to operate from central locations. B. whenever buyer-related activities are best performed in locations close to buyers. C. if diseconomies of large size exist, thereby making it more economical to perform an activity on a smaller scale in several different locations. D. when it is desirable to hedge against (1) the risks of fluctuating exchange rates, (2) supply interruptions or (3) adverse political developments. E. if resources retain their foreign contexts so there is competitive advantage over a broader domain. Correct Answer: E

129. List and discuss three strategy options for competing in emerging markets.

Among the strategy options for tailoring a company's strategy to fit the sometimes unusual or challenging circumstances presented in developing-country markets are the following: (1) prepare to compete on the basis of low price; (2) modify aspects of the company's business model or strategy to accommodate local circumstances (but not so much that the company loses the advantage of global scale and global branding); (3) try to change the local market to better match the way the company does business elsewhere; and (4) stay away from those emerging markets where it is impractical or uneconomical to modify the company's business model to accommodate local circumstances. Company experiences in entering developing markets such as China, India, Russia, and Brazil indicate that profitability seldom comes quickly or easily, so an entrant needs to be patient, work within the system to improve the infrastructure, and lay the foundation for generating sizable revenues and profits once conditions are ripe for market takeoff. Building a market for the company's products can often turn into a long-term process that involves reeducation of consumers, sizable investments in advertising and promotion to alter tastes and buying habits, and upgrades of the local infrastructure (the supplier base, transportation systems, distribution channels, labor markets, and capital markets). That is, profitability in emerging markets rarely comes quickly or easily—new entrants have to adapt their business models and strategies to local conditions and be patient in earning a profit.

126. Explain why a company desirous of competing in foreign markets needs to pay careful attention to where it locates it value chain activities.

Companies are locating different value chain activities in different parts of the world to exploit location-based advantages that vary from country to country. This is particularly evident with respect to the location of manufacturing activities. Differences in wage rates, worker productivity, energy costs, and the like, create sizable variations in manufacturing costs from country to country. By locating its plants in certain countries, firms in some industries can reap major manufacturing cost advantages because of lower input costs (especially labor), relaxed government regulations, the proximity of suppliers and technologically related industries, or unique natural resources. In such cases, the low-cost countries become principal production sites, with most of the output being exported to markets in other parts of the world. Companies that build production facilities in low-cost countries (or that source their products from contract manufacturers in these countries) gain a competitive advantage over rivals with plants in countries where costs are higher. For other types of value chain activities, input quality or availability are more important considerations. Other companies locate R&D activities in countries where there are prestigious research institutions and well-trained scientists and engineers. Likewise, concerns about short delivery times and low shipping costs make some countries better locations than others for establishing distribution centers.

121. When is a global strategy "superior" to a multidomestic strategy?

Companies employing a global strategy sell the same products under the same brand names everywhere, utilize much the same distribution channels in all countries, and compete on the basis of the same capabilities and marketing approaches worldwide. Although the company's strategy or product offering may be adapted in minor ways to accommodate specific situations in a few host countries, the company's fundamental competitive approach (low cost, differentiation, best cost, or focused) remains very much intact worldwide and local managers stick close to the global strategy. A think-global, act-global approach prompts company managers to integrate and coordinate the company's strategic moves worldwide and to expand into most, if not all, nations where there is significant buyer demand. It puts considerable strategic emphasis on building a global brand name and aggressively pursuing opportunities to transfer ideas, new products, and capabilities from one country to another. Global strategies are characterized by relatively centralized value chain activities, such as production and distribution. While there may be more than one manufacturing plant and distribution center to minimize transportation costs, for example, they tend to be few in number. Achieving the efficiency potential of a global strategy requires that resources and best practices be shared, value chain activities be integrated, and capabilities be transferred from one location to another as they are developed. These objectives are best facilitated through centralized decision making and strong headquarters control.

123. When should a company enter a new country via internal development?

Entering a new foreign country via internal development and building a foreign subsidiary from scratch makes sense when: • a company already operates in a number of countries, • a company has experience in getting new subsidiaries up and running and overseeing their operations, • a company possesses a sufficiently large pool of resources and competencies to rapidly equip a new subsidiary with the personnel and capabilities it needs to compete successfully and profitably, • a company determines that creating an internal start-up is cheaper than making an acquisition, • adding new production capacity will not adversely impact the supply-demand balance in the local market, • a start-up subsidiary has the ability to gain good distribution access (perhaps because of the company's recognized brand name), and/or • a start-up subsidiary will have the size, cost structure, and resources to compete head-to-head against local rivals.

131. Identify and briefly describe a local company's strategic options in competing against global challengers.

If opportunity-seeking, resource-rich international companies are looking to enter developing-country markets, what strategy options can local companies use to survive? As it turns out, the prospects for local companies facing global giants are by no means grim. Studies of local companies in developing markets have disclosed five strategies that have proved themselves in defending against globally competitive companies. 1. Develop business models that exploit shortcomings in local distribution networks or infrastructure. 2. Utilize keen understanding of local customer needs and preferences to create customized products or services. 3. Take advantage of aspects of the local workforce with which large international companies may be unfamiliar. 4. Use acquisition and rapid-growth strategies to better defend against expansion-minded internationals. 5. Transfer company expertise to cross-border markets and initiate actions to contend on an international level.

128. Under what circumstances is it advantageous for a company competing in foreign markets to disperse certain value chain activities across many countries?

In some instances, dispersing activities across locations is more advantageous than concentrating them. Buyer-related activities—such as distribution, marketing, and after-sale service—usually must take place close to buyers. This means physically locating the capability to perform such activities in every country or region where a firm has major customers. Many companies distribute their products from multiple locations to shorten delivery times to customers. In addition, dispersing activities helps hedge against the risks of fluctuating exchange rates, supply interruptions (due to strikes, natural disasters, or transportation delays), and adverse political developments. Such risks are usually greater when activities are concentrated in a single location. Even though global firms have strong reason to disperse buyer-related activities to many international locations, such activities as materials procurement, parts manufacture, finished-goods assembly, technology research, and new product development can frequently be decoupled from buyer locations and performed wherever advantage lies. Capital can be raised wherever it is available on the best terms.

124. A global strategy embraces the theme "think-global, act-global," whereas a multidomestic strategy relies more on a "think-local, act-local" mentality. True or false? Explain.

True. A multidomestic strategy is one in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level. A global strategy is one in which a company employs the same basic competitive approach in all countries where it operates, sells standardized products globally, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. It represents a think-global, act-global approach.

116. Compare and contrast the advantages for entering and competing in foreign markets for the strategic options of exporting, licensing, and franchising.

Using domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales. It is a conservative way to test the international waters. The amount of capital needed to begin exporting is often minimal; existing production capacity may well be sufficient to make goods for export. With an export-based entry strategy, a manufacturer can limit its involvement in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire distribution and marketing function in their countries or regions of the world. If it is more advantageous to maintain control over these functions, however, a manufacturer can establish its own distribution and sales organizations in some or all of the target foreign markets. Either way, a home-based production and export strategy helps the firm minimize its direct investments in foreign countries. The primary functions performed abroad relate chiefly to establishing a network of distributors and perhaps conducting sales promotion and brand-awareness activities. Whether an export strategy can be pursued successfully over the long run depends on the relative cost competitiveness of the home-country production base. In some industries, firms gain additional scale economies and learning-curve benefits from centralizing production in plants whose output capability exceeds demand in any one country market; exporting enables a firm to capture such economies. However, an export strategy is vulnerable when (1) manufacturing costs in the home country are substantially higher than in foreign countries where rivals have plants, (2) the costs of shipping the product to distant foreign markets are relatively high, (3) adverse shifts occur in currency exchange rates, and (4) importing countries impose tariffs or erect other trade barriers. Unless an exporter can keep its production and shipping costs competitive with rivals' costs, secure adequate local distribution and marketing support of its products, and hedge against unfavorable changes in currency exchange rates, its success will be limited. Licensing as an entry strategy makes sense when a firm with valuable technical know-how, an appealing brand, or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets. Licensing also has the advantage of avoiding the risks of committing resources to country markets that are unfamiliar, politically volatile, economically unstable, or otherwise risky. By licensing the technology, trademark, or production rights to foreign-based firms, the firm can generate income from royalties while shifting the costs and risks of entering foreign markets to the licensee. The big disadvantage of licensing is the risk of providing valuable technological know-how to foreign companies and thereby losing some degree of control over its use; monitoring licensees and safeguarding the company's proprietary know-how can prove quite difficult in some circumstances. But if the royalty potential is considerable and the companies to which the licenses are being granted are trustworthy and reputable, then licensing can be a very attractive option. Many software and pharmaceutical companies use licensing strategies to compete in foreign markets. While licensing works well for manufacturers and owners of proprietary technology, franchising is often better suited to the international expansion efforts of service and retailing enterprises. Franchising has many of the same advantages as licensing. The franchisee bears most of the costs and risks of establishing foreign locations; a franchisor has to expend only the resources to recruit, train, support, and monitor franchisees. The problem a franchisor faces is maintaining quality control; foreign franchisees do not always exhibit strong commitment to consistency and standardization, especially when the local culture does not stress the same kinds of quality concerns. A question that can arise is whether to allow foreign franchisees to make modifications in the franchisor's product offering so as to better satisfy the tastes and expectations of local buyers.

114. Explain how exchange rate fluctuations pose a risk to manufacturing companies that rely upon an export strategy to compete in foreign markets.

When companies produce and market their products and services in many different countries, they are subject to the impacts of sometimes favorable and sometimes unfavorable changes in currency exchange rates. The rates of exchange between different currencies can vary by as much as 20 to 40 percent annually, with the changes occurring sometimes gradually and sometimes swiftly. Sizable shifts in exchange rates pose significant risks for two reasons: 1. They are hard to predict because of the variety of factors involved and the uncertainties surrounding when and by how much these factors will change. 2. They shuffle the cards of which countries represent the low-cost manufacturing locations and which rivals have the upper hand in the marketplace.