Chapter 12

Of all the value creation activities in a firm, which of the following creates value by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs? A. Production B. Marketing and sales C. Human resources D. Logistics E. Information systems

B

Focusing primarily on increasing the attractiveness of a product is referred to as a: A. standardization strategy. B. differentiation strategy. C. target-identification strategy. D. low-cost strategy. E. profitability strategy.

B

For an international business, which of the following is most likely to be an outcome of protectionism and nationalism in a host-country? A. Increase in the attractiveness of location economies B. Pressure for localization of production C. Requirement of standardization of products or services D. Pressure for cost reduction E. Decrease in the significance of local responsiveness

B

A firm's ability to increase its profitability and profit growth by expanding globally is constrained: A. by the imperative of localization. B. by the economies of scale. C. due to customer surplus. D. due to the leveraging of skills developed in foreign operations. E. due to the dispersion of individual value creation activities.

A

According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry? A. Differentiation and low-cost B. Value creation and generalization C. One-size-fits-all and zero-sum D. Comparison and standardization E. Profitability and strategic fit

A

Cost reduction pressures tend to be particularly intense in industries that: A. create products that serve universal needs. B. create customized products. C. are not involved in international business. D. produce products that have inelastic demand. E. serve different customers with different needs.

A

Processes are the: A. manner in which decisions are made and work is performed within the organization. B. metrics used to measure the performance of subunits. C. devices used to reward appropriate managerial behavior. D. metrics used to make judgments about how well managers are running the subunits. E. norms and value systems that are shared among the employees of an organization.

A

The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally: A. increased cost pressures. B. decreased the demand for local responsiveness. C. decreased pressures for cost reduction. D. increased consumer surplus. E. reduced the production of conventional commodity products.

A

The two phenomena that help explain the experience curve are: A. learning effects and economies of scale. B. technology inputs and wealth transfer. C. leveraging subsidiary and local responsiveness. D. standardized manufacturing and global web. E. efficiency frontier and location economies.

A

The value creation activities of a firm are categorized as: A. primary activities and support activities. B. strategic activities and functional activities. C. ancillary functions and tertiary functions. D. primary activities and core activities. E. goal-oriented activities and organizational activities.

A

Typically, the price a firm charges for a good or service is: A. less than the value placed on that good or service by the customer. B. more than what customers assume it would be. C. more than the market price for similar goods or services. D. the same as the value placed on that good or service by the customer. E. less than the lowest priced similar good or service in the market.

A

Which of the following conditions is most favorable to reap gains from global scale economies? A. Low demand for local responsiveness B. High pressures for cost reduction C. Lack of universal needs D. National differences in accepted business practices E. High pressure to delegate production to domestic subsidiaries

A

Which of the following is most likely to necessitate the delegation of marketing functions to national subsidiaries? A. Differences in distribution channels B. Pressures for decreasing consumer surplus C. Lack of product customization D. Pressures for increasing economies of scale E. Pressures for increasing consumers' reservation price

A

Which of the following refers to cost savings that come from acquiring knowledge from doing a task? A. Learning effects B. Exponential effects C. Ancillary effects D. Economies of scale E. Location economies

A

Which of the following refers to systematic reductions in production costs that have been observed to occur over the life of a product? A. Experience curve B. Learning effects C. Location economies D. Efficiency slope E. Economies of scale

A

Which of the following terms best represents the requirements that are the same all over the world, such as steel, bulk chemicals, and industrial electronics? A. Universal needs B. Efficiency frontier C. Global web D. Lateral requirements E. Supreme needs

A

A number of studies have observed that a product's production costs decline by some quantity about each time: A. annual output is halved. B. cumulative output doubles. C. the workforce is trimmed by 75 percent. D. fixed investment triples. E. foreign domestic investment doubles.

B

A global car manufacturer wants to start production in China. While catering to local responsiveness, what can the firm do to get scale economies? A. Increase costs whenever possible. B. Use common vehicle platforms and components across many different models. C. Shorten the production runs for each component. D. Increase the duplication of functions required for each operation. E. Manufacture only one type of car and sell it in all the international markets.

B

One of the reasons why a firm typically charges for a good or service less than the value placed on that good or service by the customer is because: A. the firm attempts to create value for the consumers by providing them a wide range of products. B. it is normally impossible to segment a market based on each customer's reservation price. C. the value creation results in a corresponding reduction in costs of production. D. the firm frequently modifies its products to compete with the products introduced by other firms. E. it is highly unlikely that the same good or service will be available to the customers from other firms.

B

Spreading fixed costs over a large volume results in a cost-savings phenomenon referred to as: A. volume synergies. B. economies of scale. C. captured savings. D. size effects. E. location economies.

B

The efficiency frontier has a convex shape because of: A. a high-cost structure. B. diminishing returns. C. a significantly low product value. D. low production costs. E. high profit growth.

B

The rate of return that a firm makes on its invested capital is referred to as: A. stakeholder return. B. profitability. C. profit growth. D. process value. E. strategic fit.

B

Which of the following is a part of the organization architecture that consists of the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits? A. Reports B. Controls C. Rewards D. Knowledge flows E.Dominions

B

Which of the following is a primary activity in the operations of a firm? A. Logistics function B. Research and development C. Information systems D. Human resource function E. Company infrastructure

B

Which of the following is a value creation activity that falls into the category of primary activities? A. Creation and maintenance of information systems B. Customer service C. Human resources D. Logistics E. Company infrastructure maintenance

B

Which of the following is an observation made by researchers Bartlett and Ghoshal regarding modern multinational enterprises? A. Global logistics industry makes the concept of "location economies" redundant for international firms. B. Core competencies and skills can develop in any of the firm's worldwide operations. C. Flow of skills between a firm and its global subsidiaries should be unidirectional. D. Differentiating across geographic markets helps a firm in reducing costs. E. Customer demands for local customization are on the decline worldwide.

B

Which of the following of a firm is measured by the difference between the value of a product to an average consumer and the average unit cost of producing that product? A. Customer surplus B. Value creation C. Cost curve D. Value efficiency E. Customer reservation

B

Which of the following statements is true about economies of scale? A. Economies of scale lead to an increase in the average unit cost of a product. B. Attaining economies of scale increases a firm's profitability. C. The ability to spread variable costs over a large volume is a source of economies of scale. D. Economies of scale result due to the increase in the perceived value of a product. E. Economies of scale refer to cost savings that come from learning by doing.

B

Which of the following strategies is most likely to be pursued by a firm when there are strong pressures for cost reductions and demands for local responsiveness are minimal? A. Domestic strategy B. Global standardization strategy C. International strategy D. Transnational strategy E. Nationalization strategy

B

Who among the following should be viewed as part of a firm's infrastructure? A. Procurement manager B. Top management C. Production manager D. Research and development scientist E. Marketing personnel

B

For services such as banking or health care, "production" typically occurs when the: A. customer specifies the service requirements. B. service is paid for by the customer. C. service is designed in-house. D. service is delivered to the customer. E. customer provides feedback.

D

A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if: A. the product is already being offered by local companies in the nations that the company enters. B. the product is a generic product that requires little differentiation. C. indigenous competitors in the nations that the company enters lack comparable products. D. there is a high inflation in the nations that the company enters. E. the product is perceived to be very costly in the home country of the company.

C

A firm's profitability is maximized when it: A. creates products similar to the products of its competitors. B. strips all the value out of its product offering. C. ensures that it has the right organization structure in place to execute its strategy. D. picks a position on the efficiency frontier that is not viable. E. does not configure its internal operations to reduce costs.

C

According to Michael Porter, superior profitability goes to a firm that: A. creates similar products as their competitors. B. keeps the gap between value and cost of production smaller than the gap attained by competitors. C. drives down the cost structure of its business. D. has the highest cost structure in the industry. E. has the least valuable product in the industry.

C

As a result of consumer surplus, a firm typically charges a lower price for a good or service than the value placed on it by customers because: A. the value creation results in a corresponding reduction in costs of production. B. it is highly unlikely that the same good or service will be available to the customers from other firms. C. the firm is competing with other firms for the customer's business. D. the firm charges a price that reveals a consumer's assessment of the product's value. E. the firm creates value for the customer by producing a wide range of products.

C

By dispersing different stages of its value chain to those locations around the world where the value added is maximized or where the costs of value creation are minimized, a firm creates a(n): A. integral circle. B. dispersal chain. C. global web. D. international mesh. E. worldwide circle.

C

Firms that compete in the global marketplace typically face two types of competitive pressure: A. pressures for increasing investment and pressures to minimize consumer surplus. B. pressures for labor skill enhancement and pressures to minimize economies of scale. C. pressures for cost reductions and pressures to be locally responsive. D. pressures for global promotions and pressures to move down the efficiency frontier. E. pressures for product standardization and pressures to move up the experience curve.

C

Firms that pursue which of the following strategies differentiate their product offering across geographic markets to account for local differences? A. International B. Global standardization C. Transnational D. Multidomestic E. Nationalization

C

How does possessing a core competence help a firm? A. It helps a firm to create value in such a way that premium pricing is impossible. B. It reduces a firm's dependence on its logistics function. C. It enables a firm to reduce the costs of value creation. D. It reduces the scope of transfer of skills to foreign markets. E. It reduces the need to replicate a business model in a foreign market.

C

In which of the following tasks will the learning effects be most significant? A. Pizza delivery for a fast-food major B. Data entry for a loan recovery center C. Assembly process involving 1,000 complex steps D. Sewing buttons onto shirts in a garment factory E. Delivering letters to different recipients

C

Serving a global market from a single location is consistent with: A. establishing a high-cost position. B. taking advantage of location economies. C. moving down the experience curve. D. operating from a position which falls inside the efficiency frontier. E. going up the global web.

C

The amount of value a firm creates is measured by: A. the difference between the previous year's profitability and the current year's profitability. B. dividing the market price of its products by the price that customers are actually willing to pay. C. the difference between its costs of production and the value that consumers perceive in its products. D. dividing the net profits of the firm by total invested capital. E. the sum of the profitability of the last two fiscal years.

C

The value of a product to an average consumer is V, the average price that the firm can charge a consumer for that product is P, and the average unit cost of producing that product is C. For this scenario, which of the following is true? A. The firm makes a profit so long as C is greater than P. B. The higher C is relative to P, greater will be the profit. C. The consumer surplus per unit is equal to V - P. D. The higher the intensity of competitive pressure, the higher the price charged relative to V. E. The lower the consumer surplus, the greater the value for the money the consumer gets.

C

Which of the following caveats is most likely to discourage global expansion of businesses? A. Economies of scale B. High consumers' reservation prices C. Trade barriers D. Mass customization E. Low transportation costs

C

Which of the following shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position? A. Demand-value model B. Experience curve C. Efficiency frontier D. Optimal output model E. Surplus curve

C

Which of the following strategies focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets? A. International strategy B. Global standardization strategy C. Localization strategy D. Transnational strategy E. Nationalization strategy

C

If a value creation activity of a firm can take place in Mexico most effectively, then that activity of the firm must be based in Mexico. Firms that pursue such a strategy are most likely to realize: A. a position inside the efficiency frontier. B. the experience curve. C. economies of scale. D. location economies. E. demographic advantages.

D

Firms that pursue which of the following strategies focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies? A. International B. Transnational C. Localization D. Global standardization E. Nationalization

D

For a firm to maximize its profitability, it is necessary that it: A. creates products similar to the products of its competitors. B. does not configure its internal operations to reduce costs. C. minimizes the value of the consumer surplus. D. picks a position on the efficiency frontier that is viable. E. strips all the value out of its product offering.

D

Labor productivity increases over time as individuals understand the most efficient ways to perform particular tasks. This is a result of: A. diminishing returns. B. location economies. C. economies of time. D. learning effects. E. an efficiency frontier.

D

Pressures for cost reduction are intense in firms: A. that produce products that are well differentiated. B. whose major competitors are based in high-cost locations. C. with persistent low capacity. D. in which consumers face low switching costs. E. with no international competition.

D

Profit growth is measured by: A. dividing the net profits of the firm by total invested capital. B. subtracting the previous year's gross profit from the current year's gross profit. C. calculating the difference between the previous year's profitability and the current year's profitability. D. the percentage increase in net profits over time. E. adding the profitability of the last two fiscal years.

D

Superior value creation relative to rivals requires that the firm: A. creates similar products as its competitors so that consumers do not have to pay a premium price. B. has the highest cost structure in the industry. C. creates the least valuable product in the eyes of consumers. D. ensures that the gap between value and cost of production is greater than the gap attained by competitors. E. drives up the cost structure of its business.

D

The appropriateness of the strategy that a firm chooses to use in an international market varies with the extent of pressures for: A. quality improvement and product standardization. B. customer surplus and quality improvements. C. customer surplus and product standardization. D. cost reductions and local responsiveness. E. product standardization and cost reductions.

D

The price that reflects an individual's assessment of the value of a product is referred to as: A. the market price. B. the customer's negotiated price. C. the base value of the product. D. the customer's reservation price. E. the profit growth price.

D

Which of the following functions creates a perception of superior value in the minds of consumers by solving consumer problems and by supporting them after they have purchased the product? A. Production B. Marketing and sales C. Human resources D. Customer service E. Logistics

D

Which of the following is a support activity in the operations of a firm? A. Research and development B. Customer service C. Marketing and sales D. Creation and maintenance of information systems E. Production

D

Which of the following is the function of a value chain that controls the transmission of physical materials through the value chain, from procurement through production and into distribution? A. Human resource B. Finance C. Marketing D. Logistics E. Research and development

D

Which of the following is true about learning effects? A. They tend to be more significant in nonrepetitive tasks. B. They tend to be less significant when a task is technologically complex. C. They typically last a lifetime. D. They are important only during the start-up period of a new process. E. They do not have any effect on the cost of production.

D

Which of the following is true of a localization strategy? A. It allows a firm to capture the cost reductions of mass-producing a standardized product. B. It reduces duplication of functions. C. It involves longer production runs. D. It makes sense if the value added by customization supports higher pricing. E. It substantially reduces local demand.

D

Which of the following strategies is a firm most likely to pursue when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness? A. Global standardization strategy B. Localization strategy C. International strategy D. Transnational strategy E. Nationalization strategy

D

Which of the following support functions is most likely to involve dealing with the organizational structure, control systems, and culture of the firm? A. Human resources B. Logistics C. Information systems D. Company infrastructure E. Inventory management

D

Which of the following supports the argument that customer demands for local customization are on the decline worldwide? A. Local and indigenous industries are increasingly filling up available demand. B. High costs of local customization are deterring companies from doing so. C. Governments across the world are standardizing their legal procedures. D. Customer tastes have converged worldwide. E. Managers worldwide ignore the differences in consumer tastes and preferences.

D

Which of the following terms best represents the norms and value systems that are shared among the employees of an organization? A. Process scenario B. Organizational structure C. Business structure D. Organizational culture E. Management structure

D

Which of the following terms best represents the systematic reductions in production costs that have been observed to occur over the life of a product? A. Global web B. Dispersion linkage C. Economies of scale D. Experience curve E. Efficiency frontier

D

A firm is most likely to pursue a global standardization strategy when: A. it wants to implement a high-cost strategy on a global scale. B. it wants to reduce consumer surplus. C. there are no universal needs to be served. D. there are strong demands for local responsiveness. E. there are strong pressures for cost reduction.

E

A firm maximizes its profitability when it: A. creates products similar to the products of its competitors. B. minimizes the value provided by its products. C. picks a position on the efficiency frontier that is not viable. D. strips all the value out of its product offering. E. configures its internal operations to support the position selected by it on the efficiency frontier.

E

In general, the more value customers place on a firm's products: A. the lesser the profitability of the firm. B. the higher the competitive pressure from other firms. C. the lesser the quality of the product. D. the lesser the consumer surplus for those products. E. the higher the price the firm can charge for those products.

E

Learning effects tend to be more significant when: A. a task involves a few simple steps. B. a task is repeated for a period of over five years. C. the workforce consists of unskilled labor. D. the cumulative output becomes half of what it was originally. E. a technologically complex task is repeated.

E

Which of the following is most likely to be the advantage of locating a value creation activity in the optimal location for that activity? A. It increases the costs of value creation. B. It decreases consumer surplus. C. It helps the firm to achieve a high-cost position. D. It nullifies all trade barriers. E. It enables a firm to differentiate its product offering from those of competitors.

E

Which of the following is true of a firm that pursues a global standardization strategy? A. It ensures that it pursues a high-cost strategy on a global scale. B. It has its production, marketing, and R&D activities in only one optimum location. C. It tries to customize its products to local conditions. D. It has shorter production runs. E. It reaps maximum benefits from economies of scale and learning effects.

E

Which of the following refers to the reductions in unit cost achieved by producing a large volume of a product? A. Location economies B. Learning effects C. Standardization economies D. Core economies E. Economies of scale

E

T/F A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a low-cost strategy.

F

T/F According to Michael Porter, all positions on the efficiency frontier are viable.

F

T/F According to researchers, firms facing strong pressures for local responsiveness should pursue a global standardization strategy.

F

T/F Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires only minimal additional costs.

F

T/F Firms that pursue an international strategy focus on increasing profitability by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

F

T/F Learning effects will be more significant in an assembly process which involves 100 simple steps than in an assembly process which involves 1,000 complex steps.

F

T/F The experience curve refers to systematic increases in production costs that have been observed to occur over the life of a product.

F

T/F The firm that moves up the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.

F

T/F The term organizational structure refers to the totality of a firm's organization, including organization architecture, control systems and incentives, organizational culture, processes, and people.

F

T/F Universal needs exist when the tastes and preferences of consumers in different nations are different.

F

T/F A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.T

T

T/F A localization strategy involves some duplication of functions and smaller production runs.

T

T/F An international strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization.

T

T/F Consumer surplus captures some of the value of a product thereby reducing the price a firm can charge for it.

T

T/F Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to locations where they are performed most efficiently and effectively.

T

T/F In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm.

T

T/F Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.

T

T/F Maintaining the company infrastructure is a support activity.

T

T/F Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm's core competencies wholesale from one nation to another.

T

T/F Profit growth is measured by the percentage increase in net profits over time.

T

T/F Strategic alliances allow firms to share the fixed costs of developing new products or processes.

T

T/F Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth.

T

T/F Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them.

T

T/F The ability to spread fixed costs over a large volume is one of the sources of economies of scale.

T

T/F The actions that managers take to attain the goals of the firm are referred to as a firm's strategy.

T

T/F The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products.

T

T/F The higher the firm's profit per unit sold is, the greater its profitability will be, all else being equal.

T

T/F The various value creation activities that a firm undertakes are referred to as operations.

T