Chapter 10

Jeremy is a strategist who wants to decide on the appropriate strategy to help his firm "go global." Which of the following should he consider while choosing his strategy?

He must be aware of the fact that despite globalization and the emergence of the internet firm geographic location has actually maintained its importance

Administrative and political distances, such as the presence or absence of colonial ties, are part of the CAGE distance framework

True

Delos Inc. sells the same sparkplugs in more than 30 countries. Delos is an example that helps to support the globalization hypothesis

True

In recent years as economic forces have changed, many governments and multinational enterprises have been more interested in negotiating bilateral trade agreements between countries rather than multinational agreements through international agencies

True

Michael Porter's diamond framework explains

national competitive advantage

A firm pursuing a transnational strategy would believe tha

best practices, ideas, and innovations should be diffused throughout the world.

Which of the following entry modes was used extensively in Globalization 1.0 stage?

exports

For which of the following companies will geographic distance be the most relevant factor in deciding whether to trade with a target country?

A firm that extracts and exports iron ore

Which of the following will most likely harm a multinational enterprise's (MNE's) reputation?

A sweatshop owned by an MNE has an explosion that kills hundreds of workers

Which of the following describes a firm in the Globalization 1.0 stage?

Asha Inc. had a base office in New York and distributed some of its products overseas

Which of the following countries has a high geographic distance but a low cultural distance from the United States?

Australia

In Michael Porter's diamond framework, ________ conditions describe a country's endowments in terms of natural, human, and other resources

factor

Which of the following is an observable feature in the Globalization 3.0 stage?

Based on an optimal mix of costs, skills, and PESTEL factors, companies now freely locate business functions anywhere in the world

Globex Inc., a company popular for its dairy products, successfully follows a multidomestic strategy. Omni Consumer Products, a large conglomerate, pursues a transnational strategy. Which of the following statements is most likely true of this scenario?

Both Globex Inc. and Omni Consumer Products will have to duplicate key business functions in multiple host countries.

Firms that consider international expansion will often examine absolute metrics on which countries to pursue investments in but also consider relative distance. To help firms decide where to compete, the ________ was developed to help firms make this decision

CAGE distance framework

One of the disadvantages of GM's focus on its Chinese market is

Chinese government-supported domestic car makers are able to initiate a cutthroat price war.

Bayside Inc., a reputed brand for fine art supplies, is implementing an international strategy. Cyberdyne Corp., a maker of mini-computer tablets, is pursuing a global-standardization strategy. Which of the following statements most likely holds true in this scenario?

Cyberdyne Corp. focuses more on cost-reductions when compared to Bayside Inc.

Businesses located in countries that have relatively weak domestic demand rarely make the leap to multinational enterprises because they must focus their attention on shoring up their economic positions in their home countries

False

Communities of learning are metropolitan areas that have large numbers of high school graduates who are ready for a university education

False

Foreign-entry modes such as acquisitions and greenfield projects are usually disadvantageous because they require a high level of capital and resource investment but allow for a low level of control

False

Most businesses around the world are more than 50 percent globalized, meaning that more than half their revenues are from outside the home country

False

Fang and Bone Inc. is a snack manufacturer that wants to expand globally. Few people abroad are familiar with Fang and Bone snacks. The countries into which the company wants to expand require a high degree of local responsiveness when it comes to food, and the citizens of those countries already spend plenty of money on snacks. Which action should the leaders of Fang and Bone take?

Pursue a multidomestic strategy that includes new "local" brands.

Los Pollos Hermanos is a company that makes frozen lunch and dinner entrées. Based on what you know about companies like Nestlé, what action should Los Pollos Hermanos take as it strives to become multinational?

Pursue a multidomestic strategy, customizing product offerings to suit local preferences.

How has China been affected by its one-child-per-family policy and appreciation of its currency?

The country's advantage in low-cost manufacturing is now reduced

Which of the following is most likely an accurate statement?

The multinational enterprise Burns Industries benefited from advances in communications technology.

Which of the following statements is true with regard to international trade between countries?

Wealthy countries engage in relatively more cross-border trade than poorer ones.

Fierce domestic competition in Globex makes a tough environment for any motorcycle company. Success requires top-notch engineering of chassis and engines, as well as keeping costs and fuel consumption in check. As a result, Globex's motorcycles have a competitive advantage in the global market. According to Porter's diamond framework, this scenario shows the influence of competitive intensity in

a focal industry

Which of the following has been a key driver for firms to expand globally during the Globalization 3.0 stage?

benefits from lower labor costs in manufacturing and services

Entertainment 720 Inc. operates in 20 countries around the globe. The company clearly understands that the skin and hair type of customers varies from one country to another. Consequently, its products are customized to suit local needs and preferences of customers, even though the costs incurred while producing these products are exceptionally high. This strategy helps the company behave as a local firm in a foreign market. In this scenario, which of the following strategies does Entertainment 720 most likely implement?

a multidomestic strategy

Managers at Umbrella Corporation, a firm in East Asia, want to make their company a global leader in business process outsourcing (BPO). What should the Umbrella managers look for as they decide where to locate their BPO facilities?

an abundance of well-educated English speakers

Hooper's Store, a luxury motorcycle company, sells the same motorcycles and offers the same superior services in both its home country and foreign markets. The market it operates in faces low pressures for both local responsiveness and cost-reductions. Which of the following strategies within the integration-responsiveness framework does Hooper's Store most likely pursue?

an international strategy

Which of the following statements best explains why Walmart is finding it difficult to replicate its existing business model in India?

because of the large economic distance between the United States and India

Walmart sells live animals (snakes, eels, toads, etc.) for food preparation in China whereas IKEA sells kimchi refrigerators and metal chopsticks in South Korea. These examples illustrate the need for ________ which often requires the competing firm to tailor their products and services to meet the needs of the market in which they are competing

local responsiveness

When a firm is facing high pressure for local responsiveness and low pressure for cost-reductions, the firm is likely to adopt a(n) ________ strategy according to the integration-responsiveness framework

localization

A trend observed during the Globalization 3.0 stage involves

multinational companies organizing as global-collaboration networks

PolyCon Corp., a tool and die maker, is considering where to locate its new factories and offices. According to the CAGE distance model, which of these countries is statistically most attractive to PolyCon?

one that is in the same trading bloc as PolyCon's home country

A payroll company in the nation of Osterlich is seeking to expand beyond its borders while limiting administrative and political distance in the new country. Which potential site is the best one for this type of expansion?

one that used to have a colonizer or colonized relationship with Osterlich

Macmillan Toys Inc. is located in the nation of Ruffino near the nation of East Fenwick. Macmillan Toys is considering expanding into Rusalka. Both countries have similar consumer incomes and knowledge bases and share a common language. Also, the transportation networks between the countries are strong. Even so, the two nations have a long-standing dispute concerning the control of an area of land along their common border. Currently, Ruffino rules this land. Which of the following would most likely prevent Macmillan Toys from expanding into Rusalka?

political distance

Toyota's global success in the 1990s and early 2000s was based to a large extent on a network of world-class suppliers in Japan. This tightly knit network allowed for fast two-way knowledge sharing —this in turn improved Toyota's quality and lowered its cost, which it leveraged into a successful blue ocean strategy at the business level. This example shows the effectiveness of

related and supporting industries/complementors

Which of the following statements accurately explains the primary reason behind Walmart's failure in Germany?

significant differences between its U.S. personnel policies and Germany's culture

Which of the following factors is the most important determinant of economic distance?

the wealth and per capita income of consumers

Porter's diamond framework shows that higher intensity in a focal industry is preferred by MNEs because it promotes a lower cost structure

False

The cultural distance between Australia and the United States is relatively high because of the physical distance between the two nations

False

The term demand conditions refers to how high the volume of demand is for a particular product in a particular country

False

Which of the following is a drawback of pursuing a transnational strategy?

It requires a global matrix structure, which is difficult to implement

How will an increase in coordinated economic and political integration between countries affect the world economy?

There will be gains in social welfare and living standards across the globe.

One of the major benefits gained by a firm entering the international market is the ability to achieve a competitive advantage through location

True

Siobhan, the chief financial officer at an office furniture manufacturer in Canada, wants to build new plants in Canada rather than overseas. Which of these points should she make as she argues her case to the board of directors?

"It will be much more difficult to protect our intellectual property if we build factories overseas."

Stratton Oakmont Inc., a well-established and reputed multinational enterprise (MNE), is headquartered in a highly developed economy. It wants to start its operations in Old Hebrides, considered one of the less-developed nations in the world. How will this strategic move most likely affect Stratton Oakmont Inc.?

It will benefit from economic arbitrage

Oceanic, a venture capital firm, has the opportunity to invest in one of two firms that are in the process of globalizing. Macmillan, an air-conditioner manufacturer, faces intense pressure from its home market. Rent a Swag, a dog-toy manufacturer, has encountered little competition in its country of origin. In which company should Oceanic invest?

Macmillan, because firms that face stiff competition at home tend to do better abroad

Dinotopia is a country of English-speaking people and has a very profitable economy. Which of the following countries is most likely to be the closest to Dinotopia in terms of cultural distance?

Maldonia, where people speak English and have a low standard of living

Which of the following is a feature of the Globalization 2.0 stage?

Multinational enterprises (MNEs) began to create smaller, self-contained replicas of themselves in a few key countries

Raul is the Chief Operating Officer (COO) of Black Mesa Inc., a firm that produces handcrafted kitchen tables for both the residential and commercial markets. Jose believes that his domestic market is saturated and now wishes to go global. Which of the following below would serve as an advantage for Raul if he chose to pursue international markets?

Raul could gain access to cheaper raw materials in a foreign country, thus lowering the cost of his input factors.

Peter is a senior vice president at a textile manufacturer that wants to move from being 20 percent globalized to 70 percent globalized in the next 10 years. What are some possible drawbacks that Peter's company must anticipate?

Rising wages may cancel out cost savings of access to low-cost input factors

Weyland Yutani Inc., a supermarket chain, is implementing a multidomestic strategy. TelAmeriCorp , a company that manufactures solar panels for commercial and domestic purposes, is pursuing a global-standardization strategy. How will the two companies most likely differ from each other?

Unlike TelAmeriCorp, Weyland Yutani Inc. will be able to pursue a differentiation strategy at the business level

Yubaba Inc., a company that manufactures and sells premium perfumes, is pursuing an international strategy. Axe Inc., a supermarket chain, follows a multidomestic strategy. Which of the following statements is most likely true of this scenario?

Yubaba Inc. will sell the same products in both domestic and foreign markets, whereas Axe Inc. will customize its product offerings to suit local requirements

To keep track of the latest developments in computing, Lenovo's research centers are located in China, the United States, and Japan. Also, to benefit from low-cost labor and reduced shipping costs, the company's manufacturing facilities are in Mexico, India, and China. Lenovo's products are the same for its domestic and foreign markets. Which strategy does Lenovo follow?

a global-standardization strategy

The transnational strategy is similar to a(n) ________ strategy because they both focus on product differentiation and low costs

blue ocean

Jane is the CEO of Aperture Science LLC and wishes to develop additional competencies for her business. She is mostly interested in taking advantage of the ________, which are clustered firms that have unique skill sets located in specific geographic regions.

communities of learning

When two neighboring democratic countries that are part of a trading bloc follow different religions and social norms, they most likely have high ________ distance.

cultural

A firm is said to be pursuing a polycentric innovation strategy when

it draws from multiple, equally important research facilities located throughout the world.

Maria wants to pursue an international strategy but is concerned that foreign markets aren't ready for her products and services. You recommend that she engage in ________, which would be contract based and would limit risk and exposure of her investments.

exporting

Which of the following foreign-entry modes primarily involves producing goods in one country to sell in another?

exporting

Which of the following modes of entering a foreign market allows for the lowest level of control?

exporting

During the period of Globalization 1.0, the mode of entry into foreign markets primarily involved

exporting goods

Which of the following types of organizations comparatively requires the lowest levels of investment and control?

franchising

Vinny, the CEO of Rainholm Industries is looking to employ a ________ strategy, which would take advantage of economies of scale and location economies. He wishes to pursue and establish a global division of labor based on wherever best-of-class capabilities reside at the lowest possible cost for Rainholm Industries.

global standardization

The process of closer integration and exchange between different countries and peoples worldwide is

globalization

A greater cultural distance between two trading countries

increases the liability of foreignness.

Cyberdyne Systems Corp. manufactures cooking and baking equipment and has its base in the country of Handled. It has approximately 300 stores across the country and is already active in three foreign countries. It attempts to establish itself in the country of Balalaika, and uses its low- cost strategy to do so. However, due to the additional costs associated with training, coordinating across geographic distances, and other costs associated with doing business in an unfamiliar cultural and economic environment, Cyberdyne Systems Corp. incurs huge financial losses in Balalaika. In this scenario, Cyberdyne Systems Corp.'s failure to establish itself successfully in Balalaika occurs most likely because

it underestimated its liability of foreignness when entering the Balalaika market.

Black Mesa Minerals Inc. wants to expand into the international market. It does not want to spend a very large amount of money for this process. However, Black Mesa Minerals wants to maintain some control in the foreign market. Which of the following would be the best entry mode for this firm?

joint ventures

Which of the following is part of Geert Hofstede's cultural dimensions?

power distance

Pearson Specter Litt is a global internet company that offers country-specific variations of its sites, keeping in mind the linguistic and religious differences between the countries it serves. Pearson Specter Litt is most likely doing this to ____ distance from the other coutnries.

reduce its cultural

Under the CAGE distance framework, the administrative and political distance between two countries primarily increases with

the absence of a trading bloc.

The administrative and political distance between two trading countries decreases when

there is a well-functioning capital market in the host country

Multinational enterprises (MNEs) like Harley-Davidson, Rolex, and Starbucks are said to be following an international strategy because

they offer the same products or services in all their stores throughout the world

European aircraft maker Airbus invested $600 million in Mobile, Alabama, to build jetliners. Which of the following statements best explains why it used this strategy?

to take advantage of lower taxes in the southern United States

Macmillan Toys Inc. is looking to expand internationally and wishes to develop a new product line that is highly localized while keeping their cost structure below that of their rivals. Macmillan Toys Inc. has been successful with implementing a blue ocean strategy in their main strategic business units and as such wishes to pursue a ________ strategy for their international operations

transnational

The German multimedia conglomerate Bertelsmann operates in more than 60 countries throughout the world and owns many regional leaders in their specific product categories, including Random House Publishing in the United States. Bertelsmann operates its more than 500 regional media divisions as more or less autonomous profit-and-loss centers, but it attempts to share best practices across units. Global learning and human resource strategies for executives are coordinated at the network level. Bertelsmann is following a(n)

transnational strategy

Thomás works in a rare metals industry and wants to open a business in a foreign country that is rich with natural resources. He believes that natural resources are the one and only mechanism that can help him achieve an international competitive advantage. After all, countries like Afghanistan Iran, and Venezuela are home to the world's richest natural recourses, so, in theory they too should be able to leverage those resources in order to create a national competitive advantage. Which of the statements below best represents an appropriate response to Thomás and his theory?

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

How did Canada, Mexico, and the United States reduce the administrative and political distance between them?

by establishing the North American Free Trade Agreement (NAFTA)

Which of the following is the most likely advantage of using foreign acquisitions or greenfield plants as a foreign-entry mode?

They reduce a firm's exposure to loss of reputation

Todd is a strategist for a furniture manufacturer that has a large presence in the United States and Canada. By checking economic and political reports, he knows that trade and investment barriers are falling among wealthy nations. He also knows that the price of oil has dropped 50 percent in the previous two years. Based on this information, what action should Todd and his company take?

They should seriously consider globalization because of the falling trade and investment barriers

When multinational enterprises enter host countries such as Saudi Arabia and Japan, the most logical option is usually to pursue a multidomestic strategy even though that strategy rarely leads to significant cost-reductions.

True

Rainholm Industries is a large snack-food conglomerate that operates in more than 50 countries and employs more than 80,000 people across the world. It operates through multiple regional product divisions, which tend to function as autonomous profit-and-loss centers. This allows the company to reap significant economies of scale. Though each division acts as an autonomous firm with its individual regional leaders, frequent sharing of knowledge between the divisions allows for global learning. These factors help the company reconcile product and service differentiations at low cost. Which of the following strategies does Rainholm Industries most likely use?

a transnational strategy

Stark Industries Inc. manufactures airplane parts. It wants to globalize and is willing to spend a considerable amount to protect its intellectual property. Which of these business ventures makes the most sense for Stark Industries?

acquiring an airplane parts manufacturer in another country

Gregarious Simulation Systems Inc. wants to globally expand its market. It intends to ensure that its mode of foreign entry allows it to have strong control over its operations and protect its intellectual property, though that may mean investing a significant amount of capital and other resources. In this scenario, which of the following foreign-entry modes would best suit Gregarious Simulation Systems?

acquisition

When Susan, the CEO of Gregarious Simulation Systems, expanded her operations to a different international market, she was surprised to see how little competition she faced. In her home country, the competition for simulation systems is incredibly fierce. As a result of her international expansion, her firm has been able to easily position themselves as a major player. Which of the four categories of Porter's Diamond framework best explains this advantage?

competitive intensity in the focal industry

Blue Cat Inc., a manufacturer of high-technology medical devices, has its product development centers located in the United States and South Korea. The manufacturing units are located in China and the Philippines to benefit from low labor costs and access to original equipment manufacturers. This allows the company to competitively price its devices. Also, the various phone models sold by the company are uniform in all the foreign markets it operates in. In this scenario, which of the following strategies does Blue Cat most likely pursue?

global-standardization strategy

Aperture Science Inc. has decided to enter into a foreign market by setting up its own production facilities and distribution channels from scratch. This will give it strong control over all its business activities. Which of these foreign-entry modes will Maddox most likely choose?

greenfield operation

Lucy wishes to have more control with her international strategy and is willing to increase her firms' investments in this foreign market. She considers creating a subsidiary but also wishes to build a manufacturing plant from the ground up. Lucy is most likely interested in pursuing a(n)

greenfield operations strategy

There are some industries that are more competitive in some countries than others. In order to fully understand why this occurs, we need to examine Porter's Diamond framework. Which of the following below is NOT one of the four factors in this framework?

industry-specific forces

When firms sell their products overseas with little or no change to the products, they may increase the expropriation of intellectual property and increase the risk of piracy. This is considered a serious disadvantage when pursuing a(n) ________ strategy

international

Because keeping cost low is critical to IKEA's value innovation, it switched from a(n)

international strategy to a global-standardization strategy

Sirius Cybernetics Inc. has a national competitive advantage in the pharmaceutical industry. This means that the country

is a world leader in the pharmaceutical industry

Teresa wants to take her firm internationally but is concerned with the ________, which refers to the possibility of higher costs of doing business in an unfamiliar cultural and economic environment

liabilities of foreignness

Hooper's Corn Inc. produces an inexpensive microwave popcorn that is well tailored for the tastes of U.S. consumers. However, it has failed to satisfy the consumer preferences of its host country, Japan. Which of the following categories has Hooper's Corn performed poorly in?

local responsiveness

Duke & Duke Autos Inc. has shifted its research and development unit from its home country to Germany. This allows the company to be better informed about the latest developments in the automotive industry by tapping into the highly advanced automotive industry in Germany. In this scenario, Duke & Duke Autos Inc. is reaping the benefits of

location economies

Unilever's new-concept center is situated in downtown Shanghai, China, attracting hundreds of eager volunteers to test the firm's latest product innovations on-site while Unilever researchers monitor consumer reactions. In this example, Unilever is trying to reap the benefits of

location economies

Aldorria and Estoccia are neighboring countries with strong economic disparities. However, both the countries share a common national language and the same political ideologies. The relationship between these two countries will most likely affect the trade of

luxury items manufactured in Aldorria

Genco Pura Olive Oil Company has established themselves as a strong differentiator in their respective SBUs but now wishes to explore international strategies. They are prepared to fully customize their product offerings to meet the needs of the foreign country that they are entering; having conducted many surveys on local preferences, tastes, and requirements, the Genco Pura Olive Oil Company will more than likely pursue a ________ strategy.

multidomestic

Amy is the CEO of a line of accessories and cosmetics, Hooli Inc., which has retail stores and production units in five countries. In this scenario, Hooli Inc. is most likely a

multinational enterprise