Chapter 5

5) Which of the following is true with regard to competitive advantage? A) Competitive advantages are typically derived from deliberate national policies. B) A competitive advantage is difficult for competitors to imitate. C) A competitive advantage is also known as a country-specific advantage. D) Competitive advantage includes inherited resources, such as arable land.

B) A competitive advantage is difficult for competitors to imitate.

26) Which of the following is true with regard to new trade theory? A) According to new trade theory, achieving economies of scale is not necessary for superior international performance. B) According to new trade theory, trade is beneficial even for countries that produce only a limited variety of products. C) New trade theory suggests that export is less beneficial to firms than commonly believed. D) New trade theory rests solely on the premise that countries differ in the type and quantity of production factors they possess.

B) According to new trade theory, trade is beneficial even for countries that produce only a limited variety of products.

77) ________ describes the total value of assets that MNEs own abroad via their investment activities. A) Monopolistic advantage B) FDI stock C) Absolute advantage D) Variable capital

B) FDI stock

8) Which of the following is true with regard to firm-level theories? A) Firm-level theories are classical theories, widely accepted since the sixteenth century. B) Firm-level explanations address the question: "How can internationalizing firms gain and sustain competitive advantage?" C) Firm-level explanations address the question: "Why do nations trade?" D) Firm-level theories do not address the issue of organizational performance.

B) Firm-level explanations address the question: "How can internationalizing firms gain and sustain competitive advantage?"

80) ________ theory suggests that firms using FDI as an internationalization strategy must own or control certain resources and capabilities not easily available to competitors. A) Factor proportions B) Monopolistic advantage C) Internalization D) Absolute advantage

B) Monopolistic advantage

45) Which of the following is true about the determinants of national competitive advantage? A) The presence of strong competitors in a nation adversely affects national competitive advantage. B) The presence of demanding customers pressures firms to innovate faster and produce better products. C) Demand conditions describe the nation's position in factors of production, such as labor, natural resources, capital, technology, entrepreneurship, and know-how. D) Vigorous competitive rivalry among firms lowers national innovativeness.

B) The presence of demanding customers pressures firms to innovate faster and produce better products.

16) Which of the following is true about absolute advantage principle? A) According to this approach, enhanced product specialization adversely affects communal welfare. B) This approach allows the nation to consume more than it otherwise could, generally at lower cost. C) This is the only approach that can be used to explain why nations attempt to run a trade surplus. D) This approach explains the process by which firms acquire and retain one or more value-chain activities inside the firm.

B) This approach allows the nation to consume more than it otherwise could, generally at lower cost.

20) Which of the following was the analysis revealed by the "Leontief paradox"? A) that despite having an abundant pool of labor, the U.S. was exporting capital-intensive goods B) that the U.S. often exported labor-intensive goods and imported more capital-intensive goods C) that international trade was simpler than perceived D) that contrary to the popular belief, new products are more likely to originate in developing economies

B) that the U.S. often exported labor-intensive goods and imported more capital-intensive goods

Earth-Rite Organic Foods (Scenario) Earth-Rite Organic Foods Inc. is an MNE based in Sweden with subsidiaries located in numerous countries around the world. Earth-Rite has annual sales of $10 billion and employs more than 90,000 individuals worldwide. Earth-Rite currently dominates the organic food industry, but competitors are beginning to catch up because of a growing demand for organic produce. Earth-Rite is considering a collaborative venture with a small chain of organic grocery stores located in Brazil, a country where Earth-Rite has no stores. 92) Earth-Rite executives are considering internalizing operations in Brazil. Which of the following, if true, best supports this plan? A) The management of Earth-Rite wants to maximize dissemination of proprietary knowledge. B) Intermediaries and collaborators ensure greater control over domestic operations. C) By internalizing operations, Earth-Rite will retain control of product quality. D) Internalizing value-chain activities increases employee turnover.

C) By internalizing operations, Earth-Rite will retain control of product quality.

Mercantilism Assignment (Scenario) The final assignment for Daniel Parilla's international business class involves taking an in-depth look at one of the six classical perspectives that explain the rationale for international trade. Daniel plans to present an argument in favor of mercantilism. Daniel will be attempting to convince his classmates that mercantilism leads to national prosperity. Daniel's peers will be given the opportunity to counter his argument. 13) Which of the following, if true, weakens Daniel's proposition? A) Mercantilism helps curb inflation. B) Running a trade surplus is beneficial for nations. C) Restricting imports reduces the choice of products consumers can buy. D) Mercantilism tends to benefit firms that import.

C) Restricting imports reduces the choice of products consumers can buy.

83) Which of the following is a benefit of internalizing foreign-based value-chain activities? A) The MNE maintains a monopolistic presence in foreign countries. B) The MNE eliminates employee turnover. C) The MNE oversees control of foreign operations and ensures product quality. D) The MNE learns new manufacturing methods from foreign partners.

C) The MNE oversees control of foreign operations and ensures product quality.

68) Current trends suggest that early internationalizing firms will ________. A) eliminate MNEs worldwide B) be unable to sustain the rigors of international trade C) become even more common in international business D) significantly dampen entrepreneurial efforts of smaller firms

C) become even more common in international business

7) In recent years, business executives and scholars have used ________ to refer to the advantages possessed by nations and individual firms in international trade and investment. A) comparative advantage B) country-specific advantage C) competitive advantage D) cost advantage

C) competitive advantage

44) According to Porter's competitive advantage of nations, ________ refer to the nature of home-market demand for specific products and services. A) firm strategy, structure, and rivalry B) factor conditions C) demand conditions D) demand liabilities

C) demand conditions

2) Competitive advantage refers to the ________. A) belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports B) superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or deliberate national policies C) distinctive assets or competencies of a firm that are difficult for competitors to imitate and are typically derived from specific knowledge, capabilities, skills, or superior strategies D) relative absence of restrictions to the flow of goods and services between nations

C) distinctive assets or competencies of a firm that are difficult for competitors to imitate and are typically derived from specific knowledge, capabilities, skills, or superior strategies

4) Which of the following is a comparative advantage? A) close relationships with suppliers B) superior strategies of an organization C) entrepreneurial orientation D) the distinct capabilities of an organization

C) entrepreneurial orientation

87) Which of the following refers to a collaborative venture which results in a new legal entity? A) non-equity-based strategic alliances B) sole proprietorships C) equity-based joint ventures D) not-for-profit organizations

C) equity-based joint ventures

11) Nations running a trade surplus ________. A) rely solely on imports B) openly discourage export C) export more goods than they import D) import more goods than they export

C) export more goods than they import

19) The ________ rests on the premise that countries differ in the type and quantity of production factors they possess. A) cost-advantage theory B) competitive advantage theory C) factor proportions theory D) comparative advantage theory

C) factor proportions theory

42) The ________ is one of the three key modern perspectives that helps explain the development of national competitive advantage. A) factor proportions theory B) absolute advantage principle C) national industrial policy D) comparative advantage of nations

C) national industrial policy

48) A proactive economic development plan initiated by the government, often in collaboration with the private sector, that aims to develop or support particular industries within the country is referred to as ________. A) national endowment policy B) national fiscal policy C) national industrial policy D) policy on national industrial relations

C) national industrial policy

64) Azure Inc. has established a domestic market in clothing and apparel in Thailand and has received orders from abroad. Currently, the firm is investigating the feasibility of undertaking international business. Azure is in the ________ stage of the internationalization process. A) active involvement B) experimental involvement C) pre-export D) committed involvement

C) pre-export

Kazmia Revitalization (Scenario) The leaders of Kazmia, a small nation in the southern hemisphere, have called a meeting to discuss ways to encourage foreign firms to invest in Kazmia. The country was once a leader in diamond mining and exports; however, the diamond mines have been depleted. Meanwhile, the standard of living in Kazmia has plummeted to its lowest levels, and young people are fleeing the country. Government leaders must devise a plan to reinvigorate the once prosperous nation. 50) According to Porter, Kazmia can attain economic prosperity by systematically cultivating new and superior factor endowments through ________. A) devaluation of the national currency B) redevelopment of the country's depleted diamond mines C) proactive national industrial policy D) the consolidation of national human rights institutions

C) proactive national industrial policy

24) In the ________ phase of international product life cycle theory, knowledge about how to produce the product is widespread and manufacturing becomes straightforward. A) temporary monopoly B) introduction C) standardization D) maturity

C) standardization

66) Born global firms are ________. A) companies that forgo the domestic focus stage of the internationalization process B) companies that focus mainly on running a trade surplus C) young companies that internationalize early in their evolution D) young companies that focus on the ratio of production costs rather than the absolute cost of production

C) young companies that internationalize early in their evolution

69) International entrepreneurship is a new field of scholarly inquiry that is a result of the ________ phenomenon. A) standardization B) industrial cluster C) localization D) born global

D) born global

65) In the ________ stage of the internationalization process, a firm targets numerous foreign markets via various entry modes, especially FDI. A) pre-export B) domestic focus C) experimental involvement D) committed involvement

D) committed involvement

17) The ________ states that it can be beneficial for two countries to trade without barriers as long as one is relatively more efficient at producing goods or services needed by the other. A) monopolistic advantage theory B) internalization theory C) absolute advantage principle D) comparative advantage principle

D) comparative advantage principle

84) The eclectic paradigm specifies three conditions that determine whether a company will internationalize via FDI. Which of the following refer(s) to one of those conditions? A) entrepreneurial orientation of national enterprises B) FDI stock C) availability of variable capital in the home country D) location-specific advantages

D) location-specific advantages

79) A ________ is one or more resources or capabilities a company possesses that few other firms have. A) factor endowment B) country-specific advantage C) comparative advantage D) monopolistic advantage

D) monopolistic advantage

81) Which of the following refers to an important monopolistic advantage for firms? A) imitable skills B) unskilled labor C) favorable climate D) proprietary technology

D) proprietary technology

47) Which of the following is an example of an industrial cluster? A) the proliferation of counterfeit goods in the global marketspace B) the elite community of industrialists in the United States C) high productivity of workers in South Korea D) the consumer electronics industry in Japan

D) the consumer electronics industry in Japan

TF 28) Modern business executives use the term comparative advantage when referring to the assets of individual firms.

F

TF 29) Mercantilism benefits consumers because restricting imports increases the choice of domestic products they can buy.

F

TF 32) According to the absolute advantage principle, national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports.

F

TF 33) David Ricardo advanced the absolute advantage theory.

F

TF 34) According to the comparative advantage principle, what matters most is the absolute cost of production of the product and not the relative efficiency with which a country can produce the product.

F

TF 35) Countries cannot create or acquire comparative advantage.

F

TF 37) According to the factor proportions theory, differences in the quantity of factors of production held by countries do not determine international trade patterns.

F

TF 55) The innovativeness of a nation's firms has no significant impact on the national competitive advantage.

F

TF 56) Firm strategy, structure, and rivalry of Michael Porter's diamond model refer to the presence of clusters of suppliers, competitors, and complementary firms that excel in particular industries.

F

TF 58) In today's world, the most important source of national advantage is a country's natural resources.

F

TF 59) National industrial policies designed to build new capabilities and encourage the emergence of new industries typically exclude superior educational systems.

F

TF 71) In the internationalization process of a firm, the active involvement stage follows the committed involvement stage.

F

TF 72) According to the internationalization process model, a firm is unlikely to receive unsolicited product orders from abroad before advancing to the pre-export stage.

F

TF 73) According to the internationalization process model, a firm starts out in a pre-export phase and is preoccupied with business in its home market.

F

TF 93) Relative efficiency of production refers to the total value of assets that MNEs own abroad via their investment activities.

F

TF 95) Monopolistic advantage theory is a framework for determining the extent and pattern of foreign-based value-chain operations.

F

TF 96) According to the internalization theory, firms must reduce control over foreign operations in order to enhance overall effectiveness.

F

TF 27) Comparative advantage includes inherited resources, such as labor, climate, arable land, and petroleum reserves.

T

TF 30) Adam Smith attacked the mercantilist view by suggesting that nations benefit most from free trade.

T

TF 31) Free trade produces lower-cost imports that help consumers save money, thereby increasing their living standards.

T

TF 36) Early trade theories failed to consider the fact that the primary participants in international trade are individual firms that differ in significant ways from each other.

T

TF 52) Entrepreneurial orientation and availability of venture capital are examples of country-specific advantages .

T

TF 53) According to Porter, the competitive advantage of a nation depends on the collective competitive advantages of the nation's firms.

T

TF 54) Developing new product designs and new ways of organizing or training are some of the ways in which companies innovate.

T

TF 57) Industrial cluster refers to a concentration of businesses, suppliers, and supporting firms in the same industry at a particular geographic location, characterized by a critical mass of human talent, capital, or other factor endowments.

T

TF 70) According to the internationalization process model, internationalization takes place in incremental stages over a long time.

T

TF 74) Born global firms are young companies that internationalize early in their evolution.

T

TF 75) Born globals have emerged in large numbers for two main reasons: globalization and advances in communication and transportation technologies .

T

TF 94) A benefit of the monopolistic advantage theory is that firms can operate foreign subsidiaries more profitably than the local firms that compete in their own markets.

T

TF 97) According to Dunning's eclectic paradigm, proprietary technology, managerial skills, trademarks or brand names, and economies of scale are examples of ownership-specific advantages.

T

1) ________ refers to the superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or deliberate national policies. A) Comparative advantage B) Competitive advantage C) Absolute advantage D) Industrial cluster

A) Comparative advantage

14) Which of the following statements strengthens the proposition that free trade is beneficial to nations? A) Free trade increases the standard of living by reducing consumer expenses. B) Imported products tend to be more expensive than domestically produced products. C) Unrestricted international trade generally lowers the overall prosperity of poor countries. D) Unrestricted international trade generally boosts inflation in developed economies.

A) Free trade increases the standard of living by reducing consumer expenses.

82) ________ is an explanation of the process by which firms acquire and retain one or more value-chain activities inside the firm, minimizing the disadvantages of dealing with external partners and allowing for greater control over foreign operations. A) Internalization theory B) Monopolistic advantage theory C) Absolute advantage theory D) Dunning's eclectic paradigm

A) Internalization theory

49) Which of the following is true about national industrial policy? A) It is designed to create monetary and fiscal policies, such as low-interest loans, that provide a stable supply of capital for company investment needs. B) It explains why nations attempt to run a trade surplus. C) It demonstrates that what matters is not the absolute cost of production, but rather the relative efficiency with which two countries can produce the products. D) It underlines the demerits of rigorous educational systems at the precollege level.

A) It is designed to create monetary and fiscal policies, such as low-interest loans, that provide a stable supply of capital for company investment needs.

89) Which of the following is true about networks? A) Networks are neither formal organizations with clearly defined hierarchical structures nor impersonal, decentralized markets. B) In networks, buyers and sellers share no linkages and rarely interact with each other. C) In a network, continued interaction among partners leads to competition and rivalry that bring down productivity. D) Networks represent the economically beneficial short-term relationships the firm undertakes with other business entities.

A) Networks are neither formal organizations with clearly defined hierarchical structures nor impersonal, decentralized markets.

22) Which of the following is true about the first stage of evolution in the international product life cycle theory? A) The product enjoys a temporary monopoly at this stage. B) The product's inventors mass-produce it and seek to export it. C) The knowledge about how to produce the product is widespread. D) The competition intensifies at this stage and export orders begin to come from lower-income countries.

A) The product enjoys a temporary monopoly at this stage.

12) Which of the following is a typical outcome of free trade? A) Unrestricted international trade generally increases the overall prosperity of poor countries. B) Free trade sustains inflation in developing economies. C) Domestically produced products tend to be cheaper than imported products. D) Lower-cost imports cause living standards to deteriorate.

A) Unrestricted international trade generally increases the overall prosperity of poor countries.

15) According to the ________, a country benefits by producing only those products in which it has complete advantage or that it can produce using fewer resources than another country. A) absolute advantage principle B) comparative advantage principle C) factor proportions theory D) international product cycle theory

A) absolute advantage principle

6) The Gulf nations benefit economically from rich petroleum reserves in the region. This is an example of ________. A) comparative advantage B) competitive advantage C) ownership-specific advantage D) cost advantage

A) comparative advantage

62) In which of the following stages of the internationalization process is a firm preoccupied with business in its home market? A) domestic focus B) experimental involvement C) active involvement D) pre-export

A) domestic focus

67) Which of the following explains the expansion of born global firms despite the scarcity of financial, human, and tangible resources? A) globalization has made doing international business easier than ever before B) a concerted effort by developing nations for running a trade surplus C) product shortages and supply crunch resulting from import restrictions D) rising inflation in developing economies

A) globalization has made doing international business easier than ever before

78) Which of the following explains how firms can use FDI to gain and sustain competitive advantage? A) monopolistic advantage theory B) new trade theory C) Leontief paradox D) factor proportions theory

A) monopolistic advantage theory

46) According to Michael Porter, a nation's factor endowments help determine its ________. A) national competitive advantage B) demand conditions C) negative balance of trade D) comparative advantage

A) national competitive advantage

85) Which of the following is an example of an ownership-specific advantage? A) the physical assets owned by a firm B) natural resources of the region where the firm operates C) low-cost labor D) inexpensive capital

A) the physical assets owned by a firm

Earth-Rite Organic Foods (Scenario) Earth-Rite Organic Foods Inc. is an MNE based in Sweden with subsidiaries located in numerous countries around the world. Earth-Rite has annual sales of $10 billion and employs more than 90,000 individuals worldwide. Earth-Rite currently dominates the organic food industry, but competitors are beginning to catch up because of a growing demand for organic produce. Earth-Rite is considering a collaborative venture with a small chain of organic grocery stores located in Brazil, a country where Earth-Rite has no stores. 90) Which of the following would be the most important for Earth-Rite executives to determine when deciding whether to collaborate with the Brazilian grocery store chain? A) Did employee empowerment lead to increased efficiencies across Earth-Rite's subsidiaries? B) Would a collaborative venture allow Earth-Rite to internationalize rapidly? C) What is the density of venture capitalists in Brazil? D) Is employee empowerment culturally favored in Brazil?

B) Would a collaborative venture allow Earth-Rite to internationalize rapidly?

Kazmia Revitalization (Scenario) The leaders of Kazmia, a small nation in the southern hemisphere, have called a meeting to discuss ways to encourage foreign firms to invest in Kazmia. The country was once a leader in diamond mining and exports; however, the diamond mines have been depleted. Meanwhile, the standard of living in Kazmia has plummeted to its lowest levels, and young people are fleeing the country. Government leaders must devise a plan to reinvigorate the once prosperous nation. 51) In the context of national industrial policy, which of the following actions by the government of Kazmia would be the most beneficial for the long-term economic security of the country? A) increasing the rate of taxation B) devoting resources to improve national infrastructure C) discouraging foreign trade D) discouraging entrepreneurial ventures undertaken by small firms

B) devoting resources to improve national infrastructure

63) According to the internationalization process model, a firm advances to the ________ stage by initiating limited international activity, typically in the form of basic exporting. A) active involvement B) experimental involvement C) pre-export D) domestic focus

B) experimental involvement

3) Which of the following comparative advantages is acquired over time? A) labor B) innovative capacity C) arable land D) petroleum reserves

B) innovative capacity

88) Maxdime Inc. is an international automobile manufacturer that has decided to work on low-cost fuel efficient motorbikes. Foray Inc., a domestic automobile company based in China, is willing to partner temporarily with the R&D team of Maxdime to design and launch motorbikes specially for the Chinese market. This is an example of ________. A) product differentiation B) non-equity-based strategic alliance C) sole proprietorship D) entrepreneurial orientation

B) non-equity-based strategic alliance

18) Which of the following is an element of the comparative advantage principle? A) per unit cost advantage B) relative efficiency of production C) absolute cost of production D) negative balance of trade

B) relative efficiency of production

86) Which of the following is an example of a location-specific advantage? A) managerial skills B) skilled labor C) proprietary knowledge D) the ability to reduce buyer uncertainty

B) skilled labor

21) In his International Product Life Cycle (IPLC) Theory, Raymond Vernon observed that each product and its manufacturing technologies go through three stages of evolution: introduction, maturity, and ________. A) decline B) standardization C) growth D) diversification

B) standardization

23) Which of the following is the last stage of evolution in the international product life cycle theory? A) temporary monopoly B) standardization C) decline D) diversification

B) standardization

Earth-Rite Organic Foods (Scenario) Earth-Rite Organic Foods Inc. is an MNE based in Sweden with subsidiaries located in numerous countries around the world. Earth-Rite has annual sales of $10 billion and employs more than 90,000 individuals worldwide. Earth-Rite currently dominates the organic food industry, but competitors are beginning to catch up because of a growing demand for organic produce. Earth-Rite is considering a collaborative venture with a small chain of organic grocery stores located in Brazil, a country where Earth-Rite has no stores. 91) Which of the following benefits would Earth-Rite most likely accrue if it entered into a joint venture with the Brazilian grocery store chain? A) Earth Rite would experience high employee turnover in the home country. B) Earth Rite would be able to eliminate competition in the foreign markets. C) Earth Rite would be able to completely eliminate the risk of proprietary knowledge infringement abroad. D) Earth Rite would have access to the foreign partners' know-how.

D) Earth Rite would have access to the foreign partners' know-how.

9) ________ is the belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports. A) Positivism B) Imperialism C) Communism D) Mercantilism

D) Mercantilism

10) Which of the following is true with regard to mercantilism? A) Mercantilism does not harm consumers. B) Mercantilism helps curb inflation. C) Mercantilism is superior to free trade. D) Mercantilism tends to harm firms that import.

D) Mercantilism tends to harm firms that import.

25) ________ argues that increasing returns to scale, especially economies of scale, are important for superior international performance in industries that succeed best as their production volume increases. A) Comparative theory B) Competitive theory C) Cost-advantage theory D) New trade theory

D) New trade theory

43) Which of the following statements would be supported by Michael Porter? A) Economic prosperity depends primarily on inherited national advantages. B) The presence of strong competitors in a nation hinders national competitive advantage. C) The presence of highly demanding customers discourages innovation. D) Rivalry among industry competitors spurs innovation.

D) Rivalry among industry competitors spurs innovation.