International Business Chapter 12 MC

Namaste Inc. sells its yoga mats for $50. It costs the company $35 to make the product. Customers value the mats at $60. In this scenario, the consumer surplus is

$10.

WiseGuy Inc. sells its finance software for $100. It costs the company $59 to make the product. Customers value the software at $90. In this scenario, WiseGuy Inc.'s value creation is

$31

The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally

A) increased cost pressures.

Products such as steel, bulk chemicals, and industrial electronics do not require much differentiation because the taste and preference for these products is similar all around the world. These products are examples of

A) universal needs.

How does possessing a core competency help a firm?

It enables a firm to reduce the costs of value creation.

Assume that the value of a base model computer to an average consumer is $300, the average price that Dell can charge a consumer for that product is $275, and the average unit cost of producing that product for Dell is $150. For this scenario, which statement is true?

The consumer surplus per computer is $25.

How do firms approach customization of products when using the global standardization strategy?

These firms try not to customize to meet local conditions to allow for longer production runs.

________ are most likely to discourage global expansion of businesses.

Trade barriers

One of the principal risks associated with a strategic alliance is that

a firm can give away more than it receives.

Learning effects tend to be more significant when

a technologically complex task is repeated.

Learning effects will be most significant in which of these tasks?

assembly process involving 1,000 complex steps

How does a company measure profit growth?

by finding the percentage increase in net profits over time

The 2,500 people working in Saturn Inc.'s corporate office deal with the organizational structure, control systems, and culture of the firm. These three things comprise which support function of Saturn Inc.?

company infrastructure

One disadvantage of a strategic alliance is

competitors gain a low-cost route to new technology and markets.

According to the basic strategy paradigm, a firm maximizes its profitability when it

configures internal operations to support the position selected by it on the efficiency frontier.

At the beginning of the year, Marissa created three goals for each sales person on her staff and she uses those goals as a way to measure their performance throughout the year. These goals are an example of

controls.

What is a support activity in the operations of a firm?

creation and maintenance of information systems

A number of studies have observed that a product's production costs decline by some quantity about each time

cumulative output doubles.

Lindsey works at Lincoln Office Furniture Group. She fields calls from people who purchase their ready-to-build products and need assistance during the process. Which primary activity is Lindsey involved with?

customer service

One argument for the idea that customer demands for local customization are on the decline worldwide is that

customer tastes have converged worldwide.

Karina believes the value of a wristwatch sold at $160 is $250. In this scenario, the $250 value is referred to as the

customer's reservation price.

Marketing functions may have to be delegated to national subsidiaries when there is a

difference in distribution channels.

Nature Farm Granola is in a highly-competitive market and has decided to focus on sugar-free granola bars. These granola bars will cost more for the consumer, but the company knows there is high demand for this type of product and feels consumers will pay the price. In addition, none of their competitors have produced this product. This is an example of a ________ strategy

differentiation

According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry?

differentiation and low-cost

The concept of ________ suggests that when a company has built significant value into its product offerings, trying to increase the value of the products by even a small amount requires a significant financial investment.

diminishing returns

WeShop4You has created a grocery delivery service that is unmatched by its competition. The value the company has created now makes it difficult to implement new ideas without spending more money than it originally took to start the business. This demonstrates the idea of

diminishing returns.

According to Michael Porter, superior profitability goes to a firm that

drives down the cost structure of its business.

Amazon Prime incurs a huge fixed cost to obtain streaming rights to movies and television programs. However, it is able to spread this cost over a large number of subscribers that results in a cost-savings phenomenon referred to as

economies of scale.

By producing its products in larger volume than its competitors, Epli-Mart is able to achieve substantial reductions in unit cost. In other words, Epli-Mart achieves.

economies of scale.

The ________ 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.

efficiency frontier

The ________ refers to systematic reductions in production costs that have been observed to occur over the life of a product.

experience curve

Firms that pursue a(n) ________ strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

global standardization

Denim Supply Inc. does not feel the pressure to create custom jeans for any of its markets around the world, but it does want to focus on cost reductions. What strategy should this company consider using to achieve this?

global standardization strategy

AR Supply locates its global manufacturing in Mexico, its global distribution in Indonesia, and its design in Italy. 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, AR Supply has created a(n)

global web.

An international strategy is unique in that companies are selling a product that serves universal needs, but they do not

have significant competition.

In general, the more value customers place on a firm's products, the more it leads to

higher prices the firm can charge for those products.

Rite-Right Pen Corp., based in Florida, has a manufacturing facility in Thailand where local content rules regulate manufacturing processes. These rules show the effects of

host-government demands.

When Nathan accepted his new job, his manager explained that each employee who demonstrated at least two ideas that could lead the company to a competitive advantage received a $5,000 bonus at the end of the year. This bonus is an example of a(n)

incentive.

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

indigenous competitors in the nations that the company enters lack comparable products.

Denti-Way Systems, a manufacturer of dental appliances, invented and patented a new x-ray machine that radically reduced maintenance and operational issues. Responding to global demand, it decided to sell the machines manufactured at its plant in the United States to various markets across the globe. Since the product features provided by Denti-Way were not provided by any other competitor, Denti-Way did not feel any pressure for cost reductions. Which strategy is most likely being pursued by Denti-Way?

international

Firms that pursue a(n) ________ strategy take products first produced for their domestic market and sell them across various markets with only minimal local customization.

international

Xerox had a monopoly on photocopiers for several years as the technology underlying the photocopier was protected by strong patents. As it served a universal need, this favorable position led Xerox to pursue a(n)

international strategy.

A localization strategy should be considered when

it makes sense if the value added by customization supports higher pricing.

The two phenomena that help explain the experience curve are

learning effects and economies of scale.

Merck, a pharmaceutical company, has taken thousands of drugs through the federal approval process and so can do it more cost efficiently than many competitors who are new to the industry. These cost savings that come to Merck in the drug approval process are an example of

learning effects.

When Brite Fabrics first began operations, it took six hours to make a coat in the workroom. Today, that task takes three hours as more efficient sewing and patterning techniques have been introduced. This improvement in efficiency is an example of

learning effects.

A(n) ________ 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.

localization strategy

Kitchen-Rite believes that by producing its small appliances in Canada, they can take advantage of lower wage rates in that country. By pursuing such a strategy, Kitchen-Rite hopes to realize

location economies.

Midwest Sports produces in-house all the products that it sells through its network of stores. It has a function in its value chain that controls sending the physical materials through the value chain, from procurement through production and into distribution. This function is called

logistics.

A ________ is most favorable to reap gains from global scale economies.

low demand for local responsiveness

By standardizing equipment and streamlining its operations, PinPoint Airlines competes by offering less expensive flights than the competition. According to Michael Porter, the strategy that PinPoint Airlines is using is

low-cost.

Processes are defined as the

manner in which decisions are made and work is performed within the organization.

Of all the value creation activities in a firm, ________ 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.

marketing and sales

Firms that compete in the global marketplace typically face which two types of competitive pressure?

pressures for cost reductions and pressures to be locally responsive

The value creation activities of a firm are categorized as

primary activities and support activities.

Economies of scale are achieved when a company reduces unit costs by

producing a larger volume of product.

The rate of return that a firm makes on its invested capital is referred to as

profitability

Researchers Bartlett and Ghoshal noted that in the modern global environment, competition is so intense that in order to survive, a company must do all they can to

provide local responsiveness.

As the manager of the U.S. branch, Poitr knows it is important to build relationships between himself and the managers of the branches in Singapore and Dublin. Poitr wants to create

relational capital.

StickyGlue Corp. creates adhesives used in the construction business. A primary activity in the operations of StickyGlue Corp. would be

research and development.

A(n) ________ is used by economists when referring to charging each customer a price that reflects that individual's assessment of the value of a product.

reservation price

For Bank of America, the "production" activity typically occurs when the

service is delivered to the customer.

A cooperative agreement between potential or actual competitors is called a(n)

strategic alliance.

Frisco Corp. and Farren Industries agreed to a short-term contract in which Frisco Corp. would develop the software for Farren Industries to use when selling to the international customer. This short-term agreement is an example of a

strategic alliance.

Gen-Supply reminds employees that its flagship product used to cost the company $154 to manufacture when the company launched ten years ago. Now, the same product costs just $58 to manufacture. This demonstrates the effects of

the experience curve.

Consumer surplus results when companies charge a lower price for products than the value placed on them by customers. This occurs because

the firm is competing with other firms for the customer's business.

GreenFresh Food Products believes that as far as its products are concerned, tastes vary worldwide and so it has to customize its products, marketing strategy, and business strategy to allow for differing national conditions. What is affecting the company's ability to increase its profitability and profit growth by expanding globally?

the imperative of localization

A firm is most likely to pursue a global standardization strategy when

there are strong pressures for cost reduction.

Who should be considered as part of a firm's infrastructure because of the considerable influence associated with the position?

top management

A firm should use a(n) ________ strategy when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness.

transnational

Firms that pursue a(n) ________ strategy differentiate their product offering across geographic markets to account for local differences.

transnational

A global motor vehicle parts manufacturer wants to start production in China. While catering to local responsiveness, what can the firm do to get scale economies?

use common components across many different models

The value of Omega's top selling fitness product to an average consumer is $150 and the average unit cost of producing that product is $65. In this scenario, $85 ($150−$65) represents

value creation.

In today's global marketplace, ________ companies successfully use a transnational strategy.

very few