SOM Final Exam Chapter 12

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) Efficiency frontier B) Experience curve C) Surplus curve D) Demand-value model E) Optimal output model

A) Efficiency frontier

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) Experience curve B) Efficiency frontier C) Global web D) Dispersion linkage E) Economies of scale

A) Experience curve

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

A) It makes sense if the value added by customization supports higher pricing.

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

A) ensures that it has the right organization structure in place to execute its strategy.

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

A) the difference between its costs of production and the value that consumers perceive in its products.

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

B) Differentiation and low-cost

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) Transnational B) Global standardization C) International D) Localization E) Nationalization

B) Global standardization

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

B) Low demand for local responsiveness

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) Information systems B) Marketing and sales C) Human resources D) Production E) Logistics

B) Marketing and sales

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

B) create products that serve universal needs.

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

C) Differences in distribution channels

Firms that pursue which of the following strategies take products first produced for their domestic market and sell them across various markets with only minimal local customization? A) Localization B) Nationalization C) International D) Global standardization E) Transnational

C) International

How does possessing a core competence help a firm? A) It reduces the scope of transfer of skills to foreign markets. 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 helps a firm to create value in such a way that premium pricing is impossible E) It reduces the need to replicate a business model in a foreign market.

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

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 the duplication of functions required for each operation. B) Manufacture only one type of car and sell it in all the international markets. C) Use common vehicle platforms and components across many different models. D) Increase costs whenever possible. E) Shorten the production runs for each component.

C) Use common vehicle platforms and components across many different models.

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

C) it is normally impossible to segment a market based on each customer's reservation price.

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

C) learning effects and economies of scale.

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) the experience curve. B) demographic advantages. C) location economies. D) a position inside the efficiency frontier. E) economies of scale.

C) location economies.

Managing an alliance successfully requires building interpersonal relationships between the firms' managers, or what is sometimes referred to as: A) interorganizational synergy. B) symbiotics. C) relational capital. D) power equilibrium. E) intraorganizational coordination.

C) relational capital.

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

D) Company infrastructure

Which of the following is true of a transnational strategy? A) It is used when the pressures for cost reductions are low. B) It is easy to implement because it does not place any conflicting demands on a company. C) It enables the one-way flow of core competencies. D) It is used by firms that try to achieve low costs through location economies, economies of scale, and learning effects. E) It is usually used when the pressure for local responsiveness is relatively low.

D) It is used by firms that try to achieve low costs through location economies, economies of scale, and learning effects.

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) Research and development C) Marketing D) Logistics E) Finance

D) Logistics

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

D) Transnational

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) Localization strategy B) Global standardization strategy C) Nationalization strategy D) Transnational strategy E) International strategy

D) Transnational strategy

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

D) by the imperative of localization.

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

D) cost reductions and local responsiveness.

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

D) differentiation strategy.

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 global promotions and pressures to move down the efficiency frontier. C) pressures for product standardization and pressures to move up the experience curve. D) pressures for cost reductions and pressures to be locally responsive. E) pressures for labor skill enhancement and pressures to minimize economies of scale.

D) pressures for cost reductions and pressures to be locally responsive.

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) Nationalization strategy D) Transnational strategy E) Localization strategy

E) Localization strategy

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

E) Pressure for localization of production

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

E) Research and development

Which of the following allows two or more firms to share the fixed costs (and associated risks) of developing new products or processes? A) Franchising agreement B) Global web C) Dispersion linkage D) Free trade agreement E) Strategic alliance

E) Strategic alliance

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) worldwide circle. C) dispersal chain. D) international mesh. E) global web.

E) global web.

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

E) in which consumers face low switching costs.

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) there is a high inflation in the nations that the company enters. C) the product is a generic product that requires little differentiation. D) the product is perceived to be very costly in the home country of the company. E) indigenous competitors in the nations that the company enters lack comparable products.

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

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

E) primary activities and support activities.

54. What are the different types of competitive pressures that firms competing in a global marketplace face? How can firms respond to such pressures?

Firms that compete in the global marketplace typically face two types of competitive pressure that affect their ability to realize location economies and experience effects, to leverage products and transfer competencies and skills within the enterprise. They face pressures for cost reductions and pressures to be locally responsive. These competitive pressures place conflicting demands on a firm. Responding to pressures for cost reductions requires that a firm try to minimize its unit costs. But responding to pressures to be locally responsive requires that a firm differentiate its product offering and marketing strategy from country to country in an effort to accommodate the diverse demands arising from national differences in consumer tastes and preferences, business practices, distribution channels, competitive conditions, and government policies.

55. What are the sources of pressures for local responsiveness?

Pressures for local responsiveness arise from national differences in consumer tastes and preferences, infrastructure, accepted business practices, and distribution channels, and from host-government demands. 1. Differences in Customer Tastes and Preferences: Strong pressures for local responsiveness emerge when customer tastes and preferences differ significantly between countries, as they often do for deeply embedded historic or cultural reasons. In such cases, a multinational's products and marketing message have to be customized to appeal to the tastes and preferences of local customers. 2. Differences in Infrastructure and Traditional Practices: Pressures for local responsiveness arise from differences in infrastructure or traditional practices among countries, creating a need to customize products accordingly. Fulfilling this need may require the delegation of manufacturing and production functions to foreign subsidiaries. 3. Differences in Distribution Channels: A firm's marketing strategies may have to be responsive to differences in distribution channels among countries, which may necessitate the delegation of marketing functions to national subsidiaries. 4. Host Government Demands: Economic and political demands imposed by host-country governments may require local responsiveness.

56. How do firms respond to low cost pressures and low pressures for local responsiveness?

Sometimes, multinational firms find themselves in the fortunate position of being confronted with low cost pressures and low pressures for local responsiveness. Many of these enterprises pursue an international strategy, taking products first produced for their domestic market and selling them internationally with only minimal local customization. The distinguishing feature of many such firms is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure.

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

false

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.

false

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.

false

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

false

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

false

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.

false

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

true

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

true

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

true

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

true

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.

true

Maintaining the company infrastructure is a support activity.

true

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.

true

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

true

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.

true

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

true