Chapter 1
Expanding abroad:
Motivations, means, and mentalities
True/False
1. The largest MNEs are equivalent in their economic importance to less developed economies
such as Nigeria, Moldova, or Jamaica.
2. The process of internationalization followed by most firms is usually well-thought out in
advance and typically builds on a combination of rational analysis, planning and
implementation.
3. All companies internationalize in an incremental manner. First, they make an initial
commitment of resources to the foreign market in order to secure local market knowledge.
Building on this knowledge, they make subsequent resource commitments, eventually
leading to higher levels of investment in the foreign market.
4. A joint venture is a contractual mode of foreign entry involving a high level of resource
commitment by all partners.
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5. Emerging motivations for internationalization include the desire to enhance the firm’s
competitive position and the desire to develop global scanning capabilities.
6. For an MNE to exist, first foreign countries must provide location-specific advantages to
attract the company to invest there, second the company must have ownership-specific
advantages that counteract its liability of foreignness, third the company must have the
organizational capability to leverage its strategic advantages more effectively internally than
externally.
7. An MNE with an ‘international mentality’ will typically be managed as a coordinated
federation.
8. An MNE with a ‘multinational mentality’ will typically be managed as a coordinated
federation.
9. An MNE with a ‘global mentality’ will typically manage its operations centrally.
10. An MNE with a ‘transnational mentality’ will typically be managed as an integrated network.
11. The main advantage multinational mentality has over global mentality is more efficient
manufacturing.
12. Raymond Vernon’s article “Gone are the cash cows of yesteryear” highlights a company’s
global scanning and learning capability.
13. Only one article further develops the idea that “the process of developing these strategic and
organizational attributes lies at the heart of the internationalization process through which a
company builds its position in world markets.
14. An MNE is a(n):
a. import-export company that actively trades in foreign markets.
b. company that passively manages its substantial foreign direct investment.
c. import-export company that actively manages its foreign investment portfolio.
d. company that actively manages substantial foreign direct investment.
15. Three prerequisites that must be satisfied before a national firm can transform itself into a
multinational firm include:
a. scale-based advantages, ownership-specific advantages, and contractual capabilities.
b. location-specific advantages, ownership-specific advantages, and organizational capabilities.
c. scale-based advantages, ownership-specific advantages, and organizational capabilities.
d. location-specific advantages, knowledge advantages, and organizational capabilities.
16. Which of the following correctly describes the sequential evolution in management thinking
with respect to the strategic role of foreign operations in emerging MNEs?
a. global mentality, multinational mentality, international mentality, transnational mentality.
b. international mentality, global mentality, transnational mentality, multinational mentality.
c. multinational mentality, global mentality, international mentality, transnational mentality.
d. international mentality, multinational mentality, global mentality, transnational mentality.
17. A franchise, such as McDonald’s, is a _________ mode of foreign entry.
a. low commitment, low control
b. low commitment, moderate control
c. low commitment, high control
d. moderate commitment, moderate control
18. A joint venture is a _________ mode of foreign entry.
a. low commitment, low control
b. low commitment, moderate control
c. low commitment, high control
d. moderate commitment, moderate control
19. HomeAppliances Co. is a new manufacturer of home appliances. HomeAppliances wants to
go international. Some of its traditional motivations for pursuing internationalization include:
a. securing key supplies, seeking new markets, and raising global scanning and learning
capabilities
b. securing key supplies, seeking new markets, and improving competitive positioning
c. securing key supplies, seeking new markets and accessing low-cost factors of production
d. securing key supplies, improving competitive positioning, and accessing low-cost factors of
production
20. One motivation behind internationalization is to sustain the firm’s competitive position. To
pursue a sustainable competitive position relative to its rivals in the athletic clothing industry,
Nike attempts to:
a. preempt markets, capture global scale, and secure raw materials
b. capture global scale, access scarce knowledge, and match competitors
c. match competitors, capture global scale, and preempt markets
d. exploit factor cost differences, preempt markets, and match competitors
21. _________ suggests that in the first stage innovations are produced in the home developed
country; in the second stage they are exported to other similarly developed countries; in the
third stage, they start being produced in these developed countries; in the fourth stage they
start being produced in low-wage developing countries.
a. Vernon’s product cycle theory
b. Johanson and Vahlne’s stages theory
c. Dunning’s eclectic theory
d. Levitt’s globalization theory
22. Which of the following constitutes a list of foreign entry modes that involve the MNE to
make a foreign investment
a. Wholly owned, joint venture
b. Wholly owned, license
c. Franchising, joint venture
d. Franchising, license
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23. OfficeWare Corp. is an MNE that produces and sells office equipment. If the company’s
CEO employs a ‘global mentality’ toward the strategic role of the company’s foreign
operations, then we would expect that OfficeWare:
a. regards its overseas markets as a portfolio of local opportunities.
b. leverages its domestic capabilities worldwide.
c. regards the world as a single unit of analysis.
d. simultaneously responds to local needs, global demands and cross-border learning
opportunities.
24. The demand for the Italy-based Sparkly Fashion Manufacturing’s unisex pants has been
continually increasing. Sparkos, the CEO of the company, intends to take his company
international by producing these unisex pants mainly in Italy and selling them in the same
way all over the world. Sparkos is operating with a(n):
a. multinational mentality
b. global mentality
c. international mentality
d. transnational mentality
25. In 2015, MNEs’ foreign affiliates generated value added of more than _____ of global GDP
and ____ of world exports.
a. 1/5, 50%
b. 1/10, 30%
c. 1/15, 20%
d. 1/8, 25%
26. The 100 largest TNCs from developing and transition economies shows:
a. The importance of developing and transition economies is declining.
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b. The status quo of developing and transition economies.
c. The importance of developing and transition economies is increasing.
d. None of the above
27. The CEO of Paragon Ltd. wants to take his company international. What are the three big
questions he must answer before expanding abroad?
28. Rana manages a French fashion design company. What would motivate Rana’s company to
internationalize?
29. Briefly explain the product cycle of smart phones using Raymond Vernon’s product cycle
theory.
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30. Briefly compare and contrast the Uppsala Internationalization Model and the Born Global
Model. Under what circumstances is each model most applicable? Give examples to
support your arguments.
31. Roy is the CEO of a multinational apparel company. How would he conceptualize the
strategic role of his firm’s foreign operations if he embraced a ‘global mentality’? If he
embraced a ‘multinational mentality’?
32. What is an MNE? Give examples to explain the difference between companies that are
considered MNEs and those that are not.
33. Briefly compare and contrast the four mentalities toward internationalization.
34. If you had been the founder of Dunkin Donuts, would you have chosen to heavily rely on
franchising, the strategy used by Rosenberg, as your entry mode to foreign countries? Or
would you have chosen to rely on wholly owned subsidiaries as your foreign entry mode?
Why?