Chapter 3
Developing Transnational Strategies:
Building Layers of Competitive Advantage
True/ False
1. MNEs can maximize each of the following objectives independently: global scale
efficiency, multinational flexibility and innovation development.
2. The diversity of environments in which MNEs operates enables them to develop diverse
capabilities and experience multiple learning opportunities.
3. The main drivers of MNEs’ continual growth and prosperity are the desire to protect
existing revenues and to increase profits.
4. Cost reductions due to scale-economies are static and constant over time and few
dynamic benefits are associated with scale economies.
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5. Since efficiency, flexibility and learning are conflicting goals, a transnational company
should focus on only one of these goals and try to exploit it through the three sources of
worldwide competitive advantage – national differences in both input and output markets,
scale economies and scope economies.
6. The CEO of Informatix Co., suggested to the board of directors that if the firm was going
to adopt a transnational strategy, rather than having treasury operations situated in the
headquarters, the company should relocate this operation to London in order to enhance
access to financial markets. Consequently, the treasury operations would still be
centralized, but situated in a different location. Flexible specialization, or excentralization,
is an important attribute of firms that adopt a transnational strategy.
7. Companies using multinational strategies are characterized by asset and capability
configurations that are dispersed, interdependent and specialized.
8. Having a city-specific strategy is always a better choice than country-specific strategy in
emerging markets.
9. Product diversification as a source of scope economics and shared external relations can
lead a company to use common distribution channels for multiple products.
10. The overall efficiency can be viewed as the ratio of the value of its outputs to the value of
its inputs.
Multiple Choice
11. Johnnie Walker’s advertising campaign “Keep Walking” is an example of which type of
strategy?
a. International
b. Multinational
c. Global
d. Transnational
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12. A “regional” strategy becomes feasible when:
a. Geographic regions or groups of countries are sufficiently large and internally
homogeneous markets but differ substantially from other regions or groups
b. Geographic regions or groups of countries are sufficiently small and internally
homogeneous markets but differ substantially from other regions or groups
c. Geographic regions or groups of countries are sufficiently large and internally
homogeneous markets but differ marginally from other regions or groups
d. Geographic regions or groups of countries are sufficiently small and internally
homogeneous markets but differ marginally from other regions or groups
13. If middle-class consumers’ ability to buy is low and their needs are global, a company
can develop which type of strategy to better serve them:
a. Shape or localize
b. Reinvent the business model
c. Create a platform
d. Target niche
14. In order to secure worldwide competitive advantage, a multinational firm should pursue
all of the following objectives, except:
a. the development of global-scale efficiencies.
b. the development of multinational flexibility.
c. the ability to develop innovation.
d. maximizing market share in all subsidiaries simultaneously.
15. Which of the following is not considered a source of global competitive advantage?
a. scale economies.
b. market leadership.
c. national differences.
d. scope economies.
16. Lindux Co., intends to enhance its competitive advantage by exploiting the national
differences that prevail in the countries that host its subsidiaries. Which of the following
is consistent with this intention?
a. moving the manufacture of labor-intensive components to Vietnam in order to
capitalize on the lower cost labor found in Vietnam.
b. hiring local managers for its foreign subsidiaries rather than employing expatriates.
c. centralizing the company’s R&D activities in the home country for reasons of
strategic security.
d. using a common distribution channel for multiple products.
17. Which of the following is not a benefit associated with higher production volumes?
a. exploiting scale economies.
b. enhancing innovation.
c. accumulating learning.
d. taking advantage of the learning curve effect to further reduce production costs.
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18. Which of the following best describes scope economies?
a. cost advantage resulting from production, development or distribution in more than
one country.
b. cost advantage resulting from large volume production, development or distribution.
c. cost advantage resulting from the joint production, development or distribution of
more than one product.
d. cost advantage resulting from the production, development or distribution of very
high quality products.
19. Which of the following explain why cost reduction occurs in the context of scope
economies?
a. high production volumes.
b. high production volumes and similarities in the resource requirements for different
products.
c. high production volumes and the tendency of the firm to fully exploit its existing
resources.
d. similarities in resource requirements for different products, as well as the tendency of
the firm to fully exploit its existing resources.
20. At the annual meeting of the board of directors of LabZaws Co., James Wilson, the CEO
of the company, was directed to focus primarily on enhancing the firm’s efficiency. How
could he achieve this objective?
a. focus on cost reduction alone.
b. focus on revenue enhancement alone.
c. focus on both cost reduction and revenue enhancement.
d. downsize and outsource many of the firm’s activities.
21. Which of the following strategies can be employed to enhance the efficiency of an MNE?
a. pursue scale and scope economies.
b. pursue scope economies alone.
c. benefit from inter-country differences in factor costs.
d. pursue both scale and scope economies, as well as benefit from inter-country
differences in factor costs.
22. Which of the following is not a source of environmental volatility?
a. macroeconomic risks.
b. risk ratings attributed to the MNE.
c. political risks.
d. resource risks.
23. Which of the following describes the strategic orientation of a transnational company?
a. focused on building flexibility to respond to national differences through strong,
resourceful and entrepreneurial national operations.
b. focused on developing global efficiency, flexibility and worldwide learning capability
simultaneously.
c. focused on building cost advantages through centralized, global scale operations.
d. focused on exploiting parent company knowledge and capabilities through worldwide
diffusion and adaptation.
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24. Which of the following describes the strategic orientation of a multinational company?
a. focused on developing global efficiency, flexibility and worldwide learning capability
simultaneously.
b. focused on exploiting parent company knowledge and capabilities through worldwide
diffusion and adaptation.
c. focused on building cost advantages through centralized, global scale operations.
d. focused on building flexibility to respond to national differences through strong,
resourceful and entrepreneurial national operations.
25. Which of the following best describes an international company’s asset and capability
configuration?
a. assets and capabilities are decentralized and nationally self-sufficient.
b. assets and capabilities are centralized and globally scaled.
c. assets and capabilities are dispersed, interdependent and specialized.
d. sources of core competences are centralized, while other assets and capabilities are
decentralized.
26. Which of the following best describes a global company’s asset and capability
configuration?
a. assets and capabilities are centralized and globally scaled.
b. core competences are centralized, while other assets and capabilities are decentralized.
c. assets and capabilities are dispersed, interdependent and specialized.
d. assets and capabilities are decentralized and nationally self-sufficient.
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27. Which of the following best describes a transnational company’s asset and capability
configuration?
a. assets and capabilities are centralized and globally scaled.
b. core competences are centralized, while other assets and capabilities are decentralized.
c. assets and capabilities are dispersed, interdependent and specialized.
d. assets and capabilities are decentralized and nationally self-sufficient.
28. How will global trends such as the increase in labor costs in some emerging markets (e.g.
China) impact national differences in the future and companies’ decisions to exploit them?
a. Companies should consider both the current state of cost differences and the future state
based on these trends, before they make a sound long-term commitment.
b. Some decisions may be economically viable based on the current differences but not as
much attractive in the future.
c. An economically viable decision is time-independent.
d. Options a and b are both correct.
Essay
29. On his way to a meeting with a colleague, Mike Thornville, CEO of Ajaxiss Co., was
debating how to explain the importance of national differences in both input and output
markets to Ajaxiss and the need to exploit these differences. If you were Mike, how
would you approach this conversation?
30. Describe different types of volatility in the global environment that force the MNE to
adjust its strategies.
31. Explain why some firms adopt a transnational strategy, while others adopt a multinational
strategy?
32. Cool-Colas Ltd. is a national beverage manufacturer situated in India. During the past
few years, the company has suffered intense competition from major multinationals such
as Coca Cola, Nestlé and Pepsi. What can Cool-Colas do to protect its domestic market?
33. As the CEO of an India based company, how will the rise of the middle class in India help
you expand the business?
34. According to an article in McKinsey Quarterly on June 2012 , about 40 percent of the growth
of the global economy over the next 15 years will be generated in 400 midsized emerging-
market cities. What are implications of this statement for MNEs in advanced and emerging
economies?
