Global Business Today, 11e (Hill)
Chapter 12 The Strategy of International Business
1) A strategic alliance is a cooperative agreement between potential or actual competitors.
2) Profit growth is measured by the percentage increase in a company’s total production over time.
3) 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.
4) Consumer surplus captures some of the value of a product, which reduces the price a firm can
charge for it.
5) A strategy that focuses primarily on increasing the manufacturing rate of a product is referred to
as a low-cost strategy.
6) According to Michael Porter, one way to create superior value is to differentiate the product so
that consumers are willing to pay a premium price.
7) In terms of attaining a competitive advantage, support activities can be as important as the
primary activities of the firm.
8) The information system of a company is an example of a support activity.
9) The term mini-multinational refers to the totality of a firm’s organization, including
organization architecture, control systems and incentives, organizational culture, processes, and
people.
10) 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.
11) A firm’s core competencies refers to those activities that are easily matched by competitors.
12) Location economies are the economies that arise from performing a value creation activity in
the optimal location for that activity, wherever in the world that might be.
13) The experience curve refers to systematic increases in production costs that have been
observed to occur over the life of a product.
15) The ability to spread fixed costs over a large volume is a source of economies of scale.
16) Moving down the experience curve means higher costs of increasing value and lower levels of
profitability for a firm.
17) Strategies that increase profitability can also expand a firm’s business and thus enable it to
attain a higher rate of profit growth.
18) Universal needs exist when the tastes and preferences of consumers in different nations are
identical.
19) Varying distribution channels among countries may make it necessary for a company to place
marketing functions within national subsidiaries.
20) 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.
21) Strong pressures for cost reductions are a good reason to use a global standardization strategy.
22) A localization strategy focuses on using mass production of product to meet general tastes and
preferences.
23) According to researchers, firms facing strong cost pressures and pressures for local
responsiveness should pursue a global standardization strategy.
24) An international strategy involves taking products first produced for their domestic market and
selling them internationally with only minimal local customization.
25) Acquiring an existing company in a foreign nation is an example of a strategic alliance.
26) The rate of return that a firm makes on its invested capital is referred to as
A) stakeholder return.
B) profitability.
C) profit growth.
D) process value.
E) strategic fit.
27) How does a company measure profit growth?
A) by dividing the net profits of the firm by total invested capital
B) by subtracting the previous year’s gross profit from the current year’s gross profit
C) by calculating the difference between the previous year’s profitability and the current year’s
profitability
D) by finding the percentage increase in net profits over time
E) by adding the profitability of the last two fiscal years
28) 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
A) $38.
B) $50.
C) $10.
D) $28.
E) $15.
29) 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
A) $59.
B) $31.
C) $10.
D) $28.
E) $272.
30) In general, the more value customers place on a firm’s products, the more it leads to
A) less profit for the firm.
B) higher competitive pressure from other firms.
C) lesser the quality of the product.
D) lesser the consumer surplus for those products.
E) higher prices the firm can charge for those products.
31) Consumer surplus results when companies charge a lower price for products than the value
placed on them by customers. This occurs because
A) the value creation results in a corresponding reduction in costs of production.
B) it is highly unlikely that the same good or service will be available to the customers from other
firms.
C) the firm is competing with other firms for the customer’s business.
D) the firm charges a price that reveals a consumer’s assessment of the product’s value.
E) the firm creates value for the customer by producing a wide range of products.
32) 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.
A) producer surplus
B) reservation price
C) value price
D) efficiency frontier
E) competitive advantage.
33) Karina believes the value of a wristwatch sold at $160 is $250. In this scenario, the $250 value
is referred to as the
A) market price.
B) customer’s negotiated price.
C) base value of the product.
D) customer’s reservation price.
E) profit growth price.
34) 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?
A) Dell can easily increase its price above $300.
B) The profit for Dell on each computer is $150.
C) The consumer surplus per computer is $25.
D) The higher the intensity of competitive pressure, the higher the price that Dell can charge
relative to $300.
E) The lower the consumer surplus, the greater the value for the money the consumer gets.
35) 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
A) consumer surplus.
B) value creation.
C) cost curve.
D) value efficiency.
E) customer reservation.
36) 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
A) standardization
B) differentiation
C) target-identification
D) low-cost
E) profitability
37) According to Michael Porter, what are the two basic strategies for creating value and attaining
a competitive advantage in an industry?
A) differentiation and low-cost
B) value creation and generalization
C) one-size-fits-all and zero-sum
D) comparison and standardization
E) profitability and strategic fit
38) 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
A) low-cost.
B) differentiation.
C) value transfer.
D) efficiency frontier.
E) diversification.
39) According to Michael Porter, superior profitability goes to a firm that
A) creates products similar to their competitors.
B) keeps the gap between value and cost of production smaller than the gap attained by
competitors.
C) drives down the cost structure of its business.
D) has the highest cost structure in the industry.
E) has the least valuable product in the industry.
40) 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.
A) purchasing power parity
B) experience curve
C) efficiency frontier
D) optimal output model
E) supply-and-demand curve
41) 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.
A) tragedy of the commons
B) diminishing returns
C) the Sullivan principle
D) supply-and-demand
E) purchasing power parity
42) 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
A) entrepreneurism.
B) a low-cost strategy.
C) consumer surplus.
D) diminishing returns.
E) offshoring.
43) According to the basic strategy paradigm, a firm maximizes its profitability when it
A) creates products similar to the products of its competitors.
B) minimizes the value provided by its products.
C) picks a position on the efficiency frontier in which there is little support for their choice.
D) strips all the value out of its product offering.
E) configures internal operations to support the position selected by it on the efficiency frontier.
44) The value creation activities of a firm are categorized as
A) primary activities and support activities.
B) strategic activities and functional activities.
C) ancillary functions and tertiary functions.
D) primary activities and core activities.
E) goal-oriented activities and organizational activities.
45) StickyGlue Corp. creates adhesives used in the construction business. A primary activity in the
operations of StickyGlue Corp. would be
A) logistics.
B) research and development.
C) information systems.
D) human resources.
E) company infrastructure.
46) For Bank of America, the “production” activity typically occurs when the
A) customer specifies the service requirements.
B) service is paid for by the customer.
C) service is designed in-house.
D) service is delivered to the customer.
E) customer provides feedback.
47) What is a support activity in the operations of a firm?
A) research and development
B) customer service
C) marketing and sales
D) creation and maintenance of information systems
E) production