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Answer Key
1. True
2. True
3. True
4. True
5. False
6. True
7. False
8. True
9. True
10. False
11. True
12. True
13. True
14. True
15. True
16. False
17. False
18. True
19. True
20. False
21. True
22. True
23. True
24. True
25. True
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26. True
27. False
28. True
29. False
30. True
31. False
32. True
33. True
34. True
35. True
36. True
37. True
38. True
39. True
40. False
41. False
42. True
43. False
44. True
45. False
46. True
47. True
48. False
49. True
50. False
51. True
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52. True
53. True
54. False
55. True
56. True
57. True
58. True
59. False
60. a
61. d
62. b
63. c
64. c
65. c
66. b
67. d
68. c
69. b
70. d
71. d
72. a
73. d
74. b
75. c
76. b
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77. c
78. c
79. b
80. c
81. b
82. c
83. a
84. a
85. a
86. d
87. c
88. a
89. a
90. a
91. c
92. c
93. b
94. a
95. d
96. d
97. a
98. b
99. a
100. b
101. d
102. d
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103. d
104. d
105. d
106. a
107. b
108. d
109. c
110. d
111. c
112. a
113. d
114. c
115. b
116. b
117. c
118. c
119. d
120. b
121. c
122. a
123. a
124. International corporate strategy focuses on the scope of a firm’s operations through both product and geographic
diversification. The three basic international corporate-level strategies vary on the need for local responsiveness to the
market and the need for global integration. The multi-domestic strategy focuses on competition within each country in
which the firm operates. Firms employing a multi-domestic strategy decentralize strategic and operating decisions to the
strategic business units operating in each country so business units can customize their goods and services to the local
market. The use of global integration in this strategy is low. The global strategy assumes more standardization of product
demand across country boundaries. Therefore, competitive strategy is centralized and controlled by the home office,
placing high emphasis on global integration of operations. The strategic business units in each country are interdependent
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acquisitions with the complication of a different culture, legal system and regulatory requirements. Acquisitions are
expensive and usually involve debt-financing. The most expensive and risky means of entering a new international market
is through the establishment of a new, wholly owned subsidiary or greenfield venture. Alternatively, it provides the
advantages of maximum control for the firm and, if successful, potentially the greatest returns as well. This alternative is
suitable for firms with strong intangible capabilities and/or proprietary technology. The risks are high because of the
challenges of operating in an unfamiliar environment. The company must build new manufacturing facilities, establish
distribution networks, and learn and implement new marketing strategies.
128. Firms derive three basic benefits by successfully using international strategies: (1) increased market size, (2)
economies of scale and learning, and (3) advantages of location. Increased market size is achieved by expansion beyond
the firm’s home country. International expansion increases the number of potential customers a firm may serve. Starbucks
is a firm that has increased its market size through international expansion (Opening Case). Other firms such as Coca Cola
and PepsiCo have moved into international markets primarily because of limited growth opportunities in their domestic
markets. Economies of scale and learning is a second benefit. Leveraging a technology beyond the home country allows
for more units to be sold and initial investments recovered more quickly. Rivals Airbus and Boeing have multiple
manufacturing facilities and outsource some activities in order to gain scale advantages. Lastly, advantages of location
can be realized through internationalization. These advantages include access to low-cost labor, critical resources, or
customers.
129. International diversification carries multiple risks. The major risks are political and economic. Political risks are
related to governmental instability and to war. Instability in a government creates economic risks and uncertainty created
by government regulation. Governmental instability can result in the existence of many potentially conflicting legal
authorities, corruption, and the risk of nationalization of company assets. Economic risks are related to political risks.
Economic risks include the increased trend of counterfeit products and the lack of global policing of these products.
Another economic risk is the perceived security risk of a foreign firm acquiring firms that have key natural resources or
firms that may be considered strategic in regard to intellectual property. In addition, differences in and fluctuations of the
value of different currencies is another economic risk. The security risk created by terrorism prevents U.S. firms from
investing in some regions. The relative strength or weakness of the dollar affects international firms’ competitiveness in
certain markets and their returns.
1. Evidence suggests that, in general, using an international cost leadership strategy when exporting to developed
countries has the most positive effect on firm performance while using an international differentiation strategy with larger
scale when exporting to emerging economies leads to the greatest amounts of success.
a.
True
b.
False
2. Exporting and licensing are the most appropriate ways for smaller firms to first enter international markets.
a.
True
b.
False
3. By choosing a region where markets are more similar, the firm may be able to better understand those markets and cater
to their needs, but also achieve economies through sharing of resources.
a.
True
b.
False
4. One reason why firms pursue international opportunities is to extend the product’s life cycle.
a.
True
b.
False
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5. While there are multiple means of entering new international markets, firms should use one method consistently with
all of its various products and across its different markets in order to reduce administrative complexity.
a.
True
b.
False
6. Although leaders in Russia have tried to reassure potential investors about their property rights, political risks in the
form of weak laws and commonplace government corruption make firms leery of investing in Russia.
a.
True
b.
False
7. The three corporate-level international strategies are cost leadership, differentiation, and focus.
a.
True
b.
False
8. The “regionalization” environmental trend means that firms can focus on a region (customization) but also have some
standardization or sharing within the region.
a.
True
b.
False
9. The firm using a global strategy seeks to develop economies of scale as it produces the same or virtually the same
products for distribution to customers throughout the world who are assumed to have similar needs.
a.
True
b.
False
10. Coca Cola and PepsiCo are examples of firms that have found it unnecessary to aggressively pursue international
strategies because of extensive growth opportunities available in the U.S. market.
a.
True
b.
False
11. A transnational strategy is difficult to use because of its conflicting goals.
a.
True
b.
False
12. When a firm initially pursues an international business-level strategy, the resources and capabilities established in the
home country frequently allow the firm to pursue the strategy into markets located in other countries.
a.
True
b.
False
13. Some of the costs incurred by firms pursuing international diversification may derive from higher coordination
expenses, trade barriers, and lack of familiarity with local cultures.
a.
True
b.
False
14. The high cost of transportation, expense of tariffs, and loss of control are three disadvantages of exporting.
a.
True
b.
False
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15. International diversification can help to reduce a firm’s overall risk through the stabilization of returns.
a.
True
b.
False
16. Although licensing is the least costly method to enter a foreign market, its disadvantages include high costs of
transportation and low control over the marketing and distribution of goods.
a.
True
b.
False
17. Because of the lack of protection of intellectual property in some foreign countries, licensing arrangements are one of
the best ways for a firm to protect its technology from being appropriated by potential competitors.
a.
True
b.
False
18. After a firm decides to compete internationally, it must select its strategy and choose a mode of entry into international
markets.
a.
True
b.
False
19. Multinational firms have many opportunities to learn from their experiences in international markets, but they must
have a strong R&D system to absorb the knowledge.
a.
True
b.
False
20. Establishing a wholly-owned subsidiary provides the quickest access to a new market.
a.
True
b.
False
21. Four types of distances are associated with the liability of foreignness: cultural, administrative, geographic, and
economic.
a.
True
b.
False
22. Research suggests that the performance of the global strategy is enhanced if it deploys in areas where regional
integration across countries is occurring.
a.
True
b.
False
23. A company that chooses a truly global corporate-level strategy assumes that the liability of foreignness will be
minimal.
a.
True
b.
False
24. The greenfield venture option is useful when control of proprietary technology is important in an international
expansion.
a.
True
b.
False
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25. A major advantage of multi-domestic strategies is the ability to customize products and services for the specific
market, although this sacrifices economies of scale.
a.
True
b.
False
26. In place of relatively stable and predictable domestic markets, firms across the globe find that they are competing in
relatively unstable and unpredictable global markets.
a.
True
b.
False
27. Even if effectively implemented, the transnational strategy often produces lower performance than does the
implementation of either the multi-domestic or global strategies.
a.
True
b.
False
28. International diversification is a strategy through which a firm expands the sale of its goods and services across
borders of global regions and countries into a potentially large number of geographic locations of markets. Instead of
entering one or a few markets, international diversification means that the firm enters multiple markets.
a.
True
b.
False
29. Location advantages are influenced by costs of production, access to natural resources and critical supplies, as well as
the needs of customers, but not culture.
a.
True
b.
False
30. Both the size and the nature of a country’s domestic demand for a particular industry’s good or service are important in
Porter’s determinants of national advantage.
a.
True
b.
False
31. Strategic alliances tend to increase the risk associated with international expansion for the U.S. partner because of the
greater dependence on the foreign firm.
a.
True
b.
False
32. A major incentive for the use of international strategy by French-based Carrefour Group is the potential for large
demand for goods and services from emerging markets such as China and India.
a.
True
b.
False
33. Cultural differences affect location advantages in that business transactions are less difficult for a firm to complete
when there is a strong match among the cultures with which the firm is involved.
a.
True
b.
False
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34. Michael Porter’s Determinants of National Advantage describe factors associated with the firm’s domestic
environment that contribute to its dominance in a particular global industry.
a.
True
b.
False
35. The amount of diversification in a firm’s international operations that can be managed varies from company to
company and is affected by managers’ abilities to deal with ambiguity and complexity.
a.
True
b.
False
36. A transnational strategy is an international strategy in which the firm seeks to achieve both global efficiency and local
responsiveness.
a.
True
b.
False
37. Export, licensing, and the strategic alliance entry modes are all appropriate for early market development.
a.
True
b.
False
38. A reason that firms use international strategies is to secure needed resources, especially minerals and energy.
a.
True
b.
False
39. An increase in the value of the U.S. dollar is an example of an economic risk in that it can reduce the value of U.S.
multinational firms’ international assets and earnings in other countries.
a.
True
b.
False
40. South Korea’s success in international markets is primarily a result of its abundant natural resources.
a.
True
b.
False
41. A multi-domestic strategy is an international strategy in which a firm’s home office determines the strategies business
units are to use in each region.
a.
True
b.
False
42. The growing number of global competitors heightens the requirements to keep costs down and there is the desire for
more specialized products to meet customer needs. These two pressures make transnational strategies increasingly
necessary.
a.
True
b.
False
43. A U.S. manufacturer of pigments for household paint that exports about 40 percent of its production to European
markets will find its sales will be harmed by a weak dollar.
a.
True
b.
False
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44. The global strategy offers greater opportunities to take innovations developed at the corporate level or in one market
and apply them to other markets.
a.
True
b.
False
45. Because there are still several industrial and consumer markets in which only domestic firms compete, many firms do
not have to be able to compete internationally.
a.
True
b.
False
46. As an indication of the importance of economies of scale, Ford Motor Company runs a single global business
developing cars and trucks that can be built and sold through the world.
a.
True
b.
False
47. Italy has become the leader in the shoe industry because of related and supporting industries such as a well-established
leather-processing industry that provides the leather needed to construct shoes and related products.
a.
True
b.
False
48. Research suggests that wholly owned subsidiaries and expatriate staff are inappropriate for service industries because
those industries require close contact with customers, high levels of professional skills, specialized know-how, and
customization.
a.
True
b.
False
49. Rivals Airbus and Boeing have multiple manufacturing facilities and outsource activities partly for the purpose of
developing economies of scale as a source of being able to create value for customers.
a.
True
b.
False
50. Having substantial supplies of critical basic natural resources is a necessary condition for a country to support
businesses that can successfully compete in international markets.
a.
True
b.
False
51. Research has shown that, as international diversification increases, firms’ returns decrease initially but then increase
quickly as firms learn to manage international expansion.
a.
True
b.
False
52. Fluctuation in the value of different currencies is a major economic risk associated with international diversification.
a.
True
b.
False
53. International associations such as the European Union, the Organization of American States, and the North American
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Free Trade Association encourage regionalization of competition rather than globalization.
a.
True
b.
False
54. When the country risk is high, firms prefer to enter with a greenfield investment rather than a joint venture.
a.
True
b.
False
55. The three basic benefits of international strategies are 1) increased market size; 2) increased economies of scale and
learning; and 3) development of competitive advantages through location.
a.
True
b.
False
56. Acquisitions, greenfield ventures, and sometimes joint ventures are appropriate when firms want to establish a strong
presence in an international market.
a.
True
b.
False
57. In some industries, technology drives globalization because the economies of scale necessary to reduce costs cannot
be met by competing in domestic markets alone.
a.
True
b.
False
58. A firm based in a country with a national competitive advantage is not guaranteed success as it implements its chosen
international business-level strategy. Instead, the actual strategic choices managers make may be the most compelling
reasons for success or failure.
a.
True
b.
False
59. The chief risks in the international environment are political and cultural.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
60. Internationally diversified firms:
a.
earn greater returns on their innovations through larger or more numerous markets.
b.
are more likely to produce below-average returns for investors in the long run.
c.
may need to decrease international activities when domestic profits are poor.
d.
are generally unable to achieve high levels of synergy because of differences in cultures.
61. In Porter’s model, if a country has both ________ and __________ production factors, it is likely to serve an industry
well by spawning strong home-country competitors that can also be successful global competitors.
a.
basic; advanced
b.
advanced; generalized
c.
basic; generalized
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d.
advanced; specialized
62. Most firms enter international markets sequentially, introducing their ____ first.
a.
most innovative products
b.
largest and strongest lines of business
c.
most generic products, which will be more likely to generate universal product demand,
d.
products customized to the region
63. _________ is the set of costs associated with unfamiliar operating environments; economic, administrative and
cultural differences; and the challenges of coordination over distances.
a.
Transnational risk
b.
Regionalization
c.
Liability of foreignness
d.
International risk
64. The choices that a firm has for entering the international market include all of the following EXCEPT:
a.
exporting.
b.
licensing.
c.
leasing.
d.
acquisition.
65. In addition to the four basic dimensions of Porter’s “diamond” model, ____ may also contribute to the success or
failure of firms.
a.
national work ethic
b.
educational requirements
c.
government policy
d.
national pride
66. In France, fine dressmaking and tailoring have been a tradition predating Queen Marie Antoinette. Cloth
manufacturers, design schools, craft apprenticeship programs, modeling agencies, and so forth, all exist to supply the
clothing industry. This is an example of the ____ in Porter’s model.
a.
strategy, structure, and rivalry among firms
b.
related and supporting industries
c.
demand conditions
d.
factors of production
67. The benefits of expanding into international markets include each of the following opportunities EXCEPT:
a.
increasing the size of the firm’s potential markets.
b.
economies of scale and learning.
c.
location advantages.
d.
favorable tax concessions and economic incentives by home-country governments.
68. The four aspects of Porter’s model of international competitive advantage include all of the following EXCEPT:
a.
factors of production.
b.
demand conditions.
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c.
political and economic institutions.
d.
related and supporting industries.
69. An international diversification strategy is one in which a firm:
a.
expands into nearby markets.
b.
expands into a potentially large number of geographic locations and markets.
c.
expands into one or a few markets.
d.
acquires a firm in a foreign country.
70. Which of the following is NOT a disadvantage of international acquisitions?
a.
They are very expensive and often require debt financing.
b.
The acquiring firm has to deal with the regulatory requirements of a host country.
c.
Merging the acquired and acquiring firm is difficult.
d.
It is the slowest way to enter a new market.
71. Factors of production in Porter’s model of international competitive advantage include all of the following EXCEPT:
a.
labor.
b.
capital.
c.
infrastructure.
d.
technology.
72. Which of the following is NOT a disadvantage associated with exporting?
a.
Potential loss of proprietary technologies
b.
High transportation costs
c.
Loss of control over distribution activities
d.
Tariffs imposed by local governments
73. A global strategy:
a.
is easy to manage because of common operating decisions across borders.
b.
achieves efficient operations without sharing resources across country boundaries.
c.
increases risk because decision making is centralized at the home office.
d.
lacks responsiveness to local markets.
74. All of the following are international corporate-level strategies EXCEPT the ____ strategy.
a.
multi-domestic
b.
universal
c.
global
d.
transnational
75. The decision of what entry mode to use is primarily based on all of the following factors EXCEPT:
a.
the industry’s competitive conditions.
b.
the country’s situation and government policies.
c.
the worldwide economic situation.
d.
the firm’s unique set of resources, capabilities, and core competencies.