ESSENTIALS OF STRATEGIC MANAGEMENT, 3RD EDITION
CHAPTER 6
Strategy in the Global Environment
Name: __________________________ Date: _____________
1. T F Rivalry for any company is understood by examining what happens only within the
boundaries of its home country.
2. T F Global strategy affects firms only at the corporate level.
3. T F The globalization of production has been increasing as companies take advantage of lower
barriers to international trade and investment to disperse important parts of their production process
around the globe.
4. T F Many believe that the world’s economic system is moving toward a system in which national
markets are merging into one huge global marketplace.
5. T F Expanding globally can enable a company to increase its profitability and grow its profits
more rapidly.
6. T F The average tariff rate on manufactured goods traded between advanced nations has fallen
from around 40 percent to under 4 percent.
7. T F The volume of world merchandise trade has grown slower than the world’s economy since
1950.
8. T F The trend toward the globalization of production and markets is on the rise because industry
boundaries do not stop at national borders.
9. T F The shift from national to global markets has intensified competitive rivalry in industry after
industry.
Chapter 6: Strategy in the Global Environment 51
10. T F A company can increase it growth rate by taking goods or services developed at home and
selling them internationally.
11. T F The success of many multinational companies is based only upon the goods or services they
sell in foreign nations.
12. T F Proctor & Gamble’s global success was based only on its portfolio of consumer goods.
13. T F Walmart opened its first stores in Mexico in 1993.
14. T F Location economics benefits arise from performing a value creation activity in the location
optimal for that activity, wherever in the world that might be.
15. T F Companies that compete in the global marketplace typically face two types of competitive
pressures, cost reductions and expanding globally.
16. T F Universal needs exist when the tastes and preferences of consumers in different nations are
similar if not identical.
17. T F Responding to pressures to be locally responsive requires that a company differentiate its
products and marketing strategy.
18. T F Companies pursuing a low-cost strategy on a global scale are following a global
standardization strategy.
19. T F A transnational strategy makes the most sense when there are strong pressures for cost
reductions and demand for local responsiveness is minimal.
52 Chapter 6: Strategy in the Global Environment
20. T F A localization strategy involves manufacturing global output in a limited number of
centralized locations to realize scale economies.
21. T F A localization strategy is most appropriate when there are substantial differences across
nations with regard to consumer tastes and preferences, and where cost pressures are not too intense.
22. T F In companies following a transnational strategy, the flow of skills and product offerings moves
in one direction—from the home company to foreign subsidiaries.
23. T F Companies that pursue a global standardization strategy are trying to develop a business
model that simultaneously achieves low costs and differentiates the product offering across
geographic markets.
24. T F Through transnational strategy a firm tries to achieve low costs, product differentiation across
geographic markets, and foster skills among different subsidiaries.
25. T F An international strategy may not be viable in the long term, and to survive, companies that
are able to pursue it might ultimately need to shift towards a global standardization strategy.
26. T F An international strategy is appropriate when firms face high cost pressures and low
pressures for local responsiveness.
27. T F Companies pursuing an international strategy tend to centralize product development
functions, such as R&D at home.
28. T F Companies following an international strategy avoid any attempt at local customization of
product offering.
29. T F A problem with the international strategy is that over time, competitors inevitably emerge,
and if managers do not take pro-active steps to reduce their cost structure, their company may be
rapidly out-flanked by efficient global competitors.
30. T F MTV is a good example of a company that has had to pursue a localization strategy by
varying its programming to match the demands of viewers in different nations.
Chapter 6: Strategy in the Global Environment 53
31. T F Most manufacturing companies begin their global expansion via international licensing.
32. T F One advantage of exporting is that it avoids the cost of establishing manufacturing operations
in the host country.
33. T F Sony came to dominate the global television market via franchising.
34. T F International licensing is an arrangement whereby a foreign licensee buys the rights to
produce a company’s product in the licensee’s country for a negotiated fee.
35. T F When a company licenses its technology, it can quickly lose control over it.
36. T F One advantage of joint ventures is that a company may benefit from a local partner’s
knowledge of the many dimensions of a host country.
37. T F Establishing a wholly owned subsidiary is generally the least costly method of serving a
foreign market.
38. T F Franchising is a specialized form of licensing in which the franchiser sells the franchisee
intangible property (normally a trademark) and insists that the franchisee agree to abide by strict
rules about how it does business.
39. T F Many of the issues that arise in the case of technological know-how do not arise in the case of
management know-how.
40. T F The greater the pressures for cost reduction are, the more likely it is that a company will want
to pursue some combination of exporting and wholly owned subsidiaries.
54 Chapter 6: Strategy in the Global Environment
41. The globalization of production has allowed firms to
a) increase their market share.
b) lower their cost structure.
c) respond to individual market segments.
d) avoid international competition.
e) meet all of these goals.
42. Which of the following is not an implication of the globalization of production and markets for
competition within an industry?
a) Industry boundaries do not stop at national borders so managers must understand what is
happening globally.
b) Increasing competitive rivalry in numerous industries
c) Creation of significant opportunities
d) Profit potential of any company rests on their international strategy.
e) All of these are implications of the globalization of production and markets.
43. Global expansion
a) is feasible only for large companies.
b) can enable companies to increase their profitability and grow their profits more rapidly.
c) allows domestic companies in the mature stage of the industry life cycle to maintain profits but
not to increase them.
d) requires locating facilities in foreign countries.
e) makes sense for manufacturing firms, but not for service firms.
44. Which of the following is not one of the ways in which expanding globally can enable companies to
increase their profitability and grow their profits more rapidly?
a) Leveraging existing products in new markets.
b) Realizing economies of scale.
c) Locating in foreign countries with significant trade barriers.
d) Realizing location economies.
e) Leveraging skills created within subsidiaries applying them to other operations.
45. When a company increases its growth rate by taking goods or services developed at home and selling
them internationally it is
a) leveraging its existing products.
b) taking the path of least resistance.
c) engaging in product positioning.
d) realizing cost economies from global expansion.
e) realizing location economies.
46. When a company expands its sales volume through international expansion it can realize cost savings
from economies of scale through all of the following except
a) spreading fixed costs over its global sales volume.
b) utilizing its production facilities more intensely.
c) increased bargaining power with its suppliers.
d) improved customer responsiveness.
e) all of these are ways that a company can realize cost savings from economies of scale.
47. When a company performs a value creation activity in the optimal location for that activity, wherever
in the world that might be, they are trying to capitalize on
a) location economies
b) economies of scope.
c) the transnational strategy.
d) economies of scale.
e) their localization strategy.
48. When Dell opened a service call center in India to take advantage of an educated, English-speaking
workforce and lower its costs, it was realizing which of the following benefits of global expansion?
a) Economies of scale
b) Leveraging organizational skills
c) Leveraging competencies
d) Location economies
e) None of these
49. Responding to pressures for cost reductions requires that a company try to minimize its
____________.
a) overhead costs.
b) tangible asset costs.
c) unit costs.
d) intangible asset costs.
e) none of the above.
50. Which of the following does not allow a company to reduce unit costs?
a) Outsourcing some functions to low-cost foreign suppliers
b) Customizing the product to meet local requirements
c) Realizing location economies
d) Pushing its suppliers to outsource some functions to low-cost foreign suppliers
e) Performing an activity at the lowest-cost location
56 Chapter 6: Strategy in the Global Environment
51. Which of the following factors increases pressures for cost reductions?
a) Differences in distribution channels between home and foreign markets are modest.
b) Increasing national wealth is expanding the market.
c) The product has great transportation needs.
d) The product has high switching costs.
e) Differentiation on nonprice factors is difficult, and price is the main competitive weapon in a
market.
52. Which of the following factors increases pressures for local responsiveness?
a) Differences in customer tastes and preferences
b) Persistent excess capacity
c) Low-cost competitors
d) Powerful buyers
e) High international trade barriers
53. When toy maker Mattel sells Barbie dolls in the Middle East, it changes the doll’s shape to one that is
a more accurate portrayal of a female body. Mattel does this in order to
a) create a commodity-type product.
b) transfer technological know-how.
c) respond to differences in local tastes.
d) realize experience curve effects.
e) increase product standardization
54. Differences in tastes and preferences
a) increase pressures for cost reductions.
b) reduce profit potential.
c) prevent a company from pursuing a licensing strategy
d) reduce pressures from the host government.
e) increase pressures for local responsiveness.
55. Host government demands generally
a) discourage foreign companies from operating in the home country.
b) increase pressures for cost reductions.
c) increase pressures for local responsiveness.
d) impede a company’s ability to minimize its transaction costs.
e) impede a company’s ability to differentiate its product offering across national borders.\
Chapter 6: Strategy in the Global Environment 57
56. In which of the following circumstances does a global standardization strategy make the most sense?
a) Global market standardization is not possible, and there are no significant economies of scale to
be realized from centralizing global manufacturing.
b) Global market standardization is possible, but there are no significant economies of scale to be
realized.
c) Global market standardization is not possible, but there are significant economies of scale to be
realized from centralizing global manufacturing.
d) Consumer tastes and preferences differ among national markets, and economies of scale are
insubstantial.
e) Global market standardization is possible, and there are significant economies of scale and
location economies to be realized.
57. A global standardization strategy is most appropriate in an industry in which pressures for cost
reductions are ____________ and pressures for local responsiveness are ___________.
a) low; high
b) high; high
c) low; low
d) high; low
e) variable; high
58. A company with a business-level strategy of cost leadership should pursue which of the following
global expansion strategies?
a) Localization
b) Global standardization
c) International
d) Transnational
e) Simple
59. A commodity oil producer would probably achieve the highest level of profitability with a(n)
___________ strategy.
a) global standardization
b) international
c) localization
d) transnational
e) focus
60. A localization strategy is most appropriate in an industry in which pressures for cost reductions are
_________ and pressures for local responsiveness are _________.
a) high; high
b) high; low
c) low; low
d) low; high
e) variable; high
58 Chapter 6: Strategy in the Global Environment
61. A localization strategy is based on which of the following ideas?
a) There is a convergence in the tastes of consumers in different nations of the world.
b) There are substantial economies of scale to be realized from centralizing global production.
c) Consumer tastes and preferences differ among national markets.
d) There are cost advantages associated with manufacturing a standard product for global
consumption.
e) Competitive strategy should be centralized at the world head office.
62. If a company wishes to achieve high local customization and it can charge higher prices for this
customization, a company should pursue a(n) __________ strategy.
a) transnational
b) global standardization
c) international
d) localization
e) simple
63. All of the following are consistent for a company pursuing a transnational strategy except
a) achieve low costs.
b) differentiate the product offering across geographic markets.
c) increasing profitability.
d) foster a flow of skills.
e) focus on leveraging subsidiary skills.
64. Pursuing an international strategy includes all of the following except
a) centralize product development at home.
b) establish manufacturing functions in each major country.
c) international licensing
d) establish marketing functions in each major country.
e) All of the above
65. A telecommunications firm develops new wireless cellular phones, a technology in which foreign
competition is low and the need for local responsiveness is low. What is the most appropriate short-
term strategy for this firm?
a) Global standardization
b) International
c) Localization
d) Transnational
e) Forming a joint venture
Chapter 6: Strategy in the Global Environment 59
66. Which of the following is not a drawback to licensing?
a) A company does not have tight control over operations in foreign countries.
b) Licensing limits a company’s ability to coordinate strategy.
c) A company may lose control of technological know-how.
d) A company‘s brand could become damaged if the licensee does not perform up to established
standards.
e) All of these are drawbacks to licensing.
67. If a company lacks the capital to develop operations overseas and/or they are unwilling to commit
resources to an unfamiliar or politically volatile foreign market, which of the following entry options
is the most viable?
a) International licensing
b) Setting up a wholly owned subsidiary
c) Joint venture
d) Franchising
e) Global standardization
68. A company that enters a foreign market by entering into a licensing agreement with a local company
a) will realize location economies.
b) must engage in global strategic coordination.
c) will realize experience curve effects.
d) risks losing control over its technology to the venture partner.
e) must engage in global strategic coordination and will realize experience curve effects.
69. For a hotel company whose competitive advantage is based on high brand name recognition, which of
the following ways of serving an overseas market makes the most sense?
a) Exporting
b) Licensing
c) Franchising
d) Entering into a joint venture with a foreign company
e) Setting up a wholly owned subsidiary
70. Which entry mode gives a multinational the tightest control over foreign operations?
a) Exporting from the home country and letting a foreign agent organize local marketing
b) Licensing
c) Franchising
d) Entering into a joint venture with a foreign company to set up overseas operations
e) Setting up a wholly owned subsidiary
60 Chapter 6: Strategy in the Global Environment
71. Which of the following entry modes is generally the most costly method of serving a foreign market?
a) Exporting
b) Wholly owned subsidiaries
c) Joint ventures
d) Licensing
e) Joint ventures and wholly owned subsidiaries are equally costly.
72. Identify and discuss the general ways in which companies can increase their profitability and profit
growth through global expansion.
73. Consider the case of a family-owned furniture making business, headquartered in the U.S., with
fewer than 50 employees, that is contemplating exporting its products for the first time. What market
do you recommend it enter, and when and how should it enter? Explain your answers.
74. Whirlpool, a leading U.S. maker of household appliances, has a wholly owned subsidiary that is
responsible for R&D, manufacturing, and sales in over two dozen European countries, from Norway
to Greece. What are some of the potential advantages that Whirlpool may gain from its use of a
wholly owned subsidiary for global expansion? What are some of the potential disadvantages?