Chapter 13 The Strategy of International Business
True / False Questions
1.
A firm’s strategy can be defined as the actions that managers take to attain
the goals of the firm.
TRUE
A firm’s strategy can be defined as the actions that managers take to attain
the goals of the firm.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
2.
The preeminent strategic goal for most firms is to maximize the value of the
firm for its owners.
TRUE
A firm’s strategy can be defined as the actions that managers take to attain
the goals of the firm. For most firms, the preeminent goal is to maximize the
value of the firm for its owners, its shareholders.
Difficulty: 1 Easy
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
3.
Profit growth is measured by the percentage increase in net profits over
time.
TRUE
Profit growth is measured by the percentage increase in net profits over
time. In general, higher profitability and a higher rate of profit growth will
increase the value of an enterprise and thus the returns garnered by its
owners, the shareholders.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
4.
The amount of value a firm creates is measured by the difference between
its costs of production and the price that it charges for its products.
FALSE
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.
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
5.
The customer is able to garner the benefit of the consumer surplus because
one firm is competing with other firms for the customer’s business, so the
firm must charge a lower price than it could if it were a monopoly supplier.
TRUE
The price a firm charges for a good or service is typically less than the value
placed on that good or service by the customer. This is because the
customer captures some of that value in the form of what economists call a
consumer surplus. The customer is able to do this because the firm is
competing with other firms for the customer’s business, so the firm must
charge a lower price than it could, were it a monopoly supplier.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
6.
According to Porter, the way to create superior value is to drive down the
cost structure of the business and/or differentiate the product in some way
so that consumers value it more.
TRUE
Michael Porter has argued that low cost and differentiation are two basic
strategies for creating value and attaining a competitive advantage in an
industry. According to Porter, superior profitability goes to those firms that
can create superior value, and the way to create superior value is to drive
down the cost structure of the business and/or differentiate the product in
some way so that consumers value it more and are prepared to pay a
premium price.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
7.
Diminishing returns imply that when a firm already has significant value
built into its product offering, increasing value by a relatively small amount
requires significant additional costs.
TRUE
Diminishing returns imply that when a firm already has significant value
built into its product offering, increasing value by a relatively small amount
requires significant additional costs.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
8.
For a firm, all positions on the efficiency frontier are viable.
FALSE
Not all positions on the efficiency frontier are viable. In the international
hotel industry, for example, there might not be enough demand to support a
chain that emphasizes very low cost and strips all the value out of its
product offering. International travelers are relatively affluent and expect a
degree of comfort (value) when they travel away from home.
9.
The strategy, operations, and organization of a firm must all be consistent
with each other if the firm is to attain a competitive advantage and achieve
superior profitability.
TRUE
The strategy, operations, and organization of the firm must all be consistent
with each other if it is to attain a competitive advantage and garner superior
profitability.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
10.
Support activities include the design, creation, and delivery of a product.
FALSE
Primary activities have to do with the design, creation, and delivery of the
product; its marketing; and its support and after-sale service.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
11.
R&D, production, marketing and sales, and customer service are all
examples of primary activities.
TRUE
Primary activities have to do with the design, creation, and delivery of the
product; its marketing; and its support and after-sale service. The primary
activities include research and development, production, marketing and
sales, and customer service.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
12.
Support activities are always less important than the primary activities in
achieving a competitive advantage.
FALSE
The support activities of the value chain provide inputs that allow the
primary activities to occur. In terms of attaining a competitive advantage,
support activities can be as important as, if not more important than, the
“primary” activities of the firm.
AACSB: Analytic
13.
Top management should be viewed as part of the firm’s infrastructure
TRUE
The final support activity is the company infrastructure, or the context
within which all the other value creation activities occur. Because top
management can exert considerable influence in shaping these aspects of a
firm, top management should also be viewed as part of the firm’s
infrastructure.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-01 Explain the concept of strategy.
Topic: Strategy and the Firm
14.
Global expansion offers companies the opportunity to generate greater
profits than companies that focus strictly on the domestic market.
TRUE
Expanding globally allows firms to increase their profitability and rate of
profit growth in ways not available to purely domestic enterprises.
AACSB: Analytic
Blooms: Remember
15.
The success of many multinational corporations is based not just upon the
goods or services that they sell in foreign nations, but also upon the core
competencies that underlie the development, production, and marketing of
those goods or services.
TRUE
The success of many multinational companies that expand in this manner is
based not just upon the goods or services that they sell in foreign nations,
but also upon the core competencies that underlie the development,
production, and marketing of those goods or services.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
16.
The skills within the firm that a competitor cannot easily match or imitate
are known as core competence.
TRUE
The term core competence refers to skills within the firm that competitors
cannot easily match or imitate.
AACSB: Analytic
17.
Core competencies enable a firm to reduce the costs of value creation
and/or to create perceived value in such a way that premium pricing is
possible.
TRUE
Core competencies are the bedrock of a firm’s competitive advantage. They
enable a firm to reduce the costs of value creation and/or to create
perceived value in such a way that premium pricing is possible.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
18.
Economies that arise from performing a value creation activity in the
optimal location are known as location economies.
TRUE
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 (transportation costs and trade barriers permitting).
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
19.
Systematic increases in sales that have been observed to occur over the life
of the product are referred to as the experience curve.
FALSE
The experience curve refers to systematic reductions in production costs
that have been observed to occur over the life of a product.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
20.
Cost savings that come from learning by doing are known as economies of
scale.
FALSE
Learning effects refer to cost savings that come from learning by doing.
Labor, for example, learns by repetition how to carry out a task, such as
assembling airframes, most efficiently.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
21.
Learning effects tend to be more significant when a technologically simple
task is repeated.
FALSE
Learning effects tend to be more significant when a technologically complex
task is repeated, because there is more that can be learned about the task.
Thus, learning effects will be more significant in an assembly process
involving 1,000 complex steps than in one of only 100 simple steps.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
22.
One of the sources of economies of scale is the ability to spread fixed costs
over a large volume.
TRUE
Economies of scale refer to the reductions in unit cost achieved by
producing a large volume of a product. Attaining economies of scale lowers
a firm’s unit costs and increases its profitability.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
23.
Moving up the experience curve allows a firm to reduce its cost of creating
value and increase its profitability.
FALSE
Moving down the experience curve allows a firm to reduce its cost of
creating value and increase its profitability. The firm that moves down the
experience curve most rapidly will have a cost advantage vis-à-vis its
competitors.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
24.
Once a firm has established a low-cost position, it can act as a barrier to
new competition.
TRUE
Once a firm has established a low-cost position, it can act as a barrier to
new competition. Specifically, an established firm that is well down the
experience curve can price so that it is still making a profit while new
entrants, which are farther up the curve, are suffering losses.
AACSB: Analytic
25.
In a multinational enterprise, skills are always generated at the
headquarters location and are then dispersed to the rest of the
organization.
FALSE
Skills can be created anywhere within a multinational’s global network of
operations, wherever people have the opportunity and incentive to try new
ways of doing things. The creation of skills that help to lower the costs of
production, or to enhance perceived value and support higher product
pricing, is not the monopoly of the corporate center.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
26.
To leverage subsidiary skills, companies should establish incentive systems
that encourage local employees to acquire new skills.
TRUE
Managers of the multinational enterprise must establish an incentive
system that encourages local employees to acquire new skills. This is not as
easy as it sounds. Creating new skills involves a degree of risk.
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
27.
Two types of competitive pressure that affect the ability of multinational
enterprises to compete in the global marketplace are pressure for cost
reductions and pressure for local responsiveness.
TRUE
Firms that compete in the global marketplace typically face two types of
competitive pressure that affect their ability to realize location economies
and experience effects, to leverage products and transfer competencies and
skills within the enterprise. They face pressures for cost reductions and
pressures to be locally responsive.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Understand how pressures for cost reductions and pressures for local responsiveness influence
strategic choice.
Topic: Cost Pressures and Pressures for Local Responsiveness
28.
Because differentiation across countries can involve significant duplication
and a lack of product standardization, it may reduce costs.
FALSE
Firms that compete in the global marketplace face pressures for cost
reductions and pressures to be locally responsive. Because differentiation
across countries can involve significant duplication and a lack of product
standardization, it may raise costs.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Understand how pressures for cost reductions and pressures for local responsiveness influence
strategic choice.
Topic: Cost Pressures and Pressures for Local Responsiveness
29.
Universal needs exist when the tastes and preferences of consumers in
different nations are similar if not identical.
TRUE
Universal needs exist when the tastes and preferences of consumers in
different nations are similar if not identical. This is the case for conventional
commodity products such as bulk chemicals, petroleum, steel, sugar, and
the like.
strategic choice.
Topic: Cost Pressures and Pressures for Local Responsiveness
30.
Pressures for cost reduction are minimal in industries where major
competitors are based in low-cost locations, where there is persistent
excess capacity, and where consumers are powerful and face low switching
costs.
FALSE
Pressures for cost reductions are intense in industries where major
competitors are based in low-cost locations, where there is persistent
excess capacity, and where consumers are powerful and face low switching
costs.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Understand how pressures for cost reductions and pressures for local responsiveness influence
strategic choice.
Topic: Cost Pressures and Pressures for Local Responsiveness
31.
When consumer tastes and preferences differ significantly between
countries, there is low pressure for local responsiveness.
FALSE
Strong pressures for local responsiveness emerge when customer tastes
and preferences differ significantly between countries, as they often do for
deeply embedded historic or cultural reasons.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Understand how pressures for cost reductions and pressures for local responsiveness influence
strategic choice.
Topic: Cost Pressures and Pressures for Local Responsiveness
32.
A multinational firm may need to delegate marketing functions to national
subsidiaries to be responsive to local differences in distribution channels.
TRUE
A firm’s marketing strategies may have to be responsive to differences in
distribution channels among countries, which may necessitate the
delegation of marketing functions to national subsidiaries.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Understand how pressures for cost reductions and pressures for local responsiveness influence
strategic choice.
33.
Threats of protectionism, economic nationalism, and local content rules
dictate that international businesses manufacture locally.
TRUE
Economic and political demands imposed by host-country governments may
require local responsiveness. Threats of protectionism, economic
nationalism, and local content rules (which require that a certain
percentage of a product should be manufactured locally) dictate that
international businesses manufacture locally.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 13-03 Understand how pressures for cost reductions and pressures for local responsiveness influence
strategic choice.
Topic: Cost Pressures and Pressures for Local Responsiveness
34.
Pressures for local responsiveness imply that it may not be possible to
leverage skills and products associated with a firm’s core competencies
wholesale from one nation to another.
TRUE
Pressures for local responsiveness imply that it may not be possible to
leverage skills and products associated with a firm’s core competencies
wholesale from one nation to another. Concessions often have to be made
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Identify the different strategies for competing globally and their pros and cons.
Topic: Choosing a Strategy
35.
A global standardization strategy is appropriate when a firm is facing low
pressures for cost reduction but high pressure for local responsiveness.
FALSE
Firms that pursue a global standardization strategy focus on increasing
profitability and profit growth by reaping the cost reductions that come from
economies of scale, learning effects, and location economies; that is, their
strategic goal is to pursue a low-cost strategy on a global scale. This
strategy makes most sense when there are strong pressures for cost
reductions and demands for local responsiveness are minimal.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Identify the different strategies for competing globally and their pros and cons.
Topic: Choosing a Strategy