Chapter 14 The Organization of International Business
True / False Questions
1.
Organizational structure refers to the totality of a firm’s organization.
FALSE
Organizational architecture refers to the totality of a firm’s organization.
Organizational structure refers to three things. First, the formal division of
the organization into subunits; second, the location of decision-making
responsibilities within that structure; and third, the establishment of
integrating mechanisms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-01 Explain what is meant by organization architecture.
Topic: Organizational Architecture
2.
A firm’s organizational culture refers to the formal organizational structure
of the company, the control systems and incentives in place, and the human
resources component.
FALSE
Organizational culture refers to the norms and value systems that are
shared among the employees of an organization.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-01 Explain what is meant by organization architecture.
Topic: Organizational Architecture
3.
A manager receives a bonus because the national operating subsidiary, that
she is in charge of, exceeds its performance target. This is an example of an
incentive.
TRUE
Incentives are the devices used to reward appropriate managerial behavior.
Incentives are very closely tied to performance metrics.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-01 Explain what is meant by organization architecture.
Topic: Organizational Architecture
4.
A firm’s vertical differentiation determines where in its hierarchy the
decision-making power is concentrated.
TRUE
Vertical differentiation refers to the location of decision-making
responsibilities within a structure.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
5.
By centralizing decision making, a firm can avoid the duplication of activities
that occurs when similar activities are carried on by various subunits within
the organization.
TRUE
Centralization can avoid the duplication of activities that occurs when
similar activities are carried on by various subunits within the organization.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
6.
A decentralized organization allows managers to respond to environmental
changes more quickly than in a centralized organization.
TRUE
Decentralization permits greater flexibility—more rapid response to
environmental changes—because decisions do not have to be “referred up
the hierarchy” unless they are exceptional in nature.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
7.
Centralization gives top-level managers the power and authority to be able
to bring about needed major organizational changes.
TRUE
By concentrating power and authority in one individual or a management
team, centralization can give top-level managers the means to bring about
needed major organizational changes.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
8.
A firm pursuing a localization strategy will have a strong incentive to
centralize decision- making.
FALSE
The emphasis on local responsiveness in firms pursuing a localization
strategy creates strong pressures for decentralizing operating decisions to
foreign subsidiaries.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
9.
The choice between centralization and decentralization is not absolute.
TRUE
Decisions regarding overall firm strategy, major financial expenditures,
financial objectives, and legal issues are typically centralized at the firm’s
headquarters. However, operating decisions, such as those relating to
production, marketing, R&D, and human resource management, may or may
not be centralized depending on the firm’s strategy.
AACSB: Analytic
10.
In firms pursuing a transnational strategy, some operating decisions are
relatively centralized, while others are relatively decentralized.
TRUE
The situation in firms pursuing a transnational strategy is complex. In firms
pursuing a transnational strategy, some operating decisions are relatively
centralized, while others are relatively decentralized.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
11.
Beyond the initial functional division of the organization, further horizontal
differentiation may be required if the firm significantly diversifies its product
offering, which takes the firm into different business areas.
TRUE
Further horizontal differentiation may be required if the firm significantly
diversifies its product offering, which takes the firm into different business
areas. Problems of coordination and control arise when different business
areas are managed within the framework of a functional structure.
AACSB: Analytic
12.
Regardless of a firm’s domestic structure, its international division tends to
be organized on economy.
FALSE
Regardless of the firm’s domestic structure, its international division tends
to be organized on geography.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
13.
The worldwide area structure tends to be adopted by firms with a low level
of diversification whose domestic structures are based on functions.
TRUE
A worldwide area structure tends to be favored by firms with a low degree
of diversification and a domestic structure based on functions.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
14.
In a worldwide area structure, each area tends to be a self-contained,
largely autonomous entity with its own set of value creation activities.
TRUE
Under the worldwide area structure, the world is divided into geographic
areas. An area may be a country or a group of countries. Each area tends to
be a self-contained, largely autonomous entity with its own set of value
creation activities.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
15.
A worldwide product division structure tends to be adopted by firms that are
reasonably diversified and originally had domestic structures based on
product divisions.
TRUE
A worldwide product division structure tends to be adopted by firms that are
reasonably diversified and, accordingly, originally had domestic structures
based on product divisions. As with the domestic product divisional
structure, each division is a self-contained, largely autonomous entity with
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
16.
In a worldwide product divisional structure, each division is a self-
contained, largely autonomous entity with full responsibility for its own
value creation activities.
TRUE
In a worldwide product division each division is a self-contained, largely
autonomous entity with full responsibility for its own value creation
activities.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
17.
The worldwide product division structure facilitates local responsiveness.
FALSE
The main problem with the worldwide product division structure is the
limited voice it gives to area or country managers, since they are seen as
subservient to product division managers. The result can be a lack of local
responsiveness, which can lead to performance problems.
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
18.
In a classic matrix structure, individual managers belong to two hierarchies
(a divisional hierarchy and an area hierarchy) and have two bosses (a
divisional boss and an area boss).
TRUE
In the classic global matrix structure, horizontal differentiation proceeds
along two dimensions: product division and geographic area. It is believed
that this dual decision-making responsibility should enable the firm to
simultaneously achieve its particular objectives.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
19.
It is difficult to ascertain accountability in the global matrix structure.
TRUE
The dual hierarchy in the global matrix structure can lead to conflict and
perpetual power struggles between the areas and the product divisions,
catching many managers in the middle. To make matters worse, it can prove
difficult to ascertain accountability in this structure.
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
20.
The need for coordination between units is greatest in firms pursuing a
localization strategy.
FALSE
The need for coordination is lowest in firms pursuing a localization strategy,
is higher in international companies, higher still in global companies, and
highest of all in transnational companies. Firms pursuing a localization
strategy are primarily concerned with local responsiveness.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
21.
The need for coordination is high in firms trying to profit from location and
experience curve economies.
TRUE
Coordination is necessary to support the transfer of skills and product
offerings between units. The need for coordination is also great in firms
trying to profit from location and experience curve economies, that is, in
firms pursuing global standardization strategies.
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
22.
Direct contact between subunit managers is the simplest integrating
mechanism.
TRUE
Direct contact between subunit managers is the simplest integrating
mechanism. By this “mechanism,” managers of the various subunits simply
contact each other whenever they have a common concern. Direct contact
may not be effective if the managers have differing orientations that act to
impede coordination.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
23.
In a matrix structure all roles are viewed as integrating roles.
TRUE
When the need for integration is very high, firms may institute a matrix
structure, in which all roles are viewed as integrating roles. The structure is
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
24.
A knowledge network is a network for transmitting information within an
organization that is based on formal organizational structure.
FALSE
A knowledge network is a network for transmitting information within an
organization that is based not on formal organization structure, but on
informal contacts between managers within an enterprise and on
distributed information systems.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Structure
25.
Personal control is a type of control that tends to be most widely used in
large firms.
FALSE
Personal control is control by personal contact with subordinates. This type
of control tends to be most widely used in small firms, where it is seen in
the direct supervision of subordinates’ actions.
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Control Systems and Incentives
26.
Bureaucratic control involves personal contact with subordinates.
FALSE
Bureaucratic control is control through a system of rules and procedures
that directs the actions of subunits. The most important bureaucratic
controls in subunits within multinational firms are budgets and capital
spending rules.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Control Systems and Incentives
27.
In a company using cultural controls, employees’ behavior is closely
monitored and controlled through direct supervision.
FALSE
Cultural controls exist when employees “buy into” the norms and value
systems of the firm. When this occurs, employees tend to control their own
behavior, which reduces the need for direct supervision.
AACSB: Analytic
28.
The basic principle behind incentive systems is to ensure that the incentive
scheme for an individual employee is linked to an output target that he or
she has some control over and can influence.
TRUE
The basic principle is to make sure the incentive scheme for an individual
employee is linked to an output target that he or she has some control over
and can influence. The individual employees on the factory floor may not be
able to exercise much influence over the performance of the entire
operation, but they can influence the performance of their team, so
incentive pay is tied to output at this level.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Control Systems and Incentives
29.
Performance ambiguity lowers the cost of control.
FALSE
The costs of control can be defined as the amount of time top management
must devote to monitoring and evaluating subunits’ performance. This is
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Control Systems and Incentives
30.
The costs of control can be defined as the amount of time top management
must devote to monitoring and evaluating subunits’ performance.
TRUE
The costs of control can be defined as the amount of time top management
must devote to monitoring and evaluating subunits’ performance. This is
greater when the amount of performance ambiguity is greater.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Control Systems and Incentives
31.
Firms pursuing a global standardization strategy must cope with a higher
level of performance ambiguity, and this raises their costs of control.
TRUE
Although firms pursuing a global standardization strategy can reap the cost
benefits of location and experience curve economies, they must cope with a
higher level of performance ambiguity, and this raises the costs of control
(in comparison with firms pursuing an international or localization strategy).
Topic: Control Systems and Incentives
32.
New processes that might lead to a competitive advantage can be
developed anywhere within the organization’s global network of operations.
TRUE
It is particularly important for a multinational enterprise to recognize that
valuable new processes that might lead to a competitive advantage can be
developed anywhere within the organization’s global network of operations.
New processes may be developed by a local operating subsidiary in
response to conditions pertaining to its market.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Processes
33.
Norms are abstract ideas about what a group believes to be good, right, and
desirable.
FALSE
Values are abstract ideas about what a group believes to be good, right, and
desirable. Norms mean the social rules and guidelines that prescribe
appropriate behavior in particular situations.
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Processes
34.
It is more difficult for a leader to create an organizational culture from
scratch in a new venture than it is to change an established one.
FALSE
It is more difficult for a leader, however forceful, to change an established
organizational culture than it is to create one from scratch in a new venture.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Culture
35.
An organizational culture can be strong but bad.
TRUE
Strong does not necessarily mean good. A culture can be strong but bad.
The culture of the Nazi Party in Germany was certainly strong, but it was
most definitely not good.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an international business.
Topic: Organizational Culture
36.
Firms pursuing a localization strategy have a high need for coordination
between subunits.
FALSE
The need for coordination between subunits (areas and country
subsidiaries) is low. This suggests that firms pursuing a localization
strategy do not have a high need for integrating mechanisms, either formal
or informal, to knit together different national operations.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-03 Explain how organization can be matched to strategy to improve the performance of an
international business.
Topic: Synthesis: Strategy and Architecture
37.
Firms pursuing a localization strategy tend to operate with an array of
formal and informal integrating mechanisms.
FALSE
Firms pursuing a localization strategy do not have a high need for
integrating mechanisms, either formal or informal, to knit together different
national operations. The lack of interdependence implies that the level of
performance ambiguity in such enterprises is low, as (by extension) are the
costs of control.
Learning Objective: 14-03 Explain how organization can be matched to strategy to improve the performance of an
international business.
Topic: Synthesis: Strategy and Architecture
38.
Firms pursuing a global standardization strategy are more centralized than
enterprises pursuing a localization or international strategy.
TRUE
Firms pursuing a global standardization strategy are more centralized than
enterprises pursuing a localization or international strategy. Reflecting the
need for coordination of the various stages of the firms’ globally dispersed
value chains, the need for integration in these firms also is high.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-03 Explain how organization can be matched to strategy to improve the performance of an
international business.
Topic: Synthesis: Strategy and Architecture
39.
National regulations including local content rules and policies pertaining to
layoffs might act as a source of inertia.
TRUE
Institutional constraints might also act as a source of inertia. National
regulations including local content rules and policies pertaining to layoffs