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1. Cognitive pillar refers to the internalized, taken-for-granted values and beliefs that guide individual and firm behavior.
a. True
b. False
2. The key role of institutions is increasing uncertainty for international firms.
a. True
b. False
3. Economic crises have always been considered to be a force majeure.
a. True
b. False
4. Uncertainty involved in transactions of any kind contributes to greater transaction costs.
a. True
5. Opportunism fosters transaction costs.
a. True
b. False
6. Relational contracting is not advantageous when the size of the economy is limited.
a. True
b. False
7. One disadvantage of relational contracting is that it may cause firms to abandon established relationships.
a. True
b. False
8. Formal, market-supporting institutions lower transaction costs and facilitate new entries.
a. True
b. False
9. Company A purchases its supplies directly from a foreign company. Because of the distance between the two
companies, this transaction is considered an arm’s-length transaction.
a. True
b. False
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10. The more members a relationship-based exchange network has, the better the network works.
a. True
11. In Porter’s diamond model, factor endowments include such components as firm strategy and interfirm rivalry.
a. True
12. With his diamond model, Porter describes the factors that determine the competitive advantage of globally leading
industries.
a. True
b. False
13. The global competitive accomplishments of a company such as Levi-Strauss are due in part to its domestic demand.
a. True
b. False
14. In Porter’s diamond model, the four factors that determine the competitive advantage of different industries in
different nations include the history and institutions that influence firm rivalries.
a. True
b. False
15. Relying on informal connections is a strategy only relevant to firms in emerging economies.
a. True
16. Historically, the strategy literature has focused on the specific relationship between strategic choices and institutional
frameworks.
a. True
b. False
17. Strategic choices are selected within and constrained by institutional frameworks in developed economies.
a. True
b. False
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18. Striking differences between institutions in developed and emerging economies has eliminated the institution-based
view from strategy discussions.
a. True
19. Strategic choices are direct outcomes of the reduced interaction between institutions and firms.
a. True
20. Western firms tend to focus on relatively short-term profits and shorter planning horizons.
a. True
b. False
21. All sides agree that ethics can make or break a firm.
a. True
22. Catastrophes may allow ethical firms to shine.
a. True
23. When speaking of a culture, it is important to acknowledge that cultures include many regional, ethnic, and religious
layers.
a. True
24. Hofstede proposed five dimensions of culture, which include power distance and uncertainty avoidance.
a. True
b. False
25. In Hofstede’s dimensions of culture, almost all cultures tend toward a long-term orientation and emphasize
perseverance.
a. True
b. False
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26. Australia, considered an individualistic society, fosters a higher level of entrepreneurship than generally found in
collectivistic societies.
a. True
b. False
27. Ethics are universal. What is unethical in one country will be viewed as unethical in other countries.
a. True
b. False
28. Richer, developed countries tend to be less corrupt than poorer, developing countries.
a. True
29. Company Y, which is self-motivated to “do it right” in its business practices regardless of social pressures, follows an
instrumental view of ethics.
a. True
b. False
30. A firm’s code of conduct, although typically written, can also be unwritten.
a. True
31. Companies that follow ethical imperialism understand that what is ethical in one country should be the standard for all
countries.
a. True
b. False
32. A middle-of-the-road approach to ethics regards respect for human dignity and basic rights as an absolute minimum
ethical threshold for all operations around the world.
a. True
33. Transaction cost theorists argue that institutions emerge to combat opportunism.
a. True
b. False
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34. Doing business with foreigners may significantly reduce transaction costs over doing business with domestic firms.
a. True
35. The institutional distance between two firms, based on their country of origin, is the same thing as cultural distance.
a. True
36. Hofstede’s studies were based on surveys from 1968-1972 and in light of the cultural changes that have occurred
throughout the world in the past forty years, his dimensions of culture are no longer applicable in assessing the role of
culture in global business.
a. True
37. Firm E faces an ethical challenge and responds by accepting responsibility and doing all that is required to make the
necessary changes in operations. This response is called a defensive response.
a. True
38. In facing ethical challenges, a defensive firm anticipates institutional changes and does more than is required to before
ethically.
a. True
b. False
39. Firms from collectivist cultures are the most collaborative with out-groups.
a. True
40. The best managers, who expect norms to shift over time, constantly decipher the changes in the informal “rules
of the game” and then incorporate them in setting the strategies of the firm.
a. True
b. False
41. An institution-based view of strategy considers which of the following factors?
a. Industry-level conditions.
b. Firm-specific conditions..
c. Society’s culture and ethics.
d. All of the above.
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42. Reasons for increased FDI in China in recent years do not include:
a. Low cost labor.
b. A sizeable domestic market.
c. Strong intellectual property protections.
43. Which of the following does NOT define institutions?
a. “Institutionally devised constraints that structure human interaction.”
b. “Regulatory, normative and cognitive structures and activities that provide stability and meaning to social
behavior.”
c. Government of individual and firm behavior.
44. Institutions do which of the following?
a. Reduce uncertainty.
b. Signal which conduct is acceptable and which is not.
c. Reduce opportunism and transaction costs.
45. Which of the following is an example of a formal institution?
a. Rules.
b. Culture.
c. Ethics.
d. None of the above.
46. The cognitive pillar that supports informal institutions does so through:
a. The way in which values and norms of the relevant players influence firm behavior.
b. The taken-for-granted values and beliefs that guide individual and firm behavior.
c. The way in which laws and regulations influence firm behavior.
d. Formal institutions.
47. How do institutions reduce uncertainty?
a. Ethical contracting.
b. Arm’s-length transaction with third party enforcement.
c. Transaction costs.
d. Opportunism.
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48. Over time, when the scale and scope of informal transactions ________, the cost per transaction move down and
benefits move up.
a. Expand
b. Contract
c. Are eliminated
d. Increase through opportunism
49. Which of the following statements about institutional transitions is TRUE?
a. Without relational contracting, institutional transitions cannot be made.
b. Arm’s-length transactions with third-party enforcement are the most effective approach to institutional transitions.
c. Institutional transitions are widespread in the world, especially in emerging economies.
d. The nature of institutional frameworks is unrelated to strategic decision making during transitions.
50. Porter’s “diamond” model:
a. Explains competitive advantage of leading industries within the same country.
b. Explains competitive disadvantage of globally leading industries in different countries.
c. Has been criticized for ignoring history.
d. Has been criticized for focusing on institutions.
51. Which are true regarding informal constraints?
a. When formal institutional constraints fail, informal constraints tend to fail as well.
b. Following the collapse the former Soviet Union, informal constraints were unable to facilitate growth of
entrepreneurial firms.
c. Even in developed economies, the best-connected firms can reap significant benefits.
52. Which of the following is NOT one of the four factors in Porter’s “diamond” model?
a. Firm strategy, structure, and rivalry.
b. Relational contracting.
c. Factor endowments.
d. Domestic demand.
53. In Porter’s diamond model, factor endowments refer to:
a. Domestic economy demand for products and services.
b. Related and supporting industries.
c. Firm strategy and structure.
54. Which of the following statements about strategy and institutions is TRUE?
a. When formal institutional constraints fail, informal constraints tend to fail as well.
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b. Institutions are little more than background conditions to strategic decisions.
c. The institution-based view focuses on the dynamic interaction between institutions and firms, and considers
strategic choices the outcome of such interaction.
d. The institutional similarities between developed and emerging economies have propelled the institution-based
55. How does bounded rationality affect strategic decision making?
a. Managers pursue their interests and make choices within the formal and informal constraints in a given
institutional framework.
b. Relying on informal connections as a strategy is only relevant for firms in emerging economies.
c. Only with prior experience can managers of multinationals make rational strategy decisions.
d. Bounded rationality has no effect on decision making.
56. According to ___________ culture is the “Collective programming of the mind which distinguishes the members of
one group or category of people from another.”
a. Porter
b. Hofstede
c. North
d. Scott
57. Power distance is best defined as:
a. The degree of social inequality.
b. The identity of an individual is not based on the identity of his or her collective group.
c. Sex role differentiation.
d. The extent to which people accept ambiguous situations.
58. Which of the following is NOT one of Porter’s five dimensions of culture?
a. Power distance.
b. Individualism.
c. Long-term learning.
d. Uncertainty avoidance.
59. In high femininity societies (such as Sweden):
a. Men frequently assume the roles of teachers, nurses, and househusbands.
b. Women have occupations that fall primarily in the caring professions.
c. Men experience a strong form of societal-level sex role differentiation.
d. Women seldom take on the roles of politicians and scientists.
60. Strategists who are sensitive to cultural differences in making strategic decisions will find that:
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a. A long-term orientation is always more helpful when it comes to strategy.
b. The identity of an individual is based on the identity of his or her collective group.
c. It is not especially helpful in avoiding strategic blunders.
d. They better understand business situations in other parts of the world.
61. Individualism is best defined as:
a. The degree of social inequality.
b. The identity of an individual is not based on the identity of his or her collective group.
c. Sex role differentiation.
d. The extent to which people accept ambiguous situations.
62. Long-term orientation is best defined as:
a. The degree of social inequality.
b. The identity of an individual is not based on the identity of his or her collective group.
c. Emphasis on perseverance and savings.
d. The extent to which people accept ambiguous situations.
63. Which of the following is TRUE regarding cultures and strategic choices?
a. Managers in high power distance countries have a greater penchant for decentralized authority.
b. Solicitation of subordinate feedback and participation is a sign of weak leadership in high power distance
countries.
c. Individualistic cultures prefer more informal contractual safeguards in alliances than collectivistic cultures.
64. Which tends to be true of masculine cultures?
a. May have a relative advantage in small-scale, customized manufacturing.
b. May be at a disadvantage in making products efficiently, well and fast.
c. Stereotypical manager is decisive.
65. The norms, principles and standards of conduct that govern behavior:
a. Are an important part of national culture but not organizational culture.
b. Are private matters and not issues for formal institutions.
c. Have a substantial overlap with what is illegal.
66. Which is the instrumental view regarding motivation to become ethical?
a. Jump on the “bandwagon” to appear more legitimate without becoming more ethical.
b. Be self-motivated to “do it right” regardless of social pressures.
c. Good ethics are a way to achieve good profits.
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d. Ethics is an instrument to impose the values of the elite on the masses.
67. Which of the following is descriptive of ethical relativism?
a. Ethical and unethical behaviors are universally agreed upon for the most part.
b. Ethical standards vary significantly around the world.
c. It contradicts the cliché “When in Rome, do as the Romans do.”
d. Ethics is an instrument to impose the values of the elite on the masses.
68. Which of the following is descriptive of ethical imperialism?
a. Ethical standards can and should vary significantly around the world.
b. It ascribes to the cliché “When in Rome, do as the Romans do.”
c. A single set of ethics applies worldwide.
d. Good ethics are a way to achieve good profits.
69. Managers who strive to show respect for institutional context:
a. Can ignore codes of conduct when outside the culture where they apply.
b. Can work to find guidelines that accommodate cultural differences.
c. Cannot accept gifts from business associates.
70. Ethical imperialism is best expressed by which of the following:
a. “When in Rome, do as the Romans do.”
b. “There is only one set of Ethics, and we have it!”
c. “Respect for human dignity and basic rights should be the absolute, minimal ethical threshold for ALL operations
around the world.”
71. The Foreign Corrupt Practices Act passed in 1977 in the United States:
a. Gave U.S. companies a distinct advantage in conducting business with companies around the globe.
b. Makes no exceptions to the prohibition against bribery of foreign officials.
c. Means that U.S. firms exhibit systematically lower levels of corruption than other OECD firms.
72. The Foreign Corrupt Practices Act (FCPA) bans:
a. Bribery to American officials by companies based in other countries.
b. Bribery to foreign officials by companies based in the United States.
c. Bribery to all officials everywhere by companies based anywhere.
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73. Which best defines an accommodative strategy?
a. Firms do not feel compelled to act unless faced with a disaster or public outcry.
b. Denial is the first line of defense.
c. Focus on regulatory compliance, firm fights demand for changes unless they are regulatory.
d. Organizational norms emerge to accept responsibility for actions – cognitive beliefs/values that promote ethical
74. Which of the following is NOT considered one of the strategic responses to ethical challenges a firm may face?
a. Reactive.
b. Positive.
c. Accommodative.
75. A company realizes one of its products could potentially have a defective part. Although no problems have been
reported, the company recalls the product to check for and if necessary replace the part in question. This company is using
a _________ strategic response to its ethical challenge.
a. Reactive.
b. Positive.
c. Accommodative.
76. Although it has been suggested that firms in general may prefer to do business with countries that have shorter cultural
distances, which of the following arguments can be made against this assumptions?
a. Critics point out that a number of findings are consistent with the cultural distance hypothesis.
b. Cultural distance, while important, is only one of many factors to consider.
c. Cultural distance can be replaced by institutional distance.
d. Institutional distance exaggerates cultural distance.
77. When it comes to taking action, a savvy strategist will:
a. Follow the advice “When in Rome, do as the Romans do.”
b. Do “homework” to understand the formal and informal institutions that govern firm behavior.
c. Seek to share the values held by others of that country.
d. Realize that strategy is, like ethics, a game that is played like a musical instrument.
78. In regards to individualism versus collectivism:
a. Collectivists never discriminate against out-group members and may be more opportunistic when dealing with in–
group members.
b. Individualists make more distinction between in-group and out-group membership.
c. Individualists are more opportunistic when dealing with in-group members.
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79. What are the “pillars” that are important in supporting formal and in formal institutions and how do they interact?
80. What is the benefit of formal, rule-based, impersonal exchange with third-party enforcement (often termed arm’s–
length transaction) versus informal institutions? Why can’t we assume that formal institutions are inherently better than
informal ones? How do formal and informal institutions complement each other?
81. What are the basic factors in Porter’s diamond model? What criticisms have been made of this model?
ANSWER:
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82. How is the problem of counterfeiting related to ethics and how institutions matter?
83. Why is it not true that relying on informal connections is a strategy only relevant to firms in emerging economies and
that firms in developed economies only pursue “market–based” strategies?
84. Describe the purpose of Hofstede’s five dimensions of culture and list those five dimensions. Also, indicate why
Hofstede’s dimensions are valuable.
ANSWER:
85. More than goods and services are moving across borders: as technology enables ideas and lifestyles to be observed by
a variety of people around, cultures are undergoing modification, Hofstede’s dimensions of culture were based on surveys
of IBM employees from 1968-1972. Much has changed in the past forty years. Nevertheless, his dimensions do provide a
starting point for better understanding and relating to people from around the world. Give some examples of people you
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have known who have come to this country from a somewhat different culture. To what extent have they retained their
cultural identity versus undergone cultural change? Have these changes created any problems for them?
86. What is ethical in one country may be unethical or illegal in other countries – and vice versa. Nevertheless, ethical
imperialism (absolute belief that “there is only one set of Ethics, and we have it!”) is alive and well. You may be able to
identify some values that seem to be almost universally accepted. However, such is not the case with all values. As a
87. At its core, the institution-based view focuses on how certain strategic choices are diffused from a few firms to many.
Such forces of institutionalization are driven by a combination of regulatory, normative, and cognitive pillars. Think of an
example of how a firm has strategically responded to an ethical challenge. Describe that challenge and indicate which of
the four strategic choices given in the text you think the firm used to address that challenge. Explain why it used that type
of response.
88. What is opportunism? Is it good or bad? How does the cultural dimension of individualism/collectivism provide clues
in understanding opportunism?
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