Quick Study Questions
Quick Study 1
1. Q: Assessing a firm’s ability to produce enough output to satisfy demand is called what?
A: Capacity planning is the process of assessing a company’s ability to produce enough output
be expanded, and vice-versa. This affects production strategy.
2. Q: Location economies can arise from the optimal execution of what?
A: Location economies are economic benefits derived from locating production activities in
optimal locations. Location economies can involve practically any business activity that
3. Q: What typically determines the process that a firm uses to create its product?
A: Process planning is deciding the process that a company will use to create its product.
Availability and cost of labor in the local market is crucial to process planning. An important
production issue in strategic planning is deciding whether the production process will be
Quick Study 2
1. Q: Vertical integration is the process by which a company extends its control over what?
A: Vertical integration is the extension of company activities into stages of production that
provide a firm’s inputs or absorb its outputs. Vertical integration can influence the make-or-buy
2. Q: Why might a company make a product in-house rather than buy it?
A: Companies often decide to make a product rather than buy it in order to reduce total costs. In
general, companies will undertake in-house production when they can produce for less cost than
3. Q: Why might a firm buy a product rather than make it in-house?
A: Outsourcing is the practice of buying from another company a good or service that is not
central to a company’s competitive advantage. One reason why a company may buy rather than
make a product is to lower risk. Political risk is quite high in certain markets. Sometimes the
Quick Study 3
1. Q: Why might a company strive for quality improvement?
A: Companies strive toward quality improvement for two reasons. First, quality products help
Second, some minimum level of acceptable quality is an aspect of every product today.
2. Q: The international certification that a company gets when it meets the highest quality
standards in the industry is called what?
A: The International Standards Organization (ISO) 9000 is an international certification that
affecting the quality of their products.
3. Q: Under what conditions might a company reinvest earnings in its operations?
A: If new and potentially profitable opportunities present themselves in the market, managers
might decide to expand operations. In general, the reinvestment decision is based on four
conditions.
payback periods.
2. Firms must decide whether increasing local investment is necessary merely to maintain
market share and its competitive position.
reduce investment or eliminate operations altogether.
3. Companies invest in those operations offering the best return on their investments. That
Quick Study 4
1. Q: In general, through what source do companies obtain financial resources?
A: Companies can obtain financial resources through one of three resources: (1) borrowing
(debt), (2) issuing equity (stock ownership), or (3) internal financing.
2. Q: A common way for non-U.S. companies to access U.S. capital markets is to issue what?
A: Companies issue stock outside the home country primarily to access pools of investors with
funds that are unavailable domestically. A non-U.S. company can list shares directly in the
United States by issuing American Depository Receipts (ADRs)—certificates that trade in the
3. Q: A firm’s mix of equity, debt, and internally generated funds that it uses to finance its
activities is called what?
A: A company’s capital structure is the mix of equity, debt, and internally generated funds that
order to minimize the cost of capital and their risk.
Ethical Challenges
You are special assistant to the governor of a southeastern U.S. state in which unemployment
(especially in rural areas) is well above the national average. After nearly three years in office and
elected on a pledge to attract industry and create jobs, the governor is concerned. Because he respects
your moral stance on issues, the governor has come seeking your insights. A European automobile
maker has just told the governor that your state is on its short list of potential sites for a new
manufacturing facility. The facility is expected to employ about 1,500 people, with plenty of spillover
effects on the wider economy. The governor informs you the European automaker expects significant
incentives and concessions. The governor would like to offer some $300 million in tax breaks and
subsidies in an effort to bring the new plant to the state.
15-5 What plan of action do you advise the governor to take?
A: Student responses will vary. However, most students will believe attracting businesses,
15-6 Would the outlay be an appropriate use of taxpayer money? Explain.
A: When tax incentives are considered, the state and the local community stands to gain by the
business coming. These benefits are tax revenues associated with added employees that are
expected to either relocate to the state or be hired from the state’s existing population. If a new
15-7 Would you feel comfortable defending your advice if it were to become public? Explain.
A: A similar scenario actually occurred in Alabama when Mercedes signed a deal to open its
new state-of-the-art manufacturing facility. Taxpayer money often fosters economic
Teaming Up
Financing Project. Suppose you and several classmates are a team assembled by the chief financial
officer of a consumer-goods company based in Mexico. Your company wishes to expand
internationally but lacks the necessary financial capital. Your team’s task is to research the options.
15-8 What financing options do you think are available to your company?
A: The company could obtain financial resources though three sources: (a) debt financing – the
use of borrowed funds, (b) equity financing – the process of raising capital through the sale of
`
15-9 Considering the prevailing situation in the Mexican and international capital markets, why is
each option feasible?
A: In responding to this question, students will have to become aware of current financial and
economic in Mexico at the time. They will have to be aware of interest rates in the U.S. and
15-10 Why are certain options off limits, given prevailing market conditions?
A: Students should be sure to consider the current financial and economic conditions prevailing
in Mexico at the present time. Options for financing can rapidly change depending on financial
Practicing International Management Case
Toyota’s Strategy for Production Efficiency
15-13 Q: Chrysler engineers helped Toyota develop its Sienna minivan. In return, Toyota provided
input on automobile production techniques to Chrysler. Why do you think Chrysler was willing
to share its minivan know-how with a key competitor?
A: Clearly, Chrysler felt that obtaining insight into Toyota’s production techniques outweighed
the costs of giving Toyota engineering designs on a model that (as normally is the case) will be
15-14 Q: Considering financial, marketing, and human resource management issues, what other
benefits do you think Toyota obtains from its production system?
A: Toyota must feel it can outdo the competition. Based on its past performance of gaining a
