International Strategy: Creating Value in Global Markets

Chapter 07 - International Strategy: Creating Value in Global Markets
Chapter 07
International Strategy: Creating Value in Global Markets
True / False Questions
1. The trend towards worldwide markets makes it easier to predict where competitors will
spring up.
True False
2. Because many countries are investing in countries other than their own, each country is
becoming more autonomous and independent.
True False
3. An advantage of international expansion is that competition within foreign countries is

generally very similar to that of the United States.
True False
4. In Michael Porter's "diamond of national advantage," there are four broad attributes that, as
a system, constitute a nation's competitiveness in an industry.
True False
5. The factor endowments of a country are inherited and cannot be created.

True False
6. With regard to "factor conditions," the pool of resources that a firm (or nation) has is much
more important than the speed and efficiency with which these resources are deployed.
True False
7-1
7. Demanding domestic consumers tend to push firms to move ahead of companies in other
countries where consumers are less demanding and more complacent.
True False
8. High levels of environmental awareness in Denmark have led to a decline in Denmark's

industrial competitiveness in the international marketplace.
True False
9. Countries with a strong supplier base benefit by adding efficiency to downstream

activities.
True False
10. Typically, intense rivalry in domestic markets does not force firms to look outside their
national boundaries for new markets.
True False
11. Many international firms are increasing their efforts to market their products and services
to countries such as India and China as the ranks of their middle class continue to increase.
True False
12. International expansion can extend the life cycle of a product that is in its maturity stage
in a firm's home country.
True False
13. An advantage of international expansion is that it can enable a firm to optimize the
location of every activity in its value chain.
True False
7-2
14. The laws, and the enforcement of laws, associated with the protection of intellectual
property rights, represent a significant currency and management risk to multinational firms.
True False
15. Differences in foreign markets such as culture, language, and customs can represent
significant management risks when firms enter foreign markets.
True False
16. Offshoring takes place when a firm decides to shift an activity that they were previously
performing in a domestic location to a foreign location.
True False
17. Two opposing pressures that managers face when they compete in foreign markets are
cost reduction and adaptation to local markets.
True False
18. Theodore Levitt has argued that people around the world are willing to sacrifice
preferences in product features, functions, and design if they are offered lower prices and high
quality.
True False
19. Among Theodore Levitt's assumptions that would favor a global strategy is that
consumers around the world are becoming less price-sensitive.
True False
20. Within a worldwide market, the most effective strategies are neither purely multidomestic
nor purely global.
True False
7-3
21. Industries in which proportionally more value is added in upstream activities are more
likely to benefit from a global strategy than those in which more value is added downstream
(closer to the customer).
True False
22. In a global strategy a firm operates all its businesses under a single common strategy
regardless of location.
True False
23. A multidomestic strategy is the most appropriate strategy for international operations
because it drives economies of scale as far as possible and provides a middle-of-the-road
product appealing to the largest number of consumers in every market.
True False
24. The need to attain economies of scale encourages multinational firms to operate under a
multidomestic strategy.
True False
25. Corporations with multiple foreign operations that act very independently of one another
are following a multidomestic strategy.
True False
26. A multidomestic strategy would likely include the use of high volume, centralized
production facilities to maximize economies of scale.
True False
27. A limitation of a multidomestic strategy is that it may lead to "overadaptation" as

conditions change.
True False
7-4
28. Multinational firms following a transnational strategy strive to optimize the trade-offs
associated with efficiency, local adaptation, and learning.
True False
29. A key tenet of a transnational strategy is improved adaptation to all competitive situations
as well as flexibility by capitalizing on communication and knowledge flows throughout the
organization.
True False
30. According to studies by Rugman and Verbeke, most of the world's 500 firms are global,
not regional or biregional.
True False
31. A franchise generally expires after a few years whereas a license is designed to last into
perpetuity.
True False
32. Typically, joint ventures involve less control and risk than franchising.
True False
33. Typically, the best method of entry into a foreign market is the establishment of a wholly
owned foreign subsidiary so that the parent organization can maintain a high level of control.
True False
7-5
Multiple Choice Questions
34. A major trend in international developments includes

A. greater international trade and operations.
B. a growing recognition of an international managerial perspective.
C. a large increase in international investment.
D. all of these.
35. The reasons that explain why some governments make better use of the inflows from
foreign investment and know-how than others include all of the following EXCEPT
A. governmental practices that are business-friendly.
B. local entrepreneurs that can train workers and invest in modern technology.
C. high tariffs and taxes on foreign investors and multinational corporations provide income
to improve living conditions.
D. sound management of broader economic factors such as interest rates and inflation.
36. Michael Porter's framework all of the following factors affect a nation's competitiveness
EXCEPT
A. factor conditions.
B. demand characteristics.
C. related and supported industries.
D. policies that protect the nation's domestic competitors.
37. Rivalry is intense in nations with conditions of __________ consumer demand,

__________ supplier bases, and __________ new entrant potential from related industries.
A. weak; weak; high
B. strong; strong; low
C. strong; strong; high
D. weak; weak; low
7-6
38. According to Michael Porter, firms that have experienced intense domestic competition
are
A. unlikely to have the time or resources to compete abroad.
B. most likely to design strategies aimed primarily at the domestic market.
C. more likely to design strategies and structures that allow them to successfully compete
abroad.
D. more likely to demand protection from their governments.
39. All of the factors below have made India's software services industry extremely
competitive on a global scale EXCEPT
A. large pool of skilled workers.
B. large network of public and private educational institutions.
C. tax and antitrust legislation that protect the dominant players in the industry.
D. large, growing market and sophisticated customers.
40. All of the following would be viewed as advantages of global diversification EXCEPT
A. fewer social and political risks than domestic operations.
B. a firm not being solely dependent on the domestic market.
C. a firm with large margins at home helping subsidize its operations in other nations.
D. the potential to lower costs of operation even if the primary market is at home.
41. Optimizing the location of every activity in the value chain can yield all of the following
strategic advantages EXCEPT
A. performance enhancement.
B. cost reduction.
C. extending the life cycle of the product of service.
D. risk reduction.
7-7
42. Microsoft decided to establish a corporate research laboratory in Cambridge, England

A. because England is an ally of the United States.
B. to access the outstanding technical and professional talent available there so that they can
attain world-class excellence in selected value-creating activities.
C. because the local language is English.
D. because the company views the United States as a risky place to expand due to the actions
of the U.S. Department of Justice.
43. The sale of Boeing's commercial aircraft and Microsoft's operating systems in many
countries enable these companies to benefit from
A. higher prices in their domestic markets.
B. economies of scale.
C. optimizing the location for many activities in their value chain.
D. reducing their exposure to currency risks.
44. Many U.S. multinational companies set up maquiladora operations south of the U.S.-
Mexico border primarily
A. to sell products into the growing Mexican market.
B. as part of US government-initiated measures to discourage illegal immigration.
C. to take advantage of the lower tax rates in Mexico.
D. to take advantage of the low cost of labor.
45. Appreciation of the U.S. dollar will have the following impact on McDonald's:
A. lower sales abroad because foreign customers cannot afford McDonalds' products.
B. more transfer of ingredients from the U.S. to branches abroad to take advantage of the
higher dollar.
C. lower profits, because foreign profits will be reduced when measured in dollars.
D. no impact at all.
7-8
46. __________ occurs when a firm decides to utilize other firms to perform value-creating
activities that were previously performed in-house.
A. Offshoring
B. A global strategy
C. Outsourcing
D. A transnational strategy
47. Which one of the following is one of Theodore Levitt's assumptions supporting a pure
global strategy?
A. Consumers are willing to pay more for specific product features.
B. Customer needs and interests are becoming more dissimilar.
C. If the world markets are treated as heterogeneous, substantial economies of scale are easily
achieved.
D. MNCs can compete with aggressive pricing on low cost products that meet the common
needs of global consumers.
48. Pressures to "reduce costs" require that

A. a company should not trade idiosyncratic preferences in product features for higher
economic returns.
B. a company must pursue what is economically beneficial to the company including
maximizing economies of scale and learning curve effects.
C. the manager should follow a multidomestic strategy to maximize the economic benefits to
the company.
D. the company needs to supplement the local foreign economy in a manner specified by the
local government.
49. Low pressure for local adaptation combined with low pressure for lower costs would
suggest what type of strategy?
A. international
B. global
C. multidomestic
D. transnational
7-9
50. High pressure for local adaptation combined with low pressure for lower costs would
suggest what type of international strategy?
A. Global
B. Multidomestic
C. Transnational
D. Overall cost leadership
51. Software Tech, Inc., a company in the computer software industry, invests heavily in R&D
and product design. Thus, most of its value is added
A. upstream.
B. in its infrastructure.
C. downstream.
D. midstream.
52. Industries in which proportionally more value is added in __________ activities are more
likely to benefit from a __________ strategy.
A. downstream; global
B. upstream; multidomestic
C. upstream; global
D. manufacturing; multidomestic
53. Which of the following types of international firms are most likely to benefit from a
global strategy as opposed to a multidomestic strategy?
A. Firms that compete in industries in which consumer preferences vary substantially in each
country.
B. Firms in industries that are expanding very rapidly.
C. Firms in industries that have value added by sales and marketing departments.
D. Firms in industries that have much value added in research and design or manufacturing.
7-10
54. Recent trends that might lead managers of multinational corporations (MNCs) to adopt a
more decentralized strategy for their operations would include all of the following EXCEPT
A. customers' needs, interests, and tastes are becoming increasingly homogenized or similar.
B. consumers around the world are increasingly willing to tradeoff idiosyncratic preferences
in product features for lower price.
C. flexible manufacturing trends have allowed a decline in the minimum volume required to
reach acceptable levels of production efficiency.
D. fluctuating exchange rates.
55. Firms following a global strategy strive to offer __________ products and services as well
as locate manufacturing, R&D, and marketing activities in __________ locations.
A. a wide variety of; several
B. a wide variety of; few
C. standardized; several
D. standardized; few
56. Gillette's worldwide success with its Sensor razor demonstrates

A. the importance of merging global and multidomestic strategies.
B. the values of establishing joint ventures with several multinational corporations.
C. that a global marketing effort can sometimes be successful.
D. the usefulness of a multidomestic strategy.
57. As in the case of Siebel Systems (now part of Oracle), elements of a global strategy may
facilitate the competitive advantage of differentiation by
A. increased freedom of individual business units to adapt to local tastes.
B. the creation of a worldwide network to achieve consistent service regardless of location.
C. flexibility in applying R&D to meet country-specific needs.
D. tailoring products to meet country-specific needs.
7-11
58. All of the following are risks associated with a global strategy EXCEPT
A. a firm with only one manufacturing location must export its productsome of which may
be a great distance from the operation.
B. the geographic concentration of any activity may also tend to isolate that activity from the
targeted markets.
C. concentrating an activity in a single location makes the rest of the firm dependent on that
location.
D. the pressures for local adaptation may elevate the firm's cost structure.
59. All of the following are limitations of a global strategy EXCEPT

A. limited ability to adapt to local markets.
B. the ability to locate activities in optimal locations.
C. the concentration of activities may increase dependence on a single facility.
D. single locations may lead to higher tariffs and transportation costs.
60. Elements of a multidomestic strategy may facilitate the competitive advantage of cost
leadership by
A. flexibility in adjusting to local laws and customs.
B. decreased duplication of inventories which are often involved in having multiple plants
producing similar products.
C. decreased shipping and transportation costs inherent in local production.
D. economies of scale gained through centralized production of standardized products.
61. All of the following are limitations of a multidomestic strategy EXCEPT

A. less ability to realize cost savings through scale economies.
B. greater difficulty in transferring knowledge across countries.
C. single locations may lead to higher tariffs and transportation costs.
D. may lead to "overadaptation" as conditions change.
7-12
62. High pressure for local adaptation combined with high pressure for lower costs would
suggest what type of international strategy?
A. global
B. multidomestic
C. transnational
D. differentiation
63. Units coordinate their activities with headquarters and with one another, units adapt to
special circumstances only they face, and the entire organization draws upon relevant
corporate resources. These are all attributes of which type of strategy?
A. global
B. transnational
C. international
D. multidomestic
64. Which of the following is a disadvantage of a transnational strategy?

A. Less ability to realize cost savings through scale economies.
B. Limited ability to adapt to local markets.
C. Unique managerial challenges in fostering knowledge transfer.
D. Single locations may lead to higher tariffs and transportation costs.
65. In order to realize the strongest competitive advantage, firms engaged in worldwide
competition must
A. require that all of their various business units follow the same strategy regardless of
location.
B. ensure that all business units follow a strategy strictly tailored to their respective locations.
C. pursue a strategy that combines the uniformity of a global strategy and the specificity of a
multidomestic strategy in order to achieve optimal results.
D. attempt to use the strategy that was most successful in their home country.
7-13
66. According to studies by Rugman and Verbeke, approximately how many of the world's
largest 500 firms are global, that is, they have at least 20% of their total revenues each in
North America, Asia, and Europe?
A. 9
B. 59
C. 79
D. 159
67. Which of the following describes the most typical order of entry into foreign markets?
A. franchising, licensing, exporting, joint venture, and wholly owned subsidiary
B. exporting, licensing, franchising, joint venture, and wholly owned subsidiary
C. licensing, exporting, franchising, joint venture, and wholly owned subsidiary
D. exporting, franchising, licensing, joint venture, and wholly owned subsidiary
68. A domestic corporation considering expanding into international markets for the first time
will typically
A. start off by implementing a wholly owned foreign subsidiary so it can maintain standards
identical to those at home.
B. consider licensing or franchising its operations.
C. consider implementing a low risk/low control strategy such as exporting.
D. form a joint venture with a reputable foreign producer.
69. The form of entry strategy into international operations that offers the lowest level of
control would be
A. franchising.
B. licensing.
C. joint venture.
D. exporting.
7-14
70. Fees that a multinational receives from a foreign licensee in return for its use of
intellectual property (trademark, patent, trade secret, technology) are usually called
A. transfer prices.
B. dividends.
C. royalties.
D. intra-corporate inflows.
71. The difference between a franchise and licensing contract is that

A. a franchise contract is more specific and usually longer in duration.
B. a franchise contract must include a foreign government.
C. a licensing contract covers more aspects of operations.
D. a franchise contract involves less control and less risk.
72. __________ entail the creation of a third-party legal entity, whereas __________ do not.
A. Licensing agreements; joint ventures
B. Joint ventures; strategic alliances
C. Strategic alliances; joint ventures
D. Franchising agreements; strategic alliances
73. A __________ is a business in which a multinational company owns 100 percent of the
stock.
A. joint venture
B. strategic alliance
C. wholly owned subsidiary
D. franchising operation
74. __________ are most appropriate where a firm already has the appropriate knowledge and
capabilities that it can leverage rather easily through multiple locations in many countries.
A. Joint ventures
B. Strategic alliances
C. Licensing agreements
D. Wholly owned subsidiaries
7-15
Essay Questions
75. Explain Michael Porter's "diamond of national advantage."
76. Summarize the most important benefits and risks associated with diversification into
global markets.
77. What are the main benefits of offshoring and outsourcing?
78. Explain how the two opposing forces facing MNC managers, cost reduction and local
adaptation, create pressures to operate with a global or multidomestic strategy, respectively.
7-16
79. According to Theodore Levitt, what are the three assumptions that favor the pursuit of a
"pure" global strategy? Briefly provide counterarguments to each assumption.
80. What are some of the primary benefits and risks of transnational strategies?
81. What are the key arguments that Rugman and Verbeke make in favor of regional strategies
as opposed to global strategies?
82. What are the major advantages and disadvantages of the four types of entry strategies for
international expansion?
7-17
Chapter 07 International Strategy: Creating Value in Global Markets Answer

Key
True / False Questions
1. (p. 241) The trend towards worldwide markets makes it easier to predict where competitors
will spring up.
FALSE
The rise of globalization, meaning the rise of market capitalism around the world, means
competitors can now come from just about anywhere.
AACSB: Analytic
Blooms: Understand
Learning Objective: 07-01 The importance of international expansion as a viable diversification strategy.
Level of Difficulty: 2 Medium
Topic: The Global Economy: A Brief Overview
2. (p. 241) Because many countries are investing in countries other than their own, each country
is becoming more autonomous and independent.
FALSE
Globalization, which is on the rise, has two meanings. One is the increase in international
exchange, including trade in goods and services as well as exchange of money, ideas, and
information. The second is the growing similarity of laws, rules, norms, values, and ideas
across countries.
AACSB: Analytic
Blooms: Understand
7-18
3. (p. 241) An advantage of international expansion is that competition within foreign countries
is generally very similar to that of the United States.
FALSE
Countries throughout the world vary on many dimensions, including different track records of
business-friendly policies to attract multinationals and local entrepreneurs to train workers,
invest in modern technology, and nurture local suppliers and managers. In addition, there are
differences in broader economic factors, such as interest rates, inflation, and unemployment,
as well as legal systems that protect property rights, strong educational systems, and societies
where prosperity is widely shared.
AACSB: Analytic
Blooms: Understand
4. (p. 242) In Michael Porter's "diamond of national advantage," there are four broad attributes
that, as a system, constitute a nation's competitiveness in an industry.
TRUE
Porter concluded that there are four broad attributes of nations that individually, and as a
system, constitute what is termed "the diamond of national advantage." In effect, these
attributes jointly determine the playing field that each nation establishes and operates for its
industries.
AACSB: Analytic
Blooms: Remember
Learning Objective: 07-02 The sources of national advantage; that is; why an industry in a given country is more (or less) successful than
the same industry in another country.
Level of Difficulty: 1 Easy
Topic: Factors Affecting a Nation's Competitiveness
7-19
5. (p. 243) The factor endowments of a country are inherited and cannot be created.
FALSE
Classical economics suggests that factors of production such as land, labor, and capital are the
building blocks that create usable consumer goods and services. However, companies in
advanced nations seeking competitive advantage over firms in other nations create many of
the factors of production, such as skilled human resources.
AACSB: Analytic
Blooms: Understand
6. (p. 243) With regard to "factor conditions," the pool of resources that a firm (or nation) has is
much more important than the speed and efficiency with which these resources are deployed.
FALSE
The pool of resources is less important than the speed and efficiency with which these
resources are deployed. Thus, firm-specific knowledge and skills created within a country that
are rare, valuable, difficult to imitate, and rapidly and efficiently deployed are the factors of
production that ultimately lead to a nation's competitive advantage.
AACSB: Analytic
Blooms: Understand
7-20
7. (p. 243) Demanding domestic consumers tend to push firms to move ahead of companies in
other countries where consumers are less demanding and more complacent.
TRUE
Countries with demanding consumers drive firms in that country to meet high standards,
upgrade existing products and services, and create innovative products and services. Denmark
is known for its environmental awareness. Demand from consumers for environmentally safe
products has spurred Danish manufacturers to become leaders in water pollution control
equipment, products it successfully exported.
AACSB: Analytic
Blooms: Understand
8. (p. 243) High levels of environmental awareness in Denmark have led to a decline in
Denmark's industrial competitiveness in the international marketplace.
FALSE
Countries with demanding consumers drive firms in that country to meet high standards,
upgrade existing products and services, and create innovative products and services. Denmark
is known for its environmental awareness. Demand from consumers for environmentally safe
products has spurred Danish manufacturers to become leaders in water pollution control
equipment, products it successfully exported.
AACSB: Analytic
Blooms: Understand
7-21
9. (p. 243) Countries with a strong supplier base benefit by adding efficiency to downstream
activities.
TRUE
Related and supporting industries enable firms to manage inputs more effectively. Countries
with a strong supplier base benefit by adding efficiency to downstream activities. A
competitive supplier base helps a firm obtain inputs using cost-effective, timely methods, thus
reducing manufacturing costs.
AACSB: Analytic
Blooms: Understand
10. (p. 244) Typically, intense rivalry in domestic markets does not force firms to look outside
their national boundaries for new markets.
FALSE
Domestic rivalry provides a strong impetus for firms to innovate and find new sources of
competitive advantage. This intense rivalry forces firms to look outside their national
boundaries for new markets, setting up the conditions necessary for global competitiveness.
AACSB: Analytic
Blooms: Understand
7-22
11. (p. 244) Many international firms are increasing their efforts to market their products and
services to countries such as India and China as the ranks of their middle class continue to
increase.
TRUE
Many multinational firms are intensifying their efforts to market their products and services to
countries such as India and China as the ranks of their middle class have increased over the
past decade. These include Procter & Gamble's success in achieving a 50 percent share in
China's shampoo market as well as PepsiCo's impressive inroads in the Indian soft-drink
market.
AACSB: Analytic
Blooms: Understand
Learning Objective: 07-03 The motivations (or benefits) and the risks associated with international expansion; including the emerging trend
for greater offshoring and outsourcing activity.
Topic: International Expansion: A Company's Motivations and Risks
12. (p. 247-248) International expansion can extend the life cycle of a product that is in its
maturity stage in a firm's home country.
TRUE
Extending the life cycle of a product that is in its maturity stage in a firm's home country but
that has greater demand potential elsewhere is a benefit of international expansion. In recent
decades, U.S. soft-drink producers such as Coca-Cola and PepsiCo have aggressively pursued
international markets to attain levels of growth that simply would not be available in the
United States.
AACSB: Analytic
Blooms: Understand
7-23
13. (p. 248) An advantage of international expansion is that it can enable a firm to optimize the
location of every activity in its value chain.
TRUE
Optimizing the physical location for every activity in its value chain is another benefit of
international expansion. Optimizing the location for every activity in the value chain can yield
one or more of three strategic advantages: performance enhancement, cost reduction, and risk
reduction.
AACSB: Analytic
Blooms: Understand
14. (p. 251) The laws, and the enforcement of laws, associated with the protection of intellectual
property rights, represent a significant currency and management risk to multinational firms.
FALSE
There are four main types of risk: political risk, economic risk, currency risk, and
management risk. The laws, and the enforcement of laws, associated with the protection of
intellectual property rights can be a major potential economic risk (rather than currency or
management risk) in entering new countries.
AACSB: Analytic
Blooms: Understand
7-24
15. (p. 253) Differences in foreign markets such as culture, language, and customs can represent
significant management risks when firms enter foreign markets.
TRUE
Management risks may be considered the challenges and risks that managers face when they
must respond to the inevitable differences that they encounter in foreign markets. These take a
variety of forms: culture, customs, language, income levels, customer preferences, distribution
systems, and so on.
AACSB: Analytic
Blooms: Understand
16. (p. 254) Offshoring takes place when a firm decides to shift an activity that they were
previously performing in a domestic location to a foreign location.
TRUE
Offshoring takes place when a firm decides to shift an activity that they were performing in a
domestic location to a foreign location. For example, both Microsoft and Intel now have R&D
facilities in India, employing a large number of Indian scientists and engineers.
AACSB: Analytic
Blooms: Remember
7-25
17. (p. 255) Two opposing pressures that managers face when they compete in foreign markets
are cost reduction and adaptation to local markets.
TRUE
There are two opposing forces that firms face when they expand into global markets: cost
reduction and adaptation to local markets.
AACSB: Analytic
Blooms: Remember
Learning Objective: 07-04 The two opposing forces-cost reduction and adaptation to local markets-that firms face when entering
international markets.
Topic: Achieving Competitive Advantage in Global Markets
18. (p. 255-256) Theodore Levitt has argued that people around the world are willing to sacrifice
preferences in product features, functions, and design if they are offered lower prices and high
quality.
TRUE
Levitt advocated global product and brand strategies based on three assumptions: customer
needs and interests are becoming increasingly homogeneous worldwide, people around the
world are willing to sacrifice preferences in features, design, and the like for lower prices at
high quality, and substantial economies of scale in production and marketing can be achieved
through supplying global markets.
AACSB: Analytic
Blooms: Understand
7-26
19. (p. 255-256) Among Theodore Levitt's assumptions that would favor a global strategy is that
consumers around the world are becoming less price-sensitive.
FALSE
Levitt advocated global product and brand strategies based on three assumptions: customer
needs and interests are becoming increasingly homogeneous worldwide, people around the
world are willing to sacrifice preferences in features, design, and the like for lower prices at
high quality, and substantial economies of scale in production and marketing can be achieved
through supplying global markets.
AACSB: Analytic
Blooms: Understand
20. (p. 257) Within a worldwide market, the most effective strategies are neither purely
multidomestic nor purely global.
TRUE
All firms must balance the need to lower costs (where highly standardized products are
preferred) with the need to be responsive to local pressures (where differentiating offerings is
required). Most strategies incorporate some elements of both.
AACSB: Analytic
Blooms: Understand
7-27
21. (p. 264) Industries in which proportionally more value is added in upstream activities are
more likely to benefit from a global strategy than those in which more value is added
downstream (closer to the customer).
TRUE
Typically, primary activities that are "downstream" (e.g., marketing or service), or closer to
the customer, require more decentralization to adapt to local market conditions (a
multidomestic strategy). "Upstream" primary activities (e.g., logistics and operations), tend to
be centralized (a global strategy) because there is less need for adapting them to local markets
and the firm benefits from economies of scale.
AACSB: Analytic
Blooms: Understand
Learning Objective: 07-05 The advantages and disadvantages associated with each of the four basic strategies: international; global;
multidomestic; and transnational.
22. (p. 259) In a global strategy a firm operates all its businesses under a single common strategy
regardless of location.
TRUE
With a global strategy, competitive strategy is centralized and controlled to a large extent by
the corporate office.
AACSB: Analytic
Blooms: Remember
7-28
23. (p. 260) A multidomestic strategy is the most appropriate strategy for international operations
because it drives economies of scale as far as possible and provides a middle-of-the-road
product appealing to the largest number of consumers in every market.
FALSE
A firm whose emphasis is on differentiating its product and service offerings to adapt to local
markets follows a multidomestic strategy. Decisions evolving from a multidomestic strategy
tend to be decentralized to permit the firm to tailor its products and respond rapidly to
changes in demand.
AACSB: Analytic
Blooms: Understand
24. (p. 258, 260, 262) The need to attain economies of scale encourages multinational firms to
operate under a multidomestic strategy.
FALSE
According to Exhibit 7.4, a firm whose emphasis is on differentiating its product and service
offerings to adapt to local markets follows a multidomestic strategy. This typically results in
lower ability to leverage economies of scale and higher cost structures.
AACSB: Analytic
Blooms: Understand
7-29
25. (p. 260) Corporations with multiple foreign operations that act very independently of one
another are following a multidomestic strategy.
TRUE
A firm whose emphasis is on differentiating its product and service offerings to adapt to local
markets follows a multidomestic strategy. Decisions evolving from a multidomestic strategy
tend to be decentralized to permit the firm to tailor its products and respond rapidly to
changes in demand.
AACSB: Analytic
Blooms: Remember
26. (p. 258, 260, 262) A multidomestic strategy would likely include the use of high volume,
centralized production facilities to maximize economies of scale.
FALSE
According to Exhibit 7.4, a firm whose emphasis is on differentiating its product and service
offerings to adapt to local markets follows a multidomestic strategy. This typically results in
lower ability to leverage economies of scale and higher cost structures.
AACSB: Analytic
Blooms: Remember
7-30
27. (p. 263) A limitation of a multidomestic strategy is that it may lead to "overadaptation" as
conditions change.
TRUE
While the multidomestic strategy is based on adaptation to local conditions, the optimal
degree of local adaptation evolves over time. Firms must recalibrate the need for local
adaptation on an ongoing basis; excessive adaptation extracts a price as surely as
underadaptation.
AACSB: Analytic
Blooms: Understand
28. (p. 263) Multinational firms following a transnational strategy strive to optimize the trade-
offs associated with efficiency, local adaptation, and learning.
TRUE
A transnational strategy strives to optimize the trade-offs associated with efficiency, local
adaptation, and learning. It seeks efficiency not for its own sake, but as a means to achieve
global competitiveness. It recognizes the importance of local responsiveness but as a tool for
flexibility in international operations.
AACSB: Analytic
Blooms: Remember
7-31
29. (p. 264) A key tenet of a transnational strategy is improved adaptation to all competitive
situations as well as flexibility by capitalizing on communication and knowledge flows
throughout the organization.
TRUE
A central philosophy of the transnational organization is enhanced adaptation to all

competitive situations as well as flexibility by capitalizing on communication and knowledge
flows throughout the firm. A principal characteristic is the integration of unique contributions
of all units into worldwide operations.
AACSB: Analytic
Blooms: Remember
30. (p. 265) According to studies by Rugman and Verbeke, most of the world's 500 firms are
global, not regional or biregional.
FALSE
Extensive analysis of the distribution data of sales across different countries and regions led
Alan Rugman and Alain Verbeke to conclude that there is a strong case to be made that most
companies are regional or biregional, not global, even today.
AACSB: Analytic
Blooms: Understand
Learning Objective: 07-06 The difference between regional companies and truly global companies.
7-32
31. (p. 268-269) A franchise generally expires after a few years whereas a license is designed to
last into perpetuity.
FALSE
Licensing enables a company to receive a royalty or fee in exchange for the right to use its
trademark, patent, trade secret, or other valuable item of intellectual property. Franchising
contracts generally include a broader range of factors in an operation and have a longer time
period during which the agreement is in effect.
AACSB: Analytic
Blooms: Remember
Learning Objective: 07-07 The four basic types of entry strategies and the relative benefits and risks associated with each of them.
Topic: Entry Modes of International Expansion
32. (p. 267) Typically, joint ventures involve less control and risk than franchising.
FALSE
According to Exhibit 7.10, a joint venture has a higher degree of ownership (both investment
and risk) and control than does franchising.
Refer to Exhibit 7.10
AACSB: Analytic
Blooms: Remember
7-33
33. (p. 271) Typically, the best method of entry into a foreign market is the establishment of a
wholly owned foreign subsidiary so that the parent organization can maintain a high level of
control.
FALSE
Establishing a wholly owned subsidiary is the most expensive and risky of the various entry
modes. However, it can also yield the highest returns. In addition, it provides the
multinational company with the greatest degree of control of all activities, including
manufacturing, marketing, distribution, and technology development. Wholly owned
subsidiaries are most appropriate where a firm already has the appropriate knowledge and
capabilities that it can leverage rather easily through multiple locations.
AACSB: Analytic
Blooms: Understand
Multiple Choice Questions
34. (p. 241) A major trend in international developments includes

A. greater international trade and operations.
B. a growing recognition of an international managerial perspective.
C. a large increase in international investment.
D. all of these.
Globalization, which is on the rise, has two meanings. One is the increase in international
exchange, including trade in goods and services as well as exchange of money, ideas, and
information. The second is the growing similarity of laws, rules, norms, values, and ideas
across countries.
AACSB: Analytic
Blooms: Understand
7-34
35. (p. 241) The reasons that explain why some governments make better use of the inflows from
foreign investment and know-how than others include all of the following EXCEPT
A. governmental practices that are business-friendly.
B. local entrepreneurs that can train workers and invest in modern technology.
C. high tariffs and taxes on foreign investors and multinational corporations provide income
to improve living conditions.
D. sound management of broader economic factors such as interest rates and inflation.
Some governments make better use of inflows of foreign investment and know-how than
others. Explanations include the need of governments to have track records of business-
friendly policies to attract multinationals and local entrepreneurs to train workers, invest in
modern technology, and nurture local suppliers and managers. Also, it means carefully
managing the broader economic factors in an economy, such as interest rates, inflation, and
unemployment.
AACSB: Analytic
Blooms: Understand
36. (p. 242) Michael Porter's framework all of the following factors affect a nation's
competitiveness EXCEPT
A. factor conditions.
B. demand characteristics.
C. related and supported industries.
D. policies that protect the nation's domestic competitors.
Porter concluded that there are four broad attributes of nations that individually, and as a
system, constitute what is termed "the diamond of national advantage." In effect, these
attributes jointly determine the playing field that each nation establishes and operates for its
industries. These factors are: factor endowments, demand condition, related and supporting
industries, and firm strategy, structure, and rivalry.
AACSB: Analytic
Blooms: Understand
7-35
37. (p. 244) Rivalry is intense in nations with conditions of __________ consumer demand,
__________ supplier bases, and __________ new entrant potential from related industries.
A. weak; weak; high
B. strong; strong; low
C. strong; strong; high
D. weak; weak; low
Rivalry is particularly intense in nations with conditions of strong consumer demand, strong
supplier bases, and high new entrant potential from related industries. This competitive rivalry
increases the efficiency with which firms develop, market, and distribute products and
services within the home country.
AACSB: Analytic
Blooms: Understand
38. (p. 244) According to Michael Porter, firms that have experienced intense domestic
competition are
A. unlikely to have the time or resources to compete abroad.
B. most likely to design strategies aimed primarily at the domestic market.
C. more likely to design strategies and structures that allow them to successfully compete
abroad.
D. more likely to demand protection from their governments.
Competitive rivalry increases the efficiency with which firms develop, market, and distribute
products and services within the home country. This intense rivalry forces firms to look
outside their national boundaries for new markets, setting up the conditions necessary for
global competitiveness.
AACSB: Analytic
Blooms: Understand
7-36
39. (p. 245) All of the factors below have made India's software services industry extremely
competitive on a global scale EXCEPT
A. large pool of skilled workers.
B. large network of public and private educational institutions.
C. tax and antitrust legislation that protect the dominant players in the industry.
D. large, growing market and sophisticated customers.
According to Exhibit 7.1, India's diamond of national advantage for software includes a large
pool of skilled workers, a large network of public and private educational institutions, a large,
growing market, and sophisticated customers.
AACSB: Analytic
Blooms: Understand
40. (p. 249) All of the following would be viewed as advantages of global diversification
EXCEPT
A. fewer social and political risks than domestic operations.
B. a firm not being solely dependent on the domestic market.
C. a firm with large margins at home helping subsidize its operations in other nations.
D. the potential to lower costs of operation even if the primary market is at home.
When a company expands its international operations, it does so to increase its profits or
revenues. As with any other investment, however, there are also potential risks. The four main
types of risk are political risk, economic risk, currency risk, and management risk.
AACSB: Analytic
Blooms: Understand
7-37
41. (p. 248) Optimizing the location of every activity in the value chain can yield all of the
following strategic advantages EXCEPT
A. performance enhancement.
B. cost reduction.
C. extending the life cycle of the product of service.
D. risk reduction.
Optimizing the location for every activity in the value chain can yield one or more of three
strategic advantages: performance enhancement, cost reduction, and risk reduction.
AACSB: Analytic
Blooms: Understand
42. (p. 248) Microsoft decided to establish a corporate research laboratory in Cambridge,
England
A. because England is an ally of the United States.
B. to access the outstanding technical and professional talent available there so that they can
attain world-class excellence in selected value-creating activities.
C. because the local language is English.
D. because the company views the United States as a risky place to expand due to the actions
of the U.S. Department of Justice.
Microsoft's decision to establish a corporate research laboratory in Cambridge, England, is an

example of a location decision that was guided mainly by the goal of building and sustaining
world-class excellence in selected value-creating activities. This strategic decision provided
Microsoft with access to outstanding technical and professional talent.
AACSB: Analytic
Blooms: Understand
7-38
43. (p. 247) The sale of Boeing's commercial aircraft and Microsoft's operating systems in many
countries enable these companies to benefit from
A. higher prices in their domestic markets.
B. economies of scale.
C. optimizing the location for many activities in their value chain.
D. reducing their exposure to currency risks.
Expanding a firm's global presence automatically increases its scale of operations, providing
it with a larger revenue and asset base which potentially enables a firm to attain economies of
scale. One advantage is the spreading of fixed costs such as R&D over a larger volume of
production. Examples include the sale of Boeing's commercial aircraft and Microsoft's
operating systems in many foreign countries.
AACSB: Analytic
Blooms: Understand
44. (p. 248) Many U.S. multinational companies set up maquiladora operations south of the
U.S.-Mexico border primarily
A. to sell products into the growing Mexican market.
B. as part of US government-initiated measures to discourage illegal immigration.
C. to take advantage of the lower tax rates in Mexico.
D. to take advantage of the low cost of labor.
Many multinational companies set up production operations just south of the U.S.-Mexico
border to access lower-cost labor. These operations are called maquiladoras. Such location
decisions can affect the cost structure in terms of local manpower and other resources,
transportation and logistics, and government incentives and the local tax structure.
AACSB: Analytic
Blooms: Understand
7-39
45. (p. 252) Appreciation of the U.S. dollar will have the following impact on McDonald's:
A. lower sales abroad because foreign customers cannot afford McDonalds' products.
B. more transfer of ingredients from the U.S. to branches abroad to take advantage of the
higher dollar.
C. lower profits, because foreign profits will be reduced when measured in dollars.
D. no impact at all.
Appreciation of the U.S. dollar can have negative implications for American companies that
have branch operations overseas. The reason for this is that profits from abroad must be
exchanged for dollars at a more expensive rate of exchange, reducing the amount of profit
when measured in dollars.
AACSB: Analytic
Blooms: Apply
Level of Difficulty: 3 Hard
46. (p. 254) __________ occurs when a firm decides to utilize other firms to perform value-
creating activities that were previously performed in-house.
A. Offshoring
B. A global strategy
C. Outsourcing
D. A transnational strategy
Outsourcing occurs when a firm decides to utilize other firms to perform value-creating
activities that were previously performed in-house. It may be a new activity that the firm is
perfectly capable of doing but chooses to have someone else perform for cost or quality
reasons. Outsourcing can be to either a domestic or foreign firm.
AACSB: Analytic
Blooms: Remember
7-40
47. (p. 255-256) Which one of the following is one of Theodore Levitt's assumptions supporting a
pure global strategy?
A. Consumers are willing to pay more for specific product features.
B. Customer needs and interests are becoming more dissimilar.
C. If the world markets are treated as heterogeneous, substantial economies of scale are easily
achieved.
D. MNCs can compete with aggressive pricing on low cost products that meet the common
needs of global consumers.
Levitt's approach supporting global products rested on three key assumptions: customer needs
and interests are becoming increasingly homogeneous worldwide, people around the world
are willing to sacrifice preferences in product features, functions, design, and the like for
lower prices at high quality, and substantial economies of scale in production and marketing
can be achieved through supplying global markets.
AACSB: Analytic
Blooms: Understand
7-41
48. (p. 250) Pressures to "reduce costs" require that

A. a company should not trade idiosyncratic preferences in product features for higher
economic returns.
B. a company must pursue what is economically beneficial to the company including
maximizing economies of scale and learning curve effects.
C. the manager should follow a multidomestic strategy to maximize the economic benefits to
the company.
D. the company needs to supplement the local foreign economy in a manner specified by the
local government.
An example is Narayana Hrudayalaya Hospital in Bangalore, which performs open heart

surgeries at about $2000, which is a fraction of the $20,000 to $100,000 that it would cost in a
U.S. hospital. The hospital has 1000 beds, roughly eight times the size of an American
hospital, and performs 600 operations a week. The large volume allows the hospital to benefit
from both economies of scale (that reduce cost) and, even more importantly, experience curve
effects that improve the success rate.
AACSB: Analytic
Blooms: Understand
49. (p. 257-258) Low pressure for local adaptation combined with low pressure for lower costs
would suggest what type of strategy?
A. international
B. global
C. multidomestic
D. transnational
An international strategy is used in industries where the pressures for both local adaptation
and lowering costs are low.
AACSB: Analytic
Blooms: Understand
7-42
50. (p. 258, 260) High pressure for local adaptation combined with low pressure for lower costs
would suggest what type of international strategy?
A. Global
B. Multidomestic
C. Transnational
D. Overall cost leadership
A multidomestic strategy is used in industries where the pressure for local adaptation is high
and the pressure for lowering costs is low.
AACSB: Analytic
Blooms: Understand
51. (p. 264) Software Tech, Inc., a company in the computer software industry, invests heavily in
R&D and product design. Thus, most of its value is added
A. upstream.
B. in its infrastructure.
C. downstream.
D. midstream.
R&D and product design are primary activities in the value-chain that are far from the
customer, and are therefore considered "upstream" activities. Such activities are often
centralized in transnational organizations.
AACSB: Analytic
Blooms: Apply
7-43
52. (p. 264) Industries in which proportionally more value is added in __________ activities are
more likely to benefit from a __________ strategy.
A. downstream; global
B. upstream; multidomestic
C. upstream; global
D. manufacturing; multidomestic
Primary activities that are "downstream" (e.g., marketing and sales, and service), or closer to
the customer, tend to require more decentralization in order to adapt to local market
conditions (a multidomestic strategy). Primary activities that are "upstream" (e.g., logistics
and operations), or further away from the customer, tend to be centralized (a global strategy).
This is because there is less need for adapting these activities to local markets and the firm
can benefit from economies of scale.
AACSB: Analytic
Blooms: Apply
53. (p. 264) Which of the following types of international firms are most likely to benefit from a
global strategy as opposed to a multidomestic strategy?
A. Firms that compete in industries in which consumer preferences vary substantially in each
country.
B. Firms in industries that are expanding very rapidly.
C. Firms in industries that have value added by sales and marketing departments.
D. Firms in industries that have much value added in research and design or manufacturing.
Primary activities that are "downstream" (e.g., marketing and sales, and service), or closer to
the customer, tend to require more decentralization in order to adapt to local market
conditions (a multidomestic strategy). Primary activities that are "upstream" (e.g., R&D,
design, or manufacturing), or further away from the customer, tend to be centralized (a global
strategy). This is because there is less need for adapting these activities to local markets and
the firm can benefit from economies of scale.
AACSB: Analytic
Blooms: Understand
7-44
54. (p. 260) Recent trends that might lead managers of multinational corporations (MNCs) to
adopt a more decentralized strategy for their operations would include all of the following
EXCEPT
A. customers' needs, interests, and tastes are becoming increasingly homogenized or similar.
B. consumers around the world are increasingly willing to tradeoff idiosyncratic preferences
in product features for lower price.
C. flexible manufacturing trends have allowed a decline in the minimum volume required to
reach acceptable levels of production efficiency.
D. fluctuating exchange rates.
A decentralized strategy such as that seen within the multidomestic organization, allows for
greater adaptation at the local level, which would not be necessary if customers were
becoming more homogenous.
AACSB: Analytic
Blooms: Understand
55. (p. 259) Firms following a global strategy strive to offer __________ products and services
as well as locate manufacturing, R&D, and marketing activities in __________ locations.
A. a wide variety of; several
B. a wide variety of; few
C. standardized; several
D. standardized; few
Firms following a global strategy strive to offer standardized products and services as well as
to locate manufacturing, R&D, and marketing activities in only a few locations.
AACSB: Analytic
Blooms: Understand
7-45
56. (p. 259) Gillette's worldwide success with its Sensor razor demonstrates
A. the importance of merging global and multidomestic strategies.
B. the values of establishing joint ventures with several multinational corporations.
C. that a global marketing effort can sometimes be successful.
D. the usefulness of a multidomestic strategy.
A global strategy is most appropriate when there are strong pressures for reducing costs and
comparatively weak pressures for adaptation to local markets. Economies of scale becomes an
important consideration. Such would be the case for Gillette's Sensor razor.
AACSB: Analytic
Blooms: Understand
57. (p. 259) As in the case of Siebel Systems (now part of Oracle), elements of a global strategy
may facilitate the competitive advantage of differentiation by
A. increased freedom of individual business units to adapt to local tastes.
B. the creation of a worldwide network to achieve consistent service regardless of location.
C. flexibility in applying R&D to meet country-specific needs.
D. tailoring products to meet country-specific needs.
One advantage of a global strategy is that it can enable a firm to create a standard level of
quality throughout the world. Tom Siebel, former chairman of Siebel Systems (now part of
Oracle), e-business application software developer, says, "Our customers, global companies
like IBM, Zurich Financial Services, and Citicorp, expect the same high level of service and
quality, and the same licensing policies, no matter where we do business with them around the
world."
AACSB: Analytic
Blooms: Understand
7-46
58. (p. 260) All of the following are risks associated with a global strategy EXCEPT
A. a firm with only one manufacturing location must export its productsome of which may
be a great distance from the operation.
B. the geographic concentration of any activity may also tend to isolate that activity from the
targeted markets.
C. concentrating an activity in a single location makes the rest of the firm dependent on that
location.
D. the pressures for local adaptation may elevate the firm's cost structure.
Some risks associated with a global strategy include: if a firm has only one manufacturing
facility, it must export its output to other markets, some of which may be a great distance from
the operation, the geographic concentration of any activity may also tend to isolate that
activity from the targeted markets, and concentrating an activity in a single location also
makes the rest of the firm dependent on that location.
AACSB: Analytic
Blooms: Understand
59. (p. 260-261) All of the following are limitations of a global strategy EXCEPT
A. limited ability to adapt to local markets.
B. the ability to locate activities in optimal locations.
C. the concentration of activities may increase dependence on a single facility.
D. single locations may lead to higher tariffs and transportation costs.
According to Exhibit 7.6, limitations of global strategies include a limited ability to adapt to
local markets, a concentration of activities that may increase dependence on a single facility,
and single locations that may lead to higher tariffs and transportation costs.
AACSB: Analytic
Blooms: Understand
7-47
60. (p. 260) Elements of a multidomestic strategy may facilitate the competitive advantage of
cost leadership by
A. flexibility in adjusting to local laws and customs.
B. decreased duplication of inventories which are often involved in having multiple plants
producing similar products.
C. decreased shipping and transportation costs inherent in local production.
D. economies of scale gained through centralized production of standardized products.
A multidomestic strategy is one of decentralization, meaning more likelihood of local

production. One benefit of this is reduced shipping and transportation costs.
AACSB: Analytic
Blooms: Understand
61. (p. 263) All of the following are limitations of a multidomestic strategy EXCEPT
A. less ability to realize cost savings through scale economies.
B. greater difficulty in transferring knowledge across countries.
C. single locations may lead to higher tariffs and transportation costs.
D. may lead to "overadaptation" as conditions change.
According to Exhibit 7.7, limitations of multidomestic strategies include a decreased ability to

realize cost savings through scale economies, a greater difficulty in transferring knowledge
across countries, and it may lead to "overadaptation" as conditions change.
AACSB: Analytic
Blooms: Understand
7-48
62. (p. 263) High pressure for local adaptation combined with high pressure for lower costs
would suggest what type of international strategy?
A. global
B. multidomestic
C. transnational
D. differentiation
A transnational strategy is used in industries where the pressures for both local adaptation and
lowering costs are high.
AACSB: Analytic
Blooms: Understand
63. (p. 264) Units coordinate their activities with headquarters and with one another, units adapt
to special circumstances only they face, and the entire organization draws upon relevant
corporate resources. These are all attributes of which type of strategy?
A. global
B. transnational
C. international
D. multidomestic
A principal characteristic of the transnational organization is the integration of unique

contributions of all units into worldwide operations. Thus, a joint innovation by headquarters
and by one of the overseas units can lead potentially to the development of relatively
standardized and yet flexible products and services that are suitable for multiple markets.
AACSB: Analytic
Blooms: Understand
7-49
64. (p. 265) Which of the following is a disadvantage of a transnational strategy?

A. Less ability to realize cost savings through scale economies.
B. Limited ability to adapt to local markets.
C. Unique managerial challenges in fostering knowledge transfer.
D. Single locations may lead to higher tariffs and transportation costs.
According to Exhibit 7.8, limitations of transnational strategies include unique challenges in

determining optimal locations of activities to ensure cost and quality and unique managerial
challenges in fostering knowledge transfer.
AACSB: Analytic
Blooms: Understand
65. (p. 263-264) In order to realize the strongest competitive advantage, firms engaged in
worldwide competition must
A. require that all of their various business units follow the same strategy regardless of
location.
B. ensure that all business units follow a strategy strictly tailored to their respective locations.
C. pursue a strategy that combines the uniformity of a global strategy and the specificity of a
multidomestic strategy in order to achieve optimal results.
D. attempt to use the strategy that was most successful in their home country.
A transnational strategy strives to optimize the trade-offs associated with efficiency, local
adaptation, and learning. A core tenet of the transnational model is that a firm's assets and
capabilities are dispersed according to the most beneficial location for each activity. Thus,
managers avoid the tendency to either concentrate activities in a central location (a global
strategy) or disperse them across many locations to enhance adaptation (a multidomestic
strategy).
AACSB: Analytic
Blooms: Understand
7-50
66. (p. 265) According to studies by Rugman and Verbeke, approximately how many of the
world's largest 500 firms are global, that is, they have at least 20% of their total revenues each
in North America, Asia, and Europe?
A. 9
B. 59
C. 79
D. 159
According to the Rugman and Verbeke study, a company would have to have at least 20
percent of its sales in each of the three major economic regions, North America, Europe, and
Asia, to be considered a global firm. However, they found that only nine of the world's 500
largest firms met this standard.
AACSB: Analytic
Blooms: Understand
67. (p. 267) Which of the following describes the most typical order of entry into foreign
markets?
A. franchising, licensing, exporting, joint venture, and wholly owned subsidiary
B. exporting, licensing, franchising, joint venture, and wholly owned subsidiary
C. licensing, exporting, franchising, joint venture, and wholly owned subsidiary
D. exporting, franchising, licensing, joint venture, and wholly owned subsidiary
Exhibit 7.10 illustrates a wide variety of modes of foreign entry, including exporting,
licensing, franchising, joint ventures, strategic alliances, and wholly owned subsidiaries. As
the exhibit indicates, the various types of entry form a continuum ranging from exporting (low
investment and risk, low control) to a wholly owned subsidiary (high investment and risk,
high control).
AACSB: Analytic
Blooms: Remember
7-51
68. (p. 268) A domestic corporation considering expanding into international markets for the first
time will typically
A. start off by implementing a wholly owned foreign subsidiary so it can maintain standards
identical to those at home.
B. consider licensing or franchising its operations.
C. consider implementing a low risk/low control strategy such as exporting.
D. form a joint venture with a reputable foreign producer.
Exporting consists of producing goods in one country to sell in another. This entry strategy
enables a firm to invest the least amount of resources in terms of its product, its organization,
and its overall corporate strategy. Multinationals often stumble onto a stepwise strategy for
penetrating markets, beginning with the exporting of products.
AACSB: Analytic
Blooms: Understand
69. (p. 267) The form of entry strategy into international operations that offers the lowest level of
control would be
A. franchising.
B. licensing.
C. joint venture.
D. exporting.
Exhibit 7.10 illustrates a wide variety of modes of foreign entry, including exporting,
licensing, franchising, joint ventures, strategic alliances, and wholly owned subsidiaries. As
the exhibit indicates, the various types of entry form a continuum ranging from exporting (low
investment and risk, low control) to a wholly owned subsidiary (high investment and risk,
high control).
AACSB: Analytic
Blooms: Understand
7-52
70. (p. 268) Fees that a multinational receives from a foreign licensee in return for its use of
intellectual property (trademark, patent, trade secret, technology) are usually called
A. transfer prices.
B. dividends.
C. royalties.
D. intra-corporate inflows.
trademark, patent, trade secret, or other valuable item of intellectual property.
AACSB: Analytic
Blooms: Remember
71. (p. 268-269) The difference between a franchise and licensing contract is that
A. a franchise contract is more specific and usually longer in duration.
B. a franchise contract must include a foreign government.
C. a licensing contract covers more aspects of operations.
D. a franchise contract involves less control and less risk.
trademark, patent, trade secret, or other valuable item of intellectual property. Franchising
contracts generally include a broader range of factors in an operation and have a longer time
period during which the agreement is in effect.
AACSB: Analytic
Blooms: Understand
7-53
72. (p. 269) __________ entail the creation of a third-party legal entity, whereas __________ do
not.
A. Licensing agreements; joint ventures
B. Joint ventures; strategic alliances
C. Strategic alliances; joint ventures
D. Franchising agreements; strategic alliances
Joint ventures and strategic differ in that joint ventures entail the creation of a third-party legal
entity, whereas strategic alliances do not. In addition, strategic alliances generally focus on
initiatives that are smaller in scope than joint ventures.
AACSB: Analytic
Blooms: Remember
73. (p. 271) A __________ is a business in which a multinational company owns 100 percent of
the stock.
A. joint venture
B. strategic alliance
C. wholly owned subsidiary
D. franchising operation
A wholly owned subsidiary is a business in which a multinational company owns 100 percent
of the stock. Two ways a firm can establish a wholly owned subsidiary are to (1) acquire an
existing company in the home country or (2) develop a totally new operation (often referred to
as a "greenfield venture").
AACSB: Analytic
Blooms: Remember
7-54
74. (p. 271) __________ are most appropriate where a firm already has the appropriate
knowledge and capabilities that it can leverage rather easily through multiple locations in
many countries.
A. Joint ventures
B. Strategic alliances
C. Licensing agreements
D. Wholly owned subsidiaries
Wholly owned subsidiaries are most appropriate where a firm already has the appropriate
knowledge and capabilities that it can leverage rather easily through multiple locations.
AACSB: Analytic
Blooms: Understand
Essay Questions
75. (p. 241-244) Explain Michael Porter's "diamond of national advantage."
Answers will vary.
AACSB: Analytic
Blooms: Understand
76. (p. 244-255) Summarize the most important benefits and risks associated with diversification
into global markets.
Answers will vary.
AACSB: Analytic
Blooms: Understand
7-55
77. (p. 254-255) What are the main benefits of offshoring and outsourcing?
Answers will vary.
AACSB: Analytic
Blooms: Understand
78. (p. 255-257) Explain how the two opposing forces facing MNC managers, cost reduction and
local adaptation, create pressures to operate with a global or multidomestic strategy,
respectively.
Answers will vary.
AACSB: Analytic
Blooms: Understand
79. (p. 255-257) According to Theodore Levitt, what are the three assumptions that favor the
pursuit of a "pure" global strategy? Briefly provide counterarguments to each assumption.
Answers will vary.
AACSB: Analytic
Blooms: Understand
7-56
80. (p. 263-265) What are some of the primary benefits and risks of transnational strategies?
Answers will vary.
AACSB: Analytic
Blooms: Understand
81. (p. 265-267) What are the key arguments that Rugman and Verbeke make in favor of regional
strategies as opposed to global strategies?
Answers will vary.
AACSB: Analytic
Blooms: Understand
82. (p. 267-271) What are the major advantages and disadvantages of the four types of entry
strategies for international expansion?
Answers will vary.
AACSB: Analytic
Blooms: Understand
7-57

International Strategy: Creating Value in Global Markets

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Chapter 07 - International Strategy: Creating Value in Global Markets

True / False Questions

3. An advantage of international expansion is that competition within foreign countries is

5. The factor endowments of a country are inherited and cannot be created.

8. High levels of environmental awareness in Denmark have led to a decline in Denmark's

9. Countries with a strong supplier base benefit by adding efficiency to downstream

27. A limitation of a multidomestic strategy is that it may lead to "overadaptation" as

34. A major trend in international developments includes

37. Rivalry is intense in nations with conditions of __________ consumer demand,

42. Microsoft decided to establish a corporate research laboratory in Cambridge, England

48. Pressures to "reduce costs" require that

56. Gillette's worldwide success with its Sensor razor demonstrates

59. All of the following are limitations of a global strategy EXCEPT

61. All of the following are limitations of a multidomestic strategy EXCEPT

64. Which of the following is a disadvantage of a transnational strategy?

71. The difference between a franchise and licensing contract is that

75. Explain Michael Porter's "diamond of national advantage."

77. What are the main benefits of offshoring and outsourcing?

Chapter 07 International Strategy: Creating Value in Global Markets Answer

True / False Questions

A central philosophy of the transnational organization is enhanced adaptation to all

Multiple Choice Questions

34. (p. 241) A major trend in international developments includes

Microsoft's decision to establish a corporate research laboratory in Cambridge, England, is an

48. (p. 250) Pressures to "reduce costs" require that

An example is Narayana Hrudayalaya Hospital in Bangalore, which performs open heart

A multidomestic strategy is one of decentralization, meaning more likelihood of local

According to Exhibit 7.7, limitations of multidomestic strategies include a decreased ability to

A principal characteristic of the transnational organization is the integration of unique

64. (p. 265) Which of the following is a disadvantage of a transnational strategy?

According to Exhibit 7.8, limitations of transnational strategies include unique challenges in

75. (p. 241-244) Explain Michael Porter's "diamond of national advantage."

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Answers will vary.

Answers will vary.

Answers will vary.

Answers will vary.

Answers will vary.

Answers will vary.

Answers will vary.

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