International Business (12)

(T/F) The actions that managers take to attain the goals of the firm are referred to as a firm’s strategy.
TRUE

A firm’s strategy can be defined as the actions that managers take to attain the goals of the firm.

(T/F) Profit growth is measured by the percentage increase in net profits over time.
TRUE

Profit growth is measured by the percentage increase in net profits over time.

(T/F) The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products.
TRUE

The way to increase the profitability of a firm is to create more value. The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products. In general, the more value customers place on a firm’s products, the higher the price the firm can charge for those products.

(T/F) The price a firm charges for a good or service is typically more than the value placed on that good or service by the customer.
FALSE

The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer.

(T/F) Consumer surplus captures some of the value of a product thereby reducing the price a firm can charges for it.
TRUE

The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the customer captures some of that value in the form of what economists call a consumer surplus.

(T/F) The greater the consumer surplus, the lower the value for the money the consumer gets.
FALSE

The greater the consumer surplus, the greater the value for the money the consumer gets

(T/F) The higher the firm’s profit per unit sold is, the greater its profitability will be, all else being equal.
TRUE

The higher the firm’s profit per unit sold is, the greater its profitability will be, all else being equal.

(T/F) A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a low-cost strategy.
FALSE

A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a differentiation strategy.

(T/F) The human resource function controls the transmission of physical materials through the value chain.
FALSE

The logistics function controls the transmission of physical materials through the value chain, from procurement through production and into distribution.

(T/F) Superior value creation relative to rivals requires that the gap between the value and cost of production achieved by a company be lesser than the gap attained by its competitors.
FALSE

Superior value creation relative to rivals does not necessarily require a firm to have the lowest cost structure in an industry, or to create the most valuable product in the eyes of consumers. However, it does require that the gap between value and cost of production be greater than the gap attained by competitors

(T/F) Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.
TRUE

Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.

(T/F) Learning effects will be more significant in an assembly process which involves 100 simple steps than in an assembly process which involves 1,000 complex steps.
FALSE

Learning effects tend to be more significant when a technologically complex task is repeated, because there is more that can be learned about the task.

(T/F) For services such as banking or health care, production typically occurs when the service is being designed by in-house professionals.
FALSE

Production is concerned with the creation of a good or service. For services such as banking or health care, “production” typically occurs when the service is delivered to the customer.

(T/F) In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm.
TRUE

The support activities of the value chain provide inputs that allow the primary activities to occur. In terms of attaining a competitive advantage, support activities can be as important as, if not more important than, the “primary” activities of the firm.

(T/F) The ability to spread fixed costs over a large volume is one of the sources of economies of scale.
TRUE

Economies of scale have a number of sources. One is the ability to spread fixed costs over a large volume. Fixed costs are the costs required to set up a production facility, develop a new product, and the like.

(T/F) Maintaining the company infrastructure is a support activity.
TRUE

The company infrastructure is the context within which all the other value creation activities occur. The infrastructure includes the organizational structure, control systems, and culture of the firm. Because top management can exert considerable influence in shaping these aspects of a firm, top management should also be viewed as part of the firm’s infrastructure.

(T/F) The term organizational structure refers to the totality of a firm’s organization, including organization architecture, control systems and incentives, organizational culture, processes, and people.
FALSE

The term organization architecture can be used to refer to the totality of a firm’s organization, including formal organizational structure, control systems and incentives, organizational culture, processes, and people.

(T/F) Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires only minimal additional costs.
FALSE

Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. The converse also holds, when a firm already has a low-cost structure, it has to give up a lot of value in its product offering to get additional cost reductions.

(T/F) The firm that moves up the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.
FALSE

Moving down the experience curve allows a firm to reduce its cost of creating value and increase its profitability. The firm that moves down the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.

(T/F) Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them.
TRUE

Since core competencies are by definition the source of a firm’s competitive advantage, the successful global expansion is based not just on leveraging products and selling them in foreign markets, but also on the transfer of core competencies to foreign markets where indigenous competitors lack them.

(T/F) According to Michael Porter, all positions on the efficiency frontier are viable.
FALSE

Porter emphasizes that it is very important for management to decide where the company wants to be positioned with regard to value (V) and cost (C), to configure operations accordingly, and to manage them efficiently to make sure the firm is operating on the efficiency frontier. However, not all positions on the efficiency frontier are viable.

(T/F) The experience curve refers to systematic increase in production costs that have been observed to occur over the life of a product.
FALSE

The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product. A number of studies have observed that a product’s production costs decline by some quantity about each time cumulative output doubles.

(T/F) One key to progressing downward on the experience curve is to decrease the volume produced by a single plant.
FALSE

One key to progressing downward on the experience curve as rapidly as possible is to increase the volume produced by a single plant as rapidly as possible.

(T/F) The various value creation activities that a firm undertakes are referred to as operations.
TRUE

Operations are the different value creation activities a firm undertakes, which we shall review next.

(T/F) Responding to pressures for cost reduction requires a firm to try to lower the costs of value creation.
TRUE

Responding to pressures for cost reduction requires a firm to try to lower the costs of value creation.

(T/F) Universal needs exist when the tastes and preferences of consumers in different nations are different.
FALSE

Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical.

(T/F) Strategies that increase profitability can also expand a firm’s business and thus enable it to attain a higher rate of profit growth.
TRUE

Strategies that increase profitability can also expand a firm’s business and thus enable it to attain a higher rate of profit growth.

(T/F) Processes are the manner in which decisions are made and work is performed within the organization.
TRUE

Processes are the manner in which decisions are made and work is performed within the organization

(T/F) Firms that pursue an international strategy focus on increasing profitability by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
FALSE

Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies; that is, their strategic goal is to pursue a low-cost strategy on a global scale.

(T/F) Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm’s core competencies wholesale from one nation to another.
TRUE

Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm’s core competencies wholesale from one nation to another. Concessions often have to be made to local conditions.

(T/F) Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to locations where they are performed most efficiently and effectively.
TRUE

Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively.

(T/F) A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.
TRUE

Firms pursuing a global standardization strategy prefer to market a standardized product worldwide so that they can reap the maximum benefits from economies of scale and learning effects. Their strategic goal is to pursue a low-cost strategy on a global scale. This strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.

(T/F) A localization strategy involves some duplication of functions and smaller production runs.
TRUE

Since customization, as a result of a localization strategy, involves some duplication of functions and smaller production runs, it limits the ability of the firm to capture the cost reductions associated with mass-producing a standardized product for global consumption.

(T/F) According to researchers, firms facing strong pressures for local responsiveness should pursue a global standardization strategy.
FALSE

When a firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness they should pursue a transnational strategy.

(T/F) An international strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization.
TRUE

International strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization. The distinguishing feature of firms following an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors.

(T/F) Strategic alliances allow firms to share the fixed costs of developing new products or processes.
TRUE

Strategic alliances allow firms to share the fixed costs (and associated risks) of developing new products or processes.

_____ is a support activity.

A. Research and development

B. Production

C. Marketing and sales

D. Logistics

E. Customer service

D. Logistics
The rate of return that a firm makes on its invested capital is referred to as _____.

A. stakeholder return

B. profitability

C. profit growth

D. process value

E. strategic fit

B. profitability
Profit growth is measured by:

A. dividing the net profits of the firm by total invested capital.

B. subtracting the previous years gross profit from the current year’s gross profit.

C. calculating the difference between the previous year’s profitability and the current year’s profitability.

D. the percentage increase in net profits over time.

E. adding the profitability of the last two fiscal years.

D. the percentage increase in net profits over time.
Managers are most likely to increase the profitability of their firm by pursuing strategies that:

A. add value to the firm’s products.

B. increase costs.

C. enable the firm to reduce the depth of its product line.

D. allow the firm to sell less products in existing markets.

E. allow the firm to exit from relatively new markets.

A. add value to the firm’s products.
The amount of value a firm creates is measured by:

A. the difference between the previous year’s profitability and the current year’s profitability.

B. dividing the market price of its products by the price that customers are actually willing to pay.

C. the difference between its costs of production and the value that consumers perceive in its products.

D. dividing the net profits of the firm by total invested capital.

E. the sum of the profitability of the last two fiscal years.

C. the difference between its costs of production and the value that consumers perceive in its products.
In general, the more value customers place on a firm’s products:

A. the lesser the profitability of the firm.

B. the higher the competitive pressure from other firms.

C. the lesser the quality of the product.

D. the lesser the consumer surplus for those products.

E. the higher the price the firm can charge for those products.

E. the higher the price the firm can charge for those products.
Typically, the price a firm charges for a good or service is:

A. less than the value placed on that good or service by the customer.

B. more than what customers assume it would be.

C. more than the market price for similar goods or services.

D. the same as the value placed on that good or service by the customer.

E. less than the lowest priced similar good or service in the market.

A. less than the value placed on that good or service by the customer.
The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the consumer captures some of that value in the form of what economists call a _____.

A. firm value

B. consumer surplus

C. customer loyalty

D. firm deficit

E. profit growth

B. consumer surplus
As a result of consumer surplus, a firm typically charges less price for a good or service than the value placed on it by customers because:

A. the value creation results in a corresponding reduction in costs of production.

B. it is highly unlikely that the same good or service will be available to the customers from other firms.

C. the firm is competing with other firms for the customer’s business.

D. the firm charges a price that reveals a consumer’s assessment of the product’s value.

E. the firm creates value for the customer by producing a wide range of products

C. the firm is competing with other firms for the customer’s business.
One of the reasons why a firm typically charges for a good or service less than the value placed on that good or service by the customer is because:

A. the firm attempts to create value for the consumers by providing them a wide range of products

B. it is normally impossible to segment a market based on each customer’s reservation price.

C. the value creation results in a corresponding reduction in costs of production.

D. the firm frequently modifies its products to compete with the products introduced by other firms.

E. it is highly unlikely that the same good or service will be available to the customers from other firms.

B. it is normally impossible to segment a market based on each customer’s reservation price.
The price that reflects an individual’s assessment of the value of a product is referred to as:

A. the market price.

B. the customer’s negotiated price.

C. the base value of the product.

D. the customer’s reservation price.

E. the profit growth price.

D. the customer’s reservation price.
The value of a product to an average consumer is V, the average price that the firm can charge a consumer for that product is P, and the average unit cost of producing that product is C. For this scenario, which of the following is true?

A. The firm makes a profit so long as C is greater than P.

B. The higher C is relative to P, greater will be the profit.

C. The consumer surplus per unit is equal to V – P.

D. The higher the intensity of competitive pressure, the higher the price charged relative to V.

E. The lower the consumer surplus the greater the value for the money the consumer gets.

C. The consumer surplus per unit is equal to V – P.
The _____ of a firm is measured by the difference between the value of a product to an average consumer and the average unit cost of producing that product.

A. customer surplus

B. value creation

C. cost curve

D. value efficiency

E. customer reservation

B. value creation
A company can create more value for a product by:

A. charging a higher price for the product.

B. raising production costs.

C. generating more profits.

D. making the product more attractive.

E. increasing the profitability of the product.

D. making the product more attractive.
A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a _____ strategy.

A. standardization

B. differentiation

C. target-identification

D. low-cost

E. profitability

B. differentiation
According to Michael Porter, _____ and _____ are the two basic strategies for improving creating value and attaining a competitive advantage in an industry.

A. differentiation; low-cost

B. value creation; generalization

C. one-size-fits-all; zero-sum

D. comparison; standardization

E. profitability; strategic fit

A. differentiation; low-cost
According to Michael Porter, superior portability goes to a firm that:

A. creates similar products as their competitors.

B. keeps the gap between value and cost of production smaller than the gap attained by competitors.

C. drives down the cost structure of its business.

D. has the highest cost structure in the industry.

E. has the least valuable product in the industry.

C. drives down the cost structure of its business.
Superior value creation relative to rivals requires that the firm:

A. creates similar products as its competitors so that consumers do not have to pay a premium price.

B. has the highest cost structure in the industry.

C. creates the least valuable product in the eyes of consumers.

D. ensures that the gap between value and cost of production is greater than the gap attained by competitors.

E. drives up the cost structure of its business.

D. ensures that the gap between value and cost of production is greater than the gap attained by competitors.
The _____ shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position.

A. demand-value model

B. experience curve

C. efficiency frontier

D. optimal output model

E. surplus curve

C. efficiency frontier
The efficiency frontier has a convex shape because of:

A. a high-cost structure.

B. diminishing returns.

C. a significantly low product value.

D. low production costs.

E. high profit growth.

B. diminishing returns.
Which of the following statements is true of the efficiency frontier?

A. To maximize its profitability, a firm should avoid a position that lies on the efficiency frontier.

B. Not all positions on the efficiency frontier are viable.

C. The efficiency frontier is a function of the cost and revenue of a product.

D. Positions inside the frontier are more efficient than the positions that are located on the frontier.

E. It is always concave in shape because of diminishing returns.

B. Not all positions on the efficiency frontier are viable.
For a firm to maximize its profitability, it is necessary that it:

A. creates products similar to the products of its competitors.

B. does not configure its internal operations to reduce costs.

C. minimizes the value of the consumer surplus

D. picks a position on the efficiency frontier that is viable.

E. strips all the value out of its product offering.

D. picks a position on the efficiency frontier that is viable.
A firm maximizes its profitability when it:

A. creates products similar to the products of its competitors.

B. minimizes the value provided by its products.

C. picks a position on the efficiency frontier that is not viable.

D. strips all the value out of its product offering.

E. configures its internal operations to support the position selected by it on the efficiency frontier.

E. configures its internal operations to support the position selected by it on the efficiency frontier.
A firm’s profitability maximizes when it:

A. creates products similar to the products of its competitors.

B. strips all the value out of its product offering.

C. ensures that it has the right organization structure in place to execute its strategy.

D. picks a position on the efficiency frontier that is not viable.

E. does not configure its internal operations to reduce costs.

C. ensures that it has the right organization structure in place to execute its strategy.
The value creation activities of a firm are categorized as _____ and _____.

A. primary activities; support activities

B. strategic activities; functional activities

C. ancillary functions; tertiary functions

D. primary activities; core activities

E. goal-oriented activities; organizational activities

A. primary activities; support activities
The _____ activities of a firm have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service.

A. support

B. tertiary

C. ancillary

D. primary

E. secondary

D. primary
Which of the following is a primary activity in the operations of a firm?

A. Logistics function

B. Research and development

C. Information systems

D. Human resource function

E. Company infrastructure

B. Research and development
Which of the following operations of a firm is concerned with the design of products and production processes?

A. Human resources

B. Research and development

C. Marketing and sales

D. Materials management

E. Company infrastructure

B. Research and development
For services such as banking or health care, “production” typically occurs when:

A. the customer specifies the service requirements.

B. the service is paid for by the customer.

C. the service is designed in-house.

D. the service is delivered to the customer.

E. the customer gives a feedback.

D. the service is delivered to the customer.
Which of the following is a support activity in the operations of a firm?

A. Research and development

B. Customer service

C. Marketing and sales

D. Creation and maintenance of information systems

E. Production

D. Creation and maintenance of information systems
Of all the value creation activities in a firm, _____ create(s) value by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs.

A. production

B. marketing and sales

C. human resources

D. logistics

E. information systems

B. marketing and sales
Which of the following functions creates a perception of superior value in the minds of consumers by solving consumer problems and by supporting them after they have purchased the product?

A. Production

B. Marketing and sales

C. Human resources

D. Customer service

E. Logistics

D. Customer service
The _____ of a value chain provide inputs that allow the primary activities to occur.

A. lateral functions

B. support activities

C. core activities

D. central activities

E. secondary activities

B. support activities
_____ is a value creation activity which falls into the category of primary activities.

A. Creation and maintenance of information systems

B. Customer service

C. Human resources

D. Logistics

E. Company infrastructure maintenance

B. Customer service
The _____ function of a value chain controls the transmission of physical materials through the value chain, from procurement through production and into distribution.

A. human resource

B. finance

C. marketing

D. logistics

E. research and development

D. logistics
The _____ function of a value chain ensures that the company has the right mix of skilled people to perform its value creation activities effectively.

A. finance

B. marketing

C. human resource

D. logistics

E. marketing and sales

C. human resource
Which of the following support functions is most likely to involve dealing with the organizational structure, control systems, and culture of the firm?

A. Human resource function

B. Logistics

C. Information systems

D. Company infrastructure

E. Inventory management

D. Company infrastructure
Who among the following should be viewed as part of a firm’s infrastructure?

A. Procurement manager

B. Top management

C. Production manager

D. Research and development scientist

E. Marketing personnel

B. Top management
The term _____ refers to the totality of a firm’s organization, including its organizational structure, control systems, incentives, processes, and people.

A. primary structure

B. organization architecture

C. organizational hierarchy

D. organizational model

E. management structure

B. organization architecture
Which of the following is a part of the organization architecture that consists of the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits?

A. Reports

B. Controls

C. Rewards

D. Knowledge flows

E. Dominions

B. Controls
_____ are considered a part of an organization architecture and are used to reward appropriate managerial behavior.

A. Knowledge flows

B. Reports

C. Processes

D. Incentives

E. Controls

D. Incentives
Processes are:

A. the manner in which decisions are made and work is performed within the organization.

B. the metrics used to measure the performance of subunits.

C. the devices used to reward appropriate managerial behavior.

D. the metrics used to make judgments about how well managers are running the subunits.

E. the norms and value systems that are shared among the employees of an organization.

A. the manner in which decisions are made and work is performed within the organization.
Which of the following terms best represents the norms and value systems that are shared among the employees of an organization?

A. Process scenario

B. Organizational structure

C. Business structure

D. Organizational culture

E. Management structure

D. Organizational culture
A firm’s ability to increase its profitability and profit growth by expanding globally is constrained:

A. by the imperative of localization.

B. by the economies of scale.

C. due to customer surplus.

D. due to the leveraging of skills developed in foreign operations.

E. due to the dispersion of individual value creation activities.

A. by the imperative of localization.
A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if:

A. the product is already being offered by local companies in the nations that the company enters.

B. the product is a generic product that requires little differentiation.

C. indigenous competitors in the nations that the company enters lack comparable products.

D. there is a high inflation in the nations that the company enters.

E. the product is perceived to be very costly in the home country of the company.

C. indigenous competitors in the nations that the company enters lack comparable products.
Skills within a firm that competitors cannot easily match or imitate are referred to as _____.

A. core competencies

B. barriers to entry

C. internalities

D. externalities

E. premium skills

A. core competencies
How does possessing a core competence help a firm?

A. It helps a firm to create value in such a way that premium pricing is impossible.

B. It reduces a firm’s dependence on its logistics function.

C. It enables a firm to reduce the costs of value creation.

D. It reduces the scope of transfer of skills to foreign markets.

E. It reduces the need to replicate a business model in a foreign market.

C. It enables a firm to reduce the costs of value creation.
If a value creation activity of a firm can take place in Mexico most effectively, then that activity of the firm must be based in Mexico. Firms that pursue such a strategy are most likely to realize:

A. a position inside the efficiency frontier.

B. the experience curve.

C. economies of scale.

D. location economies.

E. demographic advantages.

D. location economies.
_____ are the economies that arise from performing a value creation activity in the optimal place for that activity, wherever in the world that might be.

A. Diversification economies

B. Value-building economies

C. Location economies

D. Support economies

E. Core economies

C. Location economies
Which of the following is most likely to be the advantage of locating a value creation activity in the optimal location for that activity?

A. It increases the costs of value creation.

B. It decreases consumer surplus.

C. It helps the firm to achieve a high-cost position.

D. It nullifies all trade barriers.

E. It enable a firm to differentiate its product offering from those of competitors.

E. It enable a firm to differentiate its product offering from those of competitors.
A firm creates a(n) _____ by dispersing different stages of its value chain to those locations around the world where the value added is maximized or where the costs of value creation are minimized.

A. integral circle

B. dispersal chain

C. global web

D. international mesh

E. worldwide circle

C. global web
In theory, which of the following advantages can be realized by a firm by implementing a global web of operations?

A. It will be able to raise the perceived value of its goods and services.

B. It will be able to decrease consumers’ reservation price for its products.

C. It will be able to decrease consumer surplus.

D. It will be able to increase the cost of value creation.

E. It will be able to sell its products at a price which is below its cost price in its home country.

A. It will be able to raise the perceived value of its goods and services.
Which of the following caveats is most likely to discourage global expansion of businesses?

A. Economies of scale

B. High consumers’ reservation prices

C. Trade barriers

D. Mass customization

E. Low transportation costs

C. Trade barriers
The _____ refer(s) to systematic reductions in production costs that have been observed to occur over the life of a product.

A. experience curve

B. learning effects

C. location economies

D. efficiency slope

E. economies of scale

A. experience curve
A number of studies have observed that a product’s production costs decline by some quantity about each time _____ doubles.

A. annual output

B. cumulative output

C. workforce

D. fixed investment

E. foreign domestic investment

B. cumulative output
The two phenomena that help explain the experience curve are:

A. learning effects and economies of scale.

B. technology inputs and wealth transfer.

C. leveraging subsidiary and local responsiveness.

D. standardized manufacturing and global web.

E. efficiency frontier and location economies

A. learning effects and economies of scale.
_____ refer to cost savings that come from acquiring knowledge from doing a task.

A. Learning effects

B. Exponential effects

C. Ancillary effects

D. Economies of scale

E. Location economies

A. Learning effects
Labor productivity increases over time as individuals understand the most efficient ways to perform particular tasks. This is as a result of _____.

A. diminishing returns

B. location economies

C. economies of time

D. learning effects

E. an efficiency frontier.

D. learning effects
In which of the following tasks will the learning effects be most significant?

A. Pizza delivery for a fast-food major

B. Data entry for a loan recovery center

C. Assembly process involving 1,000 complex steps

D. Sewing buttons onto shirts in a garment factory

E. Delivering letters to different recipients

C. Assembly process involving 1,000 complex steps
Which of the following is true about learning effects?

A. They tend to be more significant in non-repetitive tasks.

B. They tend to be less significant when a task is technologically complex.

C. They typically last a lifetime.

D. They are important only during the start-up period of a new process.

E. They do not have any effect on the cost of production.

D. They are important only during the start-up period of a new process.
Learning effects tend to be more significant when:

A. a task involves a few simple steps.

B. a task is repeated for a period of over five years.

C. the workforce consists of unskilled labor.

D. the cumulative output becomes half of what it was originally.

E. a technologically complex task is repeated.

E. a technologically complex task is repeated.
_____ refer to the reductions in unit cost achieved by producing a large volume of a product.

A. Location economies

B. Learning effects

C. Standardization economies

D. Core economies

E. Economies of scale

E. Economies of scale
Spreading fixed costs over a large volume results in a cost-savings phenomenon which is referred to as:

A. volume synergies.

B. economies of scale.

C. captured savings.

D. size effects.

E. location economies.

B. economies of scale.
Which of the following statements is true about economies of scale?

A. Economies of scale lead to an increase in the average unit cost of a product.

B. Attaining economies of scale increases a firm’s profitability.

C. The ability to spread variable costs over a large volume is a source of economies of scale.

D. Economies of scale result due to the increase in the perceived value of a product.

E. Economies of scale refer to cost savings that come from learning by doing.

B. Attaining economies of scale increases a firm’s profitability.
Which of the following terms best represents the systematic reductions in production costs that have been observed to occur over the life of a product?

A. Global web

B. Dispersion linkage

C. Economies of scale

D. Experience curve

E. Efficiency frontier

D. Experience curve
Serving a global market from a single location is consistent with:

A. establishing a high-cost position.

B. taking advantage of location economies.

C. moving down the experience curve.

D. operating from a position which falls inside the efficiency frontier.

E. going up the global web.

C. moving down the experience curve.
Firms that compete in the global marketplace typically face two types of competitive pressure: pressures for _____ and pressures to _____.

A. increasing investment; minimize consumer surplus

B. labor skill enhancement; minimize economies of scale

C. cost reductions; be locally responsive

D. global promotions; move down the efficiency frontier

E. product standardization; move up the experience curve

C. cost reductions; be locally responsive
Why do companies find dealing with high pressures for both, cost reductions and local responsiveness, a difficult strategic challenge?

A. Cost reductions are inversely proportional to standardization.

B. Being locally responsive tends to raise costs.

C. Cost reductions negatively impact maximization of single-plant utilization.

D. As the quantity produced goes on increasing, it becomes more difficult for a company to achieve economies of scale.

E. Customer tastes are usually identical across global markets.

B. Being locally responsive tends to raise costs.
Cost reduction pressures tend to be particularly intense in industries that:

A. create products that serve universal needs.

B. create customized products.

C. are not involved in international business.

D. produce products that have inelastic demand.

E. serve different customers with different needs.

A. create products that serve universal needs.
Which of the following terms best represents the requirements that are the same all over the world, such as steel, bulk chemicals, and industrial electronics?

A. Universal needs

B. Efficiency frontier

C. Global web

D. Lateral requirements

E. Supreme needs

A. Universal needs
Pressures for cost reduction are intense in:

A. firms which produce products that are well differentiated.

B. firms whose major competitors are based in high-cost locations.

C. firms with persistent low capacity.

D. firms in which consumers face low switching costs.

E. firms with no international competition.

D. firms in which consumers face low switching costs.
The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally:

A. increased cost pressures.

B. decreased the demand for local responsiveness.

C. decreased pressures for cost reduction.

D. increased consumer surplus.

E. reduced the production of conventional commodity products.

A. increased cost pressures.
Which of the following conditions is most favorable to reap gains from global scale economies?

A. Low demand for local responsiveness

B. High pressures for cost reduction

C. Lack of universal needs

D. National differences in accepted business practices

E. High pressure to delegate production to domestic subsidiaries

A. Low demand for local responsiveness
Which of the following supports the argument that customer demands for local customization are on the decline worldwide?

A. Local and indigenous industries are increasingly filling up available demand.

B. High costs of local customization are deterring companies from doing so.

C. Governments across the world are standardizing their legal procedures.

D. Customer tastes have converged worldwide.

E. Managers worldwide ignore the differences in consumer tastes and preferences.

D. Customer tastes have converged worldwide.
Which of the following is most likely to necessitate the delegation of marketing functions to national subsidiaries?

A. Differences in distribution channels

B. Pressures for decreasing consumer surplus

C. Lack of product customization

D. Pressures for increasing economies of scale

E. Pressures for increasing consumers’ reservation price

A. Differences in distribution channels
Which of the following is most likely to require a firm to be locally responsive in a host-country?

A. Similarity in distribution channels

B. Identical traditional practices among countries

C. Standard consumer tastes and preferences worldwide

D. Declining demand for local customization

E. Host-government demands

E. Host-government demands
For an international business, which of the following is most likely to be an outcome of protectionism and nationalism in a host-country?

A. Increase in the attractiveness of location economies

B. Pressure for localization of production

C. Requirement of standardization of products or services

D. Pressure for cost reduction

E. Decrease in the significance of local responsiveness

B. Pressure for localization of production
The appropriateness of the strategy that a firm chooses to use in an international market varies with the extent of pressures for _____ and _____.

A. quality improvement; product standardization

B. customer surplus; quality improvements

C. customer surplus; product standardization

D. cost reductions; local responsiveness

E. product standardization; cost reductions

D. cost reductions; local responsiveness
Firms that pursue a(n) _____ strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.

A. international

B. transnational

C. localization

D. global standardization

E. nationalization

D. global standardization
Which of the following is true of a firm that pursues a global standardization strategy?

A. It ensures that it pursues a high-cost strategy on a global scale.

B. It has its production, marketing, and R & D activities in only one optimum location.

C. It tries to customize its products to local conditions.

D. It has shorter production runs.

E. It reaps maximum benefits from economies of scale and learning effects.

E. It reaps maximum benefits from economies of scale and learning effects.
A firm is most likely to pursue a global standardization strategy when:

A. it wants to implement a high-cost strategy on a global scale.

B. it wants to reduce consumer surplus.

C. there are no universal needs to be served.

D. there are strong demands for local responsiveness.

E. there are strong pressures for cost reduction.

E. there are strong pressures for cost reduction.
Which of the following strategies is most likely to pursued by a firm when there are strong pressures for cost reductions and demands for local responsiveness are minimal?

A. Domestic strategy

B. Global standardization strategy

C. International strategy

D. Transnational strategy

E. Nationalization strategy

B. Global standardization strategy
Which of the following strategies focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets?

A. International strategy

B. Global standardization strategy

C. Localization strategy

D. Transnational strategy

E. Nationalization strategy

C. Localization strategy
Which of the following is true of a localization strategy?

A. It allows a firm to capture the cost reductions of mass-producing a standardized product.

B. It reduces duplication of functions.

C. It involves longer production runs.

D. It makes sense if the value added by customization supports higher pricing.

E. It substantially reduces local demand.

D. It makes sense if the value added by customization supports higher pricing.
A global car manufacturer wants to start production in China. While catering to local responsiveness, what can the firm do to get scale economies?

A. Increase costs whenever possible

B. Use common vehicle platforms and components across many different models

C. Shorten the production runs for each component

D. Increase the duplication of functions required for each operation

E. Manufacture only one type of car and sell it in all the international markets

B. Use common vehicle platforms and components across many different models
Which of the following strategies is a firm most likely to pursue when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness?

A. Global standardization strategy

B. Localization strategy

C. International strategy

D. Transnational strategy

E. Nationalization strategy

D. Transnational strategy
Which of the following is an observation made by researchers Bartlett and Ghoshal regarding modern multinational enterprises?

A. Global logistics industry makes the concept of “location economies” redundant for international firms.

B. Core competencies and skills can develop in any of the firm’s worldwide operations.

C. Flow of skills between a firm and its global subsidiaries should be unidirectional.

D. Differentiating across geographic markets helps a firm in reducing costs.

E. Customer demands for local customization are on the decline worldwide.

B. Core competencies and skills can develop in any of the firm’s worldwide operations.
Firms that pursue a(n) _____ strategy differentiate their product offering across geographic markets to account for local differences.

A. international

B. global standardization

C. transnational

D. multidomestic

E. nationalization

C. transnational
Which of the following is true of a transnational strategy?

A. It is easy to implement because it does not place any conflicting demands on a company.

B. It is used when the pressures for cost reductions are low.

C. It is usually used when the pressure for local responsiveness is relatively low.

D. It enables the one-way flow of core competencies.

E. It is used by firms that try to achieve low costs through location economies, economies of scale, and learning effects.

E. It is used by firms that try to achieve low costs through location economies, economies of scale, and learning effects.
Firms that pursue a(n) _____ strategy take products first produced for their domestic market and sell them across various markets with only minimal local customization.

A. nationalization

B. transnational

C. global standardization

D. international

E. localization

D. international
Pursuing a(n) _____ strategy makes sense if a firm has a valuable core competence that indigenous competitors in foreign markets lack.

A. global standardization

B. international

C. nationalization

D. transnational

E. nationalization

B. international
Xerox had a monopoly on photocopiers for several years as the technology underlying the photocopier was protected by strong patents. As it served a universal need, this favorable position led Xerox to pursue a(n) _____ strategy.

A. global standardization

B. localization

C. international

D. transnational

E. nationalization

C. international
Mayer Life Systems, a manufacturer of surgical and medical appliances, invented and patented a new dialysis machine that radically reduced maintenance and operational issues. Responding to a global demand, it decided to sell the machines manufactured at its plant in the U.S. to various markets across the globe. Since the product features provided by Mayer were not provided by any other competitor, Mayer did not feel any pressure for cost reductions. Which of the following strategies is most likely being pursued by Mayer?

A. International strategy

B. Localization strategy

C. Global standardization strategy

D. Transnational strategy

E. Nationalization strategy

A. International strategy
Which of the following statements is true about an international strategy?

A. International strategy typically involves taking products first produced for foreign markets and then customizing them for domestic markets.

B. International strategy should be pursued by a firm if it manufactures a product that satisfies local, rather than universal, needs.

C. When a firm pursues an international strategy, the head office of the firm retains fairly tight control over marketing and product strategy.

D. Firms pursuing the international strategy tend to outsource their development functions such as R&D.

E. International strategy should be pursued by a firm only if it faces strong competition in foreign markets.

C. When a firm pursues an international strategy, the head office of the firm retains fairly tight control over marketing and product strategy.
The term _____ refers to cooperative agreements between potential or actual competitors.

A. tactical union

B. strategic alliance

C. political affiliation

D. economic association

E. nationalization

B. strategic alliance
A _____ allows two or more firms to share the fixed costs (and associated risks) of developing new products or processes.

A. franchising agreement

B. global web

C. free trade agreement

D. strategic alliance

E. dispersion linkage

D. strategic alliance
Which of the following is a disadvantage of a strategic alliance?

A. Entering into a strategic alliance, makes it difficult for a firm to enter into a foreign market.

B. As a result of strategic alliance, fixed costs of developing new products tend to increase.

C. Strategic alliance gives competitors a low-cost route to new technology and markets.

D. Firms that enter into a strategic alliance with a foreign firm tend to face higher trade barriers.

E. Strategic alliance always leads to a loss to either of the firms involved.

C. Strategic alliance gives competitors a low-cost route to new technology and markets.
One of the principal risks associated with a strategic alliance is that:

A. it brings together the complementary skills of alliance partners.

B. it makes it difficult for the partner firms to enter into a foreign market.

C. a firm can give away more than it receives.

D. it does not allow firms to share fixed costs.

E. it almost always fails.

C. a firm can give away more than it receives.
Managing an alliance successfully requires building interpersonal relationships between the firms’ managers, or what is sometimes referred to as:

A. relational capital.

B. interorganizational synergy.

C. power equilibrium.

D. symbiotics.

E. intraorganizational coordination.

A. relational capital.