Deck 12: The Strategy of International Business

Question 1

Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them.

Answer 1

True

Question 2

The experience curve refers to systematic increases in production costs that have been observed to occur over the life of a product.

Answer 2

False

Question 3

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.

Answer 3

True

Question 4

According to Michael Porter,all positions on the efficiency frontier are viable.

Question 5

The actions that managers take to attain the goals of the firm are referred to as a firm's strategy.

Question 6

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

Question 7

Universal needs exist when the tastes and preferences of consumers in different nations are different.

Question 8

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.

Question 9

In terms of attaining a competitive advantage,support activities can be as important as the primary activities of the firm.

Question 10

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.

Question 11

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

Question 12

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.

Question 13

Maintaining the company infrastructure is a support activity.

Question 14

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.

Question 15

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.

Question 16

The ability to spread fixed costs over a large volume is one of the sources of economies of scale.

Question 17

Consumer surplus captures some of the value of a product thereby reducing the price a firm can charge for it.

Question 18

The firm that moves up the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.

Question 19

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.

Question 20

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

Question 21

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.

Question 22

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.

Question 23

Profit growth is measured by

A)dividing the net profits of the firm by total invested capital.
B)subtracting the previous year's 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.

Question 24

By using significant standardization in the use of aircrafts and by streamlining its operations,Southwest Airlines competes by offering its' flights at a lower price than the competition.According to Michael Porter,the strategy that Southwest Airlines is using is

A)low- cost.
B)differentiation.
C)value transfer.
D)efficiency frontier.
E)diversification.

Question 25

Joanna's assessment of the value of a handbag sold at $110 is $200.The $200 is referred to as the

A)market price.
B)customer's negotiated price.
C)base value of the product.
D)customer's reservation price.
E)profit growth price.

Question 26

The value of Omega's top selling fitness product to an average consumer is $150 and the average unit cost of producing that product is $65.In this scenario,$85 ($150-$65)represents

A)customer surplus.
B)value creation.
C)cost curve.
D)value efficiency.
E)customer reservation.

Question 27

Omega,Inc.sells its fitness wrist band for $100.It cost the company $62 to make the product.Customers value the wrist band at $110.One of the reasons why Omega typically charges for its wrist band less than the value placed on it 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.

Question 28

Strategic alliances allow firms to share the fixed costs of developing new products or processes.

Question 29

According to researchers,firms facing strong pressures for local responsiveness should pursue a global standardization strategy.

Question 30

An international strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization.

Question 31

Omega,Inc.sells its fitness wrist band for $100.It cost the company $62 to make the product.While Tom values the Omega wrist band at $122,his friend Dan values it at $105.The value placed by Tom and Dan are what economists would call

A)producer's surplus.
B)each customer's reservation price.
C)each customer's value price.
D)the efficiency frontier.
E)competitive advantage.

Question 32

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.

Question 33

A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.

Question 34

In a bid to compete better in a highly-competitive fitness products market,Omega is focusing primarily on increasing the attractiveness of its product.What Omega is doing is referred to as a

A)standardization strategy.
B)differentiation strategy.
C)target-identification strategy.
D)low-cost strategy.
E)profitability strategy.

Question 35

A localization strategy involves some duplication of functions and smaller production runs.

Question 36

Omega,Inc.sells its fitness wrist band for $100.It cost the company $62 to make the product.Customers value the wrist band at $110.In this scenario,the consumer surplus is

A)$38.
B)$48.
C)$10.
D)$28.
E)$272.

Question 37

Omega,Inc.sells its fitness wrist band for $100.It cost the company $62 to make the product.Customers value the wrist band at $110.In this scenario,Omega's value creation is

A)$38.
B)$48.
C $10.
D)$28.
E)$272.

Question 38

According to Michael Porter,what are the two basic strategies for creating value and attaining a competitive advantage in an industry?

A)differentiation and low-cost
B)value creation and generalization
C)one-size-fits-all and zero-sum
D)comparison and standardization
E)profitability and strategic fit

Question 39

According to Michael Porter,superior profitability 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.

Question 40

Omega,Inc.sells its fitness wrist band for $100.It cost the company $62 to make the product.Customers value the wrist band at $110.While Omega's pricing practice results in a consumer surplus,it typically charges a lower price for the wrist band 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.

Question 41

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.

Question 42

A firm's profitability is maximized 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.

Question 43

Which of the following is a value creation activity that 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

Question 44

Of all the value creation activities in a firm,which of the following creates 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

Question 45

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

Question 46

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

Question 47

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.

Question 48

Which of the following 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

Question 49

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.

Question 50

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

Question 51

Processes are the

A)manner in which decisions are made and work is performed within the organization.
B)metrics used to measure the performance of subunits.
C)devices used to reward appropriate managerial behavior.
D)metrics used to make judgments about how well managers are running the subunits.
E)norms and value systems that are shared among the employees of an organization.

Question 52

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

Question 53

For Bank of America,"production" typically occurs when the

A)customer specifies the service requirements.
B)service is paid for by the customer.
C)service is designed in-house.
D)service is delivered to the customer.
E)customer provides feedback.

Question 54

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.

Question 55

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

Question 56

_____ are 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

Question 57

The 2,500 people working in Omega's corporate office deal with the organizational structure,control systems,and culture of the firm.These three things comprise which support function of Omega?

A)human resources
B)logistics
C)information systems
D)company infrastructure
E)inventory management

Question 58

American Apparel produces in-house all the products that it sells through its network of stores.It has a function in its value chain that controls the transmission of physical materials through the value chain,from procurement through production and into distribution.For American Apparel,that function is

A)human resources.
B)finance.
C)marketing.
D)logistics.
E)research and development.

Question 59

Johnson Food Products believes that as far as its products are concerned,tastes vary worldwide and so it has to customize its product offering,marketing strategy,and business strategy to differing national conditions.Johnson Food Products' 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.

Question 60

The value creation activities of a firm are categorized as

A)primary activities and support activities.
B)strategic activities and functional activities.
C)ancillary functions and tertiary functions.
D)primary activities and core activities.
E)goal-oriented activities and organizational activities.

Question 61

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.

Question 62

A number of studies have observed that a product's production costs decline by some quantity about each time

A)annual output is halved.
B)cumulative output doubles.
C)the workforce is trimmed by 75 percent.
D)fixed investment triples.
E)foreign domestic investment doubles.

Question 63

Ford believes that by producing its small cars in Mexico they can take advantage of lower wage rates in that country.By pursuing such a strategy,Ford is 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.

Question 64

Firms that compete in the global marketplace typically face two types of competitive pressure

A)pressures for increasing investment and pressures to minimize consumer surplus.
B)pressures for labor skill enhancement and pressures to minimize economies of scale.
C)pressures for cost reductions and pressures to be locally responsive.
D)pressures for global promotions and pressures to move down the efficiency frontier.
E)pressures for product standardization and pressures to move up the experience curve.

Question 65

Omega recently found that its flagship product had cost the company $129 to manufacture when the company launched it ten years ago.Now,the same product cost just $72 to manufacture.Which of the following terms best represents the systematic reductions in production costs that Omega has achieved over the ten-year life of its flagship product?

A)global web
B)dispersion linkage
C)economies of scale
D)experience curve
E)efficiency frontier

Question 66

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.

Question 67

Which of the following is true about learning effects?

A)They tend to be more significant in nonrepetitive 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.

Question 68

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.

Question 69

Over the course of nearly a hundred years,Omega's labor productivity has increases over time as its employees understand the most efficient ways to perform particular tasks.This is a result of

A)diminishing returns.
B)location economies.
C)economies of time.
D)learning effects.
E)an efficiency frontier.

Question 70

Omega locates it global manufacturing in Mexico,its global distribution in Honduras,and its design in Germany.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,Omega has created a(n)

A)integral circle.
B)dispersal chain.
C)global web.
D)international mesh.
E)worldwide circle.

Question 71

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.

Question 72

Merck,the pharmaceutical company,has taken more than a thousand drugs through the federal approval process and so can do it more cost efficiently than many of its competitors who are relatively new to the industry.Which of the following refers to cost savings that come to Merck in the drug approval process?

A)learning effects
B)exponential effects
C)ancillary effects
D)economies of scale
E)location economies

Question 73

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 enables a firm to differentiate its product offering from those of competitors.

Question 74

By producing its products in larger volume than its competitors,Omega is able to achieve substantial reductions in unit cost.Which of the following refers to Omega's advantage?

A)location economies
B)learning effects
C)standardization economies
D)core economies
E)economies of scale

Question 75

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.

Question 76

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

Question 77

Which of the following refers 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

Question 78

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

Question 79

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.

Question 80

Netflix incurs a huge fixed cost to obtain streaming rights to movies and television programs.However,it is able to spread this cost over a large number of subscribers that results in a cost-savings phenomenon referred to as

A)volume synergies.
B)economies of scale.
C)captured savings.
D)size effects.
E)location economies.