Florida International University - BUSINESS 3300 > Final review for International Business; Test Bank. 2019

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Florida International University - BUSINESS 3300 > Final review for International Business; Test Bank. 2019 ch11 Key 1. The international monetary system refers to a system to regulate fixed exc... hange rates before the introduction of the euro. The international monetary system refers to the institutional arrangements that govern exchange rates. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #1 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 2. When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a pegged exchange rate regime. When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a floating exchange rate regime. Four of the world’s major trading currencies—the U.S. dollar, the European Union’s euro, the Japanese yen, and the British pound—are all free to float against each other. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #2 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 3. A pegged exchange rate means the value of the currency is fixed relative to a reference currency, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. Many of the world's developing nations peg their currencies, primarily to the dollar or the euro. A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #3 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 4. In a fixed exchange rate system, the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency. A dirty float (as opposed to a clean float) is called so because the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #4 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 5. As the volume of international trade expanded in the wake of the Industrial Revolution, shipping large quantities of gold around the world to finance international trade became impractical. As the volume of international trade expanded in the wake of the Industrial Revolution, a more convenient means of financing international trade was needed. Shipping large quantities of gold and silver around the world to finance international trade seemed impractical. 6. Given a common gold standard, the value of any currency in units of any other currency (the exchange rate) was easy to determine. Pegging currencies to gold and guaranteeing convertibility is known as the gold standard. By 1880, most of the world’s major trading nations, including Great Britain, Germany, Japan, and the United States, had adopted the gold standard. Given a common gold standard, the value of any currency in units of any other currency (the exchange rate) was easy to determine. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #6 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 7. A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is greater than the money its residents pay to other countries for imports. The great strength claimed for the gold standard was that it contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries. A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is equal to the money its residents pay to other countries for imports (the current account of its balance of payments is in balance). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #7 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 8. Under the gold standard, a country in balance-of-trade equilibrium will experience a net flow of gold from other countries. Under the gold standard, when a country has a trade surplus, there will be a net flow of gold from other countries into that country. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #8 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 9. If more dollars are needed to buy an ounce of gold than before, the implication is that the dollar is worth more. The United States returned to the gold standard in 1934, raising the dollar price of gold from $20.67 per ounce to $35 per ounce. Because more dollars were needed to buy an ounce of gold than before, the implication was that the dollar was worth less. This effectively amounted to a devaluation of the dollar relative to other currencies. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #9 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 10. The major problem with the gold standard was that no multinational institution could stop countries from engaging in competitive devaluations. The Bretton Woods conference participants wanted to avoid the senseless competitive devaluations of the 1930s, and they recognized that the gold standard would not assure this. The major problem with the gold standard was that no multinational institution could stop countries from engaging in competitive devaluations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #10 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 11. According to the Bretton Woods agreement, if a currency became too weak to defend, a devaluation of up to 10 percent would be allowed without any formal approval by the International Monetary Fund. An aspect of the Bretton Woods agreement was a commitment not to use devaluation as a weapon of competitive trade policy. However, if a currency became too weak to defend, a devaluation of up to 10 percent would be allowed without any formal approval by the International Monetary Fund (IMF). Larger devaluations required IMF approval. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #11 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 12. The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built the fixed exchange rate system to be highly inflexible. Although monetary discipline was a central objective of the Bretton Woods agreement, it was recognized that a rigid policy of fixed exchange rates would be too inflexible. The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built limited flexibility into the system. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #12 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 13. When the Bretton Woods participants established the World Bank, the need to lend money to third world nations was foremost in their minds. When the Bretton Woods participants established the World Bank, the need to reconstruct the war-torn economies of Europe was foremost in their minds. The bank’s initial mission was to help finance the building of Europe’s economy by providing low-interest loans. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #13 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 14. Under the International Bank for Reconstruction and Development scheme, the World Bank offers low-interest loans to risky customers whose credit rating is often poor. Under the International Bank for Reconstruction and Development (IBRD) scheme, money is raised through bond sales in the international capital market. Borrowers pay what the bank calls a market rate of interest—the bank’s cost of funds plus a margin for expenses. This “market” rate is lower than commercial banks’ market rate. Under this scheme, the World Bank offers low-interest loans to risky customers whose credit rating is often poor, such as the governments of underdeveloped nations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #14 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 15. As the only currency that could be converted into gold, the British pound occupied a central place in the fixed exchange rate system. The system of fixed exchange rates established at Bretton Woods worked well until the late 1960s, when it began to show signs of strain. As the only currency that could be converted into gold, and as the currency that served as the reference point for all others, the dollar occupied a central place in the system. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #15 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 16. Under the fixed exchange rate system, the dollar could be devalued only if all countries agreed to simultaneously revalue against the dollar. Devaluation of the dollar was no easy matter. Under the Bretton Woods provisions, any other country could change its exchange rates against all currencies simply by fixing its dollar rate at a new level. As the key currency in the fixed exchange rate system, the dollar could be devalued only if all countries agreed to simultaneously revalue against the dollar. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #16 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 17. The Bretton Woods system could work only as long as the U.S. inflation rate remained low and the United States did not run a balance-of-payments deficit. The Bretton Woods system could work only as long as the U.S. inflation rate remained low and the United States did not run a balance-of-payments deficit. Once these things occurred, the fixed exchange rate system soon became strained to the breaking point. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #17 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 18. Since March 1973, currency exchange rates have become less volatile and more predictable than they were between 1945 and 1973. Since March 1973, currency exchange rates have become much more volatile and less predictable than they were between 1945 and 1973. This volatility has been partly due to a number of unexpected shocks to the world monetary system. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #18 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 19. Under a floating exchange rate regime, market forces have produced a volatile dollar exchange rate. In recent history, the value of the dollar has been determined by both market forces and government intervention. Under a floating exchange rate regime, market forces have produced a volatile dollar exchange rate. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #19 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 20. Under a floating exchange rate system, a country’s ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity. It is argued that under a fixed system, a country’s ability to expand or contract its money supply as it sees fit is limited by the need to maintain exchange rate parity. Monetary expansion can lead to inflation, which puts downward pressure on a fixed exchange rate. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #20 Learning Objective: 11-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: Fixed versus Floating Exchange Rates 21. Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade, it would require the International Monetary Fund to agree to a currency devaluation. Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade (importing more than it exported) that could not be corrected by domestic policy, this would require the International Monetary Fund to agree to a currency devaluation. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #21 Learning Objective: 11-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: Fixed versus Floating Exchange Rates 22. Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency, so that if the reference currency rises in value, its own currency rises too. Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency so that, for example, as the U.S. dollar rises in value, its own currency rises too. Pegged exchange rates are popular among many of the world’s smaller nations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #22 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 23. The disadvantage of a pegged exchange rate regime is that it aggravates inflationary pressures in a country. Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency so that, for example, as the U.S. dollar rises in value, its own currency rises too. Pegged exchange rates are popular among many of the world’s smaller nations. As with a full fixed exchange rate regime, the great virtue claimed for a pegged exchange rate is that it imposes monetary discipline on a country and leads to low inflation. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #23 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 24. It can be very difficult for a small country to maintain a peg against another currency if capital is flowing out of the country and foreign exchange traders are speculating against the currency. Many countries operate with only a nominal peg and in practice are willing to devalue their currency rather than pursue a tight monetary policy. It can be very difficult for a smaller country to maintain a peg against another currency if capital is flowing out of the country and foreign exchange traders are speculating against the currency. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #24 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 25. A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. To make this commitment credible, the currency board holds reserves of foreign currency equal at the fixed exchange rate to at least 100 percent of the domestic currency issued. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #25 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 26. Under a currency board system, the government has the absolute authority to set interest rates. Currency boards have their drawbacks. Under a currency board system, government lacks the ability to set interest rates. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #26 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 27. The activities of the International Monetary Fund have declined after the collapse of the Bretton Woods system in 1973. The activities of the International Monetary Fund (IMF) have expanded over the past 30 years. By 2012, the IMF had 188 members, 52 of which had some kind of IMF program in place. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #27 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 28. At times, elements of currency, banking, and debt crises may be present simultaneously in a region. A number of broad types of financial crises have occurred over the past 30 years, many of which have required International Monetary Fund involvement. At times, elements of currency, banking, and debt crises may be present simultaneously, as in the 1997 Asian crisis, the 2000–2002 Argentinean crisis, and the 2010 crisis in Ireland. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #28 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 29. All International Monetary Fund loan packages come with conditions attached. By 2012, the International Monetary Fund (IMF) was committing loans to some 52 countries that were struggling with economic and/or currency crises. All IMF loan packages come with conditions attached. It has often pushed for the deregulation of sectors formerly protected from domestic and foreign competition, privatization of state-owned assets, and better financial reporting from the banking sector. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #29 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 30. A benefit of the International Monetary Fund is that it does not have a mechanism for accountability. One of the criticisms of the International Monetary Fund is that it has become too powerful for an institution that lacks any real mechanism for accountability. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #30 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 31. The International Monetary Fund can force countries to adopt the policies required to correct economic mismanagement. The International Monetary Fund (IMF) cannot force countries to adopt the policies required to correct economic mismanagement. While a government may commit to taking corrective action in return for an IMF loan, internal political problems may make it difficult for a government to act on that commitment. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #31 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 32. Some economists argue that higher inflation rates might be good if the consequence is greater growth in aggregate demand. Some economists in the International Monetary Fund are now arguing that higher inflation rates might be a good thing, if the consequence is greater growth in aggregate demand, which would help to pull nations out of recessionary conditions. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #32 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 33. The forward exchange market is an accurate predictor of future exchange rates. The forward exchange market is far from perfect as a predictor of future exchange rates. The forward market tends to offer coverage for exchange rate changes a few months—not years—ahead. Given this, it makes sense to pursue strategies that will increase the company’s strategic flexibility in the face of unpredictable exchange rate movements. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #33 Learning Objective: 11-06 Explain the implications of the global monetary system for currency management and business strategy. Topic: Focus on Managerial Implications 34. In the face of unpredictable exchange rate movements, a firm should pursue strategies that reduce its economic exposure. The forward market tends to offer coverage for exchange rate changes a few months—not years—ahead. Given this, it makes sense to pursue strategies that will increase the company’s strategic flexibility in the face of unpredictable exchange rate movements—that is, to pursue strategies that reduce the economic exposure of the firm. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #34 Learning Objective: 11-06 Explain the implications of the global monetary system for currency management and business strategy. Topic: Focus on Managerial Implications 35. Contracting out manufacturing may be more appropriate for high-value-added manufacturing. Contracting out manufacturing may be less appropriate for high-value-added manufacturing, in which firm-specific technology and skills add significant value to the product (e.g., the heavy equipment industry) and in which switching costs are correspondingly high. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #35 Learning Objective: 11-06 Explain the implications of the global monetary system for currency management and business strategy. Topic: Focus on Managerial Implications 36. Which of the following refers to the institutional arrangements that govern exchange rates? A. Generally accepted accounting principles B. General agreement on tariffs and trade C. International monetary system D. General agreement on trade in services E. Financial management information system The international monetary system refers to the institutional arrangements that govern exchange rates. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #36 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 37. _____ refers to a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand. A. Fixed exchange rate B. Floating exchange rate C. Flexible exchange rate D. Pegged exchange rate E. Nominal exchange rate Floating exchange rate refers to a system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand. Four of the world’s major trading currencies—the U.S. dollar, the European Union’s euro, the Japanese yen, and the British pound—are all free to float against each other. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #37 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 38. A _____ means the value of the currency is fixed relative to a reference currency, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. A. flexible exchange rate B. pegged exchange rate C. real exchange rate D. dirty float exchange rate E. floating exchange rate Many of the world’s developing nations peg their currencies, primarily to the dollar or the euro. A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #38 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 39. Many of the world’s developing nations peg their currencies, primarily to the _____. A. U.S. dollar B. Saudi riyal C. Japanese yen D. Chinese yuan E. German deutsche marks Many of the world’s developing nations peg their currencies, primarily to the dollar or the euro. A pegged exchange rate means the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #39 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 40. In a floating exchange rate, the relative value of a currency: A. is more predictable and less volatile. B. is determined by market forces. C. changes infrequently only under a specific set of circumstances. D. is set against other currencies at some mutually agreed on exchange rate. E. does not depend on the free play of market forces. When the foreign exchange market determines the relative value of a currency, we say that the country is adhering to a floating exchange rate regime. Four of the world’s major trading currencies—the U.S. dollar, the European Union’s euro, the Japanese yen, and the British pound—are all free to float against each other. Thus, their exchange rates are determined by market forces and fluctuate against each other day to day, if not minute to minute. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #40 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 41. _____ refers to a system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value. A. Fixed float B. Clean float C. Pegged float D. Dirty float E. Capital float Dirty float refers to a system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value. It is a float because in theory, the value of the currency is determined by market forces, but it is a dirty float (as opposed to a clean float) because the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency if it depreciates too rapidly against an important reference currency. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #41 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 42. Which of the following statements is about the various exchange rate systems? A. In a fixed exchange rate system, the value of a currency is adjusted according to the day to day market forces. B. In a clean float, the central bank of a country will intervene in the foreign exchange market to try to maintain the value of its currency. C. After the collapse of the Bretton Woods system of floating exchange rates in 1973, the world has operated with a fixed exchange rate system. D. According to the Bretton Woods system, the value of most currencies in terms of U.S. dollars was allowed to change only under a specific set of circumstances. E. In dirty float, the exchange rate between a currency and other currencies is relatively fixed against a reference currency exchange rate. The 1944 Bretton Woods conference established the basic framework for the post–World War II international monetary system. The Bretton Woods system called for fixed exchange rates against the U.S. dollar. Under this fixed exchange rate system, the value of most currencies in terms of U.S. dollars was fixed for long periods and allowed to change only under a specific set of circumstances. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #42 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 43. The ____ refers to a system to regulate fixed exchange rates before the introduction of the euro. A. European Free Trade Association B. European Monetary System C. international monetary system D. International Finance Corporation E. European Federation of Accountants Before the introduction of the euro in 1999, several member states of the European Union operated with fixed exchange rates within the context of the European Monetary System (EMS). For a quarter of a century after World War II, the world’s major industrial nations participated in a fixed exchange rate system. Although this system collapsed in 1973, some still argue that the world should attempt to reestablish it. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #43 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 44. The values of a set of currencies are set against each other at some mutually agreed on exchange rate in a _____ exchange rate system. A. clean float B. floating C. fixed D. dirty float E. pegged Some countries have operated with a fixed exchange rate in which the values of a set of currencies are fixed against each other at some mutually agreed on exchange rate. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #44 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 45. The 1944 Bretton Woods conference created two major international institutions that play a role in the international monetary system—the International Monetary Fund (IMF) and the _____. A. United Nations B. European Union C. World Trade Organization D. World Bank E. G20 The 1944 Bretton Woods conference established the basic framework for the post–World War II international monetary system. The Bretton Woods conference also created two major international institutions that play a role in the international monetary system—the International Monetary Fund (IMF) and the World Bank. The IMF was given the task of maintaining order in the international monetary system; the World Bank’s role was to promote development. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #45 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 46. The 1944 Bretton Woods system called for _____ exchange rates against the U.S. dollar. A. flexible B. floating C. fixed D. dirty float E. pegged The 1944 Bretton Woods conference established the basic framework for the post–World War II international monetary system. The Bretton Woods system called for fixed exchange rates against the U.S. dollar. Under this fixed exchange rate system, the value of most currencies in terms of U.S. dollars was fixed for long periods and allowed to change only under a specific set of circumstances. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #46 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: Introduction 47. Which of the following refers to the gold standard? A. Pegging currencies to gold and guaranteeing convertibility B. Conducting international trade by physically exchanging gold C. The most valuable currency in the world at any given point in time D. The common global standard of gold quality to be maintained E. The quality of merchandise to be maintained for it to be exportable Gold standard is the practice of pegging currencies to gold and guaranteeing convertibility. Given a common gold standard, the value of any currency in units of any other currency (the exchange rate) waseasy to determine. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #47 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 48. Which of the following is a reason for the emergence of the gold standard? A. Expansion in the volume of international trade due to the Industrial Revolution B. Inability of governments to convert gold into paper currency on demand at a fixed rate C. Widening gap between the developed and the developing nations D. Failure of the Bretton Woods fixed exchange rate system E. Failure of the U.S. dollar to act as a reference currency As the volume of international trade expanded in the wake of the Industrial Revolution, a more convenient means of financing international trade was needed. Shipping large quantities of gold and silver around the world to finance international trade seemed impractical. The solution adopted was to arrange for payment in paper currency and for governments to agree to convert the paper currency into gold on demand at a fixed rate. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #48 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 49. In terms of the gold standard, the amount of currency needed to purchase one ounce of gold was referred to as the _____. A. gold to bond ratio B. gold reserve ratio C. gold mix ratio D. gold par value E. gold net value The amount of a currency needed to purchase one ounce of gold was referred to as the gold par value. From the gold par values of pounds and dollars, we can calculate what the exchange rate was for converting pounds into dollars. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #49 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 50. A country is said to be in _____ when the income its residents earn from exports is equal to the money its residents pay to other countries for imports. A. a currency crisis B. balance-of-trade equilibrium C. balance-of-payments deficit D. a banking crisis E. free trade area A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is equal to the money its residents pay to other countries for imports (the current account of its balance of payments is in balance). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #50 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 51. Which of the following is a great strength of the gold standard? A. It helped establish the dollar as a predominant vehicle currency. B. It helped governments raise foreign exchange reserves thereby increasing economic stability. C. It contained a powerful mechanism for achieving balance-of-trade equilibrium by all countries. D. It helped reduce inflation to near-zero levels in all countries engaged in international trade. E. It helped to establish a common currency across the globe to fund international trade. The great strength claimed for the gold standard was that it contained a powerful mechanism for achieving balance-of- trade equilibrium by all countries. A country is said to be in balance-of-trade equilibrium when the income its residents earn from exports is equal to the money its residents pay to other countries for imports (the current account of its balance of payments is in balance). AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #51 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 52. Which of the following statements is about the gold standard? A. Given a common gold standard, the value of any currency in units of any other currency was easy to determine. B. Establishing a gold standard seemed impractical as the volume of international trade expanded in the wake of the Industrial Revolution. C. A drawback of the gold standard was that it failed to provide a mechanism for achieving balance-of-trade equilibrium by all countries. D. Under the gold standard, when a country has a trade deficit, there will be a net flow of gold from the other countries to that country. E. The gold standard refers to the use of gold coins as a medium of exchange between countries involved in international trade. Pegging currencies to gold and guaranteeing convertibility is known as the gold standard. By 1880, most of the world’s major trading nations, including Great Britain, Germany, Japan, and the United States, had adopted the gold standard. Given a common gold standard, the value of any currency in units of any other currency (the exchange rate) was easy to determine. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #52 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 53. In the 1930s, confidence in the _____ was shattered because countries were devaluing their currencies at will in order to boost exports. A. floating exchange rate system B. gold standard system C. fixed exchange system D. Bretton Woods system E. managed-float system The net result of actions of countries in the 1930s was the shattering of any remaining confidence in the gold standard system. With countries devaluing their currencies at will, one could no longer be certain how much gold a currency could buy. Instead of holding on to another country’s currency, people often tried to change it into gold immediately, lest the country devalue its currency in the intervening period. This put pressure on the gold reserves of various countries, forcing them to suspend gold convertibility. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #53 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 54. Certovia and Norkland are two neighboring countries that actively trade goods and services with each other. Under the gold standard, there will be a net flow of gold from Norkland to Certovia when: A. Certovia is in trade deficit with Norkland. B. Norkland is in balance-of-trade equilibrium with Certovia. C. Certovia is in trade surplus with Norkland. D. Certovia imports more than it exports to Norkland. E. Norkland’s balance of payment to Certovia is favorable. Pegging currencies to gold and guaranteeing convertibility is known as the gold standard. Under the gold standard, when country A has a trade surplus with country B, there will be a net flow of gold from country B to country A. These gold flows automatically reduce the money supply of country B and swell country A's money supply. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #54 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 55. Argonia Republic is in trade surplus with Kamboly. Under the gold standard, which of the following statements is until a balance-of-trade equilibrium is achieved? A. There will be a net flow of gold from Argonia Republic to Kamboly B. The money supply in Kamboly will reduce due to the flow of gold to Argonia Republic C. The prices of the traded goods in Kamboly will increase D. The demand for traded goods in Argonia Republic will increase E. Kamboly will start to buy more goods from Argonia Republic Pegging currencies to gold and guaranteeing convertibility is known as the gold standard. Under the gold standard, when country A has a trade surplus, there will be a net flow of gold from country B to country A. These gold flows automatically reduce the money supply in country B and swell A’s money supply. There is a close connection between money supply growth and price inflation. An increase in money supply will raise prices in A. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #55 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 56. Which of the following was a reason that led to the collapse of the gold standard in 1939? A. Difficulty and complexity in using the gold standard to determine the exchange rate B. Agreement by governments to convert paper currency into gold on demand at a fixed rate C. A cycle of competitive currency devaluations by various countries D. Expansion in the volume of international trade in the wake of the Industrial Revolution E. The inability of the gold standard to act as a mechanism for achieving balance-of-trade equilibrium by all countries With countries devaluing their currencies at will, one could no longer be certain how much gold a currency could buy. The net result was the shattering of any remaining confidence in the gold standard system. Instead of holding on to another country’s currency, people often tried to change it into gold immediately, lest the country devalue its currency in the intervening period. This put pressure on the gold reserves of various countries, forcing them to suspend gold convertibility. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #56 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Gold Standard 57. According to the _____ in 1944, all countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold. A. Bretton Woods agreement B. Washington Consensus C. World Bank treaty D. Group of Five treaty E. United Nations agreement The Bretton Woods agreement called for a system of fixed exchange rates that would be policed by the IMF. Under the agreement, all countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold. Only the dollar remained convertible into gold. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #57 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 58. The objective of establishing the World Bank was to: A. revive the gold standard. B. promote general economic development. C. control and manage the International Monetary Fund. D. promote a floating exchange rate system. E. approve large currency devaluations. The agreement reached at Bretton Woods established two multinational institutions—the International Monetary Fund (IMF) and the World Bank. The task of the IMF would be to maintain order in the international monetary system and that of the World Bank would be to promote general economic development. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #58 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 59. According to the Bretton Woods agreement of 1944, which was the only currency that remained convertible into gold? A. U.S. dollar B. British pound C. Japanese yen D. German deutsche mark E. Chinese yuan Under the Bretton Woods agreement, all countries were to fix the value of their currency in terms of gold but were not required to exchange their currencies for gold. Only the dollar remained convertible into gold—at a price of $35 per ounce. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #59 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 60. Which of the following observations is of the Bretton Woods agreement? A. The participating countries were required to exchange their currencies for gold. B. Devaluation was accepted as a tool of competitive trade policy. C. The agreement called for a system of floating exchange rates. D. For weak currencies, devaluation of up to 10 percent was allowed without any formal approval by the International Monetary Fund. E. A fixed exchange rate system was deemed impractical. An aspect of the Bretton Woods agreement was a commitment not to use devaluation as a weapon of competitive trade policy. However, if a currency became too weak to defend, a devaluation of up to 10 percent would be allowed without any formal approval by the IMF. Larger devaluations required International Monetary Fund approval. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #60 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 61. An aspect of the Bretton Woods agreement was a commitment not to use: A. the system of fixed exchange rates. B. devaluation as a weapon of competitive trade policy. C. gold as a measure to fix the value of currencies. D. funds from the International Monetary Fund and the World Bank. E. the U.S. dollar as a reference currency. An aspect of the Bretton Woods agreement was a commitment not to use devaluation as a weapon of competitive trade policy. However, if a currency became too weak to defend, a devaluation of up to 10 percent would be allowed without any formal approval by the International Monetary Fund (IMF). Larger devaluations required IMF approval. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #61 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 62. Under a fixed exchange rate regime, what would be the result if a country rapidly increased its money supply by printing currency? A. It would lead to increase in the worth of the currency. B. The prices of imports would become more attractive in the country. C. The country’s goods would be highly competitive in world markets. D. Trade surplus in the country would increase. E. It would lead to price deflation in the country. A fixed exchange rate regime imposes monetary discipline on countries, thereby curtailing price inflation. If a country had to rapidly increase its money supply by printing currency, inflation would make its goods uncompetitive in world markets, while the prices of imports would become more attractive in that country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #62 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 63. The architects of the Bretton Woods agreement built limited flexibility into the fixed exchange rate system in order to: A. avoid high unemployment. B. facilitate competitive currency devaluations. C. widen balance-of-payments gap between countries. D. increase money supply and thereby price inflation. E. avoid balance-of-trade equilibrium between countries. Although monetary discipline was a central objective of the Bretton Woods agreement, it was recognized that a rigid policy of fixed exchange rates would be too inflexible. In some cases, a country’s attempts to reduce its money supply growth and correct a persistent balance-of-payments deficit could force the country into recession and create high unemployment. The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built limited flexibility into the fixed exchange rate system. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #63 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 64. The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built limited flexibility into the fixed exchange rate system. Which of the following is a major feature of the International Monetary Fund (IMF) Articles of Agreement that fostered this flexibility? A. Competitive currency devaluations B. Lending facilities C. Communist ideologies D. Floating exchange rates E. Unrestricted authority to print currency The architects of the Bretton Woods agreement wanted to avoid high unemployment, so they built limited flexibility into the system. Two major features of the International Monetary Fund (IMF) Articles of Agreement fostered this flexibility: IMF lending facilities and adjustable parities. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #64 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 65. Which of the following statements is about the role of the International Monetary Fund? A. It never interfered in the monetary and fiscal conditions of its member countries. B. It was authorized to approve currency devaluations of only up to 10 percent. C. It required member countries to adhere to specific agreements irrespective of the amount of funds the countries borrowed. D. It lent money under the International Bank for Reconstruction and Development (IBRD) scheme and a second scheme which is overseen by the International Development Association (IDA). E. It helped deficit-laden countries bring down inflation rates by providing short-term foreign currency loans. The agreement reached at Bretton Woods established two multinational institutions—the International Monetary Fund (IMF) and the World Bank. By providing deficit-laden countries with short-term foreign currency loans, IMF funds would buy time for countries to bring down their inflation rates and reduce their balance-of-payments deficits. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #65 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 66. How does the International Monetary Fund (IMF) provide loans to deficit-laden countries? A. It prints the required currencies, thereby increasing money supply in those countries. B. It acts as a market, buying goods from these countries and selling it to developed countries. C. A pool of gold and currencies contributed by its members provides the resources for the lending operations. D. The World Bank lends the required amount to the IMF at a low interest rate. E. It collects money from those countries that wish to devaluate their currencies. The International Monetary Fund (IMF) stood ready to lend foreign currencies to members to tide them over during short periods of balance-of-payments deficits, when a rapid tightening of monetary or fiscal policy would hurt domestic employment. A pool of gold and currencies contributed by IMF members provided the resources for these lending operations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #66 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 67. Which term was not defined in the International Monetary Fund's Articles of Agreement but was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products? A. Competitive disadvantage B. Capital flight C. Fundamental disequilibrium D. Break-even point E. Diseconomies of scale The system of adjustable parities allowed for the devaluation of a country’s currency by more than 10 percent if the International Monetary Fund (IMF) agreed that a country’s balance of payments was in “fundamental disequilibrium.” The term fundamental disequilibrium was not defined in the IMF’s Articles of Agreement, but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #67 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 68. The system of adjustable parities allowed for the devaluation of a country’s currency by more than 10 percent if the International Monetary Fund (IMF) agreed that a: A. country was in a trade surplus with the other member countries. B. country’s balance of payments was in "fundamental disequilibrium." C. country had achieved balance-of-trade equilibrium. D. country’s imports were lower than its exports. E. country was facing price inflation. The system of adjustable parities allowed for the devaluation of a country’s currency by more than 10 percent if the IMF agreed that a country’s balance of payments was in “fundamental disequilibrium.” The term fundamental disequilibrium was not defined in the IMF’s Articles of Agreement, but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #68 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 69. Without currency devaluation, a country in "fundamental disequilibrium" would experience: A. a persistent trade surplus. B. a balance-of-payments equilibrium. C. an increase in exports. D. high unemployment. E. deflation. The system of adjustable parities allowed for the devaluation of a country’s currency by more than 10 percent if the International Monetary Fund (IMF) agreed that a country’s balance of payments was in “fundamental disequilibrium.” The term fundamental disequilibrium was not defined in the IMF’s Articles of Agreement, but it was intended to apply to countries that had suffered permanent adverse shifts in the demand for their products. Without devaluation, such a country would experience high unemployment and a persistent trade deficit until the domestic price level had fallen far enough to restore a balance-of-payments equilibrium. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #69 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 70. Which of the following was the initial mission of the World Bank? A. Maintaining order in the international monetary system B. Financing the building of Europe's economy by providing low-interest loans C. Taking over as the successor to the International Monetary Fund D. Reviving the gold standard system E. Enforcement of the floating exchange rate system When the Bretton Woods participants established the World Bank, the need to reconstruct the war-torn economies of Europe was foremost in their minds. The bank’s initial mission was to help finance the building of Europe’s economy by providing low-interest loans. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #70 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 71. Which of the following was responsible for the World Bank shifting its focus from Europe to third world nations? A. The Great Depression B. The Jamaica agreement C. World War II D. The Marshall Plan E. The Bretton Woods agreement The World Bank’s initial mission was to help finance the building of Europe’s economy by providing low-interest loans. As it turned out, the World Bank was overshadowed in this role by the Marshall Plan, under which the United States lent money directly to European nations to help them rebuild. So the bank turned its attention to development and began lending money to third world nations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #71 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 72. Which of the following is according to the provisions of the Marshall plan? A. The United States lent money directly to European nations to help them rebuild their economies. B. Member countries of the International Monetary Fund were free to engage in competitive currency devaluations. C. The World Bank lent funds to reconstruct the war-torn economies of Europe. D. Money was lent to European countries under the International Bank for Reconstruction and Development scheme and the International Development Association scheme. E. The World Bank lent money to the International Monetary Fund so that it could finance deficit-laden countries. The World Bank’s initial mission was to help finance the building of Europe’s economy by providing low-interest loans. As it turned out, the World Bank was overshadowed in this role by the Marshall Plan. So the bank turned its attention to development and began lending money to third world nations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #72 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 73. Which of the following is of the International Bank for Reconstruction and Development (IBRD) scheme of the World Bank? A. Resources to fund IBRD loans are raised through subscriptions from wealthy members. B. The interest rate charged by the World Bank is higher than the commercial banks' market rate. C. Borrowers have to pay the bank's cost of funds plus a margin for expenses. D. The bank avoids offering low-interest loans to risky customers whose credit rating is often poor. E. It was established to approve currency devaluations that are beyond 10 percent. Under the IBRD scheme, money is raised through bond sales in the international capital market. Borrowers pay what the bank calls a market rate of interest—the bank's cost of funds plus a margin for expenses. This "market" rate is lower than commercial banks' market rate. Under the IBRD scheme, the bank offers low-interest loans to risky customers whose credit rating is often poor, such as the governments of underdeveloped nations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #73 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 74. Which of the following observations about the International Development Association (IDA) scheme of the World Bank is ? A. Money is raised through bond sales in the international capital market. B. Borrowers have up to 50 years to repay at an interest rate of less than1 percent a year. C. IDA loans go only to European countries. D. Grants and interest-free loans are denied to governments of underdeveloped nations. E. The bank offers loans only to customers with a satisfactory credit rating. The World bank lends money under two schemes. One scheme is overseen by the International Development Association (IDA), an arm of the bank created in 1960. Resources to fund IDA loans are raised through subscriptions from wealthy members such as the United States, Japan, and Germany. IDA loans go only to the poorest countries. Borrowers up to 50 years to repay at an interest rate of less than 1 percent a year. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #74 Learning Objective: 11-02 Explain the role played by the World Bank and the IMF in the international monetary system. Topic: The Bretton Woods System 75. Which of the following is being used after the collapse of the fixed exchange rate system established at Bretton Woods? A. Clean float exchange rate system B. Managed-float system C. Pegged exchange rate system D. Gold standard system E. Dirty float system The system of fixed exchange rates established at Bretton Woods worked well until the late 1960s, when it began to show signs of strain. The system finally collapsed in 1973, and since then we have had a managed-float system. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #75 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 76. The collapse of the fixed exchange rate system has been traced to the: A. U.S. macroeconomic policy package of 1965-1968. B. inflexibility of the fixed exchange rate system that led to high unemployment. C. Marshall Plan, under which the United States lent money heavily to European nations. D. failure of the International Monetary Fund to impose monetary discipline. E. increased taxes in the U.S. to finance its welfare programs. Most economists trace the breakup of the fixed exchange rate system to the U.S. macroeconomic policy package of 1965-1968. To finance both the Vietnam conflict and his welfare programs, President Lyndon Johnson backed an increase in U.S. government spending that was not financed by an increase in taxes. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #76 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 77. Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by: A. the sale of gold reserves. B. borrowing from the International Monetary Fund. C. an increase in the money supply. D. an increase in taxes. E. selling bonds in the international capital market. Most economists trace the breakup of the fixed exchange rate system to the U.S. macroeconomic policy package of 1965–1968. To finance both the Vietnam conflict and his welfare programs, President Lyndon Johnson backed an increase in U.S. government spending that was not financed by an increase in taxes. Instead, it was financed by an increase in the money supply, which led to a rise in price inflation from less than 4 percent in 1966 to close to 9 percent by 1968. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #77 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 78. Under the U.S. macroeconomic policy package of 1965-1968, President Lyndon Johnson backed an increase in U.S. government spending that was financed by an increase in the money supply. This resulted in _____. A. increased exports B. a rise in price inflation C. increased taxes D. a positive trade balance E. increase in the worth of currency To finance both the Vietnam conflict and his welfare programs, President Lyndon Johnson backed an increase in U.S. government spending that was not financed by an increase in taxes. Instead, it was financed by an increase in the money supply, which led to a rise in price inflation from less than 4 percent in 1966 to close to 9 percent by 1968. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #78 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 79. In 1971, U.S. trade figures showed that for the first time since 1945, the United States was importing more than it was exporting. This set off massive purchases of _____ in the foreign market by speculators. A. U.S. dollars B. German deutsche marks C. British pounds D. Japanese yen E. Chinese yuan In 1971, U.S. trade figures showed that for the first time since 1945, the United States was importing more than it was exporting. This set off massive purchases of German deutsche marks in the foreign exchange market by speculators who guessed that the mark would be revalued against the dollar. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #79 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 80. Which of the following was an announcement made by U.S. President Nixon to enable the devaluation of the dollar during the increase in inflation in 1971 in the United States? A. The IMF member countries would adopt the gold standard to fix exchange rates. B. The United States would no longer support the World Bank. C. A new 10 percent tax would be charged on U.S. exports. D. The dollar was no longer convertible into gold. E. German deutsche marks would be the new reference currency. To force the issue of the devaluation of the dollar, President Nixon announced in August 1971 that the dollar was no longer convertible into gold. He also announced that a new 10 percent tax on imports would remain in effect until U.S. trading partners agreed to revalue their currencies against the dollar. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #80 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 81. Which of the following was the weakness of the Bretton Woods system? A. It could be wrecked by heavy borrowings from the World Bank and the International Monetary Fund. B. It could not work if the U.S. dollar was under speculative attack. C. The inflexibility of the system resulted in high unemployment. D. It forced fiscal and monetary discipline on participating nations. E. It allowed the countries to engage in competitive currency devaluations. The Bretton Woods system had an Achilles' heel: The system could not work if its key currency, the U.S. dollar, was under speculative attack. The Bretton Woods system could work only as long as the U.S. inflation rate remained low and the United States did not run a balance-of-payments deficit. Once these things occurred, the system soon became strained to the breaking point. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #81 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Collapse of the Fixed Exchange Rate System 82. In January 1976, the _____ revised the International Monetary Fund's Articles of Agreement to reflect the new reality of floating exchange rates. A. Jamaica agreement B. Bretton Woods agreement C. Marshall Plan D. General agreement on Tariffs and Trade E. Plaza Accord The floating exchange rate regime that followed the collapse of the fixed exchange rate system was formalized in January 1976 when the International Monetary Fund (IMF) members met in Jamaica and agreed to the rules for the international monetary system that are in place today. The Jamaica meeting revised the IMF's Articles of Agreement to reflect the new reality of floating exchange rates. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #82 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 83. Which of the following was abandoned as per the Jamaica agreement of 1976? A. Floating exchange rate system B. U.S. dollar as the reference currency C. Gold as a reserve asset D. Membership to the International Monetary Fund E. Granting International Monetary Fund loans to less developed countries The Jamaica meeting revised the International Monetary Fund’s Articles of Agreement to reflect the new reality of floating exchange rates. As per the Jamaica agreement, gold was abandoned as a reserve asset. The International Monetary Fund returned its gold reserves to members at the current market price, placing the proceeds in a trust fund to help poor nations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #83 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 84. Which of the following is a main element of the Jamaica agreement of 1976? A. The establishment of the International Monetary Fund B. The adoption of fixed exchange rates C. The increase in the total annual IMF quotas to $41 billion D. The declaration of gold as the reserve asset E. The decrease in the total membership of the International Monetary Fund The Jamaica meeting revised the International Monetary Fund’s Articles of Agreement to reflect the new reality of floating exchange rates. The main elements of the Jamaica agreement included the increase of total annual IMF quotas to $41 billion. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #84 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 85. Which of the following statements is about the changes in the world monetary system since March 1973? A. The value of the U.S. dollar has never seen a fall ever since. B. Exchange rates have become much more volatile. C. Exchange rates have become more predictable. D. The fixed rate system was adopted to calculate exchange rates. E. The European monetary system as an institution has gained more prominence. Since March 1973, exchange rates have become much more volatile and less predictable than they were between 1945 and 1973. This volatility has been partly due to a number of unexpected shocks to the world monetary system. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #85 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 86. Which of the following is one of the reasons for the rapid rise in the value of the dollar between 1980 and 1985 despite a large trade deficit? A. Political stability in all other parts of the world B. Heavy capital outflows from the United States C. Low real interest rates in the United States D. Slow economic growth in the developed countries of Europe E. Increasing exports against decreasing imports in the United States The rise in the value of the dollar between 1980 and 1985 occurred when the United States was running a large and growing trade deficit, importing substantially more than it exported. A number of favorable factors overcame the unfavorable effect of a trade deficit. High real interest rates in the U.S. attracted foreign investors seeking high returns on financial assets. At the same time, political turmoil in other parts of the world, along with relatively slow economic growth in the developed countries of Europe, helped create the view that the United States was a good place to invest. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #86 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 87. The fall in the value of the U.S. dollar between 1985 and 1988 was caused by: A. the economic growth in the developed countries of Europe. B. a fall in prices of exported U.S. goods. C. a trade surplus in the U.S. during the previous years. D. a combination of government intervention and market forces. E. the protectionism measures adopted by the European countries. The fall in the value of the dollar between 1985 and 1988 was caused by a combination of government intervention and market forces. The rise in the dollar, which priced U.S. goods out of foreign markets and made imports relatively cheap, had contributed to a dismal trade picture. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #87 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 88. Under the Plaza Accord of 1985, the Group of Five major industrial countries concluded that it would be desirable if: A. the countries returned to a system of fixed exchange rates. B. the participating members reverted to the gold standard. C. the United States adopted protectionism to improve its trade balance. D. most major currencies appreciated vis-à-vis the U.S. dollar. E. governments did not regulate the buying and selling of currency. In September 1985, the finance ministers and central bank governors of the so-called Group of Five major industrial countries (Great Britain, France, Japan, Germany, and the United States) met at the Plaza Hotel in New York and reached what was later referred to as the Plaza Accord. They announced that it would be desirable for most major currencies to appreciate vis-à-vis the U.S. dollar and pledged to intervene in the foreign exchange markets, selling dollars, to encourage this objective. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #88 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 89. According to the _____ of 1987, the Group of Five major industrial nations agreed that exchange rates had been realigned sufficiently and pledged to support the stability of exchange rates around their current levels by intervening in the foreign exchange markets when necessary to buy and sell currency. A. Uruguay round B. Bretton Woods system C. Marshall plan D. Louvre Accord E. Jamaica agreement The dollar continued to decline until 1987. The governments of the Group of Five began to worry that the dollar might decline too far, so its finance ministers met in Paris in February 1987 and reached a new agreement known as the Louvre Accord. They agreed that exchange rates had been realigned sufficiently and pledged to support the stability of exchange rates around their current levels by intervening in the foreign exchange markets when necessary to buy and sell currency. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #89 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 90. Which of the following explains the rise of the dollar against most major currencies in the late 1990s, even though the United States was still running a significant balance-of-payments deficit? A. Reduced government intervention in the foreign exchange market B. Increased foreign investments in U.S. financial assets C. Low real interest rates in the United States compared to the rest of the world D. Increased exports as opposed to the imports E. Increased communism in the United States In the late 1990s, the dollar again began to appreciate against most major currencies, including the euro after its introduction, even though the United States was still running a significant balance-of-payments deficit. Once again, the driving force for the appreciation in the value of the dollar was that foreigners continued to invest in U.S. financial assets, primarily stocks and bonds, and the inflow of money drove up the value of the dollar on foreign exchange markets. The inward investment was due to a belief that U.S. financial assets offered a favorable rate of return. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #90 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 91. From mid-2008 through early 2009, the value of the dollar moderately increased against major currencies, despite the fact that the American economy was suffering from a serious financial crisis. Which of the following was a reason for this phenomenon? A. High real interest rates in the United States compared to any other developed region in the world sparked an inflow of funds into the country. B. U.S. assets were characterized by a high-risk, high-return payoff which prompted foreign investors to park their funds. C. Foreign investors were excited at the possibility of high returns following the government bail-out of financial institutions. D. Foreign investors put their money in low-risk U.S. assets such as low-yielding U.S. government bonds. E. Foreign investors saw opportunities in the United States as the level of indebtedness had begun to reduce. From mid-2008 through early 2009, the dollar staged a moderate rally against major currencies, despite the fact that the American economy was suffering from a serious financial crisis. The reason seems to be that despite America's problems, things were even worse in many other countries, and foreign investors saw the dollar as a safe haven and put their money in low-risk U.S. assets, particularly low-yielding U.S. government bonds. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #91 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 92. The frequency of government intervention in the foreign exchange market explains why the current system is sometimes thought of as a(n) _____. A. fixed exchange rate system B. managed-float system C. gold standard system D. flexible exchange rate system E. pegged exchange rate system A system under which some currencies are allowed to float freely, but the majority are either managed by government intervention or pegged to another currency. The frequency of government intervention in the foreign exchange market explains why the current system is sometimes thought of as a managed-float system or a dirty-float system. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #92 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 93. A _____ refers to a system under which some currencies are allowed to float freely, but the majority are either managed by government intervention or pegged to another currency. A. managed-float system B. pegged exchange rate system C. fixed exchange rate system D. floating exchange rate system E. gold standard system A managed-float system refers to a system under which some currencies are allowed to float freely, but the majority are either managed by government intervention or pegged to another currency. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #93 Learning Objective: 11-01 Describe the historical development of the modern global monetary system. Topic: The Floating Exchange Rate Regime 94. Which of the following is a characteristic of the floating exchange rate regime? A. It allows for automatic trade balance adjustments. B. The use of monetary policy by the government is restricted. C. It allows for greater monetary discipline. D. It limits the destabilizing effects of exchange rate speculation. E. It eliminates volatility and uncertainty associated with exchange rates. The case in support of floating exchange rates has two main elements: monetary policy autonomy and automatic trade balance adjustments. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #94 Learning Objective: 11-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: Fixed versus Floating Exchange Rates 95. Which of the following is an argument for a fixed exchange rate system? A. Governments can contract their money supply without worrying about the need to maintain parity. B. Trade balance adjustments do not require the intervention of the International Monetary Fund. C. It ensures that governments do not expand the monetary supply too rapidly, thus causing high price inflation. D. Speculations in exchange rates boost exports and reduce imports. E. Each country should be allowed to choose its own inflation rate. The need to maintain fixed exchange rate parity ensures that governments do not expand their money supplies at inflationary rates. Advocates of fixed rates argue that governments all too often give in to political pressures and expand the monetary supply far too rapidly, causing unacceptably high price inflation. A fixed exchange rate regime would ensure that this does not occur. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #95 Learning Objective: 11-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: Fixed versus Floating Exchange Rates 96. Which of the following is of monetary contraction in a fixed exchange rate system? A. It requires low interest rates. B. It increases the demand for money. C. It puts downward pressure on a fixed exchange rate. D. It leads to an inflow of money from abroad. E. It can lead to high price inflation. Monetary contraction requires high interest rates (to reduce the demand for money). Higher interest rates lead to an inflow of money from abroad, which puts upward pressure on a fixed exchange rate. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #96 Learning Objective: 11-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: Fixed versus Floating Exchange Rates 97. Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade that could not be corrected by domestic policy, this would require the: A. country to import more than it exports. B. country to make its exports more expensive. C. International Monetary Fund to agree to a currency devaluation. D. government to expand monetary supply in the economy. E. government to involve in activities that led to exchange rate appreciation. Under the Bretton Woods system, if a country developed a permanent deficit in its balance of trade (importing more than it exported) that could not be corrected by domestic policy, this would require the International Monetary Fund to agree to a currency devaluation. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #97 Learning Objective: 11-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: Fixed versus Floating Exchange Rates 98. Which of the following is an argument for a floating exchange rate system? A. Each country should be allowed to choose its own inflation rate. B. Speculation in exchange rates dampens the growth of international trade and investment. C. Unpredictability of exchange rate movements makes business planning difficult. D. Removal of the obligation to maintain exchange rate parity destroys a government's monetary control. E. Trade deficits can be determined by the balance between savings and investment in a country, not by the external value of its currency. Advocates of floating exchange rates argue that each country should be allowed to choose its own inflation rate (the monetary autonomy argument). AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #98 Learning Objective: 11-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: Fixed versus Floating Exchange Rates 99. In comparison to a floating exchange rate regime, a fixed exchange rate system is characterized by: A. smoother trade balance adjustments. B. increased destabilizing effects of exchange rate speculation. C. greater autonomy in terms of monetary policy. D. higher monetary discipline. E. greater exchange rate uncertainty and volatility. The case for fixed exchange rates rests on arguments about monetary discipline, speculation, uncertainty, and the lack of connection between the trade balance and exchange rates. The need to maintain fixed exchange rate parity ensures that governments do not expand their money supplies at inflationary rates. Advocates of fixed rates argue that governments all too often give in to political pressures and expand the monetary supply far too rapidly, causing unacceptably high price inflation. A fixed exchange rate regime would ensure that this does not occur. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #99 Learning Objective: 11-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: Fixed versus Floating Exchange Rates 100. Critics of floating exchange rates claim that trade deficits are determined by the: A. balance between savings and investment in a country. B. external value of the currency of a country. C. exchange rates of other currencies. D. valuations made by International Monetary Fund and the World Bank. E. mechanism of competitive currency devaluation. Those in favor of floating exchange rates argue that floating rates help adjust trade imbalances. Critics question the closeness of the link between the exchange rate and the trade balance. They claim trade deficits are determined by the balance between savings and investment in a country, not by the external value of its currency. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #100 Learning Objective: 11-03 Compare and contrast the differences between a fixed and a floating exchange rate system. Topic: Fixed versus Floating Exchange Rates 101. Which of the following has some aspects of the pre-1973 Bretton Woods exchange rate system? A. Pure “free float” exchange rate system B. Dirty float exchange rate system C. Nominal exchange rate system D. Pegged exchange rate system E. Real exchange rate system Governments around the world pursue a number of different exchange rate policies. These range from a pure “free float” where the exchange rate is determined by market forces to a pegged system that has some aspects of the pre-1973 Bretton Woods system of fixed exchange rates. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #101 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 102. A(n) _____ system refers to an exchange rate system under which a country's exchange rate is allowed to fluctuate against other currencies within a target zone. A. free float B. fixed peg C. adjustable peg D. pure float E. capital float Governments around the world pursue a number of different exchange rate policies. Some countries have adopted a system under which their exchange rate is allowed to fluctuate against other currencies within a target zone (an adjustable peg system). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #102 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 103. An advantage of a pegged exchange rate system is that it imposes monetary discipline on a country and leads to low _____. A. monetary discipline B. price inflation C. exchange rate predictability D. trade surplus E. exports Pegged exchange rates are popular among many of the world’s smaller nations. As with a full fixed exchange rate regime, the great virtue claimed for a pegged exchange rate is that it imposes monetary discipline on a country and leads to low inflation. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #103 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 104. Which of the following holds for a pegged exchange rate system? A. Adopting a pegged exchange rate regime increases inflationary pressures in a country. B. It is necessary for a country whose currency is chosen for the peg to pursue a sound monetary policy. C. Pegged exchange rates are popular among many of the world’s largest and developed nations. D. The value of a pegged currency falls when the reference currency rises in value. E. It is similar to a floating exchange rate system rather than a fixed system. Under a pegged exchange rate regime, a country will peg the value of its currency to that of a major currency so that, for example, as the U.S. dollar rises in value, its own currency rises too. For a pegged exchange rate to impose monetary discipline on a country, the country whose currency is chosen for the peg must also pursue sound monetary policy. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #104 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 105. It has been shown that adopting a _____ exchange rate regime moderates inflationary pressures in a country. A. nominal B. pegged C. pure "free float" D. clean float E. real Evidence shows that adopting a pegged exchange rate regime moderates inflationary pressures in a country. An International Monetary Fund study concluded that countries with pegged exchange rates had an average annual inflation rate of 8 percent, compared with 14 percent for intermediate regimes and 16 percent for floating regimes. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #105 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 106. A country that introduces a _____ commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. A. free float exchange rate system B. clean float exchange rate system C. pure float exchange rate system D. currency board E. gold standard A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. To make this commitment credible, the currency board holds reserves of foreign currency equal at the fixed exchange rate to at least 100 percent of the domestic currency issued. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #106 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 107. How does a country that introduces a currency board make its commitment to converting its domestic currency on demand into another currency at a fixed exchange rate credible? A. By borrowing funds from the International Monetary Fund and the World Bank B. By maintaining a trade surplus with the foreign countries C. By holding foreign currency reserves equal at the fixed exchange rate to at least 100 percent of the domestic currency issued D. By importing more goods from foreign countries than it exports E. By printing foreign currencies A country that introduces a currency board commits itself to converting its domestic currency on demand into another currency at a fixed exchange rate. To make this commitment credible, the currency board holds reserves of foreign currency equal at the fixed exchange rate to at least 100 percent of the domestic currency issued. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #107 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 108. Which of the following statements is about a currency board system? A. Under a strict currency board system, interest rates adjust automatically based on the supply and demand of domestic currency. B. To convert domestic currency on demand into another currency, a currency board takes grants from the International Monetary Fund. C. This system is a fixed exchange rate regime, because the domestic currency is fixed against other currencies. D. A currency board can issue additional domestic currency even when there are no foreign exchange reserves to back it. E. A currency board authorizes the government to print money and set interest rates. Under a currency board arrangement, additional domestic notes and coins can be issued only when there are foreign exchange reserves to back it. This limits the ability of the government to print money and, thereby, create inflationary pressures. Under a strict currency board system, interest rates adjust automatically. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #108 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 109. During the 1997 Asian currency crisis, the currency board of _____ maintained the value of its currency against the U.S. dollar. A. Japan B. Taiwan C. Hong Kong D. Indonesia E. China Hong Kong’s experience during the 1997 Asian currency crisis added a new dimension to the debate over how to manage a pegged exchange rate. During late 1997, when other Asian currencies were collapsing, Hong Kong maintained the value of its currency against the U.S. dollar at about $1 = HK$7.80 despite several concerted speculative attacks. Hong Kong’s currency board has been given credit for this success. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #109 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 110. Which of the following is a drawback of the currency board system? A. The ease with which governments can set and manipulate interest rates acts as a limitation. B. Higher domestic inflation rates compared to the inflation rate in the country to which the currency is pegged can make the currency uncompetitive. C. The currency board can issue additional domestic notes and coins even when there are no foreign exchange reserves to back it. D. The system is a fixed exchange rate regime, because the domestic currency is fixed against other currencies. E. The system lacks commitment to convert domestic currency on demand into another currency. Currency boards have their drawbacks. If local inflation rates remain higher than the inflation rate in the country to which the currency is pegged, the currencies of countries with currency boards can become uncompetitive and overvalued. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #110 Learning Objective: 11-04 Identify exchange rate regimes used in the world today and why countries adopt different exchange rate regimes. Topic: Exchange Rate Regimes in Practice 111. Since the early 1970s, developed countries such as Great Britain and the United States have financed their trade deficits by: A. borrowing from the World Bank. B. borrowing private money. C. selling their gold reserves. D. drawing on grants from the International Monetary Fund. E. increasing their imports. Since the early 1970s, the rapid development of global capital markets has generally allowed developed countries such as Great Britain and the United States to finance their deficits by borrowing private money, as opposed to drawing on International Monetary Fund grants. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #111 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 112. Which of the following is a reason why Great Britain and the United States could finance their deficits by borrowing private money since the early 1970s? A. The rapid development of global capital markets B. Shortage of International Monetary Fund grants available for disbursal C. High interest rate charged by the International Monetary Fund D. Establishment of currency boards in these countries E. Decline of the Bretton Woods system Since the early 1970s, the rapid development of global capital markets has allowed developed countries such as Great Britain and the United States to finance their deficits by borrowing private money, as opposed to drawing on International Monetary Fund grants. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #112 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 113. Which of the following observations about the International Monetary Fund (IMF) is ? A. With the collapse of the Bretton Woods system, the membership of the IMF has reduced. B. The IMF has been criticized for granting loans to the governments without enacting any macroeconomic policies. C. The IMF has refused to lend money to troubled economies experiencing financial crises. D. The IMF's activities have expanded because periodic financial crises have continued to hit many economies in the post-Bretton Woods era. E. Under the International Development Association scheme, the IMF offers long-term loans to governments of underdeveloped nations whose credit rating is poor. The activities of the International Monetary Fund (IMF) have expanded because periodic financial crises have continued to hit many economies in the post-Bretton Woods era, particularly among the world's developing nations. The IMF has repeatedly lent money to nations experiencing financial crises, requesting in return that the governments enact certain macroeconomic policies. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #113 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 114. Which of the following is an implication of a currency crisis? A. It occurs due to a sharp appreciation in the value of a currency. B. It forces authorities to block large volumes of international currency reserves. C. A country in currency crisis will not be eligible for loans from the International Monetary Fund. D. It results in the government sharply increasing interest rates to defend the prevailing exchange rate. E. A country in currency crisis will face sharp decreases in stock and property prices. A currency crisis occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #114 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 115. Which of the following is of a banking crisis? A. Individuals and companies withdraw their deposits from banks. B. It results in a sharp appreciation in the value of the currency. C. It happens due to a decline in domestic borrowing. D. It occurs due to asset price deflation. E. Banks tend to decrease interest rates during a banking crisis. A banking crisis refers to a loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits. Currency crises, banking crises, and foreign debt crises tend to have common underlying macroeconomic causes: high relative price inflation rates, a widening current account deficit, excessive expansion of domestic borrowing, high government deficits, and asset price inflation (such as sharp increases in stock and property prices). AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #115 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 116. Which of the following statements is about financial crises? A. The elements of currency, banking, and debt crises do not present themselves simultaneously. B. A currency crisis forces authorities to hold large volumes of international currency reserves. C. A foreign debt crisis occurs when a country's foreign debt obligations in private-sector government debt cannot be serviced. D. A banking crisis occurs when individuals and companies increase their deposits due to increasing interest rates. E. The International Monetary Fund does not grant loans to countries that face the risks of financial crises. A number of broad types of financial crises have occurred over the past 30 years, many of which have required International Monetary Fund involvement. A foreign debt crisis is a situation in which a country cannot service its foreign debt obligations, whether private-sector or government debt. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #116 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 117. Which of the following is a common underlying macroeconomic cause of financial crises? A. Low relative price inflation rates B. Narrowing current account deficit C. Increases in stock and property prices D. Decline in domestic borrowing E. Increases in the value of domestic currency Financial crises tend to have common underlying macroeconomic causes: high relative price inflation rates, a widening current account deficit, excessive expansion of domestic borrowing, high government deficits and asset price inflation (such as sharp increases in stock and property prices). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #117 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 118. Most of the International Monetary Fund’s loan activities since the mid-1970s have been targeted toward developing nations typically because: A. developed nations are not willing to enact certain macroeconomic policies in return for money. B. developing nations are more than twice as likely to experience financial crises as developed nations. C. it does not have enough funds to lend to large and developed countries. D. only developing nations are allowed to be its beneficiaries. E. of relatively slow economic growth in the developed countries of Europe. The International Monetary Fund’s data suggest that developing nations were more than twice as likely to experience currency and banking crises as developed nations. It is not surprising, therefore, that most of the International Monetary Fund’s loan activities since the mid-1970s have been targeted toward developing nations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #118 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 119. According to the agreement reached between the International Monetary Fund and the South Korean government in 1997, in return for funding, the South Koreans were required to: A. adopt communist ideologies. B. reduce their imports by enforcing restrictive import licensing. C. open their economy to greater foreign competition. D. oppose the ideologies of the World Trade Organization. E. engage in competitive currency devaluation. With its economy on the verge of collapse, the South Korean government requested $20 billion in standby loans from the IMF on November 21, 1997. On December 3, 1997, the IMF and South Korean government reached a deal to lend $55 billion to the country. And in return, the IMF said South Korea would comply with its commitments to the World Trade Organization to eliminate trade-related subsidies and restrictive import licensing and would streamline its import certification procedures, all of which should open the South Korean economy to greater foreign competition. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #119 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 120. All International Monetary Fund (IMF) loan packages come with conditions attached. Which of the following is prevented due to these policies of the IMF? A. Trade liberalization B. Elimination of restrictive import licensing C. Excessive government spending and debt D. Privatization of state-owned assets E. Deregulation of the economy to increase competition All International Monetary Fund (IMF) loan packages come with conditions attached. Until very recently, the IMF has insisted on a combination of tight macroeconomic policies, including cuts in public spending, higher interest rates, and tight monetary policy. It has also often pushed for the deregulation of sectors formerly protected from domestic and foreign competition, privatization of state-owned assets, and better financial reporting from the banking sector. These policies are designed to cool overheated economies by reining in inflation and reducing government spending and debt. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #120 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 121. In the context of the 1997 Asian crisis, how did the International Monetary Fund's “one-size-fits-all” approach to macroeconomic policy affect South Korea? A. It led to a decrease in the interest rates of short-term loans. B. It made it difficult for companies to service their excessive short-term debt obligations. C. It decreased the probability of widespread corporate defaults. D. South Korea failed to recover from its financial crises. E. South Korea was forced to increase restrictions on foreign direct investment. One criticism is that the International Monetary Fund’s traditional policy prescriptions represent a “one-size-fits-all” approach to macroeconomic policy that is inappropriate for many countries. In South Korea, for example, the government had been running a budget surplus for years, and inflation was low at about 5 percent. South Korea had the second strongest financial position of any country in the Organization for Economic Cooperation and Development. Despite this, critics say, the International Monetary Fund insisted on applying the same policies that it applies to countries suffering from high inflation. Increasing interest rates made it even more difficult for companies to service their already excessive short-term debt obligations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #121 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 122. _____ arises when people behave recklessly because they know they will be saved if things go wrong. A. Systemic risk B. Moral hazard C. Ethical dilemma D. Tragedy of the commons E. Risk compensation A criticism of the International Monetary Fund is that its rescue efforts are exacerbating a problem known to economists as moral hazard. Moral hazard arises when people behave recklessly because they know they will be saved if things go wrong. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #122 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 123. Jade, a working professional, began driving rashly ever since she got her car insured against damage. She believed that the insurance claim would cover her in case of any accidents. Jade’s behavior is due to a situation known as _____. A. cognitive dissonance B. conflict of interest C. systemic risk D. moral hazard E. tragedy of the commons A criticism of the International Monetary Fund is that its rescue efforts are exacerbating a problem known to economists as moral hazard. Moral hazard arises when people behave recklessly because they know they will be saved if things go wrong. AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 11 #123 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 124. The International Monetary Fund been criticized for: A. its lack of “one-size-fits-all” approach to macroeconomic policy. B. encouraging moral hazard among banks. C. its lack of power and authority. D. using external experts to gain knowledge about a country. E. keeping its operations open to outside scrutiny. A criticism of the International Monetary Fund is that its rescue efforts are exacerbating a problem known to economists as moral hazard. Moral hazard arises when people behave recklessly because they know they will be saved if things go wrong. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #124 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 125. According to the critics of the International Monetary Fund (IMF), how should the problem of moral hazard exhibited by banks be resolved? A. The IMF should use a “one-size-fits-all” approach to macroeconomic policy. B. The IMF should establish a mechanism for accountability. C. The IMF should free all banks from the obligation of financial reporting. D. The banks should be forced to pay the price for their rash lending policies. E. The IMF should bail out the banks whose loans gave rise to financial crises. Moral hazard arises when people behave recklessly because they know they will be saved if things go wrong. Critics point out that many Japanese and Western banks were far too willing to lend large amounts of capital to overleveraged Asian companies during the boom years of the 1990s. Critics argue that the banks should now be forced to pay the price for their rash lending policies, even if that means some banks must close. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #125 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 126. According to the noted economist Jeffrey Sachs, the International Monetary Fund should: A. not be accountable to anyone as it is a powerful institution. B. bail out the banks that have rash lending policies. C. have a “one-size-fits-all” approach to macroeconomic policy. D. keep its operations open to greater outside scrutiny. E. lend only to countries with safe credit ratings. A criticism of the International Monetary Fund (IMF) is that it has become too powerful for an institution that lacks any real mechanism for accountability. The IMF has determined macroeconomic policies in those countries, yet according to critics such as noted economist Jeffrey Sachs, the IMF, with a staff of less than 1,000, lacks the expertise required to do a good job. Sachs’s solution to this problem is to reform the IMF so it makes greater use of outside experts and its operations are open to greater outside scrutiny. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #126 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 127. The International Monetary Fund programs have been counterproductive, or only had limited success in _____. A. Turkey B. Iceland C. Greece D. Ireland E. Latvia There are cases where one can argue that IMF policies have been counterproductive, or only had limited success. For example, one might question the success of the IMF’s involvement in Turkey given that the country has had to implement some 18 IMF programs since 1958. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #127 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 128. In response to the global financial crisis of 2008–2009, the International Monetary Fund began to: A. exercise tight controls on fiscal policy of the borrowing countries. B. encourage activities that resulted in high inflation rates. C. display inflexibility in policy responses. D. urge countries to adopt policies that included fiscal stimulus and monetary easing. E. adopt a “one-size-fits-all” approach to macroeconomic policy. It is notable that in recent years the International Monetary Fund (IMF) has started to change its policies. In response to the global financial crisis of 2008–2009, the IMF began to urge countries to adopt policies that included fiscal stimulus and monetary easing—the direct opposite of what the fund traditionally advocated. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #128 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 129. Which of the following observations about the International Monetary Fund (IMF) is ? A. The IMF can force countries to adopt the policies required to correct economic mismanagement. B. Internal political problems can affect a government's commitment to taking corrective action in return for an IMF loan. C. In recent years, the IMF has begun to make its policies more tight and inflexible. D. In response to the global financial crisis of 2008–2009, the IMF began to adopt a “one-size-fits-all” approach to macroeconomic policy. E. In recent years, the IMF has begun to urge countries to oppose fiscal stimulus and monetary easing. The International Monetary Fund (IMF) cannot force countries to adopt the policies required to correct economic mismanagement. While a government may commit to taking corrective action in return for an IMF loan, internal political problems may make it difficult for a government to act on that commitment. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #129 Learning Objective: 11-05 Understand the debate surrounding the role of the IMF in the management of financial crises. Topic: Crisis Management by the IMF 130. Which of the following poses a problem for international businesses in the long run? A. Using exchange rate instruments like the forward market and swaps B. Volatility of global exchange rate regime C. Anti-inflationary monetary policies D. Maintaining strategic flexibility by dispersing production to different locations E. A policy of reduction in government spending The volatility of the current global exchange rate regime presents a conundrum for international businesses. Exchange rate movements are difficult to predict, and yet their movement can have a major impact on a business’s competitive position. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #130 Learning Objective: 11-06 Explain the implications of the global monetary system for currency management and business strategy. Topic: Focus on Managerial Implications 131. Which of the following statements is about the current monetary system? A. Use of instruments such as the forward market and swaps has decreased since the breakdown of the Bretton Woods system. B. The present monetary system lacks the volatile movements in exchange rates that existed in a fixed exchange rate system. C. The current foreign exchange market works exactly as depicted in the purchasing power parity theory. D. Instruments such as the forward market and swaps increase the foreign exchange risk a company faces. E. A combination of government intervention and speculative activity drives the current foreign exchange market. An obvious implication with regard to currency management is that companies must recognize that the foreign exchange market does not work quite as depicted in theory. The current system is a mixed system in which a combination of government intervention and speculative activity can drive the foreign exchange market. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #131 Learning Objective: 11-06 Explain the implications of the global monetary system for currency management and business strategy. Topic: Focus on Managerial Implications 132. Which of the following is a feature of the current monetary system? A. It is free from government intervention. B. It is free from volatile movements in exchange rates. C. It has increased foreign exchange risk for businesses. D. It has made it easier to get insurance coverage against exchange rate changes. E. Instruments like forward market and swaps have lost their importance in the present system. Under the present system, speculative buying and selling of currencies can create very volatile movements in exchange rates. Volatile exchange rates increase foreign exchange risk and this is not good news for business. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 11 #132 Learning Objective: 11-06 Explain the implications of the global monetary system for currency management and business strategy. Topic: Focus on Managerial Implications 133. Vornoda Inc., a multinational clothing and accessory brand, has been facing huge economic losses due to unpredictable exchange rate movements. In order to gain considerable immunity against such currency fluctuations, Vornoda Inc. should: A. pursue strategies that increase its economic exposure. B. avoid using instruments like forward market and swaps. C. disperse production to different locations around the globe. D. not contract out manufacturing. E. restrict its low-value-added manufacturing to one location. The volatility of the current global exchange rate regime presents a conundrum for international businesses. Maintaining strategic flexibility can take the form of dispersing production to different locations around the globe as a real hedge against currency fluctuations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #133 Learning Objective: 11-06 Explain the implications of the global monetary system for currency management and business strategy. Topic: Focus on Managerial Implications 134. It is most appropriate for a firm to contract out manufacturing when: A. individual manufacturers have few firm-specific skills that contribute to the value of their product. B. the value of the host country currency is expected to appreciate. C. supplier switching costs are correspondingly high. D. firm-specific technology and expertise add significant value to the product. E. the currency used for pricing a product is anticipated to stay weak in the long run. A way of building strategic flexibility and reducing economic exposure involves contracting out manufacturing. However, this kind of strategy may work only for low-value-added manufacturing (e.g., textiles), in which the individual manufacturers have few if any firm-specific skills that contribute to the value of the product. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 11 #134 Learning Objective: 11-06 Explain the implications of the global monetary system for currency management and business strategy. Topic: Focus on Managerial Implications 135. Which of the following is regarding the implications for international businesses in the present monetary system? A. In the long run, the monetary policies imposed by the International Monetary Fund on borrowing countries hampers economic growth. B. In the short run, the anti-inflationary monetary policies of the International Monetary Fund result in contraction of demand. C. Businesses should not use their influence to alter an international monetary system to promote international trade and investment. D. Exchange rate volatility such as the world experienced during the 1980s and 1990s creates an environment more conducive to international trade and investment. E. It is in the interests of international business to promote an international monetary system that maximizes volatile exchange rate movements. In the short run, IMF policies, such as anti-inflationary monetary policies and reductions in government spending, usually result in a sharp contraction of demand. International businesses selling or producing in such countries need to be aware of this and plan accordingly. ch12 Key 1. The actions that managers take to attain the goals of the firm are referred to as a firm's strategy. A firm’s strategy can be defined as the actions that managers take to attain the goals of the firm. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #1 LO: 12-01 Topic: Strategy and the Firm 2. Profit growth is measured by the percentage increase in net profits over time. Profit growth is measured by the percentage increase in net profits over time. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #2 LO: 12-01 Topic: Strategy and the Firm 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #3 LO: 12-01 Topic: Strategy and the Firm 4. 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #4 LO: 12-01 Topic: Strategy and the Firm 5. Consumer surplus captures some of the value of a product thereby reducing the price a firm can charges for it. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #5 LO: 12-01 Topic: Strategy and the Firm 6. The greater the consumer surplus, the lower the value for the money the consumer gets. The greater the consumer surplus, the greater the value for the money the consumer gets AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #6 LO: 12-01 Topic: Strategy and the Firm 7. The higher the firm’s profit per unit sold is, the greater its profitability will be, all else being equal. The higher the firm’s profit per unit sold is, the greater its profitability will be, all else being equal. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #7 LO: 12-01 Topic: Strategy and the Firm 8. A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a low-cost strategy. A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a differentiation strategy. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #8 LO: 12-01 Topic: Strategy and the Firm 9. 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #9 LO: 12-01 Topic: Strategy and the Firm 10. 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #10 LO: 12-01 Topic: Strategy and the Firm 11. According to Michael Porter, all positions on the efficiency frontier are viable. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #11 LO: 12-01 Topic: Strategy and the Firm 12. The various value creation activities that a firm undertakes are referred to as operations. Operations are the different value creation activities a firm undertakes, which we shall review next. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #12 LO: 12-01 Topic: Strategy and the Firm 13. For services such as banking or health care, production typically occurs when the service is being designed by in-house professionals. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #13 LO: 12-01 Topic: Strategy and the Firm 14. In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #14 LO: 12-01 Topic: Strategy and the Firm 15. The human resource function controls the transmission of physical materials through the value chain. The logistics function controls the transmission of physical materials through the value chain, from procurement through production and into distribution. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #15 LO: 12-01 Topic: Strategy and the Firm 16. Maintaining the company infrastructure is a support activity. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #16 LO: 12-01 Topic: Strategy and the Firm 17. 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. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #17 LO: 12-01 Topic: Strategy and the Firm 18. Processes are the manner in which decisions are made and work is performed within the organization. Processes are the manner in which decisions are made and work is performed within the organization. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #18 LO: 12-01 Topic: Strategy and the Firm 19. 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #19 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 20. Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #20 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 21. 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. 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. AACSB: Reflective Thinking Blooms: Understand Difficulty: Medium Hill - Chapter 12 #21 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 22. The experience curve refers to systematic increase in production costs that have been observed to occur over the life of a product. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #22 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 23. 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #23 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 24. The ability to spread fixed costs over a large volume is one of the sources of economies of scale. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #24 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 25. The firm that moves up the experience curve most rapidly will have a cost advantage vis-à-vis its competitors. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #25 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 26. One key to progressing downward on the experience curve is to decrease the volume produced by a single plant. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #26 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 27. Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth. Strategies that increase profitability can also expand a firm’s business and thus enable it to attain a higher rate of profit growth. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #27 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 28. Responding to pressures for cost reduction requires a firm to try to lower the costs of value creation. Responding to pressures for cost reduction requires a firm to try to lower the costs of value creation. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #28 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 29. Universal needs exist when the tastes and preferences of consumers in different nations are different. Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #29 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 30. 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #30 LO: 12-04 Topic: Choosing a Strategy 31. 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. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #31 LO: 12-04 Topic: Choosing a Strategy 32. A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #32 LO: 12-04 Topic: Choosing a Strategy 33. A localization strategy involves some duplication of functions and smaller production runs. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #33 LO: 12-04 Topic: Choosing a Strategy 34. According to researchers, firms facing strong pressures for local responsiveness should pursue a global standardization strategy. When a firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness they should pursue a transnational strategy. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #34 LO: 12-04 Topic: Choosing a Strategy 35. An international strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #35 LO: 12-04 Topic: Choosing a Strategy 36. Strategic alliances allow firms to share the fixed costs of developing new products or processes. Strategic alliances allow firms to share the fixed costs (and associated risks) of developing new products or processes. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #36 LO: 12-05 Topic: Strategic Alliances 37. _____ is a support activity. A. Research and development B. Production C. Marketing and sales D. Logistics E. Customer service The support activities of the value chain provide inputs that allow the primary activities to occur. Logistics is a part of the support activities. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #37 LO: 12-01 Topic: Strategy and the Firm 38. 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 Profitability is defined as the rate of return that the firm makes on its invested capital (ROIC), which is calculated by dividing the net profits of the firm by total invested capital. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #38 LO: 12-01 Topic: Strategy and the Firm 39. 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. Profit growth is measured by the percentage increase in net profits over time. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #39 LO: 12-01 Topic: Strategy and the Firm 40. 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. Managers can increase the profitability of the firm by pursuing strategies that lower costs or by pursuing strategies that add value to the firm’s products, which enables the firm to raise prices. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #40 LO: 12-01 Topic: Strategy and the Firm 41. 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #41 LO: 12-01 Topic: Strategy and the Firm 42. 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. In general, the more value customers place on a firm’s products, the higher the price the firm can charge for those products. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #42 LO: 12-01 Topic: Strategy and the Firm 43. 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. 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #43 LO: 12-01 Topic: Strategy and the Firm 44. 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 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 consumer surplus. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #44 LO: 12-01 Topic: Strategy and the Firm 45. 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 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 because the customer captures some of that value in the form of customer surplus. The customer is able to do this because the firm is competing with other firms for the customer’s business. AACSB: Reflective Thinking Blooms: Understand Difficulty: Medium Hill - Chapter 12 #45 LO: 12-01 Topic: Strategy and the Firm 46. 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. The customer is able to capture a customer surplus because the firm is competing with other firms for the customer’s business, so the firm must charge a lower price than it could were it a monopoly supplier. Also, it is normally impossible to segment the market to such a degree that the firm can charge each customer a price that reflects that individual’s assessment of the value of a product, which economists refer to as a customer’s reservation price. AACSB: Reflective Thinking Blooms: Understand Difficulty: Medium Hill - Chapter 12 #46 LO: 12-01 Topic: Strategy and the Firm 47. 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. The price that reflects an individual’s assessment of the value of a product is referred to as that customer’s reservation price. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #47 LO: 12-01 Topic: Strategy and the Firm 48. 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 ? 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. The consumer surplus per unit is equal to V - P. The firm makes a profit so long as P is greater than C. Profit will be greater the lower C is relative to P. The lower the intensity of competitive pressure, the higher the price charged relative to V. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #48 LO: 12-01 Topic: Strategy and the Firm 49. 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 The firm’s value creation is measured by the difference between the value of a product to an average consumer and the average unit cost of producing that product. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #49 LO: 12-01 Topic: Strategy and the Firm 50. 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. A company can create more value either by lowering production costs or by making the product more attractive through superior design, styling, functionality, features, reliability, after-sales service, and the like, so that consumers place a greater value on it and, consequently, are willing to pay a higher price. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #50 LO: 12-01 Topic: Strategy and the Firm 51. 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 A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a differentiation strategy. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #51 LO: 12-01 Topic: Strategy and the Firm 52. 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 Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #52 LO: 12-01 Topic: Strategy and the Firm 53. 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. According to Porter, superior profitability goes to those firms that can create superior value, and the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more and are prepared to pay a premium price. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #53 LO: 12-01 Topic: Strategy and the Firm 54. 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #54 LO: 12-01 Topic: Strategy and the Firm 55. 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 The efficiency frontier shows all of the different positions that a firm can adopt with regard to adding value to the product and low cost assuming that its internal operations are configured efficiently to support a particular position. The efficiency frontier has a convex shape because of diminishing returns. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #55 LO: 12-01 Topic: Strategy and the Firm 56. 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. The efficiency frontier has a convex shape because of diminishing returns. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #56 LO: 12-01 Topic: Strategy and the Firm 57. Which of the following statements is 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. Not all positions on the efficiency frontier are viable. Firms must pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #57 LO: 12-01 Topic: Strategy and the Firm 58. 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. To maximize its profitability, a firm must pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #58 Topic: Strategy and the Firm 59. 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. To maximize its profitability, a firm must configure its internal operations, such as manufacturing, marketing, logistics, information systems, human resources, and so on, so that they support that position. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #59 LO: 12-01 Topic: Strategy and the Firm 60. 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. To maximize its profitability, a firm must ensure that it has the right organization structure in place to execute its strategy. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #60 LO: 12-01 Topic: Strategy and the Firm 61. 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 Value creation activities, or operations, can be categorized as primary activities and support activities. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #61 LO: 12-01 Topic: Strategy and the Firm 62. 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 Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. The primary activities are divided into four functions: research and development, production, marketing and sales, and customer service. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #62 LO: 12-01 Topic: Strategy and the Firm 63. 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 Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. The primary activities are divided into four functions: research and development, production, marketing and sales, and customer service. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #63 LO: 12-01 Topic: Strategy and the Firm 64. 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 Research and development (R&D) is concerned with the design of products and production processes. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #64 LO: 12-01 Topic: Strategy and the Firm 65. 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. For services such as banking or health care, “production” typically occurs when the service is delivered to the customer AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #65 LO: 12-01 Topic: Strategy and the Firm 66. 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 The support activities of the value chain provide inputs that allow the primary activities to occur. They include information systems. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #66 LO: 12-01 Topic: Strategy and the Firm 67. (p. 386) 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 Marketing and sales can create 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #67 LO: 12-01 Topic: Strategy and the Firm 68. (p. 386) 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 The role of the enterprise's customer service activity is to provide after-sale service and support. This function can create a perception of superior value in the minds of consumers by solving customer problems and supporting customers after they have purchased the product. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #68 LO: 12-01 Topic: Strategy and the Firm 69. 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 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #69 LO: 12-01 Topic: Strategy and the Firm 70. _____ 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 Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #70 LO: 12-01 Topic: Strategy and the Firm 71. 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 The logistics function controls the transmission of physical materials through the value chain, from procurement through production and into distribution. The efficiency with which this is carried out can significantly reduce cost, thereby creating more value. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #71 LO: 12-01 Topic: Strategy and the Firm 72. 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 The human resource function can help create more value in a number of ways. It ensures that the company has the right mix of skilled people to perform its value creation activities effectively. The human resource function also ensures that people are adequately trained, motivated, and compensated to perform their value creation tasks. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #72 LO: 12-01 Topic: Strategy and the Firm 73. 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 The company infrastructure refers to the context within which all the other value creation activities occur. The infrastructure includes the organizational structure, control systems, and culture of the firm. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #73 LO: 12-01 Topic: Strategy and the Firm 74. 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 Top management should be viewed as part of the firm’s infrastructure. Through strong leadership, top management can consciously shape the infrastructure of a firm AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #74 LO: 12-01 Topic: Strategy and the Firm 75. 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 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #75 LO: 12-01 Topic: Strategy and the Firm 76. 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 Controls are the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #76 LO: 12-01 Topic: Strategy and the Firm 77. _____ 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 Incentives are the devices used to reward appropriate managerial behavior. Incentives are very closely tied to performance metrics. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #77 LO: 12-01 Topic: Strategy and the Firm 78. 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. Processes are the manner in which decisions are made and work is performed within the organization. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #78 LO: 12-01 Topic: Strategy and the Firm 79. 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 Organizational culture is the norms and value systems that are shared among the employees of an organization. Just as societies have cultures, so do organizations. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #79 LO: 12-01 Topic: Strategy and the Firm 80. 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 firm's ability to increase its profitability and profit growth by expanding globally is constrained by the need to customize its product offering, marketing strategy, and business strategy to differing national conditions, that is, by the imperative of localization. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #80 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 81. 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. A company can increase its growth rate by taking goods or services developed at home and selling them internationally. Almost all multinationals started out doing just this. The returns from such a strategy are likely to be greater if indigenous competitors in the nations a company enters lack comparable products. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #81 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 82. 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 The term core competence refers to skills within the firm that competitors cannot easily match or imitate. These skills may exist in any of the firm's value creation activities. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #82 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 83. 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. Core competencies are the bedrock of a firm’s competitive advantage. They enable a firm to reduce the costs of value creation and/or to create perceived value in such a way that premium pricing is possible. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #83 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 84. 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. For a firm that is trying to survive in a competitive global market, the firm will benefit by basing each value creation activity it performs at that location where economic, political, and cultural conditions—including relative factor costs—are most conducive to the performance of that activity. Firms that pursue such a strategy can realize location economies. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #84 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 85. _____ 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 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 (transportation costs and trade barriers permitting). AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #85 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 86. 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. Locating a value creation activity in the optimal location for that activity can lower the costs of value creation and help the firm to achieve a low-cost position, and/or it can enable a firm to differentiate its product offering from those of competitors. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #86 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 87. 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 A global web is created with different stages of the value chain being dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #87 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 88. 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. By creating a global web, a firm should be able to better differentiate its product offering (thereby raising perceived value) and lower its cost structure than its single-location competitor. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #88 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 89. 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 High transportation costs, trade barriers, and political and economic risks are caveats against global expansion of business activities. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #89 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 90. 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 The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #90 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 91. 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 A number of studies have observed that a product's production costs decline by some quantity about each time cumulative output doubles. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #91 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 92. 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 The two phenomena that help explain the experience curve are: learning effects and economies of scale. Learning effects refer to cost savings that come from learning by doing. Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #92 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 93. _____ 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 Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by repetition how to carry out a task, such as assembling airframes, most efficiently. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #93 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 94. 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. Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by repetition how to carry out a task, such as assembling airframes, most efficiently. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #94 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 95. 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 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. AACSB: Reflective Thinking Blooms: Apply Difficulty: Hard Hill - Chapter 12 #95 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 96. Which of the following is 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. It has been suggested that learning effects are important only during the start-up period of a new process and that they cease after two or three years. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #96 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 97. 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. 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #97 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 98. _____ 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 Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #98 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 99. 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. Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. One of their sources is the ability to spread fixed costs over a large volume. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #99 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 100. Which of the following statements is 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. A firm may not be able to attain an efficient scale of production unless it serves global markets. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #100 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 101. 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 The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #101 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 102. 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. Serving a global market from a single location is consistent with moving down the experience curve and establishing a low-cost position. Cost advantages of serving the world market from a single location will be even more significant if that location is the optimal one for performing the particular value creation activity. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #102 LO: 12-02 Topic: Global Expansion, Profitability, and Profit Growth 103. (p. 397) 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 Firms that compete in the global marketplace typically face two types of competitive pressure that affect their ability to realize location economies and experience effects, to leverage products and transfer competencies and skills within the enterprise. They face pressures for cost reductions and pressures to be locally responsive. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #103 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 104. 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. Dealing with conflicting and contradictory pressures is a difficult strategic challenge, primarily because being locally responsive tends to raise costs. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #104 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 105. 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. Pressures for cost reduction can be particularly intense in industries producing commodity-type products where meaningful differentiation on nonprice factors is difficult and price is the main competitive weapon. This tends to be the case for products that serve universal needs. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #105 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 106. 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 Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #106 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 107. 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. Pressures for cost reductions are intense in industries where major competitors are based in low-cost locations, where there is persistent excess capacity, and where consumers are powerful and face low switching costs. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #107 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 108. 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. The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally increased cost pressures. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #108 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 109. 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 Strong pressures for local responsiveness emerge when customer tastes and preferences differ significantly between countries. In such cases, a multinational's products and marketing message have to be customized to appeal to the tastes and preferences of local customers. This typically creates pressure to delegate production and marketing responsibilities and functions to a firm's overseas subsidiaries, reducing a firm's ability to realize global scale economies. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #109 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 110. 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. Some commentators have argued that customer demands for local customization are on the decline worldwide because modern communications and transport technologies have created the conditions for a convergence of the tastes and preferences of consumers from different nations. The result is the emergence of enormous global markets for standardized consumer products. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #110 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 111. 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 firm's marketing strategies may have to be responsive to differences in distribution channels among countries, which may necessitate the delegation of marketing functions to national subsidiaries. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #111 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 112. 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 Economic and political demands imposed by host-country governments may require local responsiveness. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #112 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 113. 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 Generally, threats of protectionism, economic nationalism, and local content rules (which require that a certain percentage of a product should be manufactured locally) dictate that international businesses manufacture locally. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #113 LO: 12-03 Topic: Cost Pressures and Pressures for Local Responsiveness 114. 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 Firms may choose any of the four strategies: a global standardization strategy, a localization strategy, a transnational strategy, and an international strategy. The appropriateness of each strategy varies given the extent of pressures for cost reductions and local responsiveness. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #114 LO: 12-04 Topic: Choosing a Strategy 115. 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 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #115 LO: 12-04 Topic: Choosing a Strategy 116. Which of the following is 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. Firms that pursue 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. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #116 LO: 12-04 Topic: Choosing a Strategy 117. 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. A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #117 LO: 12-04 Topic: Choosing a Strategy 118. 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 Global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal. These conditions prevail in many industrial goods industries, whose products often serve universal needs. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #118 LO: 12-04 Topic: Choosing a Strategy 119. 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 A localization strategy 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. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #119 LO: 12-04 Topic: Choosing a Strategy 120. Which of the following is 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. Localization involves some duplication of functions and smaller production runs. Customization limits the ability of the firm to capture the cost reductions associated with mass-producing a standardized product for global consumption. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #120 LO: 12-04 Topic: Choosing a Strategy 121. 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 Multinationals try to get some scale economies from their global volume by using common vehicle platforms and components across many different models, and manufacturing those platforms and components at efficiently scaled factories that are optimally located. AACSB: Reflective Thinking Blooms: Apply Difficulty: Hard Hill - Chapter 12 #121 LO: 12-04 Topic: Choosing a Strategy 122. 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 A firm is most likely to pursue a transnational strategy when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #122 LO: 12-04 Topic: Choosing a Strategy 123. 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. Bartlett and Ghoshal note that in the modern multinational enterprise, core competencies and skills do not reside just in the home country but can develop in any of the firm's worldwide operations. Thus, they maintain that the flow of skills and product offerings should not be all one way, from home country to foreign subsidiary. Rather, the flow should also be from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #123 LO: 12-04 Topic: Choosing a Strategy 124. 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 Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm's global network of operations. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #124 LO: 12-04 Topic: Choosing a Strategy 125. Which of the following is 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. Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #125 LO: 12-04 Topic: Choosing a Strategy 126. 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 Firms that pursue an international strategy take products first produced for their domestic market and sell them across various markets with only minimal local customization. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #126 LO: 12-04 Topic: Choosing a Strategy 127. 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 Pursuing international strategy makes sense if a firm has a valuable core competence that indigenous competitors in foreign markets lack. The distinguishing feature of many firms pursuing an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #127 LO: 12-04 Topic: Choosing a Strategy 128. 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 The distinguishing feature of many firms pursuing an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #128 LO: 12-04 Topic: Choosing a Strategy 129. 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 Firms pursuing an international strategy take products first produced for their domestic market and sell them internationally with only minimal local customization. AACSB: Reflective Thinking Blooms: Apply Difficulty: Hard Hill - Chapter 12 #129 LO: 12-04 Topic: Choosing a Strategy 130. Which of the following statements is 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. Enterprises pursuing an international strategy tend to centralize product development functions such as R&D at home. Although they may undertake some local customization of product offering and marketing strategy, this tends to be rather limited in scope. Ultimately, in most firms that pursue an international strategy, the head office retains fairly tight control over marketing and product strategy. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #130 LO: 12-04 Topic: Choosing a Strategy 131. 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 Strategic alliances refer to cooperative agreements between potential or actual competitors. They run the range from formal joint ventures, in which two or more firms have equity stakes, to short-term contractual agreements, in which two companies agree to cooperate on a particular task (such as developing a new product). AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #131 LO: 12-05 Topic: Strategic Alliances 132. 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 Strategic alliances allow firms to share the fixed costs (and associated risks) of developing new products or processes. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #132 LO: 12-05 Topic: Strategic Alliances 133. 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. Some have criticized strategic alliances on the grounds that they give competitors a low-cost route to new technology and markets. AACSB: Analytic Blooms: Understand Difficulty: Medium Hill - Chapter 12 #133 LO: 12-05 Topic: Strategic Alliances 134. 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. Unless a firm is careful, it can give away more than it receives. But there are so many examples of apparently successful alliances between firms—including alliances between U.S. and Japanese firms. AACSB: Analytic Blooms: Remember Difficulty: Easy Hill - Chapter 12 #134 LO: 12-05 Topic: Strategic Alliances 135. 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. Managing an alliance successfully requires building interpersonal relationships between the firms' managers, or what is sometimes referred to as relational capital. ch13 Key 1. A firm contemplating expansion should choose a foreign market based on an assessment of the nation's long-run profit potential. The 196 nation-states in the world do not all hold the same profit potential for a firm contemplating foreign expansion. Ultimately, the choice of a location for foreign expansion of a firm's business must be based on an assessment of a nation's long-run profit potential. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #1 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 2. The attractiveness of a country as a potential market for an international business depends solely on the size of its consumer market. The attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #2 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 3. First-mover advantages refer to the advantages frequently associated with entering a market early. The advantages frequently associated with entering a market early are commonly known as first-mover advantages. One first-mover advantage is the ability to preempt rivals and capture demand by establishing a strong brand name. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #3 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 4. If an international business can offer a product that has been widely available in that market, the value of that product to consumers is likely to be much greater than if the international business offers a product that has not been widely available in that market. If an international business can offer a product that has not been widely available in that market and that satisfies an unmet need, the value of that product to consumers is likely to be much greater than if the international business simply offers the same type of product that indigenous competitors and other foreign entrants are already offering. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #4 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 5. For an international firm, entering a foreign market before other international businesses does not have any drawbacks. There can be disadvantages associated with entering a foreign market before other international businesses. These are often referred to as first-mover disadvantages. These disadvantages may give rise to pioneering costs, costs that an early entrant has to bear that a later entrant can avoid. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #5 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 6. The probability of survival decreases if an international business enters a national market after several other foreign firms have already done so. Research seems to confirm that the probability of survival increases if an international business enters a national market after several other foreign firms have already done so. The late entrant may benefit by observing and learning from the mistakes made by early entrants. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #6 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 7. In international business, a strategic commitment has a short-term impact and is easily reversible. For international businesses, a strategic commitment has a long-term impact and is difficult to reverse. Deciding to enter a foreign market on a significant scale is a major strategic commitment. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #7 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 8. In international business, an early entrant to a foreign market may be at a disadvantage relative to a later entrant, if regulations change in a way that diminishes the value of an early entrant's investments. In international business, an early entrant to a foreign market may be put at a severe disadvantage, relative to a later entrant, if regulations change in a way that diminishes the value of an early entrant's investments. This is a serious risk in many developing nations where the rules that govern business practices are still evolving. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #8 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 9. Large-scale entry allows an international firm to learn about a foreign market while limiting the firm's exposure to that market. Balanced against the value and risks of the commitments associated with large-scale entry of an international firm into a foreign market are the benefits of a small-scale entry. Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #9 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 10. A risk-averse international firm that enters a foreign market on a small scale will increase its potential losses. A risk-averse international firm that enters a foreign market on a small scale may limit its potential losses, but it may also miss the chance to capture first-mover advantages. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #10 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 11. According to Christopher Bartlett and Sumantra Ghoshal, firms from developing countries cannot succeed in foreign markets in the presence of other established global competitors. Christopher Bartlett and Sumantra Ghoshal have pointed out the ability that businesses based in developing nations have to enter foreign markets and become global players. Although such firms tend to be late entrants into foreign markets, and although their resources may be limited, Bartlett and Ghoshal argue that such late movers can still succeed against well-established global competitors by pursuing appropriate strategies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #11 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 12. Exporting, as a mode of entry into foreign markets, does not help a firm achieve experience curve and location economies. Exporting may help a firm achieve experience curve and location economies. By manufacturing the product in a centralized location and exporting it to other national markets, the firm may realize substantial scale economies from its global sales volume. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #12 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 13. A drawback of exporting is that tariff barriers can make it uneconomical as a mode of entry into a foreign market. A drawback of exporting as a mode of entry into a foreign market is that tariff barriers can make it uneconomical. Similarly, the threat of tariff barriers by the host-country government can make it very risky. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #13 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 14. An international firm that enters into a turnkey deal has a long-term interest in the foreign country. An international firm that enters into a turnkey deal will have no long-term interest in the foreign country. This can be a disadvantage if that country subsequently proves to be a major market for the output of the process that has been exported. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #14 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 15. Licensing, a mode of entry into a foreign market, gives an international firm tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies. Licensing, a mode of entry into a foreign market, does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #15 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 16. In a typical international licensing deal, a licensor puts up most of the capital necessary to get an overseas operation going. In a typical international licensing deal, a licensee puts up most of the capital necessary to get an overseas operation going. Thus, a primary advantage of licensing is that the firm does not have to bear the development costs and risks associated with opening a foreign market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #16 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 17. Under a cross-licensing agreement, a firm can either request a royalty payment or license some valuable intangible property to a foreign partner. Under a cross-licensing agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #17 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 18. In terms of the various modes of entry into a foreign market, franchising is employed primarily by service firms, whereas licensing is pursued primarily by manufacturing firms. In terms of the various modes of entry into a foreign market, licensing is pursued primarily by manufacturing firms, whereas franchising is employed primarily by service firms. Franchising is similar to licensing, although franchising tends to involve longer-term commitments than licensing. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #18 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 19. Franchising, a mode of entry into a foreign market, helps firms exert greater quality control over franchises in foreign locations. A significant disadvantage of franchising is quality control. Foreign franchisees may not be as concerned about quality as they are supposed to be, and the result of poor quality can extend beyond lost sales in a particular foreign market to a decline in the firm’s worldwide reputation. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #19 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 20. The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a 50 percent ownership stake and contributes a team of managers to share operating control. A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. The most typical joint venture is a 50/50 venture, in which there are two parties, each of which holds a 50 percent ownership stake and contributes a team of managers to share operating control. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #20 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 21. In a joint venture, a firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems. A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. A firm in a joint venture benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business systems. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #21 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 22. In international business, joint ventures with local partners face a significantly higher risk of being subject to nationalization. In many countries, political considerations make joint ventures the only feasible entry mode. Research suggests joint ventures with local partners face a low risk of being subject to nationalization or other forms of adverse government interference. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #22 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 23. In terms of the entry modes into a foreign market, a joint venture does not give an international firm the tight control over subsidiaries that might be required to realize experience curve or location economies. A joint venture, a mode of entry into a foreign market, does not give an international firm the tight control over subsidiaries that it might need to realize experience curve or location economies. Nor does it give the firm the tight control over a foreign subsidiary that it might need for engaging in coordinated global attacks against its rivals. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #23 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 24. When a firm's competitive advantage is based on technological competence, a joint venture is the preferred mode of entry into a foreign market because it reduces the risk of losing control over that competence. When a firm's competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence. Many high-tech firms prefer this entry mode for overseas expansion. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #24 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 25. An advantage of a wholly owned subsidiary is that it may be required if a firm is trying to realize location and experience curve economies. An advantage of a wholly owned subsidiary is that it may be required if a firm is trying to realize location and experience curve economies (as firms pursuing global and transnational strategies try to do). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #25 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 26. Establishing a wholly owned subsidiary gives an international firm a 100 percent share in the profits generated in a foreign market. There are several clear advantages of wholly owned subsidiaries. Establishing a wholly owned subsidiary gives the firm a 100 percent share in the profits generated in a foreign market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #26 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 27. Establishing a wholly owned subsidiary is generally the cheapest method of serving a foreign market from a capital investment standpoint. Establishing a wholly owned subsidiary is generally the most costly method of serving a foreign market from a capital investment standpoint. Firms doing this must bear the full capital costs and risks of setting up overseas operations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #27 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 28. If an international firm’s core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner. If an international firm’s core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner, in which case the strategy may seem unattractive. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #28 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 29. An advantage of licensing and franchising is the low development costs and risks. According to table 13.1, an advantage of licensing and franchising is the low development costs and risks. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #29 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 30. An international firm that perceives its technological advantage to be transitory and susceptive to rapid imitation might want to license its technology to foreign firms. When a firm perceives its technological advantage to be only transitory or when it expects rapid imitation of its core technology by competitors, it might want to license its technology as rapidly as possible to foreign firms to gain global acceptance for its technology before the imitation occurs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #30 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 31. The greater the pressures for cost reductions are, the more likely an international firm will want to pursue some combination of exporting and wholly owned subsidiaries. The greater the pressures for cost reductions are, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiaries. By manufacturing in those locations where factor conditions are optimal and then exporting to the rest of the world, a firm may be able to realize substantial location and experience curve economies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #31 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 32. One of the advantages of acquisitions is that they are quick to execute. An advantage of acquisitions is that they are quick to execute. By acquiring an established enterprise, a firm can rapidly build its presence in the target foreign market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #32 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 33. When an international firm makes an acquisition in a foreign market, it acquires valuable intangible as well as tangible assets. When an international firm makes an acquisition in a foreign market, it not only acquires a set of tangible assets, such as factories, logistics systems, customer service systems, and so on, but it also acquires valuable intangible assets including a local brand name and managers' knowledge of the business environment in that nation. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #33 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 34. According to David Ravenscraft and Mike Scherer's study, many acquisitions destroy rather than create value. In a seminal study of the post-acquisition performance of acquired companies, David Ravenscraft and Mike Scherer concluded that, on average, the profits and market shares of acquired companies declined following acquisition. Ravenscraft and Scherer’s evidence suggests that many acquisitions destroy rather than create value. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #34 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 35. An advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. The big advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. It is much easier to build an organization culture from scratch than it is to change the culture of an acquired unit. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #35 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 36. Which of the following is of foreign expansion? A. The timing and scale of entry for foreign expansion are minor details in comparison with the choice of foreign market. B. The long-run economic benefits of doing business in a country are a function of the country's population size. C. All the nations in the world do not all hold the same profit potential for a firm contemplating foreign expansion. D. The costs and risks associated with foreign expansion are higher in economically advanced nations. E. Other things being equal, the benefit–cost–risk trade-off is likely to be most favorable in politically unstable nations. A firm contemplating foreign expansion must make three basic decisions: which markets to enter, when to enter those markets, and on what scale. The 196 nation-states in the world do not all hold the same profit potential for a firm contemplating foreign expansion. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #36 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 37. Which of the following is the first basic entry decision that a firm contemplating foreign expansion must make? A. When to enter a foreign market B. On what scale to enter a foreign market C. Which foreign markets to enter D. Whether to enter a market before other firms and claim first-mover advantages E. Whether to enter into licensing agreements or use the franchising model A firm contemplating foreign expansion must make three basic decisions: which markets to enter, when to enter those markets, and on what scale. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #37 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 38. Which of the following is of the factors regarding the selection of a foreign market? A. All nation states in the world hold the same profit potential for a firm contemplating foreign expansion. B. The long-run economic benefits of foreign expansion are a function of factors such as the likely future wealth of consumers. C. Less populous nations have a higher potential for economic growth. D. Politically unstable nations by virtue of their higher potential for growth are the best foreign markets. E. The attractiveness of a country as a potential market for an international business depends only on its geographical location. The choice of a foreign market must be based on an assessment of a nation’s long-run profit potential. The long-run economic benefits of doing business in a country are a function of factors such as the size of the market (in terms of demographics), the present wealth (purchasing power) of consumers in that market, and the likely future wealth of consumers, which depends on economic growth rates. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #38 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 39. Which of the following is a reason why a relatively poor country may be an attractive target for inward investment? A. Rapid economic growth B. Political instability C. Currency depreciation D. High cost of living E. Less developed infrastructure While some markets are very large when measured by number of consumers (e.g., China, India, and Indonesia), one must also look at living standards and economic growth. On this basis, China and India, while relatively poor, are growing so rapidly that they are attractive targets for inward investment. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #39 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 40. Which of the following is of the basic entry decisions a firm must make before a firm contemplates foreign expansion? A. The long-run economic benefits of doing business in a country are solely a function of the number of consumers in the market. B. The attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. C. The costs and risks associated with doing business in a foreign country are typically higher in economically advanced and politically stable democratic nations. D. The benefit–cost–risk trade-off is likely to be most favorable in politically unstable countries. E. All the nation-states in the world hold the same profit potential for a firm contemplating foreign expansion. The attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #40 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 41. Which of the following countries presents a favorable benefit-cost-risk trade-off scenario for foreign expansion? A. A country ridden by private-sector debt B. A country with a free market system C. A country experiencing a dramatic upsurge in inflation rates D. A country that is heavily populated E. A country that is less developed and politically unstable The benefit-cost-risk trade-off is likely to be most favorable in politically stable developed and developing nations that have free market systems, and where there is not a dramatic upsurge in either inflation rates or private-sector debt. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #41 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 42. Which of the following is of the value that an international business can create in a foreign market? A. If the international business offers the same type of product that indigenous competitors are offering, then the value of that product is likely to be greater. B. If the international business can offer a product that satisfies an unmet need, the value of that product to consumers is likely to be lower. C. Greater value of an international business translates into an inability to charge higher prices and/or to build sales volume more rapidly. D. The value that an international business can create in a foreign market depends on the suitability of its product offering to that market and the nature of indigenous competition. E. An international firm should not rank countries in terms of their attractiveness and long-run profit potential because these factors are always changing. An important factor for a firm considering foreign expansion is the value an international business can create in a foreign market. This depends on the suitability of its product offering to that market and the nature of indigenous competition. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #42 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 43. Which of the following factors determine the value that an international business can create in a foreign market? A. Population density in the foreign market B. Political stability of the foreign market C. Nature of indigenous competition D. Per capita income in the foreign market E. Type of political system in the foreign market An important factor for a firm considering foreign expansion is the value an international business can create in a foreign market. This depends on the suitability of its product offering to that market and the nature of indigenous competition. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #43 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 44. In international business, a product that is not widely available in a foreign market and satisfies an unmet need: A. is likely to have greater value. B. will have to be priced relatively low. C. will see a decrease in sales volume. D. is not suited to that particular market. E. will fail to make a profit. If an international business can offer a product that has not been widely available in a market and that satisfies an unmet need, the value of that product to consumers is likely to be much greater than if the international business simply offers the same type of product that indigenous competitors and other foreign entrants are already offering. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #44 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 45. Which of the following is of basic entry decisions for an international firm into a foreign market? A. Greater value of a product in a foreign market translates into an ability to charge higher prices and/or to build sales volume more rapidly. B. An international firm should not rank countries in terms of their attractiveness because the parameter can change frequently. C. If an international business can offer a product that has not been widely available in a foreign market and that satisfies an unmet need, the value of that product to consumers is likely to be much lesser. D. The costs and risks associated with doing business in a foreign country are typically lower in less developed nations. E. Other things being equal, the benefit–cost–risk trade-off is likely to be unfavorable in politically stable nations that have free market systems. If an international business offers a product that is not widely available in that market and that satisfies an unmet need, the value of that product to consumers is likely to be much greater than if the international business simply offers the same type of product that its competitors are already offering. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #45 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 46. In which of the following situations can an international business command higher prices for a particular product in a foreign market? A. When the product is widely available in the foreign market B. When sales volumes is relatively low in the foreign market C. When the product offers greater value to customers in the foreign market D. When the product is more suitable to other foreign markets E. When domestic competitors are selling alternatives at reduced prices The value created in a market by a company's product offering is an important factor in entry decisions. Greater value translates into an ability to charge higher prices and/or to build sales volume more rapidly. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #46 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 47. In international business, the benefits frequently associated with entering a foreign market early are known as _____. A. pioneering costs B. first-mover advantages C. absolute advantages D. bandwagon effects E. factor endowments The advantages frequently associated with entering a foreign market early are commonly known as first-mover advantages. One first-mover advantage is the ability to preempt rivals and capture demand by establishing a strong brand name. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #47 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 48. Which of the following is an example of a first-mover advantage? A. The ability to create switching costs that tie customers into one's products or services B. The avoidance of pioneering costs that a later entrant into the foreign market has to bear C. The increased probability of surviving in a foreign market D. The opportunity to observe and learn from the mistakes of other entrants E. The ability to let later entrants ride ahead on the experience curve The advantages frequently associated with entering a foreign market early are commonly known as first-mover advantages. One first-mover advantage is the ability of early entrants to create switching costs that tie customers into their products or services. Such switching costs make it difficult for later entrants to win business. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #48 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 49. First-mover disadvantages refer to: A. disadvantages associated with entering a foreign market before other international businesses. B. costs that a late entrant to a foreign market has to bear. C. a direct restriction on the quantity of a good that can be imported into a country. D. imperfections in the operation of the market mechanism. E. disadvantages experienced by being a late entrant in a foreign market. There can be disadvantages associated with entering a foreign market before other international businesses. These are often referred to as first-mover disadvantages. These disadvantages may give rise to pioneering costs, costs that an early entrant has to bear that a later entrant can avoid. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #49 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 50. _____ refer to costs that an early entrant in a foreign market has to bear that a later entrant can avoid. A. Sunk costs B. Standard costs C. Variable costs D. Pioneering costs E. Opportunity costs Pioneering costs are costs that an early entrant has to bear that a later entrant can avoid. Pioneering costs arise when the business system in a foreign country is so different from that in a firm's home market that the enterprise has to devote considerable effort, time, and expense to learning the rules of the game. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #50 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 51. Which of the following is an example of a first-mover advantage? A. The ability to capture demand by establishing a strong brand name B. The avoidance of pioneering costs that a later entrant has to bear C. The increased probability of surviving in a foreign market D. The opportunity to observe and learn from the mistakes of later entrants E. The ability to let later entrants ride ahead on the experience curve The advantages frequently associated with entering a market early are commonly known as first-mover advantages. One first-mover advantage is the ability to preempt rivals and capture demand by establishing a strong brand name. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #51 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 52. Which of the following is an example of a first-mover advantage? A. The ability to build sales volume in the foreign country B. The avoidance of pioneering costs that a later entrant has to bear C. The increased probability of surviving in a foreign market D. The opportunity to observe and learn from the mistakes of late entrants in the foreign market E. The ability to allow later entrants to the foreign market ride ahead on the experience curve The advantages frequently associated with entering a market early are commonly known as first-mover advantages. One first-mover advantage is the ability to build sales volume in a country and ride down the experience curve ahead of rivals, giving the early entrant a cost advantage over later entrants. AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Hill - Chapter 13 #52 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 53. _____ arise when the business system in a foreign country is so different from that in a firm’s home market that the enterprise has to devote considerable effort, time, and expense to learning the rules of the game. A. Sunk costs B. Variable costs C. Pioneering costs D. Opportunity costs E. Standard costs Pioneering costs are costs that an early entrant has to bear that a later entrant can avoid. Pioneering costs arise when the business system in a foreign country is so different from that in a firm's home market that the enterprise has to devote considerable effort, time, and expense to learning the rules of the game. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #53 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 54. The liability associated with foreign expansion is greater for foreign firms that: A. choose to ride on an early entrant's investments. B. use countertrade agreements. C. enter a national market early. D. ride down the experience curve behind their rivals. E. avoid pioneering costs. A certain liability is associated with being a foreigner, and this liability is greater for foreign firms that enter a national market early. Research seems to confirm that the probability of survival increases if an international business enters a national market after several other foreign firms have already done so. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #54 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 55. The probability of survival for an international business increases if it: A. enters a national market after several other foreign firms have already done so. B. avoids the use of countertrade agreements. C. enters a national market early. D. enters a foreign market via turnkey projects. E. avoids engaging in joint ventures. A certain liability is associated with being a foreigner, and this liability is greater for foreign firms that enter a national market early. Research seems to confirm that the probability of survival increases if an international business enters a national market after several other foreign firms have already done so. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #55 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 56. In terms of an international firm considering foreign expansion, _____ include the costs of promoting and establishing a product offering, and educating customers. A. Sunk costs B. Pioneering costs C. Opportunity costs D. Intangible costs E. Standard costs Pioneering costs include the costs of promoting and establishing a product offering, including the costs of educating customers. These can be significant when the product being promoted is unfamiliar to local consumers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #56 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 57. In international business, an advantage of being a late entrant in a foreign market is the ability to: A. create switching costs that tie customers into products or services. B. capture demand by establishing a strong brand name. C. build sales volume and ride down the experience curve before early entrants. D. ride on an early entrant's investments in learning and customer education. E. create a cost advantage over first-movers. Pioneering costs include the costs of promoting and establishing a product offering, including the costs of educating customers. Later entrants may be able to ride on an early entrant’s investments in learning and customer education by watching how the early entrant proceeded in the market, by avoiding costly mistakes made by the early entrant. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #57 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 58. Which of the following is of strategic commitments for an international firm considering foreign expansion? A. They have a short-term impact. B. They are frequently subject to change. C. They fail to have a significant influence on business decisions. D. They are difficult to reverse. E. They are made on a day-to-day basis by employees at various levels in an organization. A strategic commitment has a long-term impact and is difficult to reverse. Deciding to enter a foreign market on a significant scale is a major strategic commitment. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #58 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 59. Which of the following is of the scale of entry into a foreign market for an international firm considering foreign expansion? A. Small-scale entrants are more likely to capture first-mover advantages. B. Small-scale entry does not allow a firm to learn about a foreign market. C. Large-scale entrants are more likely to capture first-mover advantages. D. Large-scale entrants are more likely to avoid pioneering costs. E. Small-scale entrants are more prone to risks than large-scale entrants. In terms of an international firm considering foreign expansion, the large-scale entrant is more likely than the small-scale entrant to be able to capture first-mover advantages associated with demand preemption, scale economies, and switching costs. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #59 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 60. Which of the following is a disadvantage of large-scale entry into a foreign market? A. Decrease in a firm's exposure to the foreign market B. Difficulty attracting customers and distributors for the product C. Inability to build rapid market-share irrespective of the scale of entry D. Limited product acceptance due to the avoidance of potential losses E. Availability of fewer resources to support expansion in other desirable markets Entering a market on a large scale involves the commitment of significant resources and implies rapid entry. On the negative side, by committing itself heavily to one market, the company may have fewer resources available to support expansion in other desirable markets. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #60 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 61. Which of the following is of significant strategic commitments to foreign expansion made by an international firm? A. Significant strategic commitments of a foreign firm have little or no influence on the nature of competition in a market. B. The large-scale entry of a foreign firm does not give other foreign institutions considering entry into the market a reason to pause. C. The large-scale entry of a foreign firm gives customers reasons for believing that the foreign firm will not remain in the market for the long run. D. Significant strategic commitments are associated with higher strategic flexibility of the international firm. E. Significant strategic commitments are neither unambiguously good nor bad. Significant strategic commitments are neither unambiguously good nor bad. Rather, they tend to change the competitive playing field and unleash a number of changes, some of which may be desirable and some of which will not be. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #61 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 62. Which of the following types of entry into a foreign market allows a firm to learn about the foreign market while limiting the firm's exposure to that market? A. Early entry B. Small-scale entry C. Large-scale entry D. Late entry E. Rapid entry Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale and how best to enter. Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #62 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 63. Which of the following is a disadvantage of small-scale entry for an international firm considering foreign expansion? A. The possibility of escalating commitment leading to major financial losses B. The limited availability of resources for use in other markets C. The lack of flexibility associated with strategic commitments D. The increase in economic exposure due to minimal time spent in evaluating a foreign market E. The difficulty of building market share and capturing first-mover advantages The lack of commitment associated with small-scale entry may make it more difficult for the small-scale entrant to build market share and to capture first-mover or early-mover advantages. The risk-averse firm that enters a foreign market on a small scale may limit its potential losses, but it may also miss the chance to capture first-mover advantages. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #63 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 64. Which of the following is the reason why small-scale entry into a foreign market makes it difficult to build market share? A. Small-scale entry necessitates rapid entry into a foreign market. B. Small-scale entry is associated with a lack of commitment demonstrated by the foreign firm. C. Small-scale entry leads to escalating strategic commitments. D. Small-scale entry requires that extra time be spent in analyzing a foreign market. E. Small-scale entry leads to increased exposure to a foreign market. The lack of commitment associated with small-scale entry may make it more difficult for the small-scale entrant to build market share and to capture first-mover or early-mover advantages. The risk-averse firm that enters a foreign market on a small scale may limit its potential losses, but it may also miss the chance to capture first-mover advantages. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #64 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 65. Which of the following is of market entry by an international firm considering foreign expansion? A. Politically unstable nations, by virtue of their higher potential for growth, are the best foreign markets. B. The value an international business can create in a foreign market does not depend on the nature of indigenous competition. C. The avoidance of pioneering costs that a later entrant has to bear is a first-mover advantage. D. Strategic commitments have minor influence on business decisions. E. Entering a large developing nation before most other international businesses on a large scale is associated with high levels of risk. There are no right decisions concerning foreign expansion, just decisions that are associated with different levels of risk and reward. Entering a large developing nation on a large scale will be associated with high levels of risk. In contrast, entering developed nations on a small scale to first learn more about the markets will be associated with much lower levels of risk. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #65 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 66. Which of the following is the most likely outcome of a foreign firm entering a developed nation on a small scale after other international businesses in the firm's industry? A. Capturing first-mover advantages B. Higher pioneering costs C. Rapid increase in market share D. Limited future growth potential E. Increase in sales volume Entering developed nations after other international businesses in the firm’s industry, and entering on a small scale to first learn more about those markets, will be associated with much lower levels of risk. However, the potential long-term rewards are also likely to be lower because the firm is essentially forgoing the opportunity to capture first-mover advantages and because the lack of commitment signaled by small-scale entry may limit its future growth potential. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #66 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 67. Which of the following is a course of action suggested by Christopher Bartlett and Sumantra Ghoshal for companies based in developing nations? A. Build up financial resources to match those of the largest global competitors. B. Enter foreign markets at a similar time and scale as multinational companies. C. Enter markets rapidly and exit at an equally rapid pace to avoid heavy losses. D. Benchmark one's operations and performance against foreign multinationals. E. Do not focus on market niches that multinational companies ignore. Christopher Bartlett and Sumantra Ghoshal argue that companies based in developing nations should use the entry of foreign multinationals as an opportunity to learn from these competitors by benchmarking their operations and performance against them. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #67 Learning Objective: 13-01 Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter; when to enter those markets; and on what scale. Topic: Basic Entry Decisions 68. Which of the following is an advantage of exporting as a mode of entry into foreign markets? A. A firm can avoid the cost of establishing manufacturing operations in the host country. B. A firm does not have to bear the development costs and risks associated with opening a foreign market. C. A firm can earn returns from process technology skills in countries where FDI is restricted. D. A firm has access to local partner’s knowledge. E. A firm has the ability to engage in global strategic coordination. An advantage of exporting as a mode of entry into a foreign market is that it avoids the often substantial costs of establishing manufacturing operations in the host country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #68 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 69. Which of the following is an advantage of exporting as a mode of entry into foreign markets? A. It helps a firm achieve experience curve and location economies. B. A firm does not have to bear the development costs and risks associated with opening a foreign market. C. A firm has the ability to engage in global strategic coordination. D. It helps the firm earn returns from process technology skills in countries where FDI is restricted. E. It can provide the firm access to the local partner’s knowledge. An advantage of exporting as a mode of entry into foreign markets is that it may help a firm achieve experience curve and location economies. By manufacturing the product in a centralized location and exporting it to other national markets, the firm may realize substantial scale economies from its global sales volume. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #69 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 70. Which of the following is a disadvantage of exporting as a mode of entry into foreign markets? A. The exporting firm incurs the costs of establishing manufacturing operations in the host country. B. The firm is unable to realize curve economies through exporting. C. High transport costs can make exporting uneconomical, particularly for bulk products. D. The firm cannot use countertrading options when exporting. E. A firm may not realize substantial scale economies from its global sales volume via exporting. A disadvantage of exporting as a mode of entry into foreign markets is that high transport costs can make it uneconomical, particularly for bulk products. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #70 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 71. Which of the following is a disadvantage of exporting as a mode of entry into foreign markets? A. The firm incurs the costs of establishing manufacturing operations in the host country. B. The firm is unable to realize experience curve economies through exporting. C. The local agents may not market the firm's products as well as the firm would if it managed its marketing itself. D. The firm cannot use countertrading options when exporting. E. The firm may not realize substantial scale economies from its global sales volume via exporting. One drawback of exporting arises when a firm delegates its marketing, sales, and service in each country where it does business to another company—a local agent or another multinational company. Such a company may often carry the products of competing firms and may have divided loyalties. In such cases, the local agent may not do as good a job as the firm would if it managed its marketing itself. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #71 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 72. In exporting, problems with local marketing agents can be overcome by: A. selling intangible property to a franchisee and insisting on rules to conduct the business. B. changing agents frequently. C. engaging in turnkey projects and exporting process technology to foreign firms. D. entering into cross-licensing agreements with foreign firms. E. setting up wholly owned subsidiaries in foreign nations to handle local marketing. The way around the problem of local marketing agents in exporting is to set up wholly owned subsidiaries in foreign nations to handle local marketing, sales, and service. By doing this, the firm can exercise tight control over marketing and sales in the country while reaping the cost advantages of manufacturing the product in a single location, or a few choice locations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #72 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 73. In a _____, a mode of entry into foreign markets, a firm agrees to set up an operating plant for a foreign client and hand over the plant when it is fully operational. A. franchising agreement B. turnkey project C. licensing agreement D. wholly owned subsidiary E. joint venture A turnkey project, a mode of entry into a foreign market, refers to a project in which a firm agrees to set up an operating plant for a foreign client and hand over the “key” when the plant is fully operational. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #73 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 74. In the context of modes of entry into foreign markets, turnkey projects are a means of: A. granting rights to intangible property to other firms. B. establishing firms that are jointly owned by two or more otherwise independent firms. C. exporting process technology to other countries. D. setting up wholly owned subsidiaries in foreign nations. E. selling products produced in one country to residents of other countries. Turnkey projects are a means of exporting process technology to other countries. They are most common in the chemical, pharmaceutical, petroleum refining, and metal refining industries, all of which use complex, expensive production technologies. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #74 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 75. Which of the following is an advantage of turnkey projects as a mode of entry into foreign markets? A. It is an ideal way to gain entry into a country where FDI is not limited by government regulations. B. It is a useful strategy to earn great returns from the know-how of a technologically complex process. C. It is an ideal way to establish a firm's long-term presence in a foreign country. D. It helps protect a firm's competitive advantage. E. The firm that enters into a turnkey project with a foreign enterprise avoids giving rise to potential competitors. The know-how required to assemble and run a technologically complex process, such as refining petroleum or steel, is a valuable asset. Turnkey projects are a way of earning great economic returns from that asset. The strategy is particularly useful where FDI is limited by host-government regulations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #75 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 76. Which of the following is an advantage of turnkey projects as a mode of entry into foreign markets? A. It helps create competition which in turn increases the quality of production. B. It can be less risky than conventional FDI. C. It is an ideal way to establish a long-term presence in a foreign country. D. It helps protect the competitive advantage of process technology. E. The firm that enters into a turnkey project with a foreign enterprise avoids giving rise to potential competitors. A turnkey strategy can be less risky than conventional FDI. In a country with unstable political and economic environments, a longer-term investment might expose the firm to unacceptable political and/or economic risks (e.g., the risk of nationalization or of economic collapse). AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #76 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 77. A drawback of a(n) _____, a mode of entry into foreign markets, is that the firm that uses this strategy will have no long-term interest in a foreign country. A. joint venture B. greenfield venture C. acquisition D. turnkey deal E. franchising agreement A drawback associated with a turnkey strategy is that the firm that enters into a turnkey deal will have no long-term interest in the foreign country. This can be a disadvantage if that country subsequently proves to be a major market for the output of the process that has been exported. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #77 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 78. Turnkey projects being short-term propositions can be disadvantageous for a firm if a country subsequently proves to be a major market for the output of the process that has been exported. The firm can get around this problem by: A. selling competitive advantage to competitors. B. competing with the local firm in the global market. C. taking a minority equity interest in the operation. D. withholding vital process technology from the local firm. E. establishing a joint venture with a local firm. A firm that enters into a turnkey deal will have no long-term interest in the foreign country. This can be a disadvantage if that country subsequently proves to be a major market for the output of the process that has been exported. One way around this is to take a minority equity interest in the operation. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #78 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 79. In a(n) _____,a mode of entry into foreign markets, a firm grants the rights to intangible property to another firm for a specified period, and in return, receives a royalty fee. A. licensing agreement B. turnkey project C. acquisition D. joint venture E. wholly owned subsidiary A licensing agreement is an arrangement whereby a firm (licensor) grants the rights to intangible property to another entity (the licensee) for a specified period, and in return, the licensor receives a royalty fee from the licensee. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #79 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 80. Which of the following is of licensing as a mode of entry into foreign markets? A. A licensor grants the rights to tangible property to a licensee. B. A licensing agreement grants rights to intangible property to a licensee for an unspecified period. C. The licensor receives a royalty fee from the licensee. D. The licensor puts up all of the capital necessary to start a business. E. The licensor maintains control over its technological know-how. A licensing agreement is an arrangement whereby a firm (licensor) grants the rights to intangible property to another entity (the licensee) for a specified period, and in return, the licensor receives a royalty fee from the licensee. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #80 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 81. In terms of licensing, which of the following is an intangible property? A. Infrastructure B. Machinery C. Leased equipment D. Advanced computing systems E. Patent A licensing agreement is an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified period, and in return, the licensor receives a royalty fee from the licensee. Intangible property includes patents, inventions, formulas, processes, designs, copyrights, and trademarks. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #81 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 82. Which of the following is of licensing as a mode of entry into foreign markets? A. The licensor grants the rights to tangible property to a licensee. B. A licensing agreement grants rights to intangible property to a licensee for an unspecified period. C. The licensee puts up most of the capital necessary to get the overseas operation operational. D. The licensor bears the development costs and risks associated with opening a foreign market. E. A licensing agreement allows a licensor to maintain control over its technological know-how. In the typical international licensing deal, the licensee puts up most of the capital necessary to get the overseas operation going. Thus, a primary advantage of licensing is that the firm does not have to bear the development costs and risks associated with opening a foreign market. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #82 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 83. Which of the following is an advantage of licensing as a mode of entry into foreign markets? A. It helps a firm to realize substantial experience curve and location economies. B. It gives the firm tight control over manufacturing, marketing, and strategy. C. The licensor does not have to bear the development costs and risks associated with opening a foreign market. D. Firms can easily maintain control over how their technological know-how is used by a licensee. E. Licensing allows a foreign firm to use profits earned in one country to support competitive attacks in another. In the typical international licensing deal, the licensee puts up most of the capital necessary to get the overseas operation going. Thus, the firm does not have to bear the development costs and risks associated with opening a foreign market. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #83 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 84. Which of the following is a drawback of licensing as a mode of entry into foreign markets? A. The licensor has to bear all costs and risks associated with developing a foreign market. B. Licensing does not give a firm tight control over manufacturing, marketing, and strategy. C. Licensing does not benefit firms lacking the capital to expand operations overseas. D. Licensing deals fail when there are barriers to foreign investment in a particular country. E. A firm that enters into a licensing deal with a foreign country will have no long-term interest in that country. A disadvantage of licensing is that it does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies. Licensing typically involves each licensee setting up its own production operations. This severely limits the firm's ability to realize experience curve and location economies by producing its product in a centralized location. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #84 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 85. Under a(n) _____ agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm. A. open source licensing B. non-exclusive licensing C. cross-licensing D. exclusive licensing E. reciprocal licensing Under a cross-licensing agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm. Such agreements are believed to reduce the risks associated with licensing technological know-how. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #85 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 86. _____ with a foreign firm are believed to reduce the risks associated with licensing technological know-how. A. Compulsory licensing agreements B. Reciprocal licensing agreements C. Open source licensing agreements D. Cross-licensing agreements E. Exclusive licensing agreements Cross-licensing agreements are believed to reduce the risks associated with licensing technological know-how, because the licensee realizes that if it violates the licensing contract (by using the knowledge obtained to compete directly with the licensor), the licensor can do the same to it. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #86 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 87. Which of the following is an example of an industry in which cross-licensing agreements are increasingly becoming common? A. Glass-blowing B. Biotechnology C. Organic farming D. Basketry E. Weaving Under a cross-licensing agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm. Such cross-licensing agreements are increasingly common in high-technology industries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #87 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 88. _____, a mode of entry into foreign markets, enable firms to hold each other hostage, which reduces the probability that they will behave opportunistically toward each other. A. Cross-licensing agreements B. Turnkey projects C. Joint ventures D. Greenfield ventures E. Wholly owned subsidiaries Cross-licensing agreements enable firms to hold each other hostage, which reduces the probability that they will behave opportunistically toward each other. Such cross-licensing agreements are increasingly common in high-technology industries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #88 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 89. Which of following is of franchising as a mode of entry into foreign markets? A. The franchiser insists that the franchisee agree to abide by strict rules as to how it does business. B. The franchiser incurs all costs related to starting operations in a foreign market. C. Franchising is employed primarily by manufacturing firms. D. Franchising allows firms to take profits from one country to support competitive attacks in another. E. A significant advantage of franchising is quality control. Franchising is basically a specialized form of licensing in which the franchiser not only sells intangible property (normally a trademark) to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #89 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 90. Franchising, a mode of entry into foreign markets, is employed primarily by _____ firms. A. service B. manufacturing C. online D. high-technology E. primary Whereas licensing is pursued primarily by manufacturing firms, franchising is employed primarily by service firms. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #90 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 91. Which of the following is an advantage of franchising as a mode of entry into foreign markets? A. The franchiser is relieved of many of the costs and risks of opening a foreign market on its own. B. The franchiser is allowed to take profits out of one country to support competitive attacks in another. C. The franchiser can easily maintain uniform quality across many geographically dispersed franchisees. D. Manufacturing concerns can be effectively coordinated across adjacent processes. E. The franchiser can support its short-term interests in a country with an unstable economy. Franchising is similar to licensing, although franchising tends to involve longer-term commitments than licensing. With a franchising agreement, a firm is relieved of many of the costs and risks of opening a foreign market on its own. Instead, the franchisee typically assumes those costs and risks. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #91 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 92. Which of the following is a disadvantage of franchising as a mode of entry into foreign markets? A. The franchiser has to bear development costs and risks associated with foreign expansion. B. Franchising leads to undesirable results for service firms. C. It is difficult to maintain quality control across foreign franchisees that are distant from the franchiser. D. The franchiser has no long-term interests in the foreign country. E. It forces a franchiser to take out profits from one country to support competitive attacks in another. A disadvantage of franchising is that the geographical distance of the firm from its foreign franchisees can make poor quality difficult to detect. In addition, the sheer numbers of franchisees can make quality control difficult. Due to these factors, quality problems may persist. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #92 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 93. Which of the following is a disadvantage of franchising as a mode of entry into foreign markets? A. The franchiser has to bear development costs and risks associated with foreign expansion. B. While franchising offers an ideal entry mode for manufacturing firms, it often leads to undesirable results for service firms. C. Poor quality standards of a foreign franchisee can cause a decline in the franchising firm's worldwide reputation. D. The franchiser has no incentive to sustain a long-term interest in the foreign country. E. Franchising often forces a franchiser to take out profits from one country to support competitive attacks in another. The foundation of franchising arrangements is that the firm's brand name conveys a message to consumers about the quality of the firm's product. This presents a problem in that foreign franchisees may not be as concerned about quality as they are supposed to be, and the result of poor quality can extend beyond lost sales in a particular foreign market to a decline in the firm's worldwide reputation. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #93 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 94. Which of the following can be used to overcome quality control problems associated with franchising as a mode of entry into foreign markets? A. Licensing agreements B. Subsidiaries C. Turnkey projects D. Export licenses E. Cross-licensing agreements One way around quality control problems while franchising is to set-up a subsidiary in each country in which the firm expands. The subsidiary might be wholly owned by the company or a joint venture with a foreign company. The subsidiary assumes the rights and obligations to establish franchises throughout the particular country or region. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #94 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 95. A _____, a mode of entry into foreign markets, entails establishing a firm that is collectively owned by two or more otherwise independent firms. A. licensing agreement B. wholly owned subsidiary C. franchising agreement D. joint venture E. greenfield investment A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. Establishing a joint venture with a foreign firm has long been a popular mode for entering a new market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #95 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 96. A joint venture in which both parties hold equal ownership stakes is known as a(n) _____. A. offshore joint venture B. 50/50 joint venture C. 25/75 joint venture D. marketing joint venture E. fully integrated joint venture A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firms. The most typical joint venture is a 50/50 venture, in which each of the two parties holds a 50 percent ownership stake and contributes a team of managers to share operating control. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #96 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 97. Which of the following is an advantage of joint ventures as a mode of entry into foreign markets? A. The foreign firm benefits from a local partner's knowledge of the host country. B. The foreign firm can protect its technology from being appropriated by its local partner. C. There is less cause for friction and conflict between the foreign and local partners. D. It gives a firm tight control over subsidiaries that which enable it to realize experience curve or location economies. E. The foreign firm does not have to bear any development costs and risks associated with opening a foreign market. One of the advantages of joint ventures is that a firm benefits from a local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems, and business systems. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #97 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 98. Which of the following is a disadvantage of joint ventures as a mode of entry into foreign markets? A. Joint ventures with local partners face a high risk of being subjected to adverse government interference. B. Firms engaged in joint ventures have short-term commitments in the foreign market. C. Joint ventures do not give a firm tight control over subsidiaries that it might need to realize experience curve or location economies. D. In many countries, political considerations make joint ventures impractical as an entry mode. E. Quality control problems arise due to lack of interest of local partners. One of the disadvantages of joint ventures is that it does not give a firm the tight control over subsidiaries that it might need to realize experience curve or location economies. Nor does it give a firm the tight control over a foreign subsidiary that it might need for engaging in coordinated global attacks against its rivals. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #98 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 99. Which of the following is a disadvantage of joint ventures as a mode of entry into foreign markets? A. Joint ventures with local partners face a high risk of being subjected to government interference. B. Joint ventures can lead to conflicts and battles for control between the investing firms. C. Firms engaged in joint ventures have short-term commitments in the foreign market. D. In many countries, political considerations make joint ventures impractical as an entry mode. E. The foreign firm cannot rely on its local partner for unbiased information about the host country. One of the disadvantages of joint ventures is that a the shared ownership arrangement can lead to conflicts and battles for control between the investing firms if their goals and objectives change or if they take different views as to what the strategy should be. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #99 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 100. Which of the following is an advantage of joint ventures as a mode of entry into foreign markets? A. A foreign firm shares the costs and risks of development with its local partner. B. A foreign firm can easily maintain control over how its technological know-how is used by a local partner. C. There is less cause for friction and conflict between partners involved in a joint venture. D. Joint ventures are ideal to maintain tight control over subsidiaries. E. Joint ventures benefit firms lacking the capital to expand operations overseas. One of the advantages of joint ventures is that when the development costs and/or risks of opening a foreign market are high, a firm might gain by sharing these costs and or risks with a local partner. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #100 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 101. Which of the following is a way in which a wholly owned subsidiary may be established in a foreign market? A. Through a turnkey operation with a local partner B. Through franchising C. By acquiring an established firm in the host nation D. By exporting E. Through a licensing agreement Establishing a wholly owned subsidiary in a foreign market can be done two ways. The firm either can set up a new operation in that country, often referred to as a greenfield venture, or it can acquire an established firm in that host nation and use that firm to promote its products. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #101 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 102. Establishing a _____ gives international firms a 100 percent share in the profits generated in a foreign market. A. franchising agreement B. licensing deal C. joint venture D. wholly owned subsidiary E. turnkey project In a wholly owned subsidiary, the firm owns 100 percent of the stock. Therefore, establishing a wholly owned subsidiary gives the firm a 100 percent share in the profits generated in a foreign market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #102 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 103. Which of the following entry modes into a foreign market best serves a high-tech firm? A. Turnkey projects B. Franchising C. Wholly owned subsidiaries D. Joint ventures E. Exporting When a firm’s competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence. Many high-tech firms prefer this entry mode for overseas expansion. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #103 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 104. Which of the following is an advantage of wholly owned subsidiaries as a mode of entry into foreign markets? A. A foreign firm is relieved of many of the costs and risks associated with opening a foreign market on its own. B. The risk of losing control over a firm's technological competence is reduced. C. A foreign firm is insulated completely from the threat posed by high transport costs. D. It is the most politically acceptable mode of entry into foreign markets. E. It helps create competition which in turn increases the quality of production. An advantage of wholly owned subsidiaries is that when a firm’s competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #104 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 105. Which of the following is generally the most costly form of serving a foreign market from a capital investment standpoint? A. Joint venture B. Licensing C. Franchising D. Wholly owned subsidiary E. Exporting Establishing a wholly owned subsidiary is generally the most costly method of serving a foreign market from a capital investment standpoint. Firms doing this must bear the full capital costs and risks of setting up overseas operations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #105 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 106. Which of the following is a disadvantage of wholly owned subsidiaries as a mode of entry into foreign markets? A. Foreign firms find it difficult to maintain control over how their technological know-how is used. B. Foreign firms cannot use profits earned in one country to support competitive attacks in another. C. Foreign firms tend to have short-term commitments in the foreign market. D. Foreign firms cannot realize substantial experience curve and location economies. E. Foreign firms must bear the full capital costs and risks of setting up overseas operations. Establishing a wholly owned subsidiary is generally the most costly method of serving a foreign market from a capital investment standpoint. Firms doing this must bear the full capital costs and risks of setting up overseas operations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #106 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 107. Which of the following modes of entry into foreign markets has the distinct advantages of protection of technology, the ability to engage in global strategic coordination, and the ability to realize location and experience curve economies? A. Franchising B. Wholly owned subsidiaries C. Joint ventures D. Licensing E. Exporting When a firm’s competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence. A wholly owned subsidiary gives a firm tight control over operations in different countries. This is necessary for engaging in global strategic coordination. Also, a wholly owned subsidiary may be required if a firm is trying to realize location and experience curve economies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #107 Learning Objective: 13-02 Compare and contrast the different modes that firms use to enter foreign markets. Topic: Entry Modes 108. Which of the following is of international firms considering foreign expansion? A. The timing and scale of entry of foreign expansion are minor details in comparison with the choice of foreign market. B. The long-run economic benefits of doing business in a country are solely a function of the country's population size. C. If the firm’s core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner. D. The costs and risks associated with foreign expansion are higher in economically advanced nations. E. Politically unstable and less developed nations offer favorable benefit-cost-risk trade-off conditions. If a firm’s core competence is based on proprietary technology, entering a joint venture might risk losing control of that technology to the joint-venture partner, in which case the strategy may seem unattractive. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #108 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 109. Which of the following modes of entry into foreign markets has the ability to realize location and experience curve economies? A. Turnkey projects B. Joint ventures C. Licensing D. Exporting E. Franchising According to table 13.1, an advantage of exporting is the ability to realize location and experience curve economies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #109 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 110. Which of the following modes of entry into foreign markets can result in a lack of control over quality? A. Exporting B. Franchising C. Turnkey projects D. Wholly owned subsidiaries E. Joint ventures According to table 13.1, one of the disadvantages of franchising is that it can result in a lack of control over quality. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #110 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 111. Which of the following modes of entry into foreign markets have the advantage of being characterized by low development costs and risks? A. Exporting B. Licensing C. A greenfield investment D. A wholly owned subsidiary E. A joint venture According to table 13.1, an advantage of licensing is that it is characterized by low development costs and risks. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #111 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 112. Axiom International wants to expand its operations to a country that is politically, culturally, and economically different from its home country. The firm needs to select a mode of entry which would give it access to local knowledge, allow sharing of development costs and risks, and also be politically acceptable. Which of the following modes of entry into foreign markets is most suitable for Axiom International? A. Wholly owned subsidiary B. Joint venture C. Exporting D. Greenfield investments E. Licensing According to table 13.1, the advantages of joint ventures are access to local partner’s knowledge, sharing of development costs and risks, and political acceptability. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #112 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 113. Jupiter Systems is a high-tech firm looking to set up operations in a foreign country to profit from its technological know-how which is its core competency. Which of the following modes of entry would be most favorable to the firm if it wants to keep a tight control over its technology? A. Wholly owned subsidiary B. Joint venture C. Franchising D. Licensing E. Turnkey project If a firm’s competitive advantage (its core competence) is based on control over proprietary technological know-how, licensing and joint-venture arrangements should be avoided if possible to minimize the risk of losing control over that technology. Thus, if a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how, it will probably do so through a wholly owned subsidiary. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #113 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 114. Which of the following modes of entry is suitable for service firms where the risk of losing control over the management skills or technological know-how is not much of a concern, and where the firms' valuable asset is their brand name? A. Exporting B. Franchising C. Licensing D. Turnkey projects E. Cross-licensing The competitive advantage of many service firms is based on management know-how. For such firms, the risk of losing control over the management skills and technology to franchisees or joint-venture partners is not that great. These firms’ valuable asset is their brand name, and brand names are generally well protected by international laws pertaining to trademarks. As a result, many service firms favor a combination of franchising and subsidiaries to control the franchises within particular countries or regions. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #114 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 115. Which of the following is a disadvantage of wholly owned subsidiaries as a mode of entry into foreign markets? A. Lack of control over quality B. High costs and risks C. Problems with local marketing agents D. Inability to engage in global strategic coordination E. Lack of control over technology According to table 13.1, a disadvantage of wholly owned subsidiaries is the high costs and risks involved. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #115 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 116. A firm that expects rapid imitation of its core technology by competitors should: A. revert to older technologies. B. engage in exporting on a large scale. C. license its technology to foreign firms. D. set up a wholly owned subsidiary. E. enter into a joint venture with a foreign firm. When a firm perceives its technological advantage to be only transitory and when it expects rapid imitation of its core technology by competitors, it might want to license its technology as rapidly as possible to foreign firms to gain global acceptance for its technology before the imitation occurs. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #116 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 117. Why do firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries? A. It gives firms sound knowledge of the local markets, culture, and the political environment. B. It helps protect competitive advantages based on technology. C. It allows firms to use the profits generated in one market to improve its competitive position in another market. D. It is the most politically accepted mode of entry into foreign markets. E. It has the least costs and risks associated with developing a foreign market. Firms pursuing global standardization or transnational strategies tend to prefer establishing wholly owned subsidiaries because it gives the firm the ability to use the profits generated in one market to improve its competitive position in another market. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #117 Learning Objective: 13-03 Identify the factors that influence a firm’s choice of entry mode. Topic: Selecting an Entry Mode 118. Which of the following is an advantage of acquisitions as a means of entering foreign markets? A. They are quick to execute and help firms to rapidly build their presence in the target foreign market. B. It is much easier to change the culture of an existing organization than build a new organization. C. It is easier to convert the operating routines of acquired units than establish routines in new subsidiaries. D. They give firms access to valuable intangible assets while minimizing a pileup of tangible assets. E. Acquired firms are often undervalued and hence assets can be purchased at minimal prices. Acquisitions are quick to execute. By acquiring an established enterprise, a firm can rapidly build its presence in the target foreign market. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #118 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 119. Which of the following is an advantage of acquisitions as a means of entering foreign markets? A. Acquiring firms often underpay for the assets of the acquired firm. B. It enables firms to preempt their competitors. C. After an acquisition, many acquired companies face increased recruitments. D. Integrating the operations of the acquired and acquiring entities takes a very short time. E. Most acquisitions are successful due to adequate pre-acquisition screening. In many cases firms make acquisitions to preempt their competitors. The need for preemption is particularly great in markets that are rapidly globalizing, such as telecommunications, where a combination of deregulation within nations and liberalization of regulations governing cross-border foreign direct investment has made it much easier for enterprises to enter foreign markets through acquisitions. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #119 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 120. Which of the following is an advantage of an acquisition as a means of entry into foreign markets? A. It is much easier to change the culture of an existing organization than build a new organization. B. It is easier to convert the operating routines of acquired units than establish routines in new subsidiaries. C. It yields greater long-run returns than greenfield ventures. D. It gives firms access to valuable intangible assets along with a set of tangible assets. E. Acquired firms are often undervalued and hence assets can be purchased at minimal prices. When a firm makes an acquisition in a foreign market, it not only acquires a set of tangible assets, such as factories, logistics systems, customer service systems, and so on, but it also acquires valuable intangible assets including a local brand name and managers’ knowledge of the business environment in that nation. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #120 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 121. Which of the following postulates that top managers typically overestimate their ability to create value from an acquisition? A. Bandwagon effect B. Fisher effect C. Hubris hypothesis D. International Fisher effect E. Learning effect The hubris hypothesis postulates that top managers typically overestimate their ability to create value from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #121 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 122. Which of the following is a reason why firms often overpay for the assets of an acquired firm? A. Studies supporting the rise of failed companies post acquisitions B. Evidence of high management turnover post acquisitions C. The success rate of acquisitions exceeding that of failures D. Interest of more than one party in acquiring a particular firm E. Inevitable clash between cultures of acquiring and acquired firms Acquiring firms often overpay for the assets of the acquired firm. The price of the target firm can get bid up if more than one firm is interested in its purchase, as is often the case. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #122 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 123. The management of an acquiring firm is often too optimistic about the value that can be created via an acquisition and is thus willing to pay a significant premium over a target firm’s market capitalization. This is known as the _____ and is the reason why acquisitions fail. A. bandwagon effect B. Fisher effect C. hubris hypothesis D. international Fisher effect E. learning effect The management of the acquiring firm is often too optimistic about the value that can be created via an acquisition and is thus willing to pay a significant premium over a target firm’s market capitalization. This is called the “hubris hypothesis” of why acquisitions fail. The hubris hypothesis postulates that top managers typically overestimate their ability to create value from an acquisition, primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #123 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 124. Which of the following is a reason why acquisitions, a mode of entering foreign markets, fail? A. There is a clash between the cultures of the acquiring and acquired firm. B. Acquisitions take a long time to execute. C. Acquisitions are easily preempted by making greenfield investments. D. The revenue and profit stream generated by an acquisition's resources is usually unknown. E. Losses produced by intangible assets outweigh profits from acquired tangible assets. A reason why acquisitions, a mode of entering foreign markets, fail is because there is a clash between the cultures of the acquiring and acquired firms. After an acquisition, many acquired companies experience high management turnover, possibly because their employees do not like the acquiring company’s way of doing things. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #124 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 125. Spring, an American firm, recently acquired another company known as Tazel Inc. in Indonesia. The high-level managers at Tazel Inc. quit because they could not cope with the domineering and straightforward approach of their American counterparts. This illustrates how acquisitions may fail because: A. managers overestimate their ability to create value from an acquisition. B. integration of operations between the two firms takes longer than forecasted. C. there is a clash between the cultures of the acquired and the acquiring firm. D. an acquiring firm overpays for the assets of an acquired firm. E. inadequate pre-acquisition screening has been done. Many acquisitions fail because there is a clash between the cultures of the acquiring and acquired firm. After an acquisition, many acquired companies experience high management turnover, possibly because their employees do not like the acquiring company’s way of doing things. AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 13 #125 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 126. Which of the following is a way in which the risk of failure of an acquisition can be reduced? A. By undervaluing the assets of an acquired firm B. By ensuring that firms are acquired in the home country C. By replacing high-level managers of an acquired firm D. By a detailed auditing of operations, financial position, and management culture E. By investing only in a firm that is managing to break even Screening of the foreign enterprise to be acquired, including a detailed auditing of operations, financial position, and management culture, can help to make sure the firm (1) does not pay too much for the acquired unit, (2) does not uncover any nasty surprises after the acquisition, and (3) acquires a firm whose organization culture is not antagonistic to that of the acquiring enterprise, thus reducing risk of failure. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #126 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 127. Which of the following is an advantage of acquisitions as a means of entry into foreign markets? A. When a firm makes an acquisition, it buys a set of assets that are producing a known revenue. B. Acquiring firms underpay for the assets of the acquired firm. C. After an acquisition, many acquired companies face a rise in recruitments. D. Integrating the operations of the acquired and acquiring entities often takes a short period of time. E. Most acquisitions succeed due to detailed pre-acquisition screening. Managers may believe acquisitions to be less risky than greenfield ventures. When a firm makes an acquisition, it buys a set of assets that are producing a known revenue and profit stream. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #127 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 128. To reduce the risks of failure of an acquisition, managers must: A. pay more for the acquired unit to please its existing employees. B. encourage and facilitate management turnover. C. acquire a firm without wasting time on screening. D. move rapidly after an acquisition to put an integration plan in place. E. ensure that the work cultures are significantly different from each other. Managers must move rapidly after an acquisition to put an integration plan in place and to act on that plan. Some people in both the acquiring and acquired units will try to slow or stop any integration efforts, particularly when losses of employment or management power are involved, and managers should have a plan for dealing with such impediments before they arise. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #128 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 129. An advantage of a(n) _____, a mode of entry into foreign markets, is that it provides a firm with much greater ability to build the kind of subsidiary company that it wants. A. acquisition B. merger C. franchise D. greenfield venture E. turnkey project The big advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. For example, it is much easier to build an organization culture from scratch than it is to change the culture of an acquired unit. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #129 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 130. An advantage of a(n) _____ as a mode of entry into foreign markets is that it is much easier to build an organization culture from scratch than it is to change the culture of an acquired unit. A. joint venture B. greenfield venture C. merger D. acquisition E. turnkey project The big advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that it wants. For example, it is much easier to build an organization culture from scratch than it is to change the culture of an acquired unit. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #130 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 131. Which of the following is a disadvantage of greenfield ventures as a mode of entry into foreign markets? A. They have a higher potential for throwing up unpleasant surprises. B. It is much more difficult to build an organizational culture from scratch than to change the culture of an existing unit. C. Companies find it difficult to avoid falling into the trap of the hubris hypothesis. D. It is slower to establish than acquisitions. E. A firm does not have the freedom to build the kind of subsidiary that it wants. Greenfield ventures are slower to establish. They are also risky. As with any new venture, a degree of uncertainty is associated with future revenue and profit prospects. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #131 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 132. Which of the following is a disadvantage of greenfield ventures as a mode of entering foreign markets? A. Greenfield ventures have a higher potential for throwing up unpleasant surprises. B. It is much more difficult to build an organizational culture from scratch than to change the culture of an existing unit. C. Companies find it difficult to avoid the hubris hypothesis of acquisitions. D. There is a possibility of being preempted by aggressive global competitors who enter via acquisitions. E. A firm does not have the freedom to build the kind of subsidiary that it wants. A disadvantage of greenfield ventures is the possibility of being preempted by more aggressive global competitors who enter via acquisitions and build a big market presence that limits the market potential for the greenfield venture. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 13 #132 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 133. If a firm is seeking to enter a market via a wholly owned subsidiary where there are already well-established incumbent enterprises, and where global competitors are also interested in establishing a presence, a(n) _____ is a suitable mode of entry. A. acquisition B. licensing deal C. greenfield venture D. turnkey project E. exporting deal If a firm is seeking to enter a market where there are already well-established incumbent enterprises, and where global competitors are also interested in establishing a presence, it may pay the firm to enter via an acquisition. In such circumstances, a greenfield venture may be too slow to establish a sizable presence. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #133 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 134. If a firm is considering entering a country where incumbents exist, and if the competitive advantage of the firm is based on the transfer of organizationally embedded competencies, skills, routines, and culture, then a _____ is the preferable mode of entry. A. greenfield venture B. joint venture C. licensing agreement D. franchising deal E. turnkey project If a firm is considering entering a country where there are no incumbent competitors to be acquired, then a greenfield venture may be the only mode. Even when incumbents exist, if the competitive advantage of the firm is based on the transfer of organizationally embedded competencies, skills, routines, and culture, it may still be preferable to enter via a greenfield venture. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 13 #134 Learning Objective: 13-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy. Topic: Greenfield Venture or Acquisition? 135. If a firm is considering entering a country where there are no incumbent competitors to be acquired, then which of the following modes of entry into foreign markets is most suitable? A. Acquisition B. Licensing deal C. Greenfield venture D. Turnkey project E. Franchising deal If the firm is considering entering a country where there are no incumbent competitors to be acquired, then a greenfield venture may be the only mode. ch14 Key 1. Only large companies have benefited significantly from the moneymaking opportunities of exporting. Exporting is not just for large enterprises; many small firms have benefited significantly from the moneymaking opportunities of exporting. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #1 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: Introduction 2. Firms that actively export often lose out on significant opportunities for growth and cost reduction. Firms that do not export often lose out on significant opportunities for growth and cost reduction. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #2 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 3. While small firms tend to be proactive about seeking opportunities for profitable exporting, large firms are very reactive. Studies have shown that while many large firms tend to be proactive about seeking opportunities for profitable exporting, systematically scanning foreign markets to find ways to leverage their technology, products, and marketing skills in foreign countries, many medium-sized and small firms are very reactive. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #3 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 4. Reactive firms do not consider exporting until their domestic market is saturated. Reactive firms do not even consider exporting until their domestic market is saturated and the emergence of excess productive capacity at home forces them to look for growth opportunities in foreign markets. AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Hill - Chapter 14 #4 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 5. Low growth prospects makes firms reactive about seeking opportunities for exporting. One reason more firms are not proactive about exporting is that they are unfamiliar with foreign market opportunities; they simply do not know how big the opportunities actually are or where they might lie. AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Hill - Chapter 14 #5 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 6. Novice exporters easily realize the amount of management resources that have to be dedicated to cultivate business in foreign countries. Novice exporters tend to underestimate the time and expertise needed to cultivate business in foreign countries. Few realize the amount of management resources that have to be dedicated to this activity. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #6 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 7. Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors. Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors. The United Nations has calculated that the time involved in preparing documentation, along with the costs of common errors in paperwork, often amounts to 10 percent of the final value of goods exported. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #7 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 8. Unlike their German and Japanese competitors, many U.S. firms do not have adequate information when they seek export opportunities. German and Japanese firms can draw on the large reservoirs of experience, skills, information, and other resources of their respective export-oriented institutions. Unlike their German and Japanese competitors, many U.S. firms are relatively blind when they seek export opportunities; they are information disadvantaged. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #8 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Improving Export Performance 9. German and Japanese firms are relatively more information disadvantaged than U.S. firms. German and Japanese firms can draw on the large reservoirs of experience, skills, information, and other resources of their respective export-oriented institutions. Unlike their German and Japanese competitors, many U.S. firms are relatively blind when they seek export opportunities; they are information disadvantaged. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #9 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Improving Export Performance 10. For U.S. firms, the most comprehensive source of information on export opportunities is the U.S. Department of Commerce. Despite institutional disadvantages, U.S. firms can increase their awareness of export opportunities. The most comprehensive source of information is the U.S. Department of Commerce and its district offices all over the country. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #10 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 11. Export Legal Assistance Network (ELAN), an organization within the U.S. Department of Commerce, is dedicated to providing businesses with assistance for attacking foreign markets. The Small Business Administration coordinates the Export Legal Assistance Network (ELAN), a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #11 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 12. Commercial banks and major accounting firms are less willing to assist small firms in starting export operations due to higher default risks. Commercial banks and major accounting firms are more willing to assist small firms in starting export operations than they were a decade ago. In addition, large multinationals that have been successful in the global arena are typically willing to discuss opportunities overseas with the owners or managers of small firms. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #12 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 13. Export management companies (EMCs) start exporting operations for a firm with the understanding that the firm will take over operations after they are well established. Export management companies (EMC) normally accept two types of export assignments. They start exporting operations for a firm with the understanding that the firm will take over operations after they are well established. In another type, startup services are performed with the understanding that the EMC will have continuing responsibility for selling the firm's products. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #13 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 14. The advantage of export management companies is that they are experienced specialists that can help the neophyte exporter identify opportunities and avoid common pitfalls. In theory, the advantage of export management companies is that they are experienced specialists who can help the neophyte exporter identify opportunities and avoid common pitfalls. A good EMC will have a network of contacts in potential markets, have multilingual employees, have a good knowledge of different business mores, and be fully conversant with the ins and outs of the exporting process and with local business regulations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #14 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 15. The advantage of export management companies is that they are experienced specialists that can help the neophyte exporter identify opportunities and avoid common pitfalls. In theory, the advantage of export management companies (EMCs) is that they are experienced specialists that can help the neophyte exporter identify opportunities and avoid common pitfalls. A good EMC will have a network of contacts in potential markets, have multilingual employees, have a good knowledge of different business mores, and be fully conversant with the ins and outs of the exporting process and with local business regulations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #15 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 16. A firm that enters many markets at once runs the risk of spreading its limited management resources too thin. A firm that enters many markets at once runs the risk of spreading its limited management resources too thin. The result of such a shotgun approach to exporting may be a failure to become established in any one market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #16 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 17. It often makes sense for a firm to enter a foreign market on a large scale to reduce the costs of any subsequent failure. It often makes sense to enter a foreign market on a small scale to reduce the costs of any subsequent failure. Most importantly, entering on a small scale provides the time and opportunity to learn about the foreign country before making significant capital commitments to that market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #17 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 18. Exporting is often not an end in itself, but merely a step on the road toward establishment of foreign production. It is important for the exporter to retain the option of local production. Once exports reach a sufficient volume to justify cost-efficient local production, the exporting firm should consider establishing production facilities in the foreign market. Such localization helps foster good relations with the foreign country and can lead to greater market acceptance. Exporting is often not an end in itself, but merely a step on the road toward establishment of foreign production. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #18 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 19. Lack of trust in international trade is exacerbated by the distance between the two parties in space, language, and culture. The lack of trust between firms engaged in international trade is exacerbated by the distance between the two parties—in space, language, and culture—and by the problems of using an underdeveloped international legal system to enforce contractual obligations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #19 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 20. Issued by a bank at the request of an importer, a bill of lading states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. A letter of credit, abbreviated as L/C, stands at the center of international commercial transactions. Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #20 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 21. Banks charge exporters a fee for issuing a letter of credit. Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. Banks charge importers a fee for issuing a letter of credit. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #21 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 22. A letter of credit may reduce an importer's ability to borrow funds for other purposes. A letter of credit has some drawbacks for an importer. Since the letter of credit is a financial liability against an importer, it may reduce the ability to borrow funds for other purposes. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #22 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 23. A draft, an instrument normally used in international commerce to effect payment, is also known as a letter of credit. A draft, sometimes referred to as a bill of exchange, is the instrument normally used in international commerce to effect payment. A draft is simply an order written by an exporter instructing an importer, or an importer’s agent, to pay a specified amount of money at a specified time. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #23 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 24. In international commerce, a person or business initiating a draft is known as the drafter and the party to whom the draft is presented is known as the draftee. A draft, sometimes referred to as a bill of exchange, is the instrument normally used in international commerce to effect payment. The person or business initiating the draft is known as the maker. The party to whom the draft is presented is known as the drawee. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #24 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 25. In domestic trade transactions, a buyer can often obtain possession of merchandise without signing a formal document acknowledging his or her obligation to pay. International practice is to use drafts to settle trade transactions. This differs from domestic practice in which the buyer can often obtain possession of the merchandise without signing a formal document acknowledging his or her obligation to pay. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #25 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 26. In international commerce, a sight draft allows for a delay in payment. Drafts fall into two categories, sight drafts and time drafts. A time draft allows for a delay in payment. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #26 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 27. In international commerce, time drafts are negotiable instruments. Time drafts are negotiable instruments; that is, once the draft is stamped with an acceptance, the maker can sell the draft to an investor at a discount from its face value. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #27 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 28. A bill of lading can function as collateral against which funds are advanced to the exporter by its local bank before final payment by the importer. A bill of lading is issued to the exporter by the common carrier transporting the merchandise. It can function as collateral against which funds may be advanced to the exporter by its local bank before or during shipment and before final payment by the importer. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #28 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 29. The Export-Import Bank provides financing aid to prospective U.S. exporters. Prospective U.S. exporters can draw on two forms of government-backed assistance to help finance their export programs. They can get financing aid from the Export-Import Bank and export credit insurance from the Foreign Credit Insurance Association. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #29 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 30. The mission of the Foreign Credit Insurance Association is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries. The mission of the Export-Import Bank, often referred to as Ex-Im Bank, is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #30 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 31. Export credit insurance protects an exporter against the possibility of a foreign importer's default on payment when there is a lack of a letter of credit. The lack of a letter of credit exposes an exporter to the risk that a foreign importer will default on payment. The exporter can insure against this possibility by buying export credit insurance. If the customer defaults, the insurance firm will cover a major portion of the loss. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #31 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 32. The principle of countertrade is to trade goods and services for money. Countertrade denotes a whole range of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #32 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 33. Barter is primarily used with trading partners who are not creditworthy or trustworthy. Barter is the direct exchange of goods and/or services between two parties without a cash transaction. Barter is primarily used for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #33 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 34. Offset refers to the use of a specialized third-party trading house in a countertrade arrangement. An offset, a type of countertrade, is similar to a counterpurchase insofar as one party agrees to purchase goods and services with a specified percentage of the proceeds from the original sale. The difference is that this party can fulfill the obligation with any firm in the country to which the sale is being made. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #34 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 35. Countertrade's main attraction is that it can give a firm a way to finance an export deal when other means are not available. Countertrade's main attraction is that it can give a firm a way to finance an export deal when other means are not available. Given the problems that many developing nations have in raising the foreign exchange necessary to pay for imports, countertrade may be the only option available when doing business in these countries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #35 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 36. Which of the following is an advantage of exporting? A. It helps in easy currency conversion. B. It provides large revenue and profit opportunities. C. It reduces the administrative costs incurred by a company. D. It helps companies increase their unit costs. E. It reduces paperwork and complex formalities. The great promise of exporting is that large revenue and profit opportunities are to be found in foreign markets for most firms in most industries. The international market is normally so much larger than the firm’s domestic market that exporting is nearly always a way to increase the revenue and profit base of a company. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #36 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 37. Exporting is nearly always a way to increase the revenue and profit base of a company because: A. there is little competition in the international market. B. foreign governments encourage imports from other countries. C. international markets are less complex than their domestic counterparts. D. the international market is much larger than the domestic market. E. it does not involve wasting resources on paperwork. The great promise of exporting is that large revenue and profit opportunities are to be found in foreign markets for most firms in most industries. The international market is normally so much larger than the firm's domestic market that exporting is nearly always a way to increase the company's revenue and profit base. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #37 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 38. Firms that do not export often: A. face problems of currency conversion. B. lose out on significant opportunities for cost reduction. C. are able to reduce their unit costs. D. are not intimidated by the business practices of foreign countries. E. explore foreign markets to see where they can leverage their technology. By expanding the size of the market, exporting can enable a firm to achieve economies of scale, thereby lowering its unit costs. Firms that do not export often lose out on significant opportunities for growth and cost reduction. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #38 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 39. Large firms generally tend to be _____ about seeking opportunities for profitable exporting. A. passive B. risk averse C. wary D. proactive E. neutral Studies have shown that while many large firms tend to be proactive about seeking opportunities for profitable exporting—systematically scanning foreign markets to find ways to leverage their technology, products, and marketing skills in foreign countries—many medium-sized and small firms are very reactive. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #39 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 40. Which of the following is of medium-sized and small firms? A. They are proactive about seeking opportunities for profitable exporting. B. They consider exporting only after their domestic market is saturated. C. They are not intimidated by the complexities of foreign legal systems. D. They have a high degree of familiarity with foreign market opportunities. E. They explore foreign markets to see where the opportunities lie for leveraging their technology. Many medium-sized and small firms tend to be reactive in seeking opportunities for profitable exporting. Typically, reactive firms do not even consider exporting until their domestic market is saturated and the emergence of excess productive capacity at home forces them to look for growth opportunities in foreign markets. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #40 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 41. Many medium-sized and small firms are not proactive in seeking export opportunities because: A. they are familiar with the foreign market and do not find it challenging enough. B. the export market is similar to the home market in terms of legal and business practices. C. they are intimidated by the complexities and mechanics of exporting to foreign countries. D. domestic regulations limit their ability to export profitably. E. they overestimate the time and expertise needed to cultivate business in foreign countries. One reason more firms are not proactive is that many would-be exporters, particularly smaller firms, are often intimidated by the complexities and mechanics of exporting to countries where business practices, language, culture, legal systems, and currency are very different from the home market. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #41 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 42. Which of the following is a reason why firms are not proactive about seeking export opportunities? A. They are unfamiliar with foreign market opportunities. B. domestic regulations limit their ability to export profitably. C. they overestimate the time and expertise needed to cultivate business in foreign countries. D. they do not find the foreign market challenging enough. E. the export market is similar to the home market in terms of legal and business practices. One reason more firms are not proactive is that they are unfamiliar with foreign market opportunities; they simply do not know how big the opportunities actually are or where they might lie. Simple ignorance of the potential opportunities is a huge barrier to exporting. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #42 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 43. Which of the following is a common pitfall that novice exporters come across? A. Poor understanding of the opportunities in the domestic market B. Low unit costs C. Increased economies of scale D. Problems securing financing E. Familiar distribution systems Many neophyte exporters run into significant problems when first trying to do business abroad, and this sours them on future exporting ventures. Common pitfalls include poor market analysis, a poor understanding of competitive conditions in the foreign market, a failure to customize the product offering to the needs of foreign customers, lack of an effective distribution program, a poorly executed promotional campaign, and problems securing financing. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #43 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 44. Which of the following is of exporting? A. Many foreign customers require face-to-face negotiations on their home turf. B. Large firms tend to wait for the world to come to them, rather than going out into the world to seek opportunities. C. Exporters have the advantage of reduced paperwork and fewer formalities. D. Medium-sized and small firms are proactive about seeking opportunities for profitable exporting. E. Firms that focus only on exporting often lose out on significant opportunities for growth and cost reduction. Novice exporters tend to underestimate the time and expertise needed to cultivate business in foreign countries. Few realize the amount of management resources that have to be dedicated to this activity. Many foreign customers require face-to-face negotiations on their home turf. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #44 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 45. Which of the following is of exporting? A. It takes a very short time before all foreigners are comfortable enough to purchase in significant quantities. B. Novice exporters tend to overestimate the time required to cultivate business in foreign countries. C. Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors. D. Large firms are usually unfamiliar with foreign market opportunities. E. Large firms do not consider exporting until their domestic market is saturated. Exporters often face voluminous paperwork, complex formalities, and many potential delays and errors. According to a UN report on trade and development, a typical international trade transaction may involve 30 parties, 60 original documents, and 360 document copies, all of which have to be checked, transmitted, reentered into various information systems, processed, and filed. The United Nations has calculated that the time involved in preparing documentation, along with the costs of common errors in paperwork, often amounts to 10 percent of the final value of goods exported. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #45 Learning Objective: 14-01 Explain the promises and risks associated with exporting. Topic: The Promise and Pitfalls of Exporting 46. Due to the complexity and diversity of foreign markets, firms sometimes hesitate to seek export opportunities. These firms can best overcome ignorance by: A. shortening production runs. B. creating revenue. C. outsourcing decisions. D. collecting information. E. lowering unit costs. One big impediment to exporting is the simple lack of knowledge of the opportunities available. Faced with complexity and diversity, firms sometimes hesitate to seek export opportunities. The way to overcome ignorance is to collect information. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #46 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Improving Export Performance 47. Japan's great trading houses are referred to as _____. A. kaizen B. sogo shosha C. zaibatsu D. guanxi E. kanban Many Japanese firms are affiliated in some way with the sogo shosha, Japan's great trading houses. The sogo shosha have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #47 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Improving Export Performance 48. The sogo shosha of Japan: A. proactively and continuously seek export opportunities for their affiliated companies. B. exclusively serve the largest and most prestigious companies in Japan. C. have offices concentrated in the business district of Tokyo. D. have monopolized the export market in the country. E. consider export only when there is excess production at home. Many Japanese firms are affiliated in some way with the sogo shosha, Japan's great trading houses. The sogo shosha have offices all over the world, and they proactively, continuously seek export opportunities for their affiliated companies large and small. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #48 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Improving Export Performance 49. Which of the following is of the export performance of the United States, Germany, and Japan? A. Historically, the United States has made its living as a trading nation. B. Germany has been a relatively self-contained continental economy in which international trade played a minor role. C. Unlike Japan, U.S. firms have a strong information advantage when they seek export opportunities. D. The United States has not yet evolved an institutional structure for promoting exports similar to that of Germany. E. The Ministry of International Trade and Industry (MITI) in the United States is always on the lookout for export opportunities. Both Germany and Japan have long made their living as trading nations, whereas until recently the United States has been a relatively self-contained continental economy in which international trade played a minor role. The United States has not yet evolved an institutional structure for promoting exports similar to that of either Germany or Japan. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #49 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Improving Export Performance 50. The most comprehensive source of information on export opportunities for U.S. firms is the _____. A. Small Business Administration B. Department of Commerce C. Federal Trade Commission D. Bureau of Competition E. Bank of New York Despite institutional disadvantages, U.S. firms can increase their awareness of export opportunities. The most comprehensive source of information is the U.S. Department of Commerce and its district offices all over the country. Within that department are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the U.S. Commercial Service. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #50 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 51. Which of the following institutions within the U.S. Department of Commerce is dedicated to providing businesses with intelligence and assistance for attacking foreign markets? A. The International Trade Administration B. The Small Business Administration C. The Federal Trade Commission D. The Bureau of Competition E. The Bank of New York The most comprehensive source of information on export opportunities is the U.S. Department of Commerce and its district offices all over the country. Within the U.S. Department of Commerce are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the U.S. Commercial Service. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #51 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 52. Which of the following is of the International Trade Administration and the U.S. Commercial Service? A. They are private organizations that assist U.S. exporters. B. They are the great trading houses of the United States. C. They are organizations within the U.S. Department of Commerce. D. They are departments in the Small Business Administration. E. They are global export management companies. The most comprehensive source of information on export opportunities for U.S. firms is the U.S. Department of Commerce and its district offices all over the country. Within the U.S. Department of Commerce are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the U.S. Commercial Service. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #52 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 53. The International Trade Administration provide the potential exporter with a(n) _____, which gives the names and addresses of potential distributors in foreign markets along with businesses they are in, the products they handle, and their contact person. A. ELAN list B. "best prospects" list C. "comparison shopping service" D. SCORE list E. export management list The International Trade Administration and the U.S. Commercial Service provide the potential exporter with a "best prospects" list, which gives the names and addresses of potential distributors in foreign markets along with businesses they are in, the products they handle, and their contact person. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #53 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 54. Which of the following is a way in which the U.S. Department of Commerce helps potential exporters? A. It oversees volunteers with international trade experience and directs them to provide one-on-one counseling to active and new-to-export businesses. B. It assembles a "comparison shopping service" for 14 countries that are major markets for U.S. exports. C. It coordinates a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters. D. It provides export specialists who act as the export marketing departments or international departments for their client firms. E. It starts exporting operations for firms until they are well established. Within the U.S. Department of Commerce are two organizations dedicated to providing businesses with intelligence and assistance for attacking foreign markets: the International Trade Administration and the U.S. Commercial Service. The Department of Commerce has assembled a "comparison shopping service" for 14 countries that are major markets for U.S. exports. For a small fee, a firm can receive a customized market research survey on a product of its choice. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #54 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 55. The U.S. Department of Commerce has a(n) _____ in which department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers. A. matchmaker program B. "best prospects" list C. SCORE program D. "comparison shopping service" E. export-import program The Department of Commerce has a matchmaker program, in which department representatives accompany groups of U.S. businesspeople abroad to meet with qualified agents, distributors, and customers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #55 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 56. The _____ is a government organization that helps potential exporters. It employs 76 district international trade officers and 10 regional international trade officers throughout the United States as well as a 10-person international trade staff in Washington, DC. A. Federal Trade Commission B. U.S. Commercial Service C. International Trade Administration D. Small Business Administration E. sogo shosha The Small Business Administration (SBA) is a government organization that can help potential exporters. The SBA employs 76 district international trade officers and 10 regional international trade officers throughout the United States as well as a 10-person international trade staff in Washington, DC. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #56 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 57. Which of the following organizations runs the Service Corps of Retired Executives (SCORE) program? A. Foreign Credit Insurance Association B. International Trade Administration C. Small Business Administration D. U.S. Department of Commerce E. U.S. Commercial Service A government organization, the Small Business Administration (SBA), can help potential exporters. Through its Service Corps of Retired Executives (SCORE) program, the SBA oversees some 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #57 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 58. Through its _____ program, the Small Business Administration oversees almost 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses. A. Export Legal Assistance Network B. Service Corps of Retired Executives C. International Trade Veteran's Group D. Network of Foreign Trade Executives E. Export Management Company Through its Service Corps of Retired Executives (SCORE) program, the Small Business Administration also oversees some 11,500 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #58 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 59. The _____ refers to a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters. A. TradeNet Export Advisor B. Export Trade Assistance Partnership C. United States Trade Service D. Export Legal Assistance Network E. Ex-Im Network The Small Business Administration coordinates the Export Legal Assistance Network (ELAN), a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #59 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Improving Export Performance 60. A(n) _____ refers to an export specialist that acts as an export marketing department for client firms. A. export management company B. export-import firm C. foreign direct investment management firm D. strategy management company E. association of export companies One way for first-time exporters to identify the opportunities associated with exporting and to avoid many of the associated pitfalls is to hire an export management company (EMC). EMCs are export specialists that act as the export marketing department or international department for their client firms. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #60 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 61. Which of the following is a function of an export management company? A. It starts exporting operations for a firm with the understanding that the firm will take over operations after they are well established. B. It coordinates the Export Legal Assistance Network, a nationwide group of international trade attorneys. C. It oversees volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses. D. It collects duties on exported products and sets interest rates for charging foreign investors. E. It gives novice exporters the names and addresses of potential distributors in foreign markets along with businesses they are in. Export Management Companies (EMC) normally accept two types of export assignments. They start exporting operations for a firm with the understanding that the firm will take over operations after they are well established. In another type, start-up services are performed with the understanding that the EMC will have continuing responsibility for selling the firm's products. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #61 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 62. Which of the following is of an export management company (EMC)? A. It coordinates the Export Legal Assistance Network, a nationwide group of international trade attorneys who provide free initial consultations to small businesses on export-related matters. B. It provides a potential exporter with a "best prospects" list. C. It assembles a "comparison shopping service" for 14 countries. D. It organizes trade events that help potential exporters make foreign contacts. E. It specializes in serving firms in particular industries and in particular areas of the world. One way for first-time exporters to identify the opportunities associated with exporting and to avoid many of the associated pitfalls is to hire an export management company (EMC). Many EMCs specialize in serving firms in particular industries and in particular areas of the world. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #62 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 63. Which of the following is a drawback of relying on an export management company (EMC)? A. It does not provide references and has no antecedents. B. The exporting company can fail to develop its own exporting capabilities. C. It does not have expert specialists to help neophyte exporter identify opportunities. D. It typically lacks information about local business regulations. E. The exporting company cannot avoid the common pitfalls of exporting. The quality of export management companies (EMCs) varies. While some perform their functions very well, others appear to add little value to the exporting company. One drawback of relying on EMCs is that the company can fail to develop its own exporting capabilities. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #63 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 64. A firm that enters many markets at once: A. runs the risk of spreading its limited management resources too thin. B. becomes established in all the markets. C. gets the time to learn about each market. D. has fewer export opportunities. E. reduces the costs of any subsequent failure. The firm that enters many markets at once runs the risk of spreading its limited management resources too thin. The result of such a shotgun approach to exporting may be a failure to become established in any one market. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #64 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 65. Which of the following is a strategic step taken to increase a firm's probability of exporting successfully? A. Avoiding the use of export management companies to contain costs B. Entering several markets simultaneously to hedge risk C. Entering a foreign market on a small scale D. Waiting for export opportunities E. Avoiding recruitment of local personnel It often makes sense for an exporter to enter a foreign market on a small scale to reduce the costs of any subsequent failure. Most importantly, entering on a small scale provides the time and opportunity to learn about the foreign country before making significant capital commitments to that market. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #65 Learning Objective: 14-02 Identify the steps managers can take to improve their firm’s export performance. Topic: Utilizing Export Management Companies 66. Firms engaged in international trade deal with people they may have never seen, who live in different countries, who speak different languages, and who abide by different legal systems. These factors result in: A. easy tracking of the parties involved. B. a lack of trust between the parties. C. strict enforcement of contractual obligations. D. rapid acculturation. E. better understanding of how transactions should be configured. Firms engaged in international trade have to trust someone they may have never seen, who lives in a different country, who speaks a different language, who abides by (or does not abide by) a different legal system, and who could be very difficult to track down if he/she defaults on an obligation. Consequently, neither party to the trade completely trusts the other. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #66 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 67. In international trade, an exporter wants to be paid before a consignment is shipped. Correspondingly, the importer wants to pay only upon receipt of the consignment. These conflicting preferences of the parties are a manifestation of _____. A. corporate greed B. acculturation C. lack of trust D. cultural insensitivity E. countertrading opportunities Firms engaged in international trade have to trust someone they may have never seen, who lives in a different country, who speaks a different language, who abides by (or does not abide by) a different legal system, and who could be very difficult to track down if he or she defaults on an obligation. Due to the lack of trust between the two parties to an international transaction, each has his/her own preferences as to how the transaction should be configured. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #67 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 68. A lack of trust between two parties engaged in international trade is exacerbated by the: A. saturation of the domestic market. B. similar preferences of the parties regarding how a transaction should be configured. C. narrowing distance between the two parties due to technological advances. D. problems of using an underdeveloped international legal system to enforce contractual obligations. E. possibility of doing business with someone with whom they have been associated for a long time. The lack of trust between two parties is exacerbated by the distance between the two parties—in space, language, and culture—and by the problems of using an underdeveloped international legal system to enforce contractual obligations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #68 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 69. In terms of using a third party in international trade, title to the products is given to a bank by the exporter in the form of a document known as a _____. A. merchandise bill B. bill of lading C. bill of exchange D. draft E. letter of credit The problem of lack of trust in international trade is solved by using a third party trusted by both parties—normally a reputable bank—to act as an intermediary. Title to the products is given by the exporter to the bank that issued a letter of credit in the form of a document called a bill of lading. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #69 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 70. Which of the following stands at the center of international commercial transactions and is issued by a bank at the request of an importer? A. Bill of lading B. Time draft C. Letter of credit D. Sight draft E. Bill of exchange A letter of credit stands at the center of international commercial transactions. Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #70 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 71. A _____ is issued by a bank, and it indicates that the bank will make payments under specific circumstances. A. bill of exchange B. bill of lading C. letter of credit D. time draft E. usance draft Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #71 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 72. Which of the following is of a letter of credit? A. It states that the bank will pay a specified sum of money to a beneficiary on presentation of particular, specified documents. B. It is a document written by an exporter instructing an importer to pay a specified amount of money at a specified time. C. It serves as a receipt, a contract, and a document of title. D. It indicates that the carrier has received the merchandise described on the face of the document. E. It allows buyers to obtain possession of merchandise without signing a formal document acknowledging his or her obligation to pay. A letter of credit, abbreviated as L/C, stands at the center of international commercial transactions. Issued by a bank at the request of an importer, the letter of credit states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #72 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 73. Which of the following is of a letter of credit in international trade? A. No cash deposit or collateral is required from the importer. B. The exporter pays the trusted third party (usually a bank) a fee for the service. C. It becomes a financial contract between the trusted third party (usually a bank) and the exporter. D. It is issued by the exporter at the request of the importer. E. The creditworthiness of the importer is irrelevant when issuing a letter of credit. The letter of credit states that the bank will pay the exporter for the merchandise as long as it is shipped in accordance with specified instructions and conditions. At this point, the letter of credit becomes a financial contract between the bank and the exporter. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #73 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 74. Which of the following is an advantage of having a letter of credit? A. It allows payment for merchandise after its delivery. B. It facilitates an exporter to obtain pre-export financing. C. It allows an exporter to get a higher price for his or her goods. D. It helps exporters incur lower shipping costs. E. It does not require the importer to pay any fee. An exporter may find that having a letter of credit will facilitate obtaining pre-export financing. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #74 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 75. Which of the following is an advantage of a letter of credit for an importer? A. The importer does not have to pay for the merchandise until the documents have arrived. B. Obtaining pre-export financing becomes easier. C. It helps the importer to get goods for a lower price. D. It results in lower shipping costs. E. The importer does not have to pay the third party a fee for facilitating the transaction. When using a letter of credit for international transactions, an importer does not have to pay for the merchandise until the documents have arrived and unless all conditions stated in the letter of credit have been satisfied. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #75 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 76. For an importer, which of the following is a disadvantage of using a letter of credit for international transactions? A. It results in the importer losing control over the process of trading. B. It reduces the exporter's level of trust in the importer. C. It reduces the importer's ability to borrow funds for other purposes. D. It requires the importer to repay the loan even before the merchandise is sold. E. It is not issued at the importer's request. Since the letter of credit is a financial liability against the importer, it may reduce his or her ability to borrow funds for other purposes. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #76 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 77. A letter of credit reduces an importer's ability to borrow funds for other purposes because: A. the importer has to request for it. B. it is a financial liability against the importer. C. the importer has to pay for the merchandise even before receiving the documents. D. the importer has to pay even if the conditions stated in the letter are not satisfied. E. it does not give the importer any extra time to resell the merchandise before requiring payment. Since the letter of credit is a financial liability against the importer, it may reduce his or her ability to borrow funds for other purposes. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #77 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 78. In international commerce, a draft is sometimes referred to as a _____. A. bill of exchange B. letter of credit C. bill of lading D. counterpurchase E. buyback A draft, sometimes referred to as a bill of exchange, is the instrument normally used in international commerce to effect payment. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #78 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 79. In international commerce, a _____ refers to an order written by an exporter instructing an importer to pay a specified amount of money at a specified time. A. bill of lading B. draft C. letter of credit D. counterpurchase E. buyback In international commerce, a draft is simply an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #79 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 80. Which of the following is with respect to the international and domestic practices of settling trade transactions? A. In an international transaction, a formal promise to pay is required before the buyer can obtain the merchandise. B. In an international transaction, the seller usually ships merchandise on an open account. C. In a domestic transaction, a draft is used to settle trade transactions. D. In an international transaction, the exporter sends a commercial invoice that specifies the amount due and the terms of payment to the importer. E. In an international transaction, there is more trust between the exporter and the importer than in a domestic transaction. International practice is to use drafts to settle trade transactions. Due to the lack of trust in international transactions, payment or a formal promise to pay is required before the buyer can obtain the merchandise. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #80 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 81. In international commerce, a party initiating a draft is known as the _____. A. maker B. drawee C. buyer D. agent E. drafter A draft is simply an order written by an exporter instructing an importer, or an importer’s agent, to pay a specified amount of money at a specified time. The person or business initiating the draft is known as the maker. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #81 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 82. The two categories of drafts (or bills of exchange) are: A. contract drafts and lending drafts. B. single-party drafts and multi-party drafts. C. title drafts and quantity drafts. D. sight drafts and time drafts. E. offset draft and counter draft A draft, sometimes referred to as a bill of exchange, is the instrument normally used in international commerce to effect payment. Drafts fall into two categories, sight drafts and time drafts. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #82 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 83. Which of the following drafts is payable on presentation to the drawee? A. Bill of lading B. Sight draft C. Letter of credit D. Time draft E. Offset Drafts fall into two categories, sight drafts and time drafts. A sight draft is payable on presentation to the drawee. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #83 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 84. Which of the following drafts allows for a delay in payment? A. Sight draft B. Time draft C. Bill of lading D. Counterpurchase E. Offset Drafts fall into two categories, sight drafts and time drafts. A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days. It is presented to the drawee, who signifies acceptance of it by writing or stamping a notice of acceptance on its face. Once accepted, the time draft becomes a promise to pay by the accepting party. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #84 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 85. When a time draft is presented to a drawee, he or she signifies acceptance of it by: A. delivering the goods immediately. B. paying the draft amount immediately. C. providing a collateral for the amount specified in the bill. D. writing or stamping a notice of acceptance on its face. E. selling the draft to an investor at a discount from its face value. When a time draft is presented to the drawee, he or she signifies acceptance of it by writing or stamping a notice of acceptance on its face. Once accepted, the time draft becomes a promise to pay by the accepting party. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #85 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 86. Once accepted by the drawee, a time draft becomes a(n): A. asset for the drawee. B. in-transit bill. C. promise to pay by the accepting party. D. bill of lading. E. letter of credit. When a time draft is presented to the drawee, he or she signifies acceptance of it by writing or stamping a notice of acceptance on its face. Once accepted, the time draft becomes a promise to pay by the accepting party. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #86 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 87. When a time draft is drawn on and accepted by a bank, it is known as a _____. A. trade acceptance B. banker's check C. banker's acceptance D. bill of lading E. letter of credit A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days. When a time draft is drawn on and accepted by a bank, it is called a banker's acceptance. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #87 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 88. When a time draft is drawn on and accepted by a business firm, it is known as a(n) _____. A. trade acceptance B. in-transit bill C. banker's acceptance D. bill of lading E. letter of credit A time draft allows for a delay in payment—normally 30, 60, 90, or 120 days. When a time draft is drawn on and accepted by a business firm, it is called a trade acceptance. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #88 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 89. Which of the following is a characteristic of a time draft? A. It has no value given the deferred nature of the document. B. It is generally not preferred in international transactions. C. It is a negotiable instrument. D. It is also known as a bill of lading. E. It cannot be sold by an exporter. Time drafts are negotiable instruments; that is, once the draft is stamped with an acceptance, the maker can sell the draft to an investor at a discount from its face value. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #89 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 90. A _____ is issued to an exporter by a common carrier transporting the merchandise and it serves as a receipt, a contract, and a document of title. A. bill of lading B. collateral C. draft D. letter of credit E. bill of exchange The bill of lading is a document issued to the exporter by the common carrier transporting the merchandise. It serves as a receipt, a contract, and a document of title. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #90 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 91. When serving as a _____, a bill of lading specifies that the carrier is obligated to provide a transportation service in return for a certain charge. A. contract B. receipt C. document of title D. letter of credit E. bill of exchange The bill of lading is issued to the exporter by the common carrier transporting the merchandise. It serves three purposes: it is a receipt, a contract, and a document of title. As a contract, the bill of lading specifies that the carrier is obligated to provide a transportation service in return for a certain charge. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #91 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 92. When serving as collateral, the bill of lading: A. can be used to advance funds to the exporter by its local bank before or during shipment. B. specifies that the carrier is obligated to provide a transportation service in return for a certain charge. C. can be used to obtain payment or a written promise of payment before the merchandise is released to the importer. D. states that the bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. E. is an order written by an exporter instructing an importer, or an importer’s agent, to pay a specified amount of money at a specified time. The bill of lading is issued to the exporter by the common carrier transporting the merchandise. It serves three purposes: it is a receipt, a contract, and a document of title. The bill of lading can also function as collateral against which funds may be advanced to the exporter by its local bank before or during shipment and before final payment by the importer. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #92 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 93. When serving as a _____, a bill of lading is used to obtain payment or a written promise of payment before the merchandise is released to the importer. A. document of title B. contract C. receipt D. time draft E. collateral The bill of lading is issued to the exporter by the common carrier transporting the merchandise. It serves three purposes: it is a receipt, a contract, and a document of title. As a document of title, the bill of lading can be used to obtain payment or a written promise of payment before the merchandise is released to the importer. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #93 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 94. Which of the following is the first step in a typical international trade transaction? A. The exporter agrees to ship under a letter of credit and specifies relevant information such as prices and delivery terms. B. The importer applies to a trusted third party (usually a bank) for a letter of credit to be issued in favor of the exporter for the merchandise the importer wishes to buy. C. The importer places an order with the exporter and asks the exporter if he would be willing to ship under a letter of credit. D. The exporter ships the goods to the importer on a common carrier. An official of the carrier gives the exporter a bill of lading. E. The trusted third party (usually a bank) issues a letter of credit in the importer’s favor and sends it to the exporter’s bank. The typical international trade transaction involves 14 steps. In the first step, the importer places an order with the exporter and asks the exporter if he would be willing to ship under a letter of credit. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #94 Learning Objective: 14-04 Recognize the basic steps involved in export financing. Topic: Export and Import Financing 95. The mission of the _____ is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries. A. sogo shosha B. World Bank C. Overseas Commercial Service D. Ex-Im Bank E. Export Credit Insurance Association The Export– Import Bank, often referred to as Ex-Im Bank, is an independent agency of the U.S. government. The mission of the Export-Import Bank is to provide financing aid that will facilitate exports, imports, and the exchange of commodities between the United States and other countries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #95 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 96. The _____ guarantees repayment of medium- and long-term loans U.S. commercial banks make to foreign borrowers for purchasing U.S. exports. A. United Nations B. Central Bank C. World Bank D. Ex-Im Bank E. Export Credit Insurance Association The Export– Import Bank , often referred to as Ex-Im Bank, is an independent agency of the U.S. government. It guarantees repayment of medium- and long-term loans U.S. commercial banks make to foreign borrowers for purchasing U.S. exports. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #96 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 97. _____ has a direct lending operation under which it lends dollars to foreign borrowers for use in purchasing U.S. exports. A. The Department of Commerce B. The World Bank C. Ex-Im Bank D. Bank of New York E. The Small Business Administration Ex-Im Bank has a direct lending operation under which it lends dollars to foreign borrowers for use in purchasing U.S. exports. In some cases, it grants loans that commercial banks would not if it sees a potential benefit to the United States in doing so. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #97 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 98. An exporter has to forgo a letter of credit when: A. competing exporters also require letters of credit. B. the importer is facing stiff competition from other importers. C. the exporter is a dominant player in a noncompetitive market. D. the importer is in a strong bargaining position. E. he or she knows that the importer will default on payment. Sometimes an exporter who insists on a letter of credit will lose an order to one who does not require a letter of credit. Thus, when the importer is in a strong bargaining position and able to play competing suppliers against each other, an exporter may have to forgo a letter of credit. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #98 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 99. The lack of a letter of credit exposes the exporter to the risk that the foreign importer will default on payment. The exporter can insure against this possibility by: A. approaching the World Bank. B. buying export credit insurance. C. obtaining pre-export financing. D. filing a suit against the importer in court. E. taking financial aid from Ex–Im Bank. The lack of a letter of credit exposes the exporter to the risk that the foreign importer will default on payment. The exporter can insure against this possibility by buying export credit insurance. If the customer defaults, the insurance firm will cover a major portion of the loss. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #99 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 100. An export credit insurance is necessary when the: A. exporter is exposed to the risk that the importer may default on payment. B. exporter is dealing in a country that has a nonconvertible currency. C. exporter is unable to obtain any pre-export financing. D. exporter has received a letter of credit from the importer's bank. E. exporter has to enter a barterlike agreement. The lack of a letter of credit exposes the exporter to the risk that the foreign importer will default on payment. The exporter can insure against this possibility by buying export credit insurance. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #100 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 101. In the United States, export credit insurance is provided by _____, an association of private commercial institutions. A. Export-Import Bank B. Bank of New York C. Foreign Credit Insurance Association D. Federal Deposit Insurance Corporation E. Federal Reserve Bank In the United States, export credit insurance is provided by the Foreign Credit Insurance Association (FCIA), an association of private commercial institutions operating under the guidance of the Export-Import Bank. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #101 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 102. The Foreign Credit Insurance Association (FCIA) is an association of private commercial institutions operating under the guidance of the _____. A. Federal Mediation and Conciliation Service B. U.S. Department of Commerce C. Export–Import Bank D. International Trade Administration E. Ministry of International Trade and Industry In the United States, export credit insurance is provided by the Foreign Credit Insurance Association (FCIA), an association of private commercial institutions operating under the guidance of the Export-Import Bank. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #102 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 103. Which of the following is an advantage of export credit insurance? A. It gives a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents. B. It protects exporters from the risk that the foreign importer will default on payment. C. It puts the importer in a strong bargaining position. D. It enables exporters to insist on a letter of credit. E. It allows for a delay in payment. The lack of a letter of credit exposes the exporter to the risk that the foreign importer will default on payment. The exporter can insure against this possibility by buying export credit insurance. If the customer defaults, the insurance firm will cover a major portion of the loss. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #103 Learning Objective: 14-03 Identify information sources and government programs that exist to help exporters. Topic: Export Assistance 104. Countertrade is most likely to be used when: A. the foreign currency is easily convertible. B. the exporter has a letter of credit. C. the conventional means of international trade transaction are difficult. D. there is mutual trust between the exporter and the importer. E. an export management company is used. Countertrade is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #104 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 105. _____ refers to an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent. A. Guanxi B. Factoring C. Securitization D. Countertrade E. Sogo shosha Countertrade is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #105 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 106. A range of barterlike agreements by which goods and services are traded for other goods and services when they cannot be traded for money is known as _____. A. countertrade B. carry trade C. free trade D. counter sale E. countervailing duty Countertrade denotes a whole range of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #106 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 107. The principle of _____ is to trade goods and services for other goods and services when they cannot be traded for money. A. a letter of credit B. countervailing duty C. a bill of exchange D. countertrade E. the Export Legal Assistance Network Countertrade denotes a whole range of barter like agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #107 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 108. Countertrade occurs when the: A. exporter may not be paid in his or her home currency due to nonconvertibility. B. exporter can convert the currency only in U.S. dollars. C. exporter is dealing with a country that has huge foreign reserves. D. exporter has easy access to export credit to fund its international trade. E. importer defaults on payment. A government may restrict the convertibility of its currency to preserve its foreign exchange reserves so they can be used to service international debt commitments and purchase crucial imports. This is problematic for exporters as nonconvertibility implies that the exporter may not be paid in his or her home currency, and few exporters would desire payment in a currency that is not convertible. Countertrade is a common solution. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #108 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 109. Organizations resort to countertrade of goods and services when: A. the importer defaults on payment. B. the goods and services cannot be traded for money. C. the exporter is not able to get a letter of credit from a local bank. D. a formal document for acknowledgement is not available. E. the conventional means of payment are cheaper. Countertrade denotes a whole range of barterlike agreements; its principle is to trade goods and services for other goods and services when they cannot be traded for money. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #109 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 110. In the modern era, countertrade arose in the 1960s as a way for _____ to purchase imports. A. the United States B. the Soviet Union C. Germany D. Japan E. Africa In the modern era, countertrade arose in the 1960s as a way for the Soviet Union and the Communist states of eastern Europe, whose currencies were generally nonconvertible, to purchase imports. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #110 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 111. Which of the following is of countertrade? A. The governments of developing nations sometimes insist on a certain amount of countertrade. B. Countertrade is a means of structuring an international sale when conventional means of payment are cost-effective. C. Nonconvertibility is an advantage for exporters. D. Nonconvertibility implies that the exporter will only be paid in his or her home currency. E. Most exporters desire payment in a currency that is not convertible. Given that countertrade is a means of financing international trade, albeit a relatively minor one, prospective exporters may have to engage in this technique from time to time to gain access to certain international markets. The governments of developing nations sometimes insist on a certain amount of countertrade. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #111 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 112. Which of the following is a distinct type of countertrade arrangement? A. Merger B. Arbitrage C. Dirty float D. Barter E. Deregulation Countertrade has evolved into a diverse set of activities that can be categorized as five distinct types of trading arrangements: barter, counterpurchase, offset, switch trading, and compensation or buyback. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #112 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 113. The direct exchange of goods and/or services between two parties without a cash transaction is referred to as _____. A. switch trading B. counterpurchase C. barter D. offset E. buyback Barter is the direct exchange of goods and/or services between two parties without a cash transaction. Although barter is the simplest arrangement, it is not common. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #113 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 114. Which of the following types of countertrade is the simplest, although not common? A. Switch trading B. Counterpurchase C. Barter D. Offset E. Buyback Barter is the direct exchange of goods and/or services between two parties without a cash transaction. Although barter is the simplest arrangement, it is not common. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #114 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 115. The most restrictive countertrade arrangement is _____ because if goods are not exchanged simultaneously, one party ends up financing the other for a period. A. counterpurchase B. offset C. barter D. switch trading E. buyback The problems with barter are twofold. First, if goods are not exchanged simultaneously, one party ends up financing the other for a period. Second, firms engaged in barter run the risk of having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable price. For these reasons, barter is viewed as the most restrictive countertrade arrangement. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #115 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 116. Which of the following is of barter as a countertrade arrangement? A. It is a very complex arrangement. B. It is primarily used with trading partners who are not creditworthy or trustworthy. C. It involves cash transactions. D. When goods are exchanged simultaneously, one partner ends up financing the other. E. It is the most flexible countertrade arrangement. Barter, a type of countertrade, is primarily used for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #116 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 117. Which of the following is a disadvantage of barter as a countertrade arrangement? A. It is a very complex arrangement. B. In a barter system, if goods are exchanged simultaneously, one party ends up financing the other. C. Firms engaged in barter run the risk of having to accept goods they do not want or cannot use. D. It involves huge cash transactions. E. It cannot be used in transactions with trading partners who are not creditworthy. The problems of barter, a countertrade arrangement, are twofold. First, if goods are not exchanged simultaneously, one party ends up financing the other for a period. Second, firms engaged in barter run the risk of having to accept goods they do not want, cannot use, or have difficulty reselling at a reasonable price. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #117 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 118. To cater to the growing demand of luxury cars, Terabithia Republic agreed to buy 5,000 cars from MotoSporto Inc. in exchange for 5,000 gallons of oil. Due to a lack of trust, Terabithia decided to make it a one-time-only deal. Which of the following forms of countertrade is the country most likely to use? A. Counterpurchase B. Offset C. Switch trading D. Barter E. Buyback Barter is the direct exchange of goods and/or services between two parties without a cash transaction. It is primarily used for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy. AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 14 #118 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 119. Which of the following is of counterpurchase? A. It is the most restrictive countertrade arrangement. B. It is a reciprocal buying agreement. C. It is the simplest countertrade arrangement. D. It uses a specialized third-party trading house. E. It is the direct exchange of goods without a cash transaction. Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #119 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 120. _____, a type of countertrade, occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. A. Barter B. Counterpurchase C. Compensation D. Switch trading E. Buyback Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #120 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 121. A firm sells some products to a foreign country. The foreign country pays the firm in dollars, but in exchange, the firm agrees to spend some of the proceeds from the sale on textiles produced by the foreign country. In which of the following types of countertrade arrangement are the two parties engaged? A. Switch trading B. Buyback C. Counterpurchase D. Barter E. Compensation Counterpurchase is a reciprocal buying agreement. It occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 14 #121 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 122. A(n) _____ refers to a buying agreement similar to counterpurchase, but the exporting country can then fulfill the agreement with any firm in the country to which the sale is being made. A. switch trade B. offset C. buyback D. arbitrage E. barter An offset is a buying agreement similar to a counterpurchase, but the exporting country can then fulfill the agreement with any firm in the country to which the sale is being made. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #122 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 123. From an exporter's perspective, why is an offset more attractive than a straight counterpurchase agreement? A. It is the simplest countertrade arrangement. B. It gives the exporter greater flexibility to choose the goods that it wishes to purchase. C. It allows the use of a specialized third-party trading house. D. It gives the exporter counterpurchase credits, which can be used to purchase goods from another country. E. It allows direct exchange of goods and/or services between two parties without a cash transaction. From an exporter's perspective, an offset is more attractive than a straight counterpurchase agreement because it gives the exporter greater flexibility to choose the goods that it wishes to purchase. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #123 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 124. The use of a specialized third-party trading house in a countertrade arrangement is known as _____. A. counterpurchase B. offset C. switch trading D. buyback E. barter The term switch trading refers to the use of a specialized third-party trading house in a countertrade arrangement. When a firm enters a counterpurchase or offset agreement with a country, it often ends up with what are called counterpurchase credits, which can be used to purchase goods from that country. These counterpurchase credits are bought by the third-party trading house and then sold to another firm that can better use them. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #124 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 125. When a firm enters a(n) _____ agreement with a country, it often ends up with what are called counterpurchase credits, which can be used to purchase goods from that country. A. arbitrage B. offset C. switch trading D. buyback E. compensation When a firm enters a counterpurchase or offset agreement with a country, it often ends up with what are called counterpurchase credits, which can be used to purchase goods from that country. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #125 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 126. _____, a type of countertrade, occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them. A. Barter B. Switch trading C. Offset D. Buyback E. Compensation Switch trading occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #126 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 127. A firm concludes a counterpurchase agreement with a foreign country for which it receives some counterpurchase credits for purchasing its goods. The firm does not want any foreign goods, however, so it sells the credits to a third-party trading house at a discount. The trading house finds a firm that can use the credits and sells them at a profit. This is an example of _____. A. barter B. switch trading C. an offset D. a buyback E. compensation The term switch trading refers to the use of a specialized third-party trading house in a countertrade arrangement. Switch trading occurs when a third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them. AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 14 #127 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 128. A(n) _____ occurs when a firm builds a plant in a country and agrees to take a certain percentage of the plant's output as partial payment for the contract. A. counterpurchase B. offset C. switch trading D. buyback E. barter A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant's output as partial payment for the contract. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #128 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 129. TruWorth Petroleum negotiated a deal with a foreign country in which TruWorth would build several ammonia plants in the foreign country and receive ammonia as partial payment over a 20-year period. This is an example of _____. A. switch trading B. a buyback C. a counterpurchase D. an offset E. barter A buyback occurs when a firm builds a plant in a country—or supplies technology, equipment, training, or other services to the country—and agrees to take a certain percentage of the plant's output as partial payment for the contract. AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 14 #129 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 130. Which of the following is an advantage of countertrade? A. Firms can avoid setting up in-house trading departments. B. It addresses the issue of lack of trust in international business. C. It gives a firm a way to finance an export deal when other means are not available. D. Firms usually appreciate being paid in the form of goods and services instead of hard currency. E. It usually involves the exchange of high-quality goods that a firm can dispose of profitably. Countertrade's main attraction is that it can give a firm a way to finance an export deal when other means are not available. Given the problems that many developing nations have in raising the foreign exchange necessary to pay for imports, countertrade may be the only option available when doing business in these countries. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #130 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 131. An advantage of _____ is that it helps in doing business in many developing nations that find it difficult to raise the foreign exchange necessary to pay for imports. A. mergers B. countertrade C. free trade D. arbitrage E. franchising Given the problems that many developing nations have in raising the foreign exchange necessary to pay for imports, countertrade may be the only option available when doing business in these countries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 14 #131 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 132. A drawback of countertrade is that: A. it fails to enable firms to finance an export deal. B. it is detrimental to the economy of the importing country. C. developing nations have trouble raising the foreign exchange necessary to pay for imports. D. it does not allow firms to invest in an in-house trading department dedicated to arranging and managing deals. E. it may involve the exchange of poor-quality goods that cannot be disposed of profitably. The drawbacks of countertrade agreements are substantial. Other things being equal, firms would normally prefer to be paid in hard currency. Countertrade contracts may involve the exchange of unusable or poor-quality goods that the firm cannot dispose of profitably. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #132 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 133. Identify a drawback of a countertrade agreement. A. It fails to give firms a way to finance an export deal. B. It requires an in-house trading department to be maintained, which can be expensive and time-consuming. C. It is detrimental to the economy of the importing country. D. Developing nations may have trouble raising the foreign exchange necessary to pay for imports. E. It is not an acceptable means of trading in most developing countries. The drawbacks of countertrade agreements are substantial. Even if the goods it receives are of high quality, the firm still needs to dispose of them profitably. To do this, countertrade requires the firm to invest in an in-house trading department dedicated to arranging and managing countertrade deals. This can be expensive and time-consuming. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #133 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 134. Which of the following is a disadvantage of a countertrade agreement? A. It does not allow firms to finance an export deal when other means are not available. B. It is unattractive to multinational companies due to its time-consuming and expensive nature. C. Firms prefer to be paid in hard currency. D. It is useful only for small companies. E. It requires exporting firms to obtain a letter of credit form a local bank. Countertrade requires firms to invest in an in-house trading department dedicated to arranging and managing countertrade deals. This can be expensive and time-consuming. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 14 #134 Learning Objective: 14-05 Describe how countertrade can be used to facilitate exporting. Topic: Countertrade 135. Countertrade is most attractive to: A. small exporters. B. large multinational enterprises. C. only U.S. firms. D. any firm in democratic nations. E. new companies. Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading. The masters of countertrade are Japan’s giant trading firms, the sogo shosha, which use their vast networks of affiliated companies to profitably dispose of goods acquired through countertrade agreements. ch15 Key 1. In recent years, the trend among U.S. firms is to outsource the “production” of certain service activities to developing nations where labor costs are lower. In recent years, the trend among U.S. firms is to outsource the “production” of certain service activities to developing nations where labor costs are lower (e.g., the trend among many U.S. companies to outsource customer care services to places such as India, where English is widely spoken and labor costs are much lower). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #1 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 2. The production and logistics functions of an international firm are independent of each other. Production and logistics are closely linked because a firm’s ability to perform its production activities efficiently depends on a timely supply of high-quality material inputs, for which logistics is responsible. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #2 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 3. The objectives of reducing costs and increasing quality in a firm are independent of each other. The objectives of reducing costs and increasing quality are not independent of each other. The firm that improves its quality will also reduce its costs of value creation. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #3 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 4. A firm that improves its quality control cannot reduce its costs of value creation simultaneously. The firm that improves its quality control will also reduce its costs of value creation. The effect is to lower the costs of value creation by reducing both production and after-sales service costs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #4 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 5. W. Edward Deming believed that achieving better quality requires the commitment of everyone in a company. The total quality management philosophy was developed by a number of American consultants such as W. Edward Deming, Joseph Juran, and A. V. Feigenbaum. Deming argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace. In addition, he believed that achieving better quality requires the commitment of everyone in the company. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #5 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 6. In terms of Six Sigma, the higher the number of “sigmas,” the greater the number of errors. Six Sigma, the modern successor to total quality management, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. Sigma comes from the Greek letter that statisticians use to represent a standard deviation from a mean; the higher the number of “sigmas,” the smaller the number of errors. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #6 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 7. In international business, production and logistics functions need not accommodate demands for local responsiveness. In addition to the lowering of costs and the improvement of quality, two other objectives have particular importance in international businesses. One of them is that production and logistics functions must be able to accommodate demands for local responsiveness. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #7 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 8. In recent years, time-based competition has lost its importance in international business. In international business, production and logistics must be able to respond quickly to shifts in customer demand. In recent years, time-based competition has grown more important. When consumer demand is prone to large and unpredictable shifts, the firm that can adapt most quickly to these shifts will gain an advantage. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #8 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 9. In international business, when consumer demand is prone to large and unpredictable shifts, the firm that can adapt most quickly to these shifts will gain an advantage. In international business, production and logistics must be able to respond quickly to shifts in customer demand. In recent years, time-based competition has grown more important. When consumer demand is prone to large and unpredictable shifts, the firm that can adapt most quickly to these shifts will gain an advantage. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #9 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 10. Currency appreciation can transform a low-cost location into a high-cost location. Adverse changes in exchange rates can quickly alter a country’s attractiveness as a manufacturing base. Currency appreciation can transform a low-cost location into a high-cost location. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #10 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 11. In international business, a relatively high level of fixed costs can make it economical to perform a particular activity in several locations at once. In international business, a relatively low level of fixed costs can make it economical to perform a particular activity in several locations at once. This allows the firm to better accommodate demands for local responsiveness. Manufacturing in multiple locations may also help the firm avoid becoming too dependent on one location. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #11 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 12. The concept of economies of scale tells us that as plant output expands, unit costs decrease. In terms of international business, the concept of economies of scale tells us that as plant output expands, unit costs decrease. The reasons include the greater utilization of capital equipment and the productivity gains that come with specialization of employees within the plant. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #12 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 13. The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. This is the scale of output a plant must operate to realize all major plant-level scale economies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #13 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 14. In terms of minimum efficient scale of output, the "unit cost curve" rises with output until a certain output level is reached, at which point further increases in output realize little reduction in unit costs. The concept of economies of scale tells us that as plant output expands, unit costs decrease. The reasons include the greater utilization of capital equipment and the productivity gains that come with specialization of employees within the plant. However, beyond a certain level of output, few additional scale economies are available. Thus, the “unit cost curve” declines with output until a certain output level is reached, at which point further increases in output realize little reduction in unit costs AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #14 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 15. A wide product variety makes it easier for a firm to increase its production efficiency and thus reduce its unit costs. A wide product variety makes it difficult for a company to increase its production efficiency and thus reduce its unit costs. According to this logic, the way to increase efficiency and drive down unit costs is to limit product variety and produce a standardized product in large volumes. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #15 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 16. Flexible manufacturing technologies allow a company to produce a wider variety of end products at a unit cost that at one time could be achieved only through the mass production of a standardized output. The term flexible manufacturing technology—or lean production, as it is often called—covers a range of manufacturing technologies. Flexible manufacturing technologies allow the company to produce a wider variety of end products at a unit cost that at one time could be achieved only through the mass production of a standardized output. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #16 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 17. Flexible machine cells, a flexible manufacturing technology, cannot be used for mass customization. Flexible machine cells are a common flexible manufacturing technology. A flexible machine cell is a grouping of various types of machinery, a common materials handler, and a centralized cell controller (computer). The term mass customization has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible—low cost and product customization. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #17 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 18. With the advent of flexible manufacturing technologies and mass customization, manufacturing in each major market in which the firm is active is becoming less attractive. It may make more sense to manufacture in each major market in which the firm is active if this helps the firm better respond to local demands. This holds only if the increased local responsiveness more than offsets the cost disadvantages of not concentrating manufacturing. With the advent of flexible manufacturing technologies and mass customization, such a strategy is becoming less attractive. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #18 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 19. When flexible manufacturing technologies are not available, a firm can manufacture products customized to various national markets at a single factory sited at the optimal location. Besides improving efficiency and lowering costs, flexible manufacturing technologies enable companies to customize products to the demands of small consumer groups—at a cost that at one time could be achieved only by mass-producing a standardized output. When flexible manufacturing technologies are available, a firm can manufacture products customized to various national markets at a single factory sited at the optimal location. And it can do this without absorbing a significant cost penalty. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #19 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 20. Industrial products have few national differences in consumer taste and preference, hence the need for local responsiveness is reduced for such products. A product feature that can influence location decisions is whether the product serves universal needs, needs that are the same all over the world. Industrial products (e.g., industrial electronics, steel, bulk chemicals) and modern consumer products (e.g., handheld calculators, personal computers, video game consoles) have few national differences in consumer taste and preference, hence the need for local responsiveness is reduced for such products. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #20 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 21. Other things being equal, when fixed costs are substantial and minimum efficient scale of production is high, the arguments for concentrating production at a few choice locations are strong. A number of technological factors support the economic arguments for concentrating production facilities in a few choice locations or even in a single location. Other things being equal, when fixed costs are substantial, the minimum efficient scale of production is high, and/or flexible manufacturing technologies are available, the arguments for concentrating production at a few choice locations are strong. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #21 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 22. Since refined sugar has a low value-to-weight ratio, even if it is shipped halfway around the world, their transportation costs account for a very small percentage of total costs. A product’s value-to-weight ratio affects location decisions because of its influence on transportation costs. Refined sugar, certain bulk chemicals, paint, and petroleum products all have low value-to-weight ratios; they are relatively inexpensive products that weigh a lot. Accordingly, when they are shipped long distances, transportation costs account for a large percentage of total costs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #22 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 23. The strategic role of establishing a foreign production facility is to produce labor-intensive products at as low a cost as possible. Whatever the rationale behind establishing a foreign production facility, the strategic role of foreign sites can evolve over time. Initially, many foreign sites are established where labor costs are low. Typically, their strategic role is to produce labor-intensive products at as low a cost as possible. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #23 Learning Objective: 15-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site 24. A source of improvement in the capabilities of a foreign production site is the pressure to customize a product to the demands of consumers in a particular nation. Upward migration in the strategic role of foreign production sites arises because many foreign sites upgrade their own capabilities. This improvement comes from two sources. First, pressure from the center to improve a site’s cost structure and/or customize a product to the demands of consumers in a particular nation can start a chain of events that ultimately leads to development of additional capabilities at that factory. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #24 Learning Objective: 15-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site 25. A major aspect of a transnational strategy is a belief that valuable knowledge resides in a firm's domestic operations instead of its foreign subsidiaries. A major aspect of a transnational strategy is a belief in global learning—the idea that valuable knowledge does not reside just in a firm’s domestic operations; it may also be found in its foreign subsidiaries. Foreign factories that upgrade their capabilities over time are creating valuable knowledge that might benefit the whole corporation. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #25 Learning Objective: 15-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site 26. In recent years, the outsourcing decision in international businesses has gone beyond the manufacture of physical products to embrace the production of service activities. International businesses frequently face make-or-buy decisions, decisions about whether they should perform a certain value creation activity themselves or outsource it to another entity. In recent years, the outsourcing decision has gone beyond the manufacture of physical products to embrace the production of service activities. For example, many U.S.-based companies, from credit card issuers to computer companies, have outsourced their customer call centers to India. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #26 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 27. When substantial investments in specialized assets are required to manufacture a component, a firm will prefer to contract it out to a supplier rather than make the component internal Sometimes firms have to invest in specialized assets in order to do business with another enterprise. In general, one can predict that when substantial investments in specialized assets are required to manufacture a component, the firm will prefer to make the component internally rather than contract it out to a supplier. Substantial empirical evidence supports this prediction. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #27 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 28. The complexity of transfer pricing decisions enhances internal suppliers’ ability to manipulate transfer prices to their advantage, passing cost increases downstream rather than looking for ways to reduce costs Different tax regimes, exchange rate movements, and headquarters’ ignorance about local conditions all increase the complexity of transfer pricing decisions. This complexity enhances internal suppliers’ ability to manipulate transfer prices to their advantage, passing cost increases downstream rather than looking for ways to reduce costs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #28 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 29. A firm that sources its product components from internal suppliers has fewer subunits to control than a firm that sources from independent suppliers. The firm that sources from independent suppliers has fewer subunits to control. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #29 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 30. A firm that enters long-term alliances may limit its strategic flexibility by the commitments it makes to its alliance partners. Alliances are not all good. Like formal vertical integration, a firm that enters long-term alliances may limit its strategic flexibility by the commitments it makes to its alliance partners. A firm that allies itself with another firm risks giving away key technological know-how to a potential competitor AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #30 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 31. Under a just-in-time inventory system, a company can reduce the amount of working capital it needs to finance inventory, freeing capital for other uses and/or lowering the total capital requirements of the enterprise. The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. It means the company can reduce the amount of working capital it needs to finance inventory, freeing capital for other uses and/or lowering the total capital requirements of the enterprise. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #31 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 32. The drawback of a just-in-time inventory system is that it leaves a firm with excess unsold inventory that it has to write off against earnings or price low to sell. The drawback of a just-in-time inventory system is that it leaves a firm without a buffer stock of inventory. Although buffer stocks are expensive to store, they can help a firm respond quickly to increases in demand and tide a firm over shortages brought about by disruption among suppliers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #32 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 33. Firms typically use electronic data interchange (EDI) via the Internet to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. Firms now typically use electronic data interchange (EDI) via the Internet to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. Sometimes, customers also are integrated into the system. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #33 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 34. Good electronic data interchange systems provide corporate-level managers with the information they need for coordinating and controlling decentralized materials management groups. Good electronic data interchange systems can help a firm decentralize materials management decisions to the plant level by giving corporate-level managers the information they need for coordinating and controlling decentralized materials management groups. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #34 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 35. Proprietary software solutions to implement electronic data interchange systems now dominate the market for global supply chain management software. The ubiquity of the Internet and the availability of web-based applications have made most of these proprietary solutions obsolete. Less expensive web-based systems that are much easier to install and manage now dominate the market for global supply chain management software. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #35 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 36. Which of the following is about production and logistics in international businesses? A. The term production cannot be used to denote service activities. B. Developing nations are outsourcing the “production” of certain service activities to the United States. C. In an international firm, production and logistics are closely linked. D. The production functions of an international firm can only be located in its home country. E. Demands for local responsiveness create pressures to centralize production activities. The term production is used to denote both service and manufacturing activities, because one can produce a service or produce a physical product. Logistics is the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution. Production and logistics are closely linked because a firm’s ability to perform its production activities efficiently depends on a timely supply of high- quality material inputs, for which logistics is responsible. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #36 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 37. _____ refers to the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution. A. Promotion B. Recruitment C. Logistics D. Benchmarking E. Inshoring Logistics refers to the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution. Production and logistics are closely linked because a firm’s ability to perform its production activities efficiently depends on a timely supply of high-quality material inputs, for which logistics is responsible. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #37 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 38. Champion Works Inc. is an animation company, headquartered in the U.S. The CEO of the company has decided to outsource some of the production to companies in developing countries, as the firm seems to be losing out on its competitive advantage. This decision to shift functions or processes to less developed countries is due to their: A. strong intellectual property rights laws. B. lower labor costs. C. accessibility to better technology. D. sophisticated infrastructure. E. currency appreciation. In recent years, the trend among U.S. firms is to outsource the "production" of certain service activities to developing nations where labor costs are lower (for example, the trend among many U.S. companies to outsource customer care services to places such as India, where English is widely spoken and labor costs are much lower). AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 15 #38 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 39. An important objective shared by both production and logistics functions of an international firm is to: A. increase profits by lowering quality. B. increase foreign competition. C. lower costs by dispersing production activities. D. decrease inventory turnover. E. stock excess inventory on hand. The production and logistics functions of an international firm have a number of important strategic objectives. One is to lower costs. Dispersing production activities to various locations around the globe where each activity can be performed most efficiently can lower costs. Costs can also be cut by managing the global supply chain efficiently so as to better match supply and demand. Efficient supply chain management reduces the amount of inventory in the system and increases inventory turnover, which means the firm has to invest less working capital in inventory and is less likely to find excess inventory on hand that cannot be sold and has to be written off. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #39 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 40. A second strategic objective shared by production and logistics is to increase product quality by eliminating defective products from both the supply chain and the manufacturing process. In this context, quality means _____, implying that the product has no defects and performs well. A. affordability B. flexibility C. reliability D. adaptability E. patentability The production and logistics functions of an international firm have a number of important strategic objectives. One is to lower costs. A second strategic objective is to increase product quality by eliminating defective products from both the supply chain and the manufacturing process. In this context, quality means reliability, implying that the product has no defects and performs well. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #40 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 41. Which of the following is a consequence of improved quality control? A. Greater warranty costs B. Higher scrap costs C. Direct reduction in unit costs D. Decreased productivity E. Reduced inventory turnover The firm that improves its quality control will also reduce its costs of value creation. Improved quality control reduces costs by: (a) increasing productivity because time is not wasted producing poor-quality products that cannot be sold, leading to a direct reduction in unit costs; (b) lowering rework and scrap costs associated with defective products; (c) reducing the warranty costs and time associated with fixing defective products. The effect is to lower the costs of value creation by reducing both production and after-sales service costs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #41 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 42. The effect of improved quality control is to lower the costs of value creation by reducing production and: A. decreasing inventory turnover. B. decreasing after-sales service costs. C. increasing scrap costs. D. increasing warranty costs. E. increasing time spent on fixing defects. A firm that improves its quality control will also reduce its costs of value creation. The effect is to lower the costs of value creation by reducing both production and after-sales service costs. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #42 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 43. Manufacturing firms should typically aim at lowering the costs of value creation by: A. decreasing inventory turnover. B. stocking huge amounts of inventory. C. lowering the quality of products. D. increasing after-sales services cost. E. reducing production costs. A firm that improves its quality control will also reduce its costs of value creation. The effect is to lower the costs of value creation by reducing both production and after-sales service costs. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #43 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 44. The principal tool that most managers now use to increase the reliability of their product offering is _____, a statistically based methodology for improving product quality. It is a direct descendant of the total quality management philosophy. A. Six Sigma B. lean manufacturing C. just-in-time inventory D. ISO 9000 E. mass customization The principal tool that most managers now use to increase the reliability of their product offering is the Six Sigma quality improvement methodology. The Six Sigma methodology is a direct descendant of the total quality management (TQM) philosophy that was widely adopted, first by Japanese companies and then American companies during the 1980s and early 1990s. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #44 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 45. The Six Sigma methodology is a direct descendant of the _____ philosophy that was widely adopted, first by Japanese companies and then American companies during the 1980s and early 1990s. A. total quality management B. enterprise resource planning C. business process reengineering D. just-in-time E. business process outsourcing The principal tool that most managers now use to increase the reliability of their product offering is the Six Sigma quality improvement methodology. The Six Sigma methodology is a direct descendant of the total quality management (TQM) philosophy that was widely adopted, first by Japanese companies and then American companies during the 1980s and early 1990s. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #45 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 46. The total quality management philosophy was developed by a number of American consultants. Which of the following individuals is one of them? A. W. Edward Deming B. Philip Kotler C. Michael Porter D. Henry Ford E. Valerie Zeithaml The principal tool that most managers now use to increase the reliability of their product offering is the Six Sigma quality improvement methodology. The Six Sigma methodology is a direct descendant of the total quality management (TQM) philosophy that was widely adopted, first by Japanese companies and then American companies during the 1980s and early 1990s. The TQM philosophy was developed by a number of American consultants such as W. Edward Deming, Joseph Juran, and A. V. Feigenbaum. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #46 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 47. Which of the following is of W. Edward Deming's beliefs about the total quality management philosophy? A. He suggested that the quality of supervision should be improved by allowing more time for supervisors to work with employees. B. He argued that management should embrace the philosophy that mistakes, defects, and poor-quality materials are acceptable. C. He believed that work standards should be defined as numbers or quotas. D. He believed that achieving better quality requires the commitment of only the top management. E. He recommended that management should create an environment in which employees will fear recommending improvements. Deming identified a number of steps that should be part of any TQM program. He suggested that the quality of supervision should be improved by allowing more time for supervisors to work with employees. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #47 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 48. Which of the following companies adheres to the total quality management steps identified by W. Edward Deming? A. Unisorn Inc. believes in empowering employees by reducing interactions between them and their supervisors. B. Galaxy Inc. empowers its employees to report problems or recommend improvements without any fear. C. New Run Inc. bases its work standards solely on numbers or quotas. D. Ovion Inc. believes that the management is not responsible for training employees in new skills. E. Tirex Inc. endorses that the achievement of better quality is solely dependent on the lower management. The total quality management philosophy was developed by a number of American consultants such as W. Edward Deming, Joseph Juran, and A. V. Feigenbaum. Edward Deming recommended that management should create an environment in which employees will not fear reporting problems or recommending improvements. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #48 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 49. Which of the following best describes the relationship between the number of “sigmas” and the number of errors? A. The higher the number of "sigmas," the greater the number of errors. B. If the number of "sigmas" is a positive value, then the number of errors is always a negative value. C. The higher the number of "sigmas," the smaller the number of errors. D. The number of "sigmas" is independent of the number of errors. E. If the number of "sigmas" is negative, then the number of errors is always positive. Six Sigma , the modern successor to TQM, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. Sigma comes from the Greek letter that statisticians use to represent a standard deviation from a mean; the higher the number of “sigmas,” the smaller the number of errors. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #49 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 50. A statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company is known as _____. A. ISO 9000 B. just-in-time C. Six Sigma D. lean production E. total quality management Six Sigma , the modern successor to total quality management, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #50 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 51. Six Sigma refers to a statistically based philosophy that aims to: A. increase defects. B. lower productivity. C. increase the costs of value creation. D. eliminate waste. E. increase cost per unit. Six Sigma , the modern successor to total quality management, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #51 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 52. Which of the following statements is of Six Sigma? A. The higher the number of "sigmas," the higher the number of errors. B. At Six Sigma, a production process would be 90 percent accurate. C. Six Sigma work standards are based solely on numbers or quotas. D. It is almost impossible for a company to achieve Six Sigma perfection. E. Six Sigma is the modern successor to ISO 9000. Six Sigma , the modern successor to total quality management, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. At Six Sigma, a production process would be 99.99966 percent accurate, creating just 3.4 defects per million units. While it is almost impossible for a company to achieve such perfection, Six Sigma quality is a goal that several strive toward. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #52 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 53. Pink Polka Fashion Inc., a multinational clothing brand, has plans to expand in the European Union (EU) marketplace. In order to be able to do so, the EU requires that the: A. firm adopt techniques of total quality management. B. firm achieve six sigma. C. firm uses just-in-time inventory system. D. firm patents its designs and technology. E. firm’s products be certified under ISO 9000. The growth of international standards has also focused greater attention on the importance of product quality. In Europe, the European Union requires that the quality of a firm’s manufacturing processes and products be certified under a quality standard known as ISO 9000 before the firm is allowed access to the EU marketplace. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #53 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 54. Which of the following is a drawback of ISO 9000 certification? A. It is bureaucratic and costly for many firms. B. It is an impossible standard to achieve. C. It is losing its prominence in international business. D. It is ineffective in Europe. E. It is ineffective in bringing about quality improvement. The European Union requires that the quality of a firm’s manufacturing processes and products be certified under a quality standard known as ISO 9000 before the firm is allowed access to the EU marketplace. Although the ISO 9000 certification process has proved to be somewhat bureaucratic and costly for many firms, it does focus management attention on the need to improve the quality of products and processes. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #54 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 55. To be able to accommodate demands for local responsiveness, a firm should: A. ignore national differences in consumer tastes and preferences. B. decentralize production activities to the major national or regional markets. C. ensure that the manufacturing processes in all units are inflexible. D. standardize the product coming out of all manufacturing units. E. refrain from hiring host country managers. Production and logistics functions must be able to accommodate demands for local responsiveness. Demands for local responsiveness create pressures to decentralize production activities to the major national or regional markets in which the firm does business or to implement flexible manufacturing processes that enable the firm to customize the product coming out of a factory according to the market in which it is to be sold. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #55 Learning Objective: 15-01 Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 56. Uniway Technologies Inc. has based its manufacturing units in the country of Lanthania. The country's stable economic and political environment has helped the firm gain competitive advantage by lowering its production costs and improving product quality. Other things being equal, the benefits realized from such a strategy can be typically referred to as _____. A. economies of scope. B. location economies. C. diseconomies of scale. D. economies of power. E. learning economies. Other things being equal, a firm should locate its various manufacturing activities where the economic, political, and cultural conditions—including relative factor costs—are conducive to the performance of those activities. The benefits derived from such a strategy is usually referred to as location economies. AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 15 #56 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 57. Which of the following location externalities is favorable for foreign direct investment in a country? A. Presence of supporting industries B. Market saturated with other foreign competitors C. Lack of intellectual property rights laws D. Presence of a communist political system E. Adverse changes in currency exchange rates In some industries, the presence of global concentrations of activities at certain locations is important. Externalities include the presence of an appropriately skilled labor pool and supporting industries. Such externalities can play an important role in deciding where to locate manufacturing activities. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #57 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 58. Which of the following is a consequence of adverse changes in exchange rates? A. It brings more foreign direct investment into the country. B. It decreases the dollar cost of products exported from the country. C. It alters a country’s attractiveness as a manufacturing base. D. It transforms the country into a low-cost location. E. It decreases the amount of imports brought into the country. An important country factor to be considered in location decisions is expected future movements in its exchange rate. Adverse changes in exchange rates can quickly alter a country’s attractiveness as a manufacturing base. Currency appreciation can transform a low-cost location into a high-cost location. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #58 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 59. Which of the following statements is about performing a manufacturing activity in several locations at once? A. A manufacturing activity must be performed at multiple locations when the fixed costs of setting up a production plant are high. B. Performing a manufacturing activity in several locations makes it difficult for a firm to accommodate demands for local responsiveness. C. Producing in multiple locations reduces the bargaining power of a firm against manufacturers. D. The larger the minimum efficient scale of a plant relative to total global demand, the greater the need for decentralizing production to multiple locations. E. Many firms disperse their manufacturing plants to different locations as a “real hedge” against potentially adverse moves in currencies. Manufacturing in multiple locations may help a firm avoid becoming too dependent on one location. Being too dependent on one location is particularly risky in a world of floating exchange rates. Many firms disperse their manufacturing plants to different locations as a “real hedge” against potentially adverse moves in currencies. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #59 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 60. The concept of _____ tells us that as plant output expands, unit costs decrease. One reason is the greater utilization of capital equipment. A. minimum efficient scale B. lean production C. Six Sigma D. economies of scale E. total quality management The concept of economies of scale tells us that as plant output expands, unit costs decrease. The reasons include the greater utilization of capital equipment and the productivity gains that come with specialization of employees within the plant. However, beyond a certain level of output, few additional scale economies are available. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #60 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 61. The level of output at which most plant-level scale economies are exhausted is known as _____. A. mass customization B. breakeven point C. minimum efficient scale D. just-in-time E. lean production The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. This is the scale of output a plant must operate to realize all major plant-level scale economies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #61 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 62. Uvicon Inc. and Bionor Inc. are firms that compete against each other in the global market. Uvicon Inc. has a high level of fixed costs and high minimum efficient scale, while Bionor Inc. has a low level of fixed costs and minimum efficient scale. In this scenario, which of the following is ? A. Uvicon Inc. will be better prepared to hedge against potential adverse moves in currencies than Bionor Inc. B. Uvicon Inc. will benefit from centralizing its production activities and Bionor Inc. from decentralizing. C. Uvicon Inc. will have more bargaining power over contract manufacturers than Bionor Inc. D. Uvicon Inc. will be better enabled to adapt to changes in consumer demand in regional markets than Bionor Inc. E. Uvicon Inc. will be better prepared to accommodate demands for local responsiveness than Bionor Inc. If the fixed costs of setting up a production plant are high, a firm must serve the world market from a single location or from a very few locations. The larger the minimum efficient scale of a plant relative to total global demand, the greater the argument for centralizing production in a single location or a limited number of locations. AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 15 #62 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 63. Which of the following statements is about minimum efficient scale of output? A. With lesser utilization of capital equipment, the chances of a firm realizing economies of scale increases. B. A plant must avoid operating at the minimum efficient scale of output to realize all major plant-level scale economies. C. When the minimum efficient scale of production is low relative to global demand, it will be economical to manufacture a product at a single location. D. An advantage of a low minimum efficient scale is that it allows the firm to accommodate demands for local responsiveness. E. A low minimum efficient scale increases the risks against potentially adverse fluctuations in exchange rates. As in the case of low fixed costs, the advantages of a low minimum efficient scale includes allowing the firm to accommodate demands for local responsiveness or to hedge against currency risk by manufacturing the same product in several locations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #63 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 64. Which of the following is a consequence of a low minimum efficient scale? A. It prevents a firm from utilizing capital equipment fully. B. It enhances the need to centralize production in a single location or a limited number of locations. C. It prevents a firm from accommodating demands for local responsiveness. D. It increases the unit cost of products. E. It allows a firm to hedge against currency risk by manufacturing the same product in several locations. As in the case of low fixed costs, the advantages of a low minimum efficient scale include allowing the firm to accommodate demands for local responsiveness or to hedge against currency risk by manufacturing the same product in several locations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #64 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 65. A firm with a wide product variety will find it: A. difficult to achieve shorter product runs. B. difficult to increase its product sales. C. difficult to reduce its unit costs. D. easy to realize economies of scale. E. easy to reach optimum production efficiency. Producing greater product variety from a factory implies shorter production runs, which in turn implies an inability to realize economies of scale. That is, wide product variety makes it difficult for a company to increase its production efficiency and thus reduce its unit costs. AACSB: Reflective Thinking Blooms: Apply Difficulty: 3 Hard Hill - Chapter 15 #65 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 66. Producing a standardized product in large volumes will: A. result in diseconomies of scale. B. increase production efficiency. C. increase production costs. D. result in shorter production runs. E. result in a high minimum efficient scale of output. Producing greater product variety from a factory implies shorter production runs, which in turn implies an inability to realize economies of scale. That is, wide product variety makes it difficult for a company to increase its production efficiency and thus reduce its unit costs. According to this logic, the way to increase efficiency and drive down unit costs is to limit product variety and produce a standardized product in large volumes. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #66 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 67. Adopting flexible manufacturing technology to produce a wide variety of end products results in: A. increased setup times for complex equipment. B. increased utilization of individual machines. C. reduced quality control. D. increased unit cost of products. E. diseconomies of scale. The term flexible manufacturing technology—or lean production, as it is often called—covers a range of manufacturing technologies designed to (1) reduce setup times for complex equipment, (2) increase the utilization of individual machines through better scheduling, and (3) improve quality control at all stages of the manufacturing process. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #67 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 68. Which of the following is an objective of lean production? A. Reducing the quality of a product to keep unit costs low B. Reducing setup times for complex equipment C. Replacing customized production with mass production D. Decreasing utilization of individual machines through scheduling E. Increasing the level of minimum efficient scale of output The term flexible manufacturing technology —or lean production, as it is often called—covers a range of manufacturing technologies designed to (1) reduce setup times for complex equipment, (2) increase the utilization of individual machines through better scheduling, and (3) improve quality control at all stages of the manufacturing process. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #68 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 69. Mass customization reconciles the two goals of: A. mass production and long production runs. B. standardization and economies of scale. C. high fixed costs and single production facility. D. low cost and product customization. E. local responsiveness and decentralized production. The term mass customization has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible—low cost and product customization. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #69 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 70. Which of the following is an implication of a mass production system? A. It results in short production runs B. It fails to realize economies of scale C. It reduces the number of defects and eliminates waste. D. It helps to accommodate consumer preferences for product diversity E. It creates massive inventories that have to be stored in large warehouses. A disadvantage of mass production was that long production runs created massive inventories that had to be stored in large warehouses. This was expensive, both because of the cost of warehousing and because inventories tied up capital in unproductive uses. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #70 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 71. A _____ includes a grouping of various types of machinery, a common materials handler, and a computer to control the production of a family of parts or products. A. specialized asset B. dynamic capability C. turnkey project D. flexible machine cell E. just-in-time inventory A flexible machine cell is a grouping of various types of machinery, a common materials handler, and a centralized cell controller (computer). Each cell normally contains four to six machines capable of performing a variety of operations. The typical cell is dedicated to the production of a family of parts or products. The settings on machines are computer controlled, which allows each cell to switch quickly between the production of different parts or products. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #71 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 72. Which of the following is a consequence of using flexible machine cells? A. It fails to adapt to the production of different products. B. It generally results in stockpiles of partly finished products. C. It improves capacity utilization and reduces wastes. D. It increases setup time for complex equipment. E. It adds to the cost structure of a firm. Flexible machine cells refer to a flexible manufacturing technology in which a grouping of various machine types, a common materials handler, and a centralized cell controller produce a family of products. Improved capacity utilization and reductions in work in progress (i.e., stockpiles of partly finished products) and in waste are major efficiency benefits of flexible machine cells. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #72 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 73. Flexible manufacturing technologies help a company achieve mass customization, which increases its _____. A. cost structure B. waste C. customer responsiveness D. learning effects E. externalities Flexible manufacturing technologies help a company achieve mass customization, which increases its customer responsiveness. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #73 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 74. Amber Engineers Inc. wants to be able to customize products for different national markets and in turn increase its customer responsiveness. However, the fixed costs associated with its production are high. Hence, these functions will be performed most efficiently if Amber Engineers Inc.: A. sets up a production facility that is well suited for mass production. B. establishes multiple manufacturing facilities in each major national market. C. increases each manufacturing unit's minimum efficient scale of output. D. adopts flexible manufacturing technologies to help achieve mass customization. E. locates its production unit in countries that have drastic fluctuations in exchange rates. When flexible manufacturing technologies are available, a firm can manufacture products customized to various national markets at a single factory sited at the optimal location. And it can do this without absorbing a significant cost penalty. Thus, firms no longer need to establish manufacturing facilities in each major national market to provide products that satisfy specific consumer tastes and preferences. AACSB: Reflective Thinking Blooms: Apply Difficulty: 3 Hard Hill - Chapter 15 #74 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 75. Flexible manufacturing technologies enable companies to: A. establish multiple manufacturing facilities in each major national market. B. build large inventories. C. achieve product standardization across markets. D. increase their work in progress. E. produce customized products without a significant cost penalty. When flexible manufacturing technologies are available, a firm can manufacture products customized to various national markets at a single factory sited at the optimal location. And it can do this without absorbing a significant cost penalty. Thus, firms no longer need to establish manufacturing facilities in each major national market to provide products that satisfy specific consumer tastes and preferences. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #75 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 76. _____ refers to the production of a variety of end products at a unit cost that could once be achieved only through bulk production of a standardized output. A. Lean production B. Just-in-time C. Mass customization D. Specialized asset E. Dynamic capability Mass customization refers to the production of a variety of end products at a unit cost that could once be achieved only through bulk production of a standardized output. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #76 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 77. Which of the following statements is of flexible manufacturing technologies? A. The idea of manufacturing in each major market is becoming attractive due to these technologies. B. They fail to produce multiple models from the same line. C. They are used to reconcile the goals of large volumes and standardized output. D. They decrease the utilization of individual machines. E. They allow firms to customize products to national differences at a single facility. Other things being equal, when fixed costs are substantial, the minimum efficient scale of production is high, and/or flexible manufacturing technologies are available, the arguments for concentrating production at a few choice locations are strong. This is even when substantial differences in consumer tastes and preferences exist between national markets because flexible manufacturing technologies allow the firm to customize products to national differences at a single facility. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #77 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 78. Technological factors are making it feasible for firms to concentrate manufacturing facilities at optimal locations. The major brakes on this trend are: A. differences in endowment factors. B. transportation costs and trade barriers. C. rising national differences in consumer tastes and preferences. D. growing free trade areas and democracy. E. declining fluctuations in exchange rates. Technological factors are making it feasible, and necessary, for firms to concentrate manufacturing facilities at optimal locations. Trade barriers and transportation costs are major brakes on this trend. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #78 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 79. A product's value-to-weight ratio affects location decision primarily because of its influence on: A. transportation costs. B. shelf life. C. work-in-progress. D. inventory turnover. E. capacity utilization. One of the product features affecting location decisions is the product’s value-to-weight ratio because of its influence on transportation costs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #79 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 80. Two product factors impact location decisions. They are the product's value-to-weight ratio and: A. whether the product serves universal needs. B. the product’s life cycle. C. the product’s packaging. D. the availability of flexible manufacturing technology. E. whether the product is produced using environmental friendly methods. Two product features affect location decisions. The first is the product's value-to-weight ratio because of its influence on transportation costs. The other product feature that can influence location decisions is whether the product serves universal needs, needs that are the same all over the world. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #80 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 81. Which of the following is of high value-to-weight ratio products? A. They tend to have greater weight than other products. B. Their transportation costs account for a very small percentage of total costs. C. They tend to be inexpensive. D. There is great pressure to produce these products in multiple locations close to major markets. E. These products gain weight as raw materials get processed during transportation. Many electronic components and pharmaceuticals have high value-to-weight ratios; they are expensive and they do not weigh very much. Thus, even if they are shipped halfway around the world, their transportation costs account for a very small percentage of total costs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #81 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 82. Which of the following is of products with high value-to-weight ratios? A. They are expensive to transport. B. They tend to increase in weight after processing C. They tend to be restricted under trade barriers. D. They are expensive and do not weigh very much. E. They have a low inventory turnover. Many electronic components and pharmaceuticals have high value-to-weight ratios; they are expensive and they do not weigh very much. Thus, even if they are shipped halfway around the world, their transportation costs account for a very small percentage of total costs. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #82 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 83. Which of the following products is best manufactured in multiple locations close to major markets to reduce transportation costs? A. Pharmaceuticals B. Petroleum products C. Books D. Magazines E. Electronics Refined sugar, certain bulk chemicals, paint, and petroleum products all have low value-to-weight ratios; they are relatively inexpensive products that weigh a lot. Accordingly, when they are shipped long distances, transportation costs account for a large percentage of total costs. Thus, other things being equal, there is great pressure to make these products in multiple locations close to major markets to reduce transportation costs. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #83 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 84. Which of the following holds for products with low value-to-weight ratios? A. They are relatively expensive. B. They do not weigh very much. C. Their transportation costs account for a very small percentage of total costs. D. It is advisable to manufacture them in multiple locations close to major markets. E. Examples of these products are electronic components and pharmaceuticals. Products that have low value-to-weight ratios are relatively inexpensive products that weigh a lot. Accordingly, when they are shipped long distances, transportation costs account for a large percentage of total costs. Thus, other things being equal, there is great pressure to make these products in multiple locations close to major markets to reduce transportation costs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #84 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 85. Which of the following statements is of industrial products such as steel? A. They serve needs that are the same all over the world. B. They have drastic national differences in consumer taste and preference. C. The need for local responsiveness for these products is more than consumer products. D. It makes sense to produce these products in multiple locations close to major markets. E. A plant must operate at the highest minimum efficient scale of output for these products. A product feature that can influence location decisions is whether the product serves universal needs, needs that are the same all over the world. Examples include many industrial products (e.g., industrial electronics, steel, bulk chemicals). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #85 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 86. Which of the following is of a product that serves universal needs? A. It becomes necessary to customize the product to suit small consumer groups. B. It becomes necessary to accommodate demands for local responsiveness. C. It increases the attractiveness of concentrating production at an optimal location. D. It is difficult to serve national differences in consumer taste and preference. E. It is attractive to globally disperse production to all major markets. A product feature that can influence location decisions is whether the product serves universal needs, needs that are the same all over the world. Because there are few national differences in consumer taste and preference for such products, the need for local responsiveness is reduced. This increases the attractiveness of concentrating production at an optimal location. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #86 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 87. Concentration of production makes most sense when: A. trade barriers are low. B. the product’s value-to-weight ratio is low. C. important exchange rates are volatile. D. flexible manufacturing technology does not exist. E. the production technology has low fixed costs. Concentration of production makes most sense when trade barriers are low. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #87 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 88. When should a firm concentrate its production facilities in a centralized location? A. When the production technology has a low minimum efficient scale B. When the production technology has low fixed costs C. When important exchange rates are expected to remain relatively stable D. When flexible manufacturing technologies are not available E. When the product’s value-to-weight ratio is low Concentration of production makes most sense when important exchange rates are expected to remain relatively stable. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #88 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 89. Which of the following firms should concentrate its production in a centralized location? A. Jupiter Inc. operates in an industry where the fixed costs are high and services of supporting industries are of prime importance. B. Star Goal Inc. manufactures consumer products like processed food, apparel, and cosmetics for which national differences in consumer taste and preference are wide. C. Uranious Inc. operates in an economy where volatile fluctuations in exchange rates are frequently expected. D. Earth Ventures Inc. is a mining company that exports iron ore—a product with low value-to-weight ratio—to various countries. E. Silver Times Inc. customizes heavy machines without the use of flexible manufacturing technologies. Concentration of production makes most sense when the production technology has high fixed costs and high minimum efficient scale relative to global demand, or flexible manufacturing technology exists. AACSB: Reflective Thinking Blooms: Apply Difficulty: 3 Hard Hill - Chapter 15 #89 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 90. When is decentralization of manufacturing facilities most appropriate? A. When the product serves universal needs B. When exchange rates are expected to remain relatively stable C. When the product's value-to-weight ratio is high D. When there are few trade barriers E. When the production technology has low minimum efficient scale Decentralization of manufacturing is appropriate when the production technology has low fixed costs, low minimum efficient scale, and flexible manufacturing technology is not available. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #90 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 91. Which of the following firms should concentrate its production in a decentralized location? A. Univion Inc. operates in an industry where national differences in political economy and culture have a substantial impact on its cost of production. B. Saturn Inc. operates in an industry where volatile fluctuations in important exchange rates are expected. C. Brew Technology manufactures industrial machines and equipment that serve universal needs. D. Gold Dreams Inc. customizes jewelry in precious metal and stones with the aid of flexible manufacturing technologies. E. Uniton Inc. uses a production technology that has high fixed costs and high minimum efficient scale. Decentralization of production is appropriate when volatility in important exchange rates is expected. AACSB: Reflective Thinking Blooms: Apply Difficulty: 3 Hard Hill - Chapter 15 #91 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 92. Which of the following is a step taken by automobile companies in situations where either centralization or decentralization of production is not feasible? A. Outsourcing production to developing countries B. Inshoring production into the home country C. Selling product patents and technology to competitors D. Refraining from international trade E. Establishing top-to-bottom manufacturing operations Although the availability of flexible manufacturing and cars' relatively high value-to-weight ratios suggest concentrated manufacturing, the combination of formal and informal trade barriers and the uncertainties of the world's current floating exchange rate regime have inhibited firms' ability to pursue this strategy. For these reasons, several automobile companies have established "top-to-bottom" manufacturing operations in three major regional markets: Asia, North America, and Western Europe. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #92 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 93. Which of the following is a hidden cost to basing production in a foreign location? A. Low employee turnover B. Low labor costs C. Poor product quality D. Expensive higher education system E. Low inventory turnover There may be some “hidden costs” to basing production in a foreign location. Numerous anecdotes suggest that high employee turnover, shoddy workmanship, poor product quality, and low productivity are significant issues in some outsourcing locations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #93 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 94. Which of the following is the initial reason for the establishment of a foreign production facility? A. Employee turnover is high. B. Product quality is low. C. Inventory turnover is low. D. Exchange rate fluctuations are high. E. Labor costs are low. Whatever the rationale behind establishing a foreign production facility, the strategic role of foreign sites can evolve over time. Initially, many foreign sites are established where labor costs are low. Typically, their strategic role is to produce labor-intensive products at as low a cost as possible. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #94 Learning Objective: 15-02 Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 95. Which of the following is a result of pressure from the headquarters of a company to customize a product to the demands of consumers in a particular nation at a foreign production site? A. Development of additional capabilities B. Centralization of production activities C. Long production runs of standardized output D. Low demand for local responsiveness. E. Basing production facilities in a single location. Upward migration in the strategic role of foreign production sites arises because many foreign sites upgrade their own capabilities. Pressure from the center to improve a site’s cost structure and/or customize a product to the demands of consumers in a particular nation can start a chain of events that ultimately leads to development of additional capabilities at that factory. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #95 Learning Objective: 15-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site 96. Which of the following is a source of improvement in the capabilities of foreign factories? A. The need to manufacture a product that serves universal needs B. Market stagnation in the country in which the factory is located C. Apathy of the headquarters of a company toward the foreign production facility D. Abundance of advanced factors of production in the nation in which the factory is located E. Decline in the education level of the country's population where the factory is located A source of improvement in the capabilities of a foreign site can be the increasing abundance of advanced factors of production in the nation in which the factory is located. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #96 Learning Objective: 15-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site 97. Which of the following is according to the transnational strategy? A. Foreign facilities are viewed as nothing more than low-cost production facilities. B. Valuable knowledge resides only in a firm’s domestic operations. C. Foreign sites can take the lead role for the design of products to serve important regional markets. D. Local managers should not be empowered to enhance their factories strategic standing within the corporation. E. The strategy opposes the empowerment of local managers to enhance their factories strategic standing within the corporation. Many international businesses are moving away from a system in which their foreign facilities were viewed as nothing more than low-cost production facilities and toward one where they are viewed as globally dispersed centers of excellence. In this new model, foreign sites may take the lead role for the design and manufacture of products to serve important national or regional markets or even the global market. The development of such dispersed centers of excellence is consistent with the concept of a transnational strategy. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #97 Learning Objective: 15-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site 98. The flow of skills and product offerings from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary is known as _____. A. dumping B. reverse mentoring C. cultural relativism D. global learning E. learning effects The flow of skills and product offerings from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary is known as global learning. Foreign factories that upgrade their capabilities over time are creating valuable knowledge that might benefit the whole corporation. AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Hill - Chapter 15 #98 Learning Objective: 15-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site 99. Due to the upward migration in the strategic role of foreign production sites, they are now viewed as: A. centers that do not generate valuable knowledge. B. globally dispersed centers of excellence. C. liabilities that add to the cost structure of the company. D. sweatshops where unskilled labor churns out low-cost goods. E. low quality manufacturing centers. Upward migration in the strategic role of foreign production sites arises because many foreign sites upgrade their own capabilities. Many international businesses are moving away from a system in which their foreign facilities were viewed as nothing more than low-cost production facilities and toward one where they are viewed as globally dispersed centers of excellence. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #99 Learning Objective: 15-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site 100. Which of the following statements is about make-or-buy decisions? A. Make-or-buy decisions are applicable only to physical products and not service activities. B. Historically, most outsourcing decisions have involved the manufacture of physical products. C. Information technology companies in the United States are testing code in-house and outsourcing the code writing process. D. Domestic businesses do not suffer from problems regarding outsourcing decisions. E. Volatile exchange rate movements complicate outsourcing decisions. International businesses frequently face make-or-buy decisions, decisions about whether they should perform a certain value creation activity themselves or outsource it to another entity. Historically, most outsourcing decisions have involved the manufacture of physical products. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #100 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 101. The Maroon Apparel company controls the weaving, dyeing, cutting, and sewing of its merchandise. Apart from these activities, it also manufactures buttons, zips, buckles, and other accessories for its apparel. This is done in order to exercise tight control over its manufacturing processes and to reduce production costs. This strategy of the company is known as _____. A. vertical integration B. unrelated diversification C. horizontal integration D. mass customization E. conglomerate diversification Making all or part of a product in-house is known as vertical integration. Most manufacturing firms have to decide whether to vertically integrate and manufacture their own component parts or outsource the production of such parts, purchasing them from independent suppliers. AACSB: Analytic Blooms: Apply Difficulty: 3 Hard Hill - Chapter 15 #101 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 102. Which of the following is a recent trend among international businesses regarding make-or-buy decisions? A. Foreign facilities are considered nothing more than low-cost production facilities. B. Research and design operations are restricted to home-country production facilities. C. Manufacturing facilities are being based in each major national market. D. Firms are avoiding time-based competition with each other. E. Outsourcing decisions are expanding to embrace the production of service activities. International businesses frequently face make-or-buy decisions, decisions about whether they should perform a certain value creation activity themselves or outsource it to another entity. In recent years, the outsourcing decision has gone beyond the manufacture of physical products to embrace the production of service activities. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #102 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 103. A(n) _____ refers to an asset designed to perform a specific task, whose value is significantly reduced in its next-best use. A. fixed asset B. specialized asset C. intangible asset D. liquid asset E. deferred asset Sometimes firms have to invest in specialized assets in order to do business with another enterprise. A specialized asset is designed to perform a specific task, whose value is significantly reduced in its next-best use. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #103 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 104. Which of the following statements is about specialized assets? A. The value of a specialized asset significantly increases in its next-best use. B. When one firm must invest in specialized assets to supply another, mutual dependency is created. C. When substantial investments in specialized assets are required, firms prefer to contract it out to a supplier. D. A specialized asset is a flexible manufacturing technology that can be put to multiple uses. E. Using a specialized asset allows firms to switch their orders easily between suppliers. A specialized asset is one whose value is contingent upon a particular relationship persisting. When one firm must invest in specialized assets to supply another, mutual dependency is created. In such circumstances, each party might fear the other will abuse the relationship by seeking more favorable terms AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #104 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 105. Which of the following is an argument that supports vertical integration? A. It makes planning, coordination, and scheduling of adjacent processes easy. B. It facilitates the transfer of proprietary product technology. C. It increases the number of subunits in an organization. D. It eliminates the need to invest in specialized assets. E. It prevents a firm from maintaining flexibility. The arguments that support making all or part of a product in-house—vertical integration—are fivefold. In-house production may be associated with lower costs, facilitate investments in highly specialized assets, protect proprietary product technology, enable the firm to accumulate valuable skills and capabilities, and ease the scheduling of adjacent processes. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #105 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 106. A firm should make a component internally rather than contracting it out to a supplier when: A. substantial investments in specialized assets can be avoided. B. the firm uses proprietary product technology that helps in gaining competitive advantage. C. it wants to reduce the number of subunits in the organization. D. the optimal location for manufacturing a product is beset by political risks. E. different tax regimes and exchange rate movements increase the complexity of transfer pricing decisions. Proprietary product technology is unique to a firm. If it enables the firm to produce a product containing superior features, proprietary technology can give the firm a competitive advantage. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #106 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 107. If a firm possesses proprietary product technology, the best option for that firm would be to: A. manufacture the product in-house so that it does not lose its competitive advantage. B. outsource the production activities to independent suppliers in order to realize economies of scale. C. merge with competitors to reduce investments on technology. D. share the technology to make the industry more competitive. E. transfer the technology to less developed countries. Proprietary product technology is unique to a firm. If it enables the firm to produce a product containing superior features, proprietary technology can give the firm a competitive advantage. The firm would not want competitors to get this technology. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #107 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 108. Which of the following refer(s) to skills of a corporation that become more valuable over time through learning? A. Global learning B. Accrued interests C. Dynamic capabilities D. Learning effects E. Universal needs Firms can learn through their experience how to lower cost, design better products, increase product reliability, and so on. Their capabilities (skills), in other words, are dynamic ; they are learned through experience (the term dynamic capabilities is used to describe skills that become more valuable over time through learning). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #108 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 109. Which of the following is an advantage for a firm that buys component parts from independent suppliers? A. It makes planning, coordination, and scheduling of adjacent processes easier. B. It protects a firms proprietary production technology. C. It facilitates investments in highly specialized assets. D. It allows a firm to maintain its flexibility by switching orders between suppliers. E. It provides the opportunity to build dynamic capabilities in production activities. The great advantage of buying component parts, or even an entire product, from independent suppliers is that the firm can maintain its flexibility, switching orders between suppliers as circumstances dictate. This is particularly important internationally, where changes in exchange rates and trade barriers can alter the attractiveness of supply sources. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #109 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 110. Which of the following is a disadvantage of vertical integration? A. It fails to protect a firm's proprietary product technology. B. Firms lose out on the opportunities to build dynamic capabilities. C. It is difficult to determine appropriate prices for goods transferred to subunits within a firm. D. It fails to facilitate investments in highly specialized assets. E. It does not allow a firm to exercise tight control over its production process. Although making a product or component part in-house—vertical integration—is often undertaken to lower costs, it may have the opposite effect. Vertically integrated firms have to determine appropriate prices for goods transferred to subunits within the firm. This is a challenge in any firm, but it is even more complex in international businesses. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #110 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 111. Which of the following can a vertically integrated firm that buys its components from independent suppliers avoid? A. Problems associated with transfer pricing decisions B. The risk of losing its proprietary product technology to competitors C. The risk of losing out on the opportunities to enhance its dynamic capabilities D. Being dependent on suppliers to invest in specialized assets E. Responding to changes in exchange rates and trade barriers Vertically integrated firms have to determine appropriate prices for goods transferred to subunits within the firm. This is a challenge in any firm, but it is even more complex in international businesses. Different tax regimes, exchange rate movements, and headquarters’ ignorance about local conditions all increase the complexity of transfer pricing decisions. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #111 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 112. Which of the following is of vertical integration? A. It does not provide long-term competitive advantage. B. A firm risks losing its proprietary product technology to competitors. C. A firm can leverage its dynamic capabilities to produce a range of elegantly designed products. D. Substantial investments in specialized assets are required to manufacture a component. E. The greater the number of subunits in an organization, the more problems controlling those units. Although making a product or component part in-house—vertical integration—is often undertaken to lower costs, it may have the opposite effect. The greater the number of subunits in an organization, the more problems coordinating and controlling those units. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #112 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 113. Which of the following is a disadvantage of outsourcing production to independent suppliers? A. It makes it necessary for firms to invest in specialized assets. B. It reduces the strategic flexibility of a firm by limiting its ability to adapt during changes in exchange rates. C. It increases the risk of suppliers expropriating a firm's proprietary product technology for their own use. D. It increases the bureaucratic inefficiencies and costs associated with transfer pricing decisions. E. It makes it difficult to achieve coordination in an organization by increasing the number of subunits in it. Proprietary product technology is unique to a firm. If the firm outsources the production of entire products or components containing proprietary technology, it runs the risk that those suppliers will expropriate the technology for their own use or that they will sell it to the firm’s competitors. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #113 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 114. The government of Lithaya placed a large order for buses with Blue Ace Inc., a manufacturing company in Lodesia. In return, it asks the company to subcontract some work to Lithayan manufacturers. This is an example of a(n) _____ in international business. A. consortium agreement B. cartel arrangement C. offset agreement D. monopoly arrangement E. collective bargaining agreement A reason for outsourcing some manufacturing to independent suppliers based in other countries is that it may help the firm capture more orders from that country. Offsets are common in the commercial aerospace industry. AACSB: Reflective Thinking Blooms: Apply Difficulty: 3 Hard Hill - Chapter 15 #114 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 115. Which of the following statements is about strategic alliances with suppliers? A. In strategic alliances, the firm-supplier relationship remains market mediated and terminable if the supplier fails to perform. B. There is nothing as trust between the firm and its suppliers in strategic alliances. C. Strategic alliances are short-term relationships that benefit only the independent suppliers. D. In a strategic alliance the benefits arising from investments in specialized assets and vertical integration are lost. E. A firm that enters long-term alliances is expanding its strategic flexibility by committing to its alliance partners. In strategic alliances, the relationship between the firm and each essential supplier remains market mediated and terminable if the supplier fails to perform. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #115 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 116. Which of the following is a drawback of entering into strategic alliances with independent suppliers? A. The firm loses out on many of the benefits arising from investments in specialized assets. B. The strategic relationship between a firm and each of its essential suppliers is not market-mediated. C. The firm risks giving away key technological know-how to a potential competitor. D. It cannot be terminated even if the supplier fails to perform. E. They are short-term relationships in which firms have stronger bargaining power than their suppliers. Alliances are not all good. Like formal vertical integration, a firm that enters long-term alliances may limit its strategic flexibility by the commitments it makes to its alliance partners. A firm that allies itself with another firm risks giving away key technological know-how to a potential competitor. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #116 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 117. The arrangement of strategic alliances with suppliers was pioneered by the: A. retail industry of America. B. large auto companies of Japan. C. large electronics firms of Germany. D. information technology companies of India. E. large scale manufacturing units of China. Several international businesses have tried to reap some benefits of vertical integration without the associated organizational problems by entering strategic alliances with essential suppliers. This kind of arrangement between the firm and its parts suppliers was pioneered in Japan by large auto companies such as Toyota. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #117 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 118. Which of the following is a disadvantage of a firm that enters long-term alliances? A. It may lose the ability to realize economies of scale. B. It does not have the authority to terminate the alliance if partners fail to perform. C. It loses the capability to capture the benefits of vertical integration. D. It may limit its strategic flexibility by the commitments it makes to its alliance partners. E. It risks losing opportunities to build on its skills and capabilities. Like formal vertical integration, a firm that enters long-term alliances may limit its strategic flexibility by the commitments it makes to its alliance partners. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #118 Learning Objective: 15-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 119. Which of the following is an objective of logistics? A. Increase the cost of value creation B. Manage firms global supply chain at a low cost C. Reduce inventory turnover D. Reduce a firm's customer responsiveness E. Increase inventory holding costs The twin objectives of logistics are to manage a firm's global supply chain at the lowest possible cost and in a way that best serves customer needs, thereby lowering the costs of value creation and helping the firm establish a competitive advantage through superior customer service. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #119 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 120. Which of the following was pioneered by Japanese firms during that country’s remarkable economic transformation during the 1960s and 1970s? A. Lean production B. Flexible manufacturing technology C. Dynamic capabilities D. Just-in-time inventory systems E. Global learning Pioneered by Japanese firms during the country's remarkable economic transformation during the 1960s and 1970s, just-in-time inventory systems now play a major role in most manufacturing firms. The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #120 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 121. _____ refers to a logistics system designed to deliver parts to a production process as they are needed, not before. A. Inventory information system B. Basket trading system C. Buffer stock system D. Just-in-time inventory system E. Real-time processing system Just-in-time inventory refers to logistics systems designed to deliver parts to a production process as they are needed, not before. The major cost saving comes from speeding up inventory turnover. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #121 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 122. The basic philosophy behind just-in-time (JIT) inventory systems is to: A. economize on inventory holding costs. B. reduce inventory turnover. C. create a buffer stock of inventory. D. reduce costs by reducing quality. E. increase the total working capital requirement. The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. The major cost saving comes from speeding up inventory turnover. AACSB: Reflective Thinking Blooms: Apply Difficulty: 2 Medium Hill - Chapter 15 #122 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 123. Which of the following is about firms using just-in-time (JIT) inventory system? A. A company is more likely to have excess unsold inventory that it has to write off against earnings. B. Parts enter the manufacturing process immediately; they are not warehoused. C. It is difficult to spot and fix defective inputs. D. The amount of working capital a company needs to finance inventory increases. E. A firm has ample buffer stock of inventory. Just-in-time (JIT) systems can help firms improve product quality. Under a JIT inventory system, parts enter the manufacturing process immediately; they are not warehoused. This allows defective inputs to be spotted right away. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #123 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 124. Which of the following increase(s) under just-in-time (JIT) inventory system? A. Amount of working capital for inventory B. Inventory turnover C. Number of defective parts D. Inventory holding costs E. Storage costs The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. The major cost saving comes from speeding up inventory turnover. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #124 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 125. A major cost saving from just-in-time inventory systems comes from: A. a shift in focus away from quality. B. increasing productivity of workers. C. speeding up inventory turnover. D. creating a buffer stock of inventory. E. writing off excess unsold inventory against earnings. The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. The major cost saving from JIT inventory systems comes from speeding up inventory turnover. This reduces inventory holding costs, such as warehousing and storage costs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #125 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 126. Under a more traditional system as opposed to a just-in-time inventory system, warehousing parts for weeks before they are used: A. reduces the total working capital required by a firm. B. allows many defective parts to be produced before a problem is recognized. C. results in a near error-free production process. D. reduces the costs related to inventory holding. E. reduces the need to write off excess unsold inventory against earnings. Under a more traditional system, warehousing parts for weeks before they are used allows many defective parts to be produced before a problem is recognized. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #126 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 127. The drawback of a just-in-time inventory system is that it: A. increases the total capital required by a firm. B. leaves a firm without a buffer stock of inventory. C. increases inventory holding costs, such as warehousing and storage costs. D. is less efficient than traditional system in spotting and fixing defective inputs. E. lowers a company’s profitability as measured by return on capital invested. The drawback of a just-in-time inventory system is that it leaves a firm without a buffer stock of inventory. Although buffer stocks are expensive to store, they can help a firm respond quickly to increases in demand and tide a firm over shortages brought about by disruption among suppliers. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #127 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 128. Which of the following is a consequence of using just-in-time inventory systems? A. It slows down inventory turnover. B. It increases inventory holding costs. C. It increases the amount of working capital a firm needs. D. It can help firms improve product quality. E. It does not allow defective inputs to be spotted immediately. The basic philosophy behind just-in-time (JIT) inventory systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. In addition to the cost benefits, JIT systems can also help firms improve product quality. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #128 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 129. One way to reduce the risks associated with a global supply chain that operates on just-in-time principles is to: A. depend on one supplier for an important input. B. outsource the production of inputs only to advanced countries. C. hold an excess buffer stock of inventory. D. source inputs from several suppliers located in different countries. E. avoid using electronic data interchange. There are ways of reducing the risks associated with a global supply chain that operates on just-in-time principles. To reduce the risks associated with depending on one supplier for an important input, some firms source these inputs from several suppliers located in different countries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #129 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 130. Firms now typically use _____ via the Internet to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. A. flexible manufacturing technology B. lean production C. computer-aided manufacturing D. electronic data interchange E. just-in-time inventory systems Firms now typically use electronic data interchange (EDI) via the Internet to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #130 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 131. Which of the following allows suppliers, shippers, and the purchasing firm to communicate with each other via the Internet with no time delay? A. Electronic data interchange system B. Data warehousing system C. Batch processing system D. Skills inventory system E. Just-in-time inventory system Suppliers typically use an electronic data interchange (EDI) link to send invoices to the purchasing firm. One consequence of an EDI system is that suppliers, shippers, and the purchasing firm can communicate with each other with no time delay, which increases the flexibility and responsiveness of the whole global supply system. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #131 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 132. Geminia System, manufacturer of car components, wants to set up a system that will help in sending invoices to its customers once orders for input supply are placed. Which of the following should the company use to perform this function? A. Computer-aided design system B. Lean production C. Just-in-time inventory system D. Electronic data interchange E. Social networking Firms now typically use electronic data interchange (EDI) via the Internet to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. These electronic links are then used to place orders with suppliers, to register parts leaving a supplier, to track them as they travel toward a manufacturing plant, and to register their arrival. Suppliers typically use an EDI link to send invoices to the purchasing firm. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #132 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 133. Which of the following is a consequence of an electronic data interchange system? A. Increased in production costs B. Reduction in paperwork between suppliers, shippers, and the purchasing firm C. Helps a firm centralize materials management decisions D. Decrease in flexibility and responsiveness of the supply system E. Leaves a firm without a buffer stock of inventory Firms now typically use electronic data interchange (EDI) via the Internet to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. A consequence of an EDI system is that much of the paperwork between suppliers, shippers, and the purchasing firm is eliminated. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 15 #133 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 134. Which of the following is a result of using electronic data interchange systems? A. It helps a firm decentralize materials management decisions to the plant level. B. It helps achieve longer productions runs in manufacturing units. C. It excludes customers from the system. D. It helps firms in reducing their inventory turnover. E. It delays the realization of economies of scale. Good electronic data interchange systems can help a firm decentralize materials management decisions to the plant level by giving corporate-level managers the information they need for coordinating and controlling decentralized materials management groups. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 15 #134 Learning Objective: 15-05 Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 135. Which of the following has caused proprietary software solutions to implement electronic data interchange systems obsolete? A. Just-in-time inventory system B. Flexible machine technology C. The Internet D. Dynamic capabilities E. Social Networking Before the emergence of the Internet as a major communication medium, firms and their suppliers normally had to purchase expensive proprietary software solutions to implement EDI systems. The ubiquity of the Internet and the availability of web-based applications have made most of these proprietary solutions obsolete. ch16 Key 1. A global marketing strategy that views the world's consumers as similar in their preferences is consistent with the mass production of a standardized output. A global marketing strategy that views the world's consumers as similar in their tastes and preferences is consistent with the mass production of a standardized output. By mass-producing a standardized output, whether it be soap, semiconductor chips, or high-end apparel, the firm can realize substantial unit cost reductions from experience curve and other economies of scale. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #1 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Introduction 2. A critical aspect of the marketing function is identifying gaps in the market so that a firm can develop new products to fill those gaps. A critical aspect of the marketing function is identifying gaps in the market so that the firm can develop new products to fill those gaps. Developing new products requires research and development (R&D)—thus, the linkage between marketing and R&D. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #2 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Introduction 3. Firms vary their marketing mix from country to country depending on differences in national culture The marketing mix is a set of choices that a firm offers to its targeted markets. Many firms vary their marketing mix from country to country, depending on differences in national culture, economic development, product standards, distribution channels, and so on. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #3 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Introduction 4. According to Theodore Levitt, technology has resulted in the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude. According to Theodore Levitt, a powerful force drives the world toward a converging commonalty, and that force is technology. It has proletarianized communication, transport, and travel. The result is a new commercial reality—the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #4 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: The Globalization of Markets and Brands 5. Markets can be segmented by geography, demography, sociocultural factors, and psychological factors. Markets can be segmented in numerous ways: by geography, demography (sex, age, income, race, education level, etc.), sociocultural factors (social class, values, religion, lifestyle choices), and psychological factors (personality). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #5 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 6. Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Markets can be segmented in numerous ways: by geography, demography (sex, age, income, race, education level, etc.), sociocultural factors (social class, values, religion, lifestyle choices), and psychological factors (personality). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #6 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 7. When managers in an international business consider market segmentation in foreign countries, they need to be cognizant of the difference between countries in the structure of market segments. When managers in an international business consider market segmentation in foreign countries, they need to be cognizant of two main issues: the differences between countries in the structure of market segments and the existence of segments that transcend national borders. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #7 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 8. For a market segment to transcend national borders, consumers in that segment must have some compelling similarities along important dimensions such as age, values, and lifestyle choices. For a market segment to transcend national borders, consumers in that segment must have some compelling similarities along important dimensions—such as age, values, lifestyle choices—and those similarities must translate into similar purchasing behavior. Although segments that transcend national borders clearly exist in certain industrial markets, they are somewhat rarer in consumer markets. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #8 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 9. In terms of factors influencing product attributes, the impact of tradition is particularly important in foodstuffs and beverages. The most important aspect of cultural differences is probably the impact of tradition. Tradition is particularly important in foodstuffs and beverages. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #9 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 10. The fact that tastes and preferences of consumers are not universal disproves Theodore Levitt's views on the globalization of markets. There is some evidence of the trends Theodore Levitt talked about. Tastes and preferences are becoming more cosmopolitan. Although some cultural convergence has occurred, particularly among the advanced industrial nations of North America and western Europe, Levitt’s global culture characterized by standardized tastes and preferences is still a long way off. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #10 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 11. Consumers in the most developed countries are often willing to sacrifice their preferred product attributes for lower priced products. For most consumer durables, product reliability may be a more important attribute in less developed nations, where such a purchase may account for a major proportion of a consumer’s income, than it is in advanced nations. Contrary to Theodore Levitt's suggestions, consumers in the most developed countries are often not willing to sacrifice their preferred attributes for lower prices. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #11 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 12. Firms based in less developed nations tend to build a lot of extra performance attributes into their products. Firms based in highly developed countries such as the United States tend to build a lot of extra performance attributes into their products. These extra attributes are not usually demanded by consumers in less developed nations, where the preference is for more basic products. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #12 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 13. Differences in government-mandated product standards can rule out mass production and marketing of a standardized product. Differing government-mandated product standards can rule out mass production and marketing of a standardized product. Differences in technical standards also constrain the globalization of markets. Some of these differences result from idiosyncratic decisions made long ago, rather than from government actions, but their long-term effects are profound. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #13 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 14. A concentrated retail system is one in which there are many retailers, none of which has a major share of the market. In a concentrated retail system, a few retailers supply most of the market. Many of the differences in concentration are rooted in history and tradition. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #14 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 15. In terms of the differences between countries with respect to distribution systems, there is a tendency for lesser retail concentration in developed countries. There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, number of households with refrigerators and freezers, and number of two-income households. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #15 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 16. In terms of channel length, the more fragmented the retail system, the less expensive it is for a firm to make contact with each individual retailer. The more fragmented the retail system, the more expensive it is for a firm to make contact with each individual retailer. Accordingly, it makes economic sense for the firm to sell to the wholesalers and the wholesalers to deal with the retailers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #16 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 17. The expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international business is referred to as channel exclusivity. Channel quality refers to the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #17 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 18. There is generally a critical link between channel length, the final selling price, and the firm's profit margin because each intermediary in a channel adds its own markup to the products. Because each intermediary in a channel adds its own markup to the products, there is generally a critical link between channel length, the final selling price, and the firm's profit margin. The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #18 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 19. One benefit of a longer distribution channel is that it cuts selling costs when the degree of fragmentation of the retail sector is less. One benefit of a longer distribution channel is that it cuts selling costs when the retail sector is very fragmented. Thus, it makes sense for an international business to use longer distribution channels in countries where the retail sector is fragmented and shorter distribution channels in countries where the retail sector is concentrated. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #19 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 20. The effectiveness of a firm's international communication can be jeopardized by cultural barriers only. International communication occurs whenever a firm uses a marketing message to sell its products in another country. The effectiveness of a firm’s international communication can be jeopardized by three potentially critical variables: cultural barriers, source effects, and noise levels. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #20 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 21. In international marketing, a message that means one thing in one country may mean something quite different in another due to cultural differences. Cultural barriers can make it difficult to communicate messages across cultures. Because of cultural differences, a message that means one thing in one country may mean something quite different in another. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #21 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 22. Many international businesses try to counter negative source effects by deemphasizing their foreign origins. Source effects can be damaging for an international business when potential consumers in a target country have a bias against foreign firms. Many international businesses try to counter negative source effects by deemphasizing their foreign origins. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #22 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 23. A pull strategy refers to a marketing strategy that emphasizes personal selling rather than mass media advertising in the promotional mix. A pull strategy refers to a marketing strategy emphasizing mass media advertising as opposed to personal selling in the promotional mix. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #23 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 24. Firms in consumer goods industries that are trying to sell to a large segment of the market generally favor a push strategy. Firms in consumer goods industries that are trying to sell to a large segment of the market generally favor a pull strategy. Mass communication has cost advantages for such firms, thus they rarely use direct selling. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #24 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 25. The shorter the distribution channel, the more intermediaries there are that must be persuaded to carry the product for it to reach the consumer. The longer the distribution channel, the more intermediaries there are that must be persuaded to carry the product for it to reach the consumer. This can lead to inertia in the channel, which can make entry difficult. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #25 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 26. A firm's ability to use a pull marketing strategy is limited in some countries by media availability. A pull strategy relies on access to advertising media. A firm’s ability to use a pull strategy is limited in some countries by media availability. In such circumstances, a push strategy is more attractive. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #26 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 27. A disadvantage of standardized advertising is that it increases the costs of value creation by spreading the fixed costs of developing the advertisements over many countries. In recent years, largely inspired by the work of visionaries such as Theodore Levitt, there has been much discussion about the pros and cons of standardizing advertising worldwide. One of the advantages of standardized advertising is that it lowers the costs of value creation by spreading the fixed costs of developing the advertisements over many countries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #27 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 28. The elasticity of demand for a product in a given country is determined by a number of factors, of which income level and competitive conditions are the two most important. The elasticity of demand for a product in a given country is determined by a number of factors, of which income level and competitive conditions are the two most important. Price elasticity tends to be greater in countries with low income levels and many competitors. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #28 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 29. Predatory pricing exists whenever consumers in different countries are charged different prices for the same product, or for slightly different variations of the product. Price discrimination exists whenever consumers in different countries are charged different prices for the same product, or for slightly different variations of the product. Price discrimination involves charging whatever the market will bear; in a competitive market, prices may have to be lower than in a market where the firm has a monopoly. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #29 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 30. Predatory pricing and experience curve pricing do not violate antidumping regulations. The concept of strategic pricing has three aspects: predatory pricing, multipoint pricing, and experience curve pricing. Both predatory pricing and experience curve pricing may violate antidumping regulations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #30 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 31. In terms of pricing decisions, full responsibility for pricing decisions should be delegated to the managers of various national subsidiaries, thereby reaping the benefits of decentralization. It is tempting to delegate full responsibility for pricing decisions to the managers of various national subsidiaries, thereby reaping the benefits of decentralization. However, because pricing strategy in one part of the world can elicit a competitive response in another, central management needs to at least monitor and approve pricing decisions in a given national market, and local managers need to recognize that their actions can affect competitive conditions in other countries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #31 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 32. In terms of pricing strategies, dumping occurs whenever an international firm sells a product for a price that is less than the price charged by domestic producers. Dumping occurs whenever an international firm sells a product for a price that is less than the cost of producing it. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #32 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 33. A technological innovation can make established products obsolete overnight. Technological innovation is both creative and destructive. An innovation can make established products obsolete overnight. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #33 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 34. Dispersing research and development activities to many locations around the world allows a firm to stay close to the center of leading-edge activity to gather scientific and competitive information and to draw on local scientific resources. Dispersing research and development (R&D) activities to many different locations around the world allows a firm to stay close to the center of leading-edge activity to gather scientific and competitive information and to draw on local scientific resources. This may result in some duplication of R&D activities, but the cost disadvantages of duplication are outweighed by the advantages of dispersion. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #34 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 35. Firms can reduce the failure of new-product development by insisting that research and development, marketing, and production functions work independently. Firms can reduce the probability of making mistakes by insisting on tight cross-functional coordination and integration between three core functions involved in the development of new products: R&D, marketing, and production. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #35 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 36. Which of the following functions of an international business is required to create new products? A. Supply chain B. Logistics C. Operations D. Research and development E. Customer service A critical aspect of the marketing function is identifying gaps in the market so that the firm can develop new products to fill those gaps. Developing new products requires research and development (R&D)—thus, the linkage between marketing and R&D. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #36 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Introduction 37. Which of the following is of the marketing and research and development (R&D) departments in an international firm? A. Marketing and R&D should always work independently. B. R&D identifies gaps in a market so that marketing can work to fill those gaps. C. R&D defines the market's needs for the marketing personnel. D. Marketing fails to guide R&D whether to produce globally standardized or locally customized products. E. A major contributor to the success of new-product introductions is a close relationship between marketing and R&D. Research has long maintained that a major contributor to the success of new-product introductions is a close relationship between marketing and research and development. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #37 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Introduction 38. The _____ refer(s) to choices about product attributes, distribution strategy, communication strategy, and pricing strategy that a firm offers its targeted markets. A. market imperfections B. marketing mix C. marketing intermediaries D. marketing objectives E. marketing plan The marketing mix refers to the choices about product attributes, distribution strategy, communication strategy, and pricing strategy that a firm offers its targeted markets. The four elements that constitute a firm's marketing mix are: product attributes, distribution strategy, communication strategy, and pricing strategy. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #38 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Introduction 39. Which of the following is an element of a firm's marketing mix? A. Product attributes B. Employee management C. Customer service D. Population demographics E. Domestic competition The marketing mix is the set of choices the firm offers to its targeted markets. The four elements that constitute a firm’s marketing mix are product attributes, distribution strategy, communication strategy, and pricing strategy. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #39 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Introduction 40. Who among the following asserted in an article in the Harvard Business Review that modern transportation and communications technologies are facilitating a convergence of certain tastes and preferences among consumers in the more advanced countries of the world? A. Gary Hamel B. Theodore Levitt C. Christopher Bartlett D. Peter Drucker E. C.K. Prahalad In an article in the Harvard Business Review, Theodore Levitt asserts that modern transportation and communications technologies are facilitating a convergence of certain tastes and preferences among consumers in the more advanced countries of the world. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #40 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: The Globalization of Markets and Brands 41. Which of the following is according to Theodore Levitt's article in the Harvard Business Review about the globalization of world markets? A. Accustomed differences in national or regional preferences are significant in world markets. B. The global corporation operates consistently at high relative cost. C. Technology has led to the emergence of global markets for standardized consumer products. D. The global corporation sells different things in different ways. E. Ancient differences in national tastes or modes of doing business are reinforced. In a now-classic Harvard Business Review article, the late Theodore Levitt wrote lyrically about the globalization of world markets. According to Levitt, "A powerful force drives the world toward a converging commonalty, and that force is technology. It has proletarianized communication, transport, and travel. The result is a new commercial reality—the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude." AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #41 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: The Globalization of Markets and Brands 42. Which of the following is according to Theodore Levitt's article in the Harvard Business Review about the globalization of world markets? A. Multinational corporations consider the world to consist of distinct and unique entities. B. Multinational corporations operate at low relative costs. C. Multinational corporations operate from a single country. D. Multinational corporations do not adjust their products and practices to suit each country. E. Multinational corporations are in danger of losing out to small businesses. In a now-classic Harvard Business Review article, the late Theodore Levitt wrote lyrically about the globalization of world markets. According to Levitt, "Multinational corporations operate in a number of countries and adjust their products and practices to each—at high relative costs. Global corporations operate with resolute consistency—at low relative cost—as if the entire world were a single entity; they sell the same thing in the same way everywhere." AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #42 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: The Globalization of Markets and Brands 43. Which of the following is a statement made by Theodore Levitt about the globalization of world markets? A. Capitalism is the force that drives the world toward a converging commonality. B. Multinational corporations consider the world to consist of distinct and unique entities. C. Accustomed differences in national or regional preferences are becoming more significant. D. Multinational corporations are in danger of losing out to small businesses. E. Global markets for standardized consumer products have emerged on a large scale of magnitude. In a now-classic Harvard Business Review article, the late Theodore Levitt wrote lyrically about the globalization of world markets. According to Levitt, "A powerful force drives the world toward a converging commonalty, and that force is technology. It has proletarianized communication, transport, and travel. The result is a new commercial reality—the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #43 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: The Globalization of Markets and Brands 44. Which of the following is of Theodore Levitt's arguments concerning the globalization of world markets? A. The rise of global media phenomenon seems to support Levitt's argument. B. Academics feel that Levitt understates his case concerning global markets and the fall of multinational corporations. C. Globalization, in the sense used by Levitt, is the rule in consumer goods markets and industrial markets. D. Levitt's arguments hold with respect to consumer goods markets but not for basic industrial products. E. As observed by Levitt, in real-world global markets, firms do not tailor their products to suit different countries. The rise of global media phenomenon from CNN to MTV, and the ability of such media to help shape a global culture, seems to lend weight to Levitt's argument. If Levitt is correct, his argument has major implications for the marketing strategies pursued by international business. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #44 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: The Globalization of Markets and Brands 45. Which of the following is of Theodore Levitt's arguments concerning the globalization of world markets? A. Modern transportation is facilitating a convergence of tastes and preferences among consumers in advanced countries of the world. B. Academics feel that Levitt understates his case concerning global markets and the fall of multinational corporations. C. Globalization, in the sense used by Levitt, is the rule rather in consumer goods markets and industrial markets. D. Levitt's arguments hold with respect to consumer goods markets but not for basic industrial products. E. As observed by Levitt, in global markets, firms do not tailor their products to suit different countries. In a now-classic Harvard Business Review article, the late Theodore Levitt wrote lyrically about the globalization of world markets. He is probably correct to assert that modern transportation and communications technologies are facilitating a convergence of certain tastes and preferences among consumers in the more advanced countries of the world, and this has become even more prevalent since he wrote. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #45 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: The Globalization of Markets and Brands 46. Which of the following is of Theodore Levitt's arguments concerning globalization of world markets? A. Levitt's argument holds for basic industrial products, such as steel, bulk chemicals, and semiconductor chips but not for consumer goods markets. B. Levitt understates his case concerning global markets and the fall of multinational corporations. C. Globalization, in the sense used by Levitt, is the rule rather than the exception in consumer goods markets. D. Levitt's arguments have no implications for the marketing strategies pursued by an international business. E. There is no evidence to suggest the convergence of preferences among consumers across advanced countries. In a now-classic Harvard Business Review article, the late Theodore Levitt wrote lyrically about the globalization of world markets. Although Levitt may have a point when it comes to many basic industrial products, such as steel, bulk chemicals, and semiconductor chips, globalization in the sense used by Levitt seems to be the exception rather than the rule in many consumer goods markets and industrial markets. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #46 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: The Globalization of Markets and Brands 47. Which of the following factors constrain a firm's ability to sell a standardized product to a global market using a standardized marketing strategy? A. Modern transportation B. Modern communications technologies C. Rise of the global media phenomenon D. Development of a global culture E. Differences in product and technical standards The way in which global brands are perceived, promoted, and used varies from country to country, depending on local differences in tastes and preferences. Furthermore, trade barriers and differences in product and technical standards also constrain a firm’s ability to sell a standardized product to a global market using a standardized marketing strategy. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #47 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: The Globalization of Markets and Brands 48. _____ refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. A. Market penetration B. Market development C. Market segmentation D. Product development E. Diversification Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Markets can be segmented in numerous ways: by geography, demography (sex, age, income, race, education level, etc.), sociocultural factors (social class, values, religion, lifestyle choices), and psychological factors (personality). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #48 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 49. Which of the following is a definition of market segmentation? A. It refers to identifying distinct groups of customers whose purchasing behavior differs from others. B. It refers to developing existing market segments and increasing market share within those segments. C. It refers to identifying the need for new products in existing markets and developing products for those markets. D. It refers to identifying new markets that can buy existing products. E. It refers to identifying the needs of a new market and developing new products for that market. Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Markets can be segmented in numerous ways: by geography, demography, sociocultural factors, and psychological factors. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #49 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 50. Which of the following is a sociocultural factor that is used to segment markets? A. Personality B. Race C. Values D. Income E. Education level Market segmentation refers to identifying distinct groups of consumers whose purchasing behavior differs from others in important ways. Markets can be segmented in numerous ways: by geography, demography (sex, age, income, race, education level, etc.), sociocultural factors (social class, values, religion, lifestyle choices), and psychological factors (personality). AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #50 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 51. Which of the following is a goal of market segmentation? A. To optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix B. To increase participation in shared global conversations by drawing upon shared symbols that include global brands C. To reduce cultural and economic differences which act as a barrier to the emergence of global trends D. To standardize products, manufacturing, and the institutes of trade and commerce E. To increase the costs of value creation and add value by better serving customer needs The goal of market segmentation is to optimize the fit between the purchasing behavior of consumers in a given segment and the marketing mix, thereby maximizing sales to that segment. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #51 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 52. Which of the following is a reason why firms need to adjust their marketing mix from segment to segment? A. Different segments exhibit different patterns of purchasing behavior. B. Each market segment is completely isolated from other market segments. C. The technology required for standardized production is not yet available. D. Changing the marketing mix prevents the phenomena of product cannibalization. E. Consumers of one market segment are completely isolated from those of other segments. Because different market segments exhibit different patterns of purchasing behavior, firms often adjust their marketing mix from segment to segment. Thus, the precise design of a product, the pricing strategy, the distribution channels used, and the choice of communication strategy may all be varied from segment to segment. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #52 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 53. Which of the following is of market segmentation? A. An important market segment in a foreign country always has a parallel in a firm's home country. B. Markets can be segmented only on the basis of geography and demography. C. The structure of market segments is quite similar across various countries. D. Since market segments are similar across various countries, firms can pursue a global marketing strategy without varying the marketing mix. E. For a segment to transcend national borders, consumers in that segment must have some compelling similarities along important dimensions. For a segment to transcend national borders, consumers in that segment must have some compelling similarities along important dimensions—such as age, values, lifestyle choices—and those similarities must translate into similar purchasing behavior. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #53 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Market Segmentation 54. Which of the following is of a product? A. A product can be viewed as the focal point of a marketing mix. B. A product can be viewed as the center of market segmentation. C. A product can be viewed as a bundle of attributes. D. A product can be viewed as a forced need or want. E. A product can be viewed as an object that transcends customer behavior. A product can be viewed as a bundle of attributes. For example, the attributes that make up a car include power, design, quality, performance, fuel consumption, and comfort; the attributes of a hamburger include taste, texture, and size. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #54 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 55. In terms of the factors affecting product attributes, the impact of _____ is particularly important in foodstuffs and beverages. A. language B. nationality C. religion D. tradition E. gender The most important aspect of cultural differences is probably the impact of tradition. Tradition is particularly important in foodstuffs and beverages. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #55 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 56. In terms of the influence of cultural differences on product attributes, which of the following is evidence of the trends that Theodore Levitt described? A. Differences in traditional eating habits B. Cultural differences due to historical and idiosyncratic reasons C. Market segments that remained confined to national borders D. Tastes and preferences becoming cosmopolitan E. Varying product and technical standards There is some evidence of the trends Theodore Levitt talked about. Tastes and preferences are becoming more cosmopolitan. Coffee is gaining ground against tea in Japan and Great Britain, while American-style frozen dinners have become popular in Europe (with some fine-tuning to local tastes). AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #56 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 57. Which of the following is of the influence of cultural differences on product attributes? A. Cultural differences have no implications for marketing strategies. B. Tradition has the least impact on a firm's marketing strategies. C. Tastes and preferences of consumers are becoming less cosmopolitan. D. There is evidence of cultural convergence between the advanced industrial nations of Asia and North America. E. The impact of tradition is important in foodstuffs and beverages. The most important aspect of cultural differences is probably the impact of tradition. Tradition is particularly important in foodstuffs and beverages. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #57 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 58. Firms based in _____ countries tend to build a lot of extra performance attributes into their products. A. highly developed B. least developed C. highly-indebted D. developing countries E. agriculture-based Consumer behavior is influenced by the level of economic development of a country. Firms based in highly developed countries such as the United States tend to build a lot of extra performance attributes into their products. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #58 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 59. Which of the following contradicts Theodore Levitt's arguments for the globalization of world markets? A. Consumers in most developed countries do not sacrifice preferred attributes for lower prices. B. Tastes and preferences are becoming more cosmopolitan due to cultural convergence. C. Similar product and technical standards across countries help a firm sell the same product worldwide. D. The emergence of the global youth segment is evidence of market segments that transcend national borders. E. The structure of market segments is extremely similar in various countries. Contrary to Theodore Levitt’s suggestions, consumers in the most developed countries are often not willing to sacrifice their preferred attributes for lower prices. Consumers in the most advanced countries often shun globally standardized products that have been developed with the lowest common denominator in mind. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #59 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 60. Which of the following is of the influence of economic development on consumer preferences? A. The level of economic development does not impact consumer preferences as much as cultural difference does. B. Firms based in highly developed countries do not build extra performance attributes into their products. C. Consumers in less developed nations demand to have extra attributes built into products. D. Consumers in developed countries are often willing to sacrifice their preferred attributes for lower prices. E. Consumers in developed nations are willing to pay more for products that have additional features customized to their tastes. Contrary to Theodore Levitt’s suggestions, consumers in the most developed countries are often not willing to sacrifice their preferred attributes for lower prices. Consumers in the most advanced countries often shun globally standardized products that have been developed with the lowest common denominator in mind. They are willing to pay more for products that have additional features and attributes customized to their tastes and preferences. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #60 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 61. Which of the following factors constrains the globalization of markets? A. Difference in technical standards B. Uniform standard of living C. Cosmopolitan tastes and preferences D. Market segments that transcend national borders E. Convergence of cultures Differing government-mandated product standards can rule out mass production and marketing of a standardized product. Differences in technical standards also constrain the globalization of markets. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #61 Learning Objective: 16-01 Explain why it might make sense to vary the attributes of a product from country to country. Topic: Product Attributes 62. A _____ refers to the means that a firm chooses for delivering a product to its consumer. A. pull strategy B. distribution strategy C. push strategy D. communication strategy E. pricing strategy A critical element of a firm’s marketing mix is its distribution strategy: the means it chooses for delivering the product to the consumer. The way the product is delivered is determined by the firm’s entry strategy. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #62 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 63. In a(n) _____ retail system, a few retailers supply most of the market. A. fragmented B. dispersed C. isolated D. concentrated E. exclusive In some countries, the retail system is very concentrated, but it is fragmented in others. In a concentrated retail system, a few retailers supply most of the market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #63 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 64. A(n) _____ retail system is one in which there are many retailers, no one of which has a major share of the market. A. concentrated B. fragmented C. focused D. consolidated E. exclusive In some countries, the retail system is very concentrated, but it is fragmented in others. In a concentrated retail system, a few retailers supply most of the market. A fragmented retail system is one in which there are many retailers, none of which has a major share of the market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #64 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 65. Which of the following is a basis for the differences in retail concentration in various countries? A. Tradition B. Idiosyncracies C. Prejudices D. Demographics E. Geography In some countries, the retail system is very concentrated, but it is fragmented in others. In a concentrated retail system, a few retailers supply most of the market. A fragmented retail system is one in which there are many retailers, none of which has a major share of the market. Many of the differences in concentration are rooted in history and tradition. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #65 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 66. Which of the following is a factor that has contributed to greater retail concentration in developed countries? A. A tradition of established local neighborhood stores B. An increase in car ownership C. A decrease in the number of freezers and refrigerators D. An increase in the number of single-income households E. An increase in the population density There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, number of households with refrigerators and freezers, and number of two-income households. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #66 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 67. Which of the following is a factor that contributes to greater retail concentration in developed countries? A. Number of households owning televisions B. Number of families with two or more children C. Increase in the value of the currency of the country D. Number of households with refrigerators and freezers E. Decrease in per capita income There is a tendency for greater retail concentration in developed countries. Three factors that contribute to this are the increases in car ownership, number of households with refrigerators and freezers, and number of two-income households. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #67 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 68. The number of intermediaries between the product (or manufacturer) and the consumer is referred to as _____. A. channel length B. channel quality C. channel exclusivity D. channel fragmentation E. channel concentration Channel length refers to the number of intermediaries between the producer (or manufacturer) and the consumer. If the producer sells directly to the consumer, the channel is very short. If the producer sells through an import agent, a wholesaler, and a retailer, a long channel exists. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #68 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 69. Which of the following is the most important determinant of channel length? A. The degree to which the retail system is fragmented B. An increase in car ownership and two-income households C. The level of consolidation in the global retail industry D. The amount of difference between product or technical standards E. The level of economic development of a country The most important determinant of channel length is the degree to which the retail system is fragmented. Fragmented retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens channels. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #69 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 70. _____ retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens distribution channels. A. Centralized B. Focused C. Concentrated D. Fragmented E. Exclusive The most important determinant of distribution channel length is the degree to which the retail system is fragmented. Fragmented retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens channels. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #70 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 71. Which of the following is about fragmented retail systems? A. The more fragmented the retail system, the more economical it is for a firm to make contact with each individual retailer. B. Countries with fragmented retail systems tend to have short channels of distribution. C. A relatively small sales force is required to deal with a fragmented retail sector. D. It makes economic sense for the firm to sell to the wholesalers and the wholesalers to deal with the retailers. E. The sales orders generated from each sales call is more than that in a concentrated retail system. Fragmented retail systems tend to promote the growth of wholesalers to serve retailers, which lengthens channels. To sell directly to the retailers, the firm would have to build a huge sales force. It makes economic sense for the firm to sell to the wholesalers and the wholesalers to deal with the retailers. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #71 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 72. Which of the following is a characteristic of fragmented retail systems? A. Long channels of distribution B. Single-layer distribution systems C. Lower sales call to sales order ratio D. Relatively smaller sales force compared to concentrated retail systems E. Promotion of direct interaction between retailers and firms Countries with fragmented retail systems also tend to have long channels of distribution, sometimes with multiple layers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #72 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 73. When the retail sector is very concentrated: A. it is more expensive for a firm to make contact with each individual retailer. B. it makes sense for a firm to deal directly with retailers, cutting out wholesalers. C. a relatively large sales force is required to deal with the retail sector. D. the channels of distribution tend to be long. E. the growth of wholesalers is promoted. When the retail sector is very concentrated, it makes sense for the firm to deal directly with retailers, cutting out wholesalers. A relatively small sales force is required to deal with a concentrated retail sector, and the orders generated from each sales call can be large. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #73 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 74. When the retail sector is very concentrated: A. it is more expensive for the firm to make contact with each individual retailer. B. it makes sense for a firm to deal with wholesalers instead of retailers. C. a relatively large sales force is required to deal with the retail sector. D. there are long channels of distribution. E. the orders generated from each sales call can be large. When the retail sector is very concentrated, it makes sense for the firm to deal directly with retailers, cutting out wholesalers. A relatively small sales force is required to deal with a concentrated retail sector, and the orders generated from each sales call can be large. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #74 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 75. Which of the following factors helps a firm shorten channel length? A. The entry of large discount superstores B. A firm's insistence on dealing with wholesalers instead of retailers C. Fragmentation of a retail system D. A small sales force E. Smaller sales orders generated from sales calls A factor that is shortening channel length in some countries is the entry of large discount superstores, such as Carrefour, Walmart, and Tesco. The business model of these retailers is, in part, based on the idea that in an attempt to lower prices, they cut out wholesalers and instead deal directly with manufacturers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #75 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 76. A(n) _____ distribution channel is one that is difficult for outsiders to access. A. exclusive B. intensive C. selective D. concentrated E. fragmented An exclusive distribution channel is one that is difficult for outsiders to access. For example, it is often difficult for a new firm to get access to shelf space in supermarkets. This occurs because retailers tend to prefer to carry the products of established manufacturers of foodstuffs with national reputations rather than gamble on the products of unknown firms. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #76 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 77. Which of the following is of distribution channel exclusivity? A. In Japan, relationships among manufacturers, wholesalers, and retailers often go back decade. B. Japan's distribution system is often held up as one of the least exclusive systems. C. An exclusive distribution channel refers to a channel that outsiders find convenient to access. D. Retailers tend to prefer to carry the products of emerging firms rather than established firms. E. The exclusivity of a distribution system is similar across most countries of the world. In Japan, relationships among manufacturers, wholesalers, and retailers often go back decades. Many of these relationships are based on the understanding that distributors will not carry the products of competing firms. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #77 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 78. _____ refers to the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses. A. Channel exclusivity B. Channel quality C. Channel length D. Channel dominance E. Channel concentration Channel quality refers to the expertise, competencies, and skills of established retailers in a nation, and their ability to sell and support the products of international businesses. Although the quality of retailers is good in most developed nations, in emerging markets and less developed nations from Russia to Indonesia, channel quality is variable at best. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #78 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 79. Which of the following is about channel quality? A. The quality of retailers is variable in developed nations. B. The quality of retailers is variable in emerging markets and less developed nations. C. Chanel quality refers to a measure of the number of intermediaries between the manufacturer and the consumer. D. An international business cannot establish its own distribution channel when the existing channel quality is poor. E. The lack of a high-quality channel does not impede market entry. Channel quality refers to the expertise, competencies, and skills of established retailers in a nation and their ability to sell and support the products of international businesses. Although the quality of retailers is good in most developed nations, in emerging markets and less developed nations from Russia to Indonesia, channel quality is variable at best. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #79 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 80. Which of the following is a factor that determines the optimal distribution strategy? A. Communication strategy B. Country of origin effects C. Channel quality D. Noise levels E. Source effects A choice of distribution strategy determines which channel the firm will use to reach potential consumers. The optimal strategy is determined by the relative costs and benefits of each alternative, which vary from country to country, depending on retail concentration, channel length, channel exclusivity, and channel quality. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #80 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 81. Which of the following is of choosing a distribution strategy? A. The optimal distribution strategy is determined by the relative costs and benefits of each alternative, which vary from country to country. B. A choice of distribution strategy does not determine which channel the firm will use to reach potential consumers. C. The channel length, the final selling price, and the firm’s profit margin are completely independent of each other. D. The longer a distribution channel, the lower the aggregate markup. E. The longer a distribution channel, the lower the price that consumers are charged for the final product. A choice of distribution strategy determines which channel the firm will use to reach potential consumers. The optimal strategy is determined by the relative costs and benefits of each alternative, which vary from country to country, depending on retail concentration, channel length, channel exclusivity, and channel quality. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #81 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 82. Which of the following is a drawback of longer distribution channels? A. Higher selling costs in a fragmented retail sector B. The inability to enter exclusive distribution channels C. Lower selling costs in a concentrated retail sector D. Lower product prices E. Greater aggregate markups Because each intermediary in a channel adds its own markup to the products, there is generally a critical link among channel length, the final selling price, and the firm’s profit margin. The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #82 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 83. Which of the following is a drawback of longer distribution channels? A. Higher selling costs in a fragmented retail sector B. The inability to enter exclusive distribution channels C. Lower selling costs in a concentrated retail sector D. Higher prices that consumers are charged E. Greater aggregate markups due to a lack of intermediaries Because each intermediary in a channel adds its own markup to the products, there is generally a critical link among channel length, the final selling price, and the firm’s profit margin. The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #83 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 84. Which of the following is an advantage of longer distribution channels? A. Decreased profit margins B. Lower markups C. Lower product prices D. Reduced selling costs in concentrated retail sectors E. Greater market access The benefits of using a longer distribution channel outweigh the drawbacks. One benefit of a longer channel is that it cuts selling costs when the retail sector is very fragmented. Another benefit of using a longer channel is market access—the ability to enter an exclusive channel. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #84 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 85. Which of the following is an advantage of longer distribution channels? A. Competitive pricing strategies B. Lower markups C. Lower product prices D. Reduced selling costs in fragmented retail sectors E. Lower profit margins due to multiple intermediaries The benefits of using a longer channel outweigh the drawbacks. One benefit of a longer channel is that it cuts selling costs when the retail sector is very fragmented. Another benefit of using a longer channel is market access—the ability to enter an exclusive channel. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #85 Learning Objective: 16-02 Recognize why and how a firm’s distribution strategy might vary among countries. Topic: Distribution Strategy 86. Which of the following is a potentially critical variable that can jeopardize the effectiveness of a firm's international communication? A. Channel length B. Market segmentation C. Import effects D. Noise levels E. Channel quality International communication occurs whenever a firm uses a marketing message to sell its products in another country. The effectiveness of a firm’s international communication can be jeopardized by three potentially critical variables: cultural barriers, source effects, and noise levels. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #86 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 87. The best way for a firm to overcome cultural barriers is to: A. hire only local managers. B. develop cross-cultural literacy. C. encourage cosmopolitan tastes and preferences. D. operate in markets that are culturally similar to its home market. E. use the same marketing message in every country. The best way for a firm to overcome cultural barriers is to develop cross-cultural literacy. In addition, it should use local input, such as a local advertising agency, in developing its marketing message. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #87 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 88. Which of the following factors limits a firm's ability to use the same marketing message? A. Channel exclusivity B. Channel quality C. Cultural differences D. Concentrated retail systems E. Fragmented retail systems Cultural differences limit a firm's ability to use the same marketing message and selling approach worldwide. What works well in one country may be offensive in another. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #88 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 89. In terms of communication strategy, _____ refer(s) to the situation when the receiver of a message evaluates the message based on the status or image of the sender. A. source effects B. noise levels C. cultural barriers D. pull strategy E. push strategy Source effects occur when the receiver of the message (the potential consumer in this case) evaluates the message on the basis of status or image of the sender. Source effects can be damaging for an international business when potential consumers in a target country have a bias against foreign firms. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #89 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 90. When are source effects damaging for an international business? A. When promotional messages are used to stress the positive performance attributes of its product B. When fewer firms compete for the attention of prospective customers in developing countries C. When the firm's marketing strategy emphasizes personal selling rather than mass media advertising D. When potential consumers in a target country have a bias against foreign firms E. When international businesses deemphasize their foreign origins Source effects occur when the receiver of the message evaluates the message on the basis of status or image of the sender. Source effects can be damaging for an international business when potential consumers in a target country have a bias against foreign firms. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #90 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 91. _____ refer(s) to the extent to which the place of manufacturing influences product evaluations. A. Noise levels B. Country of origin effects C. Source effects D. Push strategies E. Pull strategies A subset of source effects is referred to as country of origin effects, or the extent to which the place of manufacturing influences product evaluations. Research suggests that the consumer may use country of origin as a cue when evaluating a product, particularly if he or she lacks more detailed knowledge of the product. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #91 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 92. According to research, when do consumers usually use the country of origin as a cue when evaluating a product? A. When a firm tries to deemphasize its foreign origins B. When consumers lack detailed knowledge of a product C. When an advertising campaign stresses the positive performance attributes of a product D. When a limited number of messages compete with each other for consumers' attention E. When a firm resorts to personal selling instead of mass media advertising A subset of source effects is referred to as country of origin effects, or the extent to which the place of manufacturing influences product evaluations. Research suggests that the consumer may use country of origin as a cue when evaluating a product, particularly if he/she lacks more detailed knowledge of the product. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #92 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 93. In the context of barriers to international communication, _____ refer(s) to the amount of other messages competing for a potential consumer's attention. A. alternative signals B. source effects C. noise D. channel effects E. country of origin effects Noise tends to reduce the probability of effective communication. Noise refers to the amount of other messages competing for a potential consumer’s attention, and this too varies across countries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #93 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 94. In terms of communication strategy, in highly developed countries such as the United States: A. noise is extremely high. B. source effects are always positive. C. country of origin effects are not applicable. D. cultural barriers do not exist. E. pull strategies are more important than push strategies. Noise refers to the amount of other messages competing for a potential consumer's attention. In highly developed countries such as the United States, noise is extremely high. Fewer firms vie for the attention of prospective customers in developing countries, thus the noise level is lower. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #94 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 95. Which of the following is of barriers to international communication? A. Noise tends to increase the probability of effective communication. B. Source effects can be beneficial for an international business when potential consumers in a target country have a bias against foreign firms. C. Many international businesses try to promote positive source effects by deemphasizing their foreign origins. D. Fewer firms vie for the attention of prospective customers in developing countries, thus the noise level is lower. E. Research suggests that a consumer may use country of origin as a cue when evaluating a product, particularly if he or she has detailed knowledge of the product. Fewer firms vie for the attention of prospective customers in developing countries, thus the noise level is lower. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #95 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 96. Which of the following communication strategies relies primarily on personal selling rather than mass media advertising? A. Visual merchandising B. Pull strategy C. Push strategy D. Copy testing E. Standardized advertising A push strategy emphasizes personal selling rather than mass media advertising in the promotional mix. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #96 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 97. Which of the following communication strategies relies primarily on mass media advertising as opposed to personal selling? A. Telemarketing B. Pull strategy C. Push strategy D. Customized advertising E. Point-of-purchase advertising The main decision with regard to communications strategy is the choice between a push strategy and a pull strategy. A push strategy emphasizes personal selling rather than mass media advertising in the promotional mix. A pull strategy depends more on mass media advertising to communicate the marketing message to potential consumers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #97 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 98. Firms in consumer goods industries that are trying to sell to a large segment of the market generally favor a(n) _____ strategy. A. push B. international C. lag D. pull E. exclusive distribution Firms in consumer goods industries that are trying to sell to a large segment of the market generally favor a pull strategy. Mass communication has cost advantages for such firms, thus they rarely use direct selling. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #98 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 99. Firms that sell _____ favor a push strategy. Direct selling allows these firms to educate potential consumers about the features of their product. A. professional services B. food grains C. consumer products D. industrial products E. standardized products Firms that sell industrial products or other complex products favor a push strategy. Direct selling allows the firm to educate potential consumers about the features of the product. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #99 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 100. Which of the following allows a firm to educate potential consumers about the features of a product? A. Direct selling B. Mass media advertising C. Pull strategy D. Standardized advertising E. Lag strategy Firms that sell industrial products or other complex products favor a push strategy. Direct selling allows the firm to educate potential consumers about the features of the product. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #100 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 101. Which of the following is a drawback of push strategies? A. It can be expensive when the distribution channel is long. B. It decreases interaction with consumers. C. It does not allow consumers to be educated on the benefits of a complex product. D. It is useful only in advanced nations where consumers are sophisticated and highly educated. E. It can only be used to sell industrial products. The longer the distribution channel, the more intermediaries there are that must be persuaded to carry the product for it to reach the consumer. This can lead to inertia in the channel, which can make entry difficult. Using direct selling to push a product through many layers of a distribution channel can be expensive. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #101 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 102. Which of the following marketing strategies relies on access to advertising media? A. Personal selling B. Direct selling C. Push strategy D. Pull strategy E. Copy testing A pull strategy relies on access to advertising media. In the United States, a large number of media are available, including print media (newspapers and magazines), broadcasting media (television and radio), and the Internet. The rise of cable television in the United States has facilitated extremely focused advertising. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #102 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 103. A push strategy is emphasized when: A. distribution channels are short. B. sufficient print and electronic media are available to carry the marketing message. C. consumers have a low level of literacy. D. the products being sold are consumer goods. E. professional services are being offered. Push strategies tend to be emphasized: • For industrial products or complex new products. • When distribution channels are short. • When few print or electronic media are available. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #103 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 104. Pull strategies tend to be emphasized: A. for complex new products B. for consumer goods C. for industrial goods D. when distribution channels are short. E. when few print or electronic media are available. Pull strategies tend to be emphasized • For consumer goods. • When distribution channels are long. • When sufficient print and electronic media are available to carry the marketing message. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #104 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 105. Which of the following is an argument for standardized advertising? A. Consumer tastes and preferences are universal. B. A message that works in one nation will invariably work in every other country. C. Advertising regulations always promote standardized advertising. D. Many brand names are global. E. The costs of value creation may be increased by standardized advertising. One justification for a standardized approach is that many brand names are global. With the substantial amount of international travel today and the considerable overlap in media across national borders, many international firms want to project a single brand image to avoid confusion caused by local campaigns. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #105 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 106. Which of the following is an argument against standardized advertising? A. One large effort to develop a campaign fails to produce better results than 40 or 50 smaller efforts. B. It fails to make use of local talent available in other cultures. C. Advertising regulations may block implementation of standardized advertising. D. Royalties make it the most expensive form of advertising. E. It increases the costs of value creation. There are two main arguments against globally standardized advertising. First, cultural diversity makes it extremely difficult to develop a single advertising theme that is effective worldwide. Second, advertising regulations may block implementation of standardized advertising. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #106 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 107. Which of the following is an argument against standardized advertising? A. One large effort to develop a campaign fails to produce better results than 40 or 50 smaller efforts. B. It fails to make use of local talent available in other cultures. C. Cultural diversity makes it extremely difficult to develop a single advertising theme that is effective worldwide. D. Royalties make it the most expensive form of advertising. E. It increases the costs of value creation. There are two main arguments against globally standardized advertising. First, cultural diversity makes it extremely difficult to develop a single advertising theme that is effective worldwide. Second, advertising regulations may block implementation of standardized advertising. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #107 Learning Objective: 16-03 Identify why and how advertising and promotional strategies might vary among countries. Topic: Communication Strategy 108. _____ exists whenever consumers in different countries are charged different prices for the same product. A. Penetration pricing B. Premium pricing C. Predatory pricing D. Price discrimination E. Price skimming Price discrimination exists whenever consumers in different countries are charged different prices for the same product, or for slightly different variations of the product. Price discrimination involves charging whatever the market will bear; in a competitive market, prices may have to be lower than in a market where the firm has a monopoly. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #108 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 109. Which of the following is of price discrimination? A. It involves charging whatever the market will bear. B. In a competitive market, prices may have to be higher than in a market where the firm has a monopoly. C. It makes economic sense to charge the same prices in different countries. D. It exists whenever consumers in different countries are charged the same price for the same product, irrespective of variations. E. It cannot help a company maximize its profits. Price discrimination exists whenever consumers in different countries are charged different prices for the same product, or for slightly different variations of the product. It involves charging whatever the market will bear. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #109 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 110. Which of the following is necessary for a firm to ensure profitable price discrimination? A. The firm must sell a standardized product. B. The firm must be able to keep its national markets separate. C. The firm must encourage other firms and competitors to engage in arbitration. D. Products sold by the firm must have same prices elasticities of demand in different countries. E. Products must be sold in countries where a small change in prices produces a large change in demand. Two conditions are necessary for profitable price discrimination. First, the firm must be able to keep its national markets separate. The second necessary condition for profitable price discrimination is different price elasticities of demand in different countries. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #110 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 111. If a firm is unable to keep its national markets separate, individuals or businesses may undercut its attempt at price discrimination by engaging in _____. A. speculation B. arbitrage C. dumping D. countertrade E. forecasting If the firm is not able to keep its national markets separate, individuals or businesses may undercut its attempt at price discrimination by engaging in arbitrage. Arbitrage occurs when an individual or business capitalizes on a price differential for a firm’s product between two countries by purchasing the product in the country where prices are lower and reselling it in the country where prices are higher. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #111 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 112. In which of the following conditions does arbitrage occur? A. When a firm offers a product at low prices through discount coupons and promotions B. When a firm sells a product at higher prices to make a profit from relatively fewer sales C. When a firm imports products from a manufacturer and distributes it directly through retail outlets D. When a firm purchases products in a country where prices are lower and resells it in a country where prices are higher E. When a firm prices its products at the least cost, risking losses, in order to grab market share Arbitrage occurs when an individual or business capitalizes on a price differential for a firm's product between two countries by purchasing the product in the country where prices are lower and reselling it in the country where prices are higher. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #112 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 113. A measure of the responsiveness of demand for a product to changes in price is known as _____. A. the demand to price ratio B. demand and price dynamics C. price-demand rigidity D. demand function of pricing E. price elasticity of demand The price elasticity of demand is a measure of the responsiveness of demand for a product to change in price. Demand is said to be elastic when a small change in price produces a large change in demand; it is said to be inelastic when a large change in price produces only a small change in demand. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #113 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 114. Demand is said to be _____ when a small change in price produces a large change in demand. A. elastic B. inelastic C. relative D. rigid E. dynamic The price elasticity of demand is a measure of the responsiveness of demand for a product to change in price. Demand is said to be elastic when a small change in price produces a large change in demand; it is said to be inelastic when a large change in price produces only a small change in demand. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #114 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 115. When a large change in price produces only a small change in demand, demand is said to be _____. A. flexible B. consistent C. inelastic D. elastic E. dynamic The price elasticity of demand is a measure of the responsiveness of demand for a product to change in price. Demand is said to be elastic when a small change in price produces a large change in demand; it is said to be inelastic when a large change in price produces only a small change in demand. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #115 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 116. Which of the following is of price discrimination as a part of international pricing strategy? A. The more competitors there are, the lesser consumers’ bargaining power will be. B. The more competitors there are, the less likely consumers will be to buy from the firm that charges the lowest price. C. A firm may charge a higher price for its product in a country where competition is limited than in one where competition is intense. D. Many competitors cause low elasticity of demand. E. If a firm raises its prices above those of its competitors, consumers will refuse to switch to the competitors’ products. When competitors are limited, consumers’ bargaining power is weaker and price is less important as a competitive weapon. Thus, a firm may charge a higher price for its product in a country where competition is limited than in one where competition is intense. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #116 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 117. Which of the following is of price elasticity of demand? A. The price elasticity of demand is only defined by the competitive conditions in a country. B. Demand is said to be inelastic when a large change in price produces a small change in demand. C. Demand is said to be elastic when a large change in price produces a small change in demand. D. Price elasticity tends to be greater in countries with low income levels. E. The elasticity of demand is inversely proportional to the number of competitors offering a particular product. The elasticity of demand for a product in a given country is determined by a number of factors, of which income level and competitive conditions are the two most important. Price elasticity tends to be greater in countries with low income levels. Consumers with limited incomes tend to be very price conscious; they have less to spend, so they look much more closely at price. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #117 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 118. The use of price as a competitive weapon to drive weaker competitors out of a national market is known as _____. A. multipoint pricing B. predatory pricing C. leader pricing D. price discrimination E. price skimming Predatory pricing is the use of price as a competitive weapon to drive weaker competitors out of a national market. Once the competitors have left the market, the firm can raise prices and enjoy high profits. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #118 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 119. _____ refers to the fact that a firm's pricing strategy in one market may have an impact on its rivals' pricing strategy in another market. A. Dumping B. Predatory pricing C. Leader pricing D. Multipoint pricing E. Price skimming Multipoint pricing refers to the fact that a firm's pricing strategy in one market may have an impact on its rivals' pricing strategy in another market. Aggressive pricing in one market may elicit a competitive response from a rival in another market. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #119 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 120. Which of the following is of multipoint pricing? A. It involves aggressive pricing in one market to elicit a competitive response from a rival in another market. B. It involves a firm pricing its products at a loss in order to drive out competitors from the market. C. It involves buying products at a cheaper rate in one country and selling those at a higher price in another country. D. It involves allowing markets to determine the pricing of a product. E. It involves pricing two similar products at low and high prices in order to boost sales of the lower priced products. Multipoint pricing refers to the fact that a firm's pricing strategy in one market may have an impact on its rivals' pricing strategy in another market. Aggressive pricing in one market may elicit a competitive response from a rival in another market. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #120 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 121. Many firms pursuing a(n) _____ strategy on an international scale will price low worldwide to build global sales volume as rapidly as possible. A. price discrimination B. experience curve pricing C. price skimming D. penetration pricing E. economy pricing Many firms pursuing an experience curve pricing strategy on an international scale will price low worldwide in attempting to build global sales volume as rapidly as possible, even if this means taking large losses initially. Such a firm believes that in several years, when it has moved down the experience curve, it will be making substantial profits and have a cost advantage over its less-aggressive competitors. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #121 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 122. Firms pursuing a(n) _____ strategy on an international scale will price low worldwide in attempting to build global sales volume as rapidly as possible, even if this means taking large losses initially. A. experience curve pricing B. multipoint pricing C. economy pricing D. predatory pricing E. premium pricing Many firms pursuing an experience curve pricing strategy on an international scale will price low worldwide in attempting to build global sales volume as rapidly as possible, even if this means taking large losses initially. Such a firm believes that in several years, when it has moved down the experience curve, it will be making substantial profits and have a cost advantage over its less-aggressive competitors. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #122 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 123. Which of the following is a of a firm pursuing an experience curve pricing strategy? A. Moving down the experience curve, the firm will be making substantial profits and have a cost advantage over its less-aggressive competitors. B. Vigorous price wars need to be launched in a market in an attempt to gain market dominance. C. Aggressive pricing in one market may elicit a response from rivals in another market. D. By using profits from one market, competitors can be driven out from another market by considerably lowering prices in that market. E. When competitors are numerous, consumers’ bargaining power is weaker and price is less important as a competitive weapon. Many firms pursuing an experience curve pricing strategy on an international scale will price low worldwide in attempting to build global sales volume as rapidly as possible, even if this means taking large losses initially. Such a firm believes that in several years, when it has moved down the experience curve, it will be making substantial profits and have a cost advantage over its less-aggressive competitors. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #123 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 124. Which of the following pricing strategies can run afoul of antidumping regulations? A. Experience curve pricing B. Premium pricing C. Market-based pricing D. Dynamic pricing E. Price skimming A firm’s freedom to set its own prices is constrained by antidumping regulations and competition policy. Both predatory pricing and experience curve pricing can run afoul of antidumping regulations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #124 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 125. In the context of strategic pricing, _____ occurs whenever a firm sells a product for a price that is less than the cost of producing it. A. inflation B. dumping C. arbitrage D. speculation E. outsourcing A firm’s freedom to set its own prices is constrained by antidumping regulations and competition policy. Both predatory pricing and experience curve pricing can run afoul of antidumping regulations. Dumping occurs whenever a firm sells a product for a price that is less than the cost of producing it. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #125 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 126. Which of the following is a consequence of the vague terminology used in most antidumping actions? A. A firm believes that in several years, it will be making substantial profits and have a cost advantage over its less-aggressive competitors. B. Firms further down the experience curve will have a cost advantage vis-à-vis those further up the curve. C. Pricing decisions around the world will need to be centrally monitored. D. A firm’s ability to engage in price discrimination may also be challenged. E. Antidumping regulations cannot be used to limit the prices a firm can charge in a given country. Antidumping rules set a floor under export prices and limit firms’ ability to pursue strategic pricing. The rather vague terminology used in most antidumping actions suggests that a firm’s ability to engage in price discrimination also may be challenged under antidumping legislation. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #126 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Pricing Strategy 127. The _____ industry is often thought of as one in which global standardization of the marketing mix is the norm. A. electronics B. retail C. pharmaceutical D. financial services E. heavy machinery The financial services industry is often thought of as one in which global standardization of the marketing mix is the norm. However, while a financial services company may sell the same basic charge card service worldwide, utilize the same basic fee structure for that product, and adopt the same basic global advertising message, differences in national regulations still mean that it has to vary aspects of its communications strategy from country to country. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #127 Learning Objective: 16-04 Explain why and how a firm’s pricing strategy might vary among countries. Topic: Configuring the Marketing Mix 128. Which of the following has resulted in a dramatic shortening of product life cycles? A. Acceleration of the pace of technological change B. Intensity of domestic competition C. Affluence of customers D. Increase in the number of educated consumers E. Removal of trade barriers In today’s world, competition is as much about technological innovation as anything else. The pace of technological change has accelerated since the Industrial Revolution in the eighteenth century, and it continues to do so today. The result has been a dramatic shortening of product life cycles. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #128 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 129. Other things being equal, the rate of new-product development seems to be greater in countries where: A. more money is spent on marketing instead of applied research. B. consumers demand for cheaper products since they are not affluent. C. competition between firms is intense. D. pioneering costs outweigh the disadvantages of being a second mover. E. a large change in prices of a product only produces a small change in demand. Ideas for new products are stimulated by the interactions of scientific research, demand conditions, and competitive conditions. Other things being equal, the rate of new-product development seems to be greater in countries where more money is spent on basic and applied research and development, underlying demand is strong, consumers are affluent, and competition is intense. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #129 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 130. Which of the following factors creates a potential market for new products? A. Rising inflation B. Affluent consumers C. Lack of competition among firms D. Firms suffering from first-mover disadvantages E. Centralized research and development activity Basic and applied research and development discovers new technologies and then commercializes them. Strong demand and affluent consumers create a potential market for new products. Intense competition among firms stimulates innovation as the firms try to beat their competitors and reap potentially enormous first-mover advantages that result from successful innovation. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 16 #130 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 131. Which of the following is a consequence of tight cross-functional integration between research and development (R&D), production, and marketing? A. Maximizing the time to market a product B. Letting R&D dictate terms to marketing and production C. Keeping development costs in check D. Ensuring that product development projects are driven by organizational needs E. Increasing selling costs and maximizing profits Tight cross-functional integration between R&D, production, and marketing can help a company to ensure that product development projects are driven by customer needs, new products are designed for ease of manufacture, development costs are kept in check, and time to market is minimized. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #131 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 132. Which of the following is a reason for the high failure rate of research and development endeavors? A. Developing a technology for which demand exceeds the supply B. Excessive commercialization of new technologies C. Delivering new products to the market ahead of major competitors D. Inability to manufacture a new product cost effectively E. High pioneering costs The reasons for high failure rates are various and include development of a technology for which demand is limited, failure to adequately commercialize promising technology, and inability to manufacture a new product cost effectively. Firms can reduce the probability of making such mistakes by insisting on tight cross-functional coordination and integration among three core functions involved in the development of new products: research and development, marketing, and production. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #132 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 133. Which of the following is an important attribute for a product development team to function effectively and meet all of its development milestones? A. It should be led by a "heavyweight" project manager who has high status within the organization. B. The team members should always be physically in diverse locations in order to cover multiple bases. C. It should have preset processes for communication and conflict resolution that are developed by top management. D. It should have at least three members from each key function included. E. Its team members should be a part of more than two cross-functional teams. One way to achieve cross-functional integration is to establish cross-functional product development teams composed of representatives from research and development, marketing, and production. The team should be led by a “heavyweight” project manager who has high status within the organization and who has the power and authority required to get the financial and human resources the team needs to succeed. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #133 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 134. The project manager of a cross-functional team should: A. have the ability to persuade other team members to implement his idea. B. not be hesitant to claim responsibility for the success of a project. C. be able to act as an advocate of the team to senior management. D. help each function determine individual goals rather than focus on the project as a whole. E. get involved in conflict resolution only when absolutely necessary. A cross-functional team should be led by a “heavyweight” project manager who has high status within the organization and who has the power and authority required to get the financial and human resources the team needs to succeed. The leader should be dedicated primarily, if not entirely, to the project and also be able to act as an advocate of the team to senior management. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 16 #134 Learning Objective: 16-05 Describe how the globalization of the world economy is affecting new-product development within the international business firm. Topic: New-Product Development 135. The members of a cross-functional team should have: A. low standing within their respective functions. B. the ability to put functional and national advocacy first. C. the ability to contribute functional expertise. D. the ability to solely focus on the ongoing work of their respective functions. E. the ability to work on several projects simultaneously. The members of a cross-functional team should have a number of attributes, including an ability to contribute functional expertise, high standing within their function, a willingness to share responsibility for team results, and an ability to put functional and national advocacy aside. It is generally preferable if core team members are 100 percent dedicated to the project for its duration. This ensures their focus on the project, not on the ongoing work of their function. ch17 Key 1. The human resource management function can help a firm achieve its primary strategic goals of reducing the costs of value creation and adding value by better serving customer needs. Human resource management (HRM) refers to the activities an organization carries out to use its human resources effectively. Through its influence on the character, development, quality, and productivity of the firm's human resources, the HRM function can help the firm achieve its primary strategic goals of reducing the costs of value creation and adding value by better serving customers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #1 Learning Objective: 17-01 Summarize the strategic role of human resource management in the international business. Topic: Introduction 2. An expatriate manager is a citizen of one country who is working abroad in one of the firm’s subsidiaries. Human resource management must deal with a host of issues related to expatriate managers. An expatriate manager is a citizen of one country who is working abroad in one of the firm's subsidiaries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #2 Learning Objective: 17-01 Summarize the strategic role of human resource management in the international business. Topic: Introduction 3. For a firm to outperform its rivals in the global marketplace, the performance appraisal systems it uses must measure the perceptions that it wants to encourage. For a firm to outperform its rivals in the global marketplace, it must have the right people in the right postings. Their compensation packages must create incentives for them to take actions that are consistent with the strategy of the firm, and the performance appraisal system the firm uses must measure the behavior that the firm wants to encourage. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #3 Learning Objective: 17-01 Summarize the strategic role of human resource management in the international business. Topic: The Strategic Role of International HRM 4. Organizational architecture refers to an organization's norms and value systems. Corporate culture refers to an organization's norms and value systems. A strong corporate culture can help a firm implement its strategy. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #4 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 5. It is believed that a firm attains higher performance when its employees are predisposed toward its value systems by their personality type. Corporate culture refers to an organization’s norms and value systems. A strong corporate culture can help a firm implement its strategy. The belief is that if employees are predisposed toward the organization’s norms and value systems by their personality type, the firm will be able to attain higher performance. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #5 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 6. In international businesses, a geocentric staffing policy is one in which all key management positions are filled by parent-country nationals. Research has identified three types of staffing policies in international businesses: the ethnocentric approach, the polycentric approach, and the geocentric approach. An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #6 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 7. In international businesses, firms pursue a polycentric staffing policy because they see it as the best way to maintain a unified corporate culture. Research has identified three types of staffing policies in international businesses: the ethnocentric approach, the polycentric approach, and the geocentric approach. Firms pursue an ethnocentric staffing policy as the firm may see it as the best way to maintain a unified corporate culture. Such reasoning tends to predominate when a firm places a high value on its corporate culture. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #7 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 8. In international businesses, a disadvantage of an ethnocentric staffing policy is that it produces resentment in host-country nationals. Research has identified three types of staffing policies in international businesses: the ethnocentric approach, the polycentric approach, and the geocentric approach. Ethnocentric staffing policy limits advancement opportunities for host-country nationals. This can lead to resentment, lower productivity, and increased turnover among that group. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #8 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 9. An international firm that adopts a polycentric staffing policy is more likely to suffer from cultural myopia. Research has identified three types of staffing policies in international businesses: the ethnocentric approach, the polycentric approach, and the geocentric approach. An ethnocentric policy can lead to cultural myopia, the firm's failure to understand host-country cultural differences that require different approaches to marketing and management. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #9 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 10. In international businesses, a polycentric staffing policy increases the costs of value creation. A polycentric staffing policy requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. An advantage of this approach is that it may be less expensive to implement, reducing the costs of value creation. Expatriate managers can be expensive to maintain. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #10 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 11. International firms pursuing an ethnocentric staffing policy may be better able to create value from the pursuit of experience curve and location economies than firms pursuing other staffing policies. A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. Firms pursuing a geocentric staffing policy may be better able to create value from the pursuit of experience curve and location economies and from the multidirectional transfer of core competencies than firms pursuing other staffing policies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #11 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 12. The major drawback with a polycentric staffing policy is the gap that can form between host-country managers and parent-country managers due to language barriers. A polycentric staffing policy requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. Perhaps the major drawback with a polycentric approach is the gap that can form between host-country managers and parent-country managers. Language barriers, national loyalties, and a range of cultural differences may isolate the corporate headquarters staff from the various foreign subsidiaries. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #12 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 13. A polycentric staffing approach is effective only for international firms pursuing a transnational strategy and inappropriate for other strategies. The major drawback with a polycentric approach is the gap that can form between host-country managers and parent-country managers. The lack of management transfers from home to host countries, and vice versa, can exacerbate this isolation and lead to a lack of integration between corporate headquarters and foreign subsidiaries. The result can be a “federation” of largely independent national units with only nominal links to the corporate headquarters. Thus, although a polycentric approach may be effective for firms pursuing a localization strategy, it is inappropriate for other strategies. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #13 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 14. The fact that many countries want foreign subsidiaries to employ their citizens limits a firm's ability to pursue a geocentric policy. A number of problems limit the firm’s ability to pursue a geocentric policy. Many countries want foreign subsidiaries to employ their citizens. To achieve this goal, they use immigration laws to require the employment of host-country nationals if they are available in adequate numbers and have the necessary skills. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #14 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 15. For international firms, an ethnocentric staffing approach is compatible with a localization strategy. Broadly speaking, an ethnocentric approach is compatible with an international strategy, a polycentric approach is compatible with a localization strategy, and a geocentric approach is compatible with both global standardization and transnational strategies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #15 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 16. International firms that have a broad geographic scope are the most likely to have a geocentric mind-set. Critics note that the staffing policy adopted by a firm is primarily driven by its geographic scope, as opposed to its strategic orientation. Firms that have a broad geographic scope are the most likely to have a geocentric mind-set. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #16 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 17. Citizens of a foreign country working in the home country of their multinational employer are known as repatriates. Expatriates are citizens of one country who are working in another country. The term "inpatriate" is used to identify a subset of expatriates who are citizens of a foreign country working in the home country of their multinational employer. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #17 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 18. Expatriate failure represents the failure of a firm's selection policies to identify individuals who will not thrive abroad. Expatriate failure refers to the premature return of an expatriate manager to his or her home country. Expatriate failure represents a failure of the firm's selection policies to identify individuals who will not thrive abroad. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #18 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 19. According to a study by R.L. Tung, the most important reason for expatriate failure among U.S. multinationals is difficulty coping with a new environment. In a seminal study, R. L. Tung asked her sample of multinational managers to indicate reasons for expatriate failure. For U.S. multinationals, the most important reason was inability of spouse to adjust. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #19 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 20. According to Mendenhall and Oddou, human resource managers must equate domestic performance with overseas performance potential. One way to reduce expatriate failure rates is by improving selection procedures to screen out inappropriate candidates. In a review of the research on this issue, Mendenhall and Oddou state that a major problem in many firms is that human resource managers tend to equate domestic performance with overseas performance potential. Domestic performance and overseas performance potential are not the same thing. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #20 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 21. Expatriate managers who lack others-orientation tend to treat foreign nationals as if they were home-country nationals. Perceptual ability is the ability to understand why people of other countries behave the way they do; that is, the ability to empathize. Expatriate managers who lack this ability tend to treat foreign nationals as if they were home-country nationals. As a result, they may experience significant management problems and considerable frustration. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #21 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 22. According to Mendenhall and Oddou, expatriates with perceptual ability tend to be judgmental and evaluative in interpreting the behavior of host-country nationals. According to Mendenhall and Oddou, well-adjusted expatriates tend to be nonjudgmental and nonevaluative in interpreting the behavior of host-country nationals and willing to be flexible in their management style, adjusting it as cultural conditions warrant. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #22 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 23. Historically, most international businesses have been more concerned with management development than with training. Historically, most international businesses have been more concerned with training than with management development. Plus, they tended to focus their training efforts on preparing home-country nationals for foreign postings. Recently, however, the shift toward greater global competition and the rise of transnational firms have changed this. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #23 Learning Objective: 17-04 Recognize how management development and training programs can increase the value of human capital in the international business firm. Topic: Training and Management Development 24. It is important that the spouse of an expatriate manager, and perhaps the whole family, be included in cultural training programs. Cultural training seeks to foster an appreciation for the host country’s culture. It has been suggested that expatriates should receive training in the host country's culture, history, politics, economy, religion, and social and business practices. Given the problems related to spouse adaptation, it is important that the spouse, and perhaps the whole family, be included in cultural training programs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #24 Learning Objective: 17-04 Recognize how management development and training programs can increase the value of human capital in the international business firm. Topic: Training and Management Development 25. Transnational firm managers need not be able to detect pressures for local responsiveness because it is not part of their skill set. International businesses are increasingly using management development as a strategic tool. This is particularly in firms pursuing a transnational strategy, as increasing numbers are. Transnational firm managers need to be able to detect pressures for local responsiveness, and that requires them to understand the culture of a host country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #25 Learning Objective: 17-04 Recognize how management development and training programs can increase the value of human capital in the international business firm. Topic: Training and Management Development 26. Bringing managers together in one location for extended periods and rotating them through different jobs in several countries help the firm build an informal management network. Bringing managers together in one location for extended periods and rotating them through different jobs in several countries helps the firm build an informal management network. Such a network can then be used as a conduit for exchanging valuable performance-enhancing knowledge within the organization. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #26 Learning Objective: 17-04 Recognize how management development and training programs can increase the value of human capital in the international business firm. Topic: Training and Management Development 27. Unintentional bias makes it easy to evaluate the performance of expatriate managers objectively. Unintentional bias makes it difficult to evaluate the performance of expatriate managers objectively. In many cases, two groups evaluate the performance of expatriate managers—host-nation managers and home-office managers—and both are subject to bias. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #27 Learning Objective: 17-05 Explain how and why performance appraisal systems might vary across nations. Topic: Performance Appraisal 28. Home-office managers are unbiased while evaluating the performance of expatriate managers. Unintentional bias makes it difficult to evaluate the performance of expatriate managers objectively. In many cases, two groups evaluate the performance of expatriate managers—host-nation managers and home-office managers—and both are subject to bias. The host-nation managers may be biased by their own cultural frame of reference and expectations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #28 Learning Objective: 17-05 Explain how and why performance appraisal systems might vary across nations. Topic: Performance Appraisal 29. From a strategic perspective, a compensation system must reward managers for taking actions that are consistent with the strategy of the enterprise. Two issues are raised in every discussion of compensation practices in an international business. One is how compensation should be adjusted to reflect national differences in economic circumstances and compensation practices. The other issue is how expatriate managers should be paid. From a strategic perspective, the important point is that whatever compensation system is used, it should reward managers for taking actions that are consistent with the strategy of the enterprise. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #29 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 30. In terms of expatriate pay, the income statement approach equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. The most common approach to expatriate pay is the balance sheet approach. This approach equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #30 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 31. An expatriate's base salary is normally lower than the base salary for a similar position in the home country. An expatriate's base salary is normally in the same range as the base salary for a similar position in the home country. The base salary is normally paid in either the home-country currency or in the local currency. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #31 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 32. Unless a host country has a reciprocal tax treaty with the expatriate's home country, an expatriate must pay income tax to both the home- and host-country governments. Unless a host country has a reciprocal tax treaty with the expatriate's home country, the expatriate may have to pay income tax to both the home- and host-country governments. When a reciprocal tax treaty is not in force, the firm typically pays the expatriate's income tax in the host country. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #32 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 33. A concern of organized labor is that an international business keeps highly skilled tasks in its home country and farm out low-skilled tasks to foreign plants. A concern of organized labor is that an international business will keep highly skilled tasks in its home country and farm out only low-skilled tasks to foreign plants. Such a practice makes it relatively easy for an international business to switch production from one location to another as economic conditions warrant. Consequently, the bargaining power of organized labor is once more reduced. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #33 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 34. An impediment to cooperation between national unions is the wide variation in union structure. An impediment to cooperation between national unions is the wide variation in union structure. Trade unions developed independently in each country. The ideological gap between union leaders in different countries has made cooperation difficult. Divergent ideologies are reflected in radically different views about the role of a union in society and the stance unions should take toward multinationals. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #34 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 35. Historically, most international businesses have centralized international labor relations activities. International businesses differ markedly in their approaches to international labor relations. The main difference is the degree to which labor relations activities are centralized or decentralized. Historically, most international businesses have decentralized international labor relations activities to their foreign subsidiaries because labor laws, union power, and the nature of collective bargaining varied so much from country to country. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #35 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 36. A(n) expatriate manager refers to: A. a citizen of one country who is working abroad in one of the firm's subsidiaries. B. a parent-country national who works in the parent country. C. a host-country national who works in the host country. D. any person who lives in a foreign country. E. a person willing to work in different departments of a foreign firm. An expatriate manager is a citizen of one country who is working abroad in one of the firm's subsidiaries. Human resource management must deal with a host of issues related to expatriate managers. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #36 Learning Objective: 17-01 Summarize the strategic role of human resource management in the international business. Topic: Introduction 37. Megan, a U.S. citizen, is the operations manager at the Middle East office of HS Constructions Inc., an American firm. In this situation, she is an example of a(n) _____ manager. A. immigrant B. host-country C. inpatriate D. expatriate E. virtual An expatriate manager is a citizen of one country who is working abroad in one of the firm's subsidiaries. Human resource management must deal with a host of issues related to expatriate managers. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #37 Learning Objective: 17-01 Summarize the strategic role of human resource management in the international business. Topic: Introduction 38. Firms that pursue a localization strategy try to create value by: A. emphasizing local responsiveness. B. encouraging a global staffing approach. C. emphasizing transnational strategies. D. building an informal management network. E. transferring products and competencies overseas. Four strategies are pursued by international businesses: localization strategy, international strategy, global standardization strategy, and transnational strategy. Firms that emphasize localization try to create value by emphasizing local responsiveness. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #38 Learning Objective: 17-01 Summarize the strategic role of human resource management in the international business. Topic: The Strategic Role of International HRM 39. International firms try to create value by: A. transferring products and competencies overseas. B. following a local staffing policy. C. focusing on local responsiveness. D. emphasizing a localization strategy. E. adopting an ethnocentric staffing approach. Four strategies are pursued by international businesses: localization strategy, international strategy, global standardization strategy, and transnational strategy. Firms that emphasize localization try to create value by emphasizing local responsiveness; international firms, by transferring products and competencies overseas; global firms, by realizing experience curve and location economies; and transnational firms, by doing all these things simultaneously. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #39 Learning Objective: 17-01 Summarize the strategic role of human resource management in the international business. Topic: The Strategic Role of International HRM 40. Firms that emphasize global standardization try to create value by: A. retaining products and competencies within the parent country. B. realizing experience curve and location economies. C. focusing on local responsiveness. D. emphasizing localization. E. adopting an ethnocentric staffing approach. Four strategies are pursued by international businesses: localization strategy, international strategy, global standardization strategy, and transnational strategy. Firms that emphasize localization try to create value by emphasizing local responsiveness; international firms, by transferring products and competencies overseas; global firms, by realizing experience curve and location economies; and transnational firms, by doing all these things simultaneously. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #40 Learning Objective: 17-01 Summarize the strategic role of human resource management in the international business. Topic: The Strategic Role of International HRM 41. _____ refers to a strategy that is concerned with the selection of employees for particular jobs. A. Compensation policy B. Staffing policy C. Performance appraisal policy D. Training policy E. Management development policy Staffing policy is concerned with the selection of employees for particular jobs. This involves selecting individuals who have the skills required to do particular jobs. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #41 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 42. The norms and value systems of an organization constitute its _____. A. corporate social responsibility B. cultural toughness C. cultural sensitivity D. corporate culture E. perceptual ability Corporate culture is the organization's norms and value systems. A strong corporate culture can help a firm implement its strategy. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #42 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 43. A(n) _____ staffing policy is one in which all key management positions are filled by parent-country nationals. A. ethnocentric B. global C. polycentric D. geocentric E. transnational An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time. Firms such as Procter & Gamble, Philips Electronics NV, and Matsushita (now called Panasonic) originally followed it. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #43 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 44. In the Swiss firm Terabithia Systems AG, all the important positions in its international operations are held by Swiss nationals. Terabithia follows a(n) _____ staffing policy. A. eurocentric B. ethnocentric C. polycentric D. geocentric E. transnational An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time. Firms such as Procter & Gamble, Philips Electronics NV, and Matsushita (now called Panasonic) originally followed it. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #44 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 45. Which of the following is a characteristic feature of an ethnocentric staffing policy? A. It requires host-country nationals to be recruited to manage subsidiaries. B. It is used when a firm places a low value on its corporate culture. C. It increases advancement opportunities for host-country nationals. D. It seeks the best people for key jobs throughout the organization, regardless of nationality. E. It places parent-country nationals in key management positions. An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. This practice was widespread at one time. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #45 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 46. Which of the following is an advantage of an ethnocentric staffing policy? A. It alleviates cultural myopia. B. It is inexpensive to implement. C. It helps build strong informal management networks. D. It helps transfer core competencies to a foreign operation. E. It uses human resources efficiently. If a firm is trying to create value by transferring core competencies to a foreign operation, as firms pursuing an international strategy are, it may believe that the best way to do this is to transfer parent-country nationals who have knowledge of that competency to the foreign operation. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #46 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 47. A firm pursues an ethnocentric staffing policy because it: A. believes in providing growth opportunities to host-country nationals. B. wants to avoid cultural myopia. C. believes the host country lacks qualified individuals for senior management positions. D. wants to keep all core competencies within the home country. E. wants to build strong cultural and informal management networks in all its subsidiaries. Firms pursue an ethnocentric staffing policy for three reasons. First, the firm may believe the host country lacks qualified individuals to fill senior management positions. Second, the firm may see an ethnocentric staffing policy as the best way to maintain a unified corporate culture. Third, it wants to transfer core competencies to a foreign operation. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #47 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 48. Firms that use an ethnocentric staffing policy consider it to be: A. a way to reduce the costs of value creation. B. inappropriate for a localization strategy. C. the best way to maintain a unified corporate culture. D. the most inexpensive staffing approach. E. the only approach to reduce cultural myopia. An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. One of the reasons why firms pursue an ethnocentric staffing policy is that they may see it as the best way to maintain a unified corporate culture. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #48 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 49. If a firm tries to create value by transferring core competencies to a foreign operation and, therefore, transfers parent-country nationals who have knowledge of that competency to the foreign operation, it pursues a(n) _____ staffing policy. A. ethnocentric B. polycentric C. geocentric D. eurocentric E. transnational Firms pursue an ethnocentric staffing policy for three reasons. One of the reasons is that if the firm is trying to create value by transferring core competencies to a foreign operation, as firms pursuing an international strategy are, it may believe that the best way to do this is to transfer parent-country nationals who have knowledge of that competency to the foreign operation. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #49 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 50. Which of the following is a disadvantage of an ethnocentric staffing policy? A. It leads to resentment in the host country. B. It isolates the headquarters from foreign subsidiaries. C. It does not allow transfer of core competencies. D. It leads to a dearth of qualified managers in the host nation. E. It diversifies corporate culture. An ethnocentric staffing policy is one in which all key management positions are filled by parent-country nationals. A disadvantage of this staffing policy is that it can lead to resentment, lower productivity, and increased turnover among host-country nationals. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #50 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 51. A(n) _____ staffing policy limits advancement opportunities for host-country nationals. A. transnational B. polycentric C. geocentric D. ethical E. ethnocentric An ethnocentric staffing policy limits advancement opportunities for host-country nationals. This can lead to resentment, lower productivity, and increased turnover among that group. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #51 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 52. A firm's failure to understand host-country cultural differences that require different approaches to marketing and management is referred to as _____. A. cultural parity B. cultural myopia C. power distance D. cultural toughness E. cultural polarization An ethnocentric policy can lead to cultural myopia, the firm’s failure to understand host-country cultural differences that require different approaches to marketing and management. The adaptation of expatriate managers can take a long time, during which they may make major mistakes. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #52 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 53. A(n) _____ staffing policy requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. A. geocentric B. polycentric C. ethnocentric D. global E. transnational A polycentric staffing policy requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. In many respects, a polycentric approach is a response to the shortcomings of an ethnocentric approach. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #53 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 54. A firm that adopts a polycentric staffing policy is less likely to: A. isolate foreign subsidiaries from corporate headquarters. B. implement an expensive staffing policy. C. be controlled by corporate headquarters. D. suffer from cultural myopia. E. provide growth opportunities. One advantage of adopting a polycentric approach is that the firm is less likely to suffer from cultural myopia. Host-country managers are unlikely to make the mistakes arising from cultural misunderstandings to which expatriate managers are vulnerable. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #54 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 55. Which of the following is of a polycentric staffing policy? A. It is expensive to implement. B. It leads to cultural myopia. C. It prevents mistakes arising from cultural misunderstandings. D. It bridges the gap between the headquarters and its foreign subsidiaries. E. It gives unlimited advancement opportunities for host-country nationals. One advantage of adopting a polycentric staffing policy is that the firm is less likely to suffer from cultural myopia. Host-country managers are unlikely to make the mistakes arising from cultural misunderstandings to which expatriate managers are vulnerable. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #55 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 56. Which of the following is an advantage of adopting a polycentric staffing approach? A. It is less expensive to implement as compared to other staffing approaches. B. It gives host-country nationals unlimited opportunities to gain experience outside their own country. C. It increases career mobility. D. It increases interaction between the headquarters of a firm and its foreign subsidiaries. E. It bridges the gap between host-country managers and parent-country managers. One advantage of adopting a polycentric staffing policy is that a polycentric approach may be less expensive to implement, reducing the costs of value creation. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #56 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 57. Which of the following is a drawback of adopting a polycentric staffing approach? A. It is expensive to implement. B. It leads host-country managers to make mistakes due to cultural misunderstandings. C. It limits advancement opportunities for host-country nationals. D. It invariably makes a firm suffer from cultural myopia. E. It bridges the gap between the headquarters of a firm and its foreign subsidiaries. The ethnocentric staffing policy is now on the wane in most international businesses for two reasons. First, an ethnocentric staffing policy limits advancement opportunities for host-country nationals. This can lead to resentment, lower productivity, and increased turnover among that group. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #57 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 58. The major drawback with a(n) _____ staffing policy is the gap that can form between host-country managers and parent-country managers. A. global B. geocentric C. polycentric D. ethnocentric E. transnational A polycentric staffing policy requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. Perhaps the major drawback with a polycentric approach is the gap that can form between host-country managers and parent-country managers. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #58 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 59. A polycentric staffing approach is effective for firms pursuing a(n) _____ strategy. A. international B. localization C. global D. transnational E. regional A polycentric staffing policy requires host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. Although a polycentric approach may be effective for firms pursuing a localization strategy, it is inappropriate for other strategies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #59 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 60. A(n) _____ approach to staffing has the following disadvantages: it limits career mobility and it isolates headquarters from foreign subsidiaries. A. polycentric B. transnational C. geocentric D. ethnocentric E. global The major drawback with a polycentric staffing approach is the gap that can form between host-country managers and parent-country managers. In addition, host-country nationals have limited opportunities to gain outside their own country and thus cannot progress beyond senior positions in their own subsidiary. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #60 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 61. A(n) _____ staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. A. global B. ethnocentric C. geocentric D. polycentric E. transnational A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. In sum, other things being equal, a geocentric staffing policy seems the most attractive. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #61 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 62. How is a geocentric staffing policy beneficial to a firm? A. It requires the firm to provide little or no documentation to hire a foreign national. B. It is inexpensive to implement. C. It helps the firm follow a localization strategy. D. It allows all key management positions to be filled by parent-country nationals. E. It enables the firm to make the best use of its human resources. A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. It enables the firm to make the best use of its human resources. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #62 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 63. What is the advantage of a geocentric staffing policy? A. It requires firms to provide little or no documentation to hire a foreign national. B. It enables firms to build a cadre of international executives who feel at home working in a number of cultures. C. It is inexpensive to implement the policy in a firm. D. It allows all key management positions of the firms and their subsidiaries to be filled by parent-country nationals. E. It helps firms to follow a localization strategy. A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. It enables a firm to build a cadre of international executives who feel at home working in a number of cultures. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #63 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 64. Firms pursuing a(n) _____ staffing policy may be better able to create value from the pursuit of experience curve and location economies than firms pursuing other staffing policies. A. domestic B. eurocentric C. ethnocentric D. geocentric E. local A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. Firms pursuing a geocentric staffing policy may be better able to create value from the pursuit of experience curve and location economies and from the multidirectional transfer of core competencies than firms pursuing other staffing policies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #64 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 65. Which of the following is an advantage of adopting a geocentric staffing approach? A. It tends to reduce cultural myopia and enhance local responsiveness. B. It is inexpensive to implement. C. It reduces the costs of value creation. D. It allows all key management positions of a firm and its subsidiaries to be filled by parent-country nationals. E. It requires minimal documentation for hiring foreign nationals. A geocentric staffing policy enables the firm to build a cadre of international executives who feel at home working in a number of cultures. The multinational composition of the management team that results from geocentric staffing tends to reduce cultural myopia and to enhance local responsiveness. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #65 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 66. Most countries require extensive documentation if they wish to hire a foreign national instead of a local national. This is a disadvantage of the _____ staffing approach. A. polycentric B. geocentric C. transnational D. ethnocentric E. local A number of problems limit a firm’s ability to pursue a geocentric policy. Most countries, including the United States, require firms to provide extensive documentation if they wish to hire a foreign national instead of a local national. This documentation can be time consuming, expensive, and at times futile. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #66 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 67. Which of the following is an advantage of a geocentric approach to staffing for international businesses? A. It requires minimal documentation. B. It is inexpensive to implement. C. It helps build a strong culture and informal management networks. D. It helps transfer core competencies to foreign operations. E. It requires less management personnel to implement this staffing policy. A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. A geocentric approach uses human resources efficiently and helps build strong culture and informal management networks. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #67 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 68. Which of the following is a disadvantage of adopting a geocentric staffing approach? A. Cultural myopia negatively influences effective management control. B. Training and relocation costs increase when transferring managers from country to country. C. Host-country nationals cannot progress beyond senior positions in their own subsidiary. D. A gap forms between host-country managers and parent-country managers. E. The lack of management transfers leads to a lack of integration between corporate headquarters and foreign subsidiaries. A geocentric staffing policy seeks the best people for key jobs throughout the organization, regardless of nationality. It can be expensive to implement. Training and relocation costs increase when transferring managers from country to country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #68 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 69. Broadly speaking, a(n) _____ staffing approach is compatible with an international strategy. A. ethnocentric B. geocentric C. polycentric D. transnational E. ethical Broadly speaking, an ethnocentric approach is compatible with an international strategy, a polycentric approach is compatible with a localization strategy, and a geocentric approach is compatible with both global standardization and transnational strategies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #69 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 70. Which of the following strategies is compatible with a geocentric staffing policy? A. Global standardization strategy B. Localization strategy C. International strategy D. Ethical strategy E. Global strategy Broadly speaking, an ethnocentric approach is compatible with an international strategy, a polycentric approach is compatible with a localization strategy, and a geocentric approach is compatible with both global standardization and transnational strategies. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #70 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 71. Firms that have a broad geographic scope are most likely to have a(n) _____ mind-set. A. ethnocentric B. polycentric C. transnational D. geocentric E. localized Critics note that the staffing policy adopted by a firm is primarily driven by its geographic scope, as opposed to its strategic orientation. Firms that have a broad geographic scope are the most likely to have a geocentric mind-set. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #71 Learning Objective: 17-02 Identify the pros and cons of different approaches to staffing policy in the international business. Topic: Staffing Policy 72. Which of the following staffing policies relies extensively on the use of expatriate managers? A. Global staffing policy B. Polycentric staffing policy C. Transnational staffing policy D. Ethnocentric staffing policy E. Localized staffing policy Two of the three staffing policies—the ethnocentric and the geocentric—rely on extensive use of expatriate managers. Expatriates are citizens of one country who are working in another country. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #72 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 73. _____ refers to a subset of expatriates who are citizens of a foreign country working in the home country of their multinational employer. A. Virtual expatriates B. Inpatriates C. Third-country nationals D. Host-country nationals E. Parent-country nationals Expatriates are citizens of one country who are working in another country. The term “inpatriates” is used to identify a subset of expatriates who are citizens of a foreign country working in the home country of their multinational employer. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #73 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 74. _____ refers to the premature return of an expatriate manager to his or her home country. A. Expatriate relief B. Expatriate failure C. Expatriate rotation D. Expatriate timing E. Repatriation Expatriate failure refers to the premature return of an expatriate manager to his or her home country. It represents a failure of the firm’s selection policies to identify individuals who will not thrive abroad. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #74 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 75. Yuriko, a citizen of Japan, was working as a manager in the Japanese branch of an American firm. Due to her efficiency, she was assigned a temporary posting at the headquarters of the firm in America. In this situation, she is known as a(n) _____. A. repatriate B. inpatriate C. third-country national D. beneficiary E. parent-country national The term “inpatriates” is used to identify a subset of expatriates who are citizens of a foreign country working in the home country of their multinational employer. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #75 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 76. With a(n) _____ staffing policy, the expatriates are all home-country nationals who are transferred abroad. A. geocentric B. ethnocentric C. polycentric D. international E. domestic Two of the three staffing policies—the ethnocentric and the geocentric—rely on extensive use of expatriate managers. With an ethnocentric staffing policy, the expatriates are all home-country nationals who are transferred abroad. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #76 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 77. According to R. L. Tung's study, which of the following is the most important reason for expatriate failures for U.S. multinationals? A. Inability of the spouse to adjust B. Difficulties with the new environment C. Insufficient pay D. Personal or emotional problems E. Lack of technical competence In a seminal study, R. L. Tung surveyed a number of U.S., European, and Japanese multinationals. She asked her sample of multinational managers to indicate reasons for expatriate failure. For U.S. multinationals, the reasons, in order of importance, were: (1) inability of the spouse to adjust (2) manager's inability to adjust (3) other family problems (4) manager's personal or emotional maturity (5) inability to cope with larger overseas responsibility. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #77 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 78. According to the results of a seminal study by R. L. Tung, what was the major reason for expatriate failure among European expatriates? A. Personal or emotional problems B. Inability to cope with overseas responsibilities C. Poor pay D. Inability of spouse to adjust to a new environment E. Lack of technical competence In a seminal study, R. L. Tung surveyed a number of U.S., European, and Japanese multinationals. She asked her sample of multinational managers to indicate reasons for expatriate failure. Managers of European firms gave only one reason consistently to explain expatriate failure: the inability of the manager’s spouse to adjust to a new environment. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #78 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 79. According to the results of a seminal study by R. L. Tung, the top reason that Japanese expatriate managers fail is: A. the inability of their spouses to adjust. B. their lack of technical competence. C. personal or emotional problems. D. the inability to cope with larger overseas responsibilities. E. their inability to deal with difficulties in the new environment. In a seminal study, R. L. Tung surveyed a number of U.S., European, and Japanese multinationals. She asked her sample of multinational managers to indicate reasons for expatriate failure. For Japanese firms, the reasons for failure were: (1) inability to cope with larger overseas responsibilities (2) difficulties with new environment (3) personal or emotional problems (4) lack of technical competence (5) inability of spouse to adjust. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #79 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 80. According to Mendenhall and Oddou, what is the major problem in the selection of appropriate candidates for overseas assignments in many firms? A. Lack of technical abilities B. Equating domestic performance with overseas performance potential C. Lack of communication between line managers and HR managers D. A geocentric staffing policy E. A polycentric staffing policy One way to reduce expatriate failure rates is by improving selection procedures to screen out inappropriate candidates. In a review of the research on this issue, Mendenhall and Oddou state that a major problem in many firms is that HRM managers tend to equate domestic performance with overseas performance potential. AACSB: Analytic Blooms: Understand Difficulty: 1 Easy Hill - Chapter 17 #80 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 81. According to Mendenhall and Oddou, which of the following dimensions that predicts success in a foreign posting strengthens an expatriate's self-esteem, self-confidence, and mental well-being? A. Cultural toughness B. Others-orientation C. Perceptual ability D. Self-orientation E. Empathy From their review of the research, Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. The attributes of self-orientation strengthen the expatriate’s self-esteem, self-confidence, and mental well-being. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #81 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 82. Mendenhall and Oddou identified that expatriates with _____, a dimension that predicts success, were able to adapt their interests in food, sport, and music. A. perceptual ability B. self-orientation C. others-orientation D. cultural toughness E. empathy From their review of the research, Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. They concluded that individuals with self-orientation were able to adapt their interests in food, sport, and music; had interests outside of work that could be pursued (e.g., hobbies); and were technically competent. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #82 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 83. According to Mendenhall and Oddou, which of the following is a dimension that seems to predict success in a foreign posting? A. Others-orientation B. Learning effects C. Dynamic capabilities D. Eclectic paradigm E. Factor endowments From their review of the research, Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #83 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 84. According to Mendenhall and Oddou's dimensions that predict success in a foreign posting, relationship development refers to: A. an expatriate's willingness to use the host-country language. B. the ability to understand why people of other countries behave the way they do. C. the ability to empathize with foreign nationals. D. the relationship between the country of assignment and how well an expatriate adjusts to a particular posting. E. the ability to develop long-lasting friendships with host-country nationals. Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Relationship development refers to the ability to develop long-lasting friendships with host-country nationals. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #84 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 85. In a review of the research on expatriate selection, _____ state(s) that a major problem in many firms is that human resource managers tend to equate domestic performance with overseas performance potential. A. R.L. Tung B. Medenhall and Oddou C. Towers Perrin D. Prahalad and Doz E. Christopher Bartlett and Sumantra Ghoshal One way to reduce expatriate failure rates is by improving selection procedures to screen out inappropriate candidates. In a review of the research on this issue, Mendenhall and Oddou state that a major problem in many firms is that human resource managers tend to equate domestic performance with overseas performance potential. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #85 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 86. According to Mendenhall and Oddou's dimensions that predict success in a foreign posting, which of the following is a result of the attribute of others-orientation? A. The expatriate has high self-esteem. B. The expatriate empathizes with the host-country nationals. C. The expatriate speaks to the host-country nationals in the local language. D. The expatriate adjusts to the inhospitable climate of the host country. E. The expatriate is comfortable working in a male-dominated environment. Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. The attributes of others-orientation enhance the expatriate’s ability to interact effectively with host-country nationals. Willingness to communicate refers to the expatriate’s willingness to use the host-country language. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #86 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 87. According to Mendenhall and Oddou, relationship development and willingness to communicate are two important factors of the dimension of _____. A. self-orientation B. perceptual ability C. cultural toughness D. others-orientation E. personal interest Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Two factors seem to be particularly important with the dimension of others-orientation: relationship development and willingness to communicate. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #87 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 88. According to Mendenhall and Oddou, the attribute of _____ provides an expatriate the ability to understand why people of other countries behave the way they do. A. cultural toughness B. perceptual ability C. self-orientation D. others-orientation E. willingness to communicate Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Perceptual ability is the ability to understand why people of other countries behave the way they do, that is, the ability to empathize. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #88 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 89. According to Mendenhall and Oddou, perceptual ability refers to: A. an expatriate's willingness to use the host-country language. B. an expatriate's ability to strengthen his or her self-esteem. C. an expatriate's ability to empathize. D. the relationship between the country of assignment and how well an expatriate adjusts to a particular posting. E. the ability to develop long-lasting friendships with host-country nationals. Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Perceptual ability refers to the ability to understand why people of other countries behave the way they do, that is, the ability to empathize. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #89 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 90. According to Mendenhall and Oddou, expatriate managers who lack the dimension of _____ tend to treat foreign nationals as if they were home-country nationals. A. cultural toughness B. self-orientation C. others-orientation D. perceptual ability E. willingness to communicate Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Perceptual ability seems critical for managing host-country nationals. Expatriate managers who lack this ability tend to treat foreign nationals as if they were home-country nationals. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #90 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 91. According to Mendenhall and Oddou, the dimension of _____ refers to the relationship between the country of assignment and how well an expatriate adjusts to a particular posting. A. self-orientation B. perceptual ability C. cultural toughness D. others-orientation E. willingness to communicate Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Cultural toughness refers to the relationship between the country of assignment and how well an expatriate adjusts to a particular posting. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #91 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 92. Amanda, an American manager, is successfully adjusting in a country where the culture is extremely male-dominated. According to Mendenhall and Oddou, which of the following dimensions that predict success in foreign postings is involved in this situation? A. Perceptual ability B. Others-orientation C. Cultural toughness D. Self-orientation E. Empathy Mendenhall and Oddou identified four dimensions that seem to predict success in a foreign posting: self-orientation, others-orientation, perceptual ability, and cultural toughness. Cultural toughness refers to the relationship between the country of assignment and how well an expatriate adjusts to a particular posting. Many cultures are extremely male-dominated and may be particularly difficult postings for female Western managers. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #92 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 93. Poor health care and housing standards and inhospitable climate make it difficult for expatriates to adjust to a particular posting. According to Mendenhall and Oddou's four dimensions that predict success in a foreign posting, which of the following is required in this situation? A. Perceptual ability B. Cultural toughness C. Self-orientation D. Others-orientation E. Self-confidence According to Medenhall and Oddou, cultural toughness refers to the relationship between the country of assignment and how well an expatriate adjusts to a particular posting. Poor health care and housing standards, inhospitable climate, lack of Western entertainment, and language difficulties make expatriates low in cultural toughness. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #93 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 94. Which of the following is an additional and difficult dimension to the long-standing problem of expatriate failure due to the inability of the spouse to adjust? A. Formal training B. Dual-career families C. Cultural diversity D. Single parenting E. Cultural toughness Mendenhall and Oddou do not address the problem of expatriate failure due to a spouse’s inability to adjust. The rise of dual-career families has added an additional and difficult dimension to this long-standing problem. Increasingly, spouses wonder why they should have to sacrifice their own career to further that of their partner. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #94 Learning Objective: 17-03 Explain why managers may fail to thrive in foreign postings. Topic: Staffing Policy 95. Which of the following is intended to build a manager's skills over his or her career with the firm? A. Ethnocentrism B. Cultural toughness C. Total Quality Management D. Management development E. Learning effects Selection is just the first step in matching a manager with a job. The next step is training the manager to do the specific job. Management development is intended to develop the manager’s skills over his or her career with the firm. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #95 Learning Objective: 17-04 Recognize how management development and training programs can increase the value of human capital in the international business firm. Topic: Training and Management Development 96. For expatriate managers, an exclusive reliance on English: A. increases their effectiveness in dealing with host-country nationals. B. eases culture shock. C. diminishes their ability to interact with host-country nationals. D. helps them adjust to the day-to-day life in the host country. E. helps them build rapport with local employees. English is the language of world business; it is quite possible to conduct business all over the world using only English. Notwithstanding the prevalence of English, however, an exclusive reliance on English diminishes an expatriate manager’s ability to interact with host-country nationals. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #96 Learning Objective: 17-04 Recognize how management development and training programs can increase the value of human capital in the international business firm. Topic: Training and Management Development 97. In terms of training and management development, _____ is aimed at helping the expatriate manager and family ease themselves into day-to-day life in the host country. A. cognitive training B. practical training C. house training D. cultural training E. perceptual ability training Practical training is aimed at helping the expatriate manager and family ease themselves into day-to-day life in the host country. The sooner a routine is established, the better are the prospects that the expatriate and his or her family will adapt successfully. One critical need is for a support network of friends for the expatriate. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #97 Learning Objective: 17-04 Recognize how management development and training programs can increase the value of human capital in the international business firm. Topic: Training and Management Development 98. Repatriation refers to: A. sending expatriate managers to a new host country. B. training expatriate managers to adjust to the new environment of the host country. C. reentry of expatriate managers into their home-country organization. D. helping expatriate managers build rapport with local employees. E. the process of increasing expatriate managers' effectiveness in dealing with host-country nationals. A largely overlooked but critically important issue in the training and development of expatriate managers is to prepare them for reentry into their home-country organization. Repatriation should be seen as the final link in an integrated, circular process that connects good selection and cross-cultural training of expatriate managers with completion of their term abroad and reintegration into their national organization. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #98 Learning Objective: 17-04 Recognize how management development and training programs can increase the value of human capital in the international business firm. Topic: Training and Management Development 99. International businesses pursuing a(n) _____ strategy are increasingly using management development as a strategic tool as they need a strong unifying corporate culture and informal management networks to assist in coordination and control. A. localization B. international C. transnational D. global standardization E. ethnocentric International businesses are increasingly using management development as a strategic tool. This is particularly in firms pursuing a transnational strategy, as increasing numbers are. Such firms need a strong unifying corporate culture and informal management networks to assist in coordination and control. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #99 Learning Objective: 17-04 Recognize how management development and training programs can increase the value of human capital in the international business firm. Topic: Training and Management Development 100. During performance appraisals, two groups evaluate the performance of expatriate managers—host-nation managers and home-office managers. This is aimed at avoiding the problem of _____. A. cultural conflict B. unintentional bias C. operational errors D. central tendency E. culture shock Unintentional bias makes it difficult to evaluate the performance of expatriate managers objectively. In many cases, two groups evaluate the performance of expatriate managers—host-nation managers and home-office managers—and both are subject to bias. The host-nation managers may be biased by their own cultural frame of reference and expectations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #100 Learning Objective: 17-05 Explain how and why performance appraisal systems might vary across nations. Topic: Performance Appraisal 101. Home-country managers' performance appraisals may be biased by: A. distance and by their own lack of experience of working abroad. B. poor networking skills. C. lack of technological know-how. D. learning effects. E. taking hard variables as well as soft variables into consideration. Home-country managers’ appraisals may be biased by distance and by their own lack of experience working abroad. Home-office managers are often not aware of what is going on in a foreign operation. Accordingly, they tend to rely on hard data in evaluating an expatriate’s performance, such as the subunit’s productivity, profitability, or market share. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #101 Learning Objective: 17-05 Explain how and why performance appraisal systems might vary across nations. Topic: Performance Appraisal 102. Which of the following steps is of bias in performance evaluations? A. More weight should be given to an off-site manager's appraisal than an on-site manager's appraisal. B. Cultural bias increases when the on-site manager is of the same nationality as the expatriate. C. Home-office managers should write performance evaluations without consulting on-site managers to avoid bias. D. Due to proximity, an on-site manager is more likely to evaluate the soft variables that are important aspects of an expatriate’s performance. E. A performance appraisal is invalid when the on-site manager is of the same nationality as the expatriate manager. Several things can reduce bias in the performance appraisal process. First, most expatriates appear to believe more weight should be given to an on-site manager’s appraisal than to an off-site manager’s appraisal. Due to proximity, an on-site manager is more likely to evaluate the soft variables that are important aspects of an expatriate’s performance. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #102 Learning Objective: 17-05 Explain how and why performance appraisal systems might vary across nations. Topic: Performance Appraisal 103. According to the survey undertaken by Towers Perrin, which of the following countries provides the highest pay to HR executives? A. Switzerland B. The United States C. Japan D. Australia E. Argentina Substantial differences exist in the compensation of executives at the same level in various countries. According to a survey undertaken by Towers Perrin, the average compensation for top HR executives in the United States was $525,923, compared with $278,697 in Japan and $158,146 in Taiwan. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #103 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 104. In firms following a(n) _____ staffing policy, the issue of compensation can be reduced to that of how much home-country expatriates should be paid. A. polycentric B. ethnocentric C. geocentric D. international E. global National differences in compensation raise a perplexing question for an international business: Should the firm pay executives in different countries according to the prevailing standards in each country, or should it equalize pay on a global basis? In ethnocentric firms, the issue can be reduced to that of how much home-country expatriates should be paid. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #104 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 105. In firms following a(n) _____ staffing policy, the lack of managers' mobility among national operations implies that the pay for expatriates should be kept country specific. A. regiocentric B. ethnocentric C. geocentric D. polycentric E. international National differences in compensation raise a perplexing question for an international business: Should the firm pay executives in different countries according to the prevailing standards in each country, or should it equalize pay on a global basis? For polycentric firms, the lack of managers’ mobility among national operations implies that pay can and should be kept country specific. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #105 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 106. One aspect of a(n) _____ staffing policy is the need for a cadre of international managers that may include many different nationalities. A. polycentric B. geocentric C. ethnocentric D. regiocentric E. localized The problem of compensation is very real in firms with geocentric staffing policies. A geocentric staffing policy is consistent with a transnational strategy. One aspect of this policy is the need for a cadre of international managers that may include many different nationalities. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #106 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 107. In a firm with a(n) _____ staffing policy, considerable resentment is caused among foreign nationals who are members of the international cadre and work with U.S. nationals, if pay is not equalized. A. polycentric B. geocentric C. ethnocentric D. regiocentric E. localized The problem of compensation is very real in firms with geocentric staffing policies. A geocentric staffing policy is consistent with a transnational strategy. One aspect of this policy is the need for a cadre of international managers that may include many different nationalities. If the firm does not equalize pay, it could cause considerable resentment among foreign nationals who are members of the international cadre and work with U.S. nationals. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #107 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 108. Which of the following is the most common approach to expatriate pay which equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home? A. Merit approach B. Correspondence approach C. Balance sheet approach D. Parity approach E. Perceptual approach The most common approach to expatriate pay is the balance sheet approach. This approach equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. In addition, the approach provides financial incentives to offset qualitative differences between assignment locations. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #108 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 109. In the context of expatriate compensation, what is the role of a balance sheet approach? A. It equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. B. It helps expatriate managers and their families to adjust to the day-to-day life of the host country. C. It rewards expatriates on the basis of merit and performance. D. It helps expatriates to come to terms with the standard of living of the host country. E. It is offered as an inducement to accept foreign postings and live away from family. The most common approach to expatriate pay is the balance sheet approach. It equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #109 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 110. In the context of approaches to expatriate pay, which of the following is of a balance sheet approach? A. It helps expatriate managers and their families to adjust to the day-to-day life of the host country. B. It rewards expatriates on the basis of merit and performance. C. It is offered as an inducement to accept foreign postings and stay away from family in unfamiliar country. D. It provides financial incentives to offset qualitative differences between assignment locations. E. It reduces the amount of tax that the expatriates have to pay while on the foreign assignment. The most common approach to expatriate pay is the balance sheet approach. This approach equalizes purchasing power across countries so employees can enjoy the same living standard in their foreign posting that they enjoyed at home. In addition, the approach provides financial incentives to offset qualitative differences between assignment locations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #110 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 111. A firm's ability to reduce its use of expatriates may be limited, particularly if it is pursuing a(n) _____ staffing policy. A. geocentric B. polycentric C. transnational D. regiocentric E. neocentric Because of the high cost of expatriates, many firms have reduced their use of expatriates in recent years. However, a firm’s ability to reduce its use of expatriates may be limited, particularly if it is pursuing an ethnocentric or geocentric staffing policy. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #111 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 112. A(n) _____ refers to extra pay the expatriate receives for working outside his or her country of origin. A. parity adjustment B. special bonus C. foreign service premium D. expat allowance E. benefit A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin. It is offered as an inducement to accept foreign postings. It compensates the expatriate for having to live in an unfamiliar country isolated from family and friends, having to deal with a new culture and language, and having to adapt to new work habits and practices. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #112 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 113. Which of the following is of a foreign service premium? A. It helps to evaluate expatriates' performance without any unintentional bias. B. It is offered to expatriates as an inducement to accept foreign postings. C. It allows a firm to pay expatriates' income tax in the host country. D. It ensures that expatriates' children receive adequate schooling. E. It ensures that expatriates are prepared for reentry into their home-country organization. A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin. It is offered as an inducement to accept foreign postings. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #113 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 114. In terms of expatriate pay, which of the following is a characteristic of a foreign service premium? A. It allows a firm to pay expatriates' income tax in the host country. B. It ensures that expatriates' children receive adequate schooling. C. It helps to evaluate expatriates' performance without any unintentional bias. D. It ensures that expatriates are prepared for reentry into their home-country organization. E. It compensates expatriates for having to live in an unfamiliar country. A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin. It compensates the expatriate for having to live in an unfamiliar country isolated from family and friends, having to deal with a new culture and language, and having to adapt to new work habits and practices. AACSB: Analytic Blooms: Remember Difficulty: 2 Medium Hill - Chapter 17 #114 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 115. In terms of expatriate pay, which of the following is of a foreign service premium? A. It ensures that expatriates' children receive adequate schooling. B. It helps to evaluate expatriates' performance without any unintentional bias. C. It ensures that expatriates are prepared for reentry into their home-country organization. D. It is paid as a percentage of base salary, with 16 percent being the average premium. E. It allows a firm to pay expatriates' income tax in the host country. A foreign service premium is extra pay the expatriate receives for working outside his or her country of origin. Many firms pay foreign service premiums as a percentage of base salary, ranging from 10 to 30 percent after tax, with 16 percent being the average premium. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #115 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 116. With regard to the types of allowances often included in an expatriate's compensation package, a(n) _____ allowance is paid when the expatriate is being sent to a difficult location. A. education B. housing C. hardship D. cost-of-living E. reciprocal Four types of allowances are often included in an expatriate’s compensation package: hardship allowances, housing allowances, cost-of-living allowances, and education allowances. A hardship allowance is paid when the expatriate is being sent to a difficult location, usually defined as one where such basic amenities as health care, schools, and retail stores are grossly deficient by the standards of the expatriate’s home country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #116 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 117. Which of the following allowances ensures that an expatriate will enjoy the same standard of living in the foreign posting as at home? A. Hardship allowance B. Base salary allowance C. Cost-of-living allowance D. Quality-of-life allowance E. Housing allowance Four types of allowances are often included in an expatriate’s compensation package: hardship allowances, housing allowances, cost-of-living allowances, and education allowances. A cost-of-living allowance ensures that the expatriate will enjoy the same standard of living in the foreign posting as at home. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #117 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 118. In the absence of a reciprocal tax treaty, the expatriate: A. may have to pay income tax to both the home- and host-country governments. B. may not have to pay any tax. C. may not have to pay income tax only to the host-country government. D. may not have to pay income tax the home-country government. E. may have to pay 50 percent less tax to the host-country government. Unless a host country has a reciprocal tax treaty with the expatriate’s home country, the expatriate may have to pay income tax to both the home- and host-country governments. When a reciprocal tax treaty is not in force, the firm typically pays the expatriate’s income tax in the host country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #118 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 119. In terms of expatriate pay, what does a firm typically do when a reciprocal tax treaty is not in force? A. The firm requires the expatriate to pay one-third of the income tax to the host-country government. B. The firm requires the expatriate to pay 50 percent of the income tax to the host-country government. C. The firm pays the expatriate's income tax to the host-country government. D. The firm requires the expatriate to pay the income tax both to the host-country and the home-country government. E. The firm pays the expatriate's income tax to the home-country government. Unless a host country has a reciprocal tax treaty with the expatriate’s home country, the expatriate may have to pay income tax to both the home- and host-country governments. When a reciprocal tax treaty is not in force, the firm typically pays the expatriate’s income tax in the host country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #119 Learning Objective: 17-06 Understand how and why compensation systems might vary across nations. Topic: Compensation 120. The _____ function of an international business is typically responsible for international labor relations. A. public relations B. human resource management C. finance and accounting D. legal E. logistics The human resource management function of an international business is typically responsible for international labor relations. From a strategic perspective, the key issue in international labor relations is the degree to which organized labor can limit the choices of an international business. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #120 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 121. From a strategic perspective, the key issue in international labor relations is: A. dealing with multiple business units. B. the degree to which organized labor can limit the choices of an international business. C. whether to hire parent-country nationals, host-country nationals, or third-country nationals. D. helping expatriates cope with new role demands. E. the extent to which a reciprocal tax treaty can be brought into effect. The human resource management function of an international business is typically responsible for international labor relations. From a strategic perspective, the key issue in international labor relations is the degree to which organized labor can limit the choices of an international business. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #121 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 122. In the context of international labor relations, which of the following is of organized labor? A. It supports the pursuit of a transnational standardization strategy. B. It supports the pursuit of a global standardization strategy. C. It increases unintentional bias in evaluating the performance of expatriate managers. D. It limits a firm's ability to integrate and consolidate its global operations. E. It reduces a firm's ability to understand host-country cultural differences that require different approaches to marketing. A firm’s ability to integrate and consolidate its global operations to realize experience curve and location economies can be limited by organized labor, constraining the pursuit of a transnational or global standardization strategy. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #122 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 123. A principal concern of domestic unions about multinational firms is that the company can counter its bargaining power with: A. work schedules tied to global rather than domestic standards. B. wage rates tied to global rather than domestic standards. C. the power to import labor from abroad. D. the power to move production to another country. E. the retention of low-skilled tasks in home country. Labor unions generally try to get better pay, greater job security, and better working conditions for their members through collective bargaining with management. A principal concern of domestic unions about multinational firms is that the company can counter its bargaining power with the power to move production to another country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #123 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 124. In the context of international labor relations, which of the following is a concern of organized labor? A. An international business increases the bargaining power of organized labor. B. An international business keeps highly skilled tasks in its home country and farms out only low-skilled tasks to foreign plants. C. An international business faces difficulty in switching production from one location to another. D. An international business does not import employment practices and contractual agreements from its home country. E. An international business signs a reciprocal tax treaty with the host country. Labor unions generally try to get better pay, greater job security, and better working conditions for their members through collective bargaining with management. A concern of organized labor is that an international business will keep highly skilled tasks in its home country and farm out only low-skilled tasks to foreign plants. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #124 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 125. In the context of international labor relations, a labor union concern arises when an international business: A. keeps low-skilled tasks in its home country. B. signs a reciprocal tax treaty with the host country. C. increases the bargaining power of organized labor. D. faces difficulty in switching production from one location to another. E. attempts to import employment practices and contractual agreements from its home country. Labor unions generally try to get better pay, greater job security, and better working conditions for their members through collective bargaining with management. A union concern arises when an international business attempts to import employment practices and contractual agreements from its home country. When these practices are alien to the host country, organized labor fears the change will reduce its influence and power. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #125 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 126. In the context of international labor relations, one of the reasons for a decline in union influence is the: A. introduction of a reciprocal tax treaty. B. retention of low-skilled tasks in an international firm's home country. C. importing of employment practices and contractual agreements that are alien to the host country. D. increased bargaining power of organized labor. E. their increased ability to threaten to disrupt production, either by a strike or some other form of work protest. Labor unions generally try to get better pay, greater job security, and better working conditions for their members through collective bargaining with management. A union concern arises when an international business attempts to import employment practices and contractual agreements from its home country. When these practices are alien to the host country, organized labor fears the change will reduce its influence and power. As a result, union influence declines. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #126 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 127. Organized labor responds to the increased bargaining power of multinational corporations by: A. trying to impose regulations on multinationals through organizations such as GATT. B. trying to achieve international regulations on multinationals through the United Nations. C. trying to establish regional boards. D. lobbying for multinational corporations to restrict their global reach to three or fewer foreign countries. E. trying to develop a local trade forum. Organized labor has responded to the increased bargaining power of multinational corporations by taking three actions: (1) trying to establish international labor organizations, (2) lobbying for national legislation to restrict multinationals, and (3) trying to achieve international regulations on multinationals through such organizations as the United Nations. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #127 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 128. In the 1960s, organized labor began to establish _____ to provide worldwide links for national unions in particular industries. A. HR watchdog groups B. international trade secretariats C. unorganized labor organizations D. international orientation resources E. reciprocal tax treaties In the 1960s, organized labor began to establish international trade secretariats (ITSs) to provide worldwide links for national unions in particular industries. The long-term goal was to be able to bargain transnationally with multinational firms. AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Hill - Chapter 17 #128 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 129. The long-term goal for organized labor to establish international trade secretariats was to: A. import employment practices and contractual agreements from the home country of the multinational firm. B. retain low-skilled tasks in the host country. C. prevent multinational firms from switching production from one location to another as economic conditions warrant. D. introduce a reciprocal tax treaty. E. be able to bargain transnationally with multinational firms. In the 1960s, organized labor began to establish international trade secretariats (ITSs) to provide worldwide links for national unions in particular industries. The long-term goal was to be able to bargain transnationally with multinational firms. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #129 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 130. In the 1960s, organized labor believed that by coordinating union action across countries through an international trade secretariat, it could counter the power of a multinational corporation by: A. threatening to disrupt production on an international scale. B. introducing a reciprocal tax treaty. C. trying to farm out highly skilled tasks back to the home country of the firm. D. increasing its bargaining power. E. lobbying for importing employment practices from the home country of the firm. Organized labor believed that by coordinating union action across countries through an ITS, it could counter the power of a multinational corporation by threatening to disrupt production on an international scale. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #130 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 131. International trade secretariats have been less successful because of the: A. similarity in the structure of unions on a global level. B. common perception unions have about multinational companies. C. reciprocal tax treaty. D. competition between national unions to attract investment from international businesses. E. retention of highly skilled tasks in the host country. The international trade secretariats have had virtually no real success. Although national unions may want to cooperate, they also compete with each other to attract investment from international businesses, and hence jobs for their members. As a result of such competition between national unions, cooperation is difficult to establish. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #131 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 132. Which of the following is an impediment to cooperation between national unions? A. The retention of highly skilled tasks in the host country B. The reciprocal tax treaty C. The wide variation in the structure and ideology of unions D. The common perception unions have about multinational companies E. The decreasing bargaining power of multinational companies An impediment to cooperation has been the wide variation in union structure. Trade unions developed independently in each country. As a result, the structure and ideology of unions tend to vary significantly from country to country, as does the nature of collective bargaining. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #132 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 133. Which of the following is of organizations like the International Labor Organization and the Organization for Economic Cooperation and Development in terms of their role in international labor relations? A. They have been highly successful in uniting unions of different countries. B. They have significantly reduced competition between national unions. C. They have adopted codes of conduct for multinational firms to follow in labor relations. D. They are responsible for the import of employment practices from the home country of the firm. E. They have increased the bargaining power of multinational firms. Organized labor has met with only limited success in its efforts to get national and international bodies to regulate multinationals. Such international organizations as the International Labor Organization (ILO) and the Organization for Economic Cooperation and Development (OECD) have adopted codes of conduct for multinational firms to follow in labor relations. Many researchers report that such guidelines are of only limited effectiveness. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #133 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 134. International businesses differ in terms of their approaches to international labor relations, mainly in the degree to which: A. labor relations activities are centralized or decentralized. B. labor relations are formal or informal. C. labor relations are given a high priority or a low priority. D. labor relations are internally or externally managed. E. firms follow a polycentric or geocentric staffing policy. International businesses differ markedly in their approaches to international labor relations. The main difference is the degree to which labor relations activities are centralized or decentralized. Historically, most international businesses have decentralized international labor relations activities to their foreign subsidiaries because labor laws, union power, and the nature of collective bargaining varied so much from country to country. AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Hill - Chapter 17 #134 Learning Objective: 17-07 Understand how organized labor can influence strategic choices in international business firms. Topic: International Labor Relations 135. International businesses differ markedly in their approaches to international labor relations. The trend now is toward _____ that reflect(s) international firms’ attempts to rationalize their global operations. A. decentralized labor activities B. greater centralized control C. autonomy D. lateral relationships E. national legislation There is now a trend toward greater centralized control. This trend reflects international firms’ attempts to rationalize their global operations. [Show More]

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