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Chapter 13 The Strategy of International Business Answer Key, Exams of International Business

Bay CollegeInternational Business

Which strategy focuses on increasing profitability by customizing the firm's goods or services so they provide a good match to tastes and preferences in different national markets

Typology: Exams

2021/2022

Available from 08/25/2022

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Chapter 13 The Strategy of International Business Answer Key
True / False Questions
1. A firm's strategy can be defined as the actions that managers take to attain the goals
of the firm.
TRUE
A firm's strategy can be defined as the actions that managers take to attain the goals
of the firm.
2. The preeminent strategic goal for most firms is to maximize the value of the firm for its
owners.
TRUE
A firm's strategy can be defined as the actions that managers take to attain the goals
of the firm. For most firms, the preeminent goal is to maximize the value of the firm for
its owners, its shareholders.
3. Profit growth is measured by the percentage increase in net profits over time.
TRUE
Profit growth is measured by the percentage increase in net profits over time. In
general, higher profitability and a higher rate of profit growth will increase the value of
an enterprise and thus the returns garnered by its owners, the shareholders.
4. The amount of value a firm creates is measured by the difference between its costs of
production and the price that it charges for its products.
FALSE
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.
5. The customer is able to garner the benefit of the consumer surplus because one firm is
competing with other firms for the customer's business, so the firm must charge a
lower price than it could if it were a monopoly supplier.
TRUE
The price a firm charges for a good or service is typically less than the value placed on
that good or service by the customer. This is because the customer captures some of
that value in the form of what economists call a consumer surplus. The customer is
able to do this 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.
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Chapter 13 The Strategy of International Business Answer Key

True / False Questions

  1. A firm's strategy can be defined as the actions that managers take to attain the goals of the firm. TRUE A firm's strategy can be defined as the actions that managers take to attain the goals of the firm.
  2. The preeminent strategic goal for most firms is to maximize the value of the firm for its owners. TRUE A firm's strategy can be defined as the actions that managers take to attain the goals of the firm. For most firms, the preeminent goal is to maximize the value of the firm for its owners, its shareholders.
  3. Profit growth is measured by the percentage increase in net profits over time. TRUE Profit growth is measured by the percentage increase in net profits over time. In general, higher profitability and a higher rate of profit growth will increase the value of an enterprise and thus the returns garnered by its owners, the shareholders.
  4. The amount of value a firm creates is measured by the difference between its costs of production and the price that it charges for its products. FALSE 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.
  5. The customer is able to garner the benefit of the consumer surplus because one firm is competing with other firms for the customer's business, so the firm must charge a lower price than it could if it were a monopoly supplier. TRUE The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the customer captures some of that value in the form of what economists call a consumer surplus. The customer is able to do this 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.
  1. According to Porter, 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. TRUE Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an 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.
  2. 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. TRUE 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.
  3. For a firm, all positions on the efficiency frontier are viable. FALSE Not all positions on the efficiency frontier are viable. In the international hotel industry, for example, there might not be enough demand to support a chain that emphasizes very low cost and strips all the value out of its product offering. International travelers are relatively affluent and expect a degree of comfort (value) when they travel away from home.
  4. The strategy, operations, and organization of a firm must all be consistent with each other if the firm is to attain a competitive advantage and achieve superior profitability. TRUE The strategy, operations, and organization of the firm must all be consistent with each other if it is to attain a competitive advantage and garner superior profitability.
  5. Support activities include the design, creation, and delivery of a product. FALSE Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service.
  1. Core competencies 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. TRUE 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.
  2. Economies that arise from performing a value creation activity in the optimal location are known as location economies. TRUE Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be (transportation costs and trade barriers permitting).
  3. Systematic increases in sales that have been observed to occur over the life of the product are referred to as the experience curve. FALSE The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product.
  4. Cost savings that come from learning by doing are known as economies of scale. FALSE 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.
  5. Learning effects tend to be more significant when a technologically simple task is repeated. FALSE Learning effects tend to be more significant when a technologically complex task is repeated, because there is more that can be learned about the task. Thus, learning effects will be more significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps.
  6. One of the sources of economies of scale is the ability to spread fixed costs over a large volume. TRUE Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. Attaining economies of scale lowers a firm's unit costs and increases its profitability.
  1. Moving up the experience curve allows a firm to reduce its cost of creating value and increase its profitability. FALSE Moving down the experience curve allows a firm to reduce its cost of creating value and increase its profitability. The firm that moves down the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.
  2. Once a firm has established a low-cost position, it can act as a barrier to new competition. TRUE Once a firm has established a low-cost position, it can act as a barrier to new competition. Specifically, an established firm that is well down the experience curve can price so that it is still making a profit while new entrants, which are farther up the curve, are suffering losses.
  3. In a multinational enterprise, skills are always generated at the headquarters location and are then dispersed to the rest of the organization. FALSE Skills can be created anywhere within a multinational's global network of operations, wherever people have the opportunity and incentive to try new ways of doing things. The creation of skills that help to lower the costs of production, or to enhance perceived value and support higher product pricing, is not the monopoly of the corporate center.
  4. To leverage subsidiary skills, companies should establish incentive systems that encourage local employees to acquire new skills. TRUE Managers of the multinational enterprise must establish an incentive system that encourages local employees to acquire new skills. This is not as easy as it sounds. Creating new skills involves a degree of risk.
  5. Two types of competitive pressure that affect the ability of multinational enterprises to compete in the global marketplace are pressure for cost reductions and pressure for local responsiveness. TRUE 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.
  1. Threats of protectionism, economic nationalism, and local content rules dictate that international businesses manufacture locally. TRUE Economic and political demands imposed by host-country governments may require local responsiveness. 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.
  2. Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm's core competencies wholesale from one nation to another. TRUE Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm's core competencies wholesale from one nation to another. Concessions often have to be made to local conditions.
  3. A global standardization strategy is appropriate when a firm is facing low pressures for cost reduction but high pressure for local responsiveness. FALSE Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies; that is, their strategic goal is to pursue a low- cost strategy on a global scale. This strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.
  4. When a firm focuses on increasing profitability by customizing the product or service so that they provide a good match to tastes and preferences in different national markets, the firm is following a transnational strategy. FALSE 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.
  5. When the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness, the ideal strategy to follow is the transnational strategy. TRUE Sometimes a firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness. How can managers balance the competing and inconsistent demands such divergent pressures place on the firm? According to some researchers, the answer is to pursue what has been called a transnational strategy.
  1. A localization strategy makes most sense when demands for local responsiveness are high, but cost pressures are moderate or low. TRUE Localization is most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense. By customizing the product offering to local demands, the firm increases the value of that product in the local market.
  2. The distinguishing feature of many firms that pursue an international strategy is that they are selling a product that serves local needs, but they do not face significant competitors. FALSE Many enterprises have pursued an international strategy, taking products first produced for their domestic market and selling them internationally with only minimal local customization. The distinguishing feature of many such firms is that they are selling a product that serves universal needs, but they do not face significant competitors.
  3. As competition intensifies, global standardization strategies and transnational strategies tend to become less viable, and managers need to orientate their companies toward either an international strategy or a localization strategy. FALSE International strategy may not be viable in the long term, and to survive, firms need to shift toward a global standardization strategy or a transnational strategy in advance of competitors. The same can be said about a localization strategy.

Multiple Choice Questions

  1. _____ can be defined as the rate of return that the firm makes on its invested capital, which is calculated by dividing the net profits of the firm by total invested capital. A. Profitabili ty B. Performan ce C. Cash flow D. Efficienc y Profitability can be 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. To maximize the value of a firm, managers must pursue strategies that increase the profitability of the enterprise and its rate of profit growth over time.
  1. The value of a product to an average consumer is V; and the average price that the firm can charge a consumer for that product is P. Here, V - P can be termed as: A. consumer surplus per unit. B. producer surplus per unit. C. profit growth. D. profit per unit sold. The value of a product to an average consumer is V; the average price that the firm can charge a consumer for that product given competitive pressures and its ability to segment the market is P; and the average unit cost of producing that product is C. The firm's profit per unit sold (π) is equal to P - C, while the consumer surplus per unit is equal to V - P.
  2. A consumer surplus can be best described as: A. what the consumer has "left-over" after a purchase. B. how much extra a consumer has to pay for a product. C. value for the money. D. the premium charged for a quality product. The value of a product to an average consumer is V; the average price that the firm can charge a consumer for that product given competitive pressures and its ability to segment the market is P. The consumer surplus per unit is equal to V — P (another way of thinking of the consumer surplus is as "value for the money"; the greater the consumer surplus, the greater the value for the money the consumer gets).
  1. A strategy that focuses on increasing the attractiveness of a product is referred to as a(n): A. differentiation strategy. B. low cost strategy. C. effectiveness strategy. D. efficiency strategy. A strategy that focuses primarily on increasing the attractiveness of a product is known as a differentiation strategy. Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry.
  2. The efficiency frontier has a convex shape because of: A. consumer surplus. B. diminishing returns. C. profitabili ty. D. differentiation strategy. The efficiency frontier shows all of the different positions that a firm can adopt with regard to adding value to the product (V) and low cost (C) assuming that its internal operations are configured efficiently to support a particular position. The efficiency frontier has a convex shape because of diminishing returns.
  3. _____ 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. A. Efficiency matrixes B. Diminishing returns C. Cost plus curves D. Strategy convex curves The efficiency frontier has a convex shape because of diminishing returns. 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.
  1. Which of the following is an example of a support activity in a firm's value chain? A. R& D B. Customer service C. Human resources D. Marketing and sales The support activities of the value chain provide inputs that allow the primary activities to occur. The human resource functions ensure that people are adequately trained, motivated and compensated to perform their value creation tasks.
  2. _____ activities of the value chain provide inputs that allow the primary activities to occur. A. Complementa ry B. Basi c C. Cor e D. Suppo rt The support activities of the value chain provide inputs that allow the primary activities to occur.
  3. A firm benefits 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: A. differentiati on. B. location economies. C. vertical integration. D. horizontal integration. For a firm that is trying to survive in a competitive global market, this implies that trade barriers and transportation costs permitting, 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.
  1. Economies that arise from performing a value creation activity in the optimal place for that activity are referred to as: A. factor economies. B. production economies. C. location economies. D. value creation economies. Locating a value creation activity in the optimal location for that activity can have one of two effects. It 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.
  2. When companies disperse different stages of the value chain to those locations around the world where perceived value is maximized or where the costs of value creation are minimized, companies create: A. a differentiated organization. B. a location economy curve. C. economies of scale. D. a global web of value creation activities. The creation of a global web of value creation activities results 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.
  1. It has been observed that a product's production costs decline by some quantity about each time, cumulative output: A. increases by twenty five percent. B. quadruple s. C. double s. D. triple s. 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.
  2. It has been observed in the aircraft industry that, each time cumulative output of airframes was doubled, unit costs typically declined to 80 percent of their previous level. This is an example of: A. the core performance curve. B. the location curve. C. the strategic curve. D. the experience curve. 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.
  3. When individuals gain knowledge of the most efficient ways to perform particular tasks, they are saving costs through: A. location economies. B. value creation effects. C. experience curve effects. D. learning effects. 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.
  1. Learning effects: A. tend to be less significant when a technologically complex task is repeated. B. will be less significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps. C. typically disappear after a while, in spite of the complexity of the task. D. are more significant after two or three years of the introduction of a new process. 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. No matter how complex the task, however, learning effects typically disappear after a while.
  2. 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. Any decline in the experience curve after such a point is due to: A. reduction in fixed costs. B. higher depreciation costs. C. economies of scale. D. obsolescenc e. No matter how complex the task, learning effects typically disappear after a while. It has been suggested that they are important only during the start-up period of a new process and that they cease after two or three years. Any decline in the experience curve after such a point is due to economies of scale.
  3. Economies of scale arise from all of the following sources, EXCEPT: A. increasing fixed costs by limiting them to small volumes. B. serving domestic and international markets from the same production facilities C. serving global markets. D. bargaining with suppliers to bring down the cost of key inputs. Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. Attaining economies of scale lowers a firm's unit costs and increases its profitability.
  1. _____ exists when the tastes and preferences of consumers in different nations are similar if not identical. A. Universal needs B. Homogenous needs C. Basic needs D. Bundled needs Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical. This is the case for conventional commodity products such as bulk chemicals, petroleum, steel, sugar, and the like.
  2. Which of the following is less likely to add to the pressure for a firm to be locally responsive? A. National differences in consumer tastes and preferences B. Differences in infrastructure and traditional practices C. Switching costs for consumers D. Host-government demands Pressures for local responsiveness arise from national differences in consumer tastes and preferences, infrastructure, accepted business practices, and distribution channels, and from host-government demands. Responding to pressures to be locally responsive requires a firm to differentiate its products and marketing strategy from country to country to accommodate these factors, all of which tends to raise the firm's cost structure.
  1. When a firm has a strategic goal of pursuing a low-cost strategy on a worldwide scale, the firm should follow a(n) _____ strategy. A. global standardization B. localizati on C. internatio nal D. customizati on Firms pursuing a global standardization strategy try not to customize their product offering and marketing strategy to local conditions because customization involves shorter production runs and the duplication of functions, which tends to raise costs. Instead, they prefer to market a standardized product worldwide so that they can reap the maximum benefits from economies of scale and learning effects.
  2. Which of the following is NOT associated with firms following the global standardization strategy? A. Low pressures for local responsiveness B. Use cost advantage to support aggressive pricing in world markets C. High pressures for cost reductions D. Customize product offering and marketing strategy to local conditions Firms pursuing a global standardization strategy try not to customize their product offering and marketing strategy to local conditions because customization involves shorter production runs and the duplication of functions, which tends to raise costs. Instead, they prefer to market a standardized product worldwide so that they can reap the maximum benefits from economies of scale and learning effects.