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Chapter 11 The Strategy of International Business 1. Generally, managers planning strategy in the global marketplace consider it more complex due to all of the following except _____. a. the steady reduction in trade barriers creates fewer opportunities in previously protected markets b. they often must compete with cost-efficient overseas rivals c. many overseas competitors operate with greater economies of scale d. the challenge of configuring and coordinating globally dispersed operations Answer: a. the steady reduction in trade barriers creates fewer opportunities in previously protected markets 2. Forces that represent the system outside the international firm's boundaries which influence the strategic actions of its managers include _____. a. manufacturing economies b. monetary policies c. supply chain logistics d. product design standards Answer: b. monetary policies 3. The idea and perspective of strategy that a company uses to guide its international operations outlines how it plan to _____. a. choose which foreign markets to enter b. identify which companies to form alliances with c. modify political conventions and cultural norms d. build an organization to govern worldwide activities Answer: c. modify political conventions and cultural norms 4. One of the biggest strategic challenges to competing in the international marketplace is _____. a. optimizing the sequence of tactical adjustments b. discounting cross-country differences in cultural, demographic, and market conditions c. determining how to charge the same price in all countries d. mediating pressure to offer a mostly standardized product worldwide or customizing the company's offerings in each different market Answer: d. mediating pressure to offer a mostly standardized product worldwide or customizing the company's offerings in each different market 5. The industry organization (IO) paradigm reports that, on average, the best predictor of firm performance is the _____. a. company's stockpile of assets, skills, and capabilities b. aggressiveness of a company's objectives c. consistency among a company's structure, systems, and processes d. profitability of the industry in which it competes Answer: d. profitability of the industry in which it competes 6. According to the industry organization (IO) paradigm, which of the following sequence is the fundamental steps to achieve superior performance? a. firm conduct → industry structure → firm performance b. industry structure → environmental context → firm performance c. industry structure → firm conduct → firm performance d. environmental context → firm conduct → firm performance Answer: c. industry structure → firm conduct → firm performance 7. In contrast to the industry organization (IO) paradigm, the general management view proposes which of the following sequence as the fundamental steps to creating value-creating strategy? a. visionary leadership → innovative strategy → insightful product market analysis → superior return b. visionary leadership → insightful product market analysis → innovative strategy → superior return c. visionary leadership → insightful product market analysis → superior return → innovative strategy d. visionary leadership → innovative strategy → superior return → insightful product market analysis Answer: b. visionary leadership → insightful product market analysis → innovative strategy → superior return 8. Although the industry organization (IO) paradigm suggests industry structure is deterministic of firm performance, an alternative view suggests that firm performance is significantly influenced by _____. a. bright, motivated managers b. political trends and events c. innovative products d. the emergence of new markets Answer: a. bright, motivated managers 9. Increasing globalization is a powerful force of change for competition in an industry because _____. a. it increases rivalry among companies in the industry b. foreign competitors typically have cheaper, higher quality products c. it makes innovation partners more predictable d. requires companies have low costs in order to compete Answer: a. it increases rivalry among companies in the industry 10. The profile of change in the global financial services industry showed that industry conditions change because _____. a. of the predictable progression of an industry through successive stages of its life cycle b. consumers demand more low-cost service options because of the arrival of new industry competitors c. the opportunity to change markets to exploit less favorable location economies d. the role of governments in spurring more competition in an industry Answer: b. consumers demand more low-cost service options because of the arrival of new industry competitors 11. The stronger the collective impact of the five competitive forces, the _____. a. greater the degree of stability in product innovation b. larger the number of market opportunities for c. lower the combined profitability of industry members d. greater the predictability of industry evolution Answer: c. lower the combined profitability of industry members 12. All of the following factors help define the structure of an industry except the _____. a. competitive pressures among rival firms b. threat of potential entry into the marketplace c. bargaining power of suppliers and customers d. opportunity of location advantages Answer: d. opportunity of location advantages 13. The company that successfully becomes the low-cost provider in an industry _____. a. will sell more of its product than its competitors b. can earn a higher rate of return on investment than its competitors c. will earn greater total profits than its competitors d. has achieved lower overall per-unit costs for its product than has its rivals Answer: d. has achieved lower overall per-unit costs for its product than has its rivals 14. Which of the following is not one of the pitfalls of a low-cost provider strategy? a. overly aggressive price-cutting b. setting the standard for product customization c. ignoring potential cost-saving technological breakthroughs d. fixating on the economics of cost reduction Answer: c. ignoring potential cost-saving technological breakthroughs 15. A strategy that focuses on lowering production costs is referred to as a _____. a. differentiation strategy b. low-cost strategy c. cost minimization strategy d. low price strategy Answer: b. low-cost strategy 16. Achieving the status of overall low-cost producer in an industry means the company _____. a. can strongly defend its market position in the event of a price war b. will earn the largest profits c. makes the most appealing product d. can block the entry of new firms into the industry Answer: a. can strongly defend its market position in the event of a price war 17. _____ and _____ are basic strategies for creating value and attaining a competitive advantage in an industry. a. Low cost; differentiation b. Customer satisfaction; product innovation c. Cost minimization; profit maximization d. Industry leadership; market dominance Answer: a. Low cost; differentiation 18. A strategy that focuses on increasing the attractiveness of a product is referred to as a _____. a. low-cost strategy b. differentiation strategy c. effectiveness strategy d. efficiency strategy Answer: b. differentiation strategy 19. The essence of a differentiation strategy is to _____. a. target the most sophisticated segment of the market b. incorporate the greatest number of features into a product c. be unique to a wide range of buyers in ways that support a premium price d. outspend rivals on advertising Answer: c. be unique to a wide range of buyers in ways that support a premium price 20. A differentiation strategy works well when _____. a. there are few ways to differentiate a product b. buyers believe product differences create questionable value c. buyers' product needs are very similar d. the rate of technological change is fast paced Answer: d. the rate of technological change is fast paced 21. A useful way to understanding the purpose of strategy is to think of the firm as a __________, composed of a series of distinct activities, including production, marketing, materials management, R & D, human resources, information systems, and the firm infrastructure. a. activity procession b. value constellation c. task succession d. value chain Answer: d. value chain 22. A company's value chain is the _____. a. variable sequence it goes through to convert its vision to into shareholder value b. mixture of activities it takes to define product value standards c. discrete series of steps it takes to move a product from the raw materials stage to the end-users d. blueprint its follows to leverage its core capabilities Answer: c. discrete series of steps it takes to move a product from the raw materials stage to the end-users 23. In the context of value chain analysis, the primary activities of a firm include _____. a. R & D, human resources, materials management, and production b. R & D, production, marketing, and service c. service, human resources, production, and materials management d. company infrastructure, information systems, human resources, and materials management Answer: b. R & D, production, marketing, and service 24. In the context of value chain analysis, the support activities of a firm include _____. a. materials management, human resources, information systems, company infrastructure b. product, marketing, information systems, and company infrastructure c. information systems, R & D, materials management, and service d. R & D, production, marketing and sales, and service Answer: a. materials management, human resources, information systems, company infrastructure 25. _____ are those assets that are valuable for improving business, difficult for competitors to imitate, and can be extended as value-creating capability for use in other product or geographic markets. a. Core competencies b. Barriers to entry c. Mission statements d. Company policies Answer: a. Core competencies 26. _____ refers to skills within the firm that competitors cannot easily match or imitate and that usually reside in a company's proprietary know-how. a. Distinctive competencies b. Core competencies c. Competitive standards d. Bundles of skills Answer: b. Core competencies 27. A core competency effectively gives everyone in the MNE, not just a few executives at headquarters, a principle or practice that helps them _____. a. manufacture a high-quality product at a reasonable cost b. build more-elaborate value chains c. configure and coordinate value activities more coherently d. systematize industry competition Answer: c. configure and coordinate value activities more coherently 28. A key reason why companies opt to expand into international markets is _____. a. the need to develop a presence in a majority of the world's major country markets b. figuring out what kinds of strategic adjustments would work best in the home market c. identify the most suitable product designs d. the quest to profit from its core competencies Answer: d. the quest to profit from its core competencies 29. Factors that directly shape how the MNE coordinates its value chain include all of the following except _____. a. national cultures b. learning effects c. subsidiary networks d. competitive rivalry Answer: d. competitive rivalry 30. Factors that directly shape how the MNE coordinates its value chain include all of the following except _____. a. cost factors b. cluster effects c. cultural environments d. logistics Answer: c. cultural environments 31. Suppose Citibank decided to open a call center in Mumbai, India, because a detailed analysis of the country-specific advantages suggested that India is the optimal place in the world to respond to customers' calls. In this example, Citibank is capturing _____ by running a call center in India. a. value configuration synergies b. location economies c. geographic arbitrage d. value offshoring Answer: b. location economies 32. In theory, a firm that realizes _____ by dispersing each of its value creation activities to its optimal location should achieve an advantage vis-à-vis a firm that bases all its value creation activities at a single, higher-cost location. a. location economies b. geographic arbitrage c. value offshoring d. economies of scope Answer: a. location economies 33. Firms that compete in the global marketplace typically face two types of competitive pressures, namely, the pressures for _____ and _____. a. global integration; local responsiveness b. cost reductions; marginal costs c. price reductions; cost reductions d. politically sensitivity; market leadership Answer: a. global integration; local responsiveness 34. The appropriateness of the strategy that a firm uses in an international market varies with the degree of pressures it faces in terms of _____. a. cost reductions and product functionality b. global integration and local responsiveness c. price flexibility and quality standards d. product customization and product features Answer: b. global integration and local responsiveness 35. Pressures for cost reductions can be particularly intense in industries producing commodity products where meaningful differentiation is difficult and _____ is the main competitive weapon. a. product quality b. ethical reputation c. price d. after sales service Answer: c. price 36. Pressure for global integration includes condition such as the _____. a. marginal cost of producing in separate facilities exceed than the marginal costs of producing in a single facility b. tastes and preferences of consumers vary in the countries you compete c. pressures to elaborate product features and functionality d. political demands imposed by host countries Answer: d. political demands imposed by host countries 37. Which of the following is not a factor that is driving pressures for local responsiveness among global firms? a. differences in infrastructure and traditional practices b. variable consumer tastes and preferences c. differences in infrastructure and tradition practices d. host government support of freer international trade Answer: d. host government support of freer international trade 38. Pressures for _____ emerge when there are differences in infrastructure and/or traditional practices among countries. a. global responsiveness b. cost containment c. local responsiveness d. international differentiation Answer: c. local responsiveness 39. Advantages of following a policy of national responsiveness include _____. a. ability to transfer core skills among countries b. realization of lower production costs c. flexibility to use global profits in any area as needed d. opportunity to exploit location-specific skills Answer: b. realization of lower production costs 40. A disadvantage of following a policy of national responsiveness is _____. a. manufacturing costs are generally higher b. fewer problems in transferring core skills c. each subsidiary can respond to specific consumer needs d. coordination programs among countries can be standardized Answer: a. manufacturing costs are generally higher 41. Firms use four basic strategies to compete in the international environment. These are _____. a. international, multidomestic, global, and transnational b. cross-cultural, trade block, regional, and world c. domestic-based, internationally focused, local/regional-based, and cultural-based d. international, regional, global, and world Answer: a. international, multidomestic, global, and transnational 42. Please organize, going from that with the lowest to that with the highest degree of the sharing of managerial knowledge within the MNE, the following strategy types: a. transnational, global, multidomestic, international b. international, multidomestic, global, transnational c. global, multidomestic, international, transnational d. multidomestic, transnational, global, international Answer: b. international, multidomestic, global, transnational 43. In the international environment, firms use either an international strategy, a multidomestic strategy, a global strategy, or a _____ strategy. a. regional b. standardization c. transnational d. locational Answer: c. transnational 44. The fundamental principle of the multidomestic strategy is _____, of the transnational strategy is _____, and of the global strategy is _____. a. mass production; assimilation; adjustment b. standardization; customization; convergence c. customization; efficiency; effectiveness d. adaptation; integration; standardization Answer: d. adaptation; integration; standardization 45. Firms that pursue a(n) _____ strategy try to create value by transferring valuable core competencies to foreign markets where indigenous competitors lack those particular advantages. a. transnational b. multidomestic c. global d. international Answer: d. international 46. A(n) _____ strategy makes sense if a firm has a valuable core competency that indigenous competitors in foreign markets lack. a. transnational b. multidomestic c. international d. global Answer: c. international 47. The liability of the international strategy includes all of the following except _____. a. headquarters takes a central role identifying and responding to local conditions b. expedites the transfer of core competencies from home office to local c. realization among foreign operations that international activity is secondary to events in the home market d. headquarters' one-way view from the home office to the rest of the world can miss market opportunities Answer: b. expedites the transfer of core competencies from home office to local 48. A distinct advantage of an international strategy is _____. a. transferring core competencies to foreign markets b. reaping benefits of global learning c. customizing product offerings to local condition d. leveraging local managers knowledge of their markets Answer: a. transferring core competencies to foreign markets 49. Contrary to popular opinion, not all companies necessarily oppose government trade regulations. A company following which of the following types of strategies would be inclined to solicit or support greater regulation of international trade? a. multidomestic b. global c. transnational d. supranational Answer: a. multidomestic 50. Companies whose goal is to appeal to the varying tastes and preferences of global consumers are applying a _____ strategy. a. global b. multidomestic c. international d. transnational Answer: b. multidomestic 51. Johnson & Johnson delegates to its subsidiaries a great deal of authority to respond to local conditions. Many subsidiaries have their own manufacturing, marketing, research, and human resource functions. This value chain configuration illustrates the _____ strategy. a. transnational b. global c. multidomestic d. international Answer: c. multidomestic 52. Firms pursuing a _____ strategy orient themselves toward maximizing responsiveness to local market conditions. a. transnational b. global c. international d. multidomestic Answer: d. multidomestic 53. eBay essentially views the entire world as one market and assumes that there are no tangible differences among countries with regard to consumer tastes and preferences. eBay is applying a _____ strategy. a. international b. multidomestic c. transnational d. global Answer: d. global 54. A(n) _____ strategy makes sense where there are strong pressures for cost reductions and where demands for local responsiveness are minimal. a. multidomestic b. transnational c. global d. international Answer: c. global 55. A global strategy tends to be more successful when _____. a. buyers are looking for great products at bargain prices b. the industry's product is a commodity c. entry barriers are low d. suppliers have little bargaining power Answer: b. the industry's product is a commodity 56. The MNE that applies a global strategy aims to _____. a. compete essentially same way wherever the company does business b. sell products in those countries where there are a lot of buyers c. adapt activities to the industry standards in critical markets d. customize its business practices to consumer expectations Answer: a. compete essentially same way wherever the company does business 57. When new knowledge and capabilities are developed in both the domestic and foreign locations, both independently and jointly, and then diffused throughout the worldwide organization, the company is following a so-called _____. a. transnational strategy b. multidomestic strategy c. global strategy. d. matrix strategy Answer: a. transnational strategy 58. The distinct disadvantage of the transnational strategy is its _____. a. lack of local market responsiveness b. challenge in terms of day-to-day implementation c. failure to transfer knowledge from unit to unit d. inability to leverage core competencies Answer: b. challenge in terms of day-to-day implementation 59. A(n) _____ strategy offers competitive advantage to the firm facing pressures for global integration and local responsiveness as well as significant opportunities for leveraging valuable skills within its global network. a. international b. multidomestic c. transnational d. global Answer: c. transnational 60. Recently, the term _____ has been proposed to describe a company that thrives on seeking out uniqueness globally that it might exploit elsewhere or that might complement its existing operations. a. multidomestic b. domestic c. metanational d. cross-cultural Answer: c. metanational 61. The purposeful decisions that managers take to maximize their companies' value creation performance is called a strategy. Answer: True 62. Strategy is best defined as management's concept and plan on how to create value. Answer: True 63. A company's strategy evolves over time as a result of the proactive efforts of managers to improve elements of their approach to create value. Answer: True 64. A major reason for studying international business strategy is that the managers of some companies find innovative ways to consistently perform better than other companies. Answer: True 65. The forces of competition in an industry are a function of competitive pressures among rival firms, the availability of substitute products, the bargaining power of suppliers and customers, and the threat of exit of new rivals. Answer: False 66. As a rule, the stronger the collective impact of the five competitive forces, the lower the combined profitability of industry members. Answer: True 67. The low-cost leadership strategy is ideal for companies that plan to create value from global integration. Answer: True 68. A low-cost leader's basis for competitive advantage is lower prices than rival firms. Answer: False 69. A differentiation strategy is a unique mixture of the multidomestic and global strategies whereby the company attempts to capture the advantages of both. Answer: False 70. A differentiation strategy works well in situations where there are many ways to differentiate a product or service and many buyers perceive these differences as having value. Answer: True 71. Value chain analysis helps managers determine whether it is more profitable to pursue a differentiation strategy or to strive for low-cost leadershipage. Answer: True 72. A value chain identifies and explains how managers configure and coordinate value creation activities in order to transform inputs into the outputs that the company sells to customers. Answer: True 73. Transferring a company's core competencies from one country market to another is unlikely to produce competitive advantage if industry pressures for globalization are weak. Answer: False 74. A potential core competence can be developed by building the ability to manufacture a high-quality product at a low cost. Answer: True 75. A frequently compelling reason why an MNE opts to locate an activity in a particular country is low cost. Answer: True 76. The beneficial economic effects that arise from performing a value creation activity in the optimal location, wherever in the world it happens to be, are called integration synergies. Answer: False 77. Cost-reduction pressures are typically an unimportant issue in industries that make a commodity-type product. Answer: False 78. Pressures for global integration include economic integration, convergent consumer preferences, and political demands imposed by host countries. Answer: False 79. Pressures for local responsiveness are especially important in industries where value creation is a function of adaptation. Answer: True 80. Pressures for local responsiveness include cross-national differences in terms of consumer preferences, industry conditions, and government regulations. Answer: True 81. The fundamental outlook of the multidomestic strategy is standardization. Answer: False 82. The fundamental outlook of the global strategy is adaptation. Answer: False 83. The strategy of a firm using an international strategy is likely to entail producing and marketing mostly standardized products worldwide, with some customization where and when necessary. Answer: True 84. Tel-Comm Tek is a company that believes it has core competencies that its competitors in foreign markets lack and that it faces relatively weak pressures for local responsiveness and cost reductions. Tel-Comm Tek is likely to adopt an international strategy. Answer: True 85. A multidomestic strategy makes the most sense for companies that see high pressures for local responsiveness and low pressures for cost reductions. Answer: True 86. Tel-Comm Tek is a company that sees the world as a single market, assuming that consumer preferences and industry conditions do not vary much among countries. Tel-Comm Tek is likely to adopt a multidomestic strategy. Answer: False 87. An unlikely element of a global strategy is locating plants across many countries, each adapting product for local area markets. Answer: True 88. Tel-Comm Tek is a company that sees the world as a single market, assuming that consumer preferences and industry conditions do not vary much among countries. Tel-Comm Tek is likely to adopt a global strategy. Answer: True 89. A company develops different capabilities and contributions from different countries, and shares them in integrated worldwide operations is using a transnational strategy. Answer: True 90. Using a transnational strategy pushes a company to centralize some functions in optimal locations, base some functions in national subsidiaries to ensure local responsiveness, and developing wide-ranging communications among various units. Answer: True 91. What elements should companies include in their international plans? Answer: Various alternatives include the following: a. Location of value-added functions—The choice of where to locate each of the functions that comprise the entire value-added chain, from research to production to after-sales servicing b. Location of sales target—The allocation of sales among countries and the level of activity in each, particularly in terms of market share c. Level of involvement—The choice of operating through wholly owned facilities, partially owned facilities, or contract arrangements and whether the choice varies among countries d. Product/services strategy—The extent to which a worldwide business offers the same or different products in different countries e. Marketing—The extent to which a company uses the same brand names, advertising, and other marketing elements in different countries f. Competitive moves—The extent to which a company makes competitive moves in individual countries as part of a global competitive strategy g. Factor movements and start-up strategy—Whether production factors are acquired locally or brought in by the company and whether the operation begins through an acquisition or start-up 92. What are two ways that companies can create value? Answer: Companies create value in two basic ways: a. Low-cost leadership—This strategy emphasizes high production volumes, low costs, and low prices to attract customers. Firms that choose this strategy strive to be the low-cost producer in an industry for a given level of quality. This strategy pushes a firm to sell its products either at average industry prices to earn a profit higher than that of rivals or below average industry prices to capture market share. A cost leadership strategy is a key advantage in highly competitive industries and usually targets a broad market. b. Differentiation—This strategy spurs the company to provide a unique good or service that rivals find hard, if not impossible, to match or copy. Firms that choose this strategy aspire to develop products that offer unique attributes that they reason are highly valued by customers and that customers perceive to be better than or sufficiently different from products offered by other companies. The value added by the uniqueness of the product allows the firm to charge a higher price that more than offsets the added costs of making it. Companies that engage a differentiation strategy must continually find ways to develop products that have unique features that, in turn, lead buyers to prefer their goods and services versus those provided by rivals. 93. Discuss the idea of the firm as a value chain. Answer: The value chain represents a framework that lets managers deconstruct the general idea of "create value" into the series of discrete activities that their company actually does to create value—the set of linked, value-creating activities the company performs to design, produce, market, deliver, and support a product. So, upon specifying their company's value chain, managers can then target their insights and investments toward those activities that create value and avoid those that do not. Technically, a value chain has four organizing dimensions: a. Primary activities are those involved in the physical movement of raw materials and finished products, in the production of goods and services, and in the marketing, sales, and subsequent services of the outputs of the business. b. Support activities make up the managerial infrastructure of the firm that supports carrying out the primary activities. The four support activities include the processes and systems installed to coordinate decisions and transactions among the various value activities. c. Profit margin—The purpose of the value chain—to show how a firm creates value—is ultimately captured in the component of "profit margin." Placed at the end of the value chain, profit margin reports the difference between the total revenue generated by sales and the total cost of the activities that led to those sales. d. Upstream and downstream—The final element of a value chain is orientation—namely, whether the particular activity takes place upstream or downstream. Upstream refers to those activities, such as inbound logistics, research and development, and manufacturing, which gather and process the inputs that the company uses to make a product. Downstream refers to those activities, such as outbound logistics, marketing, and service that deal more directly with the end customer. The value chain helps managers integrate the knowledge and skills of employees around the world in the way that lets them best leverage the company's global reach. As such, value chain analysis anchors and guides managers' effort to build expertise in those value activities that are critical to reducing costs or improving differentiation. 94. What is configuration? What are the factors that influence value chain configuration? Answer: Configuration is the way that managers arrange the activities of the value chain. MNEs greatly improve their competitiveness and performance by configuring value activities to capture potential location economies—namely, the economies that arise from performing a value creation activity in the optimal location for that activity, given prevailing economic, political, and cultural conditions. Therefore, several conditions shape how managers configure value chains worldwide, most notably, cost factors, cluster effects, logistics, degree of digitization, economies of scale, and customers' needs. a. Differences in cost factors, such as wage rates, worker productivity, inflation rates, and government regulations, create significant variations in production costs from country to country. b. The cluster effect is when a particular industry gradually clusters more and more related value creation effects in a specific location Each economic cluster creates unique location advantages that offer firms in that locale access to specialized resources that can dramatically improve the potential for innovation. c. Logistics is how companies obtain, produce, and exchange material and services in the proper place and in proper quantities for the proper value activity. d. Degree of digitization—The degree to which an analog product can be converted into a string of zeros and ones—the process of digitization—influences how a company configures its value chain. e. Economies of scale—Refers to the reductions in unit cost achieved by producing a large volume of a product. Generally, economies of scale occur in industries with high capital costs in which those costs can be distributed across a large number of units of production, thereby resulting in lower per-unit costs. f. Customer activities, such as distribution to dealers, sales and advertising, and after-sale service, usually take place close to buyers. This can press some companies to physically locate the capability to perform such activities in every country market where it has major customers. 95. What is coordination? Describe the factors that influence value chain coordination. Answer: Coordination is the way that managers connect the discrete activities of the value chain. Several factors influence value chain coordination: a. Operational obstacles—MNEs regularly run into problems when trying to get the various links of their global value chain to deal to each other. Communication challenges especially arise when trying to synchronize languages. Besides communications, currencies and measurement systems can create weak links among globally dispersed activities. In sum, well-planned coordination preempts these threats, thereby letting workers worry less about what is supposed to happen with material transfers and product delivery and worry more about creating value. b. National cultures—National cultures can also impose higher hurdles in coordinating a transaction from one stage of the value chain with another. Units anchored in different cultures may disagree over how much information they should share or who should take lead responsibility. Coordination can then suffer from conflict. c. Learning effects—Learning effects refer to cost savings that come from learning by doing. Managers, for example, learn by recurrence how to transfer best practices from one country to another, such as innovative ways to improve internal and external customer service. Successfully transferred, an MNE can convert higher productivity into lower costs or higher customer satisfaction into higher prices. d. Subsidiary networks—The current culmination of globalization trends is a world marked by real-time connectivity among the subsidiaries of an MNE. Subsidiaries around the world can exchange information freely, whether done systematically within an ERP context or tacitly via e-mails. Moreover there are an astounding number of companies, including their affiliates, that engage in international business. Skills, ideas, and technologies can be created anywhere within an MNE's global network of subsidiaries. An increasingly vital task for managers, then, is to coordinate the company's value chain so that it can leverage the competencies developed within any subsidiary and apply them wherever they can create value within the firm's global network. 96. Describe the pressures for local responsiveness that international companies face. Answer: The two pressures for local responsiveness that international companies face are customer divergence and host-government policies. a. Customer divergence—Some maintain that fundamental divergences in consumer tastes and preferences across countries have and will continue to exert strong pressure for local responsiveness. Many think that differences in consumer tastes and preferences across countries emerge and endure due to several factors, including cultural predisposition, historical legacy, emergent nationalism (i.e., "buy local" campaigns), and economic prosperity. No matter the cause, proponents of customer divergence say the outcome is the same: consumers prefer goods that are sensitive to their way of life. b. Host-government policies—Host-country governments mandate policies that differ widely from each other, causing variability in political, legal, and economic situations around the world. The movement toward privatization, economic freedom, and deregulation has reduced the variability among countries, but differences among countries remain. These differences push firms to determine how to best configure and coordinate their value chain so that they provide the necessary degree of local responsiveness without jeopardizing their capability to create value. Host governments also have a range of aggressive tools to ensure that an MNE is locally responsive. These tools can be broad policy directives, explicit threats or acts of trade protectionism, local content rules, or simply national product standards that can be met only by local operations. Each policy boosts the pressure on companies to make sure that part or all of its value chain can respond to the local pressures. 97. Discuss the characteristics of multidomestic, global, and transnational strategies. Include situations and a specific example in which each strategy would be most appropriate. Answer: a. International strategy—Companies adopt the international strategy when they aim to leverage their core competencies by expanding opportunistically into foreign markets. The international model relies on local subsidiaries in each country to administer business as instructed by headquarters. Some subsidiaries may have latitude to adapt products to local conditions as well as set up some light assembly operations or promotion programs. Still, ultimate and absolute control resides with managers at headquarters who reason they know best the basis and potential extension of the company's core competencies. b. Multidomestic strategy—A strategy in which the company allows each of its foreign country operations to act fairly independent, such as designing and producing a product or service in France for the French market and in Japan for the Japanese market. The main reason for adopting a multidomestic strategy is that in some cases, cultural, legal-political, and economic conditions may dictate very different optimum operating practices from one country to another. c. Global strategy—A strategy in which a company integrates its operations located in different countries. For example, it might design a product or service with a global market segment in mind. Or it might depend on its operations in different countries to produce the components used in the products and services. In this type of company, managers in the company's home country essentially develop capabilities and make decisions to diffuse them globally. d. Transnational strategy—A strategy in which a company develops different capabilities and contributions from different countries and shares them in integrated worldwide operations. In essence, this is a hybrid of multidomestic and global strategies in that the company attempts to gain the advantages of both. This strategy is ideal for companies that gain a great deal from global integration and need a great deal of adaptation to local markets. Such industries as pharmaceuticals and automobiles fall into this category. 98. What does a transnational strategy imply? Answer: A transnational company can be defined as one whose strategy takes advantage of different capabilities and contributions that may emanate from any part of the world by integrating them into its worldwide operations. The term metanational has been used to describe a company that thrives on seeking out uniqueness that it might exploit elsewhere or that might complement its existing operation. MNEs are attempting to weaken decision-making partitions so that more and better information flows through the organization. In doing so, headquarters can better use subsidiaries' unique knowledge, and subsidiaries can better understand headquarters' global needs and pertinent conditions in other subsidiaries. Test Bank for International Business: Environments and Operations John D. Daniels, Lee H. Radebaugh, Daniel P. Sullivan 9780131869424, 9780201846188, 9780130308016, 9780201566260, 9780201107135, 9780132668668
