Chapter 21 Tapping into Global Markets 1) What is a global firm? A) A firm that operates in one country and exports its goods and services to foreign countries. B) A firm that operates in more than one country and has a sales and marketing staff in those countries. C) A firm that operates in more than one country and captures R&D, production, logistical, marketing, and financial advantages not available to purely domestic competitors. D) A firm that sells its products and services across the world but restricts manufacturing to the home country. E) A firm that operates in more than one country but restricts the sale of its products to the home country. Answer: C 2) Which of the following can induce a firm to expand into the international arena? A) Consumer preferences in the domestic market vary widely. B) Average income level of domestic consumers is high. C) The firm operates in an industry that caters to the mass market. D) The company wants to reduce its dependence on any one market. E) The firm is yet to achieve economies of scale even though the domestic market has potential. Answer: D 3) Zodiac Inc. is one of the leading producers of designer bags in its country. The company is considering shifting some of its production to India. Which of the following could have prompted this move? A) People in India prefer imported designer bags. B) Zodiac can target a niche market of high-profile consumers who have a high income. C) Zodiac needs a larger customer base to achieve economies of scale. D) People in the home country have an ethnocentric approach. E) Market research indicates that Indian consumers have a low per-capita income. Answer: C 4) Which of the following is a risk that firms must consider prior to expanding abroad? A) The domestic consumers prefer low-priced products. B) The market in the foreign country may be too similar to the domestic market. C) Consumers in the foreign country are very particular about the quality of the goods they consume. D) The foreign country has very low pollution control standards. E) The foreign country's business culture may be too different from the domestic country. Answer: E 5) Which of the following is the first stage of the internationalization process that can induce firms to enter the international arena? A) no regular export activities B) export via independent representatives (agents) C) establishment of one or more sales subsidiaries D) establishment of production facilities abroad E) adoption of a flexible exchange rate regime Answer: A 6) Once a firm decides to enter the international market, what is the next step in the decision-making process? A) deciding on the marketing organization B) deciding on the marketing program C) deciding how to enter the market D) deciding how to adapt the product to the new market E) deciding which markets to enter Answer: E 7) WayToGrow Inc. is one of the most popular brand of toys in its home market. The company decides to expand its business abroad and its board of directors feel that instead of trying to establish its presence all at once in multiple markets, it is better to expand one country at a time. This would limit their risk and allow them to analyze customer response, after which they could expand to other similar countries. WayToGrow is following a ________. A) shotgun approach B) continuous approach C) born global approach D) sprinkler approach E) waterfall approach Answer: E 8) When innovation at Siemens enables the company to offer solutions that can make the generation of hydroelectricity more environment-friendly, the company will want to reap the benefits of being the first to introduce such a product across countries. In this case, which of the following approaches is likely to be the best approach to entering foreign markets? A) the rifle approach B) the continuous approach C) the born global approach D) the sprinkler approach E) the waterfall approach Answer: C 9) A2Z Inc. is a producer of a wide variety of consumer goods in Malaysia. It has successfully captured a huge share of the domestic market and has been able to create a very strong brand. It is now considering a foray into foreign markets. Its board of directors decide to first try out some of its products in the neighboring country of Indonesia. A2Z plans to eventually expand its presence in other countries, after they analyze the impact of their entry into the Indonesian market. A2Z Inc. is following a ________. A) born global approach B) waterfall approach C) sprinkler approach D) franchisee approach E) shotgun approach Answer: B 10) In a waterfall approach to international expansion, ________. A) firms enter countries gradually in a sequence B) firms enter those countries first where the demand for the product is greatest C) countries are entered based upon the availability of government subsidies D) firms enter those countries first where the supply of raw material is greatest E) countries are entered based upon ease of entry Answer: A 11) In a sprinkler approach to international expansion, ________. A) countries are entered when competition is limited B) countries are gradually entered sequentially C) countries in which the supply of raw material is greatest are entered first D) countries in which the demand for the product is greatest are entered first E) many countries are entered simultaneously Answer: E 12) When first-mover advantage is crucial and a high degree of competitive intensity prevails, the ________ approach is better. A) waterfall B) born global C) rifle D) sprinkler E) franchisee Answer: D 13) “BRIC” is an acronym for ________. A) Brazil, Russia, India, and China B) Bolivia, Russia, Indonesia, and China C) Brazil, Russia, Indonesia, and China D) Bolivia, Russia, India, and Canada E) Bolivia, Russia, Indonesia, and Canada Answer: A 14) A2Z Inc. is a producer of a huge variety of consumer goods, from soaps to shower gels, and shampoos to detergents. It is a market leader in Malaysia and is planning to tap the immense potential in the emerging markets. Market research, however, indicates that the Indian culture and society are substantially different from their Malaysian counterparts. If the company wants to target the masses, which of the following options is most likely to succeed? A) A2Z can use a price skimming strategy to increase market share. B) The company's existing strategies in Malaysia will work just as well in India. C) A2Z can introduce smaller “sachets” of shampoos and detergents that are priced lower. D) The company can introduce large family packs of shampoos and soaps even if they are priced higher than competitors. E) A2Z can use a predatory pricing strategy to capture the market. Answer: C 15) Which of the following causes a difference between marketing in the developed countries and marketing in the developing countries? A) The cost of production varies substantially between the developed and the developing world. B) The disparity between the rich and the poor in the developing world is reducing. C) There are substantial cultural differences between the developed and the developing world. D) Marketing in developing countries is far more expensive than in the developed world. E) The developing countries have more trade barriers in place than the developed countries. Answer: C 16) Regional economic integration is defined as the creation of trading agreements between ________. A) a firm and its suppliers and distributors B) firms targeting the same market C) individual firms in an industry D) related industries E) blocs of countries Answer: E 17) ________ is one of the world's largest single markets, with 25 member countries, a common currency, and more than 454 million consumers. A) NAFTA B) MERCOSUR C) The European Union D) APEC E) ASEAN Answer: C 18) Which of the following countries is a member of ASEAN? A) Indonesia B) Japan C) United States D) India E) Brazil Answer: A 19) Commonwealth countries such as Hong Kong, Malaysia, and Singapore often choose the U.K. as their springboard into the European market: they feel more comfortable with its language, laws, and culture, which reflect the ________ between these countries and the U.K. A) self-serving bias B) coincident development C) psychic proximity D) cognitive dissonance E) backward invention Answer: C 20) NAFTA is a free trade zone comprising of which of the following countries? A) Canada, Mexico, and South America B) Canada, Mexico, and Peru C) Mexico, South America, and the United States D) Canada, Mexico, and the United States E) Canada, Japan, and the United States Answer: D 21) MERCOSUR is a free trade zone linking which of the following countries? A) Mexico, Japan, Brazil, Paraguay, and Venezuela B) Mexico, Canada, and the United States C) Brazil, Argentina, Paraguay, and Venezuela D) Canada, Brazil, and the United States E) Brazil, Argentina, Paraguay, Uruguay, and Venezuela Answer: E 22) While choosing countries to invest in, companies sometimes choose psychic proximity to their own country. Psychic proximity can best be defined as ________. A) countries in which the company feels comfortable with the language, laws, and culture B) countries that are located close C) countries that the home country's management team have visited D) countries that have no trade barriers E) countries with good infrastructure and stable political environment Answer: A 23) Which of the following modes of entry into a foreign market involves the maximum commitment and risk? A) franchising B) direct investment C) joint ventures D) licensing E) direct exporting Answer: B 24) Domestic-based export merchants ________. A) buy manufacturers’ products and then sell them abroad B) manage a company's export activities for a fee C) buy foreign products and sell them in the domestic country D) seek and negotiate foreign purchases E) carry on exporting activities on behalf of several producers Answer: A 25) Domestic-based export agents perform a valuable service for companies seeking to enter foreign markets. The primary function of these agents is to ________. A) carry on exporting activities on behalf of several producers B) buy the manufacturer's products and then sell them abroad C) buy foreign products and sell them in the domestic country D) seek and negotiate foreign purchases for a commission E) produce and export products to foreign countries Answer: D 26) Companies typically start their international foray with ________, which involves working through independent intermediaries who sell their products abroad. A) indirect exporting B) licensing C) franchising D) direct exporting E) joint ventures Answer: A 27) Indirect exports have two advantages for a firm: they involve less investment and ________. A) less paperwork B) less intrusion by the government C) less risk D) less competition E) less customer suits Answer: C 28) James Foo lives in Malaysia. He buys local products from manufacturers in Malaysia and sells them abroad, mainly to Caribbean nations. Mr. Foo is a(n) ________. A) domestic-based export merchant B) domestic-based export agent C) cooperative agent D) export-management agent E) direct exporting agent Answer: A 29) Nash & Associates is a firm that takes care of all export procedures on behalf of its clients. In exchange for a fee, the firm acts as the liaison between domestic manufacturers and prospective foreign buyers. It has access to established distribution networks in other countries that domestic small-scale producers are unlikely to have, and facilitates communication between foreign importers and domestic producers. Nash & Associates is most likely a(n) ________. A) domestic-based export merchant B) domestic-based export agent C) cooperative organization D) export-management company E) direct exporter Answer: B 30) ________ agree to manage a company's export activities for a fee. A) Cooperative organizations B) Domestic-based export agents C) Export-management companies D) Domestic-based export merchants E) Contract manufacturing organizations Answer: C 31) After successfully exporting its products through export merchants, Boyes Inc. decides to take control of its exports. It sets up its own unit in the home country that takes care of all export-related activities. Boyes Inc. is most likely using ________. A) foreign-based distributors or agents B) domestic-based export department C) export merchants in foreign countries D) export-management companies E) traveling export sales representatives Answer: B 32) BestFoods Inc., a well-known producer of breakfast cereals, has decided to hire producers in different countries so that the cereals marketed under their brand are locally produced in the respective countries. This would not only appeal more to consumers who preferred domestically produced goods, but would also create jobs in the host-country enhancing the brand's image further. This is an example of ________. A) management contracting B) franchising C) greenfield venturing D) contract manufacturing E) straight extension Answer: D 33) Which of the following statements is true about licensing? A) It is one of the most complex ways to engage in international marketing. B) The licensor gains entry into the new market at low risk. C) The licensee has no access to proprietary information. D) The licensee receives a fee or royalty. E) The only benefit for a licensee is the production expertise it gains. Answer: B 34) Hotel chains such as Hyatt sell a variation of the licensing agreement called ________ to the owners of foreign hotels to manage these businesses for a fee. A) greenfield venturing B) management contracts C) strategic alliance D) indirect exporting E) direct exporting Answer: B 35) In which of the following modes of licensing does the firm hire local producers to produce the product, giving the company less control over the manufacturing process? A) contract manufacturing B) management contracts C) direct investment D) joint venture production E) greenfield venturing Answer: A 36) A company can enter a foreign market through ________, which is a complete form of licensing in which the company offers a complete brand concept and operating system. A) contract manufacturing B) cooperative agreement C) management contract D) joint venture E) franchising Answer: E 37) Which of the following can cause a firm to choose joint ventures as a mode of expansion into foreign markets? A) excellent managerial resources B) lack of sufficient finances C) lack of redtapism in the host country D) preferences of target consumers in the host country E) psychic proximity of the host country Answer: B 38) Identify a benefit of using joint ventures to enter a foreign market. A) It entails minimum risk. B) It provides access to an established distribution network in the host country. C) It yields the highest returns. D) It retains full control of its investment in the host country. E) It is the best strategy for countries with psychic proximity. Answer: B 39) Which of the following is true about direct investment as a mode of international expansion? A) It allows a firm to retain full control over its investment. B) It yields the lower returns than joint ventures. C) It involves the least amount of risk. D) It involves the least cost. E) It does not allow the firm to diversify. Answer: A 40) A Canadian software company decides to buy majority stakes in a Chinese firm producing software. The company even adds to its Chinese production capacity. Which of the following could be a potential disadvantage of this direct investment? A) The Canadian firm will find it difficult to achieve economies of scale. B) This is the least financially rewarding mode of international expansion. C) The Canadian firm will have very limited control on its Chinese investment. D) The Canadian firm will be subject to the piracy problems in China. E) The Canadian firm will be subject to a higher cost of production in China. Answer: D 41) Shanghai Baosteel Group has a $1.4-billion steel mill in Brazil with Companhia Vale do Rio Doce, the world’s largest producer of iron ore. This is an example of a ________. A) straight extension B) joint venture C) contract manufacturing agreement D) licensing agreement E) franchising agreement Answer: B 42) Your firm has decided to enter the international market with your product called “Trema,” a new pocket organizer that can also be used as a cell phone. While discussing the marketing plans, your CMO decides that no changes will be necessary in either the marketing mix or the product for export. What form of marketing strategy is the CMO advocating? A) distributive marketing program B) leveraged marketing program C) adapted marketing program D) engineering-driven marketing program E) standardized marketing program Answer: E 43) In an adapted marketing program, the company ________. A) ensures that uniform practices are adopted across countries B) focuses more on brand image than consumer preferences C) ignores differences in the legal environment D) ensures the lowest cost marketing program is adopted E) tailors the marketing programs to each target market Answer: E 44) A standardized marketing program involves ________. A) adopting the strategy that best fits a given target market B) consistently using the communication and distribution channels that entail the lowest costs C) adjusting the product to suit market preferences D) changing the features of the product to accommodate the host country E) changing only the communication message to suit the different target markets Answer: B 45) Which of the following is one of Hofstede’s four cultural dimensions that differentiate countries? A) customer relationship management versus power distance B) strategic management versus marketing management C) weak versus strong uncertainty avoidance D) total quality management versus JIT deliveries E) marketing management versus customer relationships Answer: C 46) In collectivist societies, ________. A) all property is owned by the government B) the self-worth of the individual is rooted more in the social system than in individual achievement C) the culture is dominated by the need to maintain low power distance and reduce income inequality D) the culture is dominated by a nurturing attitude as opposed to an assertive attitude E) people are highly risk-averse Answer: B 47) According to Hofstede, cultures with low power distance are ________. A) collectivist B) assertive C) egalitarian D) risk-averse E) risk-tolerant Answer: C 48) According to Hofstede, cultures with weak uncertainty avoidance are best described as ________. A) collectivist B) hierarchical C) egalitarian D) risk-averse E) risk-tolerant Answer: E 49) A risk averse attitude is associated with ________. A) high uncertainty avoidance B) high femininity C) high power distance D) high individualism E) high collectivism Answer: A 50) A market survey by LG revealed that Indians preferred not to mix vegetarian and non-vegetarian food items. Hence, LG refrigerators in India include a special convertible box with separate compartments to store and control the temperature of vegetarian and non-vegetarian food. This is an example of customizing ________ to local needs. A) advertising media B) product features C) packaging D) brand name E) labeling Answer: B 51) Straight extension of the product means ________. A) introducing the product to the foreign market without any changes to the product B) introducing the product to the foreign market with minor changes to the product C) introducing the product to the foreign market with major changes to the product D) introducing a customized product to the foreign market with a new marketing strategy E) introducing a customized product to the foreign market with existing marketing strategy Answer: A 52) Which of the following is most likely to be successful when introduced in foreign markets as a straight extension? A) laundry detergent B) khaki pants C) dessert mixes D) digital camera E) condensed soup Answer: D 53) For the launch of “Trema,” your company's new pocket organizer that can also be used as a cell phone, the CMO has decided that the product can be launched in international markets without any changes in its features or the marketing strategy. This introduction can described as a ________. A) dual adaptation B) straight extension C) product adaptation D) forward invention E) backward invention Answer: B 54) Finnish cellular phone giant, Nokia, customized its 6100 series mobile phone for every major market in which it is present. In Asia, for example, the series came with higher ring volume so that it could be heard on the crowded Asian streets. This is an example of ________. A) straight extension B) forward invention C) regional version D) city version E) country version Answer: C 55) In an attempt to tailor its products to suit the requirements of consumers in India, LG introduced the aero-comfort system. A remote control is programed to regulate both the air-conditioning and the ceiling fan. Consumers can switch off the AC and increase the ceiling fan's flow once the desired temperature is achieved. This not only increases convenience, but also cuts down electricity charges. LG's aero comfort system is an example of which of the following? A) backward invention B) dual invention C) country version product D) straight extension E) communication adaptation Answer: C 56) Your firm has decided to enter the international market with your product called “Trema,” a combination of a pocket organizer and cell phone. Even though the product has been a huge success in the home country, market research suggests some changes may be required before it can be introduced in Europe. Your CMO is of the opinion that the product requires certain extra features and the product will also have to be marketed differently. Your CMO is advocating ________. A) product invention B) dual adaptation C) straight extension D) forward adaptation E) product standardization Answer: B 57) Product adaptation involves ________. A) altering the product to meet local preferences with no change in communication strategy B) altering the product to meet minimum acceptable standards C) altering both the product and the communication strategy to meet local preferences D) altering neither the product nor the communication strategy while entering a new market E) developing a new product and adapting the communication strategy to enter a new market Answer: A 58) Backward invention occurs when a firm ________. A) creates a new product to meet a need in another country B) reintroduces earlier product forms adapted to suit another country's needs C) invents products that are similar to competing offerings D) takes an existing product into a new market E) produces its own raw materials Answer: B 59) Forward invention is ________. A) creating a new product to meet a need in another country B) creating a new product to meet the need in the home country C) inventing products that are superior to competing offerings D) taking an existing product into a new market E) inventing something that as yet has no "market" Answer: A 60) Companies can run the same marketing communications programs as used in the home market or change them for each local market, a process called ________. A) product communications B) market development C) dual adaptation D) diversification E) communication adaptation Answer: E 61) If a company adapts or changes both the product and the communications, the company engages in a process called ________. A) straight extension B) product reinvention C) product adaptation D) dual adaptation E) full adaptation Answer: D 62) A Gucci bag sells for $120 in Italy and $240 in the United States due to the differences in the costs of distributing the product in the two countries. This phenomenon is called a(n) ________. A) opportunity cost problem B) market pricing problem C) tactical pricing problem D) price escalation problem E) transfer pricing problem Answer: D 63) Trends Inc. produces and markets casual wear for men and women. The company wants to be a global brand and is planning to enter a few chosen markets across Europe and Asia. To accommodate the differences in purchasing power and costs of shipping goods to the retailers, the company has decided to use cost-based pricing in each country. In order to ensure that this strategy is successful, Trends must first make sure that ________. A) all the countries it is planning to enter have similar laws and regulations B) competing offerings in the different markets are not priced lower C) all competitors follow cost-based pricing D) its marketing communication targets rival firms in the respective markets to prove its superiority E) its transfer prices are high Answer: B 64) The problem with setting a uniform global price for a product is that ________. A) it allows intermediaries in low-price countries to reship their products to high-price countries B) the company would earn the same profits everywhere, regardless of the cost structure C) this strategy can price the product out of the market in countries where costs are high D) this strategy makes the price too high in poor countries and not high enough in rich countries E) it is ineffective for products that are homogeneous Answer: D 65) When companies are setting prices in different countries, the problem with setting a market-based price in each country is that ________. A) it allows intermediaries in low-price countries to reship their products to high-price countries B) the company would earn the same profits everywhere, regardless of the cost structure C) this strategy might price the product out of the market in countries where costs are high D) this strategy would make the price too high in poor countries and not high enough in rich countries E) it prevents the company from differentiating its products Answer: A 66) When one unit charges another unit in the same company for goods it ships to its foreign subsidiaries, the charge is called a(n) ________. A) original price B) transfer price C) margin price D) break-even price E) customer value price Answer: B 67) Existence of gray markets lead to which of the following outcomes? A) They make the distribution channel stronger. B) They create a free-rider problem making legitimate distributors’ investments in supporting a manufacturer's product less productive. C) Goods sold in grey markets are always counterfeit. D) Goods sold in grey markets come with standard product warranties. E) Taxes imposed on grey market products are very high. Answer: B 68) Dumping occurs when ________. A) a company entering a foreign market charges either less than its costs or less than it charges at home B) a company entering a foreign market charges more than the price in its home market C) a company entering a foreign market charges prices that are lower than those charged by its competitors in this market D) a company sets its price equal to its average cost of production E) a company exports its products to a foreign country to increase its revenue in spite of excess demand in the home country Answer: A 69) Various governments force companies to charge the ________ price, which is charged by other competitors for the same or a similar product. A) gray market B) implicit C) arm's-length D) authorized E) contingent Answer: C 70) Which of the following is likely if the distribution channel for a product in the foreign country is long? A) the foreign country buyers pay a high price B) the consumer will pay arms-length price C) the profit margin of the sellers increase D) the intermediaries are motivated to reship the product to another country to earn higher profits E) the seller can increase profit margins by charging a uniform price Answer: A 71) As people in developing countries often prefer to buy in smaller quantities, ________ is one of the most important functions of intermediaries in developing countries and helps perpetuate the long channels of distribution, which are a major obstacle to the expansion of retailing. A) product adaptation B) breaking bulk C) diversification D) transfer pricing E) dual adaptation Answer: B 72) For its first global ad campaign for Infiniti luxury cars, Nissan chose to tap into its Japanese roots and association with Japanese-driven art and engineering. This is an example of ________. A) anchoring effect B) target market impact C) regio-centrism D) country-of-origin effect E) cognitive dissonance Answer: D 73) The New Zealand Way program was an initiative by the government of New Zealand to raise awareness and attract tourists by showing the dramatic landscapes featured in “The Lord of the Rings” film trilogy. This is an example of a government trying to strengthen its ________. A) country-of-origin perceptions B) international subsidiaries C) internationalization D) contract manufacturing E) distributor relationships Answer: A 74) Companies can manage their international marketing activities in three ways: export departments, international divisions, or ________. A) global organization B) fixed corporate headquarters C) strong marketing department in the "host" country D) local marketing efforts E) strategic business units Answer: A 75) A company that has the regional vice presidents for North America, Latin America, Europe, and Africa reporting to the international division president is said to be a(n) ________. A) international subsidiary B) geographical organization C) world product group D) export department E) hierarchical organization Answer: B 76) Ajax Corp. is a multinational group that manufactures medical equipment and a variety of household electrical appliances. Kevin Oi is the head of the SBU that produces and markets medical equipment globally. The company's operating units appear to be a(n) ________. A) internal subsidiary B) geographical organization C) world product group D) export department E) regional headquarters Answer: C 77) Forces promoting global integration include ________. A) strong local preferences B) heterogeneous demand C) local standards and barriers D) strong consumer resistance to foreign goods E) capital-intensive production Answer: E 78) Forces promoting national responsiveness include ________. A) strong local preferences B) homogeneous demand C) strong global preferences D) strong consumer liking towards foreign goods E) capital-intensive production Answer: A 79) When forces for global integration are high and forces for national responsiveness are weak, which of the following strategies makes most sense? A) segment consumers on a regional basis B) tailor the product on a city-by-city basis C) treat the world as a heterogeneous market D) treat the world as a single market E) treat the world as a portfolio of national opportunities Answer: D 80) When forces for global integration are low and forces for national responsiveness are high, a strategy that ________ makes sense. A) treats the world as a single market B) views the marketplace as completely homogeneous C) treats the world as a portfolio of national opportunities D) standardizes all elements of the marketing mix E) facilitates a straight extension Answer: C 81) Although the opportunities to enter and compete in international markets are significant, the risks can also be low. Answer: False 82) Global firms plan, operate, and coordinate their activities on a worldwide basis. Answer: True 83) A global firm is a firm that operates in more than one country and captures R&D, production, logistical, marketing, and financial advantages not available to purely domestic competitors. Answer: True 84) Companies enter the international market only when their domestic markets are saturated. Answer: False 85) The first task of the internationalization process is moving a company from no regular exports to regular export activities. Answer: True 86) A waterfall approach to entering foreign markets is described as entering countries simultaneously. Answer: False 87) Most companies start small when they venture abroad. Some plan to stay small; others have bigger plans. Answer: True 88) Smaller packaging and lower sales prices are often critical in markets where incomes are limited. Answer: True 89) Regional economic integration has intensified in recent years, which makes it more difficult for marketers to expand globally. Answer: False 90) The creation of the European Union has benefited marketers wanting to enter Europe because they now have access to a homogeneous market consisting of 27 countries. Answer: False 91) Once a company decides to target a particular country, it must determine the best mode of entry. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures, and direct investment. Answer: True 92) Domestic-based export merchants seek and negotiate foreign purchases for a commission. Answer: False 93) Cooperative organizations carry on exporting activities on behalf of several producers and are partly under their administrative control. Answer: True 94) Indirect exports are characterized by high investment, and therefore high risk. Answer: False 95) In licensing, the licensor issues a license to a foreign company to use an item of value for a fee or royalty. Answer: True 96) When the licensor provides the licensee with a complete brand concept and operating system, the arrangement is called contract manufacturing. Answer: False 97) Management contracts offer foreign owners the opportunity to manage businesses for a fee. Answer: True 98) Contract manufacturing is one mode of licensing that allows a company to start faster, with the opportunity to form a partnership or buy out the local manufacturer later. Answer: True 99) The ultimate form of foreign investment is direct ownership of foreign-based assembly or manufacturing facilities. Answer: True 100) The main disadvantage of direct investment is that the firm loses access to the market in case the government of that country insists locally purchased goods have domestic content. Answer: False 101) If a society is collectivist, it would imply that the self-worth of the people is rooted in individual achievements. Answer: False 102) Straight extension means using an established product's brand name for a new item in the same product category. Answer: False 103) Product adaptation not only involves altering the product to meet local preferences, but also calls for a change in the communication strategy. Answer: False 104) Forward invention refers to reintroducing earlier product forms that are well adapted to a foreign country's needs. Answer: False 105) Communication adaptation occurs when companies change marketing communications for each local market. Answer: True 106) If Kellogg's offered different varieties of breakfast cereals in India as compared to Australia, and also positioned its products differently in the two countries, then Kellogg's would be engaging in dual adaptation. Answer: True 107) The use of media may require international adaptation because media availability varies from country to country. Answer: True 108) When companies sell on the Internet, price becomes transparent, and price differentiation between countries declines. Answer: True 109) If a company charges its subsidiary in a foreign country too low a transfer price, it can be accused of dumping. Answer: True 110) Gray market activities harm distributor relations, tarnish the manufacturer's brand equity, and undermine the integrity of the distribution channel. Answer: True 111) Web-crawling technology searches for counterfeit storefronts and sales by detecting domain names similar to legitimate brands. Answer: True 112) Many manufacturers think their job is done once the product leaves the factory. They should instead pay attention to how the product moves within the foreign country. Answer: True 113) Country-of-origin effects refer to the attitude anything produced by the home country is better than imported goods. Answer: False 114) Country-of-origin perceptions, once formed, are very difficult to change. Answer: False 115) People are often ethnocentric and favorably predisposed to their own country's products, unless they come from a less developed country. Answer: True 116) The impact of country of origin is independent of the type of product. Answer: False 117) A firm normally gets into international marketing simply by shipping out its goods. Answer: True 118) The international division that is responsible for a firm's worldwide marketing activities is headed by a division president who sets goals and budgets and is in charge of the company's international growth. Answer: True 119) When forces for both global integration and national responsiveness prevail to some extent, a “global” strategy that standardizes certain elements and localizes other elements can be the way to go. Answer: True 120) Most companies would prefer to remain domestic if their domestic market were large enough. Yet several factors are drawing more and more companies into the international arena. List some of these factors. Answer: Some of the factors are: (1) Some foreign markets present higher profit opportunities; (2) the company needs a larger customer base to achieve economies of scale; (3) the company wants to reduce its dependence on any one market; (4) the company decides to counterattack global competitors in their home markets; and (5) customers are going abroad and require international servicing. 121) What are the various risks that a company must consider before making a decision to enter foreign markets? Answer: These risks are: (1) The company might not understand foreign customers’ preferences and could fail to offer a competitively attractive product; (2) the company might not understand the foreign country's business culture; (3) the company might underestimate foreign regulations and incur unexpected costs; (4) the company might lack managers with international experience; and (5) the foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property. 122) Outline the major decisions that a firm must undergo in making a decision to market internationally. Answer: The first step is deciding whether to go abroad; the second step is deciding which markets to enter; the third step is deciding how to enter each market; the fourth step is deciding on the marketing program; and the final step is deciding on the marketing organization. 123) Regional free trade zones exist around the world. One of the oldest is the European Union, formed in 1957. Describe the purpose of the EU and discuss some of the benefits to firms engaged in trade within the European Union. Answer: The EU creates a single European market by reducing barriers to the free flow of products, services, finances, and labor among member countries and develops trade policies with nonmember nations. Members in the EU have access to 454 million consumers, accounting for 23% of the world's exports. It has a common currency, the euro monetary system. The biggest advantage of this is that companies are more likely to enter entire regions at the same time, giving them access to much larger markets. 124) Once a company decides to target a particular country, it must determine the best mode of entry. Each of its market entry strategies involves more commitment, risk, control, and profit potential. List these market entry strategies in order from low risk to high risk. Answer: The five modes of entry into foreign markets are as follows: (1) indirect exporting; (2) direct exporting; (3) licensing; (4) joint ventures; and (5) direct investment. The level of risk involved in each rises steadily, with indirect exports entailing minimum risk, and direct investment involving the maximum risk. 125) Explain how marketers are using the Web for international business. Answer: Marketers are using the Web to attract new customers outside their home countries, to support existing customers who live abroad, to source from international suppliers, and to build global brand awareness. These companies adapt their Web sites to provide country-specific content and services to their best potential international markets, ideally in the local language. 126) Define a joint venture and list some of the advantages and disadvantages. Answer: In a joint venture, foreign investors and local investors share ownership and control. A joint venture may be necessary or desirable for economic or political reasons. The foreign firm might lack the financial, physical, or managerial resources to undertake the venture alone; or the foreign government might require joint ownership as a condition for entry. Joint ownership has certain drawbacks. The partners might disagree over investment, marketing, or other policies. Joint ownership can also prevent a multinational company from carrying out specific manufacturing or marketing policies on a worldwide basis. 127) Most brands are adapted to some extent to reflect significant differences in consumer behavior, brand development, competitive forces, and the legal or political environment. Identify the five international product and communication strategies available to firms that expand their businesses to foreign countries. Answer: The five international product and communication strategies are as follows: 128) Name the three choices that companies have for setting prices in different countries. Answer: Companies have three choices for setting prices in different countries: (1) Set a uniform price everywhere; (2) set a market-based price in each country; and (3) set a cost-based price in each country. 129) Explain the country-of-origin effect. Answer: Country-of-origin perceptions are the mental associations and beliefs triggered by a country. In an increasingly connected, highly competitive global marketplace, government officials and marketers are concerned with how attitudes and beliefs about their country affect consumer and business decision makers. They want to strengthen their country's image to help domestic marketers who export and to attract foreign firms and investors. Marketers want to use positive country-of-origin perceptions to sell their products and services. 130) Define the internationalization process’ four stages. Answer: Some companies don't act until events thrust them into the international arena. The internationalization process typically has four stages: no regular export activities; export via independent representatives (agents); establishment of one or more sales subsidiaries; and finally, establishment of production facilities abroad. 131) A company that is planning to go global must decide on how many countries to enter and how fast to expand. A company’s entry strategy typically follows one of two possible approaches. What are those approaches? Answer: The approaches are waterfall approach and a sprinkler approach. The waterfall approach is when firms gradually enter countries in sequence. It allows firms to carefully plan expansion and is less likely to strain human and financial resources. The sprinkler approach entails entering many countries simultaneously. When first-mover advantage is crucial and a high degree of competitive intensity prevails, the sprinkler approach is better. 132) Define psychic proximity and explain why it is important for companies engaged in exporting products. Answer: Commonwealth countries such as Hong Kong, Malaysia, and Singapore often choose the U.K. as their springboard into the European market: they feel more comfortable with its language, laws, and culture. Indeed, psychic proximity may explain why overseas Chinese groups from Hong Kong, Indonesia, Malaysia, Singapore, Thailand, and Taiwan have committed billions of dollars to China via their public-listed companies alone. Such a strategy may have emanated from a perceived home-ground advantage for the overseas Chinese businesses. Investing in China is like going back home for overseas Chinese tycoons. Similarly, Chinese businesses may find psychic comfort in partnering overseas Chinese companies when they invest abroad. 133) When deciding where to operate internationally, it often makes sense to operate in fewer countries, with a deeper commitment and penetration in each. Mention some of the criteria that a country should possess in order to be a viable and attractive investment destination. Answer: Companies prefer to enter countries that rank high on market attractiveness, are low in market risk, and in which the company possesses a competitive advantage. 134) Briefly describe the advantages of direct investment. Answer: In direct investment, the firm: (1) secures cost economies in the form of cheaper labor or raw materials; (2) strengthens its image in the host country because it creates jobs; (3) develops a deeper relationship with government and consumers in the host country; (4) retains full control over its investment; and (5) assures itself access to the market. 135) “No matter which nation a person belongs to, people's inherent needs and requirements are essentially the same.”—Do you agree with this statement? How relevant is this statement in the context of marketing? Answer: Student answers will vary. The statement may be true to the extent that the essential requirements, our physiological needs, are indeed the same. However, there is no denying that people’s choices and preferences are shaped by the society they live in. No matter how much nations and regions integrate their trading policies and standards, each nation still has unique features. Its readiness for different products and services, and its attractiveness as a market, depend on its economic, political–legal, and cultural environments. In the context of marketing, therefore, it is important to understand these differences and identify the precise need a particular product or service satisfies to be able to position the product effectively. Straight extensions may not always work, nor will standardized communication strategies in countries that are significantly different. I agree with this statement to a large extent. In marketing, understanding universal human needs like safety, belonging, and self-expression allows companies to create globally appealing products and messages that resonate across diverse cultural contexts. 136) International companies must decide how much to adapt their marketing strategy to local conditions. Identify and explain the two strategies companies can use. Answer: A company foraying into the international market can choose between a standardized marketing program and an adapted marketing program. In the standardized marketing program, no changes are made to the marketing program when entering foreign countries. At the other end is the adapted marketing program, where the producer adjusts the marketing program to each target market. 137) What is the main disadvantage of direct investment? Answer: The main disadvantage of direct investment is that the firm exposes a large investment to risks such as blocked or devalued currencies, worsening markets, or expropriation. If the host country requires substantial severance for employees, reducing or closing operations can be expensive. 138) Foreign companies establishing joint ventures in Asia typically team up with four types of local partners. Explain who they are. Answer: High net-worth families—These partners tend to have sufficient funds but usually will be reluctant to increase their initial investment and are willing to let the foreign partner run the joint venture. Relatively small companies in the same business—They have expertise in the field and may have government connections, but often lack capital. Such local firms are more likely to participate actively in the joint ventures. Large companies—They possess widespread government and corporate connections, sales and distribution networks, and sufficient capital. Government or governmental-linked companies—They have political connections, but may or may not have the relevant expertise or capital. 139) Satisfying different consumer needs and wants can require different marketing programs. Name the four cultural dimensions that differentiate countries, as identified by Hofstede. Answer: Hofstede identified four cultural dimensions that differentiate countries: (1) individualism vs. collectivism; (2) high vs. low power distance; (3) masculine vs. feminine; and (4) weak vs. strong uncertainty avoidance. 140) Some types of products travel better across borders than others. What types of products are most likely to be successful as straight extensions. Answer: Straight extension introduces the product in the foreign market without any changes. It has been successful with cameras, consumer electronics, and many machine tools. 141) You work for a company that produces and markets apparel for men and women, and is planning to enter the Chinese market. If you were asked if the company should opt for a straight extension or a product adaptation, what would you choose, and why? Answer: Student answers may vary. If a foreign apparel maker chooses to enter the Chinese market, they will have to choose product adaptation. A straight extension would imply no change in product or communication strategy. However, though an increasing number of people in China understand English, the company will probably have to make some changes in its marketing mix depending on what medium of advertising is more popular and can access more people. As far as the market offerings are concerned, clothes will have to be resized as the Chinese are short in stature, as compared to Americans. They may also have different preferences of color and design than their American counterparts. I would recommend a product adaptation strategy for entering the Chinese market to cater to local preferences in sizing, styles, and cultural norms, ensuring the apparel resonates well with Chinese consumers and enhances market acceptance and sales potential. 142) Product adaptation alters the product to meet local conditions or preferences. Identify four levels of adaptation. Answer: There are several levels of adaptation, including regional versions, country versions, city versions, and retailer versions. 143) When companies sell their goods abroad, they face a price escalation problem. Define price escalation. Answer: A firm must add the costs of transportation, tariffs, importer margin, wholesaler margin, and retailer margin, as well as the currency-fluctuation risk while selling the product in another country. Price escalation from these added costs and currency fluctuation risk might make the price two to five times as much in another country to earn the same profit for the manufacturer. 144) What are the choices available to companies when setting prices to avoid price escalation problems? Answer: The three choices that companies have to set prices in international markets are: setting a uniform price everywhere; setting a market-based price in each country; or setting a cost-based price in each country. 145) Your company manufactures travel bags and is keen on establishing its presence in the Indian market. If you were given the responsibility to decide the pricing strategy the company should use, what would you decide? Explain your answer. Answer: Student answers can vary. However, they must bear in mind that India is an emerging country and presents its unique set of opportunities and challenges. Hence, strategies that have yielded impressive results in the U.S. may not be as successful in India. Targeting the affluent middle-class and the rich upper class, the company needs to know how competing products are priced in India. The best way forward would be to use a cost-based pricing strategy. This is because, if the distribution network is long and not as efficient, then it can add to the cost of making the product available to the consumer. However, a cost-based strategy would work well only if the company can ensure competitive prices even after accounting for higher distribution costs. I would recommend adopting a competitive pricing strategy in the Indian market for travel bags. This approach helps position the company's products competitively against local and international brands, attracting price-sensitive consumers while maintaining profitability. 146) Define the gray market. Answer: The gray market consists of branded products diverted from normal or authorized distribution channels in the country of product origin or across international borders. 147) How do multinationals try to prevent gray markets? Answer: Multinationals try to prevent gray markets by policing the distributors, by raising their prices to lower-cost distributors, or by altering the product characteristics or service warranties for different countries. 148) Describe the whole-channel concept of international marketing. Answer: Many manufacturers think their job is done once the product leaves the factory. They should instead note how the product moves within the foreign country and take a whole-channel view of distributing products to final users. The whole-channel concept consists of: (1) a seller; (2) seller's international marketing headquarters; (3) channels between nations; (4) channels within foreign nations; and (5) final buyers. Thus, there are three links between the seller and the final buyer. In the first, seller's international marketing headquarters, the export department or international division makes decisions about channels and other marketing activities. The second link, channels between nations, gets the products to the borders of the foreign nation. Decisions made in this link include the types of intermediaries (agents, trading companies), type of transportation (air, sea), and financing and risk management. The third link, channels within foreign nations, gets products from their entry point to final buyers and users. 149) What are global organizations? Answer: Several firms have become truly global organizations. Their top corporate management and staff plan worldwide manufacturing facilities, marketing policies, financial flows, and logistical systems. The global operating units report directly to the chief executive or executive committee, not to the head of an international division. The firm trains its executives in worldwide operations, recruits management from many countries, purchases components and supplies where it can obtain them at least cost, and makes investments where anticipated returns are greatest. Test Bank for Marketing Management: A South Asian Perspective Philip Kotler, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha 9789810687977, 9780132102926
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