Preview Extract
Chapter 21 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 Rationale: Option C best defines a global firm by encompassing various operations and advantages across multiple countries, distinguishing it from firms primarily focused on exporting or operating abroad in a limited capacity. 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 firm finds that the domestic market is almost saturated. E) The firm is yet to achieve economies of scale even though the domestic market has potential. Answer: D Rationale: When a firm discovers that its domestic market is nearly saturated, it often seeks growth opportunities abroad to sustain or increase its revenues and market share. 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 can improve its market share if it can offer better prices than its competitors. 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 Rationale: By shifting production to India and potentially reducing costs, Zodiac can competitively price its designer bags and gain market share, indicating a strategic move to improve its competitive position. 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 Rationale: Option E highlights the risk associated with cultural differences, which can affect business practices, communication, and overall operations when expanding internationally. 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 Rationale: The absence of regular export activities signifies the initial stage of considering international expansion, preceding other forms of market involvement such as establishing subsidiaries or production facilities abroad. 6. Once a firm decides to enter the international market, what is the next step in the decisionmaking 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 Rationale: After deciding to enter the international market, the firm must determine which specific markets to enter, considering factors such as market size, growth potential, competition, and regulatory environment. 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 Rationale: The waterfall approach involves sequentially expanding into one country at a time, allowing the firm to assess market responses before venturing into similar markets, minimizing risk and facilitating systematic expansion. 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 Rationale: The born global approach involves rapidly entering multiple foreign markets with innovative products or services, aligning with Siemens' goal of leveraging its innovative solution on a global scale. 9. A2Z Inc. is a producer of a wide variety of consumer goods in Brazil. 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 Argentina. A2Z plans to eventually expand its presence in other countries, after they analyze the impact of their entry into the Argentine market. A2Z Inc. is following a ________. A) born global approach B) waterfall approach C) sprinkler approach D) franchisee approach E) shotgun approach Answer: B Rationale: A2Z Inc.'s approach of gradually expanding into foreign markets, beginning with Argentina to assess impact before further expansion, aligns with the waterfall approach. 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 Rationale: The waterfall approach involves entering countries gradually in a predetermined sequence, enabling systematic expansion and risk assessment before venturing into additional markets. 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 Rationale: The sprinkler approach involves entering multiple countries simultaneously, akin to sprinkling seeds across a wide area, allowing for rapid market penetration and diversification of risk. 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 Rationale: The sprinkler approach, by entering multiple markets simultaneously, allows a firm to capitalize on first-mover advantages and effectively counter competitive intensity across various markets. 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 Rationale: "BRIC" represents the emerging economies of Brazil, Russia, India, and China, which are characterized by rapid economic growth and significant influence on global markets. 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 the United States and is planning to tap the immense potential in the emerging markets. Market research, however, indicates that the Brazilian culture and society are substantially different from their American 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 the U.S. will work just as well in Brazil. 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 Rationale: Option C acknowledges the cultural and economic differences in Brazil and proposes a strategy to cater to the masses by introducing smaller, more affordable packaging, aligning with local preferences and purchasing power. 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 Rationale: Cultural differences significantly impact marketing strategies and consumer behavior in both developed and developing countries, often necessitating tailored approaches to effectively penetrate foreign markets. 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 Rationale: Regional economic integration involves agreements between blocs of countries aimed at reducing barriers to trade and promoting economic cooperation and integration within a specific geographic region. 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 Rationale: The European Union (EU) is characterized by its single market, common currency (Euro), and extensive consumer base, making it one of the largest economic entities globally. 18. Which of the following countries is a member of ASEAN? A) Indonesia B) Japan C) United States D) India E) Brazil Answer: A Rationale: Indonesia is a member of the Association of Southeast Asian Nations (ASEAN), a regional intergovernmental organization aimed at promoting economic, political, and cultural cooperation among Southeast Asian countries. 19. Many U.S. firms prefer to sell in Canada, England, and Australia—rather than in larger markets such as Germany and France—because they feel more comfortable with the languages, laws, and culture, which reflect the ________ between these countries and the United States. A) self-serving bias B) coincident development C) psychic proximity D) cognitive dissonance E) backward invention Answer: C Rationale: Psychic proximity refers to the perceived cultural, linguistic, and legal similarities between countries, influencing firms' preferences for certain markets over others due to familiarity and comfort. 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 Rationale: NAFTA, the North American Free Trade Agreement, includes Canada, Mexico, and the United States, fostering economic integration and facilitating trade among these North American countries. 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 Rationale: MERCOSUR (Southern Common Market) is a regional trade bloc comprising Brazil, Argentina, Paraguay, Uruguay, and Venezuela, aimed at promoting economic integration and cooperation among member countries. 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 Rationale: Psychic proximity refers to the perceived cultural, linguistic, and legal similarities between a company's home country and potential foreign markets, influencing investment decisions based on familiarity and comfort. 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 Rationale: Direct investment involves the highest level of commitment and risk as it requires substantial capital investment and full ownership or significant control over foreign operations. 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 Rationale: Domestic-based export merchants purchase products from manufacturers within their domestic country and then export these products abroad for sale. 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 Rationale: Domestic-based export agents assist companies by seeking out and negotiating foreign purchase agreements on behalf of their clients, typically earning a commission for their services. 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 Rationale: Indirect exporting involves selling products to foreign markets through independent intermediaries or agents rather than establishing a direct presence in those markets. 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 Rationale: Indirect exports typically require less investment and entail lower levels of risk compared to other modes of entry into foreign markets, making them attractive options for firms seeking to expand internationally gradually. 28. James Franks lives in Miami. He buys local products from manufacturers in Miami and other parts of Florida and sells them abroad, mainly to Caribbean nations. Mr. Franks 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 Rationale: James Franks acts as a domestic-based export merchant by purchasing products from domestic manufacturers and selling them abroad. 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 Rationale: Nash & Associates functions as a domestic-based export agent, providing export-related services such as facilitating communication between domestic manufacturers and foreign buyers and coordinating export procedures. 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 Rationale: Export-management companies undertake the management of a company's export activities in exchange for a fee, providing expertise in navigating foreign markets and facilitating international trade on behalf of their clients. 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 Rationale: By setting up its own export department in the home country, Boyes Inc. is exerting direct control over its export activities, managing them internally instead of relying on external export merchants or agents. 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 Rationale: BestFoods Inc. is engaging in contract manufacturing by hiring producers in different countries to manufacture their products locally. This allows the company to leverage local production capabilities while maintaining control over product quality and brand standards. 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 Rationale: Licensing allows the licensor to gain entry into a new market at low risk by granting permission to a licensee to use its intellectual property, such as trademarks or patents, in exchange for a fee or royalty. 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 Rationale: Hotel chains often utilize management contracts to allow foreign hotel owners to use their brand and operational systems in exchange for a fee, enabling them to manage the businesses on behalf of the owners. 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 Rationale: Contract manufacturing involves hiring local producers to manufacture the product, with the company retaining less control over the manufacturing process compared to other modes of entry. 36. A company can enter a foreign market through a ________, 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 arrangement Answer: E Rationale: Franchising involves granting a complete brand concept and operating system to a franchisee, allowing them to operate under the franchisor's brand name and business model in exchange for fees and royalties. 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 Rationale: Lack of sufficient finances can prompt a firm to opt for joint ventures as a mode of expansion into foreign markets, as it allows for sharing of costs and risks with local partners. 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 Rationale: Joint ventures provide access to an established distribution network in the host country through collaboration with local partners, facilitating market entry and expansion. 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 Rationale: Direct investment allows a firm to retain full control over its investment and operations in the foreign market, providing autonomy in decision-making and strategic direction. 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 Rationale: Direct investment in a foreign country may expose the Canadian firm to piracy problems prevalent in the Chinese market, potentially impacting the protection of its intellectual property and profitability. 41. Whirlpool took a 53% stake in the Dutch electronics group Phillips' home appliances business to leapfrog into the European market. This is an example of a ________. A) straight extension B) joint venture C) contract manufacturing agreement D) licensing agreement E) franchising agreement Answer: B Rationale: Whirlpool's acquisition of a majority stake in Phillips' home appliances business represents a joint venture, as both companies collaborate and share ownership in the European market to leverage each other's strengths and resources. 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 mix B) leveraged marketing mix C) adapted marketing mix D) engineering-driven marketing mix E) standardized marketing mix Answer: E Rationale: The CMO is advocating for a standardized marketing mix strategy, wherein the company maintains consistency in its product and marketing approach across international markets without making any modifications. 43. In an adapted marketing mix, 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 Rationale: In an adapted marketing mix strategy, the company tailors its marketing programs to suit the specific characteristics and preferences of each target market, allowing for customization and localization. 44. A standardized marketing mix 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 Rationale: A standardized marketing mix involves consistently using communication and distribution channels that incur the lowest costs, maintaining uniformity across international markets. 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 Rationale: Weak versus strong uncertainty avoidance is one of Hofstede's cultural dimensions, referring to the extent to which a culture tolerates uncertainty and ambiguity. 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 Rationale: In collectivist societies, individuals derive their self-worth from their membership in social groups, emphasizing interdependence and group cohesion over individual achievement. 47. According to Hofstede, cultures with low power distance are ________. A) collectivist B) assertive C) egalitarian D) risk-averse E) risk-tolerant Answer: C Rationale: Cultures with low power distance, according to Hofstede, are characterized by egalitarianism and a preference for minimal power differentials between individuals. 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 Rationale: Cultures with weak uncertainty avoidance are characterized by a higher tolerance for ambiguity and uncertainty, embracing risk and innovation more readily. 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 Rationale: A risk-averse attitude is associated with high uncertainty avoidance cultures, where individuals prefer stability, structure, and clear guidelines to minimize uncertainty and ambiguity. 50. A market survey by LG revealed that Indians preferred not to mix vegetarian and nonvegetarian 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 Rationale: LG's customization of its refrigerators in India to include a special convertible box with separate compartments for vegetarian and non-vegetarian food items demonstrates customization of product features to meet local cultural preferences and needs. 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 Rationale: Straight extension involves introducing the product to the foreign market without any alterations, maintaining the same features and marketing strategy as used in the domestic market. 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 Rationale: Digital cameras are likely to be successful as straight extensions because their features and functionalities are standardized globally, requiring minimal adaptation for different markets. 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 be described as a ________. A) dual adaptation B) straight extension C) product adaptation D) forward invention E) backward invention Answer: B Rationale: Launching the product in international markets without any changes in its features or marketing strategy represents a straight extension approach. 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 Rationale: Customizing products for different major markets, such as Nokia's customization of its mobile phones, represents a regional version approach to adaptation. 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 airconditioning 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 Rationale: LG's customization of its product for the Indian market, the aero-comfort system, represents a country version adaptation tailored to meet local preferences and needs. 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 Rationale: The CMO is advocating for dual adaptation, which involves adapting both the product features and the marketing strategy to meet the requirements of the target market in Europe. 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 Rationale: Product adaptation involves modifying the product to meet local preferences while maintaining the communication strategy used in the home market. 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 Rationale: Backward invention involves reintroducing earlier product forms adapted to suit the needs of another country, often reversing or reverting to previous technological or design iterations. 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 Rationale: Forward invention involves creating a new product to meet a need in another country, often developing innovative solutions tailored to specific market demands. 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 Rationale: Communication adaptation involves adjusting marketing communications programs to suit the cultural, linguistic, and media preferences of each local market, ensuring effective messaging and resonance with target audiences. 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 Rationale: Dual adaptation involves modifying both the product and the communications strategy to suit the requirements of the target market. 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 Rationale: The price difference between countries due to distribution costs is known as price escalation. 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 Rationale: For cost-based pricing to be effective, Trends Inc. must ensure that competing offerings in the different markets are not priced lower, which could undermine its pricing strategy. 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 Rationale: Setting a uniform global price can result in pricing the product too high in poor countries and too low in rich countries, which can lead to market inefficiencies. 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 Rationale: Market-based pricing in each country can lead to intermediaries in low-price countries reshipping products to high-price countries, causing market distortions and undermining pricing strategies. 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 Rationale: The charge levied by one unit of a company on another unit for goods shipped to foreign subsidiaries is called a transfer price. 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 Rationale: Gray markets create a free-rider problem by allowing unauthorized resellers to profit from the manufacturer's product without contributing to the costs associated with legitimate distribution channels. 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 Rationale: Dumping occurs when a company sells its products in a foreign market at prices below their costs or below what they charge in their home market, often to gain market share or eliminate competition. 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 Rationale: Governments often require companies to charge the arm's-length price, which is the price charged by other competitors for the same or similar product, to prevent unfair pricing practices. 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 Rationale: In a long distribution channel, each intermediary adds its margin to the price, resulting in a higher final price for the product, which the foreign country buyers have to pay. 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 Rationale: Breaking bulk refers to the process of dividing larger quantities of goods into smaller units for distribution and sale, which is essential in accommodating the preferences of consumers in developing countries who often prefer to buy in smaller quantities. 72. As a result of the ad campaigns depicting Brazil as a multicultural land of carnivals and beaches, any mention of the country makes people think of sun and sand. This is an example of ________. A) anchoring effect B) target market impact C) regiocentrism D) country-of-origin effect E) cognitive dissonance Answer: D Rationale: The country-of-origin effect refers to the influence that a country's reputation or image has on consumers' perceptions of products from that country. 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 Rationale: The New Zealand government's initiative aimed to enhance the country's country-of-origin perceptions by associating its landscapes with the popular film trilogy "The Lord of the Rings." 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 Rationale: The third way of managing international marketing activities is through a global organization, which integrates marketing efforts across countries. 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 Rationale: In a geographical organization, regional vice presidents report to the international division president, facilitating coordination and management of operations across different regions. 76. Ajax Corp. is a multinational group that manufactures medical equipment and a variety of household electrical appliances. Kevin O'Brien 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 Rationale: Ajax Corp.'s operating units are organized as a world product group, with Kevin O'Brien heading the strategic business unit (SBU) responsible for producing and marketing medical equipment globally. 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 Rationale: Capital-intensive production promotes global integration by enabling companies to achieve economies of scale and efficiently produce goods for global markets. 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 Rationale: Strong local preferences for customized products or services drive the need for national responsiveness, as companies must adapt their offerings to meet the specific demands of different local markets. 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 Rationale: When forces for global integration are high and forces for national responsiveness are weak, treating the world as a single market allows companies to standardize their offerings and achieve economies of scale. 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 Rationale: When forces for global integration are low and forces for national responsiveness are high, treating the world as a portfolio of national opportunities enables companies to customize their offerings to meet the specific needs of different local markets. 81. Luxury brands are usually not global because they target a niche market. Answer: False Rationale: Luxury brands often have a global presence and target affluent consumers worldwide, rather than being limited to niche markets in specific regions. 82. Global firms plan, operate, and coordinate their activities on a worldwide basis. Answer: True Rationale: Global firms integrate their operations across different countries and regions to achieve economies of scale and maximize efficiency. 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 Rationale: A global firm leverages its international operations to capture various advantages, including access to different markets, resources, and efficiencies not available to purely domestic competitors. 84. Companies enter the international market only when their domestic markets are saturated. Answer: False Rationale: Companies may enter the international market for various reasons, including seeking growth opportunities, accessing new markets, diversifying risks, and leveraging competitive advantages, not necessarily because their domestic markets are saturated. 85. The first task of the internationalization process is moving a company from no regular exports to regular export activities. Answer: True Rationale: The internationalization process often begins with companies engaging in occasional or irregular export activities and then progresses to regular and systematic exporting as they become more experienced and comfortable with international trade. 86. A waterfall approach to entering foreign markets is described as entering countries simultaneously. Answer: False Rationale: A waterfall approach to international expansion involves entering countries gradually and sequentially, similar to how water flows down a waterfall, rather than simultaneously. 87. More than 90% of future population growth is projected to occur in the less developed countries. Answer: True Rationale: The majority of future population growth is expected to occur in less developed countries, primarily due to higher birth rates and improving healthcare leading to longer life expectancies. 88. Smaller packaging and lower sales prices are often critical in markets where incomes are limited. Answer: True Rationale: In markets where incomes are limited, smaller packaging and lower prices can make products more affordable and accessible to consumers with lower purchasing power. 89. Regional economic integration has intensified in recent years, which makes it more difficult for marketers to expand globally. Answer: False Rationale: Regional economic integration, such as the formation of trade blocs like the European Union, can actually facilitate global expansion by creating larger and more accessible markets, reducing trade barriers, and promoting economic cooperation among member countries. 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 Rationale: While the European Union has created a single market with reduced trade barriers among its member countries, it is not entirely homogeneous. Marketers still need to consider cultural, linguistic, legal, and economic differences among the member states when entering the European market. 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 Rationale: Companies have various modes of entry into foreign markets, including indirect exporting, direct exporting, licensing, joint ventures, and direct investment, and they must choose the most appropriate mode based on factors such as market characteristics, resources, and strategic objectives. 92. Domestic-based export merchants seek and negotiate foreign purchases for a commission. Answer: False Rationale: Domestic-based export merchants buy manufacturers' products and then sell them abroad, rather than seeking and negotiating foreign purchases for a commission. 93. Cooperative organizations carry on exporting activities on behalf of several producers and are partly under their administrative control. Answer: True Rationale: Cooperative organizations, such as export-management companies, manage exporting activities on behalf of several producers and are typically partly under their administrative control. 94. Indirect exports are characterized by high investment, and therefore high risk. Answer: False Rationale: Indirect exports involve less investment and risk compared to other modes of entry, as they typically utilize independent intermediaries to sell products abroad. 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 Rationale: Licensing involves granting permission to a foreign company to use intellectual property, such as patents, trademarks, or technology, in exchange for a fee or royalty. 96. When the licensor provides the licensee with a complete brand concept and operating system, the arrangement is called contract manufacturing. Answer: False Rationale: When the licensor provides the licensee with a complete brand concept and operating system, the arrangement is called franchising, not contract manufacturing. 97. Management contracts offer foreign owners the opportunity to manage businesses for a fee. Answer: True Rationale: Management contracts involve hiring a firm to manage export activities on behalf of the client company for a fee. 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 Rationale: Contract manufacturing involves hiring a foreign company to produce goods according to the specifications of the hiring company, allowing for faster market entry and potential future partnerships or acquisitions. 99. The ultimate form of foreign investment is direct ownership of foreign-based assembly or manufacturing facilities. Answer: True Rationale: Direct investment involves the ownership or control of foreign-based assets, such as assembly plants or manufacturing facilities, representing the highest level of commitment and control in foreign markets. 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 Rationale: The main disadvantage of direct investment is not losing access to the market due to domestic content requirements, but rather the high level of commitment, risk, and investment involved in establishing and maintaining foreign operations. 101. If a society is collectivist, it would imply that the self-worth of the people is rooted in individual achievements. Answer: False Rationale: In a collectivist society, the self-worth of individuals is typically rooted more in the social system, community, or group identity rather than solely in individual achievements. 102. Straight extension means using an established product's brand name for a new item in the same product category. Answer: False Rationale: Straight extension involves introducing a product to a foreign market without making any changes to the product, including its brand name. 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 Rationale: Product adaptation involves altering the product to meet local preferences, but it does not necessarily require a change in the communication strategy. Communication adaptation focuses specifically on adjusting marketing communications for each local market. 104. Forward invention refers to reintroducing earlier product forms that are well adapted to a foreign country's needs. Answer: False Rationale: Forward invention refers to creating a new product to meet a need in another country, rather than reintroducing earlier product forms. 105. Communication adaptation occurs when companies change marketing communications for each local market. Answer: True Rationale: Communication adaptation involves adjusting marketing communications, such as advertising messages, promotions, and packaging, to suit the preferences and cultural nuances of each local market. 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 Rationale: Dual adaptation involves both product adaptation and communication adaptation to suit the preferences and needs of different local markets. 107. The use of media may require international adaptation because media availability varies from country to country. Answer: True Rationale: Media availability, preferences, and regulations vary from country to country, necessitating international adaptation of media strategies for effective marketing communication. 108. When companies sell on the Internet, price becomes transparent, and price differentiation between countries declines. Answer: True Rationale: The transparency of prices on the internet makes it easier for consumers to compare prices across different countries, potentially reducing the effectiveness of price differentiation strategies. 109. If a company charges its subsidiary in a foreign country too low a transfer price, it can be accused of dumping. Answer: True Rationale: Charging too low a transfer price to a foreign subsidiary can be considered dumping, which involves selling goods at less than their fair market value in the importing country, potentially harming local producers and distorting competition. 110. Gray market activities harm distributor relations, tarnish the manufacturer's brand equity, and undermine the integrity of the distribution channel. Answer: True Rationale: Gray market activities involve the unauthorized distribution of genuine branded products, which can lead to conflicts with authorized distributors, damage the manufacturer's brand reputation, and disrupt the distribution channel's integrity. 111. Web-crawling technology searches for counterfeit storefronts and sales by detecting domain names similar to legitimate brands. Answer: True Rationale: Web-crawling technology is indeed used to scan the internet for various purposes, including identifying counterfeit storefronts and sales. One of the methods employed is by detecting domain names that are intentionally crafted to mimic legitimate brands, aiming to deceive consumers. Therefore, the statement is true. 112. As required levels of distribution increase, so do customer prices relative to the importer's price. Answer: True Rationale: This statement is true because as distribution levels increase, more intermediaries such as wholesalers and retailers are involved, each adding their markup to the product's price. Consequently, as the product moves through these distribution channels, its price tends to rise relative to the importer's price. 113. Country-of-origin effects refer to the attitude anything produced by the home country is better than imported goods. Answer: False Rationale: Country-of-origin effects refer to consumers' perceptions and attitudes toward products based on the country in which they are manufactured, not necessarily that products from the home country are perceived as better. Consumers may have different perceptions based on factors like quality, reputation, or stereotypes associated with the country of origin. 114. Country-of-origin perceptions, once formed, are very difficult to change. Answer: False Rationale: While country-of-origin perceptions can be influential, they are not necessarily immutable. Marketing efforts, changes in product quality, and shifts in consumer preferences can all contribute to altering perceptions over time. Therefore, while challenging, it is not accurate to say that these perceptions are very difficult to change. 115. People are often ethnocentric and favorably predisposed to their own country's products unless they come from a less developed country. Answer: True Rationale: Ethnocentrism refers to the tendency for individuals to favor their own culture or nationality over others. This bias often extends to consumer behavior, where consumers may prefer products from their own country. However, individuals from less developed countries may not exhibit the same degree of ethnocentrism due to factors such as perceived quality or prestige associated with products from more developed countries. 116. The impact of country of origin is independent of the type of product. Answer: False Rationale: The impact of country of origin can vary depending on the type of product. For certain products, such as automobiles or luxury goods, country of origin may have a significant influence on consumer perceptions of quality and prestige. However, for other products where brand reputation or other factors play a more dominant role, the impact of country of origin may be less pronounced. 117. A firm normally gets into international marketing simply by shipping out its goods. Answer: True Rationale: One of the simplest ways for a firm to engage in international marketing is by exporting its goods to foreign markets. This approach allows the firm to enter new markets without the need for significant investment or infrastructure in those markets initially. 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 Rationale: In many multinational corporations, there is indeed an international division responsible for coordinating worldwide marketing activities. Typically, this division is headed by a senior executive such as a division president who sets strategic goals, allocates budgets, and oversees the company's international expansion efforts. 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 Rationale: In situations where there are competing demands for global integration (standardization) and national responsiveness (localization), adopting a global strategy that combines elements of both can be effective. This approach allows companies to achieve economies of scale and consistency while also catering to local preferences and market conditions. 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 countryspecific 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 costbased 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: It is sometimes seen that companies determine which markets to enter on the basis of psychic proximity. Many U.S. firms prefer to sell in Canada, England, and Australia because they feel more comfortable with the language, laws, and culture. Companies should be careful in choosing markets according to cultural distance. Besides overlooking potentially better markets, they may only superficially analyze real differences that put them at a disadvantage. 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: 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. 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 mix, no changes are made to the marketing mix when entering foreign countries. At the other end is the adapted marketing mix, where the producer adjusts the marketing program to each target market. 137. Discuss three disadvantages of standardizing the marketing mix worldwide. Answer: Standardizing the marketing mix (1) ignores differences in consumer needs, wants, and usage patterns for products; (2) ignores differences in consumer response to marketingmix elements; (3) ignores differences in brand and product development and the competitive environment; (4) ignores differences in the legal environment; (5) ignores differences in marketing institutions; and (6) ignores differences in administrative procedures. Students should identify any three of these. 138. Discuss three advantages of standardizing the marketing mix worldwide. Answer: Standardizing the marketing mix (1) helps the company achieve economies of scale in production and distribution; (2) lowers marketing costs; (3) increases power and scope; (4) fosters consistency in the brand image; (5) offers the company the ability to leverage good ideas quickly and efficiently; and (6. allows for uniformity in marketing practices. Students should identify any three of these. 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: 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. 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: 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. 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 U.S. 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 Philip T Kotler, Kevin Lane Keller 9780132102926, 9780273753360, 9781292092621, 9780133856460, 9789332587403, 9780136009986
