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Chapter 5—Developing a Global Vision TRUE/FALSE 1. Having a global vision means that management recognizes and reacts to international marketing opportunities, uses effective marketing strategies, and is aware of threats from foreign competitors in all markets. Answer: True Rationale: A global vision entails not only recognizing and seizing international marketing opportunities and employing effective strategies but also understanding and preparing for competition from foreign rivals across all markets, ensuring a comprehensive approach to global business dynamics. 2. Global trade has climbed to about $200 billion a year. Answer: False Rationale: Over the past two decades, global trade has climbed from $200 billion a year to $12.5 trillion in 2009. 3. About 85 percent of U.S. companies export their products to other countries on a regular basis. Answer: False Rationale: About 85 percent of all U.S. exports of manufactured goods are shipped by 250 companies; less than 10 percent of all manufacturing businesses export their goods on a regular basis. 4 Globalization deserves credit for helping lift many nations out of poverty and for improving standards of living of low-wage families. Answer: True Rationale: Globalization has facilitated economic growth in many nations by increasing trade, investment, and technological transfer, thereby contributing to poverty reduction and improving standards of living, particularly for low-wage families benefiting from expanded job opportunities and access to goods and services. 5. Multinational companies typically begin the development of their global business with direct investment and continue using this strategy throughout the company’s life span. Answer: False Rationale: Multinational companies often develop their global business in four stages. In the first stage, companies operate in one country and sell to others. 6. Global marketing standardization presumes that the markets throughout the world are becoming more alike. Answer: True Rationale: Global marketing standardization assumes that markets worldwide are converging in terms of consumer preferences, behaviors, and purchasing habits, allowing companies to use consistent marketing strategies and products across different countries. 7. The same environmental factors that operate in the domestic market also exist internationally. These factors (culture, economic, political structure and actions, demographic makeup, and natural resources) should be examined regardless of the country. Answer: True Rationale: Environmental factors such as culture, economic conditions, political structures, demographics, and natural resources impact markets globally and must be assessed regardless of the country, influencing business strategies and market approaches. 8. In general, average family incomes are higher in more developed countries than in the less developed countries. Answer: True Rationale: Generally, more developed countries have higher average family incomes compared to less developed countries, reflecting disparities in economic development and standards of living worldwide. 9. While some countries have elements of both capitalism and socialism, most nations are at one political extreme or the other. Answer: False Rationale: Rarely will a political environment be at one extreme or the other. Rather, elements of many systems are often present. 10. According to research done by the World Bank, countries with the greatest amount of business regulation foster the strongest economies. Answer: False Rationale: Those with the least amount of business regulation foster the strongest economies. 11. The U.S. government limits the amount of sugarcane that is imported into the country. This is an example of a tariff. Answer: False Rationale: This is an example of a quota—a limit on the amount of a specific product that can enter a country. 12. The U.S. government prohibits the importation of Havana cigars because of political differences with Cuba. This is an example of a boycott. Answer: True Rationale: This is an example of an embargo, not a boycott. Embargoes are government-imposed restrictions on trade, while boycotts typically involve voluntary actions by individuals or groups to withhold support from a company, product, or country due to political, social, or ethical reasons. 13. The Uruguay Round of trade negotiations dramatically increased trade barriers worldwide. Answer: False Rationale: It lowered trade barriers. 14. NAFTA is the New American Foreign Trade Amendment, which allows for balanced trade with the European Union. Answer: False Rationale: NAFTA is the North American Free Trade Agreement, which creates a free trade zone among Canada, the United States, and Mexico. 15. The European Union Commission and the courts have come under widespread criticism for “rubber-stamping” or approving most business deals involving U.S. multinationals. Answer: False Rationale: In fact, the European Union Commission and the courts have not always been kind to U.S. multinationals. 16. The Group of Twenty is the largest free trade agreement in the world. Answer: False Rationale: The Group of Twenty is a forum for international economic development that promotes discussion between industrial and emerging-market countries on key issues in the global economy. 17. Even though it is not actively involved in global marketing, Hennessey Enterprises, a U.S.-based business, agreed to sell two thousand of its stress-reducing products to a distribution company in Norway. This would be an example of direct investment. Answer: False Rationale: This is an example of exporting. 18. Licensing agreements reduce the risk for manufacturers and sometimes even remove the requirement for a manufacturer to produce its own product. Answer: True Rationale: Licensing agreements allow manufacturers to grant permission to another party to produce and sell their product, reducing production risks and costs while expanding market reach through leveraging the partner's capabilities and resources. 19. Private-label manufacturing by a foreign country is called franchising. Answer: False Rationale: It is called contract manufacturing. 20. U.S.-based Procter & Gamble and Italian-based Fater agreed to produce and market diapers for the European market. This is an example of a joint franchise. Answer: False Rationale: This is an example of a joint venture. 21. The form of global organization that provides the highest potential for return on investment as well as the highest level of risk is contract manufacturing. Answer: False Rationale: Direct foreign investment carries the highest risk level and the greatest potential return on investment. 22. Global marketing research is not any more difficult than domestic marketing research. Answer: False Rationale: Global marketing research is conducted in vastly different environments and can be very difficult in developing countries. 23. In the context of global marketing, product invention can be taken to mean either creating a new product for a market or drastically changing an existing product. Answer: True Rationale: Product invention in global marketing involves either developing entirely new products tailored to specific market needs or significantly modifying existing products to meet diverse international consumer preferences and market conditions. 24. If a country’s currency appreciates, more of that currency will be needed to buy another country’s currency. Answer: False Rationale: If a country’s currency appreciates, less of that currency is needed to buy another country’s currency. 25. The price of one country’s currency in terms of another country’s currency is called the conversion price. Answer: False Rationale: It is called the exchange rate. 26. Suppose a Chinese firm makes computer chips at $4.00 per chip but sells the chips for $2.00 in American markets. American producers of computer chips cannot supply chips at the low rates that the Chinese firm is supplying them. The Chinese firm is engaging in dumping. Answer: True Rationale: Dumping occurs when a company exports goods to another country at a price lower than the cost of production or below the domestic market price, often leading to unfair competition and potential harm to domestic producers in the importing country. 27. The rules, regulations, and habits used for brick-and-mortar stores tend to restrain and limit the success of those retailers engaged in e-commerce. Answer: True Rationale: Traditional rules and regulations designed for physical stores can create barriers for e-commerce retailers, impacting their ability to innovate and compete effectively in the digital marketplace, where different strategies and operational models are often required. MULTIPLE CHOICE 1. Individuals and organizations utilizing a global vision to effectively market goods and services across the world are engaged in: A. international selling schemes B. borderless commerce C. global marketing standardization D. global logistics E. global marketing Answer: E Rationale: Global marketing targets markets throughout the world. 2. Basketball is played nearly everywhere in the world and is an easily understood sport. The National Basketball Association (NBA) finals reached more than 600 million televisions in 195 countries. From this information, you should be able to infer that the NBA is: A. developing international selling schemes B. implementing standard international marketing C. implementing global marketing standardization D. supplementing its foreign vision E. practicing global marketing Answer: E Rationale: Global marketing targets markets throughout the world. 3. Sawyer Components manufactures high-cost, customized roller parts for paper mills and is expanding into China because of the opportunity for significant growth in this developing country. The owner uses effective global strategies and is aware of threats from foreign competitors. This illustrates that the owner has a global: A. advantage B. imperative C. vision D. outsource E. introspection Answer: C Rationale: A global vision is recognizing and reacting to international marketing opportunities. 4. All of the following statements about global marketing are true EXCEPT: A. Marketing to target markets throughout the world has become imperative for business. B. Often a U.S. firm’s toughest domestic competition comes from foreign companies. C. Marketing managers must develop a global vision not only to recognize and react to international marketing opportunities but also to remain competitive at home. D. Adopting a global vision can be lucrative for a company, and global marketing can offset weak domestic performance. E. Foreign competitors have not gained significant market share in the United States. Answer: E Rationale: Many U.S. businesses have lost significant market share to imported products. 5. H. J. Heinz, the ketchup company, gets over half of its revenue from international sales. This shows that: A. U.S. citizens are using less ketchup. B. their market share should increase. C. Heinz needs to abandon the U.S. market. D. sales need to be increased domestically. E. adopting a global vision can pay off. Answer: E Rationale: Adopting a global vision can be very lucrative to a company. 6. The total market value of all final goods and services produced in a country for a given time period is called: A. the exchange rate B. gross domestic product (GDP) C. the trade balance D. gross national product (GNP) E. gross operating surplus (GOS) Answer: B Rationale: This is the definition of gross domestic product. 7. Which of the following statements about the impact of international business on the U.S. economy is NOT true? A. America exports over $1.7 trillion in goods and services each year. B. Exports represent 13 percent of U.S. GDP. C. Every U.S. state has realized net employment gains directly attributed to foreign trade. D. Exports create jobs for over 50 million Americans. E. The U.S. exports about 20 percent of its industrial production. Answer: D Rationale: Exports create jobs for over 10 million Americans. 8. Many people fear world trade because it: A. will inevitably lead to inflation. B. will cause living standards to increase at a slower rate. C. causes some people to lose their jobs as production shifts abroad. D. has brought entire nations out of poverty. E. has increased per capita income for some countries. Answer: C Rationale: Global competition and cheap imports help keep inflation down, and world trade has caused the standards of living for many countries to increase at a faster rate. The other options describe advantages. 9. The primary reason large U.S. companies send U.S. jobs abroad is because labor costs are higher in the United States. They are engaging in: A. outsourcing B. global trade C. multinational employee searches D. employee export E. global employment Answer: A Rationale: Job outsourcing is sending U.S. jobs abroad. 10. Globalization: A. relies on strong government regulations to keep down prices B. promotes economic freedom and increases living standards C. tends to dry up the flow of foreign capital in less developed countries D. has made it easier for governments to abuse the freedom and property of their citizens E. has kept wages low in developing countries around the world Answer: B Rationale: Globalization expands economic freedom, spurs competition, and raises the productivity and living standards of people in countries that open themselves up to the global marketplace. 11. A(n) _____ is a company that is heavily engaged in global trade and moves its resources, goods, services, and skills across national boundaries. A. international facilitator B. global trader C. multinational corporation D. exporting company E. international merchant Answer: C Rationale: A multinational corporation is a company that is heavily engaged in international trade, beyond exporting and importing. 12. Which of the following statements about multinational firms is true? A. Multinationals typically do not change their methods of reaching their global markets if they are successful with their initial strategy. B. Multinationals are defined as companies heavily engaged in exporting and importing. C. All multinationals must enter the fourth stage of globalization before they are fully internationalized. D. Multinationals often develop their global businesses in stages. E. The five stages of globalization closely mirror the five stages of the product life cycle. Answer: D Rationale: Multinationals can go through up to four stages in their quest to globalize their business. Generally, only high-tech firms ever reach the fourth stage. Multinationals are companies that heavily engage in international trade beyond exporting and importing. 13. When European demand for a certain solvent declined, Dow Chemical instructed its German plant to switch to manufacturing a chemical that had been imported from Louisiana and Texas. Dow Chemical would be best described as a(n): A. global enterprise B. global trader C. cultural marketer D. exporting company E. multinational corporation Answer: E Rationale: A company that is heavily engaged in global trade and moves resources, goods, services, and skills across national boundaries is called a multinational corporation. 14. Apple, Inc. has partnerships with wireless carriers in Japan, Spain, and a handful of other European countries. Apple works with suppliers and retailers worldwide. This means that Apple is a: A. multinational corporation B. worldwide competitor C. marketplace competitor D. domestic corporation E. foreign investor Answer: A Rationale: Multinational corporations are heavily engaged in international trade beyond exporting and importing. 15. Otis Elevators has entered into a strategic alliance with a company in France from which it gets its elevator door systems. It has a similar agreement with a manufacturer in Japan that provides it with special motor drives. A manufacturer in Spain has worked closely with Otis to create small geared parts necessary for the manufacture of elevators. The component parts are assembled at its plant in the United States. Otis elevators can be found in buildings all over the world. Otis Elevators is an example of a(n): A. cultural marketer. B. global trader. C. multinational corporation. D. exporting company. E. global enterprise. Answer: C Rationale: Otis Elevators is heavily engaged in international trade beyond exporting and importing. 16. The Patton Awning Company produces tents, tarps, awnings, and other canvas products. The firm is in the first stage of creating its global business. This means that Patton Awning Company: A. operates in one country and sells to others. B. has set up a foreign subsidiary. C. operates an entire line of business in another country. D. has top executives and core corporate functions in different countries. E. operates in every country in the world. Answer: A Rationale: The first stage is where companies operate in one country and sell to other countries. 17. DeFeet International creates its apparel in North Carolina and sells it domestically and abroad. The company is in which stage of global business? A. Stage one B. Stage two C. Stage three D. Stage four E. Stage five Answer: A Rationale: DeFeet is in stage one, where the company is creating the product in one country, the United States, and selling to other countries. 18. In which stage do multicultural companies operate when they set up foreign subsidiaries to handle sales in one country? A. Stage one B. Stage two C. Stage three D. Stage four E. Stage five Answer: B Rationale: Stage two is characterized by a multinational company setting up foreign subsidiaries to handle sales in one country. 19. Cooley Manufacturing is a multinational company selling plumbing components around the world. This company has progressed to the point that it operates an entire line of business in several other countries. Which stage of multinational business does this represent? A. Stage one B. Stage two C. Stage three D. Stage four E. Stage five Answer: C Rationale: Stage three is characterized by operating an entire line of business in another country. 20. Which of the following is a criticism of multinational corporations? A. Multinationals sometimes support reactionary and oppressive regimes. B. Multinationals require excessive employment information. C. Countertrading D. The transference of labor-intensive technology E. Multinationals do not do enough to standardize their marketing mixes. Answer: A Rationale: Multinationals sometimes support reactionary and oppressive regimes if it is in their best interests to do so. 21. A company that is capital intensive: A. has an altered fiscal strategy for overseas operations. B. spends more on equipment than on labor. C. makes better use of benchmarking than other types of business. D. creates employment monopolies. E. must engage in countertrading due to restrictive foreign legislature. Answer: B Rationale: Capital intensive means the company spends more for equipment than for labor and is a criticism of multinational companies because it does need a significant labor force. 22. With a _____, a firm produces standardized products to be sold the same way all over the world. A. traditional marketing strategy B. global marketing standardization approach C. product extension approach D. culturally based marketing strategy E. synergistic approach to marketing Answer: B Rationale: Global marketing standardization is the production of uniform products that can be sold the same way all over the world. 23. Global marketing standardization: A. is becoming less popular with the large multinationals. B. encourages product, packaging, and advertising variations for each nation or local market. C. actually raises production costs. D. presumes markets throughout the world are becoming more alike. E. is more popular with consumer products than with industrial goods. Answer: D Rationale: With a global marketing standardization approach, a firm produces standardized products to be sold the same way worldwide. This approach assumes all customers have the same needs and wants. 24. The Victorinox Swiss Army Knife is found all over the world. It is manufactured and marketed similarly to all consumers. Victorinox uses a(n): A. ethnocentric strategy. B. global marketing standardization approach. C. synergistic approach to globalization. D. cultural marketing strategy. E. traditional approach to marketing. Answer: B Rationale: Global standardization produces uniform products that can be sold the same way all over the world. 25. When multinational firms enable individual subsidiaries to compete independently in domestic nations, they are engaged in: A. global marketing standardization. B. multidomestic strategy. C. product extension. D. technological receptivity. E. marketing hegemony. Answer: B Rationale: A multidomestic strategy is how multinational firms use strategic business units. 26. A business thinking of expanding into global markets needs to examine all of the following external environments EXCEPT: A. Culture. B. political structure and actions. C. its marketing mix. D. natural resources. E. demographic makeup. Answer: C Rationale: The marketing mix is the keystone of a company’s internal environment. 27. Central to any society is a common set of values shared by its citizens that determines what is socially acceptable. Marketers refer to these values collectively as a country’s: A. ethical system. B. culture. C. Ethnocentrism. D. national personality. E. Socialization. Answer: B Rationale: This is the definition of culture. 28. A soft drink manufacturer thinking of investing in a bottling plant in the Czech Republic should know the nation is proud of the fact it is among the world’s biggest beer drinkers. Czechs consume an average of one-half liter of beer a day for every man, woman, and child in the country. The _____ environment of this country could very easily prevent the soft drink bottling company from succeeding. A. demographic B. economic C. cultural D. political E. technological Answer: C Rationale: Culture influences product preferences. 29. Muslim countries are receptive to most Disney products, but they have asked Disney not to include Piglet when it sells its Winnie the Pooh characters because Muslims (as a part of their religious beliefs) contend that pork in any form is unclean. This is an example of a _____ factor that directly affects Disney's global operation. A. political structure B. cultural C. technological D. competitive E. natural resource Answer: B Rationale: Religious beliefs are part of the cultural environment. 30. Which of the following is an important cultural factor that should be considered by global marketers? A. Competitive synergy B. Language C. Natural resources D. Technology sensitivity E. Level of economic development Answer: B Rationale: Language is an important aspect of culture that can create problems for marketers. 31. American firms should never try to do business in Europe in August because they will find that everyone has gone on vacation. Today, all European countries have laws requiring companies to provide employees with vacations of at least four to five weeks. This would be an important part of the European _____ environment that any multinational firm doing business there needs to be aware of. A. cultural B. political C. economic D. technological E. natural Answer: A Rationale: Holidays and vacation time are determined by cultures. 32. When IKEA, the Swedish home furnishings retailer, first entered the Japanese market, it failed. It was more successful in its second try because it was aware of the need to adapt its furnishings to fit the smaller Japanese homes. The _____ environment had the greatest influence on IKEA’s first failure in Japan. A. demographic B. economic C. cultural D. political E. technological Answer: C Rationale: The smaller homes are part of the tradition and culture of Japan. 33. A U.S. executive had no idea that Germans tend to be very risk-averse. When the executive arrived at a meeting in Berlin, he simply stressed the price of his firm’s products without emphasizing their bottom-line benefits, promoting the company’s strong service support, or guaranteeing their effectiveness. As a result, the multimillion dollar deal failed. The U.S. executive overlooked the importance of which environmental factor? A. Culture B. Demographics C. Natural resources D. Economic development E. Political structure Answer: A Rationale: Central to any society is its culture––a common set of values shared by its citizens. These values determine what is socially expected. 34. Who are the richest people in the world? A. Americans B. Chinese C. British D. French E. Luxembourgers Answer: E Rationale: The residents of Luxembourg earn gross national income of $52,770. 35. A tax levied on the goods entering a country is called a(n): A. license. B. quota. C. boycott. D. exchange control. E. tariff. Answer: E Rationale: This is the definition of a tariff. 36. Consumers purchasing an automobile in Hong Kong must pay a 100 percent tax on it. This tax is imposed by the government on all automobiles entering the country and is called a(n): A. tariff. B. quota. C. license. D. boycott. E. exchange control. Answer: A Rationale: A tariff is a tax on the goods entering a country. 37. A(n) _____ is a limit on the amount of a specific product that can enter a country. A. quota B. tariff C. boycott D. exchange control E. transfer limit Answer: A Rationale: This is the definition of a quota. 38. Since 1953, the United States has limited the amount of raw peanuts that can be imported to 1.7 million pounds a year. This is only about one-tenth of 1 percent of all domestic edible peanut consumption in the United States. This limitation is an example of a(n): A. natural resource barrier B. quota C. tariff D. exchange control E. boycott Answer: B Rationale: A quota is a limit on the amount of a specific product that can enter a country. 39. An exclusion of all products from certain countries or companies by a government or group is called a(n): A. expropriation. B. quota. C. tariff. D. exchange control. E. boycott. Answer: E Rationale: This is the definition of a boycott. 40. Several Arab nations refuse to allow Coca-Cola products to be sold within their borders because of the company’s distributorships in Israel. This is an example of a(n): A. transfer limit. B. quota. C. tariff. D. exchange control. E. boycott. Answer: E Rationale: An exclusion of all products from certain countries or companies by a government or group is a boycott. 41. A(n) _____ is a law that compels a company earning foreign currency from its exports to sell it to a central bank rather than sending the money out of the country. A. tariff B. quota C. fiscal prerequisite D. exchange control E. transfer barrier Answer: D Rationale: A company wishing to buy goods abroad must first obtain foreign currency from the control exchange control agency. 42. _____ are trade alliances in which several countries agree to work together to form a common trade area that enhances trade opportunities among those countries. A. Boycotts B. Regional unifications C. Market groupings D. Free trade nations E. Expropriation members Answer: C Rationale: Market groupings are trade alliances to benefit the common good of its members. 43. _____ is a trade agreement that includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, and Uruguay. This agreement eliminated the tariffs among these trading partners. A. NAFTA B. Maastricht C. WTO D. GATT E. Mercosur Answer: E Rationale: Mercosur is the largest Latin American trade agreement among these countries. 44. The _____ is the most ambitious global trade agreement ever negotiated; the agreement has reduced tariffs by one-third worldwide. A. Uruguay Round B. Mercosur C. GATT D. NAFTA E. Maastricht Treaty Answer: A Rationale: The Uruguay Round is an agreement that has dramatically lowered trade barriers worldwide (i.e., has reduced tariffs by one-third worldwide). 45. Negotiations (such as GATT or the Uruguay Round) between countries that are made to stimulate global exchange and remove barriers are called _____ agreements. A. trade B. joint venture C. CRM D. exchange E. licensing Answer: A Rationale: A trade agreement is an agreement to stimulate international trade. 46. The _____ of trade negotiations created the _____, which replaces GATT. This trade agreement dramatically lowers trade barriers worldwide. A. Uruguay Round; World Trade Organization B. Doha Round; European Union C. Doha Round; NAFTA D. Paraguay Round; South American Free Trade Agreement E. Mercosur; European Union Answer: A Rationale: The Uruguay Round created the WTO. 47. The North American Free Trade Agreement did all of the following EXCEPT: A. created the world’s largest free trade zone, which includes Canada, the United States, and Mexico B. substantially reduced economic growth in Mexico C. allowed U.S. and Canadian financial-services companies to own subsidiaries in Mexico D. removed many tariffs and duties so that Mexico, Canada, and the United States can trade more freely E. expanded opportunities for U.S. businesses in Mexico Answer: B Rationale: Over the years, Mexico has made economic gains due to NAFTA. 48. Which of the following is the latest round of World Trade Organization? A. Mercosur covenant B. CAFTA Alliance C. Doha Round D. Uruguay Round E. WTO Round Answer: C Rationale: The Doha Round began in Doha, Qatar, in 2001. 49. In the wake of the global recession of 2008-2009, many countries have: A. aggressively sought new trade agreements B. all but eliminated tariffs and quotas C. tightened environmental regulations and improved working conditions for low-income employees D. moved toward protectionism E. drastically reduced imports and exports Answer: D Rationale: Many countries have moved toward protectionism after the global recession of 2008-2009. 50. All of the following are countries included in the Central America Free Trade Agreement EXCEPT: A. the United States B. Nicaragua C. El Salvador D. Guatemala E. Mexico Answer: E Rationale: CAFTA includes Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States. 51. The goal of the Central America Free Trade Agreement is to: A. create free trade agreements between the United States and other industrialized nations. B. eliminate all protectionism. C. raise prosperity levels in all industrializing nations. D. establish a free trade agreement between the United States and certain Latin American countries. E. make sure all nations achieve the economic and technological development of a takeover economy or better. Answer: D Rationale: The countries included in CAFTA are the United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. 52. Which of the following statements about the European Union (EU) is true? A. The EU creates a single Europroduct for a generic Euroconsumer. B. The EU removes all internal trade barriers and standardizes regulations in European countries for easier trade. C. The EU can correctly be called the “United States of Europe” because all European voters have agreed to these changes. D. The existence of the EU eliminates protectionist movements by United Europe against the Japanese and the United States. E. The EU is the largest economy in the world. Answer: E Rationale: The EU encompasses most of Europe, making it the largest economy in the world. 53. Who offers low-interest loans to developing nations? A. World Bank B. International Monetary Fund C. Federal Reserve D. International Reserve E. United Nations Answer: A Rationale: The World Bank offers low-interest loans to developing nations. 54. The International Monetary Fund (IMF) was founded in 1945 to: A. create a safe working environment for workers throughout the world. B. promote trade through financial cooperation and eliminate trade barriers in the process. C. create knowledge databases on a wide range of subjects for developing nations. D. uncover economic fraud and corruption worldwide. E. found “micro-banks” in developing nations. Answer: B Rationale: This was the founding purpose of the IMF. 55. The G-20 has reached agreement regarding policies for all of the following EXCEPT: A. combating terrorist financing B. dealing with financial crises C. reducing abuse in the financial system D. streamlining wage and price controls E. economic growth Answer: D Rationale: Agreements on wage and price controls have not been developed by the G-20. 56. When developing countries began encouraging foreign investors and imports, companies like Black & Decker and Pillsbury offered a wide array of products to countries throughout the world. Because of enormous populations in developing countries, these companies predicted a potential for strong annual sales. However, in addition to total population, companies must not overlook _____ factors such as distribution of people within a country and household incomes. A. demographic B. political C. cultural D. educational E. country resource Answer: A Rationale: Important factors for marketers to consider about an international market are the distribution of the wealth, the average household income, and the division of the population between rural and urban areas. Demography is the study of statistics of populations and their changes in age, income, distribution, and so on. 57. A multinational company that makes a labor-intensive product would be interested in the _____ makeup of countries. Factors such as median age, gender, and literacy rates would determine the success of its global expansion. A. demographic B. lifestyle C. natural D. cultural E. economic Answer: A Rationale: Demographics include age and educational levels as well as ethnicity and gender. 58. Zambia is internationally recognized as the world’s second leading producer of cobalt, which is used to make high-speed and high-temperature cutting tools and dyes. A company that wanted to manufacture tools for shaping steel would be most attracted to which element of the Zambian environment? A. Culture B. Legal C. Economic D. Technological E. Natural resources Answer: E Rationale: The text concentrates on the importance of petroleum to global marketing, but other minerals are of equal or greater value to some companies. 59. Vast differences in natural resources create all of the following EXCEPT: A. potential for military intervention B. shifts in wealth between nations C. inflation and recession D. global international dependencies E. export opportunities for countries with no natural resources Answer: E Rationale: While differences do create shifts in wealth, dependencies, inflation, recession, and the potential for conflict, they only hinder opportunities for the countries that do not have resources. 60. Which method of entering the global marketplace would be LEAST risky? A. Exporting B. Licensing C. Contract manufacturing D. Joint ventures E. Direct investment Answer: A Rationale: See Exhibit 5.3. Exporting typically involves lower financial commitment and risk compared to other methods like direct investment or joint ventures, making it the least risky option for entering the global marketplace, as shown in Exhibit 5.3. 61. Which method of entering the global marketplace would be most risky? A. Licensing B. Direct investment C. Contract manufacturing D. Joint ventures E. Exporting Answer: B Rationale: See Exhibit 5.3. Direct investment often involves the highest level of financial commitment and operational risk among the listed methods for entering the global marketplace, as depicted in Exhibit 5.3. 62. The United States is selling more domestically produced products in other countries than any other country in the world. This means the United States is the world leader in: A. quota making B. exporting C. tariff trading D. dumping E. licensing Answer: B Rationale: Exporting is selling domestically produced products to buyers in other countries. 63. Which list correctly ranks the methods of entering the global marketplace in increasing order of risk? A. Exporting, licensing and franchising, contract manufacturing, joint venture, and direct investment B. Importing, contract manufacturing, licensing and franchising, joint venture, and direct investment C. Licensing, franchising, contract manufacturing, joint venture, direct investment, and exporting D. Franchising, contract manufacturing, joint venture, direct investment, importing, and licensing E. Importing, contract manufacturing, joint venture, direct investment, and exporting Answer: A Rationale: Exporting, licensing and franchising, contract manufacturing, joint venture, and direct investment are methods of entering the global marketplace in order of risk. 64. The role of a domestic company that sells to an export merchant (also called a buyer for export) is to: A. guide the marketing actions of the merchant as the goods are sold in foreign countries. B. pay all transportation, warehousing, and marketing expenses. C. sell the product to that merchant who resells the product in the foreign country without the aid or input of the original manufacturer. D. broker a partnership agreement such as a joint venture. E. dictate conditions of sale in foreign countries. Answer: C Rationale: After the manufacturer sells to the export merchant, the manufacturer has no more control or involvement with the product. 65. The _____ is an intermediary in the global market who assumes all risks and sells globally internationally for its own account. The domestic manufacturer usually treats it like a domestic customer. A. buyer for export B. export agent C. joint venturer D. contract manufacturer E. market group Answer: A Rationale: This is the definition of a buyer for export. 66. Carlos Hernandez owns a company in Miami that purchases products from U.S. manufacturers for export to several countries in Central and South America. Carlos is a(n): A. licensing agent B. buyer for export C. export broker D. export agent E. export importer Answer: B Rationale: A buyer for export, also called an export merchant, is usually treated like a domestic customer by the domestic manufacturer because it buys products and sells them globally. 67. A(n) _____ is a global intermediary who brings the buyer and seller together. A. buyer for export B. export agent C. license agent D. import agent E. export broker Answer: E Rationale: An export broker is an intermediary who plays the traditional broker’s role by bringing buyer and seller together. 68. DeLouis owns an agency that specializes in bringing international buyers in contact with U.S. companies to facilitate global trade. What type of intermediary is DeLouis? A. Buyer for export B. Export broker C. License agent D. Import agent E. Export agent Answer: B Rationale: An export broker is an intermediary who plays the traditional role by bringing buyer and seller together. 69. _____ are foreign sales agents-distributors who live in a foreign country and represent a domestic company in sales situations. They perform the same functions as domestic manufacturers’ agents who help with financing and shipping. A. Export agents B. Export brokers C. Import broker D. Buyers for export E. Licensing agents Answer: A Rationale: This is the definition of an export agent. 70. International Marketing, Inc. is a company located in Brazil that assists businesses exporting products to Brazil. This company helps with financing, shipping, and any aspect of marketing a product from another country to Brazil. This company is an example of a(n): A. agent broker B. export agent C. export broker D. buyer for export E. import broker Answer: B Rationale: An export agent is an intermediary who acts like a manufacturer’s agent for the exporter and lives in the foreign market. 71. _____ is a legal process whereby a firm agrees to let another firm use its manufacturing process, trademarks, patents, trade secrets, or other proprietary knowledge in return for a fee or royalty. A. A joint venture B. Divestment C. Licensing D. A principal-agent agreement E. A contract manufacturing arrangement Answer: C Rationale: This is the definition of licensing. 72. Franchising is a form of: A. contract marketing B. international exporting C. licensing D. direct exporting E. countertrading Answer: C Rationale: Franchising is a form of licensing that has grown rapidly in recent years. 73. When Krispy Kreme decided to expand its operation internationally, it chose to first make its doughnuts available in Canada to minimize its risk. In accordance with the policy of risk minimization, the company sold the right to manufacture and sell its doughnuts to Canadians. In other words, Krispy Kreme used: A. contract manufacturing B. direct investment C. importing D. a strategic alliance E. licensing Answer: E Rationale: Krispy Kreme used franchising, which is a form of licensing. Franchising offers only slightly more risk than exporting. 74. A U.S. licensor can try to prevent a licensee from voiding its contract and using what it has learned to create a competitor by: A. using lawyers from both countries to write the licensing agreement. B. insisting that all licensees have a published code of ethics. C. having the licensee pay a fee for the use of the manufacturing process, trademark, patent, or other proprietary knowledge. D. locally registering patents and trademarks to the U.S. firm, not to the licensee. E. avoiding the use of any patents and trademarks. Answer: D Rationale: Even with lawyers writing it and a code of ethics, there is nothing to prevent a licensee from voiding the contract. Licensees typically pay a fee or a royalty to the licensor. Without patents and trademarks, protection becomes almost impossible. 75. Disney sells the rights for an investment company to run a Disneyland theme park in Tokyo. The investment company gains most of the profits from the enterprise while paying Disney a percentage in royalties. This is an example of: A. a joint venture B. exporting C. direct investment D. licensing E. capital-intensive manufacturing Answer: D Rationale: This kind of arrangement is licensing because Disney is only selling the right to run the park. If the investment company does a poor job, Disney can seek out another to replace it. 76. Patch Products is an Australian company that has given permission to several Latin American companies to manufacture and market its patented Spanish/English children’s frame tray puzzles. Because Patch uses licensing as its global marketing strategy, it: A. must only pay a minimal royalty to the licensed companies. B. cannot control how the puzzles are manufactured. C. has involved itself in the global marketing strategy that gives it the greatest amount of control. D. cannot have any control over how the puzzles are promoted or distributed. E. chose a method of global marketing that created minimal risk. Answer: E Rationale: A licensing company has control over all of the marketing activities associated with making its product. The licensed company pays the royalty to Patch. 77. Sony, Panasonic, and other Japanese manufacturers that build products to customer order instead of churning out products in anticipation of demand have decided to hire U.S. companies to produce electronics for them. The Japanese companies will handle the marketing of the products. Japanese electronics companies are using: A. contract manufacturing. B. direct investment. C. franchising. D. direct exporting. E. countertrading. Answer: A Rationale: Contract manufacturing takes place when a foreign company produces goods to specification set by a domestic company, with the domestic firm’s brand name affixed to the goods. In this case, the “domestic” companies are in Japan selling in a foreign market for them––the United States. 78. _____ takes place when a foreign company produces goods to specification set by a domestic company, with the domestic firm’s brand name affixed to the goods. A. Importing B. Joint venturing C. Exporting D. Contract manufacturing E. Direct investing Answer: D Rationale: Contract manufacturing is private-label manufactured by a foreign company. 79. With _____, a domestic firm buys part of a foreign company or joins with a foreign company to create a new entity. A. direct investment B. a joint venture C. a buying-for-export agreement D. a contractual agreement E. a franchise relationship Answer: B Rationale: This is the definition of joint venture. 80. Caterpillar, Inc. is the world’s largest manufacturer of earthmoving and construction equipment. Kirovsky is a large Russian manufacturer of the same type of products. The two companies entered into a(n) _____ and created NEVAMASH, a new company. A. import/export partnership B. countertrade C. disintermediation agreement D. joint venture E. franchise Answer: D Rationale: A joint venture occurs when a domestic firm buys part of a foreign company or joins with a foreign company to create a new entity. 81. Belgian Beer brewer InBev bought Anheuser-Busch for $52 billion. This is an example of a(n): A. export B. joint venture C. franchise D. licensed agreement E. direct foreign investment Answer: E Rationale: Active ownership of a foreign company or of overseas manufacturing or marketing facilities is direct foreign investment. InBev has invested in the United States through its purchase of Anheuser-Busch. 82. _____ is a global marketing strategy that requires active ownership (either a controlling interest or large minority interest) of a foreign company or overseas manufacturing or marketing facilities. A. Market grouping B. Import brokering C. Export subsidizing D. Licensing E. Direct foreign investment Answer: E Rationale: This is the definition of direct foreign investment. 83. To enter the Chinese market, Walmart purchased the general merchandise chain Trust-Mart for about $1 billion. Walmart entered the Chinese market through the use of: A. contract marketing B. direct foreign investment C. franchising D. direct exporting E. countertrading Answer: B Rationale: Active ownership (either a controlling interest or large minority interest) of a foreign company or overseas manufacturing or marketing facilities is an example of direct foreign investment. 84. The first step in creating the global marketing mix is to: A. create a new product. B. select the method of promotion. C. develop a thorough understanding of the global target market. D. set pricing policies. E. decide whether product modification is necessary. Answer: C Rationale: Developing an understanding of the global target market is the first step, and market research results in knowledge of customer needs and wants that will guide product, price, promotion, and distribution decisions. 85. Apple, Inc. used its Mac and PC guy ad in countries around the world. The company simply modified the characters a bit to fit the culture. Apple is attempting to market the Mac using: A. standardized marketing practices. B. mixed marketing. C. character standardization. D. global marketing standardization. E. product invention. Answer: D Rationale: Global marketing standardization is developing a single product for all markets and promoting it the same way all over the world. 86. According to the text, which of the following is an example of a product strategy that would be appropriate for a global marketing company to implement? A. Product adaptation B. Product divestment C. Product penetration D. Market substitution E. Product licensing Answer: A Rationale: Product invention and product adaptation are the two product strategies discussed in the textbook. 87. When IKEA, the Swedish home furnishings retailer, first entered the Japanese market, it failed. It was more successful in its second try because it was aware of the need to adapt its furnishings to fit the smaller Japanese homes. It success on its second foray into Japan was based on its ability to give the Japanese consumer what he or she needed without abandoning its product strategy. IKEA had to adopt a _____ strategy. A. product substitution B. market differentiation C. message adaptation D. product invention E. product adaptation Answer: E Rationale: Product adaptation is the slight alteration of the basic product (in this case, making it smaller.) 88. Chinese don’t like sweet cookies, and Kraft’s Oreos were not selling well. Chinese consumers also thought the package was too expensive. Kraft introduced packages containing fewer Oreos at a reduced price and also created a “Chinese Oreo” consisting of four layers of crispy wafer filled with vanilla and chocolate cream, coated in chocolate. Which of the marketing mix strategies did Kraft use? A. Countertrading B. Product invention C. Global market standardization D. Product licensing E. Product adaptation Answer: E Rationale: Kraft altered their basic product (cookies) to meet conditions in the Chinese market. This is an example of a product adaptation. 89. AFLAC has had to ditch the AFLAC duck in its Japanese commercials because the Japanese consumer does not like to be yelled at. Since Japan is the source of about 70 percent of the insurance company’s business, it had no trouble adopting a _____ strategy. A. product substitution B. market differentiation C. promotion adaptation D. product invention E. market diversification Answer: C Rationale: AFLAC altered its promotional strategy to reach the Japanese market. 90. Once marketing managers have determined a global product and promotion strategy, they can select the remainder of the marketing mix. However, entry into many developing nations presents special pricing problems because: A. the rate of capital accumulation exceeds the rate of population growth. B. of exchange rate caps. C. of price discrimination. D. there is a lack of mass purchasing power. E. advertising time on television is available for sale in all developed countries. Answer: D Rationale: Developing nations typically do not have mass purchasing power. 91. Currency markets operate under a system in which the prices of different currencies move up or down based on the demand for and supply of each currency. This practice is called: A. Countertrading. B. floating exchange rates. C. variable purchasing power. D. flexible monetary policies. E. purchasing power elasticity. Answer: B Rationale: This is the definition of floating exchange rates. 92. _____ is generally defined as the sale of an exported product at a price lower than that charged for the same or a like product in the home market of the exporter. A. Export reengineering B. Crossdocking C. Boycotting D. Dumping E. Countertrading Answer: D Rationale: This is the definition of dumping. 93. All of the following are reasons for dumping EXCEPT: A. lowering unit costs by exploiting large-scale productions B. attempting to avoid costly tariffs in the country to which the product is exported C. attempting to maintain stable prices during periods of exchange rate fluctuations D. temporarily distributing products in overseas markets to offset slack demand in the home market E. trying to increase an overseas market share Answer: B Rationale: Dumping is the sale of an exported product at a price lower than that charged for the same or a like product in the “home” market of the exporter. 94. The European Union accused South Korea of selling ships at a loss in an attempt to push its European rivals out of the market. In other words, South Korea was accused of: A. dumping. B. illegal importing. C. countertrading. D. fiscal impropriety. E. using an illegal cartel. Answer: A Rationale: Dumping is the sale of an exported product at a price lower than that charged for the same product in the home market of the exporter (South Korea). 95. The Canadian magazine industry accused U.S. magazine publishers of _____, or selling the magazines in Canada at a lower price than in the United States. A. dumping B. offloading C. boycotting D. repatriating E. crossdocking Answer: A Rationale: Dumping is selling a product in a foreign market at a price below the price charged in the home market. 96. In a newspaper release, Corning, Inc. announced it had received a favorable ruling from China’s Ministry of Commerce on allegations that it was selling its fiber more cheaply in China than in other countries. Corning was falsely accused of: A. dumping B. offloading C. boycotting D. repatriating E. crossdocking Answer: A Rationale: Dumping is selling a product in a foreign market at a price below the price charged in the home market. 97. Suppose three months ago the dollar price of a yen was $0.012. Today the dollar price of one yen is $0.018. If you are in the market for a brand new Honda automobile today, you will find that: A. the price of the auto will be much less than it was three months ago B. you will have trouble purchasing an auto because the dealership cannot keep up with the high demand C. it will be impossible to obtain financing for the new auto D. you will have to pay more for the auto than you would have paid three months ago E. the trade-in value of your old vehicle will be much less than it would have been three months ago Answer: D Rationale: If a country’s currency depreciates, more of that currency will be needed to buy another country’s currency. As the dollar depreciates, the price of foreign goods rise for U.S. residents. 98. International trade does not always involve cash. Sometimes companies accept all or part of the payment for goods or services in the form of other goods or services. This is known as: A. export trading B. crossdocking C. exchange modification D. domestic barter E. countertrade Answer: E Rationale: In countertrade, all or part of the payment for goods or services is in the form of other goods. 99. The pricing component of the global marketing mix is: A. the same in domestic and foreign markets B. fairly simplistic due to the strength of the U.S. dollar abroad C. the easiest element to implement successfully D. complicated by product penetration strategies E. a complex matter due to tariffs, exchange rates, and transportation costs, insurance, and taxes. Answer: E Rationale: In domestic pricing decisions, tariffs and exchange rates are not considered. Local government regulations are more likely to be known and understood. These are just some of the issues that make global pricing difficult. 100. All of the following statements about the use of the Internet in global marketing are true EXCEPT: A. Opening an e-commerce site on the Internet immediately puts a company in the international marketplace. B. The new Internet economy is being restrained by the old brick-and-mortar rules, regulations, and habits. C. Software has been developed to ease currency conversions by allowing customers to pay for products in the currency of their choice. D. FedEx is a global shipper that helps solve international e-commerce distribution. E. Language barriers are limiting the potential of the Internet in international marketing. Answer: E Rationale: Sophisticated language translation software can make any site accessible to persons around the world. 101. A small U.S. print studio uses Facebook and Pinterest to display its stationery and other products. The regular posts and reviews from customers have attracted attention from several British companies who like the printer’s style. What is this an effect of? A. Promotion adaptation. B. Using social media to expand beyond local markets. C. Using product excellence to export products. D. Creating a new franchise in England. E. All of these are true. Answer: B Rationale: Facebook and Pinterest are social media sites that allow global access to a company. Breathe Right CNS, Inc. is the manufacturer of Breathe Right nasal strips, a spring-loaded adhesive device that sticks on your nose to open up the nasal passages. Since their introduction in the United States, Breathe Right strips have been used by athletes hoping to improve their performance through increased oxygen flow, snorers hoping for a sound night’s sleep, and allergy and cold sufferers looking for relief from their stuffy noses. Because CNS is a small company, it initially had trouble promoting its product. Then San Francisco 49er Jerry Rice started regularly wearing them, and U.S. sales took off. Today, Breathe Right strips are marketed in more than 40 countries. When CNS decided to expand globally, its size made it look for a partner. It chose 3M because 3M already had a global market distribution system and because the Breathe Right strips complemented the 3M first aid product line. 102. Refer to Breathe Right. 3M is an example of a(n): A. ethnocentric organization. B. standard international market. C. multinational corporation. D. expatriated organization. E. organization with no domestic base. Answer: C Rationale: A multinational corporation is a company that is heavily engaged in international trade, beyond exporting and importing. 103. Refer to Breathe Right. The same Breathe Right nasal strips you can buy in any pharmacy in the United States can also be purchased in 40 other countries. CNS used a _____ strategy. A. mass marketing B. product invention C. market substitution D. product adaptation E. global market standardization Answer: E Rationale: Global marketing standardization is production of uniform products that can be sold the same way all over the world. 104. Refer to Breathe Right. How people value a sound night’s sleep is an example of which element of the global environment? A. Culture B. Natural C. Socioeconomic D. Technical E. Regulatory Answer: A Rationale: Culture to any society is the common set of values shared by its citizens that determines what is socially acceptable. 105. Refer to Breathe Right. In the United States, one of the standard methods for introducing a new product is couponing, but many countries prohibit the issuing of coupons. This prohibition would represent a(n) _____ element of the global environment. A. cultural B. economic C. legal D. technological E. demographic Answer: C Rationale: Many legal structures are designed to either encourage or limit trade. 106. Refer to Breathe Right. 3M and CNS entered into a: A. franchise. B. licensing agreement. C. direct countertrade. D. joint venture. E. contract manufacturing agreement. Answer: D Rationale: A joint venture occurs when a domestic firm buys part of a foreign company or joins with a foreign company to create a new entity. 107. Refer to Breathe Right. To market the nasal strips in countries outside the United States, CNS and 3M provided the strips to the national sports teams. For example, sales in South Africa took off when the entire South African rugby team wore the strips when they won the World Cup of rugby. This example primarily illustrates the use of which element of the global marketing mix? A. Production B. Publicity C. Promotion D. Distribution E. Product Answer: C Rationale: This is an example of using the same product but altering the promotional strategy. Kit Kat The popular Kit Kat chocolate bar was created by Rowntree’s, a confectionary company in the United Kingdom, in 1935. By the 1940s, Rowntree’s was exporting Kit Kats to Australia, New Zealand, South Africa, and Canada. The brand further expanded in the 1970s when Rowntree created a new distribution factory in Germany to meet European demand, and established agreements to distribute the brand in the USA and Japan, through the Hershey and Fujiya companies respectively. In June 1988, Nestlé acquired Kit Kat through the purchase of Rowntree’s, giving Nestlé global control over the brand—except in North America, where it is made under license by the Hershey Company. Variants in the traditional chocolate bar began to appear in the mid-1990s and have continued to develop ever since. Kit Kat Japan, in particular, has many unique flavors such as mango-flavored, cucumber, and wasabi Kit Kats. Today, Nestlé produces Kit Kat bars in 21 countries and has expanded its marketplace in Japan, Russia, Turkey, and South America, in addition to markets throughout Europe. 108. Refer to Kit Kat. Nestlé has utilized a global vision in marketing Kit Kat bars throughout the world. The company realizes different countries require different strategies but that effective global marketing is a key to success. Nestlé is practicing: A. global marketing. B. standard international marketing. C. global marketing standardization. D. the foreign vision. E. international selling schemes. Answer: A Rationale: Nestlé is practicing global marketing by utilizing a global vision to effectively market goods and services across national boundaries. 109. Refer to Kit Kat. The Kit Kat manufacturing facilities in Egypt, Ukraine, Bulgaria, and 18 different countries are only small parts of the Nestlé organization. Nestlé can be called a(n): A. domestic trader. B. cultural trader. C. multinational corporation. D. export agent. E. localized corporation. Answer: C Rationale: Boeing is heavily involved in international marketing and sales worldwide and is a multinational organization. 110. Refer to Kit Kat. When Rowntree’s, the original manufacturer of Kit Kats, first decided to enter the global market, the company used which method? A. Direct investment B. A joint venture C. Exporting D. Market groupings E. A contract manufacturing agreement Answer: C Rationale: By the 1940s, Rowntree was exporting its product to several other countries. 111. Refer to Kit Kat. Which of the following statements about the relationship between Nestlé and The Hershey Company is probably TRUE? A. Hershey is not allowed to market the bars as “Kit Kats” in North America. B. Hershey does not need to consult Nestlé if it wants to make a unique Kit Kat flavor. C. Hershey and Nestlé are in a joint venture together. D. Hershey pays Nestlé a fee for the privilege of producing Kit Kat bars. E. Nestlé has not given Hershey any proprietary knowledge about Kit Kat bars. Answer: D Rationale: Nestlé has a licensing agreement with The Hershey Company to produce Kit Kats in North America. In a licensing agreement, the licensee (Hershey) pays the licensor (Nestlé) a royalty or fee. 112. Refer to Kit Kat. Variants to the traditional chocolate Kit Kats are sold in various markets around the world. In Japan, for example, you can purchase a cheese or lemon-vinegar Kit Kat. Which strategy is Nestlé using? A. Dumping B. Product adaptation C. Promotion adaptation D. Countertrading E. Distribution Answer: B Rationale: Product adaptation involves slightly altering a basic product to meet local conditions. Wataniya Mobile Wataniya Mobile is offering cellular service in the Palestinian territories. It is only the second cell phone carrier in the region and is significant because it is owned by foreign companies and investors like the Qatari royal family and the Palestine Investment Fund. The new service is aimed at increasing cell phone penetration, which is only 35 percent, in this economically challenged area. It has not been easy for Wataniya, though. It took two years to gain the required license from Israel, which controls the Palestinian territories’ airwaves and bandwidth required for the service. Even though Wataniya is allowed bandwidth, it has only received 3.8 megahertz of bandwidth from Israel, which is not enough for it to offer 3G mobile services that enable Web browsing and e-mail. 113. Refer to Wataniya Mobile. In which stage of globalization is Wataniya Mobile? A. Stage one B. Stage two C. Stage three D. Stage four E. Stage five Answer: C Rationale: Wataniya Mobile is operating an entire line of business in another country, which is characteristic of the third stage. 114. Refer to Wataniya Mobile. Israel and the Palestinian territories have vastly different religious beliefs and are frequently at war. The differences between these two are attributed to which environmental factor? A. Technology B. Culture C. Demographics D. Economic E. Natural Answer: B Rationale: Religion is part of a country’s cultural environment. 115. Refer to Wataniya Mobile. The fact that many potential customers in Wataniya’s market cannot afford a cell phone is part of which environment? A. Cultural B. Technological C. Economic D. Natural E. Legal Answer: C Rationale: Purchasing power increases as income increases; this is part of the economic environment. 116. Refer to Wataniya Mobile. Israel’s control of licensing and the limitation on the amount of bandwidth allotted to Wataniya Mobile is part of which environment? A. Cultural B. Economic C. Political and legal D. Demographic E. Resource Answer: C Rationale: The political/legal environment is placing restrictions on the operation of this business. 117. Refer to Wataniya Mobile. Wataniya Mobile has spent $100 million on infrastructure so far and will spend another $700 million over the next ten years. This is an example of which method of entering the global marketplace? A. Exporting B. Licensing C. Contract manufacturing D. Direct foreign investment E. Complete Answer: D Rationale: Direct foreign investment is active ownership of a foreign company or of overseas manufacturing or marketing facilities, which is what Wataniya Mobile is doing. ESSAY 1. Why is developing a global vision important for firms in the United States? Answer: Foreign competition is found in almost every industry. In fact, the United States has lost market share to imported products in many industries. U.S. managers must develop a global vision not only to recognize and react to international marketing opportunities but also to remain competitive at home. Often a U.S. firm’s toughest domestic competition comes from foreign companies. A global vision also enables managers to understand that customer and distribution networks operate worldwide. Adopting a global vision can be lucrative for a company, and in some industries a global vision is a business imperative. 2. Identify at least three negatives of global trade. Answer: Students can identify any three of the following negatives of global trade: Millions of Americans have lost jobs due to imports, production shifts abroad, or outsourcing of tech jobs. Most find new jobs, but they often pay less than their old jobs. Millions of others fear losing their jobs, especially at companies operating under competitive pressure. Employers often threaten to outsource jobs if workers do not accept pay cuts. Service and white-collar jobs are increasingly vulnerable to operations moving offshore. Three negatives of global trade include: 1. Job Displacement: Increased competition from low-wage countries can lead to job losses in higher-cost countries. 2. Environmental Impact: Global trade can contribute to environmental degradation through increased transportation emissions and less stringent environmental regulations in some countries. 3. Income Inequality: Global trade may exacerbate income disparities within and between countries, benefiting wealthy corporations and nations while potentially marginalizing poorer regions and communities. 3. What is a multinational corporation? Discuss two multinational corporations with which you are familiar. Answer: A company that is heavily engaged in international trade, beyond exporting and importing, is called a multinational corporation. This type of firm moves resources, goods, services, and skills across national boundaries without regard to the country in which its headquarters is located. Most multinational corporations are enormous. Examples from the text include Caterpillar, General Electric, and APV. See Exhibit 5.1. 4. Describe the four stages of business globalization. Why do most companies stop when they reach the third stage? Answer: Multinationals often develop their global business in stages. In the first stage, companies operate in one country and sell into others. Second-stage multinationals set up foreign subsidiaries to handle business in one country. In the third stage, they operate an entire line of business in another country. The fourth stage has evolved primarily due to the Internet. Generally, only high-tech companies can ever reach this stage. For these firms, the executive suite is virtual. 5. Traditionally, marketing-oriented multinational corporations have operated somewhat differently in each country, with segmentation strategies providing different marketing mixes. Today, there has been a trend toward global marketing standardization. What is global marketing standardization? Can companies truly follow the basic premise of the global marketing standardization concept? Answer: Global marketing standardization presumes that world markets are becoming more alike. Communication and technology have made the world smaller, so people everywhere want all the things they have heard about, seen, or experienced. Therefore, serving global markets with standardized consumer products on a large scale is an alternative to marketing global products on a segmentation basis. Firms practicing global marketing standardization produce “globally standardized products” to be sold the same way all over the world. True global marketing standardization is not entirely evident, because marketing mix variations still exist. However, companies are moving toward variations of global marketing in which marketing mix modifications are kept to a minimum. While marketing mixes can be similar, variations in products, pricing, promotional copy, and distribution types may be necessary for each country. 6. Assume that you are the president of a company that manufactures wooden bowls, cutting boards, and spoons. Your company is considering marketing its kitchen items globally. List the five important external environmental factors that should be examined for each country you are considering for this global venture. Answer: Culture Economic and technological development Political structure and actions Demographic makeup Natural resources 7. Global legal structures are designed to either encourage or limit trade. Name and define five of these legal structures. Answer: There are six legal structures described in the chapter, and students can discuss any five: TARIFF. A tax levied on the goods entering a country. QUOTA. A limit on the amount of a specific product that can enter a country. BOYCOTT. The exclusion of all products from certain countries or companies. EXCHANGE CONTROL. A law compelling a company earning foreign exchange from its exports to sell it to a control agency, usually a central bank. MARKET GROUPING. Occurs when several countries agree to work together to form a common trade area that enhances trade opportunities. TRADE AGREEMENT. An agreement to stimulate international trade. 8. An important factor in the global external environment that has become more evident in the past decade is the shortage of natural resources. Choose two different natural resources and describe how shortages of each of these resources affect global trade. Answer: Petroleum shortages have caused the transfer of wealth from Japan, the United States, and Western Europe to Norway, Saudi Arabia, and the United Arab Emirates. Other countries such as Indonesia, Mexico, and Venezuela were able to borrow heavily against oil reserves in order to develop more rapidly. Warm climate and lack of water will mean that many of Africa’s countries will remain importers of foodstuffs because of low agricultural production. The United States, on the other hand, relies on Africa for precious metals. 9. Assume that you are a global marketing consultant for a U.S. manufacturer of light fixtures and have been asked to name the available options or methods of entry into the global marketplace. Name five methods of entry in the order of high risk/high return to low risk/low return for the lighting company. Answer: The five methods of entering the global marketplace from high risk/high return to low risk/low return are direct investment, joint venture, contract manufacturing, licensing, and exporting. 10. Define and describe exporting. Briefly describe the three types of export intermediaries. Answer: Exporting is selling domestically produced products in other countries. It is the least complicated and least risky alternative for entering the global market. A company deciding to export may sell directly to foreign importers or buyers, or it may sell to independent exporting intermediaries located in its domestic market. The most common intermediary is the export merchant, or a buyer for export. This intermediary is treated like a domestic customer; the buyer assumes all risks and sells globally for its own account. Export brokers play the traditional broker’s role by bringing buyer and seller together. The manufacturer still retains the title and assumes all the risks. Export agents include foreign sales agents-distributors. They live in the foreign country and perform the same functions as domestic manufacturers’ agents, helping with international financing, shipping, and so on. 11. Briefly define licensing and joint ventures as means of engaging in global marketing. Be sure to demonstrate both the similarities of the two processes and how they differ. Answer: Both are effective methods for a firm to move into the global market. LICENSING is the legal process whereby a licensor allows another firm to use its manufacturing processes, trademarks, patents, trade secrets, or other knowledge of a proprietary nature. The licensee then agrees to pay the licensor a royalty or fee. This method has lower risk than direct or contract manufacturing. Franchising is one form of licensing that has grown rapidly in global markets in recent years. JOINT VENTURES are somewhat similar to licensing agreements, except that the domestic firm buys part of a foreign company or joins with a foreign company to create a new entity. This is more risky but gives management a voice in company affairs that it might not have under licensing. 12. Assume that you are the marketing manager for a leading U.S. manufacturer of earthmoving equipment. Your company would like to become heavily involved in global marketing (especially in India) but has some capital limitations. Your job is to evaluate whether it should use contract manufacturing or direct foreign investment. Compare and contrast these two options and make a recommendation. Answer: CONTRACT MANUFACTURING is private-label manufacturing by a foreign company. The foreign company produces a certain volume of products to specification, with the domestic firm’s brand name affixed to the goods. The domestic company usually handles the marketing. This method carries medium levels of risk and return. DIRECT FOREIGN INVESTMENT is active ownership, either a controlling interest or a large minority interest, of a foreign company or of overseas manufacturing or marketing facilities. This option offers the greatest potential rewards but carries the highest risk. The U.S. manufacturer should consider contract manufacturing for two reasons: (1) the company has a well-established brand name that would be easily recognized on the foreign goods and (2) contract manufacturing will enable the firm to broaden its global marketing base without direct investment of limited capital in plant and equipment. 13. Assume that you are the promotions manager for a lingerie company that has decided to market its product line in Brazil, Mexico, Italy, France, and Japan. Your company wishes to use a global marketing standardization strategy. In general terms, explain how your company would advertise in these different countries. Answer: Global marketing standardization means production of uniform products that can be sold the same way all over the world. In this case, marketers should attempt to standardize as much of their advertisements as possible. Advertising elements (such as a model or picture) should have universal appeal so they can appear in many different countries. Commercials with no voice-over or dialogue will not need translation, while print ads could share the same pictures and models and just use translated copy. Care should be taken that advertising elements are not culturally offensive in the different countries. 14. In the 1980s, Japanese computer chip manufacturers were accused of dumping in the United States. Explain what this means and discuss why a company would do this. Answer: Dumping is the sale of an exported product at a price lower than that charged for the same or a like product in the “home” market of the exporter. The practice is regarded as a form of price discrimination that can potentially harm the importing nation’s competing industries. Dumping may occur as a result of exporter business strategies that include (1) trying to increase an overseas market share, (2) temporarily distributing products in overseas markets to offset slack demand in the home market, (3) lowering unit costs by exploiting large-scale production, and (4) attempting to maintain stable prices during period of exchange fluctuations. 15. Explain the following statement: “The Internet economy is being restrained by the old rules, regulations, and habits related to traditional commerce.” Answer: Before answering this question, students will need to understand that traditional commerce refers to traditional distribution systems where the seller has a physical presence that is visited by the buyer. There are several examples in the text, which show how trade regulations (Germany not allowing Lands’ End to mention its refund policy on its Web site), cultural habits (Japanese do not use credit cards), and tariffs, quotas, and other legal restrictions prevent the Internet from becoming borderless commerce. Test Bank for MKTG Charles W. Lamb, Jr. Hair, Joseph F., Carl McDaniel 9781285091860

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