test questions chapter 11 drs ibeo 12

DRS, IBEO 12Chapter 11Strategy in International Business

Monday, October 01, 2007

Chapter 11Strategy in International Business

Multiple Choice Questions

STUDY QUESTION 1: What are some of the general features of the challenge and importance of strategy in international business?

1. Generally, managers planning strategy in the global marketplace consider it more complex due to all of the following except _____.a. the steady reduction in trade barriers creates fewer opportunities in previously

protected markets (interpretation, page 363)b. they often must compete with cost-efficient overseas rivalsc. many overseas competitors operate with greater economies of scaled. the challenge of configuring and coordinating globally dispersed operations

2. Forces that represent the system outside the international firm's boundaries which influence the strategic actions of its managers include _____. a. manufacturing economiesb. monetary policies (interpretation, page 364)c. supply chain transactionsd. product design standards

3. The idea and perspective of strategy that a company uses to guide its international operations outlines how it plans to _____.a. choose which foreign markets to enterb. identify which companies to form alliances withc. modify political conventions and cultural norms (interpretation, page 364)d. build an organization to govern worldwide activities

4. One of the biggest strategic challenges to competing in the international marketplace is _____.a. optimizing the sequence of tactical adjustments b. discounting cross-country differences in cultural, demographic, and market conditionsc. determining how to charge the same price in all countries d. mediating pressure to offer a mostly standardized product worldwide or

customizing the company's offerings in each different market (interpretation, page 364)

STUDY QUESTION 2: What are the competing views of firm performance in terms of the industry organization (IO) versus general management perspectives?

200


5. The industry organization (IO) paradigm reports that, on average, the best predictor of firm

performance is the _____.a. company's stockpile of assets, skills, and capabilitiesb. aggressiveness of a company's objectivesc. consistency among a company's structure, systems, and processesd. profitability of the industry in which it competes (definition, page 365)

6. According to the industry organization (IO) paradigm, which of the following sequence is the fundamental steps to achieve superior performance?a. firm conduct-->industry structure-->firm performanceb. industry structure-->environmental context-->firm performancec. industry structure-->firm conduct-->firm performance (interpretation, page 365)d. environmental context-->firm conduct-->firm performance

7. In contrast to the industry organization (IO) paradigm, the general management view proposes which of the following sequence as the fundamental steps to creating value-creating strategy?a. visionary leadership-->innovative strategy-->insightful product market analysis

-->superior returnb. visionary leadership-->insightful product market analysis--> innovative strategy-->

superior return (interpretation, page 365)c. visionary leadership-->insightful product market analysis-->superior return-->innovative

strategyd. visionary leadership-->innovative strategy-->superior return-->insightful product market

analysis

8. Although the industry organization (IO) paradigm suggests industry structure is deterministic of firm performance, an alternative view suggests that firm performance is significantly influenced by _____.a. bright, motivated managers (interpretation, page 365)b. political trends and eventsc. innovative products d. the emergence of new markets

STUDY QUESTION 3: What is industry structure? How can managers interpret it?

9. Increasing globalization is a powerful force of change for competition in an industry because _____.a. it increases rivalry among companies in the industry (interpretation, page 366)b. foreign competitors typically have cheaper, higher quality productsc. it makes innovation partners more predictabled. requires companies have low costs in order to compete

201


10. The profile of change in the global financial services industry showed that industry conditions change because _____.a. of the predictable progression of an industry through successive stages of its life cycleb. consumers demand more low-cost service options because of the arrival of new

industry competitors (interpretation, page 367)c. the opportunity to change markets to exploit less favorable location economiesd. the role of governments in spurring more competition in an industry

11. The stronger the collective impact of the five competitive forces, the _____.a. greater the degree of stability in product innovation b. larger the number of market opportunities for c. lower the combined profitability of industry members (interpretation, page 366) d. greater the predictability of industry evolution

12. The Five Fundamental Forces Model presumes which of the following: a. Imperfect Competition and rational decision makingb. Rational decision making and perfect demandc. Imperfect demand and perfect competitiond. Perfect competition and rational decision making

STUDY QUESTION 4: How does a firm create value in terms of low-cost leadership?

13. The company that successfully becomes the low-cost provider in an industry _____.a. will sell more of its product than its competitorsb. can earn a higher rate of return on investment than its competitorsc. will earn greater total profits than its competitorsd. has achieved lower overall per-unit costs for its product than has its rivals

(interpretation, page 368)

14. A strategy that focuses on lowering operating costs is referred to as a _____. a. differentiation strategy b. cost leadership strategy (definition, page 368)c. cost minimization strategy d. low price strategy

15. Achieving the status of overall low-cost producer in an industry means the company _____.a. can strongly defend its market position in the event of a price war (interpretation,

page 368)b. will earn the largest profitsc. makes the most appealing productd. can block the entry of new firms into the industry

16. __________ and __________ are basic strategies for creating value and attaining a competitive advantage in an industry. a. Cost minimization and profit maximization

202


b. Industry leadership and market dominance c. Customer satisfaction and product innovation d. Cost leadership and differentiation (definition, page xxx)

STUDY QUESTION 5: How does a firm create value in terms of differentiation?

17. _____ and _____ are basic strategies for creating value and attaining a competitive advantage in an industry. a. Low cost; differentiation (definition, page 369)b. Customer satisfaction; product innovationc. Cost minimization; profit maximization d. Industry leadership; market dominance

18. The essence of a differentiation strategy is to _____. a. target the most sophisticated segment of the marketb. incorporate the greatest number of features into a product c. be unique to a wide range of buyers in ways that support a premium price

(interpretation, page 369)d. outspend rivals on advertising

19. A differentiation strategy works well when _____.a. there are few ways to differentiate a productb. buyers believe product differences create questionable value c. buyers' product needs are very similard. the rate of technological change is fast paced (interpretation, page 369)

20.The strategy that directs managers to improve attractiveness, either in real or perceived terms, of a product is referred to as a(n):a. differentiation strategy. (definition, page xxx)b. cost leadership strategy. c. effectiveness strategy. d. marketing strategy

STUDY QUESTION 6: What is the value chain?

21. A useful way to understanding the purpose of strategy is to think of the firm as a __________, composed of a series of distinct activities, including production, marketing, materials management, R & D, human resources, information systems, and the firm infrastructure.a. activity procession b. value constellation c. task succession d. value chain (definition, page 369)

203


22. A company's value chain is the _____.a. variable sequence it goes through to convert its vision to into shareholder valueb. mixture of activities it takes to define product value standardsc. discrete series of steps it takes to move a product from the raw materials stage to the

end-users (interpretation, page 369)d. blueprint its follows to leverage its core capabilities

23. In the context of value chain analysis, the support activities of a firm include _____. a. materials management, human resources, information systems, company

infrastructure (definition, page 370) b. product, marketing, information systems, and company infrastructure c. information systems, R & D, materials management, and service d. R & D, production, marketing and sales, and service

24. The four organizing dimensions of a value chain are:a. Purchase supplies, operations, sales and marketing, profit marginb. Primary activities, support activities, profit margin, upstream and downstream

activity (definition, page xxx)c. Procurement, technology development, human resource management, firm infrastructured. Upstream and downstream activity, purchase supplies, firm infrastructure, and

distribution

STUDY QUESTION 7: What does a core competency refer to? Why should managers pay attention to it?

25. _____ are those assets that are valuable for improving business, difficult for competitors to imitate, and can be extended as value-creating capability for use in other product or geographic markets.a. Core competencies (definition, page 375)b. Barriers to entryc. Mission statementsd. Company policies

26. A core competency effectively gives everyone in the MNE, not just a few executives at headquarters, a principle or practice that helps them _____.a. manufacture a high-quality product at a reasonable costb. build more-elaborate value chainsc. configure and coordinate value activities more coherently (interpretation, page 375)d. systematize industry competition

27. A key reason why companies opt to expand into international markets is _____.a. the need to develop a presence in a majority of the world's major country marketsb. figuring out what kinds of strategic adjustments would work best in the home marketc. identify the most suitable product designs

204


d. the quest to profit from its core competencies (interpretation, page 375)

28. Firms, no matter whether operation in the small national market or largest global market, rely on their __________ to anchor their strategy and power their performance.a. core competencies (definition, page xxx)b. location economiesc. integration activitiesd. market responsiveness

STUDY QUESTION 8: What conditions influence how MNEs configure and coordinate their value chains?

29. Factors that directly shape how the MNE coordinates its value chain include all of the following except _____.a. national culturesb. learning effectsc. subsidiary networksd. competitive rivalry (interpretation, page 371)

30. Factors that directly shape how the MNE coordinates its value chain include all of the following except _____. a. cost factorsb. cluster effectsc. cultural environments (interpretation, page 371)d. logistics

31. Suppose Citibank decided to open a call center in Mumbai, India, because a detailed analysis of the country-specific advantages suggested that India is the optimal place in the world to respond to customers' calls. In this example, Citibank is capturing _____ by running a call center in India.a. value configuration synergies b. location economies (interpretation, page 371)c. geographic arbitrage d. value offshoring

32. Firms that compete in the global marketplace typically face two types of competitive pressures, namely, the pressures for ________ and: _______?a. global integration; local responsiveness (definition, page xxx)a. price reductions, cost reductions b. politically sensitivity, market leadership c. cost reductions, marginal costs

STUDY QUESTION 9: Define global integration. How do international firms respond to this sort of pressure?

205


33. The appropriateness of the strategy that a firm uses in an international market varies with the degree of pressures it faces in terms of _____. a. cost reductions and product functionalityb. global integration and local responsiveness (definition, page 380)c. price flexibility and quality standards d. product customization and product features

34. Pressures for cost reductions can be particularly intense in industries producing commodity products where meaningful differentiation is difficult and _____ is the main competitive weapon. a. product quality b. ethical reputationc. price (interpretation, page 380)d. after sales service

35. Pressure for global integration includes condition such as the _____.a. marginal cost of producing in separate facilities exceed than the marginal costs of

producing in a single facilityb. tastes and preferences of consumers vary in the countries you competec. pressures to elaborate product features and functionalityd. political demands imposed by host countries (definition, page 380)

36. No matter the country or culture, money has three fundamental features: that motivate, consumers around the world strive to maximize purchasing power by buying the highest possible quality product for the lowest possible price. These three features include all of the following except

a. Scarcityb. Difficult to Acquire c. Difficulty to Allocate (definition, page xxx)d. Transience

STUDY QUESTION 10: Define local responsiveness. How do international firms respond to this sort of pressure?

37. Which of the following is not a factor that is driving pressures for local responsiveness among global firms? a. differences in infrastructure and traditional practices b. variable consumer tastes and preferencesc. differences in infrastructure and tradition practices d. host government support of freer international trade (interpretation, page 381)

206


38. Advantages of following a policy of national responsiveness include _____.a. ability to transfer core skills among countriesb. realization of lower production costs (interpretation, page 380)c. flexibility to use global profits in any area as neededd. opportunity to exploit location-specific skills

39. A disadvantage of following a policy of national responsiveness is _____.

a. manufacturing costs are generally higher (interpretation, page 380)b. fewer problems in transferring core skills c. each subsidiary can respond to specific consumer needsd. coordination programs among countries can be standardized

40. Presume that competitive analysis shows that the Ukraine can produce the highest quality software code at the lowest possible cost. If Infosys, a leading Indian information technology firm, then decides to hire people in the Ukraine to write its software products, it is trying to exploit ____________. a. integration incentivesb. globalization dividends c. location economies (interpretation, page xxx)d. productivity convergences

STUDY QUESTION 11: What are the principal types of strategies that a company can choose?

41. Please organize, going from that with the lowest to that with the highest degree of the sharing of managerial knowledge within the MNE, the following strategy types:a. transnational, global, multidomestic, internationalb. international, multidomestic, global, transnational (interpretation, page 384)c. global, multidomestic, international, transnationald. multidomestic, transnational, global, international

42. In the international environment, firms use either an international strategy, a multidomestic strategy, a global strategy, or a _____ strategy. a. regional b. standardizationc. transnational (definition, page 384)d. locational

43. The fundamental principle of the multidomestic strategy is _____, of the transnational strategy is _____, and of the global strategy is _____.a. mass production; assimilation; adjustmentb. standardization; customization; convergencec. customization; efficiency; effectivenessd. adaptation; integration; standardization (interpretation, page 384)

207


44. When using an IR Grid (National Responsiveness vs. Global Integration), all of the following are true except:a) Integration is the process of combining differentiated parts into a uniform wholeb) Responsiveness is the process of disaggregating a process into differentiated partsc) The IR Grid expresses how a company’s strategy choice is a function of its relationship

between its value creation and pressure globally and/or nationallyd) High responsiveness and low integration involves highly standardized control

systems into differentiated parts (interpretation, page xxx)

STUDY QUESTION 12: What is an international strategy? What are its defining characteristics? Why would managers choose this type?

45. Firms that pursue a(n) _____ strategy try to create value by transferring valuable core competencies to foreign markets where indigenous competitors lack those particular advantages. a. transnational b. multidomestic c. global d. international (interpretation, page 384)

46. The liability of the international strategy includes all of the following except _____.

a. headquarters takes a central role identifying and responding to local conditionsb. expedites the transfer of core competencies from home office to local (interpretation,

page 384)c. realization among foreign operations that international activity is secondary to events in

the home marketd. headquarters' one-way view from the home office to the rest of the world can miss market

opportunities

47. A distinct advantage of an international strategy is _____.a. transferring core competencies to foreign markets (interpretation, page 384)b. reaping benefits of global learningc. customizing product offerings to local condition d. leveraging local managers knowledge of their markets

48. A distinct disadvantage of an international strategy is _____.a. restricting the movement of core competencies to local markets b. capitalizing on the benefits of global learningc. customizing product offerings to local condition d. relying on home managers knowledge of foreign markets (interpretation, page xxx)

STUDY QUESTION 13: What is a multidomestic strategy? What are its defining characteristics? Why would managers choose this type?

208


49. Contrary to popular opinion, not all companies necessarily oppose government trade regulations. A company following which of the following types of strategies would be inclined to solicit or support greater regulation of international trade?a. multidomestic (interpretation, page 385)b. globalc. transnationald. supranational

50. Companies whose goal is to appeal to the varying tastes and preferences of global consumers are applying a _____ strategy. a. global b. multidomestic (interpretation, page 385)c. international d. transnational

51. Johnson & Johnson delegates to its subsidiaries a great deal of authority to respond to local conditions. Many subsidiaries have their own manufacturing, marketing, research, and human resource functions. This value chain configuration illustrates the _____ strategy.a. transnational b. global c. multidomestic (interpretation, page 385)d. international

52. A disadvantage of the _____ strategy is that firms that adopt this strategy tend to decentralize too much autonomy to national subsidiaries. a. multidomestic b. global c. international d. transnational

STUDY QUESTION 14: What is a global strategy? What are its defining characteristics? Why would managers choose this type?

53. Google essentially views the entire world as one market and assumes that there are no tangible differences among countries with regard to consumer tastes and preferences. Google is engaging a(n) _____ strategy.a. internationalb. multidomesticc. transnational d. global (interpretation, page 386)

54. A global strategy tends to be more successful when _____.

209


a. buyers are looking for great products at bargain pricesb. the industry's product is a commodity (interpretation, page 386)c. entry barriers are lowd. suppliers have little bargaining power

55. The MNE that applies a global strategy aims to _____.a. compete essentially same way wherever the company does business (interpretation,

page 386)b. sell products in those countries where there are a lot of buyers c. adapt activities to the industry standards in critical markets d. customize its business practices to consumer expectations

56. The idea that champions worldwide consistency and standardization in order for the firm to become the low cost leader is the ___________.

a. International Strategyb. Multidomestic Strategyc. Global Strategy (interpretation, page xxx)d. Transnational Strategy

STUDY QUESTION 15: What is a transnational strategy? What are its defining characteristics? Why would managers choose this type?

57. When new knowledge and capabilities are developed in both the domestic and foreign locations, both independently and jointly, and then diffused throughout the worldwide organization, the company is following a so-called _____.a. transnational strategy (definition, page 387)b. multidomestic strategyc. global strategy.d. matrix strategy

58. The distinct disadvantage of the transnational strategy is its _____.a. lack of local market responsiveness b. challenge in terms of day-to-day implementation (interpretation, page 387)c. failure to transfer knowledge from unit to unitd. inability to leverage core competencies

59. Recently, the term _____ has been proposed to describe a company that thrives on seeking out uniqueness globally that it might exploit elsewhere or that might complement its existing operations.a. multidomesticb. domesticc. metanational (definition, page 388) d. cross-cultural

210


60. Although sounding contradictory, some firms see great benefit to orienting operations that simultaneously focus efforts on ensuring local responsiveness, aggressively reducing operational costs, and systematically transferring ideas and innovations among subsidiaries. Companies following this approach are considered to be following a ________________ strategy. a. global b. multidomestic c. transnationald. international

True/False Questions

STUDY QUESTION 1: What are some of the general features of the challenge and importance of strategy in international business?

61. The purposeful decisions that managers take to maximize their companies' value creation performance is called a strategy. True (definition, page 363)

62. Strategy is best defined as management's concept and plan on how to create value. True (definition, page 363)

STUDY QUESTION 2: What are the competing views of firm performance in terms of the industry organization (IO) versus general management perspectives? 63. A company's strategy evolves over time as a result of the proactive efforts of managers to

improve elements of their approach to create value. True (definition, page 365)64. A major reason for studying international business strategy is that the managers of some

companies find innovative ways to consistently perform better than other companies. True (definition, page 365)

STUDY QUESTION 3: What is industry structure? How can managers interpret it?

65. The forces of competition in an industry are a function of competitive pressures among rival firms, the availability of substitute products, the bargaining power of suppliers and customers, and the threat of exit of new rivals. False (definition, page 366)

66. As a rule, the stronger the collective impact of the five competitive forces, the lower the combined profitability of industry members. True (definition, page 366)

67. The Industry Organization perspective believes that firm performance is determined by the presence of bright, motivated managers and their keen sense of developing innovative products for new and existing markets. False

STUDY QUESTION 4: How does a firm create value in terms of low-cost leadership?

68. The low-cost leadership strategy is ideal for companies that plan to create value from global integration. True (interpretation, page 368)

211


69. A low-cost leader's basis for competitive advantage is lower prices than rival firms. False (interpretation, page 368)

STUDY QUESTION 5: How does a firm create value in terms of differentiation?

70. A differentiation strategy is a unique mixture of the multidomestic and global strategies whereby the company attempts to capture the advantages of both. False (interpretation, page 369)

71. A differentiation strategy works well in situations where there are many ways to differentiate a product or service and many buyers perceive these differences as having value. True (definition, page 369)

STUDY QUESTION 6: What is the value chain?

72. Value chain analysis helps managers determine whether it is more profitable to pursue a differentiation strategy or to strive for low-cost leadership. True (interpretation, page 369)

73. A value chain identifies and explains how managers configure and coordinate value creation activities in order to transform inputs into the outputs that the company sells to customers. True (interpretation, page 369)

STUDY QUESTION 7: What does a core competency refer to? Why should managers pay attention to it?

74. Transferring a company's core competencies from one country market to another is unlikely to produce competitive advantage if industry pressures for globalization are weak. False (interpretation, page 375)

75. A potential core competence can be developed by building the ability to manufacture a high-quality product at a low cost. True (interpretation, page 375)

STUDY QUESTION 8: What conditions influence how MNEs configure and coordinate their value chains?

76. A frequently compelling reason why an MNE opts to locate an activity in a particular country is low cost. True (definition, page 371)

77. The beneficial economic effects that arise from performing a value creation activity in the optimal location, wherever in the world it happens to be, are called integration synergies. False (definition, page 371)

STUDY QUESTION 9: Define global integration. How do international firms respond to this sort of pressure?

78. Cost-reduction pressures are typically an unimportant issue in industries that make a commodity-type product. False (interpretation, page 380)

212


79. Pressures for global integration include economic integration, convergent consumer preferences, and political demands imposed by host countries. False (interpretation, page 380)

STUDY QUESTION 10: Define local responsiveness. How do international firms respond to this sort of pressure?

80. Pressures for local responsiveness are especially important in industries where value creation is a function of adaptation. True (interpretation, page 380)

81. Pressures for local responsiveness include cross-national differences in terms of consumer preferences, industry conditions, and government regulations. True (definition, page 381)

STUDY QUESTION 11: What are the principal types of strategies that a company can choose?

82. The fundamental outlook of the multidomestic strategy is standardization. False (interpretation, page 384)

83. The fundamental outlook of the global strategy is adaptation. False (interpretation, page 386)

STUDY QUESTION 12: What is an international strategy? What are its defining characteristics? Why would managers choose this type?

84. The strategy of a firm using an international strategy is likely to entail producing and marketing mostly standardized products worldwide, with some customization where and when necessary. True (interpretation, page 384)

85. Tel-Comm Tek is a company that believes it has core competencies that its competitors in foreign markets lack and that it faces relatively weak pressures for local responsiveness and cost reductions. Tel-Comm Tek is likely to adopt an international strategy. True (interpretation, page 384)

STUDY QUESTION 13: What is a multidomestic strategy? What are its defining characteristics? Why would managers choose this type?

86. A multidomestic strategy makes the most sense for companies that see high pressures for local responsiveness and low pressures for cost reductions. True (definition, page 385)

87. Tel-Comm Tek is a company that sees the world as a single market, assuming that consumer preferences and industry conditions do not vary much among countries. Tel-Comm Tek is likely to adopt a multidomestic strategy. False (interpretation, page 385)

STUDY QUESTION 14: What is a global strategy? What are its defining characteristics? Why would managers choose this type?

213


88. An unlikely element of a global strategy is locating plants across many countries, each adapting product for local area markets. True (interpretation, page 386)

89. Tel-Comm Tek is a company that sees the world as a single market, assuming that consumer preferences and industry conditions do not vary much among countries. Tel-Comm Tek is likely to adopt a global strategy. True (definition, page 386)

STUDY QUESTION 15: What is a transnational strategy? What are its defining characteristics? Why would managers choose this type?

90. A company develops different capabilities and contributions from different countries, and shares them in integrated worldwide operations is using a transnational strategy. True (definition, page 387)

91. Using a transnational strategy pushes a company to centralize some functions in optimal locations, base some functions in national subsidiaries to ensure local responsiveness, and developing wide-ranging communications among various units. True (interpretation, page 387)

92. Organizational challenges are comparatively more difficult for the firm pursuing, a transnational strategy that for the firm that is pursuing an international strategy. True

Essay Questions

93. What elements should companies include in their international plans?

AnswerVarious alternatives include the following:a. Location of value-added functions—The choice of where to locate each of the functions

that comprise the entire value-added chain, from research to production to after-sales servicing

b. Location of sales target—The allocation of sales among countries and the level of activity in each, particularly in terms of market share

c. Level of involvement—The choice of operating through wholly owned facilities, partially owned facilities, or contract arrangements and whether the choice varies among countries

d. Product/services strategy—The extent to which a worldwide business offers the same or different products in different countries

e. Marketing—The extent to which a company uses the same brand names, advertising, and other marketing elements in different countries

f. Competitive moves—The extent to which a company makes competitive moves in individual countries as part of a global competitive strategy

214


g. Factor movements and start-up strategy—Whether production factors are acquired locally or brought in by the company and whether the operation begins through an acquisition or start-up

(definition, pages 374-377)

94. What are two ways that companies can create value?

AnswerCompanies create value in two basic ways:a. Low-cost leadership—This strategy emphasizes high production volumes, low costs, and

low prices to attract customers. Firms that choose this strategy strive to be the low-cost producer in an industry for a given level of quality. This strategy pushes a firm to sell its products either at average industry prices to earn a profit higher than that of rivals or below average industry prices to capture market share. A cost leadership strategy is a key advantage in highly competitive industries and usually targets a broad market.

b. Differentiation—This strategy spurs the company to provide a unique good or service that rivals find hard, if not impossible, to match or copy. Firms that choose this strategy aspire to develop products that offer unique attributes that they reason are highly valued by customers and that customers perceive to be better than or sufficiently different from products offered by other companies. The value added by the uniqueness of the product allows the firm to charge a higher price that more than offsets the added costs of making it. Companies that engage a differentiation strategy must continually find ways to develop products that have unique features that, in turn, lead buyers to prefer their goods and services versus those provided by rivals.

(interpretation, pages 378–379)

95. Discuss the idea of the firm as a value chain.

AnswerThe value chain represents a framework that lets managers deconstruct the general idea of "create value" into the series of discrete activities that their company actually does to create value—the set of linked, value-creating activities the company performs to design, produce, market, deliver, and support a product. So, upon specifying their company's value chain, managers can then target their insights and investments toward those activities that create value and avoid those that do not. Technically, a value chain has four organizing dimensions: a. Primary activities are those involved in the physical movement of raw materials and

finished products, in the production of goods and services, and in the marketing, sales, and subsequent services of the outputs of the business.

b. Support activities make up the managerial infrastructure of the firm that supports carrying out the primary activities. The four support activities include the processes and systems installed to coordinate decisions and transactions among the various value activities.

c. Profit margin—The purpose of the value chain—to show how a firm creates value—is ultimately captured in the component of "profit margin." Placed at the end of the value chain, profit margin reports the difference between the total revenue generated by sales and the total cost of the activities that led to those sales.

215


d. Upstream and downstream—The final element of a value chain is orientation—namely, whether the particular activity takes place upstream or downstream. Upstream refers to those activities, such as inbound logistics, research and development, and manufacturing, which gather and process the inputs that the company uses to make a product. Downstream refers to those activities, such as outbound logistics, marketing, and service that deal more directly with the end customer.

The value chain helps managers integrate the knowledge and skills of employees around the world in the way that lets them best leverage the company's global reach. As such, value chain analysis anchors and guides managers' effort to build expertise in those value activities that are critical to reducing costs or improving differentiation. (interpretation, pages 379–381)

96. What is configuration? What are the factors that influence value chain configuration?

AnswerConfiguration is the way that managers arrange the activities of the value chain. MNEs greatly improve their competitiveness and performance by configuring value activities to capture potential location economies—namely, the economies that arise from performing a value creation activity in the optimal location for that activity, given prevailing economic, political, and cultural conditions. Therefore, several conditions shape how managers configure value chains worldwide, most notably, cost factors, cluster effects, logistics, degree of digitization, economies of scale, and customers' needs. a. Differences in cost factors, such as wage rates, worker productivity, inflation rates, and

government regulations, create significant variations in production costs from country to country.

b. The cluster effect is when a particular industry gradually clusters more and more related value creation effects in a specific location Each economic cluster creates unique location advantages that offer firms in that locale access to specialized resources that can dramatically improve the potential for innovation.

c. Logistics is how companies obtain, produce, and exchange material and services in the proper place and in proper quantities for the proper value activity.

d. Degree of digitization—The degree to which an analog product can be converted into a string of zeros and ones—the process of digitization—influences how a company configures its value chain.

e. Economies of scale—Refers to the reductions in unit cost achieved by producing a large volume of a product. Generally, economies of scale occur in industries with high capital costs in which those costs can be distributed across a large number of units of production, thereby resulting in lower per-unit costs.

f. Customer activities, such as distribution to dealers, sales and advertising, and after-sale service, usually take place close to buyers. This can press some companies to physically locate the capability to perform such activities in every country market where it has major customers.

(definition, pages 381–383)

97. What is coordination? Describe the factors that influence value chain coordination.

216


AnswerCoordination is the way that managers connect the discrete activities of the value chain.Several factors influence value chain coordination:a. Operational obstacles—MNEs regularly run into problems when trying to get the various

links of their global value chain to deal to each other. Communication challenges especially arise when trying to synchronize languages. Besides communications, currencies and measurement systems can create weak links among globally dispersed activities. In sum, well-planned coordination preempts these threats, thereby letting workers worry less about what is supposed to happen with material transfers and product delivery and worry more about creating value.

b. National cultures—National cultures can also impose higher hurdles in coordinating a transaction from one stage of the value chain with another. Units anchored in different cultures may disagree over how much information they should share or who should take lead responsibility. Coordination can then suffer from conflict.

c. Learning effects—Learning effects refer to cost savings that come from learning by doing. Managers, for example, learn by recurrence how to transfer best practices from one country to another, such as innovative ways to improve internal and external customer service. Successfully transferred, an MNE can convert higher productivity into lower costs or higher customer satisfaction into higher prices.

d. Subsidiary networks—The current culmination of globalization trends is a world marked by real-time connectivity among the subsidiaries of an MNE. Subsidiaries around the world can exchange information freely, whether done systematically within an ERP context or tacitly via e-mails. Moreover there are an astounding number of companies, including their affiliates, which engage in international business. Skills, ideas, and technologies can be created anywhere within an MNE's global network of subsidiaries. An increasingly vital task for managers, then, is to coordinate the company's value chain so that it can leverage the competencies developed within any subsidiary and apply them wherever they can create value within the firm's global network.


98. Describe the pressures for local responsiveness that international companies face.

AnswerThe two pressures for local responsiveness that international companies face are customer divergence and host-government policies.a. Customer divergence—Some maintain that fundamental divergences in consumer tastes

and preferences across countries have and will continue to exert strong pressure for local responsiveness. Many think that differences in consumer tastes and preferences across countries emerge and endure due to several factors, including cultural predisposition, historical legacy, emergent nationalism (i.e., "buy local" campaigns), and economic prosperity. No matter the cause, proponents of customer divergence say the outcome is the same: consumers prefer goods that are sensitive to their way of life.

b. Host-government policies—Host-country governments mandate policies that differ widely from each other, causing variability in political, legal, and economic situations around the world. The movement toward privatization, economic freedom, and deregulation has reduced the variability among countries, but differences among

217


countries remain. These differences push firms to determine how to best configure and coordinate their value chain so that they provide the necessary degree of local responsiveness without jeopardizing their capability to create value. Host governments also have a range of aggressive tools to ensure that an MNE is locally responsive. These tools can be broad policy directives, explicit threats or acts of trade protectionism, local content rules, or simply national product standards that can be met only by local operations. Each policy boosts the pressure on companies to make sure that part or all of its value chain can respond to the local pressures.

(interpretation, pages 391–393)

99. Discuss the characteristics of multidomestic, global, and transnational strategies. Include situations and a specific example in which each strategy would be most appropriate.

Answera. International strategy—Companies adopt the international strategy when they aim to

leverage their core competencies by expanding opportunistically into foreign markets. The international model relies on local subsidiaries in each country to administer business as instructed by headquarters. Some subsidiaries may have latitude to adapt products to local conditions as well as set up some light assembly operations or promotion programs. Still, ultimate and absolute control resides with managers at headquarters who reason they know best the basis and potential extension of the company's core competencies.

b. Multidomestic strategy—A strategy in which the company allows each of its foreign country operations to act fairly independent, such as designing and producing a product or service in France for the French market and in Japan for the Japanese market. The main reason for adopting a multidomestic strategy is that in some cases, cultural, legal-political, and economic conditions may dictate very different optimum operating practices from one country to another.

c. Global strategy—A strategy in which a company integrates its operations located in different countries. For example, it might design a product or service with a global market segment in mind. Or it might depend on its operations in different countries to produce the components used in the products and services. In this type of company, managers in the company's home country essentially develop capabilities and make decisions to diffuse them globally.

d. Transnational strategy—A strategy in which a company develops different capabilities and contributions from different countries and shares them in integrated worldwide operations. In essence, this is a hybrid of multidomestic and global strategies in that the company attempts to gain the advantages of both. This strategy is ideal for companies that gain a great deal from global integration and need a great deal of adaptation to local markets. Such industries as pharmaceuticals and automobiles fall into this category.


100. What does a transnational strategy imply?

AnswerA transnational company can be defined as one whose strategy takes advantage of different capabilities and contributions that may emanate from any part of the world by integrating them into its worldwide operations. The term metanational has been used to describe a

218


company that thrives on seeking out uniqueness that it might exploit elsewhere or that might complement its existing operation. MNEs are attempting to weaken decision-making partitions so that more and better information flows through the organization. In doing so, headquarters can better use subsidiaries' unique knowledge, and subsidiaries can better understand headquarters' global needs and pertinent conditions in other subsidiaries.(interpretation, page 399)

219

test questions chapter 11 drs ibeo 12

Documents