CHAPTER 11INTERNATIONAL STRATEGIES TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

1)

At some level, international strategies have existed since before the beginning of recorded time.

1)

_______ 4)

The increased use of international strategies by both large and small firms suggests that the economic opportunities associated with operating in multiple geographic markets can be substantial.

4)

_______ 6)

The most obvious economy of scope that may motivate firms to pursue an international strategy is the potential new customers for a firm's current products or services that such a strategy might generate.

6)

_______ 7)

To the extent that customers outside a firm's domestic market are willing and able to buy a firm's current products or services, implementing an international strategy can directly increase a firm's revenues.

7)

_______

10)

Different physical standards can require a firm pursuing international opportunities to change its current products or services to sell them into a nondomestic market.

10)

______

11)

Differences in tastes can be a major challenge for firms looking to sell their products or services outside the domestic market.

11)

______

13)

In order for the basis of an international strategy to attract new customers, those products or services must address the needs, wants, and preferences of customers in foreign markets at least as well as, if not better than, alternatives.

13)

______

16)

Japanese retail distribution has historically been much more fragmented, and much less efficient, than the system that exists in either the United States or Western Europe.

16)

______ 19)

Border levies are an example of tariffs.

19)

______

20)

Hard currencies are currencies that are traded, and thus have value, on international money markets.

20)

______

21)

Because the value of hard currencies can fluctuate in the world economy, firms can manage their currency risk by engaging in various hedging strategies in world money markets.

21)

______

23)

One estimate suggests that countertrade accounts for between 10 and 20 percent of world trade.

23)

______

25)

A product or service can be at different stages of its life cycle in different countries.

25)

______

27)

The search for low labor costs has led some firms to engage in an international "race to the bottom."

27)

______

28)

One of the most compelling reasons for firms to begin operations outside their domestic markets is to refine their current core competencies and to develop new core competencies.

28)

______

30)

Unlearning requires a firm to modify or abandon traditional ways of engaging in business.

30)

______

3

2)

Local responsiveness can help firms be successful in addressing the local needs of nondomestic customers, thereby increasing demand for a firm's current products or services.

32)

______

35)

The financial risks can be daunting when a firm first begins international operations.

35)

______

37)

Government upheaval and the attendant risks to international firms are facts of life in some countries.

37)

______

38)

In a decentralized federation, each country in which the firm operates is organized as a full profit-and-loss division headed by a division general manager who is typically the president of the company in a particular country.

38)

______

39)

Firms can maintain traditional arm's-length market relationship between themselves and their nondomestic customers and still implement international strategies.

39)

______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

41)

International strategies are an example of __________ strategies.

41)

______ A)

corporate

B)

business C)

operational

D)

functional

42)

Which one of the folliwng is NOT a potential source of economies of scope for firms pursuing international strategies/

42)

______ A)

To gain access to low-cost factors of production B)

To develop new core competencies C)

To control countertrade D)

To manage corporate risk

43)

Different ____ standards can require a firm pursuing international opportunities to change its current products or services to sell them into a nondomestic market.

43)

______ A)

operational

B)

physical C)

fiscal

D)

financial

44)

Japanese retail distribution has historically been much more _____ than the system that exists in the United States or Western Europe.

44)

______ A)

consolidated

B)

fragmented C)

open

D)

closely held.

45)

Embargoes are an example of

45)

______ A)

nontariff barriers

B)

tariffs C)

quotas

D)

subsidies

46)

Countervailing duties are an example of

46)

______ A)

countertrade

B)

nontariff barriersacquisition. C)

quotas

D)

tariffs

47)

Variable levies are an example of

47)

______ A)

quotas

B)

countertrade C)

nontariff barriers

D)

tariffs

48)

______ currencies are currencies that are traded, and thus have value, on international money markets.

48)

______ A)

Hard

B)

Soft C)

Variable

D)

Operational

49)

The second stage in the product life cycle is the ______ stage.

49)

______ A)

decline

B)

growth C)

introduction.

D)

maturity

50)

Which one of the following is NOT a determinant of the ability of a firm to learn from its international operations?

50)

______ A)

The resources for learning B)

The transparency of business partners C)

Receptivity to learning D)

The intent to learn

51)

________ requires a firm to modify or abandon traditional ways of engaging in business.

51)

______ A)

Relearning

B)

Absorbing C)

Learning

D)

Unlearning

52)

_______ can help firms be successful in addressing the local needs of nondomestic customers.

52)

______ A)

Target responsiveness

B)

Internationalization C)

Local responsiveness

D)

Globalization

53)

A _______ strategy exploits all the advantages of both international integration and local responsiveness.

53)

______ A)

Transnational

B)

Global C)

Corporate

D)

Multinational

54)

Hedging is a way to counter the ____ risks of doing business in foreign markets.

54)

______ A)

business

B)

cultural

C)

political

D)

financial

5

5)

Broad changes in the political situation in a foreign country is an example of political risk that affects the international strategies at the ___ level.

55)

______ A)

cultural

B)

macro C)

micro

D)

functional

56)

Improvements in the ______ infrastructure of business is one of the important contributors to the growth in the number of firms pursuing international strategies.

56)

______ A)

cultural

B)

corporate C)

technological

D)

pecuniary

57)

One survey of CEOs from around the world reported that _____ percent of U.S. CEOs had no foreign experience.

57)

______ A)

14

B)

8

C)

25

D)

42

58)

The ability to develop detailed local knowledge of nondomestic markets may require firms to have management teams with a great deal of ____ experience.

58)

______ A)

functional

B)

foreign C)

technical

D)

corporate

59)

One survey indicated that the foreign experience of ____ percent of U.S. CEOs was limited to vacation travel..

59)

______ A)

56

B)

61

C)

48

D)

14

60)

Even if direct duplication of a firm's international strategies is ____, ______ might still exist that limit the ability of that strategy to generate sustained competitive advantages.

60)

______ A)

costly, fragmentation

B)

inexpensive, fragmentation C)

costly, substitutes

D)

inexpensive, substitutes

61)

A firm implements a(n) ________ strategy when it diversifies its business operations across country boundaries.

61)

______ A)

functional

B)

transnational C)

operational

D)

international

62)

Exporting is a form of

62)

______ A)

vertical governance. B)

market governance. C)

intermediate market governance. D)

hierachical governance.

63)

Which one of the following is an example of the hierarchical governance option for firms pursuing international strategies?

63)

______ A)

Mergers

B)

Joint ventures C)

Licensing

D)

Exporting

64)

Acquisitions are an example of the ___ governance option for firms pursuing international strategies.

64)

______ A)

hierarchical

B)

corporate C)

market

D)

intermediate market

65)

Strategic alliances fall within the _____ governance option for firms pursuing international strategies.

65)

______ A)

market

B)

corporate C)

intermediate market

D)

hierarchical

66)

In a _________, strategic and operational decisions are delegated to divisions/country companies.

66)

______ A)

centralized hub

B)

coordinated federation C)

transnational structure

D)

decentralized federation

67)

Which one of the following is NOt a structural option for firms pursuing international strategies?

67)

______ A)

Centralized hub.

B)

Transnational structure. C)

Decentralized federation

D)

Corporate federation.

68)

Which one of the following structural options combines a high level of both global integration and local responsiveness?

68)

______ A)

Transnational structure.

B)

Centralized hub C)

Coordinated federation

D)

Decentralized hub.

m69)

In many ways, the transnational structure is similar to the

69)

______ A)

centralized hub

B)

coordinated federation C)

decentralized federation

D)

decentralized hub

70)

In a coordinated federation structure, shared activities and other cross-divisional/cross-country economies of scope are managed by the

70)

______ A)

country manager

B)

country unit C)

corporate center

D)

local unit

71)

The role of corporate headquarters in a ______ is to constantly scan business operations across different countries for resources and capabilities that might be a source of competitive advantage for other divisions/country companies in the firm.

71)

______ A)

coordinated federation

B)

transnational structure C)

decentralized federation

D)

centralized hub

72)

Firms that seek to maximize their local responsiveness will tend to choose a _______ structure

72)

______ A)

coordinated federation

B)

centralized hub C)

decentralized federation

D)

transnational

73)

Firms that seek to maximize international integration in their operations will typically opt for ___ structures.

73)

______ A)

coordinated federation

B)

transnational C)

centralized hub

D)

decentralized federation

74)

Firms that seek to balance the need for local responsiveness and international integration will typically choose _______ .

74)

______ A)

decentralized federations

B)

centralized federations C)

transnational structures

D)

matrix structures.

75)

Firms that attempt to optimize both local responsiveness and international integration will choose a _____ organizational structure.

75)

______ A)

coordinated federation

B)

centralized hub C)

decentralized federation

D)

transnational

76)

Firms that have been successful in adopting the transnational structure include

76)

______ A)

Disney

B)

Ford

C)

Sony

D)

Nokia

77)

Toyota is an example of a firm that uses the ______ structure.

77)

______ A)

decentralized federation

B)

centralized hub C)

coordinated federation

D)

transnational

78)

General Electric (GE) uses a _____ structure to manage its global operations.

78)

______ A)

decentralized federation

B)

coordinated federation C)

transnational

D)

centralized hub

79)

In a ______ structure, corporate staff functions are generally limited to the collection of accounting and other performance information from divisions/country companies and to reporting this aggregate information to appropriate government officials and to the financial markets.

79)

______ A)

centralized hub

B)

decentralized federation C)

transnational

D)

coordinated federation

80)

In a ______ structure, operational decisions are delegated to division general managers/country presidents, but broader strategic decisions are made at corporate headquarters.

80)

______ A)

centralized hub

B)

coordinated federation C)

decentralized federation

D)

transnational

81)

Firms pursuing an international strategy have ___ basic organizational structural alternatives.

81)

______ A)

3

B)

2

C)

5

D)

4.

82)

There are relatively few examples of pure ________ in today's economy.

82)

______ A)

transnational structures

B)

coordinated federations. C)

centralized hubs

D)

decentralized federations

Agrestal Cosmetics, Inc. is a leading U.S. manufacturer of natural, herb-based cosmetic products. It started out purely as a domestic company but, in 1983 established operations in India primarily to gain access to that country's abundant supply of hibiscus, a plant that provided important raw materials to the company's products. In 2009, Agrestal did business in 29 countries around the world. It has factories in Malaysia and Taiwan to use the low labor cost in those countries in making its labor-intensive products. In the late 1990s, it had to close it operations in a foreign country when, due to a change in the country's leadership, all foreign companies had to cease doing business there. During the Brazilian financial crisis, Agrestal adopted the practice of using revenues generated in Brazil to buy orange concentrate locally and sell that concentrate in the U.S. Agrestal's corporate finance department aggressively uses hedging in all the countries that they operate. In a few select countries, Agrestal licenses its brand names and know-how to local licensees. Currently, Agrestal is organized whereby all strategic and operational decisions are made at its Princeton, New Jersey headquarters.

83)

An important economy of scope for Agrestal in pursuing international opportunities is

83)

______ A)

synergy.

B)

technology. C)

organizational learning.

D)

access to raw materials.

84)

Agrestal's use of licensing in certain countries is an example of ______ governance organizing option.

84)

______ A)

hierarchical

B)

intermediate market C)

corporate.

D)

market.

85)

When Agrestal (along with other companies) was asked to leave a foreign country in the 1990s, it was a victim of

85)

______ A)

corporate risk.

B)

political risk C)

financial risk

D)

cultural risk.

86)

What Agrestal did in Brazil was an example of

86)

______ A)

hedging

B)

countertrade C)

strategizing

D)

diversification

87)

Agrestal's use of hedging is a way for the company to gaurad against ______ risks.

87)

______ A)

business

B)

political.

C)

market

D)

financial

88)

Agrestal's organizational structure is most likely the ______ structure.

88)

______ A)

transnational

B)

centralized hub C)

coordinated federation

D)

decentralized federation

89)

From its organization structure, it appears that Agrestal is attempting to maximize _______ in its operations.

89)

______ A)

strategic coordination.

B)

local responsiveness C)

operational coordination

D)

international integration

90)

To optimize both local responsiveness and international integration, Agrestal has to move to a _____ structure.

90)

______ A)

transnational

B)

matrix C)

coordinated federation

D)

operational

ESSAY. Write your answer in the space provided or on a separate sheet of paper. 91)

What are trade barriers? How do they affect foreign firms?

92)

What is countertrade? How is it useful in international business?

93)

In international business, is a "race to the bottom" always good for firms?

94)

Is learning from international operations automatic for firms? Why or why not?

95)

What is the local responsiveness/international integration trade-off that firms face when they go into international markets?

96)

Describe the transnational strategy.

97)

What is meant by political risk? What types of political risks do firms face?

98)

Is financial risk the same as business risk?

99)

Describe the differences between market and hierarchical governance options for firms pursuing international strategies.

100)

Discuss the four structural options for firms pursuing international strategies.

1)

TRUE 2)

FALSE 3)

FALSE 4)

TRUE 5)

FALSE 6)

TRUE 7)

TRUE 8)

FALSE 9)

FALSE 10)

TRUE 11)

TRUE 12)

FALSE 13)

TRUE 14)

FALSE 15)

FALSE 16)

TRUE 17)

FALSE 18)

FALSE 19)

TRUE 20)

TRUE 21)

TRUE 22)

FALSE 23)

TRUE 24)

FALSE 25)

TRUE 26)

FALSE 27)

TRUE 28)

TRUE 29)

FALSE 30)

TRUE 31)

FALSE 32)

TRUE 33)

FALSE 34)

FALSE 35)

TRUE 36)

FALSE 37)

TRUE 38)

TRUE 39)

TRUE 40)

FALSE 41)

A 42)

C 43)

B 44)

B 45)

C 46)

D 47)

D 48)

A 49)

B 50)

A 51)

D 52)

C 53)

A 54)

D 55)

B 56)

C 57)

A 58)

B 59)

A 60)

C 61)

D 62)

B 63)

A 64)

A 65)

C 66)

D 67)

D 68)

A 69)

B 70)

C 71)

B 72)

C 73)

C 74)

B 75)

D 76)

B 77)

B 78)

B 79)

B 80)

B 81)

D 82)

D 83)

D 84)

B 85)

B 86)

B 87)

D 88)

B 89)

D 90)

A 91)

Trade barriers are measures put in place by the host government of a country. Trade barriers have the effect of increasing the cost of selling a firm's current products or services in that country and thus make it difficult for a firm to realize this economies of scope from its international strategy.Governments create trade barriers to raise government revenue, to protect local employment, to encourage local production to replace imports, to protect new industries from competition, to discourage foreign direct investment, and to promote export activity. Trade barriers are thus, barriers to entry by foreign firms because they increase their cost of doing business.

92)

In countertrade, the international firm receives payment for products or services they sell in a country in the form of other products or services, instead of in currency. The international firm, in turns, sells these products or services in a different country to receive

currency. When Pepsi entered Russia after the breakup of the Soviet Union, the company used the proceeds from the sale of its beverage to buy local vodka. Pepsi, then, sold this vodka outside Russia for hard currency. Countertrade is useful in international business in those cases when a country's currency is not traded in international markets. It is a way of selling goods in that country and getting hard currency by selling products/services obtained in the exchange.

93)

Getting differential low-cost access to labor can give a firm a cost advantange in global business. Firms, thus, actively search for low labor costs -- a phenomenon that is called the "race to the bottom." Footwear companies such as Nike and Reebok have done this by using contract manufacturers in Asian countries to produce their shoes. While this may give the company a competitive advantage, it does have negavtive consequences. It may encourage partner companies to create "sweat shop" like conditions where employees are exploited. Indeed, there are major moral and ethical issues involved in this.

94)

Learning from international operations is anything but automatic. There are many challenges and difficulties that firms face in learning from their international efforts. One study identified three determinants of the ability of a firm to learn from its international operations: the intent to learn, the transparency of business partners, and the receptivity to learning.

A firm that has a strong intent to learn from its international operations is more likely to learn than a firm without this intent. Also, it is more likely to learn when it interacts with firms that are called transparent business partners -- firms that more open and accessible than others. Finally, a firm has to be receptive to learning. It has to be prepared to unlearn to enable it to accept and use new ideas.

95)

As firms pursue economies of scope in international markets, they constantly face a trade-off between the advantages of being responsive to market conditions in their nondomestic markets and the advantages of integrating their operations across the multiple markets in which they operate.

Local responsiveness can help firms be successful in addressing the local needs of nondomestic customers, thereby increasing demand for a firm's current products or services. On the other hand, full exploitation of the economies of scale that can be created by selling a firm's current products or services in a nondomestic market often can occur only if there is tight integration across all the markets in which a firm operates. This creates a trade-off situation that firms often confront.

96)

The traditional trade-off between international integration and local responsiveness can be addressed by pursuing a transnational strategy. It exploits all the advantages of both international integration and local responsiveness. Such firms treat their international operations as an integrated network of distributed and interdependent resources and capabilities. A firm's operations in each country are not simply independent activities attempting to respond to local market needs; they are also repositories of ideas, technologies, and management approaches that the firm might be able to use and apply in other international operations.

97)

The political environment becomes particularly important when firms begin to do business internationally. Changes in the political rules of the game in host countries can have the effect of increasing some environmental threats and reducing others, thereby changing the value of a firm's resources and capabilities. The risks in the political environment of host countries is referred to as political risks.

Such risks can arise at the macro and micro levels. At the macro level, broad changes in the political situation in a country can change the value of an investment. At the micro level,

political changes may affect certain industries or companies from specific countries. Political risk has to be anticipated and managed when firms pursue an international strategy.

98)

Financial risks arise when currency fluctuations significantly affect the value of a firm's international investments. In addition, different rates of inflation across countries can require different approaches to managing them. Collectively, these are referred to as financial risks. They are, however, different from business risks that has to do with local customers being unwilling to buy the firm's products or unwilling to pay the price for the firm's products.

99)

When firms maintain traditional arm's-length market relationship between themselves and their non-domestic customers, they are using the market governance option to organize their international organization. For example, a firm could decide to export its products to a foreign market by working with a firm in that country to receive, market and distribute its products.

When firms, instead, decide to integrate their international operations into their organizational hierarchies by acquiring a firm in a nondomestic market or by forming a new wholly owned subsidiary to manage their operations in a nondomestic market, they are pursuing the hierarchical governance option.

100)

Firms pursuing an international strategy have four basic organizational structural alternatives -- the decentralized federation, the coordinated federation, the centralized hub, and the transnational structure.

In a decentralized federation, each country in which the firm operates is organized as a full profit-and-loss division headed by a division general manager who is typically the president of the company in a particular country. While each country operation is regarded as a full profit-and-loss center in a coordinated federation, unlike in the case of the decentralized federation, here strategic and operational decisions are not fully delegated to division general managers. In a centralized hub, most of the strategic and operational decision making takes place at the corporate center. The transnational structure is similar to the coordinated federation in that in both structures strategic decision making is centralized while operational decision making is localized. The difference is that in the transnational structure, the centers of corporate economies of scope are more likely to be managed by specific divisions/country companies within the corporation.