Chapter 8—International Strategy

TRUE/FALSE

1. Many firms choose direct investment in assets in foreign countries (e.g., establishing new
subsidiaries, making acquisitions, or building joint ventures) over direct investment because it
provides better protection for their assets.

ANS: T

2. After a firm decides to compete internationally, it must select its strategy and choose a mode
of entry into international markets.

ANS: T

3. The benefits of international diversification must be tempered by political and economic risks
and the problems of managing a complex international firm with operations in multiple
countries.

ANS: T

4. According to the Opening Case about entry into China, a common entry strategy for
automobile firms such as General Motors and Volkswagen is licensing.

ANS: F

5. As noted in the Opening Case, the Chinese market is attractive only for manufacturing firms
such as those in the automobile industry.

ANS: F

6. The Opening case gives examples of Chinese firms such as Huawei Technologies Co. Ltd.
which has been more successful abroad than in China.

ANS: T

7. An important aspect of doing business internationally is that firms develop relationships with
suppliers, customers, and partners and learn from these relationships as SAIC did in its
partnerships with GM and Volkswagen.

ANS: T

8. One reason why firms pursue international opportunities is to extend the product's life cycle.

ANS: T

9. A traditional motive for internationalization has been to secure needed resources, especially
minerals and energy.

ANS: T

10. In some industries, technology drives globalization because the economies of scale necessary
 to reduce costs cannot be met by competing in domestic markets alone.

ANS: T

11. It is generally easier to negotiate employee layoffs in Europe than in the United States
because of the generous government-provided social services in Europe.

ANS: F

12. The four benefits of international strategies are 1) increased market size; 2) greater return on
investment; 3) greater economies of scale and learning; and 4) location advantages.

ANS: T

13. To the extent that a firm is able to standardize its products across country borders, use the
same or similar production facilities, and coordinate critical resource functions, the more
likely it is to achieve optimum economies of scale.

ANS: T

14. A firm is more likely to invest R&D to build competitive advantage in smaller markets, even
though those markets offer lower potential returns and pose more risk for the firm’s
investments.

ANS: F

15. In the Opening Case, the primary benefit realized by General Motors’ expansion into the
Chinese market was location advantages.

ANS: F

16. The primary reason for investing in international markets is to generate above-average returns
on investments.

ANS: T

17. Multinational firms have many opportunities to learn from their experiences in international
markets, but they must have a strong R&D system to absorb the knowledge.

ANS: T

18. The liability of foreignness is generally unaffected by the cultural distance between the two
countries in an international transaction.

ANS: F

19. Location advantages are influenced by costs of production, access to natural resources and
critical supplies, as well as the needs of customers, but not culture.

ANS: F
20. The three corporate-level international strategies are cost leadership, differentiation, and
focus.

ANS: F

21. When a firm initially pursues an international business-level strategy, the resources and
capabilities established in the home country frequently allow the firm to pursue the strategy
into markets located in other countries.

ANS: T

22. Michael Porter’s Determinants of National Advantage describe factors associated with the
firm’s domestic environment that contribute to its dominance in a particular global industry.

ANS: T

23. Both the size and the nature of a country’s domestic demand for a particular industry’s good
or service are important in Porter’s model of national competitive advantage.

ANS: T

24. Having substantial supplies of critical basic natural resources is a necessary condition for a
country to support businesses which can successfully compete in international markets.

ANS: F

25. South Korea’s success in international markets is primarily a result of its abundant natural
resources.

ANS: F

26. Italy has become the leader in the shoe industry because of related and supporting industries
such as a well-established leather-processing industry which provides the leather needed to
construct shoes and related products.

ANS: T

27. Firms must formulate and implement business strategies that take advantage of the
determinants of national advantage in order to achieve competitive success.

ANS: T

28. Part of Japan’s success in the video game industry is derived from two related and support
industries, cartoons and animation, and electronics.

ANS: T

29. In the chapter Strategic Focus, SunTech’s success has been attributed in part to country
conditions such as the availability of low-cost manufacturing and the strong engineering
talents in China.

ANS: T
30. In the chapter Strategic focus, Yandex in Russia developed a search tool for the complex
Russian language, and this ability later became an advantage in global competition. This
example illustrates how domestic country conditions can contribute to a firm’s global success.

ANS: T

31. A multidomestic strategy assumes that consumer needs, industry conditions, political and
legal structures and social norms are homogeneous in every country.

ANS: F

32. A multidomestic strategy uses a highly decentralized approach meaning that country
managers have the autonomy to customize the firm’s products as necessary to meet the needs
and preferences of local customers.

ANS: T

33. A major advantage of multidomestic strategies is the ability to customize for the specific
market, although this sacrifices economies of scale.

ANS: T

34. A global strategy assumes that the strategic business units operating in each country are
interdependent and the home office attempts to achieve integration across these businesses.

ANS: T

35. A global strategy is an international strategy through which the firm offers standardized
products across country markets, with competitive strategy being dictated by offices within
the host markets served.

ANS: F

36. The global strategy is easier to manage because of the limited need to coordinate strategies
and decisions across country borders.

ANS: F

37. Research suggests that the performance of the global strategy in enhanced if it deploys in
areas where regional integration across countries is occurring, such as the European Union.

ANS: F

38. A transnational strategy is an international strategy in which the firm seeks to achieve both
global efficiency and local responsiveness.
 ANS: T

39. A transnational strategy is difficult to achieve because the multiple objectives involved are
contradictory.

ANS: T

40. Even if effectively implemented, the transnational strategy often produces lower performance
than does the implementation of either the multidomestic or global strategies.

ANS: F

41. The growing number of global competitors heightens the requirements to keep costs down
and there is the desire for more specialized products to meet customer needs. These two
pressures make transnational strategies increasingly necessary.

ANS: T

42. A company that chooses a truly global corporate-level strategy assumes that the liability of
foreignness will be minimal.

ANS: T

43. The “liability of foreignness” will have a greater negative impact on a firm using a
multidomestic strategy than on a firm using a global strategy.

ANS: F

44. The “liability of foreignness” means that many firms need to focus more on local adaptation
or risk problems such as the Walt Disney Company faced opening its theme park in France.

ANS: T

45. The “regionalization” environmental trend means that firms can focus on a region
(customization) but also have some standardization or sharing within the region.

ANS: T

46. By choosing a region where markets are more similar, the firm may be able to better
understand those markets and cater to their needs, but also achieve economies through sharing
of resources.

ANS: T

47. International associations such as the European Union, the Organization of American States,
and the North American Free Trade Association encourage regionalization of competition
rather than globalization.

ANS: T
48. Exporting and licensing are the most appropriate ways for smaller firms to first enter
international markets.

ANS: T

49. The primary rationale for a small firm to utilize exporting as a way of entering international
markets is the potential for high rates of return.

ANS: F

50. The current weak dollar makes imports to the United States cheaper, but exports more costly
to foreign buyers.

ANS: F

51. Because of the lack of protection of intellectual property in some foreign countries, licensing
arrangements are one of the best ways for a firm to protect its technology from being
appropriated by potential competitors.

ANS: F

52. Although licensing is the least costly method to enter a foreign market, its disadvantages
include high costs of transportation and low control over the marketing and distribution of
goods.

ANS: F

53. As shown in the Opening Case, Google used licensing agreements in China with the top four
music producers to support its strategy to gain more market share from Baidu Inc.

ANS: T

54. Strategic alliances tend to increase the risk associated with international expansion for the
U.S. partner because of the greater dependence on the foreign firm.

ANS: F

55. Establishing a wholly-owned subsidiary provides the quickest access to a new market.

ANS: F

56. Research suggests that wholly owned subsidiaries and expatriate staff are inappropriate for
service industries because those industries require close contact with customers, high levels of
professional skills, specialized know-how, and customization.

ANS: F

57. The greenfield venture option is useful when control of technology is important in an
international expansion.

ANS: T
58. When the country risk is high, firms prefer to enter with a greenfield investment rather than a
joint venture.

ANS: T

59. While there are multiple means of entering new international markets, firms should use one
method consistently with all of its various products and across its different markets in order to
reduce administrative complexity.

ANS: F

60. Export, licensing, and the strategic alliance entry modes are all appropriate for early market
development.

ANS: T

61. International diversification can help to reduce a firm’s overall risk through the stabilization
of returns.

ANS: T

62. As a general rule of thumb, if a company cannot make a profit in its home market, it cannot
make a profit in the international market.

ANS: F

63. Research has shown that, as international diversification increases, firms’ returns decrease
initially but then increase quickly as firms learn to manage international expansion.

ANS: T

64. International strategies are complex and can therefore produce greater uncertainty for the
firm.

ANS: T

65. The chief risks in the international environment are political and cultural.

ANS: F

66. Fluctuation in the value of different currencies is a major economic risk associated with
international diversification.

ANS: T

67. A U.S. manufacturer of pigments for household paint that exports about 40 percent of its
production to European markets will find its sales will be harmed by a weak dollar.

ANS: F
 68. Some of the costs incurred by firms pursuing international diversification may derive from
higher coordination expenses, trade barriers, and lack of familiarity with local cultures.

ANS: T

69. Counterfeit products are especially problematic for firms that have significant profit margins
associated with intellectual property rights such as software makers, entertainment content
businesses (i.e., music producers), and branded products.

ANS: T

70. Counterfeit products are mostly a nuisance to companies and rarely result in fatalities.

ANS: F

71. Legal challenges to counterfeiting generally are successful in emerging economies such as
China and Russia.

ANS: F

72. Some products such as fashion and clothing items can be protected by sophisticated labels
that guard against counterfeiters.

ANS: T

73. U.S. firms should find it more difficult to expand their operations into Mexico, Canada, and
Western European countries than into Asian countries.

ANS: F

74. There is no “ideal” level of internationalization as the amount of international diversification

that can be managed varies from firm to firm and according to the abilities of each firm’s
managers.

ANS: T

MULTIPLE CHOICE

1. According to the Opening Case about entry into China, a common entry strategy for
automobile firms such as General Motors and Volkswagen is
a. exporting.
b. acquisitions.
c. licensing.
d. joint ventures.
ANS: D \

2. The Opening Case indicates that many Chinese firms are doing all of the following EXCEPT
a. forming joint ventures with U.S. and other foreign firms.
b. competing in global markets such as the U.S. and Europe.
 c. focusing on the Chinese domestic market only because of the influx volume of foreign
entrants.
d. competing in both manufacturing and service industries.
ANS: C
3. International strategy refers to a(an)
a. action plan pursued by American companies to compete against foreign companies
operating in the United States.
b. strategy through which the firm sells products in markets outside the firm’s domestic
market.
c. political and economic action plan developed by businesses and governments to cope with
global competition.
d. strategy American firms use to dominate international markets.
ANS: B
4. Raymond Vernon states that the classic rationale for international diversification is to
a. pre-emptively dominate world markets before foreign companies can establish dominance.
b. avoid domestic governmental regulation.
c. extend the product’s life cycle.
d. avoid international governmental regulation.
ANS: C

5. Which of the following is NOT a motive for firms to become multinational?

a. to take advantage of potential opportunities to expand the market for the firm’s products.
b. to secure needed resources.
c. to avoid high domestic taxation on corporate income.
d. increasing universal product demand.
ANS: C

6. The increased pressures for global integration of operations have been driven mostly by
a. new low cost entrants.
b. universal product demand.
c. increased levels of joint ventures.
d. the rise of governmental regulation.
ANS: B

7. The benefits of expanding into international markets include each of the following
opportunities EXCEPT
a. increasing the size of the firm’s potential markets.
b. increased return on investment.
c. gaining a competitive advantage through location.
d. favorable tax concessions and economic incentives by home-country governments.
 ANS: D

8. U.S. companies moving into the international market need to be sensitive to the need for local
country or regional responsiveness because of
a. increasing rejection of American culture across much of the world.
b. the sophistication of the international consumer because of the Internet.
c. host country government requirements and cultural differences.
d. the increasing loss of economies of scale.
ANS: C

9. Which of the following is NOT a factor pressuring companies for local responsiveness?
a. differences in employment laws
b. customization due to cultural differences
c. government pressure for firms to use local sources for procurement
d. availability of low labor costs
ANS: D

10. U.S. cola companies entered the global market because of

a. fully-exploited domestic markets for cola.
b. lower labor costs in the emerging markets.
c. economies of scale that offset research and development costs.
d. an increase in the return on investment from their U.S. bottling plants.
ANS: A

11. Moving into international markets is a particularly attractive strategy to firms whose domestic
markets
a. demand a differentiation strategy for success.
b. are limited in opportunities for growth.
c. have developed unfriendly business attitudes toward the industry.
d. have too much regulation.
ANS: B

12. Most R&D intensive industries are international because

a. of the need to make use of scientific talent in many nations.
b. large markets are necessary for earning above-average returns on investments.
c. of mandatory requirements by emerging economies that firms take part in joint ventures or
direct investment in the country in order to sell their products in that country.
 d. intellectual property is copied so rapidly that firms must move products into the
international market immediately.
ANS: B

13. The size of an international market affects a firm’s willingness to invest in R&D. Larger
markets usually offer ____ potential returns and pose ____ risk for a firm’s investments.
a. lower; less
b. lower; more
c. higher; less
d. higher; more
ANS: C

14. Optimal economies of scale in the international market for a standardized product derive from
a. the ability to have production facilities similar to those already used in the home market.
b. effective investment in research and development.
c. access to a low-cost labor force in the host market.
d. rapid advances in new technology with unique demands in each host market.
ANS: A

15. Firms with core competencies that can be exploited across international markets are able to
a. achieve synergies and produce high quality goods at lower costs.
b. enter new markets more quickly.
c. enhance their market image and brand loyalty among local consumers.
d. meet local government requirements more quickly than their international competitors.
ANS: A

16. The location advantages associated with locating facilities in other countries can include all of
the following EXCEPT
a. lower cost labor.
b. access to critical supplies.
c. access to customers.
d. evasion of host country governmental regulations.
ANS: D

17. Factors of production in Porter’s model of international competitive advantage include all of
the following EXCEPT
a. labor.
b. capital.
c. infrastructure.
d. technology.
 ANS: D

18. In Porter’s model, a specialized factor of production would include

a. abundant natural resources.
b. a large workforce.
c. an extensive highway transportation system.
d. workers with advanced engineering skills.
ANS: D

19. In Porter’s model, if a country has both ________ and __________ production factors, it is
likely to serve an industry well by spawning strong home-country competitors that can also be
successful global competitors.
a. basic; advanced
b. advanced; generalized
c. basic; generalized
d. advanced; specialized
ANS: D

20. Japan, due to a lack of undeveloped land, would be an unusual choice of location for a U.S.
cattle company to set up local grazing operations. This limiting factor would be identified in
what part of Porter’s determinants of national advantage?
a. Factors of production
b. Demand conditions
c. Related and supporting industries
d. Firm strategy, structure and rivalry
ANS: A

21. A fundamental reason for a country’s development of advanced and specialized factors of
production is often its
a. lack of basic resources.
b. monetary wealth.
c. small workforce.
d. protective tariffs.
ANS: A

22. The four aspects of Porter’s model of international competitive advantage include all of the
following EXCEPT
a. factors of production.
b. demand conditions.
c. political and economic institutions.
d. related and supporting industries.
 ANS: C

23. Which pair of industries would NOT be considered as “related and supporting” under Porter’s
diamond model?
a. Japanese cameras and copiers
b. Italian leather-processing and shoes
c. U.S. computers and software
d. Highway systems and the supply of debt capital
ANS: D

24. In France, fine dressmaking and tailoring have been a tradition predating Queen Marie
Antoinette. Cloth manufacturers, design schools, craft apprenticeship programs, modeling
agencies, and so forth, all exist to supply the clothing industry. This is an example of the ____
in Porter’s model.
a. strategy, structure and rivalry among firms
b. related and supporting industries
c. demand conditions
d. factors of production
ANS: B

25. A large domestic market can provide the country’s industries a chance at dominating the
world market because
a. they have been able to develop economies of scale at home.
b. they have access to abundant and inexpensive factors of production.
c. the related and supporting industries will have been developed.
d. the nation’s culture and educational system will be adapted to producing the labor force
needed for the industry.
ANS: A

26. In addition to the four basic dimensions of Porter’s “diamond” model, ____ may also
contribute to the success or failure of firms.
a. national work ethic
b. educational requirements
c. government policy
d. national pride
ANS: C

27. In the chapter Strategic Focus, Sun Tech’s success has been attributed in part to
a. national work ethic.
b. educational requirements.
c. country conditions such as low-cost manufacturing and strong engineering talents.
d. related and supporting industries.
 ANS: C

28. In the chapter Strategic Focus, the success of both Sun Tech in China and Yandex in Russia
was attributed to
a. related and supporting industries.
b. country conditions.
c. firm strategy, structure, and rivalry.
d. related and supporting industries.
ANS: B PTS: 1 DIF: Medium REF: 225-227

29. Under industry structural analysis (chapter 2), ____ rivalry is viewed as detrimental to
profitability. Under the model of national advantage (chapter 8), ____ rivalry is viewed as
____ as it results in competition and surviving firms are able to compete against global rivals.
a. low; low; beneficial
b. low; low; detrimental
c. high; high; beneficial
d. high; high; detrimental
ANS: C

30. All of the following are international corporate-level strategies EXCEPT the ____ strategy.
a. multidomestic
b. universal
c. global
d. transnational
ANS: B

31. International corporate-level strategy focuses on

a. the scope of operations through both product
and geographic diversification.
b. competition within each country.
c. economies of scale.
d. sophistication of monitoring and controlling
systems.
ANS: A

32. To maximize profitability, the best international corporate-level strategy to use always
a. is the multidomestic strategy.
 b. is the transnational strategy
c. is the global strategy.
d. depends on the product or service being
offered.
ANS: D

33. A multidomestic corporate-level strategy is one in which

a. a corporation chooses not to compete internationally but where there are a number of
international competitors in the firm’s local marketplace.
b. the firm produces a standardized product, but markets it differently in each country in which
it competes.
c. the firm customizes the product for each country in which it competes.
d. the firm competes in a number of countries, but it is centrally coordinated by the home
office.
ANS: C

34. A multidomestic corporate-level strategy has ____ need for global integration and ____ need
for local market responsiveness.
a. low; low
b. low; high
c. high; low
d. high; high
ANS: B

35. A global corporate-level strategy differs from a multidomestic corporate-level strategy in that
in a global strategy,
a. competitive strategy is dictated by the home office.
b. competitive strategy is decentralized and controlled by individual strategic business units.
c. products are customized to meet the individual needs of each country.
d. the firm sells in multiple countries.
ANS: A

36. A global corporate-level strategy emphasizes

a. differentiated products.
b. economies of scale.
c. sensitivity to local product preferences.
d. decentralizing control and limited monitoring.
ANS: B

37. A global strategy

a. is easy to manage because of common operating decisions across borders.
 b. achieves efficient operations without sharing resources across country boundaries.
c. increases risk because decision-making is centralized at the home office.
d. lacks responsiveness to local markets.
ANS: D

38. A global corporate-level strategy assumes

a. efficiency and customization can be achieved simultaneously.
b. a rise in income levels across the world.
c. increasing levels of cultural differences among nations.
d. more standardization of products across country markets.
ANS: D

39. A transnational corporate-level strategy seeks to achieve

a. customization for the local market.
b. economies of scale and centralized strategic control.
c. global efficiency and local responsiveness.
d. standardization of products across countries.
ANS: C

40. The transnational strategy is becoming increasingly necessary to compete in international

markets for all the following reasons EXCEPT
a. the growing number of competitors heightens the requirements to keep costs down.
b. the desire for specialized products to meet consumers’ needs.
c. differences in culture and institutional environments also require firms to adapt their
products and approaches to local environments.
d. it is easy to use.
ANS: D

41. Increasingly, customers worldwide are demanding emphasis on local requirements and
companies are needing efficiency as global competition increases. This has triggered an
increase in the number of firms using the ____ strategy.
a. multidomestic
b. transnational
c. universal
d. global
ANS: B

42. Terrorist attacks and the war in Iraq

 a. encourage firms to take truly global corporate strategies in order to offset losses in one
region with gains in another.
b. are considered a “cost of doing business” by international firms.
c. have not decreased the level of international investment in any region except those involved
in active wars.
d. have increased the liability of foreignness for firms.
ANS: D

43. Disney suffered lawsuits in France at Disneyland Paris as a result of the lack of fit between its
transferred personnel policies and the French employees charged to enact them. This is an
example of
a. the effects of regionalization.
b. the risks of a multidomestic strategy.
c. the liability of foreignness.
d. the effect of demand conditions.
ANS: C

44. Research shows that ____ strategies are not as prevalent as once thought, and that they are
very difficult to implement. In fact, these strategies are becoming relatively less attractive to
firms than other approaches to international competitiveness. To some extent, this is a result
of the liability of foreignness.
a. transnational
b. multidomestic
c. global
d. regional
ANS: C

45. International associations such as the European Union, Organization of American States, and
the North American Free Trade Association, encourage
a. global strategies.
b. domestication.
c. regional strategies.
d. nationalization.
ANS: C

46. A firm may narrow its focus to a specific region of the world
a. because that market is most different from its domestic market and so represents an
unexploited “greenfield opportunity” for its products.
b. in order to obtain greater economies of scale.
 c. because of political and economic agreements such as the European Union and the North
American Free Trade Association.
d. to take advantage of limited protections of intellectual property so that it can manufacture
innovative products without restrictions.
ANS: C

47. Skaredykat Inc. is considering initial expansion beyond its home market. The firm has
decided not to enter markets that differ greatly from its home market, instead expanding
within the twelve-nation region that includes its home country.
a. The firm is not engaging in international trade.
b. The firm is using a regional approach to international expansion.
c. The firm will not be able understand the cultures, legal and social norms of this market.
d. Skaredykat is a scaredy-cat.
ANS: B

48. Most firms enter international markets sequentially, introducing their ____ first.
a. most innovative products
b. largest and strongest lines of business
c. most generic products, which will be more likely to generate universal product demand,
d. products customized to the region
ANS: B

49. A U.S. manufacturer of adaptive devices for persons with disabilities is considering
expanding internationally. It is a fairly small company, but it is looking for growth
opportunities. This company should primarily consider the option of
a. licensing.
b. exporting.
c. a strategic alliance.
d. a greenfield venture.
ANS: B

50. The choices that a firm has for entering the international market include all of the following
EXCEPT
a. exporting.
b. licensing.
c. leasing.
d. acquisition.
 ANS: C

51. The problems associated with exporting include

a. merging corporate cultures.
b. a partner’s incompatibility.
c. difficulty in negotiating relationships.
d. high transportation costs.
ANS: D

52. Which of the following is NOT a disadvantage associated with exporting?

a. potential loss of proprietary technologies
b. high transportation costs
c. loss of control over distribution activities
d. tariffs imposed by local governments
ANS: A

53. A licensing agreement

a. results in two firms agreeing to share the risks and the resources of a new venture.
b. is best way to protect proprietary technology from future competitors.
c. allows a foreign firm to purchase the rights to manufacture and sell a firm’s products within
a host country.
d. can be greatly impacted by currency exchange rate fluctuations.
ANS: C

54. Which of the following is NOT a typical disadvantage of licensing?

a. little control over the marketing of the products
b. licensees may develop a competitive product after the license expires
c. lower potential returns than the use of exporting or strategic alliances
d. incompatibility of the licensing partners
ANS: D

55. Firms in with emerging economies may want to form strategic alliances with firms from
developing countries because
a. assets from the investing foreign company can be nationalized later.
b. disruption to the host-country’s economy will be minimal.
c. there will be less cultural conflict than in licensing arrangements.
d. it gains access to the foreign firm’s sophisticated technology.
ANS: D
56. One of the primary reasons for failure of cross-border strategic alliances is
a. the incompatibility of the partners.
b. conflict between legal and business systems.
c. security concerns and terrorism.
d. high debt financing.
ANS: A

57. If conflict in a strategic alliance or joint venture is not manageable, a(n) _______may be a
better option.
a. licensing strategy
b. exporting strategy
c. acquisition
d. new wholly owned subsidiary
ANS: C

58. Which of the following is NOT a disadvantage of international acquisitions?

a. They are very expensive and often require debt financing.
b. The acquiring firm has to deal with the regulatory requirements of a host country.
c. Merging the acquired and acquiring firm is difficult.
d. It is the slowest way to enter a new market.
ANS: D

59. The means of entry into international markets that offers the greatest control is
a. licensing.
b. acquisitions.
c. joint ventures.
d. greenfield ventures.
ANS: D

60. Which of the following is an advantage associated with greenfield ventures?

a. governmental support and subsidies in the host country
b. the lower cost of this type of venture
c. the level of control over the firm’s operations
d. the lower level of risks involved
ANS: C

61. If intellectual property rights in an emerging economy are not well-protected, the number of
firms in the industry is rapidly growing, and the need for global integration is high, ____ is
the preferred entry mode.
a. exporting
 b. strategic alliance
c. a joint venture or wholly-owned subsidiary
d. licensing
ANS: C

62. The decision of what entry mode to use is primarily based on all of the following factors
EXCEPT
a. the industry’s competitive conditions.
b. the country’s situation and government policies.
c. the worldwide economic situation.
d. the firm’s unique set of resources, capabilities, and core competencies.
ANS: C

63. When a firm INITIALLY becomes internationally diversified, its returns

a. remain stable.
b. decrease.
c. become more variable.
d. increase.
ANS: B

64. Which of the following is NOT one of the advantages associated with international
diversification?
a. reduction of overall risk
b. ease of coordination
c. economies of scale
d. stabilization of returns
ANS: B

65. A nation’s competitiveness depends on the capacity of its industry to ____ and thereby
maintain its competitive advantage.
a. diversify internationally
b. have access to critical resources
c. protect its proprietary capabilities
d. innovate
ANS: D

66. Internationally diversified firms

a. earn greater returns on their innovations through larger or more numerous markets.
 b. are more likely to produce below-average returns for investors in the long run.
c. may need to decrease international activities when domestic profits are poor.
d. are generally unable to achieve high levels of synergy because of differences in cultures.
ANS: A

67. Bunyan Heavy Equipment, a U.S. firm, is investigating expanding into Russia using a
greenfield venture. The committee researching this project has delivered a negative report.
The MAIN concern of the committee is probably
a. loss of intellectual property due to Russian piracy.
b. the fluctuation in the value of the ruble.
c. the numerous and conflicting legal authorities in Russia.
d. Russia’s recent actions to gain state control of private firms’ assets.
ANS: D

68. Terrorism creates an economic risk for firms which

a. reduces the amount of investment foreign companies will make in a country perceived to be
terror-prone.
b. is created by governmental bans on doing business with terrorist regimes.
c. is offset by the above-average returns for firms which have learned how to operate in such
an environment.
d. is absorbed by firms which are highly geographically diversified and which operate in both
secure and insecure locations.
ANS: A

69. Arkadelphia Polymers, Inc., earns 60% of its revenue from exports to Europe and Asia. The
CEO of the company would be
a. concerned if the value of the dollar strengthened.
b. pleased if the value of the dollar strengthened.
c. unconcerned about the fluctuation in the value of the dollar because the company is widely
diversified geographically.
d. likely to consider moving to international strategic alliances or acquisitions if the value of
the dollar fell and remained low.
ANS: A

70. According to the chapter Strategic Focus, counterfeit products are especially problematic for
firms that have significant profit margins associated with all of the following EXCEPT
a. software makers.
b. music producers.
c. branded products.
d. generic drugs.
ANS: D
71. According to the chapter Strategic Focus, all of the following are correct about counterfeiting
EXCEPT
a. Many counterfeit products are sold on the Internet.
b. Some counterfeit products could cause fatalities.
c. Legal challenges to counterfeiting are generally successful in emerging economies such as
China and Russia
d. China is one of the main sources of counterfeit products.
ANS: C

72. The positive results associated with increasing international diversification have been shown
to
a. continue as the level of international diversification increases.
b. level off and become negative as diversification increases past some point.
c. become negative quickly.
d. be centered in only one or two industries.
ANS: B

73. All of the following complicate the implementation of an international diversification strategy
EXCEPT
a. widespread multilingualism.
b. increased costs of coordination between
business units.
c. cultural diversity.
d. logistical costs.
ANS: A