Ib Testbank Chap 14 Abc

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IB testbank chap 14 - abc
Kinh tế Quốc tế (Đại học Kinh tế Thành phố Hồ Chí Minh)
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Chapter 14
The Organization of International

Business
True / False Questions
1. Organizational structure refers to the totality of a firm's
organization. True False
2. A firm's organizational culture refers to the formal organizational

structure of the company, the control systems and incentives in place,
and the human resources component.
True False
3. A manager receives a bonus because the national operating

subsidiary, that she is in charge of, exceeds its performance target.
This is an example of an incentive.
True False

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4. A firm's vertical differentiation determines where in its hierarchy

the decision-making power is concentrated.
True False
5. By centralizing decision making, a firm can avoid the duplication of

activities that occurs when similar activities are carried on by various
subunits within the organization.
True False
6. A decentralized organization allows managers to respond to

environmental changes more quickly than in a centralized
organization.
True False
7. Centralization gives top-level managers the power and authority to

be able to bring about needed major organizational changes.
True False
8. A firm pursuing a localization strategy will have a strong incentive to

centralize decision- making.
True False

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9. The choice between centralization and decentralization is not
absolute. True False
10. In firms pursuing a transnational strategy, some operating decisions

are relatively centralized, while others are relatively decentralized.
True False
11. Beyond the initial functional division of the organization, further

horizontal differentiation may be required if the firm significantly
diversifies its product offering, which takes the firm into different
business areas.
True False
12. Regardless of a firm's domestic structure, its international division

tends to be organized on economy.
True False
13. The worldwide area structure tends to be adopted by firms with a

low level of diversification whose domestic structures are based on
functions.
True False

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14. In a worldwide area structure, each area tends to be a self-

contained, largely autonomous entity with its own set of value
creation activities.
True False
15. A worldwide product division structure tends to be adopted by firms

that are reasonably diversified and originally had domestic
structures based on product divisions.
True False
16. In a worldwide product divisional structure, each division is a self-

contained, largely autonomous entity with full responsibility for its
own value creation activities.
True False
17. The worldwide product division structure facilitates local
responsiveness. True False
18. In a classic matrix structure, individual managers belong to two

hierarchies (a divisional hierarchy and an area hierarchy) and have
two bosses (a divisional boss and an area boss).
True False

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19. It is difficult to ascertain accountability in the global
matrix structure. True False
20. The need for coordination between units is greatest in firms

pursuing a localization strategy.
True False
21. The need for coordination is high in firms trying to profit from
location and experience curve economies.
True False
22. Direct contact between subunit managers is the simplest integrating
mechanism. True False
23. In a matrix structure all roles are viewed as
integrating roles. True False
24. A knowledge network is a network for transmitting

information within an organization that is based on formal
organizational structure.
True False

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25. Personal control is a type of control that tends to be most widely

used in large firms.
True False
26. Bureaucratic control involves personal contact with
subordinates. True False
27. In a company using cultural controls, employees' behavior is closely

monitored and controlled through direct supervision.
True False
28. The basic principle behind incentive systems is to ensure that the
incentive scheme for an individual employee is linked to an output
target that he or she has some control over and can influence.
True False
29. Performance ambiguity lowers the cost of
control. True False

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30. The costs of control can be defined as the amount of time top
management must devote to monitoring and evaluating subunits'
performance.
True False
31. Firms pursuing a global standardization strategy must cope with a

higher level of performance ambiguity, and this raises their costs of
control.
True False
32. New processes that might lead to a competitive advantage can be

developed anywhere within the organization's global network of
operations.
True False
33. Norms are abstract ideas about what a group believes to be good,
right, and desirable.
True False
34. It is more difficult for a leader to create an organizational culture from

scratch in a new venture than it is to change an established one.
True False

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35. An organizational culture can be strong
but bad. True False
36. Firms pursuing a localization strategy have a high need for

coordination between subunits.
True False
37. Firms pursuing a localization strategy tend to operate with an array of

formal and informal integrating mechanisms.
True False
38. Firms pursuing a global standardization strategy are more

centralized than enterprises pursuing a localization or
international strategy.
True False
39. National regulations including local content rules and policies

pertaining to layoffs might act as a source of inertia.
True False

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40. It is important to realize that organizational change will occur

regardless of the commitment of senior managers to it.
True False
Multiple Choice Questions
41. Organizational structure means all of the following, EXCEPT:
A. the establishment of integrating mechanisms to coordinate the

activities of subunits.
B. the location of decision-making responsibilities with a structure.
C. the manner in which decisions are made and work is performed by

individuals.
D. the formal division of the organization into subunits such as

product divisions and functions.

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42. Which of the following terms refers to the metrics used to

measure the performance of subunits and make judgments about
how well managers are running those subunits?
A. Key processes
B. Control systems
C. Knowledge networks
D. Job assignments
43.Historically, Unilever measured the performance of national operating

subsidiary companies according to profitability. In this example,
profitability is a(n):
A. control system.
B. process.
C. integrating mechanism.
D. incentive.
44. The manner in which decisions are made and work is performed
within the organization is known as the firm's:
A. organizational culture.
B. incentives.
C. control systems.
D. processes.

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45. The norms and values systems that are shared among the
employees of a company are referred to as:
A. processes.
B. control systems.
C. incentives.
D. organizational culture.
46. A firm's _____ determines where in its hierarchy the decision-

making power is concentrated.
A. integrating mechanism
B. vertical differentiation
C. knowledge network
D. horizontal differentiation
47. What is horizontal differentiation?
A. The mechanisms that enable each subunit to operate independently
B. The formal division of the organization into subunits
C. The location of decision-making responsibilities within a structure
D. The mechanisms for coordinating subunits

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48. Integration mechanisms are:
A. the formal division of the organization into subunits.
B. the mechanisms that enable each subunit to operate independently.
C. the mechanisms for coordinating subunits.
D. the location of decision making responsibilities within a structure.
49. Which of the following is an argument favoring centralization?
A. It permits greater flexibility.
B. Motivational research favors it.
C. It can avoid the duplication of activities.
D. It gives top management time to focus on critical issues by

delegating routine issues to lower-level managers.
50. Which of the following is an argument favoring decentralization?
A. It can facilitate coordination.
B. It can help ensure that decisions are consistent with organizational

objectives.
C. It can give top-level managers the means to bring about

needed major organizational changes.
D. It permits greater flexibility.

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51. Centralization:
A. gives top management time to focus on critical issues by

delegating more routine issues to lower-level managers.
B. can give top-level managers the means to bring about needed

major organizational changes by concentrating power and authority
in one individual or a management team.
C. permits greater flexibility because decisions do not have to be

"referred up the hierarchy" unless they are exceptional in nature.
D. can be used to establish relatively autonomous, self-contained

subunits within an organization.
52. A firm that needs greater flexibility should choose _____ for its decision-
making.
A. horizontal differentiation
B. decentralization
C. localization strategy
D. control systems

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53. Centralization and decentralization differ because:
A. centralization hinders coordination, while decentralization

facilitates coordination.
B. centralization prevents top-level managers from making required

organizational changes, while decentralization gives top-level
managers greater power to make organizational changes.
C. centralization ensures that decisions are consistent with

organizational objectives, while decentralization can result in
decisions at variance with organizational goals.
D. centralization promotes flexibility, while decentralization reduces

flexibility.
54. Which of the following decisions is typically centralized at a firm's

headquarters?
A. Production decisions
B. Human resource management
C. Marketing decisions
D. Overall firm strategy

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55. The emphasis on local responsiveness in firms pursuing a

localization strategy creates strong pressures for:
A. centralizing all decisions regarding marketing, R&D, and human

resource management.
B. decentralizing operating decisions to foreign subsidiaries.
C. centralizing all operating decisions.
D. global learning.
56.Global learning based on the multidirectional transfer of skills between

subsidiaries and the corporate center is a central feature of a firm
pursuing a(n)
_____ strategy.
A. localization
B. global standardization
C. transnational
D. international

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57. Which of the following would be a typical responsibility of a product

division in a product divisional structure?
A. Operating decisions
B. Overall strategic development of the firm
C. Financial control of the various divisions
D. Decisions regarding legal issues
58. Which of the following statements is true about a product divisional

structure?
A. In a product divisional structure, the responsibility for the financial

control of the firm is typically decentralized.
B. A product divisional structure tends to be organized on geography.
C. In a product divisional structure, each product division is set up

as a self-contained, largely autonomous entity with its own
functions.
D. In a product divisional structure, the responsibility for operating

decisions is typically centralized.

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tends to be organized on:
A. product.
B. geography.
C. people.
D. economy.
60. Which of the following is a problem that arises due to an

international division structure?
A. In an international division structure, a firm's international division

tends to be organized on products.
B. The heads of domestic functions are presumed to be able to

represent the interests of all countries to headquarters.
C. The heads of foreign subsidiaries are not given as much

voice in the organization as the heads of domestic
functions or divisions.
D. The dual-hierarchy structure can lead to conflict and perpetual

power struggles between the areas and the product divisions.

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61. In which of the following organizational structures are the domestic

operations and foreign operations isolated from each other leading
to coordination problems?
A. Global matrix structure
B. International division structure
C. Worldwide product division structure
D. Worldwide area structure
62. Which of the following is NOT true regarding a worldwide area

structure?
A. It tends to be favored by firms with a low degree of diversification.
B. It facilitates local responsiveness.
C. It tends to be favored by firms with a domestic structure based on

functions.
D. Decision-making responsibilities are centralized.
63. A _____ structure encourages fragmentation of the organization

into highly autonomous entities.
A. worldwide area
B. global matrix
C. worldwide product
D. global network

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64. A(n) _____ tends to be adopted by firms that are reasonably diversified.
A. worldwide area structure
B. international division structure
C. worldwide product division structure
D. global matrix structure
65. The worldwide product division structure:
A. is weak in local responsiveness.
B. inhibits the realization of location economies.
C. inhibits the realization of experience curve economies.
D. limits the transfer of core competencies between areas.
66. In the classic global matrix structure, horizontal differentiation

proceeds along two dimensions. These dimensions are:
A. hierarchy and overall strategy.
B. target returns and sales potential.
C. marketing strategy and sales potential.
D. product division and geographic area.

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67. In practice, the dual-hierarchy in a global matrix structure:
A. lessens all forms of conflict.
B. makes it easy to ascertain accountability.
C. results in extremely quick decision making.
D. can lead to perpetual power struggles.
68. The need for coordination between subunits is lowest in firms pursuing
a(n):
A. localization strategy.
B. international strategy.
C. global strategy.
D. transnational strategy.
69.The need for coordination between subunits is highest in firms pursuing

a(n):
C. global strategy.

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70. _____ refers to giving a person in each subunit responsibility for

coordinating with another subunit on a regular basis.
A. Global learning
B. Liaison roles
C. Knowledge network
D. Matrix Structures
71. A(n) _____ is valuable because it can be used as a nonbureaucratic

conduit for information flows within a multinational enterprise.
A. liaison network
B. matrix structure
C. organizational structure
D. knowledge network
72. Which control system is most widely used by small firms?
A. Personal
B. Output
C. Bureaucratic
D. Cultural

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73. Control through a system of rules and procedures that directs the
actions of subunits is:
A. personal control.
B. bureaucratic control.
C. output control.
D. cultural control.
74. _____ control is achieved by comparing actual performance against

targets and intervening selectively to take corrective action.
A. Personal
B. Output
C. Bureaucratic
D. Cultural
75. There is low interdependence, performance ambiguity, and costs

of control in firms pursuing a(n):
C. transnational strategy.
D. global strategy.

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76. Which of the following is NOT true of a strong corporate culture?
A. Almost all managers share a relatively consistent set of values and

norms that have a clear impact on the way work is performed.
B. A strong culture leads to high performance.
C. Outsiders see firms with a strong culture as having a certain

way of doing things.
D. A strong culture can be a bad culture.
77. Firms pursuing a(n) _____ attempt to create value by

transferring core competencies from home to foreign
subsidiaries.
A. localization strategy
B. international strategy
C. transnational strategy
D. global strategy

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78. Firms pursuing a global standardization strategy:
A. have low performance ambiguity.
B. attempt to create value by transferring core competencies from

home to foreign subsidiaries.
C. are less centralized than enterprises pursuing a localization or

D. have a high need for coordination and cultural controls.
79. A firm that operates with matrix-type structures in which both product
divisions and geographic areas have significant influence would use
which of the following strategies?
A. International strategy
B. Transnational strategy
C. Global strategy
D. Localization strategy
80. Firms pursuing a transnational strategy:
A. have a low need for coordination.
B. require very few integrating mechanisms.
C. have a very high need for cultural controls.
D. operate with a worldwide product division structure.

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Essay Questions
81. Explain organizational structure.
82. Discuss the relationship between a firm's control systems and a

firm's incentive system. Why is this relationship important?

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83. What are the three dimensions of organizational structure?
84. Why should a firm centralize its decision-making?
85. Explain the five reasons why a firm should decentralize its decision-
making.

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86. Discuss the location of decision-making in a firm that is following a

transnational strategy.
87. Describe the situation where an international division makes sense.

How common is this structure? What are the disadvantages of the
structure?

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88. What type of firms favor the worldwide area structure and why?
What are the disadvantages of this type of structure?
89. Discuss the type of firm that uses the worldwide product division
structure.

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90. What are the main strengths and weaknesses of the worldwide
product division structure?
91. Discuss the global matrix structure.
92. What are the formal integrating mechanisms used to integrate

subunits?

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93. What is a knowledge network? What is the advantage of such a

system?
94. Consider the use of personal controls in international firms. In which

type of firm is this control most common?
95. What are output controls?

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96. What is performance ambiguity? Discuss the relationships

between strategy, interdependence, and performance ambiguity.
97. Discuss the sources of inertia in organizations. Is it easy to make

organizational changes?

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98. What are the basic principles for successful organizational change?
99. Discuss the issues involved in unfreezing an organization.
100.Discuss the issues involved in refreezing an organization.

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Chapter 14 The Organization of International Business

Answer Key
True / False Questions
1. Organizational structure refers to the totality of a firm's organization.
FALSE
Organizational architecture refers to the totality of a firm's

organization. Organizational structure refers to three things. First,
the formal division of the organization into subunits; second, the
location of decision-making responsibilities within that structure;
and third, the establishment of integrating mechanisms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-01 Explain what is meant by organization architecture.
Topic: Organizational Architecture

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2. A firm's organizational culture refers to the formal organizational

structure of the company, the control systems and incentives in
place, and the human resources component.
FALSE
Organizational culture refers to the norms and value systems that

are shared among the employees of an organization.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
3. A manager receives a bonus because the national operating

subsidiary, that she is in charge of, exceeds its performance
target. This is an example of an incentive.
TRUE
Incentives are the devices used to reward appropriate managerial

behavior. Incentives are very closely tied to performance metrics.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium

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4. A firm's vertical differentiation determines where in its hierarchy

TRUE
Vertical differentiation refers to the location of decision-making

responsibilities within a structure.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-02 Describe the different organizational choices that can be made in an
international business.
Topic: Organizational
Structure
5. By centralizing decision making, a firm can avoid the duplication of

activities that occurs when similar activities are carried on by
various subunits within the organization.
TRUE
Centralization can avoid the duplication of activities that occurs

when similar activities are carried on by various subunits within
the organization.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

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Structure

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6. A decentralized organization allows managers to respond to

environmental changes more quickly than in a centralized
organization.
TRUE
Decentralization permits greater flexibility—more rapid response to

environmental changes—because decisions do not have to be
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure
7. Centralization gives top-level managers the power and authority to

be able to bring about needed major organizational changes.
TRUE
By concentrating power and authority in one individual or a

management team, centralization can give top-level managers the
means to bring about needed major organizational changes.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

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Structure

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8. A firm pursuing a localization strategy will have a strong incentive to

centralize decision- making.
FALSE
The emphasis on local responsiveness in firms pursuing a

localization strategy creates strong pressures for decentralizing
operating decisions to foreign subsidiaries.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure
9. The choice between centralization and decentralization is not

absolute.
TRUE
Decisions regarding overall firm strategy, major financial

expenditures, financial objectives, and legal issues are typically
centralized at the firm's headquarters. However, operating decisions,
such as those relating to production, marketing, R&D, and human
resource management, may or may not be centralized depending on
the firm's strategy.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

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Structure

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10. In firms pursuing a transnational strategy, some operating

decisions are relatively centralized, while others are relatively
decentralized.
TRUE
The situation in firms pursuing a transnational strategy is

complex. In firms pursuing a transnational strategy, some
operating decisions are relatively centralized, while others are
relatively decentralized.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure
11. Beyond the initial functional division of the organization, further

horizontal differentiation may be required if the firm significantly
diversifies its product offering, which takes the firm into different
business areas.
TRUE
Further horizontal differentiation may be required if the firm

significantly diversifies its product offering, which takes the firm
into different business areas. Problems of coordination and
control arise when different business areas are managed within
the framework of a functional structure.

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AACSB: Analytic
Blooms: Understand

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Learning Objective: 14-02 Describe the different organizational choices that can be made in an international
business.
Topic: Organizational Structure

tends to be organized on economy.
FALSE
Regardless of the firm's domestic structure, its international division

tends to be organized on geography.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure
13. The worldwide area structure tends to be adopted by firms with a

low level of diversification whose domestic structures are based on
functions.
TRUE
A worldwide area structure tends to be favored by firms with a low

degree of diversification and a domestic structure based on
functions.
AACSB:
Analytic

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Blooms:
Understand
Difficulty: 2
Medium
business.

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14. In a worldwide area structure, each area tends to be a self-

contained, largely autonomous entity with its own set of value
TRUE
Under the worldwide area structure, the world is divided into

geographic areas. An area may be a country or a group of countries.
Each area tends to be a self-contained, largely autonomous entity
with its own set of value creation activities.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.
15. A worldwide product division structure tends to be adopted by firms

that are reasonably diversified and originally had domestic
structures based on product divisions.
TRUE
A worldwide product division structure tends to be adopted by

firms that are reasonably diversified and, accordingly, originally
had domestic structures based on product divisions. As with the
domestic product divisional structure, each division is a self-

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AACSB:
Analytic

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Blooms: Remember
Difficulty: 1 Easy
business.
16. In a worldwide product divisional structure, each division is a self-

TRUE
In a worldwide product division each division is a self-contained,

largely autonomous entity with full responsibility for its own value
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure
17. The worldwide product division structure facilitates local

responsiveness.
FALSE
The main problem with the worldwide product division structure is

the limited voice it gives to area or country managers, since they are
seen as subservient to product division managers. The result can be
a lack of local responsiveness, which can lead to performance
problems.

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AACSB: Analytic
Blooms:
Understand

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Difficulty: 2
Medium
Structure
18. In a classic matrix structure, individual managers belong to two

hierarchies (a divisional hierarchy and an area hierarchy) and have
two bosses (a divisional boss and an area boss).
TRUE
In the classic global matrix structure, horizontal differentiation

proceeds along two dimensions: product division and geographic
area. It is believed that this dual decision-making responsibility
should enable the firm to simultaneously achieve its particular
objectives.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

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19. It is difficult to ascertain accountability in the global matrix structure.
TRUE
The dual hierarchy in the global matrix structure can lead to

conflict and perpetual power struggles between the areas and the
product divisions, catching many managers in the middle. To make
matters worse, it can prove difficult to ascertain accountability in
this structure.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.
20. The need for coordination between units is greatest in firms

pursuing a localization strategy.
FALSE
The need for coordination is lowest in firms pursuing a localization

strategy, is higher in international companies, higher still in global
companies, and highest of all in transnational companies. Firms
pursuing a localization strategy are primarily concerned with local
responsiveness.

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AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
Structure

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21. The need for coordination is high in firms trying to profit from
location and experience curve economies.
TRUE
Coordination is necessary to support the transfer of skills and

product offerings between units. The need for coordination is also
great in firms trying to profit from location and experience curve
economies, that is, in firms pursuing global standardization
strategies.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.
22. Direct contact between subunit managers is the simplest

integrating mechanism.
TRUE
Direct contact between subunit managers is the simplest integrating

mechanism. By this "mechanism," managers of the various subunits
simply contact each other whenever they have a common concern.
Direct contact may not be effective if the managers have differing
orientations that act to impede coordination.

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AACSB: Analytic

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Blooms: Remember
Difficulty: 1 Easy
business.
23. In a matrix structure all roles are viewed as integrating roles.
TRUE
When the need for integration is very high, firms may institute a
matrix structure, in which all roles are viewed as integrating
roles. The structure is designed to facilitate maximum integration
among subunits.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure
24. A knowledge network is a network for transmitting information

within an organization that is based on formal organizational
structure.
FALSE
A knowledge network is a network for transmitting information within

an organization that is based not on formal organization structure,
but on informal contacts between managers within an enterprise and
on distributed information systems.

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AACSB: Analytic
Blooms:
Remember

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Difficulty: 1
Easy
business.
25. Personal control is a type of control that tends to be most widely

used in large firms.
FALSE
Personal control is control by personal contact with subordinates.

This type of control tends to be most widely used in small firms,
where it is seen in the direct supervision of subordinates' actions.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.
Topic: Control Systems and Incentives
26. Bureaucratic control involves personal contact with subordinates.
FALSE
Bureaucratic control is control through a system of rules and

procedures that directs the actions of subunits. The most important
bureaucratic controls in subunits within multinational firms are
budgets and capital spending rules.

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AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

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Topic: Control Systems and

Incentives
27. In a company using cultural controls, employees' behavior is closely

monitored and controlled through direct supervision.
FALSE
Cultural controls exist when employees "buy into" the norms and
value systems of the firm. When this occurs, employees tend to
control their own behavior, which reduces the need for direct
supervision.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

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28. The basic principle behind incentive systems is to ensure that the
incentive scheme for an individual employee is linked to an output
target that he or she has some control over and can influence.
TRUE
The basic principle is to make sure the incentive scheme for an

individual employee is linked to an output target that he or she has
some control over and can influence. The individual employees on
the factory floor may not be able to exercise much influence over the
performance of the entire operation, but they can influence the
performance of their team, so incentive pay is tied to output at this
level.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.
29. Performance ambiguity lowers the cost of control.
FALSE
The costs of control can be defined as the amount of time top

performance. This is greater when the amount of performance
ambiguity is greater.

lOMoARcPSD|7789687
AACSB: Analytic
Blooms:
Understand

lOMoARcPSD|7789687
Difficulty: 2
Medium
Incentives
30. The costs of control can be defined as the amount of time top
performance.
TRUE
The costs of control can be defined as the amount of time top

performance. This is greater when the amount of performance
ambiguity is greater.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.
31. Firms pursuing a global standardization strategy must cope with a

higher level of performance ambiguity, and this raises their costs of
control.
TRUE

lOMoARcPSD|7789687
Although firms pursuing a global standardization strategy can reap

the cost benefits of location and experience curve economies, they
must cope with a higher level of performance ambiguity, and this
raises the costs of control (in comparison with firms pursuing an
international or localization strategy).
AACSB:
Analytic

lOMoARcPSD|7789687
Blooms: Understand

Incentives
32. New processes that might lead to a competitive advantage can be

developed anywhere within the organization's global network of
operations.
TRUE
It is particularly important for a multinational enterprise to

recognize that valuable new processes that might lead to a
competitive advantage can be developed anywhere within the
organization's global network of operations. New processes may be
developed by a local operating subsidiary in response to conditions
pertaining to its market.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.
Topic: Processes

lOMoARcPSD|7789687
33. Norms are abstract ideas about what a group believes to be good,
right, and desirable.
FALSE
Values are abstract ideas about what a group believes to be good,

right, and desirable. Norms mean the social rules and guidelines
that prescribe appropriate behavior in particular situations.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.
Topic: Processes
34. It is more difficult for a leader to create an organizational culture

from scratch in a new venture than it is to change an established
one.
FALSE
It is more difficult for a leader, however forceful, to change an

established organizational culture than it is to create one from
scratch in a new venture.
AACSB:
Analytic
Blooms:
Understand

lOMoARcPSD|7789687
Difficulty: 2
Medium
business.
Topic: Organizational Culture

lOMoARcPSD|7789687
35. An organizational culture can be strong but bad.
TRUE
Strong does not necessarily mean good. A culture can be strong but
bad. The culture of the Nazi Party in Germany was certainly strong,
but it was most definitely not good.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Culture
36. Firms pursuing a localization strategy have a high need for

coordination between subunits.
FALSE
The need for coordination between subunits (areas and country

subsidiaries) is low. This suggests that firms pursuing a localization
strategy do not have a high need for integrating mechanisms, either
formal or informal, to knit together different national operations.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-03 Explain how organization can be matched to strategy to improve the performance of an
international
business.

lOMoARcPSD|7789687
Topic: Synthesis: Strategy and Architecture

lOMoARcPSD|7789687
37. Firms pursuing a localization strategy tend to operate with an

array of formal and informal integrating mechanisms.
FALSE
Firms pursuing a localization strategy do not have a high need for

integrating mechanisms, either formal or informal, to knit together
different national operations. The lack of interdependence implies
that the level of performance ambiguity in such enterprises is low,
as (by extension) are the costs of control.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
international
business.
38. Firms pursuing a global standardization strategy are more

centralized than enterprises pursuing a localization or
TRUE
Firms pursuing a global standardization strategy are more centralized

than enterprises pursuing a localization or international strategy.
Reflecting the need for coordination of the various stages of the
firms' globally dispersed value chains, the need for integration in
these firms also is high.

lOMoARcPSD|7789687
AACSB: Analytic
Blooms: Remember
Difficulty: 1
Easy

lOMoARcPSD|7789687
Learning Objective: 14-03 Explain how organization can be matched to strategy to improve the performance of
an international business.
Topic: Synthesis: Strategy and

Architecture
39. National regulations including local content rules and policies

pertaining to layoffs might act as a source of inertia.
TRUE
Institutional constraints might also act as a source of inertia.

National regulations including local content rules and policies
pertaining to layoffs might make it difficult for a multinational to
alter its global value chain.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-04 Discuss what is required for an international business to change its organization so that it
better
matches its strategy.
Topic: Organizational Change

lOMoARcPSD|7789687
40. It is important to realize that organizational change will occur

regardless of the commitment of senior managers to it.
FALSE
It is important to realize that change will not occur unless senior

managers are committed to it. Senior managers must clearly
articulate the need for change so employees understand both why it
is being pursued and the benefits that will flow from successful
change.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
Learning Objective: 14-04 Discuss what is required for an international business to change its organization
so that it better matches its strategy.
Multiple Choice Questions

lOMoARcPSD|7789687
41. Organizational structure means all of the following, EXCEPT:
A. the establishment of integrating mechanisms to coordinate the

B. the location of decision-making responsibilities with a structure.
C. the manner in which decisions are made and work is

performed by individuals.
D. the formal division of the organization into subunits such

as product divisions and functions.
By organizational structure refers to three things: First, the formal

division of the organization into subunits; second, the location of
decision-making responsibilities within that structure; and third, the
establishment of integrating mechanisms to coordinate the
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

lOMoARcPSD|7789687
42. Which of the following terms refers to the metrics used to measure
the performance of subunits and make judgments about how well
managers are running those subunits?
A. Key processes
B. Control systems
C. Knowledge networks
D. Job assignments
Control systems are the metrics used to measure the performance

of subunits and make judgments about how well managers are
running those subunits.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

lOMoARcPSD|7789687
43. Historically, Unilever measured the performance of national

operating subsidiary companies according to profitability. In this
example, profitability is a(n):
A. control system.
B. process.
C. integrating mechanism.
D. incentive.
Control systems are the metrics used to measure the performance of

subunits and make judgments about how well managers are running
those subunits. For example, historically Unilever measured the
performance of national operating subsidiary companies according to
profitability—profitability was the metric.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

lOMoARcPSD|7789687
44. The manner in which decisions are made and work is performed
within the organization is known as the firm's:
A. organizational culture.
B. incentives.
C. control systems.
D. processes.
Processes are the manner in which decisions are made and work is
performed within the organization.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

lOMoARcPSD|7789687
45. The norms and values systems that are shared among the
employees of a company are referred to as:
A. processes.
B. control systems.
C. incentives.
D. organizational culture.
Organizational culture refers to the norms and value systems that

are shared among the employees of an organization. Just as
societies have cultures, so do organizations.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

lOMoARcPSD|7789687
46. A firm's _____ determines where in its hierarchy the decision-making

power is concentrated.
A. integrating mechanism
B. vertical differentiation
C. knowledge network
D. horizontal differentiation
A firm's vertical differentiation determines where in its hierarchy

AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
47. What is horizontal differentiation?
A. The mechanisms that enable each subunit to operate

independently
B. The formal division of the organization into subunits
C. The location of decision-making responsibilities within a structure
D. The mechanisms for coordinating subunits
Horizontal differentiation refers to the formal division of the

organization into subunits.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure
48. Integration mechanisms are:
A. the formal division of the organization into subunits.
B. the mechanisms that enable each subunit to operate

independently.
C. the mechanisms for coordinating subunits.
D. the location of decision making responsibilities within a structure.
Integrating mechanisms are mechanisms for coordinating subunits.
AACSB: Analytic

lOMoARcPSD|7789687
Blooms: Remember
Difficulty: 1 Easy

lOMoARcPSD|7789687
business.
49. Which of the following is an argument favoring centralization?
A. It permits greater flexibility.
B. Motivational research favors it.
C. It can avoid the duplication of activities.
D. It gives top management time to focus on critical issues by

delegating routine issues to lower-level managers.
Centralization can avoid the duplication of activities that occurs

when similar activities are carried on by various subunits within the
organization. For example, many international firms centralize their
R&D functions at one or two locations to ensure that R&D work is
not duplicated.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
50. Which of the following is an argument favoring decentralization?
A. It can facilitate coordination.
B. It can help ensure that decisions are consistent with

organizational objectives.
C. It can give top-level managers the means to bring about

needed major organizational changes.
D. It permits greater flexibility.

AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
51. Centralization:
A. gives top management time to focus on critical issues by

delegating more routine issues to lower-level managers.
B. can give top-level managers the means to bring about

needed major organizational changes by concentrating
power and authority in one individual or a management
team.
C. permits greater flexibility because decisions do not have to be

D. can be used to establish relatively autonomous, self-contained

subunits within an organization.
By concentrating power and authority in one individual or a

management team, centralization can give top-level managers the
means to bring about needed major organizational changes.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
52. A firm that needs greater flexibility should choose _____ for its
decision-making.
A. horizontal differentiation
B. decentralization
C. localization strategy
D. control systems

AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
53. Centralization and decentralization differ because:
A. centralization hinders coordination, while decentralization

facilitates coordination.
B. centralization prevents top-level managers from making

required organizational changes, while decentralization gives
top-level managers greater power to make organizational
changes.
C. centralization ensures that decisions are consistent with

organizational objectives, while decentralization can result in
decisions at variance with organizational goals.
D. centralization promotes flexibility, while decentralization reduces

flexibility.
Centralization can help ensure that decisions are consistent with

organizational objectives. When decisions are decentralized to lower-
level managers, those managers may make decisions at variance
with top management's goals. Centralization of important decisions
minimizes the chance of this occurring.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
54. Which of the following decisions is typically centralized

at a firm's headquarters?
A. Production decisions
B. Human resource management
C. Marketing decisions
D. Overall firm strategy
Decisions regarding overall firm strategy are typically centralized

at the firm's headquarters. Operating decisions, such as those
relating to production, marketing, R&D, and human resource
management, may or may not be centralized depending on the
firm's strategy.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
55. The emphasis on local responsiveness in firms pursuing a

localization strategy creates strong pressures for:
A. centralizing all decisions regarding marketing, R&D, and human

resource management.
B. decentralizing operating decisions to foreign subsidiaries.
C. centralizing all operating decisions.
D. global learning.
The emphasis on local responsiveness in firms pursuing a

localization strategy creates strong pressures for decentralizing
operating decisions to foreign subsidiaries.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
56. Global learning based on the multidirectional transfer of skills between

subsidiaries and the corporate center is a central feature of a firm
pursuing a(n)
_____ strategy.
A. localization
B. global standardization
C. transnational
D. international
Global learning based on the multidirectional transfer of skills

between subsidiaries, and between subsidiaries and the corporate
center, is a central feature of a firm pursuing a transnational
strategy.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
57. Which of the following would be a typical responsibility of a product

division in a product divisional structure?
A. Operating decisions
B. Overall strategic development of the firm
C. Financial control of the various divisions
D. Decisions regarding legal issues
With a product divisional structure, each division is responsible for a

distinct product line (business area). The responsibility for operating
decisions is typically decentralized to product divisions, which are
then held accountable for their performance.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
58. Which of the following statements is true about a product divisional

structure?
A. In a product divisional structure, the responsibility for the

financial control of the firm is typically decentralized.
B. A product divisional structure tends to be organized on geography.
C. In a product divisional structure, each product division is set up

as a self-contained, largely autonomous entity with its own
functions.
D. In a product divisional structure, the responsibility for operating

decisions is typically centralized.
With a product divisional structure, each division is responsible for a

distinct product line (business area). The responsibility for operating
decisions is typically decentralized to product divisions, which are
then held accountable for their performance.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687

tends to be organized on:
A. product.
B. geography.
C. people.
D. economy.
When firms initially expand abroad, they often group all their
international activities into an international division. Regardless
of the firm's domestic structure, its international division tends
to be organized on geography.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
60. Which of the following is a problem that arises due to an

international division structure?
A. In an international division structure, a firm's international

division tends to be organized on products.
B. The heads of domestic functions are presumed to be able to

represent the interests of all countries to headquarters.
C. The heads of foreign subsidiaries are not given as much

voice in the organization as the heads of domestic
functions or divisions.
D. The dual-hierarchy structure can lead to conflict and

perpetual power struggles between the areas and the
product divisions.
Despite its popularity, an international division structure can give rise

to problems. The dual structure it creates contains inherent potential
for conflict and coordination problems between domestic and foreign
operations.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
61. In which of the following organizational structures are the domestic

operations and foreign operations isolated from each other leading
to coordination problems?
A. Global matrix structure
B. International division structure
C. Worldwide product division structure
D. Worldwide area structure
Another problem with international division structure is the implied

lack of coordination between domestic operations and foreign
operations, which are isolated from each other in separate parts of
the structural hierarchy. This can inhibit the worldwide introduction
of new products, the transfer of core competencies between
domestic and foreign operations, and the consolidation of global
production at key locations so as to realize location and experience
curve economies.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
62. Which of the following is NOT true regarding a worldwide area

structure?
A. It tends to be favored by firms with a low degree of diversification.
B. It facilitates local responsiveness.
C. It tends to be favored by firms with a domestic structure based on

functions.
D. Decision-making responsibilities are centralized.
A worldwide area structure facilitates local responsiveness. Because

decision-making responsibilities are decentralized, each area can
customize product offerings, marketing strategy, and business
strategy to the local conditions. However, this structure encourages
fragmentation of the organization into highly autonomous entities.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
63. A _____ structure encourages fragmentation of the organization

into highly autonomous entities.
A. worldwide area
B. global matrix
C. worldwide product
D. global network
A worldwide area structure tends to be favored by firms with a low

degree of diversification and a domestic structure based on
functions. This structure encourages fragmentation of the
organization into highly autonomous entities.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
64. A(n) _____ tends to be adopted by firms that are reasonably

diversified.
A. worldwide area structure
B. international division structure
C. worldwide product division structure
D. global matrix structure
A worldwide product division structure tends to be adopted by

firms that are reasonably diversified and, accordingly, originally
had domestic structures based on product divisions in which each
division is a self contained, largely autonomous entity with full
responsibility for its own value creation activities. The
headquarters retains responsibility for the overall strategic
development and financial control of the firm.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
65. The worldwide product division structure:
A. is weak in local responsiveness.
B. inhibits the realization of location economies.
C. inhibits the realization of experience curve economies.
D. limits the transfer of core competencies between areas.
The main problem with the worldwide product division structure is

the limited voice it gives to area or country managers, since they are
seen as subservient to product division managers. The result can be
a lack of local responsiveness, which can lead to performance
problems.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
66. In the classic global matrix structure, horizontal differentiation

proceeds along two dimensions. These dimensions are:
A. hierarchy and overall strategy.
B. target returns and sales potential.
C. marketing strategy and sales potential.
D. product division and geographic area.

area. The philosophy is that responsibility for operating decisions
pertaining to a particular product should be shared by the product
division and the various areas of the firm.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
67. In practice, the dual-hierarchy in a global matrix structure:
A. lessens all forms of conflict.
B. makes it easy to ascertain accountability.
C. results in extremely quick decision making.
D. can lead to perpetual power struggles.
The dual hierarchy structure can lead to conflict and perpetual

power struggles between the areas and the product divisions,
catching many managers in the middle. To make matters worse, it
can prove difficult to ascertain accountability in this structure.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
68. The need for coordination between subunits is lowest in firms

pursuing a(n):
C. global strategy.
Firms pursuing a localization strategy are primarily concerned with

local responsiveness. Such firms are likely to operate with a
worldwide area structure in which each area has considerable
autonomy and its own set of value creation functions. Because
each area is established as a stand-alone entity, the need for
coordination between areas is minimized.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
69. The need for coordination between subunits is highest in firms

pursuing a(n):
C. global strategy.
The need for coordination is greatest in transnational firms, which

simultaneously pursue location and experience curve economies,
local responsiveness, and the multidirectional transfer of core
competencies and skills among all of the firm's subunits.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
70. _____ refers to giving a person in each subunit responsibility for

coordinating with another subunit on a regular basis.
A. Global learning
B. Liaison roles
C. Knowledge network
D. Matrix Structures
Liaison roles are a bit complex. When the volume of contacts

between subunits increases, coordination can be improved by giving
a person in each subunit responsibility for coordinating with another
subunit on a regular basis. Through these roles, the people involved
establish a permanent relationship.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
71. A(n) _____ is valuable because it can be used as a nonbureaucratic

conduit for information flows within a multinational enterprise.
A. liaison network
B. matrix structure
C. organizational structure
D. knowledge network
A knowledge network is a network for transmitting information within

an organization that is based not on formal organization structure,
but on informal contacts between managers within an enterprise and
on distributed information systems.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
72. Which control system is most widely used by small firms?
A. Personal
B. Output
C. Bureaucratic
D. Cultural
Personal control is control by personal contact with subordinates.

This type of control tends to be most widely used in small firms,
where it is seen in the direct supervision of subordinates' actions.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

Incentives

lOMoARcPSD|7789687
73. Control through a system of rules and procedures that directs the
actions of subunits is:
A. personal control.
B. bureaucratic control.
C. output control.
D. cultural control.
Bureaucratic control is control through a system of rules and

procedures that directs the actions of subunits. The most important
bureaucratic controls in subunits within multinational firms are
budgets and capital spending rules.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Incentives

lOMoARcPSD|7789687
74. _____ control is achieved by comparing actual performance against

A. Personal
B. Output
C. Bureaucratic
D. Cultural
Output controls involve setting goals for subunits to achieve and

expressing those goals in terms of relatively objective performance
metrics such as profitability, productivity, growth, market share, and
quality. Control is achieved by comparing actual performance against
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

Incentives

lOMoARcPSD|7789687
75. There is low interdependence, performance ambiguity, and costs of

control in firms pursuing a(n):
C. transnational strategy.
D. global strategy.
In firms pursuing a localization strategy, each national operation

is a stand-alone entity and can be judged on its own merits. The
level of performance ambiguity is low.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
76. Which of the following is NOT true of a strong corporate culture?
A. Almost all managers share a relatively consistent set of values

and norms that have a clear impact on the way work is
performed.
B. A strong culture leads to high performance.
C. Outsiders see firms with a strong culture as having a certain

D. A strong culture can be a bad culture.
Strong does not necessarily mean good. A culture can be strong but
bad. The culture of the Nazi Party in Germany was certainly strong,
but it was most definitely not good. Nor does it follow that a strong
culture leads to high performance.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.
Topic: Organizational Culture

lOMoARcPSD|7789687
77. Firms pursuing a(n) _____ attempt to create value by

transferring core competencies from home to foreign
subsidiaries.
A. localization strategy
B. international strategy
C. transnational strategy
D. global strategy
Firms pursuing an international strategy attempt to create value by

transferring core competencies from home to foreign subsidiaries. If
they are diverse, as most of them are, these firms operate with a
worldwide product division structure.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
international
business.

lOMoARcPSD|7789687
78. Firms pursuing a global standardization strategy:
A. have low performance ambiguity.
B. attempt to create value by transferring core competencies

from home to foreign subsidiaries.
C. are less centralized than enterprises pursuing a localization or

D. have a high need for coordination and cultural controls.
Firms pursuing a global standardization strategy focus on the

realization of location and experience curve economies. In addition
to output and bureaucratic controls, firms pursuing a global
standardization strategy tend to stress the need to build a strong
organizational culture that can facilitate coordination and
cooperation.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium

Architecture

lOMoARcPSD|7789687
79. A firm that operates with matrix-type structures in which both

product divisions and geographic areas have significant influence
would use which of the following strategies?
A. International strategy
B. Transnational strategy
C. Global strategy
D. Localization strategy
Firms pursuing a transnational strategy focus on the simultaneous

attainment of location and experience curve economies, local
responsiveness, and global learning. These firms may operate with
matrix-type structures in which both product divisions and
geographic areas have significant influence.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium

Architecture

lOMoARcPSD|7789687
80. Firms pursuing a transnational strategy:
A. have a low need for coordination.
B. require very few integrating mechanisms.
C. have a very high need for cultural controls.
D. operate with a worldwide product division structure.
The need for coordination is high in transnational firms. This is

reflected in the use of an array of formal and informal integrating
mechanisms, including formal matrix structures and informal
management networks. In addition to output and bureaucratic
controls, firms pursuing a transnational strategy need to cultivate a
strong culture.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium

Architecture
Essay Questions

lOMoARcPSD|7789687
81. Explain organizational structure.
A firm's organizational structure refers to three things. First, the

term refers to the formal division of the organization into subunits
such as product divisions, national operations, and functions.
Second, the term refers to the location of decision-making
responsibilities within the formal structure. Third, organizational
structure refers to the establishment of integrating mechanisms to
coordinate the activities of subunits including cross-functional
teams and/or pan-regional committees.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

lOMoARcPSD|7789687
82. Discuss the relationship between a firm's control systems and a

firm's incentive system. Why is this relationship important?
The relationships between a firm's control systems and incentive

systems is a close one.
Control systems are the metrics used to measure the performance

of subunits and make judgments about how well managers are
running those subunits. Incentives are the devices used to reward
appropriate managerial behavior. The relationship between these
two areas is important because incentives are very closely tied to
performance metrics. For example, the incentives of a manager in
charge of a national operating subsidiary might be linked to the
performance of that company. Specifically, he/she might receive a
bonus if his/her subsidiary exceeds its performance targets.
AACSB: Analytic
Blooms: Understand

lOMoARcPSD|7789687
83. What are the three dimensions of organizational structure?
Organizational structure can be thought of in terms of three

dimensions: First, vertical differentiation or the location of decision-
making responsibilities within the firm. Second, horizontal
differentiation or the formal division of the organization into subunits.
Finally, the establishment of integrating mechanisms that coordinate
subunits.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
84. Why should a firm centralize its decision-making?
Firms should centralize their decision-making for four main reasons.

First, centralization can facilitate coordination. Second,
centralization can help ensure that decisions are consistent with
organizational objectives. Third, by concentrating power and
authority in one individual or a management team, centralization
can give top-level managers the means to bring about needed
major organizational changes. Finally, centralization can avoid the
duplication of activities that occurs when similar activities are
carried on by various subunits within the organization.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
85. Explain the five reasons why a firm should decentralize its decision-
making.
Firms should decentralize their decision-making for five main reasons.

First, top management can become overburdened when decision-
making authority is centralized, and this can result in poor decisions.
Second, motivational research favors decentralization - behavioral
scientists have long argued that people are willing to give more to
their jobs when they have a greater degree of individual freedom and
control over their work. Third, decentralization permits greater
flexibility - more rapid response to environmental changes - because
decisions do not have to be "referred up the hierarchy" unless they
are exceptional. Fourth, decentralization can result in better decisions
because decisions are made closer to the spot by individuals who
have better information than managers several levels up in a
hierarchy. Finally, decentralization can increase control.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
86. Discuss the location of decision-making in a firm that is

following a transnational strategy.
Decision-making in a firm pursuing a transnational strategy is

complex. The need to realize location and experience curve
economies requires some centralized control over global
production centers. Yet, the need for local responsiveness requires
the decentralization of many operating decisions, particularly
those for marketing, to foreign subsidiaries. Decentralization of
decision-making is also needed to allow subsidiaries the freedom
to develop their own skills and competencies—a requirement that
is necessary for the global learning component of the
transnational strategy.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
87. Describe the situation where an international division makes

sense. How common is this structure? What are the
disadvantages of the structure?
When firms initially expand abroad, they often group all their
international activities into an international division. This has tended
to be the case for firms organized on the basis of functions and for
firms organized on the basis of product divisions. Many
manufacturing firms expanded internationally by exporting the
product manufactured at home to foreign subsidiaries to sell.
According to a Harvard study, some 60 percent of all firms that have
expanded internationally have initially adopted the international
division structure.
This type of structure does have problems however. One problem is

that the heads of foreign subsidiaries are not given as much voice in
the organization as the heads of domestic functions. Second, the
isolation of domestic and foreign operations from each other can
inhibit the introduction of new products, the transfer of core
competencies, and the consolidation of global production at key
locations.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687

lOMoARcPSD|7789687
88. What type of firms favor the worldwide area structure and why?
What are the disadvantages of this type of structure?
The worldwide area structure tends to be favored by firms with a low

degree of diversification and a domestic structure based on functions.
This structure divides the world into geographic areas, each area
being a self-contained, largely autonomous unit. Firms choose this
structure because it facilitates local responsiveness. Decision-making
is decentralized, allowing subsidiaries to customize marketing to local
needs. A key disadvantage of this structure, however, is the
fragmentation of the organization that ensues, making it difficult to
realize location and experience curve economies. Firms that choose
this structure find it difficult to respond to pressures for cost
reductions or to transfer core competencies within the firm.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
89. Discuss the type of firm that uses the worldwide product division
structure.
Firms that adopt the worldwide product division structure are

reasonably diversified and originally had domestic structures based
on product divisions. In the worldwide product division structure,
each division is a self-contained, largely autonomous entity with full
responsibility for its own value creation activities. The headquarters
retains the responsibility for the overall strategic development and
financial controls of the firm.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
90. What are the main strengths and weaknesses of the worldwide
product division structure?
The primary strength of the worldwide product division structure is

that it provides an organizational context in which it is easier to
pursue the consolidation of value creation activities at key locations
necessary for realizing location and experience curve economies. It
also facilitates the transfer of core competencies within a division's
worldwide operations and the simultaneous worldwide introduction of
new products. The main weakness of the structure is the limited
voice it gives to area or country managers, since they are seen as
subservient to the product division managers. This can lead to a lack
of local responsiveness.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
91. Discuss the global matrix structure.

area. The philosophy is that responsibility for operating decisions
pertaining to a particular product should be shared by the product
division and the various areas of the firm.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
92. What are the formal integrating mechanisms used to integrate

subunits?
The formal mechanisms used to integrate subunits vary in

complexity from simple direct contact and liaison roles, to teams, to
a matrix structure. Direct contact between subunit managers is the
simplest integrating mechanism. By this "mechanism," managers of
the various subunits simply contact each other whenever they have
a common concern. When the volume of contacts between subunits
increases, coordination can be improved by giving a person in each
subunit responsibility for coordinating with another subunit on a
regular basis. When the need for coordination is greater still, firms
tend to use temporary or permanent teams composed of individuals
from the subunits that need to achieve coordination. When the need
for integration is very high, firms may institute a matrix structure, in
which all roles are viewed as integrating roles.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
93. What is a knowledge network? What is the advantage of such a

system?
A knowledge network is a network for transmitting information

within an organization that is based not on formal organizational
structure, but on informal contacts between managers within an
enterprise and on distributed information systems.
The great strength of such a network is that it can be used

as a nonbureaucratic conduit for knowledge flows within an
organization.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Structure

lOMoARcPSD|7789687
94. Consider the use of personal controls in international firms. In

which type of firm is this control most common?
Personal control is control by personal contact with subordinates. This

type of control tends to be most widely used in small firms, where it
is seen in the direct supervision of subordinates' actions. However, it
also structures the relationships between managers at different levels
in multinational enterprises. For example, the CEO may use a great
deal of personal control to influence the behavior of his or her
immediate subordinates, such as the heads of worldwide product
divisions or major geographic areas. In turn, these heads may use
personal control to influence the behavior of their subordinates, and
so on down through the organization.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
95. What are output controls?
Output controls involve setting goals for subunits to achieve and

expressing those goals in terms of relatively objective performance
metrics such as profitability, productivity, growth, market share, and
quality. Control is achieved by comparing actual performance against
Subunits' goals depend on their role in the firm.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy

Incentives

lOMoARcPSD|7789687
96. What is performance ambiguity? Discuss the relationships between

strategy, interdependence, and performance ambiguity.
Performance ambiguity exists when the causes of a subunit's poor

performance are not clear. In firms pursuing a localization strategy,
each national operation is a stand-alone entity and can be judged on
its own merits. The level of performance ambiguity is low. In an
international firm, the level of interdependence is somewhat higher.
In firms pursuing a global standardization strategy, the levels of
interdependence and performance ambiguity are high. The level of
performance ambiguity is highest of all in transnational firms.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium
business.

lOMoARcPSD|7789687
97. Discuss the sources of inertia in organizations. Is it easy

to make organizational changes?
Organizations are difficult to change. Within most organizations are

strong inertia forces. These forces come from a number of sources.
One source of inertia is the existing distribution of power and
influence within an organization. Managers who are not happy with
the changes are likely to resist and slow the process. A second
source of inertia is the existing culture. Since value systems reflect
deeply held beliefs, they can be very hard to change. A third source
of inertia derives from senior managers' preconceptions about the
appropriate business model or paradigm. Managers may not
recognize the value in a given business model that has been
successful in the past. Finally, institutional constraints may act as a
source of inertia. In some cases, local content rules or regulations
pertaining to layoffs can make it difficult for firms to adopt the most
effective strategy and architecture.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium

lOMoARcPSD|7789687
98. What are the basic principles for successful organizational change?
There are three basic principles for organizational change. First,

unfreeze the organization through shock therapy and change the
distribution of power and influence. Second, move the organization
to a new state through proactive change in the architecture, so that
it matches the desired new strategic posture. Finally, refreeze the
organization in its new state and socialize employees into the new
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium

lOMoARcPSD|7789687
99. Discuss the issues involved in unfreezing an organization.
Because of inertia forces, incremental change is often no change.

Those whose power is threatened by change can too easily resist
incremental change. This leads to the big bang theory of change,
which maintains that effective change requires taking bold action
early to "unfreeze" the established culture of an organization and to
change the distribution of power and influence. Shock therapy to
unfreeze the organization might include the closure of plants
deemed uneconomic or the announcement of a dramatic structural
reorganization. It is also important to realize that change will not
occur unless senior managers are committed to it. Senior managers
must clearly articulate the need for change so employees
understand both why it is being pursued and the benefits that will
flow from successful change. Senior managers must also practice
what they preach and take the necessary bold steps.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium

lOMoARcPSD|7789687
100. Discuss the issues involved in refreezing an organization.
Refreezing the organization takes longer and may require that a new
culture be established, while the old one is being dismantled. Thus,
refreezing requires that employees be socialized into the new way of
doing things. Hiring policies must be changed to reflect the new
realities, with an emphasis on hiring individuals whose own values
are consistent with that of the new culture the firm is trying to build.
Similarly, control and incentive systems must be consistent with the
new realities of the organization, or change will never take.
AACSB:
Analytic
Blooms:
Understand
Difficulty: 2
Medium

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Kinh tế Quốc tế (Đại học Kinh tế Thành phố Hồ Chí Minh)

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The Organization of International

True / False Questions

1. Organizational structure refers to the totality of a firm's

organization. True False

2. A firm's organizational culture refers to the formal organizational

3. A manager receives a bonus because the national operating

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4. A firm's vertical differentiation determines where in its hierarchy

5. By centralizing decision making, a firm can avoid the duplication of

6. A decentralized organization allows managers to respond to

7. Centralization gives top-level managers the power and authority to

8. A firm pursuing a localization strategy will have a strong incentive to

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9. The choice between centralization and decentralization is not

absolute. True False

10. In firms pursuing a transnational strategy, some operating decisions

11. Beyond the initial functional division of the organization, further

12. Regardless of a firm's domestic structure, its international division

13. The worldwide area structure tends to be adopted by firms with a

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14. In a worldwide area structure, each area tends to be a self-

15. A worldwide product division structure tends to be adopted by firms

16. In a worldwide product divisional structure, each division is a self-

17. The worldwide product division structure facilitates local

responsiveness. True False

18. In a classic matrix structure, individual managers belong to two

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19. It is difficult to ascertain accountability in the global

matrix structure. True False

20. The need for coordination between units is greatest in firms

22. Direct contact between subunit managers is the simplest integrating

mechanism. True False

23. In a matrix structure all roles are viewed as

integrating roles. True False

24. A knowledge network is a network for transmitting

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25. Personal control is a type of control that tends to be most widely

26. Bureaucratic control involves personal contact with

subordinates. True False

27. In a company using cultural controls, employees' behavior is closely

29. Performance ambiguity lowers the cost of

control. True False

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31. Firms pursuing a global standardization strategy must cope with a

32. New processes that might lead to a competitive advantage can be

34. It is more difficult for a leader to create an organizational culture from

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35. An organizational culture can be strong

but bad. True False

36. Firms pursuing a localization strategy have a high need for

37. Firms pursuing a localization strategy tend to operate with an array of

38. Firms pursuing a global standardization strategy are more

39. National regulations including local content rules and policies

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40. It is important to realize that organizational change will occur

Multiple Choice Questions

41. Organizational structure means all of the following, EXCEPT:

A. the establishment of integrating mechanisms to coordinate the