TESTBANK: CHAPTER 12

Global Strategy and the Multinational Corporation

True/False Questions

1. The two primary drivers of change in business environment during the past half century are deregulation
and internationalization.
[See p.312]
a. T
*b. F

2. Internationalization represents both an opportunity and a threat to business enterprises.

[See p.312]
*a. T
b. F

3. Internationalization occurs through two main mechanisms: trade and offshoring.

[See p.313]
a. T
*b. F

4. International trade is motivated by the quest to exploit market opportunities in other countries; foreign
direct investment, on the other hand, is motivated by the desire to exploit resources and capabilities located
in other countries.
[See p.313]
a. T
*b. F

5. Sheltered industries are shielded from imports by high barriers to entry.

[See p.313]
a. T
*b. F

6. Service industries such as commercial banking and hotels tend to be “multidomestic” in their pattern of
internationalization.
[See p.314]
*a. T
b. F

7. In general, internationalization of an industry results in more competition and lower profitability

[See p.314]
*a. T
b. F

8. Internationalization often involves mergers and acquisitions; hence, it tends to reduce seller
concentration within individual national markets.
[See p.314]

©2016 Robert M. Grant 12-1

a. T
*b. F

9. Internationalization tends to increase competition by increasing investment in new capacity and

increasing the diversity of competitors within each national market.
[See pp.314-315]
*a. T
b. F

10. In an international context, comparative advantage and competitive advantage are identical concepts.
[See pp.315-316]
a. T
*b. F

11. Comparative advantage refers to countries’ relative efficiencies in producing different products
[See p.320-321
*a. T
b. F

12. The revealed comparative advantage of the US, Canada and Australia in cereals is a reflection of these
countries’ large natural endowments of land.
[See p.320
*a. T
b. F

13. Switzerland’s comparative advantage in clocks and watches is likely to reflect the Swiss emphasis on
punctuality rather than Switzerland’s resource endowments.
[See pp.316-317]
*a. T
b. F

14. Porter’s “national diamond” framework implies that government policies which foster “national
champions” within technology-based industries are likely to be successful in stimulating national
competitiveness in these sectors.
[See p.317-318]
a. T
*b. F

15. Porter’s “national diamond” framework suggests that a significant factor explaining the dominance by
German firms of the world market for luxury and high performance automobiles is to be found more in the
factors of production available in Germany than in the demand characteristics of German consumers.
[See p.317]
a. T
*b. F

16. For high-tech products such as aircraft and smartphones, the international fragmentation of the value
chain tends to be driven less by cost considerations and more by the availability of sophisticated technical
capabilities.
[See pp.320-321]

©2016 Robert M. Grant 12-2

*a. T
b. F

17. The benefits from fragmenting a product’s value chain across multiple locations almost always
outweigh the costs of coordinating globally dispersed activities.
[See p.321-322]
a. T
*b. F

18. If the firm’s competitive advantage is country-based, the firm can exploit foreign markets either by
exports or by direct investment
[See pp.322-323]
a. T
*b. F

19. In pharmaceuticals (where patent protection tends to be strong), exports or direct foreign investment
will tend to be preferred over licensing as a means of exploiting overseas markets.
[See pp.323-324]
a. T
*b. F

20. Starbucks entry into India by means of a joint venture with Tata Group in preference to its usual
practice of operating wholly owned subsidiaries outside the US reflects Starbucks’ view that Indian market
is highly complex and Starbucks needed the knowledge and connections possessed by a local partner.
[See p.323]
*a. T
b. F

21. Traditionally, European-based multinational companies such as Unilever, Shell, and Philips have been
highly centralized; Japanese multinationals such as Honda, Sony, and Hitachi have been highly
decentralized.
[See pp.331-332]
*a. T
b. F

22. A key difference between Bartlett and Ghoshal’s “transnational corporation” and the conventional US
multinational corporation (described by Bartlett and Ghoshal as a “coordinated federation”) is that
communication and coordination occurs between national units rather than exclusively between each
national unit and the corporate HQ
[See pp.332-334]
*a. T
b. F

23. In Ghemawat’s “Aggregation, Adaptation, Arbitrage” framework, the potential for a multinational
enterprise to exploit arbitrage benefits are likely to be greater in a capital-intensive industry than in a labor-
intensive industry
[See p.334-335]
a. T

©2016 Robert M. Grant 12-3

*b. F

24. Designating a national subsidiary as a “center of excellence” for a particular product, technology, or
activity is a way of reconciling differentiation to meet the needs of national markets with the exploitation of
global scale advantages.
[See pp.334-337]
*a. T
b. F

Multiple Choice Questions

25. Uber’s distribution of ice cream in over 38 counties of the world on July 17, 2014, exemplifies the
following feature of international business:
[See p.311]
a. The demand for ice cream is global
b. U.S companies have mastered international expansion more effectively than those from any other
country
*c. The pace of transition from being a domestic to a global competitor is much faster in ecommerce than
in traditional business sectors
d. Once a company has built a network, that network can be used to distribute a wider range of offerings

26. Firms internationalize through two mechanisms:

[See p.313]
a. Exports and imports.
b. Trade in goods (visible trade) and trade in services (invisible trade).
c. Direct and indirect investment.
*d. Trade and direct investment.

27. Global industries are those where:

[See p.313]
a. International trade (imports and exports) are high in relation to industry sales
b. Technology transfers are high
c. Foreign direct investment is high
*d. Both trade and direct investment are high

28. With internationalization, the threat of new entry into domestic industries is increases because:
[See p.314]
a. Customer preferences for imported products
b. The World Trade Organization (WTO) prevents governments protecting their domestic industries
through subsidies and import restrictions
*c. Barriers to entry that would deter domestic firms may be easily overcome by large firms from other
countries
d. Foreign-based, state-owned enterprises are not deterred by losses earned in overseas markets

29. Which aspect of internationalization by companies does not increase the intensity of competition within
national markets?
[See p.318]
a. Internationalization increases the diversity of firms competing in each national market

©2016 Robert M. Grant 12-4

 b. Internationalization increases the number of firms in each national market
*c Internationalization stimulates mergers and acquisitions within an industry
d. Internationalization increases investment in new capacity

30. The theory of comparative advantage is concerned with:

[See p.315]
a. The sources of real income differentials among countries
*b. The impact of resource availability on national competitiveness in particular industries
c. The competitive advantages of low-wage countries
d. The determinants of capital flows between countries

31. Large countries have an advantage over small countries in technology-intensive and capital-intensive
industries, because:
[See p.316]
a. They can influence the rest of the world’s technical standards
b. Small markets discourage ambition among the firms that serve them
*c. A large home market allows exploitation of scale economies in facilities and product development
d. Large countries tend to have superior educational systems

32. According to Porter’s “national diamond” analysis, the competitive advantage of Swiss firms in
watches, German firms in luxury cars, and Japanese firms in cameras is a result of:
[See p.317]
a. The availability of highly skilled workers in each of these countries
b. The lack of natural resources in each of these countries
*c. The characteristics of local demand in each of these countries
d. High levels of domestic competition

33. In Porter’s national diamond framework, Porter emphasizes that encouraging mergers in an industry in
order to form a “national champion”:
[See p.318]
*a. Eliminates the pressure of domestic competition to drive innovation, quality, and efficiency
b. Creates the scale that I essential to compete in global markets
c. Is an effective means for government to channel support to the domestic industry
d. Provides a focal point for building a cluster of related and supporting industries

34 Toyota operates automobile assembly plants in all five continents of the worlds. This reflects:
[See p.319]
a. The widespread availability of the resources needed for automobile production.
b. The high costs of transporting automobiles between countries.
c. The need to adapt products to the requirements of local markets.
*d. Toyota’s ability to transfer its production capabilities worldwide.

35. The value chain for a product will tend to be dispersed across different countries when:
[See pp.320-321]
*a. Different stages of the value chain require different types of resources and capabilities.
b. The product is subject to import tariffs and quotas.
c. The product is knowledge-intensive.
d. The different stages of the value chain need to be closely coordinated.

©2016 Robert M. Grant 12-5

36. Saudi Aramco and Statoil are both major oil producers. Saudi Aramco’s competitive advantage is based
on its access to low-cost domestic oil reserves; Statoil’s competitive advantage is its capability in offshore
exploration and production. The implications for the internationalization strategies of the two companies
are:
[See p.319]
a. Both companies should focus on exporting from their own countries
*b. Saudi Aramco should focus on exporting; Statoil should pursue direct foreign investment
c. Saudi Aramco should pursue direct foreign investment; Statoil should focus on exporting
d. Both companies should use a mixture of exporting and direct investment depending upon the nature of
the foreign opportunity

37. A start-up company based in Canada and led by an academic microbiologist has patented genetically-
modified, drought-resistant maize particularly suitable to arid regions of Africa. The firm has been unable
to attract significant venture capital investment. How should the firm exploit commercial opportunities for
its product in Africa?
[See pp.322-324]
a. It should form a joint venture with a multinational agricultural seed company
b. It should establish seed production in Canada and set up sales offices in African countries
c. It should establish seed production in Canada and appoint sales agents in different African countries
*d. It should license its patent to a multinational agricultural seed company and continue research on other
projects for the genetic modification of agricultural crops

38. Many retailers that have been outstandingly successful in their how markets have experienced much
poorer performance when they have entered overseas markets. These include: Tesco, Marks& Spencer,
Laura Ashley, and Body Shop in the UK); Best Buy, Sears, Macy’s, and Wal-Mart in the US. This reflects:
[See pp.322-324]
a. The lack of major efficiency benefits from international scope in retailing.
b. The lack of scale economies in retailing.
c. Limited opportunities for exploiting learning benefits in retailing (e.g. by transferring best practices).
*d. The lack of major efficiency benefits from international scope combined with the need for national
differentiation.

39. A common approach to reconciling the benefits of global scale with the need for national differentiation
is to:
[See pp.324-325]
a. Develop a global brand but rely on local promotional activities.
*b. Create standard product platforms in terms of design and components, then adapting product features,
complementary services, and marketing approaches.
c. Allow major national subsidiaries to develop new products, then encouraging other national subsidiaries
to adopt them.
d. Develop globally standardized products but sell them under local brand names.

40. The “centralized hub” strategy that Japanese multinationals pursued during the 1970s and 1980s is
likely to be most successful in industries with:
[See pp.331-332]
a. Innovation as the primary source of competitive advantage
*b. Large economies of scale and limited need for national differentiation
c. Substantial opportunities for transfer of learning among countries
d. Rapid rates of technological change

©2016 Robert M. Grant 12-6

41. Internationalization among New York-based law firms is the result of:
[See p.325]
a. The US possessing a comparative advantage in legal services.
*b. US law firms following the opportunity to provide global service to their multinational clients.
c. US law firms seeking to benefit from knowledge transfer between different legal systems.
d. US law firms seeking to exploit economies of scale in human capital and IT systems.

42. The Dutch-based electrical and consumer electronics multinational, Philips, has transferred the
headquarters for several of its global business away from the Netherlands. In terms of Bartlett and
Ghoshal’s typology of multinational strategies, this represents a transition from:
[See pp.331-333]
a. A “centralized hub” to a “decentralized federation”
b. A “centralized hub” to a “transnational”
*c. A “decentralized federation” to a “transnational” ○
d. A “coordinated federation” to a “decentralized federation”

43. The costs of national differentiation can be low if:

[See p.329]
a. A firm does not differentiate its products very much
b. The firm has a strong brand
c. A “global customer” exists
*d. A common basic design and common components are used

44. McDonald’s introduction of a greater number of local products on its menus, then transferring these
items across national borders points to:
[See p.330]
a. The tendency for global products to lose their appeal.
b. The versatility of the McDonald’s business system.
*c. The potential for localized adaptation within the multinational enterprise to be a source of innovation
and strategic renewal.
d. Growing competition in the fast food industry as the McDonald’s system is increasingly imitated by
local rivals.

©2016 Robert M. Grant 12-7