Globalization Test Questions

Chapter 1 Expanding abroad: Motivations, means, and mentalities True/False

1. The largest MNEs are equivalent in their economic importance to less developed economies such as Tanzania, Estonia or Sri Lanka. Answer: False (Sales of the largest MNEs exceed the GDPs of less developed countries. ) Difficulty: Easy Page: 4 and Table 1-1 on page 3 Topic: MNE scope and influence

2. The process of internationalization followed by most firms is usually well-thought out in advance and typically builds on a combination of rational analysis, planning and implementation.

Answer: False (It is more likely a combination of rational analysis, opportunism, and luck. In regards to opportunism, several studies have found that most firms begin exporting due to an unsolicited export order. ) Difficulty: Moderate Page: 9 Topic: Internationalization process

3. A joint venture is a contractual mode of foreign entry involving a high level of resource commitment by all partners. Answer: False (A JV will not typically require as high a resource commitment as we would see in wholly owned subsidiaries. In addition, there is significant variability in the level of resources contributed by partners. ) Difficulty: Moderate Page: 10 Topic: Foreign entry mode

4. Emerging motivations for internationalization include the desire to enhance the firm’s competitive position and the desire to develop global scanning capabilities. Answer: True Difficulty: Easy Page: 6-7 and ppt slide 1-6 Topic: Motivations for internationalization

5. For an MNE to exist, first foreign countries must provide location-specific advantages to attract the company to invest there, second the company must have ownership-specific advantages that counteract its liability of foreignness, third the company must have the organizational capability to leverage its strategic advantages more effectively internally than externally. Answer: True Difficulty: Moderate Page: 7-8 Topic: Prerequisites for internationalization

6. An MNE with a ‘multinational perspective’ will typically be managed as a coordinated federation. Answer: False (It will typically be managed as a decentralized federation. ) Difficulty: Moderate Page: 11-12 and ppt slide 1-13 Topic: The evolving mentality: international to transnational

7. An MNE with a ‘global perspective’ will typically manage its operations centrally. Answer: True Difficulty: Moderate Page: 12-13 and ppt slide 1-13 Topic: The evolving mentality: international to transnational

8. An MNE with a ‘transnational perspective’ will typically be managed as an integrated network. Answer: True Difficulty: Moderate Page: 13-14 and ppt slide 1-13 Topic: The evolving mentality: international to transnational

Multiple Choice

9. Which of the following correctly describes the sequential evolution in management thinking with respect to the strategic role of foreign operations in emerging MNEs? a. global mentality, multinational mentality, international mentality, transnational mentality. b. international mentality, global mentality, transnational mentality, multinational mentality. c. multinational mentality, global mentality, international mentality, transnational mentality. d. international mentality, multinational mentality, global mentality, transnational mentality.

Answer: d (a, b, and c are incorrect because, although they describe the different ways of management thinking regarding the strategic role of foreign operations in emerging MNEs, they do not describe the evolution of this thinking in the correct sequence. ) Difficulty: Moderate Page: 11-14 Topic: Evolving mentality toward strategic role of foreign operations

10. A franchise, such as McDonald’s, is a _________ mode of foreign entry. a. low commitment, low control b. low commitment, moderate control c. low commitment, high control d. moderate commitment, moderate control

Answer: b (a, c, and d would describe indirect export, contract manufacturing, and joint venture foreign modes of entry respectively. ) Difficulty: Moderate Page: 10 (figure 1-2) Topic: Foreign entry mode

11. A joint venture is a _________ mode of foreign entry. a. low commitment, low control b. low commitment, moderate control c. low commitment, high control d. moderate commitment, moderate control Answer: d (a, b, and c would describe indirect export, franchise, and contract manufacturing foreign modes of entry respectively. ) Difficulty: Moderate Page: 10 (figure 1-2)

Topic: Foreign entry mode

12. Pashpa Co. is a new manufacturer of home appliances. Pashpa wants to go international. Some of the traditional motivations for pursuing internationalization include: a. securing key supplies, seeking new markets, and raising global scanning and learning capabilities b. securing key supplies, seeking new markets, and improving competitive positioning c. securing key supplies, seeking new markets and accessing low-cost factors of production d. securing key supplies, improving competitive positioning, and accessing low-cost factors of production

Answer: c (a, b, and d are incorrect because ‘raising global scanning and learning capabilities’ and ‘improving competitive positioning’ are not traditional motivations for pursuing internationalization, they are emerging motivations. ) Difficulty: Moderate Page: 4-6 Topic: Motivations for internationalization

13. One motivation behind internationalization is to sustain the firm’s competitive position. To pursue a sustainable competitive position relative to its rivals in the athletic clothing industry, Nike attempts to: a. reempt markets, capture global scale, and secure raw materials b. capture global scale, access scarce knowledge, and match competitors c. match competitors, capture global scale, and preempt markets d. exploit factor cost differences, preempt markets, and match competitors Answer: c (a, b, and d are incorrect because ‘securing raw materials’, ‘accessing scarce knowledge’, and ‘exploiting factor cost differences’ may give a company a temporary competitive advantage but not a sustainable competitive advantage. ) Difficulty: Hard Page: 4-7

Topic: Motivations for internationalization

14. _________ suggests that in the first stage innovations are produced in the home developed country; in the second stage they are exported to other similarly developed countries; in the third stage, they start being produced in these developed countries; in the fourth stage they start being produced in low-wage developing countries. a. Vernon’s product cycle theory b. Johanson and Vahlne’s stages theory c. Dunning’s eclectic theory d. Levitt’s globalization theory Answer: a Difficulty: Moderate Page: 5-6, 8 Topic: Motivations for internationalization

15. Which of the following constitutes a list of foreign entry modes that involve the MNE to make a foreign investment a. Greenfield, acquisition, joint venture and capital participation b. Greenfield, acquisition, joint venture and license c. Franchising, acquisition, joint venture and capital participation d. Greenfield, acquisition, cooperation agreements and capital participation Answer: a (Licensing, franchising, and many forms of cooperation may not entail an MNE making an investment. Difficulty: Easy Page: 9-10 Topic: Foreign entry modes

16. OfficeWare Corp. is an MNE that produces and sells office equipment. If the company’s CEO employs a ‘global mentality’ toward the strategic role of the company’s foreign operations, then we would expect that OfficeWare: a. regards its overseas markets as a portfolio of local opportunities. b. leverages its domestic capabilities worldwide. c. regards the world as a single unit of analysis. d. simultaneously responds to local needs, global demands and cross-border learning opportunities.

Answer: c (a, b, and d would represent multinational, international, and transnational mentalities respectively. ) Difficulty: Moderate Page: 11-14 Topic: The evolving mentality: international to transnational Essay

17. The CEO of Paragon Ltd. wants to take his company international. What are the three big questions he must answer before expanding abroad? Answer: The three questions this CEO must answer before expanding abroad are: a. What market opportunities, sourcing advantages or strategic imperatives will drive the company’s international expansion? . How will the company expand its foreign presence – through exports, licensing, joint ventures, wholly owned subsidiaries or some other means? c. How will the attitudes, assumptions and beliefs of Paragon’s employees impact the probability of the company succeeding in its efforts to internationalize? Difficulty: Moderate Page: 1 (box insert) Topic: Internationalization

18. Rana manages an Italian fashion design company. What would motivate Rana’s company to internationalize? Answer: i) Traditional motivations might include: securing key supplies, seeking new markets and accessing low-cost factors of production (e. g. labor, capital, etc. ); (ii) Emerging motivations might include: increasing scale economies to offset significant R&D investments, shortening product life cycles, improving a company’s competitive position and enhancing a company’s global scanning and learning capabilities. Difficulty: Easy Page: 4-7 Topic: Motivations behind internationalization

19. Briefly explain the product cycle of personal computers using Raymond Vernon’s product cycle theory. Answer:

This theory suggests that early in a product’s life-cycle, all the parts and labor needed to manufacture the product will be sourced from the locale in which the product was invented. As the product is increasingly adopted and distributed in global markets, production gradually shifts away from the point of origin. In some cases, the product ultimately becomes a good that is imported into the country in which it was originally invented. For example, in the case of personal computers, during the new product stage, the computer was produced and purchased by consumers in the United States and little export trade occurred.

During the maturing product stage, mass-production techniques were developed and foreign demand (in developed countries) expanded. At this point, the U. S. began to export the product to other developed countries. In the standardized product stage, production moved to developing countries, which then export the product to developed countries. Difficulty: Moderate Page: 5-6 Topic: Product cycle theory

20. Briefly compare and contrast the Uppsala Internationalization Model and the Born Global Model. Under what circumstances is each model most applicable?

Give examples to support your arguments. Answer: According to the Uppsala Model, companies internationalize in an incremental fashion. Typically, they start by utilizing foreign entry modes that require low levels of resource commitment and low levels of control over foreign activities (e. g. exporting). The model conceptualizes subsequent stages in the internationalization process as requiring higher levels of resource commitment and providing higher levels of control over foreign activities (e. g. wholly owned subsidiary). The experience of Toyota is consistent with the Uppsala Model.

According to the Born Global Model, some companies are born global, establishing significant international operations immediately or shortly after the company is launched. These firms do not employ an incremental approach. Instead, these firms aggressively pursue internationalization due to their internal orientation or the need to move quickly due to the nature of their products or services. The experience of many internet companies is consistent with the Born Global Model. Difficulty: Moderate Page: 9-10 Topic: Process of internationalization

21.Roy is the CEO of a multinational apparel company. How would he conceptualize the strategic role of his firm’s foreign operations if he possessed a ‘global mentality’? If he possessed a ‘multinational mentality’? Answer: If Roy possessed a global mentality, he would view the world as a single unit of analysis and he would centralize the management of the firm’s foreign operations. Thus, he would drive the firm to create products for a world market and manufacture them on a global scale in a few highly efficient plants, often located at the corporate center.

However, if Roy possessed a multinational mentality, he would regard foreign markets as a portfolio of local opportunities and manage his company as a decentralized federation. Thus, he would recognize and emphasize the differences between national markets and operating environments and modify his products, strategies and management practices on a country-by-country basis. Difficulty: Moderate Page: 11-13 Topic: Mentalities toward internationalization

22. What is an MNE? Give examples to explain the difference between companies that are considered MNEs and those that are not. Answer:

An MNE is a company that engages in the active management of substantial direct investment in one or more foreign countries and that considers those investments/operations as integral parts of the company, both strategically and organizationally. Thus, companies that solely rely on import-export business are not considered MNEs. They may be considered international companies but not multi-national enterprises (MNEs). Moreover, companies that passively manage an investment portfolio (as opposed to those that actively manage foreign assets) are not considered MNEs. Difficulty: Easy Page: 2 Topic: MNE definition

23.Briefly compare and contrast the four mentalities toward internationalization. Answer: Companies that have an international mentality produce products for the domestic market and only subsequently sell these products overseas. They transfer innovation and knowledge from the parent company to the foreign operators. These companies view themselves essentially as domestic with some foreign appendages. Companies that have a multinational mentality modify their products, strategies, and management practices country by country. These companies view themselves as nationally sensitive and responsive, thus the term multinational.

Companies that have a global mentality create products for a world market and manufacture them on a global level in a few highly efficient plants. These companies view the world, not just individual national markets, as their unit of analysis. Companies that have a transnational mentality are responsive to country-level operations; however, they coordinate these operations to sustain competitive effectiveness and economic efficiency. These companies view themselves as an integrated network. Difficulty: Moderate Page: 11-14 Topic: Mentalities toward internationalization