Luthans10e TB Ch08

Chapter 08 - Strategy Formulation and Implementation
Chapter 08
Strategy Formulation and Implementation
True/False Questions
1. Strategic management is required to keep track of increasingly diversified operations in a

continuously changing international environment.
Answer: True
Feedback: One of the primary reasons that multinational corporations such as Citibank need
strategic management is to keep track of their increasingly diversified operations in a
continuously changing international environment.
AACSB: Analytic
Bloom's: Remember
Learning Objective: 08-01 DISCUSS the meaning, needs, benefits, and approaches of the
strategic planning process for today's MNCs.
Level of Difficulty: 1 Easy
Topic: Strategic Management
2. There is definitive evidence that strategic planning in the international arena always results in
higher profitability.
Answer: False
Feedback: Despite some obvious benefits, there is no definitive evidence that strategic planning
in the international arena always results in higher profitability, especially when multinational
corporations try to use home strategies across different cultures. Most studies that report
favorable results were conducted at least a decade ago.
AACSB: Analytic
Bloom's: Remember
3. Although strategic planning usually seems to pay off, as with most other aspects of
international management, the specifics of the situation will dictate the success of the process.
Answer: True
Feedback: Although strategic planning usually seems to pay off, as with most other aspects of
international management, the specifics of the situation will dictate the success of the process.
AACSB: Analytic
Bloom's: Remember
4. Citibank is an example of a company that finds operating in China to be too risky.

8-1
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Answer: False
Feedback: As companies go international, strategic processes take on added dimensions. A good
example is provided by Citibank (a unit of Citicorp), which opened offices in China in 1902 and
continued to do business there until 1949, when communists took power. However, in 1984,
Citibank quietly returned, and over the last two decades, the firm has been slowly increasing its
presence in China.
AACSB: Analytic
Bloom's: Understand
Level of Difficulty: 2 Medium
5. An economic imperative dominates the strategic plans of computer manufacturers.

Answer: True
Feedback: An economic imperative approach to strategic planning is used when a product is
regarded as a generic good and therefore does not have to be sold based on name brand or
support service. The economic imperative dominates the strategic plans of computer
manufacturers.
AACSB: Analytic
Bloom's: Remember
6. Total quality management techniques range from traditional inspection and statistical quality
control to cutting-edge human resource management techniques.
Answer: True
Feedback: Total quality management techniques range from traditional inspection and statistical
quality control to cutting-edge human resource management techniques.
AACSB: Analytic
Bloom's: Remember
7. Statistics reveal that foreign direct investment (FDI) has grown ten times faster than trade and
twice as fast as world gross domestic product.
Answer: False
Feedback: Statistics reveal that FDI has grown three times faster than trade and four times faster
than world gross domestic product.
AACSB: Analytic
Bloom's: Remember
8-2
8. National responsiveness relates to the need to adapt tools and techniques for managing the
local workforce.
Answer: True
Feedback: National responsiveness is the need to understand the different consumer tastes in
segmented regional markets and respond to different national standards and regulations imposed
by autonomous governments and agencies. It also relates to the need to adapt tools and
techniques for managing the local workforce.
AACSB: Analytic
Bloom's: Remember
Learning Objective: 08-02 UNDERSTAND the tension between pressures for global integration
and national responsiveness and the four basic options for international strategies.
9. To a growing extent, the customers of multinational corporations have heterogeneous tastes,

and this has helped to spread international consumerism.
Answer: FALSE
Feedback: To a growing extent, the customers of multinational corporations have homogenized
tastes, and this has helped to spread international consumerism. For example, throughout North
America, the EU, and Japan, there has been a growing acceptance of standardized, yet
increasingly personally, customized goods such as automobiles and computers.
AACSB: Analytic
Bloom's: Remember
10. In a multi-domestic strategy, niche companies adapt products to satisfy the high demands of
differentiation.
Answer: True
Feedback: When the need for differentiation is high but the concern for integration is low, a
multi-domestic strategy is appropriate. In this case, niche companies adapt products to satisfy the
high demands of differentiation and ignore economies of scale because integration is not very
important.
AACSB: Analytic
Bloom's: Understand
8-3
11. When the home office interferes with a subsidiary in another country, profitability suffers.
Answer: True
Feedback: One study found that when decisions were made mainly at the home office and close
coordination between the subsidiary and home office was required, return on investment was
negatively affected. Simply put, the home office ends up interfering with the subsidiary, and
profitability suffers.
AACSB: Analytic
Bloom's: Remember
12. International strategies are characterized by increased international standardization of

products and services.
Answer: True
Feedback: International strategies are characterized by increased international standardization of
products and services.
AACSB: Analytic
Bloom's: Remember
13. The economic imperative dominates the strategic plans of industries such as insurance and
consumer packaged goods.
Answer: False
Feedback: Multinational corporations using the political imperative approach to strategic
planning are country-responsive. The products sold by MNCs often have a large portion of their
value added in the downstream activities of the value chain. Industries such as insurance and
consumer packaged goods are examples.
AACSB: Analytic
Bloom's: Understand
14. The primary thrust of internal resource analysis is to match internal opportunities with
external capabilities.
Answer: False
Feedback: Internal resource analysis helps a firm to evaluate its current managerial, technical,
material, and financial resources and capabilities to better assess its strengths and weaknesses.
The primary thrust of this analysis is to match internal opportunities with external capabilities.
8-4
AACSB: Analytic
Bloom's: Understand
Learning Objective: 08-03 IDENTIFY the basic steps in strategic planning, including
environmental scanning, internal resource analysis of the MNC's strengths and weaknesses, and
goal formulation.
Topic: The Basic Steps in Formulating Strategy
15. Multinational corporations generally need higher profitability from their overseas operations
than they do from their domestic operations.
Answer: True
Feedback: Profitability and marketing goals almost always dominate the strategic plans of
today's multinational corporations. Profitability is so important because multinational
corporations generally need higher profitability from their overseas operations than they do from
their domestic operations.
AACSB: Analytic
Bloom's: Remember
goal formulation.
16. The more successful a firm is domestically, the less difficult it is to increase market share
without strong competitive response.
Answer: False
Feedback: A firm that has done well domestically with a product or service usually has done so
because the competition is minimal or ineffective. The more successful a firm is domestically,
the more difficult it is to increase market share without strong competitive response.
AACSB: Analytic
Bloom's: Understand
goal formulation.
17. Frontier markets are less correlated to the ups and downs of the global economy.
Answer: True
Feedback: Whereas most traditional emerging markets are financially linked to the economies of
their more developed counterparts, frontier markets are less correlated to the ups and downs of
the global economy.
AACSB: Analytic
Bloom's: Remember
Learning Objective: 08-04 DESCRIBE how an MNC implements the strategic plan, such as how
it chooses a site for overseas operations.
8-5

Topic: Strategy Implementation
18. While selecting a geographic location to operate in, manufacturers often set up operations in
urban areas.
Answer: False
Feedback: Manufacturers often set up operations in rural areas, commonly called "greenfield
locations," which are much less expensive and do not have the problems of urban areas.
AACSB: Analytic
Bloom's: Remember
19. Emerging economies pose exceptional risks due to their political and economic volatility and
their relatively underdeveloped institutional systems.
Answer: True
Feedback: Emerging economies pose exceptional risks due to their political and economic
volatility and their relatively underdeveloped institutional systems. These risks show up in
corruption, failure to enforce contracts, red tape and bureaucratic costs, and general uncertainty
in the legal and political environment.
AACSB: Analytic
Bloom's: Remember
Learning Objective: 08-06 EXPLAIN specialized strategies appropriate for emerging markets
and international new ventures.
Topic: Specialized Strategies
20. The implementation of strategy from a marketing perspective must be determined on a

country-by-country basis.
Answer: True
Feedback: The implementation of strategy from a marketing perspective must be determined on
a country-by-country basis. What works from the standpoint of marketing in one locale may not
necessarily succeed in another.
AACSB: Analytic
Bloom's: Remember
Learning Objective: 08-05 REVIEW the three major functions of marketing, production, and
finance that are used in implementing a strategic plan.
Multiple Choice Questions
8-6
21. The process of determining an organization's basic mission and long-term objectives and
then implementing a plan of action for attaining these objectives is called:
A. strategic management.
B. tactical management.
C. contingency management.
D. functional management.
Answer: A
Feedback: Strategic management is the process of determining an organization's basic mission
and long-term objectives and then implementing a plan of action for pursuing this mission and
attaining these objectives. For most companies, regardless of how decentralized, the top
management team is responsible for setting the strategy.
AACSB: Analytic
Bloom's: Remember
22. Which of the following statements is true of strategic management?

A. Middle management is responsible for setting the strategy in most organizations.
B. All levels of management are imperative to the strategic implementation process.
C. Formulating an organization’s vision statement is the core motive of strategic management.
D. As companies go international, the need for strategic management decreases.
Answer: B
Feedback: Middle management has sometimes been viewed as primarily responsible for the
strategic implementation process, but now companies are realizing how imperative all levels of
management are to the entire process.
AACSB: Analytic
Bloom's: Understand
23. Honda and General Motors have both built plants in Thailand to take advantage of:
A. demand and low delivery costs.
B. strategic pricing.
C. new technologies and low wages.
D. tax incentives and demand.
Answer: D
Feedback: Toyota, Honda Motor Co., and General Motors Co. have built plants in Thailand,
Southeast Asia's second-biggest economy, lured by tax incentives and demand amid a domestic
population of 70 million.
AACSB: Analytic
Bloom's: Understand
8-7
24. A(n) _____ strategy is most likely to be used when a product is regarded as a generic good
and therefore does not have to be sold based on name brand or support service.
A. economic imperative
B. political imperative
C. quality imperative
D. administrative coordination
Answer: A
Feedback: Multinational corporations that focus on the economic imperative employ a
worldwide strategy based on cost leadership, differentiation, and segmentation. The strategy is
used when the product is regarded as a generic good and therefore does not have to be sold based
on name brand or support service.
AACSB: Analytic
Bloom's: Remember
25. A worldwide strategy based on cost leadership, differentiation, and segmentation is referred
to as the _____ strategy.
A. economic imperative
Answer: A
worldwide strategy based on cost leadership, differentiation, and segmentation.
AACSB: Analytic
Bloom's: Remember
26. Who among the following are the key to stimulating profit growth within a company?
A. Sales personnel
B. Middle managers
C. First-line managers
D. Top managers
Answer: B
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worldwide strategy based on cost leadership, differentiation, and segmentation. Middle managers
are the key to stimulating profit growth within a company, so expanding those efforts on an
international level is a necessary tool to learn for today's new managers.
AACSB: Analytic
Bloom's: Remember
27. When focusing on the _____ approach to strategic planning, companies typically sell
products for which a large portion of value is added in the upstream activities of the industry's
value chain.
A. quality imperative
C. economic imperative
Answer: A
worldwide strategy based on cost leadership, differentiation, and segmentation. Many of these
companies typically sell products for which a large portion of value is added in the upstream
activities of the industry's value chain.
AACSB: Analytic
Bloom's: Remember
28. Multinational corporations using the _____ approach to strategic planning are country-
responsive; their approach is designed to protect local market niches.
A. administrative coordination
B. economic imperative
D. political imperative
Answer: D
planning are country-responsive; their approach is designed to protect local market niches. The
products sold by these multinational corporations often have a large portion of their value added
in the downstream activities of the value chain.
AACSB: Analytic
Bloom's: Remember
8-9
29. When using the _____ approach to strategic planning, the products sold by multinational
corporations often have a large portion of their value added in the downstream activities of the
value chain.
A. political imperative
B. cost imperative
D. economic imperative
Answer: A
planning are country-responsive; their approach is designed to protect local market niches. The
products sold by MNCs often have a large portion of their value added in the downstream
activities of the value chain.
AACSB: Analytic
Bloom's: Remember
30. The _____ approach to strategic planning is used by multinational corporations that need a
country-centered or multi-domestic strategy.
A. quality imperative
B. administrative coordination
C. political imperative
D. economic imperative
Answer: C
planning are country-responsive. The products sold by MNCs often have a large portion of their
value added in the downstream activities of the value chain. Industries such as insurance and
consumer packaged goods are examples. Typically, these industries use a country-centered or
multi-domestic strategy.
AACSB: Analytic
Bloom's: Remember
31. The approach to strategic formulation and implementation utilizing strategies of total quality
management to meet or exceed customers' expectations and continuously improve products
and/or services is referred to as the:
A. value-added imperative.
B. quality imperative.
C. political imperative.
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D. economic imperative.
Answer: B
Feedback: A quality imperative takes two interdependent paths: (1) a change in attitudes and a
raising of expectation for service quality and (2) the implementation of management practices
that are designed to make quality improvement an ongoing process. Commonly called total
quality management, or simply TQM, the approach takes a wide number of forms, including
cross-training personnel to do the jobs of all members in their work group, process re-
engineering designed to help identify and eliminate redundant tasks and wasteful effort, and
reward systems designed to reinforce quality performance.
AACSB: Analytic
Bloom's: Understand
32. The quality strategy is formulated at the _____ management level and is diffused throughout
the _____.
A. top; middle-level management
B. top; organization
C. lowest; organization
D. middle; low-level management
Answer: B
Feedback: The quality strategy is formulated at the top management level and is diffused
throughout the organization. From top executives to hourly employees, everyone operates under
a total quality management strategy of delivering quality products or services to internal and
external customers. Middle managers will better understand and implement these strategies if
they are a part of the process.
AACSB: Analytic
Bloom's: Remember
33. A(n) _____ approach to strategy formulation and implementation is one in which a
multinational corporation makes strategic decisions based on the merits of the individual
situation rather than using a predetermined economic or political strategy.
A. administrative coordination
B. bureaucratic coordination
C. value-added
D. functional
Answer: A
Feedback: An administrative coordination approach to formulation and implementation is one in
which a multinational corporation makes strategic decisions based on the merits of the individual
situation rather than using a predetermined economic or political strategy. A good example is
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provided by Walmart, which has expanded rapidly into Latin America in recent years. While
many of the ideas that worked well in the North American market served as the basis for
operations in the Southern Hemisphere, the company soon realized that it was doing business in
a market where local tastes were different and competition was strong.
AACSB: Analytic
Bloom's: Remember
34. The production and distribution of products and services of a homogeneous type and quality
on a worldwide basis is called _____.
A. global integration
B. administrative coordination
C. horizontal specialization
D. market standardization
Answer: A
Feedback: Global integration is the production and distribution of products and services of a
homogeneous type and quality on a worldwide basis. To a growing extent, the customers of
multinational corporations have homogenized tastes, and this has helped to spread international
consumerism.
AACSB: Analytic
Bloom's: Remember
35. Total quality management techniques range from traditional inspection and statistical quality
control to cutting-edge human resource management techniques, such as:
A. market share and profitability
B. customer service and quality control
C. self-managing teams and empowerment
D. imports and exports
Answer: C
Feedback: Total quality management techniques range from traditional inspection and statistical
quality control to cutting-edge human resource management techniques, such as self-managing
teams and empowerment.
AACSB: Analytic
Bloom's: Remember
8-12
36. Which of the following strategies is appropriate when the need for national responsiveness is
low and the need for global integration is high?
A. International strategy
B. Multi-domestic strategy
C. Global strategy
D. Transnational strategy
Answer: C
Feedback: In terms of economies of scale, when the need for integration is high and the need for
awareness of differentiation is low, global strategies based on price competition are appropriate.
AACSB: Analytic
Bloom's: Understand
37. When the need for national responsiveness is high and the need for global integration is also
high, the most appropriate strategy is a(n) _____ strategy.
A. transnational
B. global
C. international
D. multi-domestic
Answer: A
Feedback: When the need for national responsiveness is high and the need for global integration
is also high, the most appropriate strategy is transnational strategy. One good example of a
transnational company is Monsanto.
AACSB: Analytic
Bloom's: Understand
38. When the need for national responsiveness is high and the need for global integration is low,
a(n) _____ strategy is appropriate.
A. transnational
B. multi-domestic
C. international
D. global
Answer: B
Feedback: When the need for differentiation is high but the concern for integration is low, the
most appropriate strategy is multi-domestic strategy. In this case, niche companies adapt
products to satisfy the high demands of differentiation and ignore economies of scale because
integration is not very important.
AACSB: Analytic
Bloom's: Understand
8-13
39. When the need for national responsiveness is low and the need for global integration is also
low, which of the following strategies would be appropriate?
A. Globalization strategy
B. Transnational strategy
C. International strategy
D. Multi-domestic strategy
Answer: C
Feedback: When the need for national responsiveness is low and the need for global integration
is also low, the most appropriate strategy is an international strategy. Both the potential to obtain
economies of scale and the benefits of being sensitive to differentiation are of little value. It is a
mixed approach characterized by increased international standardization of products and
services.
AACSB: Analytic
Bloom's: Understand
40. Which of the following is not one of the steps in strategic planning?
A. Transferring the successful process used in a developed country to an emerging economy
B. Scanning the external environment for opportunities and threats
C. Conducting an internal resource analysis of company strengths and weaknesses
D. Formulating goals in light of the external scanning and internal analysis
Answer: A
Feedback: In international management, strategic planning can be broken into the following
steps: (1) scanning the external environment for opportunities and threats; (2) conducting an
internal resource analysis of company strengths and weaknesses; and (3) formulating goals in
light of the external scanning and internal analysis.
AACSB: Analytic
Bloom's: Understand
goal formulation.
41. Many large multinational corporations work to combine the _____ approaches to strategic
planning.
A. economic, environmental, political, and administrative
B. global, environmental, economic, and quality
8-14
C. political, administrative, regional, and environmental

D. economic, political, quality, and administrative
Answer: D
Feedback: Many large multinational corporations work to combine the economic, political,
quality, and administrative approaches to strategic planning. For example, IBM relies on the
economic imperative when it has strong market power (especially in less developed countries),
the political and quality imperatives when the market requires a calculated response (European
countries), and an administrative coordination strategy when rapid, flexible decision making is
needed to close the sale. Of the four, however, the first three approaches are much more common
because of the firm's desire to coordinate its strategy both regionally and globally.
AACSB: Analytic
Bloom's: Remember
42. _____ attempts to provide management with accurate forecasts of trends that relate to
external changes in geographic areas where the firm is currently doing business or considering
setting up operations.
A. Environmental scanning
B. Functional scanning
C. Tactical scanning
D. Operational scanning
Answer: A
Feedback: Environmental scanning attempts to provide management with accurate forecasts of
trends that relate to external changes in geographic areas where the firm is currently doing
business or considering setting up operations. These changes relate to environmental factors that
can affect the company and include the industry or market, technology, regulatory, economic,
social, and political aspects.
AACSB: Analytic
Bloom's: Remember
goal formulation.
43. _____ is central to discovering if a multinational corporation can survive in a particular

region.
A. Horizontal integration
B. Administrative coordination
C. Environmental scanning
D. Internal resource analysis
Answer: C
8-15
Feedback: Environmental scanning is central to discovering if a multinational corporation can

survive in a particular region; however, it is only effective if it is done consistently.
AACSB: Analytic
Bloom's: Remember
goal formulation.
44. _____ is the strategic planning process that helps a firm evaluate its current managerial,
technical, material and financial strengths and weaknesses.
A. Environmental scanning
B. Administrative coordination
C. Internal resource analysis
D. Corporate governance
Answer: C
Feedback: Internal resource analysis helps the firm to evaluate its current managerial, technical,
material, and financial resources and capabilities to better assess its strengths and weaknesses.
This assessment then is used by a multinational corporation to determine its ability to take
advantage of international market opportunities.
AACSB: Analytic
Bloom's: Remember
goal formulation.
45. In the context of strategy formulation, which of the following identifies the key factors for
success that will dictate how well the firm is likely to do?
A. Regression analysis
B. Internal analysis
C. Competitive analysis
D. Power analysis
Answer: B
Feedback: An internal analysis identifies the key factors for success that will dictate how well
the firm is likely to do. A key success factor (KSF) is a factor that is necessary for a firm to
compete effectively in a market niche.
AACSB: Analytic
Bloom's: Remember
goal formulation.
8-16
46. A key success factor is a factor that is necessary for a firm to compete effectively in a(n):
A. international market.
B. highly restricted market.
C. market niche.
D. broad market domain.
Answer: C
Feedback: An internal analysis identifies the key factors for success that will dictate how well
the firm is likely to do. A key success factor (KSF) is a factor that is necessary for a firm to
compete effectively in a market niche.
AACSB: Analytic
Bloom's: Remember
goal formulation.
47. Which of the following statements about the Internet business is false?
A. It has removed certain entry barriers that have historically restricted quick market entry.
B. It provides one of the easiest and most efficient methods of becoming global quickly.
C. It provides a more diverse customer base than building-based businesses.
D. It experiences more problems than "bricks and mortar" business during times of financial
crises.
Answer: D
Feedback: E*Trade was in danger of being left behind when it could not get out of the red, but in
2005, the company was able to become profitable due to the low cost of Internet business and its
extremely diverse customer base. Although it had its ups and downs in the following years, it
survived the financial crisis with fewer problems than many "bricks and mortar" brokerages. The
Internet clearly provides one of the easiest and most efficient methods of becoming global
quickly, but it is important that awareness is brought to the business, or it too can be lost in the
digital maze of the World Wide Web.
AACSB: Analytic
Bloom's: Understand
48. Once strategic goals are set, a multinational corporation will develop specific _____ goals
and controls, usually through a two-way process at the subsidiary or affiliate level.
A. bureaucratic
B. operational
C. tactical
D. contingency
Answer: B
8-17
Feedback: When formulating a strategy, once the strategic goals are set, a multinational
corporation will develop specific operational goals and controls, usually through a two-way
process at the subsidiary or affiliate level. Home-office management will set certain parameters,
and the overseas group will operate within these guidelines.
AACSB: Analytic
Bloom's: Remember
goal formulation.
49. The process of providing goods and services in accord with a plan of action is called:
A. strategy implementation.
B. strategy formulation.
C. strategy control.
D. strategy contingency.
Answer: A
Feedback: Strategy implementation provides goods and services in accord with a plan of action.
Quite often, this plan will have an overall philosophy or series of guidelines that direct the
process.
AACSB: Analytic
Bloom's: Remember
50. International management must consider three general areas in strategy implementation.
First, the multinational corporation must:
A. implement functional strategies in areas such as marketing.
B. develop alliances with the most attractive local partner.
C. carry out entry and ownership strategies.
D. decide where to locate operations.
Answer: D
Feedback: International management must consider three general areas in strategy
implementation. First, the multinational corporation must decide where to locate operations.
Second, the multinational corporation must carry out entry and ownership strategies. Finally,
management must implement functional strategies in areas such as marketing, production, and
finance.
AACSB: Analytic
Bloom's: Understand
8-18
51. In choosing a location, a primary consideration for a multinational corporation investing in a

foreign country would be a decision based on:
A. corporate culture.
B. business ethics.
C. specific locale.
D. operating norms.
Answer: C
Feedback: In choosing a location, today's multinational corporations has two primary
considerations: the country and the specific locale within the chosen country. Quite often, the
first choice is easier than the second, because there are many more alternatives from which to
choose a specific locale.
AACSB: Analytic
Bloom's: Remember
52. Why do multinational corporations often invest in advanced industrialized countries?

A. They offer the largest markets for goods and services.
B. The control of operations is in the hands of local partners in these countries.
C. They do not have any legal restrictions related to imports.
D. The cost of doing business in these countries is significantly less.
Answer: A
Feedback: Multinational corporations often invest in advanced industrialized countries because
they offer the largest markets for goods and services. In addition, the established country or
geographic locale may have legal restrictions related to imports, encouraging a local presence.
AACSB: Analytic
Bloom's: Understand
53. All of the following act as disincentives for multinational corporations except:
A. restrictions on profit repatriation.
B. controls on the transfer of technology.
C. export maximums for generating foreign currency.
D. limits on local market growth.
Answer: C
Feedback: Disincentives or performance requirements that must be met by multinational
corporations in host countries include job-creation quotas, export minimums for generating
foreign currency, limits on local market growth, labor regulations, wage and price controls,
restrictions on profit repatriation, and controls on the transfer of technology.
AACSB: Analytic
8-19
Bloom's: Remember
54. A multinational corporation’s choice of a specific locale is affected by all of the following
factors except:
A. desirability of the location for employees coming in from the outside.
B. the structure of the organization.
C. proximity to competitors.
D. the nature of the workforce.
Answer: B
Feedback: Once a multinational corporation has selected the country in which to locate, the firm
must choose the specific locale. A number of factors influence this choice. Common
considerations include access to markets, proximity to competitors, availability of transportation
and electric power, and desirability of the location for employees coming in from the outside.
AACSB: Analytic
Bloom's: Understand
55. For products like computers, Japanese firms:

A. move from their home market directly into fully developed countries and then on to newly
developing nations.
B. move from their home market directly into developing nations and then on to developed
countries.
C. go only to developed countries to market products.
D. go only to developing countries to market products.
Answer: A
Feedback: For some products such as computers, the Japanese have moved from their home
market directly into fully developed countries and then on to newly developing nations.
AACSB: Analytic
Bloom's: Understand
56. The implementation of a marketing strategy in international areas is built around the well-
known "four Ps" of marketing. These are:
A. place of origin, price, productive life, and product.
B. promotion, price, production method, and productive life.
C. product, price, promotion, and place.
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D. place of origin, production method, price, and people.

Answer: C
Feedback: The implementation of marketing strategy in the international arena is built around the
well-known "four Ps" of marketing: product, price, promotion, and place.
AACSB: Analytic
Bloom's: Remember
57. If a firm operates production plants in different countries but makes no attempt to integrate
its overall operations, the company is known as a(n) _____ firm.
A. multi-domestic
B. global
C. transnational
D. international
Answer: A
Feedback: If a firm operates production plants in different countries but makes no attempt to
integrate its overall operations, the company is known as a multi-domestic. A recent trend has
been away from this scattered approach and toward global coordination of operations.
AACSB: Analytic
Bloom's: Remember
58. If a company is going to export goods to a foreign market, the production process
traditionally has been handled through:
A. domestic operations.
B. home-country operations.
C. third-party operations.
D. fourth-party operations.
Answer: A
Feedback: Although marketing usually dominates strategy implementation, the production
function also plays a role. If a company is going to export goods to a foreign market, the
production process traditionally has been handled through domestic operations.
AACSB: Analytic
Bloom's: Remember
8-21
59. To respond to risks in emerging markets, multinational corporations must do all of the
following except:
A. limiting equity investments.
B. avoiding joint ventures.
C. collaborating with a local partner.
D. engaging in shared ownership structures.
Answer: D
Feedback: Multinational corporations must adjust their strategy to respond to the exceptional
risks posed by emerging economies. For example, in these risky markets, it may be wise to
engage in arm's-length or limited equity investments or to maintain greater control of operations
by avoiding joint ventures or other shared ownership structures. In other circumstances, it may
be wiser to collaborate with a local partner who can help buffer risks through its political
connections.
AACSB: Analytic
Bloom's: Understand
60. When market liberalization is delayed, _____.

A. first movers possess a significant advantage over later entrants.
B. first movers possess clear, significant advantages in transitional markets.
C. later entrants possess a significant advantage over first movers.
D. substantial risks to premature entry are removed.
Answer: A
Feedback: First movers who succeed in taking over newly privatized state-owned enterprises,
such as telecom and energy firms, possess a significant advantage over later entrants, especially
when market liberalization is delayed and the host government provides protection to the newly
privatized incumbent firms.
AACSB: Analytic
Bloom's: Understand
61. The significant economies associated with early-entry positioning include all of the following
except:
A. capturing learning effects important for increasing market share.
B. achieving scale economies.
C. developing alliances with the most attractive local partner.
D. making technological advancements.
Answer: D
Feedback: In general, in particular industries and economic environments, significant economies
are associated with first-mover or early-entry positioning—being the first or one of the first to
8-22
enter a market. These include capturing learning effects important for increasing market share,
achieving scale economies that accrue from opportunities for capturing that greater share, and
development of alliances with the most attractive (or in some cases the only) local partner.
AACSB: Analytic
Bloom's: Understand
62. Which of the following groups make up the "base of the pyramid" in international
management?
A. Front-line employees at the bottom of an organizational hierarchy
B. Young people at the bottom of the population pyramid
C. Emerging middle-class markets and other wealthiest consumers
D. Potential low-income customers at the bottom of the economic pyramid
Answer: D
Feedback: Although FDI in emerging economies has grown rapidly, most has been directed at
the big emerging markets previously mentioned—China, India, and Brazil—and even there, most
multinational corporation (MNC) emerging-market strategies have focused exclusively on the
elite and emerging middle-class markets, ignoring the vast majority of people considered too
poor to be viable customers. Because of this focus, MNC strategies aimed at tailoring existing
practices and products to better fit the needs of emerging-market customers have not succeeded
in making products and services available to the mass markets in the developing world—the 4–5
billion people at the bottom of the economic pyramid who represent fully two-thirds of the
world's population.
AACSB: Analytic
Bloom's: Understand
63. Which of the following is likely to be the most effective strategic approach for the "base of
the pyramid"?
A. Incremental adaptation of existing technologies and products
B. Establishing partnerships with central governments of emerging economies
C. Leapfrog technologies, including disruptive technologies
D. Large-scale strategies
Answer: C
Feedback: The base of the pyramid (BOP) may be an ideal environment for incubating new,
leapfrog technologies, including "disruptive" technologies that reduce environmental impacts
and increase social benefit such as renewable energy and wireless telecom.
AACSB: Analytic
Bloom's: Understand
8-23
64. Which of the following findings regarding the base of the pyramid (BOP) strategy has
significant implications for the globalization–national responsiveness framework?
A. Building relationships directly and at the local level contributes to the reputation and fosters
the trust necessary to overcome the lack of formal institutions such as the rule of law.
B. The BOP may be an ideal environment for incubating new, leapfrog technologies.
C. Business models forged successfully at the base of the pyramid have the potential to travel
profitably to higher-income markets.
D. The BOP strategy brings focus to those who are too poor to be viable customers for
multinational companies.
Answer: C
Feedback: Business models forged successfully at the base of the pyramid have the potential to
travel profitably to higher-income markets because adding cost and features to a low-cost model
may be easier than removing cost and features from high-cost models. This finding has
significant implications for the globalization–national responsiveness framework.
AACSB: Analytic
Bloom's: Understand
65. All of the following are challenges firms could face in the implementation of the base of the
pyramid (BOP) strategy except:
A. offering affordable goods.
B. generating awareness regarding a product.
C. nonexistent distribution channels.
D. coordinating administrative functions.
Answer: D
Feedback: The BOP strategy is challenging to implement. Companies have to offer affordable
goods that are highly available in a community that is willing to accept the product. Most
importantly, however, is that the company must bring awareness of the product to the general
populace. Balancing these is not a simple task, since advertising and efficient distribution
networks, for example, cost a significant amount, yet the companies cannot add a high price tag.
Furthermore, illiteracy issues, poor infrastructure, corruption, and nonexistent distribution
channels often associated with poverty-stricken societies deter companies from wanting to
invest.
AACSB: Analytic
Bloom's: Understand
8-24
66. Which of the following is not one of the factors that made international management
activities of entrepreneurial and new-venture firms possible?
A. Customized, old access channels
B. Advances in telecommunication
C. Greater efficiencies and lower costs in shipping
D. Advances in Internet technologies
Answer: A
Feedback: International management activities of entrepreneurial and new-venture firms have
been made possible by advances in telecommunication and Internet technologies and by greater
efficiencies and lower costs in shipping, allowing firms that were previously limited to local or
national markets to access international customers. These new access channels, however, suggest
particular strategies that must be customized and tailored to the unique situations and resource
limitations of small, entrepreneurial firms.
AACSB: Analytic
Bloom's: Remember
67. Firms that internationalize after being domestically established have to overcome all of the
following barriers except:
A. their domestic orientation.
B. their internal domestic political ties.
C. their domestic decision-making inertia.
D. their anti-risk seeking behavior.
Answer: D
Feedback: One study among 57 privately held Finnish electronics firms during the mid-1990s
showed that firms that internationalize after they are established domestically must overcome a
number of barriers to that international expansion, such as their domestic orientation, internal
domestic political ties, and domestic decision-making inertia.
AACSB: Analytic
Bloom's: Understand
68. Which of the following statements is true of the technological learning gained from varied
international environments?
A. It is enhanced by efforts to integrate knowledge throughout a firm.
B. It results in a deterioration of growth and return on equity.
C. It leads to minimal diversity of national environments.
D. It has no effect on cross-functional teams.
8-25
Answer: A
Feedback: The breadth, depth, and speed of technological learning from varied international
environments is significantly enhanced by formal organizational efforts to integrate knowledge
throughout a firm such as cross-functional teams and formal analysis of both successful and
failed projects.
AACSB: Analytic
Bloom's: Understand
69. _____ are firms that engage in significant international activity shortly after being
established.
A. Greenfield ventures
B. Born globals
C. Sole proprietorships
D. Matrix organizations
Answer: B
Feedback: A dimension of the growth of international entrepreneurial activities is the increasing
incidence of international new ventures, or born-global firms—firms that engage in significant
international activity a short time after being established.
AACSB: Analytic
Bloom's: Remember
70. Which of the following is not a feature of born-global firms?

A. They export products to close markets.
B. They employ strategies like unique-products development.
C. They indulge in significant international activity shortly after being established.
D. They succeed depending on how developed the areas are that the companies are moving into.
Answer: A
Feedback: Truly born-global firms tend to distribute goods to distant markets in multiple regions,
and revenues from international activities tend to surpass 25 percent.
AACSB: Analytic
Bloom's: Understand
Essay Questions
8-26
71. Is there a growing need for strategic management among multinational corporations? If so,
why?
Answer: One of the primary reasons that MNCs such as Citibank need strategic management is
to keep track of their increasingly diversified operations in a continuously changing international
environment. This need is particularly obvious when one considers the amount of foreign direct
investment (FDI) that has occurred in recent years. Statistics reveal that FDI has grown three
times faster than trade and four times faster than world gross domestic product (GDP). These
developments are resulting in a need to coordinate and integrate diverse operations with a unified
and agreed-on focus.
AACSB: Analytic
Bloom's: Understand
72. Describe the difference between global integration and national responsiveness. What is the
principle advantage of each strategy?
Answer: Global integration is the production and distribution of products and services of a
homogeneous type and quality on a worldwide basis. To a growing extent, the customers of
multinational corporations have homogenized tastes, and this has helped to spread international
consumerism. This provides an opportunity for some firms to sell standardized products
worldwide. Global integration generates economies of scale and also capitalizes on further
lowering unit costs as a firm moves into worldwide markets selling its products or services.
National responsiveness is the need to understand the different consumer tastes in segmented
regional markets and respond to different national standards and regulations imposed by
autonomous governments and agencies. National responsiveness relates to the need to adapt
tools and techniques for managing the local workforce. Sometimes what works well in one
country does not work in another.
AACSB: Analytic
Bloom's: Understand
73. Identify the four basic strategies that multinational corporations use and the situations in
which they are used.
Answer: Multinational corporations can be characterized as using one of four basic international
strategies: an international strategy, a multi-domestic strategy, a global strategy, and a
transnational strategy. The appropriateness of each strategy depends on pressures for cost
reduction and local responsiveness in each country served. Firms that pursue an international
strategy have valuable core competencies that host-country competitors do not possess and face
minimal pressures for local responsiveness and cost reductions. International firms such as
McDonald's, Wal-Mart and Microsoft have been successful using an international strategy.
8-27
Organizations pursuing a multi-domestic strategy should do so when there is high pressure for
local responsiveness and low pressure for cost reductions. A global strategy is a low-cost
strategy. Firms that experience high cost pressures should use a global strategy in an attempt to
benefit from scale economies in production, distribution, and marketing. By offering a
standardized product worldwide, firms can leverage their experience and use aggressive pricing
schemes. This strategy makes most sense where there are high cost pressures and low demand
for localized product offerings. A transnational strategy should be pursued when there are high
cost pressures and high demands for local responsiveness. However, a transnational strategy is
very difficult to pursue effectively. Pressures for cost reduction and local responsiveness put
contradictory demands on a company because localized product offerings increase cost.
Organizations that can find appropriate synergies in global corporate functions are the ones that
can leverage a transnational strategy effectively.
AACSB: Analytic
Bloom's: Understand
74. What is the purpose of internal resource analysis? In the context of internal resource analysis,
what is a "key success factor"?
Answer: Internal resource analysis helps a firm to evaluate its current managerial, technical,
material, and financial strengths and weaknesses. This assessment is then used by the
multinational corporation to determine its ability to take advantage of international market
opportunities. The primary purpose of this analysis is to match external opportunities with
internal capabilities. An internal analysis identifies the key factors for success that will dictate
how well the firm is likely to do. A key success factor (KSF) is a factor that is necessary for a
firm to compete effectively in a market niche.
AACSB: Analytic
Bloom’s: Understand
environmental scanning, internal resource analysis of the MNC’s strengths and weaknesses, and
goal formulation.
75. What is the base of the pyramid (BOP), and why is this strategy challenging to implement?
Answer: A group of researchers and companies have begun exploring the potentially untapped
markets at the base of the pyramid (BOP). They have found that incremental adaptation of
existing technologies and products is not effective at the BOP and that the BOP forces
multinational corporations to fundamentally rethink their strategies. Companies must consider
smaller-scale strategies and build relationships with local governments, small entrepreneurs, and
nonprofits rather than depend on established partners such as central governments and large local
companies. The BOP strategy is challenging to implement. Companies have to offer affordable
goods that are highly available in a community that is willing to accept the product. Most
importantly, however is that the company must bring awareness of the product to the general
8-28
population. Balancing these is not a simple task, since advertising and efficient distribution
networks, for example, cost a significant amount, yet the companies cannot add a high price tag.
Furthermore, illiteracy issues, poor infrastructure, corruption, and nonexistent distribution
channels often associated with poverty-stricken societies deter companies from wanting to
invest.
AACSB: Analytic
Bloom's: Understand
8-29

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Chapter 08 - Strategy Formulation and Implementation

1. Strategic management is required to keep track of increasingly diversified operations in a

4. Citibank is an example of a company that finds operating in China to be too risky.

5. An economic imperative dominates the strategic plans of computer manufacturers.

9. To a growing extent, the customers of multinational corporations have heterogeneous tastes,

12. International strategies are characterized by increased international standardization of

Level of Difficulty: 1 Easy

20. The implementation of strategy from a marketing perspective must be determined on a

Multiple Choice Questions

22. Which of the following statements is true of strategic management?

Feedback: Multinational corporations that focus on the economic imperative employ a

Topic: Strategic Management

C. political, administrative, regional, and environmental

43. _____ is central to discovering if a multinational corporation can survive in a particular

Feedback: Environmental scanning is central to discovering if a multinational corporation can

51. In choosing a location, a primary consideration for a multinational corporation investing in a

52. Why do multinational corporations often invest in advanced industrialized countries?

55. For products like computers, Japanese firms:

D. place of origin, production method, price, and people.

60. When market liberalization is delayed, _____.

Topic: Specialized Strategies

70. Which of the following is not a feature of born-global firms?

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