Sample Chapter

INSTANT DOWNLOAD COMPLETE TEST BANK WITH ANSWERS

 

Test Bank For Global Business Today 7th Edition – Charles W. L. Hill

 

 

 

SAMPLE QUESTIONS

 

Chapter 03

Differences in Culture

 

True / False Questions

  1. Generally, folkways are actions of little moral significance.
    True    False

 

  1. Most nation-states are characterized by a single, homogenous culture.
    True    False

 

  1. There are cultures that embrace several nations.
    True    False

 

  1. Indian society is characterized by a low degree of social stratification and high mobility between strata.
    True    False

 

  1. In all societies, individual attributes and achievements are viewed as being more important than group membership.
    True    False

 

  1. In most Western societies, the social standing of individuals is not so much a function of whom they work for as of their individual performance in whatever work setting they choose.
    True    False

 

  1. Individualism finds expression in a high degree of managerial mobility between companies, and this is not always a good thing.
    True    False

 

 

  1. The emphasis on individualism facilitates team building within an organization.
    True    False

 

  1. The primacy of the value of group identification encourages managers and workers to move from company to company.
    True    False

 

  1. Strong identification with the group creates pressures for mutual self-help.
    True    False

 

  1. Primacy of the group is criticized for being incompatible with ideas of dynamism and entrepreneurship.
    True    False

 

  1. Individuals born into a stratum toward the top of the social hierarchy tend to have worse life chances than those born into a stratum toward the bottom of the hierarchy.
    True    False

 

  1. Social mobility refers to the extent to which individuals can move from one country to another.
    True    False

 

  1. A caste system offers the biggest impediment to social mobility in a society.
    True    False

 

 

  1. A class system is closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime.
    True    False

 

  1. In a class society, individuals born into a class at the top of the hierarchy can slip down.
    True    False

 

  1. In countries with rigid class systems, the relative lack of class mobility and the differences between classes result in a gradual extinction of class consciousness.
    True    False

 

  1. Class-based divisions between upper-class management and labor classes are instrumental in driving down production costs in countries characterized by significant class divisions.
    True    False

 

  1. Ethical systems are exclusively grounded in the principles of religion.
    True    False

 

  1. Scholars are divided in their assessment of the relationship between religious and ethical systems and business practice in a society.
    True    False

 

  1. Islam is the most widely practiced religion in the world.
    True    False

 

 

  1. As theorized by sociologist, Max Weber, Protestant ethics find close resonance with “the spirit of capitalism.”
    True    False

 

  1. The emphasis on individual religious freedom in Catholicism may have paved the way for the subsequent development of individualism as an economic and political philosophy.
    True    False

 

  1. Islam has roots in both Judaism and Christianity.
    True    False

 

  1. Koran, the holy book of Islam, disapproves of free enterprise and engaging in profitable trade and commerce.
    True    False

 

  1. Many Islamic banks are prohibited from paying or charging interest by law.
    True    False

 

  1. Max Weber argued that the ascetic principles embedded in Hinduism encourage the kind of entrepreneurial activity in pursuit of wealth creation that we find in Protestantism.
    True    False

 

  1. India boasts of a rapidly growing economy, in spite of the values of asceticism preached by Hinduism.
    True    False

 

  1. According to Buddhism, suffering arises from people’s desires for material pleasures.
    True    False

 

 

  1. Confucianism is considered by the Chinese as the most credible authority on the concept of the supernatural and afterlife.
    True    False

 

  1. Chinese is the most widely spoken language in the world.
    True    False

 

  1. The general education level of a country is a good index of the type of promotional material that should be used there.
    True    False

 

  1. According to Hofstede, high power distance cultures were found in countries that let inequalities grow over time into inequalities of power and wealth.
    True    False

 

  1. Hofstede’s findings about cultural dimensions have consistently defied standard Western stereotypes about cultural differences.
    True    False

 

  1. According to the World Values Survey, as countries get richer, a shift occurs toward “traditional values” and away from “secular rational” values.
    True    False

 

 

 

Multiple Choice Questions

  1. _____ means an understanding of how cultural differences across and within nations can affect the way business is practiced.
    A. Ethnocentricity
    B. Cross-cultural literacy
    C. Pan-culture integration
    D. Acculturation

 

  1. Culture is:
    A. a system of values and norms.
    B. the same as religion.
    C. a code of conduct to achieve spiritual enlightenment.
    D. a system of codifying one’s spiritual and religious beliefs.

 

  1. In a social context, the term “values” is used to mean:
    A. the economic benefits that are inherent to a culture.
    B. the collective wealth of the society.
    C. the abstract ideas about what a group believes to be good, right, and desirable.
    D. the political ascendancy of a country.

 

  1. In a society, actions of people directed toward one another are governed by a set of social rules called:
    A. norms.
    B. manifestoes.
    C. structures.
    D. scriptures.

 

  1. Norms are classified into _____ and _____.
    A. rules; restrictions
    B. folkways; mores
    C. responsibilities; rights
    D. values; scriptures

 

 

  1. The appropriate dress code in a particular situation, good social manners, eating with the correct utensils, neighborly behavior, and the like, are all guided by the _____ in a society.
    A. folkways
    B. modes
    C. mores
    D. fellowship

 

  1. What is the difference between folkways and mores?
    A. Folkways are norms that are seen as central to the functioning of a society.
    B. Violating mores can bring serious retribution.
    C. Mores include rituals and symbolic behavior.
    D. Folkways have much greater significance than mores.

 

  1. The different ways in which time is valued in different cultures is an example of the _____ in individual cultures.
    A. folkways
    B. modes
    C. mores
    D. laws

 

  1. _____ include rituals and symbolic behavior.
    A. Folkways
    B. Modes
    C. Mores
    D. Fellowship

 

  1. Mores are defined as:
    A. routine conventions of everyday life.
    B. a set of greeting customs to be followed in different social contexts.
    C. abstract ideas regarding one’s personal conduct in a business setting.
    D. norms that are seen as central to the functioning of a society and to its social life.

 

 

  1. Indictments against theft, incest, and cannibalism are examples of how violating _____ can bring about serious retribution.
    A. structures
    B. mores
    C. folkways
    D. etiquette

 

  1. The relationship between culture and country is often:
    A. congruent.
    B. homogeneous.
    C. ambiguous.
    D. similar.

 

  1. Two dimensions of social structure are particularly important when explaining differences between cultures. The first is the degree to which the basic unit of social organization is the individual, as opposed to the group and the second is:
    A. the standard of living and the per capita income.
    B. the dominant religion and language spoken.
    C. importance of family versus work.
    D. the degree to which the society is stratified into classes or castes.

 

  1. A _____ is an association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behavior.
    A. crowd
    B. conference
    C. group
    D. colony

 

  1. A society’s _____ refers to its basic social organization.
    A. social structure
    B. social bureaucracy
    C. social scripture
    D. social stricture

 

 

  1. In many Western societies, the _____ is the basic building block of social organization.
    A. family
    B. community
    C. peer group
    D. individual

 

  1. In the American society, the emphasis on individual performance leads to an admiration of _____ and _____.
    A. team spirit; conformity
    B. individualism; entrepreneurship
    C. self-effacement; networking skills
    D. humility; flexibility

 

  1. One of the downsides to the emphasis on individualism is that:
    A. it is difficult to build teams within an organization to perform collective tasks.
    B. it fosters negative traits such as complacence and laxity among individuals.
    C. it discourages managerial mobility.
    D. it discourages dynamism and entrepreneurship.

 

  1. When primacy of the group over the individual is stressed, cooperation is driven by the need to:
    A. increase productivity and efficiency of the individual.
    B. be exposed to different ways of doing business.
    C. improve the performance of the organization.
    D. ensure a high degree of managerial mobility between companies.

 

  1. Identification with the group an individual belongs to helps:
    A. encourage the pursuit of better career opportunities and better offers.
    B. acclimatize managers to different ways of doing business.
    C. foster dynamism and entrepreneurship.
    D. discourage employees from moving from company to company.

 

 

  1. Identify a possible downside to the primacy of the group in a society?
    A. It encourages managerial mobility between companies.
    B. It could lead to a lack of dynamism and entrepreneurship.
    C. It hampers team building and cooperation.
    D. It causes an erosion of employee loyalty.

 

  1. Hierarchical social categories, often based on family background, occupation, and income, are referred to as:
    A. social modes.
    B. social statutes.
    C. social strata.
    D. social groups.

 

  1. Although all societies are stratified to some degree, they differ in two related ways. First, they differ from each other with regard to the degree of mobility between social strata; second, they differ with regard to:
    A. the significance attached to social strata in business contexts.
    B. the distinctions of caste and class in the society.
    C. the terminology used to identify the different strata.
    D. the number of strata in a particular society.

 

  1. A _____ system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime.
    A. caste
    B. merit
    C. class
    D. classless

 

  1. A caste system differs from a class system in:
    A. the degree to which an individual is the basic unit of social organization.
    B. the degree of mobility between social strata.
    C. the rituals and symbolic behavior practiced in both.
    D. the degree of separation between the highest and the lowest income strata.

 

 

  1. Although the number of societies with caste systems diminished rapidly during the twentieth century, one partial example still remains in:
    A. Japan.
    B. China.
    C. India.
    D. Britain.

 

  1. In a country called Dystopia, the citizens are barred from moving out of the strata they are born into. Individuals are also allowed to engage only in the occupation associated with their particular strata. The system of social stratification being practiced in Dystopia can be identified as a:
    A. classless system.
    B. caste system.
    C. merit-based system.
    D. class system.

 

  1. A _____ system is a less rigid form of social stratification in which social mobility is possible.
    A. class
    B. caste
    C. rank
    D. grade

 

  1. The class system in the United States is less pronounced than in Britain because:
    A. class membership is determined to a much greater degree by background and schooling in the United States.
    B. only money begets money in the United States.
    C. individuals can move smoothly from the working class to the upper class in a lifetime in the United States.
    D. upward mobility could not normally be achieved in one generation in the United States.

 

 

  1. _____ refers to a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with members of other classes.
    A. Social mindedness
    B. Class consciousness
    C. Class literacy
    D. Social consciousness

 

  1. What could be a negative impact of heightened class consciousness in a society?
    A. Increased mobility between occupations
    B. A reduction in industrial disputes and low levels of industrial disruption
    C. Most of the population perceives itself to be middle class
    D. An antagonistic relationship between management and labor classes

 

  1. _____ is defined as a system of shared beliefs and rituals that are concerned with the realm of the sacred.
    A. Culture
    B. Caste
    C. Philosophy
    D. Religion

 

  1. Ethical systems refer to a set of moral principles, or values, that are used to guide and shape _____.
    A. religion
    B. behavior
    C. scriptures
    D. theologies

 

  1. Most of the world’s ethical systems are the product of:
    A. religions.
    B. legal systems.
    C. economic heritage.
    D. sciences.

 

 

  1. The four most dominant religions in terms of number of adherents in the world today are:
    A. Christianity, Islam, Hinduism, and Buddhism.
    B. Islam, Christianity, Judaism, and Hinduism.
    C. Christianity, Confucianism, Islam, and Hinduism.
    D. Islam, Christianity, Buddhism, and Judaism.

 

  1. Which German sociologist made a connection between Protestant ethics and “the spirit of capitalism” in 1904?
    A. Hugo Münsterberg
    B. Alfred Schmidt
    C. Max Weber
    D. Abraham Maslow

 

  1. According to Max Weber, the Protestant ethics that emphasize _____ facilitated the development of capitalism.
    A. salvation in the next world, rather than this world
    B. worldly gain and temporal power are as illusions
    C. the spiritual progression of each person’s soul
    D. hard work, wealth creation, and frugality

 

  1. The right to _____ was central to the nonconformist nature of early Protestantism.
    A. freedom of form of worship
    B. education
    C. choice of occupation
    D. free enterprise

 

  1. Islam has roots in both Judaism and _____.
    A. Buddhism
    B. Hinduism
    C. Christianity
    D. Confucianism

 

 

  1. The rise of Islamic fundamentalism is, in part, a response to:
    A. the denial of equal rights for women.
    B. the move of traditional Islamic societies toward modernization.
    C. the narrowing gap between the rich and the poor.
    D. the increasing standard of living in Islamic societies.

 

  1. In the Islamic view of the world, humans are part of a collective in which:
    A. the wealthy must lend money to the disadvantaged for a set interest rate.
    B. the wealthy and successful have obligations to help the disadvantaged.
    C. free-enterprise and trade and commerce for profit are forbidden.
    D. only the wealthy and successful can own property.

 

  1. Muslim countries are likely to be receptive to international businesses as long as those businesses:
    A. conform to Islamic ethics.
    B. do not hold affiliations with supranational organizations like the WTO or IMF.
    C. conform to guidelines laid down in international trade agreements like the GATT.
    D. share a part of their profits with the economically disadvantaged in those countries.

 

  1. How does the operation of a conventional bank differ from that of an Islamic bank?
    A. Islamic banks are allowed to charge higher interest rates on loans.
    B. Islamic banks cannot accept private deposits.
    C. Islamic banks cannot pay or charge interest.
    D. Islamic banks are not subject to any form of law.

 

  1. “Mudarabah” and the “murabaha” are:
    A. Islamic banking methods.
    B. Arabic words for interest and usury, respectively.
    C. banking practices that are prohibited by Islam.
    D. laws governing Islamic banks.

 

 

  1. _____ is the world’s oldest major religion.
    A. Judaism
    B. Hinduism
    C. Christianity
    D. Islam

 

  1. Which of the following religions does not owe its founding to any one individual?
    A. Buddhism
    B. Hinduism
    C. Christianity
    D. Islam

 

  1. “Dharma,” “karma,” and “nirvana” are terms related to:
    A. Confucianism.
    B. Hinduism.
    C. Christianity.
    D. Islam.

 

  1. By perfecting the soul in each new life, Hindus believe that an individual can eventually achieve _____, a state of complete spiritual perfection.
    A. nirvana
    B. karma
    C. dharma
    D. reincarnation

 

  1. Hinduism is of the belief that the way to achieve spiritual perfection is:
    A. devoting life to a spiritual rather than material quest.
    B. by immersing oneself in the production of wealth to be used to aid the poor.
    C. through hard work, wealth creation, and frugality.
    D. by earning legitimate profit through trade and commerce.

 

 

  1. Max Weber argued that the ascetic principles embedded in _____ do not encourage the kind of entrepreneurial activity in pursuit of wealth creation that we find in Protestantism.
    A. Islam
    B. Hinduism
    C. Confucianism
    D. Buddhism

 

  1. Hindus see mobility between castes as something that is achieved through:
    A. appropriate schooling and occupation.
    B. individual economic achievement over the course of one’s lifetime.
    C. spiritual progression and reincarnation.
    D. hard work and gradual upward mobility over generations.

 

  1. Siddhartha Gautama, the founder of Buddhism, came to be known as the Buddha which means:
    A. “the leader.”
    B. “the awakened one.”
    C. “son of God.”
    D. “the chosen one.”

 

  1. What is the common aspect of the teachings of Hinduism and Buddhism?
    A. Both stress the afterlife and spiritual achievement rather than material progress.
    B. Both support the existence of caste system.
    C. Both advocate the same kind of extreme ascetic behavior.
    D. Both propagate the Noble Eightfold Path as a route for transformation.

 

  1. For more than 2,000 years until the 1949 Communist revolution, _____, which teaches the importance of attaining personal salvation through right action, was the official ethical system of China.
    A. Maoism
    B. Feng Shui
    C. Confucianism
    D. Shinto

 

 

  1. Which of the following is not a religion?
    A. Buddhism
    B. Christianity
    C. Hinduism
    D. Confucianism

 

  1. Which of the following systems of ethics holds the values of loyalty, reciprocal obligations, and honesty in dealings with others as central to its ideology?
    A. Buddhism
    B. Christianity
    C. Hinduism
    D. Confucianism

 

  1. _____ is not concerned with the supernatural and has little to say about the concept of a supreme being or an afterlife.
    A. Buddhism
    B. Christianity
    C. Hinduism
    D. Confucianism

 

  1. Some scholars maintain that the influence of _____ ethics on the culture of China, Japan, South Korea, and Taiwan may help explain their economic success.
    A. Buddhist
    B. Jewish
    C. Confucian
    D. Hindu

 

  1. In _____ thought, loyalty to one’s superiors is regarded as a sacred duty—an absolute obligation.
    A. Confucian
    B. Buddhist
    C. Protestant
    D. Hindu

 

 

  1. In a Confucian culture, loyalty to one’s superiors should:
    A. be absolute and blind in nature.
    B. be reciprocated by their superiors bestowing blessings.
    C. be free of expectations of reward and personal gain.
    D. lead to attainment of heaven.

 

  1. Identify the Confucian ethic central to the Chinese concept of “guanxi.”
    A. Holding all possessions in trust for God
    B. Renunciation of the material world
    C. Devoting life to a spiritual quest
    D. Reciprocal obligations

 

  1. In a business setting, the Chinese concept of “guanxi” can be taken to mean _____.
    A. connections
    B. expertise
    C. honesty
    D. truth

 

  1. How does the Confucian concept of honesty help bring down the costs of doing business?
    A. Confucian cultures have legal provisions to impose sanctions on businesses which are known to break contracts.
    B. Companies in Confucian cultures trust each other to do business honestly and do not need expensive lawyers to resolve disputes.
    C. Confucian culture dictates that one should not make exorbitant profits while doing business.
    D. The prevailing Communist ideology in Confucian cultures necessitates that companies are obligated to honor contracts, driving down costs of doing business.

 

  1. Which of the following conflicts is inspired mainly by language differences?
    A. The Kashmiri separatist movement
    B. The Basque separatist movement
    C. The Israeli-Palestinian conflict
    D. The conflict in Ireland

 

 

  1. _____ is the mother tongue of the largest number of people in the world.
    A. Chinese
    B. Hindi
    C. English
    D. Spanish

 

  1. The most widely spoken language in the world is:
    A. Chinese.
    B. French.
    C. English.
    D. Spanish.

 

  1. Chinese is the mother tongue of the largest number of people, but English is the most widely spoken language in the world. This indicates that:
    A. many people speak English as a second language.
    B. many native English speakers are learning Chinese.
    C. the population of native English speakers exceeds that of China.
    D. China will soon overtake English as the most widely spoken language.

 

  1. Recent trends in international business strongly indicate that when Japanese and German businesspeople conduct business together, the language in which they will communicate is almost certain to be _____.
    A. Japanese
    B. German
    C. English
    D. French

 

 

  1. Sunbeam Corporation used the English words for its “Mist-Stick” mist-producing hair curling iron when it entered the German market, only to discover after an expensive advertising campaign that “mist” means excrement in German. This blunder could have been avoided if:
    A. Germans had made an effort to find out the meaning of the word in English.
    B. the company had better educated its German customers.
    C. the company had paid attention to the local language.
    D. the company had engaged in more advertising and promotion.

 

  1. The raising of eyebrows in surprise, a frown of disapproval, and an approving thumbs-up are all examples of:
    A. spoken communication.
    B. nonverbal communication.
    C. explicit communication.
    D. impersonal communication.

 

  1. Making a circle with the thumb and the forefinger is a friendly gesture in the United States, but it is a vulgar sexual invitation in Greece and Turkey. Similarly, while most Americans and Europeans use the thumbs-up gesture to indicate that “it’s all right,” in Greece the gesture is obscene. These instances reflect that:
    A. the Greek society is more conservative.
    B. nonverbal communication is universal in nature.
    C. unspoken language is not an important factor in communication.
    D. many nonverbal cues are culturally bound.

 

  1. Personal space, which is the comfortable amount of distance between you and someone you are talking with, is an aspect of:
    A. remote communication.
    B. the spoken language.
    C. explicit communication.
    D. nonverbal communication.

 

 

  1. When schools emphasize respect for others, obedience to authority, honesty, neatness, being on time, and so on, they are:
    A. introducing children to the virtues of competitiveness.
    B. impinging on fundamental freedoms and values.
    C. indirectly teaching cultural values and norms.
    D. running counter to the values and norms learnt from the family.

 

  1. The recent trend to outsource information technology jobs to India and Japan’s post-war economic success, both indicate how education:
    A. is not as important to economic growth as previously thought.
    B. supplements the family’s role in socializing the young.
    C. is counterproductive to creating a skilled labor pool in an economy.
    D. is a determinant of national competitive advantage.

 

  1. A good education system is a determinant of national competitive advantage and:
    A. is an index of the industrial capacity of the nation.
    B. the cultural supremacy of the nation over others.
    C. is an important factor guiding the location choices of international businesses.
    D. political ascendancy.

 

  1. The general education level of a country is a factor determining all of the following EXCEPT:
    A. the national competitive advantage.
    B. the preeminence of the national culture.
    C. the attractiveness of the country for international business location.
    D. the type of products that might sell in that country.

 

  1. If the cultures of the United States and France result in different work-related values, an international business with operations in both countries should:
    A. vary its management process and practices to account for these differences.
    B. adopt similar management processes and practices in both countries.
    C. opt to exit one of the markets to avoid a conflict.
    D. ignore cultural differences and focus only on the economic aspects.

 

 

  1. Who isolated four dimensions—power distance, uncertainty avoidance, individualism versus collectivism, and masculinity versus femininity—that he claimed summarized different cultures?
    A. Abraham Maslow
    B. B.F Skinner
    C. Geert Hofstede
    D. Wilhelm Wundt Wilhelm

 

  1. Which one of Hofstede’s cultural dimensions focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities?
    A. Uncertainty avoidance
    B. Masculinity versus femininity
    C. Individualism versus collectivism
    D. Power distance

 

  1. In societies where _____ was emphasized, the ties between individuals were tight and everyone was supposed to look after the interests of his or her group.
    A. individualism
    B. collectivism
    C. masculinity
    D. femininity

 

  1. Members of _____ cultures placed a premium on job security, career patterns, retirement benefits, and they also had a strong need for rules and regulations.
    A. high uncertainty avoidance
    B. masculine
    C. low power distance
    D. individualistic

 

 

  1. If a country has a deep-rooted culture of men and women sharing work equally and where men and women are paid equally for the same work, it can be called a _____ culture.
    A. high power distance
    B. uncertainty avoidance
    C. feminine
    D. individualistic

 

  1. The standard stereotype of Japan as a country with clearly demarcated roles for men and women and where individuals typically stay with the same employer throughout their working lives, proves the country as having _____ and _____.
    A. high femininity; low power distance
    B. high uncertainty avoidance; high masculinity
    C. low power distance; high individualism
    D. low uncertainty avoidance; high femininity

 

  1. Which of the following countries scores high on the individualism scale and low on the power distance scale?
    A. Mexico
    B. Japan
    C. India
    D. Great Britain

 

  1. Which of the following countries stands out as having both low uncertainty avoidance and low masculinity?
    A. United States
    B. Japan
    C. Sweden
    D. Great Britain

 

  1. Which of the following is a criticism of Hofstede’s four cultural dimensions?
    A. Hofstede has ignored the one-to-one correspondence between culture and the nation-state.
    B. Most of Hofstede’s findings are in direct conflict with standard Western stereotypes.
    C. Hofstede assumes that most countries have more than one cultural dimension.
    D. Certain social classes were excluded from Hofstede’s sample.

 

 

  1. Hofstede’s fifth dimension of _____ captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors.
    A. Protestant ethic
    B. Buddhist path
    C. Hindu karma
    D. Confucian dynamism

 

  1. One of the ways in which the new generation of Japanese workers differs from traditional Japanese workers is that they:
    A. are loyal to their employers and will remain with them for a lifetime.
    B. are likely to be less direct than the traditional Japanese.
    C. give up evenings, weekends, and vacations to serve the organization.
    D. will move on if they get an offer of a better job.

 

  1. The World Values Survey has linked changes in cultural values to:
    A. changes in the geographical features of a country.
    B. evolutionary changes that occur over several generations.
    C. changes in a country’s level of economic development.
    D. the political ascendancy of the country.

 

  1. La-Durando is a country that has achieved rapid economic growth and prosperity over the last couple of decades. According to findings of the World Values Survey, the country is likely to see a cultural shift away from _____ values and toward _____ values.
    A. traditional; secular rational
    B. individualist; collectivist
    C. Western; Confucian
    D. atheist; religious

 

  1. _____________ values, identified by the World Values Survey, tend to stress that economic and physical security are more important than self-expression.
    A. Traditional
    B. Religious
    C. Well-being
    D. Survival

 

 

  1. According to the World Values Survey, _____ values stress the importance of diversity, belonging, and participation in political processes.
    A. survival
    B. self-expression
    C. traditional
    D. conservative

 

  1. In the context of quality of life attributes, as countries get richer, there seems to be a shift from _____ values to _____ values.
    A. self-expression; survival
    B. survival; well-being
    C. inclusive; xenophobic
    D. egalitarian; authoritative

 

  1. Substantial changes in cultural values are linked to generations, with _____ typically being in the vanguard of a significant change in values.
    A. elders
    B. foreigners
    C. younger people
    D. women

 

  1. A belief in the superiority of one’s own ethnic group or culture, often resulting in disregard or contempt for the culture of other countries, is termed as:
    A. acculturation.
    B. egocentrism.
    C. ethnocentrism.
    D. ethnic gloss.

 

 

 

Essay Questions

  1. What are norms? Briefly describe the two categories of norms.

 

 

 

 

  1. What are the two dimensions of a society’s social structure that stand out as being of particular importance when explaining differences between cultures?

 

 

 

 

  1. In some societies, the individual is the basic building block of social organization, while the group has primacy in others. Which of these social dimensions is more conducive to business and economy?

 

 

 

 

  1. What is meant by the term social mobility? What are the two variations of social mobility?

 

 

 

 

 

  1. What is class-consciousness? What could be its impact on business?

 

 

 

 

  1. Elaborate on the connection Max Weber made between Protestant ethics and “the spirit of capitalism.”

 

 

 

 

  1. Islam prohibits the payment or receipt of interest, which is considered usury. Then how do Islamic banks make money?

 

 

 

 

  1. Discuss basic tenets of Buddhism and the economic implications of Buddhism.

 

 

 

 

 

  1. Discuss how the three values central to the Confucian system of ethics: loyalty, reciprocal obligations, and honesty in dealings with others help explain the economic success of some of the countries that practice Confucianism.

 

 

 

 

  1. Explain how the education system of a country impacts international business.

 

 

 

 

  1. What are the criticisms against Hofstede’s research?

 

 

 

 

  1. Which was the fifth dimension that Hofstede added to his research? How did Hofstede relate it to economic growth rate?

 

 

 

 

 

  1. Outline the major cultural shift toward individualism that is perceived by some as occurring in Japan. Discuss the possible reasons for this shift.

 

 

 

 

  1. A 25-year study of values in 78 countries, known as the World Values Survey, has documented how values change. Discuss the findings of this study, including findings relating to the quality of life attributes.

 

 

 

 

 

 

Chapter 03 Differences in Culture Answer Key
True / False Questions

  1. (p. 94)Generally, folkways are actions of little moral significance.
    TRUE

Folkways are the routine conventions of everyday life. Generally, folkways are actions of little moral significance.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

  1. (p. 95)Most nation-states are characterized by a single, homogenous culture.
    FALSE

There is no strict one-to-one correspondence between a society and a nation-state. Nation-states are political creations. They may contain a single culture or several cultures.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

 

  1. (p. 96)There are cultures that embrace several nations.
    TRUE

Some cultures embrace several nations. Several scholars argue that we can speak of an Islamic society or culture that is shared by the citizens of many different nations in the Middle East, Asia, and Africa.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

  1. (p. 97)Indian society is characterized by a low degree of social stratification and high mobility between strata.
    FALSE

Some societies are characterized by a relatively high degree of social stratification and relatively low mobility between strata (e.g., Indian); other societies are characterized by a low degree of social stratification and high mobility between strata (e.g., American).

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 97)In all societies, individual attributes and achievements are viewed as being more important than group membership.
    FALSE

While groups are found in all societies, societies differ according to the degree to which the group is viewed as the primary means of social organization. In some societies, individual attributes and achievements are viewed as being more important than group membership; the reverse is true in others.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 97)In most Western societies, the social standing of individuals is not so much a function of whom they work for as of their individual performance in whatever work setting they choose.
    TRUE

In most Western societies, the individual is the basic building block of social organization. Their value systems emphasize individual achievement over who they work for.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 98)Individualism finds expression in a high degree of managerial mobility between companies, and this is not always a good thing.
    TRUE

Although moving from company to company may be good for individual managers who are trying to build impressive résumés, it is not necessarily a good thing for American companies. The lack of loyalty and commitment to an individual company and the tendency to move on for a better offer can result in managers who have good general skills but lack the knowledge, experience, and network of interpersonal contacts that come from years of working within the same company.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 98)The emphasis on individualism facilitates team building within an organization.
    FALSE

The emphasis on individualism may make it difficult to build teams within an organization to perform collective tasks. If individuals are always competing with each other on the basis of individual performance, it may be difficult for them to cooperate.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 99)The primacy of the value of group identification encourages managers and workers to move from company to company.
    FALSE

The primacy of the value of group identification discourages managers and workers from moving from company to company.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 98)Strong identification with the group creates pressures for mutual self-help.
    TRUE

If the worth of an individual is closely linked to the achievements of the group (e.g., firm), this creates a strong incentive for individual members of the group to work together for the common good.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 99)Primacy of the group is criticized for being incompatible with ideas of dynamism and entrepreneurship.
    TRUE

The primacy of the value of group identification, which encourages conformity and does not reward individual achievements, offers little incentive for personal growth and cultivating the qualities of dynamism and entrepreneurship.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 99)Individuals born into a stratum toward the top of the social hierarchy tend to have worse life chances than those born into a stratum toward the bottom of the hierarchy.
    FALSE

Individuals born into a stratum toward the top of the social hierarchy tend to have better life chances than those born into a stratum toward the bottom of the hierarchy. They are likely to have better education, health, standard of living, and work opportunities.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 99)Social mobility refers to the extent to which individuals can move from one country to another.
    FALSE

Social mobility refers to the extent to which individuals can move out of the strata into which they are born.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

 

  1. (p. 99)A caste system offers the biggest impediment to social mobility in a society.
    TRUE

A caste system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 99)A class system is closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime.
    FALSE

A class system is a form of open stratification in which the position a person has by birth can be changed through his or her own achievements or luck.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 99, 100)In a class society, individuals born into a class at the top of the hierarchy can slip down.
    TRUE

A class system is a less rigid form of social stratification in which social mobility is possible. Individuals born into a class at the bottom of the hierarchy can work their way up; conversely, individuals born into a class at the top of the hierarchy can slip down.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

 

  1. (p. 102)In countries with rigid class systems, the relative lack of class mobility and the differences between classes result in a gradual extinction of class consciousness.
    FALSE

In countries with rigid class systems, like Great Britain, the relative lack of class mobility and the differences between classes have resulted in the emergence of class consciousness, where people tend to perceive themselves in terms of their class background.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 102)Class-based divisions between upper-class management and labor classes are instrumental in driving down production costs in countries characterized by significant class divisions.
    FALSE

An antagonistic relationship between management and labor classes, and the resulting lack of cooperation and high level of industrial disruption, tends to raise the costs of production in countries characterized by significant class divisions.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 103)Ethical systems are exclusively grounded in the principles of religion.
    FALSE

There is a major exception to the principle that ethical systems are grounded in religion. Confucianism and Confucian ethics influence behavior and shape culture in parts of Asia, yet it is incorrect to characterize Confucianism as a religion.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-02
Topic: Religious and Ethical Systems

 

  1. (p. 103)Scholars are divided in their assessment of the relationship between religious and ethical systems and business practice in a society.
    TRUE

While some scholars argue that there is a relationship between religious and ethical systems and business practice in a society, in a world where nations with Catholic, Protestant, Muslim, Hindu, and Buddhist majorities all show evidence of entrepreneurial activity and sustainable economic growth, it is important to view such proposed relationships with a degree of skepticism. The proposed relationships may exist, but their impact is probably small compared to the impact of economic policy.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 103)Islam is the most widely practiced religion in the world.
    FALSE

Christianity is the most widely practiced religion in the world with approximately 20 percent of the world’s population identifying themselves as Christians.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 105)As theorized by sociologist, Max Weber, Protestant ethics find close resonance with “the spirit of capitalism.”
    TRUE

In 1904, a German sociologist, Max Weber, made a connection between Protestant ethics and “the spirit of capitalism”, implying that capitalism emerged in Western Europe with modern enterprises dominated by people of Protestant beliefs.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 105)The emphasis on individual religious freedom in Catholicism may have paved the way for the subsequent development of individualism as an economic and political philosophy.
    FALSE

The emphasis on individual religious freedom in Protestantism may have paved the way for the subsequent emphasis on individual economic and political freedoms and the development of individualism as an economic and political philosophy.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 105)Islam has roots in both Judaism and Christianity.
    TRUE

Islam has roots in both Judaism and Christianity (Islam views Jesus Christ as one of God’s prophets). Like Christianity and Judaism, Islam is a monotheistic religion.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 107)Koran, the holy book of Islam, disapproves of free enterprise and engaging in profitable trade and commerce.
    FALSE

The Koran speaks approvingly of free enterprise and of earning legitimate profit through trade and commerce.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 109)Many Islamic banks are prohibited from paying or charging interest by law.
    TRUE

One economic principle of Islam prohibits the payment or receipt of interest, which is considered usury. This is not just a matter of theology; in several Islamic states, it is also a matter of law.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 110)Max Weber argued that the ascetic principles embedded in Hinduism encourage the kind of entrepreneurial activity in pursuit of wealth creation that we find in Protestantism.
    FALSE

Max Weber argued that the ascetic principles embedded in Hinduism do not encourage the kind of entrepreneurial activity in pursuit of wealth creation that we find in Protestantism. According to Weber, traditional Hindu values emphasize that individuals should be judged not by their material achievements but by their spiritual achievements.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 110)India boasts of a rapidly growing economy, in spite of the values of asceticism preached by Hinduism.
    TRUE

It has been argued that the values of Hindu asceticism and self-reliance had a negative impact on the economic development of post-independence India. However, it is evident that India is one of the fastest growing economies in the world today.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 110)According to Buddhism, suffering arises from people’s desires for material pleasures.
    TRUE

According to Buddhism, suffering originates in people’s desires for pleasure. Cessation of suffering can be achieved by following a path for transformation.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 111)Confucianism is considered by the Chinese as the most credible authority on the concept of the supernatural and afterlife.
    FALSE

Unlike religions, Confucianism is not concerned with the supernatural and has little to say about the concept of a supreme being or an afterlife.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 113)Chinese is the most widely spoken language in the world.
    FALSE

Chinese is the mother tongue of the largest number of people in the world, but English is the most widely spoken language.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Language

 

  1. (p. 115)The general education level of a country is a good index of the type of promotional material that should be used there.
    TRUE

The general education level of a country is a good index of the kind of products that might sell in a country and of the type of promotional material that should be used.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Education

  1. (p. 116)According to Hofstede, high power distance cultures were found in countries that let inequalities grow over time into inequalities of power and wealth.
    TRUE

According to Hofstede, high power distance cultures were found in countries that let inequalities grow over time into inequalities of power and wealth, while low power distance cultures tried to play down such inequalities as much as possible.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-04
Topic: Culture and the Workplace

  1. (p. 116)Hofstede’s findings about cultural dimensions have consistently defied standard Western stereotypes about cultural differences.
    FALSE

Many of Hofstede’s findings are consistent with standard Western stereotypes about cultural differences.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-04
Topic: Culture and the Workplace

 

  1. (p. 119)According to the World Values Survey, as countries get richer, a shift occurs toward “traditional values” and away from “secular rational” values.
    FALSE

According to the World Values Survey, as countries get richer, a shift occurs away from “traditional values” linked to religion, family, and country, and toward “secular rational” values.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-05
Topic: Cultural Change

 

Multiple Choice Questions

  1. (p. 93)_____ means an understanding of how cultural differences across and within nations can affect the way business is practiced.
    A. Ethnocentricity
    B. Cross-cultural literacy
    C. Pan-culture integration
    D. Acculturation

Business success in a variety of countries requires cross-cultural literacy which means an understanding of how cultural differences across and within nations can affect the way business is practiced.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: Introduction

 

  1. (p. 94)Culture is:
    A. a system of values and norms.
    B. the same as religion.
    C. a code of conduct to achieve spiritual enlightenment.
    D. a system of codifying one’s spiritual and religious beliefs.

Culture has been defined differently by scholars around the world. However, it can be safely defined as a system of values and norms that are shared among a group of people and that when taken together constitute a design for living.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

  1. (p. 94)In a social context, the term “values” is used to mean:
    A. the economic benefits that are inherent to a culture.
    B. the collective wealth of the society.
    C. the abstract ideas about what a group believes to be good, right, and desirable.
    D. the political ascendancy of a country.

Values are meant to describe abstract ideas about what a group believes to be good, right, and desirable. Put differently, values are shared assumptions about how things ought to be.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

 

  1. (p. 94)In a society, actions of people directed toward one another are governed by a set of social rules called:
    A. norms.
    B. manifestoes.
    C. structures.
    D. scriptures.

Norms mean the social rules and guidelines that prescribe appropriate behavior in particular situations. Put differently, they are the social rules that govern people’s actions toward one another.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

  1. (p. 94)Norms are classified into _____ and _____.
    A. rules; restrictions
    B. folkways; mores
    C. responsibilities; rights
    D. values; scriptures

Norms are divided into two major classes, namely, folkways and mores.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

 

  1. (p. 94)The appropriate dress code in a particular situation, good social manners, eating with the correct utensils, neighborly behavior, and the like, are all guided by the _____ in a society.
    A. folkways
    B. modes
    C. mores
    D. fellowship

Folkways are social conventions concerning things such as the appropriate dress code in a particular situation, good social manners, eating with the correct utensils, neighborly behavior, and the like.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-01
Topic: What is Culture?

  1. (p. 95)What is the difference between folkways and mores?
    A. Folkways are norms that are seen as central to the functioning of a society.
    B. Violating mores can bring serious retribution.
    C. Mores include rituals and symbolic behavior.
    D. Folkways have much greater significance than mores.

Mores are norms that are seen as central to the functioning of a society and to its social life. They have much greater significance than folkways. Accordingly, violating mores can bring serious retribution.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

 

  1. (p. 95)The different ways in which time is valued in different cultures is an example of the _____ in individual cultures.
    A. folkways
    B. modes
    C. mores
    D. laws

Folkwaysare the routine conventions of everyday life. A good example of folkways concerns attitudes toward time in different countries.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-01
Topic: What is Culture?

  1. (p. 95)_____ include rituals and symbolic behavior.
    A. Folkways
    B. Modes
    C. Mores
    D. Fellowship

Folkways include rituals and symbolic behavior. Rituals and symbols are the most visible manifestations of a culture and constitute the outward expression of deeper values.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

 

  1. (p. 95)Mores are defined as:
    A. routine conventions of everyday life.
    B. a set of greeting customs to be followed in different social contexts.
    C. abstract ideas regarding one’s personal conduct in a business setting.
    D. norms that are seen as central to the functioning of a society and to its social life.

Mores are norms that are seen as central to the functioning of a society and to its social life, having much greater significance than folkways, and violating mores can bring serious retribution.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

  1. (p. 95)Indictments against theft, incest, and cannibalism are examples of how violating _____ can bring about serious retribution.
    A. structures
    B. mores
    C. folkways
    D. etiquette

Mores are norms that are seen as central to the functioning of a society and to its social life, having much greater significance than folkways, and violating mores can bring serious retribution.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-01
Topic: What is Culture?

 

  1. (p. 96)The relationship between culture and country is often:
    A. congruent.
    B. homogeneous.
    C. ambiguous.
    D. similar.

The relationship between culture and country is often ambiguous. Even if a country can be characterized as having a single homogenous culture, often that national culture is a mosaic of subcultures.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

  1. (p. 97)Two dimensions of social structure are particularly important when explaining differences between cultures. The first is the degree to which the basic unit of social organization is the individual, as opposed to the group and the second is:
    A. the standard of living and the per capita income.
    B. the dominant religion and language spoken.
    C. importance of family versus work.
    D. the degree to which the society is stratified into classes or castes.

Although social structure consists of many different aspects, two dimensions that are particularly important when explaining differences between cultures are (1) the degree to which the basic unit of social organization is the individual, as opposed to the group and (2) the degree to which a society is stratified into classes or castes.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 97)A _____ is an association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behavior.
    A. crowd
    B. conference
    C. group
    D. colony

A group is an association of two or more individuals who have a shared sense of identity and who interact with each other in structured ways on the basis of a common set of expectations about each other’s behavior.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 97)A society’s _____ refers to its basic social organization.
    A. social structure
    B. social bureaucracy
    C. social scripture
    D. social stricture

A society’s social structure refers to its basic social organization.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

 

  1. (p. 97)In many Western societies, the _____ is the basic building block of social organization.
    A. family
    B. community
    C. peer group
    D. individual

In many Western societies, the individual is the basic building block of social organization. The value systems of many Western societies, for example, emphasize individual achievement.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 97)In the American society, the emphasis on individual performance leads to an admiration of _____ and _____.
    A. team spirit; conformity
    B. individualism; entrepreneurship
    C. self-effacement; networking skills
    D. humility; flexibility

In the United States, the emphasis on individual performance finds expression in an admiration of rugged individualism and entrepreneurship, which carries the benefits of high levels of entrepreneurial activity and innovation.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 98)One of the downsides to the emphasis on individualism is that:
    A. it is difficult to build teams within an organization to perform collective tasks.
    B. it fosters negative traits such as complacence and laxity among individuals.
    C. it discourages managerial mobility.
    D. it discourages dynamism and entrepreneurship.

The emphasis on individualism makes it difficult to build teams within an organization to perform collective tasks. If individuals are always competing with each other on the basis of individual performance, it may be difficult for them to cooperate.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 99)When primacy of the group over the individual is stressed, cooperation is driven by the need to:
    A. increase productivity and efficiency of the individual.
    B. be exposed to different ways of doing business.
    C. improve the performance of the organization.
    D. ensure a high degree of managerial mobility between companies.

In today’s world, the group has frequently come to be associated with the work team or business organization to which an individual belongs. When primacy of the group over the individual is stressed, cooperation is driven by the need to improve the performance of the group (i.e., the business firm)

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 99)Identification with the group an individual belongs to helps:
    A. encourage the pursuit of better career opportunities and better offers.
    B. acclimatize managers to different ways of doing business.
    C. foster dynamism and entrepreneurship.
    D. discourage employees from moving from company to company.

The primacy of the value of group identification discourages managers and workers from moving from company to company.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 99)Identify a possible downside to the primacy of the group in a society?
    A. It encourages managerial mobility between companies.
    B. It could lead to a lack of dynamism and entrepreneurship.
    C. It hampers team building and cooperation.
    D. It causes an erosion of employee loyalty.

The primacy of the group is not always beneficial. For instance, some argue that Japanese society, where the group is the primary unit of social organization, is characterized by a lack of dynamism and entrepreneurship.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 99)Hierarchical social categories, often based on family background, occupation, and income, are referred to as:
    A. social modes.
    B. social statutes.
    C. social strata.
    D. social groups.

All societies are stratified on a hierarchical basis into social categories—that is, into social strata. These strata are typically defined on the basis of characteristics such as family background, occupation, and income. Individuals are born into a particular stratum.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 99)Although all societies are stratified to some degree, they differ in two related ways. First, they differ from each other with regard to the degree of mobility between social strata; second, they differ with regard to:
    A. the significance attached to social strata in business contexts.
    B. the distinctions of caste and class in the society.
    C. the terminology used to identify the different strata.
    D. the number of strata in a particular society.

Although all societies are stratified to some degree, they differ in two related ways. First, they differ from each other with regard to the degree of mobility between social strata; second, they differ with regard to the significance attached to social strata in business contexts.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

 

  1. (p. 99)A _____ system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime.
    A. caste
    B. merit
    C. class
    D. classless

A caste system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 99)A caste system differs from a class system in:
    A. the degree to which an individual is the basic unit of social organization.
    B. the degree of mobility between social strata.
    C. the rituals and symbolic behavior practiced in both.
    D. the degree of separation between the highest and the lowest income strata.

A caste system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime. A class system is a less rigid form of social stratification in which social mobility is possible.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-02
Topic: Social Structure

 

  1. (p. 99)Although the number of societies with caste systems diminished rapidly during the twentieth century, one partial example still remains in:
    A. Japan.
    B. China.
    C. India.
    D. Britain.

Although the number of societies with caste systems diminished rapidly during the twentieth century, one partial example still remains. Even though the caste system was officially abolished in 1949 it is still a force in rural Indian society where occupation and marital opportunities are still partly related to caste.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 99)In a country called Dystopia, the citizens are barred from moving out of the strata they are born into. Individuals are also allowed to engage only in the occupation associated with their particular strata. The system of social stratification being practiced in Dystopia can be identified as a:
    A. classless system.
    B. caste system.
    C. merit-based system.
    D. class system.

A caste system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime. Often a caste position carries with it a specific occupation.

 

AACSB: Reflective Thinking
Bloom’s: Apply
Difficulty: Hard
Learning Objective: 03-02
Topic: Social Structure

 

  1. (p. 99)A _____ system is a less rigid form of social stratification in which social mobility is possible.
    A. class
    B. caste
    C. rank
    D. grade

A class system is a less rigid form of social stratification in which social mobility is possible. It is a form of open stratification in which the position a person has by birth can be changed through his or her own achievements or luck.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 101)The class system in the United States is less pronounced than in Britain because:
    A. class membership is determined to a much greater degree by background and schooling in the United States.
    B. only money begets money in the United States.
    C. individuals can move smoothly from the working class to the upper class in a lifetime in the United States.
    D. upward mobility could not normally be achieved in one generation in the United States.

The class system in the United States is less pronounced than in Britain and mobility is greater. Class membership is determined to a much greater degree by individual economic achievements, as opposed to background and schooling. Thus, an individual can, by his or her own economic achievement, move smoothly from the working class to the upper class in a lifetime.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-02
Topic: Social Structure

 

  1. (p. 102)_____ refers to a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with members of other classes.
    A. Social mindedness
    B. Class consciousness
    C. Class literacy
    D. Social consciousness

Class consciousness refers to a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with members of other classes.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

  1. (p. 102)What could be a negative impact of heightened class consciousness in a society?
    A. Increased mobility between occupations
    B. A reduction in industrial disputes and low levels of industrial disruption
    C. Most of the population perceives itself to be middle class
    D. An antagonistic relationship between management and labor classes

An antagonistic relationship between management and labor classes, and the resulting lack of cooperation and high level of industrial disruption, tends to raise the costs of production in countries characterized by significant class divisions.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 103)_____ is defined as a system of shared beliefs and rituals that are concerned with the realm of the sacred.
    A. Culture
    B. Caste
    C. Philosophy
    D. Religion

Religion may be defined as a system of shared beliefs and rituals that are concerned with the realm of the sacred.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 103)Ethical systems refer to a set of moral principles, or values, that are used to guide and shape _____.
    A. religion
    B. behavior
    C. scriptures
    D. theologies

Ethical systems refer to a set of moral principles, or values, that are used to guide and shape behavior. Most of the world’s ethical systems are the product of religions.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

 

  1. (p. 103)Most of the world’s ethical systems are the product of:
    A. religions.
    B. legal systems.
    C. economic heritage.
    D. sciences.

Ethical systems refer to a set of moral principles, or values, that are used to guide and shape behavior. Most of the world’s ethical systems are the product of religions.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 103)The four most dominant religions in terms of number of adherents in the world today are:
    A. Christianity, Islam, Hinduism, and Buddhism.
    B. Islam, Christianity, Judaism, and Hinduism.
    C. Christianity, Confucianism, Islam, and Hinduism.
    D. Islam, Christianity, Buddhism, and Judaism.

Christianity with 1.7 billion adherents, Islam with around 1 billion adherents, Hinduism with 750 million adherents (primarily in India), and Buddhism with 350 million adherents constitute the four most dominant religions of the world.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

 

  1. (p. 105)Which German sociologist made a connection between Protestant ethics and “the spirit of capitalism” in 1904?
    A. Hugo Münsterberg
    B. Alfred Schmidt
    C. Max Weber
    D. Abraham Maslow

In 1904, a German sociologist, Max Weber, made a connection between Protestant ethics and “the spirit of capitalism” that has since become famous.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 105)According to Max Weber, the Protestant ethics that emphasize _____ facilitated the development of capitalism.
    A. salvation in the next world, rather than this world
    B. worldly gain and temporal power are as illusions
    C. the spiritual progression of each person’s soul
    D. hard work, wealth creation, and frugality

Max Weber argued that Protestant ethics emphasize the importance of hard work and wealth creation (for the glory of God) and frugality (abstinence from worldly pleasures). According to Weber, this kind of value system was needed to facilitate the development of capitalism.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 105)The right to _____ was central to the nonconformist nature of early Protestantism.
    A. freedom of form of worship
    B. education
    C. choice of occupation
    D. free enterprise

The right to freedom of form of worship was central to the nonconformist nature of early Protestantism, which was a precursor to the emphasis on individual economic and political freedoms.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 105)Islam has roots in both Judaism and _____.
    A. Buddhism
    B. Hinduism
    C. Christianity
    D. Confucianism

Islam has roots in both Judaism and Christianity (Islam views Jesus Christ as one of God’s prophets). Like Christianity and Judaism, Islam is a monotheistic religion.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

 

  1. (p. 107)The rise of Islamic fundamentalism is, in part, a response to:
    A. the denial of equal rights for women.
    B. the move of traditional Islamic societies toward modernization.
    C. the narrowing gap between the rich and the poor.
    D. the increasing standard of living in Islamic societies.

The rise of fundamentalism has no one cause. In part, it is a response to the social pressures created in traditional Islamic societies by the move toward modernization and by the influence of Western ideas, such as liberal democracy, materialism, equal rights for women, and attitudes toward sex, marriage, and alcohol.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 107)In the Islamic view of the world, humans are part of a collective in which:
    A. the wealthy must lend money to the disadvantaged for a set interest rate.
    B. the wealthy and successful have obligations to help the disadvantaged.
    C. free-enterprise and trade and commerce for profit are forbidden.
    D. only the wealthy and successful can own property.

In the Islamic view of the world, humans are part of a collective in which the wealthy and successful have obligations to help the disadvantaged through acts of charity.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 108)Muslim countries are likely to be receptive to international businesses as long as those businesses:
    A. conform to Islamic ethics.
    B. do not hold affiliations with supranational organizations like the WTO or IMF.
    C. conform to guidelines laid down in international trade agreements like the GATT.
    D. share a part of their profits with the economically disadvantaged in those countries.

Given the Islamic proclivity to favor market-based systems, Muslim countries are likely to be receptive to international businesses as long as those businesses behave in a manner that is consistent with Islamic ethics.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 109)How does the operation of a conventional bank differ from that of an Islamic bank?
    A. Islamic banks are allowed to charge higher interest rates on loans.
    B. Islamic banks cannot accept private deposits.
    C. Islamic banks cannot pay or charge interest.
    D. Islamic banks are not subject to any form of law.

Conventional banks make a profit on the spread between the interest rate they have to pay to depositors and the higher interest rate they charge borrowers. However, Islam prohibits the payment or receipt of interest, which is considered usury.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 109)“Mudarabah” and the “murabaha” are:
    A. Islamic banking methods.
    B. Arabic words for interest and usury, respectively.
    C. banking practices that are prohibited by Islam.
    D. laws governing Islamic banks.

Islamic banks cannot pay or charge interest; they must find a different way of making money. Islamic banks have experimented with two different banking methods—the mudarabah and the murabaha.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 109)_____ is the world’s oldest major religion.
    A. Judaism
    B. Hinduism
    C. Christianity
    D. Islam

Hinduism began in the Indus Valley in India more than 4,000 years ago, making it the world’s oldest major religion.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

 

  1. (p. 109)Which of the following religions does not owe its founding to any one individual?
    A. Buddhism
    B. Hinduism
    C. Christianity
    D. Islam

Unlike Christianity, Islam, and Buddhism, the founding of Hinduism is not linked to a particular person.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 109, 110)“Dharma,” “karma,” and “nirvana” are terms related to:
    A. Confucianism.
    B. Hinduism.
    C. Christianity.
    D. Islam.

Hindus believe that a moral force in society requires the acceptance of certain responsibilities, called “dharma.” Hindus also believe in “karma,” the spiritual progression of each person’s soul. By perfecting the soul in each new life, Hindus believe that an individual can eventually achieve “nirvana,” a state of spiritual perfection.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

 

  1. (p. 109, 110)By perfecting the soul in each new life, Hindus believe that an individual can eventually achieve _____, a state of complete spiritual perfection.
    A. nirvana
    B. karma
    C. dharma
    D. reincarnation

By perfecting the soul in each new life, Hindus believe that an individual can eventually achieve “nirvana,” a state of spiritual perfection that renders reincarnation no longer necessary.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 110)Hinduism is of the belief that the way to achieve spiritual perfection is:
    A. devoting life to a spiritual rather than material quest.
    B. by immersing oneself in the production of wealth to be used to aid the poor.
    C. through hard work, wealth creation, and frugality.
    D. by earning legitimate profit through trade and commerce.

Many Hindus believe that the way to achieve nirvana is to lead a severe ascetic lifestyle of material and physical self-denial, devoting life to a spiritual rather than material quest.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-02
Topic: Religious and Ethical Systems

 

  1. (p. 110)Max Weber argued that the ascetic principles embedded in _____ do not encourage the kind of entrepreneurial activity in pursuit of wealth creation that we find in Protestantism.
    A. Islam
    B. Hinduism
    C. Confucianism
    D. Buddhism

Hinduism and Buddhism are not considered to be conducive for the practice of entrepreneurial activity because of their stress on an ascetic lifestyle. Islam and Protestantism, however, encourage free enterprise and entrepreneurship.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 110)Hindus see mobility between castes as something that is achieved through:
    A. appropriate schooling and occupation.
    B. individual economic achievement over the course of one’s lifetime.
    C. spiritual progression and reincarnation.
    D. hard work and gradual upward mobility over generations.

Hindus see mobility between castes as something that is achieved through spiritual progression and reincarnation. An individual can be reborn into a higher caste in his or her next life if he or she achieves spiritual development in this life.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 110)Siddhartha Gautama, the founder of Buddhism, came to be known as the Buddha which means:
    A. “the leader.”
    B. “the awakened one.”
    C. “son of God.”
    D. “the chosen one.”

Buddhism was founded in India by Siddhartha Gautama, a Nepalese prince who renounced his wealth to pursue an ascetic lifestyle and spiritual perfection. Siddhartha achieved nirvana but decided to remain on earth to teach his followers how they too could achieve this state of spiritual enlightenment. Siddhartha became known as the Buddha, which means “the awakened one.”

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 110)What is the common aspect of the teachings of Hinduism and Buddhism?
    A. Both stress the afterlife and spiritual achievement rather than material progress.
    B. Both support the existence of caste system.
    C. Both advocate the same kind of extreme ascetic behavior.
    D. Both propagate the Noble Eightfold Path as a route for transformation.

Buddhism and Hinduism both stress the afterlife and spiritual achievement rather than involvement in this world.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-02
Topic: Religious and Ethical Systems

 

  1. (p. 111)For more than 2,000 years until the 1949 Communist revolution, _____, which teaches the importance of attaining personal salvation through right action, was the official ethical system of China.
    A. Maoism
    B. Feng Shui
    C. Confucianism
    D. Shinto

For more than 2,000 years until the 1949 Communist revolution, Confucianism was the official ethical system of China. While observance of Confucian ethics has been weakened in China since 1949, more than 200 million people still follow the teachings of Confucius, principally in China, Korea, and Japan.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

  1. (p. 111)Which of the following is not a religion?
    A. Buddhism
    B. Christianity
    C. Hinduism
    D. Confucianism

Although not a religion, Confucian ideology has become deeply embedded in the culture of these countries over the centuries and, through that, has an impact on the lives of many millions more.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Religious and Ethical Systems

 

  1. (p. 111)Which of the following systems of ethics holds the values of loyalty, reciprocal obligations, and honesty in dealings with others as central to its ideology?
    A. Buddhism
    B. Christianity
    C. Hinduism
    D. Confucianism

Three values central to the Confucian system of ethics: loyalty, reciprocal obligations, and honesty in dealings with others are considered to have had a profound effect on the economic successes of many Asian countries like Japan, China, and Taiwan.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 111)_____ is not concerned with the supernatural and has little to say about the concept of a supreme being or an afterlife.
    A. Buddhism
    B. Christianity
    C. Hinduism
    D. Confucianism

Unlike religions, Confucianism is not concerned with the supernatural and has little to say about the concept of a supreme being or an afterlife.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 111)Some scholars maintain that the influence of _____ ethics on the culture of China, Japan, South Korea, and Taiwan may help explain their economic success.
    A. Buddhist
    B. Jewish
    C. Confucian
    D. Hindu

Some scholars maintain that the influence of Confucian ethics on the culture of China, Japan, South Korea, and Taiwan, by lowering the costs of doing business in those countries, may help explain their economic success.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 111)In _____ thought, loyalty to one’s superiors is regarded as a sacred duty—an absolute obligation.
    A. Confucian
    B. Buddhist
    C. Protestant
    D. Hindu

In Confucian thought, loyalty to one’s superiors is regarded as a sacred duty—an absolute obligation. In modern organizations based in Confucian cultures, the loyalty that binds employees to the heads of their organization can reduce the conflict between management and labor that we find in more class-conscious societies.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 111)In a Confucian culture, loyalty to one’s superiors should:
    A. be absolute and blind in nature.
    B. be reciprocated by their superiors bestowing blessings.
    C. be free of expectations of reward and personal gain.
    D. lead to attainment of heaven.

In a Confucian culture, loyalty to one’s superiors, such as a worker’s loyalty to management, is not blind loyalty. Superiors are obliged to reward the loyalty of their subordinates by bestowing blessings on them. If these “blessings” are not forthcoming, then neither will be the loyalty.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 111)Identify the Confucian ethic central to the Chinese concept of “guanxi.”
    A. Holding all possessions in trust for God
    B. Renunciation of the material world
    C. Devoting life to a spiritual quest
    D. Reciprocal obligations

Confucian ethics stress that superiors are obliged to reward the loyalty of their subordinates by bestowing blessings on them. If these “blessings” are not forthcoming, neither will be the loyalty. This Confucian ethic is central to the Chinese concept of guanxi, which refers to relationship networks supported by reciprocal obligations.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 111, 112)In a business setting, the Chinese concept of “guanxi” can be taken to mean _____.
    A. connections
    B. expertise
    C. honesty
    D. truth

The Chinese concept of guanxi means relationships, although in business settings it can be better understood as connections. Guanxi is an important mechanism for building long-term business relationships and getting business done in China.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 112)How does the Confucian concept of honesty help bring down the costs of doing business?
    A. Confucian cultures have legal provisions to impose sanctions on businesses which are known to break contracts.
    B. Companies in Confucian cultures trust each other to do business honestly and do not need expensive lawyers to resolve disputes.
    C. Confucian culture dictates that one should not make exorbitant profits while doing business.
    D. The prevailing Communist ideology in Confucian cultures necessitates that companies are obligated to honor contracts, driving down costs of doing business.

The importance attached to honesty in Confucianism has major economic implications. When companies can trust each other not to break contractual obligations, the costs of doing business are lowered. Expensive lawyers are not needed to resolve contract disputes.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 113)Which of the following conflicts is inspired mainly by language differences?
    A. The Kashmiri separatist movement
    B. The Basque separatist movement
    C. The Israeli-Palestinian conflict
    D. The conflict in Ireland

Language helps define culture. Countries with more than one language often have more than one culture. Language differences have influenced separatist pressures like those seen in Canada between the French-speaking minority and English-speaking majority and the Basque-speaking minority demanding independence from the Spanish-speaking majority in Spain.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Language

  1. (p. 113)_____ is the mother tongue of the largest number of people in the world.
    A. Chinese
    B. Hindi
    C. English
    D. Spanish

Chinese is the mother tongue of the largest number of people, followed by English and Hindi, which is spoken in India. However, the most widely spoken language in the world is English, followed by French, Spanish, and Chinese.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Language

 

  1. (p. 113)The most widely spoken language in the world is:
    A. Chinese.
    B. French.
    C. English.
    D. Spanish.

Chinese is the mother tongue of the largest number of people, followed by English and Hindi, which is spoken in India. However, the most widely spoken language in the world is English, followed by French, Spanish, and Chinese.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Language

  1. (p. 113)Chinese is the mother tongue of the largest number of people, but English is the most widely spoken language in the world. This indicates that:
    A. many people speak English as a second language.
    B. many native English speakers are learning Chinese.
    C. the population of native English speakers exceeds that of China.
    D. China will soon overtake English as the most widely spoken language.

Chinese is the mother tongue of the largest number of people. However, the most widely spoken language in the world is English. That is, many people speak English as a second language.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-03
Topic: Language

 

  1. (p. 113, 114)Recent trends in international business strongly indicate that when Japanese and German businesspeople conduct business together, the language in which they will communicate is almost certain to be _____.
    A. Japanese
    B. German
    C. English
    D. French

English is increasingly becoming the language of international business.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Language

  1. (p. 114)Sunbeam Corporation used the English words for its “Mist-Stick” mist-producing hair curling iron when it entered the German market, only to discover after an expensive advertising campaign that “mist” means excrement in German. This blunder could have been avoided if:
    A. Germans had made an effort to find out the meaning of the word in English.
    B. the company had better educated its German customers.
    C. the company had paid attention to the local language.
    D. the company had engaged in more advertising and promotion.

International businesses that do not understand the local language can make major blunders through improper translation.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-03
Topic: Language

 

  1. (p. 114)The raising of eyebrows in surprise, a frown of disapproval, and an approving thumbs-up are all examples of:
    A. spoken communication.
    B. nonverbal communication.
    C. explicit communication.
    D. impersonal communication.

Nonverbal cues or communication like raised eyebrows, a smile, and so on constitute unspoken language that conveys information.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-02
Topic: Language

  1. (p. 114)Making a circle with the thumb and the forefinger is a friendly gesture in the United States, but it is a vulgar sexual invitation in Greece and Turkey. Similarly, while most Americans and Europeans use the thumbs-up gesture to indicate that “it’s all right,” in Greece the gesture is obscene. These instances reflect that:
    A. the Greek society is more conservative.
    B. nonverbal communication is universal in nature.
    C. unspoken language is not an important factor in communication.
    D. many nonverbal cues are culturally bound.

We all communicate with each other by a host of nonverbal cues. Many nonverbal cues, however, are culturally bound. A failure to understand the nonverbal cues of another culture can lead to a communication failure.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-02
Topic: Language

 

  1. (p. 114)Personal space, which is the comfortable amount of distance between you and someone you are talking with, is an aspect of:
    A. remote communication.
    B. the spoken language.
    C. explicit communication.
    D. nonverbal communication.

One of the aspects of nonverbal communication is personal space, which is the comfortable amount of distance between you and someone you are talking with. The concept of personal space can vary between cultures.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Language

  1. (p. 114, 115)When schools emphasize respect for others, obedience to authority, honesty, neatness, being on time, and so on, they are:
    A. introducing children to the virtues of competitiveness.
    B. impinging on fundamental freedoms and values.
    C. indirectly teaching cultural values and norms.
    D. running counter to the values and norms learnt from the family.

Cultural norms are also taught indirectly at school. Respect for others, obedience to authority, honesty, neatness, being on time, and so on, are all part of the hidden curriculum of schools.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-02
Topic: Education

 

  1. (p. 115)The recent trend to outsource information technology jobs to India and Japan’s post-war economic success, both indicate how education:
    A. is not as important to economic growth as previously thought.
    B. supplements the family’s role in socializing the young.
    C. is counterproductive to creating a skilled labor pool in an economy.
    D. is a determinant of national competitive advantage.

From an international business perspective, one important aspect of education is its role as a determinant of national competitive advantage. The availability of a pool of skilled and educated workers seems to be a major determinant of the likely economic success of a country.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-03
Topic: Education

  1. (p. 115)A good education system is a determinant of national competitive advantage and:
    A. is an index of the industrial capacity of the nation.
    B. the cultural supremacy of the nation over others.
    C. is an important factor guiding the location choices of international businesses.
    D. political ascendancy.

Not only is a good education system a determinant of national competitive advantage, but it is also an important factor guiding the location choices of international businesses.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-03
Topic: Education

 

  1. (p. 115)The general education level of a country is a factor determining all of the following EXCEPT:
    A. the national competitive advantage.
    B. the preeminence of the national culture.
    C. the attractiveness of the country for international business location.
    D. the type of products that might sell in that country.

Not only is a good education system a determinant of national competitive advantage, but it is also an important factor guiding the location choices of international businesses. The general education level of a country is also a good index of the kind of products that might sell in a country and of the type of promotional material that should be used.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Education

  1. (p. 115)If the cultures of the United States and France result in different work-related values, an international business with operations in both countries should:
    A. vary its management process and practices to account for these differences.
    B. adopt similar management processes and practices in both countries.
    C. opt to exit one of the markets to avoid a conflict.
    D. ignore cultural differences and focus only on the economic aspects.

Of considerable importance for an international business with operations in different countries is how a society’s culture affects the values found in the workplace. Management process and practices may need to vary according to culturally determined work-related values.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-04
Topic: Culture and the Workplace

 

  1. (p. 115, 116)Who isolated four dimensions—power distance, uncertainty avoidance, individualism versus collectivism, and masculinity versus femininity—that he claimed summarized different cultures?
    A. Abraham Maslow
    B. B.F Skinner
    C. Geert Hofstede
    D. Wilhelm Wundt Wilhelm

Probably the most famous study of how culture relates to values in the workplace was undertaken by Geert Hofstede. Hofstede isolated four dimensions that he claimed summarized different cultures—power distance, uncertainty avoidance, individualism versus collectivism, and masculinity versus femininity.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-04
Topic: Culture and the Workplace

  1. (p. 116)Which one of Hofstede’s cultural dimensions focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities?
    A. Uncertainty avoidance
    B. Masculinity versus femininity
    C. Individualism versus collectivism
    D. Power distance

Hofstede’s power distance dimension focused on how a society deals with the fact that people are unequal in physical and intellectual capabilities.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-04
Topic: Culture and the Workplace

 

  1. (p. 116)In societies where _____ was emphasized, the ties between individuals were tight and everyone was supposed to look after the interests of his or her group.
    A. individualism
    B. collectivism
    C. masculinity
    D. femininity

Hofstede’s individualism versus collectivism dimension focused on the relationship between the individual and his or her fellows. In societies where collectivism was emphasized, the ties between individuals were tight. In such societies, people were born into collectives, such as extended families, and everyone was supposed to look after the interests of his or her collective.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-04
Topic: Culture and the Workplace

  1. (p. 116)Members of _____ cultures placed a premium on job security, career patterns, retirement benefits, and they also had a strong need for rules and regulations.
    A. high uncertainty avoidance
    B. masculine
    C. low power distance
    D. individualistic

Hofstede’s uncertainty avoidance dimension measured the extent to which different cultures socialized their members into accepting ambiguous situations and tolerating uncertainty. Members of high uncertainty avoidance cultures placed a premium on job security, career patterns, retirement benefits, and so on. They also had a strong need for rules and regulations

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-04
Topic: Culture and the Workplace

 

  1. (p. 116)If a country has a deep-rooted culture of men and women sharing work equally and where men and women are paid equally for the same work, it can be called a _____ culture.
    A. high power distance
    B. uncertainty avoidance
    C. feminine
    D. individualistic

Hofstede’s masculinity versus femininity dimension looked at the relationship between gender and work roles. In feminine cultures, sex roles were less sharply distinguished, and little differentiation was made between men and women in the same job.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-04
Topic: Culture and the Workplace

  1. (p. 116)The standard stereotype of Japan as a country with clearly demarcated roles for men and women and where individuals typically stay with the same employer throughout their working lives, proves the country as having _____ and _____.
    A. high femininity; low power distance
    B. high uncertainty avoidance; high masculinity
    C. low power distance; high individualism
    D. low uncertainty avoidance; high femininity

In masculine cultures, sex roles were sharply differentiated and traditional “masculine values,” such as achievement and the effective exercise of power, determined cultural ideals. Members of high uncertainty avoidance cultures placed a premium on job security, career patterns, retirement benefits, and so on.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 03-04
Topic: Culture and the Workplace

 

  1. (p. 116)Which of the following countries scores high on the individualism scale and low on the power distance scale?
    A. Mexico
    B. Japan
    C. India
    D. Great Britain

Western nations such as the United States, Canada, and Britain score high on the individualism scale and low on the power distance scale. At the other extreme are a group of Latin American and Asian countries that emphasize collectivism over individualism and score high on the power distance scale.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-04
Topic: Culture and the Workplace

  1. (p. 116)Which of the following countries stands out as having both low uncertainty avoidance and low masculinity?
    A. United States
    B. Japan
    C. Sweden
    D. Great Britain

Sweden and Denmark stand out as countries that have both low uncertainty avoidance and low masculinity, or a high emphasis on feminine values.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-04
Topic: Culture and the Workplace

 

  1. (p. 116, 117)Which of the following is a criticism of Hofstede’s four cultural dimensions?
    A. Hofstede has ignored the one-to-one correspondence between culture and the nation-state.
    B. Most of Hofstede’s findings are in direct conflict with standard Western stereotypes.
    C. Hofstede assumes that most countries have more than one cultural dimension.
    D. Certain social classes were excluded from Hofstede’s sample.

Hofstede’s research has been criticized on a number of points, including that certain social classes (such as unskilled manual workers) were excluded from Hofstede’s sample.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 03-04
Topic: Culture and the Workplace

  1. (p. 118)Hofstede’s fifth dimension of _____ captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors.
    A. Protestant ethic
    B. Buddhist path
    C. Hindu karma
    D. Confucian dynamism

Hofstede subsequently expanded his original research to include a fifth dimension that he argued captured additional cultural differences. He referred to this dimension as “Confucian dynamism” (sometimes called long-term orientation), which and captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-04
Topic: Culture and the Workplace

 

  1. (p. 118, 119)One of the ways in which the new generation of Japanese workers differs from traditional Japanese workers is that they:
    A. are loyal to their employers and will remain with them for a lifetime.
    B. are likely to be less direct than the traditional Japanese.
    C. give up evenings, weekends, and vacations to serve the organization.
    D. will move on if they get an offer of a better job.

Some claim that a major cultural shift has been occurring in Japan, with a move toward greater individualism. The model Japanese office worker is characterized as being loyal to his boss and the organization for a lifetime. An individual from the new generation, however, does not live for the company and will move on if he gets the offer of a better job.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-05
Topic: Cultural Change

  1. (p. 119)The World Values Survey has linked changes in cultural values to:
    A. changes in the geographical features of a country.
    B. evolutionary changes that occur over several generations.
    C. changes in a country’s level of economic development.
    D. the political ascendancy of the country.

A 25-year study of values in 78 countries, known as the World Values Survey has documented how values change. The study linked these changes in values to changes in a country’s level of economic development.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-05
Topic: Cultural Change

 

  1. (p. 119)La-Durando is a country that has achieved rapid economic growth and prosperity over the last couple of decades. According to findings of the World Values Survey, the country is likely to see a cultural shift away from _____ values and toward _____ values.
    A. traditional; secular rational
    B. individualist; collectivist
    C. Western; Confucian
    D. atheist; religious

According to research by the World Values Survey, as countries get richer, a shift occurs away from “traditional values” linked to religion, family, and country, and toward “secular rational” values.

 

AACSB: Reflective Thinking
Bloom’s: Apply
Difficulty: Hard
Learning Objective: 03-05
Topic: Cultural Change

  1. (p. 120)_____________ values, identified by the World Values Survey, tend to stress that economic and physical security are more important than self-expression.
    A. Traditional
    B. Religious
    C. Well-being
    D. Survival

According to the World Values Survey, “survival values” are the values people hold when the struggle for survival is of paramount importance. These values tend to stress that economic and physical security are more important than self-expression.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-05
Topic: Cultural Change

 

  1. (p. 120)According to the World Values Survey, _____ values stress the importance of diversity, belonging, and participation in political processes.
    A. survival
    B. self-expression
    C. traditional
    D. conservative

According to the World Values Survey, “self-expression” or “well-being” values stress the importance of diversity, belonging, and participation in political processes.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-05
Topic: Cultural Change

  1. (p. 120)In the context of quality of life attributes, as countries get richer, there seems to be a shift from _____ values to _____ values.
    A. self-expression; survival
    B. survival; well-being
    C. inclusive; xenophobic
    D. egalitarian; authoritative

As countries get richer, there seems to be a shift from “traditional” to “secular rational” values and from “survival values” to “well-being” values. The shift, however, takes time.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-05
Topic: Cultural Change

 

  1. (p. 120)Substantial changes in cultural values are linked to generations, with _____ typically being in the vanguard of a significant change in values.
    A. elders
    B. foreigners
    C. younger people
    D. women

A shift in values takes time, primarily because individuals are socialized into a set of values when they are young and find it difficult to change as they grow older. Substantial changes in values are linked to generations, with younger people typically being in the vanguard of a significant change in values.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-05
Topic: Cultural Change

  1. (p. 121)A belief in the superiority of one’s own ethnic group or culture, often resulting in disregard or contempt for the culture of other countries, is termed as:
    A. acculturation.
    B. egocentrism.
    C. ethnocentrism.
    D. ethnic gloss.

Ethnocentrism is a belief in the superiority of one’s own ethnic group or culture. Hand in hand with ethnocentrism goes a disregard or contempt for the culture of other countries.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Cross-Cultural Literacy

 

 

Essay Questions

  1. (p. 94, 95)What are norms? Briefly describe the two categories of norms.

Norms are the social rules that govern people’s actions toward one another. Norms can be subdivided further into two major categories: folkways and mores. Folkways are the routine conventions of everyday life. Generally, folkways are actions of little moral significance. Rather, they are social conventions concerning things such as the appropriate dress code in a particular situation, good social manners, eating with the correct utensils, neighborly behavior, and the like. Although folkways define the way people are expected to behave, violation of them is not normally a serious matter. Folkways include rituals and symbolic behavior. Mores are norms that are seen as central to the functioning of a society and to its social life. They have much greater significance than folkways. Accordingly, violating mores can bring serious retribution. Mores include such factors as indictments against theft, adultery, incest, and cannibalism. In many societies, certain mores have been enacted into law.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-01
Topic: What is Culture?

  1. (p. 97)What are the two dimensions of a society’s social structure that stand out as being of particular importance when explaining differences between cultures?

Although social structure consists of many different aspects, two dimensions are particularly important when explaining differences between cultures. The first is the degree to which the basic unit of social organization is the individual, as opposed to the group. In general, Western societies tend to emphasize the primacy of the individual, whereas groups tend to figure much larger in many other societies. The second dimension is the degree to which a society is stratified into classes or castes. Some societies are characterized by a relatively high degree of social stratification and relatively low mobility between strata (e.g., Indian); other societies are characterized by a low degree of social stratification and high mobility between strata (e.g., American).

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

 

  1. (p. 97-99)In some societies, the individual is the basic building block of social organization, while the group has primacy in others. Which of these social dimensions is more conducive to business and economy?

The emphasis on individual performance in many Western societies has both beneficial and harmful aspects. In the United States, the emphasis on individual performance finds expression in an admiration of rugged individualism and entrepreneurship. One benefit of this is the high level of entrepreneurial activity in the United States and other Western societies. One can argue that the dynamism of the U.S. economy owes much to the philosophy of individualism. Individualism also finds expression in a high degree of managerial mobility between companies, and this is not always a good thing as managers could have good general skills but lack knowledge, experience, and network of interpersonal contacts. One positive aspect of high managerial mobility is that executives are exposed to different ways of doing business. The emphasis on individualism may also make it difficult to build teams within an organization to perform collective tasks. The emphasis on individualism in the United States may raise the costs of doing business due to its adverse impact on managerial stability and cooperation. On the other hand, strong identification with the group is argued to create pressures for mutual self-help and collective action. Some argue that the success of Japanese enterprises in the global economy has been based partly on their ability to achieve close cooperation between individuals within a company and between companies. The primacy of the value of group identification also discourages managers and workers from moving from company to company. However, the primacy of the group is not always beneficial. Some argue that Japanese society is characterized by a lack of dynamism and entrepreneurship. Thus, each dimension comes with its share of benefits and problems.

 

AACSB: Reflective Thinking
Bloom’s: Analyze
Difficulty: Hard
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 99, 100)What is meant by the term social mobility? What are the two variations of social mobility?

The term “social mobility” refers to the extent to which individuals can move out of the stratum into which they are born. Social mobility varies significantly from society to society. The most rigid system of stratification is a caste system. A caste system is a closed system of stratification in which social position is determined by the family into which a person is born, and change in that position is usually not possible during an individual’s lifetime. Often a caste position carries with it a specific occupation, which is passed down through the family to succeeding generations. A class system is a less rigid form of social stratification in which social mobility is possible. It is a form of open stratification in which the position a person has by birth can be changed through his or her own achievements or luck. Individuals born into a class at the bottom of the hierarchy can work their way up; conversely, individuals born into a class at the top of the hierarchy can slip down. While many societies have class systems, social mobility within a class system varies from society to society.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Topic: Social Structure

  1. (p. 102)What is class-consciousness? What could be its impact on business?

Class consciousness refers to a condition where people tend to perceive themselves in terms of their class background, and this shapes their relationships with members of other classes. Countries with a lack of class mobility and differences between classes evidence the emergence of class consciousness. From a business perspective, class consciousness in a society is significant in how it affects the operation of business organizations. An antagonistic relationship between management and labor classes, and the resulting lack of cooperation and high level of industrial disruption, tends to raise the costs of production in countries characterized by significant class divisions. In turn, this can make it more difficult for companies based in such countries to establish a competitive advantage in the global economy.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Social Structure

 

  1. (p. 105)Elaborate on the connection Max Weber made between Protestant ethics and “the spirit of capitalism.”

In 1904, German sociologist, Max Weber, made a connection between Protestant ethics and “the spirit of capitalism.” Weber noted that capitalism emerged in Western Europe, where “business leaders and owners of capital, as well as the higher grades of skilled labor, and even more the higher technically and commercially trained personnel of modern enterprises, are overwhelmingly Protestant.” Weber theorized that there was a relationship between Protestantism and the emergence of modern capitalism. He argued that Protestant ethics emphasize the importance of hard work and wealth creation (for the glory of God) and frugality (abstinence from worldly pleasures). According to Weber, this kind of value system was needed to facilitate the development of capitalism. Thus, the combination of hard work and the accumulation of capital, which could be used to finance investment and expansion, paved the way for the development of capitalism in Western Europe and subsequently in the United States.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 109)Islam prohibits the payment or receipt of interest, which is considered usury. Then how do Islamic banks make money?

Because Islamic banks cannot pay or charge interest, they must find a different way of making money. Islamic banks have experimented with two different banking methods—the “mudarabah” and the “murabaha.” A mudarabah contract is similar to a profit-sharing scheme. Under mudarabah, when an Islamic bank lends money to a business, rather than charging that business interest on the loan, it takes a share in the profits that are derived from the investment. Similarly, when a business or individual deposits money at an Islamic bank in a savings account, the deposit is treated as an equity investment in whatever activity the bank uses the capital for. Thus, the depositor receives a share in the profit from the bank’s investment (as opposed to interest payments) according to an agreed-on ratio. The second Islamic banking method, the murabaha contract, is the most widely used among the world’s Islamic banks, primarily because it is the easiest to implement. In a murabaha contract, when a firm wishes to purchase something using a loan, the firm tells the bank after having negotiated the price with the equipment manufacturer. The bank then buys the equipment and the borrower buys it back from the bank at some later date for a premium.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

  1. (p. 110, 111)Discuss basic tenets of Buddhism and the economic implications of Buddhism.

According to Buddhism, suffering originates in people’s desires for pleasure. Cessation of suffering can be achieved by following a path for transformation. Siddhartha offered the Noble Eightfold Path as a route for transformation. This emphasizes right seeing, thinking, speech, action, living, effort, mindfulness, and meditation. Like Hindus, Buddhists stress the afterlife and spiritual achievement rather than involvement in this world. The emphasis on wealth creation that is embedded in Protestantism is not found in Buddhism. Thus, in Buddhist societies, we do not see the same kind of historical cultural stress on entrepreneurial behavior that Weber claimed could be found in the Protestant West. But unlike Hinduism, the lack of support for the caste system and extreme ascetic behavior suggests that a Buddhist society may represent a more fertile ground for entrepreneurial activity than a Hindu culture.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-02
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 111, 112)Discuss how the three values central to the Confucian system of ethics: loyalty, reciprocal obligations, and honesty in dealings with others help explain the economic success of some of the countries that practice Confucianism.

In Confucian thought, loyalty to one’s superiors is regarded as a sacred duty—an absolute obligation. In modern organizations based in Confucian cultures, the loyalty that binds employees to the heads of their organization can reduce the conflict between management and labor and cooperation between management and labor can be achieved at a lower cost. However, the concept of reciprocal obligations is important. Confucian ethics stress that superiors are obliged to reward the loyalty of their subordinates by bestowing blessings on them. This Confucian ethic is central to the Chinese concept of “guanxi,”which refers to relationship networks supported by reciprocal obligations. Thus, the implicit threat of social sanctions is often sufficient to ensure that favors are repaid, obligations are met, and relationships are honored. In a society that lacks a rule-based legal tradition, “guanxi” is an important mechanism for building long-term business relationships and getting business done. A third concept found in Confucian ethics is the importance attached to honesty. Confucian thinkers emphasize that dishonesty does not pay in the long run. The importance attached to honesty has major economic implications. When companies can trust each other not to break contractual obligations, the costs of doing business are lowered. Expensive lawyers are not needed to resolve contract disputes. In a Confucian society, people may be less hesitant to commit substantial resources to cooperative ventures than in a society where honesty is less pervasive.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Religious and Ethical Systems

 

  1. (p. 115)Explain how the education system of a country impacts international business.

From an international business perspective, one important aspect of education is its role as a determinant of national competitive advantage. The availability of a pool of skilled and educated workers seems to be a major determinant of the likely economic success of a country. The extraordinary postwar economic success of Japan is a case in point. Not only is a good education system a determinant of national competitive advantage, but it is also an important factor guiding the location choices of international businesses. The recent trend to outsource information technology jobs to India, for example, is partly due to the presence of significant numbers of trained engineers in India, which in turn is a result of the Indian education system. The general education level of a country is also a good index of the kind of products that might sell in a country and of the type of promotional material that should be used.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-03
Topic: Education

  1. (p. 116, 117)What are the criticisms against Hofstede’s research?

Hofstede’s research has been criticized on a number of points. First, Hofstede assumes there is a one-to-one correspondence between culture and the nation-state when many countries in reality have more than one culture. Second, the research may have been culturally bound. The research team was composed of Europeans and Americans. The questions they asked of IBM employees and their analysis of the answers may have been shaped by their own cultural biases and concerns. So it is not surprising that Hofstede’s results confirm Western stereotypes, because it was Westerners who undertook the research. Third, Hofstede’s informants worked not only within a single industry, the computer industry, but also within one company, IBM. At the time, IBM was renowned for its own strong corporate culture and employee selection procedures, making it possible that the employees’ values were different in important respects from the values of the cultures from which those employees came. Also, certain social classes (such as unskilled manual workers) were excluded from Hofstede’s sample. A final caution is that Hofstede’s work is now beginning to look dated. Cultures do not stand still; they evolve, albeit slowly. What was a reasonable characterization in the 1960s and 1970s may not be so today.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-04
Topic: Culture and the Workplace

 

  1. (p. 118)Which was the fifth dimension that Hofstede added to his research? How did Hofstede relate it to economic growth rate?

Hofstede expanded his original research to include a fifth dimension that he argued captured additional cultural differences not brought out in his earlier work. He referred to this dimension as “Confucian dynamism.” According to Hofstede, Confucian dynamism captures attitudes toward time, persistence, ordering by status, protection of face, respect for tradition, and reciprocation of gifts and favors. The label refers to these “values” being derived from Confucian teachings. As might be expected, East Asian countries such as Japan, Hong Kong, and Thailand scored high on Confucian dynamism, while nations such as the United States and Canada scored low. Hofstede and his associates went on to argue that their evidence suggested that nations with higher economic growth rates scored high on Confucian dynamism and low on individualism—the implication being Confucianism is good for growth.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-04
Topic: Culture and the Workplace

 

  1. (p. 118, 119)Outline the major cultural shift toward individualism that is perceived by some as occurring in Japan. Discuss the possible reasons for this shift.

Some claim that a major cultural shift has been occurring in Japan, with a move toward greater individualism. The model Japanese office worker, or “salaryman,” is characterized as being loyal to his boss and the organization to the point of giving up evenings, weekends, and vacations to serve the organization, which is the collective of which the employee is a member. However, a new generation of office workers does not seem to fit this model. An individual from the new generation is likely to be more direct than the traditional Japanese. He acts more like a Westerner. He does not live for the company and will move on if he gets the offer of a better job. He is not keen on overtime, has his own plans for his free time, and they may not include drinking or playing golf with the boss. Several studies have suggested that economic advancement and globalization may be important factors in societal change. Thus, as Japan has become richer, the cultural emphasis on collectivism has declined and greater individualism is being witnessed. One reason for this shift may be that richer societies exhibit less need for social and material support structures built on collectives, whether the collective is the extended family or the paternalistic company. People are better able to take care of their own needs. As a result, the importance attached to collectivism declines, while greater economic freedoms lead to an increase in opportunities for expressing individualism.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 03-05
Topic: Cultural Change

 

  1. (p. 119, 120)A 25-year study of values in 78 countries, known as the World Values Survey, has documented how values change. Discuss the findings of this study, including findings relating to the quality of life attributes.

The World Values Survey linked changes in values in countries to changes in a country’s level of economic development. According to this research, as countries get richer, a shift occurs away from “traditional values” linked to religion, family, and country, and toward “secular rational” values. Another category in the World Values Survey is quality of life attributes. At one end of this spectrum are “survival values,” the values people hold when the struggle for survival is of paramount importance. These values tend to stress that economic and physical security are more important than self-expression. People who cannot take food or safety for granted tend to be xenophobic, are wary of political activity, have authoritarian tendencies, and believe that men make better political leaders than women. “Self-expression” or “well-being” values stress the importance of diversity, belonging, and participation in political processes.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 03-05
Topic: Cultural Change

 

Chapter 11

The Strategy of International Business

 

True / False Questions

  1. In a global strategy, the corporate center exercises more control over manufacturing, marketing, and product development decisions.
    True    False

 

  1. The shift from a global strategy to a localization strategy is a response to the increasing localization of markets.
    True    False

 

  1. The actions that managers take to attain the goals of the firm are referred to as a firm’s strategy.
    True    False

 

  1. Profit growth is measured by the percentage increase in net profits over time.
    True    False

 

  1. Adding value to the firm’s products enables the firm to lower prices.
    True    False

 

  1. The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products.
    True    False

 

  1. The price a firm charges for a good or service is typically more than the value placed on that good or service by the customer.
    True    False

 

 

  1. Customer surplus captures some of the value of a product thereby reducing the price a firm charges for it.
    True    False

 

  1. Superior value creation relative to rivals requires that the gap between the value and cost of production be lesser than the gap attained by competitors.
    True    False

 

  1. Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires only minimal additional costs.
    True    False

 

  1. According to Porter, all positions on the efficiency frontier are viable.
    True    False

 

  1. The various value creation activities a firm undertakes are referred to as operations.
    True    False

 

  1. For services such as banking or health care, “production” typically occurs when the service is designed by in-house professionals.
    True    False

 

  1. In terms of attaining a competitive advantage, support activities can be as important as the “primary” activities of the firm.
    True    False

 

 

  1. The company infrastructure is a support activity.
    True    False

 

  1. The term organization structure can be used to refer to the totality of a firm’s organization, including organizational architecture, control systems and incentives, organizational culture, processes, and people.
    True    False

 

  1. Processes are conceptually synonymous to the location of decision-making responsibilities within an organization, as both involve decisions.
    True    False

 

  1. People also refer to the strategy used to recruit, compensate, and retain those individuals and the type of people that they are in terms of their skills, values, and orientation.
    True    False

 

  1. Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively.
    True    False

 

  1. Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them.
    True    False

 

  1. A firm that bases each value creation activity it performs at that location where internal and environmental factors are most conducive to the performance of that activity is bound to realize location economies.
    True    False

 

 

  1. The experience curve refers to systematic increase in production costs that have been observed to occur over the life of a product.
    True    False

 

  1. Learning effects will be more significant in an assembly process involving 100 simple steps than in one of 1000 complex steps.
    True    False

 

  1. The ability to spread fixed costs over a large volume is one of the sources of economies of scale.
    True    False

 

  1. The firm that moves up the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.
    True    False

 

  1. A strategy of holding prices low in order to increase global market share and attain greater scale economies rather than raising prices to reflect the higher perceived value of the product could increase the firm’s rate of profit growth even further.
    True    False

 

  1. Pressures for cost reduction can be particularly intense in many industrial and consumer products like handheld calculators, semiconductor chips, personal computers, and liquid crystal display screens.
    True    False

 

  1. Pressures for local responsiveness imply that it is easier to leverage skills and products associated with a firm’s core competencies wholesale from one nation to another.
    True    False

 

 

  1. Firms that pursue a transnational strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
    True    False

 

  1. A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.
    True    False

 

  1. A localization strategy involves some duplication of functions and smaller production runs.
    True    False

 

  1. According to researchers, firms facing both strong cost pressures and strong pressures for local responsiveness should pursue a global standardization strategy.
    True    False

 

  1. International strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization.
    True    False

 

  1. Strategic alliances also allow firms to share the fixed costs (and associated risks) of developing new products or processes.
    True    False

 

  1. The key to making a strategic alliance work is that the two firms must approach the alliance with radically different agendas.
    True    False

 

 

 

Multiple Choice Questions

  1. A firm’s _____ can be defined as the actions that managers take to attain the goals of the firm.
    A. systems
    B. value chain
    C. mission
    D. strategy

 

  1. The text defines _____ as the rate of return that the firm makes on its invested capital (ROIC).
    A. stakeholder returns
    B. profitability
    C. value
    D. revenue

 

  1. Profit growth is measured by:
    A. dividing the net profits of the firm by total invested capital.
    B. subtracting the previous year’s gross profit from the current year’s gross profit.
    C. calculating the difference between the previous year’s profitability and the current year’s profitability.
    D. the percentage increase in net profits over time.

 

  1. Which of the following is NOT a strategy for a firm to achieve profitability?
    A. Raising costs.
    B. Expanding internationally.
    C. Selling more products in existing markets.
    D. Entering new markets.

 

 

  1. The amount of value created by a firm is measured by:
    A. calculating the difference between the previous year’s profitability and the current year’s profitability.
    B. dividing the market price of its products by the price that customers are actually willing to pay.
    C. estimating the difference between its costs of production and the value that consumers perceive in its products.
    D. dividing the net profits of the firm by total invested capital.

 

  1. The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the consumer captures some of that value in the form of what economists call _____.
    A. firm value
    B. a consumer surplus
    C. customer loyalty
    D. firm deficit

 

  1. Which of the following is one of the reasons that consumers are able to capture consumer surpluses?
    A. Because the firm is a monopoly supplier
    B. Because it is difficult to segment a market to reflect reservation prices of all customers
    C. Because value creation results in a corresponding reduction in costs of production
    D. Because firms can charge consumers a price that reveals a consumer’s assessment of the product’s value

 

  1. The price that reflects an individual’s assessment of the value of a product constitutes:
    A. the market price of the product.
    B. the customer’s negotiated price.
    C. the base value of the product.
    D. the customer’s reservation price.

 

 

  1. The value of a product to an average consumer is V, the average price that the firm can charge a consumer for that product is P and the average unit cost of producing that product is C. For this scenario, which of the following is true?
    A. The firm makes a profit so long as C is greater than P.
    B. The higher C is relative to P, greater will be the profit.
    C. The consumer surplus per unit is equal to V – P.
    D. The higher the intensity of competitive pressure, the higher the price charged relative to V.

 

  1. Which of the following is one of the ways in which a company can create more value for a product?
    A. By charging a higher price for the product
    B. By raising production costs
    C. By generating more profits
    D. By making the product more attractive

 

  1. A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a _____ strategy.
    A. standardization
    B. differentiation
    C. target-identification
    D. low-cost

 

  1. There are two basic strategies for improving a firm’s profitability. These are:
    A. a differentiation strategy and a low-cost strategy.
    B. a premier strategy and a generic strategy.
    C. a one-size-fits-all strategy and a zero-sum strategy.
    D. a comparison strategy and a standardization strategy.

 

  1. Superior value creation relative to rivals requires a firm to:
    A. differentiate their products so that consumers do not have to pay a premium for it.
    B. have the lowest cost structure in the industry.
    C. create the most valuable product in the eyes of consumers.
    D. ensure that the gap between value and cost of production be greater than the gap attained by competitors.

 

 

  1. The _____ of a firm is measured by the difference between value and cost of a product.
    A. customer surplus
    B. value creation
    C. cost curve
    D. value efficiency

 

  1. When a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. The converse also holds, when a firm already has a low-cost structure, it has to give up a lot of value in its product offering to get additional cost reductions. These are the implications relate to the concept of _____.
    A. diminishing returns
    B. marginal utility
    C. surplus value
    D. production possibility

 

  1. The _____ shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position.
    A. demand-value model
    B. experience curve
    C. efficiency frontier
    D. optimal output model

 

  1. Why does the efficiency frontier manifest itself in a convex shape?
    A. Because of diminishing returns
    B. Because of constant returns to specialization
    C. Because of the consumer surplus
    D. Because of value deficit

 

 

  1. Which of the following statements about the efficiency frontier is true?
    A. Positions outside the efficiency frontier are easily attainable.
    B. Not all positions on the efficiency frontier are viable.
    C. The efficiency frontier is a function of the cost and revenue of a product.
    D. Sufficient demand exists for all positions on the efficiency frontier.

 

  1. According to the text, it is useful to think of the operations of a firm as a(n) _____ composed of a series of distinct activities, including production, marketing and sales, materials management, R&D, human resources, information systems, and the firm infrastructure.
    A. functional stream
    B. assembly line
    C. supply chain
    D. value chain

 

  1. The value creation activities of a firm can be categorized as _____ and _____ activities.
    A. primary; support
    B. strategic; functional
    C. ancillary; tertiary
    D. primary; core

 

  1. The _____ activities of a firm have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service.
    A. support
    B. tertiary
    C. ancillary
    D. primary

 

  1. Which of the following is an example of a primary activity in a firm?
    A. Materials management
    B. Research and development
    C. Information system
    D. Human relations

 

 

  1. Which of the following is an example of support activity in a firm?
    A. Research and development
    B. Customer service
    C. Marketing and sales
    D. Information systems

 

  1. For a service organization, at which stage does production typically occur?
    A. When the service involves production of tangibles
    B. When the service is paid for by the customer
    C. When the service is designed in-house
    D. When the service is delivered to the customer

 

  1. Which function of a firm is concerned with the design of products and production processes?
    A. Human resources
    B. Research and development
    C. Marketing and sales
    D. Materials management

 

  1. When MTV engages in the creation, programming, and broadcasting of content, such as music videos and thematic shows, it is carrying out the function of:
    A. marketing and sales.
    B. logistics.
    C. production.
    D. human resource management.

 

 

  1. Ford has produced a high-value version of its Ford Expedition SUV. Sold as the Lincoln Navigator and priced around $10,000 higher, the Navigator has the same body, engine, chassis, and design as the Expedition, but through skilled advertising and marketing, supported by some fairly minor features changes (e.g., more accessories and the addition of a Lincoln-style engine grille and nameplate), Ford has fostered the perception that the Navigator is a “luxury SUV.” This demonstrates how the marketing function can:
    A. help a firm reduce cost of production across product lines.
    B. create value by giving valuable inputs to the research and development function.
    B. increase the value that consumers perceive to be contained in a firm’s product.
    C. create value by performing its activities efficiently so lower costs result.

 

  1. One of the ways in which the _____ can create value in a firm is by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs.
    A. production
    B. marketing and sales
    C. human resources
    D. logistics

 

  1. This function can create a perception of superior value in the minds of consumers by solving customer problems and supporting customers after they have purchased the product.
    A. Production
    B. Marketing and sales
    C. Human resources
    D. Customer service

 

  1. The _____ activities of the value chain provide inputs that allow the primary activities to occur.
    A. hub
    B. support
    C. core
    D. central

 

 

  1. When customers place an order for a Dell product over the firm’s Web site, that data is immediately transmitted, via the Internet, to suppliers, who then configure their production schedules to produce and ship that product so that it arrives at the right assembly plant at the right time, thus reducing the amount of inventory held at factories and saving costs. This is an example of how a company can use its _____ to create value.
    A. finance function
    B. information systems
    C. human resources
    D. service function

 

  1. The _____ function controls the transmission of physical materials through the value chain, from procurement through production and into distribution.
    A. human resource
    B. finance
    C. marketing
    D. logistics

 

  1. The _____ function ensures that the company has the right mix of skilled people to perform its value creation activities effectively and it also ensures that people are adequately trained, motivated, and compensated to perform their value creation tasks.
    A. finance
    B. marketing
    C. human resource
    D. logistics

 

  1. Which support function denotes the context within which all the other value creation activities occur, and includes the organizational structure, control systems, and culture of the firm?
    A. Human resource function
    B. Logistics
    C. Information systems
    D. Infrastructure

 

 

  1. The term _____ can be used to refer to the totality of a firm’s organization, including its organizational structure, control systems and incentives, and people.
    A. organization tree
    B. organization architecture
    C. organizational culture
    D. organizational model

 

  1. _____ comprises three things: the formal division of the organization into subunits, the location of decision-making responsibilities within these, and the establishment of integrating mechanisms to coordinate the activities of subunits.
    A. Organizational structure
    B. Organizational model
    C. Corporate ladder
    D. Corporate culture

 

  1. _____ are the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits.
    A. Reports
    B. Controls
    C. Rewards
    D. Incentives

 

  1. Devices used to reward appropriate managerial behavior are called _____.
    A. loyalties
    B. reports
    C. processes
    D. incentives

 

  1. _____ refers to the manner in which decisions are made and work is performed within the organization.
    A. Processes
    B. Mores
    C. Modes
    D. Controls

 

 

  1. The norms and value systems that are shared among the employees of an organization refer to its _____.
    A. process scenario
    B. organizational structure
    C. business structure
    D. organizational culture

 

  1. In terms of organizational architecture, “people” include:
    A. the suppliers to the firm.
    B. the employees of the organization.
    C. the firm’s customers.
    D. the shareholders of the firm.

 

  1. Which of the following constrains a firm’s ability to increase its profitability and profit growth by expanding globally?
    A. The imperative of localization
    B. The realization of location economies
    C. The realization of cost economies
    D. The leveraging of skills developed in foreign operations

 

  1. A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if:
    A. the product is already being offered by local companies in the host country.
    B. it is a generic product that requires little differentiation.
    C. indigenous competitors in the host nations lack comparable products.
    D. there is a high inflation situation in the host country.

 

  1. Skills within the firm that competitors cannot easily match or imitate are referred to as _____.
    A. core competencies
    B. barriers to entry
    C. internalities
    D. externalities

 

 

  1. _____ are the bedrock of a firm’s competitive advantage.
    A. Internalities
    B. Generic skills
    C. Core competencies
    D. Standard competencies

 

  1. _____ economies are those economies that arise from performing a value creation activity in the optimal place for that activity, wherever in the world that might be.
    A. Diversification
    B. Value
    C. Location
    D. Support

 

  1. If the most productive labor force for assembly operations is in Mexico, assembly operations should be based in Mexico. This is based on the principle of:
    A. geographic markets.
    B. the experience curve.
    C. economies of scale.
    D. location economies.

 

  1. A firm creates a(n) _____ by dispersing the stages of its value chain to those locations around the globe where the value added is maximized or where the costs of value creation are minimized.
    A. integral circle
    B. dispersal chain
    C. global web
    D. international mesh

 

  1. In theory, which of the following is true of a firm implementing a global web of operations versus a single-location competitor?
    A. It should be able to raise the perceived value.
    B. It should be able to increase the cost structure.
    C. It should be able to increase the average price of their product.
    D. It should be able to increase the cost of value creation.

 

 

  1. Which of the following is an important caveat that is likely to discourage global expansion?
    A. Economies of scale
    B. Cost of production
    C. Trade barriers
    D. Mass customization

 

  1. The _____ refers to the systematic reductions in production costs that have been observed to occur over the life of a product.
    A. experience curve
    B. forward advantage
    C. positive-sum result
    D. managed advantage

 

  1. A number of studies have observed that a product’s production costs decline by some quantity about each time _____ doubles.
    A. annual output
    B. cumulative output
    C. workforce
    D. fixed investment

 

  1. The two phenomena that help explain the experience curve are:
    A. learning effects and economies of scale.
    B. technology inputs and wealth transfer.
    C. leveraging subsidiary and local responsiveness.
    D. standardized manufacturing and global web.

 

  1. _____ refer to cost savings that come from acquiring knowledge of repetition of how to carry out a task.
    A. Learning effects
    B. Exponential effects
    C. Ancillary effects
    D. Economies of scale

 

 

  1. Labor productivity increases over time as individuals understand the most efficient ways to perform particular tasks. This could be attributed to _____.
    A. diminishing returns
    B. location economies
    C. economies of time
    D. learning effects

 

  1. In which of the following tasks will the learning effects be most significant?
    A. Pizza delivery for a fast-food major
    B. Data entry for a loan recovery center
    C. Network administration for a data analytics center
    D. Sewing buttons onto shirts in a garment factory

 

  1. Which of the following is true of learning effects?
    A. Learning effects tend to be more significant in non-repetitive tasks.
    B. Learning effects tend to be less significant when a task is technologically complex.
    C. Learning effects typically last a lifetime.
    D. Learning effects are important only during the start-up period of a new process.

 

  1. Which of the following is true of economies of scale?
    A. It increases average unit cost by channeling fixed costs toward defined volumes.
    B. A firm may not be able to attain an efficient scale of production unless it serves global markets.
    C. The ability to spread variable costs over a large volume is a source of economies of scale.
    D. Global sales decreases a firm’s bargaining power with suppliers as they are more dependent on their services.

 

 

  1. Which of the following is true about experience curve?
    A. Moving down the experience curve forces a firm to increase its cost of creating value.
    B. The firm that moves up in the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.
    C. Gradually decreasing the volume produced by a single plant as rapidly as possible is one key to progressing downward on the experience curve.
    D. Serving a global market from a single location is consistent with moving down the experience curve.

 

  1. The ability to spread fixed costs over a large volume results in a cost-savings phenomenon referred to as:
    A. volume synergies.
    B. economies of scale.
    C. captured savings.
    D. size effects.

 

  1. Labor productivity increases over time as individuals understand and use the most efficient ways to perform particular tasks. Equally important, in new production facilities, management typically learns how to manage the new operation more efficiently over time. This demonstrates how production costs eventually decline due to increasing labor productivity and management efficiency because of:
    A. diminishing returns.
    B. economies of scale.
    C. learning effects.
    D. task segmentation.

 

  1. A firm would move down the experience curve if it:
    A. prices and markets its products non-aggressively to increase the demand gradually.
    B. serves only the domestic market.
    C. serves multiple markets from multiple location points.
    D. chooses an optimal location for a particular value creation activity.

 

 

  1. Firms that compete in the global marketplace typically face two types of competitive pressures: pressures for _____ and pressures to _____.
    A. increasing investment; minimize plant utilization
    B. labor skill enhancement; globalize
    C. cost reductions; be locally responsive
    D. global promotions; move up the experience curve

 

  1. Cost reduction pressures tend to be particularly intense in industries that:
    A. create products that serve universal needs.
    B. create customized products.
    C. are not involved in international business.
    D. produce products that have inelastic demand.

 

  1. _____ exist(s) when the tastes and preferences of consumers in different nations are similar if not identical.
    A. Universal needs
    B. Mass customization
    C. Differentiation
    D. Conventionalization

 

  1. Why do companies find it a difficult strategic challenge when they face high pressures for both cost reductions and local responsiveness?
    A. Cost reductions are inversely proportional to local responsiveness.
    B. Being locally responsive tends to raise costs.
    C. Cost reductions negatively impact maximization of single-plant utilization.
    D. Optimization of plant capacity is not possible across locations as it increases costs.

 

  1. Which of these firms would face intense pressures for cost reduction?
    A. Firms which produce products that are well differentiated
    B. Firms whose major competitors are based in high-cost locations
    C. Firms where there is persistent low capacity
    D. Firms whose consumers face low switching costs

 

 

  1. Which of the following products will have intense pressures for cost reduction?
    A. Cars
    B. Watches
    C. Designer clothes
    D. Sugar

 

  1. The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally:
    A. increased cost pressures.
    B. decreased the demand for local responsiveness.
    C. decreased pressures for cost reduction.
    D. increased competition on nonprice factors.

 

  1. Which of the following conditions would be most favorable for reaping global scale economies?
    A. Low demand for local responsiveness
    B. High pressures for cost reduction
    C. Lack of universal needs
    D. National differences in accepted business practices

 

  1. Which of the following is an argument presented by commentators claiming that demands for local customization are on the decline worldwide?
    A. Local and indigenous industries are increasingly filling up available demand
    B. High costs of local customization are deterring companies from doing so
    C. Governments across the world are standardizing procedures
    D. Customer tastes have converged worldwide

 

  1. Among global firms, which of the following is NOT a factor that is driving pressures for local responsiveness?
    A. Differences in distribution channels
    B. Differences in infrastructure and traditional practices
    C. Similarities in consumer tastes and preferences
    D. Host-government demands

 

 

  1. In North America, consumer electrical systems are based on 110 volts while in some European countries 240-volt systems are standard. This is an example of:
    A. differences in consumer tastes and preferences.
    B. differences in distribution channels.
    C. differences in infrastructure and traditional practices.
    D. differences in governmental demands.

 

  1. For an international business, which of the following is a necessary outcome of threats of protectionism and nationalism?
    A. Attractiveness of location economies
    B. Pressures for localization
    C. Standardization of products or services
    D. Pressures for cost reductions

 

  1. Which of the following is most likely to necessitate the delegation of marketing functions to national subsidiaries?
    A. Difference in distribution channels
    B. Pressures for cost reductions
    C. Products serving universal needs
    D. Increasing economies of scale

 

  1. Firms use four basic strategies to compete in the international environment. These are:
    A. global standardization strategy, a localization strategy, a transnational strategy, and an international strategy.
    B. a cross-cultural strategy, a trade-block strategy, a regional strategy, and a world strategy.
    C. a domestic-based strategy, an economy of scale strategy, a nonelastic market strategy, and a skimming price strategy.
    D. a location economy strategy, a single-location production strategy, a global strategy, and an inelastic demand strategy.

 

 

  1. The appropriateness of the strategy that a firm chooses to use in an international market varies with the extent of pressures for _____ and ______.
    A. exit from investment; product uniformity
    B. price concessions; quality improvements
    C. availability of financing; product standardization
    D. cost reductions; local responsiveness

 

  1. Firms that pursue a(n) _____ strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
    A. international
    B. transnational
    C. localization
    D. global standardization

 

  1. Which of the following is NOT true of firms pursuing a global standardization strategy?
    A. The production, marketing, and R&D activities of such firms are distributed across various locations.
    B. They aim to reap the maximum benefits from economies of scale and learning effects.
    C. They tend to use their cost advantage to support aggressive pricing in world markets.
    D. This strategy is appropriate when demands for local responsiveness are minimal.

 

  1. Which of the following is true of a localization strategy?
    A. It allows a firm to capture the cost reductions of mass-producing.
    B. It reduces duplication of functions.
    C. It involves longer production runs.
    D. It makes sense if added value supports higher pricing.

 

  1. A global car manufacturer wants to set a shop in China. While catering to local responsiveness, what can the firm do to reap scale economies?
    A. Recruit skilled candidates with sufficient industry experience
    B. Use common vehicle platforms and components across many different models
    C. Shorten the production runs for each component
    D. Increase the duplication of functions required for each operation

 

 

  1. Which of the following strategies is apt when the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness?
    A. Global standardization strategy
    B. Localization strategy
    C. International strategy
    D. Transnational strategy

 

  1. Which strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal?
    A. Domestic strategy
    B. Global standardization strategy
    C. International strategy
    D. Transnational strategy

 

  1. Which of the following companies would do well to pursue a global standardization strategy?
    A. A company manufacturing rubber tires
    B. A furniture manufacturer
    C. A clothing store
    D. A car manufacturer

 

  1. Which of the following is a pertinent observation made by researchers Bartlett and Ghoshal regarding modern multinational enterprises?
    A. Global logistics industry makes location economies redundant for other firms.
    B. Core competencies and skills can develop in any of the firm’s worldwide operations.
    C. Flow of skills between a firm and its global subsidiaries should be unidirectional.
    D. Differentiating across geographic markets converges with the goal of reducing costs.

 

 

  1. Which strategy focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets?
    A. International strategy
    B. Global standardization strategy
    C. Localization strategy
    D. Transnational strategy

 

  1. Which of the following could be the most appropriate strategy for MTV, given the business imperative that their programming provides a good match to tastes and preferences in different national markets?
    A. International strategy
    B. Global standardization strategy
    C. Localization strategy
    D. Transnational strategy

 

  1. A(n) _____ strategy makes sense when a firm faces high pressures for cost reductions, high pressures for local responsiveness, and significant opportunities for leveraging valuable skills within a multinational’s global network of operations.
    A. international
    B. global standardization
    C. transnational
    D. multidomestic

 

  1. According to the text, which of the following strategies is difficult to implement due to conflicting demands?
    A. Transnational strategy
    B. International strategy
    C. Global standardization strategy
    D. Localization strategy

 

 

  1. Firms that pursue a(n) _____ strategy try to create value by transferring valuable skills and products to foreign markets where indigenous competitors lack those skills and products.
    A. nationalization
    B. transnational
    C. global standardization
    D. international

 

  1. A(n) _____ strategy makes sense if a firm has a valuable core competence that indigenous competitors in foreign markets lack.
    A. global standardization
    B. international
    C. nationalization
    D. transnational

 

  1. Xerox had a monopoly on photocopiers for several years as the technology underlying the photocopier was protected by strong patents. As it served a universal need, this favorable position led Xerox to pursue a(n) _____ strategy.
    A. global standardization
    B. localization
    C. international
    D. transnational

 

  1. Mayer Life Systems, a manufacturer of surgical and medical appliances, have recently invented and patented a new dialysis machine that radically reduces maintenance and operational issues. Responding to global demand, they have decided to sell the machines manufactured at their plant in the U.S. to various markets across the globe. Which strategy is Mayer pursuing here?
    A. International strategy
    B. Localization strategy
    C. Global standardization strategy
    D. Transnational strategy

 

 

  1. Which of the following is a disadvantage for firms pursuing an international strategy?
    A. Duplication of functions reduces pressures for cost reductions.
    B. Strong pressures for cost reductions result in plant capacity utilization.
    C. The head office retains fairly tight control over marketing and product strategy.
    D. Pressures for localization leads to shorter production runs.

 

  1. The term _____ refers to cooperative agreements between potential or actual competitors.
    A. tactical union
    B. strategic alliance
    C. political affiliation
    D. economic association

 

  1. Which of the following is a disadvantage of strategic alliances?
    A. Strategic alliances hinder entry into a foreign market.
    B. Fixed costs of developing new products tend to escalate.
    C. They give competitors a low-cost route to new technology and markets.
    D. The firms in an alliance are barred from establishing technological standards for the industry.

 

  1. One of the principal risks with strategic alliances is:
    A. they bring together the complementary skills of alliance partners.
    B. alliances may facilitate entry into foreign markets.
    C. a firm can give away more than it receives.
    D. they allow firms to share fixed costs.

 

  1. According to the text, the success of a strategic alliance is a function of three factors. These are: partner selection, alliance structure, and _____________.
    A. the manner in which the alliance is managed
    B. geographic distance between the alliance partners
    C. similarity in size of the alliance partners
    D. government support

 

 

  1. Which of the following is NOT a required attribute of a good strategic alliance partner?
    A. It is unlikely to opportunistically exploit the alliances for its own ends.
    B. It shares the firm’s vision for the purpose of the alliance.
    C. It has a radically different agenda in forming the alliance.
    D. It helps the firm achieve its strategic goals.

 

  1. The four safeguards against opportunism by alliance partners include: walling off critical technology, establishing contractual safeguards, agreeing to swap valuable skills and technologies, and __________________.
    A. extracting significant credible commitments
    B. maintaining an atmosphere of secrecy
    C. retaining a CPA to audit the alliance’s books
    D. restricting the life span of the alliance to three years or less

 

  1. Managing an alliance successfully requires building interpersonal relationships between the firms’ managers, or what is sometimes referred to as:
    A. relational capital.
    B. interorganizational synergy.
    C. power equilibrium.
    D. symbiotics.

 

 

Essay Questions

  1. Describe the concept of value creation. What are the two primary strategies used to attain competitive advantage by organizations?

 

 

 

 

 

  1. What makes up the value chain of a firm? Describe the roles of primary activities and support activities in the value chain.

 

 

 

 

  1. What constitutes an organizational structure?

 

 

 

 

  1. Describe four ways in which a firm can profit from global expansion.

 

 

 

 

  1. Describe the concept of “core competence.” What types of core competencies are the most valuable for penetrating foreign markets?

 

 

 

 

 

  1. What is the experience curve? How can an involvement in overseas markets help a firm capture experience curve advantages more rapidly?

 

 

 

 

  1. What are the sources of economies of scales?

 

 

 

 

  1. Firms that compete in global markets often face pressures for local responsiveness. Describe what is meant by local responsiveness, and what a firm needs to do in order to respond to such pressures.

 

 

 

 

  1. Describe the various pressures for local responsiveness.

 

 

 

 

 

  1. Describe globalization strategy.

 

 

 

 

  1. Describe localization strategy.

 

 

 

 

  1. How do firms respond when being confronted with low cost pressures and low pressures for local responsiveness?

 

 

 

 

  1. What are strategic alliances?

 

 

 

 

 

  1. List the advantages of strategic alliances.

 

 

 

 

  1. What are the disadvantages of strategic alliances?

 

 

 

 

 

 

Chapter 11 The Strategy of International Business Answer Key
True / False Questions

  1. (p. 381)In a global strategy, the corporate center exercises more control over manufacturing, marketing, and product development decisions.
    TRUE

In a localization strategy, local country managers have considerable autonomy over manufacturing and marketing, whereas in a global strategy, the corporate center exercises more control over manufacturing, marketing, and product development decisions.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Introduction

  1. (p. 381)The shift from a global strategy to a localization strategy is a response to the increasing localization of markets.
    FALSE

The tendency to make a shift from a localization strategy to a global strategy is a response to the globalization of markets.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Easy
Learning Objective: 11-01
Topic: Introduction

 

  1. (p. 381)The actions that managers take to attain the goals of the firm are referred to as a firm’s strategy.
    TRUE

A firm’s strategy can be defined as the actions that managers take to attain the goals of the firm.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 382)Profit growth is measured by the percentage increase in net profits over time.
    TRUE

Profit growth is measured by the percentage increase in net profits over time.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 382)Adding value to the firm’s products enables the firm to lower prices.
    FALSE

Managers can increase the profitability of the firm by pursuing strategies that lower costs or by pursuing strategies that add value to the firm’s products, which enables the firm to raise prices.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 382)The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products.
    TRUE

The way to increase the profitability of a firm is to create more value. The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products. In general, the more value customers place on a firm’s products, the higher the price the firm can charge for those products.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 382)The price a firm charges for a good or service is typically more than the value placed on that good or service by the customer.
    FALSE

The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 382)Customer surplus captures some of the value of a product thereby reducing the price a firm charges for it.
    TRUE

The customer is able to do this because the firm is competing with other firms for the customer’s business, so the firm must charge a lower price than it could were it a monopoly supplier.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 383)Superior value creation relative to rivals requires that the gap between the value and cost of production be lesser than the gap attained by competitors.
    FALSE

Superior value creation relative to rivals does not necessarily require a firm to have the lowest cost structure in an industry, or to create the most valuable product in the eyes of consumers. However, it does require that the gap between value and cost of production be greater than the gap attained by competitors.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 384)Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires only minimal additional costs.
    FALSE

Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires only significant additional costs. The converse also holds, when a firm already has a low-cost structure, it has to give up a lot of value in its product offering to get additional cost reductions.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 384)According to Porter, all positions on the efficiency frontier are viable.
    FALSE

Porter emphasizes that it is very important for management to decide where the company wants to be positioned with regard to value (V) and cost (C), to configure operations accordingly, and to manage them efficiently to make sure the firm is operating on the efficiency frontier. However, not all positions on the efficiency frontier are viable.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 385)The various value creation activities a firm undertakes are referred to as operations.
    TRUE

The operations of a firm can be thought of as a value chain composed of a series of distinct value creation activities including production, marketing and sales, materials management, R&D, human resources, information systems, and the firm infrastructure.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 386)For services such as banking or health care, “production” typically occurs when the service is designed by in-house professionals.
    FALSE

Production is concerned with the creation of a good or service. For services such as banking or health care, “production” typically occurs when the service is delivered to the customer.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 386)In terms of attaining a competitive advantage, support activities can be as important as the “primary” activities of the firm.
    TRUE

The support activities of the value chain provide inputs that allow the primary activities to occur. In terms of attaining a competitive advantage, support activities can be as important as, if not more important than, the “primary” activities of the firm.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 387)The company infrastructure is a support activity.
    TRUE

The company infrastructure is the context within which all the other value creation activities occur. The infrastructure includes the organizational structure, control systems, and culture of the firm. Because top management can exert considerable influence in shaping these aspects of a firm, top management should also be viewed as part of the firm’s infrastructure.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 387)The term organization structure can be used to refer to the totality of a firm’s organization, including organizational architecture, control systems and incentives, organizational culture, processes, and people.
    FALSE

The term organization architecture can be used to refer to the totality of a firm’s organization, including formal organizational structure, control systems and incentives, organizational culture, processes, and people.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 388)Processes are conceptually synonymous to the location of decision-making responsibilities within an organization, as both involve decisions.
    FALSE

Processes are the manner in which decisions are made and work is performed within the organization. Processes are conceptually distinct from the location of decision-making responsibilities within an organization, although both involve decisions.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 388)People also refer to the strategy used to recruit, compensate, and retain those individuals and the type of people that they are in terms of their skills, values, and orientation.
    TRUE

By people we mean not just the employees of the organization, but also the strategy used to recruit, compensate, and retain those individuals and the type of people that they are in terms of their skills, values, and orientation.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 390)Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively.
    TRUE

A firm’s ability to increase its profitability and profit growth by pursuing these strategies is constrained by the need to customize its product offering, marketing strategy, and business strategy to differing national conditions; that is, by the imperative of localization.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 391)Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them.
    TRUE

Since core competencies are by definition the source of a firm’s competitive advantage, the successful global expansion is based not just on leveraging products and selling them in foreign markets, but also on the transfer of core competencies to foreign markets where indigenous competitors lack them.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 391)A firm that bases each value creation activity it performs at that location where internal and environmental factors are most conducive to the performance of that activity is bound to realize location economies.
    TRUE

Locating a value creation activity in the optimal location for that activity can have one of two effects. It can lower the costs of value creation and help the firm to achieve a low-cost position, and/or it can enable a firm to differentiate its product offering from those of competitors.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 393)The experience curve refers to systematic increase in production costs that have been observed to occur over the life of a product.
    FALSE

The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product. A number of studies have observed that a product’s production costs decline by some quantity about each time cumulative output doubles.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 394)Learning effects will be more significant in an assembly process involving 100 simple steps than in one of 1000 complex steps.
    FALSE

Learning effects tend to be more significant when a technologically complex task is repeated, because there is more that can be learned about the task.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 394)The ability to spread fixed costs over a large volume is one of the sources of economies of scale.
    TRUE

Economies of scale have a number of sources. One is the ability to spread fixed costs over a large volume. Fixed costs are the costs required to set up a production facility, develop a new product, and the like.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 395)The firm that moves up the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.
    FALSE

Moving down the experience curve allows a firm to reduce its cost of creating value and increase its profitability. The firm that moves down the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 397)A strategy of holding prices low in order to increase global market share and attain greater scale economies rather than raising prices to reflect the higher perceived value of the product could increase the firm’s rate of profit growth even further.
    TRUE

Such a strategy could increase the firm’s rate of profit growth even further, since consumers will be attracted by prices that are low relative to value. The strategy might also increase profitability if the scale economies that result from market share gains are substantial.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 398)Pressures for cost reduction can be particularly intense in many industrial and consumer products like handheld calculators, semiconductor chips, personal computers, and liquid crystal display screens.
    TRUE

Pressures for cost reduction can be particularly intense in industries producing products that serve universal needs. This is the case for many industrial and consumer products; for example, handheld calculators, semiconductor chips, personal computers, and liquid crystal display screens.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

 

  1. (p. 402)Pressures for local responsiveness imply that it is easier to leverage skills and products associated with a firm’s core competencies wholesale from one nation to another.
    FALSE

Pressures for local responsiveness imply that it may not be possible to leverage skills and products associated with a firm’s core competencies wholesale from one nation to another. Concessions often have to be made to local conditions.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Easy
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 402)Firms that pursue a transnational strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
    FALSE

Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies; that is, their strategic goal is to pursue a low-cost strategy on a global scale.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 403)A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.
    TRUE

Firms pursuing a global standardization strategy prefer to market a standardized product worldwide so that they can reap the maximum benefits from economies of scale and learning effects. Their strategic goal is to pursue a low-cost strategy on a global scale. This strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 403)A localization strategy involves some duplication of functions and smaller production runs.
    TRUE

Because it involves some duplication of functions and smaller production runs, customization limits the ability of the firm to capture the cost reductions associated with mass-producing a standardized product for global consumption.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 404)According to researchers, firms facing both strong cost pressures and strong pressures for local responsiveness should pursue a global standardization strategy.
    FALSE

When the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness they should pursue a transnational strategy. Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of operations.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 405)International strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization.
    TRUE

International strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization. The distinguishing feature of many such firms following the international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 407)Strategic alliances also allow firms to share the fixed costs (and associated risks) of developing new products or processes.
    TRUE

Strategic alliances also allow firms to share the fixed costs (and associated risks) of developing new products or processes. This is one of the advantages of strategic alliances.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-05
Topic: Strategic Alliances

  1. (p. 410)The key to making a strategic alliance work is that the two firms must approach the alliance with radically different agendas.
    FALSE

A good partner in a strategic alliance shares the firm’s vision for the purpose of the alliance. If two firms approach an alliance with radically different agendas, the chances are great that the relationship will not be harmonious, will not flourish, and will end in divorce.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-05
Topic: Strategic Alliances

 

Multiple Choice Questions

  1. (p. 381)A firm’s _____ can be defined as the actions that managers take to attain the goals of the firm.
    A. systems
    B. value chain
    C. mission
    D. strategy

A firm’s strategy can be defined as the actions that managers take to attain the goals of the firm. For most firms, the preeminent goal is to maximize the value of the firm for its owners, its shareholders.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 381, 382)The text defines _____ as the rate of return that the firm makes on its invested capital (ROIC).
    A. stakeholder returns
    B. profitability
    C. value
    D. revenue

Profitability can be measured in a number of ways, but for consistency, we shall define it as the rate of return that the firm makes on its invested capital (ROIC), which is calculated by dividing the net profits of the firm by total invested capital.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 382)Profit growth is measured by:
    A. dividing the net profits of the firm by total invested capital.
    B. subtracting the previous year’s gross profit from the current year’s gross profit.
    C. calculating the difference between the previous year’s profitability and the current year’s profitability.
    D. the percentage increase in net profits over time.

Profit growth is measured by the percentage increase in net profits over time.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 382)Which of the following is NOT a strategy for a firm to achieve profitability?
    A. Raising costs.
    B. Expanding internationally.
    C. Selling more products in existing markets.
    D. Entering new markets.

Managers can increase the profitability of the firm by pursuing strategies that lower costs or by pursuing strategies that add value to the firm’s products, which enables the firm to raise prices. Selling more products in existing markets, entering new markets, and expanding internationally can also help managers boost the firm’s profitability and increase the rate of profit growth over time.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 382)The amount of value created by a firm is measured by:
    A. calculating the difference between the previous year’s profitability and the current year’s profitability.
    B. dividing the market price of its products by the price that customers are actually willing to pay.
    C. estimating the difference between its costs of production and the value that consumers perceive in its products.
    D. dividing the net profits of the firm by total invested capital.

Feedback: The amount of value a firm creates is measured by estimating the difference between its costs of production and the value that consumers perceive in its products.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 382)The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the consumer captures some of that value in the form of what economists call _____.
    A. firm value
    B. a consumer surplus
    C. customer loyalty
    D. firm deficit

The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because the consumer captures some of that value in the form of what economists call a consumer surplus.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 382)Which of the following is one of the reasons that consumers are able to capture consumer surpluses?
    A. Because the firm is a monopoly supplier
    B. Because it is difficult to segment a market to reflect reservation prices of all customers
    C. Because value creation results in a corresponding reduction in costs of production
    D. Because firms can charge consumers a price that reveals a consumer’s assessment of the product’s value

The customer is able to capture a customer surplus because the firm is competing with other firms for the customer’s business, so the firm must charge a lower price than it could were it a monopoly supplier. Also, it is normally impossible to segment the market to such a degree that the firm can charge each customer a price that reflects that individual’s assessment of the value of a product, which economists refer to as a customer’s reservation price.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 382)The price that reflects an individual’s assessment of the value of a product constitutes:
    A. the market price of the product.
    B. the customer’s negotiated price.
    C. the base value of the product.
    D. the customer’s reservation price.

The price that reflects an individual’s assessment of the value of a product is referred to by economists as that customer’s reservation price.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 383)The value of a product to an average consumer is V, the average price that the firm can charge a consumer for that product is P and the average unit cost of producing that product is C. For this scenario, which of the following is true?
    A. The firm makes a profit so long as C is greater than P.
    B. The higher C is relative to P, greater will be the profit.
    C. The consumer surplus per unit is equal to V – P.
    D. The higher the intensity of competitive pressure, the higher the price charged relative to V.

The consumer surplus per unit is equal to V – P. The firm makes a profit so long as P is greater than C. Profit will be greater the lower C is relative to P. The lower the intensity of competitive pressure, the higher the price charged relative to V.

 

AACSB: Reflective Thinking
Bloom’s: Apply
Difficulty: Hard
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 383)Which of the following is one of the ways in which a company can create more value for a product?
    A. By charging a higher price for the product
    B. By raising production costs
    C. By generating more profits
    D. By making the product more attractive

A company can create more value either by lowering production costs or by making the product more attractive through superior design, styling, functionality, features, reliability, after-sales service, and the like, so that consumers place a greater value on it and, consequently, are willing to pay a higher price.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 383)A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a _____ strategy.
    A. standardization
    B. differentiation
    C. target-identification
    D. low-cost

A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a differentiation strategy.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 383)There are two basic strategies for improving a firm’s profitability. These are:
    A. a differentiation strategy and a low-cost strategy.
    B. a premier strategy and a generic strategy.
    C. a one-size-fits-all strategy and a zero-sum strategy.
    D. a comparison strategy and a standardization strategy.

Michael Porter has argued that low cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 383)Superior value creation relative to rivals requires a firm to:
    A. differentiate their products so that consumers do not have to pay a premium for it.
    B. have the lowest cost structure in the industry.
    C. create the most valuable product in the eyes of consumers.
    D. ensure that the gap between value and cost of production be greater than the gap attained by competitors.

Superior value creation relative to rivals does not necessarily require a firm to have the lowest cost structure in an industry, or to create the most valuable product in the eyes of consumers. However, it does require that the gap between value and cost of production be greater than the gap attained by competitors.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 383)The _____ of a firm is measured by the difference between value and cost of a product.
    A. customer surplus
    B. value creation
    C. cost curve
    D. value efficiency

The firm’s value creation is measured by the difference between the value of a product to an average consumer and the average unit cost of producing that product.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 384)When a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. The converse also holds, when a firm already has a low-cost structure, it has to give up a lot of value in its product offering to get additional cost reductions. These are the implications relate to the concept of _____.
    A. diminishing returns
    B. marginal utility
    C. surplus value
    D. production possibility

Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. The converse also holds, when a firm already has a low-cost structure, it has to give up a lot of value in its product offering to get additional cost reductions.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 384)The _____ shows all of the different positions that a firm can adopt with regard to value creation and low cost assuming that its internal operations are configured adequately to support a particular position.
    A. demand-value model
    B. experience curve
    C. efficiency frontier
    D. optimal output model

The efficiency frontier shows all the different positions a firm can adopt with regard to adding value to the product and lowering cost assuming that its internal operations are configured efficiently to support a particular position. The efficiency frontier has a convex shape because of diminishing returns.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 384)Why does the efficiency frontier manifest itself in a convex shape?
    A. Because of diminishing returns
    B. Because of constant returns to specialization
    C. Because of the consumer surplus
    D. Because of value deficit

The efficiency frontier shows all the different positions a firm can adopt with regard to adding value to the product and lowering cost assuming that its internal operations are configured efficiently to support a particular position. It has a convex shape because of diminishing returns. Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. The converse also holds, when a firm already has a low-cost structure, it has to give up a lot of value in its product offering to get additional cost reductions.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 384, 385)Which of the following statements about the efficiency frontier is true?
    A. Positions outside the efficiency frontier are easily attainable.
    B. Not all positions on the efficiency frontier are viable.
    C. The efficiency frontier is a function of the cost and revenue of a product.
    D. Sufficient demand exists for all positions on the efficiency frontier.

Not all positions on the efficiency frontier are viable. Firms must pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 385)According to the text, it is useful to think of the operations of a firm as a(n) _____ composed of a series of distinct activities, including production, marketing and sales, materials management, R&D, human resources, information systems, and the firm infrastructure.
    A. functional stream
    B. assembly line
    C. supply chain
    D. value chain

The operations of a firm can be thought of as a value chain composed of a series of distinct value creation activities including production, marketing and sales, materials management, R&D, human resources, information systems, and the firm infrastructure.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 385)The value creation activities of a firm can be categorized as _____ and _____ activities.
    A. primary; support
    B. strategic; functional
    C. ancillary; tertiary
    D. primary; core

Value creation activities, or operations, can be categorized as primary activities and support activities.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 385)The _____ activities of a firm have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service.
    A. support
    B. tertiary
    C. ancillary
    D. primary

Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. The primary activities are divided into four functions: research and development, production, marketing and sales, and customer service.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 385)Which of the following is an example of a primary activity in a firm?
    A. Materials management
    B. Research and development
    C. Information system
    D. Human relations

Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service. The primary activities are divided into four functions: research and development, production, marketing and sales, and customer service.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 386, 387)Which of the following is an example of support activity in a firm?
    A. Research and development
    B. Customer service
    C. Marketing and sales
    D. Information systems

The support activities of the value chain provide inputs that allow the primary activities to occur.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 386)For a service organization, at which stage does production typically occur?
    A. When the service involves production of tangibles
    B. When the service is paid for by the customer
    C. When the service is designed in-house
    D. When the service is delivered to the customer

For firms providing services, “production” typically occurs when the service is delivered to the customer. For example, when a bank originates a loan for a customer it is engaged in “production” of the loan.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 385)Which function of a firm is concerned with the design of products and production processes?
    A. Human resources
    B. Research and development
    C. Marketing and sales
    D. Materials management

Research and development (R&D) is concerned with the design of products and production processes.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 386)When MTV engages in the creation, programming, and broadcasting of content, such as music videos and thematic shows, it is carrying out the function of:
    A. marketing and sales.
    B. logistics.
    C. production.
    D. human resource management.

Production is concerned with the creation of a good or service.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 386)Ford has produced a high-value version of its Ford Expedition SUV. Sold as the Lincoln Navigator and priced around $10,000 higher, the Navigator has the same body, engine, chassis, and design as the Expedition, but through skilled advertising and marketing, supported by some fairly minor features changes (e.g., more accessories and the addition of a Lincoln-style engine grille and nameplate), Ford has fostered the perception that the Navigator is a “luxury SUV.” This demonstrates how the marketing function can:
    A. help a firm reduce cost of production across product lines.
    B. create value by giving valuable inputs to the research and development function.
    B. increase the value that consumers perceive to be contained in a firm’s product.
    C. create value by performing its activities efficiently so lower costs result.

Through brand positioning and advertising, the marketing function can increase the value that consumers perceive to be contained in a firm’s product. If these create a favorable impression of the firm’s product in the minds of consumers, they increase the price that can be charged for the firm’s product.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 386)One of the ways in which the _____ can create value in a firm is by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs.
    A. production
    B. marketing and sales
    C. human resources
    D. logistics

Marketing and sales can create value by discovering consumer needs and communicating them back to the R&D function of the company, which can then design products that better match those needs.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 386)This function can create a perception of superior value in the minds of consumers by solving customer problems and supporting customers after they have purchased the product.
    A. Production
    B. Marketing and sales
    C. Human resources
    D. Customer service

The role of the enterprise’s customer service activity is to provide after-sale service and support. This function can create a perception of superior value in the minds of consumers by solving customer problems and supporting customers after they have purchased the product.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 387)The _____ activities of the value chain provide inputs that allow the primary activities to occur.
    A. hub
    B. support
    C. core
    D. central

The support activities of the value chain provide inputs that allow the primary activities to occur. In terms of attaining a competitive advantage, support activities can be as important as, if not more important than, the “primary” activities of the firm.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 386-387)When customers place an order for a Dell product over the firm’s Web site, that data is immediately transmitted, via the Internet, to suppliers, who then configure their production schedules to produce and ship that product so that it arrives at the right assembly plant at the right time, thus reducing the amount of inventory held at factories and saving costs. This is an example of how a company can use its _____ to create value.
    A. finance function
    B. information systems
    C. human resources
    D. service function

Information systems refer to the electronic systems for managing inventory, tracking sales, pricing products, selling products, dealing with customer service inquiries, and so on.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 387)The _____ function controls the transmission of physical materials through the value chain, from procurement through production and into distribution.
    A. human resource
    B. finance
    C. marketing
    D. logistics

The logistics function controls the transmission of physical materials through the value chain, from procurement through production and into distribution. The efficiency with which this is carried out can significantly reduce cost, thereby creating more value.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 387)The _____ function ensures that the company has the right mix of skilled people to perform its value creation activities effectively and it also ensures that people are adequately trained, motivated, and compensated to perform their value creation tasks.
    A. finance
    B. marketing
    C. human resource
    D. logistics

The human resource function can help create more value in a number of ways. It ensures that the company has the right mix of skilled people to perform its value creation activities effectively. The human resource function also ensures that people are adequately trained, motivated, and compensated to perform their value creation tasks.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 387)Which support function denotes the context within which all the other value creation activities occur, and includes the organizational structure, control systems, and culture of the firm?
    A. Human resource function
    B. Logistics
    C. Information systems
    D. Infrastructure

One support activity of a firm is the company infrastructure, or the context within which all the other value creation activities occur. The infrastructure includes the organizational structure, control systems, and culture of the firm.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 387)The term _____ can be used to refer to the totality of a firm’s organization, including its organizational structure, control systems and incentives, and people.
    A. organization tree
    B. organization architecture
    C. organizational culture
    D. organizational model

The term organization architecture can be used to refer to the totality of a firm’s organization, including formal organizational structure, control systems and incentives, organizational culture, processes, and people.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 387)_____ comprises three things: the formal division of the organization into subunits, the location of decision-making responsibilities within these, and the establishment of integrating mechanisms to coordinate the activities of subunits.
    A. Organizational structure
    B. Organizational model
    C. Corporate ladder
    D. Corporate culture

Three things constitute organizational structure: First, the formal division of the organization into subunits such as product divisions, national operations, and functions (most organizational charts display this aspect of structure); second, the location of decision-making responsibilities within that structure (e.g., centralized or decentralized); and third, the establishment of integrating mechanisms to coordinate the activities of subunits including cross functional teams and or pan-regional committees.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 388)_____ are the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits.
    A. Reports
    B. Controls
    C. Rewards
    D. Incentives

Controls are the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 388)Devices used to reward appropriate managerial behavior are called _____.
    A. loyalties
    B. reports
    C. processes
    D. incentives

Incentives are the devices used to reward appropriate managerial behavior. Incentives are very closely tied to performance metrics.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 388)_____ refers to the manner in which decisions are made and work is performed within the organization.
    A. Processes
    B. Mores
    C. Modes
    D. Controls

Processes are the manner in which decisions are made and work is performed within the organization.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 388)The norms and value systems that are shared among the employees of an organization refer to its _____.
    A. process scenario
    B. organizational structure
    C. business structure
    D. organizational culture

Organizational culture is the norms and value systems that are shared among the employees of an organization. Just as societies have cultures, so do organizations.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 388)In terms of organizational architecture, “people” include:
    A. the suppliers to the firm.
    B. the employees of the organization.
    C. the firm’s customers.
    D. the shareholders of the firm.

The employees of an organization, its recruiting, compensation, and retention strategies, and the type of people who work at the organization, all constitute the “people” in a firm’s architecture.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 390)Which of the following constrains a firm’s ability to increase its profitability and profit growth by expanding globally?
    A. The imperative of localization
    B. The realization of location economies
    C. The realization of cost economies
    D. The leveraging of skills developed in foreign operations

A firm’s ability to increase its profitability and profit growth by expanding globally is constrained by the need to customize its product offering, marketing strategy, and business strategy to differing national conditions; that is, by the imperative of localization.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 390)A company can increase its growth rate by taking goods or services developed at home and selling them internationally. The returns from such a strategy are likely to be greater if:
    A. the product is already being offered by local companies in the host country.
    B. it is a generic product that requires little differentiation.
    C. indigenous competitors in the host nations lack comparable products.
    D. there is a high inflation situation in the host country.

A company can increase its growth rate by taking goods or services developed at home and selling them internationally. Almost all multinationals started out doing just this. The returns from such a strategy are likely to be greater if indigenous competitors in the nations a company enters lack comparable products.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Hard
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 390)Skills within the firm that competitors cannot easily match or imitate are referred to as _____.
    A. core competencies
    B. barriers to entry
    C. internalities
    D. externalities

The term core competence refers to skills within the firm that competitors cannot easily match or imitate. These skills may exist in any of the firm’s value creation activities.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 390)_____ are the bedrock of a firm’s competitive advantage.
    A. Internalities
    B. Generic skills
    C. Core competencies
    D. Standard competencies

The term core competence refers to skills within the firm that competitors cannot easily match or imitate. These skills may exist in any of the firm’s value creation activities. Core competencies are the bedrock of a firm’s competitive advantage.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 391)_____ economies are those economies that arise from performing a value creation activity in the optimal place for that activity, wherever in the world that might be.
    A. Diversification
    B. Value
    C. Location
    D. Support

Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be (transportation costs and trade barriers permitting).

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 391)If the most productive labor force for assembly operations is in Mexico, assembly operations should be based in Mexico. This is based on the principle of:
    A. geographic markets.
    B. the experience curve.
    C. economies of scale.
    D. location economies.

Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be (transportation costs and trade barriers permitting).

 

AACSB: Reflective Thinking
Bloom’s: Apply
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 392, 393)A firm creates a(n) _____ by dispersing the stages of its value chain to those locations around the globe where the value added is maximized or where the costs of value creation are minimized.
    A. integral circle
    B. dispersal chain
    C. global web
    D. international mesh

When different stages of the value chain are dispersed to those locations around the globe where value added is maximized or where costs of value creation are minimized, a global web is said to have been created.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 393)In theory, which of the following is true of a firm implementing a global web of operations versus a single-location competitor?
    A. It should be able to raise the perceived value.
    B. It should be able to increase the cost structure.
    C. It should be able to increase the average price of their product.
    D. It should be able to increase the cost of value creation.

By creating a global web, a firm should be able to better differentiate its product offering (thereby raising perceived value) and lower its cost structure than its single-location competitor.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 393)Which of the following is an important caveat that is likely to discourage global expansion?
    A. Economies of scale
    B. Cost of production
    C. Trade barriers
    D. Mass customization

Transportationcosts and trade barriers, and political and economic risks are caveats against global expansion of business activities.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 393)The _____ refers to the systematic reductions in production costs that have been observed to occur over the life of a product.
    A. experience curve
    B. forward advantage
    C. positive-sum result
    D. managed advantage

The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 393)A number of studies have observed that a product’s production costs decline by some quantity about each time _____ doubles.
    A. annual output
    B. cumulative output
    C. workforce
    D. fixed investment

A number of studies have observed that a product’s production costs decline by some quantity about each time cumulative output doubles.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 393)The two phenomena that help explain the experience curve are:
    A. learning effects and economies of scale.
    B. technology inputs and wealth transfer.
    C. leveraging subsidiary and local responsiveness.
    D. standardized manufacturing and global web.

The two phenomena that help explain the experience curve are: learning effects and economies of scale. Learning effects refer to cost savings that come from learning by doing. Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 394)_____ refer to cost savings that come from acquiring knowledge of repetition of how to carry out a task.
    A. Learning effects
    B. Exponential effects
    C. Ancillary effects
    D. Economies of scale

Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by repetition how to carry out a task, such as assembling airframes, most efficiently.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 394)Labor productivity increases over time as individuals understand the most efficient ways to perform particular tasks. This could be attributed to _____.
    A. diminishing returns
    B. location economies
    C. economies of time
    D. learning effects

Learning effects refer to cost savings that come from learning by doing. Labor, for example, learns by repetition how to carry out a task, such as assembling airframes, most efficiently.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 394)In which of the following tasks will the learning effects be most significant?
    A. Pizza delivery for a fast-food major
    B. Data entry for a loan recovery center
    C. Network administration for a data analytics center
    D. Sewing buttons onto shirts in a garment factory

Learning effects tend to be more significant when a technologically complex task is repeated, because there is more that can be learned about the task.

 

AACSB: Reflective Thinking
Bloom’s: Apply
Difficulty: Hard
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 394)Which of the following is true of learning effects?
    A. Learning effects tend to be more significant in non-repetitive tasks.
    B. Learning effects tend to be less significant when a task is technologically complex.
    C. Learning effects typically last a lifetime.
    D. Learning effects are important only during the start-up period of a new process.

It has been suggested that learning effects are important only during the start-up period of a new process and that they cease after two or three years.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 394, 395)Which of the following is true of economies of scale?
    A. It increases average unit cost by channeling fixed costs toward defined volumes.
    B. A firm may not be able to attain an efficient scale of production unless it serves global markets.
    C. The ability to spread variable costs over a large volume is a source of economies of scale.
    D. Global sales decreases a firm’s bargaining power with suppliers as they are more dependent on their services.

The ability to spread fixed costs over a large volume is a source of economies of scale. The more rapidly that cumulative sales volume is built up, the more rapidly fixed costs can be amortized over a large production volume. As global sales increase the size of the enterprise, so its bargaining power with suppliers increases. Selling the product worldwide reduces average unit costs by spreading fixed costs over a larger volume.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 395)Which of the following is true about experience curve?
    A. Moving down the experience curve forces a firm to increase its cost of creating value.
    B. The firm that moves up in the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.
    C. Gradually decreasing the volume produced by a single plant as rapidly as possible is one key to progressing downward on the experience curve.
    D. Serving a global market from a single location is consistent with moving down the experience curve.

Moving down the experience curve allows a firm to reduce its cost of creating value. One key to progressing downward on the experience curve as rapidly as possible is to increase the volume produced by a single plant as rapidly as possible. The firm that moves down the experience curve most rapidly will have a cost advantage vis-à-vis its competitors.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 394)The ability to spread fixed costs over a large volume results in a cost-savings phenomenon referred to as:
    A. volume synergies.
    B. economies of scale.
    C. captured savings.
    D. size effects.

Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. One is the ability to spread fixed costs over a large volume. Fixed costs are the costs required to set up a production facility, develop a new product, and the like. They can be substantial.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 394)Labor productivity increases over time as individuals understand and use the most efficient ways to perform particular tasks. Equally important, in new production facilities, management typically learns how to manage the new operation more efficiently over time. This demonstrates how production costs eventually decline due to increasing labor productivity and management efficiency because of:
    A. diminishing returns.
    B. economies of scale.
    C. learning effects.
    D. task segmentation.

Labor productivity increases over time as individuals learn the most efficient ways to perform particular tasks. Equally important, in new production facilities, management typically learns how to manage the new operation more efficiently over time.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 395)A firm would move down the experience curve if it:
    A. prices and markets its products non-aggressively to increase the demand gradually.
    B. serves only the domestic market.
    C. serves multiple markets from multiple location points.
    D. chooses an optimal location for a particular value creation activity.

Because global markets are larger than domestic markets, a firm that serves a global market from a single location is likely to build accumulated volume more quickly than a firm that serves only its home market or that serves multiple markets from multiple production locations. To get down the experience curve rapidly, a firm may need to price and market aggressively so demand will expand rapidly. The cost advantages of serving the world market from a single location will be even more significant if that location is the optimal one for performing the particular value creation activity.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 397)Firms that compete in the global marketplace typically face two types of competitive pressures: pressures for _____ and pressures to _____.
    A. increasing investment; minimize plant utilization
    B. labor skill enhancement; globalize
    C. cost reductions; be locally responsive
    D. global promotions; move up the experience curve

Firms that compete in the global marketplace typically face two types of competitive pressures that affect their ability to realize location economies and experience effects, to leverage products and transfer competencies and skills within the enterprise. They face pressures for cost reductions and pressures to be locally responsive.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

  1. (p. 398)Cost reduction pressures tend to be particularly intense in industries that:
    A. create products that serve universal needs.
    B. create customized products.
    C. are not involved in international business.
    D. produce products that have inelastic demand.

Pressures for cost reduction can be particularly intense in industries producing commodity-type products where meaningful differentiation on nonprice factors is difficult and price is the main competitive weapon. This tends to be the case for products that serve universal needs.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

 

  1. (p. 398)_____ exist(s) when the tastes and preferences of consumers in different nations are similar if not identical.
    A. Universal needs
    B. Mass customization
    C. Differentiation
    D. Conventionalization

Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

  1. (p. 398)Why do companies find it a difficult strategic challenge when they face high pressures for both cost reductions and local responsiveness?
    A. Cost reductions are inversely proportional to local responsiveness.
    B. Being locally responsive tends to raise costs.
    C. Cost reductions negatively impact maximization of single-plant utilization.
    D. Optimization of plant capacity is not possible across locations as it increases costs.

Dealing with these conflicting and contradictory pressures is a difficult strategic challenge, primarily because being locally responsive tends to raise costs.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Hard
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

 

  1. (p. 398)Which of these firms would face intense pressures for cost reduction?
    A. Firms which produce products that are well differentiated
    B. Firms whose major competitors are based in high-cost locations
    C. Firms where there is persistent low capacity
    D. Firms whose consumers face low switching costs

Pressures for cost reductions are intense in industries where major competitors are based in low-cost locations, where there is persistent excess capacity, and where consumers are powerful and face low switching costs.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

  1. (p. 398)Which of the following products will have intense pressures for cost reduction?
    A. Cars
    B. Watches
    C. Designer clothes
    D. Sugar

Pressures for cost reduction can be particularly intense in industries producing commodity-type products where meaningful differentiation on nonprice factors is difficult and price is the main competitive weapon. This tends to be the case for products that serve universal needs.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

 

  1. (p. 398)The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally:
    A. increased cost pressures.
    B. decreased the demand for local responsiveness.
    C. decreased pressures for cost reduction.
    D. increased competition on nonprice factors.

The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally increased cost pressures.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

  1. (p. 399)Which of the following conditions would be most favorable for reaping global scale economies?
    A. Low demand for local responsiveness
    B. High pressures for cost reduction
    C. Lack of universal needs
    D. National differences in accepted business practices

Strong pressures for local responsiveness emerge when customer tastes and preferences differ significantly between countries. In such cases, a multinational’s products and marketing message have to be customized to appeal to the tastes and preferences of local customers. This typically creates pressure to delegate production and marketing responsibilities and functions to a firm’s overseas subsidiaries, reducing a firm’s ability to realize global scale economies.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

 

  1. (p. 399)Which of the following is an argument presented by commentators claiming that demands for local customization are on the decline worldwide?
    A. Local and indigenous industries are increasingly filling up available demand
    B. High costs of local customization are deterring companies from doing so
    C. Governments across the world are standardizing procedures
    D. Customer tastes have converged worldwide

Some commentators have argued that customer demands for local customization are on the decline worldwide because modern communications and transport technologies have created the conditions for a convergence of the tastes and preferences of consumers from different nations. The result is the emergence of enormous global markets for standardized consumer products.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

  1. (p. 399)Among global firms, which of the following is NOT a factor that is driving pressures for local responsiveness?
    A. Differences in distribution channels
    B. Differences in infrastructure and traditional practices
    C. Similarities in consumer tastes and preferences
    D. Host-government demands

Strong pressures for local responsiveness emerge when customer tastes and preferences differ significantly between countries, as they often do for deeply embedded historic or cultural reasons.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

 

  1. (p. 400)In North America, consumer electrical systems are based on 110 volts while in some European countries 240-volt systems are standard. This is an example of:
    A. differences in consumer tastes and preferences.
    B. differences in distribution channels.
    C. differences in infrastructure and traditional practices.
    D. differences in governmental demands.

Differences in infrastructure and traditional practices result in increased pressure for local responsiveness.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

  1. (p. 401)For an international business, which of the following is a necessary outcome of threats of protectionism and nationalism?
    A. Attractiveness of location economies
    B. Pressures for localization
    C. Standardization of products or services
    D. Pressures for cost reductions

Generally, threats of protectionism, economic nationalism, and local content rules (which require that a certain percentage of a product should be manufactured locally) dictate that international businesses manufacture locally.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

 

  1. (p. 401)Which of the following is most likely to necessitate the delegation of marketing functions to national subsidiaries?
    A. Difference in distribution channels
    B. Pressures for cost reductions
    C. Products serving universal needs
    D. Increasing economies of scale

A firm’s marketing strategies may have to be responsive to differences in distribution channels among countries, which may necessitate the delegation of marketing functions to national subsidiaries.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

  1. (p. 402)Firms use four basic strategies to compete in the international environment. These are:
    A. global standardization strategy, a localization strategy, a transnational strategy, and an international strategy.
    B. a cross-cultural strategy, a trade-block strategy, a regional strategy, and a world strategy.
    C. a domestic-based strategy, an economy of scale strategy, a nonelastic market strategy, and a skimming price strategy.
    D. a location economy strategy, a single-location production strategy, a global strategy, and an inelastic demand strategy.

Firms may choose any of the four strategies: a global standardization strategy, a localization strategy, a transnational strategy, and an international strategy. The appropriateness of each strategy varies given the extent of pressures for cost reductions and local responsiveness.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 402)The appropriateness of the strategy that a firm chooses to use in an international market varies with the extent of pressures for _____ and ______.
    A. exit from investment; product uniformity
    B. price concessions; quality improvements
    C. availability of financing; product standardization
    D. cost reductions; local responsiveness

Firms may choose any of the four strategies: a global standardization strategy, a localization strategy, a transnational strategy, and an international strategy. The appropriateness of each strategy varies given the extent of pressures for cost reductions and local responsiveness.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 402)Firms that pursue a(n) _____ strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
    A. international
    B. transnational
    C. localization
    D. global standardization

Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies. They prefer to market a standardized product worldwide so that they can reap the maximum benefits from economies of scale and learning effects.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 402, 403)Which of the following is NOT true of firms pursuing a global standardization strategy?
    A. The production, marketing, and R&D activities of such firms are distributed across various locations.
    B. They aim to reap the maximum benefits from economies of scale and learning effects.
    C. They tend to use their cost advantage to support aggressive pricing in world markets.
    D. This strategy is appropriate when demands for local responsiveness are minimal.

The production, marketing, and R&D activities of firms pursuing a global standardization strategy are concentrated in a few favorable locations.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 404)Which of the following is true of a localization strategy?
    A. It allows a firm to capture the cost reductions of mass-producing.
    B. It reduces duplication of functions.
    C. It involves longer production runs.
    D. It makes sense if added value supports higher pricing.

Localization involves some duplication of functions and smaller production runs. Customization limits the ability of the firm to capture the cost reductions associated with mass-producing a standardized product for global consumption.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 404)A global car manufacturer wants to set a shop in China. While catering to local responsiveness, what can the firm do to reap scale economies?
    A. Recruit skilled candidates with sufficient industry experience
    B. Use common vehicle platforms and components across many different models
    C. Shorten the production runs for each component
    D. Increase the duplication of functions required for each operation

Multinationals try to get some scale economies from their global volume by using common vehicle platforms and components across many different models, and manufacturing those platforms and components at efficiently scaled factories that are optimally located.

 

AACSB: Reflective Thinking
Bloom’s: Apply
Difficulty: Hard
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 404)Which of the following strategies is apt when the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness?
    A. Global standardization strategy
    B. Localization strategy
    C. International strategy
    D. Transnational strategy

Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of operations.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 403)Which strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal?
    A. Domestic strategy
    B. Global standardization strategy
    C. International strategy
    D. Transnational strategy

Global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal. These conditions prevail in many industrial goods industries, whose products often serve universal needs.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 403)Which of the following companies would do well to pursue a global standardization strategy?
    A. A company manufacturing rubber tires
    B. A furniture manufacturer
    C. A clothing store
    D. A car manufacturer

A global standardization strategy is appropriate for firms serving products that cater to universal needs.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 404)Which of the following is a pertinent observation made by researchers Bartlett and Ghoshal regarding modern multinational enterprises?
    A. Global logistics industry makes location economies redundant for other firms.
    B. Core competencies and skills can develop in any of the firm’s worldwide operations.
    C. Flow of skills between a firm and its global subsidiaries should be unidirectional.
    D. Differentiating across geographic markets converges with the goal of reducing costs.

Bartlett and Ghoshal note that in the modern multinational enterprise, core competencies and skills do not reside just in the home country but can develop in any of the firm’s worldwide operations. Thus, they maintain that the flow of skills and product offerings should not be all one way, from home country to foreign subsidiary. Rather, the flow should also be from foreign subsidiary to home country and from foreign subsidiary to foreign subsidiary.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Hard
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 403)Which strategy focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets?
    A. International strategy
    B. Global standardization strategy
    C. Localization strategy
    D. Transnational strategy

A localization strategy focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets. Localization is most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense. By customizing the product offering to local demands, the firm increases the value of that product in the local market.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 403)Which of the following could be the most appropriate strategy for MTV, given the business imperative that their programming provides a good match to tastes and preferences in different national markets?
    A. International strategy
    B. Global standardization strategy
    C. Localization strategy
    D. Transnational strategy

A localization strategy focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets.

 

AACSB: Reflective Thinking
Bloom’s: Apply
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 404)A(n) _____ strategy makes sense when a firm faces high pressures for cost reductions, high pressures for local responsiveness, and significant opportunities for leveraging valuable skills within a multinational’s global network of operations.
    A. international
    B. global standardization
    C. transnational
    D. multidomestic

Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of operations.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 404)According to the text, which of the following strategies is difficult to implement due to conflicting demands?
    A. Transnational strategy
    B. International strategy
    C. Global standardization strategy
    D. Localization strategy

Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects; differentiate their product offering across geographic markets to account for local differences; and foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of operations.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 405)Firms that pursue a(n) _____ strategy try to create value by transferring valuable skills and products to foreign markets where indigenous competitors lack those skills and products.
    A. nationalization
    B. transnational
    C. global standardization
    D. international

The distinguishing feature of many firms pursuing an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure.

 

AACSB: Analytic
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 405)A(n) _____ strategy makes sense if a firm has a valuable core competence that indigenous competitors in foreign markets lack.
    A. global standardization
    B. international
    C. nationalization
    D. transnational

The distinguishing feature of many firms pursuing an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 405)Xerox had a monopoly on photocopiers for several years as the technology underlying the photocopier was protected by strong patents. As it served a universal need, this favorable position led Xerox to pursue a(n) _____ strategy.
    A. global standardization
    B. localization
    C. international
    D. transnational

The distinguishing feature of many firms pursuing an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 405)Mayer Life Systems, a manufacturer of surgical and medical appliances, have recently invented and patented a new dialysis machine that radically reduces maintenance and operational issues. Responding to global demand, they have decided to sell the machines manufactured at their plant in the U.S. to various markets across the globe. Which strategy is Mayer pursuing here?
    A. International strategy
    B. Localization strategy
    C. Global standardization strategy
    D. Transnational strategy

Firms pursuing an international strategy take products first produced for their domestic market and sell them internationally with only minimal local customization.

 

AACSB: Reflective Thinking
Bloom’s: Apply
Difficulty: Hard
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 405)Which of the following is a disadvantage for firms pursuing an international strategy?
    A. Duplication of functions reduces pressures for cost reductions.
    B. Strong pressures for cost reductions result in plant capacity utilization.
    C. The head office retains fairly tight control over marketing and product strategy.
    D. Pressures for localization leads to shorter production runs.

Enterprises pursuing an international strategy tend to centralize product development functions such as R&D at home. Although they may undertake some local customization of product offering and marketing strategy, this tends to be rather limited in scope. Ultimately, in most firms that pursue an international strategy, the head office retains fairly tight control over marketing and product strategy.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 407)The term _____ refers to cooperative agreements between potential or actual competitors.
    A. tactical union
    B. strategic alliance
    C. political affiliation
    D. economic association

Strategic alliances refer to cooperative agreements between potential or actual competitors. They run the range from formal joint ventures, in which two or more firms have equity stakes, to short-term contractual agreements, in which two companies agree to cooperate on a particular task (such as developing a new product).

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-05
Topic: Strategic Alliances

  1. (p. 408)Which of the following is a disadvantage of strategic alliances?
    A. Strategic alliances hinder entry into a foreign market.
    B. Fixed costs of developing new products tend to escalate.
    C. They give competitors a low-cost route to new technology and markets.
    D. The firms in an alliance are barred from establishing technological standards for the industry.

Strategic alliances may facilitate entry into a foreign market. Strategic alliances also allow firms to share the fixed costs (and associated risks) of developing new products or processes. It can make sense to form an alliance that will help the firm establish technological standards for the industry that will benefit the firm.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Hard
Learning Objective: 11-05
Topic: Strategic Alliances

 

  1. (p. 409)One of the principal risks with strategic alliances is:
    A. they bring together the complementary skills of alliance partners.
    B. alliances may facilitate entry into foreign markets.
    C. a firm can give away more than it receives.
    D. they allow firms to share fixed costs.

Unless a firm is careful, it can give away more than it receives. But there are so many examples of apparently successful alliances between firms—including alliances between U.S. and Japanese firms.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-05
Topic: Strategic Alliances

  1. (p. 410)According to the text, the success of a strategic alliance is a function of three factors. These are: partner selection, alliance structure, and _____________.
    A. the manner in which the alliance is managed
    B. geographic distance between the alliance partners
    C. similarity in size of the alliance partners
    D. government support

As in all international business deals, an important factor is sensitivity to cultural differences. Managing an alliance successfully requires building interpersonal relationships between the firms’ managers, or what is sometimes referred to as relational capital.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-05
Topic: Strategic Alliances

 

  1. (p. 410)Which of the following is NOT a required attribute of a good strategic alliance partner?
    A. It is unlikely to opportunistically exploit the alliances for its own ends.
    B. It shares the firm’s vision for the purpose of the alliance.
    C. It has a radically different agenda in forming the alliance.
    D. It helps the firm achieve its strategic goals.

A good ally, or partner, in a strategic alliance has three characteristics. First, a good partner helps the firm achieve its strategic goals. The partner must have capabilities that the firm lacks and that it values. Second, a good partner shares the firm’s vision for the purpose of the alliance. If two firms approach an alliance with radically different agendas, the chances are great that the relationship will not be harmonious, will not flourish, and will end in divorce. Third, a good partner is unlikely to try to opportunistically exploit the alliance for its own ends.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-05
Topic: Strategic Alliances

  1. (p. 411)The four safeguards against opportunism by alliance partners include: walling off critical technology, establishing contractual safeguards, agreeing to swap valuable skills and technologies, and __________________.
    A. extracting significant credible commitments
    B. maintaining an atmosphere of secrecy
    C. retaining a CPA to audit the alliance’s books
    D. restricting the life span of the alliance to three years or less

The risk of opportunism by an alliance partner can be reduced if the firm extracts a significant credible commitment from its partner in advance.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-05
Topic: Strategic Alliances

 

  1. (p. 411)Managing an alliance successfully requires building interpersonal relationships between the firms’ managers, or what is sometimes referred to as:
    A. relational capital.
    B. interorganizational synergy.
    C. power equilibrium.
    D. symbiotics.

Managing an alliance successfully requires building interpersonal relationships between the firms’ managers, or what is sometimes referred to as relational capital.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-05
Topic: Strategic Alliances

 

Essay Questions

  1. (p. 383)Describe the concept of value creation. What are the two primary strategies used to attain competitive advantage by organizations?

Value creation is performing activities that increase the value of goods or services to consumers. It is measured by the difference between value and cost. Michael Porter has argued that the two strategies for creating value and attaining a competitive advantage in an industry are the low-cost strategy and the differentiation strategy. A strategy that focuses primarily on lowering production costs is called a low-cost strategy. A strategy that focuses on increasing the attractiveness of a product is called a differentiation strategy.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 385, 386, 387)What makes up the value chain of a firm? Describe the roles of primary activities and support activities in the value chain.

The value chain is composed of a series of distinct value creation activities that are categorized as primary activities and support activities. Primary activities include research and development, production, marketing and sales, and customer service. Research and development is concerned with the design of products and production processes. Production is concerned with the creation of a good or service. Marketing and sales are concerned with creating value through brand positioning and advertising. The customer service activity is concerned with providing after-sale service and support.
Support activities include company infrastructure, information systems, logistics, and human resources. Infrastructure is the context within which all the other value creation activities occur. Information systems include electronic systems that alter the efficiency and effectiveness of a firm. Logistics control the transmission of physical materials through the value chain. Human resources help create more value by ensuring that the company has the right mix of skilled people to perform its value creation activities effectively.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Hard
Learning Objective: 11-01
Topic: Strategy and the Firm

  1. (p. 387)What constitutes an organizational structure?

Organizational structure consists of three components: First, the formal division of the organization into subunits such as product divisions, national operations, and functions (most organizational charts display this aspect of structure); second, the location of decision-making responsibilities within that structure (e.g., centralized or decentralized); and third, the establishment of integrating mechanisms to coordinate the activities of subunits including cross functional teams and or pan-regional committees.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-01
Topic: Strategy and the Firm

 

  1. (p. 390)Describe four ways in which a firm can profit from global expansion.

Firms that operate internationally are able to: (1) Expand the market for their domestic product offerings by selling those products in international markets. (2) Realize location economies by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively. (3) Realize greater cost economies from experience effects by serving an expanded global market from a central location. (4) Earn a greater return by leveraging any valuable skills developed in foreign operations and transferring them to other entities within the firm’s global network of operations.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 390)Describe the concept of “core competence.” What types of core competencies are the most valuable for penetrating foreign markets?

The term core competence refers to the skills within the firms that competitors cannot easily match or imitate. These skills may exist in any of the firm’s value creation activities (i.e., manufacturing, marketing, sales, materials management, etc.). These skills typically enable a firm to produce a product or service that competitors find difficult to duplicate. Core competencies are the bedrock of a firm’s competitive advantage. They enable a firm to reduce the costs of value creation and/or to create perceived value in such a way that premium pricing is possible.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 393, 394)What is the experience curve? How can an involvement in overseas markets help a firm capture experience curve advantages more rapidly?

The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product. In general, the experience curve suggests that as a firm produces more of a particular product, the unit price of the product drops. This phenomenon occurs because of learning effects and economies of scale. Learning effects refer to the cost savings that come from learning by doing. Economies of scale refer to the reductions in unit costs achieved by producing a large volume of a product as a result of the ability to spread fixed costs over a larger volume.
Firms can typically move down the experience curve faster through involvement in overseas markets. The simple logic is that by going global, a firm expands its customer base and is able to sell a higher volume of its product. By selling a higher volume of its product, a firm can experience learning effects and economies of scale benefits more rapidly.

 

AACSB: Reflective Thinking
Bloom’s: Understand
Difficulty: Hard
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

  1. (p. 394, 395)What are the sources of economies of scales?

Economies of scale have a number of sources. One is the ability to spread fixed costs over a large volume. Second, a firm may not be able to attain an efficient scale of production unless it serves global markets. Finally, as global sales increase the size of the enterprise, so its bargaining power with suppliers increases, which may allow it to attain economies of scale in purchasing, bargaining down the cost of key inputs and boosting profitability that way.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Hard
Learning Objective: 11-02
Topic: Global Expansion, Profitability, and Profit Growth

 

  1. (p. 397, 398)Firms that compete in global markets often face pressures for local responsiveness. Describe what is meant by local responsiveness, and what a firm needs to do in order to respond to such pressures.

Pressures for local responsiveness arise from national differences in consumer tastes and preferences, infrastructure, accepted business practices, and distribution channels, and from host-government demands. Responding to pressures to be locally responsive requires a firm to differentiate its products and marketing strategy from country to country to accommodate these factors, all of which tends to raise the firm’s cost structure.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

  1. (p. 398, 399, 400, 401)Describe the various pressures for local responsiveness.

Pressures for local responsiveness arise from national differences in consumer tastes and preferences, infrastructure, accepted business practices, and distribution channels, and from host-government demands.

· Differences in Customer Tastes and Preferences: Strong pressures for local responsiveness emerge when customer tastes and preferences differ significantly between countries, as they often do for deeply embedded historic or cultural reasons. In such cases, a multinational’s products and marketing message have to be customized to appeal to the tastes and preferences of local customers.
· Differences in Infrastructure and Traditional Practices: Pressures for local responsiveness arise from differences in infrastructure or traditional practices among countries, creating a need to customize products accordingly. Fulfilling this need may require the delegation of manufacturing and production functions to foreign subsidiaries.
· Differences in Distribution Channels: A firm’s marketing strategies may have to be responsive to differences in distribution channels among countries, which may necessitate the delegation of marketing functions to national subsidiaries.
· Host Government Demands: Economic and political demands imposed by host-country governments may require local responsiveness.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Hard
Learning Objective: 11-03
Topic: Cost Pressures and Pressures for Local Responsiveness

 

  1. (p. 402, 403)Describe globalization strategy.

Firms that pursue a global standardization strategy focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies; that is, their strategic goal is to pursue a low-cost strategy on a global scale. The production, marketing, and R & D activities of firms pursuing a global standardization strategy are concentrated in a few favorable locations. Firms pursuing a global standardization strategy try not to customize their product offering and marketing strategy to local conditions because customization involves shorter production runs and the duplication of functions, which tends to raise costs. Instead, they prefer to market a standardized product worldwide so that they can reap the maximum benefits from economies of scale and learning effects. They also tend to use their cost advantage to support aggressive pricing in world markets.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 403-404)Describe localization strategy.

A localization strategy focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets. Localization is most appropriate when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense. By customizing the product offering to local demands, the firm increases the value of that product in the local market. On the downside, because it involves some duplication of functions and smaller production runs, customization limits the ability of the firm to capture the cost reductions associated with mass-producing a standardized product for global consumption. The strategy may make sense, however, if the added value associated with local customization supports higher pricing, which enables the firm to recoup its higher costs, or if it leads to substantially greater local demand, enabling the firm to reduce costs through the attainment of some scale economies in the local market. At the same time, firms still have to keep an eye on costs. Firms pursuing a localization strategy still need to be efficient and, whenever possible, to capture some scale economies from their global reach.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

 

  1. (p. 405)How do firms respond when being confronted with low cost pressures and low pressures for local responsiveness?

Sometimes, multinational firms find themselves in the fortunate position of being confronted with low cost pressures and low pressures for local responsiveness. Many of these enterprises pursue an international strategy, taking products first produced for their domestic market and selling them internationally with only minimal local customization. The distinguishing feature of many such firms is that they are selling a product that serves universal needs, but they do not face significant competitors, and thus unlike firms pursuing a global standardization strategy, they are not confronted with pressures to reduce their cost structure.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-04
Topic: Choosing a Strategy

  1. (p. 407)What are strategic alliances?

Strategic alliances are cooperative agreements between potential or actual competitors. Strategic alliances run the range from formal joint ventures, in which two or more firms have equity stakes, to short-term contractual arrangements, in which two companies agree to cooperate on a particular task.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-05
Topic: Strategic Alliances

 

  1. (p. 408)List the advantages of strategic alliances.

First, strategic alliances may facilitate entry into a foreign market.
Strategic alliances also allow firms to share the fixed costs (and associated risks) of developing new products or processes.
Third, an alliance is a way to bring together complementary skills and assets that neither company could easily develop on its own.
Fourth, it can make sense to form an alliance that will help the firm establish technological standards for the industry that will benefit the firm.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Medium
Learning Objective: 11-05
Topic: Strategic Alliances

  1. (p. 408, 409, 410)What are the disadvantages of strategic alliances?

Some commentators have criticized strategic alliances on the grounds that they give competitors a low-cost route to new technology and markets. The failure rate for international strategic alliances seems to be high. One study of 49 international strategic alliances found that two-thirds run into serious managerial and financial troubles within two years of their formation, and that although many of these problems are solved, 33 percent are ultimately rated as failures by the parties involved.

 

AACSB: Analytic
Bloom’s: Remember
Difficulty: Easy
Learning Objective: 11-05
Topic: Strategic Alliances