ch7 Flashcards
., The trend towards worldwide markets makes it easier to predict where competitors will spring up.
FALSEThe rise of globalization, meaning the rise of market capitalism around the world, means competitors can now come from just about anywhere.
Because many countries are investing in countries other than their own, each country is becoming more autonomous and independent.
FALSEGlobalization, which is on the rise, has two meanings. One is the increase in international exchange, including trade in goods and services as well as exchange of money, ideas, and information. The second is the growing similarity of laws, rules, norms, values, and ideas across countries.
Increasing international exchange in goods and services can run into the difficulty of having one offer that meets the needs of customers at differing income levels.
TRUEOne of the challenges with globalization is determining how to meet the needs of customers at very different income levels. In many developing economies, distributions of income remain much wider than they do in the developed world, leaving many impoverished even as the economies grow.
., By 2015, it is predicted that trade within nations will exceed trade across nations.
FALSEThe trade among nations has increased dramatically in recent years and it is estimated that by 2015, the trade across nations will exceed the trade within nations.
There are risks associated with the Bottom of the Pyramid strategy. One of them is that the new low-cost products that are developed may cannibalize the sales of the core products of the company using the strategy.
TRUEFirms need to actively manage the risks that accompany BOP strategies. These include concerns about the image of the firm if they are perceived as exploiting underprivileged customers by providing them with substandard products or selling them something they do not need or cannot afford. Second, there is a risk that a low-end version of a brand may detract from the overall attractiveness of the brand. Third, the new low-cost products they develop may cannibalize the sales of their core products. Finally, firms employing a BOP strategy need to be aware of the entrenched competitors they may face.
Emerging markets are growing slower than developed markets, thus shifting the structure of the global economy.
FALSEThe growth experienced by developed economies in the first decade of the 2000s was anemic, while the growth in developing economies was robust. This trend is continuing, with emerging markets growing 4 percent faster than developed markets in 2011 and 2012. This has resulted in a dramatic shift in the structure of the global economy. As of 2013, over half the world output will come from emerging markets.
The Michael Porter Diamond of National Advantage is a framework that explains why countries foster successful multinational corporations based on factor endowments and demand conditions only.
FALSEThe Porter Diamond of National Advantage is a framework for explaining why countries foster successful multinational corporations, consisting of four factors: factor endowments; demand conditions; related and supporting industries; and firm strategy, structure, and rivalry.
The factor endowments of a country are inherited and cannot be created.
FALSEClassical economics suggests that factors of production such as land, labor, and capital are the building blocks that create usable consumer goods and services. However, companies in advanced nations seeking competitive advantage over firms in other nations create many of the factors of production, such as skilled human resources.
With regard to factor conditions, the pool of resources that a firm (or nation) has is much more important than the speed and efficiency with which these resources are deployed.
FALSEThe pool of resources is less important than the speed and efficiency with which these resources are deployed. Thus, firm-specific knowledge and skills created within a country that are rare, valuable, difficult to imitate, and rapidly and efficiently deployed are the factors of production that ultimately lead to competitive advantage for the nation.
., Demanding domestic consumers tend to push firms to move ahead of companies in other countries where consumers are less demanding and more complacent.
TRUECountries with demanding consumers drive firms in that country to meet high standards, upgrade existing products and services, and create innovative products and services. Denmark is known for its environmental awareness. Demand from consumers for environmentally safe products has spurred Danish manufacturers to become leaders in water pollution control equipment which it exports successfully.
High levels of environmental awareness in Denmark have led to a decline in Danish industrial competitiveness in the international marketplace.
FALSECountries with demanding consumers drive firms in that country to meet high standards, upgrade existing products and services, and create innovative products and services. Denmark is known for its environmental awareness. Demand from consumers for environmentally safe products has spurred Danish manufacturers to become leaders in water pollution control equipment which it exports successfully.
Countries with a strong supplier base benefit by adding efficiency to downstream activities.
TRUERelated and supporting industries enable firms to manage inputs more effectively. Countries with a strong supplier base benefit by adding efficiency to downstream activities. A competitive supplier base helps a firm obtain inputs using cost-effective, timely methods, thus reducing manufacturing costs.
Typically, intense rivalry in domestic markets does not force firms to look outside their national boundaries for new markets.
FALSEDomestic rivalry provides a strong impetus for firms to innovate and find new sources of competitive advantage. This intense rivalry forces firms to look outside their national boundaries for new markets, setting up the conditions necessary for global competitiveness.
Many international firms are increasing their efforts to market their products and services to countries such as India and China as the ranks of their middle class continue to increase.
TRUEMany multinational firms are intensifying their efforts to market their products and services to countries such as India and China as the ranks of their middle class have increased over the past decade. An OECD study predicts that consumption by middle-class consumers in Asian markets will grow from $4.9 trillion in 2009 to over $30 trillion by 2020. At that point, Asia will make up 60 percent of global middle-class consumption, up from 20 percent in 2009.
Expanding the global presence of a firm does not automatically increase its scale of operations.
FALSEExpanding company global presence also automatically increases its scale of operations, providing it with a larger revenue and asset base. Such an increase in revenues and asset base potentially enables a firm to attain economies of scale. This provides multiple benefits including the spreading of fixed costs such as Research and Development over a larger volume of production. Examples include the sale of Boeing commercial aircraft and Microsoft operating systems in many foreign countries.
Arbitrage opportunities are more than simple trading opportunities and account for a large part of the success Walmart experiences.
TRUEIn its simplest form, arbitrage involves buying something from where it is cheap and selling it somewhere where it commands a higher price. A big part of the Walmart success can be attributed to its expertise in arbitrage. The possibilities for arbitrage are not necessarily confined to simple trading opportunities. It can be applied to virtually any factor of production and every stage of the value chain.
Arbitrage opportunities in global financial markets are more attractive to local companies than global corporations, because they enable them to buy in huge volume and therefore increase their bargaining power with suppliers.
FALSEIn the current integrated global financial markets, a firm can borrow anywhere in the world where capital is cheap and use it to fund a project in a country where capital is expensive. Such arbitrage opportunities are even more attractive to global corporations because their larger size enables them to buy in huge volume, thus increasing their bargaining power with suppliers.
International expansion can extend the life cycle of a product that is in its maturity stage in the company home country.
TRUEExtending the life cycle of a product that is in its maturity stage in a firms home country but that has greater demand potential elsewhere is a benefit of international expansion. In recent decades, U.S. soft-drink producers such as Coca-Cola and PepsiCo have aggressively pursued international markets to attain levels of growth that simply would not be available in the United States.
., An advantage of international expansion is that it can enable a firm to optimize the location of every activity in its value chain
TRUEOptimizing the physical location for every activity in its value chain is another benefit of international expansion. Optimizing the location for every activity in the value chain can yield one or more of three strategic advantages: performance enhancement, cost reduction, and risk reduction.
The laws and the enforcement of laws associated with the protection of intellectual property rights, represent a significant currency and management risk to multinational firms.
FALSEThere are four main types of risk: political risk, economic risk, currency risk, and management risk. The laws and the enforcement of laws associated with the protection of intellectual property rights can be a major potential economic risk (rather than currency or management risk) in entering new countries.
Reverse innovation occurs when a company develops a product that meets the needs of a developed country and then adapts it to the needs of the developing country.
FALSEMany leading companies are discovering that developing products specifically for emerging markets can pay off in a big way. In the past, multinational companies typically developed products for their rich home markets and then tried to sell them in developing countries with minor adaptations. However, as growth slows in rich nations and demand grows rapidly in developing countries such as India and China, this approach becomes increasingly inadequate. Instead, companies like GE have committed significant resources to developing products that meet the needs of developing nations, products that deliver adequate functionality at a fraction of the cost. These products have subsequently found considerable success in value segments in wealthy countries as well. Hence, this process is referred to as reverse innovation, a new motivation for international expansion.
The World Bank publishes the Euromoney magazine Country Risk Rating semiannual report. In the text, the January 2013 sampling of these ratings indicates that Norway is the best country in which to invest in terms of its expected level of risk based on the evaluation of its political, economic and structural risks and debt indicators and access to capital.
TRUEEuromoney magazine publishes a semiannual Country Risk Rating that evaluates political, economic, and other risks that entrants potentially face. Exhibit 7.3 presents a sample of country risk ratings, published by the World Bank, from the 178 countries that Euromoney evaluates. Note that the lower the score, the higher the expected level of risk for new entrants into the market. The overall risk rating score for Norway is 89.97.
Firms can eliminate political instability and adverse government actions risks by: competing in a range of geographic markets, developing stakeholder coalitions, cultivating relationships with key influences, and including key public/private stakeholders in their boards.
FALSEFirms can lessen political instability and adverse government actions risks by: competing in a range of geographic markets, developing stakeholder coalitions, cultivating relationships with key influences, and including key public/private stakeholders in their boards.
When U.S. currency appreciates against other currencies, U. S. goods can be less expensive to consumers in foreign countries.
FALSEEven a small change in the exchange rate can result in a significant difference in the cost of production or net profit when doing business overseas. When the U.S. dollar appreciates against other currencies, for example, U.S. goods can be more expensive to consumers in foreign countries.
