Chapter 7

Question 1

globalization

Answer 1

1) increase in international exchange, including trade in goods and services as well as exchange in money, ideas, and information
2) The growing similarity of laws, rules, norms, values, and ideas across countries

Question 2

Diamond of national advantage

Answer 2

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

Question 3

factor endowments (national advantage)

Answer 3

a nation’s position in factors of production such as land, labor, and capital. (e.g. Japanese JIT inventory management with limited warehouse space)

Question 4

demand conditions (national advantage)

Answer 4

the nature of home market demand for the industry’s product/service- consumers who demand highly specific, sophisticated products and services force firms to create innovative, advanced products and services. (Denmark-environmentally safety pressure-leaders in water pollution control)

Question 5

related and supporting industries (national advantage)

Answer 5

the presence, absence, and quality in the nation of supplier industries and other related industries that supply services, support, or technology to firms in the industry value chain. (Strong supplier relationships benefit by adding efficiency to downstream activities)- Italian footwear suppliers/manufacturers locally close to one another.

Question 6

firm strategy, structure, and rivalry (national advantage)

Answer 6

the conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry

Question 7

multinational firms

Answer 7

firms that manage operations in more than one country

Question 8

arbitrage opportunities

Answer 8

an opportunity to profit by buying and selling the same good in different markets (buying where it’s cheap and selling where it commands a higher price)

Question 9

reverse innovation

Answer 9

new products developed by developed country multination firms for emerging markets that have adequate functionality at a low cost

Question 10

political risk

Answer 10

potential threat to a firms operations in a country due to ineffectiveness of the domestic political system

Question 11

rule of law

Answer 11

a characteristic of legal systems where behavior is governed by rules that are uniformly enforced.

Question 12

economic risk

Answer 12

potential threat to a firms operations in a country due to economic policies and conditions, including property rights laws and enforcement of those laws.

Question 13

counterfeiting

Answer 13

selling of trademark goods without the consent of the trademark holder

Question 14

currency risk

Answer 14

potential threat to a firm’s operations in a country due to fluctuations in the local currency’s exchange rate

Question 15

management risk

Answer 15

potential threat to a firms operations in a country due to the problems that managers have making decisions in context of foreign markets

Question 16

outsourcing

Answer 16

using other firms to perform value- creating activities that were previously performed in-house

Question 17

offshoring

Answer 17

shifting of value-creating activity from a domestic location to a foreign location

Question 18

international strategy

Answer 18

a strategy based on the firms diffusion and adaptation of the parent companies’ knowledge and expertise to foreign markets, used in industries where the pressures for both local adaptation and lowering costs are low

Question 19

global strategy

Answer 19

a strategy based on firms’ centralization and control by the corporate office, with the primary emphasis on controlling costs, and used in industries where the pressure for local adaptation is low and the pressure for lowering costs is high

Question 20

multidomestic strategy

Answer 20

a strategy based on firms’ differentiating their products and services to adapt to local markets, used in industries where the pressure for local adaptation is high and the pressure for lowering costs is low

Question 21

transnational strategy

Answer 21

a strategy based on firms’ optimizing the trade-offs associated with efficiency, local adaptation, and learning, used in industries where both the pressure for local adaptation and the pressure for lowering costs is high

Question 22

regionalization

Answer 22

increasing international exchange of goods, services, money, people, ideas, and information; and the increasing similarity of culture, laws, norms, and rules within a region such as Europe, North America, or Asia

Question 23

trading blocs

Answer 23

groups of countries agreeing to increase trade between them by lowering trade barriers

Question 24

exporting

Answer 24

producing goods in one country to sell to residents of another country

Question 25

licensing

Answer 25

a contractual agreement in which a company receives a royalty or fee in exchange for the right to use its trademark, patent, trade secret, or other valuable intellectual property

Question 26

franchising

Answer 26

a contractual agreement in which a company receives a royalty or fee in exchange for the right to use its intellectual property; it usually involves longer time period than licensing and includes other factors, such as monitoring of operations, training, and advertising

Question 27

wholly owned subsidiary

Answer 27

a business in which a multinational company owns 100 percent of the stock

Question 28

Motivations for international expansion

Answer 28

• Increase Market Size
• Take advantage of arbitrage
• Extend a product’s life cycle
• Optimize the location of value-chain activities

Question 29

Optimize the location of value-chain activities

Answer 29

• Performance enhancement
• Cost reduction
• Risk reduction