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Question 1:

Which of the following is the most significant reason that domestic governments and international organizations seek to eliminate cartels?

A. The increased sales price reduces the amount of corporate tax revenues payable to the government.

B. True competition keeps prices as low as possible, thus increasing efficiency in the marketplace.

C. Small businesses cannot survive or grow without government protection.

D. The economic stability of developing countries depends on a global free market.

Correct Answer: B

A cartel is an organization of sellers (e.g., the oil cartel OPEC) who undertake joint action to maximize members\’ profits by controlling the supply, and therefore the price, of their product. Under the laws of many nations, such collusive conduct is illegal when engaged in by firms subject to those laws. The reason is that, as a result of the monopolistic and anticompetitive practices of cartels, supply is lower, prices are high, competition is restrained, and the relevant industry is less efficient. Accordingly, governmental and international organizations seek to protect consumers and the health of the domestic and global economy through anti-cartel efforts.


Question 2:

When a multinational firm decides to sell its products abroad, one of the risks the firm faces is that the government of the foreign market charges the firm with dumping. Dumping occurs when

A. The same product sells at different prices in different countries.

B. A firm charges less than the cost to make the product so as to enter or win a market.

C. Lower quality versions of the product are sold abroad so as to be affordable.

D. Transfer prices are set artificially high so as to minimize tax payments.

Correct Answer: B

Dumping is an unfair trade practice that violates international agreements. It occurs when a firmcharges a price (1) lower than that in its home market or (2) less than the cost to make the product. Dumping may be done to penetrate a market or as a result of export subsidies.


Question 3:

A global firm

A. Has achieved economies of scale in the firm\’s domestic market.

B. Plans, operates, and coordinates business globally.

C. Relies on indirect export.

D. Tends to rely more on one product market.

Correct Answer: B

According to Kotler, “Global firms plan, operate, and coordinate their activities on a worldwide basis.” Thus, a global firm secures cost or product differentiation advantages not available to domestic firms.


Question 4:

A firm wishing to become global must consider how many national markets to enter. A firm should enter fewer national markets when

A. Communication adaptation costs are low.

B. The product need not be adapted.

C. Entry costs are low.

D. The first countries chosen are heavily populated and have high incomes.

Correct Answer: D

According to Ayal and Zif, the following are factors indicating that few national markets should be entered:

(1)

entry costs are high;

(2)

market control costs are high;

(3)

product adaptation costs are high;

(4)

communication adaptation costs are high;

(5)

the first countries selected have large populations, high incomes, and high income growth;

(6)

a dominant firm can erect high entry barriers.


Question 5:

The least risky method of entering a market in a foreign country is by

A. Indirect exports.

B. Licensing.

C. Direct exports.

D. Direct investments.

Correct Answer: A

An indirect export strategy operates through intermediaries, such as home-country merchants who buy and resell the product, home-country agents who negotiate transactions with foreign buyers fora commission, cooperatives that represent groups of sellers, and export-management firms that receive fees for administering the firm\’s export efforts. Indirect export requires lower investment than direct export and is less risky because of the intermediaries\’ expertise.


Question 6:

An advantage of a direct investment strategy when entering a foreign market is

A. Reduction in the capital at risk.

B. Shared control and responsibility.

C. Assurance of access when the foreign country imposes domestic content rules.

D. Avoidance of interaction with the local bureaucracy.

Correct Answer: C

Direct investment has many advantages:

(1)

cheaper materials or labor,

(2)

receipt of investment incentives from the host government, (3) a strong relationship with interested parties in the host country, (4) control of the investment,

(5)

a better image in the host country,

(6)

market access when domestic contest rules are in effect. However, direct investment is risky because of exposure to currency fluctuations, expropriation, potentially high exit barriers, and restraints on sending profits out of the country.


Question 7:

A firm that moves from not exporting on a regular basis to establishing plants in foreign countries has

A. Globalized.

B. Nationalized.

C. Glocalized.

D. Internationalized.

Correct Answer: D

The internationalization process is of crucial interest to nations that wish to encourage local firms to grow and to operate globally. According to Swedish researchers, it involves the following steps:

(1)

Lack of regular exports;

(2)

export via independent agents with a few markets, with later expansion to more countries;

(3)

creation of sales subsidiaries in larger markets; (4) establishment of plants in foreign countries.


Question 8:

Which strategy for a global marketing organization is based on a portfolio of national markets?

A. reaction of a division to manage international marketing.

B. A multinational strategy.

C. A global strategy.

D. Creation of an export department

Correct Answer: B

International marketing efforts take three basic forms:creation of an export department, creation of a division to manage international marketing, or global organization. The latter encompasses genuinely worldwide functions, e.g., manufacturing, marketing, finance, and logistics. Thus, worldwide operations are the organization\’s focus, not merely that of a department or division of a national firm. A global organization may follow a multinational, global, or glocal strategy. A multinational strategy adopts a portfolio approach. Its emphasis is on national markets because the need for global integration is not strong. The product is customized for each market and therefore incurs higher production costs. Decision making is primarily local with a minimum of central control. This strategy is most effective given large differences between countries. Also, exchange rate risk is reduced when conducting business in this manner.


Question 9:

Which strategy for a global marketing organization balances local responsiveness and global integration?

A. Global.

B. Multinational.

C. Glocal.

D. Transnational.

Correct Answer: C

A glocal strategy combines some elements of local responsiveness or adaptation with some elements of global integration. Successful telecommunications firms are examples of balancing these elements. Local responsiveness is indicated when local product tastes and preferences, regulations, and barriers are significant. Global integration is indicated when demand is homogeneous and economies of productive scale are large.


Question 10:

The creation of regional free trade zones is a global phenomenon. Trade barriers are lowered in these areas, and other steps are taken to promote economic cooperation. For example, a common currency has been adopted by the nations of:

A. NAFTA.

B. Mercosul.

C. APEC.

D. The European Union.

Correct Answer: D

The European Union (Eli) is a collection of 27 European nations that have lowered trade barriers among member states, and most of the nations share a common currency and trade policy. The euro is the common currency of the European Union.


Question 11:

The three major factors favoring globalization are

A. Cultural, commercial, and technical.

B. Flexibility, proximity, and adaptability.

C. Political, technological, and social.

D. Ambition, positioning, and organization.

Correct Answer: C

The new economy is driven by the digital revolution that facilitates international commerce by providing capabilities that did not exist a relatively few years ago. It is also driven by such political events as the fall of the Soviet Union, the participation of China in the world economic system, the emergence of the European Union, and the creation of other regional free trade zones. These technological and political factors are intertwined with social changes, for example, greater concern for the rights of women and minorities; the advance of multilingualism; and the convergence of tastes in fashion, music, and certain other cultural factors. Accordingly, these factors favor globalization by reducing trade barriers, reducing cost of coordination, increasing economies of scale, and encouraging standardization and global branding.


Question 12:

Which method of expanding into international markets is most likely the riskiest?

A. A local storage and sale arrangement.

B. Local component assembly.

C. Direct investment.

D. Joint venture.

Correct Answer: C

Direct investment has many advantages:

(1)

cheaper materials or labor,

(2)

receipt of investment incentives from the host government, (3) a strong relationship with interested parties in the host country, (4) control of the investment,

(5)

a better image in the host country,

(6)

market access when domestic contest rules are in effect. However, direct investment is risky because of exposure to currency fluctuations, expropriation, potentially high exit barriers, and restraints on sending profits out of the country.


Question 13:

Which strategy for a global marketing organization emphasizes relatively strong central control?

A. Global.

B. Multinational.

C. Creation of an international division.

D. Global

Correct Answer: A

A global strategy regards the world as one market. The product is essentially the same in all countries. Central control of the production process is relatively strong. Faster product development and lower production cost are typical.


Question 14:

Which of the following is a regional free-trade zone currently limited to South American nations?

A. APEC

B. Mercosul.

C. The Triad Market.

D. NAFTA.

Correct Answer: B

Mercosul is a free-trade agreement among South American nations. They include Argentina, Brazil, Uruguay, and Paraguay. Chile and Bolivia are associate members.


Question 15:

A country has a comparative advantage in international trade when

A. Firms in the country have a lower cost of production because of natural resources.

B. It has an absolute advantage with respect to at least one input to production.

C. Firms in the country have a lower cost of production because of transportation and other geographic factors.

D. It produces whatever it can produce most efficiently.

Correct Answer: D

A country has a comparative advantage when it can achieve a lower cost of production due to a focus on and a cooperative specialization in a particular product. The greatest advantage from trade is obtained when each nation specializes in producing what it can produce most efficiently. If nations specialize and then exchange with others, more is produced and consumed than if each nation tries to be self-sufficient. Specialization of labor is beneficial for individuals; the same principle applies to nations.


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Question 1:

A firm wishing to become global must consider how many national markets to enter. A firm should enter fewer national markets when

A. Communication adaptation costs are low.

B. The product need not be adapted.

C. Entry costs are low.

D. The first countries chosen are heavily populated and have high incomes.

Correct Answer: D

According to Ayal and Zif, the following are factors indicating that few national markets should be entered:

(1)

entry costs are high;

(2)

market control costs are high;

(3)

product adaptation costs are high;

(4)

communication adaptation costs are high;

(5)

the first countries selected have large populations, high incomes, and high income growth;

(6)

a dominant firm can erect high entry barriers.


Question 2:

Which strategy for a global marketing organization is based on a portfolio of national markets?

A. reaction of a division to manage international marketing.

B. A multinational strategy.

C. A global strategy.

D. Creation of an export department

Correct Answer: B

International marketing efforts take three basic forms:creation of an export department, creation of a division to manage international marketing, or global organization. The latter encompasses genuinely worldwide functions, e.g., manufacturing, marketing, finance, and logistics. Thus, worldwide operations are the organization\’s focus, not merely that of a department or division of a national firm. A global organization may follow a multinational, global, or glocal strategy. A multinational strategy adopts a portfolio approach. Its emphasis is on national markets because the need for global integration is not strong. The product is customized for each market and therefore incurs higher production costs. Decision making is primarily local with a minimum of central control. This strategy is most effective given large differences between countries. Also, exchange rate risk is reduced when conducting business in this manner.


Question 3:

The creation of regional free trade zones is a global phenomenon. Trade barriers are lowered in these areas, and other steps are taken to promote economic cooperation. For example, a common currency has been adopted by the nations of:

A. NAFTA.

B. Mercosul.

C. APEC.

D. The European Union.

Correct Answer: D

The European Union (Eli) is a collection of 27 European nations that have lowered trade barriers among member states, and most of the nations share a common currency and trade policy. The euro is the common currency of the European Union.


Question 4:

A firm buys new computer equipment from bankrupt companies and resells it in foreign markets at prices significantly below those charged by competitors. The firm is

A. Engaged in dumping.

B. Engaged in price discrimination.

C. Operating in a gray market.

D. Operating in a black market.

Correct Answer: C

In a gray market, products imported from one country to another are sold by persons trying to make a profit from the difference in retail prices between the two countries. In essence, the seller firm in this case was exploiting a price difference between markets.


Question 5:

A global firm establishes a cost-based price for the firm\’s product in each country. The most likely negative outcome is that this pricing strategy will

A. Set too high a price in countries where the firm\’s costs are high.

B. Overprice the product in some markets and underprice the product in others.

C. Create a gray market.

D. Result in dumping.

Correct Answer: A

A firm may set a cost-based price in each market with a standard markup. In a region or country where costs are high, this strategy may result in prices that are too high to be competitive within the local market.


Question 6:

A firm that sells in foreign markets should consider all aspects of how products move from the firm to ultimate users. Where in the whole channel are marketing mix decisions most likely made?

A. Export department of the seller firm.

B. Import department of the buyer firm.

C. Channels within nations.

D. Channels between nations.

Correct Answer: A

Distribution channels are a necessity to ensure that goods are successfully transferred from the production facility to end users. These channels include three distinct links that must work smoothly together.

1.

The international marketing headquarters (export department of international division) is where decisions are made with regard to the subsequent channels and other aspects of the marketing mix.

2.

Channels between nations carry goods to foreign borders. They include air, land, sea, or rail transportation channels. At this stage, in addition to transportation methods, intermediaries are selected (e.g., agents or trading companies) and financing and risk management decisions are reached.

3.

Channels within nations take the goods from the border or entry point to the ultimate users of the products. Among nations, the number of levels of distribution, the types of channels, and the size of retailers vary substantially.


Question 7:

Developing brand equity in a foreign market may be desirable but is subject to considerable risk. A global firm launching a new product in a new market most likely should

A. Initially place most of the firm\’s emphasis on advertising geared to the local culture.

B. Fully decentralize control of the marketing process.

C. Avoid creating partnerships with local distribution channels to avoid dilution of the brand.

D. Balance standardization and customization of the product.

Correct Answer: D

The firm should determine the ratio of standardization and customization. Products that can be sold virtually unchanged throughout several markets provide a greater profit opportunity for a global firm. However, cultural differences may require extensive customization to appeal to markets in different countries.


Question 8:

Distribution channels ensure that goods in international trade are transferred successfully to end users. Where are intermediaries, such as trading companies, most likely selected?

A. Channels within nations.

B. Export department of the seller.

C. International division of the seller.

D. Channels between nations.

Correct Answer: D

Channels between nations carry goods to foreign borders. They include air, land, sea, or rail transportation channels. At this stage, in addition to transportation methods, intermediaries are selected (e.g., agents or trading companies), and financing and risk management decisions are reached.


Question 9:

With the globalization of economies, many organizations have expanded their operations to international locations. As an advisor to management, an internal auditor will most likelyrecommend that a geocentric, or worldwide, attitude be adopted. Select the reason the geocentric attitude is preferred.

A. It promotes a simpler organizational structure.

B. It provides greater autonomy for host country managers.

C. It provides the best balance of local and worldwide objectives.

D. It promotes tighter organizational control.

Correct Answer: C

According to Howard Perlmutter, the geocentric attitude toward international operations is world oriented. The intention is to balance local and worldwide objectives in all aspects of operations, to maintain global standards while permitting local managers to exercise appropriate discretion.


Question 10:

A starting point for developing competitive strategies is customer value analysis (CVA). According to theCVA approach.

A. Customer value equals customer benefits.

B. Bad competitors rather than good competitors should be targeted.

C. Strong competitors should be avoided even when they have exploitable weaknesses.

D. Distant competitors are the usual threats.

Correct Answer: B

Bad competitors should be targeted rather than good competitors. The former disturb the competitive equilibrium, e.g., by excessive expansion of capacity or overly risky behavior. The latter make sound business decisions that promote the long-term health of the industry, e.g., about prices, entry into newsegments, and pursuit of market share.


Question 11:

In the Boston Consulting Group (BCG) growth-share matrix, which strategic business units generate large amounts of cash, need heavy investment to grow and maintain competitive positioning, but usually have modest net cash flow?

A. Cash cows.

B. Question marks.

C. Dogs.

D. Stars.

Correct Answer: D

A star is a business with a strong competitive position in a growth industry. It has a high relative market share, and the market growth rate is high. Thus, the industry is robust, and the SBU is highly attractive. Net cash flow is modest because investment is heavy, although stars generate large amounts of cash.


Question 12:

When firms compete in different geographical locations or have multiple product lines that do not necessarily overlap, the most effective way of responding to an aggressive move by a competitor without directly triggering destructive moves and countermoves is to

A. Mislead the competitor into taking or not taking an action.

B. Make a prior announcement of intended moves.

C. Initiate a move in the market where the competitor is strong.

D. Initiate direct aggressive moves

Correct Answer: C

Initiating a move in the market where the competitor is strong is a cross- parry. A cross- parry is an effective way to signal displeasure and raise the threat of more serious retribution without directly triggering destructive moves and countermoves.


Question 13:

In which industry structure is differentiation absent, and all sellers charge the same price?

A. Monopoly.

B. Monopolistic competition.

C. Oligopoly.

D. Pure competition.

Correct Answer: D

An industry consists of firms selling products or services that are substitutes. One way to describe an industry considers the number of sellers and the extent of differentiation ofproducts and services. In pure competition, differentiation is absent, and the same prices are charged by all sellers.


Question 14:

A corporation produces uniforms that it sells and rents to businesses. The corporation recently acquired a textile mill that produces synthetic cloth. This acquisition is an example of:

A. Horizontal integration Forward integration

B. Horizontal integration Backward integration

C. Vertical integration Forward integration

D. Vertical integration Backward integration

Correct Answer: D

The degree of backward and forward vertical integration along the value chain varies with the industry. The corporation acquired one of its suppliers, which is on a different level of the value chain. Thus, the combination involved vertical integration. Moreover, the acquisition of a supplier is characteristic of backward integration.


Question 15:

Firm X is considering entry into an industry. To analyze competition within the industry, Firm X evaluated its strategic groups. According to Michael E. Porter,

A. The members of a strategic group pursue different competitive strategies.

B. Intergroup competition is increased by market interdependence.

C. Low barriers to mobility among strategic groups promote profitability.

D. High substitutability of products reduces competition among groups.

Correct Answer: B

Intergroup competition is increased by market interdependence, which is the extent to which groups pursue the same customers. The greater the interdependence, the stronger the competition among groups.