CHAPTER 11

INTERNATIONAL STRATEGIES
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
1) At some level, international strategies have existed since before the
beginning of recorded time.

1) _______

4) The increased use of international strategies by both large and small

firms suggests that the economic opportunities associated with
operating in multiple geographic markets can be substantial.

4) _______

6) The most obvious economy of scope that may motivate firms to pursue
an international strategy is the potential new customers for a firm's
current products or services that such a strategy might generate.

6) _______

7) To the extent that customers outside a firm's domestic market are

willing and able to buy a firm's current products or services,
implementing an international strategy can directly increase a firm's
revenues.

7) _______

10) Different physical standards can require a firm pursuing international

opportunities to change its current products or services to sell them into
a nondomestic market.

10) ______

11) Differences in tastes can be a major challenge for firms looking to sell
their products or services outside the domestic market.

11) ______

13) In order for the basis of an international strategy to attract new

customers, those products or services must address the needs, wants,
and preferences of customers in foreign markets at least as well as, if not
better than, alternatives.

13) ______

16) Japanese retail distribution has historically been much more

fragmented, and much less efficient, than the system that exists in either
the United States or Western Europe.
19) Border levies are an example of tariffs.

16) ______

20) Hard currencies are currencies that are traded, and thus have value, on
international money markets.

20) ______

21) Because the value of hard currencies can fluctuate in the world
economy, firms can manage their currency risk by engaging in various
hedging strategies in world money markets.

21) ______

23) One estimate suggests that countertrade accounts for between 10 and 20
percent of world trade.

23) ______

25) A product or service can be at different stages of its life cycle in different
countries.

25) ______

27) The search for low labor costs has led some firms to engage in an
international "race to the bottom."

27) ______

19) ______

28) One of the most compelling reasons for firms to begin operations
outside their domestic markets is to refine their current core
competencies and to develop new core competencies.

28) ______

30) Unlearning requires a firm to modify or abandon traditional ways of

engaging in business.

30) ______

Local responsiveness can help firms be successful in addressing the local

needs of nondomestic customers, thereby increasing demand for a firm's
current products or services.

32) ______

32)
35) The financial risks can be daunting when a firm first begins
international operations.

35) ______

37) Government upheaval and the attendant risks to international firms are
facts of life in some countries.

37) ______

38) In a decentralized federation, each country in which the firm operates is

organized as a full profit-and-loss division headed by a division general
manager who is typically the president of the company in a particular
country.

38) ______

39) Firms can maintain traditional arm's-length market relationship

between themselves and their nondomestic customers and still
implement international strategies.

39) ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers
the question.
41) International strategies are an example of __________ strategies.
41) ______
A) corporate
B) business
C) operational
D) functional
42) Which one of the folliwng is NOT a potential source of economies of
scope for firms pursuing international strategies/
A) To gain access to low-cost factors of production
B) To develop new core competencies
C) To control countertrade
D) To manage corporate risk

42) ______

43) Different ____ standards can require a firm pursuing international

opportunities to change its current products or services to sell them into
a nondomestic market.
B) physical
A) operational
C) fiscal
D) financial

43) ______

44) Japanese retail distribution has historically been much more _____ than
the system that exists in the United States or Western Europe.
B) fragmented
A) consolidated
C) open
D) closely held.

44) ______

45) Embargoes are an example of

A) nontariff barriers
C) quotas

45) ______
B) tariffs
D) subsidies

46) Countervailing duties are an example of

A) countertrade
B) nontariff barriersacquisition.
D) tariffs
C) quotas

46) ______

47) Variable levies are an example of

A) quotas
C) nontariff barriers

47) ______
B) countertrade
D) tariffs

48) ______ currencies are currencies that are traded, and thus have value, on
international money markets.
A) Hard
B) Soft
C) Variable
D) Operational

48) ______

49) The second stage in the product life cycle is the ______ stage.
B) growth
A) decline
C) introduction.
D) maturity

49) ______

50) Which one of the following is NOT a determinant of the ability of a firm
to learn from its international operations?
A) The resources for learning
B) The transparency of business partners
C) Receptivity to learning
D) The intent to learn

50) ______

51) ________ requires a firm to modify or abandon traditional ways of

engaging in business.
A) Relearning
B) Absorbing
D) Unlearning
C) Learning

51) ______

52) _______ can help firms be successful in addressing the local needs of
nondomestic customers.
A) Target responsiveness
B) Internationalization
C) Local responsiveness
D) Globalization

52) ______

53) A _______ strategy exploits all the advantages of both international

integration and local responsiveness.
A) Transnational
B) Global
C) Corporate
D) Multinational

53) ______

54) Hedging is a way to counter the ____ risks of doing business in foreign
markets.
D) financial
A) business
B) cultural
C) political

54) ______

Broad changes in the political situation in a foreign country is an

example of political risk that affects the international strategies at the
___ level.

55) ______

55)
A) cultural
C) micro

B) macro
D) functional

56) Improvements in the ______ infrastructure of business is one of the

important contributors to the growth in the number of firms pursuing
international strategies.
A) cultural
B) corporate
C) technological
D) pecuniary

56) ______

57) One survey of CEOs from around the world reported that _____ percent
of U.S. CEOs had no foreign experience.
A) 14
B) 8
C) 25
D) 42

57) ______

58) The ability to develop detailed local knowledge of nondomestic markets

may require firms to have management teams with a great deal of ____
experience.
B) foreign
A) functional
C) technical
D) corporate

58) ______

59) One survey indicated that the foreign experience of ____ percent of U.S.
CEOs was limited to vacation travel..
A) 56
B) 61
C) 48
D) 14

59) ______

60) Even if direct duplication of a firm's international strategies is ____,

______ might still exist that limit the ability of that strategy to generate
sustained competitive advantages.
A) costly, fragmentation
B) inexpensive, fragmentation
C) costly, substitutes
D) inexpensive, substitutes

60) ______

61) A firm implements a(n) ________ strategy when it diversifies its

business operations across country boundaries.
A) functional
B) transnational
D) international
C) operational

61) ______

62) Exporting is a form of

A) vertical governance.
B) market governance.
C) intermediate market governance.
D) hierachical governance.

62) ______

63) Which one of the following is an example of the hierarchical governance

option for firms pursuing international strategies?

63) ______

A) Mergers
C) Licensing

B) Joint ventures
D) Exporting

64) Acquisitions are an example of the ___ governance option for firms
pursuing international strategies.
A) hierarchical
B) corporate
C) market
D) intermediate market

64) ______

65) Strategic alliances fall within the _____ governance option for firms
pursuing international strategies.
A) market
B) corporate
C) intermediate market
D) hierarchical

65) ______

66) In a _________, strategic and operational decisions are delegated to

divisions/country companies.
A) centralized hub
B) coordinated federation
D) decentralized federation
C) transnational structure

66) ______

67) Which one of the following is NOt a structural option for firms pursuing
international strategies?
A) Centralized hub.
B) Transnational structure.
D) Corporate federation.
C) Decentralized federation

67) ______

68) Which one of the following structural options combines a high level of
both global integration and local responsiveness?
A) Transnational structure.
B) Centralized hub
C) Coordinated federation
D) Decentralized hub.

68) ______

m69) In many ways, the transnational structure is similar to the

B) coordinated federation
A) centralized hub
C) decentralized federation
D) decentralized hub

69) ______

70) In a coordinated federation structure, shared activities and other crossdivisional/cross-country economies of scope are managed by the
A) country manager
B) country unit
C) corporate center
D) local unit

70) ______

71) The role of corporate headquarters in a ______ is to constantly scan

business operations across different countries for resources and
capabilities that might be a source of competitive advantage for other
divisions/country companies in the firm.
B) transnational structure
A) coordinated federation
C) decentralized federation
D) centralized hub

71) ______

72) Firms that seek to maximize their local responsiveness will tend to
choose a _______ structure
A) coordinated federation
B) centralized hub
C) decentralized federation
D) transnational

72) ______

73) Firms that seek to maximize international integration in their operations

will typically opt for ___ structures.
A) coordinated federation
B) transnational

73) ______

C) centralized hub

D) decentralized federation

74) Firms that seek to balance the need for local responsiveness and
international integration will typically choose _______ .
B) centralized federations
A) decentralized federations
C) transnational structures
D) matrix structures.

74) ______

75) Firms that attempt to optimize both local responsiveness and

international integration will choose a _____ organizational structure.
A) coordinated federation
B) centralized hub
D) transnational
C) decentralized federation

75) ______

76) Firms that have been successful in adopting the transnational structure
include
B) Ford
A) Disney
C) Sony
D) Nokia

76) ______

77) Toyota is an example of a firm that uses the ______ structure.

B) centralized hub
A) decentralized federation
C) coordinated federation
D) transnational

77) ______

78) General Electric (GE) uses a _____ structure to manage its global
operations.
B) coordinated federation
A) decentralized federation
C) transnational
D) centralized hub

78) ______

79) In a ______ structure, corporate staff functions are generally limited to

the collection of accounting and other performance information from
divisions/country companies and to reporting this aggregate
information to appropriate government officials and to the financial
markets.
B) decentralized federation
A) centralized hub
C) transnational
D) coordinated federation

79) ______

80) In a ______ structure, operational decisions are delegated to division

general managers/country presidents, but broader strategic decisions
are made at corporate headquarters.
B) coordinated federation
A) centralized hub
C) decentralized federation
D) transnational

80) ______

81) Firms pursuing an international strategy have ___ basic organizational

structural alternatives.
D) 4.
A) 3
B) 2
C) 5

81) ______

82) There are relatively few examples of pure ________ in today's economy.
A) transnational structures
B) coordinated federations.
D) decentralized federations
C) centralized hubs

82) ______

Agrestal Cosmetics, Inc. is a leading U.S. manufacturer of natural, herb-based cosmetic products.
It started out purely as a domestic company but, in 1983 established operations in India primarily
to gain access to that country's abundant supply of hibiscus, a plant that provided important raw
materials to the company's products. In 2009, Agrestal did business in 29 countries around the
world. It has factories in Malaysia and Taiwan to use the low labor cost in those countries in

making its labor-intensive products. In the late 1990s, it had to close it operations in a foreign
country when, due to a change in the country's leadership, all foreign companies had to cease
doing business there. During the Brazilian financial crisis, Agrestal adopted the practice of using
revenues generated in Brazil to buy orange concentrate locally and sell that concentrate in the
U.S. Agrestal's corporate finance department aggressively uses hedging in all the countries that
they operate. In a few select countries, Agrestal licenses its brand names and know-how to local
licensees. Currently, Agrestal is organized whereby all strategic and operational decisions are
made at its Princeton, New Jersey headquarters.
83) An important economy of scope for Agrestal in pursuing international
83) ______
opportunities is
A) synergy.
B) technology.
D) access to raw materials.
C) organizational learning.
84) Agrestal's use of licensing in certain countries is an example of ______
governance organizing option.
B) intermediate market
A) hierarchical
C) corporate.
D) market.

84) ______

85) When Agrestal (along with other companies) was asked to leave a
foreign country in the 1990s, it was a victim of
B) political risk
A) corporate risk.
C) financial risk
D) cultural risk.

85) ______

86) What Agrestal did in Brazil was an example of

B) countertrade
A) hedging
C) strategizing
D) diversification

86) ______

87) Agrestal's use of hedging is a way for the company to gaurad against
______ risks.
D) financial
A) business
B) political.
C) market

87) ______

88) Agrestal's organizational structure is most likely the ______ structure.

B) centralized hub
A) transnational
C) coordinated federation
D) decentralized federation

88) ______

89) From its organization structure, it appears that Agrestal is attempting to

maximize _______ in its operations.
A) strategic coordination.
B) local responsiveness
D) international integration
C) operational coordination

89) ______

90) To optimize both local responsiveness and international integration,

Agrestal has to move to a _____ structure.
A) transnational
B) matrix
C) coordinated federation
D) operational

90) ______

ESSAY. Write your answer in the space provided or on a separate sheet of paper.
91) What are trade barriers? How do they affect foreign firms?
92) What is countertrade? How is it useful in international business?
93) In international business, is a "race to the bottom" always good for firms?

94) Is learning from international operations automatic for firms? Why or why not?
95) What is the local responsiveness/international integration trade-off that firms face
when they go into international markets?
96) Describe the transnational strategy.
97) What is meant by political risk? What types of political risks do firms face?
98) Is financial risk the same as business risk?
99) Describe the differences between market and hierarchical governance options for
firms pursuing international strategies.
100) Discuss the four structural options for firms pursuing international strategies.

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C
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Trade barriers are measures put in place by the host government of a country. Trade
barriers have the effect of increasing the cost of selling a firm's current products or services
in that country and thus make it difficult for a firm to realize this economies of scope from
its international strategy.
Governments create trade barriers to raise government revenue, to protect local
employment, to encourage local production to replace imports, to protect new industries
from competition, to discourage foreign direct investment, and to promote export activity.
Trade barriers are thus, barriers to entry by foreign firms because they increase their cost
of doing business.

92) In countertrade, the international firm receives payment for products or services they sell
in a country in the form of other products or services, instead of in currency. The
international firm, in turns, sells these products or services in a different country to receive

ncy. When Pepsi entered Russia after the breakup of the Soviet Union, the company used
the proceeds from the sale of its beverage to buy local vodka. Pepsi, then, sold this vodka
outside Russia for hard currency. Countertrade is useful in international business in those
cases when a country's currency is not traded in international markets. It is a way of
selling goods in that country and getting hard currency by selling products/services
curre obtained in the exchange.
93) Getting differential low-cost access to labor can give a firm a cost advantange in global
business. Firms, thus, actively search for low labor costs -- a phenomenon that is called the
"race to the bottom." Footwear companies such as Nike and Reebok have done this by
using contract manufacturers in Asian countries to produce their shoes. While this may
give the company a competitive advantage, it does have negavtive consequences. It may
encourage partner companies to create "sweat shop" like conditions where employees are
exploited. Indeed, there are major moral and ethical issues involved in this.
94) Learning from international operations is anything but automatic. There are many
challenges and difficulties that firms face in learning from their international efforts. One
study identified three determinants of the ability of a firm to learn from its international
operations: the intent to learn, the transparency of business partners, and the receptivity to
learning.
A firm that has a strong intent to learn from its international operations is more likely to
learn than a firm without this intent. Also, it is more likely to learn when it interacts with
firms that are called transparent business partners -- firms that more open and accessible
than others. Finally, a firm has to be receptive to learning. It has to be prepared to unlearn
to enable it to accept and use new ideas.
95) As firms pursue economies of scope in international markets, they constantly face a tradeoff between the advantages of being responsive to market conditions in their nondomestic
markets and the advantages of integrating their operations across the multiple markets in
which they operate.
Local responsiveness can help firms be successful in addressing the local needs of
nondomestic customers, thereby increasing demand for a firm's current products or
services. On the other hand, full exploitation of the economies of scale that can be created
by selling a firm's current products or services in a nondomestic market often can occur
only if there is tight integration across all the markets in which a firm operates. This
creates a trade-off situation that firms often confront.
96) The traditional trade-off between international integration and local responsiveness can be
addressed by pursuing a transnational strategy. It exploits all the advantages of both
international integration and local responsiveness. Such firms treat their international
operations as an integrated network of distributed and interdependent resources and
capabilities. A firm's operations in each country are not simply independent activities
attempting to respond to local market needs; they are also repositories of ideas,
technologies, and management approaches that the firm might be able to use and apply in
other international operations.
97) The political environment becomes particularly important when firms begin to do business
internationally. Changes in the political rules of the game in host countries can have the
effect of increasing some environmental threats and reducing others, thereby changing the
value of a firm's resources and capabilities. The risks in the political environment of host
countries is referred to as political risks.
Such risks can arise at the macro and micro levels. At the macro level, broad changes in the
political situation in a country can change the value of an investment. At the micro level,

political changes may affect certain industries or companies from specific countries.
Political risk has to be anticipated and managed when firms pursue an international
strategy.
98) Financial risks arise when currency fluctuations significantly affect the value of a firm's
international investments. In addition, different rates of inflation across countries can
require different approaches to managing them. Collectively, these are referred to as
financial risks. They are, however, different from business risks that has to do with local
customers being unwilling to buy the firm's products or unwilling to pay the price for the
firm's products.
99) When firms maintain traditional arm's-length market relationship between themselves and
their non-domestic customers, they are using the market governance option to organize
their international organization. For example, a firm could decide to export its products to
a foreign market by working with a firm in that country to receive, market and distribute
its products.
When firms, instead, decide to integrate their international operations into their
organizational hierarchies by acquiring a firm in a nondomestic market or by forming a
new wholly owned subsidiary to manage their operations in a nondomestic market, they
are pursuing the hierarchical governance option.
100) Firms pursuing an international strategy have four basic organizational structural
alternatives -- the decentralized federation, the coordinated federation, the centralized hub,
and the transnational structure.
In a decentralized federation, each country in which the firm operates is organized as a full
profit-and-loss division headed by a division general manager who is typically the
president of the company in a particular country. While each country operation is
regarded as a full profit-and-loss center in a coordinated federation, unlike in the case of
the decentralized federation, here strategic and operational decisions are not fully
delegated to division general managers. In a centralized hub, most of the strategic and
operational decision making takes place at the corporate center. The transnational structure
is similar to the coordinated federation in that in both structures strategic decision making
is centralized while operational decision making is localized. The difference is that in the
transnational structure, the centers of corporate economies of scope are more likely to be
managed by specific divisions/country companies within the corporation.