The actions that managers take to attain the goals of the firm are referred to as a firm's strategy.
answer
TRUE
A firm's strategy can be defined as the actions that managers take to attain the goals of the firm.
question
Profit growth is measured by the percentage increase in net profits over time.
answer
TRUE
Profit growth is measured by the percentage increase in net profits over time.
question
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.
answer
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.
question
Consumer surplus captures some of the value of a product thereby reducing the price a firm can charge for it.
answer
TRUE
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 customer captures some of that value in the form of what economists call a consumer surplus.
question
The higher the firm's profit per unit sold is, the greater its profitability will be, all else being equal.
answer
TRUE
The higher the firm's profit per unit sold is, the greater its profitability will be, all else being equal.
question
A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a low-cost strategy.
answer
FALSE
A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a differentiation strategy.
question
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.
answer
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 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.
question
According to Michael Porter, all positions on the efficiency frontier are viable.
answer
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.
question
The various value creation activities that a firm undertakes are referred to as operations.
answer
TRUE
Operations are the different value creation activities a firm undertakes.
question
In terms of attaining a competitive advantage, support activities can be as important as the primary activities of the firm.
answer
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.
question
Maintaining the company infrastructure is a support activity.
answer
TRUE
The company infrastructure, a support activity, 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.
question
The term organizational structure refers to the totality of a firm's organization, including organization architecture, control systems and incentives, organizational culture, processes, and people.
answer
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.
question
Firms that operate internationally are able to realize location economies by dispersing individual value creation activities to locations where they are performed most efficiently and effectively.
answer
TRUE
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.
question
Successful global expansion requires the transfer of core competencies to foreign markets where indigenous competitors lack them.
answer
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.
question
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.
answer
TRUE
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.
question
The experience curve refers to systematic increases in production costs that have been observed to occur over the life of a product.
answer
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.
question
Learning effects will be more significant in an assembly process which involves 100 simple steps than in an assembly process which involves 1,000 complex steps.
answer
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. Thus, learning effects will be more significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps.
question
The ability to spread fixed costs over a large volume is one of the sources of economies of scale.
answer
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.
question
The firm that moves up the experience curve most rapidly will have a cost advantage vis-Ã -vis its competitors.
answer
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-Ã -vis its competitors.
question
Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth.
answer
TRUE
Strategies that increase profitability can also expand a firm's business and thus enable it to attain a higher rate of profit growth.
question
Universal needs exist when the tastes and preferences of consumers in different nations are different.
answer
FALSE
Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical.
question
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.
answer
TRUE
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.
question
Firms that pursue an international strategy focus on increasing profitability by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
answer
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.
question
24. A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.
answer
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.
question
25. A localization strategy involves some duplication of functions and smaller production runs.
answer
TRUE
Since customization, as a result of a localization strategy, involves some duplication of functions and smaller production runs, it limits the ability of the firm to capture the cost reductions associated with mass-producing a standardized product for global consumption.
question
According to researchers, firms facing strong pressures for local responsiveness should pursue a global standardization strategy.
answer
FALSE
When a firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness, it should pursue a transnational strategy.
question
An international strategy involves taking products first produced for their domestic market and selling them internationally with only minimal local customization.
answer
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 firms following an international strategy is that they are selling a product that serves universal needs, but they do not face significant competitors.
question
Strategic alliances allow firms to share the fixed costs of developing new products or processes.
answer
TRUE
Strategic alliances allow firms to share the fixed costs (and associated risks) of developing new products or processes.
question
The rate of return that a firm makes on its invested capital is referred to as:
A. stakeholder return.
B. profitability.
C. profit growth.
D. process value.
E. strategic fit.
answer
B. profitability.
Profitability is defined 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.
question
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.
E. adding the profitability of the last two fiscal years.
answer
D. the percentage increase in net profits over time.
Profit growth is measured by the percentage increase in net profits over time.
question
The amount of value a firm creates is measured by:
A. 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. 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.
E. the sum of the profitability of the last two fiscal years.
answer
C. the difference between its costs of production and the value that consumers perceive in its products.
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.
question
In general, the more value customers place on a firm's products:
A. the lesser the profitability of the firm.
B. the higher the competitive pressure from other firms.
C. the lesser the quality of the product.
D. the lesser the consumer surplus for those products.
E. the higher the price the firm can charge for those products.
answer
E. the higher the price the firm can charge for those products.
In general, the more value customers place on a firm's products, the higher the price the firm can charge for those products.
question
Typically, the price a firm charges for a good or service is:
A. less than the value placed on that good or service by the customer.
B. more than what customers assume it would be.
C. more than the market price for similar goods or services.
D. the same as the value placed on that good or service by the customer.
E. less than the lowest priced similar good or service in the market.
answer
A. less than the value placed on that good or service by the customer.
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.
question
As a result of consumer surplus, a firm typically charges a lower price for a good or service than the value placed on it by customers because:
A. the value creation results in a corresponding reduction in costs of production.
B. it is highly unlikely that the same good or service will be available to the customers from other firms.
C. the firm is competing with other firms for the customer's business.
D. the firm charges a price that reveals a consumer's assessment of the product's value.
E. the firm creates value for the customer by producing a wide range of products.
answer
C. the firm is competing with other firms for the customer's business.
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 because the customer captures some of that value in the form of customer surplus. The customer is able to do this because the firm is competing with other firms for the customer's business.
question
One of the reasons why a firm typically charges for a good or service less than the value placed on that good or service by the customer is because:
A. the firm attempts to create value for the consumers by providing them a wide range of products.
B. it is normally impossible to segment a market based on each customer's reservation price.
C. the value creation results in a corresponding reduction in costs of production.
D. the firm frequently modifies its products to compete with the products introduced by other firms.
E. it is highly unlikely that the same good or service will be available to the customers from other firms.
answer
B. it is normally impossible to segment a market based on each customer's reservation price.
The customer is able to capture a consumer 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.
question
The price that reflects an individual's assessment of the value of a product is referred to as:
A. the market price.
B. the customer's negotiated price.
C. the base value of the product.
D. the customer's reservation price.
E. the profit growth price.
answer
D. the customer's reservation price.
The price that reflects an individual's assessment of the value of a product is referred to as the customer's reservation price.
question
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.
E. The lower the consumer surplus, the greater the value for the money the consumer gets.
answer
C. The consumer surplus per unit is equal to V - P.
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.
question
Which of the following of a firm is measured by the difference between the value of a product to an average consumer and the average unit cost of producing that product?
A. Customer surplus
B. Value creation
C. Cost curve
D. Value efficiency
E. Customer reservation
answer
B. Value creation
A 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.
question
Focusing primarily on increasing the attractiveness of a product is referred to as a:
A. standardization strategy.
B. differentiation strategy.
C. target-identification strategy.
D. low-cost strategy.
E. profitability strategy.
answer
B. differentiation strategy.
A strategy that focuses primarily on increasing the attractiveness of a product is referred to as a differentiation strategy.
question
According to Michael Porter, what are the two basic strategies for creating value and attaining a competitive advantage in an industry?
A. Differentiation and low-cost
B. Value creation and generalization
C. One-size-fits-all and zero-sum
D. Comparison and standardization
E. Profitability and strategic fit
answer
A. Differentiation and low-cost
Michael Porter has argued that low-cost and differentiation are two basic strategies for creating value and attaining a competitive advantage in an industry.
question
According to Michael Porter, superior profitability goes to a firm that:
A. creates similar products as their competitors.
B. keeps the gap between value and cost of production smaller than the gap attained by competitors.
C. drives down the cost structure of its business.
D. has the highest cost structure in the industry.
E. has the least valuable product in the industry.
answer
C. drives down the cost structure of its business.
According to Porter, superior profitability goes to those firms that can create superior value, and the way to create superior value is to drive down the cost structure of the business and/or differentiate the product in some way so that consumers value it more and are prepared to pay a premium price.
question
Superior value creation relative to rivals requires that the firm:
A. creates similar products as its competitors so that consumers do not have to pay a premium price.
B. has the highest cost structure in the industry.
C. creates the least valuable product in the eyes of consumers.
D. ensures that the gap between value and cost of production is greater than the gap attained by competitors.
E. drives up the cost structure of its business.
answer
D. ensures that the gap between value and cost of production is 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 (V) and cost of production (C) be greater than the gap attained by competitors.
question
Which of the following 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
E. Surplus curve
answer
C. Efficiency frontier
The efficiency frontier shows all of the different positions that a firm can adopt with regard to adding value to the product and low 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.
question
The efficiency frontier has a convex shape because of:
A. a high-cost structure.
B. diminishing returns.
C. a significantly low product value.
D. low production costs.
E. high profit growth.
answer
B. diminishing returns.
The efficiency frontier has a convex shape because of diminishing returns.
question
For a firm to maximize its profitability, it is necessary that it:
A. creates products similar to the products of its competitors.
B. does not configure its internal operations to reduce costs.
C. minimizes the value of the consumer surplus.
D. picks a position on the efficiency frontier that is viable.
E. strips all the value out of its product offering.
answer
D. picks a position on the efficiency frontier that is viable.
To maximize its profitability, a firm must pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice.
question
A firm maximizes its profitability when it:
A. creates products similar to the products of its competitors.
B. minimizes the value provided by its products.
C. picks a position on the efficiency frontier that is not viable.
D. strips all the value out of its product offering.
E. configures its internal operations to support the position selected by it on the efficiency frontier.
answer
E. configures its internal operations to support the position selected by it on the efficiency frontier.
To maximize its profitability, a firm must configure its internal operations, such as manufacturing, marketing, logistics, information systems, human resources, and so on, so that they support that position.
question
A firm's profitability is maximized when it:
A. creates products similar to the products of its competitors.
B. strips all the value out of its product offering.
C. ensures that it has the right organization structure in place to execute its strategy.
D. picks a position on the efficiency frontier that is not viable.
E. does not configure its internal operations to reduce costs.
answer
C. ensures that it has the right organization structure in place to execute its strategy.
To maximize its profitability, a firm must ensure that it has the right organization structure in place to execute its strategy.
question
The value creation activities of a firm are categorized as:
A. primary activities and support activities.
B. strategic activities and functional activities.
C. ancillary functions and tertiary functions.
D. primary activities and core activities.
E. goal-oriented activities and organizational activities.
answer
A. primary activities and support activities.
Value creation activities, or operations, can be categorized as primary activities and support activities.
question
Which of the following is a primary activity in the operations of a firm?
A. Logistics function
B. Research and development
C. Information systems
D. Human resource function
E. Company infrastructure
answer
B. Research and development
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
question
For services such as banking or health care, "production" typically occurs when the:
A. customer specifies the service requirements.
B. service is paid for by the customer.
C. service is designed in-house.
D. service is delivered to the customer.
E. customer provides feedback.
answer
D. service is delivered to the customer.
For services such as banking or health care, "production" typically occurs when the service is delivered to the customer.
question
Which of the following is a support activity in the operations of a firm?
A. Research and development
B. Customer service
C. Marketing and sales
D. Creation and maintenance of information systems
E. Production
answer
D. Creation and maintenance of information systems
The support activities of the value chain provide inputs that allow the primary activities to occur. They include information systems.
question
52. Of all the value creation activities in a firm, which of the following creates 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?
A. Production
B. Marketing and sales
C. Human resources
D. Logistics
E. Information systems
answer
B. Marketing and sales
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.
question
53. Which of the following functions creates a perception of superior value in the minds of consumers by solving consumer problems and by supporting them after they have purchased the product?
A. Production
B. Marketing and sales
C. Human resources
D. Customer service
E. Logistics
answer
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 (V) in the minds of consumers by solving customer problems and supporting customers after they have purchased the product.
question
Which of the following is a value creation activity that falls into the category of primary activities?
A. Creation and maintenance of information systems
B. Customer service
C. Human resources
D. Logistics
E. Company infrastructure maintenance
answer
The primary activities are divided into four functions: research and development, production, marketing and sales, and customer service.
question
Which of the following is the function of a value chain that 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
E. Research and development
answer
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.
question
Which of the following support functions is most likely to involve dealing with the organizational structure, control systems, and culture of the firm?
A. Human resources
B. Logistics
C. Information systems
D. Company infrastructure
E. Inventory management
answer
D. Company infrastructure
The company infrastructure refers to the context within which all the other value creation activities occur. The infrastructure includes the organizational structure, control systems, and culture of the firm.
question
Who among the following should be viewed as part of a firm's infrastructure?
A. Procurement manager
B. Top management
C. Production manager
D. Research and development scientist
E. Marketing personnel
answer
B. Top management
Top management should be viewed as part of the firm's infrastructure. Through strong leadership, top management can consciously shape the infrastructure of a firm.
question
Which of the following is a part of the organization architecture that consists of 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. Knowledge flows
E. Dominions
answer
B. Controls
Controls are the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits.
question
Processes are the:
A. manner in which decisions are made and work is performed within the organization.
B. metrics used to measure the performance of subunits.
C. devices used to reward appropriate managerial behavior.
D. metrics used to make judgments about how well managers are running the subunits.
E. norms and value systems that are shared among the employees of an organization.
answer
A. manner in which decisions are made and work is performed within the organization.
Processes are the manner in which decisions are made and work is performed within the organization.
question
60. Which of the following terms best represents the norms and value systems that are shared among the employees of an organization?
A. Process scenario
B. Organizational structure
C. Business structure
D. Organizational culture
E. Management structure
answer
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.
question
A firm's ability to increase its profitability and profit growth by expanding globally is constrained:
A. by the imperative of localization.
B. by the economies of scale.
C. due to customer surplus.
D. due to the leveraging of skills developed in foreign operations.
E. due to the dispersion of individual value creation activities.
answer
A. by the imperative of localization.
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.
question
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 nations that the company enters.
B. the product is a generic product that requires little differentiation.
C. indigenous competitors in the nations that the company enters lack comparable products.
D. there is a high inflation in the nations that the company enters.
E. the product is perceived to be very costly in the home country of the company.
answer
C. indigenous competitors in the nations that the company enters lack comparable products.
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 that a company enters lack comparable products.
question
How does possessing a core competence help a firm?
A. It helps a firm to create value in such a way that premium pricing is impossible.
B. It reduces a firm's dependence on its logistics function.
C. It enables a firm to reduce the costs of value creation.
D. It reduces the scope of transfer of skills to foreign markets.
E. It reduces the need to replicate a business model in a foreign market.
answer
C. It enables a firm to reduce the costs of value creation.
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.
question
If a value creation activity of a firm can take place in Mexico most effectively, then that activity of the firm must be based in Mexico. Firms that pursue such a strategy are most likely to realize:
A. a position inside the efficiency frontier.
B. the experience curve.
C. economies of scale.
D. location economies.
E. demographic advantages.
answer
D. location economies.
For a firm that is trying to survive in a competitive global market, the firm will benefit by basing each value creation activity it performs at that location where economic, political, and cultural conditions—including relative factor costs—are most conducive to the performance of that activity. Firms that pursue such a strategy can realize location economies.
question
Which of the following is most likely to be the advantage of locating a value creation activity in the optimal location for that activity?
A. It increases the costs of value creation.
B. It decreases consumer surplus.
C. It helps the firm to achieve a high-cost position.
D. It nullifies all trade barriers.
E. It enables a firm to differentiate its product offering from those of competitors.
answer
E. It enables a firm to differentiate its product offering from those of competitors.
Locating a value creation activity in the optimal location for that activity 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.
question
66. By dispersing different stages of its value chain to those locations around the world where the value added is maximized or where the costs of value creation are minimized, a firm creates a(n):
A. integral circle.
B. dispersal chain.
C. global web.
D. international mesh.
E. worldwide circle.
answer
C. global web.
A global web is created with different stages of the value chain being dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized.
question
Which of the following caveats is most likely to discourage global expansion of businesses?
A. Economies of scale
B. High consumers' reservation prices
C. Trade barriers
D. Mass customization
E. Low transportation costs
answer
C. Trade barriers
High transportation costs, trade barriers, and political and economic risks are caveats against global expansion of business activities.
question
Which of the following refers to systematic reductions in production costs that have been observed to occur over the life of a product?
A. Experience curve
B. Learning effects
C. Location economies
D. Efficiency slope
E. Economies of scale
answer
A. Experience curve
The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product.
question
A number of studies have observed that a product's production costs decline by some quantity about each time:
A. annual output is halved.
B. cumulative output doubles.
C. the workforce is trimmed by 75 percent.
D. fixed investment triples.
E. foreign domestic investment doubles.
answer
A number of studies have observed that a product's production costs decline by some quantity about each time cumulative output doubles.
question
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.
E. efficiency frontier and location economies.
answer
A. learning effects and economies of scale.
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.
question
Which of the following refers to cost savings that come from acquiring knowledge from doing a task?
A. Learning effects
B. Exponential effects
C. Ancillary effects
D. Economies of scale
E. Location economies
answer
A. 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
question
Labor productivity increases over time as individuals understand the most efficient ways to perform particular tasks. This is a result of:
A. diminishing returns.
B. location economies.
C. economies of time.
D. learning effects.
E. an efficiency frontier.
answer
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
question
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. Assembly process involving 1,000 complex steps
D. Sewing buttons onto shirts in a garment factory
E. Delivering letters to different recipients
answer
C. Assembly process involving 1,000 complex steps
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. Thus, learning effects will be more significant in an assembly process involving 1,000 complex steps than in one of only 100 simple steps.
question
Which of the following is true about learning effects?
A. They tend to be more significant in nonrepetitive tasks.
B. They tend to be less significant when a task is technologically complex.
C. They typically last a lifetime.
D. They are important only during the start-up period of a new process.
E. They do not have any effect on the cost of production.
answer
D. They 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.
question
Learning effects tend to be more significant when:
A. a task involves a few simple steps.
B. a task is repeated for a period of over five years.
C. the workforce consists of unskilled labor.
D. the cumulative output becomes half of what it was originally.
E. a technologically complex task is repeated.
answer
E. a technologically complex task is repeated.
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.
question
Which of the following refers to the reductions in unit cost achieved by producing a large volume of a product?
A. Location economies
B. Learning effects
C. Standardization economies
D. Core economies
E. Economies of scale
answer
E. Economies of scale
Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product.
question
77. Spreading 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.
E. location economies.
answer
B. economies of scale.
Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product. One of their sources is the ability to spread fixed costs over a large volume.
question
Which of the following statements is true about economies of scale?
A. Economies of scale lead to an increase in the average unit cost of a product.
B. Attaining economies of scale increases a firm's profitability.
C. The ability to spread variable costs over a large volume is a source of economies of scale.
D. Economies of scale result due to the increase in the perceived value of a product.
E. Economies of scale refer to cost savings that come from learning by doing.
answer
B. Attaining economies of scale increases a firm's profitability.
Attaining economies of scale lowers a firm's unit costs and increases its profitability
question
Which of the following terms best represents the systematic reductions in production costs that have been observed to occur over the life of a product?
A. Global web
B. Dispersion linkage
C. Economies of scale
D. Experience curve
E. Efficiency frontier
answer
D. Experience curve
The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product.
question
Serving a global market from a single location is consistent with:
A. establishing a high-cost position.
B. taking advantage of location economies.
C. moving down the experience curve.
D. operating from a position which falls inside the efficiency frontier.
E. going up the global web.
answer
C. moving down the experience curve.
Serving a global market from a single location is consistent with moving down the experience curve and establishing a low-cost position. 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.
question
81. Firms that compete in the global marketplace typically face two types of competitive pressure:
A. pressures for increasing investment and pressures to minimize consumer surplus.
B. pressures for labor skill enhancement and pressures to minimize economies of scale.
C. pressures for cost reductions and pressures to be locally responsive.
D. pressures for global promotions and pressures to move down the efficiency frontier.
E. pressures for product standardization and pressures to move up the experience curve.
answer
C. pressures for cost reductions and pressures to be locally responsive.
Firms that compete in the global marketplace typically face two types of competitive pressure that affect their ability to realize location economies and experience effects, and to leverage products and transfer competencies and skills within the enterprise. They face pressures for cost reductions and pressures to be locally responsive.
question
82. 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.
E. serve different customers with different needs.
answer
A. create products that serve universal needs.
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.
question
Which of the following terms best represents the requirements that are the same all over the world, such as steel, bulk chemicals, and industrial electronics?
A. Universal needs
B. Efficiency frontier
C. Global web
D. Lateral requirements
E. Supreme needs
answer
A. Universal needs
Universal needs exist when the tastes and preferences of consumers in different nations are similar if not identical.
question
Pressures for cost reduction are intense in firms:
A. that produce products that are well differentiated.
B. whose major competitors are based in high-cost locations.
C. with persistent low capacity.
D. in which consumers face low switching costs.
E. with no international competition.
answer
D. in which 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.
question
85. 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 consumer surplus.
E. reduced the production of conventional commodity products.
answer
A. increased cost pressures.
The liberalization of the world trade and investment environment in recent decades, by facilitating greater international competition, has generally increased cost pressures.
question
Which of the following conditions is most favorable to reap gains from 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
E. High pressure to delegate production to domestic subsidiaries
answer
A. Low demand for local responsiveness
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.
question
Which of the following supports the argument that customer 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 their legal procedures.
D. Customer tastes have converged worldwide.
E. Managers worldwide ignore the differences in consumer tastes and preferences.
answer
D. Customer tastes have converged worldwide.
Some 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.
question
Which of the following is most likely to necessitate the delegation of marketing functions to national subsidiaries?
A. Differences in distribution channels
B. Pressures for decreasing consumer surplus
C. Lack of product customization
D. Pressures for increasing economies of scale
E. Pressures for increasing consumers' reservation price
answer
A. 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.
question
For an international business, which of the following is most likely to be an outcome of protectionism and nationalism in a host-country?
A. Increase in the attractiveness of location economies
B. Pressure for localization of production
C. Requirement of standardization of products or services
D. Pressure for cost reduction
E. Decrease in the significance of local responsiveness
answer
B. Pressure for localization of production
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.
question
90. The appropriateness of the strategy that a firm chooses to use in an international market varies with the extent of pressures for:
A. quality improvement and product standardization.
B. customer surplus and quality improvements.
C. customer surplus and product standardization.
D. cost reductions and local responsiveness.
E. product standardization and cost reductions.
answer
D. cost reductions and 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.
question
91. Firms that pursue which of the following strategies 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
E. Nationalization
answer
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.
question
Which of the following is true of a firm that pursues a global standardization strategy?
A. It ensures that it pursues a high-cost strategy on a global scale.
B. It has its production, marketing, and R&D activities in only one optimum location.
C. It tries to customize its products to local conditions.
D. It has shorter production runs.
E. It reaps maximum benefits from economies of scale and learning effects.
answer
E. It reaps maximum benefits from economies of scale and learning effects.
Firms that pursue 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.
question
A firm is most likely to pursue a global standardization strategy when:
A. it wants to implement a high-cost strategy on a global scale.
B. it wants to reduce consumer surplus.
C. there are no universal needs to be served.
D. there are strong demands for local responsiveness.
E. there are strong pressures for cost reduction.
answer
E. there are strong pressures for cost reduction.
A global standardization strategy makes most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.
question
Which of the following strategies is most likely to be pursued by a firm 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
E. Nationalization strategy
answer
B. Global standardization 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.
question
Which of the following strategies 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
E. Nationalization strategy
answer
C. 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.
question
Which of the following is true of a localization strategy?
A. It allows a firm to capture the cost reductions of mass-producing a standardized product.
B. It reduces duplication of functions.
C. It involves longer production runs.
D. It makes sense if the value added by customization supports higher pricing.
E. It substantially reduces local demand.
answer
D. It makes sense if the value added by customization supports higher pricing.
The localization strategy makes sense, if the added value associated with local customization supports higher pricing, or if it leads to substantially greater local demand. 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.
question
A global car manufacturer wants to start production in China. While catering to local responsiveness, what can the firm do to get scale economies?
A. Increase costs whenever possible.
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.
E. Manufacture only one type of car and sell it in all the international markets.
answer
B. Use common vehicle platforms and components across many different models.
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
question
Which of the following strategies is a firm most likely to pursue when it 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
E. Nationalization strategy
answer
D. Transnational strategy
A firm is most likely to pursue a transnational strategy when it simultaneously faces both strong cost pressures and strong pressures for local responsiveness.
question
Which of the following is an observation made by researchers Bartlett and Ghoshal regarding modern multinational enterprises?
A. Global logistics industry makes the concept of "location economies" redundant for international 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 helps a firm in reducing costs.
E. Customer demands for local customization are on the decline worldwide.
answer
B. Core competencies and skills can develop in any of the firm's worldwide operations.
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.
question
100. Firms that pursue which of the following strategies differentiate their product offering across geographic markets to account for local differences?
A. International
B. Global standardization
C. Transnational
D. Multidomestic
E. Nationalization
answer
C. Transnational
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.
question
Which of the following is true of a transnational strategy?
A. It is easy to implement because it does not place any conflicting demands on a company.
B. It is used when the pressures for cost reductions are low.
C. It is usually used when the pressure for local responsiveness is relatively low.
D. It enables the one-way flow of core competencies.
E. It is used by firms that try to achieve low costs through location economies, economies of scale, and learning effects.
answer
E. It is used by firms that try to achieve low costs through location economies, economies of scale, and learning effects.
Firms that pursue a transnational strategy are trying to simultaneously achieve low costs through location economies, economies of scale, and learning effects.
question
Firms that pursue which of the following strategies take products first produced for their domestic market and sell them across various markets with only minimal local customization?
A. Nationalization
B. Transnational
C. Global standardization
D. International
E. Localization
answer
D. International
Firms that pursue an international strategy take products first produced for their domestic market and sell them across various markets (internationally) with only minimal local customization.
question
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):
A. global standardization strategy.
B. localization strategy.
C. international strategy.
D. transnational strategy.
E. nationalization strategy.
answer
C. international strategy.
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.
question
Mayer Life Systems, a manufacturer of surgical and medical appliances, invented and patented a new dialysis machine that radically reduced maintenance and operational issues. Responding to a global demand, it decided to sell the machines manufactured at its plant in the United States to various markets across the globe. Since the product features provided by Mayer were not provided by any other competitor, Mayer did not feel any pressure for cost reductions. Which of the following strategies is most likely being pursued by Mayer?
A. International
B. Localization
C. Global standardization
D. Transnational
E. Nationalization
answer
A. International
Firms pursuing an international strategy take products first produced for their domestic market and sell them internationally with only minimal local customization.
question
Which of the following statements is true about an international strategy?
A. International strategy typically involves taking products first produced for foreign markets and then customizing them for domestic markets.
B. International strategy should be pursued by a firm if it manufactures a product that satisfies local, rather than universal, needs.
C. When a firm pursues an international strategy, the head office of the firm retains fairly tight control over marketing and product strategy.
D. Firms pursuing the international strategy tend to outsource their development functions such as R&D.
E. International strategy should be pursued by a firm only if it faces strong competition in foreign markets.
answer
C. When a firm pursues an international strategy, the head office of the firm retains fairly tight control over marketing and product strategy.
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.
question
Which of the following refers to a cooperative agreement between potential or actual competitors?
A. Tactical union
B. Strategic alliance
C. Political affiliation
D. Economic association
E. Nationalization
answer
B. Strategic alliance
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).
question
Which of the following allows two or more firms to share the fixed costs (and associated risks) of developing new products or processes?
A. Franchising agreement
B. Global web
C. Free trade agreement
D. Strategic alliance
E. Dispersion linkage
answer
D. Strategic alliance
Strategic alliances allow firms to share the fixed costs (and associated risks) of developing new products or processes.
question
Which of the following is a disadvantage of a strategic alliance?
A. Entering into a strategic alliance makes it difficult for a firm to enter into a foreign market.
B. As a result of strategic alliance, fixed costs of developing new products tend to increase.
C. Strategic alliance gives competitors a low-cost route to new technology and markets.
D. Firms that enter into a strategic alliance with a foreign firm tend to face higher trade barriers.
E. Strategic alliance always leads to a loss to either of the firms involved.
answer
C. Strategic alliance gives competitors a low-cost route to new technology and markets.
Some have criticized strategic alliances on the grounds that they give competitors a low-cost route to new technology and markets.
question
One of the principal risks associated with a strategic alliance is that:
A. it brings together the complementary skills of alliance partners.
B. it makes it difficult for the partner firms to enter into a foreign market.
C. a firm can give away more than it receives.
D. it does not allow firms to share fixed costs.
E. it almost always fails.
answer
C. a firm can give away more than it receives.
Unless a firm is careful, it can give away more than it receives. But there are many examples of apparently successful alliances between firms—including alliances between U.S. and Japanese firms.
question
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.
E. intraorganizational coordination.
answer
A. relational capital.
Managing an alliance successfully requires building interpersonal relationships between the firms' managers, or what is sometimes referred to as relational capital.
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